.4. - I~~~~~~~~~~~~~~~~~~~~~~~~~~~fi A II~~~~~~~~~~~~~~~~~~~~~~~~~~~~A --95 M-w ~ _____________ THE WORLD BANK ANNUAL REPORT 1994 The World Bank M Washington, D.C. 20433 2 Photo Credits Cover: Francois Charron Page 10: Antonia Macedo Page 78: Francois Cacrron Page 81:Jan Post Page 92: Antonia Macede Page 97: Francois Charron Page 103: Ephirn Schluger Page 109: Jan Post Page 120: Perer Muncie Cover: This girl lives near ithe Guatemala high-country village of Solala near Lake Atittan. Known as the 'jewel of the highlands," the lake has generated incomefrom tourism and allowed the villagers to become relatively prosperous The child has trav- eled to the market with her parents and is waiting at the bus plaza to travel home. Cover design by Joyce C. Petnezzi ISSN: 0252-2942 ISBN: 0-4213-2545-0 3 Letter of Transmittal This Annual Report, which covers the period pay tribute to the dedication of Bank staff, who July 1, 1993, to June 30, 1994, has been pre- for five decades have served to make the world pared by the executive directors of both the a better place in which to live. Enormous de- International Bank for Reconstruction and De- velopment challenges remain; the directors velopment (LBRD) and the International Devel- are confident that they will be addressed with opment Association (IDA) in accordance with enthusiasm and professionalism equal to that the respective by-laws of the two institutions. given in the past. Lewis T. Preston, president of the IBRD and Annual Reports for the International Fi- IDA and chairmn of the boards of executive nance Corporation (IEC), the Multilateral In- directors, has submitted this Report, together vestment Guarantee Agency (MIGA), and the with accompanying administrative budgets and International Centre for Settlement of Invest- audited financial statements, to the board of ment Disputes (ICSID) are published sepa- governors. rately. During this, the Fifieth Anniversary year of the founding of the Bank, the directors wish to EXECUTIVE DIRECTORS ALTERNATES Ibrahim A. Al-Assaf Ibrahim M. Al-Mofleh Faisal A. Al-Khaled Mohamed W. Hosny Aris Othman Jannes Hutagalung Marc-Antoine Autheman Jer6me Haas Mohamed Benhocine Abdul Karim Lodhi Andrei Bugrov Alexander N. Doumnov John H. Cosgrove Bong-Hee Won Robert R. de Cotret Hubert Dean Marcos Caramuru de Paiva Marcela Cartagena Huw Evans David Stanton Fritz Fischer Harld Rehm Nicolas Flafio Julio Nogues Jean-Daniel Gerber Jan Sulmicki Enzo Grilli Helena Cordeiro Eveline Herfkens Beana Ionescu Ruth Jacoby Helga Jonsdottir Bimal Jalan M.A. Syed Yasuyuki Kawahara Rintaro Tamaki Jean-Pierre Le Bouder Ali Bourhane O.K. Matambo Hary M. Mapondo Jan Piercy (vacant) Walter Rill Nurcan Akturk Angel Torres Gabriel Castellanos Wang Liansheng Zhang Shengman August 2, 1994 4 The World Bank, the IFC, and MIGA The World Bank is a multilateral develop- cies, and other multilateral institutions are ment institution whose purpose is to assist its increasingly being paired with World Bank developing member countries further their eco- funds to cofinance projects. The World Bank nomic and social progress so that their people also provides loans to help developing coun- may live better and fuller lives. The term tries adjust their economic policies and struc- "World Bank" refers to two legally and finan- tures in the face of structural problems that cially distinct entities: the International Bank threaten continuing development. for Reconstruction and Development (IBRD) The International Finance Corporation and the International Development Associa- (FC), an affiliate of the World Bank, seeks to tion (IDA). The IBRD and IDA have three re- promote growth in the private sector of devel- lated functions: to lend funds, to provide oping countries by mobilizing foreign and do- economic advice and technical assistance, and mestic capital to invest alongside its own funds to serve as a catalyst to investment by others. in commercial enterprises. The IBRD finances its lending operations The Multilateral Investment Guarantee primarily from borrowings in the world capital Agency (MIGA), also an affiliate of the World markets. IDA extends assistance to the poorest Bank, was established in 1988 to encourage di- countries on easier terns, largely from re- rect foreign investment in developing countries sources provided by its wealthier members. by protecting investors from noncommercial Funds from such other sources as govern- risk, especially risk of war or repatriation. ments, commercial banks, export-credit agen- Contents 5 Contents Letter of Transmital 3 World Bank, the IFC, and MIGA 4 Glossary 7 Overview of World Bank Activities in Fiscal 1994 11 Section One. The Executive Board 16 Section Tno. The Economic Scene: A Global Perspective 23 Section Three. Major World Bank Progam Fical Year 19!4 33 Human Resources Development 33 Environmentally Sustainable Development 42 Financial and Private Sector Development 50 Section Four. World Bank OperatioEn Fscal Year 1994 56 Disbursements 56 Technical Assistance 68 Cofinancing 69 Inproving Portfolio Management, Accountability, and Openness 73 Secton FiLve. 1994 Regional Perspectives 79 Africa 79 East Asia and Pacific 88 South Asia 95 Europe and Central Asia 101 Latin America and the Caribbean 107 Middle East and North Africa 114 Summaries of Projects Approved for IBRD, IDA, and Trust Fund for Gaza Assistance in Fiscal 1994 122 Projects Approved for IBRD and IDA Assistance in Fiscal Year 1994. by Region and Country 144 Trends in Lending, IBRD and IDA, Fiscal Years 1992-94 147 Projects Approved for IBRD and IDA Assistance in Fiscal Year 1994, by Sector 148 Section Six. Other World Bank Group Services and Actvities 154 Operations Evaluation 154 Internal Auditing I5 Economic Development Institute 156 Research at the World Bank 158 The Administrative Budget and Bank Administration 160 International Finance Corporation 163 Multilateral Investment Guarantee Agency 164 International Centre for Settlement of Investment Disputes 165 Section Seven. World Bank Finances 166 6 Contents Finandal Statements of the International Bank for Reconstruction and Development 173 Financial Statements of International Development Association and the Special Fund Administered by IDA 195 IBRD/IDA Appendices I Governors and Alternates of the World Bank 212 2 Executive Directors and Alternates of the World Bank and Their Voting Power 216 3 Officers and Department Directors of the World Bank 218 4 Offices of the World Bank 221 5 IBRD and IDA Cumulative Lending Operations, by Major Purpose and Region 228 6 IBRD and IDA Cumulative Lending Operations, by Borrower or Guarantor 230 7 Statement of IBRD Loans Approved dining Fiscal Year 1994 234 8 Statement of IDA Credits Approved during Fiscal Year 1994 240 9 Current IBRD, IDA, and Blend Borrowers 245 10 Development Committee Communiques, Fiscal Year 1994 246 EIdex 251 Boxes The Bank, Age 50, Looks to the Next Century 12 2-1 The Uruguay Round, Market Access, and the Developing Countries 31 3-1 Iigher Education-Lessons of Experience 34 3-2 Review of Projects Involving Involutary Resettlement 44 3-3 Private Sector Assessments 51 3-4 Managing Energy 53 4-1 Independent lnspection Panel is Established 74 4-2 Public Access to Bank Information Expands 75 4-3 The World Bank's Experience with Governance 76 4-4 Increasing the Reliability of Rating Project Effectiveness 77 5-1 Implementation of Economic Reforn: Overview and Seven Case Studies 82 5-2 Toward Better Health in Africa 85 5-3 China: Continuing Reform and Development 89 5-4 The East Asian Miracle 89 5-5 Lending to Viet Nam Resumes; Is Initiated in Cambodia 91 5-6 Privatization Progress in the Russian Federation 104 5-7 Pension Reform in Latin America 112 5-8 The World Bank and the Occupied Territories 116 7-1 IDA's Ninth Replenishment Period (Fiscal 1991-93) 170 7 Glossary Agenda 21 The main operational product of utive directors; it has traditionally served as a the United Nations Conference on Environ- forum in which preliminary discussion of issues ment and Development (UNCED), Agenda 21 takes place before they are taken up by the ex- is an ambitious action plan covering over 100 ecutive board. It is also the forum in which the progr-am areas (climate, desertification, sus- executive directors act as a preparatory body tainable agriculture, for example) integrating for the work of the Development Committee. environment and development, to be sup- ported by new and additional financial re- CuheBnan swaps Currency swaps are used by sources, improved access on favorable terms the Bank as a liability-management tool and es- to euvironmentally sound technology, and sentially involve an exchange of a stream of strengthened institutional capacity in develop- principal and interest payments in one cur- ing countries. States were called upon to pre- rency for a stream in another currency. The pare national sustainable development plans Bank uses currency swaps to obtain borrow- outlining their own environmental problems as ings in the ultimately desired 'target" cur- well as their strategies, programs, and priori- rency at below cost of a market borrowing in ties for implementing Agenda 21. UNCED that currency. agreed that financing should be assembled to Deelopment Committee This committee is support these programs through a variety of ex- known formally as the Joint Ministerial Com- istng, rather than new, funding mechanisms. inittee of the Boards of Governors of the World "Brady" operations Named after a March Bank and the International Monetary Fund on 1989 initiativc by then-U.S. Secretary of the the Transfer of Real Resources to Developing Treasury Nicholas Brady who proposed that Countries. Established in October 1974, the countries with sound adjustment problems conmittee currently consists of twenty-four should get access to debt- and debt-service re- members, generally Ministers of Fmance, ap- duction facilities supported by international fi pointed for periods of two years by one of the nancial institutions and official creditors. It countries or a group of countries that desig- represented a shift in the intemational commu- nates a member of the Bank's or the Interna- nity's debt strategy from supporting adjust- tional Monetary Fund's board of executive ment with concerted new lending to supporting directors. The committee is required to advise adjustment with debt- and debt-service reduc- and report to the boards of governors of the tion. two institutions on all aspects of the broad question of the transfer of real resources to de- "Brown" environmental agenda Refers to the veloping countries and to make suggestions for immediate ana most cntical environmental their implementation. problems facing cities and includes three main areas-energy use and efficiency, urban and in- "2-nhanced" Toronto terms A menu of Paris dustrial pollution control, and urban environ- Club concessions for low-income countries, mental management. initiated in 1991, comprises two options pro- Central bank faclility A facility used by the viding for deeper debt reduction plus the non- IBRD to raise short-bte United Staes-ollar concessional option from the old Toronto debt by offeringto central bankcs and othergov- terms. The concessional options amount to 50 edinent organizations of member countnres a percent forgiveness in present-value terms on cmmnt-YersUnited States-dollar denominated debt-service payments falling due during the one-year, cnisted te deinominated consolidation period. Enhanced Toronto terms variable-rate instrument. The interest rate is also provide for a third nonconcessional op- adjusted monthly on the yield of the one-year tion: consolidation at market rates, with a re- U.S. Treasury bill plus a spread. payment period of twenty-five years, including Committee of the Whole The Committee of a fourteen-year grace period. This option was the Whole is a committee made up of all exec- adopted by the United States and some smaller 8 Glossary creditor countries that were, at the time, un- OMcial development assistance (ODA) Finan- able to adopt debt cancellation for non-ODA cial aid to developing countries and multilateral debt. institutions provided by official agencies, or by Forward foreign exchange market Allows for their executive agencies. ODA is administered the sale or purchase of foreign currency for de- with the promotion of the economic develop- ferred rather than immediate delivery. ment and welfare of developing countries as its main objective, is concessional in character, G-7 countries Canada, France, Germany, and contains a grant element of at least 25 per- Italy, Japan, the United Kingdom, and the cent. United States Panel data set Is one composed of both timc "Green" environmental agenda Refers to the series and cross-section observations. The re- promotion of sustainable natural resource man- sulting data base is a gold mine of analytical agement and the reduction of resource information relative to the much more common degradation, and includes agriculture and land cross-sectional base. management, forest management, water- resource and watershed management, marine Paris Club The Paris Club is the name given and coastal zone management, and biodiver- to the ad hoc meetings of creditor governments sity conservation. that, since 1956, have arranged, when neces- sary, for the renegotiation of debt owed to of- ICOR (incremental capital-output ratio) An ricial creditors or guaranteed by them. (Debts aggregate measure of the efficiency of invest- to commercial banks are renegotiated with ment. It shows the amount of investment re- committees of the banks involved.) The World quired to produce an annual income stream of Bank is not a member of the Paris Club. one dollar. The lower the ICOR, the more ef- ficient the investment. Social-action programs Social-action pro- lIBOR (London Interbank Offered Rate) grams and social funds consist of multisectoral LIBOR is(therateatwhichnajorebanks in e operations that mobilize several sources or fi- don are willing to lend in a specific currency nancing to fund special interventions and tar- or currency unit to other banks. It is used as a geted projects seeking to alleviate the social base rate for many international interest-rate costs of adjustment, as wel as poverty in gen- transactions. eral. The project components that typically get financed include public works, severance pay- Low-income countries Are those countries ments, retraining, and schemes in nutrition, with a GNP per capita of $675 or less in 1992 primary health, and primary education. While United States-dollar terms. the objectives and project content of social- Mezzanine flnancng Has two separate mean- action programs and social fuinds are similar, ings, one having to do with the type of finance, they differ in their institutional set-up. Social the other with the stage a company has funds finance small, demand-driven sub- rcached. It is the second sense that applies to projects and often bypass existing bureaucratic mezzanine finance funds supported by the lFC: systems and procedures; funding commitments risk capital made available to unlisted compa- are often based on the evaluation of project nies to support development and expansion proposals prepared according to predeter- programs, in anticipation of the companies' be- mined selection criteria Social-action program ing listed. subprojects are typically appraised by the World Bank. Whereas social funds are most Middle-income countries Are those countries often parastatal quasi-financial institutions, with a GNP per capita of more than $675 but social-action programs generally cover a less than $8,356 in 1992 United States-dollar broader array of institutional arrangements, terms. such as quasi-autonomous project dnits or in- Negative-pledge clause Negative-pledge tegration into sectoral ministries. clauses are concerned with the grnting of se- Social fund (See social-action programs) curity interests by a borrower over its assets to its creditors. By the terms of such a clause, the SPA-eligible country Country eligibility is de- borrower agrees with a creditor or group of termined on the basis of poverty (countries creditors to restrictions on its granting, or oth- cannot be eligible for IBRD loans), indebted- erwise permitting to exist, security interests in ness (countries have to have projected debt- favor of other creditors. Negative-pledge service ratios of 30 percent or more, and efforts clauses are usually standard in Bank loan doc- to adjust (countries have to be currently imple- umnents. They may be waived on a case-by-case menting a policy-reform program that is en- basis, however. dorsed and normally supported by the Bank Glossary 9 and the International Monetary Fund, and debt in low-income, debt-distressed countries. agreement has to be reached on a policy frame- The terns, agreed upon in September 1988 (fol- work paper). lowing agreement in principle at the economic Special drawing rights (SDRs) The special summit held in Toronto three months earlier), drawing right is a reserve asset created in 1968 include reduced interest, very long grace and by the International Monetary Fund for use by repayment periods (at commercial rates), or its members and certain prescribed institu- partial write-offs of debt-service obligations tions, among which are multilateral develop- during the consolidation period (with the rest ment banks and the Bank for International reschcduled at commercial mtes and shor Settlements. Its value is calculated daily by us- maturities), or a combination of these options. ing a weighted basket of the currencies of the Vehicle currency A currency in which the G-5 countries (France, Germany, Japan, the Bank borrows and simultaneously enters into a United Kingdom, and the United States). currency swap in order to convert the "vehi- Structured notes Those for which the returns cle" currency liability into a liability denomi- are linked so interest and/or exchange rate in- nated in a"other currency (a so-called 'target" dices. cuffency"). Toronto terns Toronto terms refer to a menu of options that can be chosen to reduce official 10 It~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~i - - a",'- *~~~~~~~~~ ar - IX W v -*-E K S- _~~~~~~~~~~~~~~~| _ -~~~~~~~~~~~~~~~~~~~~~~~~~~- -\. ,,r - B '4~~~~~~~~~~~~~~~~~~~~~~~~~~~~ -le~~~~~~~~~ a -- -l* 82:l^4 i-~~~~~~~~~~~~~i- ,:'''' '4 -' ' ' - S8S E'~~~~~ i-- # !' ' ' ' ,,__.~~z! "nI- * l ' ,I( ' ttS School chilldren in Guiling, a city in the southern province of Gusangxi. In China, equal education is provided to girlskfrom the eartiest age. ,, , ,_, ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~11 Overview of World Bank Activities in Fiscal 1994 The fundamental objective of the World ing an integrated poverty-reduction effort in Bank is to support the reduction of poverty in country-assistance strategies; completion of, its member countries. During fiscal 1994, the and improvements to, poverty assessments for Bank continued to make progress-through its all borrowers; and development of poverty- lending operations and a strengthened policy monitoring systems and expansion of coun- dialogue-in implementing the poverty- tries' capacity to implement them. reduction strategies first outlined in World De- Most recently, the Bank has placed less em- velopment Report 1990 and subsequently phasis on the growth of its portfolio and more elaborated in a policy paper and associated op- on its quality. This shift grew out of the 1992 erational documents. report of the Task Force on Portfolio Manage- A report on poverty reduction, discussed by ment, which identified certain aspects of Bank the executive board in April 1994, concluded practice that either may have contributed to that progress was being made in implementing portfolio-management problems or were insuf- the Bank's poverty-reduction strategy-in the ficiently effective in resolving them. Steps Bank's lending operations, in country- were taken in fiscal 1994to incorporate the task assistance strategies and the policy dialogue, force's recommendations so as to make the and in strengthening poverty analyses. The re- Bank more effective in pursuing its basic goal port noted, however, that several challenges of reducing poverty in borrowing countries. had to be addressed in the Bank's future As the core of its action plan, the Bank in- poverty-reduction work. They include ensur- troduced a country-by-country approach, Operational and Financial Overview, Fiscal 1990-4 (millions of US dollars unless otherwise notcd; fiscal ycars) Item 1990 1991 1992 1993 1994 mRD Commitments 15,180 16,392 15,156 16,945 14,244 Disbursements 13,859 11,431 11,666 12,942 10,447 Net disbursements8 5,726 2,109 1,833 2,331 -731 New medium- to long-term borrowings 11,481 10,883 11,789 12,676 8,908 Net income 1,046 1,200 1,645 1,130 1,051 Subscnrbed capital W12,262 139,120 152,248 165,589 170,003 Statutory lending limit 137,046 152,327 168,369 183,312 189,189 Loans outstanding 89,052 90,638 100,810 104,451 109,291 Kes ratis Loans outstanding as a percentage of lending limit 65 59 60 57 58 Intercst coverage ratio 1.17 1.17 1.24 1.16 1.16 Liquidity ratio (percent) 47 51 48 48 51 Reserves-to-loans ratiob 10.8 11.2 11.7 11.7 13.9 IDA Comm;itments 5,549 6,293 6,550 6,751 6,592 Disbursements 3,931 4,549 4,765 4,947 5,532 Net disbursementse 3,713 4,274 4,441 4,581 5,110 a. Amounts include disbursements, repayments, and prepayments tofirom all members, induding third party rpayments. b. Includes amount aDocated to reserves for prefimding of inktrest waives. 12 Ovevlew of World Bank ActMlles In Fiscal 1994 rather than a project-by-project approach, into extra expenditures incurred in involving bene- the management of its ongoing lending opera- ficiaries in project preparation and ih economic tions. To complement the changes it made in its and sector work. The initial monies allocated to own policies and practices, the Bank is collab- the fund were fully committed by November, orating with the authorities in borrowing coun- and additional amounts were allocated in tries to review the performance of the portfolio March 1994. Involving beneficiaries in project in each country and resolve systemic prob- preparation is now beginning to become normal lems. These and other measures are helping the Bank procedure. Bank take a much more strategic view of its Cooperation between the Bank and nongov- $148 billion loan portfolio ($107 billion, 982 ernmental organizations (NGOs) continued to projects. IBRD: $41 billion, 915 projects, IDA). expand in terms of bo:h lending operations and According to a report on the progress of activ- the policy dialogue throughout the year. In- ities designed to improve the management of creased collaboration was clearly exhibited at the development programs and projects the the Conference on Actions to Reduce Hunger Bank finances, steady and substantial progress Worldwide that was convened by the Bank in has been made during the past year towards November 1993. In addition to participating in sharpening the focus on implementation and on presentations and discussion, NGOs assisted a performing portfolio. The report adds, how- in the conference's preparatory and follow-up ever, that more remains to be done, for the ac- work. tion plan is not a set of one-time activities; During the year, steps were taken to increase rather, it is a process that is expected to take the Bank's accountability and openness: years before it is satisfactorily completed. In September 1993, the executive board of The Bank is also devoting more energy and the Bank established an independent Inspec- resources to fostering stakeholder participation tion Panel, which will receive and investigate during project preparation. In June 1993, a Par- complaints that the Bank has not followed its ticipation Fund was established to finance own policies and procedures with respect to The Bank, Age 50, Looks to the Next Century Fifty years ago, in July 1944, the World Bank was economicaly and socially and how far it stiU has conceived at the United Nations Monetary and to go. Financial Conference held in Bretton Woods, In the developing countries, average life ex- New Hampshire. United States of America. pectancy has increased by about 50 percent; the Representatives of forty-four nations assem- proportion of children attending school has risen bled there established two complementary from less than half to more than three quarters; financial institutions-the Bank and the Interna- and average income per person has more than tional Monetary Fund. doubled. The Bank-through its support for mor This is what the report of Commission II (in- than 5,000 projects in about 140 countries-has ternational Bank for Reconstruction and Devel- contnbuted to this pmgress. opment) to tl'e Executive Plenary Session Enormous challenges remain, however. They (United Nations Monetary and Financial Confer- include reducing poverty for the more than I bil- ence) wrote about the Bank in that sv mer of lion reople who struggle to survive on about a 1944: dollar a day and providing basic sanitation, clean "The creation of the Bank was an entirely new water, health care, and schooling for those lack- venture.... So novel was it, that no name could ing access to these basic services. Most countres be found for it. Insofar as we can talk of capital in sub-Saharan Africa have been mired in lack- subscriptions, loans, guarantees, issue of bonds, luster or declining rates of growth for more than the new financial institution may have some ap- a decade. The problems associated with eco- parent Jaim to the name of Bank. But the typc of nomic transformation in Central and Eastern Eu- shareholders, the nature of subscriptions, the ex- rope and the former Soviet Union have proved to clusion of all deposits and short-term loans, the be extremely complex. And new challenges are non-profit basis, are quite foreign to the accepted coming to the fore, in South Africa and the West nature of a Bank. However, it was accidentally Bank and Gaza, for example. born with the name Bank, and Bank it remains, -In a number of ways, the Bank is uniquely mainly because no satisfactory name could be placed to help address these challenges. Most im- found in the dictionary for this unprecedented in- portant is its fifty years of experience in working stitution." on almost every kind of development issue in al- Reflection on the experience of the past fifty most every developing country. F-rom that exp- years highlights how far the world has progressed rience has come lessons learned over the years: Overview of World Bank Activlles In Fiscal 1994 13 the design, appraisal, and/or implementation of lending operations continued to be significant. a developmenr project that it supports. The In fiscal 1994, resources spent on economic panel will be functionally independent and will and sector work were about 19 percent of the report directly to the board. In April 1994, the total. On an ongoing basis for all borrowers, three members of the panel werc appointed. the Bank is engaged in preparing or updating In January 1994, the Bank expanded public poverty assessments, private sector assess- access to operational information by opening a ments, environmental assessments, national Public Information Center at the Bank's head- environmental action plans, and country- quarters in Washington, D.C. that aims to pro- assistance strategies for discussion by the ex- vide timely and relevant information about the ecutive directors. Bank's present and future plans by allowing Thcse and other economic and sector anal- public access to previously restricted docu- yses are designed to deepen the Bank's under- ments. The information is also available standing on development issues, improve the through Bank offices in London, Paris, Tokyo, impact of its operations, and enhance policy- and through the institution's many field offices. reform efforts. They are particularly important The public can also use the Internet computer for the Bank's newest member countries, network to access project information docu- where there continues to be a need for consid- ments and to view (and order) the titles of all erable investment in analytical work prior to Bank documents available on request, as well expanding technical assistance and lending as the abstracts and entire text of selected doc- programs. Furthermore, through the three uments. Greater transparency is essential to new thematic vice presidencies, the Bank is explain the Bank's work to the various stake- evaluating best practices in human resources holders and thereby increase understanding of development, environmentally sustainable de- and support for Bank-supported activities. velopment, and financial and private sector de- Resources devoted to the many types of non- velopment and is disseminating them to both lending activities that serve to underpin future staff and extemal audiences. that people are both the means and ends of responding to borrower needs and facilitating development; that sustained commitment to their participation in the design and implementa- sound macroeconomic policy is vital; that insti- tion of Bank-supported programs; looking be- tutional capacity is a major determinant of yond lending commitments and concentrating on progress; and that economic growth should be results in the field, ensuring that scarce develop- broad-based and enviromnentally sustainable to ment resources are spent wisely and efficiently, reduce poverty effectively. and maintaining its high standing in the financial Of fundamental importance, through decades markets. of experience in designing and implementing in- The Bank's record in fostering economic de- vestment projects, the Bank has become a trusted velopment over the past half century has been adviser on development-sharing its global expe- aided in no small part by its ability to respond rience of what does and does not work-and help- quickly and flexibly to the ever-changing environ- ing its member countries apply those lessons. ment in which it works. One fundamental point. In assisting its member countries to meet cur- however, has endured and will not change: rent and future challenges, the Bank is committed The Bank remains the only development insti- to build on and enhance its roles as a supplier of tution in the world with a long-term partnership development financeprovider of advice. and, in with virtually every developing _ountry, awealth special cases, as a resource for helping address of cross-country experience, and a product mix strategic development issues that transcend na- that combines finance, policy advice, and in- tional boundaries. depth research. This unique capacity and the Given the scale and scope of the development fifty-year experience with development make the agenda, the Bank is aware that it must avoid Bank a major global asset in the effort to reduce stretching itself too thin. It is focusing, therefore, poverty and improve the human condition-an on doing what it does best and is encouraging a asset that is just as needed today as it was fifty division of labor with its partners. It is deing this years ago. by foilowing six guiding principles: The Bank calls on its partners to work with it in Being selective in choosing which strategic ac- meeting the challenges of the twenty-first cen- tions to pursue; embracing partnerships with tury. other participants-multilateral, bilateral, gov- ermnental, nongovernmental, the private sector; 14 O vlewot World Bank ActIVItles In Fical 1994 IBRD and IDA Lending to the Poorest Countries, Fiscal 1985-94 (US$ millions) II] IDAamnount - IBRD amount 3,935.2 5,379.7 6,1093 5,977.9 6,166.0 5,361.9 1985-89 1990 1991 1992 1993 1994 annual average Total Total* Total Total Total 9,567.0 9,502.3 11,059.1 11,101.0 10,379.3 9,435.4 Note: The poorest countries are defined as those with a per capita income of$675 or less in 1992 U.S. dollars. In various parts of the Bank, changes in busi- Finance Corporation at the operational level ness practices are being explored. Experimen- has been intensified, including review of pro- tation is under way to help define means of grams in support of the telecommunications delivering Bank products of higher quality with sector and private sector development activi- reduced costs. Most of these efforts are cur- ties. rently directed to process simplification, al- Private flows represent an increasingly im- though more ambitious '"redesigning'" or portant source of finance for developing coun- process-innovation pilot programs are also un- tries, with net flows reaching a ten-year high in der review. In addition, more focused priority 1993 of $113 billion, an increase of more than setting is fostering greater partnerships with 150 percent of the level of 1990. Although lev- the private sector and other multilateral and bi- els of flows in the future are unpredictable, lateral donors. A greater role for the private clearly today the private sector is playing a ma- sector is being promoted explicitly as the Bank jor role in those countries where reform pro- moves to support and catalyze private sector grams are well established or the potential activities. Collaboration with the International exists for lge gains. Countries in East Asia, Overiew of Wadrd Bank Actiiles in Rscal 1994 15 Latin America, and Central and Eastern Eu- the Trust Fund for Gaza was approved for the rope have been the largest recipients of private Occupied Territories. capital, enabling the Bank to address more ba- Net disbursements from the IBRD to mem- sic social and environmental issues that are not ber countries were a negative $731 million- covered by other lenders. IDA's net disbursements were $5,110 million. In summary. the operational context was one During the year, the tenth replenishment of of changing business products and processes in IDA's resources (IDA-10) became effective, an environment containing many country un- and the Debt-reduction Facility for IDA-only certainties, making it all the more important Countries was extended until July 31, 1995. In that the Bank be well positioned to deliver July 1993, the executive board agreed to allo- work programs that are appropriate to current cate $100 million from the IBRD's net income country circumstances and be able to respond earned during fiscal 1993 to the facility. quickly to changing conditions as they arise. The IBRD borrowed the equivalent of $8,908 In fiscal 1994, lending by the Bank to all million in the world's financial markets. Net borrowers amounted to $20,836 million: income was $1,051 million. $14,243.9 million by the IBRD and $6.592.1 During the fiscal year, the former Yugoslav million by IDA. Republic of Macedonia fulfilled the required Specific investment loans and credits was, formalities to succeed to the membership of the by far, the most favored lending instnrnent former Socialist Federal Republic of Yugosla- employed during the year. Commitments for via, bringing the total membership of the IBRD this type of instrument totaled $14.1 billion (68 to 177. At the end of the fiscal year, action was percent of the total). pending on membership in the IBRD for Adjustment lending has been declining since Bosnia-Herzegovina, Eritra, and the Federal 1989. In fiscal 1994. adjustment lending Republic of Yugoslavia. amounted to S24 bilion, representing 12 per- The former Yugoslav Republic of Macedonia cent of the total, compared widt $612 billion in also fulfilled the required formalities to succeed fiscal 1989. an amount that represented 29 per- to the membership of the former Socialist Fed- cent of total lending. This decline is due to the eral Republic of Yugoslavia as a member of relative maturity ofthe reform process in many IDA. Armenia became a member of IDA on countries and to constraints and uncertainties August 25, 1993, Georgia became a member on that impede progress in others. August 31, 1993, and Moldova became a mem- Assistance to the poorest countries-those ber on June 14, 1994, bringing the total mem- with a per capita gross national product of $675 bership of IDA to 156 At the end of the fiscal or less (in terms of 1992 United States dollars) year, action was pending on membership in totaled $9,4354 million: $4,073.6 million from IDA for Bosnia-Herzegovina, Eritrea, Turke- the IBRD and $5,361.9 million from IDA (see menistan, Ukraine, and the Federal Republic accompanying figure)- One loan of $30 milion, of Yugoslavia- on IDA-like terms, from resources provided by 16 Section One The Executive Board The executive directors are responsible for Territories and the countries of the CFA Zone. the conduct of the general operations of the poverty reduction, portfolio management, es- Bank, which includes deciding on Bank policy tablishment of an independent inspection in the framework of the Articles of Agreement panel, and the Bank at age fifty as it looks to- and approving all loan and credit proposals. wards its work and rale in the Twenty-first The president of the Bank is the chairman of Century. the executive directors. The president is also the chief of the operating staff of the Bank and Oeit of Financial and conducts. under the direction of the executive Opera f FmancProgand directors, the ordinary business of the Bank. Operai Po The executive directors are also responsible In fulfiling its responsibilities to oversee the for presenting to the board of governors an au- IEBRD and IDA financial and operating pro- dit of accounts, an administrative budget, the grams, the executive directors authorized a Annual Report on the operations and policies program of borrowings and liability manage- Of the World Bank, and any other matters that, ment in the context of a borrowing plan for fis- in their judgment, require submission to the cal 1994 of S12.0 billion equivalent. This board of gove.nors. Matters may be submitted program, which the board monitored on a quar- to the board ofgovernors at its annual meetings terly basis through regular market briefings, or at any time during the year. was carried out according to agreed broad pa- The executive board exercises its authority, rameters. In accordance with the simplified under the Articles of Agreement, hi three gen- budget review cycle endorsed by the board in erl areas. First, through its annual oversight of fiscal 1992, the executive directors were in- the financial and operating programs, and ad- volved in the formulation of the Bank's ministrative budgets, the board determines the medium-term planning directions (fiscal 1995- allocation of financial and staff resources for 97) and in setting the fiscal 1995 operating the coming year. Second, through its review of budget In this framework, they approved in- evaluations of completed Bank projects and the dicative IBRD lending for the year at between Bank's experience in individual sectors and $15.5 billion and $17-5 billion, with an indica- with particular policies, as well as through its tive IDA lending program of 53 billion in spe- participation in the annual review of portfolio cial drawing rights (about $7.5 billion). The perfornance, the board is actively involved in board also approved the allocation of fiscal auditing development effectiveness, thereby 1993's net income and the plan for fiscal 1994. ensuring that the Bank and member countries Opeons Evauation and can benefit from the lessons of expenrence. opertionslevaluation Through its review of specific policy proposals Pect Implemention (for example, the Bank's financial policies. In order to fulill its responsibility to review operational policies, lending terms, sectoral project evaluations and proposals for fiuture priorities), the board determines the direction evaluation activities, the board continued to of Bank policies. Through its approval of lend- give particular attention to the Operations ing operations and its review of the Bank's Evaluation Department (OED). The OED. un- country-assistance strategies, the board over- der the management of the director general, is sees the Bank's lending program. linked administratively to the Bank president Exercise of executive board authority in but is directly responsible to the executive di- these three areas results in continuous dialogue rectors. The board approved OED's work pro- between the board and the management of the gram and staff budget for fiscal 1994 and Bank. The quality of that dialogue was further reviewed the status of the deparcnent's work enhanced throughout the fiscal year on those and its report on operations evaluation. The ex- occasions of broad discussion on key issues ecutive board also agreed that. foUowing its such as emergency assistance to the Occupied discussion of OED's annual review of evalua- Review of Policy Proposals 17 tion results, the review should be published notes or new structured bonds with different and made available outside the Bank. embedded derivatives- In order to facilitate In addition, the executive directors endorsed such exchanges, and structured borrowings steps for strengthening portfolio-performance generally, the executive directors also autho- management, including the internal processes rized short-tern borrowings to be conducted in used by the Bank to oversee portfolio perfor- any currency by amending the short-term mance. In turn, they held discussions with United States dollar borrowing authorization management and staff on the 'Annual Report and the exclusion of such exchanges from the on Portfolio Performance," which covered the volume limit approved by the board applicable results of fiscal 1993. This report noted that the to the IBRD's regular repurchases of debt se- greater attention to portfolio-performance curities. management, particularly the "cleaning up" of In fiscal 1989 the board had approved a joint the operations portfolio, had helped in the resolution establishing the Debt-reduction Fa- short term to avoid a further deterioration in cility for WA-only Countries. Subsequent ex- the Bank's quantitative measures of portfolio tensions were made to the facility, and in fiscal performance. The board wfll continue to mon- 1994 the board assessed progress under the fa- itor progress and review the next steps in this cility and approved its extension until July 31, ongoing process. 1995. Operations. In fiscal year 1994 the board Review of Policy Proposals - interacted with Bank management and staff to In the course of the fiscal year, the executive set policies fundamental to the Bank's opera- board reviewed policy proposals and made de- tional priorities and strategies. Establishing an cisions that affected the operations in many ar- inspection function at the Bank was one of the eas of Bank activities, including finance, board's major concerns in the fiscal year. As a lending operations, sector policies, develop- result of its intensive discussions of the issues ment economics, and administration. and options in both formal and informal set- Finance. In fiscal year 1994, IDA policies tings, the executive directors established the and operations continued to receive the atten- objectives, mandate, and operating procedures tion of the directors. Early in the fiscal year, for an inspection panel. This panel would pro- the board reviewed IDA's policies, operations, vide an independent review mechanism for af- and fmances during the ninth replenishment pC- fected parties of an action or omission by the nod (fiscal 1991-93).' With respect to IDA re- Bank resulting from its failure to follow its op- flows, the board set the use of advance erational policies and procedures-? The three commitment authority from future reflows members of the panel were named in April amounting to SDR800 million (about $1,126 1994. The members of the panel accepted their million) annually for the period fiscal 1994-96 appointments, effective August 1, and the and further annual allocations in fiscal 1994 of panel was expected to open for business in SDR190 million (about $265 million) for the early September. "'ifth dimension" program. This program pro- A similar process was followed by the exec- vides supplementary IDA resources to those utive directors in expanding access to Bank in- IDA-only countries that have outstanding debt formation through revisions to the Bank's to the IBRD, are current in their debt-service policies on disclosure of information, which payments to both the IBRD and IDA, and have provided, among other things, access by the in place IDA-supported adjustment programs. public to a number of previously restricted doc- Such supplementary resources, therefore, take uments and the establishment of a Public In- into account the debt impact arising from IBRD formation Center at the Bank's headquarters.4 interest payments- The board reaffirmed the importance of pov- Following the launch of a pilot program of erty reduction as an integrating theme in nearly single-currency loans to respond to some bor- all Bank assistance. The executive directors as- rowers' needs in fiscal 1993 for a choice of sessed the progress that had been made in sup- terms to help reduce the currency and interest porting poverty reduction in the Bank's -rate risks in their IBRD loans, the board held activities in fiscal year 1993 and reviewed the an interirn review to assess the target ratios for adequacy of the steps taken by the Bank to the composition of the currency pools.2 The ex- improve the way it addresses poverty issues? ecutive directors also approved a structured bond borrowings and liquidity arrangement that, by applying the existing debt buyback and For dIls. see pa 170 borrowing authority, would permit the IBRD to 3 Fo - . da pw 74.' exchange outstanding structured bonds de- 'For details. see page 75. nominated in any currency for floating rate 5For deails. see page 36. 18 The Executive Board In fiscal 1993, the board approved a policy The board carefully followed developments under which countries in transition could be in the intemational economic and political en- granted a temporary waiver of the negative- vironment, often in forums such as seminars pledge clause under certain conditions. The and briefings, which allowed for a more infor- negative-pledge clause is a standard feature of mal debate with management and staff. Major all IBRD loan agreements. Its basic purpose is issues included the establishment of a donors' to protect the Bank by orohibiting, among group for the Occupied Territories and a trans- other things, member-country borrowers from fer from surplus to fund an emergency rehabil- establishing liens on public assets that would itation program for Gaza,' specific issues create a preference for other creditors on for- related to development in Africa, such as the eign exchange loans over the debt owed to the adjustment experience,'8 better health," and Bank. For countries in transition to market the Bank's role in the development of South economies, however, most of their important Africa; Latin America, a decade after the debt assets are still publicly owned, and, therefore, crisis; the East Asian economic miracle";'2 the negative-pledge clause makes it extremely and the international conference on hunger.23 difficult for public sector enterprises to enter The executive directors were also participants into much-needed financial relationships with in a cotloquium with outside experts on the re- private creditors without either requesting a cent economic developments in China. waiver of the negative-pledge clause or grant- The board reviewed the Bank's development ing equal and ratable security to the IBRD. in the context of the country-assistance strat- As a result of the eligibility requirements es- egies (CAS) of sixty IBRD and IDA borrowers. tablished under the fiscal 1993 policy, how- To ensure that these reviews provided appro- ever, no waivers of the negative pledge were priate coverage of the key issues affecting the granted. Therefore, substantial investments Bank's strategy and that individual lending op- were pending in several countries because of erations were consistent with the overall strat- the continued application of the negative- egy. the board considered the role and nature pledge clause. To address this problem, the of the CAS and set guidelines for their prepa- board approved in fiscal 1994 a modification to ration. The executive directors also kept the negative-pledge waiver that would allow abreast of the activities and progress of the in- the country-eligibility decision to be based on creasing number ofconsultative and aid groups the Bank's judgment that the country was mak- chaired by the Bank at the request of the re- ing progress in privatization, was moving to- cipient countries (see Table 1-1). ward a market economy and experiencing In addition to approving all IBRD loans and improvement in its macroeconomic situation, IDA credits, the board monitored the progress and that the waiver of the negative pledge of the Bank's overall lending program through would further contribute to the attainment of regular briefings with senior management. In these goals. In the wake of this modification, addition, to gauge the impact of the Bank's the board approved country waivers for Rus- work "on the ground" and to discuss priority sia, Uzbekistan, and Kazakhstan. development issues with senior policymakers The board continued to monitor the Bank's in member countries, selected groups of exec- role in providing technical assistance. They re- utive directors and alternate executive direc- viewed the first year of experience with the In- tors travelled to a number of borrowing stitutional Development Fund,' recommended countries. In fiscal 1994, there were four such to the board of governors the establishment of missions: to Indonesia and Fiji; the Czech Re- the Joint Vienna Institute, and discussed the public. Hungary and Slovakia; Egypt, Leba- board's report on technical assistance activi- non, and Morocco; and Benin, C6te d'Ivoire, ties in fiscal year 1993. In addition, the board and Ghana. provided guidance to staff on revising the Bank's policies as they relate to procurement Sector Policies and activities, outreach, and supervision. Development Economics The importance placed by the board on In regular board sessions, committees of the environmental sustainability in the Bank's op- whole, seminars, and informal briefings, a erations was reflected in the directors' dis- cussions of the annual report on the Bank and Ford,s.seeg6 the environment, in their major review of Bank 7 For detais. see page 44. projects involving involuntary resettlement in * Fordetails. see page 47. the period 1986-93,' and in their substantial 9 Fordetails. see page 116. involvement with the negotiations, replenish- 1 For details. see page S2 involvement *~~~~~~~~~I Far details. see pag 85. ment, and restructuring of the Global Environ- 12 For details, see page 89. ment Facility.8 1' For details. see page 49. Adminstrion 19 Table 1-I. Aid Coordination Group Meetiogs Chaired by the World Bank in Fiscal 1994 (corsortia. consultative groups. and aid groups) Date Country Location 1993 July 1-2 India consortium Paris July 12-13 Tanzania consultative group Paris October 26 Moldova consultative group Paris October 27 Belarus consultative group Paris November 22-23 Kcnya consultative group Paris December 6-8 Mozambique consultative grup Paris December 8-10 Zambia consultative group Paris December 9-10 Bolivia consultative group Washington. D.C. December 12-14 Zimbabwe consultative group Paris December 16 West Bank and Gaza Strip consultative group Paris December 19-21 Malawi consultative group Paris 1994 January 14 Kazakhstan consultative group Paris January 25-26 Egypt consultative group Paris January 27-28 Canbbean suab-group for Guyana Guyana February 24-25 Pakistan consortium Paris March 7-S Ethiopia consultative group Paris March 17-18 Sierra Leone consultative group Paris March 22-23 Zambia consultative group Paris April 19-20 Bangladesh ad group Paris April 21-22 Caribbean Group for Cooperation in Washington, D.C. Economic Development (meeting of donors) May 5-6 Mauitania consultative group Paris ..y 10-11 Peru consultative group Paris May 17 Jordan consudtative group Paris June 2 Kv gyz Republic consultative group Paris June 6-7 Romania consultative group Paris June 6-10 Canbbean Group for Cooperation in Washington, D.C. Economic Development June 9-10 Bulgaria consultative group Paris June 16 Nicaragua consulative group Paris June 27-28 FIYR Macedonia consultative group Paris June 30-July 1 India Development Forum 1994 Paris Noar: The meeting of the Nepal aid group. ornay scheduled fir Apnl 28-29, 1994 was postponed. number of sector policies, their implementa- considered the outline and final draft of World tion, and "best practicest' were reviewed. In DevelopmentReport 1994, which examined the the area of human resources development, the interplay between infrastructure and develop- executive directors discussed the lessons of ex- ment.17 perience with higher education'4 and, on sev- eral occasions, debated the issues of gender Administration and development, whicn culminated in a policy The board also dealt at some length with the paper on enhancing women's participation in Bank Group's administrative policies and prac- economic development.t5 In the area of trade, tices. In fiscal year 1994, it was involved in the board considered a preliminary assessment issues of staff benefits, including the quadren- of the completed Uruguay Round of GAiT nial review of benefits and eligibility for expa- talks, as well as the emergence of "new region- triate benefits. They also reviewed their own alism"' and ics consequences." Other important sector reviews included Bank Group issues with regard to telecommu- ,5For daiLs. see pa 37. nications, ransport policies, and financial and "For details. see page 31. private sector development. The board also '7For details. sec page 43. 