The ADB and the Greater Mekong Subregion Economic Cooperation Programme

The Mekong Region

The Mekong river is the world’s 12th longest river in the world (about 4,200 km long) and 10th largest in terms of annual water yield (about 475,000 million cubic metres); it is also one of the most seasonal rivers in the world, as measured by the difference between maximum and minimum monthly flows.

From its origins in the snow-fed plateau of Tibet, the Mekong flows through six countries: Yunnan province in the Peoples’ Republic of China (PRC), Burma (at its eastern-most border with Laos), the Lao PDR, Thailand (through its north and north-eastern regions), Cambodia and Vietnam (in its southern-most region). It passes through and shapes a wide range of topographies and geographies, from the high Tibetan plateau and uplands of Laos to the flood plains of Cambodia and the nine-tailed dragon of the Mekong Delta in South Vietnam.

These countries and areas constitute what is commonly known as the Mekong region. It is a region of immense environmental, social, cultural and economic wealth and diversity. From water, timber, forest products and medicinal plants to gemstones and minerals, the natural wealth of the region provides a strong base for diverse domestic and local economies. Although the Mekong region extends well beyond the river basin, the river drains much of the region, especially downstream from the Golden Triangle; changes in the main artery or its tributaries can effect significant changes in the region’s environment and economy.

More than 250 million people inhabit the region, of which more than 50 million live in the basin itself. The region is brought alive by over 70 distinct ethnic and linguistic groups, who are often, though not always, found in varying proportions across all six countries of the Mekong region. About eighty percent of the population in the region is dependant on agriculture (farming and fisheries) as the main source of livelihood, much of it at the subsistence level.

The Mekong freshwater system is the third most diverse in the world, with more than 1,200 fish species, many of which are endemic to specific tributaries of the Mekong. More than half of the protein intake of the region’s people comes from fish, and fish is an important source of income and livelihoods for local communities and commercial fishers alike.

The region is also home to an extraordinary variety of land, forest and water use, stewardship and management methods, many of which have evolved from age-old traditional practice and local knowledge. While tensions over resource tenure issues have always existed among different communities inhabiting the same micro-region, modernisation has exacerbated these tensions, often turning them into full-blown conflicts. Traditional methods of conflict resolution are proving to be less effective as new forms of resource use and tenure--introduced as part and parcel of “development” –compete with traditional practice and values.

The region has also had a varied and diverse political history. Four of the region’s countries—PRC, Lao PDR, Cambodia and Vietnam—are undergoing transition from centrally planned to market based economies. With the exception of Cambodia, these countries still uphold socialism as a political creed. Thailand is a constitutional monarchy with an elaborate market economy. Burma is run by an oligarchy of generals, with no clear “ism” to describe its political-economic paradigm. Over a span of just sixty years, countries in the region have variously moved through a number of political-economic formations--colonies, monarchies, military dictatorships and communist republics—as they established their current identity as modern nation states.

The Mekong region has inspired a wealth of wise and poignant folklore. It has also been marked by political conflicts for hundreds of years, many with neighbors from within the region. But some of the most visible imprints on the region have come from the colonial aggressions of the nineteenth and twentieth centuries from Britain, France, Imperial Japan, China, and most recently, the United States (US).

During the 1960s and 1970s, much of the lower Mekong was consumed by war, whose human, social, economic and environmental costs have yet to be fully mapped and acknowledged. The cold war provided the US and its allies with the impetus for full-blown war (in Vietnam), the heaviest bombing recorded in history (in the Lao PDR), and political meddling with tragic consequences (in Cambodia). China and Thailand, while quick to protect their own lands from becoming theatres of war, colluded with external aggressors at various times.

Now it is peacetime and the regions’ peoples are exhorted to look to the future rather than at the past. But collective memory is more difficult to rewrite than history books. Despite a newfound spirit of inter-governmental cooperation in the Mekong region, old suspicions linger. Former powers too seem unable to give up their spheres of influence. What they are no longer able to do with artillery and bombs, they attempt through economic policy and development assistance.

The countries of the region are not economically and socially comparable. Burma, Laos, Cambodia and Vietnam are significantly less developed and less economically powerful than China and Thailand. But in terms of natural resources and environmental wealth, these countries surpass their larger neighbors, who have aggressively depleted and degraded their natural reserves through ill-considered development strategies. The PRC--and even Yunnan—is further characterised by tremendous unevenness across its sub-regions in economic potential and standards of living. Cambodia, Laos and Burma are the smallest economies and in per capita income terms, the poorest. Vietnam and Yunnan are mid range economies. Thailand is the most prosperous in terms of income and consumption, and is the hub for much of the post-cold war economic activity in the region.

