Finance Ministers of the leading seven industrial nations agreed on strengthening the international financial architecture during their pre-summit meeting in Japan, early July. Principle elements of the plan had been approved by the G-8 Summit in Okinawa. The proposal will be discussed during the IMF/World Bank Annual Meetings in late September.

Addressing a meeting of development policy experts in Berlin, IMF Deputy Managing Director Eduardo Aninat argued that in the future, the macroeconomic targets set by the IMF for poor countries will be tied explicitly to the improvement of social conditions. Familiar IMF prescriptions—reducing inflation, cutting deficits, and stabilizing the currency—will be laid down with an eye firmly cast on their potential benefits for the poor. The key rests with the concept of Poverty Reduction Strategy Papers, which must now be produced by poor nations seeking loans from the IMF, World Bank, and other donors. These economic and social policy blueprints will have the added advantage of acting as conduits for input from civil society groups and NGOs. The IMF will rely on the World Bank and other multilateral regional development banks for an assessment of the priorities included in these budgets and their costing. It will then help ensure that outlays are consistent with available financing, macroeconomic stability, and faster sustainable growth.

In mid-May IFC’s Board approved a three-year, $12.6 million contribution to the Private Enterprise Partnership for Armenia, Belarus, Georgia, the Russian Federation, and Ukraine. IFC expects to complement this contribution with an additional $45 million from donors. Before Board approval, the government of the Netherlands funded the feasibility study and development of the business plan.

The Private Enterprise Partnership consolidates IFC’s extensive technical assistance programs in the region. Since 1991 more than $89 million in grant funding has been raised for activities ranging from the privatization of small businesses to the creation of a leasing sector. The main donors include Canada, Denmark, Finland, Japan, the Netherlands, Norway, Sweden, the United Kingdom, and the United States. The partnership, led by Project Team Director Edward Nassim, currently employs 320 local and international staff and is implementing 11 projects. New projects will focus on the small and medium enterprise (SME) sector and foreign direct investment, the two most important sources of growth in the region.

The Russian Federation will receive no more than $4–$5 billion in foreign credit in 2001, Duma Budget Committee Chief Alexander Zhukov said. The issue of attracting credits from the IMF is still on the agenda, he said. (The IMF suspended a $4.5 billion loan program to the Russian Federation last year, saying the government failed to implement structural reforms). Zhukov also announced that the Russian Federation would continue to attract credits from the World Bank in 2001 under credit lines that are already open. In addition, Russia may receive government credits from Germany and Japan.

The World Bank has sent a high-ranking team to the Russian Federation in mid-July to discuss its support of the government’s new economic program. According to Vice President for Europe and Central Asia Johannes Linn, the Bank is considering to lend about $1 billion to the Russian Federation to support economic reforms. The sum would be roughly equivalent to that of a Structural Adjustment Loan that was not fully paid out following the Russian ruble crisis in 1998. According to the Vice President, the Russian government may request the cancellation of the outstanding $1.1 billion under this Structural Adjustment Loan and seek its replacement with a new loan package.

The World Bank’s Board of Executive Directors has set up a working group, consisting of 10 Executive Directors, to review the selection process for the Bank’s president. The working group will review the Bank’s experience with the nomination, selection, and appointment of the president and make recommendations on possible improvements. After the working group presents its report to other executive directors, the Board will report the results to the Governors at the annual meetings in Prague. A similar review group was established at the IMF in early July. The two groups will exchange ideas.

The World Bank and Ukraine should map out a new strategy of cooperation that will target the development of the social sectors and better governance, World Bank Vice President for Europe and Central Asia Johannes Linn said following his visit to Ukraine in early June. "The economic situation in Ukraine is stable. It is perhaps the first time in the last 10 years that Ukraine experiences a real and, for the moment, sustained economic growth. We see a government program supported by the president and the parliament. This is a signal for us to map out a new strategy," Linn said. The Bank has been discussing with Ukrainian authorities for months possibly ways of reviving lending, which was effectively suspended for about a year. "The level of support in terms of financial assistance will depend very much on the government’s ability to actually implement its reform program," said Johannes Linn. The Bank is considering a loan package to Ukraine worth $1.8 billion over three years.

