World Bank/IMF Agenda

World Bank Lowers Interest Rates ...

The World Bank (IBRD) has lowered interest rates and improved its credit structure to stimulate demand for its loans. During fiscal 1997, which began on July 1, the Bank will continue to waive 0.25 percent of interest for timely paying borrowers. The Bank will also continue to waive its 0.5 percent commitment fee on undisbursed loan balances, keeping the level of this fee at 0.25 percent. The Bank is also offering borrowers the option of unlimited borrowing in currencies other than the U.S. dollar. On July 23 the lending rate on IBRD standard variable rate currency pool loans fell to 6.94 percent from the 6.98 percent prevailing during the previous six months.

...Doubles Funds for IDA

On August 1 the World Bank 's executive directors agreed on the disposition of the $1.2 billion net income the Bank earned in fiscal 1996 and recommended that $600 million be transferred to the International Development Association (IDA), the World Bank Group 's concessional lending arm. (In fiscal 1995 the Bank 's net income was $1.35 billion, of which $300 million was allocated to IDA).

...and Earmarks $500 Million for Debt Relief

The remaining fiscal 1996 net income (an additional $250 million will be transferred to general reserves to fund the fiscal 1997 interest rate waiver), along with $710 million in earnings accumulated during the past few years, will be retained for future disposition. Of that, $500 million has been earmarked for a trust fund that will extend debt relief to heavily indebted poor countries when other creditors agree to share the costs of funding this initiative. (The World Bank has emphasized that reducing the debt of heavily indebted poor countries to sustainable levels will require bilateral creditors and multilateral institutions to work together to develop new mechanisms for reducing debt. Multilateral institutions currently hold less than 25 percent of the debt owed by potentially eligible countries.)

IMF: Lengthening Loan Terms?

The IMF is considering either expanding its loan repayment periods or providing grants to ease the debt burden of the world's poorest countries, said Jack Boorman, Director of the IMF's Policy Development and Review Department, in an interview with the IMF Survey. A country 's debt would be deemed sustainable, according to the IMF and the World Bank, if interest payments represent 20-25 percent of export revenues or if the total debt does not surpass 200- 250 percent of export earnings. Other factors that will be taken into account include the country 's reserve position, its dependence on a single or small number of commodity exports, and the impact of debt service on its fiscal position.

Pumping Up Kazakstan 's Banking and Oil Sectors

On June 25 the World Bank approved a $180 million loan to Kazakstan to help build a sound and efficient banking sector. A $15.8 million Bank loan, approved July 31, will help set up a computerized treasury system. Another loan, for $109 million, was offered in early July to help rehabilitate the country 's second largest oil field, the Uzen fields. (Tengiz is the largest.) Financial and operating problems have caused crude oil output in Kazakstan to fall from a peak of 25 million tons in 1991 to 17 million tons in 1995. The Bank predicts that by developing reserves, reorganizing extraction and manufacturing, and improving environmental management, oil production could be doubled by 2000. The IMF will provide a $446 million credit for Kazakstan to support the government 's three-year economic reform program.

Modernizing Russia 's Coal Mining

On June 27 the World Bank approved two loans totaling $525 million to support Russia's coal sector restructuring program. A $500 million loan is intended to foster the privatization and modernization of the Russian coal industry. The government—cooperating with the Bank—will redirect funds from supporting the one-third of Russian mines believed to be losing money toward modernizing the remaining two-thirds which, it is hoped, can be made profitable. The money cannot be spent on operating subsidies, and must be used to retrain laid-off miners and to provide benefits (housing, medical care, kindergartens) for miners and their families that until now have been paid for by the mines. Unprofitable mines will be closed, and hands-on outside monitoring will close any loopholes that might have allowed money to be distributed. Disbursement of the loan is proceeding rapidly. The other loan of $25 million will help improve management, industrial relations, and social partnerships in the coal sector.