Into this complex scenario entered the Asian Development Bank (ADB) with its scheme for regional development and economic cooperation.

II. The GMS: A Regional Fantasy

The Greater Mekong Subregion Economic Cooperation (GMS) Programme was initiated in 1992 by the ADB to transform the rich human and natural endowments of the Mekong region into a new frontier of Asian economic growth. The GMS groups together parts, or the entirety of the PRC, Burma, Lao PDR, Thailand, Cambodia and Vietnam in the ADB’s most ambitious master plan to promote regional economic cooperation, and mobilise public and private resources towards region-wide private investment.

The ADB’s vision for the Mekong region is concisely summarised in its first brochure on the GMS. Titled “A Wealth of Opportunity: Development Challenges in the Mekong Region,” its very first chapter sets the scene for the Bank’s vision:
“The economic potential of the river and that of the land and peoples its passage defines is huge, although until now it has been largely undeveloped…. Water from the Mekong river supports agriculture, and its fish yields are a source of both protein and income. It can also be used to generate electricity and as transport corridors. Forests in the Mekong region protect hydropower projects and agriculture from siltation and erosion, contribute to tourism potential, and provide subsistence to rural communities…”

The GMS is the ADB’s regional economic fantasy. It is not a trading or economic bloc. But it purportedly supports economic growth and development in the Mekong region by:

- Facilitating free trade and investment among the six participating countries;
- Facilitating sub-regional infrastructure development, particularly in energy, transportation, tourism, telecommunications, and product development;
- Resolving or mitigating cross border problems, particularly those that serve as barriers to trade and investment liberalisation;
- Meeting common resource or policy needs, whereby the region is treated as a whole to create economies of scale for training, data gathering, feasibility studies, etc;
The Mekong region, according to the ADB, has the natural resources, a growing and trainable labour force, abundance of land and the strategic location to become a fast growth area. What it lacks is capital, technology and common political will to effect the transformation from subsistence to supermarket.
Here is how the mechanics of the GMS model work: first the ADB takes the lead in surveying, identifying and assessing the best opportunities for trade and investment in the Mekong region. Next, it brings together governments, donors and private investors to prioritise the identified opportunities for project-programme formulation. Then it commissions further feasibility studies and project preparation reports (usually with the involvement of private companies who are either interested in undertaking actual implementation themselves, or linked with implementing counterparts). The next step is to raise finances for the projects-programmes and develop agreements between host governments, investors, financiers and implementers. And finally comes actual implementation of the projects, which too require the ADB’s involvement in supervision, monitoring, disbursement of funds, resolution of disputes, etc.

Parallel to this are numerous meetings between the region’s governments and donors to develop and put in place appropriate policies, institutions and regulations at regional, national and local levels in order to facilitate smooth functioning of projects under the GMS umbrella.
The ADB draws its mandate for promoting regional and sub-regional cooperation from its Charter. It’s Board policy paper instructs that as a regional development institution, “regional cooperation should be viewed as being inherent in Bank operations. However, regional cooperation is hampered unless participating countries are willing to “harmonise” their particular domestic development policies in line with regional initiatives. Therefore, the ADB considers it crucial that the internal reform processes of the GMS countries reflect regional imperatives for economic growth and development.

In the ADB’s words, countries in the Mekong region are undergoing a “double transition,” from subsistence agriculture to more diversified economies, and from centrally planned to market-based economies. The prospects of economic success for countries in the region—particularly Burma, the Lao PDR, Cambodia, Vietnam and PRC--hinge on domestic policy, regulatory, administrative and institutional reforms (especially in the sectors of trade and finance), and good governance, all of which are crucial for markets to function:
“For these transition economies, competitiveness entails creating and maintaining a business climate conducive to private sector enterprise.”

In addition, points out the ADB, these countries must build the connections and infrastructure to trade effectively with international markets. In today’s world of globalisation, inter-dependence and trade liberalisation (as reflected by agreements in the World Trade Organisation and the ASEAN Free Trade Area), countries and firms must respond rapidly in order to maintain their competitiveness and market position, or they risk falling behind.

