TQflt jqq'v Poland Country Assistance Review Partnership in a Transition Economy - a X - - 3 V t i IN~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~*a ~~~~~~~~~~~~~~~~a ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Kkl ~~~~~~~~, 52-1~~~ 7 i Poland Country Assistance Review Partnership in a Transition Economy Other Titles in the Series PREPARED BY THE WORLD BANK OPERATIONS EVALUATION DEPARTMENT Agricultural Extension and Research: Achievements and Problems in National Systems (1997)* Fiscal Management in Adjustment Lending (1997)* Reforming Agriculture: The World Bank Goes to Market (1997)* Paddy Irrigation and Water Management in Southeast Asia (1997)* 1995 Evaluation Results (1997)* Zambia Country Assistance Review: Turning an Economy Around (1997)* Aga Khan Rural Support Program: A Third Evaluation (1996)* Lending for Electric Power in Sub-Saharan Africa (1996)* Industrial Restructuring: World Bank Experience, Future Challenges (1996)* Social Dimensions of Adjustment: World Bank Experience, 1980-93 (1996)* 1994 Evaluation Results (1996)* Ghana Country Assistance Review: A Study in Development Effectiveness (1995)* Evaluation and Development: Proceedings of the 1994 World Bank Conference (1995) Developing Industrial Technology: Lessons for Policy and Practice (1995)* The World Bank and Irrigation (1995)* 1993 Evaluation Results (1995)* Structural and Sectoral Adjustment: World Bank Experience, 1980-92 (1995)* Gender Issues in World Bank Lending (1995)* The World Bank's Role in Human Resource Development in Sub-Saharan Africa: Education, Training, and Technical Assistance (1994)* 1992 Evaluation Results (1994)* New Lessons from Old Projects: The Workings of Rural Development in Northeast Brazil (1993; contains summaries in French, Portuguese, and Spanish) World Bank Approaches to the Environment in Brazil (1993; contains summaries in French, Portuguese, and Spanish) Trade Policy Reforms under Adjustment Programs (1992)* World Bank Support for Industrialization in Korea, India, and Indonesia (1992)* Population and the World Bank: Implications from Eight Case Studies (1992)* The Aga Khan Rural Support Program in Pakistan: Second Interim Evaluation (1990)* *Contains summaries in French and Spanish. Poland Country Assistance Review Partnership in a Transition Economy Luis Landau THE WORLD BANK WASHINGTON, D.C. Copyright � 1997 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing June 1997 The opinions expressed in this report do not necessarily represent the views of the World Bank or its member governments. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the Office of the Publisher at the address shown in the copyright notice above. The World Bank encourages dissemination of its work and will normally give permission prompt- ly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission to copy portions for classroom use is granted through the Copyright Clearance Center, Inc., Suite 910, 222 Rosewood Drive, Danvers, Massachusetts 01923, U.S.A. Cover photo: Baltic port of Swinoujscie, Poland Credit: Priit J. Vesilind/National Geographic Society ISSN 1011-0984 Luis Landau is lead evaluation officer in the Operations Evaluation Department of the World Bank. Library of Congress Cataloging-in-Publication Data Landau, Luis, 1936- Poland country assistance review : partnership in a transition economy / Luis Landau. p. cm. -(A World Bank operations evaluation study) Includes bibliographical references. ISBN 0-8213-3980-X 1. World Bank-Poland. 2. Loans, Foreign-Poland. 3. Poland- Economic conditions-1990- I. Title. II. Series. HG3881.5.W57L36 1997 338.9438-dc2l 97-17871 CIP Contents Foreword ix Preface x Pr6logo xi Prefacio xii Avant-propos xiii Preface xiv Acknowledgments xv Abbreviations and acronyms xvi Summary 1 Resumen 16 Resume 33 1. How the Bank's assistance strategy changed over time 51 Background 51 Evolution of the Bank's assistance strategy 52 Cutting back 63 2. Systemic and institutional transformation and social amelioration 67 Systemic and institutional transformation 67 Support for social amelioration 70 Instruments of Bank assistance for systemic and institutional transformation and social amelioration 73 3. Private sector and infrastructure development 81 Instruments of Bank assistance for private sector development 81 Instruments of Bank assistance for infrastructure development 92 4. Implementation and supervision 100 Portfolio management 100 Slow disbursement of credit line operations 104 Aid coordination: changing dynamics of donor operations 105 Cost effectiveness: room for improvement 108 5. Findings and recommendations 110 Outcome 110 Assessment of Bank assistance 112 Major findings for Poland 115 Findings for transition countries 116 vii viii Annexes 121 Poland at a glance 121 The Bank's loan portfolio to Poland 122 References 127 Supplement 129 Introductory note 130 Management response 131 Summary of Committee on Development Effectiveness findings 135 Boxes 1.1 Risks and advantages of creating a large portfolio quickly 54 2.1 Gender differentials during the transition 78 3.1 Polish enterprise behavior study, 1991-92 83 3.2 Agricultural Task Force-a vehicle for providing nonlending services 87 3.3 IFC country strategy in Poland 90 Figures 1.1 Distribution of Bank resources among countries in the Europe and Central Asia Region's Division II, FY85-96 58 1.2 Total Bank commitments to Poland by fiscal year 63 3.1 World Bank lending to Poland by purpose 97 4.1 Average lending completion costs by sector for projects approved between FY90 and FY96 104 Tables 1.1 Bank assistance versus reform program, needs, and environment 64 4.1 Average elapsed time for loan approvals 105 4.2 Poland: cost (staff weeks) of dropped lending activities 106 4.3 Poland: cost (dollars) of dropped lending activities 107 5.1 Poland: economic recovery 111 5.2 Macroeconomic performance: indicators for selected transition countries 113 5.3 Progress in transition: ratings for selected countries 114 5.4 Summary of strengths and weaknesses of the Bank's country assistance to Poland 118 Foreword This review, prepared by the Operations Evaluation Department, evaluates the overall relevance, efficacy, and efficiency of the Bank's assistance to Poland. The review concludes that the Bank's strategy during 1986-96 was highly relevant, its efficacy satisfactory, but its efficiency only marginally satisfactory. During 1986-89, the Bank carried out comprehensive reviews of the economy but postponed lending until 1990, after the solidarity-led government had adopted a radical economic transformation program. Displaying strong support for this program, the Bank's Board approved 15 loans totaling $2.6 billion dur- ing FY91-92. The Bank got involved in all key areas of the reform program and set up a high-level resident mission in Warsaw in July 1990. With external financial help and advice, Poland has made great strides toward sustainable growth. Its private sector accounts for two thirds of GDP, its cur- rency is stable, and its international creditworthiness is restored. The Bank's technical advice and intellectual support were pivotal in facilitating the work of Polish reformers. But the rush to lend carried risks. For example, many projects relied excessively on domestic financial intermediaries, whose capacity was not adequately assessed. Bank staff faced the additional challenge of implementing projects in a country where the leadership was changing frequently. Inevitably, these drawbacks led to mixed project performance. The unfinished agenda of Poland's reforms includes restructuring and privatiz- ing its public enterprise sector, reforming the large state-owned banks, strength- ening the social safety net, and modernizing agriculture and institutions. These reforms will facilitate Poland's accession to the European Union and induce increased and sustained private investment. Poland now depends less on the Bank than it did in the early years of reform. Greater selectivity and efficiency will characterize future operations. Stronger partnership with the European Union, more emphasis on private sector opera- tions, and high-quality nonlending services will determine the success of the new country assistance strategy. Robert Picciotto Director General Operations Evaluation ix Preface This evaluation of Bank assistance to Poland is based on a thorough review of Bank files, economic and sector reports, strategy papers, and other internal Bank documents, as well as on relevant documents from Poland and other donors. In addition, the evaluation team conducted an extensive review of the literature on transition economies. Because only a small number of Bank operations in Poland have been completed and evaluated, the evaluation team undertook a detailed review of ongoing operations. The team prepared extensive background papers for the main areas of Bank assistance. One-page evaluative summaries for each loan to Poland can be found in Volume II of the grey cover version of this report. Throughout the review process, the evaluation team exchanged views with Bank and IFC staff who were involved in the design and/or implementation of assistance to the country. The team interviewed present and former Polish offi- cials and, to observe the transformation process at the grass-roots level, visited a small "company town." Moreover, the evaluation group conducted two sur- veys in Poland under the supervision of Polish experts to secure the informal views of Polish stakeholders at large, and the official views of all the ministries associated with Bank operations and of the National Bank of Poland. In Warsaw and elsewhere, members of the team held discussions with officials of the United Kingdom's Overseas Development Agency and Knowhow Fund, Euro- pean Bank for Reconstruction and Development, European Investment Bank, European Commission, and Organization for Economic Cooperation and Development. The team also met with representatives of the governments of the United Kingdom, Germany, and France. The Bank's field office in Warsaw pro- vided guidance and logistical support. This report reflects the detailed and constructive comments of all interviewees. The author gratefully acknowledges the kind assistance of those who cooper- ated with the study. x Prologo En el presente examen, preparado por el Departamento de Evaluaci6n de Ope- raciones, se evalCa la pertinencia, eficacia y eficiencia generales de la asistencia prestada por el Banco a Polonia. Se Ilega a la conclusi6n de que la estrategia del Banco para ese pais en el perfodo de 1986 a 1996 fue muy pertinente, califican- dose de satisfactoria su eficacia, pero de minimamente satisfactoria su eficiencia. En el periodo comprendido entre 1986 y 1989, el Banco llev6 a cabo estudios completos de la economia del pais, pero posterg6 las operaciones de financia- miento hasta 1990, una vez que el gobierno encabezado por el movimiento de solidaridad aprob6 un programa radical de transformaci6n. El Directorio Ejecu- tivo del Banco dio muestras de su firme respaldo al programa al aprobar 15 pres- tamos por un total de $2.600 millones en los ejercicios de 1991-92. El Banco particip6 en todas las areas fundamentales del programa de reforma y en julio de 1990 estableci6 una misi6n residente de alto nivel en Varsovia. Con asesoria y asistencia financiera externas, Polonia ha hecho importantes avances para lograr un crecimiento sostenible. La participaci6n del sector pri- vado en el PIB representa dos tercios del total, la moneda es estable y el pais ha recuperado la capacidad crediticia en el mercado internacional. La asistencia tec- nica y el apoyo intelectual que el Banco proporcion6 a Polonia fueron fundamen- tales para la labor de las autoridades encargadas de la reforma. Sin embargo, la prisa por proporcionar financiamiento entran6 algunos riesgos. Por ejemplo, en muchos proyectos se recurri6 en forma excesiva a intermediarios financieros nacionales sin que se evaluara en debida forma su capacidad. El personal del Banco tuvo que hacer frente al problema adicional de ejecutar proyectos en un pais donde las funciones directivas cambiaban con frecuencia. Inevitablemente, los resultados de los proyectos fueron dispares debido a estos inconvenientes. El programa de reformas de Polonia no ha concluido, pues esta pendiente la reestructuraci6n y privatizaci6n de las empresas pCiblicas, la reforma de los grandes bancos estatales, el fortalecimiento de la red de protecci6n social, y la modernizaci6n del sector agricola y de las instituciones. Estas reformas facilita- ran la incorporaci6n de Polonia a la Uni6n Europea e impulsaran la inversi6n privada en forma continua. Actualmente Polonia depende menos de la asistencia del Banco que en los pri- meros afios de la reforma. En las futuras operaciones se aplicara una mayor selectividad y se pondrd mAs atenci6n a la eficiencia. El exito de la nueva estra- tegia de asistencia a Polonia dependera del establecimiento de una relaci6n de colaboraci6n mas estrecha con la Uni6n Europea, el mayor acento en las opera- ciones relacionadas con el sector privado y el suministro de servicios no finan- cieros de alta calidad. Robert Picciotto Director General Evaluaci6n de Operaciones xi Prefacio La preseVte evaluaci6n de la asistencia del Banco a Polonia se basa en un analisis exhaustivo de los archivos, informes de estudios econ6micos y sectoriales, documentos sobre estrategia y otros documentos internos del Banco, asi como en documentos pertinentes procedentes de Polonia y otros donantes. Ademas, el equipo a cargo de la evaluaci6n hizo un examen acabado de la bibliografia sobre las economias en transici6n. Puesto que s6lo se ha completado y evaluado un numero muy reducido de operaciones del Banco en Polonia, el equipo de evaluaci6n realiz6 un estudio detallado de las operaciones en curso. Para las principales areas de la asistencia del Banco, el equipo prepar6 completos docu- mentos de antecedentes. En el Volumen II de la versi6n de tapa gris del presente informe se puede encontrar una evaluaci6n resumida de una pagina de cada prestamo otorgado a Polonia. Durante el proceso de examen, el equipo de evaluaci6n intercambi6 opiniones con los funcionarios del Banco y la CFI que participaron en la etapa de disenio o puesta en practica de la asistencia al pais, o en ambas. Los integrantes del equipo entrevistaron a ex funcionarios y funcionarios actuales de Polonia y, con el fin de observar el proceso de transformaci6n desde las bases, visitaron una pequefia "ciudad-factoria". Ademas, el grupo de evaluaci6n realiz6 dos encues- tas en Polonia bajo la supervisi6n de especialistas de ese pais con el fin de cono- cer la opini6n extraoficial de las partes interesadas de Polonia en general, asi como la posici6n oficial de todos los ministerios relacionados con operaciones del Banco y del Banco Nacional de Polonia. En Varsovia y otros lugares, los inte- grantes del equipo sostuvieron conversaciones con funcionarios de la Adminis- traci6n de Desarrollo de Ultramar y del Knowhow Fund del Reino Unido, el Banco Europeo de Reconstrucci6n y Fomento, el Banco Europeo de Inversiones, la Comisi6n Europea y la Organizaci6n de Cooperaci6n y Desarrollo Econ6mi- cos. El equipo se reuni6 tambien con representantes de los gobiernos del Reino Unido, Alemania y Francia. La oficina del Banco en Varsovia proporcion6 la orientaci6n necesaria, ademas de apoyo logistico. En este informe se recogen las observaciones detalladas y constructivas de todos los entrevistados. El autor agradece sinceramente la generosa ayuda de quienes colaboraron en el estudio. Robert Picciotto Director General Evaluaci6n de Operaciones xii Avant-propos La presente etude, preparee par le Departement de l'evaluation des operations (OED), est une evaluation globale du bien-fonde, de l'efficacit6 et de l'efficience de l'assistance fournie par la Banque a la Pologne. I1 ressort de cette etude que la strategie appliqu6e par la Banque pendant la periode 1986-96 a ete tout a fait adaptee et satisfaisante du point de vue de l'efficacite, mais que son efficience n'a et que marginalement satisfaisante. Entre 1986 et 1989, la Banque s'est livr6e a une etude approfondie de l'economie polonaise, mais ce n'est qu'en 1990, apres que le gouvernement dirige par Soli- darite eut adopte son programme radical de transformation economique, qu'elle a commence A consentir des prets au pays. Le Conseil de la Banque a manifest6 son appui resolu au programme en approuvant quinze prets d'un montant total de 2,6 milliards de dollars pendant les exercices 91-92. La Banque est intervenue dans tous les domaines cles du programme de reforme et a etabli une mission residente de haut niveau A Varsovie en juillet 1990. Forte de ces conseils et de ces financements exterieurs, la Pologne s'achemine a grands pas vers une croissance soutenable. Le PIB provient pour les deux tiers du secteur prive, la monnaie est stable et le pays a retrouve sa credibilite sur les marches internationaux. Les conseils techniques et le soutien intellectuel fournis par la Banque ont facilit6 la tache aux reformateurs polonais de maniere deter- minante. Mais cet afflux de prets ne s'est pas revele sans risques. C'est ainsi que beaucoup de projets tablaient trop sur les intermediaires financiers polonais, dont la capacite avait ete mal evaluee. Les changements frequents au sein de l1'quipe dirigeante du pays ont en outre pose une difficulte supplementaire aux agents de la Banque charges d'executer les projets. Compte tenu de ces contrain- tes, les projets ne pouvaient donner que des r6sultats inegaux. Le programme de reforme du pays est inacheve A plusieurs egards; il faut encore restructurer et privatiser le secteur des entreprises publiques, reorganiser les grandes banques d'etat, renforcer le filet de protection sociale et moderniser l'agriculture et les institutions. Ces reformes faciliteront l'entree de la Pologne dans l'Union europeenne et attireront un flux plus important et soutenu d'investissements priv6s. La Pologne est maintenant moins tributaire de la Banque que pendant les pre- mieres annees de la reforme. Les futures op6rations seront caracterisees par une plus grande selectivite et une efficience accrue. Le succes de la nouvelle strategie d'assistance passe par le resserrement des liens de cooperation avec l'Union europ6enne, le souci d'accorder davantage d'importance aux op6rations du sec- teur prive et la prestation de services hors pret de bonne qualit. Robert Picciotto Directeur general Evaluation des operations xiii Preface La presente evaluation de l'aide de la Banque a la Pologne repose sur un examen approfondi des dossiers, 6tudes economiques et sectorielles, documents de stra- tegie et autres documents internes de la Banque, ainsi que sur des textes perti- nents emanant de la Pologne ou d'autres bailleurs de fonds. L'equipe chargee de l'evaluation a elle-meme effectue un vaste tour d'horizon des ecrits consacres aux economies en transition. La Banque n'ayant a ce jour acheve et evalue qu'un petit nombre d'operations en Pologne, cette equipe a egalement proc6d6 a une etude detaillee des operations en cours. Pour les principaux secteurs ayant beneficie de l'aide de la Banque, elle a redige des documents d'information detailles. Le volume II de la version sous couverture grise du present rapport contient des evaluations resumees d'une page pour chaque pret. Tout au long de ce processus d'examen, l'equipe chargee de l'evaluation a pro- cede a des echanges de vues avec les membre du personnel de la Banque et de la SFI qui avaient participe a la conception et/ou a la mise en oeuvre de l'aide au pays. Elle a interroge d'actuels et anciens responsables polonais et, pour observer le processus de transformation sur le terrain, elle a visite une petite ville fond6e autour d'une entreprise. Elle a egalement effectue deux enquetes en Pologne, sous la supervision d'experts polonais, afin de recueillir le point de vue officieux de l'ensemble des interesses et l'avis officiel de tous les ministeres ayant collabore aux operations de la Banque et de la Banque nationale de Polo- gne. A Varsovie et ailleurs, les membres de l'equipe ont eu des entretiens avec des representants de l'Overseas Development Administration et du Knowhow Fund du Royaume Uni, de la Banque europeenne pour la reconstruction et le developpement, de la Banque europeenne d'investissement, de la Commission europeenne et de l'Organisation de coop6ration et de developpement economi- ques. lls ont egalement rencontre des representants des gouvernements du Royaume Uni, de l'Allemagne et de la France. Pour sa part, le bureau exterieur de la Banque a Varsovie a prodigue conseils et appui logistique. Ce rapport s'inspire des commentaires constructifs et detaill6s de toutes les per- sonnes interrogees. L'auteur exprime sa gratitude a tous ceux qui ont coopere a sa realisation. xiv Acknowledgments This report was prepared by Luis Landau (Task Manager) and Julius Gwyer (Research Assistant). Contributors included Robert Buckley (OEDD2), Professor Christopher Clague (Institutional Reform and the Informal Sector, University of Maryland), Monica Fong (PSP), Christopher Gibbs (OEDD1), Anne Lamond (PBDCP), Andres Liebenthal (OEDD3), Marek Michalski (Jagellonian Univer- sity), Fernando Montes-Negret and Luca Papi (FSD), Josette Murphy (OEDD1), Krzysztof Ners and Ingrid Buxell (Policy Education Center on Assistance to Transition, Institute of East-West Studies, Warsaw), Hugh Stevenson (IFC), Amdt Uhlig and Hans Wyss (Consultants), and Professor Leszek Zienkowski (GUS, Central Statistical Office of Poland). Angie Gentile-Blackwell was the copy and production editor. Norma Namisato, Jasmine Mason-Anderson, and Barbara Yale provided administrative support. xv Abbreviations and acronyms ASAL Agricultural sector adjustment loan ATF Agricultural Task Force CAS Country assistance strategy CEM Country economic memorandum CMEA/COMECON Council of Mutual Economic Assistance CSIR Country strategy implementation review CSP Country strategy paper EBRD European Bank for Reconstruction and Development EC-PHARE European Commission Poland and Hungary Assistance in Restructuring Economies EU European Union ECA Europe and Central Asia Region ECU European unit of currency (now called Euro) EDI Economic Development Institute EFSAL Enterprise and Financial Sector Adjustment Loan EIB European Investment Bank ESAL Energy sectoral adjustment loan ESW Economic and sector work ETP Economic Transformation Program FIDL Financial Institutions Development Loan FY Fiscal year GDPR General Directorate of Public Roads IDA International Development Agency IFC International Finance Corporation IMF International Monetary Fund MTME Ministry of Transport and Maritime Economy NBP National Bank of Poland OECD Organization of Economic Cooperation and Development OED Operations Evaluation Department PDB Polish Development Bank PGNG Polish Oil and Gas Company PKOBP Polish National Savings Bank PKP Polish State Railway PPGC Polish Power Grid Company PPTT Polish Post, Telephone and Telecommunications SAL Structural adjustment loan TPSA Polish Telecommunications Company USAID United States Agency for International Development xvi POLAND COUNTRY ASSISTANCE REVIEW Summary When Poland rejoined the World Bank in 1986, the Bank pursued a strategy of encouraging the economic reform programs of successive Polish governments. The Bank was cautious, however, carefully monitoring the government's progress to determine when the Bank should start to lend. When lending did begin in 1990, the Bank formulated a broad strategy, which gave it flexibility in a rapidly changing environment to maximize the relevance of its assistance pro- gram. Among the Bank's strategic priorities in the early years of assistance were to help Poland secure stable macroeconomic management and thus to strengthen Poland's creditworthiness; to support enterprise reform, restructur- ing and privatization, and private sector growth; to help upgrade the physical and financial infrastructure in support of a market economy, including modern- ization and eventual privatization of the banking system; to protect the environ- ment; and to strengthen the country's social safety net. After the first few years of lending, implementation difficulties began to emerge, especially with credit- line projects. Some projects were too large and complicated, institution building lagged in some sectors, loan documents failed to specify conditions clearly enough, and the changing country social and political situation, especially the many changes in government, further impeded implementation. In spite of these challenges, tangible progress was achieved on most of the Bank's early objectives, and nearly all the sectors in which the Bank has been involved have benefited from its advice and intellectual contributions-perhaps more so than from its traditional lending operations. Bank support for the reform programs, 1986-90 Following Poland's membership in 1986, the Bank immediately launched stud- ies to identify and analyze the needs of the Polish economy. It also started project preparation work, but lending was delayed because of doubts about the sustainability of the government's program, concerns about creditworthiness, and negative signals from major shareholders. The first country strategy paper (CSP), discussed internally in November 1987, proposed that lending be timed to match the strength and progress of the government's reform program and its progress in restoring creditworthiness. Aware of Poland's poor track record on following through on reforms, the Bank sought in the CSP to encourage the gov- emnment to produce and stick to a feasible and credible medium-term economic and debt management program that would restore Poland to creditworthiness. This strategy was reaffirmed in a country strategy note reviewed by manage- ment in mid-1989. After initially opposing lending to Poland, some of the Bank's major sharehold- ers began to urge an acceleration of project preparation, after a newly elected democratic government announced the decisive, market-oriented Economic Transformation Program in 1989. In early November, following Poland's agree- ment on an extended fund facility with the International Monetary Fund (IMF), 1 2 a structural adjustment loan (SAL) was proposed to open up the possibility of further structural and sectoral adjustment loans. In early December 1989 a SAL appraisal mission was sent to Poland. The Bank articulated a strategy of full support for the reform program. Bank lending began in 1990. The Bank's Considering the opportunities and risks facing the Polish reform program, the Bank's cautious strategy of 1987 was appropriate to the uncertainties of the time. cautious assis- While a case could have been made for earlier, selective Bank lending, postpon- tance strategy to ing lending until 1990 had the positive effect of encouraging the Polish authori- ties to make a stronger commitment to reform. And by waiting until the inter- Poland in 1987 national and domestic climates were more receptive, the Bank began lending was appropriate when the ratio of opportunities to risks was unusually favorable. to the uncertain- ties of the time Rapid buildup of the portfolio, 1990-91 Reflecting the high priority the Bank attached to the success of Poland's reform effort, senior Bank officials, from the President and Senior Vice President for Operations to the Regional Vice President and Country Director, were directly involved in shaping the early program. They launched special task forces and expedited internal processes to ensure timely assistance and to exploit the unprecedeinted opportunities for historic reform. Internal documents and statements to the Board showed the Bank's close involvement in all key areas of the reform program: supporting Poland's reentry into the world economy through trade liberalization; resolving foreign debt issues; stabilizing the economy; strengthening the currency and balance of pay- ments; disposing of nonviable enterprises and restructuring those with a future; softening the negative impacts of reforms on vulnerable groups; creating the institutional and legal framework for a market economy; handing over control of the economy from the planners to the market; reducing the burden of controls and monopolies; encouraging the growth of private sector business; and mobi- lizing and coordinating other donor assistance. Lending began in February 1990 with two credit-line loans aimed at increasing convertible currency exports. These were followed by loans for environmental protection, transport, energy, and the financial sector. Much of this lending was through financial intermediaries that were expected to onlend to beneficiaries. A weakness of this approach was that, contrary to established policies, the Bank did not first ascertain whether Polish banks had the institutional capacity to per- form this pivotal onlending role. Subsequent developments showed that they did not. The earliest and most visible Bank support for the reform program was the $300 million Structural Adjustment Loan approved in July 1990. The loan's objective was to bolster the reform program by demonstrating the Bank's belief in the program's technical soundness and viability and by providing foreign exchange to strengthen foreign reserves and add to the credibility of the stabilization program. The executive directors strongly endorsed the loan, although some expressed concern that its conditionality was too general, particularly on subsidy reductions and the pace of privatization. Some execu- tive directors called for more decisive action to protect vulnerable groups dur- ing stabilization. The SAL became a major vehicle for Bank-government dialogue. By including conditionality on environmental policy, for example, the SAL helped bring environmental issues to the center of Bank-government economic dialogue. 