IMF Resumes Disbursements to Russia

On August 21 the IMF Executive Board resumed monthly disbursements of $330 million to Russia from a $10.2 billion three-year extended finance facility loan. Disbursements were suspended in July in the aftermath of the presidential election because of a sharp drop in government receipts due to poor tax collection. Thomas Wolf, head of the IMF's Moscow office, said that the Russian government has made progress in meeting agreed guidelines to boost revenue collection. Prime Minister Victor Chernomyrdin acknowledged that government finances had been undermined by overly generous tax breaks and widespread tax evasion before the election. The government will have to work hard to raise [the equivalent of $11.3 billion] in the second half of the year to normalize the budget and ensure that federal employees and pensioners are paid on time, he said.

Currency Stabilization Fund For Ukraine?

An IMF team in Ukraine is discussing the possibility of including a currency stabilization fund "window" in a new loan arrangement of $1.5 billion or more for the country to back its new currency, the hryvna, to be introduced on September 2. The IMF team arrived in Kiev in mid-August for a bimonthly review of the country 's $867 million standby loan agreement, approved in May. (The financing, similar to a fund backing Polish currency financed by thirteen industrial countries in the early 1990s, would be provided within a standby or longer-term arrangement. Ukraine would not necessarily tap into the fund.)

World Bank Loans to Develop Poland's Ports...

A $67 million loan announced on August 1 will help improve management of and access to Poland's three biggest ports—Gdansk, Gdynia, and Szcezcin.

...Improve Romania's Water Management ...

A $25 million loan will help finance a three-year investment program to improve water quality in Bucharest (Romania's capital), reduce water losses, and strengthen Bucharest's Water and Sewerage Company. (Romania, with $510 million, is now the World Bank's second largest Eastern European borrower after Russia.)

...Shore Up Bulgaria's Transition

A $30 million rehabilitation loan will help finance the structural reforms already under way in Bulgaria. The government wants to rehabilitate and downsize a large number of loss-making enterprises and banks, close or liquidate others, and strengthen the social safety net in order to be able to assist displaced workers. (On July 18 the IMF approved a twenty- month standby credit of $582 million for Bulgaria.)

...and Carry Out Bosnia's Reconstruction

On July 31 the World Bank approved IDA credits worth $75.6 million for five emergency reconstruction projects in housing repairs, electric power, landmine clearing, public works and employment, and demobilization and reintegration of former combatants. The Bank also wants to finance the reconstruction of 15,000 war-destroyed homes in Bosnia by year's end. The Bank estimates the housing damage in Bosnia at $5 billion. Federation Prime Minister Izudin Kapetanovic said that of the $1.8 billion the international community promised, $400 million (about 22 percent) is currently operational. He called this progress satisfactory, given the shortage of time and different approaches used by international agencies and donor countries in issuing the promised funds.

More Transition Stock Markets Covered by IFC Indexes

The International Finance Corporation (IFC) announced on June 20 that it will add Bulgaria, Lithuania, Russia, Slovakia, Slovenia, and twelve other markets to its coverage of emerging stock markets, bringing to forty-four the number of stock markets in developing and transition economies covered by IFC indexes. Coverage of Central and Eastern Europe has now been greatly expanded. The IFC indexes already covered the Czech Republic, Hungary, and Poland.

IFC Invests in Vietnam 's All-Private Company

The IFC will loan nearly $14 million to its first entirely private sector project in Vietnam. According to the Vietnam Investment Review the IFC will loan $13.8 million to the Vietnamese firm Huy Hoang and Indonesian company KIA to build a ceramics factory. Division Manager Harold Rosen told the newspaper that only one or two other private sector projects were in the pipeline for the bank for the next few years, although it hoped management training initiatives would help smaller nonstate firms.

In One Sentence

•The World Bank plans to subsidize new commodity exchanges to be set up in the Katowice, Lublin, and Wroclaw provinces of Poland.
•A group of German investors and the IFC will build a $23 million barley processing plant in Poland 's Baltic port of Gdansk.
•On July 29 the IMF approved a $20 million standby credit to Estonia to support the government 's 1996-97 economic program.
•The IMF has approved new credits for Lithuania worth $30 million as the latest tranche of an extended fund facility under which Lithuania can draw $193 million.
•The Slovak koruna joined the growing band of Eastern European currencies in which Eurobonds are denominated; the IFC raised 1.2 billion koruna through an issue of three-year paper with an 11-3/4 percent coupon.
•On August 12 the World Bank launched a 1 billion Czech crown one-year bond.