20 The Executfive Board operational travel policies and made modifica- quacy of the work of thc operations evaluation tions that aligned these policies with those of and internal audit units. The committee pro- the staff. As it does each year, the executive vides a channel through which the intemal and directors considered the issues affecting staff external auditors can communicate with the ex- compensation and approved a salary adjust- ecutive directors. ment. They made a recommendation to the In pursuing its responsibilities during fiscal governors on the remuneration of the Bank's 1994 the committee nominated a firm of pri- president. vate, independent, internationally established In a number of meetings, the board followed accountants to conduct the annual audits of the the implementation of the rehabilitation of the Bank. The committee reviewed the scope of Bank's main complex building. They also re- the independent accountants' examination and viewed the arrangements for the Bank's annual their annual audited financial statements. It meetings. also held in-depth discussions with the external As the fiftieth anniversary of the founding of auditors on the scope of their work on special the Bretton Woods institutions approached, audits, particularly those carried out on the the executive directors extensively involved main complex rehabilitation project. The com- themselves in the planning for commemorating mittee reiterated the importance of maintaining the anniversary and in collaborating with Bank a close working relationship with the external management and staff on the drafting of the auditors- Several meetings were held in the Bank's current and future agenda. course of the year to this effect. In addition, through regular meetings with the Bank's se- Development Committee nior financial officers. thie committee helped to As in previous years, the executive directors provide assurance to the executive board that were actively involved with the Development the financial affairs of die Bank were properly Committee, assisting committee members in conducted. In this regard, the committee re- preparing for their meetings, considering the viewed and endorsed recommendations per- draft provisional agenda, and discussing the taining to the fiscal 1994 implementation of the president's reports and background papers that IBRD's policy for loan-loss provisioning. It were the basis forthe ministers' discussions. In was also briefed on the status of the current addition, several months prior to each Devel- Bank loan portfolio- In addition, the committee opment Comniittee meeting, the executive di- reviewed the situation of countries in arrears rectors convened as a com.rnittee of the whole and heard reports on recent developments in to review the preliminary agenid and the out- nonaccrual countries. The comniit-ce also re- lines for the background papers in order to en- viewed and endorsed preliminary recommen- sure that the main issues and concerns of dations regarding the annual allocation of the committee members were well reflected in the IBRD's net income. Another area examined documentation. was the adequacy of the Bank's internal con- In preparing for the committee's semiannual trol systems. As part of its oversight function, meetings, the board discussed a range of pa- the committee under-took its annual review of pers and reports that touched on many issues the work programs of the Operations Evalua- of importance to the Bank's member countries, tion Department (OED) and Internal Auditing including the adjustment experience in, and im- Department (LAD). Two subcommittees of al- plications for, low-income countries; social se- ternate executive directors were appointed to curity reforms and social safety nets in assist the committee in carrying out its man- reforming transition economies; reports on date with regard to the OED and the LAD. In population in developing countries' and migra- addition, the committee reviewed numerous tion flows, and Bank activities in women in papers by the OED as part of an ongoing effort development." The executive directors' Steer- to identify problems or policy issues for con- ing Committee reviewed the communiques sideration by the executive directors. released by the Development Committee fol- The committee consists of eight executive di- lowing its semiannual meetings and made sug- rectors. Marc-Antoine Autheman has served gestions to ensure that the board's work as chairman of the committee since March program was responsive to the directions set 1994. by the committee. Committee on Cost Effectiveness and Bud- get Practices. The Committee on Cost Effec- Board Committees tiveness and Budget Practices (CEBP) was Joint Audit Committee. Established in 1970, established in 1986 to examine aspects of the the Jc.nt Audit Committee (JAC) represents shareholders in overseeing the soundness of "For deails. see page 37. the Bank's financial practices and the ade- "For dctis. see page 36. Board Committees 21 Bank's business processes. administrative pol- recruits people with the skills needed to carry icies, business standards, and budget practices out its changing work program), and possible that significantly affect the cost effectiveness changes in the local currency option of the staff of its operations. retirement plan. Two of the major actions un- Fiscal year 1994 was the first year that the dertaken by the committee were to review the committee's mandate was expanded to include results of the quadrennial benefits survey and the review of all the major papers in the Bank's of the 1994 review of staff compensation. Fol- budget cycle-the fiscal 1993 retrospective re- lowing the committee's endorsement, the view, IBRDIIDA planning directions for fiscal board approved management's recommenda- years 1995-97, the fiscal 1994 mid year review, tions with respect to both items. The role of the and the IBRD programs and fiscal 1995 budget. Bank's fieid offices was also a focus of the Foliowing meetings to consider the relevant pa- committee's scrutiny. pers, the committee prepared reports to the The committee consists of eight executive di- board conveying its views on the planning di- rectors. Jean-Pierre Le Bouder has served as rections paper and on the budget for fiscal chairman of the commitee since January 1993. 1995. The discussion of the latter was added to Committee on Directors' Administrative the committee's work program as a follow-up Idatters. The Committee on Directors' Admin- to the fiscal 1994 budget discussion during istrative Matters (CODAM) was established in which the importance of the committee's active 1968 to consider administrative matters relat- involvement in the planning and budgeting pro- ing to executive dirctors and their alternates, cess was strongly encouraged. advisers, and staff. The commiuee recom- The committee devoted a number of meet- mends to the executive board the formulation ings to considering cost-saving issues that cov- and implementation of new administrative pol- ered a wide range of Bank activities, from icies and changes in existing policies. improvements in the efficiency with which Major issues taken up by the committee in work is carried out to systematic and incentive the fiscal year included remuneration of advis- changes in processes and procedures. As a part ers and executive directors' assistants; execu- of this exercise, the committee requested and tive directors' travel to member countries was given a presentation on the work of the outside of their constituencies (group travel); staff Committee on Business Innovation and travel policy for executive directors; and con- Simplification (BIAS). Thereafter, the BIAS sideration of executive directors' administra- Committee sought the advice and views of the tive expenses. CEBP on the streamlining of some board doc- The committee coordinates many of its rec- umentation. ommendations with a similar comniittee estab- The committee consists of eight executive di- lished by the executive board of the MEF. rectors. Angel Torres has served as chairman The committee consists of six executive di- of the committee since December 1992. rectors. John Cosgrove has served as chairman Committree on Personnel Policy Issues. The of the committee since January 1993. committee, which was established in 1980, is The Ad Hoc Committee on Review of Board charged with keeping under continuing review Committees. The Ad Hoc Committee on Re- and, where appropriate, advising the executive view of Board Committees was established in directors on, staff compensation and other sig- December 1993 to review the function, struc- nificant personnel policy issues. It also main- ture, and terms of reference of standing com- tains close liaison with the executive directors mittees of executive directors, including of the International Monetary Fund (DIM) on criteria for appointments to committees. It these issues, bearing in mind the general par- completed its work in April 1994. The commit- allelism of the two institutions. tee's recommendations will be implemented One of the main undertalings of the commit- following the 1994 regular election of executive tee during the year was the continuing exami- directors. nation of the complex subject of expatriate The conclusions and recommendations in benefits. The board subsequently took up the the committee's report, which was approved matter, first, on the basis of the committees re- by the executive directors in May 1994, aim to port and recommendation, and then, on the ba- improve and strengthen, rather than funda- sis of a paper from management. The board mentally change, existing arrangements for finally decided not to change the current policy. exectutive directors' committees. The main con- The committee reviewed the Bank's and the clusions and recommendations are summa- International Finance Corporation's (IFC) per- rized below. sonnel policies and practices, results of the Functions and structure of committees. It was 1993 staff attitude survey, issues related to agreed that the overall objective of committees skills mix (that is, how the Bank identifies and should be to strengthen the efficiency and ef- 22 The Executive Board fectiveness of the board in discharging its re- Composition and guidelines for appointment sponsibilities. To meet this overall objective, to committees. It was further agreed that ap- committees need to carry out work programs pointments to committees should be governed that facilitate the process of consensus building by general principles that can be applied flex- and decisionmaking in the board and assist the ibly, the two most important of which are board in discharging its oversight responsibili- consultation among executive directors and ties. Generally. com..iittees need to focus on a balanced representation from the board. Spe- limited number of clearly defined priority is- cifically. appointments to committees should sues. reflect economic and geographic diversity of In view of the overall workload of commit- the Bank's member countries with a view to tees and the steadily growing importance and ensuring balanced representation between bor- need for review of operations evaluation and rowing and nonborrowing member countries. development-effectiveness issues in the con- The committee consisted of four executive text of the Bank Group's operational activities, directors. Jorunn Maehlum served as chairman it was furtheragreed that (a) the mandate of the of the committee. Joint Audit Committee should focus on exter- Executtive Directors'. Steering Committee. nal and internal audit and financial policy The Executive Directors' Steering Committee, issues and (b) a new committee of eight exec- an informal advisory body of executive direc- utive directors should be establibhed to review tors composed of the dean and the co-dean of operations evaluation and development-effec- the board, as well as the chairpersons of the tiveness issues. other standing board committees, meets It was agreed that the mandates of all com- monthly to consult on, and review with the mittees should apply uniformly to the EFC. Bank's vice president and secretary, the exec- Interaction between committees, Bank man- utive directors' work program. The committee agement, and the board. New procedures were also provides a consultative framework for var- approved to strengthen interaction between ious board issues. In addition, the committee committees, management, and the board. reviews the Development Committee's com- These procedures cover reporting require- muniqu6s to ensure that the implications for ments of committees and management to the the executive directors' work program are fully board and are designed to facilitate board dis- considered. The steering committee has also cassion of formal management proposals (in- taken a leadership role in ensuring the imple- eluding, in some cases, management option mentation of the new board policies and pro- papers) submitted to committees for prior re- cedures, including, among others, the view. determination of the scheduling of country- A number of recommendations aimed at im- assistance strategies and periodic reviews of proving efficiency in the conduct of committee sector policies. The committee consists of six business were also approved, including, for ex- executive directors. The dean of the board, ample, recommendations for building consen- Ibrahim Al-Assaf, has served as chairman sus among executive directors on controversial since September 1993. issues, for identifying priority issues for board The meetings of committees of the executive consideration, and for board approval of com- board are open to participation by all executive mittee recommend2tions on an absence-of- directors. objection basis. 23 Section Two The Economic Scene: A Global Perspective Economic activity in the industrialized coun- widely. Growth in East Asia and the Pacific, of tries slowed further in 1993, to 1.2 percent. as 9.2 percent, continued to outpace that in every a result of sluggish growth in Japan and reces- other developing region by at least five per- sion in continental Europe (see Table 2-1). Re- centage points. China remained the fastest covery in the United States was well underway growing economy in the region-and the by the fourth quarter of 1993, when output ex- world. Growth has averaged 13 percent in the panded by 7 percent on an annual basis. Can- past two years. as the government continued to ada and the United Kingdom experienced a implement market-based reforms and as trans- modest recovery in 1993. The slow pace of national corporations continued to commit overall growth in 1993 was associated with- ris- record amounts of investment. In July 1993, ing unemployment, which reached 8.2 percent the Chinese authorities undertook measures to in the industrial countries as a group, topping slow the torrid pace of growth and ease rising out at 10 percent of the labor force in several inflationary pressures. Malaysia and Thailand, European countries. two other prime recipients of foreign direct in- Reflecting the significant gap between actual vestment, once again displayed outstanding and potential output in most industrial coun- growth performance. These countries began to tries, inflation continued to ease, as growth in show strains resulting from shortages of skilled the GDP deflator fell to 3.3 percent, down from labor and adequate infrastructure, as well as 4 percent in 1992.' from the need to address longer-term issues, The developing countries-excluding the such as upgrading production to higher value- countries in transition in Central and Eastern added sectors as competition in the labor- Europe and the former Soviet Union (ESU)- intensive sectors increases from countries such grew by an estimated 4.5 percent in 1993, up as China, India, and Indonesia. from 3.6 percent in 1992, thereby exceeding Latin American and the Caribbean once industrial-country growth by more than three again experienced gains in output as refonns in percentage points for the third straight year many countries continued to take root and (see Table 2-2). Underlying these aggregates, show results. Growth for the region as a whole, however, were widely differing trends between supported by large inflows of foreign private the countries in transition and the traditional capital flows, rose to 3.5 percent, up from 2.8 universe of developing countries. Output in percent in 1992. Individual country perfor- Central and Eastern European countries and in mance was mixed, however. Although Brazil's the republics of the FSU fell by an estimated economy grew by rit estimated 4.9 percent (up 7.4 percent in 1993. Although the rate of de- from a decline of close to I percent in the pre- cline slowed from 12.7 percent in 1992_ it was vious year), the inflation rate inc-qssd diramat- the fourth straight year of diminishing output. ically. Political uncertainty, lower oil prices, The continued robust growth in the tradi- and policy weaknesses moved Venezuela into tional developing countries in the face of re- recession during the year. Growth, which cession in the industrialized countries can be slowed in Mcxico to about 2 percent in 1992 attributed to several factors. These include the after several years of more robust gains, was effects of increasingly widespread and sus- stagnant in 1993, as tighter credit conditions tained policy reforms in many countries; low aimed at curbing a bulging external deficit international interest rates (that partly offset slowed activity. The signing of the North the depressing effect on commodity exporters American Free Trade Agreement (NAFTA), of falling export prices); and, associated with these two factors, the enormous continued surge in private capital flows to developing 'Although inflationary pressures remained in check, the countries- stemngth of the recovery in the United Stales moved the Growth prformane amongthe mai devel- Federal Reserve Board to increase short-term dollar inter- Growth performance among the main devel- est rates in the first quarter of 19g4. European and Japa- oping country regions continued to diverge nese raes. however. remain low. 24 The Economic Scene: A Global Perspective Table 2-1. G-7 Countries: Output, Inflation, Investment, and Unemployment, 193-93 (aveage annual percentagc changc: unemployment rates in percent) G-7 country 198393 1992 1993 1983-93 1992 1993* Real GDP GDP deflator Canada 2.7 0.7 2.4 3.3 1.2 1.8 France 2.1 1.4 -1.0 4.2 2.3 1.5 Gennanyb 2.6 1.2 -1.9 2.9 4.4 3.8 Italy 2.2 0.9 -0.7 7.7 4.7 3.8 Japan 3.7 1.2 1.1 1.5 1.8 1.4 United Kingdom 2.2 -0.5 1.9 5.3 4.3 2.5 United States 2.8 2.6 3.0 3.7 2.9 2.8 G-7 average 2.8 1.7 1.3 3.7 3.0 2.6 Total OECD 2.8 1.7 1.2 5.1 4.0 3.3 Gross fixed investment Unemployment rate Canada 3.3 -2.1 0.5 9.8 11.3 11.2 France 1.1 -3.1 -6.5 9.9 10.4 11.7 Germanyb 2.9 0.3 -5.1 7.3 5.9 7.4 Italy 1.4 -1.5 -9.1 11.0 11.5 10.4 Japan 5.3 -4.3 -7.4 2.5 2.2 2.5 United Kirsgdom. 3.2 -3.3 -2.9 9.2 9.8 10.3 United States 3.4 6.2 10.9 6.8 7.4 6.8 G-7 avcrage 3.3 1.3 1.6 6.8 7.1 7.1 Total OECD 3.6 1.9 1.9 7.5 7.8 8.2 a. Preliminary. b. German data rcfer to westrn LAnder only. Souna: Orapisaxion ror Economic Coopeation and Develpment (OECD). International Monetary Fund (IME:). however, bolstered the positive longer-term tion of the deep social and structural challenges outlook forthe economy. Argentina, Chile, and facing a new administration. Colombia experienced growth of more than 5 Growth in South Asia slowed to 3.8 percent, percent. in part the result of devastating floods in Paki- Sub-Saharan Africa (excluding South Africa) stan towards the end of 1992 and weak indus- posted a modest increase in GDP of 1.4 per- trial growth in India. Nevertheless, countries in cent; the region was helped by recovery from the region showed improvements in their ex- the most severe drought to hit Eastern and ternal account performance, with increased ex- Southern Africa in this century, as well as by ports and private capital inflows. The new gradually improving performance in countries government in Pakistan confirmed its adher- that have persisted with adjustment and reform ence to the reforn policies of the previous tran- policies. Although overall growth remained sitional administration. India continued its low, some hopeful signs also emerged: Civil moderately paced but steady economic reform war came to an end in Ethiopia and Mozam- policies. Although inflows of foreign capital to bique, beverage prices moved higher during the that country were small by comparison with year, and expectations for at least a stabiliza- leading East Asian and Latin American econ- tion in nonoil commodity prices became some- ornies, they were nonetheless far greater than what firmer. The 50 percent devaluation of the at any time in the past. CPA franc and the subsequent prompt support A fall in world oil prices of more than 10 per- from multilateral lenders and the French gov- cent contributed to a marked decline in growth, emnment substantially improved prospects for to an estimated 1.9 percent, in the Middle East the revitalization of the adjustment process in and North Africa. Output fell almost 2 percent the CFA Zone countries. Finally, the South Af- in Algeria as the country's political crisis deep- rican economy began its recovery from pro- ened. Growth was alnost negligible in Egypt, longed recession with the passing of drought, where the process of adjusting fiscal imbal- rising gold prices, and the ending of interna- ances continued. tional sanctions, thereby providing a more fa- As a group, the transitional economies in vorable backdrop for the country's wansition Central and Eastern Europe and the FSU suf- to multiracial democracy. That process has fered a further decline in output of more than 7 brought to the fore both hopes for substantial percent. The republics of the FSU contributed future economic progress, as well as recogni- the most to this decline, as their output fell 13 Recent Trends In External Debt and Debt Strategles 25 Table 2-2. Low- and Middle-income Economies: Growth of GDP and GDP per Capita, 1982-93 lavemgc annual percentagc change unless otherwise noted) CGDP GDP per capita Reglon or income group 293290 299493 1991 1992 199D 1982-90 1991-93 1991 1992 1993" Low- and middle-incorne economies 3.4 0.7 0.2 0.3 2.1 1.4 -1.1 -1.6 -1.5 0.2 By regional group Sub-Saharan Africa' 2.4 1.4 1.5 1.2 1.4 -0.7 -1.3 -3.5 -1.8 -1.7 East Asia and Facifice 8.1 8.5 7.0 8.7 9.2 6.4 6.9 5.5 7.2 7.5 South Asiad 5.7 4.0 2.0 4.6 3.8 3.4 1.5 -0.2 2.5 1.8 Middle East and North Africa 0.0 2.7 3.1 4.0 1.9 -3.1 -0 3 -0.2 1.1 -1.1 Europe and Central Asiar 1.9 -10.0 -9.3 -12.7 -7.4 1.1 -10.6 -9.8 -13.2 -8.0 Latin Amenrca and the Caribbean' 2.3 3.1 3.4 2.8 3.5 0.3 1.2 1.6 1.0 1.6 By income group Low- and middle-income economies, excluding transition economies in Europe and Central Asia 3.8 4.5 4.1 3.6 4.5 1.7 2.5 2.0 1.7 2.9 a. Esdmated. b. Excludes South Africa. c. American Samoa. Cambodia, China, Fii. Guam, Indonesia. Kiribad, Republic of Korea, Lao People's Democratic Re- public, Macao. Malaysia. Mongolia. Myamar. New Caladonia and Pacific Islands' Trust Territory, Papua New Guinea. the Philippines, Solomon Islands, Thailand, Tonp. Vanuntu, Viet Nam. and Wcstern Samoa. d. Afghanistan. Bangladesh. Bhutan, India, Maldives, Nepal. Pakistan, and Sri Lanka. e. Algcria. Bahrain. Egypt, Islamic Republic or Iran, Iraq. Jordan. Lebanon. Libya, Morocco, Oman, Saudi Arabia, Syrian Arab Republic. Tunisia, and Yemen. f. Albania. Bulgaria. Czechoslovakia (through 1992; the Czech Republic and the Slovak Republic thereafter), Gibraltar, Greece, Hungary, Isle oF Man. Malta, Poland. Portugal. Ronania, Turkey. republics of the former Soviet Union. and republics of the former Yugoslavia. g. All American and Canbbean economies south of the United States, except Cuba. SouRcE: World Bank percent on top of a 20 percent drop in 1992. mated at $1,700 billion at the end of 1993, an Political uncertainty and macroeconomic insta- increase of 6.5 percent in nominal terms, or bility in Russia continued throughout the year. about $108 billion, over the previous year. Of Nonetheless, the government maintained prog- this amount, long-term debt outstanding stood ress on the structural reforn agenda, albeit at a at $1,411 billion, an increase of 7.9 percent halting pace. The privatization program main- ($103 billion) (see Table 2-3). The increase in tained momentum; by the end of 1993, two long-term debt is accounted for principally by thirds of all small service enterprises had been net inflows of around $72 billion and a privatized. Output in Poland grew for a second currency-valuation factor of over $20 billion re- year in a row, while economic contraction in sulting from the fall of the United States dollar Hungary and the Czech Republic appeared to against the yen in 1993. In addition, capitaliza- be drawing to a close. There is evidence, es- tion of interest through debt reschedulings pecially in those three countries, that "new" added $15 billion to long-term debt (though largely private sector activity (concentrated in much of this was offset by reduction in short- services, construction, and the trades) is be- term debt, in which interest arrears are classi- ginning to account for a significant share of out- fied for debt-accounting purposes), while put (approaching 50 percent in some cases) and voluntary debt reductions (buybacks, debt ex- is providing support for growth. changes, equity swaps, and so forth) were cx- Recent Trends in External Nebt pected to have reduced debt by $9 billion. Private creditors provided 61 percent, or $44 and Debt Strategies billion, of the overall $72 billion net flow of The total external debt of all developing long-term debt to the developing countries, an countries, including short-term debt, was esti- increase of $2 billion from 1992. For the second 26 The Economic Scene: A Global Perspective Tabk 2-3. Low- and Middle-income Economies: Long-term Debt and Debt Service, Selected Years, 1988-93 (billions of US dollars; percenlages) All low- and Severely indebted middlc-income middle-income economies economics Sub-Saharan Africa Item 1988 1992 19931 19I 1992 199?3 198B 1992 19938 Debt outstanding 1,128.1 1,308.2 1,410.9 440.0 456.9 475.2 135.0 15535 156.4 Official (9) 46.0 50.9 51.0 38.4 47.0 46.4 60.6 73.0 74.0 Private (%0) M.D 49.1 49.0 61.6 53.0 53.6 39A 27.0 26.0 Debt as % of GNP 29.1 29.6 31.7 38.8 36A 37.2 57.1 55.8 53.7 Debt service 154.2 155.3 161.1 51.8 51.0 53.6 11.2 12.0 9.8 Interest payments 66.1 57.1 61.5 28.4 18.2 20.2 5.1 5.6 4.8 Ofircial (%) 27.6 39.3 40.8 18.9 42.4 42.4 42.7 32.9 36.6 Private (%) 72A 60.7 59.2 81.1 57.6 57.6 57.3 67.1 63A Principal payments 88.0 98.2 99.6 23.4 32.8 33A 6.1 6.4 5.0 Officil () 28.4 30.3 33.1 31.2 31.2 36.4 31.5 30.3 42.2 Private (96) 71.6 69.7 66.9 68.8 68.8 63.6 68.5 69.7 57.8 DCbt-service ratio (%)b 19.9 16.3 16.3 31.5 27.1 26.7 16.4 14.5 11.7 Avenage interest rate on new commitments (%1' 6.6 6.1 na.; 7.5 6.7 na. 4.1 2.9 n.a. official (96) 5.0 5A n. 6.3 6.9 n.a. 3.4 2.8 n.a Private (6) 8.0 6.8 n.a. 8.2 6.6 n.a. 7.1 4.9 na. Disbursements 1215 160.0 171.2 34.1 37.9 44.9 10.5 85 7.7 official (9) 39.1 31.2 3.6 38.1 31.1 38.0 61.9 77.2 81.9 Private (%) 60.9 68.8 64.4 61.9 68.9 62.0 38.1 22.8 18.1 Net resource flows on long- termlendinge 335 61.8 71.1 10.7 5.1 11.6 4.4 2.1 2.8 Net transfers on long-term lendinge -32.6 4.7 10.2 -17.7 -t3.1 -8.6 -0.7 -35 -2.1 Norm Stock, flow, and economic data cover 148 countries of which 129 report to the World Bank DebtorRporting Sym. n.a. Not available. a. Preitminary. b. Debt service as a perentage of exports of goods and services. c. Covers the countries reporting to the World Bank Debtor Rcporting System. d. Disbursements minus (actual) principal repayments. e. Net resource flows minus (actual) interest payments. SouRCE: World Bank. year in succession, private net flows exceeded Europe-are estimated to have raised over $34 official ones, an occurrence otherwise not ex- billion in public and private bond placements. periet'ced since the onset of the debt crisis of Official net flows increased sharply by $8 bil- the early 1980s. East Asian and Latin Ameri- lion, to $28 billion. Net flows from multilateral can countries continued to borrow actively in sources, including the World Bank, are esti- financial markets, as falling short-term and mated to have risen to around $18 billion, up long-term intemational interest rates and an in- from $12 billion in 1992 (see Table 2-4). Bilat- tense (if temporary) vogue for emerging market eral lending was estimated to have risen by 22 debt facilitated a substantial increase in bond percent, to almost $10 billion. The share of issuance. Ten countries-Argentina, Brazil, concessionality in official debt is also estimated Mexico, and Venezuela in Latin America; to have risen, reflecting the restructuring of China, Korea, and Thailand in East Asia; and nonconcessional debt on concessional terms in the Czech Republic, Hungary, and Turkey in Egypt, Poland, and those countries benefiting Recent Trends In External Debt and Debt Strategies 27 Tabl 2-4. Long-term Financial Flows to Developing Countries, 1986-93 (bflions of US dollars) Item :986 1987 1988 1989 1990 1991 1992 1993 Long-term aggregate net resource flows 64.0 67.8 74.1 79.4 102.2 121.2 156.6 176.6 Official development finance 44.0 43.9 40.8 41.1 59.2 63.0 54.6 63.4 Official grants 16.0 16.7 18.3 19.0 28.5 32.9 34.5 355 Net official loans 28.0 27.2 22.5 22.1 30.7 30.1 20.1 27.9 Bilateral 12.8 12.2 11.4 10.4 159 15.2 7.9 9.6 Multilateral 15.2 15.0 11.1 11.7 14.8 14.9 122 18.3 Net private loans 9.2 8.6 11.0 10.1 12.9 13.8 41.7 43.7 Commercial banks 1.8 1.1 7.9 3.9 -2.5 5.4 185 n.a Bonds 0.8 1.0 2.9 4.2 2.3 7.4 63 na. Others 6.7 6.5 0.2 2.0 13.1 1.0 16.8 n.a. Foreign direct investment 10.1 14.5 21.2 24.7 26.3 36.9 47.3 56.3 Portfolio equity investment' 0.6 0.8 1.1 35 3.8 7.6 13.1 132 Long-term aggregate net transferse -5.0 -3.0 -5A 2.2 25.6 44.5 79.6 91.5 Interest on long-tern debt 57.6 58.3 66.1 60.2 29.1 59.6 57.1 61.5 Profit remittances on FDI 11.4 12.4 13.4 17.0 17.6 17.0 19.9 23.6 n.a. Not available. a. Prelimnuary. b. World Bank staff estimates available since 1990 only. c- Long-tenn aggrepte net resoume flows miinus interst payments and reinvested and renitted profits. SouRcE: World Banko from enhanced Toronto terms, as well as new Mozamrbique in 1991. Guyana in 1992, and concessional flows to sub-Saharan Africa, the Uganda and Bolivia in 1993. These operations Central Asian republics, and Viet Nam. extinguished $623 million of principal in com- Voluntary debt-reduction operations, includ- mercial debt at an average price of 14 cents on ing official debt forgiveness by key Arab cred- the dollar. Similar buyback operations were in itors to countries in the Middle East, are preparation for another ten countries: Albania, estimated to have reduced debt by about S9 bil- Ethiopia. Guinea, Mali. Mauritania. Nicara- lion in 1993, bringing the total of :nch reduc- gua, Sio Tom6 and Principe, Sierra Leone, tions since 1988 to almost $100 billion. The Tanzania, and Zambia. 'Brady" type of debt and debt-service reduc- Restructuring of official bilateral debt under tion operation carried out by Argentina in April Paris aub auspices also contributed to debt re- 1993 rrduced the face value of its debt by close duction. During 1993, agreement was reached to $3.3 billion. Jordan canie to an agreement with eleven countries to reschedule or restruc- with its commercial creditors in December ture$1.2billionindebts Sixofthe agreements- 1993 to restructure an estimated $900 million of with Benin, Burkdna Faso, Guyana, Mauritania, principal and arrears. The Dominican Repub- Mozambique, and Viet Nam-were reached lic, after reaching agreement in principle with under enhanced Toronto terms. In November bank creditors in May 1993 to restructure $1.1 1993 the French government canceled F800 billion of principal and arrears, continued to million of the debt of four CFA countries, and, make progress towards a final agreement, in the wake ofthe devaluation of the CFA franc while Bulgaria reached an agreement in princi- in January 1994, France proposed canceling ple with its creditor banks on restructuring $9.3 another F25 billion owed by the CFA Zone billion of commercial bank debt. Brazil also countries affected by the exchange-rate adjust- continued discussions on a restructuring of ments. The focus of the debt strategy, espe- about $50 billion of obligations.2 cialy for the severely indebted low-income Use of the other main venue for commercial countries, continues to shift from repeated re- debt reduction, the Debt- reduction Facility for schedulings to the maintenance of a positive IDA-only Countries, also increased. This facil- cash flow as a means of accelerating the re- ity, created in 1989, provides grants to eligible sumption of these countries' extemal viability. [ A members to reduce their commercial debt. Significant bilateral official cofinancing sup- port has also been made available for facility- :2In April 1994. Brai implemented the deal with its ctn- mercial creditors and cxchanged old debt for new long- supported operations. By the end of 1993, five term bonds. The debt collateralized by the zcro-coupon operations had been completed: Niger and bonds amounts to S:7 bilon. 28 The Economic Scene: A Global Perspective Accumulated interest arrears were reduced fers to developing countries were positive for by about $10 billion in 1993. the second year in the fifth consecutive year. They were also sub- succession that arrears fell rather than in- stantial, amounting to 2.1 percent of develop- creased. A large portion of this reduction came ing country GDP, an increase from 1.8 percent from clearance of arrears in Latin America, es- in 199' pecially Peru. and the former Soviet Union. Because the flow of FDI to industrial coun- Rescheduled interest payments in 1993 were tries declined, developing countries are esti- estimated at $15 billion, up slightly from the mated to have increased their share of global previous year's $14.2 billion. E:DI from 31 percent in 1992 to around 35 per- Despite the increase in developing country cent An improved economic climate has made debt stocks, key debt ratios did not worsen as foreign investment attractive in many coun- economic and trade conditions improved. Al- tries; privatization of state-owned enterprises though the ratio of developing countries' long- has also boosted inflows, especially in Latin term debt to GNP rose to 31.7 percent from America and Eastern Europe. China, by far, 29.6 percent in 1992, the increase partly re- was the largest recipient of Fl)I, with $15 bil- flected large currency devaluations that re- lion flowing into the country in 1993, up $4 bil- duced the dollar value of GNP in some Middle lion over the 1992 total.3 In general, E1DI Eastern. European, and Central Asian coun- continues to be concentrated in a limited num- ties. Significant increases in the outstanding ber of developing countries: Five countries-in debt of East Asian and South Asian countries, order of FDI amounts, China, Mexico, Argen- as well as of the FSU, also contnrbuted to the dna, Malaysia, and Thailand-received 59 per- rise. The long-term debt service-to-exports ra- cent of FDI flows. Regionally, FDI favored tio remained constant at 16.3 percent. This ra- East Asia ($25 billion), Latin America ($18 bil- tio has hovered around the 16 percent mark for lion), and Europe and Central Asia ($9 billion). four years in a row. Flows to most low-income countries were stag- nant, however, reflecting the slow growth of Capital Flows on the Increase official flows and the lack of access of most of Aggregate long-term net resource flows to these countries to private capital markets. In developing countries--defined as net flows of some instances, low-income countries have long-term debt, grants (excluding technical as- suffered from a lack of enthusiasm by the pri- sistance), and equity investment (foreign direct vate sector-for example, commercial banks in and portfolio-equity investment)-are esti- sub-Saharan Africa. mated to have increased by $20 billion to $177 Portfolio-equity flows appear to have been billion in 1993 (see Table 2-4). Net flows of simflarly concentrated, with three quarters of long-term debt of $77 billion were the largest the $13 billion total going to East Asia and single component of aggregate resource flows. Latin Amenca. Developing country securities Of these debt flows, $28 billion was from offi- are currently underrepresented in the portfo- cial creditors. Official creditors also provided lios of industrial country investors, given their grants of $36 billion, up $1 billion from 1992; big diversification benefits and higher risk- official finance, therefore, amounted to $63 bil- adjusted returns. If countries persist with their lion, up $9 billion from th: previous year. policy reforms, a gradual rebalancing of these Net foreign direct invesTment (FDI) rose 19 growing portfolios is likely to increase private percent, or $9 billion, to $56 billion. Equity- flows to developing countries significantly. At portfolio investment, which reached $13 billion the same time, such flows are lkely to be mor in 1992, stayed at that level. In addition to F1D volatile than FDI because they are more sen- and portfolio investment, private flows in the sitive to global interest-rate movements and to form of long-term debt amounted to $44 billion. positive or negative "bandwagon" effects.4 Private sources, therefore, are estimated to have been responsible for 64 percent of overal Primary Commodity DevelopmnDts net resource flows to the developing countries, Primary commodity market trends in 1993 an increase of more than 150 percent since were mixed, with nonoil commodity prices ris- 1990. This amount, in constant dollars, ingmodestly and oil prices falling sharply once matches the level attained in the early 1980s again. The dollar index of nonoil commodity- before the onset of the debt crisis. Aggregate long-term net transfers to devel- oping countries-defined as net resource flows less interest payments on long-term debt and 3These figres may bc inlated by Chinse capital that is profits on FDI-increased by $12 billion to $92 1%uted through Hong Kong back into Chinaand then re- billion, as increased net flows more than offset MTm turbt'e e arly in ln4 in the energing coutny boud the increase in interest and profits. Net trans- markets is a tesament to the volatility of such flows. World Trode Growth Slows 295 Table 2-5. Commodity Prices, 198693 (average annal peretage charUg) Commodiy price 1986-91 1991 1992 1993 In current-dollar terms Food and beverags --4.4 -2-1 -6.6 0.7 Nonfood agriculture 4.6 -0.8 -4.9 -5.4 Metals and minerals 6.1 -Li -IA -14.6 Total nonoil -09 -3.0 -4. 1.4 Petroleum 7.7 -18.4 -0 -[1.6 In real ternmt Total nonoil -5.5 -5.1 -8.2 1.0 Petroleum 2'7 -20.2 -4.6 -12.1 In special drawing tight (SDRs) Total nonoil -3.8 -3.8 -6.9 2.3 Petrleum 43 -19.A -33 -10.8 Naos Weights in the commodity price indcxes are commodity exports of al devdoping countries. a. Deflated by unit-value index of mnan_uf exports from the G-5 counries (Frianc Germany. Japan. the United Kingdom, and the United States) to the developing counties. Soumuc World Bank. prices was 1.4 percent higher than in 1992, sup- output capacity and higher world production ported by gradually reviving growth in the added to the downward pressure on prices in industialized countries, continued growth in aluminum and iron ore. Increased exports from the developing countries, and lower interna- Russia affected the aluminum and nickel mar- tional interest rates (see Table 2-5)_ In terms of kets. Late in the year, lead, zinc, and nickel constant 1990 dollars (using the unit-value in- prices rallied to varying degrees, reflecting the dex of exports ofmanufictured goods from the more substantial production cutbacks that five largest industrialized countries to the de- have taken place in these industries. veloping countries as the deflator) nonol prices Crude-oil prices fell by $2 a barrel, or 11.6 were up i percent. By either measure, the percent, to $1530. Much of the decline oc- slight increase in 1993 was the first in five years curred in the second half of the year. The pres- and followed a 27 percent fall (in constant dol- sure on oil prices derived from several sources. lar terms) during the period 1988-92. Indeed, A weak increase in demand by the industrial- constant dollar prices in 1993 were almost 50 ized countries was more than offset by higher percent below their postwar average. Ifthe rise output from the North Sea and Canada Al- in the nonoil commodity price index was mild, though production fell steeply in the FSU and it was at least fairly steady over the course of Eastern Europe, consumption fell a little more the year; by the fourth quarter, prices were 3.7 steeply yet, relcasing more oil to the market. percent above the cyclical low reached in the Fmally, although demand for oil increased in same period of 1992. On a fourth quarter-to- the developing countries (by about I million fourth quarter basis, the largest contributions barrels a day), output in these countries in- to the pick-up in prices were made by bever- creased even more (by about 1.2 million barrels ages, grains, and timber- a day). OPEC countries were responsible for Metals and minerals suffered the steepest two thirds of the production increase. price decline of any commodity group in 1993, averaging 14.6 percent lower than in 1992. In World Trade Growth Slows constant dollar terms, the price index of this The rate cf growth in the volume of world group fell to its lowest level in the whole post- merchandise exports slowed to an estimated war period. Prices for all the main industrial 2.6 percent in 1993 (see Table 2-6). The two metals (copper, tin, nickel, aluminum, lead, most important reasons for the slowdown were zinc, iron ore) fell sharply; only precious met- the recession in Europe (which curbed intra- als prices moved higher- Overall world demand Europe trade, the largest part of the trade of for industrial metals was broadly flat or lower individual European counties,' as well as im- than in the previous year, as increased demand ports from the rest of the world) and sluggish in the United States and in the developing countries was offset by weakness in Europe, 5Because of the merger in trade-accounting procedures in Japan, and the transitional economies of Cen- the European Union. it is generally thought that intra- tral and Eastern Europe and the FSUP Surplus European trade was underreported. 30 The Economic Scene: A Globol Perspecflve Table 2-6 Selected Trade-perormance Indicators, 1970-93 (average animal pereeg change) Cuntry group and indicator 19704-0 1980-90 1991 1992 1993 Low and middle-income countres- Import volume 3.5 0.8 11.3 8.6 6.5 Export volume 2.7 3.6 11H1 5.6 3.8 Terms of trade 0.7 -3.3 -5.5 -0.8 -1.7 Sub-Saharan Africac Import volume -0.5 -4.9 8.8 -1.0 4.0 Export volume -0.7 2.1 2.3 1.9 2.4 Terms of trade -0-1 -5.8 -8.7 4.2 -9.0 Asia Import volume 73 7.0 16.4 9.4 11.2 Export volume 8.5 9.6 16.2 12.5 7.4 Terms of tade -0.8 -1.7 -0.2 -0.3 1.7 Eumpe and Ceral Asia Import volume 2.4 3.5 2.4 -t.0 0.8 Export volume 4.0 3.0 13.3 -1.4 -4.0 Terms of tade -0.9 1.2 -9.8 -05 -0.3 Middce East and Nortk Afiica Import volume 5.7 -4.5 3.6 10.2 1.0 ExOrt volume -2.4 -1.6 9.3 -0.4 12 Terms of trade 4.6 -7.2 -12.9 -02 -7.2 Lats America and the Caribbean Import volume . 0.1. -2.5 21.0 19.0 7.6 Export volume 2.5 2.7 5i0 6.3 5.6 Tenrs of trade -0.3 -2.8 -3.7 -33 -3.7 Memorandum item World export volume 4.2 4.6 . 6.1 3.5 2.6 Non: Trade volumes measured in consant 1987 prices and exchang rates. Terms of trade are cakuabted as the ratio of export price to import price. a. Estimated. b. Inuding rpublics of thc fonner Soviet Union. c. Excluding South Afica SoUncR World Bank. growth in Japan. The recovery in the United Two developments in 1993-the conclusion States, which caused demand for imports to of the Uruguay Round of the GATT and of the rise, was not sufficient to offset the dampening NAFTA among Canada, Mexico, and the effect on world trade of the adverse conditions United States-underlined the importance for in Europe and Japan. Estimates by the GATT the future of two coexisting trends, one to- suggest that trade in commercial services may wards broad multilateral trading arrangements have increased by only 3 percent in nominal under the GATT and the other towards re- terms to reach S1,030 billion, as against a 12 gional integration arrangements (RlAs). percent rise in 1992. Accordingto theGATTSecretariat, the Urm- Reflecting these conditions, the growth of guay Round is expected to generate an increase merchandise export volumes from the low- in merchandise trade of 12 percent by the year income and middle-income countries deceler- 2005 (or roughly $745 billion in 1992 dollars) ated to an estimated 3.8 percent. Export over the level that would have existed by then growth in Asia slowed from 12.5 percent to a had trade grown only at its average for the pe- still robust 7.4 percent, while Latin Amercan riod 1980-91 (4.1 percent). The largest in- export growth slowed from 6.3 percent to 5.6 creases are expected in clothing (60 percent); percent. Exports from the Europe and Central textiles (34 percent); agricultural, forestry, and Asia region, with their greater focus on West- fisheries products (20 percent); and processed era European markets, fell 4 percent. food and beverages ([9 percent). Estimates World Trade Growlh Slows 31 suggest that world income could increase by at ing about 50 percent over seven years. Latin least I percent. or some $212 billion to $270 America will also gain, but proportionately billion annually (1992 dollars). Of that amount, less. Its food exporters (Argentina, Chile, and $80 billion is expected to accrue to developing Uruguay, in particular) will benefit from reduc- countries. The regional effects on exports and tions in agricultural subsidies. Latin American real incomes are likely to vary significantly, dc- economies are also likely to benefit from re- pending largely on the market-access provi- ductions in tariffs on metals and minerals, and sions of the round (see Box 2-1) they have little to lose on preferences. Sub- Gains for Asia wili be substantial. Quota- Saharan Africa's gains from the Uruguay constrained exporters of textiles and clothing Round will be limited by the low proportion of (mainly in Southeast Asia and East Asia, in- manufactures in its exports. Nevertheless, cluding China) will benefit greatly from the flster world growth resulting from the round's slow phaseout (over a ten-year period) of the pa-tial lberalization of trade would provide ad- Multi-Fibre Arrangement, with quotas increas- ditional support at the margin for prices of, and Box 21L The Uruguay Round, Market Access, and the Delopig Countries For each of the 118 participants in the Uruguay MFN tarff rates are liely to outweigh the losses Round, the increase in national income resultng from prference erosion, even for exportrs re- from the successfiil conclusion of the round will ceiving prefaernces. come from two principal sources: first, more ef- The rduction in duties that apply to develop- ficient use of domestic resources when domestic ing counies is estimated at 34 percent-less than distortions, such as ntade barriers, are reducedor the 38 percent reduction on industrial products removed; and second, increased access to mar- from all sources-and the figures for clothing and kets of trading partners. footwear (of particular interest to devcloping It is estimated that implementation of the countries) are even lower. Nevertheless, the ef- market-access provisions of the round could add fects on trade creation will be large even for such between S200 billion and $300 bilion am 1992 do- products because existing taiff rates on them are Jars) annually to world income. These figres are the highest, and the percentage decline in the probably an underestimate; they do not include tarif-inclusive price in importing countries will services, and no attempt has yet bevn rn. de to be substantiaL Moreover, where a quantitative capture the effects on productivity growth of restriction (rather than the tarifD is the binding greater openness in trade. Even at the 'under- restaint under the Multi-Fibre Arrangement. the estimated" level, ful implementation of the Urn- extent of the increase in market access may be guay Round could boost the GDP of developing larger than the cut in the tariff alone would indi- economies by almost $80 billion (in 1992 doElars) cate. a year. Devdoping country gains fm agricul- A disappointing result of the agreement is that tural liberaizon alone are estimated at between tariff escalation will continue for agricultural $20 billion and S60 billion a year, depencEng on products. It was hoped that discrimination the extent of each economy's hlberalzaton, against processed commodities would be re- Improved market access foragricultural and in- duced, thus enhancing strategies for natural dustrial products will result primaily from broad resource-based industlization. But the agreed reductions in tariffs and more control of quanti- reductions in tariffs, whether viewed in absolute tative restrictions and subsidies. In conast to the or percentage terms, do not clearly rise or fall situation for industrial products, increased mar- with the level of processing. ket access for agricultural products will involve Considerable progress has been made in the lat- limiting the use of domestic support policies. Re- est agreecmnt toward the goal of increasing the duction of export subsidies by industrial cota- proportion of tariffs that are bound (subject to ties wil boost the competitiveness of exports commitmncuts not to raise the tariff rate). This will from developing countries, signficantly reduce exporter riskL For industrial The effect of the reduction in most-favored- products, virtually all tariffs in developed and nation (MFN) tariffs on individual suppliers de- transition econonues are bound under current of- pends on whether the importing country gives the fers, and developing countries have offered to in- product MFN. preferential, or free-trade treat- crease the proportion of bound tariffs to 65 ment. ForMFIN imports there is an unambiguous percent. For agricultural products there is a sub- increase in the volume of sales in the importing stantial increase in the proportion of tariff lines countryfollowing a tariffreduction. In the case of subject to bindings, especialy in the developing imports alhrady receiving preferential or free- economies, where there is a fivefold increase trade-area treatment, the reduction in MFN tariff (from 17 to 89 percent). For the fit time in the rates can reduce margins of preference. inducing GATTs history the proportion of bound tariff buyers to switch to competing suppliers. Analy- lines wil be broadly the same foragricultural and ses suggest that the trade gains from reductions in nonagricultural products. 32 The Economic Scene: A Global Perspective volume demands for, primary commodities of unions. In a customs union, members not only significance to the region. A point of concern to reduce tariffs among themselves; they also African countries is that reductions in tariffs adopt a common foreign trade policy against will reduce the margin of preference enjoyed nonmembcrs. Common markets, in turn, ex- by the exports from African countries under pand the parameters of a customs union by al- current unilateral prefercntial arrangements lowing free movement of labor and capital such as the Lome Convention. However, the among members; in an economic union, mem- limited nature of these preferences and the bers further expand those parameters by ex- gradual phasing-in period of the new provisions plicitly pursuing harmonization of their are likely to limit adverse effects. microeconomic and macroeconomic policies Over the next fifteen years, the NAFTA will ("deep integration"). remove barriers to trade and investment flows The trend towards increased regionalization within North America; it also sets the stage for of world trade is long standing. A recent GATT reforms in domestic policies to foster trade and study shows that the amount of world trade oc- competition within an area rivaling the Euro- curring within regions as a share of world GDP pean Union in economic size. The NAFTA's rose from 7 percent in 1948 to 17 percent in main effect will be to improve the growth pros- 1990, driven mainly by the performance of pects of Mexico, which is required by the Western Europe. However, this rise did not agreement to lberalize its policies the mostand choke offtrade between regions, as the amount which should consequently experience a signif- of intraregional trade as a share of GDP has icant boost in its exports. Economic models es- remained fairly stable at between 15 percent timate that in the short term, the NAFTrA will and 16 percent. be responsible for increased exports to the The future of "benign regionalism," which United States of 11 percent and 9 percent from minimizes harm to outsiders and contrbutes to Mexico and Canada, respectively, while ex- world trade and welfare, depends critically on ports to the United States from elsewhere a commitment to maintaining and firthering could fall by small amounts. One drawback is openness and multilateral cooperation among that the NAFTA's domestic content regula- trading blocs. In this regard, the successful tions could prevent the agreement's three completion of the Uruguay Round has helped member countries from relying on some low- to alleviate concern that the "new regional- cost (non-NAFTA) sources of production ism" might substitute for multilateral trade lib- inputs-a factor that would restrict the ability eralization. In recognition of the potential of members to use their NAFTAtariff and non- threat posed by RIAs, the Uruguay Round tariff preferences. strengthens existing GATIT rules that forbid The passage of the NAFTA and the deepen- barriers against third parties from rising ing of the European Union under its single- through the creation of an RA. Further, the market program are illustrative of the renewed round will strengthen surveillance of RIAs, an interest in RlAs, a trend referred to as the effort that will undoubtedly be pursued by the 'new regionalism." new World Trade Organization (WTO), which RIAs, which entail reciprocal negotiation of will succeed the GATT in 1995. The WTO, de- trade preferences among participants, can take signed by the Uruguay Round participants to several forms. These extend from preferential enforce the GATr's free trade rules, will have trading arrangements and free trade arrange- the power to levy trade penalties against coun- ments (under which participants levy lower, or tries by a semijudicial disputes procedure that eliminate, respectively, tariffs on imports from will no longer allow countries to ignore findings each other while maintaining independent against them. trade policies toward third parties) to customs 33 Section Three Major World Bank Programs: Fiscal Year 1994 World Development Report 1990 outlined a area. Aid donors are increasingly channeling strategy for reducing poverty based on experi- their assistance to this area and are asking the ences from developing countries across the Bank to coordinate the aid flows. world. How this strategy should be imple- The Human Resources Development and mented in the World Bank's operations was Operations (HRO) vice presidency is the focal subsequently spelled out in three documents: point of the Bank's human resources and pov- the policy paper. Assistance Strategies to Re- erty operations. Operational relevance and cli- duce Poverty. the Poverty Reduction Hand- ent orientation are the main criteria used for book, and a World Bank Operational Directive selectiing tasks in the human resources devel- on poverty reduction. The yardstick to evalu- opment sectors. ate the Bank's progress in implementing the During the past year. demand was also heavy poverty-reduction strategy is the extent to for HRO's analytical services The executive which the Bank is implementing the strategies directors of the Bank, as well as the six oper- articulated in the three documents. ational regions, requested a number of analyt- During fiscal 1994, the Bank continued to ical papers on several critical issues: higher make progress in implementing its poverty- education (see Box 3-1), gender policy, and reduction strategy both through its lending op- population. The dissemination of information erations and a strengthened policy dialogue. through the vice presidency's Working Papers Analysis is also being strengthened to ensure series and Dissemination Notes. as well as that the Bank's country-specific assistance through population and health/nutrition news- strategies develop the most relevant mix of letters and the electronic network, has proven lending for each country, as well as to improve popular with task managers and external audi- the targeting and design of its operations. The ences alike. Bank, in both the central and regional vice Tools for Reducing Poverty. By a variety of presidencies, now systematically monitors measurements-through its lending program. how it supports government efforts to reduce development of country-assistance strategies poverty. At the planning stage, each adjust- and the policy dialogue, and analysis of pov- ment operation is classified as to whether or erty issues-the Bank continued to advance not it is poverty focused, and each investment during the year in its work to reduce poverty- project is classified as to whether or not it is in The lending program for hluman resources the program of targeted interventions (PTI). development (comprising lending to educa- Each region periodically outlines what tion; population. health. and nutrition; and the progress is being made in implementing the social sector) continued to be robust during Bank's poverty-reduction strategy and what fiscal 1994. attracting $3.104 million in com- special initiatives are being undertaken to mitments (15 percent of total Bank commit- strengthen these efforts. To strengthen both ments). Eighteen percent of all new IDA the technical and analytical tools being used in commitments-some $1,198 million-were di- the Bank's operations, the central vice presi- rected toward human resources development. dencies are supporting the regions by refining Lending for the agriculture and water supply methodologies for analyzing policy issues, dis- and sanitation sectors, which play an important seminating best-practice analysis and project role in supporting the Bank's poverty- design, and providing training. reduction efforts, increased by more than $400 omillion. Hunman Resources Developmen Lending for projects in the PTI was 25 per- Developing countries are turning to the Bank cent of total investment lending (see Table 3-1). for intellectual leadership and fnancial assis- IDA commitments for the PTI. as a share of tance for investments in the human resources IDA investment lending. increased to 43 per- 34 Mapor World Bank Programs FiWal Yeor 1994 Box 3-1. Higher Eduamom Lsfom of Experiee Higher education is in caisis in all parts of the An expanded menu of teriay education would world, bothdevelopedanddeveloping.astudyby find universitics being complemented by other the World Bank finds. And, as might be expected, types of institutions such as polytechnics, short- the crisis is most acute in the developing world, cycle professional technical institutes. comnun- where fiscal constraints are tighter and pressures nity colleges. and "distance" and 'open- for expansion of cnrollment are greater. learning" programs. Typically. these higher- The study-the third in a series on education education supplements are often less costly to set subsectors'-analyzes recent lessons of up and operateand are therefore attractive to pri- developing-ountry experience in higher educa- vate entepreneurs. tion reform at both the national and institutional To relieve the financial burden irnposed on level to show how countries contemplatig re- public institutions by increasing enrollments, the form, orjust starting on its path, might realize the World Bank study advocates sweeping reforms in goals of greater efficiency, quality, and equity in the ways slch institutions are funded. For exam- higher education. The study also charts the prob- ple, students should be required to pay a greater able course of World Bank lending to the subsec- share of their education costs, public subsidies tor in the years to come. for noninstructional expenses-housing and Based on a review of experience across coun- meals, for instance-should be sharply reduced tries, the study suggests-without trying to pro- if not eliminated altogether, tax codes should be vide a blueprint for each country-that higher modified to encourage philanthropy by alumni education reform might best be direted at (a) ex- and private industry, and public higher-education panding the menu of higher education choitc in institutions should be encouraged to pursue terms of types of insiutions and modes of deliv- income-generating activities. At the very least, cry (which, concomitantly, would stimulte the govermnents should stop penalizing entrepre- developinent of prvate institutions); (b) provid- neurial activities as they do, for example, when ing incentives for public institutions to diversify they reduce budget allocations by the sae sources of funding-, (c) linking public funding amounts as public institutions make on 'non- ciosely to performance; (d) redefining the rolc of core" activities. government in highereducation; and (e) introduc- The study reports that, as a result of the crisis ing policies explicitly designed to increase the in publicly funded higher education, govern- quality and equity of higher education. meat's role in the subsector is being redefined cent' Ptojects are included in the Pm if they (including the Bank), throughout Asia, Africa, include a specific mechanism for reaching the and Latin America, has revealed beneficiary poor or if the participation of the poor signifi- cantly exceeds the proportion of the population as a whole.t 'Mm Bknlakcss vey seriously its commitment to incrse Of the twenty-three adjustment operations 'the shares of poverty-trgeted investments and social- approved during the year, seventeen, or three stor lcnding during the three-year period encompassed of every four, were poverty focused.3 by the tenth replenishment or IDA resourcs (fiscal 1994- It is now widely acknowledged that partici- 9. Care shoud be taken. howevcr. not to use the P as pation by beneficiaries in the design and imple- the sole measure or the BankIs poverty-reduction efforts. In somc cases, dhe greates contrbution to povery reduc- mentation of projects can often be an important tion in a given county could corne from the implemenra- determinant of project effectiveness. As a re- dion of a well-designed adjustment progam. In addition. sult, the Bank's use of participatory method- may PT[ proJects ar ecxpmimertal and. as a result, loan ologies-including bencfLciary assessments amouras can be cxpected to be small. For these reasons. o.oie-i n b r atherse may bc naisma fluctuations in the size oftbe Pt] frwm participatory rural assessments, and participa- yr to ye, although the trend line sbould be an increas- tory workshops to fine-tune project desiis gug one. on the rise. A preliminary review of fiscal 1994 A description ofeach projeci thei I that was appre 'ed operations shows that ninety-six out of the during fiscal 1994 can ie found in the project summaries in Section Five of this Annual Report. The PT! procts are total of 228 projects included participation by maked by an asterisk. primary stakeholders (individual beneficiaries, 3 A description of each povety-focused adjustment opera- people affected in one way or another by the tion that was approved during fiscal 1994 cn be found in project, community organizations, user the proect summaries in Section Five of this Arnual Re- project, cmuiyoport_ These operations are marked by a pound sign (#)- groups, and others such as producer groups A description of each project approved during fiscal 1994 and cooperatives)Y with participation by prinary stakeholders can be found in The salutary effect of beneficiary parti :ipa- the project summaies in Secion Five of this report Ihe tion is now becomiing clearer. A study otl- 121 fpi e are marked with a t. .nsobon l1 Dpa Narayan. 