|1. Project Data:
|Private Sector Development Adjustment Credit|
|Business Environment, Private Sector Development|
|Gita Gopal, OEDCR|
|Rene Vandendries, Acting|
|2. Project Objectives, Financing, Costs, and Components:|
The objectives of the Private Sector Development Adjustment Credit Project were to support the Government's private development program to increase external and internal competitiveness and to actively promote investment and exports . These objectives were to be achieved through the following:
(i) Reform of the overall legal and regulatory framework to increase efficiency and reduce business related cost through the reform of business laws and the judicial system, the revision of the tax systems and of tax administration procedures and penalties, implementation of labor legislation, and enhancement of competition in the supply of goods and services.
(ii) Reduction of specific operating costs and improved quality of the business infrastructure through streamlining of port and customs procedures; privatization of telecommunications; and completion of liberalization of maritime transport and insurance.
(iii) Improved investment and export promotion by establishing private provision of essential business support services and simplification of procedures.
(iv) Increased private sector confidence in theGovernment by reduction of Government's arrears to the private sector and regular concertation between the Government and the private sector.
Financing: A first tranche of US $ 80 million would be disbursed upon effectiveness, and the remainder in five installments of US$20 million each expected to be spread over 1996/97. Two supplementary credits (Nos. 28431-IVC and 28432-IVC) for a total of SDR 64 million (US $ 91.2 million equivalent) were approved in November 1996 and December 1997, respectively under the Fifth Dimension Program.
An innovative feature of this credit was the floating tranche which the ICR notes provides the flexibility on a wide range of reforms.
|3. Achievement of Relevant Objectives:|
(i) Reform of the overall legal and regulatory framework to increase efficiency and reduce business related cost. Under this component, the objectives were only partially achieved. The first set of business laws became effective and the agreed action plan was implemented. The implementation of the 21 decrees of the Labor Code was an important step that enhanced the operating conditions of the private sector. However, the dispute resolution system is still hampered due to poorly motivated magistrates , lack of operating budget and accountability thereof, procedural delays and lack of transparency. The arbitration court, although established, has not started functioning. Despite revision of the tax systems, the reforms did not bring about real change in the tax administration system; the discretionary power of the administration is still perceived as a problem by the private sector, with tax payers having no real judicial recourse. While a number of steps were taken to improve the competition policy, the Competition Committee which was established was not effective.
(ii) Reduction of specific operating costs and improved quality of the business infrastructure. This section achieved its objectives. The average port transit time was significantly reduced; the three day target for export containers was achieved, positive changes in customs procedures were accomplished. These and other achievements helped the port to handle successfully a 50% increase in import volume between 1994 and 1998. The telecommunications company was privatized, stopping a long process of decline, the number of customers rose from 6500 in January 1997 to 65000 in October 1998.
(iii) Investment and Export Promotion. An Investment Promotion Agency was established as a one-stop window for investors in 1995 which contributed to a significant reduction of processing for approvals of benefits under the investment codes and for registering companies. Also, the ineffective Government export promotion agency was liquidated and a new private non-profit agency was established, which however did not start functioning because of the delay in the TA project becoming effective.
(iv) Increased Private Sector Confidence in the Government. While the arrears reduction program was successful, the mechanisms proposed for dialogue with the private sector did not function because of the failure to establish the dialogue mechanisms established during the preparation of the program.
|4. Significant Outcomes/Impacts:|
(i) Changes in the laws and publication of labor codes; the labor code was published after mandatory tripartite consultation between Government, employers union and trade unions; (ii) Privatization of telecommunications and liberalization of maritime transport resulted in some improved operations; (iii) Improved processing in the Ports/Customs area; (iv) Liquidation of the government export promotion agency; and (v) reduction of Government arrears to the private sector.
|5. Significant Shortcomings (include non-compliance with safeguard features):|
(i) The implementation of the legal action plan did not improve the functioning of the judicial system which continued to deteriorate despite the project. (ii) A separate technical assistance project was expected to be presented to the Board before the end of FY96; a companion project for the PSDAC, this did not materialize till June 98 and it seems that therefore the arbitration court and the promotion Agency could not start operating. (iii) The project proposed to establish a number of institutional arrangements for increasing dialogue with the private sector; none of these were established.
|6. Ratings:||ICR||OED Review||Reason for Disagreement/Comments|
The ICR states that outcome was "partially satisfactory," which is really the same rating as OED's. This form does not allow for this choice for the ICR.
While there were some achievements, serious problems continue to undermine the legal system because of the inability to address fundamental issues in judicial, arbitral and tax administration systems. The new private non-profit agency, which replaced the
export promotion agency has not started to function. Institutional mechanisms to increase dialogue between the private sector and the Government were not established at all.
Quality of ICR:
|7. Lessons of Broad Applicablity:|
Should adjustment tranches be tied to monitorable indicators of results rather than on input/output related indicators?
Clear and measurable indicators of outcomes and impacts are important and except in one section, the project did not define them.
It is noted that the floating tranche system did provide a greater flexibility in implementing reforms as the ICR notes, it may have been preferable to establish priorities for reform and eliminated those that were less important.
|8. Audit Recommended? No|
|9. Comments on Quality of ICR:|
The ICR quality is satisfactory. It should be complimented for having discussed the project and its achievements candidly and for bringing in the results of surveys undertaken by the largest industrialist association and for incorporating these findings into the ICR. However, it does not explain adequately the plan for the future operation of the activities and the performance indicators thereof. It also does into include the Borrower's comments on the Bank's ICR.