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Implementation Completion Report (ICR) Review - Regulatory Reform & Privatization Technical Assistance

1. Project Data:   
ICR Review Date Posted:
Project Name:
Regulatory Reform & Privatization Technical Assistance
Project Costs(US $M)
 32.34  18.43
Loan/Credit (US $M)
 20  17.02
Sector, Major Sect.:
Central government administration, Law and justice,
Law and justice and public administration; Law and justice and public administration
Cofinancing (US $M)
 2  0
L/C Number:
Board Approval (FY)
Partners involved
Closing Date
03/31/2003 02/28/2005
Evaluator: Panel Reviewer: Division Manager: Division:  
Ilka Funke
John H. Johnson Kyle Peters IEGCR

2. Project Objectives and Components:

a. Objectives
to support the government in its reform efforts aimed at

(i) strengthening the stability and efficiency of the financial sector;
(ii) improving the coverage, quality and productivity of key infrastructure services with appropriate tariff structures;
(iii) promoting improved provision of goods and services through the privatization of state-owned enterprises and the reform of public-service cooperatives.

It should be noted that the objective in the PAD is not clearly stated, and that the legal document, supervision reports and ICR use a different version: "to support the Government in its efforts through the provision of technical assistance to
(i) prepare laws and regulations to improve the legal and regulatory framework of the financial, infrastructure and business sectors;
(ii) implement a privatization and corporatization program; and
(iii) strengthen institutional capacity to implement the above legal and regulatory reforms and manage the project."

This ICR review is structured around the first definition of objectives, since it specifies expected outcomes (compared to expected outputs in the second version), and is better aligned with the project components and the provided key performance indicators.

b. Components (or Key Conditions in the case of Adjustment Loans):
1. Financial sector regulation: to provide legal and technical assistance as well as equipment to establish an explicit and limited deposit guarantee fund, improve the prudential and regulatory framework for the banking and non-banking financial sectors (including capital markets) and support the organizational restructuring of the regulatory institutions (estimated costs of USD 5.76 million, actual costs USD 5.53 million).

2. Infrastructure and Business Regulation: to provide legal and technical assistance, training and equipment to improve the regulatory environment in the field of transport, hydrocarbons, telecommunication and competition, and strengthen the institutional capacity of the respective regulatory agencies and line ministries (estimated cost at appraisal USD 6.11 million, actual costs USD 8.17 million)
3. Privatization: to support the privatization of remaining state-owned companies and to evaluate and transform public service cooperatives (estimated cost at appraisal USD 15.01 million, actual costs USD 1.89 million)
4. Program Implementation Support: to create high quality project management capacity, and facilitate project implementation through a Public Information Campaign (estimated costs at appraisal USD 3.46 million, actual costs USD 2.83 million).

c. Comments on Project Cost, Financing, Borrower Contribution, and Dates
The project became effective with a 4 month delay, and the project closed 2 years later than foreseen. The project was amended twice to add technical support for electricity, water & sanitation, housing, overall economic competitiveness and transparency in government practices and extend project closing. The project development objective remained unchanged. Actual project costs were 60 percent of costs estimated at appraisal. Expected counterpart financing of USD 9 million for the privatization component did not materialize following the abandonment of this component, and no co-financing was available. The remaining IDA balance of USD 2.8 million was cancelled upon completion.

3. Relevance of Objectives & Design:

The project objective was consistent with the government's development strategy aimed at deepening financial sector reforms, strengthening the regulatory functioning of the state, and promoting competition. Together with a parallel adjustment operation, the project formed the basis for the Bank's strategy to promote private sector growth and provided a logical continuation of legal and regulatory reforms supported under various earlier Bank projects. Although social unrest reversed government ownership in some sectors, the overall objective remains relevant.
IEG concurs with the ICR's assessment that the project design was too complex given the lack of regulatory culture in the country and the limited institutional capacity to implement reforms. It supported reforms in 7 sectors and 14 beneficiaries, and also promoted privatization and corporatization of a larger number of entities. With hindsight, the risks of growing public opposition to reforms were underestimated.