3 The Bank responded to the magnitude of the task ahead and the need for a per- manent presence on the ground by setting up a high-level resident mission in Warsaw in July 1990, headed by a member of the regional management team. Its main activities would be to coordinate and help develop the Bank's assistance program, help the government coordinate financial and technical assistance from other sources, and monitor economic, financial, legislative, and social progress. The pace of lending picked up. In the brief period from April to June 1991 the Board approved 12 loans totaling $1,140 million. There were several energy sec- tor loans, including an energy adjustment loan that focused on pricing and sub- sidy issues. There were also loans for telecommunications, employment promo- tion, agriculture, privatization and restructuring, and financial institutions. A financial institutions development loan included both policy and institutional development components aimed at removing interest rate subsidies, reducing directed credit, modernizing banking legislation, helping develop capital mar- kets, and restructuring state-owned commercial banks before privatizing them. Technical assistance was emphasized and included preparation of sector strat- egy papers for agriculture, health, and public housing administration. Six By postponing energy sector studies laid the foundation for restructuring the energy sector. The lending until Bank also mobilized technical assistance from other sources, often on grant terms. With several donors funding technical assistance, issues of aid coordina- 1990, the Bank tion and ownership arose. encouraged An important part of the Bank's assistance strategy was to help Poland put in greater govern- place a legal framework to support a market economy. During the early stage of ment commit- the transition Bank staff underestimated the difficulty of transmitting legal con- cepts to a setting unaccustomed to Western practices. The Bank approached ment to reform... legal reforms in a responsive mode and in limited areas, dealing with legal con- which in turn cerns mainly as they arose in privatization, banking, housing finance, and other projects. Unlike other countries in Eastern Europe and the former Soviet Union, encouraged more where the Bank undertook some more systematic studies of the legal situation, lending the Bank did not receive a clear request from Poland to provide assistance on systemic legal reform. In the early days of the Poland program the Bank did not have a vehicle it could offer the Poles to analyze the legal system or provide grant-based technical assistance. The first two years of lending were more intensive than expected. The last strat- egy paper (1987) prior to the onset of lending in 1990 had proposed a small trial portfolio (one third the size of a typical Bank lending program to a country Poland's size). When instructed to prepare a portfolio much larger than antici- pated, the country team did not always have enough time to fully prepare new projects or to modify existing project proposals to suit the new, more market-ori- ented environment. The quality at entry of credit-line projects was particularly affected by this pressure to lend. Several loans were approved before another formal strategy review was held in November 1992. Despite these handicaps, the Bank was able to provide strong and effective sup- port to the Polish government during the critical early stages of the economic transformation. Although the Bank's loan disbursements helped to strengthen the country's external position in the early years, its technical inputs, advice, and intellectual support were more valuable than its financial assistance. The impetus for the reform program came from the Polish team, and the Bank pro- vided valuable support through advice, technical backing, dissemination of market-oriented ideas, and endorsement of Poland's debt relief proposals to other creditors. 4 A good example of the Bank's early intellectual support was the strategic invest- ment review, which was well received by the government. The review focused on an area that had received scant attention on Poland's transition agenda, the articulation and management of a public investment program to support the emerging market economy. This review was the first comprehensive review by the Bank of public investments in a transition economy. Other internal studies prepared in this period helped to address critical transition issues in several areas, such as public administration reform, trade policy, and fiscal management. Emerging implementation problems and reform issues, 1992-93 Toward the end of 1991 strong doubts were emerging regarding the viability of the Economic Transformation Program. Fiscal policy worsened, the IMF pro- gram went offtrack, banks and enterprises started to fail. Responding to the cri- sis, the Bank made a thorough assessment of the situation in its next major eco- nomic report. The 1992 country economic memorandum (CEM) was intended as an input to decisionmaking in Poland and the Bank's 1992 CSP as well as an analysis of the reform program. The report found that Poland had made great progress and that the private sector was prospering. It also noted that the restructuring and privatization of state enterprises was lagging and that sharp drops in invest- ment in infrastructure and human resource development could be undermining growth. It identified the difficulty of restructuring and privatizing state enter- prises as the root of the problem. The rapid expansion of the private sector was not enough to compensate for the loss in output and employment in many large state-owned enterprises. When subsidies were reduced and state enterprises cut back on free social services, the cost of living rose and real wages fell sharply. Women suffered a dual blow from the loss of daycare facilities and higher than average unemployment. The fiscal impact of the eastern bloc's collapse was worse than had been predicted. Public support for the reform program waned. Successive general elections and coalition realignments led to frequent ministe- But with the rial changes and loss of continuity in reform. country's chang- The CEM recommended that Poland focus on quick ownership reform and inte- ing political and gration into the world economy to expedite enterprise restructuring and priva- social tt , tization, consolidate stabilization, strengthen core state institutions, and build up infrastructure with private sector participation. Since social expenditures implementation had skyrocketed during 1990-92, the CEM called for public finance reforms to problems began target expenditures more efficiently, to allocate social transfers to the most problems began needy, and to weed out the large numbers of ineligible social welfare claims. Tax to emerge reforms were also needed. The country's external debt had to be consolidated, and agreement had to be reached with commercial creditors to fully restore Poland's creditworthiness. With the country's changing political and social situation, implementation of Bank projects suffered, and disbursements lagged behind estimates. It became apparent that some projects were too large and complicated, involving several ministries or agencies that did not always share the same objectives. The turn- over of government personnel also revealed some gaps in the Bank's institution- building efforts. New officials had difficulty learning the Bank's language and procedures. Communications between Polish officials and Bank staff were not always smooth. Lack of continuity in Bank staff sent from headquarters also contributed to implementation delays. In some cases, loan documents failed to spell out clearly what actions the borrower was required to take, having relied 5 instead on general understandings reached with officials who were no longer in office. There was little if any disbursement from Bank projects involving credit lines, a consequence of lack of demand, slow and cumbersome Bank proce- dures, and emerging competition in credit lines from donors offering more flex- ible procedures and better terms than the Bank. Some of these problems point to the difficulty of using traditional Bank instruments in transition economies, in an environment requiring considerable agility and flexibility. At the same time that these portfolio problems were emerging, there were man- agement changes in the Bank's regional office. The Bank missed an opportunity to be closer to the client and empower the resident mission's authority to be more proactive, to resolve implementation issues on the ground. There was less dele- gation of authority from headquarters, and the attention of some managers and senior staff shifted from Poland to other countries in the region. Response times from Washington became longer, and the Bank's assistance to Poland lost some of its earlier drive. Projects took on a life of their own, with progress depending on the initiative of the staff involved and their government counterparts. Projects in sectors whose ministries were shielded from frequent changes in government, and where the Bank had maintained seasoned staff on the ground (such as in infrastructure), continued to make progress, while other projects stagnated. The country strategy paper completed in November 1992 recognized some of the emerging implementation problems, which it attributed mostly to causes Management outside the Bank, such as political instability, lack of familiarity with the Bank's changes in requirements and practices, lack of institutional ability, and competition from other donors. The CSP also defined five objectives of the Bank's lending strategy the regional that were clearly relevant to Poland's situation: securing a stable macroeco- fe further nomic framework and thus strengthen Poland's creditworthiness; supporting O*ce enterprise reform and restructuring, privatization, and the growth of the private compounded sector; upgrading infrastructure (including financial sector infrastructure) in tfol ways that would support a market economy; enhancing environmental amelio- ration in all sectors of economic activity; and supporting a stronger social safety problems net to help the country reduce the social impact of its systemic transformation. The CSP proposed a tentative three-year lending program of $0.9 billion a year, including $400 million to support a debt-reduction operation. It also mentioned the need to improve implementation of existing projects and donor leadership. Despite the emerging implementation problems, the CSP made no recommen- dations for restructuring the portfolio and provided no operational guidelines on how to improve portfolio management, other than calling for targeted super- vision efforts, training in procurement and disbursement procedures, and dis- cussions with the government. This initiative led to a constructive series of country strategy and implementa- tion reviews (CSIRs), which have been held regularly since 1993. The first joint review with the Polish authorities took place in Warsaw in January 1993. Gov- ernment officials complained that some Bank project staff had encouraged line ministries to request new Bank loans without the knowledge or concurrence of the Ministry of Finance. The Bank agreed to respect the coordinating functions of the ministry in formulating future lending proposals. Despite these useful dis- cussions, implementation problems intensified during the year, and the new authorities asked for more time to define priority areas of future cooperation and for the design of new projects in order to "avoid repeating mistakes of the past." A revised country assistance strategy-without the proposed lending targets- was presented to the Board in April 1993. Some executive directors criticized the document's lack of specificity on fiscal projections (which some executive direc- 6 tors thought were overly optimistic), safety net targeting needs, and the social con- sequences of restructuring-objections that in hindsight proved justified. On bal- ance, however, the executive directors endorsed the proposed strategy and praised the emphases on environmental protection and assistance for debt reduction. Despite the mounting implementation difficulties during 1992-93, Bank staff and government counterparts were able to put together seven new loans total- ing $1,436 million. This diversified portfolio included innovative and ambitious loans for health and housing, and loans for forestry development, roads, and private sector development. Two adjustment loans, prepared with full partici- pation by the borrowers, were particularly innovative and far-reaching: the Agricultural Sector Adjustment Loan (ASAL) for $300 million, and the Enterprise and Financial Sector Adjustment Loan (EFSAL) for $450 million. In the health sector the Bank undertook an ambitious program to help to arrest the 20-year decline in the health status of the population and to ameliorate the adverse effects of the economic crisis. The Bank's health sector specialists felt under pressure to expedite preparation of a project, whereas the Polish counter- parts were not ready to define priorities. There was insufficient time for project design, and insufficient exploration of alternatives. As a result, an ambitious $130 million project was put together without full participation-and owner- ship-of stakeholders, giving little attention to women's health issues and miss- ing opportunities for donor coordination, especially in grant-based technical assistance. The project attempted to do too much in too complex a manner. A recent restructuring has addressed these problems and recent implementation performance has improved. Responding to a direct request by the Polish government to the Bank's President in February 1990, staff were instructed to expedite preparation of a housing project. A $200 million loan was approved in June 1992. The project attempted to support the government's movement away from heavily subsidized housing production to a market-based system that eliminated subsidies for new hous- ing. The objective was that the most needy rather than the purchasers of new homes, who tend to be middle- and upper-income families, would receive sub- sidies. It also attempted to replace existing subsidies with finance, with the finance modeled on a successful series of housing finance projects in Mexico. From a loan disbursement perspective, this project clearly did not work. In an economy undergoing major restructuring of production and ownership rights, and simultaneously experiencing a severe recession, it is reasonable to expect housing investment to contract sharply-all the more so considering that housing was one of the most highly subsidized and publicly controlled goods under cen- tral planning. However, to argue that the project had a basic design flaw or that the lack of disbursement is evidence that the project should have been renegoti- ated is contradicted by what occurred in the sector. Now, five years after loan approval, many of the aspirations of the project are in place: interest rate subsidies for new housing have been eliminated, and unsubsidized finance has developed. The Agricultural Sector Adjustment Loan, by contrast, was the result of careful pre- paratory work and Bank leadership. Following two earlier Bank loans for agri- culture that had been rushed to Board approval without adequate preparation, the Bank organized an agricultural task force jointly with the government and the European Community. The task force report on an agricultural strategy for Poland became the framework for government action and for aid coordination by bilateral and multilateral donors. From this participatory framework emerged the ASAL, which was exceptionally comprehensive and offered the opportunity 7 for productive dialogue on most issues related to the transition of agriculture in Poland. The loan's emphasis was on accelerating the privatization and restruc- turing of state enterprises and state farms and on formulating a long-term land policy to facilitate the expansion of the private market for farmland. During implementation, however, this loan fell short of achieving its ambitious objec- tives because of its complexity, which made it difficult to supervise the many components, monitorable actions, studies, and technical assistance projects. A small group of Polish officials, in full cooperation with Bank staff, were behind the other pathbreaking loan, the Enterprise and Financial Sector Adjust- ment Loan. Its objectives were to deal simultaneously with the debt overhang of state enterprises and the portfolio problems of the banking system and to resolve a root cause of the state enterprise crisis, the unclear structure of enter- prise ownership and governance. The loan stimulated the banks to play a cen- tral role in restructuring enterprises through mandatory conciliation agree- ments and provided state enterprises with new opportunities to succeed in their reorganization efforts. Since rapid liquidation or restructuring of sensitive enterprises could be too costly socially and politically, the Bank agreed to finance an intervention fund to act as a social shock absorber during downsizing and liquidation of some large state enterprises. The loan's intended condition- ality was weakened by lack of precision in the legal documents, which did not give the Bank a clear mandate to monitor the agreed pace of privatization or to supervise the operations of the intervention fund. Notwithstanding these limi- tations, the EFSAL was effective in proposing an innovative decentralized approach to the recovery and restructuring of bank portfolios that isolated banks from political influences and enhanced their autonomy. Reduced lending, portfolio consolidation, and a sharper focus on implementation, 1994-95 By the beginning of 1994, the Polish economy was moving toward a strong By 1994 the recovery, as the earlier reforms began to bear fruit. Bank project implementation 1 problems persisted. The government continued to welcome the Bank's policy government advice. However, it also was articulating more clearly its reservations about the b to voice lack of flexibility of the Bank's lending instruments, including the mounting bgnt4!c burden of the Bank's commitment charges on undisbursed loan balances and reservations the financial management problems associated with the currency-pool system. The Bank's requirement of a government guarantee was seen as encouraging about the lack of borrowers to be irresponsible. In the social sectors the government criticized flexibility of the deficiencies in project design, such as insufficient local participation, the lack of monitorable action programs for project implementation, and vague definition Bank's lending of expected benefits. The Bank, for its part, was increasingly concerned about instruments the slow progress on important structural and institutional reforms that were required under various projects. These included progress on privatizing and restructuring enterprises, strengthening public finances, reducing the losses of the specialized banks, rationalizing the banking system, creating a deposit- insurance scheme, adopting a law on collateral, streamlining safety net opera- tions, and opening up public utilities to private sector participation. Although the Bank offered to cancel unsatisfactory loans, the authorities chose not to do so. The country director and the government agreed, during a special Bank mis- sion to Poland in January 1994, on a period of consolidation, during which pri- ority would be given to implementation of existing projects. A notable exception in this period of consolidation was the joint efforts of the Bank, the Fund, and other major donors in putting together a debt and debt-ser- 8 vice reduction package on Poland's massive debt to private banks, which had been in default. A successful London Club arrangement was reached in March 1994, which the Bank supported with a $400 million loan ($170 million from the Debt and Debt Service Reduction Loan and $230 million from funds set aside from three previously approved adjustment loans). Poland used these funds to buy The Bank did back a part of its outstanding debt. The Bank's support-financial and techni- cal-for this important operation was pivotal and showed the responsiveness of support a flexible the Bank when it is able to use more flexible instruments. The deal provided London club Poland with exceptional amounts of debt relief and helped restore its creditwor- thiness and access to international financial markets. arrangement, In parallel with the London Club arrangements, Poland's economic situation which helped continued to improve. Financial stability and continued private sector expan- restore Poland's sion helped to attract foreign private capital inflows, and Poland soon had an abundance of foreign exchange. Its need for Bank financial support was dimin- creditworthiness ishing, largely because other international financial institutions were offering finance with simpler conditionality, faster processing, and more attractive finan- cial conditions. Poland's prospects for accession to the European Union, a high priority on the government's agenda, also reduced the need for the Bank's pres- ence in the country. The government's new stance was spelled out in an official document published in June 1994, "The Strategy for Poland." Quick accession to the European Union was a major objective, along with slowing the rate of increase in the public debt. These changes were reflected in Bank-government dialogue, which increasingly became a dialogue between equals. At a country strategy review in Warsaw in April 1994 and in subsequent discussions prior to completion of the 1994 coun- try assistance strategy (CAS), the parties reiterated the critical importance of halting the deterioration in portfolio performance. The authorities were con- cerned about the mounting cost of the Bank's commitment fees on the large pipeline of undisbursed loans.' The Bank proposed maintaining an annual level of commitments of $600-800 million for the next five years (compared with $880 million in 1991-93), but the authorities pointed out that the size of the lending program would be affected by private capital inflows. They expressed a prefer- ence for smaller and simpler Bank projects and for social sector projects that could not attract private financing. The Bank recognized that errors had been made in some cases, and repeated its willingness to restructure and/or cancel ongoing loans. Responding decisively and with flexibility the Bank conducted a thorough portfolio review. This resulted in major restructuring of some loans, such as health, and in dropping from the pipeline a large number of projects in preparation.2 The Warsaw office representative intensified the dialogue with government officials in an effort to resolve implementation problems. The 1994 country assistance strategy proposed a three-year lending program of $600-700 million, two fifths of it for large adjustment loans. The Region felt that it needed the special incentive provided by adjustment operations to push for comprehensive structural reforms. The aggressive lending policies of European international financial institutions-often delinked from the policy debate and supported by complementary concessionary finance from the European Union-had diminished the Bank's financial leverage to push for reforms in the context of investment operations. Senior management cautioned that so much reliance on policy-based adjustment operations was undesirable because it could lead to the neglect of technical and institutional aspects of the reforms. The strategy emphasized three areas for Bank support: reforming public finance 9 (particularly social security expenditures), closing down large loss-making state enterprises, and reforming the financial sector. The CAS also proposed a focus on private sector development, including the provision of contractual compli- ance guarantees to encourage private sector financing, in close cooperation with the International Finance Corporation (IFC). The CAS included a proposal to continue working on small, simpler investment projects in social and economic infrastructure and to put more emphasis on work at the local government level. This strategy did not include operational actions in a number of important areas, such as accession to the European Union, poverty- and gender-related issues, or the still largely distorted agricultural sector. During the Board discus- sion in November 1994, several executive directors expressed concern about aid coordination and possible duplication of effort, slow progress on privatization, and the large unfinished agenda in the financial sector. The Board nonetheless approved the proposed strategy while urging the Bank to make further efforts to improve the quality of the portfolio and to encourage private sector partici- pation in the financing of infrastructure projects. Progress in meeting the 1994 CAS lending objectives was modest at best. New loan commitments fell far short of the amounts proposed in the CAS, and no adjustment loans were approved. As a result of meetings (CSIRs) held in July 1995 and June 1996, the Bank-country focus shifted toward implementation, improving results on the ground, the possible use of nonlending instruments of assistance, and better aid coordination. Anew country assistance strategy for Poland has just been completed following one year of intensive collaboration and reflection within the Region and with counterparts in the government, representatives of Polish civil society, and the Operations Evaluation Department (OED). Throughout preparation of the strat- egy, the OED team evaluating the Bank's assistance program to Poland shared with the country team its findings as they emerged, including background papers for a number of sectors and results from OED surveys of Polish stake- holders and ministries. At a time of change and uncertainty over the direction of the Bank's involvement in Poland (especially with the prospect of Poland's accession to the European Union), this review helped to take stock of and make recommendations based on the Bank's experience in Poland to date. The new CAS incorporates the major findings and recommendations of this report. The new country The new CAS recognizes that, having gained good access to international mar- assistance strategy kets, Poland's need for the Bank's financial assistance is small. Poland's expected recognizes accession to the European Union will further reduce the Bank's policy leverage. t Therefore, the Bank's future role will remain as an independent adviser in policy that Poland's formulation and as a partner in building and strengthening market-oriented need for the institutions. As a consequence, the CAS proposes to assist Poland with greater selectivity in three major ways: (1) by helping formulate and implement policies Bank's financial that are required for sustained growth; (2) by providing an independent evalua- assistance is small tion capacity, as well as investment support in selected areas such as the environ- ment and labor market policies; and (3) by helping to ensure the social sustain- ability of reform and reduce poverty. This strategy is highly relevant to today's needs and is consistent with the recommendations of this review. Outcome On balance, Poland's transition performance has been excellent both in compar- ison with other transition economies and in its own right. Among the key indi- 10 cators reflecting this remarkable performance are that Poland experienced the highest average GDP growth rate in the period 1990-95 compared with other transition economies, and by mid-1995 its private sector activity accounted for 60 percent of GDP (see Table 5.3). Also, in 1996 Poland became a member of the Organization for Economic Cooperation and Development, and its prospects for early accession into the European Union are good. In a 1995 report on the progress of transition economies, the European Bank for Reconstruction and Development ranked Poland among the top performers, particularly in the areas of small-scale privatization and trade and foreign exchange reforms, and in setting up a regulatory environment conducive to private investment (see Nearly all of the Table 5.3). On the other hand, inflation and unemployment remain high. While te Jpoverty also remains relatively high, it should be noted that it is declining, and sectors in which that the majority of poverty in Poland is classified as "shallow," and is therefore the Bank has expected to improve substantially with sustained economic growth. been involved Tangible progress has been achieved on most of the Bank's early objectives, and nearly all of the sectors in which the Bank has been involved have benefited have benelfided from its advice and intellectual contributions. Bank support was pivotal in from its advice securing exceptional levels of debt reduction and in restoring Poland's credit- worthiness. Thanks to early and careful planning and to remarkable staff conti- and intellectual nuity, the Bank has been instrumental in assisting to upgrade the country's contributions infrastructure in power, energy, transport, and telecommunications; introduc- ing new ideas, technology, and production methods; and opening the door for private sector participation. Together with the IFC, the Bank helped to set up twinning arrangements that proved valuable in modernizing several Polish banks. Bad loans have declined sharply, and other financial sector reforms are under way. In agriculture the Bank's leadership helped to coordinate the efforts of various donors. Environmental issues have been addressed decisively in most sectors. In the social sectors the Bank warned early on of the many worri- some problems now facing the country, such as the explosion of pension funds, but the government did not fully address these issues owing to their political sensitivity. However, intensive ongoing dialogue on public sector reforms, decentralization, education, health, and other social policies are expected to yield positive results in the near future. Across sectors, the Bank's involvement has helped put in place good management practices, transparent public pro- curement procedures, and strong environmental protection measures. Bank research and economic and sector work, complemented by the dissemination activities of the Economic Development Institute, have been influential in bringing about a better understanding and acceptance of Poland's market- oriented policies. Those achievements are remarkable, even if they fall short of the Bank's original expectations. In many areas, however, there is an unfinished agenda of impor- tant reforms that must be carried out to ensure the sustainability of Poland's transformation: * The restructuring and privatization of unprofitable state enterprises and state-owned commercial banks need to be accelerated (public enterprises still account for three fifths of industrial employment). Heavy industry (coal, petrochemicals, steel, oil and gas) needs particular attention. So do the large state-owned specialized banks (housing, rural finance), which account for one third of the assets and liabilities of the banking system, are in precarious financial shape, and impose a heavy burden on the budget. X Reform of the social safety net is another urgent task. Programs should be targeted to the most needy and should address the special problems of women and children. Failure to reform the pension system will lead to unmanageable public sector deficits. * The legal foundations for a smooth-working market economy need to be strengthened by implementing the unfinished agenda: enforcing the collat- eral law and registry of liens, regulating leasing activities, strengthening bank supervision, and developing more fully the institutions of free markets and commercial law to facilitate private investment in infrastructure and the development of capital markets more generally. * Agriculture needs to be modernized and opened up more to market forces, not only to permit its fuller development but also to begin meeting the requirements of eventual accession to the European Union. * Critical reforms, including a regulatory regime aimed at encouraging private investment, need to be completed in railroads, motorways, energy, and tele- communications. Looking to the future, the consensus in Poland in favor of becoming a member There is reason of the European Union gives reason for confidence that the reforms begun in for confidence 1989 will continue and that achievements will be sustained. As a member of the European Union, Poland would be locking in its reforms, making reversal much that the reforms more difficult. begun in 1989 will continue Assessment of Bank assistance3 and that achieve- Overall, the Bank's strategy was highly relevant to support Poland's needs at a ments will be most critical time in its history. The efficacy of the Bank's support varied over sustained time and among sectors. It was perhaps high in the case of adjustment loans that dealt with the central authorities and in loans to strong, highly technical sectors. On the other hand, in those sectors that were more subject to frequent political changes, a stronger Bank presence could have yielded better results. On balance, however, the efficacy of the Bank's assistance is rated as satisfactory. When com- pared with comparable borrower countries in the Europe and Central Asia (ECA) Region and elsewhere, the Bank carried out its assistance program at a relative high cost in terms of staff and financial resources; its efficiency can, at best, only be rated as marginally satisfactory. But, in assessing the Bank's and the borrower's performance, it is necessary to keep in mind that this was a completely new, unprecedented experience for both. And although mistakes were made on all sides, the overall evaluation is that both were satisfactory. The institutional development impact of the Bank's assistance was substantial, and the sustainability of the benefits is likely. Major findings for Poland The Bank's efforts had a strong impact in many ways in the important area of institution building. Public sector management practices, such as procurement, prioritization of public expenditures, foreign-debt management, and opening up to private sector participation in transport, clearly benefited from the Bank's involvement. The modernization of commercial banks also reflects successful Bank support for institutional development. But progress has been disappoint- ing in other areas of institution building, such as ending the dependence of major enterprises on fiscal subsidies, bringing down inflation, rationalizing the management of specialized banks, and sustaining the pace of privatization. 