1. Pro-Poor Growth and Diversifying PRSP --From an East Asian Perspective-- Izumi Ohno GRIPS Development Forum November 5, 2003

2. Topics for Discussion 1.Japan’s Development and ODA Vision 2.Pro-Poor Growth? An East Asian Perspective 3.Diversifying PRSP Criteria for localizing PRSP Vietnam’s Experience: Growth-Oriented Poverty Reduction 4.The Role of South Korea and Japan in Development Aid

3. (1) Japan’s Development and ODA Vision Unique approach to aid and development, derived from historic factors: –The first, non-Western donor with a history of early and successful industrialization. –Overcoming post-war destruction and poverty by hard work (“not concept” or manual, experience). –ODA given a special role in pursuing Japan’s aid diplomacy (peace country, abandonment of military force).

4. Japan’s Development and ODA Vision Helping the “self-help” effort of LDCs –Aid is not humanitarian charity. –To grow and become equal trading partners. –Not for all LDCs; but we encourage eligible countries to try (philosophy of loan aid). Respect for each country’s uniqueness. Long-term and holistic perspective.

5. Japan’s Development and ODA Vision Tacit knowledge, shared experience (rather than explicit rules/matrices and quantified targets) Real-sector concern (trade, investment, key industries, technology...) Flexible, and pragmatic approach “Best mix” of programs, projects, TA etc. (role of loan aid in supporting growth strategies)

6. (2) Pro-Poor Growth? Broad consensus on the importance of growth in reducing poverty --but, inconclusive on the range of policy measures to attain pro-poor growth. Recent discussions, narrowly focused on direct poverty-targeting measures -- Question of sustainability and the risk of permanent aid dependency. Channels and linkages --many ways to cut poverty, direct and indirect. Strategy should be geared to each country.

7. Three Channels of Pro-Poor Growth (1) Direct channel (impacting the poor directly) --Basic health, education, sanitation, rural roads, etc. (2) Market channel (growth helps poor via economic linkages, or “trickle down” ) --Inter-sectoral and inter-regional labor migration (cf. Chinese TVEs) --Increasing demand (cf. proto-industrialization, multiplier effect) --Reinvestment (formal, informal and internal financing), etc.

8. Three Channels (contd.) (3) Policy channel (supplementing the market channel and guiding the development process toward greater equality) --Taxes, subsidies --Fiscal transfer, public investment, infrastructure --Micro and SME credit and other financial measures --Proper design of trade and investment policies --Pro-poor legal framework, etc.

9. (1) Pro-poor growth (narrow) ： Livelihood improvements for the poor (2) Pro-poor growth (broad) ： Broad-based growth, taking advantage of country ’ s potentiality Initial Conditions (1) Enabling conditions for growth generation (macroeconomic stability, governance, factor endowments etc.) (2) Social structure for pro-poor distribution (asset distribution, income inequality, minorities, gender etc.) Direct channel: poverty targeting Indirect (1) ： market channel Indirect (2) ： policy channel (3) Redistribution policy: Fiscal transfer, subsidies, public investment etc. Economic GrowthPoverty Reduction

10. East Asian Perspective Growth-driven poverty reduction-- particularly in East Asia: –Halving income poverty in 90s (even before PRSP/MDGs). Cf. 1990: 27.6%  1999: 14.2% –Development driven by trade & investment –Participation in regional/global production network through int’l division of labor Beyond MDGs/PRSP –Narrow “poverty reduction” approach, not enough.

12. East Asia Reduced Poverty Despite Currency Crisis

15. Emerging New Trend (Post-Monterrey) WSSD (Johannesburg) and TICAD III (Tokyo) –Expressed interest by African leaders in East Asian development experiences World Bank and DAC/OECD –Trade & investment as a vital engine for poverty-reducing growth. –The role of infrastructure revisited.

16. Emerging New Trend Emerging consensus: growth-driven poverty reduction Relevance not just in Asia…. Move for the next generation of PRSP beginning in African countries –From “PRSP” to “PRS” –Adding growth agenda (“scaling up”)

17. Remaining Unresolved Issues Growth content differ. –Japan’s real-sector concern: “framework” vs. “ingredient” approach (Prof. Yanagihara) –The role of government in industrial support in the age of globalization Revival of policy debates in the early 90s? (e.g., East Asian Miracle 1993)

18. (3) Diversifying PRSP Specific criteria for localizing PRSP –Relationship with int’l financial community: aid dependency, HIPC status etc. –Options for institutional arrangements: existing development plans. –Strategic alternatives: causes of poverty, stages of development.

19. Vietnam’s PRSP Experience Asia’s first CDF/PRSP country (--Full PRSP completed in May 2002). Recognized internationally as “good practice”: strong country ownership. General poverty and relatively high social indicators: –Existence of social safety net for equity promotion. –A good growth strategy is needed to improve the purchasing power of the general population.

20. Vietnam: Growth-oriented PRSP based on Existing Vision PRSP renamed to “Comprehensive Poverty Reduction & Growth Strategy” (CPRGS) –East Asia’s aspiration for catch-up –Growth and equity –Sustainability of poverty-reduction efforts. Building on the existing development vision –“Modernization & Industrialization” by 2020 (i.e., 10-Year Strategy, 5-Year Plan)

21. Vietnam: Pro-Poor Infrastructure CPRGS Expansion: by adding the role of large-scale infrastructure (-- by Dec.2003 CG). Basic infrastructure: –Direct contribution to poverty reduction through the direct channel. Large-scale infrastructure: –Contributing to growth and poverty reduction through the policy channel. –Serving as a pre-condition for realizing the market channel.

22. Shared Development Vision Strategies and Policies for Promoting Growth and Poverty Reduction Measures/ Objectives Large-scale Infrastructure Rural roads Human capital Targeted interven- tions Capacity building Growth Creation XXX Growth Diffusion XXXX Direct poverty reduction XXXX

23. (4) Role of South Korea and Japan in Development Aid Japan welcome Korea’s active role as Asia’s “emerging donor.” Korea and Japan: –Both have dual experiences of: (1) latecomer industrialization; and (2) aid-giving country. –Should provide diverse views to Western-dominant OECD/DAC. Korean experience: highly relevant to LDCs: –More recent, overcoming the challenge of globalization (e.g., Asian financial crisis).