World Bank/IMF Agenda

World Bank Approves Funding Up to $700 Million to Bulgaria

The World Bank had approved a three- year funding strategy for Bulgaria, which envisages lending between $300 million and $700 million, depending on the country’s needs and reform performance. "The actual level and composition of new lending will depend on the government’s progress in achieving specific benchmarks outlined in the country assistance strategy," the Bank said in a statement. The World Bank’s optimistic scenario for Bulgaria consists of several triggers, which include continued macroeconomic stability and sustained accords with the IMF. The pessimistic scenario with the lower figure covers projects that are less dependent on macroeconomic and structural reform as well as loans to reduce poverty with community participation. Since Bulgaria joined the Bank in 1990, the Bank has committed loans totaling more than $1.2 billion for 15 projects.

Caio Koch-Weser: CEE Entrants Need More Transparency

With the forthcoming accession of Central European countries to the European Union (EU), transparency remains a key challenge. Greater openness to trade and capital flows demands much better macro-management and financial systems, World Bank Managing Director Caio Koch-Weser said in Salzburg during the Central and East European Economic Summit in June. "Incestuous connections between the enterprise and banking sectors undermine the financial health of the banking sector and reduce competitive pressure on enterprises," he warned. Adequate banking and financial sector regulations and accelerated privatization of the banking sector were key issues to be tackled. With the Czech Republic, Poland, Hungary, Estonia, and Slovenia slated to join the EU and others working to meet the EU’s Maastricht criteria, the Bank’s programs in the region envisage help to ensure long-term fiscal sustainability, reforms of pension systems, better tax administration, infrastructure implementation, and agriculture and environmental projects. The Bank is also advising on adapting legislation to EU standards.

China: World Bank’s Largest Borrower

China continues to be the largest borrower of investment funds from the World Bank. In fiscal 1998, which ended June 30, 1998, it received $2.6 billion, accounting for about 9 percent of overall World Bank commitments. Fiscal 1998 lending to China brings total cumulative lending up to about $30.4 billion, of which $20.6 billion is from the International Bank for Reconstruction and Development (IBRD) and US$9.8 billion, from the International Development Association (IDA), for a total of 200 projects financed. Infrastructure lending (transport, energy, industry, and urban development) accounts for more than half of the total portfolio, with agriculture, the social sectors (health and education), the environment, and water supply and sanitation comprising the remainder.

In the final four weeks of fiscal 1998 more than $1.7 billion worth of loans and credits were approved for China as follows:

· $300 million to promote food security, irrigation reform, and environmental protection in 5 provinces in the Huang-Huai-Hai plain (approved on June 18)

· $300 million to alleviate power shortages in Hunan province, providing funds for building two new thermal power plants and reinforcing the transmission infrastructure (approved on June 18)

· $150 million to improve irrigation and water management and increase agricultural production in economically depressed Tarim Basin in southern Xinjiang. The incomes of about 200,000 poor households will rise. About 40 percent of households directly benefiting from the project are below the poverty line and have an annual net income of less than 530 yuan (about $64) per capita (approved on June 10)

· $200 million to improve urban transport in Guangzhou City (approved on May 29)

· $123 million to upgrade inland waterways in Guangdong and Jiangsu provinces (approved on May 29)

· $28.4 million to provide earthquake reconstruction assistance in Heibei (approved on May 29)

· $250 million to further develop the National Highway project in Hubei (approved on May 29)

· $200 million to develop forest resources in poor areas of central and western China (approved on May 26)

· $85 million to improve the management of health resources, upgrade rural health facilities, and increase the affordability of services in 97 counties with a total population of 48 million people (approved on May 23)

· 100 million to develop ocean farming techniques by establishing coastal zone management systems. (approved on May 19).

Joseph Stiglitz: Aid Conditions Only Conditionally Effective

Conditionalities imposed upon recipient countries of development aid do not always have a significant effect on policy. Countries should be at the center of forming development strategy and, besides their government, broader segments of society should also participate in the design and implementation of the project, World Bank Senior Vice President and Chief Economist Joseph Stiglitz told a symposium on development cooperation in Tokyo on June 23. Research shows that aid does not necessarily contribute to growth, but the connection becomes stronger if aid is coupled with sound economic policies. One implication is that donors can achieve greater returns for their resources by shifting money from countries with unsound policies to countries with sound policies. "This is donor selectivity of countries." But recent World Bank findings also imply that donors need to be more selective in choosing projects, although they have only a limited ability to break the link between unsound policies and aid effectiveness. If donors, for example, took over the funding of a rural health project in a recipient country, this would free up resources for that government to use elsewhere, either as additional spending or tax reduction. "But donors, especially when they focused exclusively on projects, had little control over this additional spending," Stiglitz said.