Regional cooperation is thus a stepping-stone to full-blown economic globalisation. The GMS Programme promotes the creation of special sub-regional economic zones across contiguous parts of countries where participating governments agree to put in place policies that are more liberal than national policies in order to attract capital, and to use natural resources for regional imperatives rather than national self-sufficiency. Accordingly, the ADB notes with approval that economic integration in the region is marked by growing cross-border trade, investment and labour mobility, and that increasingly, natural resources such as agriculture land, hydropower and petroleum resources are being developed on a subregional basis.
As with all its programmes, the GMS programme too is now linked with the ADB’s recently launched (October, 1999) strategic goal of poverty reduction. And as before, privatisation plays a central role in realising the ADB’s vision of sustainable economic growth, improved living standards and poverty reduction:
“The primary strategy for realising these goals is to let the market forces of demand and supply function more freely, and to reduce government intervention and state ownership in the allocation and use of human, natural and capital resources. Market liberalisation has led to industrialisation and modernisation, and greatly expanded trade and investment. To be competitive, the six Mekong countries must develop their natural resources and employ their human resources efficiently.”

The GMS also apparently has a peace dividend because regional economic cooperation contributes to stability and better relationships:
“These are important factors in creating a positive climate for investment and business enterprise, and thereby for promoting faster growth.”

The ADB claims that its own role in the GMS has been catalytic, to provide technical expertise and facilitate development initiatives, while participating governments take the lead in setting the development agenda. However, its strategy for regional cooperation disproportionately emphasises the role of the private sector in national development:
“…the private sector must fuel the process by providing capital, technology, training and markets. ADB thus deliberately supports private sector development as a matter of policy…As such, ADB acts as an ‘honest broker’ for mitigating perceived risks for private investments in the region.”
The ADB’s love for the private sector is no secret. Over the past fifteen years it has expanded its support for private sector operations through new forms of project financing—such as co-financing and the Complementary Financing Scheme—and ensuring that business opportunities for the private sector are generated in all its public sector projects. The subregional cooperation model of the GMS provides the perfect opportunity for defining and entrenching the private sector’s presence in key sectors such as energy, water, transportation and human development.

III. A Region Wide Plan for Private Investment

The GMS Programme is clearly a master plan for region-wide privatisation, and trade and investment liberalisation, whether in energy, water, transportation, labour or agriculture. Although the ADB does attempt to broker dialogue among the participating countries, these attempts are aimed at facilitating private investment in one sector or the other.

Key elements of the GMS strategy include policies and other measures to make the region attractive to private investors. These include: lowering risks and costs to investors; removing discrimination against sources of capital (i.e., foreign firms get national treatment); removing cumbersome laws and regulations (such as environment, health and labour standards) that might hamper investment opportunities; easing financial measures related to taxation, customs duties and the mobility of foreign capital that might inhibit foreign investors, and; guaranteeing supply of both, raw materials and other resources required for production, as well as markets for the output produced.

The success of sub-regional economic cooperation models is said to be contingent on three factors: a well developed area that has run out of land, natural resources and labour; a surrounding area that has all three in abundance, and; political will to remove the visible and non-visible barriers that separate the well developed area from the resource abundant ones. The argument goes that the markets of the well-developed area and the resources of the surrounding areas will attract investors from outside the region, and the well developed area will act as a hub of regional economic activity. In the GMS, Thailand is clearly the “hub,” although the Asian financial crisis has reduced the attraction of its markets considerably.

To date, the areas that have been identified for project development in the GMS are: Energy, Environment, Human Resource Development, Investment, Telecommunications, Tourism, Trade and Transport. A final area called Multi-sector brings up the rear, picking up what is left out of other categories, as well as linking the various sectors through regional inter-governmental agreements.

Of the above, energy and transport have been the most prominent in the allocation of ADB’s own financial support. Between 1994 and 1999, the ADB provided a total of US $ 772 million in loans to the PRC, Lao PDR, Cambodia and Vietnam under the GMS Program, all of them for transportation and hydropower infrastructure. It also mobilised about US $ 230 million in co-financing from bilateral and private sources. In the same period, the ADB provided US $ 28,875 million in technical assistance grants for GMS projects, of which, at least US $ 11 million was directed towards feasibility studies and project preparation in the transport and hydropower sectors.
Most initiatives in the GMS programme are still in the feasibility study, project preparation and negotiation stages. The most significant progress in actual implementation has—again—been in the areas of energy and transportation.

Projects in the energy sector include the Theun Hinboun, Nam Leuk and Nam Ngum 3 hydropower projects in the Lao PDR; the Nam Ngum (Lao PDR)-Udon Thani (Thailand) transmission line; preparation of a Master Plan on subregional power interconnection and transmission grid; and preparation of the Inter-Governmental Agreement on Power Trade, which is being developed with the support of the World Bank. River basin studies for Sekong, Sesan and Nam Theun river basins have been completed, identifying additional possibilities for hydropower development. The ADB also assisted in setting up the GMS Power Forum, which has undertaken the responsibilities of developing the subregional power transmission and market systems.