1994. The Contribution Of Peoples Par- rural water supply and sanitation proje ts.% fic*prion: 121 Rural Water Supply Ptojecs. The World supported by eighteen development agencies Bank: Washington. D.C. Human Resources Development 35 Rather than aiming at direct control of the entire Lending in support of higher-education reform, subsector, a goveument's main responsibity is however, can be justified, as Bank financing becoming that of providing an enabling policy helps countries free up some of the incremental environment-for private as well as public public resources needed to improve quality and institutions-and of using the leverage of public access at the primary and secondary levels. Prop- funding to stimulate institutions of higher learning erly designed projects also allow the subsector to to meet national training and research needs more operate more efficiently and at lower public cost. efficiently. Highereducation lending will be directed to coun- Encouraging an expanded menu of opportuni- tries prepared to adopt an education policy fiame- ties for higher education, providing incentives for work that stresses a differentiated institutional diversifying fumding sources, and relaxing gov- structure and a diversified resource base, with erumental control are necessary elements for im- greater emphasis on private provision of services proving higher education. By themselves, and private funding. In these countries, Bank however, tbey are insufficienL The Bank study lending is supporting, and wil continue to sup- goes on to say that the final element of the reform port, sector-policy reforms, institutional develop- proce must be implementation of policies that ment, and improvements in quality. increase the quality of higher education and im- prove the access of traditionally disadvantaged groups. Greater equity of participation is impor- tant not only for economic efficiency but for so - cialjustice as welt a he fm study. on prmary education was iscussed The Bank's latest examination of an education by tic executive board in fiscal 1990. while polices for subsector points to the conclusion that higher ed- vocatioral and technical education and taing were ucation imestments have lowersocial rates of re- the subject of a board discussion in fica 1991. turn than do investments in primary and 2Cost-sharing cannot be ipipnenauted equitably, how- seondary-oducadon and dw. investmentsi; ba- ever, without scholarshap progras ta guarane ne- secodaryeductionandthatinvetmens inha- essay iaci supporto aocdn,ically quainedt poor sic education have a more dirc tiact on pov- students unable to absorb the direct and indirect (fore- erty reductioa. As a result, the Bank wit continue gwcang) costs of igher educabion and wiout a to give priority to lending for primary and lower fimnining studet4-lana progam to assist studcnts secondary educaton- who need to borrow for their eduaton. participation as the single most important Bank's experience in participatory approaches element in determining the overall quality of and to identify ways to support participation in implementation. Similarly, the Operation Eval- borrower countries. The result-a report to the uation Department's Annual Report of Evalu- Bank's management, developed by a learning ation Results 1992 listed beneficiary group of some fifty Bank staff involved in par- participation and borrower ownership as two ticipatory work-has been widely reviewed by important features of the twenty-four opera- Bank staff and outside experts in participation. tions classified as outstanding. The report puts forward a number of recoin- Fiscal 1994 marked the culmination of a mendations, including ensuring that all projects three-year Bankwide learning process on par- under preparation include (a) a provision for ticipation. which has sought to review the systematically identifying and seeking the par- Table 3-1. Program of Tareted Interventions, 1992-94 (mllions of US dollars; fiscal years) 1992 1993 1994 Towu World Bank P71 lending 3,837 4,674 4,441 As share of investment lending (96) 24 27 25 As share of all Bank lending (%) 18 20 21 Total number of Pf pmjects 57 72 63 IDA Pll lending 1.88 2.137 1,853 As share of IDA investment lending (96 43 41 43 As share of all IDA lending (%) 28 32 28 Number of IDA PIU proects- 35 44 35 Nonx: Inestment lending is defined as afl knding except for adjisusent. debt and debt-service reduction operations. and emergency-reconsnzctzn operabons Dam for FY92 and FY93 have been revised to reflect tis definition. 36 Major Wcald Bank Program: Fiscl Year 1994 ticipation of relevant stakeholders and (b) shar- fiscal 1994.' Eleven assessments were com- ing responsibility for economic and sector pleted, bringing the number of completed as- work with a wide range of stakeholders. The sessments to thirty-nine. By the end of fiscal report was a focus of discussions at a May 1994 1995, ninety-four assessments for eighty-three workshop on participatory development. countries are scheduled to be completed. hosted by the Bank, which included sixty non- Strides were also made during the year toward governmental organization (NGO) represen- overcoming the lack of good household data on tatives, staff from donor agencies, and poverty, although this remains a problem in academics The workshop discussions helped many countries. The most progress in data col- prioritize the Bank's next steps in this area as lection and analysis has been made in the Af- it begins to mainstream participatory ap- rica region, where acquisition of recent proaches in its work. household data has accelerated. As a further means of encouraging a main- In a report to the Bank's executive directors streaming of participatory approaches, a that was later made public,7 several lessons $300,000 Participation Fund was established from the Bank's past poverty-reduction work, during the year to support a wide range of par- as well as challenges for the future. were high- ticipatory initiatives in the Banlc's lending and lighted. nonlending operations. The fund proved so . The challenge for future country- popular among task managers that a $200,000 assistance strategies is to ensure that they ad- replenishment was approved to meet the heavy dress the main poverty problems in each demand. country, that they complement efforts by gov- Activities financed by the Participation Fund ernment and donors to reduce poverty, and included several workshops during project that the appropriate mix of broad-based and preparation involving beneficiaries, NGOs, targeted lending instruments evolves for each and government staff in discussions about country. project design; workshops were also funded * Clearly the Bank is challenged to complete that involved local communities in the evalua- poverty assessments for all borrowing member tion of participatory components of ongoing countries, to continue to improve their quality, projects. Building on this precedent, a $2 mil- to enhance the quality of analysis through lion Fund for Innovative Approaches in Hu- greater coordination among donors, and to en- man and Social Development was set up sure that assessment findings are fully inte- toward the end of the fiscal year. The fund wil grated into country-wsistance strategies. support efforts to promote participatory ap- * Development of poverty-monitoring sys- proaches and wil finance a limited number of tems and expansion of countries' capacity to social assessments of the potential impacts of implement them is a priority. To date, only a proposed projects. few poverty assessments have evaluated a Country-assistance strategies and the policy country's statistical svstem for monitoring dialogue increasingly address poverty in a wide poverty: even less attention has been given to context. In particular. poverty issues are being developing action planis for implementing addressed comprehensively, both within the poverty-monitoring systems over time. context of human resources development and Activities on Women in Development (WID). more fully within the overall country- According to a report written for the Septem- assistance strategy (including macroeconomic ber 1993 meeting of the Development Commit- and sector policies) in the more than three tee, the Bank has made progress in dozen countries for which poverty assessments implementing its operational strategy on WID. or other poverty analyses have been com- That strategy aims to reduce gender disparities pleted. In the policy dialogue on country- and enhance womenWs participation in the eco- assistance strategies, poverty reduction is high on the agenda. In particular. Bank staff are dis- - - cussing poverty reduction more frequently heductio esom arc auci t Banks thert- . . . . z~~~~~~~~~rduction efforts. A poverty assessment provides the bassis than before with finance and planning minis- fora collabomtive approach to poverty redaction by coun- tries in the context of macroeconomic and sec- try officials and the Bank. It also helps to establsh the toral policies. In several countries (Belarus, agenda of issues for th policy dialogue between the gov- Ecuador, and Sierra Leone, for example). spe- emment and the Bank and between the government and agencis of the intemational donor connunity. The pro- cial units have been created within those miin- ccss of completing assessments for aD IDA borrowers has istries to integrate the goal of poverty reduction taken longer than orignally planned. This is mainly be- more explicitly into economic planning. cause of the timc-consuming process of overcoming data In the area of analysis ofpoverty issues, sig- constraints. developingappropriate analytical approaches. and increasing government involvement in the process. nificant progress was made in preparing pov- 7 Word Bank. 1994. Powvty Reducion and the WoriddwBa erty assessments and other analytical work in Progress in FLirat 1993. Washington. D.C. Human Resources Development 37 nomic development or their countries by inte- The policy paper outlined the rationale and grating gender consideration in country- strategy for integrating gender in Bank opera- assistance programs. Of all projects approved tions. Addressing gender issues is essential for by the Bank in fiscal 1993, about one in three the realization of the Bank's goal of reducing included gender-targeted interventions. poverty. In addition, reducing gender dispari- The integration of WID issues into the ties and enhancing women's participation in Bank's economic and sector work continues. economic development are entirely compatible Almost half of the Bank's economic and sector with the promotion of growth as well as with reports contain WID-related analytical work. environmentally sustainable development. The Gender issues are also increasingly addressed Bank is committed, therefore, to integrating in poverty assessments, particularly in coun- gender issues into the mainstream of its oper- tries where the number of female-headed ational, as well as its analytical, activities. households is disproportionately high and A new operational policy directive, issued in where there are significant disparities in social April 1994, states that it is the Bank's intention indicators between males and females. to reduce gender disparities and enhance wo- According to the 1993 progress report, vari- men's participation in economic development ous lessons have already been learned from the by integrating gender issues into country- preparation by the Bank of best-practice pa- assistance strategies. These issues will be iden- pers on education, agriculture. safe mother- tified through the use of various instruments hood, and enterprise development and (poverty assessments, country WID assess- financial services. In agriculture, for example, ments, public expenditure reviews, and other it has been found that targeting special services economic and sector work). Objectives and in- to women does not guarantee success. Rather, terventions for carrying out gender strategies it is more effective to ensure that women's pro- are then to be reflected in the Bank's lending grams become part of the mainstream exten- program and the design of lending operations. sion services and to encourage women farmers Implementation is to be monitored as part of to participate in the services' design. Projects the country-implementation review. also need to be tailored to specific country or The Bank is only one contributor on the in- regional circumstances so that women's roles temational scene that seeks to advance wom- and needs can be properly taken into account. en's status and participation in economic Lessons learned by the Bank, by other do- development. Other donors, as well as interna- nors, and NGOs suggest some promising ap- tional, national, and local institutions are also proaches to overcoming the barriers to playing important roles in closing the gender improving the status and productivity of gap. The Bank will continue to learn from, and women. That combined experience points un- collaborate with. other agencies and capitalize ambiguously to five operational strategies that on a wide range of expertise that exists in ad- are key to improving the status and productiv- vancing gender issues on the development ity ofwomen: expanding the enrollment of girs agenda. All these efforts, however, will be in school, improving the health of women, in- fruitful only with governments' leadership. creasing their participation in the formal labor commitment, and collaboration. force, expanding their options in agriculture, Population, Health, and Nutrition. Rapid and providing financial services to them. population growth in the world's poorest coun- Until quite recently, WiD programs, includ- tries is a matter of considerable concern be- ing those ofthe Bank, tended to treat women as cause of its posstble negative effects on efforts a special target group of beneficiaries in to reduce poverty, generate economic growth, projects and progams. According to a recent and preserve the environment. Bank policy paper,' development organiza- Althoughi the global picture is one of contin- tions have begun to recognize, however, that ued growth, rates of growth have begun to slow the best way to ensure that women are not left in many developing countries. The slowing of at the margin of the development process is to growth reflects a pervasive shift in reproduc- analyze the relative roles and responsibilities of tive attitudes and behaviors in those countries. both men and women and to apply the insights The pace of change varies by region, but fer- gained from this analysis to the design of tility declines are widespread. projects and programs. This new approach, Over the past three decades, the percentage which focuses on gender relations in the family of married women in developing countries us- and in the community rather than on women in ing some method of contraception has in- isolation, constitutes the "gender and develop- ment" approach. This is the focus that the W World Bank. 1994 Enhanwing Women's Participazion in Bank is now promoting to enhance women's Economic Development. A World Dank Policy Paper. participation in development Washington. D.C. 38 Major Wold Bank Programs Fiscal Year 1994 creased from 1O percent to 51 percent-from 40 totaled $199 million for family-planning and million users in 1960 to some 365 million in population-policy components in fourteen 1990. Because of the large increase in the num- health and social development projects. New ber of women of reproductive age, however, commitments vary considerably from year to the total number of women not using contra- year, but the trend has been steadily upward. ception has declined little, leaving an estimated The increasing complexity of population 350 million still to be served. projects offers particular challenges when it During the 1990s, an additional 170 mil!ion comes time for project supervision. Some of individuals will move into their reproductive the Bank's more successful population and ages in developing countries; another 180 mil- health projects-in Bangladesh and Kenya, for lion are projected for the following decade. Just example-have included provision for resident to maintain the current level of coverage. ser- management staff to strengthen supervision ca- vices will have to be expanded to accommo- pacity. The experience of other donors also date 80 million to 90 million more contraceptive suggests a strong relationship between the in- users during each of these two decades. That tensity of in-countrv management effort and still leaves the challenge of providing services project effectiveness. The Bank has been mak- for at least 100 million married couples and at ing a special effort to improve supervision and least 20 million unmarnied irndividuals, many of strengthen its skill mix in needed technical ar- whom are at risk of contracting sexually trans- eas and to assure that it is responsive to bor- mitted diseases, as well, because needed con- rower needs. traceptive services are not available or are of Health sector reform is a high priority. Since poor quality. the publication in July 1993 of World Develop- As the number of potential clients increases, ment Report 1993, which was devoted to the the definition of what constitutes a population issues of health reform, assistance has been re- program is expanding. It is now widely ac- quested by more than three dozen countries for cepted that programs must meet a wide range assessing the burden of disease. Guidelines for of the reproductive health needs of women health-sector reform are now being prepared; and men.9 In addition, they are increasingly they will be published in fiscal 1995 as a com- addressing other health concerns related to panion volume to World Development Report sexual activity and rer luction-the AIDS 1993. Also under study are managed-care ar- epidemic and other sexually transmitted dis- rangements in both developing and industrial- eases, for example. Similarly, the scope of pro- ized countries, the efficacy of differing systems grams is also expanding to include such groups of health care, and pharmaceutical policies in a as unmaried adolescents and males, particu- number of countries. The goal of the last- larly those who engage in high-risk sexual be- named study is to assist borrowing member havior, whose needs have not been served by countries in formulating and enforcing policies traditional modes of service provision.'0 that improve the access to, and quality of, es- The Bank's role in population has been sential drugs. shaped by its comparative advantage in a num- The upward momentum that has character- ber ofareas: It brings strength in sector and eco- ized recent lending trends for nutrition within nomic analysis, which together provide a basis Bank projects continues, assisted, in part. by for policy dialogue between the Bank and bor- rowing countries. This strength is particularly relevant in the current population-policy envi- ' The Development Commintee, ror example, in its April romnent, in which fertility reduction is increas- 1994 communique following its spring meeting, noted tht ingly being pursued as part of a broad range of an -ntcnmcd poulation polatn cognize Lhe links social policies, particularly those that improve ton. health. invscnt in hunman resources, and envi- the status of women, such as education. ronmental degradation. "Family planning." the The Bank has been ar. active player in the communiqut went on to say, "is only one of the available population field for the past twenty-five years instruments and needs to be seen in the broadercontext or population ~~~~~~~~~changing social paterns and the incresed awareness or lending more than $1.7 billion to support pop- womnps role.c u.ation activities through more than 100 "'Thechangingnatureofpopulationprogramsandthechal- projects. The value of the current portfolio lenging popubtion issues of this decade and beyond will stands at slightly more than $1 billion, repre- be the subject or the 1994 Internationl Conferaene on Population and Development-the third in a series or senting seventy-three projects under Bank su- United Nations conferences that started in Bucharest in pervision. Many Bank projects include family 1974 and continued in Mexico City in 1984. These meet- planning within larger health and nutrition ings produced and refined the World Population Plan of projects, leading to mutually reinforcing effects Ation, whih has provided donors and developing coun- tries with a framework. for population policies and -ction for both better health and increased demand for pmgars over the past two decades. The 1994 conference family planning. Commitments in fiscal 1994 vwll be held in September in Cairo. Human Resources Dewelopment 39 the recommendations for cost-effective inter- countries that are changing from centrally ventions in World Development Report 1993. planned cconomies to market-responsive ones. An additional focus within the Bank was gen- One such project is in Hungary, which has in- erated by the convening in late November of troduced reform to its higher education system the Bank's first major conference on hunger, by promoting the concept that participating in- "Overcoming Global Hunger-A Conference stitutions must compete for investment funds on Actions to Reduce Hunger Worldwide." by submitting funding proposals to an impartial Children three years old and younger and national agency. This agency assesses the sub- pregnant and lactating women remain the pri- mitted proposals on their educational and eco- mary target of nutrition operations in Bank nomic merits through well-understood and projects. Several recent projccts, however, transparent criteria and procedures that em- such as fiscal 1994's Maternal and Child Health phasize economy and efficiency in the use of Project in Argentina, include integrated early public resources. A recent midterm review of childhood-development components that ad- the results has been encouraging; the new pro- dress the full range of health, nutritional, and cedures are being expanded to replace the en- educational needs of young children in their tire higher education funding mechanism, and most critical years of development. neighboring countries have shown interest in Overall lending for population, health, and replicating the system. nutrition has increased substantially, from an In July 1992, Lewis Preston, in a letter to annual average of $103 million in new commit- 1,400 parliamentarians from twenty-six coun- ments during the four-year period fiscal tries about future lending by the Bank, wrote 1981-84 to an annual average of $1 ,307 million that the Bank would increase it; support for during the period fiscal 1991-94." education projects in the period fiqcal 1993-95 Bank investments in education (which over levels of the preceding three-year period. amounted to $2,068 million in fiscal 1994) are Commitments in fiscal 1993 and 1994 totaled increasingly targeted toward getting girls into $4,074 million, $336 million higher than in the school and eliminating existing gender dispar- period fiscal 1990-91. Mr. Preston also said ities in participation, achievement, and attain- that support by the Bank for basic education ment; the objective is to empower women as during riscal 1993-95 would rise above the 42 producers, reduce their dependence on hus- percent mark achieved in fiscal 1992. Such sup- bands and sons, and lower the fertility rate. port amounted to 45.7 percent and 30.2 percent The HRO vice presidency is actively in- of total lending for education in fiscal 1993 and volved in improving the design and implemen- 1994, respectively. cation of the Bank's education projects. During External Relations. The Bank is a partner the past year, for example, senior staff were with numerous United Nations organizations actively involved in the implementation of a and a variety of other international and bilat- complex and comprehensive primary educa- eral agencies, as well as with major NGOs. The tion project in Uttar Pradesh-one of the most HRO vice presidency pays close attention to educationally deprived states of India. The nurturing these relationships, to listening, to project, supported in fiscal 1993 by a $165 mil- sharing understanding of the problems being lion IDA credit, focuses on the education of faced, and to building collaborative relation- girls and disadvantaged ethnic minorities. The ships. project design and its implernentation reflect a During the past year, the Bank shared the deep government commitment to the concept podium in United Nations' fora to address de- of education for all, both at the central govern- velopment issues oi global reach. The Bank's ment and at the gassroots level. This commit- follow-up to environmental activities after the ment has manifested itself in the ways that staff and other resources have been assigned to the project, in the interest of tep-level civil ser- "In July 199z Lewis Preston president of the World Bank. vants ad grassoots-lvcl NGO in itsimple- said that the Bank planned to substanially increase lend- vants and grassroots-level NGOs in its imple- ing for population, hnelth, and nutrilionin both dollar- mentation, and in the exceptionally fast pace volume terms and as a prenta of total commitments- with which project baseline studies and infra- during the period fiscal 1993-95 as compared with the stmcture are being carried out, facilitating sub- three previous years. iTring fiscal 1990-92 lendimg to the sequent evaluation and measurements of sector averaged S.l15a- Aillion annually and repreented 5 percent oftota Bank lending. During fiscal 1993-94. lend- project achievements. The results of this ing for population. health, and nutrition averaged $1,349 project are now being replicated in a much million and amounted to 6 percent of total commitments. Iarger, countrywide project. Mr. Preston also prqiected that lending for primary health At the other u nd of the education spectrum, would be more than S percent of total lending over the Atthe otaffhver bend ivoft edution spectum desigsameperiod. In riscal 1993 and 1994. commitments in sup HRO staffhave been involved in the design and port of prihary health amounted to 6 prerent and 4 -r-s implementation of higher education projects in ccitt of the total, repectively. 40 Major World Bank Programs Fiscal Year 1994 United Nations Conference on Environment In the realm of lending operations. NCOs in- and Development was discussed in the UN's creasingly are designing, preparing, imple- inter-Agency Committee on Sustainable De- menting, and evaluating subprojects financed velopment and in the Commission on Sustain- through Bank-ansisted projects, while the ex- able Development. The Bank also addressed pansion of the policy dialogue has led to in- environmental issues at such UN gatherings as creased beneftciary ownership of Bank-assisted the Small Island Economies Conference (held projects. Social-fund projects worldwide and in Barbados) and the Disaster Reduction Con- food-security and nutrition projects in Africa ference (held in Japan). have benefited from NGO involvement, while The Bank actively participated in all phases Pakistan's Social Action Program is an example of the preparations for the Third Population of the Bank's increasing commitment in support and Development Conference, scheduled for of participatory development. In the Pakistan September 1994 in Cairo. The Bank provided program, the Bank created a $10 million Partic- travel grants to developing country NGOs to ipatory Development Program Fund to support ensure their full participation in the conference various implementing organizations in their ef- and its preparation. It also participated in the forts to involve communities in the delivery of preparations (including provision of back- basic social services, such as primary education ground papers on social and human resources and health care and rural water supply. development and grant funds to ensure NGO One of the Bank's main goals in collaborat- participation) for the Social Summit that will be ing with NGOs has been to increase the insti- held in Copenhagen in 1995. The Bank also co- tutional capacity of project-implementing sponsored, with the summit's secretariat and organizations. To this end, the Bank has pro- the government of the Netherlands, a meeting vided, or has made arrangements with other held in June 1994 in Zambia of a preparatory organizations (very often NGOs) to provide, expert group on poverty. The Bank's contnrbu- capacity-building assistance to various NGOs tion to the Conference on Women and and communities. One such example is the Development-to be held in Beijing in 1995- capacity-building exercise for indigenous included a special study on the economic po- NGOs that has been launched in several Latin tential of women, while the Second (Economic American countries with grants from the and Financial) and Third (Social, Humanitar- Bank's Institutional Development Fund. This ian, and Cultural) Committees of the UN Gen- exercise stemmed directly from requests from eral Assembly provided a forum for presenting indigenous NGO leaders who attended the updates on major Bank activities. Latin American Second Interagency Work- The Bank continues to coordinate project- shop on Indigenous Development, held in focused work with UN agencies in areas of mu- Washington, D.C. in September 1993. tual involvement, including food security with The Bank is also helping governments ana- the Food and Agriculture Organization of the lyze their relationship with NGOs with a view UN; health and education with the United Na- to constructing a more enabling environment tions Children's Fund (UNICEF); employment for NGO activities. For example, it convened a with the International Labour Office; AIDS workshop in Uganda that brought together and other health interventions with the World NGOs, government officials, and donors todis- Health Organization; environmental issues cuss specially prepared reports on the coun- with the United Nations Environment Pro- try's NGOs and the policy environment in gramme (UNEP); basic education with the which they operate and to formulate a national United Nations Educational, Scientific, and acticn plan to promote the role of NGOs in Cultural Organization, UNICEF, and tule poverty reduction. United Nations Development Programme In the twice-yearly meetings of the Bank- (UNDP); and water and sanitation and techni- NGO Committee, topics such as popular par- cal assistance with the UNDP. The Bank re- ticipation and the social effects of structural mains a cosponsor (with the UNDP) of the adjustment programs were discussed. The Energy Sector Management Assistance Pro- Bank also consulted on an ad hoc basis with graimme (ESMAP), designed to assist countries NGOs on issues of particular concern. In May in developing environmentally sound energy 1994, for example, discussions with NGO rep- strategies and investments. resentatives were held on the implementation Cooperation with Nongovernmental Organiza- experience of the Bank's forest policy in prep- tions. Cooperation with NGOs continued to ex- aration for a review in fiscal 1995 of the policy pand in terms of both lending opertions (see by the Bank's executive directors. A separate Tables 3-2 and 3-3) and the policy dialogue. consultation with NGOs in May 1994 helped Some 50 percent of all Bank-approved projects the Bank evolve strengthened indicators of de- involved NGOs. velopment impact. Consultations were also Human Resources Devapoment 41 Table 3-2. Patterns in World Bank-NGO Operational Collaboration, Fiscal Years 1974-94 Tota 1974-91 1992 1993 1994 -No.- No. % No. 9 No. 96 By region (number of projects) Africa 204 n.a. 32 42* 31 41* 38 63* East Asia and Pacific 45 n.a. 8 17* 12 27* 22 51* South Asia 59 na. 9 39* 11 42* 15 79* Europe and Cental Asia 6 u.a. 4 29* 2 7* 10 24* Latin America and the Caribbean 59 nu 1?. 277 14 28* 24 50* Middle East and North Africa is na. 3 18* 3 16* 5 31* Total 391 100 68 31* 73 30* 114 50* By sector (number of projects) Adjustment related (incisocial funds) 27 7 8 12 5 7 12 11 Agriculture/rural development 150 38 22 32 14 19 36 32 Education 41 10 6 9 6 8 10 9 Environment 12 3 13 19 13 18 5 4 Industrylener 35 9 6 9 8 11 13 11 Infrastructueurban development 63 16 4 6 8 11 24 21 Populaton, health, and nutrition 57 15 7 -10 16 22 14 12 Rehabilitation/reconstruction 6 2 2 3 3 4 - Total 391 100 68 100 73 100 114 100 Refens to percentag of NGO-involved projects in all Wodd Bank-alproved projects; na. = not available. Tabk 3-3. Type and Function of NGOs in NGO-assocated Prjects, Fscal Years 1991-94 1991 1992 1993 1994 No. % No. % No. % No. % Total projects nvolving NGOs 89 68 73 114 By type of NGO (number of NGOs) G;rassroots 49 55 37 54 21 29 46 40 Indigenous 66 74 52 76 58 79 80 70 International 23 26 33 49 16 22 11 10 Unclassified - - - - 1 19 17 Byfwnction (number offwrctions) Advice 40 45 37 54 35 48 14 12 Design 39 44 31 46 17 23 60 53 Implementation 85 96 59 87 57 78 99 87 Monitoringlevaluation 15 17 26 38 33 45 38 33 Cofinancing 23 26 10 15 1 1 11 10 NOTE: Te numbes in this table are estimates oftheways NGOs maybe involved in each project. Regardless of the acal numberofNGOs involved ineach project, projectsare counted onlyonceforeach typelfimctionofNGOs. Forthesereasons, numbeas under "By type of NGO" and -By fibction" exceed the total number of projects involving NGOs. held with NGOs in Paris and Washington on year on issues such as the disclosure of infor- the draft of World Development Report 1994: mation, creation of an inspection panel, and Infrastructure for Development. foilow-up to the report of the Bank's Task In addition to formal consultations, an in- Force on Portfolio Management. Another se- creasing number of meetings between senior ries of meetings focused on environmental sus- Bank officials and NGO representatives tainability, resettlement issues. specific project around the world have been held. A series of concerns, and the environmental effects of meetings took place with NGOs during the past macroeconomic policies. 42 MaJor World Bank Programs: Fscal Year 1994 The changing nature of the Bank-NGO reia- In canrying out its mandate, ESD engages in tionship was clearly exhibited at the Confer- six types of activities: ence on Actions to Reduce Hunger Worldwide * improving the Bank's understanding of the that was convened by the Bank in November meaning of, and requirements for, achieving 1993. In addition to participating in presenta- environmentally sustainable and equitable de- tions and discussions, NGO representatives as- velopment; sisted in the conference's preparatory and * formulating sound environmental, agricul- follow-up work. Discussions at the country tural, and infrastructural policies, projects, and level on hunger issues are currently being programs-through its own studies and by planned by the Bank and NGOs in various drawing on the best work wherever it is being countries. done-that promote sustainability; NGOs are also playing a role in the Global * providing guidance and technical support Environrment Facility (GEF), especially in the to the Bank's six regional offices in devising areas of project design, implementation, and operationc consistent with the object of sus- monitoring. The twice-yearly meetings of GEF tainability;'2 "participants" (members) are routinely pre- * helping to address global issues related to ceded by GEF-NGO consultations. the environment, agriculture, and infrastruc- The instrument for the Establishment of the ture and urban development-in oartnership Restructured Global Environment Facility, with bilateral agencies, other multilateral insti- adopted in March 1994 at the GEF Participants tutions, and NGOs; Meeting in Geneva, included several provi- * exchanging and disseminating the findings sions that relate to NGOs' concerns: In the re- of policy and "best practices" work with its structured facility, NGOs will have important external partners and within the Bank; and roles to play in proposing, preparing, and im- * developing the Bank's technical capabili- plementing projects, and local communities ties through selective recruitment and training will be consulted throughout the project cycle. of staff to become more alert to environmnental The facility's three implementing agencies issues and more proficient in elaborating and are moving to modify their procedures as managing environmentally sound programs. needed to assure consultation with affected Polcy and Best-practice Work. The ESD communities, increased participation by NGOs vice presidency is responsible for advancing in GEF projects, public access to GEF project appropriate sustainable development policies information, and regular monitoring and eval- in the Bank and monitoring progress in the field uation of project implementation and results. of environment, agriculture, and infrastruc- ture. Recent policy papers have addressed ur- Environmentally Sustainable Development ban development (fiscal 1991), forestry (fiscal Achieving environmentally sustainable de- 1992), housing (fiscal 1993), and water- velopment is a major challenge of the 1990s. resource management (fiscal 1993) issues. The June 1992 UNCED succeeded in raising During the past fiscal year, the vice presi- the consciousness of the world to the urgency dency promoted the acceptance of the Bank's of this task. The World Bank, as the largest water-resource management policies, which multilateral source of development finance for call for treating water as an economic good, developing countries, has a special responsibil- involving stakeholders in its management, and ity to ensure that the programs and projects it fostering institutional environments that en- supports are consistent with the objective of courage efficient, effective, and equitable wa- sustainable devetopmenL The mandate of the ter use. The importance of a comprehensive Environmentally Sustainable Development framework that takes into account cross- (ESD) vice presidency is to develop an effec- sectoral considerations was also stressed. tive Bank response to this challenge. These concerns were pursued in countries At all times, people and the capacities of eco- worldwide. In the Africa region, for example, systems to support life are the center of ESD's staff have been assisting the government of focus. The existence of acute poverty in the Malawi to develop a water-resources manage- world and the degradation and contamination ment policy to guide the sustainable use of wa- of ecosystems are related critical issues and es- ter resources and the planning and provision of sential concerns in environmentally sustain- services, accompanied by substantial sector re- able development. The Bank must provide leadership in accelerating the improvement of living standards while incorporating the objec- ': The 1987 report of the World Commission on Environ- tives of environmentally appropriate manage- ment and Development (the Bmndtand Commission) de- rfned sustainable development as development that meets ment and sustainability into the design of the needs of die present genraion without compwmis- development policies and projects. ing the needs or futture generations:' Environmentally Sustainable Development 43 form. In China. work has focused on water is- ment" were also completed during the past sues and policy reforms as they relate to urban year. environmental management; and in the Brazil- Four major parallel reviews-the second re- ian states of Parana. Minas Gerais. and Sio view of environmental assessments. the imple- Paulo. the principles of water-resources man- mentation review of the Bank's active portfolio agement at the basin level. including consider- of environmental projects, a review of national ation of the use of economic instruments for environmental action plans (NEAPs). and a re- water allocations and poilution control. are be- view of projects involving involuntary re- ing implemented. settlement-were the focus of environmental In the second half of thc r,cal year. ESD activities during fiscal 1994. The resettlement undertook a review of the degree of acceptance review, rather than being carried out as a desk- and implementation of the findings of the 1991 bound and static stock-taking exercise. was de- paper on forest policy.)3 The ongoing liberately designed as a broad process of review-it had not been completed by the end resettlement analysis in the field. carried out by of the fiscal year-is concentrating on the de- the Bank's relevant regional and central units gree to which changes are being made at the jointly with borrowers (see Box 3-2). country level to sector work and project de- Central to integrating environmental con- sign. Consultations on an early draft of the re- cerns into the Bank's activities is the "Opera- view were held in Libreville (capital of timber- tional Directive on Environmental rich Gabon), London, and Washington, D.C. Assessment." which was issued in October Participants included NGOs from both devel- 1989. The directive mandates an environmental aped and developing countries, members of the assessment (EAM for all projects that may have Forestry Advisers Group (which includes the a significant negative effect on the environ- forestry advisers of the principal donor agen- ment. Those expected to have significant. sen- cies), representatives of the timber industry, sitive, irreversible, or diverse effects are and academicians. classified as "Category A" and require a flail Fiscal 1994 saw the publication of World De- EA. Less sensitive "Category B" projects un- velopment Report 1994: Infrastructure for De- dergo a more limited environmental analysis. velopment," which examines the links A first review of EA procedures, conducted between infiastructure and development and in fiscal 1992, found that although they were explores ways in which developing countries realistic, workable. and instrumental in im- can improve both the provision and the quality proving development planning and environ- of infrastructure services (transportation. tele- mental management, problems remained. communications, water and sanitation, power More effort was needed, the review concluded. and gas, and major water works). to strengthen borrowers' capacity to conduct World Development Report 1994 presents effective EAS. The review recommended. new strategies for developing infrastructure in therefore. that LA training in borrowing coun- more effective, less wasteful ways. The report tries be made a priority. The review also rec- shows that the quantity of investment cannot ommended that the Bank seek to move the EA be the exclusive focus of policy. It is also vital process to earlier stages in borrower project that the quality of infrastructure service be im- planning before major decisions-for example. proved. To promote more efficient and respon- siting and technology-are made. sive delivery of infrastructure service, the report points to the need to change incentives through the application of three instruments -commercial management, competition (di- 'tapcr5 siforh alfho fold g csratgnotc dcc elopment is rectly if feasible, indirectly if not), and stake- nccessary fora longer-term solution to the problem of de- holder involvement. forestation. priority should be given in the intcrim to in- The report also identifies trends that will fa- creasing agricultural productivity in poor. densely cilitate improvements in the performance of in- populated areas-epecially thosc adjaent to forested ar- eas or those from where most forest encroachers frastructure. These include innovation in originate-andio expanding nonfarm employmcnt oppor- technology and regulatory management. the tunities in these targeted areas. Second. forest protection new willingness of govemments to involve the will need to be ensured through specific legislation and private sector, and increased concern about so- regulatory measures especially in tropical moist forests. Third. prvate incentives need to bc changed. for cnforce- cial and environmental sustainability. ment of zoning and other egulations is likely to be inef- World Development Report 1994 benefited fective unless they are. Fourth. public investments need from analysis initiated in ESD and published in to be preceded by much more careful environmental as the Bank's Discussion Papers series. Papers on *4sWord ent1R the ~ ~~~~~~~~~~~II World Bank. 1994. World Development Report 1994: in- "Railways, Energy, and the Environment" frastructureforDerdhpment. New Yorkt Obrd Univer- and "Rural Road Maintenance and Improve- sity Press- 44 Major World Bank Progroam Fbical Year 1994 Box 3-2. Review or Projects Involving Involuntary Reseldement In the wake of the Bank's experience with its in- increases political tensions, entails extensive volvement in the Sardar Sarovar projects in In- project delays, and postpones project benefits dia, a task force was formed in 1993 to carry out for all concemed; the benefits lost because of an analysis of 146 projects approved between such unavoidable project delays sometimes far 1986 and 1993 with resettlement components to exceed the marginal cost of a good resettlement ensure that project implementation was being car- package. Ensuring that involuntary resettlement ned out consistent with loan and credit agree- is minimized-and when unavoidable, is carried ments and with Bank guidelines and policy.' out without impoverishing the people Nearly 2 million people were in various stages of displaced-is fully justified, therefore, on both resettlement in the 146 projects, which repre- economic and ethical grounds. sented 8 percent of the Bank's active portfolio of The review showed, once again, that resettle- projects (and 15 percent by worth). ment is nearly always more difficult, more expen- The main product of the review was not simply sive, and more time consuming than generally its final report,' but the process that the review realized. The largest resettlement operations triggered throughout 1993 across the Bank and on move tens of thousands of people-often very the ground. The review process consisted of in- poor people-ong distances in a very short time, tensified field supervision: analysis of project and reestablishing their standard of living is a preparation, appraisal, supervision, and implem- hard task. The inherent difficulty in reestablishing mentation: on-site consultations with nongover- standards of living and community services is mental organizations; sectoral resettlement compounded by the limited technical and institu- studies: development of new technical tools for tional resettlement capacity of most borrowers, resettlementplanning-,and a considerable number as well as by weak commitment from some exe- of remedial actions initiated by the Bank and bor- cuiing agencies. rowers for those projects that were failing to meet During the review period, the Bank tripled its set objectives. resources for resettlemcnt supervision, and more Although task force members found that the supervision missions of projects with resettle- Bank had made significant pmgress between 986 ment components were launched than in the and 1993 in some areas, they also discovered that previous three years put together. Remedial when projects were not consistent with policy actions-they included increasing participation of and processing guidelines. resettlers ended up affected people, finding ways to reduce displace- worse off in some cases. ment, provision of additional financial resources, The single most important message of their re- and adjusting resetrtnent imetables-had the view was that good resettlement can prevent im- effect of considerably improving the Bank's over- poverishment and even reduce poverty by all portfolio. In-house analytical work and train- rebuilding sustainabl livelihoods. Socially re- iDg offered to country officials also contributed sponsible resettlement is also economically ben- during 1993 to improving portfolio managemnenL efiial because the heavy costs of poorly handled In fact, the entirp review process proved to be an resettlement extend well beyond the immediately exceptional opportunity for leaming how to do affected population-to the regional economy resettlement better, for identifying good prac- and to the host population in relocation areas. In- tices, adjusting general approaches to particular adequate resettlement induces local resistance, circumstances, building institutional capacity for The second EA review found that Bank sup- These efforts are beginning to bear fruit. port to activities aimed at building and Quality has improved considerably in impor- strengthening EA capacity in borrowing coun- tant areas such as impact identification and tries did significantly expand in the two inter- analysis; public consultation, especially in the vening years. Support came mainly in the form context of resettlement; and mitigation, moni- of environmental institution-building projects toring, and management planning for projects. aimed specifically at this and related objec- In addition, and even more important, the tives; technical assistance components, aimed Bank has witnessed a diversification of EA ap- at developing EA capacity. in regular invest- proaches into newer areas, both in terms of ment projects; in-country training spearheaded sectoral spread (tourism and solid waste man- by the Bank's Economic Development Insti- agement, for example) and types of lending op- tute and the Bank's regional environmental di- erations (privatization and onlending, for visions: and advice on EA legislation and example). procedures. The Bank has also been successful Progress has been particularly significant as in moving EA "upstream" in borrowers' plan- concerns the preventive dimension of EA- ning processes, as evidenced by the growing minimizing the negative environmental effects number of "sectoral" EAs. of a given projecL But progress was also made Ervlronrnentallv Suslahable Devebpment 45 resettlement. and refining analytical and evalua- * Remedial and retrofitting actions will con- tion methodologies. tinue forall active projects that fall short of policy In the end, the Bank will bejudged on how well and legal provisions. the lessons learned from the review process will * Fuli compliance with procedures and estab- be integrated into its future activities. Important lished safeguards for ensuring project quality will. weaknesses in past Bank practice have been re- be insisted upon. While full implementation re- vealed, and actions to improve Bank resettlement sponsibility rests with borrowing governments. work are under way. Thus: the Bank has a responsibility to follow up care- * The Bank will not fmance projects involving fully on performance, impacts, and outcomes. large-scale resettlement operations unless the * The content and frequency of resettlement government concerned adopts policies and legal supervision will be further improved. and regular frameworks that are conducive to resettlement and adequately staffed supervision missions will with income restoration, take place at least every twelve months. including * The Bank will help borrowers build their in- on-the-ground visits to places where displace- stitutional capacity to implement review before meat and relocation occur. displacement starts with a view to protecting peo- * To sustain progress achieved and to monitor pie's rights. continued compliance with Bank guidelines apd * Bank-assisted projects will avoid or reduce procedures, regional units will prepare annual re- displacement as much as possible through tech- ports on projects with resettlement in their port- nical and social studies for projec design and ex- folio as part of the annual review of portfolio ecution. performance. * The active participation of would-be reset- By setting such exacting nonns for the opera- tlers in the preparation, planning, and implemen- tions it assists and promoting resettlers' reestab- tation of resettlement will be required lishment at comparable or improved income * All projects will internalize the full cost of levels, the Bank will continue to work to narrow resettlement and of the investments required for the gap between resettlement goals and past en- income restoration within total project costs so as trenched practice in many countries. to prevent impover-ihmetiL to prevent impoverishment.M Barks rsC ttlemcnt policy has evolved steadily a Twin-project approaches for large-scale civil s 1980 asmn ofthatpolicyincludeavoid- works causimg resettlement Wil be considered. mnce or minimization or involuntary displacement This approach was used in fiscal 1994, when a - whenever feasib, assistance to displaed persons in $460 -lIUon loan m support of China's Xiaolangdi their efforts to improve, or at least restore. fonner Ev- Multipurpose Project was coupled with a $110 ing standards and eanting capacitr, compensation to million IDA credit to help resettle and restore and dispaced persons for their los at replacement Ost; improve the livelihoods of 154,000 people (direct- promotion of resetlers' and host' participation in ly) and 300,000 people (indirectly) affected by the phnning rsctlement and pmvision of adequate land. multipurpose projcect infastructure, and other comnpensation for grops that may have informal customary rights to die land or re- * The Bank's own institutional capacity will be sources ra-ken for the projecL strengthened, primarily through the better use of ' Wold Bank. 1994. Resettnement and Development: existing staff skills and by adding staff capacity in me Bankwide Review of Projects Involving Inwolun- critical fields. rany Resettlenewn. 