World Bank/IMF Agenda

IMF Standby to Romania

The IMF has approved an extension of Romania's current standby credit through April 1997, and has augmented the amount available by $280 million. The extension of the IMF program was requested by the government to help continue external support for macroeconomic and structural adjustment measures, the IMF said. Economic performance in Romania during 1994 was marked by a sharp improvement in confidence, but developments in the first nine months of 1995 presented a more contradictory picture, as further acceleration in growth was accompanied by the reemergence of balance of payments pressures. The 1996 program aims to achieve 4 percent growth, bring down inflation to less than 20 percent, and reduce the current account deficit to 3.4 percent of GDP.

World Bank Loan to Latvia

Latvia can accelerate its municipal service development, under a $27.3 million World Bank loan approved on 14 December. The loan will help rehabilitate the transport system in Riga and the water and wastewater treatment plants in Daugavpils, and will set up a pilot municipal development fund to channel long-term credit for small-scale investments in other municipalities.

Russia Draws IMF Standby Tranche

The IMF has agreed to disburse the eighth tranche of its standby credit to Russia, a payment worth about $550 million. The IMF's $6.25 billion standby loan to Russia, approved in March, was suspended following the military intervention in Chechnya. In April the IMF agreed to resume payments in monthly installments. Four more tranches remain of the standby credit, whose term expires in February 1996. Thomas Wolf, head of the IMF mission in Moscow, announced that an agreement on the three-year extended financing program probably would be signed in January 1996.

Personnel Changes in the World Bank

Effective 1 January 1996, Johannes Linn replaces the retired Wilfried Thalwitz as Vice President, responsible for the Europe and Central Asia Region. Mr. Linn, a German national, joined the Bank through the Young Professionals Program in 1973. After serving in various positions in the Bank, in 1991 he was appointed to Vice President, responsible for financial policy and risk management. Also effective 1 January 1996, Kemal Dervis is promoted to Vice President, Middle East and North Africa Region. He will continue to oversee the Bank's operations in Bosnia. Mr. Dervis, a Turkish national who joined the Bank in 1977 as Economist, served as Director of EMENA (later Europe and Central Asia Regional Office), Country Department II, since 1987.

Mr. Dervis's successor as Director of Country Department II (grouping Albania, Bosnia-Herzegovina, Croatia, Czech Republic, Hungary, Poland, Slovakia, and Slovenia) is Jean-Michel Severino, a French national, who will assume his new position on 15 April 1996. Mr. Severino is currently Director of Development in the French Ministry of Cooperation. Kenneth Lay takes over the Directorship of Country Department I (Bulgaria, Cyprus, FYR Macedonia, Portugal, Romania, and Turkey) as of January 1996. Mr. Lay, a U.S. national, joined the Bank in 1982, and replaces acting Director Christiaan J. Poortman.

Donors Pledge $2.3 Billion to Viet Nam

Donors at their Paris meeting in early December pledged to give Viet Nam $2.3 billion in aid. World Bank Director Callisto Madavo, Chairman of a consultative group meeting, reported that $1.8 billion will be project aid, $360 million program aid, and $130 million technical assistance. Viet Nam is aiming for 8 to 10 percent economic growth and 14 percent inflation in 1996, and a World Bank report has advised that deeper and faster reforms are needed if such growth is to be achieved. (At last year's donors group meeting, $2 billion was pledged for Viet Nam in 1995.)

IDA Credit to Viet Nam's Banks...

An IDA credit of $49 million will streng-then the commercial banking sector in Viet Nam through new national and commercial interbank payment clearing and settlement systems. The credit will finance both technical assistance and equipment. Besides the State Bank of Vietnam, six other commercial banks, accounting for 90 percent of Viet Nam's banking sector, will take part in the project.

...to Armenia's Infrastructure

An IDA credit of $12 million to Armenia will finance small-scale infrastructure projects in the poorest areas of the country, and will assist the local implementing agency, the Armenian Social Investment Fund. Microprojects in infrastructure will include the rehabilitation of clinics, primary schools, and feeder roads, as well as improvements in sanitation and water supply. Overall goals are to improve living conditions, strengthen small local contractors, generate employment through public works, and enable policymakers to better analyze trends and conditions.

..and to Albania's Agrobusiness

An IDA credit of $6 million to Albania, approved on 12 December, will help to develop and restructure the country's agroprocessing sector, so as to improve the marketing of farm products. The credit also provides for the training of farmers and for assistance to entrepreneurs and professional associations.

Nicaragua Buys Back Debt Cheap

Nicaragua has bought back $1.1 billion of its commercial bank debt at a price of 8 cents to the dollar. The total value of the transaction, including canceled interest claims, is $1.4 billion. The buyback will eliminate 81 percent of the country's outstanding commercial bank debt. The World Bank's Debt Reduction Facility for IDA-Only Countries backed the operation with a $40 million grant; the Inter-American Development Bank provided a $40 million loan; Holland, Sweden, and Switzerland, offered additional support of $8 million.