12 Despite a generally positive outcome in many areas, several factors diminished the efficacy of the Bank's assistance. During 1989-91, the Bank clearly estab- lished that its main strategic goal in helping Poland was to support the unprec- edented reforms through high levels of lending. Initially, the only available oper- ations were credit lines that had been previously appraised and set aside. These were quickly approved, without due consideration to their adequacy as a vehicle for resource transfer under the complex change of circumstances. As some had predicted, the credit lines failed to achieve their objectives, and became in the end a major hindrance to Bank-Poland relations. At the same time, several other projects were developed, addressing more directly the difficult problems of the transition in several areas. With all the difficulties connected to designing policy changes in this unprecedented environment, it is here that the Bank gave its best contribution to Poland's agenda. Other problems during the early period of assistance included the frequent changes in government and in government commitment to reform, creating bureaucratic gridlock and disrupting policy dia- logue and program implementation. Competition to lend to Poland from several donors, some with different policy objectives, reduced Poland's receptivity to Early pressure to Bank advice. And changing priorities within the Bank sometimes resulted in less lend resulted in continuity and sustainability of effort than were needed to carry out the ambi- tious reform agenda. Partly as a result of these problems, the cost effectiveness poor quaity at of the Bank's country assistance program was relatively low. entry for many The difficulties were aggravated by the lack of flexible instruments for assis- projects; selectZv- tance. Early pressure to lend resulted in poor quality at entry for many projects, ity should be notably those that relied on credit lines for disbursement. Loan conditionality was not always clearly spelled out, in part because the Bank's lawyers were not the guiding involved at the project design stage. The Bank's heavy reliance on quick-dis- principle bursing adjustment loans (55 percent of disbursements in FY90-96) limited its ability to influence sector policies and institution building at the project level. The problem was compounded by excessive Bank centralization of decision- making, by ambiguity in the conditionality of certain loans, by weak enforce- ment of conditionality, and by loan cancellations before all conditions had been carried out. Inadequate coordination with other donors also weakened policy reforms and contributed to wasted technical assistance funds. There is clearly a useful role for the Bank in helping Poland address much of its unfinished agenda. But Poland's transformation has come a long way, and its need for Bank assistance is much less than it was. It has abundant foreign exchange, first-class development experts of international caliber, and easy access to international capital markets and to European financial institutions, which are eager to provide technical and financial assistance. The Bank, on the other hand, must take the needs of its other member countries-many of them in the ECA Region-into account as well, particularly the countries that are just beginning the transformation process and for which Bank help is vital. Therefore, in formu- lating the Bank's role in Poland, selectivity should be the guiding principle. The focus of future Bank assistance should be policy formulation and institution building rather than the transfer of resources. Assistance could still be directed toward sectors such as transport, energy, and telecommunications, provided that there is a full commitment to carry out the remaining reforms and to open up the sectors to private participation. In agriculture and the social sectors a precondi- tion for additional Bank support should be an unequivocal commitment to needed reforms by all the ministries involved. More generally, the Bank's empha- sis should be on encouraging private sector participation, cofinancing with other international financial institutions, and cooperating closely with the IFC. It is also important not to neglect the monitoring of macroeconomic and fiscal manage- 13 ment, particularly in the absence of any IMF conditional assistance programs. Conventional medium-term analysis of creditworthiness should continue, not- withstanding Poland's comfortable foreign-exchange position. If it is decided that future Bank assistance should consist largely of nonlending services, such as spe- cial studies, technical assistance, or guarantee arrangements for private sector investment, the Bank could consider charging Poland for the cost of such services. Findings for transition countries The Bank's experience in Poland also has implications for its assistance pro- The Bank's grams in other transition countries. experience in Strategy Poland also has * The Bank needs flexible instruments to support a government's reform pro- implications for gram other than through rapid approval of new loans. In Poland, although its assistance the Bank's loan disbursements helped to strengthen the country's external position in the early years, its technical inputs, advice, and intellectual sup- programs in port were more valuable than its financial assistance. The Bank provided other transition valuable support for Poland's home-grown reform program through advice, countries technical backing, dissemination of market-oriented ideas, and endorsement of Poland's debt-relief proposals to other creditors. � Relatedly, staff should not be pressured to rush projects to the Board for approval when that means sacrificing quality at entry. The first two years of lending to Poland were more intensive than expected. The last strategy paper (1987) prior to the onset of lending in 1990 had proposed a small trial portfolio. When instructed to prepare a portfolio much larger than antici- pated, the country team did not have time to fully prepare new projects or to modify existing project proposals to suit the new environment. * The Bank's budget allocation for work on individual countries should not be rigidly linked to the amount of its lending there, to avoid building in per- verse incentives for lending. * Frequent monitoring and self-evaluation of progress on meeting strategy objectives are essential. Completion reports should be prepared without delay, so as not to miss opportunities of learning from experience. Design * Major stakeholders should participate fully in project design, and the Bank should ensure that there is consensus and ownership within the government at early stages of project preparation. In some loans to Poland, loan docu- ments failed to spell out clearly what actions the borrower was required to take, having relied instead on general understandings reached with officials who were no longer in office. * In a fast-changing and uncertain environment, Bank staff should be ready to modify projects as the environment changes. Risk analysis and flexibility should be built into project design. Similarly, projects should allow for easy changes in implementation in light of new developments. * Project design should incorporate gender and poverty targeting whenever feasible. In the case of Poland's Structural Adjustment Loan, some of the 14 Bank's executive directors expressed concern that its conditionality was too general, particularly on subsidy reductions and the pace of privatization. Although they strongly endorsed the loan, their concern proved warranted since subsidy reductions remained a sticking point and privatization pro- ceeded more slowly than anticipated. Similarly, some executive directors called for more decisive action to protect vulnerable groups during stabiliza- tion. Again, more could have been done. When subsidies were reduced and state enterprises cut back on free social services, the cost of living rose and real wages fell sharply. Women suffered a dual blow from the loss of daycare facilities and higher than average unemployment. * Loans such as the SAL can be an important vehicle for Bank-government dia- logue on issues such as environmental management. By including condition- ality on environmental policy, Poland's SAL helped bring environmental issues to the center of Bank-government economic dialogue. * The need for flexibility in an uncertain environment makes it risky to start projects that are difficult to modify as the environment changes. Small, simple projects are better than complex projects involving several implementa- tion agencies. Implementation and resident missions * The Bank should make sure that sufficient staff are committed to ensure suc- cessful implementation. If the project is pursuing institution building or dif- ficult policy changes, the Bank should be prepared to station seasoned staff members in the field until the project is well under way. * High staff turnover may disrupt the continuity of projects and lead to a loss of institutional memory. Continuity of project staff is particularly important when there are frequent changes on the borrower's side. * Implementation decisions should be delegated as much as possible to the staff who are working on the ground, subject to clearly formulated project objectives and monitorable indicators of performance. Institutional and legal issues * The Bank should give early attention to the creation of a legal and institu- tional framework for a market economy. Legal experts should be involved early and more fully in program design, playing a substantive role. * Institutional development and capacity must be carefully assessed. Much of the initial lending to Poland was through financial intermediaries that were expected to onlend to beneficiaries. But the Bank did not first ascertain whether Polish banks had the institutional capacity to perform this pivotal onlending role, and subsequent developments showed that they did not. There was little if any disbursement from Bank projects involving credit lines, a consequence of lack of demand, slow and cumbersome Bank proce- dures, and emerging competition in credit lines from donors offering more flexible procedures and better terms than the Bank. Maximizing combined donor impact * Aid coordination must be monitored to ensure consistency of policy advice and to avoid duplication of effort. 15 * Donor coordination can be crucial to success. The joint efforts of the Bank, the Fund, and other major donors were essential in putting together a debt and debt-service reduction package on Poland's massive debt to private banks, which had been in default. The Bank's financial and technical support was pivotal to the successful London Club arrangement reached in March 1994. Poland received exceptional amounts of debt relief and was able to restore its creditworthiness and access to international financial markets. Dissemination * The Bank should make a greater effort to disseminate its studies and intellec- tual products in the client countries, including the translation into the local language of at least the summaries of its economic and sector studies. Notes 1. Commitment fees charged by the Bank on undisbursed investment loans in FY94 were $4.3 million, equivalent to 3.3 percent of disbursements on investment loans in that year. For the period FY90-96 the equivalent percentage was 1.9 percent. 2. The process of dropping projects continued into FY96. In FY95-96, a total of 15 proj- ects were dropped, after having invested in them at least 710 staffweeks at a cost of $2.3 million (these figures include only direct costs, and exclude overhead and management time). These costs are higher (in relation to total lending costs) than regional and Bank- wide averages. Dropping projects when it is realized that they are not likely to succeed is a good managerial practice. However, the direct cost of dropped projects for Poland has been much higher than for other countries. In FY93-96, the cost was 53 staffweeks, com- pared with 29 for the Europe and Central Asia Region's Department 11, 26 for ECA as a whole, and 33 Bankwide. This suggests that the Bank allowed those projects to drag on too long before deciding to scrap them. Chapter 4 of this report discusses the cost effec- tiveness of the Bank's program in Poland. 3. Commenting on an earlier draft of this report, the Ministry of Finance noted that, apart from the issues dealt with above, the report accurately analyzes the successes and failures in the cooperation of the World Bank and Poland, although in several parts it ex- cessively points out the causative role of the World Bank. The ministry went on to note that in the process of transforming the Polish economy, the Bank has played a very im- portant role, among other things by supporting the reconstruction of the institutional sys- tem. But in most cases the Bank's actions supplemented and authenticated the economic programs already taken up and being carried out by Polish authorities. POLAND COUNTRY ASSISTANCE REVIEW Resumen Tras la reincorporaci6n de Polonia al Banco Mundial en 1986, la instituci6n deci- di6 que su estrategia consistiria en fomentar los programas de reforma econ6mica de los sucesivos gobiernos del pafs. Sin embargo, decidi6 tambien vigilar cuida- dosamente los progresos para determinar cuando deberfan empezar a otorgarse prestamos. Al empezar a conceder los prestamos, a comienzos de 1990, el Banco formul6 una estrategia amplia que le permitia actuar con flexibilidad, en un medio en rapido proceso de cambio, a fin de maximizar la adecuaci6n de su pro- grama de asistencia. Entre las prioridades y estrategias del Banco en esos primeros afios cabe citar las siguientes: ayudar a Polonia a establecer una gesti6n macroeco- n6mica estable y fortalecer asi la solvencia; apoyar la reforma, la reestructuraci6n y la privatizaci6n de las empresas, y el crecimiento del sector privado; ayudar a mejorar la infraestructura fisica y financiera en apoyo de una economia de mer- cado, incluida la modernizaci6n y la privatizaci6n oportuna del sistema bancario; proteger el medio ambiente, y reforzar la red de seguridad social del pais. Al cabo de unos afios, empezaron a surgir dificultades de ejecuci6n, especialmente con los proyectos que tenian lineas de credito. Algunos proyectos eran demasiado gran- des y complicados, la creaci6n de instituciones estaba atrasada en algunos secto- res, en los documentos de los proyectos no se especificaban con suficiente claridad las condiciones, y la situaci6n polftica y social cambiante del pais, especialmente los numerosos cambios de gobierno, perjudicaban tambien la ejecuci6n. Pese a estos desafios, se lograron progresos tangibles en relaci6n con la mayorfa de los priTneros objetivos del Banco, y casi todos los sectores en que ha participado la ins- tituci6n se han beneficiado de su asesoramiento y sus contribuciones intelectua- les, quizas mas que de sus operaciones de prestamo tradicionales. Apoyo al Banco para el programa de reforma, 1986-90 Al incorporarse Polonia, en 1986, el Banco inici6 inmediatamente estudios para identificar y analizar las necesidades de la economia polaca. Empez6 tambien los trabajos de preparaci6n de proyectos, pero los pr6stamos se demoraron a causa de dudas acerca de la sostenibilidad del programa del gobierno, la incertidumbre res- pecto de la solvencia y una actitud negativa por parte de la mayorfa de los accionis- tas. En el primer documento de estrategia para el pafs, que fue examinado interna- mente en noviembre de 1987, se proponia que los prestamos se concedieran de acuerdo con el fmpetu y los avances del programa de reforma del gobiemo y con su progreso en el restablecimiento de la solvencia. Consciente de los antecedentes poco felices de Polonia en cuanto a la persistencia en el proceso de reforma, en la estrate- gia para el pais el Banco procur6 alentar al gobierno a que preparara y aplicara fiel- mente un programa econ6mico y de gesti6n de la deuda que fuera viable y creible para restablecer la solvencia de Polonia. Esta estrategia se reafirm6 en una nota sobre la estrategia para el pais que la administraci6n examin6 a mediados de 1989. Tras oponerse inicialmente a los prestamos a Polonia, algunos de los principales accionistas del Banco empezaron a instar a que se acelerara la preparaci6n de pro- 16 17 yectos, despues de que un gobierno democratico recientemente electo anunciara el Programa de transformaci6n econ6mica orientado hacia el mercado en 1989. A comienzos de noviembre, tras el acuerdo de Polonia sobre un servicio ampliado de financiamiento con el Fondo Monetario Internacional, se propuso un pr6stamo de ajuste estructural para abrir la posibilidad de nuevos prestamos de ajuste estructural y sectorial. A comienzos de diciembre de 1989, se envi6 a Polonia una misi6n de evaluaci6n de un prestamo de ajuste estructural. El Banco elabor6 una estrategia en que se apoyaba plenamente el programa de reforma, y empez6 a conceder prestamos en 1990. Teniendo en cuenta las oportunidades y los riesgos que enfrentaba el programa de reforma de Polonia, la estrategia cautelosa del Banco en 1987 respondia a las incertidumbres de la epoca. Aunque tal vez el Banco podria haber concedido prestamos selectivos ya antes, su aplazamiento hasta 1990 tuvo el efecto posi- tivo de alentar a las autoridades de Polonia a acometer mas decididamente la reforma. Ademas, porque esper6 a que el clima internacional e interno fuera mas receptivo, el Banco empez6 a otorgar los prestamos cuando la relaci6n entre oportunidades y riesgos era excepcionalmente favorable. Rapido crecimiento de la cartera, 1990-91 En raz6n de la alta prioridad asignada al exito del esfuerzo de reforma de Polonia, varios funcionarios de nivel superior del Banco, desde el Presidente y el Primer Vicepresidente de Operaciones hasta el Vicepresidente Regional y el Director a cargo del pais, participaron directamente en la elaboraci6n del primer programa. Se establecieron grupos de trabajo especiales y se aceler6 la tramita- ci6n interna para asegurar una asistencia oportuna y para explotar las oportu- nidades sin precedentes de una reforma hist6rica. Los documentos internos y las declaraciones presentadas al Directorio Ejecutivo indicaban una estrecha participaci6n del Banco en todas las areas clave del pro- grama de reforma: el apoyo de la reincorporaci6n de Polonia a la economia mundial a traves de la liberalizaci6n del comercio; la soluci6n de las cuestiones de deuda externa; la estabilizaci6n de la economia; el fortalecimiento de la moneda y la balanza de pagos; la eliminaci6n de las empresas no viables y la reestructuraci6n de las que tenian un futuro; la suavizaci6n de los impactos negativos de las reformas sobre los grupos vulnerables; la creaci6n del marco institucional y juridico para una economia de mercado; el traspaso del control de la economia de los planificadores al mercado; la reducci6n de la carga de los controles y monopolios; el fomento del crecimiento de las empresas del sector privado, y la movilizaci6n y coordinaci6n de la asistencia de otros donantes. Los prestamos empezaron en febrero de 1990 con dos lineas de cr6dito encami- nadas a aumentar las exportaciones en moneda convertible. A continuaci6n se otorgaron prestamos para la protecci6n del medio ambiente, el transporte, la energia y el sector financiero. Gran parte de estos prestamos se hicieron a trav6s de intermediarios financieros que se esperaba que concedieran a su vez presta- mos a los beneficiarios. Un problema de este enfoque era que, contrariamente a las politicas establecidas, el Banco no se asegur6 primero de que los bancos polacos tuvieran la capacidad institucional para asumir esa funci6n crucial de intermediaci6n. Los acontecimientos mostraron posteriormente que no tenian esa capacidad. La primera muestra de apoyo del Banco al programa de reforma, y la mas visi- ble, fue el pr6stamo de ajuste estructural de $300 millones aprobado en julio de 18 1990. El objetivo del prestamo era apoyar el programa de reforma demostrando la fe del Banco en la correcci6n tecnica y la viabilidad del programa y proporcio- nando divisas para fortalecer las reservas externas y aumentar la credibilidad del programa de estabilizaci6n. El Directorio Ejecutivo apoy6 firmemente el prestamo, aunque algunos miembros expresaron preocupaci6n porque su con- dicionalidad era demasiado general, en particular con respecto a la reducci6n de las subvenciones y el ritmo de la privatizaci6n. Algunos miembros del Directo- rio Ejecutivo pidieron que se adoptaran medidas mas decididas para proteger a los grupos vulnerables durante la estabilizaci6n. El prestamo para ajuste estruc- tural se convirti6 en un vehiculo importante para el dialogo entre el Banco y el gobierno. Al incluir condiciones relativas a la politica ambiental, por ejemplo, el prestamo contribuy6 a que se prestara atenci6n a las politicas ambientales en el dialogo econ6mico entre el Banco y el gobiemo. El Banco respondi6 a la magnitud de la tarea que tenia ante si y a la necesidad de una presencia permanente sobre el terreno mediante el establecimiento, en 1990, de una misi6n residente en Varsovia, encabezada por un miembro del equipo de gesti6n regional. Sus principales actividades serian coordinar y ayu- dar a elaborar el programa de asistencia del Banco, ayudar al gobierno a coordi- nar la asistencia financiera y tecnica de otras fuentes y vigilar los progresos eco- n6micos, financieros, legislativos y sociales. El ritmo de los cr6ditos se aceler6 y, en el breve perIodo de abril a junio de 1991, el Directorio aprob6 12 prestamos por un total de $1.140 millones. Hubo varios prestamos destinados al sector de energia, incluido uno de ajuste que se concen- traba principalmente en cuestiones de precios y subvenciones. Se otorgaron tambien prestamos para telecomunicaciones, promoci6n del empleo, agricul- tura, privatizaci6n y reestructuraci6n, e instituciones financieras. Un prestamo para el fomento de las instituciones financieras incluia componentes de politica y desarrollo institucional encaminados a eliminar las subvenciones de las tasas de interes, reducir los creditos directos, modernizar la legislaci6n bancaria, ayu- dar a desarrollar mercados de capital y reestructurar los bancos comerciales de propiedad estatal antes de su privatizaci6n. Se hizo hincapie en la asistencia tenica, que inclufa la preparaci6n de documen- tos sobre estrategia sectorial para la agricultura, la salud y la administraci6n de las viviendas estatales. En seis estudios sobre el sector de energIa se sentaron las bases para su reestructuraci6n. El Banco moviliz6 tambien asistencia tecnica de otras fuentes, con frecuencia en condiciones de donaci6n. Al haber varios donantes que financiaban la asistencia tecnica, se plantearon problemas de coor- dinaci6n y propiedad de la ayuda. Una parte importante de la estrategia de asistencia del Banco consistia en ayu- dar a Polonia a establecer un marco juridico para apoyar una economia de mer- cado. Durante las primeras etapas de la transici6n, los funcionarios del Banco subestimaron la dificultad de transmitir conceptos juridicos a personas no acos- tumbradas a las practicas occidentales. El Banco encar6 las reformas juridicas en respuesta a las necesidades expresadas y solamente en algunas areas, y se ocup6 de los problemas juridicos a medida que surgian en las areas de la privatizaci6n, la banca, el financiamiento de la vivienda y otros proyectos. A diferencia de otros paises de Europa oriental y la ex Uni6n Sovi6tica, en que el Banco empren- di6 algunos estudios mas sistematicos sobre la situaci6n juridica, la instituci6n no recibi6 de Polonia una solicitud clara de asistencia para la reforma del sis- tema juridico. En la etapa inicial del programa de Polonia, el Banco no tenia un vehiculo que pudiera ofrecer a ese pais para analizar el sistema juridico o pro- porcionar asistencia tecnica en forma de donaci6n. 19 En los primeros dos afios hubo un volumen de prestamos superior a lo previsto. En el ultimo documento de estrategia (1987) antes del comienzo de los presta- mos en 1990 se habia propuesto una pequefia cartera a modo de ensayo (equi- valente a un tercio del volumen de un programa de pr6stamos tipico del Banco a un pais del tamafio de Polonia). Cuando se le indic6 que preparara una cartera mucho mayor que la prevista, el equipo a cargo del pais no tuvo tiempo sufi- ciente para preparar cabalmente nuevos proyectos o modificar las propuestas de proyectos existentes para adecuarlas a un medio nuevo, mAs orientado hacia el mercado. La calidad inicial de los proyectos de lineas de credito result6 especial- mente afectada por esta presi6n. Se aprobaron varios prestamos antes de que se realizara otro examen formal de la estrategia, en noviembre de 1992. Pese a estas dificultades, el Banco pudo proporcionar un apoyo firme y eficaz al gobierno de Polonia durante las etapas iniciales criticas de la transformaci6n econ6mica. Los desembolsos de los pr6stamos del Banco ayudaron sin duda a fortalecer la posici6n extema del pais en los primeros afios, pero sus aportes tec- nicos, su asesoramiento y su apoyo intelectual fueron mAs valiosos que la asis- tencia financiera. El impetu del programa de reforma provino del equipo polaco, y el Banco proporcion6 un valioso apoyo mediante su asesoramiento y su respaldo t6cnico, la difusi6n de las ideas orientadas hacia el mercado y el apoyo de las propuestas de alivio de la deuda de Polonia ante otros acreedores. Un buen ejemplo del apoyo intelectual del Banco en las primeras etapas fue el examen estrat6gico de las inversiones, que fue bien recibido por el gobierno. El examen se concentr6 en un area que habia recibido poca atenci6n en el pro- grama de transici6n de Polonia, a saber la elaboraci6n y la gesti6n de un pro- grama de inversiones estatales para apoyar la economfa de mercado emergente. Este fue el primer examen amplio realizado por el Banco de las inversiones esta- tales en una economia en transici6n. Otros estudios internos preparados durante este periodo contribuyeron a encarar cuestiones criticas para la transi- ci6n en varias esferas, como la reforma de la administraci6n publica, la politica comercial y la gesti6n fiscal. Problemas de ejecuci6n y de reforma, 1992-93 Hacia fines de 1991 empezaron a surgir serias dudas sobre la viabilidad del pro- grama de transformaci6n econ6mica. La politica fiscal empeor6, el programa del FMI se desvi6 de su curso, los bancos y las empresas empezaron a fallar. En res- puesta a la crisis, el Banco hizo una evaluaci6n a fondo de la situaci6n en su siguiente informe econ6mico importante. El memorando econ6mico sobre el pais de 1992 se prepar6 como insumo para la adopci6n de decisiones en Polonia y para el documento de estrategia del Banco para el pais de 1992, y tambi6n como un analisis del programa de reforma. En el informe se determin6 que Polonia habia hecho grandes progresos y que el sector privado estaba prosperando. Se sefial6 tambien que la reestruc- turaci6n y la privatizaci6n de las empresas estatales estaban atrasadas y que era probable que la apreciable reducci6n de las inversiones en infraestructura y desarrollo de los recursos humanos estuviera perjudicando el crecimiento. Se identific6 la dificultad de reestructurar y privatizar las empresas estatales como la raiz del problema. La rapida expansi6n del sector privado no era sufi- ciente para compensar las p6rdidas de producci6n y de empleo en muchas empresas estatales importantes. Cuando se redujeron las subvenciones y las empresas estatales restringieron sus servicios sociales gratuitos, el costo de vida aument6 y los salarios reales se redujeron marcadamente. Las mujeres se 20 vieron doblemente perjudicadas a causa de la perdida de servicios de guarderia y un nivel de desempleo superior al promedio. El impacto fiscal del colapso del bloque oriental fue peor que lo que se habia anticipado, y disminuy6 el apoyo popular al programa de reforma. Las sucesivas elecciones generales y las reali- neaciones de la coalici6n llevaron a que se produjeran frecuentes cambios minis- teriales y hubiera falta de continuidad en la reforma. En el memorando econ6mico sobre el pais se recomendaba que Polonia se con- centrara en la reforma rapida de la propiedad y en la integraci6n en la economia mundial a fin de acelerar la reestructuraci6n y la privatizaci6n de las empresas, consolidar la estabilizaci6n, fortalecer las instituciones estatales esenciales y crear infraestructuras con la participaci6n del sector privado. Dado que los gas- tos sociales habian aumentado muchisimo en 1990-92, en el memorando se pedia una reforma del financiamiento estatal para asignar mas eficientemente los gastos, destinar las transferencias sociales a los mas necesitados y reducir el gran numero de solicitudes de asistencia social que no reunian las condiciones. Se necesitaban tambien reformas fiscales. Debia consolidarse la deuda externa del pais y habia que llegar a un acuerdo con los acreedores comerciales para res- tablecer plenamente la solvencia de Polonia. A raiz de la situaci6n politica y social cambiante del pais, se vio perjudicada la ejecuci6n de los proyectos del Banco y los desembolsos se atrasaron con res- pecto a las estimaciones. Result6 evidente que algunos proyectos eran dema- siado grandes y complicados, e incluian a distintos ministerios u organismos que no siempre compartian los mismos objetivos. Los cambios en el personal gubernamental revelaron tambien algunas lagunas en las actividades de forta- lecimiento institucional del Banco, y los nuevos funcionarios tenfan dificultades para aprender el lenguaje y los procedirnientos del Banco. Las comunicaciones entre los funcionarios polacos y los del Banco no eran siempre faciles. La falta de continuidad del personal del Banco enviado de la sede contribufa tambi6n a las demoras en la ejecuci6n. En algunos casos, en los documentos de los pres- tamos no se especificaban claramente las medidas que debian adoptar los pres- tatarios, ya que se habia confiado en entendimientos generales a que se habia llegado con personal que ya no estaba en funciones. Hubo pocos desembolsos de proyectos del Banco que entrafiaban lineas de credito, como consecuencia de la falta de demanda, los procedimientos lentos y engorrosos del Banco y la competencia emergente de lineas de credito de donantes que ofrecian proce- dimientos mas flexibles y mejores condiciones. Algunos de estos problemas ponian de relieve la dificultad de utilizar los instrumentos tradicionales del Banco en las economias en transici6n, en un medio que requeria considerable agilidad y flexibilidad. Al mismo tiempo que surgian estos problemas de cartera, habia cambios de administraci6n en la oficina regional del Banco. El Banco perdi6 una oportuni- dad de estar mas cerca del cliente y de fortalecer la autoridad de la misi6n resi- dente para que tuviera un papel mas activo y resolviera las cuestiones de apli- caci6n sobre el terreno. Habia menos delegaci6n de autoridad de la sede y la atenci6n de algunos funcionarios administrativos y superiores pas6 de Polonia a otros paises de la regi6n. Los periodos de respuesta de Washington se hicieron mas largos y la asistencia del Banco a Polonia perdi6 parte de su impulso inicial. Los proyectos adquirieron una vida propia, en que el progreso dependia de la iniciativa de los funcionarios a cargo y sus contrapartes gubernamentales. Los proyectos en los sectores cuyos ministerios estaban protegidos de los frecuentes cambios en el gobierno y en que el Banco habia mantenido funcionarios experi- mentados sobre el terreno (como la infraestructura) siguieron progresando, en tanto que otros proyectos se estancaron. 