4. Achievement of Objectives (Efficacy) :

1. Strengthening the stability of the financial sector (moderately satisfactory): The regulatory framework and the enforcement capacity of the regulatory agencies were significantly enhanced with project support. This increased the resilience of the banking sector through higher levels of provisioning and improved management, although overall bank performance indicators have deteriorated due to adverse economic developments. Enforcement of regulatory reforms in the NBFI sectors led to greater diversification of pension portfolios and closure of two insurance companies. While the overall outcome has been substantial, progress has nevertheless been impaired by repeated government interference in enforcement, financial autonomy and regulatory powers. The introduction of a limited deposit insurance system was postponed.
2. improving the coverage, quality and productivity of key infrastructure services with appropriate tariff structures (moderately unsatisfactory): Support under this component contributed to increased competition and service provision in the telecommunications and electricity sectors, but progress in the remaining sectors was limited (i.e. transport, competititon) or even reversed during project implementation (i.e.water, hydrocarbon sector). The government has repeatedly jeopardized the autonomy and financial independence of the individual regulatory entities, which has undermined achievements made in capacity building during the initial years and seriously impacted the functioning of the system. There are plans within the new government to close down the regulatory system (SIRESE) entirely.
3. Promoting improved provision of goods and services through the privatization of state-owned enterprises and the reform of public-sector cooperatives (unsatisfactory): A limited number of enterprises were privatized, but the government recently made an effort to withdraw some concessions or reinstate former state-owned enterprises, thus effectively reducing the overall level of private investment in infrastructure. The policy reversal negatively impacts the investment climate and private investors' incentives to invest. The cooperatives were exposed to greater competition by including them into regulatory oversight, but the expected changes in ownership structure were not achieved. A public information campaign to promote reforms and communicate the benefits of privatization was only launched in the final stages of project implementation, without success.

5. Efficiency:

Modest. Experience shows that well targeted assistance to increase the effectiveness of the regulatory system is an efficient tool to create an environment conducive to economic growth. However, with view to the diminishing political and public support for regulatory reforms and privatization, the project was - with hindsight - too ambitious and addressed too many sectors at the same time. The launch of a communication strategy came to late and was not sufficient to increase ownership of needed reforms and prevent reversal of achievements. This lowered overall efficiency of reforms.
6. M&E Design, Implementation, & Utilization:

The key performance indicators were well designed and frequently reported on during project implementation.
7. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative):

Project implementation was impaired by unfavorable internal and external factors. On the internal side, repeated social upheavals with a clear anti-privatization and anti-establishment sentiment undermined political ownership of the reform program, led to political instability and frequent management changes in beneficiary agencies. On the external side, the economic crisis in Brazil and Argentina led to a deterioration of the economic conditions in Bolivia, affected the health of the financial sector and thus increased political pressure to relax the enforcement of prudential regulations. These were the major factors that impacted project outcome.

8. Ratings:
ICR Review
Reason for Disagreement/Comments
UnsatisfactoryModerately Unsatisfactory"Moderately unsatisfactory" is not available as a formal rating in ICRs, but the ICR's verbal assessment clearly supports this outcome rating .
Institutional Dev.: 
ModestModestSubstantial capacity has been build in the regulatory agencies, but results have lately been eroded or reversed.
Bank Perf.: 
SatisfactorySatisfactoryBorderline performance. Project should have been restructured to discard non-working components (such as privatization) and reduce complexity rather than adding new sectors and themes, as was actually done. A more aggressive PR campaign should have been started after the water wars in Cochabamba.
Borrower Perf.: 
Quality of ICR: 

- When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006.
- ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness.

9. Lessons:

1. In a politically and socially unstable environment, the focus of a project should be reduced to one or two areas of reform, accompanied by broad consultation and dissemination efforts to create ownership and enhance long-term sustainability of reforms.

2. Risk assessments need to capture developments that are critical from a political and social perspective. Appropriate risk mitigation tools need to be drafted.
3. A technical assistance project needs to be flexible enough to accommodate shifts in government priorities.

10. Assessment Recommended?  No


11. Comments on Quality of ICR:

The ICR provides a fair and candid assessment of the scope of the project and achieved outcomes.

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