The IFC is ready to increase cooperation with Ukraine, especially by initiating new investment projects, according to World Bank Managing Director and IFC Executive Vice President Peter Woicke. Woicke’s comments came after his recent meeting with Prime Minister Viktor Yuschenko in Kiev. IFC investments in Ukraine total $12.3 million. The corporation has invested $3.5 million in the venture fund Ukraine set up to finance small and medium-scale businesses.

The World Bank wants to help link more than 50 countries electronically by 2003 through the Global Development Gateways. The prototype for www.worldbank.org/gateway was launched in late June. Clicking on a country will bring up all its vital economic statistics, the reforms it is undertaking, privatization, details of donor countries, as well as the latest newspaper reports. Schools, villages, aid agencies, charities, NGOs, companies, and private investors alike will find the site useful and are encouraged to participate. As the system develops, it will include chat rooms or bulletin boards on which people around the world can exchange ideas. The project, which will be facilitated by the World Bank, will operate as an independent nonprofit organization, governed by a board of directors. Partnerships with governments and the private sector will be key to its success. Large multinational companies, including Microsoft, IBM, Reuters, and Bloomburg have given support to the $20 million a year budget.

The IMF has agreed to release $116 million to Romania. The funds represent part of a $535 million standby credit originally approved last August. Romania had drawn only $71 million of the available funds when the funds were halted, following a run on the country’s largest bank, Banca Commerciala Romana, the closure of investment fund Fondul National de Investitii, and the decision by Banca Populara Romana to suspend payments to depositors. The release of the funds was sanctioned only after the IMF received commitments from the government that state spending would be reduced and salaries pegged and tied to performance. Stanley Fischer, the IMF’s First Deputy Managing Director, suggested that regulation of the financial sector must be improved and fiscal discipline maintained.

The Romanian government remains unpopular with the electorate following three years of economic decline. In recent local elections, the PDSR, the former communist party, gained seats in crucial parts of the country, and it is leading opinion polls for this fall’s presidential and parliamentary elections.

The World Bank approved a $63.3 million equivalent loan for investment in Bulgaria’s health system June 22. The project will help the government carry out a fundamental reform of its health sector designed to improve access to quality health services and ensure the financial and operational sustainability of the system. Special attention will be given to primary health care and to rural and remote communities. Since 1990, when Bulgaria joined the World Bank, it has received U.S.$1.44 billion for 23 projects.

An eight-month internal investigation has failed to substantiate allegations that a former senior member of the Russian Federation’s World Bank mission in Washington passed confidential information to a Russian commercial bank in 1993. Leonid Grigoriev did violate Bank policy, however, by establishing a business relationship with now-defunct Inkombank while he was working in the Russian Executive Director’s office, according to the Bank. Inkombank paid Grigoriev $13,000 for services and out-of-pocket expenses.

Grigoriev left the World Bank in 1997. The Bank said it would have no objection to his resuming his duties as General Director of the Bureau of Economic Analysis, a Moscow-based think tank funded mostly by the Bank.

South Korea will help North Korea join international financial organizations that could provide it with access to financial aid, Trade Minister Han Duck-Soo announced following the all-Korean summit. Joining the IMF and the World Bank could help North Korea develop its social infrastructure. The IMF said earlier this year that it could offer nonfinancial aid, such as training programs for Pyongyang economic planners, which would not require North Korea to join the Fund.

The government of North Korea asked the international community for $250 million in aid to revitalize the country’s devastated agricultural sector and ensure adequate food supplies. The plea came during a meeting in Geneva in June, where the country’s delegation discussed the conditions of an aid package with 22 donor countries. Two million people are estimated to have died of famine in the North Korea in recent years. UNDP figures show that agricultural production there plunged 70 percent in the past four years, while the country’s GDP fell 50 percent.

The World Bank will lend China $349 million for air pollution control and waste water management in Beijing. The loan will be used to help convert coal-fired boilers to natural gas and promote energy conservation heating systems. China will also use the credit to help provide waste water collection and treatment in the Liangshi River basin—which covers more than a quarter of the city—and strengthen environmental management in Beijing.