Almost all the hydropower projects were undertaken with Thailand as the final destination. The entire hydropower strategy of the Lao PDR was based on exporting 5000 MW of power to Thailand. However, the financial crisis, falling domestic demand for electricity in Thailand and increasing monitoring by Thai society of Thailand’s economic role in the region, have compelled the Thai power sector to adopt a more cautious approach to entering new commercial agreements regarding power and energy.

GMS projects in the area of transportation are focussed on the a variety of roads linking major cities and ports across the region, as well as rural “farm-to-market” feeder roads in rural areas. Investments have also been facilitated (for actual implementation and/or feasibility studies) in airports, bridges, ports, waterways and railways
The jewel in the GMS crown is the concept of “economic corridors,” where infrastructure improvements are linked with simultaneous investments in production, trade, tourism and other economic opportunities across contiguous sub-regions to provide “a range of benefits, from better access to raw materials to attracting foreign direct investment.” According to the ADB, by linking infrastructure development with the expansion of production and investments, economic corridors will increase employment, generate income and reduce poverty.
The East-West transport corridor has been taken as a pilot case, which spans approximately 1,500 km, from Mawlamyine (Burma) in the west to Da Nang (Vietnam) in the east, passing through southern Laos and Thailand. It is hardly a coincidence that the Lao PDR may soon boast its first export-processing zone through the very region that the corridor passes.

Initiatives in the other sectors follow more or less similar trends, where feasibility studies, project preparation and inter-governmental dialogue are aimed primarily at facilitating private investment with the purported aim of creating employment and generating incomes. Environmental protection and monitoring are aimed at protecting watersheds (which have hydropower potential), forests and wetlands (both of which have raw material and tourism potential).
With regard to current investment trends, the ADB advises Mekong region countries to take advantage of the “intensification of networking by Trans National Corporations (TNCs) as part of global supply, production and distribution chains.”
Simply put, these chains are what are commonly referred to as the globalisation of production, where TNCs can move production to whichever country offers them the cheapest and most problem-free environment for operations. As the ADB rightly points out, through such chains, foreign firms benefit from reduced production costs and enhanced access to human and other resources. Well, labour is certainly cheaper in Cambodia, Lao PDR and even Thailand as compared with Japan, the US or France, especially since governments are advised to keep wages to a minimum and do away with labour laws that mandate workplace protection and benefits for workers. Overall operational costs are cheaper too, since services such as water and electricity are provided at special tariffs to investors, and they need not worry about environmental or health standards.

The ADB is also correct in its observation that domestic firms can acquire better knowledge, upgraded skills, advanced technology and financing through these chains. However it forgets that countries where such chains have resulted in safe and dignified employment for domestic labour are those with well-developed infrastructure for higher education and modern technology. Such infrastructure is still far in the future for Burma, Lao PDR, Cambodia and even Vietnam, where national attempts to bolster domestic capacity are negated by deteriorating terms of trade, and rapid trade and investment liberalisation.
TNCs will not come to the smaller countries of the Mekong for backroom services in the information technology or financial sectors, but for export processing zones, bottling plants and garment factories. Without proper assessment of the impacts of globalised production chains on domestic economies, societies and workers, governments are better advised to approach them with caution than aggressively pursue them.

IV. The Challenge of Cash Flows

An extremely important dimension of the GMS Programme is its financing. Most GMS projects are extremely large in scale and require financial outlays that cannot be sourced from a single financier. The ADB has been aggressive in mobilising finance for the Programme, which raises a number of problematic issues.

Co-financing

The ADB’s solution to the cash flow challenge is co-financing. While it has channeled significant financial resources from its own pot towards feasibility studies, project preparation and actual implementation, it has played a crucial role in mobilising capital from other sources—bilateral and private—through its co-financing mechanism. To date, about US $ 247 million has been mobilised from sources outside the ADB for the GMS.

Co-financing, however, is not as benign or genial as the term might suggest. It involves a legally binding set of financial agreements and obligations towards the project financiers that host governments must adhere to in order to realise the development dream.

Much of the co-financing for GMS projects has come from the ADB’s rich members countries, particularly in the North (this is also called official co-financing), which include Japan, Australia, Canada, Finland, Norway, France, Singapore, Sweden, Switzerland and the United Kingdom. It is important to bear in mind that co-financing is tied money: Japan or Norway are not likely to put up finance for projects in which lucrative contracts go to companies in a third country.
During the 1990s, over 60 percent of official co-financing in the GMS went to energy projects. The continued emphasis on hardware projects in the GMS indicate “project pushing,” whereby, countries and/or financiers will deliberately develop and promote projects of interest to their own domestic companies. Co-financing, thus, serves as an important avenue for subsidising the domestic industries of contributing countries.

