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Czech Republic and Slovak Republic: Structural Adjustment Loan (Loan 3374-CS)

The Implementation Completion Report (ICR) for the Czech Republic and Slovak Republic Structural Adjustment Loan (SAL; Loan 3374-CS for US$450 million approved in FY91 and closed in FY93) was prepared by the Europe and Central Asia Regional Office. The borrower's evaluations, provided by the Czech Republic only, are included in Appendix C.

The SAL supported a reform program initiated by the (then) Czech and Slovak Federal Republic aiming at: (a) macro stabilization and fiscal reform; (b) privatization; (c) deregulation and competition; (d) commercialization of stateowned enterprises through enforcement of hard budget constraints and market prices; (e) protection of vulnerable groups with an adequate social safety net; (f) labor market reforms based on productivity-based wage policy and incentives; (g) energy price reform through elimination of energy subsidies, use of marginal cost pricing and regulation of public utilities; and (h) financial sector reforms. With the dissolution of the Federation on January 1, 1993, the continuity of the SAL program was assured by both the Czech Republic and the Slovak Republic and the third tranche and loan repayment obligations were apportioned in the ratio of 2 to 1 respectively between the two Republics.

The project met all its stated objectives. The subsequent record indicates that in the post-SAL period, reforms were sustained by both Republics in all sectors. The Czech Republic successfully completed its mass privatization program in March 1995. The Republic now leads all transformation economies in terms of the share of GDP contributed by the private sector. In the Slovak Republic, rapid privatization during the SAL was followed by slower progress on privatization, especially after the recent decision to replace the second round of voucher privatization by direct privatization. In both Republics, while prices in general were liberalized, energy sector mark-ups remain closely regulated.

The ICR rates the project outcome as highly satisfactory, as the project either met or exceeded its major objectives in economic transformation. Institutional development is rated as partial and project sustainability as likely. The Operations Evaluation Department (OED) agrees with these ratings with the exception of institutional development, which OED has upgraded to substantial. This is because the loan program appears to have been instrumental in helping carry out significant institutional developments in economic management, financial intermediation, trade practices and legal protection. OED also agrees with the ICR rating of Bank performance as satisfactory.

This project was successful because the borrower had a clear vision and strong commitment to a rapid transformation of its economy to a market economy and the Bank supported this effort by providing timely financial assistance and advice. This reconfirms the frequently cited OED lesson that government ownership matters for project's success.

The ICR is of satisfactory quality. An audit is planned.



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