China’s reliance on low-quality coal, a recent surge in population, and a steep rise in the number of motor vehicles have taken a toll on the city’s air and water. To stop and reverse the environmental degradation, the Beijing municipal government has started a clean air program to convert all small scattered coal boilers and burners within the urban area to cleaner fuel, require all passenger cars to meet strict emission standards, and require the planting of vegetation to control dust. The Beijing environmental project will cost $1.26 billion. The World Bank’s Global Environment Facility will support the project with a $25 million grant.

The drive to end the practice of tying development aid to the purchase of goods from donor countries suffered a severe setback after industrial countries failed to reach agreement in June. A three-day meeting at the OECD in Paris ended in deadlock, after Denmark, France, and Japan joined forces to block the deal. Despite earlier agreement to exclude food aid and technical cooperation from the proposal, the three countries continued to insist that they would be unfairly disadvantaged by a general reduction in tied aid. Denmark and France have large tied aid programs, while Japan is concerned that foreign companies would be able to benefit from Japanese technical advice. The three countries said other governments, especially those with smaller aid budgets, should do more for the least developed countries as part of any deal. World Bank Vice President for Europe Jean-François Rischard said the Bank is opposed to all forms of tied aid, which the Bank estimates increase the cost of projects by about a fifth.

Corruption in Slovakia is more widespread than it was 10 years ago, according to a report prepared by the World Bank at the request of the Slovak government. The report, "Corruption in Slovakia: Results of Diagnostic Surveys," was written by the World Bank’s James Anderson, with the collaboration of the U.S. Agency for International Development (USAID), the Slovak Center for Economic Development and Transparency International, and the Bratislava-based Focus Agency. The findings were based on polls conducted among households, businesses, and government agencies. Slovakia’s Prime Minister, Mikulas Dzurinda, presented the report at a June 20 press conference in Bratislava. He referred to the "widespread and especially burdensome" corruption in the health and education sectors, the state privatization agency (the National Property Fund), the courts, customs, the police, and ministries (see chart on previous page). Regulatory and licensing agencies issuing import, export, and construction permits are especially prone to accepting bribes. Many entrepreneurs obtain state subsidies through bribery, contacts, or influence in political parties, according to the report. The 100-page document was put on the Internet in early July. Based on the report, the government will work out an anti-corruption action plan by mid-October.

The EastWest Institute and the World Bank have formed a partnership to build coalitions for reform in the Russian Federation. The partnership will combine the World Bank’s comprehensive approach to the Russian Federation’s economic reforms with the Institute’s specific projects and capabilities in areas such as fiscal transparency and private sector development. The initial focus of the partnership will be on increasing the transparency of extrabudgetary funds in the Russian Federation; analyzing and improving the system of intergovernmental finance; promoting domestic and foreign investment, including better regional governance and accounting standards in the enterprise and banking sector; and using the EastWest Institute’s regional network and parliamentary contacts to gather and disseminate information and develop a broad dialogue on these and other selected topics.

The Polish government has set up a task force with the World Bank to develop laws to tackle growing corruption in state institutions. The Bank said earlier this year that Poland has a serious corruption problem at all levels of public administration and needs to curb graft in Parliament, ministries, and local authorities. The new task force is assessing draft laws and will propose legislative changes to clean up the awarding of state contracts, key jobs, and licenses for sought-after assets such as radio frequencies.

Based on recommendations by the World Bank, Slovenia is prepared to initiate its graduation from the Bank. It will be the first transition economy to reach this milestone. Announcement of the move was made in in mid-May, during the Bank’s discussion of the Progress Report for the Country Assistance Strategy (CAS) for Slovenia. Johannes Linn, the World Bank’s Vice President for the Europe and Central Asia Region, said, "We believe that Slovenia is ready and prepared to move from being a recipient of the Bank’s financial and technical assistance to becoming a strong partner of the Bank that will generously share its experience and resources with other countries."

According to Roger Grawe, Country Director for the Czech Republic, Hungary, Moldova, Slovakia, and Slovenia, "A key factor in Slovenia’s successful transition is that it focused its sights on EU membership early on. There was also a strong focus on achieving and maintaining macroeconomic stability. Thus the World Bank’s financial support became less important than its technical inputs."