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LESSONS:

Federated States of Micronesia: Private Sector Development Program

sector: Public Sector Management | country: Micronesia, Federated States of

Ascertaining legislative support at both the national and state levels is an important aspect of determining project readiness in the Federated States of Micronesia (FSM). The unexpected delays in obtaining national and state legislative authorization delayed the loan approval and loan effectiveness, each by 1 year, respectively. Reform momentum was lost during the long interval between appraisal and program inception.

Policy actions must be formulated in a manner that does not leave room for ambiguity or interpretation of supported policy principles. A large number of policy actions under Private Sector Development Program were not sufficiently defined to ensure or help ascertain the achievement of meaningful results. Examples include conditionality related to balanced budgets, wage differentials, or the adoption of new laws which did not convey the underlying principles that ADB expected to be realized and contributed to differences in understanding between ADB and the various governments regarding the nature of expected reform actions.

A design and monitoring framework can be an effective instrument to attain results only if it is properly shared with implementing agencies and provides clear performance targets with appropriate timelines, monitoring mechanisms, and baseline data. Sufficient resources and time should have been allocated for consultation with implementing agencies in determining program inputs, outputs, and outcomes, as well as in setting and monitoring performance targets. To be effective, ADB must ensure that systems to monitor the achievement of performance targets are in place or are established in time. State government offices could not provide complete sets of foreign investment data. National government offices could not provide data on secured transactions, registered businesses or enterprise performance. Land administrations did not have reliable data on the land titles or leases.

Consider targeting support for reform initiatives in FSM at individual states. Decentralized practices among the four states (Chuuk, Kosrae, Pohnpei, and Yap) make coordination and communication on policy issues a challenge. This challenge was compounded by the weak capacity of various implementing agencies and different views and levels of political commitment regarding the reform agenda. These resulted in varying degrees of performance. Through state-specific policy conditionality and project components, program design could have been adjusted for the uneven capacities, needs, and levels of political buy-in within the four states. While it can be argued that the uniform approach adopted by ADB was reasonable in light of resource constraints and efficiency concerns, it also needs to be considered that potential for synergies was limited and not sufficiently identified.

Program implementation arrangements in FSM need to recognize the limited authority of a program implementation unit at the national level over state administrations.

Information technology (IT)-related project components need extra attention from ADB in small, remote countries with low capacity. From the start, the IT components for the land management administrations and FSM Development Bank were not properly scoped and resourced. They did not adequately consider the limited capacity of internal IT departments and local IT providers. They also failed to address such related problems as the need to provide implementation support throughout the first year of operation. Although project records are patchy and likely do not reflect the full extent of ADB’s involvement, it appears that ADB relied on short-term consultants to determine IT systems and software requirements and to supervise software and hardware providers. Given the lack of specialized staff expertise in the Regional Department, the complexity of these project components, and the low capacity within the supported agencies, proactive consultation with ADB’s Office of Information Systems and Technology during the project design phase might have resulted in more appropriate IT solutions. Also useful could have been to provide specialized IT expertise within the program implementation unit, more proactive follow-up during implementation to check the functionality of procured hardware and software, and special arrangements for post-implementation support. Furthermore, it would be helpful if the Regional and Sustainable Development Department together with the Office of Information Systems and Technology can collect and disseminate information about experience across ADB with relevant IT applications. While IT projects can be particularly useful for small, remote economies, inherent IT capacity issues need to be proactively addressed.

Public enterprise reform in FSM requires creative approaches to involving the private sector in the management of public assets given limited private sector capacity and interest. The effort to reform and divest public enterprises has not been as successful as hoped. One reason is that in such a small and remote lower-income country with a weak private sector, there are few people with the capital or business experience to bid for or successfully manage such enterprises.

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