New IFC Guidelines

The IFC has adopted a new set of guidelines for operating in emerging market economies. Provisions of the guidelines include increased use of joint mandates with commercial and investment banks to conduct feasibility and other work; a pledge not to bid competitively for privatization business under normal circumstances; use of private advisers to the "fullest extent" possible; and the adoption of strict standards for IFC participation in the underwriting and placement of securities.(Information: Mauricio Perea, IFC, Corporate Relations Unit, Room I-3133, tel. (202) 473-7997, fax (202) 676-0355.)

IFC Stake in Cetal

The IFC, together with ABN-AMRO Bank, the Czech Zivostenka Banka, the Hungarian Foreign Trade Bank, the Polish Development Bank, and the European Bank for Reconstruction and Development (EBRD), has set up the Central Europe Telecommunications Agency Line (Cetal). Cetal will have $100 million in funding and aims to offer credits and shares to telecommunications firms. The IFC and EBRD will each provide $33 million to Cetal.

GEF Grants to Save the Ozone

The Global Environment Facility (GEF) will provide a total of $23.6 million in grants for environmental projects in three transition countries. The World Bank is one of three implementing agencies of the GEF. Bulgaria, Hungary and Slovenia will receive $10.5 million, $6.9 million ,and $6.2 million, respectively, to phase out ozone-depleting substances (ODS) as agreed by the 1985 Vienna Convention and the 1987 Montreal Protocol on ODS. On 21 December the GEF approved a grant of $3.2 million to Russia to help to identify and reduce the emission of greenhouse gases.

Poland Gets Energy Loan

The World Bank has approved a $160 million loan for a power transmission project in Poland. The loan will provide 95 percent of the foreign exchange component of the estimated $276 million total project cost.

China Portfolio: Fighting Pollution...

The World Bank on 19 December approved a loan of $125 million and a credit of $25 million for an urban environmental project in Hubei Province, to support wastewater handling, air pollution control, and solid waste management. The loan will be used to purchase equipment and facilities for wastewater and municipal waste management; to extend credit to large-scale industrial enterprises to carry out pollution abatement works; to fund water quality monitoring and management; and to finance technical assistance and training.

...Developing the Labor Market....

A World Bank loan of $10 million and an IDA credit of $20 million, both approved on December 19, will support a pilot project aimed at attacking chronic underemployment in China's state-owned enterprises. The project will provide legal expertise as well as employment and training services in five cities and the province of Zhejiang. According to some estimates, 15 percent, or 16.8 million, of China's state enterprise workers could be made redundant with little or no impact on production capacity.

...and Controlling Disease

IDA has approved a credit of $100 million to boost disease prevention in ten poor provinces in China. The credit will support training of health workers, implementation control of sexually transmitted diseases, encouragement of community-based interventions, and coordination among provinces, cities, and health agencies.

Solving IDA Funding Crisis

Thirty-two donor countries meeting in Luxembourg and London in mid-December agreed on the outlines of an interim plan for refunding the World Bank's IDA, to begin in July 1996. This interim solution would put together a three-year IDA replenishment of some $14.3 billion (compared with current IDA funding of roughly $20 billion). The plan would exclude the United States for about two years, with the hope that the the U.S. would come aboard again once it has cleared its arrears of $935 million and overcome the antipathy toward foreign aid exhibited by the Republican-dominated Congress. The participants reached a consensus on the urgent need to keep up the flow of IDA credits to the most needy nations, whose ranks have grown with the addition of Bosnia and the Asian countries of the FSU.

IMF Agrees with Hungary on Standby

The IMF and Hungary have set the basis for an agreement over a standby arrangement, pending parliamentary approval of satisfactory 1996 budgets for the country's two social security funds. Parliament is expected to pass the budgets early 1996. Hungary's socialist-led government expects a boost of international confidence once the IMF standby is signed. It does not intend to draw on the credit. (Official reserves were up by $2 billion, reaching $9.2 billion by October 1995, and a further $3 billion in revenue from the latest privatization wave is also expected to flow in.) In fact, in October 1995 Hungary made an advance payment of $620 million it owed to the IMF.

New IMF Credit Package to Uzbekistan....

The IMF approved a $259 million credit package to Uzbekistan on 18 December. The agreement includes $185 million in standby credit and $74 million from the IMF's systemic transformation facility (STF). The funds will be used to help limit negative growth to 1.5 percent in 1996, against 3.5 percent in 1994 and 2.0 percent in 1995, as well as to hold the annual inflation rate to an anticipated target of 21 to 25 percent. IMF officials expressed their support of the Uzbek government's tight monetary and fiscal policies.

... to Azerbaijan ...

The IMF is offering $127.3 million in support of the Azerbaijan government's 1995-96 economic reform program. Of the total, $84.8 million is being made available under a one-year standby credit, and $42.5 million is being disbursed as Azerbaijan's second drawing under the systemic transformation facility (STF).

...and to Kyrgyzstan

The IMF has increased the amount of loans available to Kyrgyzstan under the three-year economic restructuring program from $105 million to $131 million. The move comes in response to the country's efforts to reduce inflation, stabilize the som (the national currency), increase foreign trade, and advance the privatization of state property.

