:' lnt~mational Bank for Reconstruction and Development 87519 International Development Association International Finance Corporation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS99-326 November 17, 1999 05:35:54 PM Statement by Godfrey Gaoseb Date ofMeeting: November 18, 1999 Columbia - Country Assistance Strategy Progress Report This progress report provides us with a useful update on the implementation of the Country Assistance Strategy for Colombia, as approved in November 1997, the economic and financial development of Colombia since then, as well as an opportunity to realign the Bank's assistance strategy with the priorities of the new administration. We are pleased to note the government's emphasis on macro-economic management, financial sector restructuring and strengthening of the social safety net to cushion the poor and vulnerable from the worst effects of the recent economic crisis. We note that the sharp drops in oil and coffee prices, as well as the crisis in international credit markets, have reversed the gains made in the area of poverty reduction. Unemployment rates have gone up, school enrollment is on the decline and a significant proportion of the population is excluded from the health insurance system. About 8 million Colombians now have incomes below a nutritionally defined subsistence level, as opposed to 7 million as reported in the CAS. We therefore welcome the governrnent's response to these problems, especially the plan to provide basic social services, targeting the most vulnerable groups in society, i.e. the unemployed poor, the elderly, children and female heads of households. In this connection, we believe that the Bank's two proposed operations- to expand the social safety net framework and to address structural problems in the social sectors -- are appropriate. In the same vein, we welcome the proposed Emergency Recovery Loan to support the reconstruction efforts of the governrnent in response to the January 25, 1999 earthquake. We, however, feel that the response was somewhat slow for what was designed as an emergency loan and wonder what was the cause of the project's delay. We hope that the proposed project will not only help in the reconstruction effort but also address the longer-term needs of prevention and mitigation. We support the governrnent's efforts to achieve a sustainable fiscal adjustment by taking Ths document has a restricted distribution and may be used by recipients only in the I '~ :rf,Jrmmce of their official duties. Its contents may not otherwise be disclosed without! ยท:,:, rld B::mk authorization. measures to enhance revenue collection and_reduce expenditure. While noting that some of the fiscal, structural and tax reforms might be painful and unpopular, it is our view that with an appropriate level of dialogue, the government will be able to harness domestic support for its reform efforts. We welcome the government's plan to put in place an appropriate legal framework and reform the financial sector in order to empower the bank supervision authorities to take preventive and corrective action. We welcome the approval of a separate supervisory and deposit insurance scheme. In this connection, we support the proposed Financial Sector Adjustment Loan (FSAL) designed to assist the government's comprehensive program of financial and structural reforms, which will streamline the financial sector, banking regulation, supervision, capital adequacy, institutional improvement and privatization. We would however like to know the likely budgetary implication of resolving the financial distress. We note that the Bank's non-lending assistance in the form of sector works, studies, policy advice and technical assistance has been very rewarding to the Colombian authorities. It has also strengthened the Bank's policy dialogue with the authorities and assisted in identifying areas of potential Bank assistance. The Bank's collaboration with other multilateral and bilateral institutions in the country is also impressive. We hope that all the development partners operating in the country will continue to carry out their roles according to their comparative advantage. We applaud the government's commitment to peace and the Bank's role in establishing peace, especially in the countryside. The importance of peace to rural development and poverty reduction in the country cannot be over-stressed. We call on other donors to support the Colombian authorities in their post conflict reconstruction effort. In this regard, we note the impressive role the NGOs are playing in the country and would suggest that this success story be disseminated to other regions within the Bank. We are pleased to note the improvement in Colombia's implementation performance with all projects rated satisfactory for development objectives and none considered to be at risk. We believe that this achievement is as a result of the participation of stakeholders and the civil society in the preparation and implementation of projects. We support the movement of the Bank's assistance strategy for Colombia to high case as suggested; this would be a well-deserved acknowledgement of the efforts of the authorities. More importantly, the government needs donors support in order to provide safety nets and social services to help ease tensions in the short term and reduce poverty in the medium and longer term. With respect to the private sector, we note the increased exposure of the IFC and MIGA in Colombia, although the level ofiFC's presence falls short of our expectations. We believe that the current situation in the country provides new opportunities for the Corporation and hope that it will make a tangible contribution to the provision of much-needed long term foreign direct investment in the country in the coming years. We are also concerned that the country is overly commodity-dependent. We wonder what role the Bank is playing to assist the country in diversifying its export base. In conclusion, we endorse the FSAL accompanying this progress report and wish the Government of Colombia every success in the implementation of its economic and social programs.