21 En el documento de estrategia sobre el pais terminado en noviembre de 1992 se reconocian algunos de esos problemas de ejecuci6n, y se los atribufa sobre todo a causas externas al Banco, como la inestabilidad politica, la falta de familiari- dad con los requisitos y practicas del Banco, la falta de capacidad institucional y la competencia de otros donantes. En el documento se definian cinco objetivos de la estrategia de prestamos del Banco que eran claramente pertinentes para la situaci6n de Polonia: establecer un marco macroecon6mico estable y fortalecer asi la solvencia del pais; apoyar la reforma y la reestructuraci6n de las empresas, la privatizaci6n y el crecimiento del sector privado; mejorar la infraestructura (incluida la infraestructura del sector financiero) de manera que apoyara una economia de mercado; promover la mejora del medio ambiente en todos los sec- tores de la actividad econ6mica, y apoyar una red de seguridad social mas fuerte para ayudar al pais a reducir el impacto de su transformaci6n sistemica. En el documento se proponia un programa de prestamos provisional de tres afios y $900 millones por afio, con inclusi6n de $400 millones para apoyar una opera- ci6n de reducci6n de la deuda. Se mencionaba tambien la necesidad de mejorar la ejecuci6n de los proyectos existentes y el liderazgo de los donantes. Pese a los problemas de ejecuci6n que estaban surgiendo, no se hacia ninguna recomenda- ci6n para reestructurar la cartera ni se daban directrices operacionales sobre la forma de mejorar la gesti6n; solamente se pedia que se hicieran esfuerzos de supervisi6n bien orientados, se diera capacitaci6n en procedimientos de adqui- sici6n y desembolso y se sostuvieran conversaciones con el gobierno. Esta iniciativa condujo a una serie constructiva de examenes de la estrategia para el pais y de la ejecuci6n, que se han llevado a cabo en forma regular desde 1993. El primer examen conjunto con las autoridades de Polonia se realiz6 en Varsovia en enero de 1993. Los funcionarios gubernamentales se quejaron de que algunos funcionarios de proyectos del Banco alentaban a los ministerios a solicitar nuevos prestamos del Banco sin el conocimiento ni la aprobaci6n del Ministerio de Hacienda. El Banco convino en respetar las funciones de coordi- naci6n del ministerio en la formulaci6n de las futuras propuestas de prestamos. Pese a estas conversaciones utiles, los problemas de ejecuci6n se intensificaron durante el afio, y las nuevas autoridades pidieron mas tiempo para definir las esferas prioritarias de la cooperaci6n futura y para disefiar nuevos proyectos a fin de "evitar que se repitieran los errores del pasado". En abril de 1993 se present6 al Directorio Ejecutivo una estrategia de asistencia para el pais revisada, sin objetivos de prestamo propuestos. Algunos directores ejecutivos criticaron la falta de especificidad sobre las proyecciones fiscales (que algunos consideraban demasiado optimistas), la necesidad de concentraci6n en la red de seguridad y las consecuencias sociales de la reestructuraci6n. Estas obje- ciones demostraron posteriormente estar justificadas. Sin embargo, los Directo- res Ejecutivos apoyaron en general la estrategia propuesta y elogiaron el enfasis en la protecci6n del medio ambiente y la asistencia para la reducci6n de la deuda. Pese a dificultades de ejecuci6n cada vez mayores en 1992-93, el personal del Banco y sus contrapartes en el gobiemo pudieron preparar siete nuevos pr6stamos por un total de $1.436 millones. Esta cartera diversificada incluia prestamos innovadores y ambiciosos para la salud y la vivienda y pr6stamos para el fomento de la silvicul- tura, las carreteras y el desarrollo del sector privado. Dos prestamos de ajuste, pre- parados con la plena participaci6n de los prestatarios, eran especialmente novedo- sos y de gran alcance: el Prestamo para ajuste del sector agricola, de $300 millones, y el Prestamo de ajuste para el sector empresarial y financiero, de $450 millones. En el sector de la salud, el Banco emprendi6 un programa ambicioso para con- trarrestar el empeoramiento del estado de salud de la poblaci6n en los ultimos 22 20 afnos y aliviar los efectos adversos de la crisis econ6mica. Los especialistas en salud del Banco se sentian obligados a apresurar la preparaci6n de un proyecto, en tanto que sus contrapartes no estaban listos para definir las prioridades. No hubo tiempo suficiente para el disefio del proyecto y no se exploraron suficien- temente las alternativas. Como resultado, se prepar6 un ambicioso proyecto de $130 millones sin plena participaci6n de los interesados, con poca atenci6n a los problemas de salud de la mujer y sin aprovechar las oportunidades de coordi- naci6n entre los donantes, especialmente en lo que hace a la asistencia tecnica basada en donaciones. En el proyecto se pretendia hacer demasiado y en forma muy compleja. En una reestructuraci6n reciente se han encarado estos proble- mas y la ejecuci6n ha mejorado en los ultimos tiempos. En respuesta a una solicitud directa del gobierno de Polonia al Presidente del Banco formulada en febrero de 1990, se pidi6 al personal que acelerara la prepa- raci6n de un proyecto de vivienda. Se aprob6 un prestamo de $200 millones en junio de 1992. En el proyecto se procuraba apoyar los esfuerzos del gobierno por poner fin a la producci6n altamente subvencionada de viviendas y pasar a un sistema basado en el mercado que eliminaba las subvenciones para las nuevas viviendas. El objetivo era que fueran los mas necesitados, y no los compradores de nuevas casas, que solian ser familias de ingresos medianos y altos, quienes recibieran las subvenciones. Se procuraba tambien sustituir las subvenciones existentes por financiamiento, en forma similar a una serie de proyectos de financiamiento de la vivienda realizados en Mexico. Desde la perspectiva del desembolso de los prestamos, este proyecto no dio bue- nos resultados. En una economfa que esta pasando por una reestructuraci6n importante de la producci6n y los derechos de propiedad y que sufre al mismo tiempo una grave recesi6n, es razonable esperar que la inversi6n en vivienda se contraiga marcadamente, sobre todo considerando que la vivienda era uno de los rubros mas subvencionados y mis controlados por el estado bajo la planifi- caci6n centralizada. Sin embargo, no puede decirse que el proyecto tenia una falla de disefio basico, ni que la falta de desembolsos demuestra que el proyecto debia haberse renegociado, ya que esto se contradice por lo que ocurri6 en el sector. En este momento, cinco afios despues de la aprobaci6n del pr6stamo, se han realizado muchas de las aspiraciones del proyecto: se han eliminado las subvenciones de las tasas de inter6s para nuevas viviendas y se ha desarrollado un financiamiento no subvencionado. Por el contrario, el Prestamo para ajuste del sector agr [cola fue resultado de trabajos preparatorios cuidadosos y de una orientaci6n eficaz del Banco. Despues de los dos primeros prestamos del Banco para el sector agricola que habian sido pre- sentados apresuradamente para la aprobaci6n del Directorio, sin una prepara- ci6n adecuada, el Banco organiz6 un grupo de trabajo agricola juntamente con el gobierno y la Comunidad Europea. El informe del grupo de trabajo sobre una estrategia agricola para Polonia se convirti6 en el marco para la acci6n guberna- mental y para la coordinaci6n de la ayuda de los donantes bilaterales y multila- terales. De este marco participatorio surgi6 el prestamo para ajuste del sector agricola, que era excepcionalmente amplio y ofrecia oportunidades para un dia- logo productivo sobre la mayoria de las cuestiones relacionadas con la transi- ci6n de ese sector en Polonia. El enfasis del prestamo se ponia en acelerar la pri- vatizaci6n y la reestructuraci6n de las empresas estatales y los establecimientos agricolas estatales y en formular una politica de tierras a largo plazo para facili- tar la expansi6n del mercado privado de tierras agricolas. Sin embargo, este prestamo no alcanz6 en su ejecuci6n sus objetivos ambiciosos a causa de su complejidad, que hacia dificil supervisar los multiples componentes, las activi- dades observables, los estudios y los proyectos de asistencia tecnica. 23 Un pequefio grupo de funcionarios polacos, en plena cooperaci6n con el perso- nal del Banco, estuvieron a cargo del otro prestamo innovador, el Pre'stamo de ajuste para el sector empresarial y financiero. Sus objetivos eran hacer frente simul- taneamente a la deuda pendiente de las empresas estatales y a los problemas de cartera del sistema bancario, y solucionar un problema basico y crucial de las empresas estatales, a saber, la estructura poco clara de la propiedad y la admi- nistraci6n de las empresas. En el prestamo se alentaba a los bancos a desempe- fiar un papel central en la reestructuraci6n de las empresas mediante acuerdos de conciliaci6n obligatorios y se daba a las empresas estatales nuevas oportuni- dades de exito en sus esfuerzos de reorganizaci6n. Dado que la rapida liquida- ci6n o la reestructuraci6n de las empresas estatales cruciales seria demasiado costosa en terminos sociales y politicos, el Banco convino en financiar un fondo de intervenci6n para que funcionara como amortiguador social durante la reducci6n y la liquidaci6n de algunas grandes empresas estatales. La condicio- nalidad prevista del pr6stamo result6 debilitada por la falta de precisi6n de los documentos juridicos, en que no se daba al Banco un mandato claro de vigilar el ritmo convenido de la privatizaci6n ni de supervisar las operaciones del fondo de intervenci6n. Pese a estas limitaciones, el prestamo logr6 buenos resul- tados en cuanto a proponer un enfoque descentralizado e innovador para la recuperaci6n y la reestructuraci6n de las carteras bancarias que aislaba a los bancos de las influencias politicas y aumentaba su autonomia. Reducci6n de los prestamos, consolidaci6n de las carteras y mayor concentraci6n en la ejecuci6n, 1994-95 A comienzos de 1994, la economia de Polonia inici6 una firme recuperaci6n, a medida que empezaban a dar fruto las reformas introducidas anteriormente. Los problemas de ejecuci6n de los proyectos del Banco persistieron, y el gobierno sigui6 recibiendo con agrado el asesoramiento politico del Banco. Sin embargo, empez6 tambi6n a expresar mas claramente sus reservas sobre la falta de flexibi- lidad de los instrumentos de prestamo del Banco, incluida la carga creciente de las comisiones por compromiso sobre los saldos no desembolsados de los pres- tamos y los problemas de gesti6n financiera relacionados con el sistema de cesta de monedas. Se consideraba que el requisito de una garantia estatal alentaba a los prestatarios a ser irresponsables. En los sectores sociales, el gobierno criticaba las deficiencias en el disefio de los proyectos, por ejemplo, la participaci6n local insuficiente, la falta de programas de acci6n vigilables para la ejecuci6n de los proyectos y la definici6n vaga de los beneficios esperados. Por su parte, el Banco estaba cada vez mas preocupado por el lento progreso de las reformas estructu- rales e institucionales importantes requeridas para varios proyectos. Entre ellas estaba el avance de la privatizaci6n y la reestructuraci6n de las empresas, el for- talecimiento de las finanzas puiblicas, la reducci6n de las p6rdidas de los bancos especializados, la racionalizaci6n del sistema bancario, la creaci6n de un plan de seguros de dep6sitos, la adopci6n de una ley sobre garantfas, la simplificaci6n del funcionamiento de la red de seguridad y la apertura de los servicios publicos a la participaci6n del sector privado. El Banco ofreci6 cancelar los prestamos no satisfactorios, pero las autoridades decidieron que eso no se hiciera. El Director a cargo del pais y el gobierno convinieron, en una misi6n especial del Banco a Polonia realizada en enero de 1994, en un periodo de consolidaci6n durante el cual se daria prioridad a la ejecuci6n de los proyectos existentes. Una excepci6n notable en este periodo de consolidaci6n fueron los esfuerzos conjuntos del Banco, el Fondo y otros donantes importantes para la preparaci6n de un conjunto de medidas de reducci6n de la deuda y de su servicio para la deuda masiva de Polonia frente a bancos privados, que estaba en incumplimiento. Se 24 lleg6 a un acuerdo satisfactorio en el Club de Londres en marzo de 1994, que el Banco apoy6 con un prestamo de $400 millones ($170 millones del prestamo para la reducci6n de la deuda y de su servicio y $230 millones de fondos reser- vados de tres prestamos para ajuste estructural aprobados anteriormente). Polo- nia utiliz6 esos fondos para comprar una parte de su deuda pendiente. El apoyo financiero y tecnico del Banco para esta importante operaci6n fue crucial y demostr6 su capacidad de respuesta cuando puede utilizar instrumentos mas flexibles. Este arreglo proporcion6 a Polonia una medida excepcional de alivio de la deuda y contribuy6 a restablecer su solvencia y su acceso a los mercados financieros internacionales. Paralelamente a los arreglos del Club de Londres, la situaci6n econ6mica de Polonia sigui6 mejorando. La estabilidad financiera y la expansi6n constante del sector privado contribuyeron a atraer flujos de capitales privados extranjeros y Polonia tuvo muy pronto una abundancia de divisas. Su necesidad de apoyo financiero del Banco disminuy6, en buena parte porque otras instituciones financieras internacionales le ofrecian financiamiento con condicionalidad mas sencilla, tramitaci6n mas rapida y condiciones financieras mas atractivas. Las perspectivas de Polonia de incorporarse a la Uni6n Europea, que era una prio- ridad importante en el programa del gobierno, redujeron tambien la necesidad de una presencia del Banco en el pais. La nueva postura del gobierno se detall6 en un documento oficial publicado en junio de 1994, titulado "Estrategia para Polonia". La rapida incorporaci6n a la Uni6n Europea era un objetivo importante, junto con la reducci6n de la tasa de aumento de la deuda puiblica. Estos cambios se reflejaron en el dialogo entre el Banco y el gobierno, que pas6 a ser cada vez mas un dialogo entre iguales. En un examen de la estrategia para el pais realizado en Varsovia en abril de 1994 y en conversaciones posteriores antes de la terminaci6n de esa estrategia en 1994, las partes reiteraron la importancia crucial de poner fin al deterioro de los resultados de la cartera. Las autoridades estaban preocupadas por el costo cre- ciente de las comisiones por compromiso correspondientes al volumen consid- erable de prestamos no desembolsados en tramitaci6n1. El Banco propuso que se mantuviera un nivel anual de compromisos de entre $600 y $800 millones para los pr6ximos cinco afios (en comparaci6n con $880 millones en 1991-93), pero las autoridades sefialaron que la magnitud del programa de prestamos se veria afectada por los flujos de capital privado. Expresaron su preferencia por proyectos del Banco mas pequefios y mas sencillos y por proyectos en el sector social que no podian atraer financiamiento privado. El Banco reconoci6 que se habian cometido errores en algunos casos y repiti6 que estaba dispuesto a reestructurar y/o cancelar los prestamos en marcha. El Banco respondi6 en forma decidida y flexible y realiz6 un examen a fondo de la cartera, que dio como resultado una reestructuraci6n importante de algunos prestamos, como los del sector de la salud, y el abandono de un gran numero de proyectos en preparaci6n2. El representante en la oficina de Varsovia intensific6 el diAlogo con los funcionarios gubernamentales en un esfuerzo por resolver los problemas de ejecuci6n. En la estrategia de asistencia para el pais de 1994 se proponia un programa trie- nal de pr6stamos de entre $600 y $700 millones, de los cuales el 40 por ciento se destinarian a grandes prestamos de ajuste. La Oficina Regional consider6 que necesitaba el incentivo especial de las operaciones de ajuste para promover refor=as estructurales amplias. Las politicas de prestamo agresivas de las insti- tuciones financieras internacionales europeas, a menudo desvinculadas del debate politico y apoyadas por financiamiento complementario en condiciones 25 concesionarias procedente de la Uni6n Europea, habian disminuido la capaci- dad del Banco de influir para que se realizaran reformas en el contexto de las operaciones de inversi6n. Los funcionarios superiores advirtieron que no con- venia basarse tanto en operaciones de ajuste en apoyo de reformas de poifticas porque ello podfa Ilevar a que se descuidaran los aspectos tecnicos e institucio- nales de las reformas. En la estrategia se pusieron de relieve tres areas para el apoyo del Banco: la reforma de las finanzas publicas (en particular los gastos de seguridad social), el cierre de las grandes empresas estatales que tenian perdi- das y la reforma del sector financiero. En la estrategia se proponia tambien la concentraci6n en el desarrollo del sector privado, incluido el suministro de garantias de cumplimiento de los contratos para alentar el financiamiento pro- veniente del sector privado, en estrecha cooperaci6n con la Corporaci6n Finan- ciera Intemacional. La estrategia inclufa una propuesta de seguir trabajando en proyectos de inversi6n mAs pequefios y mas sencillos en el ambito de la infraes- tructura social y econ6mica y de hacer mas hincapie en los trabajos al nivel de los gobiernos locales. Esta estrategia no incluia actividades operacionales en varias esferas importan- tes, como la incorporaci6n a la Uni6n Europea, la pobreza y las cuestiones rela- cionadas con el genero, o el sector agricola, que todavia estaba muy distorsio- nado. Durante los debates del Directorio Ejecutivo realizados en noviembre de 1994, varios de sus miembros expresaron preocupaci6n por la coordinaci6n de la ayuda y la posible duplicaci6n de esfuerzos, la lentitud de los progresos hacia la privatizaci6n y el programa en buena parte sin terminar en el sector finan- ciero. Sin embargo, el Directorio aprob6 la estrategia propuesta, instando al mismo tiempo al Banco a que redoblara sus esfuerzos por mejorar la calidad de la cartera y alentar la participaci6n del sector privado en el financiamiento de proyectos de infraestructura. Los progresos alcanzados en el logro de los objetivos de financiamiento inclui- dos en la estrategia para el pais de 1994 fueron muy modestos. Los nuevos com- promisos de prestamos estuvieron por debajo de los niveles propuestos en la estrategia, y no se aprobaron prestamos de ajuste estructural. Como resultado de las reuniones celebradas en julio de 1995 y junio de 1996, el Banco pas6 a con- centrar su atenci6n en la ejecuci6n, la mejora de los resultados sobre el terreno, la posibilidad de usar instrumentos de asistencia no crediticios y una mayor coordinaci6n de la ayuda. Acaba de completarse una nueva estrategia de asistencia para Polonia, despu6s de un afio de colaboraci6n y reflexi6n intensas en la Oficina Regional y con fun- cionarios de contraparte del gobierno, representantes de la sociedad civil de Polonia y el Departamento de Evaluaci6n de Operaciones (DEO). Durante la preparaci6n de la estrategia, el equipo del DEO encargado de evaluar el pro- grama de asistencia del Banco a Polonia comunic6 al equipo a cargo del pais sus conclusiones a medida que surgian, incluidos los documentos de antecedentes correspondientes a varios sectores y los resultados de los estudios realizados por el DEO de las partes interesadas y los ministerios de Polonia. En un momento de cambio e incertidumbre respecto de la direcci6n de la participaci6n del Banco en el pais (especialmente con las perspectivas de adhesi6n de Polonia a la Uni6n Europea), este examen ayud6 a hacer un recuento y a formular reco- mendaciones basadas en la experiencia del Banco en Polonia hasta la fecha. En la nueva estrategia se incorporan las principales conclusiones y recomendacio- nes del presente informe. En la nueva estrategia se reconoce que, tras obtener un buen nivel de acceso a los mercados internacionales, las necesidades de asistencia financiera del Banco 26 de Polonia son pequefias. La incorporaci6n prevista de ese pafs a la Uni6n Euro- pea reducira mas la capacidad del Banco de influir en las politicas. En conse- cuencia, el papel futuro del Banco seguira siendo el de asesor independiente en la formulaci6n de politicas y colaborador en la creaci6n y el fortalecimiento de instituciones orientadas hacia el mercado. En la estrategia se propone, por lo tanto, prestar asistencia a Polonia con mayor selectividad de tres maneras importantes: (1) ayudando a formular y aplicar las politicas necesarias para el crecimiento sostenido; (2) proporcionando una capacidad de evaluaci6n inde- pendiente, asi como apoyo para inversiones en areas seleccionadas como el medio ambiente y las politicas del mercado laboral, y (3) ayudando a asegurar la sostenibilidad social de la reforma y a reducir la pobreza. Esta estrategia es perfectamente adecuada a las necesidades actuales y concuerda con las reco- mendaciones contenidas en este examen. Resultados En terminos generales, la transici6n de Polonia ha sido excelente en compara- ci6n con otras economias en transici6n y tambien por si misma. Entre los indi- cadores clave que reflejan este notable desempefio cabe sefialar que Polonia tuvo la tasa media de crecimiento del PIB mas alta en el periodo de 1990-95, en comparaci6n con otras economias en transici6n, y para mediados de 1995 las actividades del sector privado aportaban el 60 por ciento del PIB (vease el Cua- dro 5.3). Tambien, en 1996 Polonia pas6 a ser miembro de la Organizaci6n de Cooperaci6n y Desarrollo Econ6micos, y sus perspectivas de incorporaci6n en fecha breve a la Uni6n Europea son buenas. En un informe de 1995 sobre los pro- gresos de las economias en transici6n, el Banco Europeo de Reconstrucci6n y Fomento incluy6 a Polonia entre los paises que habian tenido el mejor desem- pefno, especialmente en las areas de la privatizaci6n en pequefia escala y la reforma del comercio y el sistema cambiario, y en el establecimiento de un medio reglamentario conducente a la inversi6n privada (vease el Cuadro 5.3). Por otra parte, la inflaci6n y el desempleo siguen siendo altos. La pobreza tam- bien sigue siendo relativamente elevada, pero esta disminuyendo y se clasifica en su mayor parte como "poco profunda". Se espera, en consecuencia, que la situaci6n mejore considerablemente con el crecimiento econ6mico sostenido. Se han alcanzado progresos tangibles en el logro de la mayoria de los primeros objetivos del Banco y casi todos los sectores en que este ha participado se han beneficiado de su asesoramiento y sus contribuciones intelectuales. El apoyo del Banco fue crucial para lograr niveles excepcionales de reducci6n de la deuda y restablecer la solvencia de Polonia. Gracias a una planificaci6n temprana y cui- dadosa y a la notable continuidad del personal, el Banco ha contribuido a mejo- rar la infraestructura del pais en los sectores de energia, transporte y telecomu- nicaciones; ha introducido nuevas ideas, tecnologia y metodos de producci6n, y ha abierto las puertas para la participaci6n del sector privado. Junto con la Cor- poraci6n Financiera Internacional, el Banco ayud6 a establecer acuerdos de asis- tencia reciproca que demostraron ser uitiles para la modernizaci6n de varios bancos de Polonia. Los creditos fallidos han disminuido mucho y se estan reali- zando otras reformas del sector financiero. En la agricultura, el Banco ayud6 a coordinar los esfuerzos de varios donantes. Se han encarado en forma decidida los problemas ambientales en la mayoria de los sectores. En los sectores sociales, el Banco sefial6 en una etapa temprana varios problemas serios que el pais enfrenta en la actualidad, como la explosi6n de los fondos de pensiones, pero el gobierno no hizo frente debidamente a esas cuestiones debido a su caracter sumamente politico. Sin embargo, se espera que los dialogos intensivos que se estan Ilevando a cabo sobre reformas del sector puiblico, descentralizaci6n, edu- 27 caci6n, salud y otras politicas sociales den resultados positivos en el futuro pr6ximo. En todos los sectores, la participaci6n del Banco ha ayudado a estable- cer buenas practicas de gesti6n, procedimientos de contrataci6n publica trans- parentes y medidas firmes para la protecci6n del medio ambiente. Las investi- gaciones sobre cuestiones bancarias y los estudios econ6micos y sectoriales, complementados por las actividades de difusi6n del Instituto de Desarrollo Eco- n6mico, han contribuido a mejorar la comprensi6n y lograr una mayor acepta- ci6n de las politicas orientadas hacia el mercado. Esos logros son notables, aunque no esten a la altura de las expectativas origina- les del Banco. Sin embargo, en varias esferas, hay una serie de reformas impor- tantes que deben llevarse a cabo para asegurar la sostenibilidad de la transfor- maci6n de Polonia: � Es preciso acelerar la reestructuraci6n y la privatizaci6n de las empresas estatales y los bancos comerciales de propiedad estatal no rentables (corres- ponde todavia a las empresas estatales el 60 por ciento del empleo en la industria). Las industrias pesadas (carb6n, petroquimicos, acero, petr6leo y gas) necesitan atenci6n especial. Lo mismo ocurre con los bancos especia- lizados de propiedad estatal (vivienda, financiamiento rural), a los que corresponde la tercera parte de los activos y pasivos del sistema bancario, que estan en una situaci6n financiera precaria e imponen una pesada carga al presupuesto. * La reforna de la red de seguridad social es otra tarea urgente. Los programas deben orientarse hacia los mas necesitados y deben encarar los problemas especiales de las mujeres y los nifnos. Si no se reforma el sistema de pensio- nes, se producira un deficit imposible de manejar en el sector publico. * Deben fortalecerse las bases juridicas de una economia de mercado eficiente mediante la aplicaci6n del programa ain no terminado: el fortalecimiento de la ley sobre garantias y registro de las hipotecas y ]as prendas; la reglamen- taci6n de las actividades de arrendamiento; el fortalecimiento de la supervi- si6n bancaria, y el mayor desarrollo de las instituciones de mercado y de la legislaci6n comercial para facilitar la inversi6n privada en la infraestructura y el desarrollo de mercados de capital en general. * Es preciso modernizar la agricultura y abrirla mas a las fuerzas del mercado, no s6lo para permitir su desarrollo mas pleno sino tambien para comenzar a satisfacer los requisitos para la adhesi6n a la Uni6n Europea. * Es preciso completar las reformas fundarnentales, incluido un regimen nor- mativo encaminado a alentar la inversi6n privada en los ferrocarriles, las carreteras, la energia y las telecomunicaciones. Con miras al futuro, el consenso de Polonia a favor de pasar a ser miembro de la Uni6n Europea permite confiar en que continuaran las reformas iniciadas en 1989 y se sostendran los logros. Como miembro de la Uni6n Europea, Polonia consolidaria sus reformas, y seria entonces mucho mas dificil volver atras. Evaluaci6n de la asistencia del Banco En terminos generales, la estrategia del Banco fue muy importante para apoyar las necesidades de Polonia en un momento sumamente critico de su historia. La efi- cacia del apoyo del Banco vari6 a lo largo del tiempo y entre sectores. Posible- 28 mente fue alta en el caso de los prestamos para ajuste en que se trataba con las autoridades centrales, y en los prestamos a sectores fuertes y muy tecnicos. Por otra parte, en los sectores que estaban mas sujetos a cambios politicos frecuen- tes, una presencia mas fuerte del Banco habria dado mejores resultados. Sin embargo, en general la eficacia de la asistencia del Banco se consider6 satisfacto- ria. Cuando se compara con otros paises prestatarios comparables en la Oficina Regional de Europa y Asia Central y en otros sitios, se observa que el Banco llev6 a cabo su programa de asistencia con un costo relativamente alto en t6rmi- nos de personal y recursos financieros; su eficiencia puede considerarse, en el mejor de los casos, s6lo