World Bank/IMF Agenda

The World Bank announced June 9 that its first Social Fund in the East Asia region will be set up in Cambodia, with $20 million in IDA funds, to bring schools, clinics, roads, and clean water to this country where life expectancy is a mere 52 years. (The social fund is not subject to recipient government control. It is transparent and demand-driven: communities can request money up to $250,000 for specific projects. The average project cost is about $25,000.) The fund will finance small-scale projects in the poorest areas, and will help local groups take ownership of assets.

The World Bank on June 7 granted a second rehabilitation loan worth $600 million to Russia to help finance imports. The funds will support the government's macroeconomic stabilization program during 1995 and will finance structural reforms, including opening up trade, abolishing quotas and export licenses, reducing import tariffs, streamlining fuel export procedures, and abolishing restrictions on commercial land sales. The loan is for 17 years, including a 5-year grace period, with an interest rate of 7.09 percent.

Under a new $329 million World Bank loan, 14 Russian cities will get help upgrading and restructuring their public transport companies. The project, approved May 16, will finance urgently needed replacement vehicles and spare parts in the target cities. The cities will be able to buy more than 1,700 buses and trolleys and rehabilitate more than 1,500 vehicles already in service. The loan will also finance expert advice on improving urban transport policies throughout the country, as well as on restructuring the domestic bus manufacturing industry. (Russian mass transport systems account for more than 85 percent of all motorized urban trips, compared with 20 percent in Western Europe and just 3 percent in the United States.)

Russia's Deputy Economics Minister Sergei Vasiliev said negotiations are beginning with the IMF on a new loan facility. Russian officials hope that the loan will amount to $3 billion a year over three years beginning in 1996. Vasiliev said the first $1.2 billion tranche of last month's IMF $6.8 billion standby loan went to pay foreign creditors. He added that final plans for spending the rest of the standby financing are to be made later this year.

Taxes, bureaucracy, and suspicion are hindering efforts to clean up the oil spill in Russia's Komi region as disaster looms, reports the Wall Street Journal Europe. "I think the government is trying," says a World Bank official in Moscow. "But every single ministry has its own turf to protect and they are not used to cooperating in a crisis." The World Bank and European Bank for Reconstruction and Development recently approved $125 million in loans to pay for the cleanup, but the Ministry of Finance is charging a 23 percent value added tax on Western equipment being imported to remove the oil.

In support of efforts to resuscitate Ukraine's seed industry, the World Bank has approved (May 23) a $32 million loan. The project will develop private enterprises to produce and market seeds, improve regulation of the seed system and develop a research plan. Long-term goals will include liberalizing seed pricing, marketing, and trade and establishing private seed production. Earlier, the Bank had released $250 million to Ukraine—the second trance of a $500 million rehabilitation loan—to finance critical imports and support the country's balance of payments. World Bank official Oleksander Kaliberda said the Bank is ready to expand its aid program to Ukraine. He noted that among the 19 projects currently under review for financing are a proposal for institutional development worth $44 million, for which the Bank could appropriate $27 million, and a project to rehabilitate hydroelectric power plants in Ukraine, with the Bank possibly providing a $115 million loan. He said that if Kiev continues to pursue economic reforms, there will be no reason for it not to qualify for $1 billion annually in World Bank assistance.

International donors and agencies, meeting in Paris in late May, offered Kazakhstan, Azerbaijan, and Kyrgyzstan further financial assistance to keep their wide-ranging reforms on track:

•Kazakhstan was pledged $1.22 billion for 1995, and a further $575 million for 1996. (In 1995, $400-$450 million in long-term loans are to come from the World Bank and Asian Development Bank. The IFC and the EBRD will grant a further $150 million in equity participation and loans. Export credit agencies indicated additional commitments in export-financing credits.) On June 9 the World Bank approved a $180 million structural adjustment loan to improve competition in the Kazakh agriculture and energy sectors, to expand foreign trade, and to strengthen the private and the financial sectors and social services. Earlier, the IMF approved a 12-month standby credit of $290 million.

•Azerbaijan was pledged $430 million for 1995, and, preliminarily, $240 million for 1996. Inflation has fallen sharply (monthly inflation has been reduced to around 3 percent from 60 percent at the end of 1994), and the exchange rate has stabilized, but the lasting Nagorno-Karabach dispute worries donors.

•Kyrgyzstan was pledged $680 million for 1995-96. Donors commended the country for being at the forefront of stabilization and economic reform. Inflation is down to single digits and the currency is stable and convertible. Privatization is progressing well, enterprise restructuring is under way, financial discipline has been imposed on enterprises and banks, and land distribution and agricultural reform have been stepped up. There was concern about the budget and a monitoring period was agreed with the government. The budget deficit is expected to rise to 11 percent of GDP in 1995, from 8.4 percent in 1994. (Tax collection is currently a problem, pending implementation of the country's first universal tax laws later this year.)

The World Bank has expanded its single currency loan program. The Bank will offer all its borrowers the choice of floating rate single currency loans, fixed rate single currency loans, and currency pool loans with a variable lending rate. Previously, all borrowers received loans in a basket of currencies. The new measure will allow borrowers to select any currency or composite currency for which there is sufficient borrower demand, and in which the World Bank can efficiently borrow from the market. It will also allow borrowers to select the interest rate basis that will apply to the loan. The Bank said each member country will be eligible for single currency loans for up to half of its planned annual lending program or $100 million equivalent, whichever is greater.

IMF officials are drafting standards that will press member governments to publish faster and fuller financial accounts. The document will be submitted for consideration to members at the IMF Annual Meeting in October. IMF official Roger Nord said that eventually it will be made available to the public. The issue of openness will be raised at the June summit of the G-7 countries in Halifax. Nord said in an interview that there was no decision yet on whether the IMF would publish a report twice a year on how well some major countries had followed IMF advice. He said some countries were willing for the report to be made, but that others argued that they could not speak frankly to the IMF if such material were to be disclosed.