$1 Billion Loan for Saving Poland’s Coal Industry?

Polish Deputy Prime Minister Leszek Balcerowicz has said Poland may borrow some $1 billion from the World Bank over several years to finance the restructuring of the country’s coal mining sector, whose debts total almost $4 billion. That statement followed a two-week visit by a World Bank delegation to Poland. Basil Kavalsky, World Bank country director for Poland and the Baltic states, indicated the importance of implementation arrangements that were consistent with efficiency, environmental and social objectives. The plans have yet to gain cabinet approval and will not be debated in parliament until fall.

As they stand, the plans envisage a cut in coal output from last year’s 137 million tons to 112 million tons in 2002. The present employment level of 232,000 would be cut to 138,000 in that year. The loss-making industry would return to a profit in 2001, with productivity per miner growing by some 41 percent over the next five years. The World Bank loans would finance about half the costs of the restructuring program and would help cover redundancy payments, job creation, retraining programs, and environmental cleanup costs.

IMF Will Resume Moldova’s Support, If...

The IMF is ready to resume lending to Moldova in October if that country implements an austerity program agreed on by the two sides, said Oleh Havrylyshyn, IMF deputy director responsible for operations in the countries of the former Soviet Union on June 17. The agreement stipulates that the austerity program will be implemented in the coming months. As a result, economic growth should reach 3 percent in 1998, inflation should be slashed to 7 percent, and the budget deficit to 2.9 percent of GDP, enabling the IMF to release a $28 million tranche in October from a three year Extended Fund Facility (EFF). The disbursement was suspended in July 1997. The successful implementation of the program would also make it possible for the World Bank to resume financing and the IMF to release another $100 million in 1999. Prime Minister Ion Ciubuc pointed out that 1998 and 1999 will be peak years for repaying external debts: $215 million has to be repaid this year and $235 million next year.

IMF Loan to Shore up Kyrgyz Republic Currency, and....

The board of the IMF approved an economic structural adjustment facility (ESAF) loan for the Kyrgyz Republic. The Kyrgyz Republic will receive between $20 million and $36 million annually for the next three years. Finance Minister Talaibek Koichumanov said that the money will be used to support the national currency. The Enhanced Structural Adjustment Facility loan (ESAF) is available to the poorest members of the International Monetary Fund (IMF), at a 0.5 percent interest rate with five-and-a-half-year grace period.

......Support Tajikistan’s Economic Plan

The IMF will provide Tajikistan with a three-year, $128 million loan to support the government’s 1998-2001 economic plan, announced on June 25. The first installment of $24 million will be available immediately. A statement from the Fund said that the medium-term government plan was based on a 4 percent export-led growth. Inflation should drop to eight percent, and the fiscal deficit to 0.3 percent from the present 3.3 percent. Earlier, international donors, including the World Bank and the IMF, pledged $280 million to Tajikistan at a meeting at the World Bank’s Paris office.

World Bank loan for Kazakhstan’s Pension Reform and Private Farmers....

Kazakhstan will receive $300 million from the World Bank for pension reform making "transition from the Soviet-era retirement system to a model using individual savings accounts" possible. The loan that was approved on June 25 will assist the transition to a fully-funded pension system by financing part of the estimated 1.7 percent of GDP fiscal deficit brought about by pension reform. The new system is based on funded savings accounts that will accrue assets through individual contributions equal to 10 percent of earnings. On June 2 a $15 million loan was provided for Kazakhstan to support the development of newly privatized farms and agro-enterprises and to improve rural productivity and incomes. A series of small loans will finance information services to farm shareholders who at present are not well aware of their rights and opportunities. Also, local advisory centers will be set up to give farmers technical and commercial advice and training. Since Kazakhstan joined the Bank in 1992, Bank commitments to the country have totaled $1.65 billion for 16 projects.

...Improved Heating System in Bishkek, Kyrgyz Republic...

The Kyrgyz Republic recently received $15 million in IDA credits for improving the heating and energy systems in the capital of Bisekh. The new credit will supplement a credit of $30 million provided for the same project. Since the Kyrgyz Republic joined the World Bank and IDA in 1992, credits to the country have totaled $436 million for 16 projects. During their May meetings in Paris donors approved $600 million in aid to the Kyrgyz Republic for the next 18 months. It is largely to support the country’s public investment program.

...Privatization in Uzbekistan...

A $28 million World Bank loan to Uzbekistan, approved on June 26, will help in the privatization of large government enterprises. The loan will also contribute to establishing consulting services to private companies and developing capital markets. In May the World Bank gave $24 million for restoring Tashkent’s solid waste management system. Since Uzbekistan joined the Bank in 1992, the Bank’s commitments have totaled $379 million for seven projects.

