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Implementation Completion Report (ICR) Review - Industrial Restructuring and Development

1. Project Data:   
Project ID:
Project Name:
Industrial Restructuring and Development
Business Environment, Private Sector Development
L/C Number:
Partners Involved:
Prepared By:
David Greene, (consultant), OEDCR
Reviewed By:
Ridley Nelson
Group Manager:
Ruben Lamdany
Date Posted:

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

The Industrial Restructuring and Development Loan for US$ 200 million was approved in 1991. It was part of a package of operations designed to support implementation of the Government's Economic Modernization Program (EMP) aimed at liberalizing the external trade regime, accelerating reform of public services and developing an internationally competitive private sector. It included a line of credit for US$ 192 million to be relent through development and commercial banks for the renovation of private industrial enterprises to reduce costs and increase product quality, and a technical assistance component of US$ 8 million to develop a program of labor adjustment assistance, establish an environmental pollution control unit and establish an Industrial Monitoring Unit to provide monitoring and evaluation. The project also included specific policy reforms: (1) trade liberalization through elimination of QRs and tariff reductions, (2) elimination of price controls on domestic cotton production and removal of domestic content regulations on the automotive assembly industry; (3) elimination of interest rate subsidies and use of directed credit; (4) easing of labor regulations to increase flexibility of labor in transfer and dismissal of workers and negotiation of labor contracts; and (5) elimination of regulation of technology and technical service contracts.

3. Achievement of Relevant Objectives:

The major policy objectives were achieved through policy reforms: in trade, domestic competition, labor regime, and financial sector. The credit component was mostly disbursed (93%) and a survey of beneficiaries showed that most had purchased new technology and thought they had achieved greater efficiency and better quality output. Finally, the TA component was carried out, with mixed success; the environment component was particularly successful and the labor assistance program the least successful.

4. Significant Outcomes/Impacts:

Policy reforms were adopted before loan effectiveness and have been sustained. Eliminating most licensing and prohibitions and reducing the level and dispersion of tariff rates reduced the restrictiveness of the trade regime. However, the government balked at reducing domestic content requirements for automotive assembly industry and environmental screening of projects was not carried out. The credit component financed 248 sub-projects. An evaluation by a local consulting firm, based on a beneficiary survey, concluded that investments had a strong positive impact on production capacity and efficiency, sales, and profitability.

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

Government did not reduce domestic content requirements in the automotive sector, as required, so no sub-loans were made in this sector. In addition, because of an absence of institutional capacity within financial institutions, environmental assessments on sub-projects were not carried out as expected at appraisal (the ICR notes that an examination of 15 of the sub-projects financed under the loan showed no negative environmental impact).
6. Ratings:ICROED ReviewReason for Disagreement/Comments
Institutional Dev.:
Bank Performance:
Borrower Perf.:
Quality of ICR:

7. Lessons of Broad Applicablity:

Implementation of policy reforms before board presentation enhances probability of a successful outcome. This reinforces findings on other operations on success of single tranche operations.

8. Audit Recommended?  No


9. Comments on Quality of ICR:

The ICR is satisfactory, and in particular is to be commended for carrying out a survey of beneficiary firms. On the other hand, the ICR should have included data on repayment rates, arrears, and age of arrears of sub-loans made under the project. In addition, it would have been useful if the ICR had mentioned why about 15 months elapsed between Board approval and loan effectiveness, and why another 18 months elapsed before the first disbursements to financial intermediaries were made. It also would have been useful to have some insight on why this was a hybrid operation (adjustment plus line of credit) and why there is no follow-up operation planned.

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