Donors Pledge $500 Million to Cambodia

A consultative group of sixteen nations and five international lending organizations meeting in Tokyo pledged $500 million in aid to Cambodia in calendar 1996 to help fund reconstruction projects. The meetingwas chaired by the Japanese government and the World Bank. Japan, which pledged $90.9 million in economic aid, is the biggest donor.

China Health Care Gets $100 Million in Aid

China's health care for women and children will receive a $100 million boost from the World Bank and the UN over the next five years, the official China Daily announced recently. The World Bank will grant $90 million in loans and UNICEF will provide $9.5 million. According to the Ministry of Health, China plans to overhaul its health-care system for women and children by renovating facilities and increasing professional training for rural doctors.

New Loans to China

China will meet its growing demand for skilled labor through a vocational education reform project to be supported by a $10 million World Bank loan and a $20 million credit from the International Development Association (IDA). On June 25 the World Bank also approved a $125 million IBRD loan and a $25 millon IDA credit to help fight pollution in the southwestern Yunnan province.

Lending to China

"In the 1997 fiscal year, the World Bank's lending to China will stand somewhere between $2.5 and $3 billion," Reuters quotes Daud Ahmad of the World Bank's Beijing office as saying. Under the program, discussed earlier by the World Bank and China, the funds will be used to finance fifteen or sixteen projects. The current pattern of distribution of funds will be maintained, with lending priority given to agriculture, transport, energy, environmental protection, and infrastructure projects, he added. Pan Xiaojiang, deputy director of the World Bank Department in China's Ministry of Finance, said Beijing 's use of Bank funds peaked at the start of the 1990s, reaching $3.17 billion in fiscal 1993. Since then China has been the Bank 's largest borrower for four consecutive years, Pan said.

Supporting Banking Reform in Slovenia...

On July 25 the World Bank approved a $49.3 million loan to Slovenia to support banking reforms and provide long-term financing, through three borrowing banks, for private investment (including licenses, technology transfers, and working capital). The three banks (Nova Ljubljanska Banka, SKB Banka, and Banka Celje) together account for nearly half the country's banking assets and loan portfolio, and were selected on the basis of their reach, financial condition and institutional strength.

...in the Kyrgyz Republic...

New IDA credits amounting to $45 million and $3.4 million that were approved on June 25 will support the Kyrgyz's government's efforts at banking reform including the liquidation of two dominant and insolvent state banks and the restructuring of two unstable private banks.

...and in Lithuania

A $80 million loan to Lithuania that will focus on banking, agriculture, social protection, and energy was announced on August 18. It will come in two equal tranches, the first probably in September or October of this year and the second in March 1997. Country Department Director Basil Kavalsky noted that the loan is, in part, aimed at helping the country 's troubled banking sector and launching the privatization of two state-owned banks, the State Commercial Bank and the Savings Bank.

Another $10 million loan, part of a $20.6 million project, will improve energy efficiency in Lithuania 's homes and schools and promote housing privatization. The project finances commercial bank loans to homeowners and homeowners ' associations for housing rehabilitation and improvements in thermal efficiency, including installation of new heating devices, insulation, and rehabilitation of roofs and windows.

World Bank-Laos Talks on Hydroelectric Studies

Discussions are currently under way between World Bank experts and the Lao PDR government on technical assistance to prepare adequately the economic and environmental impact of the planned $1.2 billion, 680 megawat Nam Thuen II hydroelectric project in the Lao PDR. In August 1995 the World Bank proposed further studies to evaluate alternatives for generating power and to find ways to mitigate the environmental impacts of the giant project. At the time the Bank also requested that the government conduct another study on the project's macroeconomic consequences; this study will evaluate whether the Lao economy will be subject to significant distortions if it takes on a project that has an estimated cost greater than 70 percent of annual GDP. Plans for how the Lao PDR will use the funds for poverty alleviation in the area if the dam is built are also being examined.