Privatisation

In general, financing arrangements for GMS initiatives favour private sector participation. And given that most countries in the region do not have well developed and well-endowed private sectors, companies involved in the GMS are likely to be from outside the region. China and Thailand are exceptions, although many Thai companies either went out of business, or had to scale back their investments in the aftermath of the financial crisis.
Given the general scarcity of physical infrastructure, capital, and technical and institutional capacity in most GMS countries, host governments themselves woo private investors under the ADB’s watchful eye. In fact, privatisation is the watermark of GMS projects. The role of host government is to “create an enabling environment” to attract private sector investors, both domestic and foriegn.

The different modes of private sector involvement in the GMS include: joint ventures (foreign and domestic public and private companies partner with each other), public-private partnerships (public sector companies partner with private investors, foreign or domestic), Build-Own-Operate (BOO), Build-Own-Operate-Transfer (BOOT), Build-Operate-Sell (BOS) and Build-Operate-Transfer (BOT). In all of these, whether or not the government contributes to direct financing, it nonetheless plays an extremely important role by making the terms of investment attractive to the investors. These terms include tax holidays, exemptions from customs duties, full repatriation of revenues and profits and purchase agreements (such as power purchase agreements in the case of energy projects).

Perhaps the most problematic aspect of private sector involvement is the allocation or distribution of risks. Governments commonly provide investors with protection against a range of risks such as: demand risks (they agree to purchase specified amounts of the produced output); foreign exchange convertibility risk (in the event of devaluation of the national currency, the investor can claim a significant portion or the entire amount of revenues in hard currency; the price of the output can also be guaranteed in part or full in hard currency); risks associated with operation (for example, the investor is not liable for changing labour conditions); etc.

The ADB participates in providing risk protection to private investors by brokering the guarantee process and by providing financial and legal advice to host governments. Risk protection is operationalised through a system of guarantees and counter-guarantees in which, the investors usually bear the most minimum of commercial risks. Majority of the immediate financial and longer-term economic risks are assumed by governments and borne by the people of the country.

The ADB recently signed a Memorandum of Understanding (MoU) with the Multilateral Investment Guarantee Association (MIGA) of the World Bank group. MIGA provides private investors with protection against sovereign risk, that is, against the rights of governments to reconsider investment decisions. If a government is compelled to change the terms of a contract that is has guaranteed (for whatever reasons), the terms of the guarantee and counter-guarantee kick in. MIGA pays the investor an agreed amount, which it can then claim from the errant government.

The involvement of multilateral banks such as the ADB and the World Bank in providing or facilitating risk protection to private investors in public-private partnerships seriously obstructs efforts by governments to protect public interest. Since the abilities of the two banks to leverage development financing go well beyond their portfolios in borrowing countries, host governments are reluctant to disregard their advice for fear that they will be cut off from future aid, trade and credits.
Private sector involvement in critical sectors such as energy, water and transportation has implications for access by local populations to these services, and also to the manner in which public finances are used. Key sticking points here are the determination of tariffs and the provision of subsidies. Private companies want profit—fair enough—while people want affordable, good quality services—also fair. Determining tariffs in favour of private companies, as is often the case, means a higher market price for the service or product, which in turn has impacts on the cost of living.

Having more electricity, water, hotels, phones or roadways is not much use if people cannot afford to use them. And in the transition countries of the region, domestic reform packages prohibit the use of direct or even cross subsidies to the public, since in keeping with market principles, the price of services must reflect their “true costs.” The private sector, on the other hand, is subsidised quite directly through tax breaks, financial guarantees and other facilities paid for from public coffers.
Official Development Assistance (ODA)

The GMS programme is located in a broader interplay of externally driven and often competing economic agendas. Private investors do not come to the negotiating table alone. They are usually backed by their home governments. In fact, securing business contracts for their own domestic companies is a key objective of bilateral ODA and investment. As already discussed above, official co-financing is an important avenue for this.

Take for example Japan, which is an important actor in the GMS as donor, investor and market. Japan is the single largest contributor to official development finance in the Mekong region, from the PRC to Cambodia to Thailand. It is also expected to be the largest official and private investor in GMS projects and is an important actor in inter-governmental regional dialogue through the Forum for the Comprehensive Development of Indochina, and the Working Group on Economic Cooperation in Cambodia, Lao PDR and Burma. The massive amounts of capital pumped into the Southeast Asia region through its Miyazawa Initiative is as important to kick-start investment in the Mekong region as it is to revive its own economy by ensuring that its firms are gainfully employed.