1986-93. Washington, D.C on the 'proactive" front in terms of helping slightly better than the average for the portfolio design individual projects and larger invest- as a whole at the end of fiscal 1993. Part of the ment programs that actively enhance environ- explanation of the apparent above-avenage per- mental quality. fornance is the aforementioned "youth" of the The implementation review of environmen- projects in relation to the portfolio as a whole. tal projects covcred ninety-three projects-4.2 Thus, controlling for project "age." it is prob- percent of all projects under implementation at ably more accurate to conclude that environ- the end of fiscal 1993 and entailing commit- mental projects are performing about the same ments of $6.4 billion-that had been identified as the Bank's active portfolio as a whole. as having primarily environmental objectives. As in the case for the Bank's portfolio gen- These operations were approved between fis- emiLy, there also appears to be a clear positive cal 1986 and fiscal 1993, with the majority com- correlation between country income level and ing after fiscal 1990. The operations, therefore, environmental project performance. Only one comprised a rather 'young' segment of the to- ".problem project" was found in an upper- tal active portfolio, middle-income country, compared with the On the basis of supervision ratings, environ- much larger number found in lower-middle and mental projects were found to be performing low-income countries. 46 Major World Bank Progroms Fiscol Year 1994 It does appear, however, that certain types Bank's borrowers is the promotion of "best of environmental projects are performing bet- practices." Best-practices papers, which build ter than others ("brown" projects are doing on completed policy papers, are drawn from better than "green" and "institutional" ones). ESD's operational support work and from rap- Furthermore, as a comparatively recent area of idly accumulating experience as developing Bank lending, there are the inevitable number countries endeavor to put policies into prac- of start-up costs associated with new and often tice. They are brief, practical, and driven by weak national and sectoral institutions. Other real-world successes and failures. During fiscal problems include the relative unfamiliarity of 1994, examples include the initiation of the Ag- executing agencies with Bank requirements; a ricultural Technology News series-consisting tendency in some cases to try to "pack too of four-page notes written specifically for op- much" into single operations; and, in some erational task managers on recent technologi- cases, less thctn full borrower commitment to cal developments in specific branches of project objectives and components, especially agriculture-and the continuation and expan- those not involving physical investment. sion of the Infrastructure Notes series. Tech- Bank assistance in elaborating and imple- nical papers on topics as diverse as air menting national environmental action plans pollution from motor vehicles, experience with (NEAPs) plays a critical role in helping mem- lending for railways, urban infrastructure and ber countries improve their environmental productivity, and sectoral indicators for hous- management NEAPs provide a basis for the ing were also completed. Bank's dialogue with borrowers on environ- The sectoral indicators for housing have mental issues, describe a country's major en- been developed collaboratively with the vironmental concerns and problems, and United Nations Centre for Human Settlements formulate policies and actions to address what- under the Housing Indicators Programs (HIP). ever problems are identified. The responsibil- The indicators reflect the interests of all key ity for NEAP preparation and implementation stakeholders in the sector (end users, suppli- rests with the borrower. By the end of fiscal ers, financiers, and governments) and cover 1994, most active IDA borrowers had com- factors as diverse as the price of housing, pleted NEAPs or equivalent documents, and homelessness, quality, production, invest- several non-IDA countries had completed them ment, interest rates for mortgages, the impor- or were in advanced stages of preparation. tance of housing finance within the overall A srudy of country environmental strategies financial system, subsidies, and taxes. They is currently under way in the Bank: it has been have been collected in fifty-three countries at designed to provide guidance to governments every level of economic development and have in preparing such strategies. The study- been used within the Bank to evaluate priori- "National Environmental Strategies and Ac- iies for policy reform and lending in a number tion Plans-Key Elements and Best of countries. Severalborrowerceuntries(Hun- Practice--is expected to be completed by the gary and the Philippines, for example), with as- middle of fiscal 1995. Its findings wilH be di- sistance from the HIP, have developed housing rected to governments of developing counitries, indicators as a tool for evaluating housing pol- particularly ministries that are primarily re- icies and programs at both the local and na- sponsible for environmental planning and im- tional level and for monitoring the performance plementation. of the sector on a continuing basis. Drawing on The study is finding that the experience with the successful experience of the HIP. sectoral preparingNEAPs has varied considerable from performance indicators are now being ex- country to country. NEAPs need to be country tended to other urban subsectors, including lo- driven and participatory, involving all seg- cal government finance and services, water ments of society and the government. At the supply and sanitation. urban environment and same time, as strategies. national plans become urban transport. more feasible to implement when there are Evidence exists that the failure to pay suffi- clear priorities. Achieving both objectives has cient attention to social factors in development sometimes proved difficult, the study shows. can jeopardize the effectiveness of Bank- Making Development Sustainable: The supported programs and projects. The social World Bank Group and thze Environment, a de- dimensions of development are especially im- tailed review of World Bank environmental ac- portant in dealing with environmental and so- tivities in fiscal 1994, was published in early cial issues. It is increasingly recognized that fiscal 1995. problems can be diagnosed and solutions im- An important element of the support ESD plemented only through the development and provides the Bank's operational departments application of the tools of social analysis. To in delivering assistance of good quality to the bridge the social-dimension gap. preparation of Envronmentaly Susltinable Developrnent 47 a Participation Sourcebook was begun during approaches and build up knowledge step-by- the past year. step in a process of structured learning. The sourcebook. which builds on the find- For example, the Russia Farm Transforma- ings of a three-year learning program funded by tion Study involved setting up an apparatus for the Swedish International Development Au- farm surveys to monitor changes in farm orga- thority, is being prepared in a participatory nization; truaining of staff of the collaborating manner, drawing upon contnbutions of more local institution in farm-survey techniques. than 200 Bank staff and external advisers. The data processing, and analytical methods; and sourcebook will be a loose-leaf action guide, producing an up-to-date picture of the situation providing Bank operational staff with key ques- in the farm sector- The capacity-building as- tions they should ask; best-practice answers to pects of this task are already bearing fruit, as the tackle these questions; brief case studies; and collaborating institution is now conducting a available resources. In addition to the source- foilow-up survey with very litle supervision. book, ESD has also prepared a document pro- Furthermore, the work served as a model for a viding guidance on social assessment (SA)_ The similar study under way that deals with SA draws on best practice from a number of Ukraine. areas. Its objectives are to (a) identify key Protecting the Global Environment. The stakeholders and provide an appropriate ESD vice presidency leads the Bank's efforts framework for their participation in Bank- to address critical global issues affecting the assisted operations; (b) ensure that project ob- environment, agriculture, and infrastructure jectives and incentives for change are and to follow up on the strategic agenda that acceptable to those the project is intended to emerged from UNCED- A part of this work benefit; (c) assess the sncial impact of projects emerges from the Global Environment Facility and minimize adverse .i,pacts, if any; and (d) (GEE). develop capacity at the appropriate level to en- The GEF was established as a pilot program able participation and to carry out proposed ac- in 1991 to act as a mechanism for international tivities. Both the guidelines and sourcebook cooperation for the purpose of providing new will be elaborated upon and improved as prac- and additional grant and concessional funding tical experience is gained, to meet the incremental costs of measures to Training and Seminars A key element of the achieve agreed global environmental benefits work program of the ESD vice presidency is in four focal areas: climate change, biological the training that it provides Bank staff on a diversity, international waters, and ozone- range of topics to support operational work and layer depletion- The agreed incremental costs help improve project implementation. During of activities concerning land degradation. pri- the past year forty-eight training courses were manly desertification and deforestation, as given. Ir addition, seminars, workshops, and they relate to the four focal areas, are also el- study tours were organized, with participation igible for funding. Day-to-day operation of the by experts in their fields from outside the facility is shared among the UNDP, UNEP. Bank. Thus, the Bank cosponsored-with the and the Bank. In addition to providing admin- United Nations Development Programme istrative support to the GEF secretariat, the (UNDP) and the Rockefeller Foundation-a Bank performs two principal functions: as workshop (held in Bangkok) on integrated pest trustee of a new trust fund and as one of the management and biotechnology. Similarly, an implementing agencies. irrigation seminar/study tour in Mexico, con- During its pilot phase. 115 projects, valued at centrating on the successful experience there more than $733 million, had been endorsed by with promotion of water-users' associations, GEF participants, of which sixty-eight (worth brought together Bank staff with irrigation spe- $471 million) had received final clearance. cialists from both developed and developing Forty-two percent of the facility's resources countries. had been allocated to biodiversity projects, 40 Direct Operational Support. A central objec- percent to climate-change projects, 17 percent tive of the Environmentally Sustainable Devel- to international waters projects, and I percent opment vice presidency is to help the Bank's to ozone projects. operational departments achieve the full inte- In March 1994, more than eighty industrial- gration of environmental considerations-with ized and developing countries agreed to re- state-of-the-art technical, social, and economic structure and replenish the GEF Twenty-six approaches-in their project designs (appropri- countries, including several developing coun- ate to local ecosystems and country conditions) tries, pledged more than $2 billion to the GEFs with the objective of long-term sustainability. core fund (the GEF Trust Fund) over the next Operational support activities are viewed as three years. The eight principles that serve as opportunities to explore systematically new the basis for the restructured facility may be 48 Major World Bank Progroms: Fiscal Year 1994 found on page 51 of the World Bank's Annuat an independent Technical Advisory Commit- Report for fiscal year 1993. tee. after a careful review of the global chal- After fifteen months of negotiations. the par- lenges, the work of other institutions, and the ticipants settled on a "double majority" voting centers' proposed programs. The CGIAR is system in a thirty-two-member council to pro- widely considered as an outstanding success. tect the interests of both donor and recipient The past contribution of its research centers to countries. This requires approval by a 60 per- reducing hunger and poverty is demonstrable. cent majority of all member countries, as well Following a recent realignment of research pro- as approval by donors representing at least 60 grams, the centers are committed to grappling percent of contnrbutions. The council will ap- with today's challenges to sustainable agricul- erate by consensus. using votes only in excep- ture, food security. and poverty reduction. tional circumstances. The restructured and At the mid term meeting that took place in replenished GEF represents an innovative New Delhi in late May 1994. proposals for re- mechanism for international cooperation. As vitalizing the CGIAR system were endorsed. one of the GEF implementing agencies. the The proposals aim at stabilizing the system's Bankhas a special responsibilityto assistcoun- financial system and halting the erosion of its tries in integrating their actions to protect the scientific capacity; refocusing the research global environment with their national devel- agenda on approved programs; improving gov- opment strategies. One aspect of this is for the ernance and reforming management with a Bank to ensure that where it is responsible for view to ensuring predictability, transparency. GEF-financed activities linked to Bank- and accountability; linking the CGIR's pro- assisted projects, the GEF component is fully grams with participatory programs at the farm integrated with the project and is not seen sim- level; and developing an action plan and an ply as an add-on. eighteen-month timetatle designed to secure In December 1992, GEF participants re- govemment endorsement of the new strategy. quested an independent evaluation of the pilot In the area offinances, members of the group phase of the facility to guide future planning. stressed their commitment in support of the Reflecting the organizational structure of the $270 million core research agenda. To this end, GEE, the evaluation was conducted under the it was decided to redirect funding of activities oversight of senior evaluation managers from in the complementary program to the core pro- each of the implementing agencies, with the grain, and a proposal by the three cosponsors Bank's Operations Evaluation Department to launch a one-time financial supplement providing the secretariat. An independent brought indications of support of at least $10 panel of experts provided strategic guidance milion in additional pledges for 1994. The and validated the methodology and approach World Bank is considering matching additional used for the evaluation. donor core funding with an extra contrbution The resulting evaluation study, The Global on a 1:2 basis, up to a maximum of $10 million Environment Facility: Independent Evaluation annually, for both 1994 and 1995. of the Pilot Phase. published jointly by the To ensure transparency. accountability, and UNDP. UNEP. and the Bank in May t994, ad- predictability of finances, the CGIAR will vocated some fundamental changes. These in- move toward a new program-budgeting sys- clude articulating more clearly the GEF's tem. The system will clearly identifyr the rela- mandate, goals. and strategies: addressing de- tive role of CGIAR centers in undertaking ficiencies in meeting the GEFs global focus; research programs within the context of a improving the capacities and procedures of im- global research agenda implemented by indus- plementing agencies for managing the portfo- trialized countries, international agricultural lio; and increasing NGO. country, and research centers, the national agricultural re- community-Ievel participation. search systems of developing countries, and The vice president for ESD also serves as nongovernmental organizations. The 1995 pro- chairman of the Consultative Group on Inter- gram and budgets will be presented in a form national Agricultural Research (CGLAR). an in- that facilitates the move towards the new ap- formal association of forty-two public and proach. private sector donors that supports a networkl of eighteen international agricultural research "Thmwiesteencetesin 1995followingthecreation centers." The Bank is a cosponsor of the of a new singte institutional entity for livestock esearch. CGIAR, together with the Food and Agricul- which would comprise the cxisting Intcrnational Live- ture Organization of the UN (FAO) and the stock Centre for Africa and the lntemationalLaboratory UNDP. for Rcsearch on Animal Discases. and the merger of the Intcrnational Network for the Improvement of Banana The centers pursue a research agenda agreed and Plantain with the Intemational Board on Plant GC- upon by the donors on the recommendations of netic Resources. Environmentaly Sustainable Development 49 The Russian Federation became the forty- enterprise crndit programs sponsored by the second member of the group at the New Delhi Internationai Fund for Agricultural Develop- meeting, and South Africa attended for the first ment (IFAD), and the Freedom from Hunger time as an observer. Campaign. An immediate grant of $2 million Outreach. Reliance on policy studies, best- was extended by the Bank to the Grameen practices papers, and other reports and studies Bank to help cover the start-up costs of the for the dissemination of ESD's intellectual out- Grameen Trust for the first year of its opera- put is increasingly being supplemented by tions. The grant is separate from the World briefer specialized ntwsletters that are circu- Bank's normal loans and credits, which are lated widely ("Urban Age," 'ENV Dissemi- made only to governments or involve a gov- nation Notes," and "Forestry Newsletter," ernment guarantee. for example), as well as by informal work- The $2 million allocation to the Grameen shops, seminars, and symposia aimed at en- Trust is indicative of the Bank's commitment hancing collaboration with other agencies. to directly support action-oriented programs Examples of the latter included involvement in that target the reduction of poverty and the al- the Dutch Ministerial Conference on "Drink- leviation of hunger. Other agencies have al- ing Water and Environmental Sanitation: Im- ready contributed to the trust, and the Bank's plementing Agenda 21" and continuing modest contribution reinforces the institution's collaboration with the bilateral aid agencies of intent to join donors and other partners to ex- Denmark and Sweden on water resources- plore programs that address the credit and sav- management issues. ings needs of the self-employed poor and to The First Annual ESD Conference (Septem- support institutions whGse aim is to help those ber 30-October 1, 1993), convened at the who are in the greatest need. The Grameen Bank's headquarters, focused mainly on the Trust was founded by the president of the question of properly identifying the costs and Grameen Bank, Mohammed Yunus, one of the benefits of alternative uses of natural re- speakers at the conference. sources. The hundreds of experts attending the Other speakers included Boutros Boutros- talks also looked at the growing need for better Ghali, secretary general of the United Na- managementinthefaceofworseningshortages tions; Ketumile Masire, president of and increasing pollution. Botswana; former United States president T.e conference yielded a rich discussion of Jimmy Carter (in his capacity as a leader of the some of today's cutting-edge environmental Carter Center, a nongovernmental organiza- challenges. Its purpose was not, however, to tion); World Bank president Lewis Preston; look for a perfect solution to the world's envi- and Congressman Hall. ronmental problems; instead, it set out to Lending operations. Li fiscal 1994, lending change the processes by which solutions are in support of environmentally sustainable de- identified by involving people and focusing on velopment totaled $10,203 million, or 49 per- the environment while promoting economic de- cent of total Bank lending. Some $6,835 million velopment of the investments were supported by IBRD ESD also organized a Conference on Actions loans, while $3,368 million were supported by to Reduce Hunger Worldwide (November 30- IDA credits. December 1, 1993). The inspiration for the con- Eight projects with primarily environmental ference came from a twenty-three-day fast objectives, invoi;ring commitments of $748 earlier in the year by United States Congrss- million, were approved. Seventeen projects man Tony Hall to raise public awareness about contained significant environmental compo- the growing scourge of hunger. The confer- nents that advanced the green agenda (ten ence, which was planned in collaboration with projects, $742 mnillion) and the brown agenda other multilateral development agencies and (seven projects, $913.6 Million)."6 NGOs from both the developing and industri- Lending in support of agriculture and alized world, aimed at strengthening global ef- natural-resource development totaled $3,907 forts to reduce hunger. million for forty-six projects; transportation The Bank announced at the conference its lending amounted to $3,293 million (twenty- willingness to work with other donors to fund five projects); fifteen investments in the urban credit organizations that offer very small loans to the very poor as part of an overall program to empower them to take control of their lives. The program is similar to several successful "In fiscar 1994. '-environmenc was formally included as a programs in the developing world such as the sector.'jo be so classifred. a project must primarily ad- dress one of four conccrns: environmental institutional Grameen Bank of Bangladesh, the Badan development. natund resources managemcnt. pollution Kredii Kecamatan of Indonesia, the micro- controllwUate management. sad resetlement. 50 Major World Bank Programs: Fscal Yeor 1994 development sector amounted to $1,279 million; vate investment by enterprises in developing and commitments totaling $975 million (ten countries. projects) were made in the water supply and Suipportfor operations- In its efforts to help sewerage sector- develop more vibrant and competitive private sectors, a central concern of FPD has been to Financial and Private Sector Development improve the quality and effectiveness of Bank During fiscal 1994. the World Bank Group- operations-the focus of more than two thirds the World Bank, the International Finance of FPD's resources. Activities during the past Corporation (IFC), and the Multilateral Inver year have included support to country teams ment Guarantee Agency (MIGA)-stepped ap for better design and execution of projects, its support to developing countries to expand more and better staff training, better programs their private sectors and build up theirfinancial of technical assistance, increased networking sectors. The objective is to enhance their pros- with 'best-practice" innovators throughout pects for growth and to make their economies the world, and enhanced dissemination of responsive enough to compete in today's fast- knowledge and best practices to Bank staff and moving global economy- The Bank Group's borrowers. support for private sector development and As was highlighted at a seminar on finance privatization also helped governments reduce and private sector development for the Bank's their responsibilities and fiscal burdens- executive board in March 1994, with govern- freeing them to focus on poverty and the envi- ments everywhere reexamining their role in de- ronmenL velopment and reorienting public sector As last year's Annual Report noted. the activities to maximize efficiency, the private Bank Group is looking for ways to understand sector is increasingly being asked to help meet the dynamics of the environment affecting pri- their development priorities. At the same time. vate secaordevelopment. It is also forging links today's worldwide trade and lmsiness pattems among local institutions critical to creating a imply a higher competitiveness threshold and vibrant environment for business. And it is much higher standards of responsiveness for learning from-and disseminating-successful government institutions and firms alike. country experiences in implementing reforms. Accepting this reality requires a fundamental Contributing to much of this work is the change in what governments do and in the way Bank's new central vice presidency forfinance they relate to the private sector. It means that and private sector development (FPD), which, governments have to move away from con- during fiscal 1994, completed its staffing and troaled, inward-looking economies to competi- organizational set-up. Bank Group operations tive, outward-looking ones And it means that and activities in support of private sector de- firms have to move from courting the state for velopment focused on three main areas: special privileges to courting the markets for D effectively supporting private sector devel- profits. opment through an increasing range of actions: Governments thus have to establish a com- * better dissemination of knowledge; and petitive environment, a legal and regulatory * expenmenting with innovative ideas. system that can support the market. and insti- Supporfing Private Sector DevelopmenL The tutions that can help firms upgrade their capa- Bank is fostering the private sector throughout bilities. They have to move from being owners the developing world in a variety of ways. and operators to being competent regulators World Bank adjustment loans and credits, for and partners. example. help produce a competitive and at- During fiscal 1994 the Bank Group continued tractive business environment. as well as help to help its borrowing countries intensify their reform in the financial sector. In addition, the efforts in privatizing publicly owned enter- Bank Group is supporting about $25 billion prises, redesigning regulatory frameworks. worth of private investment annually. The and, more generally. developing an attractive Bank's financial intermediation loans of about business environment- By the end of the fiscal $1.5 billion a year support $4 billion in private year the Bank and the IFC jointly had virtually sector investment: the IFC-through its loans. completed seventeen private sector assess- equity. and credit lines-provides about $2.5 ments- Their findings have been disseminated billion a year. and with a much bigger multi- through seminars and workshops with a view plier of about 7 to 1, supports approximnately to assisting governments develop solutions in $18 billion worth of investment; and MIGA's consultation with the private sector. The re- guarantee operations are currently running at ports themselves, however. have typically pre- about $400 million a year. supporting about sented the Bank Group's own diagnosis and $3 billion in private sector investments. That recommendations to the governments con- $25 billion represents about 10 percent of pri- cerned as a means of assisting them in their Fnancial and Private Sector Development 51 policy formulation on private sector Privatizationremainedacentralfocusofthe development-related issues. The recommenda- Bank Group's and FPD's assistance to a geo- tions of these assessments have helped the graphical cross-section of member countries BanICs country-assistance strategy and lending during fiscal year 1994. Many initiatives were program (see Box 3-3). Over the past few aimed at establishing the institutional frame- years, almost three of every four Bank- work for privatization in such a way as to fa- supported adjustment operations have in- cilitate efficient, timely, and transparent cluded components that helped establish divestitures. Major programs were undertaken competitive markets and an environment to in a range of economies, from larger (Turkey) support the development of a successful pri- to smaller (Bolivia and Fiji). The targets for di- vate sector. There has also been an increasing vestiture included the sale of small businesses effort to generate the institutions fundamental and shops. medium-sized and large enterprises to the development of competitive and respon- in the tradable sector, and public utilities. The sive markets-customs and tax. technology. IFC has taken an active role in technical assis- technical education. and standards and patents tance for privatization in Russia, helping to de- institutions, for example. velop suitable methods built around an easily Box 3-3. Private S&eor Asse_unts To sharpen the focus of its work on private sector ities for the private provision of infrastructure and development, the Bank introduced in fiscal 1997 a services that are currently being provided by the new element in its program of economic and sec- govemnment; and tor work-the private sector assessmenL As of * report on the entities in the financial sector June 30, 1994, seventeen assessments had been and explore how well the sector offers access to completed (of which ten were completed during credit to the business community. the past year). Six additional assessments are cur- When these areas are not covered in economic rently under preparation, and fourteen more are and sector work, they are covered by a private expected to be started and completed during the sector assessmenL Typically, however, a private next two years. sector assessment focuses more on the business These assessments differ from other Bank eco- environmenL How is business regulated? What nomic and sector work in that thcy involve the are the costs ofexcessive regulation? Are monop- formal cooperation of the llFC. This cooperation olies and anti-competitive practices properly has had several beneficial effects It helps focus regulated? Does the state supply its public ser- assessmentstightlyonthoseelementsoftherasi- vices efficiently? Does the legal system permit ness environment that directly affect private busi- the writing of loan contracts that cover importar ness activity, and it permits the Bank to take economic transactions? Does it permit these con- advantage of the IFC's considerable transactions tracts to be enforced? experience in the private sector. Cooperation also Private sector assessmcnts have turned up sev- helps ensure that the Bank and the IFC pursue eral broad areas of intercst. consistent private sector development strategies * Many high-payoff returns have oome from and that the country dialogue, economic and sec- small and uncontroversial changes in practice tor work, and lending operations reflect joint that, nonetheless. have caused private sector ac- BankIFC concems. tivity to take off. In general, a well-formulated private sector as- * Private sector assessments have helped fo- sessment descnrbes the structure of the private cus the Bank's other economic and sector work sector in a given country, identifies the key con- more sharply on private sector developmrrent con- straints to its development, and lays out econom- cerns. ically efficient ways for the country to remove * Recently completed surveys of private enter- those constraints. prises that assess the institutional and policy The exact content of a private sector assess- framework that governs private sector activity in- ment depends largely on other economic and sec- dicate that among the regulatory constraints that tor work that has been prepared for a country. businesses face, tax and labor regulations are the Typically. this work would: most burdensome. Surveys have found regula- * set out the major macroeconomic issues fac- tory compliance costs to be high-in one in- ing the private sector and discuss how trade bar- stance, taking up as much as 26 percent of senior riers and price distortions might lead the private management time. sector to make investments that are not condu- * Failure of public infrastructure is a large cive to growth; problem. Infrastructure problems tend to be sec- * discuss the merits of different public invest- tor specific. although larger firns in any sector ments and expenditures, suggesting economically are better able to bear the costs of infrastructure efficient changes in spending and raising possibii- failure than smaller firms. 52 Major World Bank Programs Fscal Year 1994 replicated open voucherprocess. The IFC'sas- and water supply and treatment. The IFC's in- sistance began with model approaches for vestments in this sector have risen sharply in privatizing small-scale enterprises and then recent years. The corporation's infrastructure truck transport, followed by voucher privati- operations for fiscal 1994 were in excess of zation of medium and large-scale enterprises. $550 million in terms of net financing ($1.29 bil- The Bank Group has also continued to play a lion gross), for about $5 billion worth of central role in the design and implementation of projects. These figures represent an increase of mass privatization schemes aimed at introduc- 80 percent to 90 percent over fiscal 1993 fig- ing sweeping ownership changes in such tran- ures. sition economies as Kazakhstan, the Kyrgyz Telecommunications is a good example. As Republic, Moldova, Russia, and Ukraine. was highlighted at ajoint Bank-IFC seminar on Work is also underway-in many of these tran- telecommunications for the executive board in sition economies and in Latin America-to de- February 1994, developing countries must in- vise and implement programs to support the vest about $30 billion a year just to provide the growth and sustainahility of recently privatized basic infrastructure to sustain economic enterprises. growth and meet current demand. Even with The Bank's traditional agenda in dealing with the support of the Bank Group and other ofli- state infrastructure monopolies was to expand cial lenders, there is at least a $20 billion gap in the network, introduce new technology, and financing-a gap that only the private sector strengthben operating entities. The emphasis can fill. was on least-cost design, efficient procure- To mobilize such amounts of private capital, ment. and the financial and managerial auton- more and more developing countries are un- omy of operating entities. For this, the main dertaking broad reforms in telecommunica- instruments were Bank investment loans and tions. The time for this is propitious. Rapid the use of the ECO-expanded cofinancing technological change, declining costs. and operations-program. good potential for fast growth-unparalleled in In today's world, the move toward increas- other sectors-open the way to a range of own- ing private participation in infrastructure is ership and management structures. driven by dissatisfaction with the performance The Bank Croup is supporting these reforms of state-owned and state-operated infrastruc- by acting as agent of change and using a wid- ture enterprises. At the same time, government ening range of Bank, IFC, and MIGA instru- finances are precarious, while investment ments to attract private capital and needs are on the order of $200 billion a year. management. Under joint approaches of the And technical change is making it possible for three institutions, flexible packages of techni- smaller scales to be economical-and private. cal assistance, lending, investment, and guar- Seeking greater efficiency and better value antees are being tailored to individual country for money, regulatory reforms can facilitate situations. competition by unbundling potentially compet- The Bank's work on energy during fiscal itive ac:ivities (electric power generation and 1994 focused on energy efficiency, energy sec- distribution) from less competitive activities tor restructuring and regulation, private sector (power transmission). involvement, gas tradc, rural energy, house- Where full-fledged competition is absent, hold fuels, and renewable energy sources- complementary regulation aimed at protecting with particular emphasis on the analysis and the public interest can improve efficiency. New mitigation of environmental impacts. EPD con- approaches to regulation are evolving, too- tinued its analysis of success factors in energy- aimed at improving incentives for cost control efficiency programs-with a view to designing and technical innovation. The choice of the better country-specific and mark-et-based ap- right regulatory approach is complex, and proaches for improving energy efficiency on while some are better than others, there is no both the supply and demand sides. Various in- best scheme for all circumstances. Much de- itiatives assisted sectoral reforms in key coun- pends on each industry's structure and each tries. The Bank encouraged cross-fertilization country's institutional and civil service capac- through technical assistance, seminars, and ity. workshops for policymakers, notably in Brazil. Private sector financing of infrastructure is China, India, and several countries of Central growing fast, although it is still fairly small. and Eastern Europe and the former Soviet Both the number of countries and subsectors Union. involved have expanded significantly. Apart The Bank strengthened its work on natural from power and telecommunications, private gas, which is abundant and environmentally participation in infrastructure is entering areas clean. The challenges have to do with the cdis- such as airports, railways, ports, toll roads, tance of many gas fields from the market and Financial and Piwvte Sector Development 53 Box 3-4. Managing Energy The joint UNDPIBank Energy Sector Manage- During the past year, ESMAP assisted coun- ment Assistance Programme (ESMAP) was cs- tries such as Bolivia, India, Morocco, and Poland tablished in the early 1980s to assess the effects in in planning and carrying out a restructuring of key developing countries of dramatic changes in cn- segments of their energy sector. ESMAP house- ergy prices. With the help of more than a dozen hold and rural energy activities, one of the pro- donors, it now focuses mainly on sector restruc- gram's long-term strengths, continued vigorously turing, regulation, energy efficiency, and house- in Bolivia, Chad, India, Jamaica, Mali, Rwanda, hold fuels, as well as on institution building and and Viet Nam. Similarly, energy efficiency and policy advice in selected countries. ESMAP's ac- conservation efforts, including institution and tivities, integrated into the Bank's Industry and local capacity-building work and training in Energy Department, are often vital complements demand-side management, have been a major fea- or preconditions to Bank operations and bilateral ture of ESMAP work in Brazil, China. Pakistan, aid programs. Tanzania, Zimbabwe, and elsewhere. Oil and gas In fiscal 1994, ESMAP focused on assisting de- activities remained important in countries such as veloping countries as they embark on "second Mozambique and Morocco, as well as in several generation" energy strategies. often linked to Central and Eastern European countries that broad economic reforms. During this phase, tra- have substantially underused capacities and an ditional technical assistance activities take place urgent need for reliable and clean energy sources. in conjunction with the implementation of major In this respect, trade issues associated with the economic reforms-including restructuring and development and use of natural gas resources are regulatory adjustments, price and tariff an area of particular emphasis for ESMAP's revisions-and new investment programs that in- present and future activities. creasingly embody environmental concems. the difficulty of transporting the gas. During tions and their environments. Through finan- the year, Bank work focused on improving the cial sector adjustment loans and similar oper- regulatory framework and on supporting new ations, the Bank is working with borrowing projects for transporting gas to the markets-in countries to build better systems of prudential such countries as Argentina, Bolivia, and Pa- bank regulation and transparent accounting. kistan. Supervision has been strengthened to ensure FPD continued to administer the joint that reasonable standards of bank capital are UNDPIWorld Bank Energy Sector Manage- maintained-along with the management ca- ment Assistance Programme (ESMAP), now pacity necessary to see that it is effectively de- supported by fifteen bilateral donors. The pro- ployed. Assistance has also been delivered grain provides technical assistance to help de- directly to banks, through capacity-building veloping countries implement key policy operations and financial restructuring to reforms for making the energy sector more ef- strengthen their ability to respond to effective ficient and ensuring that investments in the sec- enterprise demand for investment capital. tor make the most use of scarce domestic and Bank restructuring has become a frequent external resources (see Box 3-4). component of Bank operations. It aims at iso- In the realm of financial systems and capital lating and tackling the nonperforming assets of markets, experience shows that when a bank- the banking sector. Bank management and pro- ing system is in crisis, strong measures are re- cedures also need reform to prevent the re- quired at several levels. At the broader level of emergence of subsequent asset problems. the banks' business environment, three types Once the banks are overhauled, it is vital to of action are necessary. First, the macroeco- strengthen durably the institutions and pro- nomic environment has to be improved, and cesses of bank supervision and regulation so enterprises restructured so they become that a recurrence of asset problems is fore- healthy, productive borrowers. Second, the stalled. Because the process of bank restruc- interest-rate regime and the - chemes that pro- turing is long and arduous, it is vital that Bank vide targeted, subsidized c;- dit need reform. supervision of associated loans be intensive for Third, the financial infrastructure, including several years. Without intensive supervision, it the legal, accounting, and regulatory frame- is unlikely the process of reform will maintain work, needs to be upgraded. sufficient momentum and avoid a relapse. - Because the financial health of banks deter- If banking intermediaries are in good health, mines the quality of resource allocation in an the Bank and the IFC can usefully lend through economy, a principal focus of the World Bank them. Financial intermediary lending, an im- has been to help strengthen banking institu- portant instrument for the Bank in achieving its 54 Major World Bank Programs: Rscal Year 1994 developmental objectives, can be very crflc- opment. The Bank's work in these areas un- tive in reaching several classes of borrowers dergirds its financial role. With its repository of (small industry. farmers. the housing market, research, knowledge, and information about municipalities, and infrastructure developers). development-and w.th its unique global This lending is a means for the Bank Group to reach-the Bank is increasingly becoming a deliver to borrowers the benelr of its excellent knowledge-based institution. The global econ- credit standing in global financia! markets. And omy is increasingly driven by knowledge-by as the reforrn and restructuring ei forts of linan- ideas. relationships, and innovations. And cial sector adjustment loans bea-r fruit-and fi- value added and comparative advantage now nancial intermediaries begin to function come as much from these factors as from raw efficiently in a sound business environment- materials, labor, or capital. financial intermediation lending may well again As countries move up the developmeent lad- emerge as an important part of the Bank's lend- der. their ability to compete and integrate into ing activities. complementing the IFC's suc- world mark-ets moves beyond knowing w1hat to ecssful credit line activities. Market pricing of do to knowing htow to do it. The Bank is thus such financial intermediation loans is essential doing more as a collector and disseminator of in all cases. best practices and innovations for meeting the The Bank and the IFC are also engaged in a broad array of requirements to compete in variety of capital-market development activi- world markets. ties. Complementing the IFC's long-standing FPD has actively disseminated knowledge work with capital markets in developing coun- about best practices through conferences, sem- tries, the Bank is concentrating on the broader inars, and training programs, often held in col- issues-such as regu!ation, institutional invest- laboration with the IFC. In fiscal 1994. FPD ment capacity, and contractual saving held sixty seminars and training sessions, pro- schemes. TIhis work typically includes the pro- viding more than 1.800 person-days of training motion of credit transparency through such to Bank staff Oargely on private sector devel- channels as independent rating agencies and opment) and 2,000 person-days to external par- the development of simple, standardized secu- ticipants (largelv on finaricial sector rities, such as bank debentures. The Bank and development, industry, and energy). The the IFC have collaborated closely in capital- Bank's six regional vice presidencies, the IFC. market development in Mexico. where a joint and MIGA also organized similar events, cov- Bank-IFC-Inter-American Development Bank ering a broad array of topics. team worked on the design of promising struc- In May 1994 an innovative Bank seminar on -ures for a private infrastructure-financing fa- international experience in restructuring the cility. coal industry drew government officials from a The Bank's role in developing capital mar- broad range of ministries in Russia, as wefl as kets has depended on the needs and capabili- industry experts. In addition, a June 1994 con- ties of its borrowers. In the weaker economies ference, 'Development, Environment, and and in the transition economies, the Bank has Mining: Enhancing the Contribution of the focused primarily on the provision of basic fi- Mineral Industry to Sustainable Develop- nancial services and the creation of sound ment'-cosponsored by various international banking intermediaries. For many borrowers, organizations and attended by 300 government, the Bank has focused on developmental lend- industry, and NGO representatives two thirds ing through financial intermediaries-if their of them from developing countries-covered health was assured. For sophisticated borrow- issues related to mining activities and the pres- ers, including many larger borrowers such as ervation of the envircsiment. Argentina and Mexico, the Bank has been ac- The Bank and the IFC have forged informal tive in providing assistance to promote capital and formal ties with a range of trade groups. markets. The Bank's resources have also commercial enterprises, business-promotion helped strengthen the capacity of governmemnts agencies, multilateral organizations. and to promote acceptance and liquidity for secu- NGOs to bring new ideas to the Bank. build ritfes backed by creditworthy issuers, which public support, and initiate joint programs. might otherwise be unmarketable as a result of The Bank has also begun holding industry- concerns about broad economic policy and per- by-industry roundtables to create an environ- formance. ment for dialogue and problem solving. A Better dissemination of knowledge. One of series of workshops and roundtables on the pri- FPD's main responsibilities is to enhance the vate provision of power supply -was conducted Bank's role in the realms of knowledge. policy with producers, regulators. donors. govern- advice, and dissemination of best practices in ment representatives, and developing country the area of financial and private sector devel- operators. These fora helped foster a broad di- Financial and Private Sector Development 55 alogue, allowed the Bank to listen to experts In principle. the project could have been from outside, and facilitated a consensus on the structured as a Bank guarantee or as a loan agenda for moving ahead. In the oil and gas fully disbursed into an escrow account, rather sector, the Bank has sponsored workshops and than as a loan with disbursement contingent on conferences for investors and host countries to market conditions. The form of the Bank's develop better understanding of gas trade and credit extension was not crucial. The product markets, and of opportunities for investment, innovation lay in the creation of the facility and It has also used these fora as a means of dis- its associated fund-and its potential for help- seminating experience and best practices. In ing local market institutions to grow. The the same spirit, the Bank and the IFC worked project also says much about the Bank's will- with the government of Morocco and the pri- ingness to change. It would disburse against vate secto; on developing options for attaining financial assets rather than goods and services; quickly a higher threshold of competitiveness, it is supporting market development as its prin- As a follow up to this work. the Moroccan gov- cipal objective: and it is focusing not on Bank ernment hosted a major seminar in early June disbursements but on facilitating market flows 1994 with the private sector on ways to im- and creating confidence. prove the business environment and compete There was also a Bank effort to expand fi- in global markets. nancial intermediation lending by developing a Experimenting with Innovative Ideas. During new format, using the better intermediaries in the past year. the Bank intensified its work on countries, with as light a structure as possible. renewable energy alternatives, working with The $120 million Private Investment Credit countries, representatives from the energy in- Project for Tunisia, approved in December dustry, and NGOs. The objectives are to iden- 1993. epitomizes the new approach. Under the tify and prepare solar energy projects suitable old approach, the Bank would have insisted on for financing by the Global Environment Facil- an elaborate structure for apex operations and ity and other funding sources-and to encour- on close monitoring of all lending decisions. age collaboration among countries in research Now, most lending decisions are up to the in- and development and in demonstration termediaries, whose own capital is at risk. projects. Small and medium-sized enterprises have The Bank has also been active in developing an important role in creating jobs. But their new types of lending assistance to support the special technical, marketing. and financial increased role of the private sector in the pro- needs have proved difficult to meet in a cost- vision of public services. effective way. To move forward on this, the To support domestic bond markets, the Bank Bank has been working with four NGOs with has designed catalytic operations that create a strong track records in delivering credit bridge between institutional investors (pension schemes. The repayment rates of many of funds, insurance carriers, mutual funds) and these schemes have been high (90 percent to 99 the need for long-term funds for enterprises percent), but their transaction costs have also and infrastructure. This will enhance the sus- been high-primarily to cover their start-up tainability of the financial system in borrowing costs and the technical assistance needs of countries and reduce the heavy reliance on for- their borrowers. The Bank has been helping eign exchange. these NGOs devise sustainable and replicable A capital-market development project in Ar- programs, obtain donor finance, and disseni- gentina broke new ground by finding effective nate the results of their efforts. The Bank has ways of fostering the growth of local market also engaged governments in policy and insti- institutions. The $500 million Capital Market tutional issues that affect small and medium- Development Project, approved in March sized enterprises. In this capacity. it acts as a 1994, will help prime-rated commercial banks broker and partner to help NGOs extend the overcome longer-term funding constraints reach and elt ztiveness of their programs. through a backstop facility that would ensure them a source of continued funding at prede- termined financial costs. r6_ Section Four World Bank Operations: Fiscal Year 1994 World Bank (IBRD and [DA combined) Adjustment lending. at $2.425 million. ac- commitments to countries during fiscal year counted for 12 percent or the World Bank's fis- 1994 totaled $-0,836 million. down $2,860 mil- cal 1994 portfolio (S510 million, or 4 percent. lion from the previous year. for the IBRD; $1,915 million. or 29 percent, for The decrease was accounted for principally IDA). In fiscal 1993, adjustment lending by a sharp decrease in commitments from the amounted to slightly more than $4.000 million ITBRD-from $16,945 million in fiscal 1993 to ($2,645 million for the IBRD and $1363 million $14,244 mlllion. IDA commitments, at $6,592 for IDA), or 17 percent of that year's portfolio. million, were only marginally below fiscal year To a certain extent, the decline in adjustment 1993's $6,751 million amount. One project, for lending has been purposeful, especially in $30 mnillion, in the Occupied Territories was ap- Latin America, where the transition from ad- proved. It was funded by the $50 million Trust justment to lending operations is well under Fund for Gaza, which had been approved by way, and in the Middle East and North Africa the executive directors in the first half of fiscal region, where no further adjustment operations 1994. are currently being planned for Egypt, Mo- Shortfills in the IBRD's lending program, as rocco, and Tunisia. compared with the budget, which set indicative In addition, the explosive increase, to $177 WRED lending at between $17 billion and $19.5 billion net, during 1993 of capital flows to de- billion, were particularly sharp in Latin Amer- veloping countries .liminated, in some cases ica and the Canbbean, in the Middle East and (India, for exarAe), the balance-of-payments North Africa (where the lending program in Al- justification for adjustment lending. geria has suffered), and in South Asia, parnic- The principal reason for the turnaround in ularly in India- Increases occurred in East Asia private flows has been the economic policy re- and Pacific (up $219 million) and Africa (up $81 forms of developing countries, especially million). privatization, fiscal consolidation, greater The number of IBRD and IDA operations ap- openness to trade, reduction of commercial proved in fiscal 1994-228-was slightly lower bank debt overhangs. domestic price liberaliza- than the previous year's 245- One hundred tion, and market-oriented reform. To an un- twenty-four EBRD operations were approved, quantifiable extent, the World Bank has helped as opposed to 122 in fiscal 1993. The lending- to foster the environment that has allowed instrument "mix"' in fiscal 1994 showed an in- these flows to increase through its support of crease in investment operations, which could policy reform. not compensate, in volume terms, forthe larger It cannot be assumed, of course, that $177 size of a typical adjustment loan. billion in flows will continue to find its way to The largest borrower of IBRD funds was developing countries annually. Some of the China ($2,145 million for eight projects), fol- money is volatile, and market perceptions, as lowed by Mexico ($1,530 million for five well as relatve returns, will change. One of projects), and Russia ($1,520 million for six the risk in the years ahead for the developing projects). The three largest borrowers of IDA countries is the possibility of a substantial de- credits were China ($925 million for six cfine in these flows and the associated conse- projects), India ($835 million for six projects), quences. and Bangladesh ($597 million for three projects). The sector with the largest number of ap- The lower level of World Bank lending had proved projects was agriculture (forty-six its consequence for disbursements, as well, projects), followed by transportation (twenty- since a substantial part of the reduction in lend- five projects) and 'multisector," which in- ing was caused by a decline in fast-disbursing cludes support for reform programs and adjustment assistance. Gross disbursements to emergency imports (twenty-two projects). countries by the Bank totaled $15,979 million in Dsburserments 57 Table 4-1. IBID and IDA Foreign and Local Disbursements, by Source of Supply farmounts in miNions of US ddlars) IBRD and IDA Net advance Foreigne Local disbuimentab ToLal Period Amount Amount % Amount 9 amount Cumulative to June 30, 1989 85,673 58 58,218 39 3.761 3 147.652 Ftscal 1990 8,883 57 6.099 39 648 4 15,629 Fiscal 1991 8,877 57 6.6t96 42 184 1 15.667 Fiscal 1992 9,038 55 6.807 42 537 -3 16.381 Fiscal 1993 9.813 56 7,887 45 -325 -2 17,375 FLscal 1994 9,009 56 7,442 47 -473 -3 15,979 Cumulative to June 30. 