World Bank/IMF Agenda

MIGA Capital Increase

The Development Committee (that is the Joint Ministerial Committee of the Board of Governors of the World Bank and International Monetary Fund) agreed on MIGA's need for additional capital during its annual meetings in Hong Kong in September. The three-part funding package would comprise a $150 million grant from the World Bank and another $150 million of paid-in capital from shareholders; an additional $700 million would be available in callable capital. Ministers expressed their view that the funding package would relieve MIGA's short-term financial constraints and would permit the Agency to respond to the expanding demand for its services.

MIGA is the private sector arm of the World Bank that promotes foreign direct investments to its developing member countries by providing foreign investors guarantees (insurance) against major political risks, and by offering technical assistance to host governments to attract foreign investment. MIGA's outstanding guarantee portfolio has increased from $132 million in 1990 to $2.5 billion as of September 30, 1997.

IIF Urges More Money to MIGA

Private sector financial institutions urged the World Bank's shareholders to pump more money into MIGA. In a report released at the World Bank/IMF Annual Meetings in Hong Kong, the Institute of International Finance (IIF) argued that supporting MIGA would make the best available use of part of the Bank's surplus income. "Increasing MIGA's resources soon is essential in order to extend its operations into countries and sectors where the development benefits are relatively large." The IIF predicted that the partial risk guarantees being developed by the IFC could become its most important risk-sharing product. The report also recommended that IDA guarantees be made available to support private sector projects in low-income countries.

New IMF Job: (Safe)Guarding Free Capital Flow

The IMF Interim Committee 1997 meeting in Hong Kong backed moves that would enable the Fund to promote the free flow of capital. The committee called on the IMF Executive Board to complete work on a proposed amendment to the IMF Articles that could make the liberalization of capital movements one of the responsibilities of the IMF. However, it offered reassurance that countries will not be told to dismantle their capital controls too quickly. The liberalization of capital flows was an essential element of an efficient international monetary system in the age of globalization, the committee said.

IMF Increases Quotas, Allocates SDR

Responding to the increasing number of global financial crises, the IMF Executive Board agreed to a 45 percent increase in members' quotas worth a total of $88.4 billion. Correspondingly, it will boost the IMF's capital base by 45 percent. The Board also gave the green light to a one-time allocation of special drawing rights (SDRs), valued at about $28 billion. (The special drawing right, a global reserve currency, was created by the IMF in 1969 to supplement countries' foreign-exchange reserves.) The new allocation would double the total SDR stock, and bring SDR holdings of all IMF members up to the equivalent of 29.3 percent of their IMF quota. It is designed particularly to compensate 38 countries that have joined the IMF since SDRs were last distributed in 1981. Russia, for instance, will get about $1.7 billion worth of SDRs, which it can use for any purpose.

Prague Getting Ready for 2000

In 2000 the IMF/World Bank Annual Meetings will be held in Prague, capital of the Czech Republic, The 52nd Annual World Bank-IMF Meetings in Hong Kong drew nearly 20,000 direct participants from the 181 member countries, and another 10,000 to 20,000 private bankers, financiers, and business people. Just to operate the meetings, $63 million was paid from the city's budget. Still, Hong Kong says it was well worth the cost. Hong Kong hotels, which have seen a decline in tourist occupancy since the British handover, were filled, at prices that shocked even seasoned world travelers. And local businesses, from restaurants to shops, reported a significant increase in business.

SPIL and SPAL to Russia

On October 7 the World Bank approved a $28.6 million social protection implementation Loan (SPIL) to Russia that will provide technical know-how, including monitoring systems and data analysis capabilities to the Bank's $800 million social protection adjustment loan (SPAL), approved in June.

SPIL's components range from assisting Russia's pension fund, and managing individual workers' accounts, to creating a monitoring system of all regional and national social transfers, and implementing pilot programs for the transfer of child allowance payments from enterprises to local social assistance offices. The loan will also help to establish a system to monitor unemployment changes. "Together the programs under both loans will improve the lives of more than 15 million people over the medium and longer term," project manager, Betty Hanan pointed out.

Johannes Linn on Russia Lending

Russia is the World Bank's largest borrower in terms of new disbursements, said Johannes Linn, World Bank Vice President for Europe and Central Asia, speaking in Hong Kong at the First Russia-East Asia Investor Forum on September 30. To date the Bank has made 36 loans to Russia, and total commitments of around $8 billion have been approved, with close to $4 billion of this amount already disbursed. The share of active projects rated "satisfactory" by the Bank's internal evaluation department has risen from only 40 percent in 1996 to more than 80 percent today. The Vice President anticipates a substantial expansion in the Bank's Russia program, based on continued improvement in policy and project performance, with new commitments of up to $3 billion annually over the next two to three years.