In general, ODA remains an important source of development finance in the Mekong region, particularly for the Lao PDR, Cambodia, Vietnam and the PRC. Japan and France account for the largest bilateral pledges to the Lao PDR and Cambodia, while the ADB and the World Bank combined account for more than 60 percent of multilateral pledges to these countries.
ODA—whether grant or loan—has practically taken the place of internal resource generation in the smaller countries of the Mekong region. In these countries, much of the public investment in education, health, transportation, energy, water, agriculture and telecommunications is financed through ODA.

But ODA does not come free, nor does it come cheap. Bilateral donors bring their own policy and economic demands, which are conditioned on enhancing the economic edge of their domestic industries. Norway is eager to provide technical assistance for hydropower potential assessment in order to win hydropower contracts for its private companies. Japan is more than willing to finance feasibility studies for export processing zones in the Lao PDR and Cambodia, since Japanese companies can get first dibs on the most promising projects. According to a senior World Bank official, France’s only interests in providing ODA to Laos are ensuring that the Nam-Theun 2 Hydropower project goes ahead, and in promoting the French language.
But the World Bank has little room to criticise. Not only is the World Bank the largest lender to the region, but twinned with the International Monetary Fund (IMF), it is also the most powerful international institution in terms of policy influence and brokering.

The Lao PDR, Cambodia and Vietnam are in the grips of Work-Bank-IMF structural adjustment programmes--now called Poverty Reduction Strategy Papers (PRSP) and the Poverty Reduction and Growth Facility(PRGF). These programmes demand fundamental reforms in national fiscal, economic, trade, agriculture and social policies in order to rapidly propel the countries towards market based economies. Economic globalisation is the new paradigm of development and concepts such as self-sufficiency, sovereignty and import substitution are taboo. And should any of the countries decide to not comply with these policy demands, they stand in danger of being shut out of international aid and trade, since the richest bilateral donors of the world (the OECD) have all agreed to align their aid programmes with the World Bank-IMF PRSP-PRGF framework.
The PRC has also had to implement its share of structural adjustment reforms. Thailand has suffered some of the most draconian austerity measures imposed by the IMF after the onset of the Asian financial crisis. In fact, the IMF is charged with converting a crisis of financial liquidity into a full-blown, structural crisis of the real sectors. Even so, the PRC and Thailand have considerably more bargaining power than their smaller regional neighbors.

The ADB has been engaged in its own efforts to manipulate national policies, albeit at a smaller scale than the World Bank. The ADB has moved from project lending to policy lending, although project financing still makes up the majority of its loan portfolios. According to the ADB, its influence over domestic policies and reforms are more effective when a loan is being processed since when a loan is given, policy and institutional reforms can be included as substantive components of the loan. This is certainly evident if we consider the national level policy reforms pushed by the ADB in relation with the demands of the GMS Programme. Quite clearly, national policy regimes are being altered to facilitate the levels of trade and investment liberalisation on which the success of the GMS depends.

Financing for GMS projects is thus a complicated affair because of the range of donor and creditor influences in the region. At the same time, the GMS Programme provides donors and creditors with yet more opportunities to pursue their particular economic and political interests.