1994 131,294 58 93,059 41 4,331 2 228.684 NoTE: Details may not add to totals because of ronding. a. Anwunts exclude dcbt reduction disbursements oSr.160 million in FY90. S313 mion in FY91, 550 mElon in FY9, and 5515 million in FY93 for IBRD. b. Netadvance disbursments are advawnces made to special ccounts net of amounts recovered (amounts forwhich the Bank has applied evidence of expenditures to recovery of the ousanding advance). Table 4-2. IBRD and IDA Foreign Disbursements, by Source of Supply (amounts in mllions or US dollars) IBRD IDA OECD Non-OECM Tota OECD rfon-OECD Total Period Amount 9% Amount % Amount Amount S Amount 9G Amount Cumulative to June 30, 1989 55,468 86 8,846 14 64,314 17.427 82 3.932 18 21,359 Fiscal 1990 5,290 79 1,388 21 6,678 1,491 68 714 32 2,205 Fiscal 1991 4,953 80 1,230 20 6,183 1,802 67 891 33 2,694 Fiscal 1992 5,067 76 1,634 24 6,701 1,515 65 822 35 2,337 Fiscal 1993 5,048 72 1,928 28 6,976 1,784 63 1,052 37 2,837 FLscal 1994 3,966 73 1.491 27 5,457 2,175 61 1,378 39 3,553 Cumulative to June 30, 1994 79,793 83 16,517 17 96,310 26,194 75 8.791 25 34.984 Non: Disbursements for debt reduction and net advancedisbursements are excluded. Details may not add to totals because of munding. OECD amounts are based on cufrent OECD membership. excludn Mexico. which became a mcmber in May 1994, fiscal 1994: 510,447 million by the IBRD and ciency in the execution of the project; the $5,532 million by IDA. In fiscal 1993, gross dis- Bank's interest, as a cooperative institution, in bursements by the IBRD and IDA were giving all eligible bidders from developing $12,942 million and $4,947 million, respec- countries and developed countries an opportu- tively. (The IBRD amount in fiscal 1993 in- nity to compete in providing goods and works cluded extraordinary disbursements of $1 financed by the Bank; and the Bank's interest. billion to Peru when it cleared its arrears.) as a development institution. in encouraging Disbursements, by source of supply. Pro- the development of local contractors and man- jects financed by the World Bank require pro- ufacturers in borrowing countries. In most curement from foreign and local sources to cases, international competitive bidding is the achieve project goals. Disbursements are made most effective method of procurement. The primarily to cover specific costs for foreign Bank prescribes conditions under which pref- procurement and some local expenditures. erences may be given to domestic or regional The procurement rules and procedures to manufacturers and, where appropriate. to do- be followed in the execution of each project mestic contractors. Through the end of fiscal depends on individual circumstances. Three 1994. 58 percent of IBRD and IDA disburse- considerations generally guide the Bank's re- ments covered goods and services provided di- quirements: the need for economy and effi- rectly by foreign suppliers located outside the 58 World Bank Operatioist FIscal Yeor 1994 Tablk 4-3. IBRD and EDA Payments to Suppliers in Active Borrowing Countries for Foreign and Local Procurement in Fiscal 1994 (millions of US dollas) LouI Foreign 'find fia Borrowing countries procurea jxonent sun disbursmnunt Albania.........4 1- 4 Algeria.~~~~~~~~~~~46 3 49 03 Angola.2.............t 2a Atgentina.............173 216 199 1.2 Bahamas, The.----......t t t Bangladesh.....128 6 134 0.84 Barbados.1.....2 3 Beli.......... ...3-3 Stain ..............7 2 9 0.05 Bhutan .........I 1' I Bolivia......... 31 1 32 0.20 Botbwana ...........4 2 6 Brazil ..............6; 151 529 3.31 BWlgria .............t 16 16 Gao0 Burlina Faso ...........28 1 29 0.18 Bumundi .............14 t 14 0.09 Cameroon ............19 3 0.14 Capc Verde............2 I 3 Central Afiican Republic ......6 t 6 Chad ..............10 to1 0.06 Chsile..............78 12 90 036 China ..............1,104 273137 8.62 Colombia.............175 6 181 1.14 Cosmors ............. t2 Costa Rica ............6 6 12 0.08 CMe d'Ivoire ...........20 41 61 0.38 Croatia.-.: ...- 11 11 00 Cyprus._21 43 0.27 CzechReubic.- 27-Z 27 0.17 Dj§Iboti ..............1 2 Dominica..............f t Dominicaa Repu'blic ........14 2 16 .0.10 Ecuador .............64 1 65 0.41 Egypt. Arab Republic or ..... 54 6 60 0.37 El Salvador............22 1 23 0.15 EqaoilGuinea .........1 5 6 Esronia . ........2 1 3 Ethiopia............. 16 8 24 0.15 [ji .................2 - 2 Gabon..-------------4 1 5 Gambia,.The ..4 t 4 Ghana..42 3 45 0.21 Guatemala ..------2 2 3 Guinea........ ......17 t 17 .1 Guina-Bissau...........5 3 S Guyana.-------------3 1 4 Honduras.............5 1 6 Hungary .............74 61 135 0.84 Inia.--------------1.206 133 1.339 838 Indonesia.............840 36 877 5.49 Iran. Islaimic Repubtic of ......22 7 29as1 Jamaica .............13 t 13 0.08 Jordan..............32 3 35 0.22 Kaxakhstan............t t a Kenya.-------------39 so 90 0.56 Korea. Republic of.........165 343 508 3.18 Kyrgyz Republic..........6 t 6 Lao People's Denm. Rep. .3 12 14 0.09 Latvia .........- 2 2 * Lebanon. 3 6 9 0.06 Lesotho.3.....3... ULtuania.............6 2 80.05 Disursements 59 Laca Foreign TOWa ofo Bornrwing ounries pnourements prans alamoun disbsmnts Macedonia.FYR ......... ............... 3 t 3 0 M adagascar ,. .,,,,,,,,,,,,.,.. 2S 1 26 0.16 Ma lawi ................................ ZS 1 27 0.17 Malaysia .............................. 1IS 27 142 0.89 Matdives .............................. I - I * Mali ....... .21 t 21 0.13 Mau rittnna 8 7 15 0.09 mautius .................. 1 4 - Mexico ............................... 761 32 792 4.9 Moldova .............................. 7 t 7 Monotia -------------------..--------- t t t e Morocco ------------- 112 2 114 0.72 M ozoe . ....... ......b... . ......... 4 I Is 4o.n Myanm .............................. 1 5 6 Nepal ................................. a 2 20 0.1 Nicarap ...u............ 7 1 7 Nier ....................r 10 t 10 0096 N igcria ........................g ea....... 179 156 33S 2.10 Oman ................................. 2 2 3 Pakistan ............................... 248 39 287 110 Papua New Guinea . .16 t 16 0.10 Paraguay .......S.. ........ 5 3 8 0.05 Per ..................................f t 9 9 0.06 Philippine s.229 11 240 1SO Polard ................................2 9 56 85 0S53 Romania ............................... 1 15 16 0.10 Russia ................................ 4 125 I29 0.81 Rwanda .......-.11 - -t tl 0.07 Sio Tom6 and Principe ......... .......... 3 - 3 Senegal .---------------------25 11 35 0.22 SeycheDles .............. ........ t - t SierraLeone ............. ,,,..3 - 3 Sknoak Rep ........... - 2 2 So a ..........................._.6 21 7 L 17 Solomon dands ,,,_------,-,-,,,, I 1 2 SriLanka ..-----------------------5 9 59 037 SLTncia ......... ............ t 2 2 St Vincent and the Grenadines t t t Sudan .......... 7 1 9 0.05 Tanzania ........ . 25 4 29 0.18 Thaland . --------------- 92 56 148 0.93 Tog .3 1 4 Tonga .t - t Trnidad and Tobago .2 16 17 0.11 Tunisia .64 7 70 0.44 Uganda . 30 1 30 0.19 Ukraic .- 30 30 0.19 Uruguay .------------------- 23 11. 34 012 Vanuata .t - t 0 Venezuca .25 55 80 0.50 WesternSamoa ............. ... 4 - 4 Yemen. Republic of ...................... 21 1 22 0.13 Zaire .............. 8 6 14 0.09 Zambia .12 5 18 0.11 Zimbabw .11 24 35 0.22 Tot.. 7.201 -2066 9.267 58 -Zero. t less than S0.5 milLion. * less than 0.05 pent. No. Disbursements for debt reduction and nt advance disbursements are exduded. Details may not add to totals because of munding. a. Refers to the share of all IBRD and IDA payments for fiscal 1994 (excluding disbursements for debt reduction). which totaled 515.979 milion. 60 World Bank Operations: Fiscal Year 1994 Table 4-4. IBRD and IDA Payments to Supplying Countries for Foreign Procurement (amounts in millions or US dollars) I BRO cumulative IDA cumulative io June 30. 1994 IBRD rascl 1994 to June 30. 19J94 IDA fiscal 1994 Supplying country Amwunt % Amount % Aumont % Amount 91 Afghanistan........... 2 * Albania ............* Algeria...... ........ 25 I Ii I 2 0.06 Angoa ...... ........ 9 * * j t Antigua and Barbuda .......* Argentina............ 749 0.78 1s 0.28 92) 0.26 1 1 0.31 Australia ............1.023 1.06 921 1.69 389 1.11 47 1.31 Austria.............1,249 1.30 117 2.14 214 0.61 25 0.722 Bahamas. The.......... 79 0.08 1' 8 * Bahrain............. 66 0.07 2 * 125 0.36 8 0.21 Bangladesh ........... 13 * * 39 0.11 6 0.16 Barbados ............ 11 2 * 4 * Belarus ............1t * * Belgium.............1.435 1.49 45 0.82 92)9 2.65 70 1.9 Belize..............1 * -I 6 -* Benin ............. 3 * -* 13 * 2 0.05 Bhutan ............. t I * Bolivia.24 * 3 S BoLswana............ 6 * 7 * Brazil..............1.680 1174 87 1.59 310 0.89 64 1.81 Bulgaria............. 13 * 9 0-17 S 7 0.18 Burkina Faso .......... I * 7 I Burnmdi ............1 to * 1 * Cambodia ........... I * -t * - Cameroon...............* 20 0.06 3 0.07 Canada............-2,2031 2.29 115 2.11 646 t.85 69 1.95 Cape Verde........... t * * * Central African Republic .2........ 2 - Chad.................... I Chile.............. 357 0-37 9 0.17 30 0.09 3 0.08 China.-------------1,190 1.24 108 1.88 875 2.50 171 4.80 Colombia ............ 208 0.22 5 0.09 14 I Comoros ................... Congo.6------1----------- Costa Rica ........... 31 5 0-10 11 I CMed'Ivoire .......... 35 * 186 0353 41 1.16 Croatia............. 13 * 8 0414 5 * 3 0.09 Cyprus.------------- 24 * 2 * 30 0.09 19 0.54 Czech Republic ......... 34 ¶ 25 0.45 3 * 3 0.07 Czechoslovakiea......... 25 * -3 -* Denmark ............ 633 0.66 59 1.08 271 0.77 37 1.04 Djibouti ................ 23 0.07 1 Dominica.3..................* Dominican Republic....... .6 ** 7 * 2 0.06 Ecuador............. 113 0.12 1 I * Egypt, Arab Republic of ..... 47 * I * 28 0.08 5 0.14 El Salvador ........... 18 I * 3 t* EquatorialGuinea .......... 5 * 5 0.14 Estonia...... I * I 1 Ethiopia ............1 I * I 8 0.23 Disbuusemenis 61 IBRD cumulativc IDA cumulative to June 30. 1994 IBRD rfsl 1994 to June 30. 1994 IDA ftscal 1994 Supplying country Amount % Amouut % Amount % Amount % Fiji .......................... t * - I * - Finland ...................... 399 0.41 36 0.66 115 0.33 14 0.41 France ........................ 6,773 7.03 400 7.34 3r529 10.09 386 10.86 Gabon ............ 14 t 10* I * Gambia,The -................... 3 a - S t . t Gennany ..... . .10.. 93 11.31 568 10.42 3.190 9.12 197 5.55 Ghana ........................ 10 * I 6 * 2 0.07 Greece ...................... 182 0.19 7 0.12 64 0.18 8 0.21 .Grenada ....................... I * - 4 * * Guatemala ..................... 17 * * 12 I S Guinea ........................ 3 * - 1 t * Guinca-Bissau a---------------- * 5 * 3 0.08 Guyana ..................... * * I Haiti .......................... 6 * 4 S t Honduras ..................... 12 I * 2 * t* Hungary .--------------------- 254 0.26 59 1.08 23 0.07 2 0.07 Iceland ........................ 8 * t I t India .......................... 327 0.34 28 O5 624 1.78 105 2.95 Indonesia ..................... 145 0.15 10 0.18 71 0.20 27 0.75 Iran, Islamic Republic of .------- 144 0.15 t 184 0.53 7 0.21 Iraq ..............I........... 459 0.48 t * 30 0.08 - Ireland ..2...................... 15 0.13 5 - 0.08 77 0.22 14 038 Israel ......................... 230 024 16 0.29 87 0.25 10 0.28 Italy .- --- 5,348-. 5.55 227 4.15 1,529 4.37 128 3.61 Jamaica ....................... 16 * t * t Japan ......................... 13,473 13.99 464 8.50 3,887 11.11 228 6.40 Jordan ........................ 49 0.05 t * 129 0.37 3 0.09 Kazakhstan .................... - * - * t * t Kenya ... ........ 28- ....... 22t 220 0.63 50 1.42 Kiribati. ................ . - f * . Korea, Rcpublic of ............. 1341 1.39 287 5.27 604 1.73 56 1.57 Kuwait ........................ 2P- 026 29 0.54 205 0.58 42 1.18 Kyrgyz ;epublic:t * ......... . * - Lao People's D1m. Rep .12 * 12 0.21 - t * Latvia ........................ 2 2 t t * Lebanon . .74 0.08 6 0.10 21 0.06 t * Lesotho . . . a .... a .. .. t t t Liberia . ....................... 26 - 21 0.06 2 0.06 Libya ......................... 92 0.10 t 7 5*- Lithuania .-2 * 2 * - 2 2 t . Luxembourg -----------------.. 70 0.07 t 32 0.09 1 * Macedonia, FYR ............... - t t Madagascar ................... 8 * - 2 * 1 Malawi ........................ 2 * I 10 * 1 * Malaysia ...................... 321 0.33 10 0.18 215 0.61 17 0.48 Maldives ...................... I * - * t Mali .......................... t Malta 20 * 20 0.36 t - Mauritania ...............-..... 14 * 7 0.19 (coninued) 62 World Bank Operallons: FLscal Year 1994 Table 44 (continued) -BRD cumulative IDA cumulativc to June 30, 1994 IBRD fiscal 1994 to June 30, 1994 IDA fiscal 1994 Supplying country Amount % Amount S6 Amount 91 Amount % Maunritius ...... I * t 13 * I 4 Mexico ...................... 493 031 29 0.53 94 0.27 3 0.07 Moldova ...................... t* * -* Mongolia .................... t - - Morocco ..................... 160 0.17 1 * 48 0.14 1 Mozambique .................. 4 * - 7 I 1 Myannmr .................... 23 * 2 * 15 3 O.Og Namibia ..................... t - * I t Nepal ...................... I - 3 * 2 0.05 Ncthrlads ..................1 1.91 120 2.20 886 2.53 107 3.01 New Zealand ................. 150 0.16 9 0.17 89 0.25 5 0.13 Nicaragua .................... 9 * I 6 * Niger ........................ 3 * t * 10 * Nigeria .................... 388 0.40 74 1.36 300 0.86 82 2.30 Norway ...................... 309 0.32 57 1.04 122 0.35 21 0.60 Orman .. --.-- 37 I * 14 I * Pakistan ..................... 109 0.11 12 0.21 164 0.47 27 0.77 Panama ...................... 370 U38 8 0.15 48 0.14 21 0.59 Papua New Guinea ......3 * - * * Paraguay ..................... 112 0412 t t 7 * 3 0.09 Pru ........................ 124 013 7 0.14 16 * 2 Philippines ................... 69 0.07 3 78 0.22 8 0.23 Poland ...................... 1 64 0.17 54 0.98 41 0.12 2 0.07 Portugal ..................... 53 0.05 6 0.10 212 0.61 29 0.81 Qar ...................... 123 0.13 t 13 * 4 0.10 Roman ..................... 252 0.26 12 0.22 64 0.18 3 0.OS Russia ...................... 150 0.16 120 2.20 8 * 5 0.13 Rwanda ...................... 3 * - 1 t * Sio Tomn and Principe ........ - * Saudi Arabia ................. 557 0.58 98 1.79 216 0.62 9 0.24 Senegal ...................... 23 * 2 68 0.20 9 025 Seychelles ................... - t * t * - Sierra Leone . ................. 4 - * 2 - * Singapore .------------------- 909 0.94 73 1.34 621 1.78 64 1.80 SlovakRepublic ............... * 2 I * Slovenia ..................... 28 * 20 0.37 t * t * Solomon Islands ......... . I * I * I I Somalia ............. .... I * - * 2 - South Africa . 385 0A40 38 0.70 664 1.90 154 4.34 Spain ...................... 1,075 1.12 65 1.18 228 0.65 34 0.95 Sri Lanka .................... 21 * 0.45 16 I 1 St. KittsandNevis . t * - * I * - * St. Lucia ................... I * t * 4 I * SL Vincent and the Grenadines . t * - 0 4 * t * Sudan ...................... 5 * t * 12 * 1 Suriname .------------------- I - 2 * t Swaziand .---- ... .. ... fl 8 * 22 0.06 5 0.15 Sweden ...................... 1,520 1.58 63 1.16 396 1.13 35 0.99 Switzerland .................. 4,051 4.21 194 3.55 942 2.69 54 1.52 Syrian Arab Republic .....24 ..t * 14 * 2 4 Dlsbunemenis 63 IBRD cumulative IDA cumulative to June 30. 1994 IBRD rfsa 1994 to June 30. 1994 IDA rfical 1994 Supplying country Amorn.t % Amount 56 Amount 56 Amount % Tanzania ,.... 7 * t * 20 0.06 3 0.09 Thailand . ............ 141 0.15 4 0.07 318 0.91 53 1.48 Togo ................ 29 * I * 21 0.06 t Tonga ...... .* - * t * * Trinidad and Tobago 19 I* 18 0.05 15 0.41 Tunisia ........... 0.09 4 0.07 32 0.09 3 0.08 Turkey .............. 218 0.23 43 0.79 42 0.12 9 0.25 Turkotenistan ........ - * I I a Uganda . .--------3 * t- * 4 I * Ukraine .. ,.. 29 28 0.51 2 2 2 0.05 United Arab Emirates 536 0.56 2 * 333 0.95 23 0.64 United Kingdom6 ..... 7.380 7.66 523 9.59 4,797 13.71 438 12.34 United States .... 19,381 20.12 751 13.77 3,609 10.32 219 6.17 Uruguay. .----------87 0.09 11 0.19 6 * * Uzbekistan ------- ** 5 5 0.14 Vanuatu . ............ * * t* Venezuela ........... 465 0.48 18 0.33 167 0.48 37 1.05 VietNam . . . 42 * I * 40 0.11 16 0.45 Western Samoa .2. * _ * t * * Yemen. Republic of - t * t * 207 0.59 t 3 Yugoslavia, SFR o",,, 854 0.89 5 0.10 16 0.48 4 0.12 Zaire ,,,.. ..... 6 . *t 36 0410 6 0.16 Zambia,.. .29 1 1.07 0.30. - 043 Zimbabwe ...........,34 t * 85 0.24 24 0.67 -Other ......., ,, 867 0.90 86 1.57 18_2 0.52 2 147 Total ............, 96,310 100 5,457 100 34.984 100 3.553 100 - Zero. t than SO5 minlion. * less than 0.05 percent NoT Disbursements for debt reduction and net advance disbursements are excluded. Details mav not add to totas becausc of rounding. a. Figur rePresent supply fiVn the fowoCr C2Chosl0vakia prior to January 1. 1993. b. United Kingdom indudes Hong Kong. c. Fgures represent supply from SFR Yugoslavia in FY1994 for IBRDIIDA as follows: Bosnia-cHrzegovina S4S2 million: Fedeal Republic of Yugoslavia (Serbia and Montenegm) S5.5 milLion. borrowing country. While most foreign pro- suppliers as expenditures are incurred. Be- curement comes from suppliers in developed cause balances in these accounts cannot be at- member countries, suppliers from developing tnbuted to any specific supplying country until countries have increasingly been effective in expenditures have been reported to the Bank. winning contract awards. Through the end of these are shown as a separate category. fiscal 1989. 15 percent of foreign procurement Table 4-2 provides details for foreign dis- was awarded to developing country suppliers: bursements by OECD and non-OECD coun- in fiscal 1994. developing country suppliers tries for the IBRD and IDA separately. share was 32 percent of total foreign disburse- Table 4-3 shows disbursements made in fis- ments. cal 1994 by the IBRD and IDA for local and Table 4-1 shows consolidated foreign and lo- foreign procurement from all active borrowing cal disbursements for the IBRD and IDA countries and disbursements madc for goods. through the end of fiscal 1989 and for each of works. and services procured from them by the next five fiscal years to the end of fiscal other Bank borrowers for projects funded by 1994. Advance disbursements consist of pay- the Bank. ments made into special accounts of borrow- Table 4-4 shows the amounts disbursed from ers. from which funds are paid to specific the IBRD and IDA separately for foreign pro- 64 Wodd Bank Operations: Fiscal Year 1994 Table 4-5. IBRD and WDA Payments to Supplying Countries for Foreign Procurement, by Description of Geoads, Fiscal 1994 (maounts in millions or US dollars) All othier Total Equipment aivi works Consultants goods disburmments: Supplying country Amount SE Amount Sb Amount S Amnount % Amount Sb ,Afghanistan.........* t t * Albanria.t......... t f Algeria.3.............. 3 3 Angola.t...............* t Antigua andfBarbuda f * __ * _ t Argentina ........ 20 0.27 5 0.90 1 0.10 I 0.22) 26 0.29 Australia.........117 1.59 1 0.26 20 2.59 1 0.29 139 1.54 Austria . ........1.34 1.82) 1 0.14 6 0.827 2 0.47 142 1.58 Bahiamas, The . t...t.... _ S * Bahrain ......... 5 0.07 1 0.21 t * 3 0394 9 0.10 Bangladesh........ 50.06 t t * 1 0.30 6 0.07 Barbados ..... .... 2 0.31 t * I * 2 Bclarus...............* * Belgiumn.8....... 9 1.22 5 0.90 13 1273 7 2.05 115 1.27 Benin........... 2 0.28 t * _ Bhutan................. j * Bolivia .1.......... S I Botswana.2............*2 2 * Brazil..........139 1.9 8 1.4 3 0.36 1 0-39 151 1.68 Bulgaria ......... 15 0.2 - * 16 0.17 Burkina Faso....... I I _9 1 * _ Burundi ............S f * 4 Cameroon.3-------*--- 3 S 3 Canada..........106 1.44 6 1.02 68 8.82- 5 1.52 184 2.05 Cape Verde.-----------*t * Central Afirican Republic . * _ *_ Chile........... 10 0413 -2 0.31 1 * 12 0.13 China.--164 2.24 92 16.13 4 0.54 13 3.63 273 3.03 Colombia.4 0.05 1 0418 1 0.07 I 0.26 6 0.0 Congo 2.........f..... * 9 * Costa Rica ...........* 5 0.64 1 6 0.07 C6te d'Ivoir ....... 27 0.37 12 2.17 1 0.1t7 t 0.06 4 1 0.46 Croatia .2........ 1 8 1.47 - I _ * 1 042.I Cyprus.------ 21 028 - 1 0410 1 21 0.24 Czech Republic . 2-- 77 0.37 - 5 t 0412 27 0.30 Denmark......... 63 0.86. 15 2.68 17 2.22- 1 0.20 96 1.06 Djibouti .............. 1 0.26 1 Doainica ........... " _ 5 Dominican Republic 2 __ * f S _ Ecuador................ Egypt, Arab Republicof 3 * 2 0.36 1 0.08 I 0.05 6 0.06. El Salvador .1............ Ia Equatorial Guinea .... 5 0.07 -*S _ * 5 0.05 Estonia................1I* Ethiopia ......... 8 0.11 - * 0.05 1 8 0.09 Finland ......... 47 0.65 - * 2 0.28 1 0.30 50 0.56 France..........628 8.58 66 11.46 85 11.13 7 2.027 786 8.72 Gabon.................jI* Gambia, The ....... - * t * f * Germany.........657 8.97 45 7.88 44 5.74 20 5.68 766 8.50 Ghana......... 2 * I 0.08 - * 3 Disbursemenis 66 All other TotlW Equipment Civil works Consultants goods disbusments Supplying country Amount 96 Amount % Amount % Amount 96 Amount % Greece .................. 11 0.15 3 0.53 t * f * 14 0.16 Guatem ala .............. 2 - * 2 * Guina ................. - * t* Guinea-Bissau .......... 3 - * * * 3 Guya ................ t I - * H a tti ................. I - * t * 1 * Honduras .............. I - * t * * Hungary ............... 56 0.76 5 0.91 1 0.07 - * 61 0.68 Iceland ................. - - t - t * lndia ................. 103 1.41 10 1.81 6 0.83 13 3.78 133 1.48 Indonesia ............... 29 0.40 - t 7 1.93 36 0.40 a, Islsamic Republic of . 7 0.10 - 0 * - * 7 0.08 fIaq .----- - t * -- - * t * Ireland ................. 8 0.11 t 0.08 9 1.13 1 0.32 18 0.20 srael ................. 21 0.28 - * 5 0.62 t 0.13 26 0.29 Italy .................. 259 3.53 81 14.09 8 1.03 8 220 355 3.94 Jamaica ................ - - t * t * t * Japan ................. 632 8.63 25 4.42 18 2.30 17 4.73 691 7.67 Jordan ................. 3 - t * * 3 * Kazakhstan . ............ t * t Kenya .---------------- 15 0.21 t * 5 0.65 30 8356 50 056 Kin-bati . .......... t * - - * - * t Korea, Republic of ...... 321 4.38 13 2.30 6 0.78 3 0.88 343 3.81 Kuwait ----------------- 71 0.98 - * - * - * 71 0.79 Kyrgyt Republic ........ t * - * * * t * Lao Pcoples Dcma.Rep.. 12 0.16 - S t * - 12 0.13 Latva ................. 2 - * * 2 * Lebanon ............... t * 4 0.63 2 0.28 t * 6 0.07 Lesotho ................ * - t * t * f Liberia ................. I 1 0.19- * - * 2 * Lbya ............... t * - * - * - * t * Lithuania . .............. * * _ _ * Luxembourg ............ I - 1 0.13 2 * 2 * Macedonia, FYR ........ t * - * - * - -* t * Madagascar.. t - * t * * 1 * Malawi ................. I * t 0t11 I Malaysia ............... 23 032 1 0.18 t * 2 0.56 27 0.30 Mali ................. * * * t * Malta ................. 20 0.27 - * - * - * 20 22 Mauritania .............. 7 0.09 - * - * - * 7 0.ft Maunitius ............... t t- * 0.06 t 0.09 1 * Mexico ................. 29 0.40 t * t 2 0.48 32 0.35 Moldova ................ t - * t Mongolia ................ - * * * t Morocco ............... I * - 011 * 2 * Mozambique ............ 1. t t - * Myanmar ............... 5 0.07 - * t * - * 5 0.06 Namibia ................ t * - * t* * Nepal .................. 2 *2 (continued) 66 World Bank Operaffons: Flscal Year 1994 Table 4-5 (continued) All other Total Equipment Civi works Consultants goods disbarsements Supplying country Amount % Amount 9G Amount % Amount Sf Amount % Netherlands ............ -186 2.54 10 1.80 27 3.46 5 1.38 227 2.52 New Zealand ........... 9 0.12 1 0.25 4 0.48 t * 14 0.16 Nicaragua .............. I * * - * I * Niger .................. t * Nigeria ................. 156 2.13 - * t * 156 1.73 Norway ................ 67 0.91 - * 6 0.82 5 1.44 78 0.87 Oman .................. t - * Pakistan ................ 18 0.25 18 3.21 2 0.22 t 0.12 39 0.43 Panama ................ 29 0.40 t * - * - * 29 0.32 Papua New Guinea *...... t * - * t ' Paraguay ............... 2 * 1 0.26 t * - ' 3 * Peru .................. 7 0.10 - * t * 2 0.49 9 0.10 Philippines ............. I 2 0.41 6 0.74 2 0.44 11 0.12 Poland ................. 55 Q75 t 1 0.09 t 0.06 56 0.62 Portugal ................ 16 0.22 1 0.11 15 2.01 2 0.71 34 0.38 Qatar .................. t * 4 0.64 - * - * 4 * Romania ............... 12 0.17 3 0.44 t * t * 15 0.17 Russia ................. 124 1.70 t * 1 0.07 t * 125 1.38 Rwanda ................ t . t * t * t * Saudi Arabia ............ 104 1.42 1 0.13 - * 2 0.53 106 1.18 Senegal ................ 9 0.13 1 0.20 t I _ * 11 0.12 Singapore .............. 119 1.62 4 0.78 7 0.93 7 1.95 137 1.52 SlovakRepublic .-2 -- -- * - * t * 2 * Slovenia ..... - ------- -- 18 0.24 2 0.43 t t t 0.10 21 0.23 SolomonIslands ........ I * * * t I South Africa ............ 155 2.12 t * 9 1.22 27 7.79 19_ 2?13 Spain ............. 73 0.99 20 3.49 5 0.69 t 0.10 98 1.09 Sri Lanka .............. 2 _ t 0.05 7 2.00 9 010 SL Lucia ............... t 1 0.24 * t * 2 * St. Vincent and the Grenadines ........... - t * * - * t Sudan .................. 1 * t *t Suriname ............... -* t t Swaziland .............. 5 0.06 - ' t * 1 -0.25 6 0.06 Sweden ................ 84 1.14 4 0.76 4 0.53 6 1.75 98 1.09 Switzerland ............. 216 2.95 9 1.51 16 2.14 7 2.06 248 2.75 Syrian Arab Repubic .... 2 * - * t t * 2 Tanzania ............... 3 t t* 1 0.25 4 * Thailand ............... 54 0.74 2 0.28 tt t 0.42 56 0.63 Togo -........ I - * _ _ 1 * Trinidad and Tobago .... 15 0.21 t t * t * 16 0.17 Tunisia ................. 6 0.08 - * t 0.06 t * 7 0.07 Turkey ................. 50 0.68 1 0.12 1 0.08 1 0.21 52 0.58 Turkmcnistan ........... I Uganda ................ * * Ukraine ................ 29 0.39 - * - * 1 032 30 0.33 United Arab Emirates.... 14 0.19 3 0.59 - * 7 1.91 24 0.27 United Kingdomt ....... 774 10.57 23 3.94 112 14.59 53 15.17 961 10.67 United States ........... 775 10.59 28 4.82 149 19.43 19 5.45 971 10.77 Uruguay ............... 11 0.16 - * * - * 11 0.13 Uzbekistan ............. 5 0.07 - * * - * 5 0.06 Disbursements 67 Table 4-5 (continuedJ All othcr Total Equipment Civil works Consultants goods disbursements Supplying country Amount % Amount % Amount 96 Amount % Amount % Venezuela ............... 55 0.76 - t * - * 55 0.62 Viet Nam ............... 1 6 0.23 t 0.06 - * - * 17 0.19 Ycmen, Republic of ...... t * t 0.08 - t * I * Yugoslavia, SFRofb .... I e 9 1.50 - __ * 10 0.11 Zaire .................. 6 0.08 - t * - * 6 0.06 Zambia ................. 4 0.06 t e t * t 0.13 5 0.06 Zimbabwe .21 0.29 - 1 0.08 2 0.57 24 0.26 -Other ................ 35 0.48 1 0.24 60 7.76 41 11.86 138 1.53 Total .............. 7,319 100 573 100 767 100 350 100 9,009 100 - Zcro. t less than 50.5 mnillion. ' less than 0.05 percenL NoTE: Disbursements for debt reduction and net advance disbursements are excluded. Detauls may not add to totas because of rounding. a. United Kingdom includes Hong Kong. b. Figtrns represent supply from SFR Yugoslavia in FY94 for IBRDIIDA as follows: Bosiia-Herzegovina S4.2 million: Federal Republic of Yugoslavia (Serbia and Montenegro) SS5. million. Tabk 4-6. IBRD and IDA Foreign Disbursements, by Description of Goods, for Investment Lending, Fiscal 1992-4 1992 1993 1994 Item OECD Non-OECD Total OECD Non-OECD Total OECD Non-OECD Total milrions of US dollars Investment lending Civil works 339 154 493 337 176 513 317 209 526 Consultants 577 72 649 612 105 717 6.5 125 740 Goods 2,665 456 3,121 2,888 597 3,485 2,816 865 3,681 AU other 81 50 132 246 142 388 59 70 128 Total 3,662 732 4,394 4,083 1,020 5,103 3,807 1.268 5.075 percents Civilworks .69 31 11 66 34 10 60 40 10 Consultants 89 11 15 85 15 14 83 17 15 Goods 85 15 71 83 17 68 77 23 73 All other 61 38 3 63 37 8 46 55 3 Total 83 17 100 80 20 i1o 75 25 100 NoTEr Disbunemnents for debt reduction and net advance disbursements are excluded. Disbursements for structural adjust- ment loans, sector adjushment loans. and hybrids (loans that support policy and institutional reforms in a specific sector by fmancing both a policy component disbursed against imports and an investmnt component) are also cxduded. OECD amounts are based on current OECD membership. excluding Mexico. which became a member in May 1994. All of he percenuagcs are bused on the dollramounts shown underthe total disbursements section. Thesc percentages show both the breakdown between OECD and non-OECD countries for individual goods categories and the share of each goods category compared with total disbursements. curement of goods and services from member bursed are compared with respect to significant countries in fiscal 1994 and cumulatively categories of goods procured from foreign sup- through fiscal 1994. pliers. The extent to which OECD and non- Table 4-5 shows the proportion of foreign OECD countries participated in supplying disbursements from the IBRD and IDA for spe- these major categories of goods in each of the cific categories of goods and services provided past three fiscal years is also compared. by member countries in fiscal 1994. In all of these tables IBRD figures exclude Table 4-6 provides a summary listing of the disbursements for loans to the International Fi- amounts paid to OECD and non-OECD coun- nance Corporation and 'B" loans. IDA figures try suppliers in each fiscal year from 1992 to include Special Fund and Special Facility for 1994 under investment projects. Amounts dis- sub-Saharan Africa credits. Disbursements for 68 Woad Bank Operalans: Fiscal Year 1994 Project Preparation Facility advances are ex- a major challenge. There is the need to restore cluded for both the IBRD and IDA. Minor ad- efficiency and commitment wiLhin the civil ser- justments have been made betwecn the foreign vice, which has been eroded over time by the and local disbursements for fiscal 1993 as re- politicization of career management and de- flected in Tables 4-1. 4-2, 44, and 4-6. clining remuneration in real terms. This dcte- roration in public administration constitutes a Technical Assistance major obstacle to launching needed policy re- Technical assistance activities financed fonns, restoring good govemance, and improv- through IBRD loans and IDA credits continue ing the delivery of public services. to represent a significant segment of total Bank The Bank is paying increased attention to the lending. A number of reasons underlie the in- strategic management of technical assistance crease in technical assistance activity in recent for institutional development through the tar- years. geting of public sector management and insti- * First, an increase in technical assistance tutional development issues in economic and for institutional development is an appropriate sector work and country-stratcgy work. A by- complementary response to efforts to deepen product of this increased upstream effort is an policy reforn and retool the public sector for enhanced policy dialogue with governments on its new roles. It may also reflect the current systemic institutional issues and countrywide phase of Bank assistance after key macr4 pol- management of technical assistance. The result icy changes have been put in place. could be reform-based adjustment operations. * Second, there has been a shift in lending to freestanding technical assistance, and im- human resources development and environ- proved institutional development interventions mentally sustainable development and away in projects. Overall, although there has been from adjustment loans. Historically. these sec- some progress in this area and some best prac- tors have had the highest percentage of tech- tices are emerging, more time is required to nical assistance components as a share of total build up skills in macro-institutional analysis lending-well above 10 percent. and to integrate public sector management is- - Third, there has been a general decline in sues into economic and sector work and the grant funding for technical assistance from the country dialogue. In a number of countries. United Nations Development Programme these issues are highly sensitive and require (UNDP) and bilateral donors, particularly to time and persistence to build up borrower own- some of the Bank's major borrowers who are ership and commitment at the highest levels. major recipients of technical assistance com- Use of local consultants. The Bank encour- ponents. ages borrowers to employ local consultants ei- Loan-financed technical assistance (free- ther alone or in combination with foreign finns. standing and components) by the Bank in cal- To some extent, however. local consultants endar year 1993 amounted to $2.2 billion. Of have been handicapped by a lack of marketing this amount, $1.9 billion. or 85 percent of the expertise. The Bank is currently financing the total, funded components of projects. while preparation of a "how-to" manual that deals $300 million was accounted for by twenty-two with consultant operations and mark-eting. freestanding technical assistance projects. Ten When finished, it will be the focus of discussion countries (led by Brazil, China, Indonesia, and in one-week seminars in preselected borrowing Mexico) accounted for more than half of all member countries. The Bank will follow up the technical assistance financed through Bank seminars by monitoring progress made by local lending. These large technical assistance bor- firms and by facilitating their association with rowers share common characteristics: They firns from industrialized countries. are long-standing, mature borrowers and have In addition. during the past year. workshops the capacity to work with the Bank in deter- were held at the Bank's headquarters for con- mining their technical assistance needs. In ad- sultant associations from Africa. Asia. and dition, because most receive inconsequential Latin America to review ways and means to amounts of technical assistance grants from enhance participation of their member firms. bilateral and multilateral donors, the technical The increased emphasis the Bank is giving to assistance provided by the Bank is highly val- the issue of local consultant use is, in part. a ued. response to feedback from borrowers that the Key issues of technical assistance. With the development of greater institutional capability drive toward open and competitive markets of is essential to project success-and that this hitherto centralized economies, a new set of includes making more use. and improving the issues is emerging. In many countries, down- capabilities, of local consultants. sizing the large bureaucracies that have been Institutrional Developmcnt Fund (IDF). The set up to manage state-led economic policies is IDF, which became effective on July 1. 1992. CofInanclrc 69 was designed to fill gaps in the Bank's set of vances have been made to sub-Saharan African instruments for financing technical assistancc countries. for institutional development work associated Tuie Bank aned tnwe UNDP. The Bank inter- with policy reform, country economic manage- acts with the UNDP through many programs ment programs, poverty-reduction programs, and at many levels. During calendar year 1993, public sector management, private sector de- the Bank was the executing agency for 132 velopment, and environment management. UNDP projects having a total value of $303 The IDF provides a quick-response instru- million. This reflects a decline from 1992, when ment for funding small, action-oriented propos- the Bank was the executing agency for 175 als identified during (and closely linked to) the projects with a total value of $348 million. This Bank's economic and sector work and policy trend is expected to continue as the UNDP's dialogue in countries where institutional devel- total resources continue to decline and as the opment is a significant country-assistance ob- UNDP accelerates the shift from agency exe- jective. There is a $500.000 ceiling on cution to national execution and from project individual grants. All borrowing member coun- to program financing. At present. the loss of tries of the Bank are eligible to apply. funding by the UNDP has been more than ad- The introduction of the IDF was partially equately compensated for by funding from driven by the expectation of a pent-up demand other sources, notably Japan's Policy and Hu- for a grant facility to address capacity-building man Resources Development Fund. In the long requirements in many countries. This expecta- term, however, the decline of untied grant fund tion has not yet fully materialized. Demand for for technical assistance from the UNDP will be IDF resources has been limited partly as a re- felt in many operations. The Bank and the sult of its newness and also because of the UNDP are reviewing the implications of this availability of resources from competing trust trend. funds. In calendar year 1993, fifty-three grants At the same time, many borrowers. particu- were approved to forty-three countries for a larly in Latin America, are using the services of total amount of $14.3 million. Some delays in the UNDP to implemcnt technical assistance implementation have occurred, inevitably financed by the Bank. This is done through two caused by the introduction of a new program mechanisms: first, a cost-sharing arrangement that required putting in place special proce- under which proceeds from Bank loans are dures and familiarizing member governments comingled with UNDP funds to create unified and staff with the new grant facility. UNDP projects. executed either by the UNDP Notwithstanding the IDFs modest start-up. or by others; second. a management-service the use of IDF funds has permitted the Bank to agreement-a form of contractual relationship help initiate difficult institutional changes. such between the Bank's borrower and the Office of as reform of economic ministries in Albania. Project Services of the UNDP for the imple- disseminate the experience of privatization in mentation of Bank-financed technical assis- Poland. and enable timely work to begin on a tance. This arrangement is particularly helpful privatization strategy for Belarus. in exnediting implementation by taking advan- Project Prepararion Facility (PPF). The PPF taje of the UNDP's "privileges and immuni- was established in 1975 when the executive di- tis'" to process important transactions with rectors authorized the Bank's president to ap- minimum delay. prove project preparation advances to an The Bank and the UNDP also collaborate in aggregate amount of $5 million. At the time. it the field of aid coordination .o ensure that tech- was expected that the typical tasks would cost nical assistance issues receive adequate atten- in the range of $50,000- $150.000. This limit was tion at consultative group meetings chaired by subsequently raised in 1978 to $1 million and to the Bank and at roundtables chaired by the $1.5 million in 1986. UNDP. During fiscal 1994, a new ceiling of $2 million per advance was established for all advances Corl2JGficmng except those in connection with loans exceed- The Cofinancing and Financial Advisory ing $200 million; for them, the ceiling was set at Services (CFS) vice presidency continued to $3 million. play a catalytic role in facilitating the flow of At the end of calendar year 1993, 138 PPF financial resources to developing countries by advances had been approved, involving a total undertaking various activities relating to cofi- commitment of $84 million. One hundred one nancing. project financing. and private sector advances. for an amount of $49.6 m-illion. had development. Thcse activities included provid- been made on IDA terms, and thirty-seven ad- ing operational support and technical assis- vances. for an amount of $34.3 million, had tance to the Bank's country departments. been made on IBRD terms. Most of the ad- borrowing member countries. and cofinancing 70 World Bank Operaflans Rscal Yeor 1994 partners such as donor governments, official the United States ($66 million). Total corinanc- development aid agencies, export-credit agen- ing currently expected from multilateral rinan- cies, and international financial markets. cial institutions amounted to $3.4 billion. The In fiscal 1994. the volume of cofinancing an- Inter-American Development Bank. with ticipated in support of Bank-assisted opera- $1,021 million of planned cofinancing. contin- tions was $8.8 billion, down from the $11.6 ued to be the largest multilateral cofinancier. billion mobilized in fiscal 1993 (see Table 4-7). accounting for 30 percent of the total. This reduction was directly related to the de- The power sector attracted the largest clines in IBRD and IDA lending commitments amount of cofinancing with an aggregate of during the year. which fell short of fiscal 1993 $2,100 million (as opposed to $3.116 million in amounts by $2.860 million. fiscal 1993). It was followed by transportation The decline is also the result of economic ($1,929 million, down from $2.107 million in the slowdown in both donor and borrowing coun- previous year): agriculture ($1,106 million); tries. which has contributed to a significant cut telecommunications ($519 million): and the in aid and investment budgets on both the sup- multisector category of lending. which includes ply and the demand sides. The diminishing lending in support of reform programs and of weight of quick-disbursing operations in the reconstruction and rehabilitation programs portfolio of Bank operations, as well as the (S437 million). slow pace of the project cycle arising from the In fiscal 1994, three main activities were car- increased attention to qualitative aspects of in- ried out in CFS to formulate a policy frame- terventions, also played a role. Nonetheless. work to facilitate cofinancing as a main the decline in cofinancing is viewed with con- business tool. They were (a) the undertaking of cern in view of the need for increased financial a Cofinancing Task Force study that focused flows to developing countries. on developing a coherent Bank policy on cori- The cofinancing figures, which represent nancing and identifying other ways the Bank planned cofinancing. not actual commitments can play a catalytic role in facilitating capital by cofinanciers, are captured at the time of the flows to developing countries; (b) the launch- presentation to the executive board of each ing of a special policy study on how to main- IBRD and IDA operation. stream the use of guarantees to mobilize About 51 percent of all Bank-assisted private capital in support of Bank operations. projects and programs were cofinanced in fis- particularly for privatized energy and infra- cal 1994, up from 49 percent in the previous structure investments; and (c) the establish- year. Although official cofinancing declined to ment of Accelerated Cofinancing Facilities $6.3 billion from $8.1 billion in fiscal 1993, it with the Export-Irnport Bank- of Japan. under still accounted for the largest source of antici- which cofinancing will be arranged using an ac- pated cofinancing support, some 72 percent of celerated and streamlined procedure. the total. Export credit and private cofinancing In March 1994, the Cofinancing Task Force fell from $1.2 billion to $591 million and $2.3 issued a report that addressed various cofi- billion to $1.9 billion, respectively. The only nancing-related issues and concerns. The task notable exception to this trend was the support force concluded that cofinancing has been. and mobilized from the private sector in the East will continue to be. an important activity for Asia and Pacific region, which reached $1.3 bil- the Bank as an instrument for maintaining part- lion for the year. compared with $373 million nerships between the Bank and other donors to during fiscal 1993. Investment loans received accompiish joint objectives and to mobilize sig- the largest share of cofinancing support, fol- nificant development resources from official lowed by structural adjustment loans and sec- institutions, private sources, and export-credit tor adjustment loans, agencies. In fiscal 1994, official cofinancing provided The Accelerated Cofinancing Facilities with by Japan's Overseas Economic Cooperation the Export-Import Bank of Japan are designed Fund and the Export-Import Bank of Japan to tap Japan's ever-increasing official develop- continued to account for the largest percentage ment assistance in a more active and system- of bilateral support to Bank-assisted opera- atic manner. In the summer of 1993. the tions. reaching a total of $1,404 million equiv- Japanese authorities announced their Funds alent for thirteen projects approved in fiscal for Development Initiative, consisting of a 1994, or 48 percent of the aggregate amount pledge totaling approximately $120 billion of bilateral cofinancing. Other large bilateral equivalent over the 1993-97 period. The Japa- cofinancing support came from Germany ($196 nese authorities emphasized cofinancing with million equivalent), France ($84 million equiv- the Bank and other international develop- alent). Sweden ($78 million equivalent), the ment institutions as one of the initiative's op- United Kingdom (S71 million equivalent). and erational priorities. The facilities would allow Cofinoncng 71 Table 4-7. World Bank Corinmcing Operations, by Region, Fiscal Years 1993-94 (amounts in millions of US dollars) Projects Source crcofinancine World Bank Total cofinanced Ofricialb Export credit Private contribution Region and year No. Amount No. Amount No. Amount No. Amount IBRD IDA costs Africa 1993 41 1,198.6 41 1,185.1 1 10.0 2 3.5 27.0 1,588.9 3,288.3 1994 35 1,592.9 31 1,538.4 - - 8 54.5 7.7 1,649A 3.698.9 East Asia and Pacific 1993 13 1,113.1 11 583.9 2 156.5 2 372.7 880A 166.9 3,392.2 1994 14 1.948.0 9 5152 1 92.0 7 1,340.8 1,8985 634.9 7,261.8 South Asia 1993 11 2,189.0 11 1,800.0 2 289.0 1 100.0 1.145.0 949.0 8,1822 1994 9 1,584.1 9 1,258.7 1 300.0 1 25.4 474.0 948.7 8,875.7 Europe and Central Asia 1993 18 1,433.5 18 1,433.5 - - - - 2,041.0 100.4 4,351.7 1994 25 1,80.0 22 901A 3 173.6 5 205.0 2,253.3 44.6 4,965.7 Latin America and the Canibbean 1993 27 3.741.6 27 2,008.7 1 699.8 3 1,033.1 2,721.3 248.5 10,65.7 1994 25 1,582.7 22 1,447.5 1 1.9 5 133.3 1.739.5 264.5 5,615.1 Middle East and North Africa 1993 10 1.919.9 8 1,077.4 1 47.8 3 794.7 1,239.0 - 6,132.0 1994 9 781.3 8 649.5 1 23.0 2 108.8 561.0 100.0 3,213.0 Total 1993 120 11,595.6 116 8,088.5 7 1,203.1 11 2,304.0 8,053.7 3,053.7 35,912.0 1994 117 8,768.9 101 6,310.6 7 590.5 28 1,867.8 6.934.0 3,642.1 33,628.8 - Zerio. NoTE: The nmnberof operations shown underdifferent sources add up to a figr exceeding the total numberof cofinanced projects because a number of projects were cofmanced bum morm than one source. Details may not add to totals because or romnding. a. These statistcs are comnpiled from the firncing plans presented at the time of approval ofthe World Bank loans and credits by its board of executive directors. The anounts of official corinancing are. in most cases, finn comniitnents by that stage: Cxpolrt credits and private cofinancing amounts, however. are genecrally only estimates since such colmiancing is xtually aranged as required for project implementation and gets firmed up ayearor two after board approval. 'rhe staisics of private cofinancing in these tables for any fiscal year do not necessarily reflect market placements in that year. b. These figures include cofinancing with untied loas from the Export-Import Bank of Japan. the Bank to mobilize cofinancing resources during fiscal 1994. Of particular importance in more easily and systematically in support of its this context was the adoption of guidelines for priority operations. Similar cofinancing ar- donor financing of civil service compensation, rangements will be pursued with other donor which will be followed in future interventions countries. by donor member countries participating in the The Special Program of Assistance (SPA) for program. Considerable progress was also made sub-Saharan Africa constituted the most im- in implementing previously approved SPA portant aid coordination and cofinancing exer- guidelines for simplifying and harmonizing do- cise promoted by the Africa region. The third nors' procedures for disbursing balance-of- phase of the program was launched in October payments support. 