New Role of the IMF in CEE

The IMF's role in several countries of Central and Eastern Europe is shifting away from lending and toward advising on technical and economic issues. Russia is preparing for a "graudation" from the IMF, as it has achieved monetary stability, according to Russian Central Bank Chairman Sergei Dubinin, speaking at a press conference during the Bank/Fund Annual Meetings in Hong Kong. But additional areas in Russia's interaction with the IMF would open, such as cooperation in the settlement of international financial problems.

Hungary and some other countries don't draw IMF money anymore, even though it was offered to them through mutually agreed lending programs. (Hungary repaid a $190 million debt well ahead of schedule.) Estonia and Latvia didn't draw from the IMF during the 1997 fiscal year and are not expected to draw during the current fiscal year either. (Estonia has been granted access to $95 million in IMF financing, but has drawn only $53 million to date. Since 1994 the IMF has granted Latvia access to $272 million, but it has only drawn $96 million.) Lithuania, meanwhile, is planning a nonlending memorandum with the IMF, currently the country's largest creditor. (the IMF has extended $404 million to Lithuania, of which $233 million has been used.) Georgia and Kyrgyzstan both were approved for new lending programs in March, but had not drawn any of the money as of April 30.

During fiscal year 1997, 12 transition countries borrowed around $4.3 billion from the Fund. (Russia was the largest single borrower, drawing about $2.8 billion from the three-year extended loan; Ukraine drew $807 million.) At the same time, 17 nations in the region repaid the IMF $1.2 billion on previous loans.

World Bank Loan to Bulgaria

World Bank officials and representatives of the Bulgarian government agreed on a $100 million financial and enterprise sector adjustment loan (FESAL) to further support the country's economic reforms. Loan negotiations were concluded on September 25. The proposed loan will be presented to the Bank's Board on October 30. Alberto Musalem, the World Bank's resident representative in Sofia, said that Bulgaria had made significant progress in eliminating losses in the enterprise sector improving efficiency and governance through the privatization of banks and enterprises. "The government completed implementation of the first stage of its structural reform program. There still remains a long list of reforms and we encourage the government to continue implementing it quickly and decisively," he added.

Central Bank Governor Svetoslav Gavriiski said Bulgaria will meet its foreign debt payments over the next year and hopes for a longer-term agreement with the IMF when its 14-month standby accord expires next June. Finance ministry figures show debt payments for this year totaling $1.3 billion and the ministry forecasts payments of $950 million in 1998. Finance Minister Muravei Radev told reporters that this could not be serviced without new IMF support.

New World Bank Loans in Kazakhstan

The World Bank acknowledged Kazakhstan's great progress in transforming its economy to a market-oriented system. This has allowed the Bank to approve a new country assistance strategy. Inflation is expected to fall below 20 percent, and economic growth will reach 1.5 percent in 1997. Bank restructuring, price and trade liberalization, and privatization are signs of progress. Lending over the next three years could reach nearly $1 billion. The Bank approved a $230 million public sector adjustment loan in late August, to help Kazakhstan develop its administrative structure and civil service, reform the budgetary processes, including taxation; and strengthen public sector investment. The loan is also to help develop housing and utility services. So far the Bank has committed a total of almost $1.2 billion for 14 projects to Kazakhstan.

Armenia: World Bank Is Optimistic

In Armenia annual inflation fell to under 8 percent in 1996-one of the lowest rates in the countries of the former Soviet Union. After years of collapse, GDP grew by 5.4 percent in 1994, by nearly 7 percent in 1995, and by 5.8 percent in 1996. The Bank made the assessment following the approval of two IDA credits on August 25, totaling about $65 million. The larger $60 million SAC II (structural adjustment credit) will be used to accelerate the growth of the private sector, and strengthen the social safety net to ensure essential health and education services. The credit will help to introduce a private pension scheme, improve tax collection, and accelerate privatization of the electric power industry. The second credit of $5 million is to finance technical assistance projects such as computerizing the State Tax Inspectorate, starting a pilot privatization program through public offerings, and promoting judicial reforms.

$75 Million to Help Uzbekistan Save the Aral Sea Basin

The World Bank on August 21 approved a $75 million loan to Uzbekistan in support of a water supply, sanitation, and health project. The project is designed to reverse the severe health and environmental damage caused by the degradation of the Aral Sea. "The immediate impact will be safe and reliable water supply services for about 1.5 million people in Uzbekistan's western region. Total cost of improving water supplies in the region had been put at between $500 million and $1 billion," Roger Batstone, project task manager pointed out. Since Uzbekistan joined the Bank in 1992, Bank commitments have totaled $327 million for five projects.