V. What is Wrong With this Picture?

The GMS is not a plan for regional development. It is a plan for investment and trade liberalisation. Nor does the GMS offer any potential for the emergence of a progressive regionalism.
However, in the contemporary paradigm of economic-globalisation-equals-development, the ADB argues that development must by necessity be market-based, and that the GMS offers a good opportunity for using regional economies of scale to develop national development infrastucture.
To date, the only challenge to GMS projects have come from communities negatively affected by projects and policies, and civil society activists, all of who are systematically excluded from GMS negotiations. Outlined below are the main problems with the GMS Programme and approach.
1. There are serious shortcomings in the design of the subregional economic zones (SREZ) model that the GMS is based on:
- The centrality of a hub country is problematic since it practically determines project formulation; the priorities of the hub influence the nature of projects to be developed, since hubs are the main markets for goods and services produced in the SREZ.
- Economic gains in less developed participants of the SREZ hinge on the hub country; fluctuations in the hub’s economy, or domestic political and social changes in the hub affect the viability of projects even if the hub is not directly involved in the projects.
- The centrality of natural resource exploitation (water, land, forests, energy, minerals, fisheries, etc.) results in the large scale expropriation of resources crucial to daily sustenance. The primary attractions of the GMS for investors are opportunities to exploit the immense and varied natural resources in the region. This endangers long term development potential in participating countries where natural resources are crucial for food security and local livelihoods.
- The distribution of benefits is uneven since participating countries have differing levels of development and capacity; what does the Lao PDR gain from the East-West Corridor?
- Internal disparities within participating countries are widened because of pockets of high capital and infrastructure investment in specific parts of countries, while other parts are ignored; this can result in tensions and conflicts between national and local government, and between the government and the people.
- The entry of cheap goods from neighboring countries threaten the incomes of domestic farmers and producers (for e.g., Thai and Chinese goods in other Mekong region countries).
2. The vision of development promoted through the GMS serves regional investment and resource transformation, and not national or local development priorities. Projects are formulated and pursued based on their potential for profits for investors rather than on their potential to respond to social, economic, ecological or institutional needs among local and national communities in the region.
3. GMS projects have already resulted in negative impacts on local communities through road and hydropower projects (e.g., Road 1 in Cambodia and the Theun Hinboun hydropower project in the Lao PDR); impacts include displacement of families, loss of livelihood sources, loss of lands, etc. Future GMS projects will likely result in:
- Competing claims on the use and stewardship of land, water, forest and other natural resources.
- Conflicting ideas of how natural resources should be used and for whose benefit.
- Conflicts among local communities, and between communities and governments, as customary resource tenure systems are overridden by governments in favour of privatised ownership.
- Increased displacement of local communities because of energy, transportation, mining, plantation, industry, agriculture and tourism projects (this includes physical displacement, as well as dislocation from traditional sources of employment and livelihood).
- Increased impoverishment of rural and urban communities as they are displaced from traditional livelihoods and are unable to develop new ones; replacing lost livelihoods and developing alternative livelihoods are extremely difficult tasks, the complexities of which are generally unrecognised by project planners.
- Specific negative impacts on women and youth from displacement, tourism, changes in farming and fishing systems, etc.
4. In the GMS framework, the rights of investors are protected, but the rights of local people and communities are not; the issue here is not simply compensation of violated rights, but a larger issue of the development vision promoted in the GMS programme.
5. Local-national communities outside of governments and private sector have not been involved in drawing up GMS plans. Also, for such a large and expensive investment programme, there is an alarming lack of independent oversight.
- There is no room in GMS structures for public monitoring, especially by those directly impacted by GMS projects.
- There is no public discussion or debate about how national wealth will be used in the GMS programme, or abut the financing of GMS projects; the ADB as the GMS’ chief sponsor has made no attempt to bring the discussion about the GMS to public fora.
- There is no systematic process of redress for those who are negatively affected by projects; problems of negative impacts raised by NGOs and local groups are dealt with case by case, but no room is made for systematic checks and balances within the GMS structure.
6. The financing of GMS projects have tremendous debt implications for participating countries: new forms of project financing are creating new forms of debt and financial liabilities. Surprisingly, little attention seems to have been paid to long term debt issues by GMS planners.
7. Participation in GMS fora and meetings is exclusive; decisions about GMS plans are made by a small group of national, regional and international elites.
- It is interesting to note who attends GMS meetings: government officials, consulting companies (many of who are from outside the region), expert panels/committees (that usually comprise of government officials, consultants and ADB staff), private sector representatives, business groupings and consortia, international organisations (UN agency and selected international NGO staff), representatives from the ADB, bilateral donors and possibly, the World Bank.
- Local people are not present at these meetings: in meetings on economic corridors, farmers who will ostensibly gain from feeder roads and access to markets are not invited; in meetings on tourism, sex workers and those who might be employed in local nightclubs, hotels and restaurants are not invited; in meetings on human resource development (where labour upgrading is always an important issue) workers and labour unions are not present.
- The ADB set up a GMS Business Forum, but it did not set up a GMS Workers’ Forum, or Small Farmers’ Forum, or Indigenous Peoples’ Forum, or Street Vendors’ Forum (although they are technically private sector, street vendors are not likely to be allowed to join the Business Forum).