1993, covering the period 1994-96. By the time As in previous years, the donor community of the April 1994 meeting of SPA donors, $6.6 provided substantial support throughout the billion of quick-disbursing balance-of- yearto the Bank through trust funds and other payments assistance had already been pledged. external funding arrangements. Contrary to In addition to mobilizing resources, the key generally decreasing cofinancing trends, this SPA objective of improving the quality of do- type of support is growing. The Policy and Hu- nors' adjustment assistance was also advanced man Resources Development (PHRD) Fund. 72 Wortd Bank Operations: Fiscl Year 1994 financed by Japan. continued to provide a public, tourism in Egypt, and for a variety of broad range of support for various Bank- projects in Pakistan, Sri Lanka, Tanzania, and supported progrms and projects in fiscal 1994. elsewhere. Fund grants totaling $141 million were ap- CFS continues to provide specialized advi- proved for technical assistance for preparing sory services to member countries on debt re- 200 Bank-assisted projects in eighty-seven duction under both the Debt-reduction Facility countries. Continuing support was also pro- for IDA-only Countries and the 'Brady" type vided to the EDI and to finance scholarship of debt and debt-service reduction (DDSR) grants. Among the special programs approved programn. CFS, which administers the Debt- was a grant to support Russia's privatization reduction Facility, provides extensive legal and restructuring program. The first opera- and reconciliation work prior to the structuring tional review of the PHIRD Fund, completed of complex debt-reduction operations. During during fiscal 1994, concluded that the fund was the year4 facility operations were completed in fully meeting the objectives for which it was Uganda and Bolivia, while similar operations established and that it had been particularly ef- were under preparation in Albania, Ethiopia, fective as a source of untied technical assis- Guinea, Mali, Mauritania, Nicaragua, Sio tance for project preparation. The review also Tome and Principe, Sierra Leone, Tanzana, noted that the fund also helped the Bank expe- and Zambia. Under CFS's monitoring of the dite its work on private sector development. DDSR progam, extensive financial and sensi- The Consultant Trust Fund Program-which tivity analyses are performed, and soundings makes available consultancy services in sup- are conducted to assess the receptivity of mar- port of the Bank's operational work in borrow- kets and creditors to proposed DDSR pack- ing member countries-also continued to ages. DDSR operations under preparation grow. Ten new trust funds were established in include those for Bulgaria. the Dominican Re- fiscal 1994, with grants totaling $29 million. public, and Poland. A deal for Brazil was com- The program, which is now supported by pleted in April 1994. twenty-six donors, including four developing CFS consolidated its position as a technical member countries, allocated $52 million in fis- center for privatization and private sector de- cal 1994, enabling the Bank to tap new sources velopment services. The primary focus contin- of expertise and to undertake a wider range of ued to be on providing technical services to the analytical work in priority areas and issues, in- Bank's six operational regions for the design cluding the environment, poverty reduction, and implementation of Bank privatization and health and nutrition, and women in develop- private sector development operations. Spe- ment. cialized support was given to almost fifty Projects in the power, telecommunications, projects covering all aspects of public enter- and transport sectors dominated CFS's prise reform, privatization programs. divesti- project-finance activities in fiscal 1994, with tures. and project financing. Increasing focus substantial increases taking place in the use of was given to private sector participation in in- expanded cofinancing operations (ECOs). The frastructure sectors such as telecommunica- ECO program uses limited Bank guarantees tions. transport. and water supply.' against certain specified risks, such as sover- Several technical assistance programs-in eign risks, to encourage private financing, ob- Argentina. Kazakhstan, Paklistan, Romania, tain or increase access to capital markets, and and Ukraine, for example-were managed di- provide improved terms-especially longer rectly by CFS in support of privatization pro- maturities-for projects in developing coun- grams. Pilot projects were also implemented in tries. In March 1994, the executive board ap- areas such as small-scale privatization. retail proved a $120 million ECO in the syndicated sector privatization, trucking privatization. loan market for China's Yangzhou Power and the development of business programs in a Project, while in May, proposals for a $100 mil- number of the republics of the former Soviet lion ECO to support commercial bond financ- Union. In Pakistan, a team was rapidly de- ing for part of the $1.3 billion Leyte-Luzon ployed to help reinvigorate Pak-istan's privati- Geothermal Power Project in the Philippines zation program, while in Romania an and for an ECO guarantee of up to $50 million innovative assistance effort was mounted to to help finance a telecommunications project in help develop management contracts as one of Jordan were approved. Other ECOs under ac- the country's privatization strategies. This di- tive development include those for projects in rect assistance to client governments was le- Chad. China. Colombia, Lebanon. and Mo- rocco. The CFS vice presidency is also en- gaged in structuring non-ECO project finance D eails or the Bank's activities in private sector devclop- for power in Jamnaica and the Dominican Re- ment during the year may be found bcginning on page 50. Improving Portfolo Management. APcountablilty. and Openness 73 veraged by funds mobilized from bilateral excessive preoccupation with lending targets donors. and volumes to a greater concern with the de- Best practice and comparative studies were velopment results in the field of Bank- also undertaken to disseminate cross-country supported operations. experience, and new instruments and ap- Since the executive directors' approval of proaches were designed to mobilize private fi- the action plan in July 1993, significant nance for privatization and enterprise progress has been made in various areas. They development. Six papers in the 'CFS Discus- include, but are not limited to: sion Papers" series were published, and three * Placing portfolio performance, or the man- studies were launched, one assessing Eastem agement of operations under implementation. Europe's experience with medium-scale and at the center of country-assistance strategies. lage-scale trade sales, another comparing in- Improved guidelines for the formulation of ternational postal reforms, and a third review- country-assistance strategies now mandate ing private sector support for the power sector that the Bank's six operational regions account in several developing countries. for portfolio performance in the design of their Improving Portfolio Management, country-assistance strategies and business plans. Accountability, and Openness * Restnucturing projects and country portfo- In fiscal year 1992, the Task Force on Port- lios. and, as a measure of last resort, canceling folio Management, charged with examining the problem projects- quality of the World Bank's project portfolio * Improving the quality of projects at entry and making recommendations on what might by ensuring country commitment to the project be needed to reverse the decline in the propor- at the outset, .fostering broad-based participa- tion of successful projects over the past de- tion in project design, and monitoring stake- cade, was formed. holder commitment throughout the life of the Its report, transmitted to the Bank's execu- project. tive board in November 1992. found that * Simplifying and modifying the Bank's cofi- although more than three quarters of Bank- nancing practices so as to minimize project assisted projects demonstrated good perfor- complexity that is often associated with cofi- mance during implementation, there had been a nancing. decline in the performance of the portfolio. Ac- * Introducing more rigorous analysis of cording to the report, worsening external and project risk and sensitivity during project prep- country environments contnbuted prominently aration and throughout implementation to the performance decline. Certain aspects of through the issuance of new operational policy Bank practice also contributed to portfolio- and Bank procedures statements, as well as the management problems or were not sufficiently distribution of a handbook on risk and sensi- effective in resolving them. The task force's tivity analysis that provides more extensive fundamental conclusion was that the institution guidance at the sectoral level. needed to modify some of its key institutional * Increasing budgetary resources devoted to values that shape its approach to all facets of its project supervision. including increasing the lending operations. role of field offices in enhancing portfolio man- Early in fiscal 1994, the executive directors agement. endorsed a detailed plan of action designed to * Enhancing the role of the Operations Eval- make the Bank more effective in pursuing its uation Department (OED) and strengthening basic goal of reducing poverty in borrowing the application of evaluation results to the countries. Bank's current operations.? As the core of its action plan. the Bank in- * Providing intensive training to borrowers troduced a country-by-cou.try approach into on the Bank's procurement processes so as to the management of its lending operations. This speed up project implementation. For its part, was designed to allow it to take a strategic view the Bank is preparing standard bidding docu- of its $148 billion portfolio. To complement the ments for some specialized areas of procure- changes it made in its own policies and prac- ment, and a committee was formed to ensure tices. the Bank began collaborating with the au- Bankwide consistency on decisions for the thorities in borrowing countries to review the award of large contracts. perf.ormance of the portfolio in each country and resolve systemic problems: The various initiatives set in motion to im- 2Details or the mask forces report, as wetl as ofihe action prove portfolio performance represented an pi endorsed by the BankCs cxecutive directors. may be .. - . . ..... . . ..founed on pk= "16 Of the World Bank An=al Report important shift in the Bank's business for eikscil 1993. practices-from what was perceived to be an For details. see page 154. 74 World Bank Operations Fiscil Year 1994 Box 4-1. Independent Inspection Panel Is Established An independent Inspection Panel, which will re- tember 1993 to establish the panel in its currcnt ceive and investigate complaints that the Bank form. has not followed its own policies and procedures An investigation by the panel must be re- with respect to the design. appraisal, and/or im- quested by a group of people adversely affected plementation ofa development project that it sup- by a particular Bank project. After the Bank's ports. was established in fiscal 1994. and the executive directors have considered a request for appointment of its chairman and members an- inspection, the Bank will make publicly available nounced in April 1994. the request for inspection. the panel's recommen- The panel complements the Bank's existing dations on the request, and the executive direc- systems for quality control in project preparation tors decision on whether to proceed. The Bank and implementation. As such, it will help the cx- will also make publicly available the panel's re- ecutive board in its governance of the Bankc and port on its investigation and the management's will not affect the president's accountability to response to it. In addition, the panel's annual re- the executive directors for the management of port to the executive board will be published by Bank operations. The panel is part of the Bank's the Bank. policy of improving project implementation, ac- Inspection in the territory of a country will be countability, and openness. The panel will be undertaken with the consent of its government. functionally independent and will report directly Panel mcmbers are appointed on the basis of to the Bank's executive board their professional qualifications, as weEI as their The envirnnment favoring the establishment of developmental knowledge and experience. Mem- an independent inspection function in the Bank bers are nominated by the Bank's president and was fostered by the confluence of two events: the are appointed by the executive directors- The taking of office in September 1991 ofa new World members, other than the chairman will serve ini- Bank president, who undertook to review the tiaily on a partine basis. overall efficiency of Bank operations. and grow- Appointed for a Fve-year term was Ernst- ing criticism of the Bank on the part of nongov- Gunther Broder, wao served as president of the eromental organizations. which reflected a broad European Investment Bank and as German gov- concern by some of the Bankis larger sharehold- ernor of the European Bank for Reconstruction ers that international organizations in general, and Development. Mr. Broder will serve as the and the Bank in particular. should be more open panel's first chairman. in their activities. Alvaro Umanla Quesada. who served as minis- Since 1991. as well, some members of the ter of natural resoures for Costa Rica and has Bank's executive board, in discussions on oper- been a board member of several environmental ations evaluation and on certain problematic and researrch institutes, was appointed for a four- projects, advocated the establishment of an in- year term. spection unit. This resulted in a proposal in Feb- Richard Eter Bissell, who served for several mary 1993 by four members of the Bank's years with the United States Agency for Interna- executive board fcr the establishmcnt of an in- tional Development and who has taught and over- spection unit to evaluate ongoing projects. A seen rescarch at several American universities management proposal was discussed by the ex- and research institutes, was appointed for three ecutive board in July, together with the February years- proposal: at that time, broad agreement was By the end of fiscal 1994, the inspectors had reached on the need for an inspection function. accepted their appointments, effective August 1l Subsequent discussion, including discussion on a The panel is expected to open for business during compromise proposal, led to the decision in Sep- the first week of September. * Enhancing those staff skills required for new perfornance-evaluation system designed good portfolio management Some 122 new to recognize and reward portfolio-performance staff in the seven skills areas identified as being management skills. both critical to the process and in short * Establishing an independent inspection supply-environment, financial sector devel- panel for the review of Bank-supported opment, population and human resources, pri- projects (see Box 4-1). vate sector development, the social sciences of * Opening a Public Information Center. anthropology and sociology, procurement. and which makes available to the public previously public sector management-were recruited restricted operational documents (see Box 4-2). during fiscal year 1994. In July 1993. a commitment was made to un- * Developing a new training curriculum that dertake eighty-four actions during fiscal 1994 to emphasizes portfolio management and related enhance portfolio management. According to a Bank and professional skills and introducing a report made available to the executive board at Improving Portfolio Management. Accountability. and Openness 75 Box 4-2. Public Access to Bank Inflrination Expands The public's access to the World Bank's opera- now a presumption that all these reports will be tional information was significantly expanded in made available to the public. The Bank- will con- fiscal 1994 with the opening at the Bank's head- tinue to consult with the governments concerned quarters in Washington. D.C. of a Public Infor- to insure that confidential information is pro- mnation Center that responds to requests from tected. interested parties for a variety of documents, * Enviromnental assessments. Public availabil- ranging from staff appraisal reports and environ- ity of environmental assessment reports and mental assessments to descriptions of individual analyses-before project appraisal-was ex- projects under preparation. panded to include, with the borroweCr's consent, Although the Bank's relationship of trust with assessment reports and analyses for all IBRD its borrowers rests oa the institution's ability to projects, thus unifying Bank-wide policy on the is- maintain the confidentiality of cerrain types of in- sue. (Availability of environmental assessment formation. in recent years there has been a pre- reports of IDA projects was assured in July 1993.) sumption in favor of disclosure. both outside and * Summarics of cvaluation reports, prepared within the Bank, in the absence of a compelling by the Bank's independent Operations Evalua- reason not to disclose. It was that presumption tion Department, are induded in the expanded that was expanded during the year. list of public documents. Information available at the center and through * Legal opinions prepared for the executive the ofices of the Bank in London, Paris, Tokyo, board, access to which had been restricted under and through other field offices includes: the rule of confidentiality of board proceedings. * A new project information document for all may now be made publiclty available by decision projects under preparation. The document pro- of the board on a case-by-case basis. vides substantially more information on Interested parties can use the Internet com- projects-and at an earlier stage-than has hith- puter network to access project information doc- erto been available. The availability of tbis infor- uments and to view (and order) the tides of al mation will allow interested parties to raise Bank documents available cn request, as well as substantive questions and concerns at an early the abstracts and entire text of selected docu- stage- ments. The project information documients and * Staff appraisal repors-once the project environmental data sheets arc available world- concerned has been approved by the executive wide free of charge. Documents on a country board. The availability of these documents is ex- where there is a Bank field office are provided pected to help increase participation during free of charge at that office. Residents of a coun- project implementation by those affected by the try where there is no Bank field office may obtain project. documents on their own country fec of charge * Country economic and sectorwork (CESW). through the Public Information Center in Wash- Although many CESW reports were being pub- ington, D.C. All other documents carry a stan- lished after govcrnment concurrence, there is dard charge of $15. the end of the past fiscal year. almost all of dressed other sensitive issues in its project those actions-most of them grouped within work that were not specific to the recommen- the areas as descnbed above-had either been dations of the task force on portfolio manage- completed or were at an advanced stage of ment. Following a comprehensive review of completion by June 30. 1994. the Bank's resettlement practices. resettlement The report cautioned, however. that the policies were further refined.' In addition, a re- steps tak-en over the past year were only the port on the Bank's experience with governance beginning of what will be a continual. evolu- issues was issued (see Box 4-3). These two tionary process and that specific goals of the studies provided a candid assessmcnt of the is- program of actions will only be realized over sues and a framework for improvements in time. Bank strategies for dealing with them. Steps According to the report. the greatest chal- such as these are an integral part of the Bank's lenges for the future include fully integrating efforts to improve participation in project prep- effective and efficient participatory practices aration and project management and in the into the Bank's work, altering and simplifying overall way that the Bank does business. Bank procedures in order to shift attention to The most visible impact thus far of these ef- obtaining more results in the field, and getting forts, particularly project restructurings and the organizational signals and incentives right closing or cancellation of loans for poorly per- in order to truly establish a "culture of implie- forming projects. has been to prevent a slide in mentation" in the institution. During the past year. the Bank also ad- "4For details. see page 44. 76 World Bank Operafflons Rscal Year 1994 Box 4-3. The World Bank's Experience with Governnce The Bank's interest in governance-defined by Bank's activities in the new areas are expandingp the BankJ as the manner in which power is exer- the bulk of the Bank's governance work wil con- cised in the management of acountry's economic tinue to be public sector managemenL and social resources for development-derives Public sector management work, mainly tech- from its concern for the sustainability of the pro- nical in character, addresses the processes and grams and projects it helps to finance. machinery of public sector performance, not nec- [f sustainable development is to occur, a pre- essarily its causes. This suggests that the Bank's dictable and transparent framework of rules and future governance agenda should be developed at institutions for the conduct of private and publie two levels: first, through more determined at- business must exisL Governance of borrowing tempts to foster local ownership of reform pro- countries is relevant to the Bank's work because, grams. and second, through encouragement of in its absence. much of what the institution seeks institutions of civil society so that they can grow to achieve through its lending is at risk. and, in turn, seek greater accountability from A 1992 report to the executive directors on gov- goventments in the economic sphere. ernance descibed some of the activities the Bank The new procedures that have been intrduced was supporting in the area of governance in the to improve project preparation and portfolio man- form ofstudies, technical assistance, and its lend- agement are likely to have a strong positive in- ing operations. ln the intervening two years, ac- fluence on the Bank's work on governance. Thus: cording to a follow-up report.' the Bank has * icreasedemphasiswillbeplacedonthesys- moved rapidly and firto support borrowing coun- temic problems of prcject implementation. many tries in strengthening the governance underpin- of which are governance related. through the ning of their development efforts, and it has been country-portfolio performance-review process; able to do so within the framework of the eco- * the Bank's new disclosure policy provides an nomic and social dimensions of governance per- excellent opportunity to make much more trans- missible under the Bank's Articles of Agreement parent to the outside world how the Bank ap- Much of the governance work in which the proaches complex situations in borrowing Bank is engaged comprises traditional public sec- countries. tor management categories such as civil service In addition, the country-assistance strategy di- reform, public expenditure management, and alogue, one of the prin'ary vehicles for reviewing public enterprise rform. This is a reflection that the Bank's lending strategy in a given country, these categories are central to how power is ex- can provide a forum for frank evaluation of fac- ercised and that, in these areas, there is a sub- tors, including governance issues, that constrain stantial agenda for rehabilitation, modernization, the effectivencss of development assistance. and change. At the same time, the Bank has ex- tended its governance activities to entirely new areas of support under the rubrics of accountabil- 'Wodd Bank. 1994. Govemance: The Wodd Bank's Er- ity, rnle of law, ard transparency. While the ptdence. Washington. D.C. overall portfolio performance.5 Specifically, tic expectations about the extent to which the latest annual report on portfolio perform- project-development objectives would be ance-for fiscal year 1993-revealed that the achieved. (See Box 4-4 for a discussion of the overall health of the Bank's portfolio-based rating systems used to indicate project effec- on overall status ratings-was relatively stable tiveness.) between fiscal years 1992 and 1993. Since peaking at over 20 percent in fiscal 1991, the sBy the end of fiscal 1993. the latest date for which data are percentage of problem projects has fullen to 18 avaable.restruauring of 104 pnrocts had beencompleted percent in fiscal years 1992 and 1993P or was under way. while rcsterucng of thirty-six others The report also found that the percentage of wss being planned. Seventy-even problem proetsft were problem prjects basd on deveopment- cosed or canceled in fiscal 1993 as compared with thirty- problem projects based on dcvelopmnent- cight projects in rhscl year 1992.he project rcstructurings objectives ratings increased marginally, from and closingslcanellations havc had a positive ffect on the 12 percent in fiscal 1992 to 13 percent in fiscal age structure of problem projects. with the greatest im- 1993- The slight increase did not necessarily provcmentinthproportionofprjects that hd been ated as being problematic for two consecutive years. They have reflect a real deterioration in development per- alsohelpedto increase thedisburseicntratio inthe Bank's formance of the Bank's portfolio. however. portfolio in mwst operatioTn regions. Rather, it reflected efforts by the Bank's six 'Excluding countries that were in nonaccrual status andlor operational regions. within the limnitations of suffcred serious dvil conflict in fiscal 1993. the pcrcentage of probkm projccts declined from more than 18 percent in the current rating methodology, to base fiscal 1991 to 16 percent in fiscal 1992 and 15 percent in development-objective ratings on more realis- fiscal 1993. Improving Portfolio Management. Accountability, and Openness 77 Box 4-4. Inreasing the Reliability or Rating Project Effectiveness Projects are rated on a four-point scale to deter- In principle, progrcss should be assessed using mine the extent to which project-development ob- the same cost/benefit or cost-effectiveness crite- jectives (1DOs) are expected to be met and to ria that are applied at project appraisal or at com- determine their overall status (OS). Projects are pletion. If costs were not a constraint, this would rated on a four-point scale, with a I representing involve repeating periodically during project im- the best rating and a 4 the worst. A DO rating of plementation the original cost/benefit or cost- 1, for instance, means that all project develop- effectiveness analysis done at appraisal with ment objectives are expected to be substantially revised or updated data or estimates. As a prac- achieved. while a 4 rating means that major ob- tical and less costly alternative. however, the jectives will probably not bc achieved, and the portfolio management task force recommended project appears to be no longerjustified. An OS that progress toward expected development re- rating of t means no significant problems, while a sults be monitored based on the evolution of a 4 rating indicates the existence of majorproblems limited number of variables ("performance indi- that are not being adequately addressed. cators") that have been identified in the risk/ Although DO ratings are supposed to be re- sensitivity analysis at appraisal as critical to flected in the OS ratings, a recent analysis of the achieving the expected project development r- divergence between Annual Report on Portfolio sults. This requires substantial improvements in Perfrinnance (ARPP) and project completion rn- risk/sensitivity analysis and performance- portfperfornancc audit report ratings for a sam- indicator monitoring. ple of more than 1,000 projects completed in the As part of the action plan to improve portfolio 1980s concluded that OS ratings seemed to be management, work is proceeding on developing dominated by short-term concerns about imiple- guidance to staff on riskfsensitivity analysis and mentation, while DO ratings reflected longer- perfonnance indicators. Based on this work, re- term optimism that objectives would be achieved vision of the project-rating methodology and once imnplementation problems were resolved. project-perfonnance rating system was initiated Neither rating, therefore, was judged as being ri- in June 1994. The major revision entails, among liable in measuring the development effectiveness other things, the -option of a dual rating systen of projects in the sample. As a result, Bank staff thatwouldgive separate overall ratings to the im- were required, forthe purposcs ofthe mostrecent plementation status of a project and to its devel- ARPP, to pay greater attention to the quality of opment effectiveness (thus. DO ratings would no DO ratings. In addition. any significant gap in as- longer be subsumed as part of the OS ratings); sessments based on OS and DO was to be ex- greater attention to risks in the new DO ratings; plained. greater use of perormance indicators to measure The greater attention of staff to the DO ratings development effectiveness; and the adoption of in the Annual Report on Portfolio Performance guidelines for ax-post evaluation of development for fiscal 1993 helped to impmve the reliability of results of completed projects and for the evalua- those ratings. However, key to further and sub- tion of development results of ongoing projects. stantial improvement in their reliability are the Full implementation of these improvements will precise definition of the expected development realistically take a few years given the sharp de- results foreach projectandbettermeans forgaug- parture from current practices that is entailed and ing progress toward these results during the loan the large number of projects in the Bank's port- disbursemcent or implementation period, folio- Beyond the immediate effects of portfolio risks associated with Bank lending to borrow- clean-up, however, a definitive turnaround in ers that are at an early and difficult stage of overall performance in the next few years is not transition to a market economy, or of economic assured. Against the ongoing efforts to improve reform and adjustment, are also significant. As the management of portfolio performance must experience shows, country economic and insti- be reckoned the implementation risks inherent tutional factors have ultimately a considerable in the ambitious and complex developrnent effect in determining the development outcome agenda of the Bank and its borrowers. The of projects. 78 5 N .- : - _ ,- fQ a- eZ' ' * s s - a~~~~~~~~~~~~~~~ I~~~~~~~~~~~~~~~~~~~ '_~~ > * 4*i~~~~~~~~~~~~~~~~~~~~~~i __,_-~~~~~~~~~~ Cd / "P w ~ ~~~~~~~~~~~~ t A sandv lane benearki poplar trees is rite main roadwayfor conreving goods tomrarkcet in this part of Ckzinese Turkesran. 79 Section Five 1994 Regional Perspectives Africa The year 1993, on the whole, was a difficult better, as their GDF rose by 2.8 percent: the one for the countries of the Africa region, as countries comp.sing the CFA Zone, however. gross domestic product (GDP). excluding saw their economies contract for a third con- South Africa. grew by just 1.4 percent. Al- secutive year.' A positive development in 1993 though this represents an improvement over 1992. it is nevertheless disappointing. consid- ering the region's high raze of population 'Thc SPA for low-income. debt-distressed sub-Saharan Af- growth and the level needed for development. rcan countries provides quick-disbursing balance-of- paymnentsassitance to rwentymnine eligible countries (as of As in previous years. the countries implement- the end of June 1994) in support of reforn prognws de- ing major reforms, and therefore benefiting veloped in conjunction with the Bank and the International from the Special Progran of Assistance (SPA). Monetlry Fund (IMF). saw their aggregate output increase by 2.1 per- 2 The countries are B3enin. Burkina Faso. Cancroon. Cet- saw ~ ~ ~ ~ ~ ~ ~~~~~~.tral African Republic. Chad. Comoros, Congo. Cote cent, or more than the average for the region.' d'lvoire. Gabon. Mali. Mauritania. Niger. Senegal. and The sixteen core (or steady) reformers did still Tago. Tabl 5-1. Africa: 1992 Population and Per Capita GMN of Countries that Borrowed during Fiscal Years 1992-94 Per capita Per capita Population' GNPb Populabiot GNP" Country (millions) (US dolars) Country (minions) (US dollars) Angolae 9.7 - Madagascar 12.4 230 Benin 5.0 410 Malawvi 9.1 210 Burkina Faso 9.5 300 Mali 9.0 310 Burundi 5.8 210 Mauritania 2.1 530 Camneroon 12.2 820 Mauritius 1.1 2,700 Cape Verdc 0.4 8SO Mozambique 16.5 60 Central African Republic 3.2 410 Niger 8.2 280 Chad 6.0 220 Nigeria 101.9 320 Comoros 0.5 510 Rwanda 7.3 250 Congo 2.4 1,030 Sio Tomd and Principe V l 360 C6te d'lvoire 12.9 670 Senegal 7.8 780 Equatorial Guinea 0.4 330 Seychelles O t 5.460 Ethiopia 54.8 ltO Sierra Leone 4.4 170 Gabon 1.2 4,450 Sudan" 265 Gambia, The 1.0 370 Tanzania 25.9 110 Ghana 15.8 450 Togo 3.9 390 Guinea 6.1 510 Uganda 17.5 170 Guinea-Bissat 1.0 220 Zaired 39.8 - Kenya 25.7 310 Zambia" 8.3 - Lesotho 19 590 Zimbabwe IOA 570 Norm Te 1992 estimates of GNP per capita presented above are from th "World Development Indicators' section of World Devetlopment Report 1994. - Not available. a. Estimates for mid 1992. b. World Bank Artas methodology. 1990-92 base period. c. Estimated as lower-middle-incme (S676-52695). d. Estimated as low-income (SG75 or Icss). 80 1994 Reglonol Perspectives was that, on average, the low-income countries The political transition sweeping the conti- performed better than the middle-income one., nent has resulted in increasing multiparty de- although neither group recorded an increase in mocracies; whereas there were just six per capita terms. democracies a few years ago. the number had Some of the highest growth rates were reached twenty-nine by the end of June 1994. achieved by those countries, such as Lesotho, The transition, however, has not been easy, Malawi, Mozambique, and Zambia that were without cost, or uniformly smooth. Where recovering from the severe drought of 1991-92. transition govemments are in place. power The rather quick reco; -ry of these and other sharing has proven difficult to achieve, and op countries from the effects of the drought is tes- posing groups still vie for power in many timony to the. relative resilience of their econ- places. On the economic front, the transition omies and to the effectiveness of collaboration has sometimes disrupted production and com- among their public administrations, donors, merce, affected the mobilization and allocation and nongovemmental organizations (NGOs). of resources. and diverted attention away from The improvement in weather conditions was needed policy reforms. Yet the transition con- not generalized, however. Drought persisted in tinues nearly everywhere. some areas, posing a serious threat in parts of There were sharp contrasts on the African Ethiopia and Kenya, and the countries of the scene in 1993194. The installation of democrat- western Sahel experienced poor rainfalL In ad- ically elected governments in Malawi and dition, in these and other countries growth was South Africa stand in sharp contrast to the held backl by political transition, a high debt mass killings in Rwanda. There were a variety burden (despite debt forgiveness and resched- of outcomes in the economic sphere, too, due ulings), a deterioration in the terns of trade, to the contradictory forces at play not just and weak policy implementation. across countries, but within them and even Table 5-2. Lending to Borrowers in Africa, by Sector, 1985-94 (nmilons of US doaUns fiscal yarm) Annual avemage. Sector 19S5-9 1990 1991 1992 1993 1994 Agriculture 533.9 997.4 504.9 707A4 318.3 152.6 Energy Oi and gas 20.6 - 300.0 48.5 2.4 186.2 Power 113.9 230.0 155.0 86.0 356.0 90.0 Environment - - - - - 2.6 Human Resources Education 122.8 350.7 265.9 402.9 417.4 325.5 Population, health, and nutrition 75.7 232.7 432.8 100.3 131.2 161.6 Social sector - - - - - - Industry and Flnance Industry 124.6 180.1 11.0 200.0 83.5 29.6 Finance 2413 193.6 138.8 619.9 25F23 400.1 Infrastrcture and Urban Development Tclecommunications 50.0 225.0 12.8 - 89.1 - Transportation 339.4 543.6 309.5 242.8 483.0 515.0 Urban development 177.2 360.4 98.3 233.8 61.2 111IA Water supply and sewerage 102.9 257.2 256.0 297.4 67.2 74.1 Mining and Other Extractive 31.5 - 21.0 6.0 - - Multisector 504.0 285.6 861.0 895.0 434.2 711.0 Public Sector Management 81.0 76.6 27.2 133.6 1215 48.2 Tourism _ _ _ _ _ - Totat 2,5iS.0 3,932.9 3,394.2 3,973.6 27817.3 2,807.9 Of which: IBRD 909.3 1.147.0 662.9 738.4 47.0 127.7 IDA 1,609.7 2,785.9 2.731.3 3,235.2 2.770.3 2.680.0 Number of opcrations 80 86 77 77 75 60 Nort: Details may not add to totals beamuse of rounding. _Zero. A-rIca 81 ~~_ ~~-s- -- . - ticW1i S i.0i - -. -r~ ~ *_-; - lb v _s_~~ ~~ - api -- . ,, F _ - g | iX ,~~~~fl-. - Tanzanian women fishing in the Rufiji river delfa. 77te Bank is preparing long-term projections on Afnico's coastalfishing. within sectors. Some countries (such as The Despite this panoply of variations, the events Gambia, Sierra Leone. and Zimbabwe). where of the past twelve months have some common the implementation of reform programs is on elements that providecencouraging signs for the track, nonetheless experienced low GDDP future. Despite delays and costs in terms of growth rates due to the deterioration of their lives and physical assets, the democratization terms of trade, weather conditions, the linger- process is moving ahead. Despite economic ing effects of the 1991-92 drought, or the dis- and political hardships, reform programs have ruptions caused by rebel activity and political survived in most countries and have even been transition. In contrast, other countries (such as strcngthened in some. Scveral countries im- Equatorial Guinea and Sudan. for examp[e), proved their performance in the course of the where reform programs were lac!ing or off- past year. and the members of the CPA Zone track, registered growth of 6 percent to 7 per- have taken an historic. bold step to improve cent, helped by oil exports or favorable their competitiveness. While mucl.. remains to agricultural conditions. In yet other countries. be done, more countries are emba.ked on re- results were uneven, with agricultural growth form programs and face better prospects than coinciding with a decline in industrial produc- compared with a year ago. tion and services. or a decline in overall exports accompanied nevertheless by an ex- Varying Policies, Varying PerrormSnce pansion of nontraditional exports. Contrasts Another common thread of Africa's experi- also marked the implementation of policies. ence. despite the contrasts noted. is that Afri- While the countries of the CFA Zone as a group can countries that have sustained adjustment failed to take the necessary measures to restore policies generally have performed better than their competitiveness in 1993, many of them those countries that have not. This observa- implemented significant structural reforms in tion. made in a recently released staff study the fiscal, financial, trade, and other areas. In that covered the adjustment experience in sub- several of the good performers, the improve- Saharan Africa from 1981 through 1991 (see ments that took place were still inadequate. Box 5-1). is complemented by comparing the however: savings rates, for example. remained more recent experience of a country where pol- too low to support rapid. sustained growth. and icy reform has been seriously interrupted (Ni- social conditions continued unsatisfactory. geria) with a country that strayed from. but 82 1994 Regional Perspectives Box S-1. Implementation of Economic Reform: Overview and Seven Case Studies T!'c encouraging news from sub-Saharan Africa is PoLcy adjustments were undertaken to establish that countries that have persisted in implementing market-deterrnined exchange rates: improve rev- economic reforms have begun to see payoffs. A enue mobilization, while reallocating or reducing recent World Bank report' has traced the effects government expenditures, especially investment; of policy reforms during 1981-91 in a group of liberalize domestic prices (especially in agricul- twenty-nine countries. Of this group, the six with ture), trade and tariff regimes, and agricultural the greatest success in eliminating macroeco- marketing; introduce nondistortionary interest nomic imbalances enjoyed the strongest resur- rates and strengthen financial sector regulation; gence in economic performance, experiencing a enhance the efficiency of public enterprises and median increase of almost 2 percentage points in labor markets: and improve the coverage and the growth rate of GDP per person. The increase quality of social services. in their industrial and export growth rates was The case studies highlight several factors that e"en more strikit.;. Agricultural growth also ac- could explain the diverse economic outcomes in celerated in the countries that taxed their farmers the region. The ability tO persist with the less. By contrast, countries that did not improve fundamentals-macroeconomic stability, price their policies saw median incomes decline by 2 and market liberalization, and adequate social percent a year- sector allocations-separates the successes from Seven case studies completed by the Africa ie- the failures. Ghana, Kenya, and Tanzania are ex- gional Office of the World Bank-from Burundi, amples where a fairly good track record in these C6te d'lvoire, Ghana, Kenya, Nigeria. Senegal. areas was beginning to be established by the late a. d Tanzania-reinforce this finding, whic ex- 1980s. However. even where there is some plaining in greater detail the interaction between progress on the fundamentals, the lack of action initial conditions. external developments, and so- on other fronts-notably the financial sector and cial and political choices in implementing eco- public enterprise and civil service rrform-has nomic reforms.2 The primacy of sound pmven costly. Most policy reversals have been macroeconomic policies and stability for sustain- caused by the inability to move forward in a co- ing economic development, responding effec- ordinated manner in the core reform areas or the tively to domestic and external shocks, and inability or unwillingness to maintain the initial sending credible signals to the private sector are momentum of such reforms. clearly shown in the case studies. Broadly speaking, the economic reform pro- IWorld BaL 1994. en Africa: Reforns,Re- grams in all seven countries addressed the prob- suits and the Road Ahead. New YorLc Oxford Uni- ilems of high budgetary and balance-of-payments vew,sy Prss.' deficits, distortions in markets for goods and ser- 2 Husain, Ishrat and Rashid F;ruqee. eds. 1994. A.uw- vices and factors of production. suppiessed pri- ment in Afdra: Lessons fron Country Case Stadfes. vp.te sectors, and inefficient public services. World Bank. Washington. D.C. reembarked on. policy reform (Kenya) and 1994 budget abolished free transactions in the with one that has remained steadily on the re- foreign exchange and credit markets. thereby form path (Uganda). removing the remaining core pillars of the Nigeria went through a tumultuous period in structural adjustment program adopted in 1936. both 1992 and 1993. The planned democratic In 1990-92, Kenya witnessed a sharp decline transition was protracted and, in the end, did in all major macroeconomic performance indi- not establish civilian rule. The process gener- cators. However. in early 1993, the Kenya au- ated considerable uncertainty, economic dis- thorities signalled an interest in restarting the ruptions. and social unrest. Budgetary control refork.. process. and, as a result, the conditionc deteriorated, leading to fiscal deficits, which for strong medium-term growth in Kenya have exceeded 10 percent of GDP. Inflation rose to improved significantly. Implementation of sta- 40 percent in 1992 and 58 percent in 1993. The bilization policies and more effective enforce- official exchange rate was pegged below mar- ment of financial sector regulations have ket rates, with the spread reaching 100 percent sharply reduced runaway inflation (falling to an by late 1993. The external balance deteriorated annual rate of around I percent during the last significantly. with reserves dwindling and ar- quarter of 1993 after peaking at around 100 per- rears to external creditors rising to more than cent during the second quartsr). Important $6 billion. or one fifth of outstanding debt. steps towards structural reform. particularly in Meanwhile. the economy grew by only 4.1 per- the area of external trade. have begun to grad- cent in 1992 and 1.9 percent in 1993. compared ually restore domestic and intemational confi- with an average 5 percent in the preceding six dence in the governmcnt's commitment to years. The economic policies announced in the reform. With the elimination of all but a short Afrlo 83 list of import licenses and the introduction of reduced the capacity of governmcnts to pro- a unified and stabilized market-deLermined vidc basic siocial services. incrcased the inci- exchange rate (the Kenya shilling becoming dencc of poverty, and undermined the Zone's fully convertibic in May 1994). the siage has financial inslitutions. The spiral. in turn, was been set for the private, and especially the ex- caused by a massive loss of competitivencss port, sector to Icad the recovery. By the end of that resulted from a combination of the inflated 1993, monetary control had becn tightened, cost structure existing in the mid 1980s and the disciplinc had been reintroduced in the finan- major external shocks suffered since then. The cial sector, the maize market had becn fully prices of the Zonc's major exports (coffcc, co- liberalized, and foreign-cxchange rescrves had coa. cotton, phosphate, uranium. and oil) recovered to comfortable levels. These im- dropped sharply in the second half of the 1980s, provements facilitated the approval by the In- causing its terms or trade to fall by 40 percent ternational Monetary Fund (IMF) of a one-year between 1985 and 1992. The Zone's real effec- Enhanced Structural Adjustment Facility ar- tive exchange rate (REER) appreciated by 39 rangement during the fourth quarter of 1993. as percent over the same period. That movement well as the successful rescheduling of external was the result of the depreciation, since 1985, arrears with the Paris Club in January 1994. of the United States dollar and the large depre- Uganda has gone quite far in creating a free ciatiun achieved by many competing develop- enterprise economy. At the same time, the gov- ing countries of their own REERs through ernr.-ent has stabilized the economy through nominal devaluations in the context of eco- tight fiscal and monetary programs. Inflation nomic reforms. The internal adjustment pro- was reuced to around 4 percent in 1993, down grams and structural reforms pursued by from 45 pe_ccnt in 1992 and 240 percent in various CFA countries in the period 1986-93 1987, the year in which the present adjustment were able neither to correct this massive loss of program was initiated. Uganda has in place a competitiveness nor halt the ongoing down- program of comprehensive structural reforms ward spiral. covering the civil service, public enterprises, Recession and financial crisis in the CFA and major financial institutions, and is under- Zone continued throughout 1993. Moreover. as taking a large reduction in military forces to it became increasingly clear that internal ad- release resources for priority spending pro- justment programs were not working, external grams. These reforms have had a positive ef- financing for them dried up. For 1993 as a fect on the economy: Real GDP growth is whole, per capita real income declined by 435 estimated to have reached 6 percent in 1993, percent. exports fell by 3.9 percent in volume. enabling per capita consumption to rise by and investment further contracted to 13.8 per- about 2.5 percent. The lowered inflation has cent of GDP. contributed to a stable exchange rate and re- Against this backdrop. in early January 1994 newed confidence in the country's currency. In the heads of state of the CFA countries met in addition, the downward slide in coffee produc- Dakar to discuss ways to end the economic cri- tion, the country's main export, has been sis. The meeting resulted in the historic deci- halted. There are also signs that nontraditional sion to change the parity of the CFA franc from exports are growing rapidly: that the public's 50 per French franc. a level at which it had willingness to hold financial assets in the form been fixed in 1948, to 100 per French franc.3 At of savings and time dcposiss. which have in- the Dakar meeting. another important. al- creased fourfold in the past two years. is in- though less publicized. step was taken: the creasing: that the inflow of private capital has signing of a treaty transforming the West Afri- been substantial: and that investment. includ- can Monetary Union into a full economic ing rehabilitation and reconstruction work on union. A common approach to the implemen- properties of returning entrepreneurs. is on the tation of economic reforms that were needed to rise. All of these gains. cogether with the in- accompany the parity change was also dis- creased focus of government spending on basic cussed. social services. are expected to have a positive The decisions made at the Dakar meeting impact on poverty reduction. have provided a unique opportunity to restart the stalled structural adjustment process in the Improved Competitiveness fourteen countries. restore growth. and reduce The countries of the CFA Zone have faced poverty. Indeed, since January. nearly all major economic. financial, and social difficul- countries have adopted reform programs that ties since 1986. These difficulties were caused by a downward deflation'ry spiral of produc- tion, incomes. and expenditures that cut aver- * The parity %X Conwros' currency was changed to 75 pr age real per capita income by 40 percent. French ranc. 84 1994 Reglonal Perspectives are being supponed by the World Bank and the The World Bank, together with the IMF. the IMF. All postdevaluation programs give prior- European Commission for the European ity to restraining inflation to ensure that the Union, and the African Development Bank. is nominal parity change actually leads to a sub- cosponsoring an initiative to facilitate private stantial depreciation of the real exchange rate. investment, trade, and payments in Eastern Hence, public sector wage increases have gen- and Southern Africa and in the Indian Ocean eraily been limited to 10 percent to 15 percent countries-the cross-border initiative (CBI). to prevent a wage-price spiral. To allow some The CB[ is based on a new integration con- time for urban wage earners to adjust to the cept that promotes mobility of factors, goods, higher cost or imported items, increases in the and services across national boundaries among prices of selected imported goods (petroleum participating countries while minimizing products, rice, sugar, edible oils, medicines, chances for diversion of trade and investment. and school books, for instance) are being cur- It involves voluntary participation by countries tailed through temporary tax reductions and di- that are ready to accelerate the reform effort, rect subsidies. Fiscal reform-reduction of and is based on the principle of reciprocity deficits to sustainable levels, tax reform, and among the participating countries. The pro- restructuring of expenditures-also figures posed reform measures are in the areas of trade prominently as an objective of the reform pro- liberalization, liberalization of the exchange grams. Priority. however, has been given to system. deregulation of cross-border invest- protecting vulnerable groups and relaunching ment, strengthening of financial intermnedia- poverty-reduction programs by incrcasin-, pub- tion, and the movement of goods and persons lic expenditures on basic education andi health among the participating countries. The reform services. developing and implementing social agenda supported under the CBI has been finds targeted at the poorest groups. and ex- developed through a two-year process of dis- panding labor-intensive public works pro- cussion by public and private sector represen- grams. tatives of the participating countries. as well as consultations with regional institutions. Regional Cooperation Efforts The CBI was endorsed by thirteen countries The recent events in the CFA Zone aqd the at a meeting in Kampala, Uganda, in August new challenges facing South Africa and its 1993. To date, nine countries (Kenya, Malawi. neighbors call for strengthened regional coop- Mauritius. Namibia. Rwanda. Swaziland. eration. Various actions have already been Uganda. Zambia. and Zimbabwe) have con- taken in this direction, and others are under firmed their intention to participate and have consideration. In the CFA Zone, the member established mechanisms to prepare countrv- countries of the new West African Economic specific proposals for implementing the CBI- and Monetary Union (UEMOA) and the Cen- supported reform agenda. tral African Munetary Union have decided to In addition, the heads of state of Kenya. form economic-as well as monetary-links. Tanzania. and Uganda (the members of the In Western Africa, the signing of the treaty for former East African Community) recently met the new union by the six member states was in Arusha, Tanzania. to reaffirm their commit- accompanied by further efforts to render bud- ment to strengthened cooperation. There is a getary policies coherent. harmonize tariffs and consensus that this cooperation should be indirect taxes, and develop a regional financial based on practical improvements in investment market. In Central Africa. the six member incentives and tax regimes. and streamlined states of the Central African Customs and Eco- border formalities. nomic Union have taken advantage of their in- creased competitiveness to accelerate the The Bank's Assistance Strategy implementation of a new common external tar- The priorities for the Bank in Africa are if. Nontariff barriers have been removed, and poverty reduction through environmentally rates have been lowered. sustainable development: human resources These efforts are being supported by the development-not just through lending but Bank. together with the IMF, the European also by defining frameworLs for effective inter- Union, and other interested donors. ventions by governments and donors, as in a At the level of the entire CFA Zone, progress recent staff study on health in Africa (see Box was made during the fiscal year in the areas of 5-2); providing an cxceptional response, al- social-security provision and collection of sta- ready in progress, to the situation and events in tistics. With a view to providing a positive en- the CFA Zone: working with major partners to vironment for private sector-led growth, a fulfill the objectives and the priorities of the treaty has been signed that will put into place a SPA: and "getting results in the field" through common framework for business law. the improved quality of projects and their Africa 85 Box S-2. Toward Detter Health in Afrir Health issues are assuming an increasingly im- referral hospitals. Third. the report underscored portant place in the Bank's assistance strategy in the need for more efficient allocation and man- Africa. Reflecting this trend. a major sector study agement of public financial and human resources was compieted in 1993 in closc coopcration with devoted to health improvement, and for their pro- the World Health Organisation. the United Na- gressive reallocation away rrom less cost- tions Children's Fund, and other partners. The effective interventions (largely provided through study, Better Health In Africa. aimed at building tertiary facilities) to a basic package. It found sub- consensus on future health strategies in Africa stantial room for increases in technical efficien- among the many stakeholders.' It round that cy.' while dramatic improvements had taken place The report concluded that substantial health since independence, most African countries improvement in Africa is feasible. despite the se- lagged well behind other developing countries in vere financial constraints facing most African health status. At fifty-one years in 1991. life ex- countries. The will to reform and to provide a pectancy at birth in Africa is eleven years less limited package of quality, low-cost, and highly than in the low-income countries as a group, and cost-effective health services to the vast majority Africa's infant mortality rate, at over 100 deaths of the population is central to success. The study per 1,000 live births, is about one third higher on found that higher-income and middle-income Af- average than for the universe of low-income rican countries, in due course, should be able to countries. New health problems, such as AIDS, finance a basic package of health services for and new strains of well-known discases such as their people from public and nongovernmental re- malaria, threaten the important health gains made sources, without substantial external support. in Africa over the past generation. However, the low-income countries are likely to The report discussed "best practices" for need donor assistance in support of health for an health improvement by African governments and extended period. These countries now spend their external partners in three areas. First, as did about $8 per capita annually on health from all World Development Report 1993-Investing in sources-public. nongovernmental. and Health, the report emphasized the importance of external-compared with the indicative estimate strengthening the capacity of houscholds and for the basic package in the study of about 513. communities to recognize and respond to health The transition from the current to the indicative problems. This requires health and devdopment level of spending will have to be implemented strategies that increase the access of the poor to flexibly. on a country-by-country basis, with pro- income and opportunity, pay special attention to visions put in place for interim targets to be met female education and literacy, provide for com- along the way. munity monitoring and management of health ser- vices, and fun-ish information to the public and 'World Bank. 1994. Beter Heafth in Africa. Washing- health-care providers on health conditions and tso. D.C. services. Second, the report called for reform of Forexampte, poordr btttion. and prcscniptiao practices are responsible, to- African health-care systems. and especially for gethe w other nctorsbran effective consumption maling a basic package of cost-effective health of only about S12 on drugs for every SlIO in public services available to Africans near where they spending on phnnaceutkals in many African coun- live and work through health centers and first- ries. implementation. especially through strong vironmental program for the region. This pro- capacity-building efforts. gram has been addressed primarily through the Poverty reduction rhrotJgh environmen:alIv elaboration and implementation of national en- sustainable development. The need and ur- vironmental action plans (NEAPs) and through gency to reduce poverty in the region is evi- the Bank's lending program. NEAPs-which dent; however, progress has been limited in provide a basis for the Bank's dialogue with Africa as a whole. despite success in some borrowers on environmental issues, describe a countries. Achieving a high rate of economic country's major environmental problems and growth. combined with a pattern of growth fa- concerns, and formulate actions to address voring increases in incomes in the poorest sec- whatever problems are identified-have sys- tions of society. is central to the Bank's tematically paid attention to arresting land deg- poverty-reduction strategy. The Bank's two- radatiL'n through better natural resource pronged strategy. as elaborated in World De- management. The Bank's regional portfolio in- velopment Report 1990. acts as a guide to the cludes more than $500 million in environmental institution's economic and sector work. as well projects. some of which can be directly linked as to its lending operations. to the NEAP process. The Bank has also been Fighting land degradation and desertification involved in the preparation of a new interna- have been key e&jectives of the Bank in its en- tional convention on desertification that is cur- 86 1994 Regional Perspectives Table 5-3. World Bank Commitments, Disbursements, and Net Transfers in Africa, 1990-94 (millions or US dollars: rLsa yeas) Nigeria Cate d'lvoirc Sudan Total rcgion start slart start start Item 1994 199$ 199094 1994 1994 1990-94 1994 1994 1990-94 1994 1994 1990-94 UndLsbursed commitments 2,461 423 181 13.118 Commitments - 1,954 376 1.365 - 98 2,808 16,953 Gross disbursements 353 1,646 306 1.073 48 378 3.195 14.002 Repayments 348 1,402 183 769 3 49 1.116 4.678 Net disbursements 5 243 123 304 45 329 2.079 9,324 Interest and charges 270 1,325 149 767 4 36 869 4 "1 Netttansfer -265 -1,082 -26 -463 41 293 1,211 5.103 NoTE: Disbursements frmm the IDA Special Fund are included. Te countries shown in the table awe those with the largest amounts or public or publidy guaranteed long-tenn debL Details may not add to totas because of roinding. -Zero. rently being negotiated and is prepared to be a pledges have increased, and some disburse- partner in its implementation when it enters ments will be accelerated in response to these into effect, needs. In addition to mobilizing additional re- Assisrance to CFA countries. Since the par- sources. SPA donors have stressed the need to ity change and as of June 30. 