marginalmente satisfactoria. Pero cuando se evalua el des- empenio del Banco y del prestatario, es preciso tener presente que se trataba de una experiencia completamente nueva y sin precedentes para ambos. Aunque todas las partes cometieron errores, la evaluaci6n global para ambos era satisfactoria. El impacto en el desarrollo institucional de la asistencia del Banco fue considerable, y es probable que los beneficios sean duraderos. Principales conclusiones para Polonia Los esfuerzos del Banco tuvieron mucha influencia en la importante irea del for- talecimiento institucional. Las practicas de gesti6n del sector puiblico, como la contrataci6n publica, el establecimiento de prioridades para el gasto publico, la gesti6n de la deuda externa y la apertura a la participaci6n del sector privado en el sector del transporte, se beneficiaron claramente de la participaci6n del Banco. La modernizaci6n de los bancos comerciales refleja tambien el exito del apoyo del Banco al desarrollo institucional. Pero los progresos han sido desalen- tadores en otras areas, como la eliminaci6n de la dependencia de las empresas locales de las subvenciones fiscales, la reducci6n de la inflaci6n, la racionaliza- ci6n de la gesti6n de los bancos especializados y el mantenimiento del ritmo de la privatizaci6n. Pese a los resultados generalmente positivos obtenidos en muchas areas, varios factores disminuyeron la eficacia de la asistencia del Banco. En 1989-91, el Banco estableci6 claramente que su principal objetivo estrategico en la ayuda a Polonia era apoyar las reformas sin precedentes mediante elevados niveles de financia- miento. Inicialmente, las unicas operaciones disponibles eran las lineas de cre- dito que se habian evaluado y reservado anteriormente. Estas se aprobaron con rapidez, sin tener debidamente en cuenta su adecuaci6n como vehiculo de transferencia de recursos tras el complejo cambio de circunstancias. Como algu- nos habian augurado, las lineas de credito no lograron sus objetivos y se convir- tieron por ufltimo en un escollo importante en las relaciones entre el Banco y Polonia. Al mismo tiempo se prepararon varios otros proyectos, en los que se encaraba mis directamente el dificil problema de la transici6n en varias esferas. Con todas las dificultades relacionadas con el disefio de cambios de politica en este entorno sin precedentes, el Banco aport6 su mejor contribuci6n al programa de Polonia en esta area. Otros problemas que se presentaron durante el periodo inicial de asistencia se debieron a los cambios frecuentes en la administraci6n y en el grado de empefio del gobierno en realizar la reforma, los escollos burocri- ticos y la perturbaci6n de los dialogos de politica y la ejecuci6n del programa. La competencia para conceder prestamos a Polonia de varios donantes, algunos con diferentes objetivos de politica, redujeron la receptividad de Polonia al ase- soramiento del Banco. Al cambiar las prioridades dentro del Banco, se redujo a veces la continuidad y viabilidad de los esfuerzos que se necesitaban para llevar a cabo el ambicioso programa de reforma. En parte como resultado de esos pro- blemas, la eficacia en terminos de costo del programa de asistencia al pais fue relativamente baja. 29 Las dificultades se agravaron por la falta de instrumentos de asistencia flexibles. La presi6n para conceder prestamos en las primeras etapas perjudic6 la calidad inicial de muchos proyectos, en particular los que dependian de lineas de cre- dito para los desembolsos. La condicionalidad de los prestamos no se indic6 siempre claramente, en parte porque los abogados del Banco no participaron en la etapa de disefno de los proyectos. El importante recurso del Banco a prestamos de ajuste de rapido desembolso (55 por ciento de los desembolsos en los ejerci- cios de 1990 a 1996) limit6 su capacidad de influir en las politicas sectoriales y en el fortalecimiento institucional al nivel de los proyectos. El problema se agrav6 a causa de la descentralizaci6n excesiva del proceso de adopci6n de deci- siones del Banco, la ambiguedad de la condicionalidad de algunos prestamos, el cumplimiento deficiente de la condicionalidad y las cancelaciones de presta- mos antes de que se hubieran cumplido todas las condiciones. La coordinaci6n deficiente con otros donantes debilit6 tambien las reformas de politica y contri- buy6 a que se desperdiciaran fondos de asistencia t6cnica. El Banco puede sin duda ayudar a Polonia a hacer frente a gran parte de sus tareas programadas. Pero la transformaci6n de Polonia ha avanzado mucho y sus necesidades de asistencia del Banco son mucho menores de lo que eran. Hay una abundancia de divisas y de expertos en desarrollo de calibre internacional, y facil acceso a los mercados internacionales de capital y a las instituciones financieras europeas, que estan ansiosas por proporcionar asistencia tecnica y financiera. El Banco, por otra parte, debe tener en cuenta las necesidades de sus otros paises miembros, muchos de ellos en la regi6n de Europa y Asia central, en particular los que estan apenas comenzando el proceso de transformaci6n y para los cuales la ayuda del Banco es esencial. En consecuencia, al determinar el papel del Banco en Polonia, la selectividad debe ser el principio rector. La asistencia futura del Banco debe concentrarse en la formulaci6n de polifticas y el fortalecimiento institucional, y no en la transferencia de recursos. Todavia podria prestarse asistencia a sectores como el transporte, la energia y las telecomu- nicaciones, siempre que hubiera un firme compromiso de Ilevar a cabo las refor- mas restantes y de abrir los sectores a la participaci6n privada. En la agricultura y los sectores sociales, una condici6n previa para el apoyo adicional del Banco debe ser el firme compromiso de realizar las reformas necesarias por parte de todos los ministerios participantes. En t6rminos mas generales, el Banco debe poner el enfa- sis en alentar la participaci6n del sector privado, el cofinanciamiento con otras ins- tituciones financieras internacionales y la estrecha cooperaci6n con la CFI. Es tam- bien importante no olvidar la vigilancia de la gesti6n macroecon6mica y fiscal, en particular en ausencia de programas condicionales de asistencia del EMI. Deben continuar los analisis convencionales a mediano plazo de la solvencia, pese a la fuerte posici6n cambiaria de Polonia. Si se decide que la asistencia futura del Banco consista en buena parte en servicios no crediticios, como estudios especiales, asis- tencia tecnica o mecanismos de garantia para la inversi6n del sector privado, el Banco podria considerar la posibilidad de cobrar a Polonia por esos servicios. Conclusiones para los paises en transici6n La experiencia del Banco en Polonia tiene tambien consecuencias para sus pro- gramas de asistencia en otros paises en transici6n. Estrategia * Para apoyar programas de reforma estatales el Banco necesita instrumentos flexibles que no se basen en la rapida aprobaci6n de nuevos prestamos. En 30 Polonia, aunque los desembolsos de los prestamos del Banco ayudaron a for- talecer la posici6n externa del pais en los primeros afios, sus aportes tecnicos, su asesoramiento y su apoyo intelectual fueron mas valiosos que su asisten- cia financiera. El Banco dio un apoyo valioso al programa aut6ctono de reforma mediante el asesoramiento, el apoyo tecnico, la difusi6n de ideas orientadas hacia el mercado y el apoyo de las propuestas de alivio de la deuda de Polonia ante otros acreedores. * En relaci6n con esto, no debe empujarse a los funcionarios a apresurar la aprobaci6n de proyectos por parte del Directorio Ejecutivo cuando ello implique un sacrificio de la calidad en las etapas iniciales. En los primeros dos afios, los prestamos a Polonia fueron mas intensivos de lo que se espe- raba. En el ultimo documento de estrategia (1987) anterior al comienzo de los prestamos en 1990 se proponia una pequefia cartera a modo de ensayo. Cuando se le orden6 que preparara una cartera mucho mayor que la pre- vista, el equipo a cargo del pais no tuvo tiempo de preparar plenamente nue- vos proyectos ni de modificar los existentes para adecuarlos a las nuevas circunstancias. * A fin de evitar la creaci6n de incentivos aberrantes para el financiamiento, la asignaci6n presupuestaria del Banco para los trabajos con paises individua- les no debe vincularse rigidamente al monto de sus prestamos en esos paises. * El seguimiento frecuente y la autoevaluaci6n de los progresos alcanzados en el logro de los objetivos de la estrategia son esenciales. Los informes de ter- minaci6n de los proyectos deben prepararse sin demora para no perder la oportunidad de aprender de la experiencia. Disenio : Las principales partes interesadas deben participar plenamente en el disefio de los proyectos y el Banco debe asegurarse de que haya consenso y un sen- tido de identificaci6n del gobierno en las primeras etapas de la preparaci6n de los proyectos. En el caso de algunos pr6stamos a Polonia, en los documen- tos respectivos no se indicaban claramente las medidas que debia adoptar el prestatario y se confiaba en cambio en entendimientos generales establecidos con funcionarios que ya no estaban en funciones. * En un medio incierto y en rapido proceso de cambio, el personal del Banco debe estar listo para modificar los proyectos a medida que cambian las cir- cunstancias. Deben incorporarse elementos de analisis de riesgo y de flexibi- lidad en el disefio de los proyectos. De la misma manera, debe preverse la posibilidad de introducir rapidamente cambios en la ejecuci6n de los proyec- tos a la luz de los nuevos acontecimientos. * En el disefio de los proyectos deben incorporarse elementos para tener en cuenta, siempre que sea posible, el g6nero y la pobreza. En el caso del prestamo de ajuste estructural para Polonia, algunos directores ejecutivos del Banco expresaron preocupaci6n porque su condicionalidad era demasiado general, en particular con respecto a la reducci6n de las subvenciones y el ritmo de la privatizaci6n. Aunque apoyaron decididamente el pr&tamo, se pudo compro- bar que su preocupaci6n era justificada, ya que las reducciones de las subven- ciones siguieron siendo un punto dificil y la privatizaci6n se llev6 a cabo mas lentamente que lo previsto. Algunos pidieron tambi6n que se adoptaran medi- das mas decididas para proteger a los grupos vulnerables durante la estabiliza- ci6n. Tambien en este caso podria haberse hecho mas. Cuando se redujeron las 31 subvenciones y las empresas estatales restringieron los servicios sociales gratui- tos, el costo de vida aument6 y los salarios reales disminuyeron en forma con- siderable. Las mujeres se vieron doblemente perjudicadas a causa de la perdida de los servicios de guarderia y de un nivel de desempleo superior al promedio. * Los prestamos tales como los de ajuste estructural pueden ser un vehiculo importante para el dialogo entre el Banco y el gobierno sobre cuestiones como la gesti6n del medio ambiente. Mediante la inclusi6n de condiciones de politica ambiental, el prestamo de ajuste estructural para Polonia contri- buy6 a que se prestara atenci6n a las cuestiones ambientales en el dialogo econ6mico entre el Banco y el gobierno. * La necesidad de mantener la flexibilidad en un medio incierto entrafia un riesgo para iniciar proyectos diffciles de modificar a medida que cambian las circunstancias. Los proyectos pequefios y sencillos son mejores que los pro- yectos complejos en que participan varios organismos de ejecuci6n. Ejecuci6n y misiones residentes * El Banco debe asegurarse de que haya una dotaci6n de personal adecuada para garantizar una ejecuci6n satisfactoria. Si el proyecto tiene por fin el for- talecimiento institucional o la realizaci6n de cambios de politica dificiles, el Banco debe estar preparado para destacar funcionarios experimentados sobre el terreno hasta que el proyecto este firmemente en marcha. T Los movimientos de personal excesivos pueden perturbar la continuidad de los proyectos y llevar a una perdida de memoria institucional. La continui- dad del personal de los proyectos es especialmente importante cuando hay cambios frecuentes del lado de los prestatarios. - Las decisiones sobre ejecuci6n deben delegarse en la mayor medida posible en los funcionarios que trabajan sobre el terreno, con sujeci6n a objetivos cla- ramente formulados e indicadores observables del desempefno. Cuestiones institucionales y juridicas * El Banco debe prestar atenci6n desde el comienzo a la creaci6n de un marco jurf- dico e institucional para una economia de mercado. Debe asegurarse desde el primer momento la participaci6n mis plena de expertos juridicos en el disefio de los prograTnas, y esos expertos deben desempefnar un papel substantivo. * Deben evaluarse cuidadosamente el desarrollo y la capacidad institucionales. Gran parte de los pr6stamos iniciales a Polonia se hicieron a traves de inter- mediarios financieros que se esperaba que concedieran a su vez pr6stamos a los beneficiarios. Pero el Banco no determin6 primero si los bancos de Polonia tenfan la capacidad institucional para asumir esa funci6n crucial, y los acon- tecimientos demostraron posteriormente que no la tenian. Hubo muy pocos desembolsos de proyectos del Banco que entrafiaban lineas de credito, como consecuencia de la falta de demanda, los procedimientos lentos y engorrosos del Banco y la competencia naciente de lineas de credito de donantes que ofrecian procedimientos mas flexibles y mejores condiciones que el Banco. Maximizaci6n del impacto combinado de los donantes * Debe vigilarse la coordinaci6n de la ayuda para asegurar la coherencia del asesoramiento sobre politicas y evitar la duplicaci6n de esfuerzos. 32 * La coordinaci6n entre los donantes puede ser crucial para el exito. Los esfuerzos conjuntos del Banco, el Fondo y otros donantes importantes fueron esenciales para preparar un conjunto de medidas de reducci6n de la deuda y de su servicio correspondiente a la deuda masiva de Polonia frente a ban- cos privados que estaba en situaci6n de incumplimiento. El apoyo financiero y tecnico del Banco fue crucial para el exito del arreglo con el Club de Lon- dres a que se lleg6 en marzo de 1994. Polonia obtuvo un nivel excepcional de alivio de la deuda y pudo restablecer su solvencia y el acceso a los mercados financieros internacionales. Difusi6n * El Banco debe esforzarse mas por difundir sus estudios y sus productos inte- lectuales en los paises clientes, incluida la traducci6n al idioma local de por lo menos los resu:tmenes de sus estudios econ6micos y sociales. Notas 1. Las comisiones por compromiso que cobra el Banco sobre los prestamos para proyec- tos de inversi6n no desembolsados en el ejercicio de 1994 ascendieron a $4,3 millones, equivalentes al 3,3 por ciento de los desembolsos de prestamos para proyectos de inver- si6n ese anio. Para el periodo comprendido entre los ejercicios de 1990 y 1996, el porcentaje equivalente fue de 1,9 por ciento. 2. El proceso de cancelaci6n de proyectos continu6 en el ejercicio de 1996. En los ejerci- cios de 1995 y 1996 se cancelaron 15 proyectos, tras haber invertido en ellos por lo menos 710 semanas de trabajo de funcionarios a un costo de $2,3 millones (las cifras incluyen s6lo los costos directos y no los gastos fijos ni el tiempo de administraci6n). Estos costos son mas altos (en relaci6n con los costos totales de los prestamos) que los promedios re- gionales y los promedios de todo el Banco. La cancelaci6n de proyectos cuando se llega a la conclusi6n de que no tienen probabilidades de exito es una buena prictica administra- tiva. Sin embargo, el costo directo de los proyectos cancelados para Polonia ha sido mucho mas alto que en otros paises. En los ejercicios de 1993 a 1996, ese costo equivali6 a 53 semanas de trabajo de funcionarios, en comparaci6n con 29 para el Departamento Geo- grafico II de la Oficina Regional de Europa y Asia Central, 26 para la Oficina Regional de Europa y Asia Central en su totalidad y 33 para todo el Banco. Esto sugiere que el Banco permiti6 que esos proyectos se arrastraran demasiado tiempo antes de decidir eliminar- los. En el Capitulo 4 del presente informe se examina la eficacia en terminos de costo del programa del Banco en Polonia. 3. En sus observaciones sobre una versi6n preliminar de este examen, el Ministerio de Hacienda indic6 de que, fuera de las cuestiones indicadas anteriormente, en el informe se analizan en forma correcta los exitos y los fracasos en la cooperaci6n del Banco Mundial con Polonia, aunque en varias ocasiones se insiste demasiado en el papel causal del Banco Mundial. En el proceso de transformaci6n de la economia de Polonia, el Banco desem- pefn6 un papel muy importante, entre otras cosas, mediante el apoyo de la reconstrucci6n del sistema institucional. Pero en la mayoria de los casos sus acciones fueron complemen- tarias y autenticaron programas econ6micos iniciados y ejecutados por las autoridades de Polonia. POLAND COUNTRY ASSISTANCE REVIEW Resume Des que la Pologne a rejoint les rangs des pays membres, en 1986, la Banque a cherche a encourager les programmes de r6forme economique mis en place par les gouvernements polonais successifs. Elle a toutefois fait preuve de prudence, en suivant de pres les resultats obtenus de maniere a pouvoir decider du moment approprie pour commencer a preter. Ce moment venu, en 1990, elle s'est fixe une strategie suffisamment souple pour pouvoir maximiser lYefficacit6 de son programme d'aide en l'adaptant a un environnement en evolution rapide. Au depart, ses priorites strat6giques ont notamment ete les suivantes: aider la Pologne a stabiliser sa gestion macroeconomique et, partant, a renforcer sa solvabilit6 ; appuyer la reforme, la restructuration et la privatisation des entreprises et le developpement du secteur prive ; contribuer a l'amelioration des infrastructures physiques et financi&es necessaires a une economie de mar- che, notamment par la modernisation du systeme bancaire et, a terme, sa privatisation; proteger l'environnement; et renforcer le filet de protection sociale. Quelques annees apres le lancement des premieres operations de pret, l'execution des projets a commence a poser des difficultes, notamment dans le cas des projets finances par des lignes de credit. Certains projets etaient trop ambitieux et trop complexes; le renforcement du cadre institutionnel progres- sait plus lentement que prevu dans certains secteurs; les accords de pret n'6taient pas suffisamment explicites quant aux conditions a respecter; et l'evo- lution constante de la situation sociale et politique du pays, et surtout les nom- breux remaniements du gouvernement, rendaient plus difficile encore L'ex6cution des projets. En depit de ces obstacles, des progres tangibles ont ete accomplis vers la realisation de la plupart des objectifs initiaux de la Banque, et presque tous les secteurs qui ont recu son aide ont beneficie de ses conseils et avis techniques, peut-etre plus encore que de ses operations de pret classiques. Appui de la Banque aux programmes de reforme, 1986-90 Des le retour de la Pologne parmi les pays membres, en 1986, la Banque a entre- pris des 6tudes pour definir et analyser les besoins de l'economie polonaise. Elle a egalement commence a pr6parer des projets, mais elle a remis pour un temps l'octroi de prets, en raison de doutes sur la viabilite du programme du gouver- nement et sur la solvabilite du pays et du fait aussi des reticences d'importants actionnaires. Le premier document de strategie pour la Pologne, qui a fait l'objet d'un examen interne en novembre 1987, proposait de lier l'octroi de prets aux progres des autorites polonaises dans la mise en oeuvre de leur programme de reforme et le retablissement de la solvabilite du pays. Sachant que jusque la Pologne n'avait pas pleinement donne suite a ses projets de reforme, la Banque cherchait, par ce document de strategie, a encourager le gouvernement a baser durablement la gestion de l'economie et de l'endettement du pays sur un pro- gramme a moyen terme qui soit a la fois faisable et credible, de maniere a res- taurer sa solvabilite. Cette demarche a et confirmee dans une note de strategie, que la direction de la Banque a examinee vers le milieu de 1989. 33 34 Initialement opposes a l'octroi de prets a la Pologne, quelques-uns de ses prin- cipaux actionnaires ont commence a pousser la Banque a accelerer la prepara- tion de projets apres que le gouvernement democratique nouvellement elu eut annonce, en 1989, le lancement d'un Programme de transformation 6conomique qui mettait l'accent sur l'ouverture au march6 et marquait un tournant decisif. Au debut du mois de novembre, la Pologne ayant conclu un accord avec le Fonds mon6taire international (FMI) dans le cadre du Mecanisme elargi de cr& dit, la Banque lui a propos6 un pret d'ajustement structurel pour ouvrir la voie a d'autres prets a l'appui de nouveaux ajustements structurels et sectoriels et a envoye une mission en Pologne, au debut du mois de decembre 1989, pour evaluer cette premiere operation. Elle a alors mis au point une strategie pour soutenir pleinement le programme de reforme. Les operations de pret ont com- mence en 1990. Compte tenu des possibilit6s offertes par le programme de r6forme de la Polo- gne, et les risques auxquels il 6tait expose, l'approche prudente adoptee par la Banque en 1987 etait justifiee eu 6gard aux incertitudes de l1'poque. Certes, il y aurait eu aussi de bonnes raisons de preter plus t6t, en selectionnant rigoureu- sement les operations ainsi financ6es, mais il reste que le report du premier pret jusqu'en 1990 a eu le merite d'inciter les autorit6s polonaises a s'engager plus resolument sur la voie de reformes. En outre, le fait d'avoir attendu que la con- joncture nationale et internationale soit plus propice a permis a la Banque de commencer a preter au moment oii le rapport entre les avantages et les risques etait particulierement favorable. Developpement rapide du portefeuille, 1990-91 La Banque attachant une importance particuliere au succes des reformes polo- naises, ses plus hauts responsables - du Pr6sident et du Premier Vice-President Operations au Vice-President regional et au Directeur-pays - ont participe directement a l'46laboration du programme initial. Ils ont mis en place des equi- pes speciales et accelere les procedures internes afin de pouvoir fournir leur appui en temps voulu et tirer parti de cette occasion exceptionnelle de soutenir des reformes d'importance historique. I1 ressort des documents internes de la Banque et des communications au Con- seil que la Banque a pris une part active a tous les elements essentiels du pro- gramme de reforme: reintegration de la Pologne dans l'economie mondiale par la liberalisation du commerce; traitement des problemes d'endettement exterieur; stabilisation de l'conomie; renforcement de la monnaie et de la balance des paiements ; liquidation des entreprises non viables et restructura- tion des entreprises prometteuses ; attenuation des effets n6gatifs des reformes sur les groupes vuln6rables ; mise en place d'un cadre institutionnel et juridique propice a l'economie de marche; abandon de la planification centralisee pour laisser jouer les forces du marche; allegement de l'appareil de contr6le et de l'emprise des monopoles; promotion du developpement du secteur priv6; et mobilisation et coordination de l'assistance des autres bailleurs de fonds. Les operations de pret ont commence en fevrier 1990 par l'ouverture de deux lignes de cr6dit a l'appui du developpement des exportations en devises conver- tibles. Sont venus ensuite des prets destines a la protection de l'environnement, aux transports, a l'energie et au secteur financier. La plupart de ces operations impliquaient le recours a des intermediaires financiers qui devaient retroceder les fonds recus de la Banque. Malheureusement, et contrairement aux principes 6tablis, la Banque ne s'etait pas assuree de l'aptitude des banques polonaises a 35 s'acquitter de ce r6le essentiel. La suite des evenements devait montrer qu'elles ne disposaient pas des capacit6s institutionnelles voulues. La premiere aide apportee par la Banque au programme de reforme polonais, et la plus visible, a et le pret d'ajustement structurel de 300 millions de dollars approuve en juillet 1990. I1 s'agissait d'appuyer le programme polonais en don- nant la preuve que la Banque croyait a sa viabilite technique et en fournissant les devises necessaires a la consolidation des reserves et au renforcement de la credibilite des mesures de stabilisation. Les Administrateurs de la Banque ont fermement approuve ce pret, bien que certains aient note avec preoccupation le caractere trop general des conditions dont il etait assorti, notamment en ce qui concerne la reduction des subventions et le rythme des privatisations. Certains souhaitaient des mesures plus energiques pour prot6ger les groupes vulnera- bles durant la periode de stabilisation. Ce pret d'ajustement structurel est devenu le principal instrument du dialogue entre la Banque et les autorites polonaises. En imposant certaines conditions relatives a la politique de l'envi- ronnement, il a contribu6 a placer les questions d'environnement au centre du dialogue economique entre les deux parties. Face a l'ampleur de la tache et a la neessite d'une presence permanente sur le terrain, la Banque a mis en place une mission residente de haut niveau, qui s'est install6e a Varsovie en juillet 1990 et qui etait dirigee par un membre de l'equipe de direction regionale. Ses principales activites devaient etre de coordonner le programme d'aide de la Banque et de contribuer a son developpement, d'aider le gouvernement a coordonner l'assistance financiere et technique recue d'autres sources, et de suivre l'evolution de la situation sur les plans economi- que, financier, legislatif et social. Le rythme des prets est alle en s'accelerant. Au cours des seuls mois d'avril a juin 1991, le Conseil a approuve 12 prets, representant au total 1.140 millions de dollars. Plusieurs de ces operations, dont un pret d'ajustement axe sur les ques- tions de tarification et de subvention, etaient destinees au secteur de l'energie. D'autres visaient les t6lecommunications, la promotion de l'emploi, l'agricul- ture, la privatisation et la restructuration, et les institutions financieres. Le pret destine au developpement des institutions financieres etait centr6 a la fois sur l'amelioration des politiques generales et sur le renforcement du cadre institu- tionnel dans le but d'eliminer les subventions aux taux d'int&et, de reduire la part du credit dirige, de moderniser la legislation bancaire, de contribuer au developpement des marches financiers et de restructurer les banques commer- ciales d'etat en prevision de leur privatisation. Ces operations faisaient une large place a l'assistance technique, en vue notam- ment de la preparation d'etudes sur la strategie a appliquer aux secteurs de l'agriculture et de la sante et aux programmes publics de logements. Dans le domaine de l'energie, six etudes ont jete les bases de la restructuration du sec- teur. La Banque a par ailleurs mobilise la participation d'autres bailleurs de fonds, souvent sous forme de dons, au financement des services d'assistance technique. La pr6sence de plusieurs donateurs a pose des problemes de coordi- nation de l'aide et de contr6le des operations. L'un des objectifs importants de la Banque 6tait d'aider la Pologne a mettre en place le cadre juridique qu'implique une economie de marche. Durant les pre- miers stades de la transition, le personnel de la Banque a sous-estime la diffi- cult6 d'introduire certains concepts juridiques dans un systeme etranger aux pratiques occidentales. En matiere de reforme juridique, la Banque n'a pas pris les devants et s'est en general contentee de reagir au coup par coup, dans cer- 36 tains domaines limites, aux problemes lies aux projets de privatisation, de ser- vices bancaires, de financement du logement, et autres. A la difference d'autres pays d'Europe orientale et de l'ex-Union sovietique, pour lesquels la Banque a entrepris des etudes plus syst6matiques du systeme juridique, la Pologne n'a pas clairement demande l'aide de la Banque a l'appui d'une reforme generale de ses structures juridiques. Au debut de l'application du programme polonais, la Banque n'avait aucun instrument a proposer aux autorites pour les aider a analyser le systeme juridique ou pour leur fournir des services d'assistance technique finances par des dons. Pendant les deux premieres annees, les activites de pret ont ete plus intenses que prevu. Le dernier document de strategie etabli avant la premiere operation de pret, en 1990, remontait a 1987. I1 proposait de commencer a titre experimental par un portefeuille restreint (un tiers du portefeuille type pour un pays de la taille de la Pologne). Lorsqu'il lui a et6 demande de constituer un portefeuille beaucoup plus important que prevu, l1'quipe-pays n'a pas toujours eu tout le temps voulu pour preparer a fond de nouveaux projets ou pour apporter aux propositions de projet existantes les modifications necessaires pour les adapter au nouveau contexte davantage ouvert au march6. La qualite initiale des projets d'ouverture de lignes de credit a ete particulierement affectee par les pressions exercees sur le personnel pour activer l'octroi de prets. Plusieurs operations ont ete approuvees avant que la Banque ne procede a un nouvel examen formel de sa strategie en novembre 1992. En depit de ces contraintes, la Banque a pu fournir aux autorites polonaises un appui ferme et efficace au cours des premiers stades critiques du processus de transformation 6conomique. Ses apports financiers ont contribue a raffermir la position exterieure du pays durant les premieres annees, mais ses apports tech- niques et intellectuels ont ete encore plus precieux. C'etait l'equipe polonaise qui a pris l'initiative du programme et la Banque a apporte un soutien particu- lierement utile par ses conseils, son appui technique, la promotion d'idees con- formes a la logique du marche et la defense des propositions d'allegement de la dette aupres d'autres creanciers. L'6tude de la strategie d'investissement est un bon exemple de l'appui techni- que initial de la Banque. Bien recue par le gouvernement, cette etude portait sur une question a laquelle le programme de transition mis au point par les autori- tes polonaises ne faisait guere de place, a savoir la mise au point et la gestion d'un programme d'investissements publics de nature a soutenir l'emergence d'une economie de marche. C'etait la premiere fois que la Banque procedait a l'examen d'ensemble du r6le de l'investissement public dans une economie en transition. D'autres etudes internes preparees a la meme epoque ont contribue a une meilleure connaissance de plusieurs questions d'une importance critique pour la transition, notamment la reforme de I'administration publique, la poli- tique commerciale et la gestion des finances. Premieres difficultes d'execution et problemes lies aux reformes, 1992-93 Vers la fin de 1991, la viabilite du Programme de transformation economique a commence a susciter de serieux doutes, par suite de la degradation de la politi- que budgetaire, du derapage du programme du FMI et de la faillite de certaines banques et entreprises. Face a cette crise, la Banque a proc6de a une evaluation approfondie de la situation, qu'elle a exposee dans l'important rapport econo- mique etabli a cette epoque. 