8. Governments play conflicting roles as owners, investors and regulators in public-private partnerships in infrastructure projects. In the Theun Hinboun hydropower project in the Lao PDR, the government has 60 % equity in the project; similarly, in the Road 1 project in Cambodia, the government is an equity holder, as well as responsible for providing compensation for affected families. These multiple and contradictory roles render governments unable--and unwilling--to fulfill their obligations of protecting the public interest over recouping their investments.
9. GMS projects facilitate the transfer of local-national wealth to private actors external to the Mekong region: the exploitation of natural resources form the basis of GMS projects; bulk of the funds for studies, capacity building and implementation go to consultants and firms outside the region, and profits from most investments are also repatriated to countries outside the region.
10. The governance frameworks in the GMS Programme are as alien to the interests of the majority of the region’s people as the model of development that the GMS programme promotes:
- The governance framework requires that countries develop legal, administrative and regulatory systems that facilitate the creation of wealth for a minority, both within and outside the region. It is extremely important to examine who benefits from the entire gamut of activities in the GMS Programme, from feasibility studies to turnkey construction contracts.
- Countries with varying economic and social conditions, and whose interests in the development of particular resources might differ, must still put in place the same types of governance regimes to create a favourable climate for open investment across the region.
- The GMS Programme provides no forum for fair and equitable resolution of conflicts among countries in the region regarding project/investment decisions. The Upper Mekong Navigation Channel is a case in point, in which the PRC has decided to blast rapids in the upper Mekong despite serious concerns among downstream riparian countries. Although the ADB is not financing the blasting of the rapids, it has supported past studies to develop the navigation channel as part of the GMS Programme. There is, however, no space in the Programme to discuss the concerns of the smaller participating countries regarding the channel.
- ADB (and World Bank) governance regimes do not favour the development of domestic/local private sectors since they generally discourage preferential support for domestic firms; the investors who benefit are usually external to the countries in the Mekong region (Thailand and China are exceptions, and many of their companies benefit as investors in other parts of the region).
11. Participation and national interest are conflicting concepts in the GMS framework:
- National interest is a tricky concept; it is used by governments as a powerful rhetorical tool to urge local residents (who are often already economically and politically marginalised) to make sacrifices for the wider good of society and nation. However, it is important to examine which groups of people determine the national interest, and the criteria by which they arrive at these definitions. To what extent does the general public participate in determining/defining what constitutes national interest?
- National interest often collides with the interests and priorities of communities who are cash poor, live in rural and/or remote areas, and who receive few benefits in exchange of displacement, the loss of land and the loss of access rights to natural resources. Large dams are excellent examples of how purported national interest deepens inequalities, impoverishment and political marginalization; those who are expected to sacrifice the maximum for national interest have the fewest opportunities to participating in planning and decision making.
- Even if we accept that governments have sovereign rights to determine national interest, the issue is problematised by the range of international influences and pressures on national decision making about projects and policies. For countries such as the Lao PDR, Cambodia and Vietnam, national interest becomes difficult turf to defend when negotiating with business consortia whose annual turnovers exceed the national budgets of the countries. Protecting national interest is particularly difficult for smaller countries when they face bilateral donors, the ADB and the World Bank, on whom these countries depend for future access to financing and international linkages.
- More often than not, national interest simply becomes whatever keeps the money coming into national coffers, even if it requires trade-offs in crucial domestic priorities to keep foreign investors, donors and creditors happy.
12. The GMS programme deepens competition between different types of “environmentalism” in the region:
- Local communities practice an environmentalism based on local livelihoods, intra and inter-community exchanges, and very real interests of survival, sustenance and protecting food and economic sovereignty.
- While this type of environmentalism is not yet acknowledged by national decision-makers in Burma, Laos, Cambodia, Vietnam and Yunnan as a significant force to negotiate with, it is only a matter of time before hundreds of rural communities in these countries may have no option left but to fight aggressively for their rights to sheer survival.
- Environmental and development experts and professionals bring an environmentalism based on the notion that global interest in the “global commons” directly translates to local and sub-regional interests in a healthy and diverse natural resource base.
- Such environmentalism has been the source of frameworks and programmes to protect forests, biodiversity, wetlands, estuaries and other special micro-environments and eco-systems through conservation projects and protected areas. But such initiatives also threaten to alienate local communities from their natural resource base, much in the same vein as conventional development projects.

VI. The GMS Out of the Mekong Region

By putting the GMS “frame” around the vast and diverse Mekong region, the ADB is attempting to shape the development paradigm in the region. The narrow lens of the GMS reduces social, cultural, economic, ecological and geographic specificities to a homogenous lot of economic “challenges and opportunities.” It also renders invisible people, communities, social relations and structures, cultures and geographic areas that are not of “investment interest” to the GMS Programme promoters.
If a regional plan for cooperation and development is to be formulated for the Mekong region, it is the vision of the peoples and communities of the region that must prevail, not that of the ADB, bilateral donors and foreign investors.

*Shalmali Guttal is the Coordinator of the Micro-Macro Issues Linking Programme at Focus on the Global South (s.guttal@focusweb.org). This paper was prepared for the Oxfam Mekong Initiative Partners Meeting in Phnom Penh, October, 2002.