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Implementation Completion Report (ICR) Review - Agricultural Privatization and Enterprise Adjustment Credit

1. Project Data:   
Project ID:
Project Name:
Agricultural Privatization and Enterprise Adjustment Credit
Kyrgyz Republic
Agro-Industry & Marketing, Agriculture
L/C Number:
Partners Involved:
The Governments of Netherlands and Japan
Prepared By:
Charles Derek Poate, OEDST
Reviewed By:
Madhur Gautam
Group Manager:
Roger Slade
Date Posted:

2. Project Objectives, Financing, Costs, and Components:

Objectives: APEAC supported the Government's efforts to establish an enabling environment for the agricultural sector. The project aimed to (i) help develop land markets; (ii) demonopolize and privatize state agricultural marketing conglomerates; (iii) eliminate remaining price and trade distortions in agriculture; and (iv) eliminate local government interference in commercial decisions.

Costs and Financing: US$45 million at appraisal and US$41.8 million on completion due to exchange rate fluctuations. The credit was fully disbursed in two tranches and the project closed on February 28 1997. The project was cofinanced by the Government of the Netherlands (US$ 10 million) and complementary technical assistance was provided by the Government of Japan (JPY 19.1 million)

3. Achievement of Relevant Objectives:

Overall, the progress towards the project's objectives has been satisfactory. The achievements are likely to be sustained, given the government's strong commitment to continue with the reforms, although the commercial viability of some of the newly privatized enterprises is in doubt.
Development of land market: Sustantial progress has been made on this objective. Restrictions on farm size have been removed, a draft Land Code and Land Registration Act are being debated in the Parliament, and the distribution of land use shares has continued. A fully functioning market in land will take time to develop, primarily because of the lack of a proper land registration system and failure to clarify the legal right to own land.
Demonopolization and privatization: Considerable progress was made on this objective. Most key agricultural conglomerates have been restructured and privatized, although shares in Dan Azyk bread combinats were subsequently repossessed. An accelerated process helped privatize most viable enterprises and the restructuring supported under another project (PESAC) has continued.
Elimination of price and trade distortions: This objective was achieved. All remaining export taxes, quantitative restrictions, and the system of 'state orders' has been abolished. Guidelines for the operation of the State Wheat Reserve were issued which aim to develop a free market in grain trade.
Elimination of local government interference: Partially achieved. A presidential decree was issued forbidding the imposition of price and quantity restrictions, but these are not always enforced.

4. Significant Outcomes/Impacts:

(i) Reforms in the legal and regulatory framework to serve the needs of a private, market economy.
(ii) The rapid privatization of a large number of state-owned enterprises, as a result of which the only remaining state shares are in major utilities and about 320 larger enterprises.

5. Significant Shortcomings (include non-compliance with safeguard features):

(i) The interministerial Working Group established for the project did not function which hampered the coordination of project activities and implied a greater role for Bank supervision missions.
(ii) Insufficient attention paid to the commercial viability of the enterprises, particularly the issue of high levels of debt which should have been resolved before privatization. Further, a large proportion of enterprises are facing problems due to the lack of capital, inputs, and technical and managerial skills.
(iii) Detailed indicators for the monitoring of project activities were not developed at appraisal or during implementation.

6. Ratings:ICROED ReviewReason for Disagreement/Comments
Institutional Dev.:
Bank Performance:
Borrower Perf.:
Quality of ICR:

7. Lessons of Broad Applicablity:

(i) Projects aiming at a broad and complex objective, such as the development of a land market, should be more realistic on the time requirements. They should avoid setting vague and overambitious targets, and should specify clear indicators of achievement which are feasible within the project time frame
(ii) Effective economic reform requires sufficient attention to be paid to establishing an appropriate institutional framework. Legal and economic reforms are necessary, but may not be sufficient.
(iii) Post-privatization support to newly privatized enterprises is necessary to ensure the development of a strong and financially viable agricultural/agro-industrial sector.

8. Audit Recommended?  No


9. Comments on Quality of ICR:

The ICR clearly sets out the project objectives, context and detailed information on achievements of the project. It also identifies a number of pertinent lessons learned from this project.

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