37 Le Memorandum economique de 1992 avait pour objectif d'analyser le pro- gramme de reforme et de servir de base de decision aux autorites polonaises et a la Banque pour le document de strat6gie elabore en 1992. Ce memorandum con- cluait que la Pologne avait nettement progress6 et que le secteur prive prosperait. Il relevait toutefois que la restructuration et la privatisation des entreprises d'etat marquaient le pas et que la forte chute des investissements dans l'infrastructure et la valorisation des ressources humaines risquait de compromettre la crois- sance. Le probleme tenait fondamentalement aux difficult6s rencontrees par la restructuration et la privatisation des entreprises d'etat. L'expansion rapide du secteur prive ne suffisait pas a compenser les pertes de production et d'emplois d'un grand nombre de grosses entreprises publiques. La reduction des subven- tions et des services sociaux fournis gratuitement par les entreprises publiques avait entrainm une augmentation du cofit de la vie et une forte baisse des salaires reels. Les femmes avaient et affectees a la fois par la fermeture des garderies et par un taux de ch6mage superieur a celui des hommes. Les consequences bud- getaires de 1'effondrement du bloc de l'Est avaient et6 plus graves que prevu. L'adhesion de la population au programme de reforme avait flechi. Les elections generales et les coalitions successives avaient entrainm de frequents remanie- ments ministeriels et la continuit6 du processus de reforme en etait compromise. Le Memorandum economique recommandait a la Pologne de s'attacher a refor- mer rapidement le regime de la propriete et a s'integrer dans l'economie mon- diale afin d'accelerer la restructuration et la privatisation des entreprises, de consolider la stabilisation, de renforcer les institutions publiques de base et de developper les infrastructures avec la participation du secteur prive. Les depen- ses sociales s'etant envolees entre 1990 et 1992, le Memorandum preconisait aussi des reformes des finances publiques pour mieux cibler les depenses, reserver les transferts sociaux a ceux qui en avaient le plus besoin, et eliminer les nombreuses demandes d'aide sociale injustifiees. Des reformes fiscales etaient 6galement necessaires. Les dettes exterieures devaient etre consolidees et des accords con- clus avec les creanciers commerciaux pour retablir la solvabilite du pays. I'evolution de la situation sociale et politique du pays a affect6 l'execution des projets de la Banque et les decaissements ont pris du retard par rapport aux previsions. De toute evidence, certains projets etaient trop ambitieux et trop complexes, faisant intervenir plusieurs ministeres ou organismes qui ne parta- geaient pas toujours les memes objectifs. La rotation des equipes gouvernemen- tales a aussi mis en evidence certaines lacunes dans les activites de la Banque a I'appui du d6veloppement institutionnel. Les nouveaux venus avaient du mal a se familiariser avec le langage et les procedures de la Banque. Les commu- nications entre les representants des autorit6s polonaises et le personnel de la Banque n'allaient pas toujours sans heurts. La rotation du personnel de la Banque a egalement contribue aux retards d'execution. Dans certains cas, les accords de pret ne definissaient pas clairement les mesures que l'emprunteur etait tenu de prendre, se limitant a des dispositions generales convenues avec des representants des pouvoirs publics qui n'etaient plus en poste. Les projets ne donnaient lieu a pratiquement aucun decaissement, faute de demande et du fait aussi de la lenteur et de la pesanteur des procedures de la Banque et de la concurrence exercee par les lignes de credit plus avantageuses et assorties de procedures plus souples consenties par d'autres donateurs. Certains de ces problemes temoignent des difficultes que pose l'utilisation des instruments traditionnels de la Banque pour aider les economies en transition, dont l'envi- ronnement requiert une souplesse et une capacite d'adaptation considerables. L'apparition de ces problemes de portefeuille a comicide avec des changements dans la direction du Bureau r6gional de la Banque. La Banque a laisse passer 38 l'occasion de se rapprocher du client et de donner a la mission r6sidente les moyens de faire preuve de plus d'initiative et de resoudre les problemes d'ex& cution sur le terrain. La mission residente a perdu de son autonomie et l'atten- tion de certains responsables du Bureau regional s'est portee vers d'autres pays de la r6gion. Washington tardant A reagir, l'assistance de la Banque A la Pologne a perdu de son elan initial. L'avancement des projets est devenu tributaire du degre d'initiative de leurs responsables a la Banque et de leurs homologues polonais. Les projets qui dependaient des ministeres epargnes par les frequents remaniements ministeriels et pour lesquels la Banque avait maintenu sur place un personnel experimente (tels les projets d'infrastructure) ont continu6 A pro- gresser tandis que les autres ont stagne. Le document de strategie acheve en novembre 1992 faisait etat de certains des problemes qui commencaient A se poser au niveau de l'execution, et les attri- buait pour l'essentiel a des causes exterieures A la Banque, comme l'instabilite politique, le manque de connaissance des exigences et des pratiques de la Banque, la faiblesse des capacites institutionnelles, et la concurrence d'autres donateurs. La strategie de pret qu'il proposait etait fondee sur cinq objectifs tout A fait adaptes A la situation de la Pologne: stabiliser le cadre macroeonomique pour renforcer la solvabilite du pays; appuyer la reforme, la restructuration et la privatisation des entreprises et le developpement du secteur priv6 ; am6liorer l'infrastructure, notamment celle du secteur financier, pour l'adapter aux besoins d'une economie de marche; renforcer la protection de l'environnement dans tous les secteurs de l'eonomie; et consolider les filets de protection sociale pour aider le pays A attenuer les consequences sociales de sa transformation structurelle. Le document proposait a titre indicatif un programme triennal impliquant l'octroi de prets d'un montant de 0,9 milliard de dollars par an, dont 400 millions de dollars destines A une operation de desendettement. Il soulignait 6galement la necessite d'ameliorer l'ex6cution des projets en cours et la coordi- nation des bailleurs de fonds. Malgre les problemes qui commenqaient A se poser au niveau de l'execution, il ne faisait aucune recommandation touchant la restructuration du portefeuille et ne donnait aucune indication pratique sur la maniere d'ameliorer la gestion du portefeuille, recommandant seulement de cibler les activites de supervision, d'assurer une formation aux procedures de d6caissement et de passation des marches, et de poursuivre le dialogue avec le gouvernement. Cette initiative a debouche sur une serie d'examens constructifs de la strategie- pays et de l'execution des projets. Ces examens ont eu lieu regulierement A par- tir de 1993. Le premier, mene conjointement avec les autorites polonaises, a pris place A Varsovie en janvier 1993. Les autorites polonaises se sont plaintes que certains membres du personnel de la Banque avaient encourage les minist&es d'execution A solliciter de nouveaux prets de la Banque sans obtenir l'accord pr6alable du ministere des Finances ni meme l'informer. La Banque s'est enga- gee A respecter les fonctions de coordination du Ministere pour les futures pro- positions de pret. En depit de ces discussions utiles, les problemes d'execution se sont aggraves au cours de l'annee et les nouvelles autorites ont demande des delais supplementaires pour definir les domaines prioritaires de leur coopera- tion future avec la Banque et mettre au point de nouveaux projets << afin d'eviter la repetition des erreurs du passe >>. Une strategie d'assistance revisee, qui ne mentionnait pas d'objectifs de pret, a et pr6sentee au Conseil en avril 1993. Certains administrateurs ont reproche au document de n'etre pas suffisamment prncis en matiere de projections budgetai- res (parfois jugees trop optimistes), de ciblage des filets de protection sociale et de prise en compte des cons6quences sociales de la restructuration -objections 39 qui se sont averees justifiees. Dans 1'ensemble toutefois, les administrateurs ont enterine la strategie proposee et se sont felicites de l'accent mis sur la protection de l'environnement et l'all6gement de la dette. En depit des difficultes grandissantes auxquelles s'est heurtee l'ex6cution des projets en 1992-93, le personnel de la Banque et leurs homologues polonais ont pu pr6parer sept nouveaux prets, totalisant 1.436 millions de dollars. Ce porte- feuille diversifie comprenait des operations novatrices et ambitieuses pour les secteurs de la sante et du logement, ainsi que des prets pour la mise en valeur des forets, le reseau routier et le developpement du secteur prive. Deux prets a l'ajustement, mis au point avec la pleine participation des emprunteurs, etaient particulierement originaux et ambitieux l'un visait l'ajustement du secteur agricole (300 millions de dollars), et le second l'ajustement du secteur financier et des entreprises (450 millions de dollars). Dans le secteur de la sante, la Banque a lance un programme ambitieux pour mettre un terme A vingt ans de degradation de l'etat de sante de la population et attenuer les effets dommageables de la crise 6conomique. Alors que les spe- cialistes de la Banque dans ce domaine se sentaient tenus de preparer rapide- ment un projet, le personnel de contrepartie polonais n'etait pas pret a definir les priorites. La conception du projet a souffert de l'insuffisance des delais dis- ponibles, et les divers options envisageables n'ont pas e suffisamment explo- rees. Tout cela a abouti A l'elaboration d'un projet ambitieux de 130 millions de dollars, sans la pleine participation et adhesion des parties prenantes et sans preter une attention suffisante aux problemes particuliers des femmes ni tirer parti des possibilites de coordination des bailleurs de fonds, en mati&e notam- ment d'assistance technique gratuite. En un mot, le projet etait a la fois trop ambitieux et trop complexe. II a r6cemment fait l'objet d'une restructuration pour remedier A ces problemes et son ex6cution est en voie d'amelioration. En reponse A la requete adressee directement par le gouvernement polonais au President de la Banque en fevrier 1990, il avait ete demande au personnel de la Banque d'accelerer la pr6paration d'un projet de logements, pour lequel un pret de 200 millions de dollars a ete approuve en juin 1992. Le projet visait a aider le gouvernement A se d6sengager de la production de logements fortement sub- ventionnes et A mettre en place un systeme fond6 sur le march6 en mettant fin au subventionnement des logements neufs. Il s'agissait de faire en sorte que les aides de l'etat profitent A la population necessiteuse et non aux acquereurs de logements neufs - g6neralement des familles a revenus moyen et sup6rieur. Le projet visait egalement A substituer aux subventions existantes un systeme de financement similaire A celui qui avait ete experiment6 avec succes dans le cadre d'une serie de projets mexicains de financement du logement. Si l'on considere les montants decaiss6s, il est manifeste que le projet n'a pas abouti. Dans une 6conomie soumise A de profondes restructurations de la pro- duction et du regime de la propriete, et en proie A une grave r6cession, il n'y a rien d'etonnant a ce que les investissements dans le secteur du logement se taris- sent - d'autant plus que le logement etait l'un des biens le plus fortement subventionnes et le plus contr6les par l1'tat A l'poque de la planification cen- tralisee. Quoi qu'il en soit, on ne peut dire que le projet etait vicie au depart ou que le non-d6caissement de pret est la preuve qu'il aurait dfi tre renegocie, car ce raisonnement est contredit par l'evolution du secteur. En effet, cinq ans apres 1'approbation du pret, un grand nombre des objectifs du projet sont atteints: les taux d'int&r&t applicables aux prits A la construction ne sont plus subventionnes et de nouveaux systemes de financement non subventionnes ont et6 mis en place. 40 En revanche, le Pret 2 I'ajustement du secteur agricole avait fait l'objet d'une pre- paration minutieuse sous la direction de la Banque. Apres deux prets a l'agricul- ture presentes precipitamment a l'approbation du Conseil sans avoir fait l'objet d'une pr6paration suffisante, la Banque avait mis en place une equipe speciale conjointement avec le gouvernement et la Communaute europeenne. La strate- gie agricole proposee dans le rapport etabli par cette equipe a servi de base com- mune aux decisions du gouvernement et a la coordination de l'aide des bailleurs de fonds, bilateraux et multilateraux. C'est dans ce cadre qu'a ete prepare le Pret a l'ajustement du secteur agricole, operation d'une envergure exceptionnelle qui a ete l'occasion d'un dialogue fructueux sur la plupart des questions liees a la transition de l'agriculture en Pologne. Le pret mettait l'accent sur l'accelera- tion de la privatisation et de la restructuration des entreprises publiques et des fermes d'etat et sur l'elaboration d'une politique fonciere a long terme pour faci- liter l'expansion du marche prive des terres agricoles. Au niveau de l'execution, toutefois, le pret n'a pas pleinement atteint ses objectifs ambitieux en raison de sa complexite, qui a rendu difficile la supervision de ses nombreuses composan- tes, activites, 6tudes et services d'assistance technique. C'est un groupe restreint de fonctionnaires polonais, agissant en pleine coope- ration avec le personnel de la Banque, qui a 6te a l'origine d'une autre operation pret novatrice, le Pret a I'ajustement du secteur financier et des entreprises publiques. L'objectif etait de traiter simultanement le probleme du surendettement de ces entreprises et les problemes de portefeuille du systeme bancaire, et de remedier a la cause profonde de la crise des entreprises publiques, a savoir la manque de clart6 de la structure de leur capital et de leur direction. Ce pret a incite les ban- ques a jouer un r6le moteur dans la restructuration des entreprises par l'inter- m6diaire d'accords de conciliation obligatoires et donne aux entreprises publiques de nouveaux moyens d'assurer le succLes de leurs efforts de reorgani- sation. Etant donne que le cout social et politique de la liquidation ou de la res- tructuration rapide d'entreprises nevralgiques risquait d'etre trop eleve, la Banque a accepte de financer un Fonds d'intervention pour amortir le choc des compressions d'effectifs et de la liquidation de certaines grandes entreprises publiques. La conditionnalite dont on avait voulu assortir le pret a et6 affaiblie par le manque de precision des documents juridiques, qui ne donnaient pas explicitement mandat a la Banque de verifier le rythme de la privatisation ni de superviser les operations du Fonds d'intervention. Malgre ces limites, cette op6- ration d'ajustement a permis d'appliquer au retablissement et a la restructura- tion du portefeuille des banques une approche novatrice et decentralisee qui les a mises a l'abri des influences politiques et qui a renforce leur autonomie. Reduction des prets, consolidation du portefeuille et renforcement de 1'execution, 1994-95 Vers le debut de 1994, les reformes commencaient a porter leurs fruits et l'eco- nomie polonaise amorcait un net redressement. Cependant, l'execution des pro- jets de la Banque restait problematique. Le gouvernement souhaitait toujours recevoir les conseils de la Banque. Mais il exprimait aussi avec plus d'insistance ses reserves quant au manque de souplesse des instruments de pret de la Ban- que et, notamment, au fardeau de plus en plus lourd que representaient les com- missions d'engagement percues par la Banque sur le solde non decaisse de ses prets et aux probkmes de gestion financiere resultants du systeme du pool de monnaies. Le fait que la Banque exige une garantie publique etait percu comme encourageant les emprunteurs a un comportement irresponsable. Dans les sec- teurs sociaux, le gouvernement critiquait les deficiences de la conception des projets: participation locale insuffisante, absence de programmes d'action 41 v6rifiables pour l'ex6cution des projets, definition vague des avantages escomp- t6s, etc. Pour sa part, la Banque s'inquietait de plus en plus de la lenteur de l'avancement des importantes r6formes structurelles et institutionnelles pre- vues dans le cadre de divers projets: privatisation et restructuration des entre- prises publiques, renforcement des finances publiques, reduction des pertes des banques specialisees, rationalisation du systeme bancaire, creation d'un regime d'assurance des dep6ts, adoption d'une loi sur les garanties, simplification du fonctionnement des filets de s6curite et ouverture des entreprises de services collectifs a la participation du secteur priv. La Banque a propose d'annuler les prets qui ne donnaient pas satisfaction, mais les autorites polonaises n'ont pas donne suite a cette offre. Le Directeur-pays et le gouvernement se sont mis d'accord, au cours d'une mission sp6ciale de la Banque qui s'est rendue en Polo- gne en janvier 1994, sur une p6riode de consolidation au cours de laquelle la priorite serait donn6e a la mise en oeuvre des projets existants. Cette periode de consolidation a toutefois et marquee d'une exception notable: la Banque, le Fonds et d'autres donateurs importants ont uni leurs efforts pour etablir un plan de reduction de l'encours et du service des emprunts massifs que la Pologne avait contractes aupres de banques privees, et qu'elle n'arrivait pas a rembourser a bonne date. En mars 1994, la Pologne et le Club de Londres sont parvenus a un accord que la Banque a appuy6 par l'apport de 400 millions de dollars (170 millions de dollars au titre du pret a la reduction de l'encours et du service de la dette, et 230 millions provenant de fonds r6serves a cet effet sur trois prets d'ajustement anterieurs). La Pologne a utilise ces fonds pour racheter une partie de l'encours de sa dette. L'appui - financier et technique - apporte par la Banque a cette op6ration importante a et decisif et temoigne de l'effica- cite de son aide des lors qu'elle a pu utiliser des instruments plus souples. L'operation a permis a la Pologne de reduire fortement son endettement et l'a aidee a r6tablir sa solvabilit6 et a reprendre pied sur les marches internationaux des capitaux. Parallelement a l'accord du Club de Londres, la situation 6conomique de la Pologne a continue de s'ameliorer. La stabilite financiere et la poursuite de l'expansion du secteur prive lPont aidee a attirer des capitaux prives, et elle s'est constitue en peu de temps d'abondantes reserves de devises. Elle avait desor- mais moins besoin de l'appui financier de la Banque, en grande partie parce que d'autres institutions financieres internationales lui offraient des financements assortis de conditions plus simples, de procedures plus rapides, et de conditions financieres plus attrayantes. L'adhesion de la Pologne a l'Union europeenne est l'une des grandes priorites du gouvernement et cette perspective reduit 6gale- ment le besoin de la presence de la Banque. Le gouvernement a d6fini sa nouvelle strategie dans un document formel paru en juin 1994. L'un des grands objectif de la Pologne est d'assurer son int6gration a l'Union europeenne et de ralentir le taux d'accroissement de la dette publique. Cette evolution s'est repercutee sur le dialogue entre la Banque et les autorites, devenu un dialogue entre partenaires egaux. Lors de l'examen des options stra- tegiques tenu a Varsovie en avril 1994, et de discussions ulterieures avant la finalisation de la strategie d'aide de la Banque, les parties ont souligne a nou- veau l'imperieuse necessite de mettre un terme a la d6terioration de la perfor- mance du portefeuille. Les autorites s'inquietaient du montant croissant des commissions d'engagement a verser a la Banque au titre de l' important solde non decaisse de ses prkts'. La Banque a propose de maintenir ses engagements a un niveau annuel de 600 a 800 millions de dollars au cours des cinq ann6es a venir (contre 880 millions en 1991-93). Mais les autorites ont note que le niveau du programme de pret dependrait des entrees de capitaux prives. Elles souhai- 42 taient que la Banque finance des projets plus simples et de moindre envergure et ont marque leur preference pour des projets axes sur les secteurs sociaux pour lesquels il etait difficile de mobiliser des financements prives. La Banque a reconnu que des erreurs avaient et commises dans certains cas et s'est a nouveau declaree prete a restructurer et/ou a annuler les prets en cours. Faisant preuve de determination et de capacite d'adaptation, elle a effectue un examen approfondi du portefeuille, a la suite de quoi il a ete procede a une restructuration profonde de certains prets, comme les prets au secteur de la sante, tandis qu'un grand nombre de projets en cours de preparation ont ete abandonn6s . Son representant a Varsovie a intensifie le dialogue avec les auto- rites pour trouver une solution aux problemes d'execution. Le document de strategie de 1994 (SAP 1994) proposait un programme triennal fixant le niveau des prets a 600-700 millions de dollars, dont les deux cinquie- mes sous forme de gros prets d'ajustement. Le Bureau regional estimait que ces operations d'ajustement fourniraient l'incitation requise pour faire progresser les grandes reformes structurelles. Les politiques de pret agressives des institu- tions financieres internationales europeennes -intervenant souvent en dehors de toute concertation sur les grandes orientations de l'action gouvernementale et avec l'appui de financements complementaires concessionnels de l'Union europeenne -avaient en effet reduit l'aptitude de la Banque a utiliser l'instru- ment de prets d'investissement pour faire progresser les reformes. La direction de la Banque a fait valoir qu'il n'6tait pas souhaitable de trop miser sur des ope- rations d'ajustement a l'appui de reformes des politiques generales, car cela ris- quait de faire n6gliger les aspects techniques et institutionnels des r6formes. La SAP prevoyait d'axer l'appui de la Banque sur trois domaines: la reforme des finances publiques (en particulier des depenses de securite sociale) ; la fermeture de grosses entreprises d'etat deficitaires ; et la reforme du secteur financier. Elle proposait egalement de mettre l'accent sur le developpement du secteur prive, notamment par la foumiture de garanties de bonne execution des contrats pour encourager l'apport de financements prives, en coop6ration 6troite avec la Societe financiere internationale (SFI). Elle proposait en outre que la Banque con- tinue de travailler a la mise au point de projets d'investissement de petite enver- gure et plus simples dans l'infrastructure sociale et 6conomique, et qu'elle fasse une plus large place a des activites au niveau des collectivites locales. La SAP 1994 ne prevoyait aucune mesure operationnelle dans un certain nom- bre de domaines importants, tels que l'adhesion a l'Union europeenne, la pau- vret6 et les questions de parite entre hommes et femmes, et le secteur agricole oii subsistaient d'importantes distorsions. Au cours du debat au Conseil, en novembre 1994, plusieurs administrateurs se sont inquietes de la coordination de l'aide, d'eventuels chevauchements des activites, de la lenteur de la privati- sation, et des nombreuses taches qu'il restait a mener a bien dans le secteur financier. Le Conseil n'en a pas moins approuve la strategie proposee tout en demandant instamment a la Banque de faire davantage pour ameliorer la qua- lite du portefeuille et pour encourager le secteur prive a participer au finance- ment des projets d'infrastructure. Les progres realis6s sur la voie de la r6alisation des objectifs de la SAP 1994 ont et au mieux modestes. Les nouveaux engagements de pret ont et bien infe- rieurs aux montants proposes, et aucun pret a l'ajustement n'a et approuv. A la suite des reunions tenues en juillet 1995 et en juin 1996 pour faire le point sur les resultats de la strategie, la Banque a recentr6 son effort sur l'ex6cution, l'am& lioration des resultats sur le terrain, l'utilisation eventuelle d'instruments hors prets, et l'amelioration de la coordination de l'aide. 43 Apres une annee de coop6ration et de reflexion intenses tant a l'int6rieur du Bureau regional qu'avec les autorites gouvernementales, les representants de la societe civile polonaise et le Departement de l'evaluation des operations, une nouvelle strat6gie d'aide a la Pologne vient d'etre definie. Tout au long de l'eta- blissement de cette strategie, l'6quipe charg6e de l'evaluation du programme d'assistance de la Banque a la Pologne a tenu l'6quipe-pays au courant de l'avancement de ses travaux et de ses conclusions, lui communiquant notam- ment les documents de reference etablis pour un certain nombre de secteurs et les resultats de ses enquetes aupres des parties prenantes et des ministeres polo- nais concernes. Vu l1'volution de l'aide de la Banque a la Pologne et les incerti- tudes pesant sur ses orientations futures (dans la perspective notamment d'adh6sion a l'Union europeenne), la presente 6valuation a permis de faire le bilan des resultats obtenus jusqu'ici et d'en tirer des lecons pour l'avenir. La nouvelle SAP tient compte des principales conclusions et recommandations de la pr6sente evaluation. La nouvelle SAP reconnait que la Pologne, ayant desormais facilement acces aux marches internationaux, a peu besoin de l'assistance financiere de la Banque. L'adh6sion attendue de la Pologne a l'Union europeenne reduira encore l'influence de la Banque. Le r6le futur de la Banque sera donc celui d'un con- seiller ind6pendant sur les orientations souhaitables des politiques publiques et de partenaire pour la constitution et le renforcement d'institutions adaptees a 1'6conomie de marche. En consequence, la SAP propose de fournir a la Pologne une assistance plus selective par les moyens suivants: (1) en aidant a la formu- lation et a la mise en oeuvre des politiques requises pour soutenir la croissance; (2) en fournissant les moyens d'evaluations independantes, ainsi qu'un appui aux investissements dans certains domaines comme l'environnement et les poli- tiques du marche du travail; et (3) en aidant la Pologne a faire le necessaire pour assurer la perennite sociale des reformes et r6duire la pauvrete. Cette strategie est eminemment bien adaptee aux besoins de l'heure et conforme aux recom- mandations de la presente evaluation. Resultats Globalement, la Pologne s'est remarquablement bien tiree de la transition, dans l'absolu comme par comparaison avec la performance d'autres economies en transition. Un certain nombre d'indicateurs clefs temoignent de cet excellent comportement: la Pologne a connu le taux moyen de croissance du PIB le plus eleve des economies en transition au cours de la periode 1990-95, et, des la mi-1995, l'activite du secteur prive y representait 60 pour cent du PIB (voir Tableau 5.3). En 1996, la Pologne est devenue membre de l'Organisation de coo- peration et de developpement economiques (OCDE) et elle a de bonnes chances d'adherer rapidement a l'Union europeenne. Dans un rapport de 1995 sur les progres realises par les economies en transition, la Banque europeenne pour la reconstruction et le developpement classe la Pologne parmi les pays les plus per- formants pour ce qui est notamment des privatisations a petite 6chelle, des refor- mes du commerce et des changes, et de la mise en place d'un cadre r6glementaire favorable a l'investissement prive (voir Tableau 5.3). Cependant, l'inflation et le chomage restent eleves. Le taux de pauvrete est toujours lui aussi relativement eeve, mais il est a noter qu'il diminue et que, dans la majorite des cas, le revenu des pauvres n'est pas tres eloign6 du seuil de pauvrete, de sorte qu'une croissance economique soutenue devrait etre a l'origine d'ameliorations substantielles. Les progres sont tangibles pour la plupart des objectifs initiaux de la Banque et pratiquement tous les secteurs ayant recu son aide ont beneficie de ses conseils 44 et de ses contributions intellectuelles. L'appui de la Banque a joue un r6le d6cisif dans l'obtention d'allegements d'un montant exceptionnel de la dette polonaise et dans le retablissement de la solvabilite du pays. Grace a une planification pre- coce et rigoureuse, et du fait aussi de la stabilite remarquable de ses equipes, la Banque a joue un role determinant en contribuant a l'amelioration de l'infras- tructure dans les secteurs de l'electricite, de l'6nergie, des transports et des tele- communications, en introduisant des idees, des technologies et des techniques de production nouvelles, et en ouvrant la voie a la participation du secteur prive. Conjointement avec la SFI, elle a aide a la mise en place de jumelages qui ont utilement contribue a la modernisation de plusieurs banques polonaises. Le volume des prets improductifs a fortement diminue et d'autres reformes du sec- teur financier sont en cours. Dans l'agriculture, la Banque a et le moteur de la coordination des efforts d6ployes par differents donateurs. Dans la plupart des secteurs, les questions d'environnement ont ete resolument prises en considera- tion. Dans les secteurs sociaux, la Banque a tres tot attire l'attention sur l'exis- tence de nombreux problemes preoccupants, comme 1' explosion des fonds de pension, mais le gouvernement ne s'est pas attaque a ces problemes avec toute 1'energie voulue en raison de leurs implications politiques. Cela dit, le dialogue intensif qui se poursuit sur les reformes du secteur public, la decentralisation, l'education, la sante et d'autres e16ments des politiques sociales devrait debou- cher sur des resultats positifs dans un avenir proche. Dans tous les secteurs, la presence de la Banque a contribue a l'instauration de bonnes pratiques de ges- tion, de procedures transparentes pour la passation des marches publics et d'energiques mesures de protection de 1'environnement. Les travaux de recher- che de la Banque et ses etudes economiques et sectorielles, completees par les activites de diffusion de l'Institut de developpement economique, ont contribue a faire mieux comprendre et accepter les politiques d'ouverture au marche adoptees par la Pologne. Ces resultats sont remarquables, meme s'ils ne sont pas a la hauteur des premie- res esperances de la Banque. Dans de nombreux domaines, toutefois, il reste a mener a bien des r6formes importantes pour assurer la perennite de la transfor- mation de la Pologne: * I1 faut accelerer la restructuration et la privatisation des banques commercia- les d'6tat et des entreprises du secteur public non rentables (le public repre- sente encore les trois cinquiemes de l'emploi industriel). I1 est indispensable de porter une attention particuliere aux industries lourdes (charbon, petro- chimie, siderurgie, hydrocarbures), ainsi qu'aux grandes banques d'etat spe- cialisees (logement, finances rurales) qui representent un tiers des actifs et passifs du systeme bancaire et dont la situation financiere precaire pese lour- dement sur le budget. * La reforme du filet de seurite sociale est une autre tache urgente. Les pro- grammes doivent etre cibles sur les groupes les plus vulnerables et prendre en compte les problemes particuliers des femmes et des enfants. Si l'on ne reforme pas le systeme des pensions, les deficits du secteur public attein- dront des niveaux impossibles a maitriser. * I1 faut aussi etablir les bases juridiques indispensables au bon fonctionne- ment d'une economie de marche en menant a bien les taches inachev6es: application de la loi sur les garanties et l'enregistrement des sfiretes, regle- mentation du credit-bail; renforcement des institutions qu'implique le libre jeu du marche et developpement du droit commercial de maniere a faciliter les investissements prives dans l'infrastructure et, plus generalement, le developpement des marches financiers. 