IMF Approves $1.8 Billion for Algeria

The IMF Board had approved a $1.8 billion three-year extended fund facility for Algeria to support an economic reform program started in 1994. The program aims to slash inflation and spur economic growth through rapid elimination of the budget deficit, full liberalization of prices from government control, and promotion of the private sector. Under the plan, economic growth is to accelerate to 5.3 percent from 1.1 percent in 1994-95; the year-end rate of inflation is to be reduced to 10.3 percent from 35.1 percent; and the budget deficit is to be cut to 1.3 percent of GDP from 2.8 percent.

China is using $500 million in World Bank loans for a range of afforestation projects, aimed at pushing back deserts that have swallowed up vast tracts of forest due to rampant tree-cutting over centuries. In another development, the World Bank has approved a $400 million loan to China to improve its congested railway system. The loan will cover 23 percent of the cost of the government's program to reorganize and refurbish the system, which carries more than half of the country's freight and much of its passenger traffic. The project involves electrifying a line more than 600 miles long, computerizing its telecommunication and information systems, developing container transports, and acquiring of more powerful locomotives.

A $100 million IDA credit to Viet Nam will help modernize the country's irrigation system, which dates from French colonial times. Another IDA credit of $165 million will help finance the government's plans to improve power supply in southern and central Viet Nam; to provide new and rehabilitated generation, transmission and distribution equipment; and to upgrade agency training for better management and maintenance.

The Multilateral Investment Guarantee Agency (MIGA) issued its first Contract Guarantee in Viet Nam to the U.S. Citibank. Citibank invested $15 million to open a Hanoi branch. The MIGA guaranty of $13.5 million will protect against the risks of expropriation, transfer restrictions, civil disturbance, and war.

Since Viet Nam joined MIGA in October 1994, MIGA has received more than 30 applications for coverage of potential foreign investments in the country, totaling hundreds of millions of dollars. MIGA membership has increased to 128 with Ukraine and Mozambique among its most recent new members. In the current fiscal year MIGA has facilitated foreign direct investments totaling over $1 billion in 18 developing countries.

The IMF on May 5 granted a $55 million loan to the FYR (former Yugoslav Republic) of Macedonia. An $85 million IDA credit approved May 16 will provide crucial balance of payment support for the government's planned reforms in its enterprise and banking sectors, along with social safety net programs to protect the most vulnerable people. The project will also help clear some of the country's debt. A second IDA credit of $14 million, approved on May 16, will provide services to laid-off workers and help them find new jobs.

The World Bank will join the European Bank for Reconstruction and Development, the European Investment Bank, the Nordic Environmental Finance Corporation, and Nordic Investment Bank in financing seven projects, costing $240 million, to clean up the Baltic Sea. As announced on May 17, the projects will back the Baltic Sea Joint Environmental Program, an international effort to clean up and protect the Baltic Sea. The overall cost of the program will be about $1 billion a year over 20 years, to be covered by 14 countries (Belarus, Czech Republic, Denmark, Estonia, Finland, Germany, Latvia, Lithuania, Norway, Poland, Russia, Slovakia, Sweden, and Ukraine) with assistance from international lending institutions.

Of the seven Bank projects—two each for Latvia and Lithuania, and one each for Estonia, Poland and the Russia—four have already been approved. Their aim is to improve municipal water treatment services and to reduce pollutants discharged into the Baltic Sea or its major rivers.

The World Bank approved a $14 million loan to Latvia on May 23 to rehabilitate the district heating system in the City of Jelgava. Bank funds will be used to increase boiler efficiency, eliminate environmentally unsound coal-fired boilers, install heat meters, and improve maintenance of power generators.

The World Bank's IDA will provide Angola with a $249 million credit to strengthen macroeconomic management and rehabilitate the infrastructure, said National Investment Director Ana Dias Lourenco. Other projects totaling $309 million have been identified.

Albania's economy has continued to expand, boosted by international assistance and the emergence of the country's private sector, but the recovery has been tempered by the lack of adequate infrastructure. With help from a $15 million IDA credit approved May 25, Albania will promote agricultural development and improve road access to rural areas. The goal is to improve roads, using labor-intensive methods; provide equipment to maintain roads; and conduct an inventory of roads that fall under different administrative areas.

The agriculture sector in Madagascar has performed well below its potential because of lack of support-services for farmers, cooperatives, fisheries, and other producers. An IDA credit of $25 million, approved May 23, aims to increase productivity and reduce poverty in rural areas by speeding up delivery of extension services to farmers and improving the technical expertise of agricultural staff. (Agriculture accounts for 60 percent of Madagascar's exports.)

The World Bank on May 26 approved a loan of $66 million to help Uzbekistan improve production in the vital cotton sector. Specific project goals include: supporting the private sector efforts to process and market about 25,000 tons of planting seed per year, improving pest controls, and providing equipment and training to introduce irrigation timing technology. The total project cost is estimated at $84.6 million.

The World Bank Group's International Finance Corporation will invest $24.4 million in a recently privatized Tanzanian brewery. The $18.4 million loan and $6 million equity investment will help the company increase output and meet international health, safety and environ-mental standards.

Mozambique agrees with the World Bank to privatize most of the country's big state-owned enterprises, including the telecommunications and energy sectors, within the next two to three years. Simon Bell of the World

Bank's Mozambique office said that the country has so far sold off 14 of the 55 largest state-run firms. Mozambique has one of the most successful privatization programs in Africa, Bell is quoted as saying.