... Water Supply in Yerevan, Armenia ...

A $30 million credit to Armenia, approved on June 11, will make emergency improvements in the drinking water supply to Yerevan, particularly to the poorer, most affected population. It will also improve the management and delivery of water and wastewater services for the Yerevan area and lay the groundwork for the involvement of the private sector in these services. Since Armenia joined the World Bank in 1992 and IDA in 1993, IDA commitments to that country have totaled $344.5 million for 14 projects.

...Public Finances in Bosnia...

A $63 million IDA credit for Bosnia and Herzegovina will help the country reform its public finances and manage its foreign debts. The new credit was given a green light on June 6, following the IMF’s approval of Bosnia’s 1998–99 macroeconomic program and a $81 million standby loan. "The credit represents a move from reconstruction to consolidating institutions and policy reform," Country Director Christiaan Poortman pointed out.

On May 26 the World Bank announced a $7 million loan to Bosnia and Herzegovina to relaunch the country’s forestry industry. On May 19 a $25 million credit was granted to continue rehabilitation of Bosnia’s electric power system, and a $5 million credit was granted to help local banks provide funding for private enterprises in Republika Srpska. Since the war ended the IFC has put $25 million into Bosnia and Herzegovina to stimulate growth in the private sector, particularly small and medium-size enterprises.

...and Reform Program in FYR Macedonia

The World Bank is prepared to extend a $200 million loan to FYR Macedonia to back a three -year reform program in that country. The loans will focus on boosting private sector investment and growth, reforming public sector administration, and alleviating poverty; as well as on investments in water supplies, transport, and agriculture.

A World Bank delegation in Skopje signed a $35 million loan aimed at the rehabilitation of Macedonia’s six largest hydropower plants, which represent 91 percent of the country’s hydropower capacity. Another $29 million in social sector adjustment credits that should help employees who have been laid off from privatized companies, is under preparation.

The IMF approved a $24 million loan on June 24. The IMF projected real annual GDP growth of 5 percent for 1998 through 2000, up from 1.5 percent in 1997. Inflation in Macedonia would be 3 percent a year for 1998 through 2000, up from 2.7 percent in 1997, according to Fund projections.

IFC Invests in FYR Macedonia’s Telecom

The IFC has agreed to buy a stake in Makedonski Telekomunkacii (MakTel), FYR Macedonia’s state-owned telecommunications utility. It has subscribed to $25 million of convertible bonds in MakTel in a preliminary move aimed at paving the way for the flagship privatization of the telephone operator later this year, and has also undertaken to invest a further $25 million more of bonds for the account of participating institutions. The government is hoping that the IFC investment will increase interest from Western telecom groups in the sale of a strategic holding in MakTel this summer. A successful privatization of MakTel is crucial to government plans for reforming the economy.

China Needs Pension Reform

China’s existing pension system is underfunded and lacks clearly defined benefit plans. It will fail to fulfill requirements or provide sufficient social security for the elderly in the next century unless it is replaced or supplemented with a personal savings insurance system. Speaking at the International Symposium on China’s Social Security on June 26, World Bank Researcher Estelle James predicted that the elderly problem will reach a peak around 2030, when more than one-fourth of the world’s elderly population will live in China.

Multilateral Investment Guarantee Agency Guarantees Investment Fund

For the first time, the Multilateral Investment Guarantee Agency (MIGA) has issued a guarantee to cover an equity investment fund, the Kyiv-based Ukraine Investments Limited. Also for the first time, MIGA will cover local downstream investments made by this fund. The Ukrainian fund will invest in projects that focus on the agribusiness, construction, and infrastructure sectors, and that meet MIGA’s criteria for developmental benefits and environmental soundness. MIGA, formed in 1988, supports foreign direct investment to developing and transition countries. It provides political risk insurance against such risks as transfer restriction, expropriation, breach of contract, and war and civil disturbance and offers investment marketing services.

Global Environment Facility Grants: Protecting Aral Sea, and...

The World Bank on June 11 approved a GEF grant of $12.2 million for the Aral Sea Basin Program (Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan). This project will address the root causes of the overuse and degradation of the international waters of the Aral Sea Basin, reduce water consumption for irrigation by at least 15 percent by the end of 2002, and lay the groundwork for greater investment in the area.

...Saving Lake Ohrid

A $4.1 million GEF grant to Albania and the FYR Macedonia will help to conserve and protect the natural resources and biodiversity of Lake Ohrid, shared by both countries. The lake is 2–3 million years old, one of the largest biological reserves in Europe, possessing unique flora and fauna that are extinct elsewhere. The grant will be used to try to contain pollution in the lake, caused primarily by erosion, agricultural run-off, and high concentrations of phosphorus.