45 * Il faut moderniser l'agriculture et l'ouvrir davantage aux forces du march6, non seulement pour mieux tirer parti de son potentiel, mais aussi pour com- mencer a la preparer aux exigences de l'adhesion a l'Union europeenne. * Il faut mener a bonne fin les reformes essentielles, comme la mise en place d'un cadre reglementaire favorable a l'investissement prive, engag6es dans les secteurs des transports ferroviaires et routiers, de l'energie et des t6l6com- munications. Pour ce qui est de l'avenir, le consensus dont fait l'objet l'entr6e dans l'Union europ6enne donne confiance que les reformes entamees en 1989 seront poursui- vies et que les realisations seront durables. En devenant membre de l'Union europ6enne, la Pologne <, verrouillerait >> ses reformes et il lui serait beaucoup plus difficile de faire machine arriere. Evaluation de l'assistance de la Banque3 Dans l'ensemble, la strategie de la Banque a ete tout a fait adaptee aux besoins de la Pologne a un tournant particulierement decisif de son histoire. L'efficacite de son appui a varie selon le moment et le secteur. Il a pu etre d'une grande efficacite dans le cas des pre^ts a I'ajustement faisant intervenir les autorites centrales et des prets destines aux secteurs forts, hautement techniques. En revanche, dans les secteurs davantage exposes a de frequents changements politiques, une plus forte presence de la Banque aurait pu donner de meilleurs resultats. Globale- ment, l'efficacitW de l'assistance de la Banque est jugee satisfaisante. Par rapport a celui de l'aide apport6e aux pays emprunteurs comparables de la region ECA (Europe et Asie centrale) et d'ailleurs, le couit du programme d'aide a la Pologne a et relativement eleve, que l'on considere les ressources humaines ou les res- sources financieres que la Banque lui a consacrees ; son efficience peut etre con- sideree, au mieux, comme marginalement satisfaisante. Mais pour evaluer la performance de la Banque comme celle de 1'emprunteur, il est essentiel de ne pas per- dre de vue qu'il s'agissait d'une entreprise totalement nouvelle, sans precedent pour la Banque aussi bien que pour la Pologne. Malgre les erreurs commises de part et d'autre, la performance de la Banque et celle de la Pologne ont ete globa- lement satisfaisantes. L'aide de la Banque a un impact substantiel sur le de'veloppe- ment institutionnel et il est vraisemblable que ses avantages seront durables. Principales conclusions concemant la Pologne Les efforts de la Banque ont eu un impact substantiel, de multiples manieres, dans l'important domaine du developpement institutionnel. Il ne fait aucun doute que la participation de la Banque a eu des effets b6nefiques sur les pratiques de ges- tion du secteur public, comme la passation de marches, la hierarchisation des d6penses publiques, la gestion de la dette exterieure et l'ouverture des transports a la participation du secteur priv. La modernisation des banques commerciales temoigne aussi de l'efficacite de l'appui de la Banque au plan institutionnel. Mais les realisations ont ete decevantes pour d'autres aspects du renforcement des ins- titutions, comme l'6limination de la d6pendance des grandes entreprises a l'gard des subventions budgetaires, la maitrise de l'inflation, la rationalisation de la ges- tion des banques specialisees et le maintien du rythme de la privatisation. Si les resultats ont et g6neralement positifs dans de nombreux domaines, plu- sieurs facteurs ont nui a l'efficacit6 de l'aide de la Banque. Entre 1989 et 1991, la Banque a clairement affirme que son principal objectif strategique 6tait d'aider 46 la Pologne a faire face a des reformes sans pr6cedent en lui pretant beaucoup d'argent. Initialement, les seules operations disponibles etaient les projets de lignes de cr6dit qui avaient dejA et evalues et mis en attente. Ces projets ont et approuves rapidement, sans que l'on se pr6occupe suffisamment de savoir si c'etait le bon moyen de transferer des ressources a la Pologne dans une periode de changements aussi complexes. Comme certains l'avaient prevu, les lignes de credit n'ont pas atteint leurs objectifs et ont fini par handicaper serieusement les relations entre la Banque et la Pologne. Dans l'intervalle, plusieurs autres projets ont et mis au point, qui visaient plus directement les problemes complexes de la transition dans plusieurs domaines. Compte tenu de toutes les difficultes qu'impliquait l'elaboration de reformes dans une situation aussi exceptionnelle, c'est A ce stade que la Banque a le plus utilement contribue aux efforts entrepris par la Pologne. Les premieres annees du programme ont aussi et marquees par d'autres problemes comme les frequents changements de la composition du gouvemement et les variations de sa volont6 de reforme, qui ont entrain6 des blocages administratifs et perturbe les activites de concertation et l'execution du programme. La possibilite de s'adresser A plusieurs donateurs, n'ayant pas tous les memes objectifs, a rendu la Pologne moins receptive aux conseils de la Ban- que. En outre, l1'volution des priorites au sein de la Banque elle-meme a parfois perturbe la continuite de l'effort qu'appelait la realisation d'un programme de reforme aussi ambitieux. C'est en partie du fait de ces problemes que l'efficacit6- couit de l'assistance de la Banque a ete relativement faible. Les difficultes ont ete aggravees par le manque de souplesse des instruments d'aide disponibles. Au debut, parce que la Banque etait pressee d'aider la Polo- gne, la << qualite A l'entree >> de nombreux projets a laisse A desirer, notamment dans le cas des lignes de credit. La conditionnalite de ces prets n'a pas toujours cte clairement speifiee, en partie parce que les juristes de la Banque n'avaient pas et associes A la conception du projet. Ayant souvent recour a la formule de prets d'ajustement a decaissement rapide (55 pour cent des decaissements des exercices 90-96), la Banque n'a pu exercer qu'une influence limitee sur les poli- tiques sectorielles et le renforcement des institutions par le biais de ses projets. Le probleme a ete exacerbe par la centralisation excessive de ses processus de decision, par l'ambiguite de la conditionnalite de certains prets et par le peu d'empressement mis a la faire respecter, et par l'annulation de certains prets avant que toutes les conditions n'aient ete remplies. Par ailleurs, l'insuffisance de la coordination avec les autres donateurs a affaibli l'effort de r6forme et con- tribue au gaspillage des fonds d'assistance technique. De toute evidence, la Banque pourrait utilement aider la Pologne a mener A bien une bonne partie des tAches qui restent inachevees. Mais la Pologne a deja beau- coup avance sur le chemin de la transformation et I' aide de la Banque lui est bien moins necessaire que par le pass& Elle dispose d'abondantes ressources en devi- ses et de specialistes du developpement qui comptent parmi les meilleurs du monde, et il lui est facile d'acceder aux marches financiers internationaux et aux institutions financieres europeennes qui ne demandent qu'a lui fournir une assistance technique et financiere. Pour sa part, la Banque doit tenir compte des besoins des autres pays membres, pour beaucoup appartenant aussi A la region Europe et Asie centrale, et en particulier des pays qui amorcent a peine ce pro- cessus de transformation et pour lesquels l'aide de la Banque est d'une impor- tance vitale. D'oui la n6cessite pour la Banque de se montrer selective dans la definition de son r6le futur A l'appui de la Pologne. L'assistance future de la Banque devrait mettre l'accent sur l'elaboration des politiques publiques et sur le renforcement du cadre institutionnel, plutot que sur le transfert de ressources. IL devrait etre possible de continuer a aider des 47 secteurs comme les transports, l'energie et les telecommunications, a condition que la Pologne soit r6solue a aller jusqu'au bout des reformes et a ouvrir ces sec- teurs a l'initiative priv6e. Avant toute nouvelle assistance a I'agriculture et aux secteurs sociaux, la Banque devrait demander a tous les ministeres concernes de s'engager sans equivoque a operer les reformes necessaires. Plus generalement, elle devrait s'attacher a encourager la participation du secteur prive, a obtenir des cofinancements d'autres institutions financieres internationales et a collabo- rer etroitement avec la SFI. 11 importe egalement de ne pas negliger le suivi de la gestion macroeconomique et financiere, en l'absence notamment de tout pro- gramme d'assistance conditionnelle du FMI. Bien que la position de change de la Pologne soit actuellement tout a fait satisfaisante, il serait bon de poursuivre le travail habituel d'analyse de la solvabilite a moyen terme. S'il est d6cide que l'aide future de la Banque consistera surtout en services hors prets - tudes speciales, assistance technique ou operations de garantie a l'appui d'investisse- ments priv6s, etc. - la Banque pourrait envisager de demander a la Pologne de prendre a sa charge le cout de ces services. Conclusions concernant les pays en transition L'experience de l'aide a la Pologne a egalement des incidences sur les program- mes de la Banque pour d'autres pays en transition. Strategie Il est indispensable que la Banque dispose d'instruments souples pour pouvoir appuyer les reformes d'un gouvernement autrement que par l'approbation rapide de nouveaux prets. Meme si le decaissement de ses prets a aide la Pologne, dans les premieres annees, a renforcer sa position ext&ieure, les apports techniques de la Banque, ses conseils et son appui intellectuel ont ete plus precieux que son assistance financiere. La Banque a fourni un soutien appr&ciable au programme de reformes elabore par les autorit6s nationales par ses conseils, son appui technique, et tout ce qu'elle a fait pour promouvoir des idees propres a favoriser l'ouverture au marche et pour convaincre d'autres creanciers de contribuer a l' allgement de la dette polonaise. * Dans le meme ordre d'idees, le personnel de la Banque ne devrait pas etre pousse a accelerer la presentation de projets a l'approbation du Conseil si la qualite de l'operation doit en souffrir. Pendant les deux premieres annees, les activites de pret a la Pologne ont et plus intensives que prevu. Le dernier document de strategie etabli avant l'octroi du premier pret de la Banque (1990) remontait a 1987. Il y etait propos6 de commencer par un portefeufille restreint. Lorsqu'on lui a demande de constituer un portefeuille beaucoup plus important, l'6quipe-pays n'a pas eu tout le temps voulu pour preparer a fond de nouvelles operations ou pour adapter les projets a l'etude aux exi- gences de la nouvelle conjoncture. * La Banque ne devrait pas lier rigidement les credits budg6taires alloues aux activites destinees a tel ou tel pays au montant des prets accordes au pays en cause afin d'eviter toute incitation perverse au gonflement des prets. * ll est essentiel de proceder a des contr6les frequents de l'avancement des pro- jets et a des auto-evaluations des progres accomplis vers la realisation des objectifs strategiques. Les rapports d'achevement de projet devraient etre pre- 48 pares dans les meilleurs delais, de maniere a ne pas perdre l'occasion de tirer parti des lecons de l'experience. Conception des projets * Les principales parties prenantes devraient etre pleinement associees a la conception des projets et la Banque devrait s'assurer que l'operation envisa- g6e emporte l'adhesion unanime des autorites des les premiers stades de la preparation du projet. Dans le cas de la Pologne, certains accords de pret ne specifiaient pas clairernent les mesures que l'emprunteur serait tenu de pren- dre et faisaient une trop large place a des dispositions g6nerales convenues avec des representants du gouvernement qui n'etaient plus en poste. * Dans un environnement incertain et tres mouvant, le personnel de la Banque devrait etre pret a modifier les projets pour les adapter a l'evolution des cir- constances. Chaque projet devrait donner lieu a une analyse des risques et pr6voir la possibilite d'ajustements. De meme, au stade de l'ex6cution, les projets devraient pouvoir etre facilement modifies en fonction des change- ments intervenus. * Chaque fois que possible, les projets devraient etre cibles sur les problemes de parite et de pauvrete. Dans le cas du Pret d'ajustement structurel, certains administrateurs de la Banque s'etaient inquietes du caractere trop general des conditions mises a ce pret, en particulier quant a la reduction des sub- ventions et au rythme de la privatisation. Certes, ils avaient fermement approuve l'octroi de ce pret, mais leurs craintes se sont reve1les justifiees car la reduction des subventions est demeuree une source de blocages et la pri- vatisation s'est deroulee a un rythme plus lent que prevu. De meme, un certain nombre d'administrateurs avaient demande des mesures plus ener- giques pour proteger les groupes vulnerables durant la periode de stabilisa- tion. La encore, on aurait pu faire davantage. Lorsque les subventions ont et reduites et que les entreprises d'etat ont cesse de fournir des services sociaux gratuits, le cout de la vie s'est eleve et les salaires reels ont chute. Les femmes ont et doublement affectees, ayant perdu la possibilite de faire garder leurs enfants et subissant un taux de ch6mage superieur a la moyenne. = Des prets tels que le Pret a l'ajustement structurel peuvent etre un important moyen d'entretenir le dialogue entre la Banque et le gouvernement sur des questions comme la gestion de l'environnement. Ainsi, parce que la politique de l'environnement faisait partie de ses conditions, le Pret d'ajustement struc- turel consenti a la Pologne a contribue a placer les questions d'environnement au coeur du dialogue economique entre la Banque et le gouvernement. * Un environnement incertain appelle des projets souples, et il serait donc hasardeux d'entreprendre des projets qu'il serait difficile de modifier si la situation devait changer. Des projets simples, d'envergure limitee, convien- nent mieux que des projets complexes faisant intervenir plusieurs organis- mes d'execution. Execution des projets et missions residentes * La Banque devrait veiller a ce que le personnel affect6 au projet soit suffisant pour assurer le succes de l'execution. Si le projet vise le renforcement des ins- titutions ou l'introduction de reformes difficiles, la Banque doit etre prete a poster sur le terrain une equipe experimentee jusqu'a ce que le projet soit en bonne voie. 49 * Un taux eleve de rotation du personnel peut compromettre la continuite des projets et entrainer une perte de memoire institutionnelle. II est particuliere- ment important d'assurer la continuite du personnel de la Banque lorsque l'emprunteur modifie souvent la composition de ses propres equipes. * La responsabilite des decisions touchant l'ex6cution du projet doit etre, dans la mesure du possible, deleguee au personnel de terrain, a condition de defi- nir clairement les objectifs du projet et de fixer des indicateurs de perfor- mance verifiables. Questions institutionnelles et juridiques * Des le depart, la Banque devrait veiller a la mise en place d'un cadre juridique et institutionnel adapte a une economie de march6. Des experts juridiques doi- vent tres vite etre pleinement et activement associes a la conception du projet. * Il faut evaluer soigneusement le niveau de developpement des capacites ins- titutionnelles. Dans le cas de la Pologne, la Banque a souvent, au depart, prete a des intermediaires financiers qui devaient retroceder les fonds recus aux beneficiaires finals. Mais elle ne s'etait pas assuree que les banques polonaises avaient les moyens institutionnels de s'acquitter de cette fonction cruciale et la suite des evenements a montre qu'elles n'etaient pas en mesure de jouer ce r6le. Pratiquement rien n'a et decaisse au titre des projets de la Banque comportant l'ouverture de lignes de credit, par suite de l'absence de demande, de la lenteur et de la pesanteur des procedures de la Banque et aussi de la concurrence exercee par les lignes de credit d'autres donateurs, lesquelles 6taient assorties de procedures plus souples et de conditions plus favorables que celles de la Banque. Maximisation de l'impact global des donateurs * La coordination de l'aide doit etre suivie de maniere a assurer la coherence des conseils donnes et a 6viter les chevauchements. * La coordination des donateurs peut etre d'une importance cruciale. Les efforts combines de la Banque, du Fonds et d'autres grands donateurs ont jou6 un r6le essentiel dans le montage d'un programme pour reduire l'encours et le service des emprunts massifs que la Pologne avait contractes aupres de banques privees et qu'elle n'arrivait pas a rembourser. L'appui financier et technique de la Banque a joue un role determinant dans I'accord conclu avec le Club de Londres en mars 1994. La Pologne a b6neficie d'all& gements de sa dette d'un montant exceptionnel et elle a pu restaurer sa sol- vabilit6 et son acces aux marches internationaux des capitaux. Diffusion * La Banque devrait faire davantage pour elargir la diffusion de ses etudes et produits intellectuels dans les pays clients, notamment en faisant traduire a tout le moins le resume de ses etudes economiques et sectorielles dans la lan- gue du pays concerne. Notes 1. Pour l'exercice 94, les commissions d'engagement dues a la Banque sur les prets d'in- vestissement non decaisses representaient 4,3 millions de dollars, soit 3,3 pour cent du 50 montant decaisse au titre de ces prets au cours de l'annee. Ce pourcentage a et de 1,9 pour cent pour les exercices 90-96. 2. L'6lirnination de certains projets s'est poursuivie au cours de l'exercice 96. Quinze projets ont ainsi et abandonnes durant les exercices 95-96, alors que la Banque leur avait deja consacre au moins 710 semaines de travail, soit un investissement de 2,3 millions de dollars (ces chiffres ne tiennent compte que des cohts directs a lexclusion des frais gene- raux et du temps de la direction). Ces couts sont superieurs (relativement au total des coats afferents aux prets) aux moyennes observees pour la region et l'ensemble de la Ban- que. Renoncer a des projets lorsqu'on s'apercoit qu'ils n'ont guere de chances d'aboutir temoigne d'une bonne gestion. Toutefois, le cofit direct des projets abandonnes est bien plus eleve pour la Pologne que pour d'autres pays. Durant les exercices 93-96, ce cofit a repr6sente 53 semaines de travail, contre 29 pour le Departement II de la Region Europe et Asie centrale, 26 pour l'ensemble de cette region, et 33 a l'ehelle de la Banque. Ces chif- fres donnent a penser que la Banque a laisse ces projets trairner trop longtemps avant de se decider a y mettre fin. On trouvera au Chapitre 4 de la presente evaluation une etude de 1'efficacite-couit du programme de la Banque pour la Pologne. 3. Le Ministere des Finances, sur une premiere version de la presente evaluation, a note qu'independamment des questions traitees ci-dessus, le rapport donne une analyse exac- te des succes et des echecs de la cooperation entre la Banque mondiale et la Pologne, en- core que, dans plusieurs de ses parties, il insiste trop sur le r6le moteur de la Banque mondiale. La Banque a effectivement joue un r6le tres important dans la transformation de l'economie polonaise, notamment en appuyant la reconstruction de l'appareil institu- tionnel. Dans la plupart des cas toutefois, ses interventions sont venues completer et valider les programmes economiques dont les autorites polonaises avaient elles-memes pris l'initiative. POLAND COUNTRY ASSISTANCE REVIEW 1. How the Bank's assistance strategy changed over time Background Poland was a founding member of the World Bank in 1945, but dropped out (to join the Council for Mutual Economic Assistance, or CMEA) in March 1950. During the 1970s Poland borrowed heavily from abroad to finance a massive industrial investrnent program. The program failed, plunging Poland into eco- nomic crisis in late 1981, leading to the imposition of martial law and the rejec- tion of its application to rejoin the International Monetary Fund (IMF) and the Bank. In 1986 Poland was admitted as a member of the IMF and the Bank, despite the opposition of some major shareholders. The succeeding years wit- nessed several attempts at economic reform that left untouched Poland's severe structural problems. These had been created by distortions in relative prices and by weak public finances, a consequence of widespread subsidies and lack of financial discipline in the extensive state-owned enterprise sector. In December 1987 Poland signed an agreement with its Paris Club creditors to reschedule maturities totaling $9 billion (principal and interest, most of it in arrears and most of it due in 1988). An agreement was signed with commercial bank creditors in July 1988, rescheduling about $8 billion in principal obliga- tions due from 1987 through 1993. These developments led to growing expecta- tions that the Bank was going to begin its lending program to Poland at any moment. The Bank had made substantial investments in economic and sector work and in preparing a pipeline of projects. But lending was delayed, largely because of concerns about Poland's creditworthiness and doubts about the soundness of its reforms. In early 1988, amid food shortages and following a wave of strikes demanding wage increases, further steps were taken toward economic liberalization, most notably reform of private sector and foreign trade policies. The reforms were accompanied by a weak package of macroeconomic policies, which were not up to the task of addressing wage inflation pressures. Many price controls were maintained, exacerbating repressed inflation and shortages. The momentous political events that shook the Soviet bloc in 1989-perestroika, glasnost, and the collapse of the Berlin Wall, the Warsaw Pact, CMEA, and the Soviet Union-had dramatic repercussions for Poland. In April 1989, the Round Table negotiations between the communist government and Lech Walesa's Solidarity led to an agreement on freedom of expression and of political and social organization, new electoral rules to make parliament more representative, the establishment of municipal self-government, and an ending of the ban on the Solidarity movement. On the economic front the agreement proposed greater support for developing the private sector, but no program of privatization. 51 52 Events moved quickly in the summer of 1989. In June, Solidarity won the coun- try's first free election in the post-war period by a big margin. In August, Presi- dent Jaruzelski accepted a proposal from Solidarity to form a coalition govern- ment. This coalition government, comprised of the Solidarity and United Peasants parties, assumed control of all the key economics ministries. As Tadeusz Mazowiecki took the position of Prime Minister, 45 years of communist rule came to an end. In September, Poland and the European Community con- cluded a comprehensive bilateral commercial agreement. In November, the gov- ernment announced a new economic transformation program (ETP), drawn up by a group of Polish economists, led by Finance Minister Leszek Balcerowicz. The program called for macroeconomic stabilization, followed by major institu- tional changes to take advantage of a sudden opportunity to break with the communist past and create a Western-style market economy with private own- ership and full integration into world markets. The main elements of the ETP were drastic macroeconomic stabilization, removal of price controls and of international trade barriers, substantial cuts in subsidies, establishment of a legal environment supportive of private sector activity, privatization, establish- ment of a suitable social safety net, and mobilization of international assistance. The ETP, which included a medium-term macroeconomic framework and an external financing strategy, received strong financial support from the interna- tional financial community. The ETP became operational on January 1, 1990. The Bank, giving its full endorsement and support to the ETP, began lending to Poland shortly there- after, four years after Poland had rejoined the Bank. Evolution of the Bank's assistance strategy1 1986-89: intensive preparation but no lending In the first two In the first two years of activities following Poland's rejoining the Bank, the Bank focused on getting to know Poland. Comprehensive reviews of the econ- years of activities omy (a 1986 economic report and the 1987 country economic memorandum) identified the main assistance issues and provided opportunities to establish ties with Polish counterparts. The first strategy paper (CSP) followed this pre- Poland's rejoin- paratory work and was reviewed by the President's Council in November 1987. ing the Bank, The considerable opportunities and risks associated with lending to Poland led the Bank focused to a debate within the Bank on when to begin lending, and how. The govern- ment's Medium-Term Scenario reform program seemed reasonable, but there on getting to were doubts about Poland's creditworthiness and its commitment to reform. know Poland Furthermore, staff were aware that major shareholders would oppose the start of lending. Management decided that an agreement between Poland and the IMF would be a prerequisite for Bank lending. In the end, after intensive internal debate, the Bank settled on an open-ended strategy of supporting government reform initiatives, while carefully monitoring progress to determine when to start formal loan negotiations. This strategy allowed the Bank considerable flexibility. Aware of Poland's poor track record on following through on reforms, the Bank sought in the CSP to encourage the gov- ernment to produce and stick to a feasible and credible medium-term economic and debt management program that would restore Poland to creditworthiness. Lending was expected to begin in FY88. The proposed strategy was to support activities that would generate foreign exchange, in order to alleviate critical short- 53 ages of hard currencies. The tentative lending program included an industrial export project of $250 million in fiscal 1988, followed in fiscal 1989 by an agropro- cessing project of $50 million and an energy project of $250 million. The beneficia- ries of these loans would be state-owned enterprises. Thereafter, the lending mix was to have changed to a combination of policy and investment lending directed at sectoral restructuring programs, on the condition that the government had made adequate progress on its reform programs. However, dissatisfied with Pol- ish progress on reforms, Bank managers decided to postpone the start of lending. Considering the opportunities and risks facing the Polish reform program, the Bank's cautious strategy of 1987 was appropriate to the uncertainties of the time. While a case could have been made for earlier, selective Bank lending, postpon- ing lending until 1990 had the positive effect of encouraging the Polish authori- ties to make a stronger commitment to reform. And by waiting until the IMF was involved in Poland and the international and domestic climates were more receptive, the Bank began lending when the ratio of opportunities to risks was unusually favorable. (See Box 1.1.) 1990-91: strong Bank supportfor the reform program and rapid buildup of the portfolio After initially opposing lending to Poland, some of the Bank's major sharehold- ers reversed their position in the months leading up to the appointment of the Solidarity-led government in 1989 and began to urge the Bank to accelerate project preparation. In six weeks at the end of 1989, the Bank shifted its pro- posed strategy in response to calls from shareholders to clearly demonstrate the Bank's full endorsement of the reform program and exploit opportunities for assistance. In early November, following Poland's agreement on an extended fund facility with the IMF, a proposal for a structural adjustment loan (SAL) was put forward for the end of fiscal 1990 or early 1991, in support of the reform pro- gram and to open up the possibility of further structural and sectoral adjust- ment loans. In early December 1989 a SAL appraisal mission was sent to Poland. In view of the determination shown by the government's new economic team to act forcefully to transform Poland's economy, the Bank's strategy became one of full support for the new government's program. Reflecting the high priority the Bank attached to the success of Poland's reform effort, senior Bank officials, from the President and Senior Vice President for Operations to the Regional Vice President and Country Director, were directly involved in designing the early program. They launched special task forces and The Bank sought expedited processes to ensure timely assistance and to exploit the unprece- to get involved dented opportunities for historic reform. i in all key areas According to internal documents and statements to the Board, the Bank sought of the reform to get involved in all key areas of the reform program including supporting he Poland's reentry into the world economy through trade liberalization; resolving program foreign debt issues; stabilizing the economy; strengthening the currency and the balance of payments; disposing of nonviable enterprises and restructuring those with a future; softening the negative impacts of reforms on vulnerable groups; creating the institutional and legal framework for a market economy; handing over control of the economy from the planners to the market; reducing the bur- den of controls and monopolies; encouraging the growth of private sector busi- ness; and mobilizing and coordinating other donor assistance. Lending started in February 1990 with two loans aimed at increasing convert- ible currency exports. These were followed by loans for environmental protec- tion, transport, energy, and the financial sector. Much of this lending was 54 w) .D . ... O .S . >.: .. x B. S . . ,, ,. ;. t . . .,, 6 .., ..hN 2 Setp ,tp ,E.p. . . . .. . .p (:,, ,,, X, ,� ,,> ,,,:H, (A,,=, ._ . _ ....,_ ,,, ,z, <,r, .,, ^..