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         Agriculture Sector Adjustment

The Poland Agricultural Sector Adjustment program (ASAL), supported by Loan 3600-POL for US$300 million equivalent, was approved in FY93 and closed fully disbursed on March 31, 1996, 15 months behind schedule. The Implementation Completion Report (ICR) was prepared by the Agriculture and Regional Development Operations Division, Country Department II, Europe and Central Asia Region. It includes borrower comments which nuance those of the ICR.

The loan was to support the government’s medium-term sector adjustment program, itself a part of the Economic Transformation Program. As the ICR reports, this was an incredibly complex program with seven sets of a total of 78 monitorable actions and 33 technical assistance studies and projects. Moreover, the counterpart funds corresponding to the loan were dedicated to small-scale agricultural development activities. In the Staff Appraisal Report, the 78 activities were described under three headings: maintenance of the macroeconomic framework, structural reforms, and institutional reforms and institution-building. The Loan was to be released in two tranches of US$150 million each. Release of the second tranche was to be conditional on satisfactory progress on the reform program and, in particular, privatization of the sugar industry and an audit of state Agricultural Marketing Agency (AMA).

Despite its complexity, the project met a high proportion of its objectives and complied with all covenants. This said, the project as implemented differed substantially from the project as described in the President’s Report (PR). Though the Loan Agreement (LA) provides for an unspecified amount to be used for the Debt and Debt Reduction program, this was not mentioned in the PR. In the event, US$100 million of the US$300 million loan was allocated to debt reduction. Secondly, neither the LA nor PR makes any reference to counterpart funds. In fact, US$250 million equivalent of local funds were made available by the government under a “gentlemen’s agreement” with the Bank for small-scale rural development through the Agency for Reconstruction and Modernization of Agriculture (ARMA). This program is entirely demand driven, and ARMA provides, at most, 40 percent of subproject cost. ARMA subsidized 683 water supply schemes, 176 waste disposal projects, 109 telephone related projects, and market infrastructure. Reluctance by the government to privatize the sugar industry and initiate the audit of AMA led to a two-year delay in second tranche release. The need for import financing which had seemed paramount when ASAL was identified in 1991 had largely disappeared by the time it became effective in 1993. However, though not reflected explicitly in the design of the ASAL, the counterpart proceeds were used in a very creative way to support an important and decentralized public sector initiative in rural areas where almost the entire investment requirement was for local financing. This would not have been financed otherwise in a time of tight budgetary constraints. Interestingly, this had the effect of converting a policy-based loan into a de facto investment project.

The ICR and Operations Evaluation Department rate outcome and Bank performance as satisfactory, sustainability as likely, and institutional development as substantial.

This project reconfirms the benefits of extensive and patient sector work and the value of the Bank adopting an involved and supportive role during project implementation. Of several other lessons taught by this project, the ICR emphasizes that though this complex project performed satisfactorily, replicability should not be assumed without careful examination of country circumstances. Polish agriculture proved vulnerable to economic instability, and it was thus unrealistic to expect it to lead the economy out of transition recession. The combination of structural adjustment lending, essentially balance of payments support, with a substantial investment program in rural infrastructure was seen as key to the success of the program.

The ICR is of good quality. It provides a full description of this complex project, and it is particularly strong in analyzing the factors which help explain the project’s satisfactory outcome. An audit is planned.

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