1994. IDA has pursue greater selectivity in allocating resources provided approximately $1 billion in quick- to ensure that countries with strong refornn pro- disbursing credits and adjustment operations to grams are adequately funded and that scarce the CFA countries. For the short term, the resources are used efficiently. As of June 30. Bank-supported postdevaluation programs in- 1994. the donor community had pledged dlude. in addition to steps to limit the price in- $6.6 billion in quick-disbursing balance-of- creases of essectial goods, (a) a draw-down payments assistance. and further efforts are of reserve stocks and additional imports of es- continuing to close the remaining gap. sential foodstuffs to counter speculative com- The priorities and objectives of SPA-3 are mercial practices, (b) increased budgetary achieving higher growth rates and alleviating appropriations for education and health. and poverty: supplementing policy-reform pro- (c) steps to assure adequate supplies of essen- grams with more investment in human re- tial drugs in public health facilities and of low- sources and infrastructure; raising the level of cost generic drugs in privatc pharmacies. For domestic savings and private investment: plac- the longer term, expenditures on labor- ing greater emphasis on ensuring that the ben- intensive civil works programs. rural infra- efits of growth are directed at reducing structure. education, and health will be poverty: and strengthening local economic increased. as will special pregrams (nutrition in management and institutional capacity. The particular) that target the poorest groups and SPA's primary objective continues to be to as- that will be implemented by NGOs and com- sist countries to strengthen their policy-reform munity associations- programs and structural reform efforts. How- SPA-ptase three. The third phase of the ever. to accelerate growth. reduce poverty. Special Program of Assistance (SPA-3). and realize the full benefits of policy reforms. launched by the program's donors in October the efficiency ofpublic investment financing by 1993. will cover the three catendar years 1994- donors, wnich still accounts for about 80 per- 96. Since the CPA Zone countries instituted a cent of total donor financing. must be improved parity change in their currency and launched substantially. Discussion is continuing on sec- comprehensive economic reforms. two addi- torwide approachcs to donor financing aimed tional countries, Comoros and Cote d'lvoire. at improving aid coordination and effective- have met SPA eligibilitv requirements. bringing ness. The SPA's role would be to serve as a the total of eligible countries to twenty-nine, catalyst to encourage donor support for such The estimated requirements of donor adjust- integrated sector programs. to monitor out- ment assistance for these countries is $12 billion comes. and promote the harmonization of do- over the three-year period. The SPA donors nor procedures. Mobilization of resources and have met twice since the parity change to dis- coordination of specific sector-investment pro- cuss financing requirements. Total donor grams will continue at the country !cvel Africa 87 through mechanisms such as consultative the amount of loan cancellations expected to groups. roundtables. and country-based local result from completed or planned restructur- aid-coordination groups. ings of problem projects totaled about $500 mil- Project quialiiy and itmpltenmtration. Despite lion. the difficulties faced by the region, portfolio The need for capacity building in Africa cuts performance was relatively stable in 1993. Dif- across all sectors. and. in all cases the need is ferences among countries were caused. in part, urgent and acute. The challenge involves both by variation in macroeconomic performance. making greater use of existing local capacity Overall, adjusting countries had a better record and helping to build such capacity where it of project performance than the nonadjusting does not exist. The Bank's approach recog- ones. and operations in the particularly difficult nizes that capacity-building issues need to be areas of agriculture and adjustment lending im- addressed at an early stage in the project cycle proved their implementation records. The most and that the effort cannot succeed without im- serious general constraints to effective imple- proving the performance and productivity of mentation are uncertain borrower ownership the civil service. This concern Las led the Bank and limited local capacity. To increase owner- to appoint a Capacity Building Committee to ship. the Bank is making a concerted effort to make recommendations on the most effective involve stakeholders (governments. beneficia- ways to advance toward this goal. The com- ries the private sector) in project preparation mittee's recommendations (which highlight and implementation. The use of participatory "best practices" to follow and cover a broad approaches-beneficiary assessments. partici- spectrum. from ESW and lending to the role of patory rural assessments, and participatory resident missions) have been approved and are workshops-is steadily increasing. In many being carried out. cases. stakeholders participate not just in Capacity building-as well as dialogue with project design and preparation but also in eco- the intended beneficiaries of development- nomic and sector work (ESW). Several actions continued to be the focus of the Bank's work in are under way to improve project quality at en- South Africa during the past year. In that coun- try such as preparation of "letters of sector try, the Bank's informal work has dealt with policy." avoiding unnecessary complexity in the entire political spectrum. including nongov- project -design (through participatory ap- emmental organizations. the private sector. proaches to project preparation and grcater in- teachers. and trade unions. Dozens of South volvement by resident missions in the process. Africans have been trained in economics, and for example). testing new or complex ap- relationships have been built up with many of proaches in small pilot operations. and identi- the country's economic and political actors. In fying project-monitoring indicators that reflect April 1994. the Bank opened up a resident mis- both output and impact. In fiscal 1993. the most sion. following a request from the multiparty recent year for which numbers are available. South African transitional council. 88 1994 Reglonal Perspectves East Asia and Pacific Strong economic growth across almost all monetary, and basic market reforms (see Box countries dominated the development pic- 5-3). Indonesia-the region's second-largest ture in the East Asia and Pacific region in cal- economy-maintained a steady 6.6 percent endar year 1993. In addition to its remarkable growth rate, with significant increases in indus- poverty reduction in recent years. East Asia trial production and exports; a large debt bur- and Pacific again led all regions-developing den and environmental issues loomed as and developed-in posting a 9.2 percent challenges to the quality and sustainability of growth rate, up slightly from 8.7 percent in its growth. Other countries with real rates of 1992. Export growth continued to be substan- growth in GDP in excess of 5 percent included tial. registering an increase similar to 1992's the Republic of Korea. the Lao People's Dem- 13.6 percent. China. the world's largest devel- ocratic Republic (Lao PDR). Malaysia. Thai- oping economy, recorded 13.4 percent growth land. and Viet Nam. A recent study concluded in gross domestic product (GDP), despite con- that if economic growth had been randomly cns during 1993 about overheating the econ- distributed among countries, there would have omy. China also continued to implement fiscal. been one chance in 10.000 that it would be so concentrated in a single region (sec Box 5-4). A remarkable feature of the region's cco- Table 54. East Asia and Pacific: 1992 nomic performance in the past year was the Populafion and Per Capita GNP of relative evenness of steady high growth rates. Countries that Borrowed during Fiscal The Philippines was the only major country in Years 1992-94 which the regional average lagged significantly. but recent events (successful completion of the Ppt aNpita stand-by arrangement with the IMF. comple- Country (miHions) (US $tanars) tion of a Brady-type of debt agreement. reforms that encourage greatcr domestic and foreign c,atnbodia1 9.1 - competition, and efforts to increase the level china 1,;62.2 0 and eficiency of public investment in infra- FIni 0 8 2.010 structure) gave reason for cautious optimism Indonesia 1843 670 that better economic times may be ahead. Kora, Republicof 43.7 6,790 The small Pacific island economies wit- Lao Pcople's De4ocratic nessed a mixed performance in 1993. Fiji. the Republic 84.6 250 largest of these. recorded a real GDP growth Malaysia 18.6 2.790 rate ofonly 1.7 percent. compared with 3.1 per- Maldives 0.2 S cent in the previous year. as a result of the MongoliaN 2.3 - effects of a severe cyclone that struck in Jan- Papua New Guinea 790 uary 1993. The Solomon lslands a6o recorded Philippines 64.3 710 a sharp drop in GDP growth to about 2.5 Solomon Islands 0.3 710 percent-as co,pared with 8.2 percent in TVailand 58.0 1 8 1992-recIecting a Iowdown in logging activity Viet Nam 69.3 - and a decli,c in frning. Signs of recovery were Western Samnoa 0.2 940 ,, seen elsewhere. however: Recovering from the Nare: The 1992 estinmas of GNP per capita pcsentcd effects of two major cyclones. the Western Sa- above are firom the 'Wortd Development Indicators" src- moan economy grew by about 5 percent: Van- tion of World Devdepmnes Reporn 1994. uatu also saw a slight upturn during the year. - Not available. Economic growth in some of the islands ben- a. Estimates for mid 1992. cfited from a pick-up in tourism following the b. World Bank Atlas methodology. 1990-92 basc pefOd. recovery from recessionary conditions in ma- c. Estimated as low income (S675 or less). jor source mark-cts. The Pacific island econo- d. E%timaccd as lowcr*midlc income (S676. 34._695). mies also continmud to bcnefit from substantial East Asia and Pacific 89 Box 5-3. China: Conutinuig Reform and Development During the past year. China's economy. in many lar, fixed asset investment and industrial output ways. cperienced the enviablic difficulties that grew at a more rcasonable pace than in the first arise from significant economic success and bold half of the fiscal year. and month-on-month infla- market reforms. In fiscal 1994. China's tax reve- tion appeared to be subsiding. Tighter credit- nues increased, as did deposits of individuals in one of the most effective monetary instnuments the banking system. The nominal exchange rate available to the cential government-caused in- remained stable aftera substantial devaluation re- creased difficulty for SOEs, especially in the sulting from the unification of the official and northeast of the country and the interior. Growth swap market rates in3anuary. Export growth was in output of SOEs was low, even nelgative, in the healthy. foreign dircct investment continued to northeast and southwest in the second half of the flow into the country in large volume, and foreign fiscal year. raising the possibility of urban tension exchange reserves were steady. as the adjustment to the market progresses. The struggle to contain inflation. however. A Bank report recomnnends additional mea- points to structural difficultics in the economy sures in key areas to address structural weak- that can no longer be ignored. Ongoing price re- nesses in the fiscal and financial system. Provided forms and relatively large state-owned cnterprise this overall reform plan is properly implemented, (SOE) deficits are the main causes of inflationary China appears likely to be able to achieve high pressure in China. and sustainable economic growth without the Despite the sense of voladlity as the economy benefits being dissipated in high inflation. In the continued its strong growth, most recent indica- coning years. however. the risk of accelerating tors have shown a welcome improvement and, in inflation remains high as such reforms are en- some areas, evidence of stabilization. In particu- acted. Box 5-4. The East Asian iracde A major work in fiscal 1994 was the publication of with export push hold the most promise for other "The East Asian Miracle Economic Growth and developing economies." the study concluded. Public Policy." the product of a Wodd Bank re- Even so. it added. developing countries hoping to search team.' The report stimulated-widespread follow in the footsteps of East Asia should .imit debate on the components of economic policy policy interventions and focus instead on the fun- that underpinned the spectacular performance of damentals. the high-performing East Asian countries. Signif- The fundamentals that East Asian economies icantly, the report found that there was lttle that focused on included: could be described as 'miraculous' about the a Managing monetary and fiscal policy to en- economic performance. even though the chances sure low inflation and a competitive exchange of such a concentration of growth, assuming it rate; were randomly distributed worldwide, were just * Concentrating public investment in educa- one in 10.000. 'Fundamentally sound develop- tion on primary and secondary levels of school- ment policy was a major ingredient in achieving ing. rapid growth.' the report observed. But-and it * Fostering effective and secure financial sys- was this finding that aroused the most active tems to encourage savings and investment debate-the book also noted that government in- * Limiting protection so that domestic prices tervention had played a role. How much of a role are close to international prices; and was not easy to discern, the researchers con- * Supporting ariculwre by assisting the adop- cluded. dtion of "green revolution"' technologies. invest- Previous Bank studies had described these pol- ing in rurl infrastructure, and limiting taxation on icy interventions-suppressirg interest rates or agricultural goods. promoting favored industries, for example-as A summary of the book is available in English. always harnful to growth. The study said that French, Japanese, and Spanish. .export push." a combination of sound funda- mentals and selective interventions. had been IWod Bank. 1993. The East Askm Miracle: Econontc crucial to East Asia's success. Of the nainy in- Growth antd Public Policy. A Word Bak Poriry Re- terventions tried in East Asia. those associated search ReporL New Yoric Oxlord Univesity Pius. resource flows and remittances. The combina- exchange-rate stability and control over infla- tion of external resource availability, open- tion. Emerging fiscal deficits in some island ness to trade, and generally sound fiscal and economics need to be reduced to ensure mac- monetary management has ensured relative roeconomic stability. however. 90 1994 Reglonal Perspectives The Pacific islands continue to face a unique IDA credits, totaling $324.5 million. had been set of development challenges: They are con- made to Viet Nam for projects in the educa- strained by small domestic marklets. a narrow tion. transportation, and agriculture sectors, resource and production base, and high unit while one emergency rehabilitation credit, for costs of infrastructure; they are also heavily $62.7 million, was approved for Cambodia. dependent on extemal trade and are vulnerabic Both countries are among the poorest in the to external shockts and natural disasters. De- world, with annual per capita incomes of about spite an almost complete absence of absolute $200. but each, for different reasons, offered poverty. the islands are conrronting acute en- signs of hope for sustainable economic devel- vironmental issues which, in some cases, will opment. significantly affect their long-term economic While overall the region performed impres- outlook. Deforestatior. in the Solomon Islands. sively. the picture was far from unblemished. in particular. is an issue of major economic and and areas of concern highlighted in last year's environmental importance to the country. Anntal Report remained as obstacles to sus- Papua New Guinea also faces important issues tained development for most. if not all. coun- of deforestation and preservation of ecological tries of the region. In particular, serious diversity. It has recently enjoyed rapid growth environmental damage. aasociated with rapid fueled bv rising mineral and new oil exports, urbanization. inadequate regulation and plan- but it must cope with problems of promoting ning. and incorrect pricing of resources. con- growth in the rest of the economy. tinues to impose majorcosts. Land degadation Viet Nam rejoined the Bznk's list of borm w- and deforestation also remained as serious ers in fiscal year 1994 after a fifteen-y *ar threats to sustained growth. Because the poor hiatus. and Cambodia became a first-time bor- suffer disproportionately from the effects of en- rower (see Box ,-5). By the end of the year. vironmental degradation. environmental issues Table 5-5. Lending to Borrowers in East Asia and Paciric, by Sector, 1985-94 (millions of US do6Xars fscal years) Annual avcrae Sector 198549 1990 1991 1992 1993 1994 Agriculture 726.9 743.0 1374.7 826.7 1,089.3 1,735.4 Energy Oil and gas 54.0 86.0 - 100.0 225.0 266.0 Power 533.0 813.0 275.0 1.745.9 760.0 1,048.5 Environment - - - - 50.0 306.5 Human Resources Education m.0 434.4 5920 474.1 478.9 346.6 Population, health, and nutrition 72.8 - 164.0 129.6 200.4 160.0 Social sector - _ 9 7 industry and Finance Industry 259.2 - 361.7 82J 250.' 40.0 Finance 373.1 68.0 439.3 - 457., 100.0 Infiastructure and Urban Development Telecommunications 7.0 391.7 - 375.0 134.0 250.0 Transporation 726.9 497.2 323.6 1,182.5 1,132.2 1,340.0 Urban development 249.7 86.2 SF3.1 168.0 110.0 349.0 Water supply and sewerage 77.5 349.0 177.8 275.0 -310.0 - Mining and Other Extmrrtive 25.2 - - - Multisector 298.0 250.0 250.0 70.0 200.0 2L7 Public Sector Management 6.1 - 62.0 17.0 173.0 Tourism _ ____ Total 3.681A 3.7185 4,563.2 5.446.5 5.569.8 6.034.4 Of which: IBRD 3.107.2 3,066.8 3.471.0 4,386.9 4.404.8 4.623.8 IDA 574.2 651.7 1.092.2 1,059.6 1.165.0 1.410.6 Number of operations 40 35 39 45 45 43 Nom Details may not add to totas beca se of reundiag. -Zero. East Asia aid Pocific 91 Box 5-5. Lending to Viet Nam Resumes; Is Initiated in Cambodia After a rifteen-year hiatus, lending resumed to support of an emergency rehabilitation project, Viet Nam during fiscal 1994. when two credits designed to arrest the deterioralion in basic ser- totaling about $228 million were approved in Oc- vices by financing priority imports. tober 1993. One credit. for S70 million, will sup- In addition, a policy framework paper, pre- port a primary education project, while the pared jointly by the government, the Bank, and second. for $158.5 million, will support highway the IMF. was agreed upon. The paper provides repair. A third credit, for $96 million, was ap- details of the country's medium-tenn adjustment proved in January 1994; it supports a program to and reform progrm. Over the next three years. provide mor credit and back-up services to small the government intends to consolidate the initial flnners in Viet Nam. In addition to these three restoration of macroeconomic stability. under- investments, the Bank has been providing tech- take a process of institutional strengthening sup- nical assistance for the preparation of a public ported by comprehensive technical assistance. investment program and for improving capacity substantially increase public investment in order in core ministries. The assistance is expected to to address rehabilitation and reconstruction enable the Bank to identify further projects in pri- needs, and initiate a process of wide-ranging ority areas such as infrastructure. agriculture, structural reforms aimed at enhancing savings, in- natural resource protection. and the social sec- vestment, and growth over the longer term, tors. In view of the legacy of war and devastation The three credits were approved aftera support and the recent political transition, restoring finan- group of donor countries assisted Viet Nam in cial stability. strengthening the eentral institu- clearing its arrears to the IM in October 1993. tions of macroeconomic management, and In advance of actual lending, the Bank had initiating investment for rehabilitation and recon- done a great deal of preparatory work. Analytical struction comprise the most immediate tasks. The work had resumed in 1989. with the result that donor community has pledged its support for several economic and sector reports had been Cambodia's recovery. In March 1994. at a meet- completed, and a solid basis for resumption of ing of the International Comnittee on the Recon- lending had been established. struction of Cambodia. donors renewed that An initial donors' group meeting for V-iet Nam, support based on an economic report prepamd by sponsored by the Bank and the United Nations the Bank: Cambodia. from Rehabilitation to Re- Development Pogranmme, was held in Paris in construction. November. and pledges ofS 1.8 billion in aid were Against this background, the government has given by multilateral and bilateral donors. It was adopted a medium-term adjustment progamm for agreed that, in the future, the World Bank would which it is secking support from the IMF through chair a consultative group meeting each year, as a three-year arrangemcnt under the Enhanced it does for other countries. Structural Adjustment Facility and has begun During the past year, the Bank extended its preparations for a structural adjustment credit first-ever credit to Cambodia. which joined the and a companion technical assistance project institution in 1970. The $62.7 million credit was in with the World Bank. are a major concern for the countries in the year, which is low among developing countries region and the Bank. worldwide. About 80 percent of the population Another serious problem that has been ex- is emerging from socialism-morc than in Cen- posed and exacerbated by the region's high tral and Eastern Europe and the former Soviet growth rates is the historical inadequacy of in- Union-while the middle-income countries of frastructure investment relative to rapidly Korea. Malaysia, and Thailand comprisejust S growing demand. Reflecting this. Bank lending percent of East Asia's people. The significance emphasizes effective infrastructure develop- of this is that East Asia has sustained rapid ment across the region. with lending for tmans- growth and far-reachinig social and economic portation. power, and irrigation again the reforms at relatively low income levels and largest component of the overall program. Be- when their economies were undergoing major cause the region's infrastructure needs, how- internal reforms. This augurs well and suggests ever, are so iarge, the Bank alone cannot have that further inroads may bc made in reducing more than a marginal effect. The private sector poverty and protecting the environment as the in the countries tiLemselves and through foreign reform process advances. underpinned by direct investment (FD!' will have to play an larger regional flows of trade and investment. increasingly critical role in developing and modernizing East Asia's infrastructure base. Progress in Poverty Reduction Despite recent gains, the countries of the re- Among all regions. East Asia and Pacific gion have an average income of about S600 a stands out as the one that has made the most 92 1994 Regkonal Perspectives 0 fi SN~~~~~~~~~~~~~~Ii mmmuauumm..,- i0 *UIuA I I ,.I~Uuuii Consciousness abot the environment has been raised in Tonga. as these murals att-. o ioe Ireigor switk which Mke inhabitants rt to geJ rhe message across. impressive gains in poverty reduction. as well are the hardest to lift from poverty. even by as being the fastest growing. Living standards sustained economic growth. For this reason. nave quadrupled in a generation. and health the Bank places special emphasis on targeted and education indicators have posted signifi- poverty strategies in its lending program. But cant gains. One striking feature of growth in there is reason for confidence: Governments in East Asia has been its evenness; it is spread the region have shown themselves determined across most of the population and is not con- to invest in basic human needs. such as health fined to a wealthy elite. Absolute poverty has care and cducation-steps that have proven fallen sharply in East Asia, from a third of the central to an effective fight agnst poverty- population in 1970 to a tenth in 1990. at a time when the overall population was growing.' In Obstacl to Sustned Growth absolute numbers. East Asia's population liv- Despite its impressive performance. the re- ing in absolute poverty numbered 400 million in gion faces a nu.mber of obstacles to sustained 1970 and 180 million in 1990. Not only were 220 growth: indeed. some are so formidable that, if million people lifted above the absolute pov- unresonred. they could stop or even reverse the erty mark. but over the same period, 425 mil- progress now being made. These obstacles in- lion people were added to the population-also c!ude: above the poverty leveL. The most impressive The environment. Developing countries of gains have been made inl Indonesia. where the the East Asia and Pacific region have paid in- percentage share of absolute poverty has fallen sufficient attention to protecting and restoring from 60 to 15 of the total populaton over the the environment as population growth. rapid period, and China. where it fell from 33 !o 10 urbanization, and the spread of industry have percent. But progress was impressive alm-ost placed sizable demands on air. water. and for- throughout the region, with Korea and Malay- est resources. The consequences today are sia cutting their proportion of absolute poor heavy. with unacceptably high pollution levels from 23 anid 18 percent, respectively. to about in air and water throughout much of the 5 percent in each country. Th.ough the gains have been outstanding. the task ahead is even more challenging. The re- 4Absolutc poveny is defined here as income insufficient to maining poor live in remote. barren areas and mainWain a subsistence intake of 1)0 calories a day. East Asia and Pacific 93 Table 5-6. World Bank Commitments, Disbursements, and Net Transfers in East Asia and Pacific, 1990-94 (millions or US dollrs: raiscal years) China Indonesia Philippines Total region start start sart Stan Item 1994 1994 199094 1994 1994. 1990-4 1994 1994 1997194 1994 1994 1990-94 Undisbursed commitmenls 7.720 4.785 1.988 16,554 Commitments 3,160 11.028 1.490 7.215 478 3,414 6.124 25.422 Gross disbursements 1,926 7,111 1.170 5.909 480 2.623 4.209 18.888 Repayments 282 984 833 3.332 343 1.580 2.669 11.308 Net disbursements 1.644 6.127 336 2.576 137 1.043 1.540 7,581 Intcrest and charges 365 1,379 882 4.038 346 1.570 2.043 9.S77 NCL transfcr 1,279 4,748 -546 -1,462 -209 -527 -503 -1,996 NOam Disbursements frnm the IDA Special Fund are included. The counuries shown in the table are those with the largest amounts of public or publicly guaranteed long-term debt. Details may not add io total becausc of munding. region-particularly in major urban centers. rains. from which national and regional policy Urgent steps are necessary to reverse this on atmospheric emissien can be drawn: and trend and to foster a more efficient and 'envi- . increased investment in environmental ronment friendly" growth in the years ahead. projects throughout the region. Addressing the region's environmental needs Infrasrructtre bottlenecks. Rapid economnic will cost an estimated $24 billion each year by expansion has outstripped the capacity of ex- the year 2000. The Bank has prepared environ- isting infrastructure and has created serious im- mental assessments for most countries in East pediments to further investment and rapid Asia and is seeking to focus borrowers' atten- growth. Greater electricity-generation capac- dion on the long-term benefits of sound envi- ity. sufficient telecommunications facilities. ronmental policies. Environmental screening better urban and intercity roads. and efficient of projects. and full impact assessment and mit- ports are high on the list of East Asia's infra- igation of many. is now standard Bank proce- structure needs. Bank estimates suggest that. dure. Reflecting this priority, the Bank in the 1980s. infrastructure investment in East emphasizes sustainable environmental prac- Asia may have lagged necessary levels by tices in all its leniding. In calendar year 1993- much as 2 percent to 3 percent of GDP. To the most recent period for which complete make up this shortfall. the region will need an figures are available-the Bank lent $3.6 billion estimated S1.5 trillion in infrastructure invest- dollars for projects in the region with specific ment during the 1990s. Fifty-eight percent environmental components. The Bank was of Bank lending to East Asia in fiscal 1994 was also involved in broad-ranging policy analysis, for infrastructure. with most going to transpor- through the publication of "Toward an Envi- tation ($1,340 million)- Other infrastructure ronmental Strategy for Asia.'"5 and with other commitments included power generation initiatives including: (S1.049 million). irrigation (S491 million). urban * the Asia Water Resources Initiative. advo- development (S349 million) and telecommuni- cating a comprehensive. river basin approach cations ($250 million). (See Table 5-5 for de- to water policy: tails.) The size of the investment shortfall * the Asian biodiversity strategy. involving demands that the private sector play an cx- consultation with nongovernmental organiza- panding role in infrastructure financing: in tions and specific project preparation in the re- turn. governments of the region will need to gion in concert with the Global Environment establish the appropriate regulatory and legal Facility: frameworks to attract and secure such invest- s the Metropolitan Environment Improve- ment. ment Program. a coordinated approach to ur- Financial sector reform. Increased llows of ban environmental management in cities such trade and FDI to East Asia arc placing straiits as Beijing. Jakarta. and Manila: on existing financial structures. indicating the * A-nalytical work on deforestation in the vast area covered by Cambodia. the Lao PDR. 'Brandon. C., and R. Ramankuty 1993- 'Toward an En- and Viet Nam; vironmental Strategy ror Asia 'World Bank Discausion * "Rains Asia." a computer analysis of acid Paper No. 224. Washington. D.C. 94 1994 Regional Perspectives need for more flexible and responsive Finance nomic development worldwide. Cumulative systems. The trend is already under way, but it Bank lending to the rcgion is morc than $70 needs to move more quickly and to incorporate billion, with lending to agriculture and rural de- building new or stronger banking systems and velopment ($16.3 billion), transportation ($I 3.2 money markets. The Bank is working with its billion), and power ($11.8 billion) the major cat- member countries, at a range of levels. to up- egories. grade and liberalize finance markets and insti- Fiscal vear 1994. Today. the Bank deals with tutions. twenty countries in East Asia and Pacific. lend- State enterprise reform. Large. inefficient ing $6 billion in fiscal year 1994. China ($3.1 state enterprises obstruct and delay economic billion). Indonesia ($1.5 billion), and the Phil- growth and the transition to a more efficient ippines ($478 million) were the biggest regional market economy. Progress is being made in borrowers. Roughly $1.4 billion of the lending this highly sensitive reform area across much program was in the form of IDA crecits. After of the region. particularly in China and Vict a fifteen-year hiatus. lending resumed to Viet Nam. Malaysia is pursuing an ambitious priva- Nam; in Cambodia, the Bank extended its first- tization program. The Bank is encotiraging bor- ever credit during the past year. rowing countries to create a competitive The Bank's mandate in all its borrowing environment for business growth and to take member countries is to support broad-based steps to expose state enterprises to the disci- economic development and the reduction of pline of the market. At the same time. how- poverty. Lending. economic and sector work. ever, steps must be taken to provide alternative and associated technical assistance is aimed at employment, or some social safety net. for realizing this goal. Central to the Bank's over- those displaced by such reforms. all approach, however, is the reduction of pov- Trade imbalances. East Asia is currently erty. In fiscal 1994. twelve projects, valued at running substantial trade surpluses with other $1,035 million had specific poverty reduction trading partners, which is neither desirable or components and were included in the program sustainable. Although regional levels of protec- of targeted interventions; that amount was tion are currently relatively high, reductions in up S391 million from last year's total (eight tariff levels (on a nondiscriminatory basis), projects worth $644 million). During the year. now under way. are projected to increase pen- one poverty assessment was completed. bring- etration of foreign products and lower sur- ing to six the cumulative total fat the region. pluses while boosting the region's growth and welfare. With the region expected to provid: Supervision-Next Steps about half the incremental growth in world The Bank. in accordance with the recom- trade to the year 2000, this is a priority reform mendations of the 1992 report of the Task area. The Bank is advocating that East Asia Force on Portfolio Management, is undertak- become a more active participant in global ing more regular supervision of all projects to trade discussions. reflecting the region's rise as monitor the quality and effectiveness of imple- a major importer and exporter. mentation. In addition. reviews are conducted Institution btuilding and strengthtening. The annually or biennially of country project per- need for expanding competent management formancc generally. Management of projects across most areas of development is emnerging has become computerized. and field offices are as a major issue in East Asia. Whether in pol- now taking a more active role in supervising lution monitoring and control. design and im- projects. The region expects to supervise some plementation of monetary and fiscal policies. 300 projects a year over the next three years. or traffic-management planning and regulation. Though portfolio performance is strong. ex- effective institutions are essential. The Bank is tra attention is needed because newer and less assisting countries in a range of fields to estab- experienced member countries-in terms of lish or strengthen such institutions. economic and institutional strength-mak-e up Bank Activities in the Region a growing share of the portfolio. The complex- Bank Activities in the Region ity of projects also is increasing. with some Past lending. The World Bank has been ac- having many components (flood control. tively involved in lending and policy guidance power generation. irrigation, and complete re- in the region since it made its first loans to settlement packages, for exampic). and some Thailand (for railways. ports. and irrigation) in applying to several provinces in a single coun- 1950. Japan was also an early borrower and try. now stands as a monument to successful eco- South Asia 95 South Asia South Asia is a region full of contrasts. On percent of South Asian men and women, re- the one hand, its economic potential is consid- spectively, were literate-and low school en- erable. During the 1980s. the rate of economic roliments and high drop-outs. Ncarly half of growth in the region was 5.2 percent a year. the region's children do not complete primary compared with 3.9 percent among all low- school. income countries (excluding India and China). Its growth was exceeded-albeit signiricantly The Challenges of Development so-only by that in East Asia and Pacific. The Gulf crisis of 1990-91, coupled with po- Progress in reducing fertility led to annual litical upheavals in the former Soviet Union growth. in per capita terms. of nearly 3 percent (which sharply diminished traditional export during a period often referred to as the "lost markets). exposed major weaknesses in the decade" in many other regions of the world. development path that countries of the region On the other hand. South Asia is also char- took in the 1980s. This was demonstrated for acterized by widespread poverty and unaccept- India in 1991, when, as a result of the Gulf ably low standards of living for many of its crisis-induced oil-price shock, a severe people. While accounting for a fifth of the balance-of-payments crisis ensued, and gold world's population, South Asia is also home to reserves had to be pledged to avoid a disrup- nearly half the world's poor (estimated at 390 tion in debt servicing. Pakistan has thus far million persons).' Regional per capita income avoided the same sort of crisis, but its reserve currently averages $310, and, with the notable position needs strengthening, and the govern- exception of Sri Lanka and several states in ment has been slow to bring chronic fiscal def- India, social indicators are poor. Life expect- ;cits under control. Other countries remain ancy is lower than in any other region except heavily dependent on concessional funding and Africa; of every ten children born, at least one arc thus vulnerable to external shocks from an is expected to die before the age of one. Prob- environment in which aggregate aid is unlikely lems of poor health and high rates of malnu- to expand and competition for scarce funds is trition are compounded by low levels of becoming increasingly strong. literacy-as of 1990. only 45 percent and 31 While rates of growth in the 1980s were high. they were not sustainable. Progress at reducing poverty was most rapid in the early 1980s. but the pace moderated in the latter part of the de- Table 5-7. South Asia 1992 Population ade. in large part the result of the worldwidc and Per Capita GNP "f Countries that slowdown in economic growth. The fundamen- Borrowed durmg FLsc Years 1992-94 tal challenge facing South Asia today is how to -lt-r capita continue the high economic performance of the EbpuhtioD GNF"apD previous decade with concomitant rapid and Country (millions) (US dolUT) sustained reductions in poverty and improve- ments in social indicators. A sustainable Bangladesh 114.4 220 growth path for the 1990s must be based on Bnhutn I.S 180 small fiscal deficits. a sustainable balance-of- India 883.6 310 ~~~payments outlook, and improved environmen- Nepal 19.9 170 tal quality. Countries of the region-be they Paistan 119.3 420 small. island economies like the Maldives or Sri Lanka 17.4 540semi-industrial giants like India-face three NorE: The 1992 estimes of GNP per capita presented above are from the "Wodd Development Indicators" sec- tion of World Developmen: Report 1994. 'As estimated from Chen. Shaohua. Guarv Dart. and Mar- a. Estimates for mid 1992. tin Ravallion. "is Poverty Increasing in the Developing b. World BSnk Atlas methodology, 1990-92 base period. World?" (Policy Research Working Paper numbnr 1146. June 1993). 96 1994 Regional PerspectIes- major challenges in ensuring continued pace has been uneven, typically reflecting progress through the 1990s: broader political economy issues and electoml First, to deepen economic reforms in order cycles. Recent progress is most evident in fis- to attain high growth and greater economic re- cal developments and tax reforms, external silience; policies, and financial reforms. Second, to broaden and furtheraccelerate ef- In the public sector, the primary focus is on forts to reduce poverty and improve living structural reforms to underpin medium-term conditions-as East Asia has shown can be fiscal adjustment, particularly tax reform and done; and -expenditure reduction and restructuring. In the Third, to better manage the environment to area of tax reform, India has made significant ensure sustainable development. progress in removing several tax-induced dis- tortions. Measures set out in the fiscal year Deepenig Reforms - 1995 budget continue tax-reform progress by Two themes have characterized until re- broadening the tax base and reducing the dis- cently the development approach of most persion of tax rates. Excise taxes were stream- South Asian economies: a strong economic lined, with many being shifted from specific to role for the state and relatively inward-looking ad valorem rates. Taxes on corporate income, development strategies. The broad consensus as well as on capital gains, were also reduced. in development thinking-borne by the suc- Progress continued in Nepal, Pakistan, and Sri cesses and failures of past decades-is that Lsnka towards moving to a fuill-fledged value- countries do better, both in generating growth added tax, and Pakistan made important and reducing poverty, with more market- progress in broadening the tax base by intro- friendly policies and outward-looking strate- ducing an agricultural income and wealth tax. gies. While there is general agreement in South On the fiscal side, Pakistan's political tran- Asia about the direction of needed reforms, the sition in 1993 contnbuted to a deterioration in Tabk 5-8. Lending to Borrowers in South Asia, by Sector, 198544-- (.illionof US dollars; fiscl years). . .~~~~~~~~Au avenge. Sea" :19- 190 1991 [992 1993 1994 Agriculture 943.9= 668.0 773.0 346.1- 48D.7 387.8 Energy Ol landgas . 287.2- - 7352 330.0 - - Power 982.0 1,012.3 - 200.0 730.0 960.0 230.0 Environment -14.7 Human Resources - Education- 133.1 -580.8 307.1 145.6 339.0 220.0 Population, health, and nutrition 65.6 192- 3885 377.5 827.0 233.1 -Socialsector - - - . - - Industry and Finance Industry 202.0- 300.0 528.0 5- - 203. Finance 3448: 375.0 123.5 28.4 -6.8 Infrastructure and Urbai Development .Telecommunicadons 93.4 - - 7.0 55.0 - - Transportation --: ,:,',' 5310.9 1915 178.9 306.0 120.0' 491.3 Urban developmnt 248.1- 246.0 Water supply and sewerage A 97.4 89.9 306.6 - 208.2 -MiningandOtherExtractive 117.6 - - - 12.0 ,Multisector, ,107.9 94.4 7.0 6552 403.5 - FPublic Secor Management - - - 25.0 - 296.8' Tourism - .- Total 3,939.3 3,504.4 - 3,604.8 2,998.8 3,416.2; '2,370.0 O-f wichI 2,465.4 -1,725.5 1,540.1 1,348.0 1,145.0- --:474.0 IDA 1,473.8 -1,778.9 2064.7 1,650.8 2,2.2 '1896.0' Numberof opeaons -32 - 26 30 24 26 ,-19I Nam Details may not add.to totals because of rounding. -Zero. South AsM. 97 A Nepatese woman sorts recently thtreshed gratn in a remote village whzere mechanized labor has yet to make lnroadrs the fiscal deficit, which rose to a record high 1994, however, the government announced 9.5 percent of gross domestic product (GDP).' that it intended to privatize fift-one industries The caretaker government moved rapidly to by the end of the calendar year. Over the past strengthen the fiscal position, control mone- year, Nepal either privatized or liquidated tary expansion, and reduce the balance-of- seven (out of fifty-one) enterprises earmarked payments deficit. The rupee was devalued, and for divestiture. measures were enacted to contain spending Developing a leaner and more efficient pub- and increase revenue- FLscal adjustment has lic sector is only one part of the reform agenda. continued under Pakistan's new government, A dynamic private sector has an important leading to a notable reduction in the fiscal def- complementary role to play to ensure sus- icit in the second half of 1993. Fiscal stability tained, high-quality growth. While notable ad- continued in Bangladesh- Although buoyant vances have been made in recent years, much revenues helped increase public savings from 2 still remains to be done to improve the envi- percent to 2.4 percent of GDP, the expected ronment for private sector development in the increase in public investment lagged as a result region. In. addition to continued public enter- of continuing delays in project implementation- prise reform and privatization, infastructure In Sri Lanka, a reduction in current expendi- must be expanded and measures undertaken to tures led to positive public savings for the fist improve the overall business .environment time in many years. In India, however, fiscal through deregulation, further reductions in slippage occurred: The central govermment trade bamers, exchange-rate reforms, and fi- deficit widened from 5.6 percent of GDP in nancial sector development and integration- 1992 to more than 7 percent in 1993. Forty per- aU key enabling factors necessary for private cent of the increment in the deficit can be at- sector development. tributed to shortfalls on the revenue side, while Countries of the region continued to pursue 60.percent was the result of an overshooting of more outward-looking strategies through trade spending targets. liberalization and exchange-rate reforns. In Progress was slow in the area of privatization and public enterprise reform. While the priva- 7 IW fSW ear oftheregion's countries vary widely. tization of small and medium-scale enterpnses Year-specfic numbers in this section. therefoe, wiyre, continued bisidy in Sri Lanka, Pakistan's po- spond roughly,;uuIess otherwise indicated. to calendar. litical transition slowed the process. In April ycars. South Asoa 99 Table 5-9. World Bank Cs, Disurmut, and Nit Transfer itn South Ads, 19-94.-- CWM or US drs; fscal yeasw start ~~~start stat start Item 1994.1994 1094 1594 19941 90-94 19 9 1990- 1994 1994 1990-4- UndisWxed commkcer.ts 10-3,4 2,793 1,23 .15,891 Comaitineuts 929 9,788 742 3,238 597 2021- 2,370 16,134 Grass disbursemens 1,716 9,793 54- 2312 -360 721 -2,768 15,214 Rqeaymnts - 963 3,S70. 194 685- 33 -110 . 1.211 4,448 Netdisburs_ents 753. 6,2 345 2,127 327 1,612 1,558 10,836 Intest and cmus 838 3,833 215 A7S 40 174 1,114 4,980 Net tansfer. -85 2,390 130 l,252 287 1,438 .44 5,856 * NOTE: Didzursaus ftu te IDA Special Pl a ided. The eo.es shown A hn.ie whUe at those wbt the beues. - no . . dpo.dic orpblylysnannrd hy_-u dd*b Ded5j my no,M to feb . becusowdbe, ,,-. findinghas becnincreasedforendemic disease- poverty-reducing economic growth. This controlprograms.InSriLanka,stepshave been growth, superimposed on a rapidly growing taken to improve the augeting of income- and urbanizing populaion, inevitably wil put. trser and social safety net programs. more pressure on air, water, and land- re- The role of local governments isepandi sources. Problems are already apparent in and a more hospitable environment in which terms of increased levels of air and water pol- nongovemmental organizations (NGOs) can lWtion, contamination by toxic wastes, soil em- operate in the region is being ceated. Bang- sion, land degradation, and deforestation. In ladesh is in the midst of implementing a new addition, the envionment is adversely affected local goverment structure, with the objective in many countries by the presence of incentive of increasing grassroots- participation in. the rcgimes that encourage intensive use of higb- design and implementation of programs to de- polluting energy, inefficient use osurfice wa- velop hulman resources and local iv&a=c- ter and groundwater, underinvestment in tu. District elections have been held; sub- sanitation and waste manageme, and, We- district development coordnating mmittee quate potetion of soils and forest established; and the entie local government Protectng the natual resoures of the region structure is cxpected to be in placc by mid is a complex and longterm proce. Govem- 1994. Governmens' attitudes towards NGOs mnes face difficult policy dilemmas as they have become far more positive over the past search for ways to acceate growth and en- severd years, and the region is host to some of sure environmental sustainability. Some the world's best-ktuwn NGO initiatives, such pogress has been made in recent-years in ad- as Bangladesh's Grameen Bank, the Bang- dressing these issues. National eavirmental ladesh Riral Advanement Committee, India's action plans (NEAPs) were completed and Self-Employed Women's Association, the Aga openly debated in Sri Lanka in 1991, and in KXan Rmal Support Projcct DP) i Paid- Ind, Nepal, and Pakistan m 1993. These doc- stan, and Sri Lanka's Sarvodaya as wet as a uments, together with follow-up workshops in wide rang of lesser-know but equally mpres- each country, provide a base for pric zijng sive NGO efforts. These diverse- progams donor assistance. Parid to the NEAP pro- have grat potental for helping to reduce pov- cess, explicit steps have been taken to erty and improve living conditions in the re- strengthen environmental managment. For gion. Some governments have begun to example5 new ordinances have been passed in replicate elements of NGO progams: For ex- Paksn that mandate higher environmenal- amplc, the government of Patan has recently quality standards, decentralized responlsbiiy initiated a National Rural Support Program fr pollution control, and an expansion of the (modeled after the AKRSP), which is desied staff of national and provincial-level environ- to promote community-level self-sufficiencY mental institutions. In India, new nional pol- and reduce poverty. icies have been adopted to combat industrial ,~w~ pollution dtrough both increased regulaitions Ensuring ;tvhvmeaW - and some fiscal incentives. In addition, in L994 South Asia's curent development stategies the government strengthened regulations gov- hold forth the proise of sustained. rapid. and ewmig environmental assesmens, requing, South Asb 99 Table S-9. World Bank Commitments, Disbursenents, and Net Transfers in South Asia, l99O-94 (miflious of US dollaus; fiscal yeas-) India Pakisan Bangdesh TOal region start start stat star Item 1994 1994 1990-94 1994 1994 1990-94 1994 1994 1990-94 1994 1994 1990-94 Undisbursed commitnents 10,374 2,793 1,523 .15,891 Commitments 929 9,783 742 3,238 5 597 2,021 2,370 16,134 Gross disbursements 1,716 9,793 540 2,812 -360U 1,722 2,768 15,284 Repayments 963 3.570 194 685 - 33 110 1,211 4,448 Net disbursements -753. 6,223 345 2,1Z7 327 1,612 1,558 10,836 Interest and charges 838 3,833 215 --875 40 174 1,114 4,980 Net transfer -85 2,390 130. 1,252 287 1,438 .444 5,856 NoTE Disbursements from the IDA Special Fund am includeL The countries shown in the table are tbhse with the laest.- amounts of pubic or publily guarnteed lonWterm debL Detais may not add to totals because of munding. funding has been increased for endemic disease- poverty-reducing economic growth. This control programs. InSi Lanka, steps have been growth, superimposed on a rapidly growing taken to improve the targeting of income- and urbanizing population, inevitably wil put transfer and social safety net programs. more pressure on air, water, and land re- The role of local govermments is expanding, sources. Problems are already apparent in and a more hospitable environment in which terms of increased levels of air and water pol- nongovernmental organizations (NGOs) can lution, contamination by toxic wastes, soil ero- operate in the region is being created. Bang- sion, land degradation, and deforestation. In ladesh is in the midst of implementing a new addition, the enviroment is adversely affected local government structure, with the objective in many countries by the presence of incentive of increasing grassroots participation in the regimes that encourage intensive use of high- design and implementation of programs to de- polluting energy, inefficient use of surface wa- velop human resources and local infiastruc- ter and groundwater, underinvestment in ire. District elections have been held; sub- sanitation and waste management, and inade- district development coordinating committees quate protection of soils and forests. established; and the entire local government Protecting the natural resources of the region structure is expected to be in place by mid is a complex and long-term process. Govern- t994. Govermnents' attitudes towards NGOs menuts face difficult policy dilemmas as they have become far more positive over the past search for ways to accelerate growth and en- several years, and the region is host to some of sure environmental sustainability. Some the world's best-known NGO initiatives, such progress has been made in recent years in ad- as Bangladesh's Grameen Bank, the Bang- dressing these issues. National environmental ladesh Rural Advancement Committee, India's action plans (NEAPs) were completed and Self-Employed Women's Association, the Aga openly debated in Sri lanka in 1991, and in Khan Rural Support Project (AKRSP) in Pakd- India, Nepal, and Pakdstan in 1993. These doc- stan, and Sri Lanka's Sarvodaya, as well as a uments, together with follow-up workshops in wide range of lesser-known but equally impres- each country, provide a base for prioritizing sive NGO efforts. These diverse programs donor assistance. Parallel to the NEAP pro- have great potential for helping to reduce pov- cess, explicit steps have been taken to erty and improve living conditions in the re- strengthen environmental management. For gion. Some governments have begun to example,. new ordinances have been passed in replicate elements of NGO programs: For ex- Pakistan that mandate higher environmental ample, the government of Pakistan has recently quality standards, decentralized responsiblity. initiated a National Rural Support Program for pollution control, and an expansion of the (modeled after the AKRSP), which is designed staff of national and provincial-level environ- to promote community-level self-sufficiency mental institutions. In India, new national pol- and reduce poverty. icies have been adopted to combat industrial pollution through both increased regulations Ensuring Environmental Sustainability and some fiscal incentives; In addition, in 1994 South Asia's current development strategies the government strengthened regulations gov- hold forth the promise of sustained, rapid, and erning environmental assessments, requiring, 100 1994 Regional Pespectes among other things, broad consultation and least for the present. The past year's lending public participation. Many Indian states have program had a strong focus on the poor. Five adopted participatory approaches that utilize operations (accounting for $741.8 million, or31 economic incentives to protect forests and pre- percent of new lending) are included in the pro- serve biodiversity. gram of targeted interventions (rTI), while one adjustment operation (accounting for $250 mil- The Bank's Strategy ror the Region lion) had a poverty focus. The direction of the Bank's lending program During the past year, the region focused on in fiscal 1994 and the underlying economic and three types of portfolio-implementaticn issues sector work were guided by the challenges fac- in an attempt to strengthen, performance and ing countries in South Asia--the need to pro- improve the quality of the Bank's lending port- mote sustained growth, reduce poverty. and folio. First, by giving priority to reducing improve living conditions. In line with these project complexity and ensuring readiness for objectives, a key focus of the economic and implementation, the quality of new projects en- sector work program was on the role of fiscal tering the portfolio has been upgraded. Second, reforms and reforms in the agriculture, infra- actions were taken to strengthen portfolio- structure, and human resources sectors in pro- management practices to deal expeditiously moting sustainable growth and reducing with problem projects and reduce project ges- poverty. Analysis of factors that encourage pn- tation time. Problem projects are reviewed on a vate sector development was also central to the quarterly basis to ascertain the extent of work program, and efforts were made to im-' progress in implementing remedial measures prove dissemination of findings both within the and to recommend andlor endorse restructur- region and more broadly outside. ing as required. Gestation time is being reduced The South Asia loan portfolio includes 242 by focusing on accelexating project start-up, projects and commitments totaling $26.6 billion undertaking mid term reviews of projects to as of June 30, 1994. The portfolio consists pri- provide for early diagnosis and corrective ac- manly of investment loans. The principal tions, and working to ensure that projects close change has been in sectomal composition, as the on time. Third, systemic implementation issues share in lending for agriculture has gradually are being tackled through the identification and dropped while the share accounted for by the adoption of measures to improve deficiencies human resources sectors has increased (from in project funding, procurement, and project an average 5 percent in the period fiscal management. Country-implementation re- 1985-89 to 19 percent in fiscal 1994). views, sectoral supervision strategies, and vig- Bank lending during the past year totaled orous resident-mission support were the $2,370 million, a decrease of $1,046 million principal vehicles for addressing these prob- overfiscal 1993. The decrease can be attnbuted lems. to two factors; first, both the Bank and gov- Efforts to strengthen performance and im- ermments are exercising greater care during the prove quality of the portfolio have been project cycle in order to achieve higher quality- successful: Year-to-year average portfolio per- at-entry for new projects, particularly in com- formance indicators indicate progress in the plex sectors dealing with sensitive issues (such timely start-up of new operations, in decreas- as resettlement and the environment); second, ing the number and proportion of problem a buildup of reserves and an improved balance- projects, and in increasing disbursements on of-payments situation in several countries has investment operations as a percentage of the made adjustment borrowing less necessary, at fiscal year's opening undisbursed balance. Europe and Central Asia 10i Europe and Central Asia The process of transition from centrally ination, as well as by the legal and institutional planned economic systems to market econo- reforms taking place in all of these countries. mies has presented difficult challenges for the. Successfully addressing these challenges will countries of the Europe and Central Asia re- be critical for completing the transition. gion. The economic challenges are complicated In general, the external environment was ad- by the concurrent political and social tansfor- verse during fiscal .1994. Many countries of Central and Eastern Europe, whose economies have been in transition for several years, were Table 5-10. Europe and- Central Asia: : attempting to rebound in the face of continued T19 Population Eur Per Capilt GNP A ia economic slowdown by their major trading 1992 . .