EBRD Tripled Payments

Payments made by the European Bank for Reconstruction and Development (EBRD) in the first half of 1995 to the twenty-eight formerly communist countries in Eastern and Central Europe and the former Soviet Union amounted to $587 million, triple the amount in the same period of 1994. Operating profit in the first six months also registered a large rise, increasing more than fourfold to $25.7 million. The increased operating profit reflected substantially higher income from banking operations, the EBRD said, adding that these now make up 28 percent of the Bank's gross income.

Reconstruction in Bosnia

A donors meeting involving fifty countries and twenty-seven international organizations, convened in Brussels and hosted by the World Bank and the European Commission, agreed on 21 December to mobilize a $500 million aid package for war-torn Bosnia and Herzegovina over the first quarter of 1996. The initial infusion is to be followed by a longer-term, $5 billion program—the largest reconstruction effort in Europe since the end of World War II.

Preliminary data collected by the World Bank and other sources paint a bleak picture of Bosnia's present social and economic situation:

• In four years of war, about 250,000 persons were killed, more than 200,000 were wounded, (and an estimated 2.3 million were displaced), out of a total prewar population of roughly 4.5 million (the population is now estimated at 3.4 million).
• Annual per capita income has plunged to about $500 from $1,900 in 1990.
• Around 45 percent of all industrial plants, including perhaps 75 percent of all oil refineries, have been destroyed, and a much higher percentage has been robbed of machinery and equipment.
• The surviving industry operates at 5 to 6 percent or the level of its prewar capacity.
• Thirty-five percent of roads and 40 percent of bridges are damaged or destroyed.
• Damage to the railway system is estimated at $1 billion.
• Seventy-eight percent of electrical generating capacity is out of commission, and coal production is less than 10 percent of prewar levels.
• The damage to the telecommunications system is estimated at more than 500 million; daytime international telephone call completion rates have dropped to 1 or 2 percent.
• One-third of all health care facilities and half of the country's school buildings have been seriously damaged or destroyed; the infant mortality rate has doubled.
• Seventy percent of the total housing stock is destroyed or damaged.
• Domestic food production satisfied only 35 percent of the country's needs, about 80 percent of Bosnia relies on outside food aid.
• Less than one-quarter of the prewar working population is employed.

At the Brussels Conference, the World Bank—which will serve as coordinator of aid money and economic consultant to Bosnian government—and the European Commission presented a priority program for the first quarter of 1996. The key priorities:

• Service Bosnia's foreign debt. (The total foreign debt amounts to $4.2 billion; the country is more than $1 billion behind in its loan payments to commercial banks, donor nations and international organizations.)
• Reorganize the country's transport, power, gas, and water and waste management sectors, as well as provide financing for agricultural production and for rebuilding the education and health care systems.
• Establish a social fund to help the elderly and other particularly vulnerable groups.
• Jump-start production in small and medium-size enterprises by providing working capital.
• Make available backup reserves to the central bank.
• Strengthen domestic institutions that will play an important role in the recovery program.

The World Bank will make a special allocation of $150 million to Bosnia, in advance of the country's becoming a member of the World Bank Group. Arrears on debts to the World Bank and the IMF that were inherited from the former Yugoslav Federation totaled $489 million. Those arrears had to be cleared up before the country could join the Bretton Woods organizations.

The IMF approved Bosnia and Herzegovina for membership on 21 December and granted the country an emergency $45 million credit (used primarily to repay Holland, which had provided short-term financing to clear Bosnia's arrears of $37 million). The IMF supported a plan whereby the country's new central bank will operate for at least six years as a currency board, issuing currency only with full foreign exchange backing. Furthermore, the government and public sector entities will refrain from financing fiscal expenditures through domestic bank loans.

Once admitted as a World Bank member, Bosnia would likely be eligible to borrow from IDA (the International Development Association). The World Bank will set up a trust fund to administer donors' contributions. The EC would make an exceptional upfront effort for specific rehabilitation projects and critical imports amounting to a contribution of $112 million in the first quarter of 1996.

Longer- term projects, primarily rebuilding infrastructure, transport, water and sewerage, will require around $5 billion over a three-year program period, nearly half of which should be committed by the first year, according to World Bank estimates. The initial proposal allocates $900 million for the restoration of the electricity grid and $600 million for housing. Priorities also include restoration of food production and agricultural distribution, rebuilding schools and hospitals, as well as some smaller investment in industry. Final agreement on financing the reconstruction effort is expected during a major donors' conference, planned for March 1996.

A recent Financial Times editorial pointed out that the task at hand is not only the reconstruction of an economy that has been more than 70 percent destroyed.The challenge is also to build a different kind of economy than was left by Tito to the former Yugoslavia. Even before the war, the country faced hyperinflation and risked defaulting on its foreign debt. Rapid privatization, self-help building projects, and an effective food-aid system are the keys to restarting economic activity, according to the editorial. The Times added that the World Bank has also stressed the need to build the administrative structures necessary to sustain longer term reforms and infrastructure investment.