World Bank to Lend $600 million to Hungary

The World Bank will lend up to $600 million to Hungary over the next three years, with its support to the country increasingly shifting to advising the government on economic issues. World Bank Vice President Johannes Linn disclosed told a press conference in Budapest. During his visit, he met with senior government officials from Hungary, including Finance Minister Peter Medgyessy. "The government's borrowing strategy has changed, as it does not need to borrow much money from abroad. But there will not be a great decline in the annual amount to be lent to Hungary," the Vice President added.

IMF On-site Inspection in North Korea

The IMF conducted an on-site inspection in North Korea in early September, at the country's request. The three-member IMF delegation entered North Korea on September 6 for a week-long stay to collect basic economic data for its fact-finding work. North Korea is not an IMF member. Earlier, North Korea informally inquired about membership in the IMF, with entry to coincide with its hoped-for admission to the Asian Development Bank. The North Korean economy contracted for the seventh straight year in 1996, amid a deepening food crisis. "Seoul supports North Korea's accession to the IMF and the World Bank," South Korea Finance Minister Kang Kyong-shik said in an address at the Annual Meetings in Hong Kong.

World Bank to Speed Up Support for Vietnam

In an effort to speed up its support for Vietnam, the World Bank is shifting decisionmaking and additional staff to its office in Hanoi, making Vietnam one of the 18 key countries worldwide that will have locally-based directors for the first time. World Bank Managing Director Caio Koch-Weser, during his recent visit to Vietnam, noted that "with decentralized decisionmaking and additional staff in the member country, we will be able to be more responsive to our clients' needs for knowledge and capital transfer. From now on, the country director in Hanoi will be calling the shots and Washington will be responding, rather than the other way around." The managing director pointed out that, to achieve its growth and poverty reduction targets, Vietnam will need to embark on a second generation of reforms, tackling the financial sector and state enterprises and promoting competitiveness. Do Que Luong, Vietnam's new central bank chief, told IMF and World Bank representatives that new banking laws would be put in place soon and that the fragile and unwieldy private banking sector would be streamlined.

Newly appointed Country Director Andrew Steer, who has taken up residence in Vietnam, noted that the country is rapidly becoming the largest recipient of World Bank Group concessional assistance among the IDA-only countries worldwide and expected to receive almost $600 million this year. Since 1994 the World Bank Group has provided Vietnam with almost $1.6 billion in concessional loan and grant assistance. Over $475 million has been disbursed so far for 14 projects in infrastructure, agriculture, basic health and education, and economic reform. The World Bank, through a program of policy advice, technical assistance, and investment projects, wants to focus on eradicating poverty in Vietnam.

World Bank, IMF Halt Cambodian Aid Program

The IMF and the World Bank have suspended their financial support programs in Cambodia, citing the country's inability to meet economic conditions. The suspensions are a blow to Cambodia's ailing economy, which has sunk into recession. About 40 percent of Cambodia's government expenditure is financed by foreign aid, amounting to between $400 million and $500 million annually. An IMF spokesman, in Hong Kong, confirmed that the ESAF program lapsed at the end of August, but technical assistance to the country continues.

China to Become IFC's Largest Client

The International Finance Corporation (IFC) expects China to become its largest client, the China Daily Business Weekly reported. "China's campaign to transform small and medium-size state enterprises into nonstate firms leaves much space for the IFC to amplify its business," the newspaper quoted IFC China Office Director Davin Mackenzie as saying. Mackenzie said that he expects China will fast become the IFC's largest client, up from ninth place, overtaking Brazil, Thailand, and the Philippines. The IFC, Mackenzie added, would promote foreign investment in China by encouraging development in the nongovernment sector. It approved $2.8 billion in investment funds for 33 projects in China in the last fiscal year.

IFC officials discussed a cooperative project with China's first nongovernment bank, the Minsheng Bank Corporation, at the Annual Meetings in Hong Kong. Appraisal work is scheduled to begin in November. The IFC would offer technical assistance to the Minsheng Bank, arrange some long-term loans, and become one of the bank's shareholders.

Anticorruption Guidelines

At a board meeting on September 5 the World Bank approved guidelines for preventing corruption in developing countries. Recognizing that a government's authority to grant special privileges is potentially a source of corruption, it proposes abolishing price controls and industry subsidies. Reducing government regulation and power establishes an environment wherein the market principle can operate.

We appreciate the contribution of RFE correspondent Robert Lyle.