Brief Introduction to ADB Interventions in Corporate Governance in South Asia Gambhir Bhatta South Asia Governance, Finance, and Trade Division, South Asia Regional Department ADB, Manila June 2006

1
Brief Introduction to ADB Interventions
in Corporate Governance in South Asia Gambhir
BhattaSouth Asia Governance, Finance, and Trade
Division, South Asia Regional DepartmentADB,
ManilaJune 2006
2
Introduction

• To subject matter
• CG as a critical theme after the Asian financial
  crisis,
• pursuant to public management reforms
• To ADB
• lends to, and assists, developing member
  countries,
• centered on poverty reduction,
• works on building effective institutions,
• helps through policy dialogue, loans, technical
  assistance, grants, guarantees, and equity
  investments.

3
ADBs Involvement in CG

• Financial Sector reforms. ADB assists in
• development of banking systems
• capital markets
• insurance and pensions systems and
• promotion of anti-money laundering efforts.
• Law and Policy Reform Focus on promoting
  policies, legal reforms, and regulations
  supporting economic growth.
• Private Sector Development and Finance ADB
  supports PSD by
• encouraging reforms and policy environments that
  establish the right conditions for businesses to
  flourish,
• promoting public-private partnerships, and
• providing financial assistance to private
  enterprises and financial institutions.

4
ADBs Strategy in Assisting in Corporate
Governance

• Revolves around
• taking a holistic view of what should constitute
  good corporate governance
• working across types of institutions and
• relying on a proper and adequate legal framework.

5
Some Problems/Issues in CG

• Legal/policy weaknesses legal enforcement is
  also generally weak
• Weak financial record keeping, and auditing
• Generally weak internal monitoring and
  supervision
• Relaxed prudential regulations (such as for loan
  provisioning)
• Situation of information asymmetry
• Lack of managerial skills in regulatory bodies
• Governments and contingent liabilities (problem
  of moral hazard)
• Political influence over the corporate sector.

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ADB INVOLVEMENT IN CORPORATE GOVERNANCE IN THE
REGION

• Bangladesh
• In improving public expenditure management, and
  promoting good financial sector governance. This
  has included
• improving capital markets,
• policy and institutional reforms of the banking
  sub-sector,
• separating policy, regulatory, and implementation
  functions and improved financial management.
• ADBs involvement in the financial sector focuses
  on, among others
• strengthening the legal and regulatory framework,
• improving governance and operations of market
  intermediaries in the non-banking sector
  (including insurance sector and microfinance),
• increasing transparency and ensuring full public
  disclosures,
• enhancing financial infrastructure, institutional
  capacity, and skills of market participants for
  good governance, and
• eliminating regulatory and procedural barriers to
  facilitate access of the micro-level and women
  entrepreneurs to finance and other services.

7
ADB INVOLVEMENT IN CORPORATE GOVERNANCE IN THE
REGION

• India
• From License Raj to Inspector Raj
• ADB supports
• rationalization of capital market regulations and
  deepening the securities markets,
• pension reform, including helping selected states
  estimate pension liabilities and improve pension
  records and overall administration
• In general, ADBs support in this area has
  centered on
• modernizing government,
• public resource management reforms,
• instituting fiscal reforms (such as in Kerala,
  Assam, and a forthcoming program in West Bengal),
  and
• building the capacity of the State Electricity
  Regulatory Commissions.

8
ADB INVOLVEMENT IN CORPORATE GOVERNANCE IN THE
REGION

• Maldives
• ADB involvement centered on the following
• Strengthening the public accounting system
• Improving governance, transparency, and
  accountability in public and semi-public sector
  operations
• Reforming public resource management systems ADB
  is at the moment considering assisting the
  government in
• strengthening fiscal management institutions,
• containing expenditure pressures, and
• reducing government involvement in the economy
  (this will ultimately result in greater focus on
  public enterprises and SOEs, hence directly
  impacting corporate governance).

9
ADB INVOLVEMENT IN CORPORATE GOVERNANCE IN THE
REGION

• Pakistan
• ADB strategy is not only on instituting public
  resource management reforms at the federal and
  provincial levels (e.g., in Punjab and
  Baluchistan), but also targeting assistance in
• Pensions, insurance and saving systems,
• Financial (non-bank) markets and governance
  systems,
• Regulatory frameworks and enforcement mechanisms,
• Financial sector restructuring,
• Improving market infrastructure, and
• Public resource and expenditure management.

10
ADB INVOLVEMENT IN CORPORATE GOVERNANCE IN THE
REGION

• Sri Lanka
• Existing problems in CG
• Government intervention in the sector is still
  substantial,
• State-owned enterprises need to be reformed,
• Legal framework for financial services and
  commercial transactions needs to be improved, and
• Prudential normsand their enforcementneed to be
  strengthened.
• ADB supports
• Further restructuring of SOEs and improving their
  financial performance,
• Improvements to the depth and scope of the
  financial market (including in the rural areas),
• Deregulation in the production, manufacturing,
  and financial markets
• Ensuring fair competition, and
• Institutional strengthening of fiscal management
  institutions.

11
Key Issues and Challenges

• Dealing with inordinate delays in creating
  appropriate legal framework in the corporate
  governance sector
• Working around the general lack of political will
  to do the hard yards upfront
• Enforcement capability e.g., in supervision of
  non-banking financial institutions
• Fragmented and piecemeal approach to
  strengthening good corporate governance

12
Conclusions

• With one possible exception in the region, all
  the countries have expressed their vision of a
  smaller and more streamlined public sector.
• ADBs experience shows that results are indeed
  emerging, but we need to take a long-term
  perspective to corporate governance reforms.
• ADB links substantially with its traditional
  partners on the ground the role that it sees for
  all development partners
• The need for closer coordination across all
  levels,
• The need to share experiences in working in these
  countries,
• The suitability of cost-sharing arrangements in
  specific corporate governance-related initiative
  if program areas are in alignment,
• Sharing expertise in this area,
• Sharing local knowledge.