-: . . partners in Westem Europe. Such slowdown Countries that BOrrWewd dtunugfleal- contributed in part to a dampening of export Ye 199244 . expansion for countries such as Bulgaria, Hun- Per capita gary, Poland, and Romania. i - - - - .- Populaiot ...... .: - .- ... :-z . ; ..... being eased by flows of private capital invest- 102 1994 Reglonal Pespectives ment and technology from abroad: Hungary re- mains at under 2 percent of the labor force in ceived more than $1 billion in foreign direct Russia, the real level or unemployment is sub- investment (FDI) during 1993; the Czech Re- stantially higher. In many countries, employ- public and Poland were also major recipients; ment and wages in declining industries are and FDI more than doubled in 1993 compared being maintained only through significant cred- with 1992 in Kazakhstan, Estonia, Latvia, its from the banking system. Lithuania, and the Slovak Republic. The introduction of individual currencies, Acceleration of private sector activity ap- which began in fiscal years 1992 and 1993, pears to have been a key component of any accelerated-in Armenia, Azerbaijan, Georgia, turnaround in growth in most countries. To- Kazakhstan, Moldova, Turktnenistan, and day, more -people work in the private sector lTzbekistan, for example. Exchange-rate r- than in the public enterprise sector in the gimes vary across countries, ranging. from a Czech Republic, Hungary. and Poland. fixed exchange rate based on a currency board - Most countries are experiencing rising un- with full reserve backing in Estoniaand Lithua- employment associated with the downsizing of nia. to floating regimes in Kazakhstan, the public sector enterprises. In Central and East- -Kyrgyz RepubLic, and Latvia. ern Europe, open unemployment continued to In Turkey, the many improvements in eco- increase in 1993. In the republics of the FSU. nomic policies and -performance during the open unemployment has emerged more slowly. 1980s have been undermined by a steady dete- However, "hidden unemployment" in the rioradon in public finances in recent years and form of short hours or unpaid leave at the en- deteroration of the external position in 1993, terprise level is growing. In Ukraine, for ex- culminating in a severe currency crisis in Jan- ample, it was estimated at 9 percent during uary 1994. In April, the government unveiled 1993. Although registered unemployment re- an adjustment program focusing on stabiiza- Tabe S-1. Lending to Borrowers in Europe and Central Asia, by Sector, LS5-94- (anls sf US dolws; fisca years) A-1S - ' ~~~~~aveag - - -' Seco ' . 6549 -1990: 1991: 1-lXI 1993- 1994 Agriculre -281.4 263.0 100.0 -155.0 525.4 582m9 Energy. Oil and gas 56.0 - 520.0 246.0 703.0 856.11 Power 238.0 250.0 600.0 270.0 ; - - Environment - 18.0 - Human Resoumces Education 52.8 90.2 250.0 - 67.0 59.6 Population, health, and nutriton 15.0 - - 280.0 91.0 - Social sector - - - - - 10.9 Industry and Finance Industry 289.4 - 100.0 60.0 - 375.0 Fimance 2105 326.0 -710.0 - 55.0. 280.0 Itfstructure and Urban Development Telecommunications 14.0 - 270.0 - 300 153.0 Transportation 200.0 445.0 300.0 - 378.0 352.0 Urban development 30.8 - - 200.0 285.0 171.0 Water supply and sewerage 92.4 198.0 - 32.0 1295 109.6 Mining and Other Extactive Mu-isector - 600.0 1,017.0 691.1 1,245.0 566.3 Public Sector Management 209.2 335.0 210.0 Tourism - _: _ Total 1,480A4 2,190.2 3,867.0 2,1433 3,843.9- 3,726.4 Of which: IBRD 1,480.4 2,190.2 3,867.0 2,102.2 3,7395 3,533.3. IDA - - - 41.1 104.4 193.1 Number of opcrations 12 14 '19 14 30 42 m arcDetails may not add to toals because of tounding. zeo,: ' - - --. O rld C 8 n Ml si a 10 3 : I 0 - -9'. w-f to liv - ..---.- .-.I - - ~:: of d elligs bdir rom uel wtb id adw~ boxcrs. $28inilio~ DA -cedit, 4PProved in fitscai key4 wdtrowdea rkeIgfor(Ofa,, giovenmend kxey dituc Cotanent O currentl nia; and nmass privatizatiOn progaser privati~~jre and th O i aiz eet of ur re adopEed in K a4 dakh tm Polan d gr doam s aerd government : xpendita~ and transfers:Sloveni vatizsti o, E uterPri and Pri vati, on of the at e ~In gneral SetrRfr~eprivatizatwever, has not advanced ueaiiy as cOutnuedto acei- quickly. nRU&Sia, only a few hlave been Priva- Pivageneat ,piajion Pas Ye r~ i n~t o s al-cclel aimed. an spite of a vigorotl marketing effoi craze dur n tg u tthapat ketraheddS f t eeeiv so s E tn a-a able scale Pivatio tin gto sl ee h it reetrrssi 93 scal Prvarj~0~Is essentially cOmplete in although negotiations:aewl~dac o theazec and Slovali pRpubl Hiungary, and some rifty others. Sale aro wel-adv and work- Polad. Sbsta~ prgress has been miade ers has hen sucs ian agmers ofd work- in Albania, the.Baltic states, the Kyrgyz Re- tiswe rcswr aoa,eo ntlmn pbi,Romania, and Russia (see -BOX 5-6). -sal ries were favorabl or993,len However. the proc:11:ess. isol mn t nepton i . esowerenpewithted e o rVtiain cOuntries SUch as Bela-,Uran nd refo ure fbmnt s witashntnui n UZbekstan ass rivatization PrOgrams refformO arekunderwytostremshas acotiuedting gained momentum: The first wave of voucher effrd payreunder yto strngtomen acountriesth privat~ns wascomPleted in the Czech Re- ubro cm erilbank hasm exantril,th publi andSlov lca Rusd ia hse used was cobeg in rapidly, to Over 2,000 in Russia in 1993, fr e- the Czech RePublic Rucahsue acz~ ml. other ia bankngetos have expanded nation of vouche-r Prilvatization and manage. enced Cnoiao Frempeinextn mentfmpinee buyou~on a very large scale: th oa Ol nu aberofbnk F as dex rep s tbyial 'More than 8,000 medilnm.scale and lag hsne tiandmepende anks htiasi0 of he' baniEs Owndoidualalenstatee-W ing sector was initiated in Latvia, Lithuania~ o w ned in d ust. enterpr~~ were Privatized and Poland. In the fi r tcpin 93 n totid o l ml service en- tizations in the Czech RPulc n nSova- eprsswere Privaeed by the end of 1993. Ritebgetcmerublic banks wereova Investment funds participating in thkochr ria, th briggestc auctions exceeded 400 in the Czech Republic Arneo praj a enpti lc and Slo alc a, 00in uss a, nd 00in Lithua- to addre ss the le gacY o ro uerorm ingm ~ i loans~~~~~~~~~~ 104 1994 Regional Perspecties Box 5-. Privatization Proge In the Rfnus Federatin. Progress in pivatization has been the centerpiece significantly restructured. 'Privatization has ac- of the government's achievements in structural ceerated, however. with-the recent removal of - reform of the economy. The Russian privatization- resuictions on buying and selling-of.agriculunu-l program has privatized a larger number of enter- land. Under a pilot program in :the, Nizhny- prises than any other program in the world. As of Novgorod region currently beingpromoted bythe March 1994, more than 60 percent of the indus- International Finance Corporation,- the private' trir! workforce was employed in privatized enter-' sector investment ann:of the World Bank, ma- prises. More than 12,000 enterprises, were. bers of collectives.can elect to.divide their faiu privaized viavoucherauctionbyJune 1994when and then bid: on parcels- of land.to workindivid- voucher privatization was brought to a close. .,ually or in partnership' with other owaersi.-By. *This will sill. leave several thousand large and June 30, 1994, -some six collecive famsin the medium enterprises to be privatized through ci-. region had been'sold:under the. procram.. In-. ther cash auctions, investment tenders, or other March 1994, the govenment commited itself to.. special angements. expanding the program .beyond -Nizhay : Small-scale pnivatization has also kept pace, Novgorod, and the.IFC is now moviangto hdp the- though- with significant regional variation; cur- country implement the expanded program; rently more than 70 percut of all small-scale r-r Housing privatization bgn e1992, with tiil, catering, and service enterprises have been more than .l milliozi-units in Moscow and-mor privatized. - than 25 percent of eligible:units nationwide hay . Many state and collective fams have been ing be caprivatizedto date; mosthavebeengiven-, iechnically prized, though they remain under to occupants ukder a:nationwide frmework of collective leadership, and most have not been providingihousingdon asgiveaway basis the portfolios of,commercial banks-a legacy The speed and comprehensiveness with that has undermined the dual objectives of re- which borrowers have embarked on a reform structuring existing enterprises and providing program vary greatly, as do the initial condi- adequate credit to emerging enterpises. A de- tions facing their economies. As a result, the centralized approach, relying heavily on bank Bank's assistance is tailored to match-individ- leadership in restructuring, has been put into ual country circumstances. However, some place in Poland; it is being complemented by a features of the a4justment effort have been special support mechanism for handling large or common across countries. The start of transi- localy sensitive loss-makers. In Hungary, more tion has usually taken place in the midst of emphasis has been placed on strhing and strong output declines. At this stage, the Bank enforcing bankruptcy laws. Elsewhere-in Al- has quickly provided balance-of-payments sup- bania, the Kyrgyz Republic, and Romania, for port to help redress such declines. These have example-more centralized approaches have been the so-called "rehabilitation' loans. Dur- been introduced, in which a subset of problem- ing fiscal year 1994, such rehabilitation opera- atic enterprises has been isolated from the rest tions were approved for Belarus, Kazalchstan, of the banicng system. and Moldova; simiarly, an economic recovery loan was approved for Slovakia and FYR The Bank's Stategic Objectives Macedonia. These operations are comple- The Bank's operations have rapidly evolved mented by institution-building and technical to respond to the diverse needs of its borrowing assistance operations essential for the early de- countries. The former Yugoslav Republic velopment of institutions needed in the devel- (FYR) of Macedonia fulfilled requirements opment of markets. pursuant to resolutions of the Bank's executive The Bank also has helped finance selected board providing for succession to membership critical infrastructure-maintenance invest- of the Socialist Federal Republic of Yugoslavia ments to avoid deterioration of key infrastruc- and became a member of the Bank; a financial ture In Kazakhstan, a project was approved to workout program was developed under the restore public transport services, and in Esto- leadership of the Netherlands that cleared that nia and Russia, programs of highway rehabili- country's arrears to the institution; and an eco- tation are being supported. In some cases, nomiic recovery loan to the country was ap- output collapse has been compounded by nat- proved in February 1994. Lending operations ural disasters to which the Bank has re- were also initiated in Belarus, Croatia, Kaza- sponded, including a drought-recovery loan for khstan, Slovenia, and Uzbekistan, as well as Moldova in fiscal year 1993 and an earthquake- in the newly formed Czech Republic and Slb- rehabilitation credit for Armenia in fiscal year .vakia. 1994. Europe and Central Asa 105 Table 5-12. World Bank Commitments, Disbursements, and Net Transfers in Europe and Central Asia, 1990-94 (millions or US dollas; russ years) Russia Poland Turkey Tota region -strt . - sstart Start start ltem - 1994 1994 1990-94 1994 1994 1990-94. 1994 1994 1990-4. 1994 1994 199094. Undisbursed commitments 457 .2,610 3,176 9,478 Commitments 1,520 2,890 146 3,657 100 2,219 -3726 15,971 Gross disbursements 284 587 307 1,204 386 2,084 1.980 7,666 Repayments : - - 753 3,414: 1,149 6183 Net disburements. - 284 5-87 307 1,204 -367-1,330 831 1,483 Interest and chargsm 25 26 73 146 422 -2,395 - 817 4,113 Net transfer 259 561 _234 1,058 - -789 -3,725 - 14 -2,630 Non: Disbursements front the IDA Special Fund are included. The countnes shown in the table are those with the largest amounts of public or publidy guarnteed lon4term debt. Details may not add to totals because of rounding. - Zero. Suipport for privatizarion andfinancial sec- while another project is providing for institu- for development. A major focus of Bank sup- tional strengthening and systems moderniza- port is the privatization and restructuring of tion for those banks. The Bank has also public enterprises and complementary finan- approved an onlending facility in Romania to cial sector refonn and development. Technical finance export and industrial investments by assistance is being provided early in the pro- the private sector. cess throughout the region, particularly in the Public enterprise reforms, including privati- former Soviet Union. In Kazakhstan, a comr- zation, are also important for the long-run re- prehensive program was developed with close duction of public sector deficits and improved Bank collaboration, with implementation being efficiency in Turkey. Here, the fiscal year 1994 supported under a technical assistance loan ap- lending program supported a build up in insti- proved in fiscal year 1994. tutional capacity for accelerated preparation Bank operations were also approved during and implementation of the government's priva- the past year to strengthen financial infrastruc- tization agenda; this support included a safety ture in Belarus, Kazakhsu, and Uzbelistan. net program that wil alleviate the impact of For example, support has been provided for state-owned enterprise downsizing and dives- the modernization of the interbank payments titure on displaced workers and their families. system, essential for improving the trade and Infrastructure, energy, and environment. In payments situation. Twinning arrangements countries where structural transformation is are being financed to strengthen commercial well advanced and the public finance situation and savings banks-their success in Poland has is stable, sectoral lending has intensified to al- contributed to the ability of the commercial leviate constraints to the growth of the private banks to clean up their portfolios. After some sector. Fiscal 1994 evidenced active support to progress is made, Bank support has been ex- the oil and gas, telecommunications, and trais- panded into sector adjustment lending to portation sectors. deepen sectoral reforms in this area. The Bank During the past year the Bank continued approved an enterprise and financial sector ad- work begun in 1992 at the request of the major justment operation for Slovenia to further de- indusilized countries (the G-7) to develop velopment of the private sector. After initial energy strategies in certain countries of the re- balance-of-payments support to the Kyrgyz gion with high-risk. Soviet-designed nuclear re-. Republic in fiscal 1993, an adjustment opera- actors. This effort has been carried out in close tion is now focusing on privatization, reducing collaboration with the European Bank for Re- the financial burden stemming from large loss- construction and Development, the European making enterprises, and enhancing the envi- Investment Bank, the International Energy ronment for private sector development. Agency, the {;-7, and the countries themselves. Under certain circumstances, the Bank has Regional strategies and country-specific- also provided some financial intermediation studies-Lithuania and Ukraine this past fiscal lending. The Russia Enterprise Support Project year-are being developed to. lay out an inte- supports initiation of term lending to private grated approach to power sector development enterprises from a core of commercial banks, and nuclear safety. The Bank is playing its part 106 1994 Reglionl Perspectives in support of the necessary policy reforms and Albania. In fiscal year 1994, a Women in De- the financing of conventional power invest- velopment Fund was established in the Bank's ments, while working in a coordinated manner Europe and Central Asia regional office to sup- with other financing sources for nuclear safety port work in new areas of inquiry on gender and nuclear power. and transition. National environmental actions plans The Bank also is supporting the rationaliza- (NEAPs) were completed in fiscal year 1994 for tion of social sector expenditures and preven- Belarus and Ukraine-adding to the eight com- tion of the deterioration in key social services. pleted earlier-and work began on NEAPs for Work on the health sector in Russia was car- the Kyrgyz Republic and Moldova. Based on ried out during the year, laying the groundwork these strategies, Bank assistance can be coor- for the development of lending operations. Ed- dinated with other financing sources to provide ucation projects were approved for Albania financing for conventional power investments and Romania. while supporting policy reforms critical for cost-effective energy conservation and public Focus on Portfolio Quality safety. The second oil rehabilitation project in The institutional and economic flux charac- Russia includes a component to prevent nega- terizing countries in transition calls for a sharp tive environmental effects from the project and focus on portfolio quality and effective imple- to begin remedial actions to address past dam- mentation. Among new member countries, im- age. In Bulgaria, the Water Companies Re- plementation is complicated by the lack of structuring and Modemization Project is familiarity with Bank procedures. Procurement financing investments in wastewater treatment and disbursement, in particular, present diffi- that will reduce river pollution as well as con- culties. The Bank is helping to develop efficient tnrbute to the clean-up of the Danube river and counterpart units and is establishing project ac- the Black sea. In most of the former socialist counts and audit procedures. Thus, in Mol- countries, actions to establish clear rnles on en- dova, procurement and disbursements have vironmental liability have been included in op- been accelerated for two projects approved in erations supportng privatization. Four Cental fiscal 1993. It is also continuing to prepare and and Eastern European countries have received translate standardized bidding documents, assistance from the Global Environment Facil- adapted to local conditions, to promote the re- ity for biodiversity conservation, mainly to im- form of public procurement regulations prove transboundary protected areas, and through technical assistance or Institutional good early progress on implementation was Development Fund grants, and to hold pro- made during the fiscal year. curement and disbursement seminars. Poverty and socia sectors. To promote em- The Bank is also quickly incorporating les- ployment opportunities and reduce or prevent sons tearned into project design. Efforts are be- poverty, recovery of output and job creation ing made to keep project design simple and are essential. The Bank's programs, including limit project components. Given the unprece- support for enterprise restructuring, private dented situation facing many borrowers in the sector development, and deregulation of prices region, the Bank puts a premium on its ability and marketing channels, are critical in this re- to be flexible and adaptable. Institutional de- gard. At the same time, however, social pro- velopment is an imperative, and almost all tection must be provided for those unable to projects have significant institutional develop- take advantage of these opportunities. Im- ment components. - - proved targeting and rationalization of social Field offices are playing an increasing role in services remain crucial. To facilitate targeting effective project implementation, in addition to of social benefits to the neediest and the devel- facilitating policy dialogue. Two new resident opment of policies aimed at poverty reduction. missions were established during the past the Bank is supporting collection of household year-in Belarus and Kazakhstan-bringing survey data and careful in-depth analysis. In the total in the region to fourteen. The number fiscal year 1994, apoverty assessment was car- of field-office staff has grown as well, and ried out for Poland, and poverty-assessment higher-livel staff-including those who are lo- work was initiated in several countries, includ- cally recruited-are increasingly involved in ing Russia. During fiscal 1994, an operation to implementation assistance to the borrower, in- improve the social safety net was approved for cluding procurement administration. Latin Amerlca and the Carbbean 107 Latin America and the Caribbean The Latin America and the Caribbean pan- erage growth that took place, during the post- -orama in 1993 shows large disparities in growth debt crisis years. Average growth of 3.5 per- rates across countries, a definite downward cent in 1993 compares favorably with the 2.8 trend in inflation in most countries, continued percent achieved in 1992. capital inflows, significant expansion of re- The region's growth figures are greatly influ- gional trade, and a growing perception that in- enced by Brazil's performance. If Brazil were vestment in social and economic infrastructure excluded, the region's growth record worsened must be increased. in 1993 with respect to the average of the pre- During 1991-93, the region grew, on average, vious two years, dropping from about 5 percent by 3.2 percent annually, almost double the av- to 2.8 percent; The fail was due mainly to the poor performance of Mexico and Venezuela. Some Central American countries, however, Tablk 5413. Latin Aumeica ad the continued to show strong growth: Panama (7 Caribbean: 1992 Populafion and Per percent), Costa Rica (5.6 percent), and El Sal- Capita GNP of Comtnes that Borrowed vador (5 percent). In South Amenrca, Argen- durg Fiscal Years 199294 tina, Chile, and Colombia also experienced growth of more than 5 percent. --- -Per cmla Until 1993, the Caribbean countries had ex- Powulatiot, GNpW Country (millions) (US dolin) penenced a- decade marked by high rates of growth (6 percent on average). During 1993, Argetina 33.1 6,050 however, growth slowed in some countries Barbados 0.3 6,540 (particularly in Jamaica) and was elusive in Belize 0.2 2220 others-in Haiti, Suriname, and Trinidad and Bolivia - - 75 - 680 Tobago, for example. Only Guyana continued Bhl 153-9 2770 to record a high growth rate-7 percent, fol- Choie 13.6 2,730 lowing 8 percent in 1992 and 6 percent in 1991. Colombia 33A4 - 1s330 The Dominican Republic was not able to con- Costa Rica 3.2 1,960 tinue at the fast pace of the previous year (7.5 cador 11.0 1,070 percent), falling to 3.5 percent.. El Salvador 5.4 The sluggishness of growth in the Caribbean Guatemala - 9.7 980 means that the efforts to improve competitive- Guyana . - 0.8 - - 330 ness were not sufficient to cope with the rap- Hoidu 6.7 - idly changing external scenario. The key - Honduras .54 58 challenges are to find ways to offset the decline Jamica- 2.4 I'M in official flows and the erosion of preferential Mexico -85.0 ' 3.470 trading arrangements, particularly for bananas Nicaragua . 3.9 340 and sugar. Panama 2.5 2,420 The slowdown in the rate of growth in many Paraguay - 4.5 1,380 Latin American countries appears to be mainly Pun - - 22.4 950 - - cyclical. It is partly the result of the recession Trinidad and Tobago 1.3 - 3,940 in the industrialized wodld, which reduced de- Uruguay 3.1 3,340 mand for the region's exports. The 4.5 percent Venezuela 20.2 2,910 fall in the region's term of trade during 1993 Nora The 1992 estimates of GNP per capita prseted reinfrrced the effect of this recession. In addi- above art fnomnthe "Wod Devclopment icato"sec- tion, some countries that recently adopted re- o. ofWrldDavelopme R9eport 199. forms are still adjusting to a new set of widely a. nmates mid 1992. :differeni rclative prices. Adjustment takes -b.World Bank Attn methodolorDrlgy. 199042batime, and the costs of resource realignment c. Estimated as bow4nome ($675 or Iess) . must be borne before benefits are reaped. Latin Amercao and heCtbbaM 109 ~~~~~~~ In Peru,female laborers work on a water-diversnion scheme, lfiing a canal that will cany wetrfrom the.Andes so their village. Such projects are vilage-based and tend to ivolve panripationfrom wonen. those of the nonindipnous populations. An 'ma- gentina, Bolivia, Mexico, and Venezuela, portant correlate of poverty nong indigenous while Mexico has signed agreements with grps is a lack of education, which is substan- Costa Rica and Venezuela-Colombia. Guate- tiafy below that of the general population. mala and El Salvador have entered into a re- The Bank's commitment to development and gional free-trade agreement, which will also to poverty reduction go hand in hand. In gen- involve Hondumas. Bolivia, Colombia, Ecua- eral, trends in income equalitY appear to have dor, Peru, and Venezuela have signed a multi- been significantly influenced by trends in per lateral trade agreement. Trade has been opened capita income; thus, the higher the growth in up in most CARICOM countries (with the ex- income per capita, the lower the inequality. In ception of Antigua and Barbuda, and Belize), Latin America, as elsewhere, the Bank's ef- the fir stage of a common external tariff has forts to reduce poverty follow a twopronged been implemented, and nontariff trade-barriers . approach: promotion of broad-based economic continue to be reduced. Representatives of growth and the larpting of assistance to poor twenty-two countries and several dependent and vulnerable groups. territories in the Canrbbean basin -have con- dluded the frst round of talks aimed at creating The Americas: Trade and Integration a new regional trading bloc. One of the most significant economic fea- The NAFrA is one of the world's most com- tures of the late 1980s and early 1990s has been prehensive free-trade pacts (short of being a the dramatic inacement in intaegional trade. common market) among regional partners. This was due, first, to trade bealiaon and Some provisions tookplace on January 1,1994, second, to regionalbilateral trade agreements- the day the agreement went -into effect, and MERCOSUR (Argentina, Brazil. Paraguay, others will be implemented over a perod of and Uruguay), CARICOM (the Caribbean five, ten, and fifleen years. Special features in- Common Market) with Colombia and Venezn- dude: the opening up of service sectors, par- ela, and other initiatives. These initiatives are ticiuarly in finance, land transportation, and likely to be replicated through the North Amer- telecommunications; the immediate conver- ican Free Trade Agreement (NAFTA), as well sion of key agricultural restrictions into tariff- as through additional bilateral agreements. rate surcharges (which wfll be phased out in no Chile has signed bilateral agreements with Ar- more than fifteen yearn); the dismantling of tra- 4~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ LaHln Amesco and the Cadbbean 109 b.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ -I.n Peru, female laborers work onv a water-diversion scheme, I;ning a canal that will carry waterfrom *he.Andes .o tieir village. Sucltprojects are village-basoJdGndrendto involve participarionfrom womef. . - .~~~~~~~ - those of the'nonindigenous populations.-An im- -gentina, Bolivia, Mexico, and'-Venezuela, portant correlate of poverty among indigenous whilc Mexico has'-signed agrcements with groups -is a lack of education, which is substan- Costa Rica and Venezuela.-olombia. Guate- tially below that of the general popuIation. ' mala- and El Salvador have 'entered into a re- The Bank's cornmitment to development and gional free-trade agreement, which will also to poverty reduction go hand in hand. In gen- involve Honduras. Bolivia, Colombia, Ecua- eral], trends in income incquality appear to have dor, Peru, and Venezuela have signed a multi- ueen significantly influenced by trends in per lateral tradceagreement. Trade has been opened capita income; thus, the higher the growth in up in most CARICOM'countries (with the ex- income per capita, the lower the inequality. In ception of Antigua and Barbuda, and Belize), Latin- America, as elsewhere, the Bank's cf- the fsnt stage of a commori external tariffl has forts to reduce poverty foliow a two-pronged been implemented, and nontariff trade barriers approach: promotion of broad-based economic' continue to be reduced. Representatives of growth and the targeting of assistance to poor twenty-two countries and several dependent and vulnerable groups. ter-ritories in the Caribbean basin -have con- - d~~~~~~~~~cuded the first round of talks aimed at creating The Americas: Trade and Integation - a new regional -trading bloc. Onc of the most significant economic fea- The NAFIA is one of the world's most com- ture of the late 1980s and early 1990s has been prehensive free-trade pacts (short of being a the dramatic increment in intrategional tradc. common market) among regional partners. This was due, first, to trade liberalization and 'Some provisions took place on January 1, 1994, second, to regionalbilateral trade agreements- the day the agreement went -into effect, and MERCOSUR (Argentina, Brazil. Paraguay, others will be imnplemented: over a period of and 'Uruguay), CARICOM (tl;e Caribbean five, ten, and fifteen years. Special features in- Common Market) with Colombia and Venezu- clude: the opening up of service sectors, par- ela, and other initiatfives. Thesc initiatives are ticularly in finance, land transportation, and likely to be replicated through the North Amer- telecommunications; the immediate conver- ican Free Trade Agreement (NAFTA), as well sion of key agricultural recstrictions into tariff- as through additional bilateral agreements. rate surcharges (which will bc phased out in no Chffe has signed bilateral agreements with Ar- more than fifte-en years); the dismantling. of tra- .~~~~~~~~~4 - tL~~, .; : - - 110 1994 Regional Perspectives ditionally high barriers by the United States increased domestic expenditures and will pose and Canada on imported textiles and apparel; important challenges if they slow down9 This the introduction of innovative dispute- slowdown process will require significant rela- settlement procedures; and the establishment tive price adjustments that may be difficult to of a mechanism to address cross-border envi- engineer in countries with fixed or quasi-fixed ronmental issues. The NAFTA's long-term ef- nominal exchange rates. The possibility exists fect on Mexico will have major secondary that a reduction in capital inflows might be an- effects on poverty reduction, the environment, swered by increased trade protection, thereby human resources, and rural/urban develop- negating the effects of the recent opening up of ment. international trade, which has been the back- The most notable increment in intraregional bone of the region's reform effort. trade has occurred in the MERCOSUR coun- The key to the enhancement of the region's tries. From 1987 to 1993, the share of in- competitive edge is increased productivity. tramember trade increased from about 22 This requires further trade liberalization, fur- percent to almost 40 percent in Argentina; 13 ther deregulation of domestic markets (in par- percent to 23 percent in Brazil; and from about ticular, labor markets), and improvements in 30 percent to some 48 percent. in Uruguay. the supervision of the deregulation process. MERtCOSUR has also changed the trade pat- Deeper trade liberalization would increase pro- terns of its partners. In 1990, for instance, the ductivity as economies shift their resources to Brazilian government ceased providing incen- areas of comparative advantage, and the region tives to its wheat producers, thus giving a boost absorbs state-of-the-art technology. Further to imports of cheaper Argentinian wheat; it is domestic market deregulation would also make expected that Argentina will, eventually fill economies more efficient and, consequently, about 70 percent of Brazil's wheat-import more competitive. In Peru, for example, it is needs. Argentina's substantial exports to Bra- estimated that labor productivity in the manu- zil during 1993 helped reduce its bilateral trade facturing sector has increased by about 21 per- deficit from $1.7 billion to-$600 million. cent since the beginning of the 1990 reform Trade between Argentina and Chile has also program, which has emphasized both trade lib- increased significantly, from about $600 million eralization and domestic market deregulation. in 1990 to about $1 billion in 1993. Further eco- nomic integration will be boosted by the con- Stabion and Reform in Brazil struction of new transAndean oil and gas Brazil's economy represents about 40 per- pipelines. Moreover, since 1991, Chile has be- cent of the region's GDP. During the past few come one of the biggest investors in Argentina, years, the economy has experienced large mac- with total investment of about $2.7 billion. roeconomic imbalances and several attempts at Although the increasing share of intra- "shock" stabilization, among them the 1985 regional trade might have involved some diver- 'Cruzado Plan" and the 1990 Color Plan, nei- sion of trade from the rest of the world, for ther:of which reduced long-term inflation. many countries there was also significant trade Despite high rates of inflation in 1993, Bra- creation: During the period 1987-93, Argentina zil's economy experienced a substantial recov- expanded the value of its trade to GDP from 13 ery, improving from a 0.9 percent decline in percent to 20 percent, Chile from 56 percent to output in 1992 to a positive 4.9 percent rate of 73 percent, Colombia from 37 percent to 44 growth. At the same time, however, the infla- percent, Costa Rica from 64 petcent to 92 per- tion rate increased dramatically. Despite a sig- cent, Mexico from 25 percent to 39 percent, nificant increase in taxes collected, which and the Caribbean countries from 67 percent to changed the operational deficit into a 017 per- 78 percent. This aggregate expansion of trade cent surplus, inflation jumped from about 400 decelerated in 1992, however, and came to a percent in 1992 to 2,752 percent in 1993, and, halt in 1993, as the ratio of exports to GDP by December 1993, it was running at an annual remained roughly the same for most countries. rate of about 5,000 percent. Yet another stabi- Only seven countries increased (slightly) their lization program was launched in March 1994. exports during the year. With this effort, Brazil has taken the first steps. Overall trade expansion was stalled by two. events. The world demand for regional exports was weakened by recession in the industrial 9Most of these inflows have been receikcd by the fivc larg- countries, and the exchange rate in many coun- est Latin American econonmes-mostly in fixed4ncome se- tries of the region appreciated as a result of curities From a modest bond issuance of about $400 Igaanw hb ithe in- mllion in 1989. the market soared to about S23 billion in large capital inflows th y r 1993. The stock markets in the are also boomed during ternational competitiveness of the region s ex- 1993 due to their smalt capitalizadon base and increased ports. These inflows are currently financing investor confidence. Lalln Amedca and the Caribbean t11 Tabl. 5-15. World Bank Commitments, Disbursements, and Net Transfers in Latin America and the Caribbean, 1990-94 . (millions of US dollars; rml years) Brzil Madco Argentina Total region sar start start slirt Item 1994 1994 1990-94 1994 1994 1990-94 1994 1994 1990-94 1994 1994. 1990-94 Undisbursed commitments 4,789 3,712 1,607 16,183 Commitments 1,137 527 - 1,530 8,663 609 3,621 4,747 7.779 Gross disbursements 437 3,399 997 8,663. 392 2,789 2,769 2,307 Repayments . 1,292 6,139 1,007 4,58 441 1,691 4,489 19,714 Net disbursements -855 -2,740 -10 4,075 -49 1,097 -1,720 . 2,593 lnterest and charges - 544 3,177 907 4,157 276 1,090 2,657 13,711 Net transfer . -1,399 -5,917 -917 --82 -325 7.. -4,377-11,118 Non: Disbursements from the IDA Special Fund -e induded. The countries shown in the table ar those with the largest amnounts or public or publicly guamateed long-term debL Detuls may sot add to toads because of rounding. in a long-tenn program that is designed to re- crease costs, reduce net wages, and promote solve its fiscal problems and introduce mone- the informal economy. tary discipline- A return to high and sustinable * As regional grwth is led by growth in the growth will require that substantial progress be private sector; actions to .sustain that sector's made in the near future on the stabilization development should continue, and the enabling firont. . environment necessary for private sector Brazil has made major headway in trade re- growth nurturcd. form. In June 1993, it completed a multiyear * Public sector activities should be reori- trade-reform program that reduced average tar- ented to maximize their efficiency; priority iffs to 14 percent in the context of a trade- should be given to investment in infrastructure, liberalization program- Exports reached $38.7 which, in many cases, has lagged as a result of billion (compared with $36.1 billion in 1992), spending cuts mandated by stabilization pro- and manufactured exports grew from $20.6 bil- grams. lion to $23.8 billion. Overall, its trade surplus in * Investment in health and education is cru- 1993 was $13 bllion The capital account con- cial for labor productivity. The cost- tinued to show large inflows and, by the end of effectiveness of governments' health and 1993, reserves exceeded $32 billion (up $8 bil- education expenditures must be assessed. lion from the year before). Brazil's trade sector Many countries still provide blanket higher- has ample room to grow-, the total value of education subsidies to students through re- trade to GDP was only 15 percent in 1993. duced or free tuition; by doing so, income disparities are widened, and resources are The Road Ahead - spent inefficiently.'X The region-s challenges are to reduce pov- * Public sector decentralization has to be erty and increase the well-being of its people carefully implemented because local govcrn- through environmentally sustainable develop- ments are often wcaker in their administrative ment. In this context, outward-oriented capacities than central govermments. growth, integrated with the world economy, is * The judicial system, which has become a crucial. It is also important to sustain fiscal re- constraint on productivity, must be simplified form and increase domestic savings. In this en- and strengthened, and archaic and cumber- deavor, a carefully planned and executed some procedures eliminated. reform of the social security system in many countries of the region could be critical (see The Bank's Strategic Objectives Box 5-7). Success will depend on increasing ef- The Bank has made considerable progress in ficiency through more rapid growth in produc- the planned transition in lending from adjust- tivity. An integrated approach to increased ment to long-term issues-human resources productivity requircs action in several areas: development, environmentally sustainable de- . Domestic markets need to be morc dereg- velopment, and privatc-sector developmnwnL A ulated at all levels. . * Labor markets need to be deregulated and lo The bottom 40 percent of the population in the region rc- high payroll taxes reduced. These taxes in- ceives only 13 percent of tota higher-education subsidies. 112 1994 RegIonal Perspecties lBox 5-7. Pensio. Reform In Ladn America During the debt and fiscal crisis of the 1980s. developed financial markets. and the need for a Latin America's pension schemes became senr- strong regulatory and supervisory system. In ously underfunded. By the end ofthe decade, fail- countries with fiscal pmblems a combination of a mig pensions (in real terms), lar social-security pay-as-you-go system that provides a miniimum deficits, and depleted reserves haC irreparably base with a complementary.fullyhmded private,. damaged the credibility of traditional pension system might be warranted. schemes. As the countries of the region entered Nonetheless, the -move toward the privtiza-: the 1980s, the movement to privatize pensions tion of social-security systems has begun in sev- gained momentum, encouraged by the apparent eral countries. It is furthest -along in Argentina- success in Chile. - and Peru. In 1992, both governments proposed. In l96l, Chile introduced a fully funded social- changes that effectively privatized a large share security system with individualaccounts. Itwas a of the pension- sector. Peru's new pension law mandatory,-defined-cntnbution system to which went into effect in June 1993, while Argentns workers contnbutd for old age, survivor, and was signed into law in October l993. disability benefits. The funds collected from Not unexpectedly, the new social-security workers were (and are) managed by thirteen pri- schemes in the-three countries have a numberof vate firms that operae under tight supervision'- common features. Argentinaand Peru have set up with strict investment litations. A committee. schemes for the management of social-security selects the stocks in which the thirteen firms can funds that are vcry similar to the one im Chile; i invesL The government guarantees workers a, fact, they lgely adopted the Chilcan ry ninimum return of the lesser of (a) the avrcag structure.. - return on all funds less 2 percent or (b) half the ButthenewestschemesalsodiffrfomCiles average return on all funds. Workcers are free to in certain important ways as a resut of the coon-_ switch their accumulated funds between the tries'- diffiring political climats and institutions. finns, thereby creating inltense competition For- example, the political powerof u io d among them. -Upon retirement, accumulated pensioners-has ledArgntina to maintain alarge fnds can be taken in a phasedwithdrawal and/or- public plar. Thus all igiblc workers recevc may be-used to purchasc indexed annuitics.. a flat benefit equal to30' percent of average cov- If other gornments are not exactly beating ered wages from the filrstpMarin addtn to their' the- door down in their haste to move toward a pension fommthe second pilar. An icontrast s lscrysym, Chilcanstyle, its bo e to thew countctan in Chili and Argentia, the; of the fiscal implications involved.. In Chile, the privately managed investment firms in Peru op- transition to the newsystem meant thatthiepublic erate-in limited domestic capital markets, which system lost many contnbutors (and, therefore, provide few investment-options. En addiio-the - much revenue); at the same time, howevcr, it re- absence in Penr of rdiable records has forced of- mained liable for pension payments to retires- ficialstoacceptthe' swom staecments" ofwork- andrirdee-o-be during the transition. A deficit m ers to estabhLsh thcir pasticontributions.i of the publicsocial-securitysystem on the scale The fiture of pension system is- curenty a* ofthe Chilean reform would likely itensify fiscal matter of-debate- in Bdivia, Brazil, Costa Ra, pressues,therebymaldngabalancedbudgetthat Mcxico.Urnguay, and Venezuea. While the out- much more difficult to achieve. Other issues that comes fll vary, gena wecanesses in social- countrics have to address include equitable treat- security arangements in.Latin America make it ment of different generations of workes, poten- ikely that, given the chance;- increasing numbirs tial problems that could arise from implementing ofworxks in this regionwil trade in public prm- a Chilean-style system in the absence- of well- ises for private accounts. comparison of the actual fiscal 1991-93 lending through economic stabilization supported by program with the proposed program for fiscal targeted safety nets, stronger social sector in- 1994-96 shows a decline in lending for adjust- stitutions, long-term investments in health and ment and debt reduction from 24 percent to 3 education, the elimination of hidden subsidies percent, an increase in lending for human re- for the rich (such as free higher education) and sourcestpoverty reduction from 23 percent to hidden taxes on the poor (such as inflation and 33 percent, and an increase in environment and trade barriers). During the past year, the Bank forestry commitments from 7 percent to 13 per- approved social sector and/or social invest- cent. ment fund projects in Ecuador and Peru (for The focus on human resources and poverty S30 mullion and $100 million, respectively). issues reflects the region's historically highly both broadly patterned on programs begun stratified social structure and skewed distribu- earlier in Bolivia, El Salvador, and Mexico. tion of income. The situation cannot be re- Much of the Bank's investment lending and versed quickly, but improvements can be made technical assistance in the environmental area Latin Afmerica and the Caribbean 113 is oriented towards improving the environmen- year. Good overall economic performance and tal management capacity of governments (both years of economic reform in many countries national and subnational). This focus on insti- have had a positive effect on portfolio perfor- tutional strengthening is taking place within a mance. The correlation between economic re- context of widespread privatization, decentral- form and good project implementation is ization, and governmental 'downsizing" in strong; in addition, the convergence ofthinking many countries. The Bank is working with between the Bank and its borrowers on eco- member governments to ensure that adequate nomic issues has made it easier to resolve out- capacity exists for carrying out those environ- standing problems. Implementation of some mental functions (particularly legal, regulatory, projects has been slowed, however, by (among and planning) that remain the responsibility of other reasons) shortages of counterpart funds governments. At the same time, many projects resulting from austerity drives- This problem is are promoting the increased use of the private typical of countries that are in the early stages sector Iincluding nongovernmental organiza- of adjustment. Other projects, however, have tions) for the in-the-field implementation of en- benefited as govermnents, such as those in Ja- vironmenal activities such as delivery of urban maica and Mexico, have concentrated re- services, protected area management, and en- sources on priority projects. Some countries vironmental monitoring, have established or reinforced mechanisms for The Bank has been in the forefront of pro- monitoring project implementation. moting private-sector development. Private The Bank's esmpasis on quality at entry and sector assessments, which aim at determining borrowercommitment and ownership has been the most important factors hampering the busi- the key to the improved quality of its portfolio. ness environment, were completed for several Furthermore, importance has been placed on countries ofthe region duing the year. Implicit effective supervision ofthe portfolio of ongoing in this work is the idea that governments have projects. The quality at entry concept includes a comparative advantage in certain areas- not only the traditional standards of project providing price stability, an efficient legal quality but also borrower ownership and com- system, secure property rights, security, edu- mitment to a project and to design-for- cation. and health services, and infiastructure; implementation. Borrower commitment and the private sector, however, has the advantage ownership is developed upstream with the in- in the production of goods and services. volvement of borrowers and other stakehold- e in sector work that eventually leads to Porffolio Performance and Trends sctor strategies and identification and prepa- There was further improvement in the re- ration of projects. gion's portfolio performance during the past 114 1994 RegIonal Perspecties Middle East and North Africa In calendar year 1993, the MIiddle East and Tuk- -17. RGDP G North Africa region experienced a continued 1991-93 selected Economes decline. in growth rates and marked variability in performance among countries. Real gross Country 1991 1992:- 1993 domestic product (GDP) growth in 1993 forthe 0.2 23. -1.7 eight countries in which theBankwas mostac- Egypt :2.1 03 0-- tive" was about 1.5 percent, compared with -l- 103 6A 3.0 4.3 percent in 1992 (see Table 5-17). Rates of Jordan o.0 11.0 6.0 GDP growth ranged from - 17 peent in Al-. ILcbaIon .. .38.2- 435 - 7.0 geria to 7 percent in Lebanon. Morocco. 62 -4.0 0.0 In the Magbreb, Algeria remains in recession Occupid Terrtories -4v0- -23.6. -10.1 as a result of a further decline in petroleum TXi-a, 3.8 &O -2.6 prices, a heavy debt burden, and drought- yM 0.0. 0.1 03 related declines in agricultural production. Mo- RSiot 6.3 43 15 rocco is coming out of two years of drought. during which GDP declined by a cumulative -y VDdn d Lb 4 percent.. The underlying macroeconomic in- dicators remain favorable for long-term growth, howe-ver, and the oudook for 1994 is In Iran, real growth slowed from 5.8 percent good because of improved rainflL Tunisia's in 1992 to 3 percent. Two factors, in particular, GDP grew at about 2.5 percent contnrbuted to the slowdown. Fist, an oil-price decline reduced export earnings by 15 percent Second, arrears on short-term trade credits re- Tch!. 5-16. MIde East and North duced Iran's access to new credit and contrib- Afriern 199 Populaton and Per Capita uted to a sharp decline in imports and growth GNP of Countries that Borrowed during Egypt continued to pursue its ambitious pro- -s Years 199234 gram of stabilization and structural reform. Growth of output remained below 1 percent in - millions) E - - a. fiscal 1993, with only aiculture and construc- Country (nolnos)f MCSdolksr tion showing signs of recovery;overall growth is expected to increase gradually to reach 43 Al -a . 26.3 : -- 1,840 0 - - percent in fiscal 1996. Elsewhere in the Mash- Egypt 54.7 640 req, Jordan's high rate of growth in 1992 car- an, Islamic fried over into 1993; GDP growth exceeded 6 Republic of 59.6- 2,200 percent. But, in contrast to 1992, when growth - Jordan - 39- - 1,120 . was largely concentrated in construction and Lebanont - ; 3.8 domestic services, 1993 saw a more broadly Morooco 26.2 1,030 based pattern of growth. In addition to con- finisa 8A.4 --1,720 ~ . struction, nonmineral exports, trade services, Yent 1 E - - i3.0 - transportation, and tourism all recorded gains- NoTrn he 1992 estimte of GNP per capita pested Lebanon's reconstruction, supported by large aboveamof &=trM DevpnRpmrt 1 do4sc private capital inflows, resulted in robust (7 percent) growth. -Notav ;. f ; ; Economic reforms remain high on the a. Estimates for mid I992 a. Weld Deskda, - . . -~ - : agenda of most countries. Governments in b; WiddBAtks.mrlodokwi. I990-Y2k perieL.- c. Estmates refer to Fa Bank only.X & dEstmaed as la ewe (S57625). - Algia. Egypt. knn. ordan. Lebanon. Morocco. Tuni- c. Esmated as low6icom (S675 or kss). - -- .- Si and Ye - . . : S - -- 12 Eg~lyps fisal year y uns rml ly Ilt o June 30 Middle East and North MIca 115 Egypt, Iran, and Jordan continued to imple- Restoring sustained growth. Following rela- ment stabilization policies effectively. tively good economic performance in the 1960s Morocco and Tunisia have moved from stabi- and 1970s, the 1980s and the first years of the lization to longer-term macroeconomic man- current decade have been host to economic cri- agement and structural reform. Algeria is sis, which has led to a drop in per capita in- implementing a stabilization program that is be- comes in most countries of the region. The ing supported by a one-year, $1 billion standby crisis has been characterized by a deteriorating arrangement with the International Monetary external economic environment, particularly Fund. Virtually all economies reduced their fis- the sharp drop in international oil prices, de- cal deficits, most notably in Egypt, where the creasing efficiency in the use of capital, low deficit fell from 22 percent of GDP in fiscal 1991 levels of private investment, and poor export to about 4.7 percent in fiscal 1993. Inflation performance. In many countries, GDP growth was kept in check throughout the region; remains below the rate of population growth. balance-of-payment deficits were reduced, and This, in turn, is reflected in high and increasing (with the exception of Iran) large movements in rates of unemployment, which range from 15 exchange rates were avoided. There were also percent in Tunisia and Morocco to 27 percent encouraging signs that private sector activity is in Yemen. The consequences of past popula- picking up-especially in Jordan, Lebanon, tion growth wil continue to be felt through Morocco, and Tunisia. Increasing foreign di- large increases in the labor force. Levels of rect investment (FDI) is playing an important poverty are also related to growth and employ- role in this resurgence. FDI in 1992 almost dou- ment, a more equitable distnbution of the ben- bled 1991's total due to an improved invest- efits of economic growth, and targeted social meat climate and was expected to reach $2 safety net interventions. Countries, on the one billion in 1993. hand, such as Morocco, which have achieved The historic signing of the peace accord be- relatively high, sustained rates of grow