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The Honolulu Advertiser

Posted on: Tuesday, May 8, 2001

Private sector brings hope

By Christine Wallich

One of today's briefing sessions during the Asian Development Bank's 34th annual meeting at the Hawai'i Convention Center focuses on the many ways the private sector helps reduce poverty.

In developing countries, the private economy is the primary engine of growth, and international experience shows that when poor people have access to education and job opportunities, rapid growth often reduces poverty faster than some government policies do.

In developing countries worldwide, nine out of 10 jobs are created in the private sector. Put another way, 90 percent of poor households use a private-sector livelihood to move up the economic ladder. Faster growth spurred by a large private sector creates a powerful circle in which the poor gain increasing access to education and opportunity.

The private sector, internationally, has become a major force. Twenty years ago, the private sector provided relatively little finance to Asia's developing countries — less than $4 billion a year, compared to the $8 billion that came from donors. Today, the picture has changed dramatically, with the private sector's $142 billion a year dwarfing donor aid of around $14 billion.

Of course, not all developing countries benefit equally, and, with globalization here to stay, an important part of the Asian Development Bank's job is to help poorer countries take part in the globalizing private economy.

Yet a healthy private sector does not always emerge by itself, especially in developing economies. ADB has long promoted private-sector development, and last year, in the wake of globalization concerns, the ADB revisited its private-sector development strategy for Asia and the Pacific. The strategy proposes three thrusts:

• To create conditions that allow private businesses to flourish ö i.e., helping governments in developing countries to improve their "enabling environment" for domestic and foreign investment. Key elements of an enabling environment include a stable, open macro-economy; efficient banks; social programs and labor policies that are fair and effective; transparent and fair tax systems; effective laws and regulation and courts that work; well-functioning and reliable infrastructure services, and honest public servants.

• To identify business opportunities systematically in all ADB projects to ensure the private sector is involved.

• To finance directly productive and socially and environmentally responsible private enterprises, financial institutions and private infrastructure projects to create jobs.

To achieve its goals, the ADB uses "tools" ranging from investment funds, political risk guarantees, and guarantees of bond issues and loans, to direct loans and equity investments. Some examples include:

• In Bangladesh, which has one of the lowest telephone densities in Asia, the ADB is helping the government open up the telecommunications market to the private sector, giving many more people access to telephones and lowering the costs of a phone call.

Among those benefiting from this project are poor villagers in remote areas that now have public payphones. This includes several thousand poor women who belong to the "Grameen Telecom" cooperative, which operates a cellular network.

The phone system allows rural families to get help in health or other emergencies, and to improve their incomes by accessing market and price information for the crops they sell, thus avoiding the need for a middleman.

• In the Philippines, the ADB has helped the government privatize the previously failing publicly owned water utility. In four years since privatization, water and sanitation services have expanded and become dependable, while water tariffs remain low.

The Manilad concession has also had a major development impact by extending water services to 50,000 households in slum areas that previously had to pay private operators exorbitant sums for trucks to bring water.

While the social benefits are evident, transforming poor slum-dwellers into paying customers has also proven to be a sound business, and Manilad expects to expand the system to reach more households.

Christine Wallich is the Asian Development Bank's director of the Infrastructure, Energy and Financial Sectors Department (West) and head of the Private Sector Group.