^ i } ' ~ ... ... ... benxficaris. wa of ths apra wstt te Ba. dAdntfr tas tai hetBnherPoish bankshadth instoio etutiona'lcaacdity toshrort thime Fifoteen onlesndin wroe. Althougd this stae-y smedtppgto - poatnabte t subs2 - qiuent denelofmnt the oaehtcniins were nonualsibtto rtight,parficulcarly ithon Whyec t the ianstitutioal readioneso ponledin financial intperiediofrties On ofthe ekarist andr mo prevstibeformsof shareodesk supportfo theETwath refmllorn ptrucgrami eAndjutmndt~ Loandapoe nJuy19.Teonsmi objetie wast winowse the ETPpouby iemnsrtn the Bank'peiod wbelein sthe pro- gram'tenica sund, l nters ndvatilnay sapor by prfovdng foreatdgn exhngeiron me ideoqi cntcino av large prflio. straengthe n the ountrysfore and thserves an addrtoathicrentiiles andh tai zainprojetsgnrand preparactive dayretr stonglpendosed inthe eSALr athouget ~ h neit ~timedaefinacn ned is ^key to reut in a prga that stax-l -it kds iglon.Te is wit thes lan ws ha ..-....-... institution w-X-d ne iecpbeo fiietyol igBn truhcredit lines tofnniannemeire that wehe continted aviaiiyo oenetosubidiendt onlend 'sussbead hning roelhuhtitaenyisonment app hoproatecat dhestign, sunde r ssspe tante riediutoa readionfoecstso ofnftuecnditgion s,cyet ither vediryes O ns fth aris an mor visibaorsob Bnlupotfo h inP wasp- $300 illingSrcual Adjusmb entf Loan appoet nJl 90 h onsmi idam' tchnicanl sourondnesand vixpoles and o the prov idfing frelgnexance t stegte the couae hntry's frinrsre n d oth rdbltftesai throughn creditm linest finaciauitiermdiarieosstogyedrd thaweeexpce toL onlenduto 55 (Box Li continued) U TheBanks endorsement of reforms and active parcipation in reforms encouraged others to get involved m Polaand. � The Bank was instrumental in bringing about the renegotiation of Poland's debt and the reesablishment of creditworthiness. * The Bank was able to influence polcy and encourage macroeconomic discplne a-nd tough but newssary reforms through lon onditons. Negative * Nine of 15 loans approved in this period were eventually caceled or par- tialy canceled. * Fifteen projects that had been approved under two pro-reform govert- ments we implemernted by subseuent gern that were less reform minded and possibly less committed. Average loan performance declined, and implementation obstacles mouted. U Many of the Ban's initial forecasts proved wrong, to varying degrees, maling it important that the Bank make appropriate nid-course adjust- inents to meet changing and unforeseen conditis. For example, nobody foresaw the boom of new private enterprises. The Bank had put its empha- sis on backng restrctured and privatized former state-owned enterprises as the source of future private sector growth. * The portflio, built up to a great extert following tremendous international and irternal Bank pressure, was somewhat neglected once the pressure subsided. This neglect was demonstrated by lack of folow-up and by other indicators. Conclusion There were defnite costs associated with the strategy of establishing a large portfolio in a short period of time, but regardless of the poor perfor- mance of several individual Projects, the overall goal of helping drive the refom proess was achieved. Regardless of the potfolio imperfections, Poland has successfuly met many reforms goals. Without the Bank's assis- tance, the possibihties opened up in the early years might not have been so fy reahzed. Source: World Bank data. some expressed concern that its conditionality was too general, particularly on subsidy reduction and the pace of privatization. Some executive directors called for more decisive action to protect vulnerable groups during stabilization. The SAL became a major vehicle for Bank-government dialogue. For example, by including conditionality on environmental policy, the SAL helped bring envi- ronmental issues to the center of Bank-government economic dialogue. Realizing the magnitude of the task ahead and the need for a permanent pres- ence on the ground, the Bank set up a high-level resident mission in Warsaw in July 1990, headed by a member of the regional management team. Its main activities would be to coordinate and help develop the Bank's assistance pro- gram, help the government coordinate financial and technical assistance from other sources, and monitor economic, financial, legislative, and social progress. 56 The rush to lend continued. In the brief period from April to June 1991 the Board approved 12 loans totaling $1,140 million. These included several loans in the energy sector, one of which was the Energy Adjustment Loan, which focused on pricing and subsidy issues. Other loans were for telecommunications, employ- ment promotion, agriculture, privatization and restructuring, and financial institutions. The Financial Institutions Development Loan (FIDL) included both policy and institutional development components aimed at removing interest rate subsidies, reducing directed credit, modernizing banking legislation (intro- ducing a law on collateral security, a deposit insurance mechanism, bankruptcy laws), helping develop capital markets, and restructuring the state-owned com- mercial banks with the intention of privatizing them. Technical assistance was also emphasized and included preparation of sector strategy papers for agriculture, health, and housing. Six energy sector studies laid the foundation for restructuring the energy sector. The Bank also mobilized technical assistance from other sources, often on grant terms. The Bank under- stood the appeal to the government of utilizing grant money for technical assis- tance, but with several donors funding technical assistance, issues of aid coordi- nation and ownership arose. The first two years of lending were rushed. Country managers had not antici- pated creating such a large portfolio in Poland. The last strategy paper (1987) prior to the beginning of lending in 1990 had proposed a small trial portfolio (one third the size of a typical Bank lending program to a country of Poland's size). When instructed to prepare a portfolio much larger than anticipated, the country team did not have the time to fully prepare new projects or to modify existing project proposals to suit the new environment. No new formal strategy reviews were held until November 1992, after most of the loans had been approved. Despite these handicaps, the Bank succeeded in providing strong and effective support to the Polish government during the critical early stages of the eco- nomic transformation. Although the impetus for the reform program came from Despite hanthe Polish team led by Leszek Balcerowicz, the Bank provided valuable support hspl e and 1- through intellectual advice, technical and moral backing, dissemination of caps, the Bank market-oriented ideas, and the endorsement of Poland's debt-relief proposals to other creditors. Although the Bank's loan disbursements also helped to provlied strong strengthen the country's external position in the early years, its technical inputs, and effective advice, and intellectual support for the reforms were more valuable than its support to the financial assistance. government in A good example of the Bank's early intellectual support was the strategic invest- ment review. The green cover report was well received by the government. It the critical focused on an area that had received scant attention on Poland's transition early stages agenda-the articulation and management of a public investment program to support the emerging market economy. As the first comprehensive review by of economic the Bank of public investments in a transition economy, the strategic investment transformation review helped disseminate information widely about investment management issues in transition economies. Other vehicles for Bank advice were informal reports and project preparation work. 1992-93: lending continues but attention shifts to emerging implementation problems and reform issues The Bank's first opportunity to take stock of its assistance program came in 1992, in the country economic memorandum (CEM), "Economic Transformation at a Crossroads." This analysis of the transformation experience of 1990-91 was 57 intended as an input to decisionmaking in Poland and the Bank's 1992 CSP. The report found that Poland had made great progress and that the private sector was prospering. It also noted that the restructuring and privatization of state enterprises were lagging and that sharp drops in investment in infrastructure and human resource development could be undermining growth. At the heart of the problem was the difficulty of restructuring and privatizing state enterprises. The rapid expansion of the private sector was not enough to compensate for the loss in output and employment in many large state-owned enterprises. As a result, the portfolios of commercial banks were much weaker than had originally been believed. When subsidies were reduced and state enterprises cut back on free social services, the cost of living rose. Real wages fell sharply from the unsustainably high levels of early 1989. Women suffered a dual blow from the loss of daycare facilities and a higher than average incidence of unemployment. Public finances weakened, and the original program supported by the IMF veered offtrack. Public support for the ETP waned. Successive gen- eral elections and coalition realignments led to frequent ministerial changes. The CEM recommended that Poland focus on quick ownership reform and inte- gration into the world economy to deal with its massive restructuring problem, specifically that it consolidate macroeconomic stabilization and supply side response, strengthen core state institutions, build up infrastructure functions with private sector participation, and expedite enterprise restructuring and privatization. Since social expenditures had skyrocketed during the 1990-92 period, public finance reforms were needed to target expenditures more effi- ciently, to allocate social transfers to the most needy, and to weed out the large numbers of ineligible social welfare claims. Other public finance reforms were also needed: implementation of a modern tax system, decentralization of expenditure responsibility, and introduction of a value added tax. The country's external debt had to be consolidated, and agreement had to be reached with commercial creditors to fully restore Poland's creditworthiness. With the country's changing political and social situation, implementation of But it b Bank projects suffered, and disbursements lagged behind estimates. It became U ecame apparent that some projects were too large and complicated, involving several apparent that ministries or agencies that did not always share the same objectives. The turn- over of government personnel also revealed that the Bank's institution-building some projects are efforts had not always been fully successful. The new officials took a long time too large and to learn the Bank's jargon and procedures. Communications between Polish officials and Bank staff were not always smooth. Lack of continuity in Bank staff complicated sent from headquarters was also to blame for implementation delays. In some cases, loan documents failed to spell out clearly what actions the borrowers were required to take, having relied instead on general understandings reached with officials who were no longer in office. There was little if any disbursement from Bank projects involving credit lines, a consequence of lack of demand, a perception that Bank procedures were slow and cumbersome, and emerging competition in credit lines made available by donors offering more flexible pro- cedures and better terms. At the same time that these portfolio problems were emerging, management changes in the Regional office resulted in a gradual reduction of the resident mis- sion's authority to handle day-to-day issues. There was less delegation of author- ity from headquarters, and the attention of some managers and senior staff shifted from Poland to other countries in the Region (Figure 1.1). Response times from Washington became longer, and the Bank's assistance to Poland lost some of its earlier drive. Projects took on a life of their own, with progress depending 58 on the initiative of the staff involved and their government counterparts. Projects in sectors whose ministries were shielded from frequent changes in government, and where the Bank had maintained seasoned staff on the ground (such as in infrastructure), continued to make progress, while other projects stagnated. The country strategy paper completed in November 1992 recognized some of the emerging implementation problems, which it attributed mostly to causes outside the Bank, such as political instability, lack of familiarity with the Bank's requirements and practices, lack of institutional ability, and competition from other donors. It failed to note, however, the poor fit between some of the Bank's instruments, especially credit-line loans, and the institutional environment in Poland or the gap between strategy and instruments in some cases. The CSP defined five objectives of the Bank's lending strategy: to secure a stable macro- economic framework and thus strengthen Poland's creditworthiness; to support enterprise reform and restructuring, privatization, and the growth of the private sector; to upgrade infrastructure (including financial sector infrastructure) in ways that would support a market economy; to enhance environmental amelio- ration in all sectors of economic activity; and to support the strengthening of Poland's social safety net to help the country reduce the social impact of its sys- temic transformation. The CSP proposed a tentative three-year lending program of $0.9 billion a year, including $400 million to support a debt-reduction opera- tion. It also mentioned the need to improve implementation of existing projects and to provide donor leadership. No specific operational guidelines were pro- vided on how to improve portfolio management, other than calling for targeted supervision efforts, training in procurement and disbursement procedures, and discussions with the government.2 FIGURE 1.1: DISTRIBUTION OF BANK RESOURCES AMONG COUNTRIES IN THE EUROPE AND CENTRAL ASIA REGION's DIVISION II, FY85-96 (thousands of dollars) 20,000 18,000 16,000 14,000 Total resources Bo a 12,000 10,000 Po, 8,000 Hungary 6,000 4,000 Poland 2,000 0 85 86 87 88 89 90 91 92 93 94 95 96 Fiscal year 1. "Other" includes: Czech Republic, Slovak Republic, Slovenia, and Yugoslavia. Source: World Bank data. 59 A revised country assistance strategy-without the proposed lending targets- was presented to the Board in April 1993. Some executive directors criticized the document's lack of specificity on fiscal projections (which some executive directors thought were overly optimistic), safety net targeting needs, and the social consequences of restructuring-objections that in hindsight proved well taken. On balance, however, the executive directors endorsed the proposed strategy and praised the emphases on environmental protection and assistance for debt reduction. The first joint country strategy and implementation review (CSIR) with the Pol- ish authorities took place in Warsaw in January 1993. Government officials com- Despite useful plained about Bank project staff who encouraged line ministries to request new Bank loans without the knowledge or concurrence of the Ministry of Finance. discussions, The Bank agreed to respect the coordinating functions of the ministry in formu- implementation lating future lending proposals. Despite these useful discussions, implementa- tion problems intensified during the year, and the new authorities asked for problems more time to define priority areas of future cooperation and for the design of intensified new projects in order to "avoid repeating mistakes of the past." Despite the mounting difficulties during this two-year period, Bank staff were able to put together seven additional loans totaling $1,436 million. This diversi- fied portfolio included innovative and ambitious loans for health and housing, and loans for forestry development, roads, and private sector development (most of these, however, would also run into serious implementation difficul- ties). Two adjustment loans, prepared with full participation by the borrowers, were particularly innovative and far-reaching: the Agricultural Sector Adjust- ment Loan (ASAL) for $300 million, and the Enterprise and Financial Sector Adjustment Loan (EFSAL) for $450 million. In the health sector the Bank undertook an ambitious program to help arrest the 20-year decline in the health status of the population and to ameliorate the adverse effects of the economic crisis. The Bank's health sector specialists felt under pressure to expedite preparation of a project, whereas the Polish initial counterparts, who were spread across four ministries, were not ready to define priorities. As a result, the $130 million project was put together without full par- ticipation-and ownership-of stakeholders, giving little attention to women's health issues and missing opportunities for donor coordination, especially in grant-based technical assistance. The project attempted to do too much and in too complex a manner. Following a major restructuring in mid-1994 that strengthened the project implementation unit, performance improved. Responding to a direct request by the Polish government to the Bank President in February 1990, staff were instructed to expedite preparation of a housing project loan. A $200 million loan-cofinanced by the European Bank for Recon- struction and Development (EBRD) and US Agency for International Develop- ment (USAID)-was approved in June 1992. The project addressed complex legal, financial, and institutional issues affecting the housing market. It was the first of a number of housing loans made to reforming socialist economies. How- ever, the project was in two respects more ambitious than the housing projects pursued in other reforming economies. First, the project attempted to support the government's movement away from heavily subsidized housing production to a market-based system that eliminated subsidies for new housing. The objec- tive was that the most needy rather than the purchasers of new homes, who tend to be middle- and upper-income families, would receive subsidies. Second, it attempted to replace existing subsidies with finance, with the finance modeled on a successful series of housing finance projects in Mexico. From a loan dis- 60 bursement perspective, this project clearly did not work. Yet in some ways this result is not surprising. In an economy undergoing major restructuring of pro- duction and ownership rights, and simultaneously experiencing a severe reces- sion, it is reasonable to expect housing investment to contract sharply-all the more so considering that housing was one of the most highly subsidized and publicly controlled goods under central planning. The project had quite ambi- tiously sought to eliminate all housing subsidies for new housing production, and replace them with a mortgage instrument that through indexation of repay- ments to inflation would eliminate the need for subsidies. The ASAL, by contrast, was an example of careful preparatory work and Bank leadership. Following two earlier Bank loans for agriculture that had been rushed for Board approval without adequate preparation, the Bank organized an agricultural task force jointly with the government and the European Com- munity. The task force produced a report on an agricultural strategy for Poland that was to become the framework for government action and for aid coordina- tion by bilateral and multilateral donors. From this participatory framework emerged the ASAL, which embraced almost the full range of policy elements needed for the transition of agriculture in Poland. It was exceptionally compre- hensive and offered the opportunity for productive dialogue on most sectoral issues. The loan's emphasis was on accelerating the privatization and restruc- turing of state enterprises and state farms, and on formulating a long-term land policy to facilitate the expansion of the private market for farmland. During implementation, however, this ambitious loan fell short of its potential useful- ness because of its complexity. The large number of studies, technical assistance projects, and conditions made its thorough supervision by Bank staff very diffi- cult. Still, the project had an undeniable influence by guiding agricultural policy in the country. A small group of Polish officials, in full cooperation with Bank staff, were behind the other pathbreaking loan, the EFSAL. Its objectives were to deal simultaneously with the debt overhang of state enterprises and the portfolio problems of the banking system and to resolve a root cause of the state enter- prise crisis, the unclear structure of enterprise ownership and governance. The loan, which also aimed at allowing faster bank privatization by strengthening bank supervision, stimulated the banks to play a central role in restructuring enterprises through mandatory conciliation agreements. The loan also provided state enterprises with new opportunities to succeed in their reorganization efforts. Since rapid liquidation or restructuring of sensitive enterprises could be By 1994, too costly socially and politically, the Bank agreed to finance an intervention fund to act as a social shock absorber during downsizing and liquidation of Bank-country some large state enterprises. But the loan's design suffered from insufficient eco- nomic work in the financial sector and limited information about the condition relations had of enterprises. The loan's intended conditionality was weakened by lack of pre- not improved cision in the legal documents, which did not give the Bank a clear mandate to monitor the agreed pace of privatization or to supervise the operations of the intervention fund. Notwithstanding these limitations, the EFSAL was effective in introducing an innovative decentralized approach to the recovery and restructuring of bank portfolios that isolated banks from political influences and enhanced their autonomy. 1994-95: reduced Bank lending ($0.4 billion), portfolio consolidation, and a sharper focus on implementation By the beginning of 1994, Bank-country relations had not improved. The gov- ermnent was articulating more clearly its reservations about Bank assistance, 61 including the mounting burden of the Bank's commitment charges on undis- bursed loan balances and the financial management problems associated with the currency-pooling system. The Bank's requirement of a government guaran- tee was seen as encouraging borrowers to be irresponsible. In the social sectors the government criticized deficiencies in project design, such as the lack of mon- itorable action programs for project implementation and vague definition of expected benefits. The Bank, for its part, was increasingly concerned about the slow progress on important structural and institutional reforms that were required under the various projects in the pipeline. These included progress on privatizing and restructuring enterprises, strengthening public finances, reduc- ing the losses of the specialized banks, rationalizing the banking system, creat- ing a deposit-insurance scheme, adopting a law on collateral, streamlining safety net operations, and opening up public utilities to private sector participa- tion. The country operations director went on a special mission to Poland in Jan- uary 1994, and the two sides agreed on a period of consolidation, during which A notable priority would be given to implementation of existing projects. This marked the exception in this beginning of the Bank's reassessment process, in line with recommendations made earlier by OED in an internal review of portfolio performance. period was joint A notable exception in this period of consolidation was the joint efforts of the efforts to put Bank, the Fund, and other major donors in putting together a debt and debt-ser- together a debt vice reduction package on Poland's massive debt to private banks, which had and debt-service been in default. A successful London Club arrangement was reached in March 1994, which the Bank supported with a $400 million loan ($170 million from the reduction Debt and Debt Service Reduction Loan and $230 million from funds set aside from three previously approved adjustment loans). Poland used these funds to package buy back a part of its outstanding debt. The Bank's support-financial and tech- nical-for this important operation was pivotal. The deal provided Poland with exceptional amounts of debt relief and helped restore its creditworthiness and access to international financial markets. In parallel with the London Club arrangements, Poland's economic situation began to improve. Financial stability and continued private sector expansion helped to attract foreign private capital inflows, and Poland soon had an abun- dance of foreign exchange. Its need for Bank financial support was diminishing, largely because other international financial institutions were offering finance with simpler conditionality, faster processing, and more attractive financial con- ditions. Poland's prospects for imminent accession to the European Union, a high priority on the government's agenda, also reduced the need for the Bank's presence in the country. The government's new stance was spelled out in an official document published in June 1994, "The Strategy for Poland." Quick accession to the European Union was a major objective, along with slowing the rate of increase of public debt. These changes were positively reflected in Bank-government dialogue, which increasingly became a dialogue between equals. At a country strategy review in Warsaw in April 1994 and in subsequent discussions prior to completion of the 1994 country assistance strategy (CAS), the parties reiterated the critical impor- tance of halting the deterioration in portfolio performance. The authorities were concerned about the mounting cost of the Bank's commitment fees on the large pipeline of undisbursed loans.3 The Bank proposed maintaining an annual level of commitments of $600-800 million for the next five years (compared with $880 million in 1991-93), but the authorities pointed out that the size of the lending program would be affected by private capital inflows. They expressed a prefer- ence for smaller and simpler Bank projects and for social sector projects that could not attract private financing. 62 The Bank recognized that errors had been made in some cases, and repeated its willingness to restructure and/or cancel ongoing loans. Responding decisively and with flexibility the Bank conducted a thorough portfolio review. This resulted in major restructuring of some loans, such as health, and in dropping from the pipeline a large number of projects in preparation.4 The Warsaw office The Bank representative intensified the dialogue with government officials in an effort to resolve implementation problems. At headquarters, Regional managers started recognized that to turn their attention and to reallocate resources toward assisting other transi- errors had been tion economies. made; respond- Other studies under preparation have been dropped or put on the back burner, ing decisively, after having absorbed expensive Bank resources. Following the return to head- quarters of a major financial sector review mission (17 people) in August 1994, it conducted a the task manager was instructed to stop working on the report, in view of the thorough porf limited prospects for sector lending to Poland, and to work instead on a possible oroug r - financial sector loan to Croatia. Responsibility for financial sector analysis was lio review... shifted to the senior and principal economists for Poland, who then produced a series of reports focused on specialized banks. A year later, a planned loan for education was dropped at the government's request after long preparation, which absorbed 129 direct staffweeks (the green cover president's report had been issued). The authorities cited several reasons for this request, from chang- ing government priorities to general dissatisfaction with the Bank's social sector assistance and a reluctance to borrow on conventional terms for social sector projects. Other planned projects were kept on hold because of a lack of consen- sus within the government, and their future is uncertain. These include adjust- ment loans for coal restructuring, public sector reform, and financial sector reform. Partially disbursed loans, canceled at the government's request, have limited the Bank's capacity to influence reforms in the energy and the financial sectors, among others. The 1994 CAS proposed a three-year lending program of $600-700 million, two fifths of it for large adjustment loans. The Region felt that it needed the special incentive provided by adjustment operations to push for comprehensive struc- tural reforms. The aggressive lending policies of European international finan- cial institutions-often delinked from the policy debate and supported by com- plementary concessionary finance from the European Union-had lessened the Bank's financial leverage to push for reforms in the context of investment oper- ations. Senior management cautioned that so much reliance on policy-based adjustment operations was undesirable because it could lead to the neglect of technical and institutional aspects of the reforms. The strategy emphasized three areas for Bank support: reforming public finance (particularly social secu- rity expenditures), closing down large loss-making state enterprises, and reforming the financial sector. The CAS also proposed a focus on private sector development, including the provision of contractual compliance guarantees to encourage private sector financing, in close cooperation with the International Finance Corporation (see Box 3.3 for a discussion of IFC strategy in Poland). Finally, the strategy included a proposal to continue working on small, simpler investment projects in social and economic infrastructure and to put more emphasis on work at the local government level. This strategy did not include operational actions in a number of important areas, such as accession to the European Union, poverty- and gender-related issues, or the still largely distorted agricultural sector. During the Board discus- sion in November 1994, several executive directors expressed concern about aid coordination and possible duplication of efforts, slow progress on privatization, and the large unfinished agenda in the financial sector. The Board approved the 63 proposed strategy but urged the Bank to make further efforts to improve the quality of the existing portfolio and to encourage private sector participation in the financing of infrastructure projects. Cutting back .. which resulted In major Progress in meeting the 1994 CAS lending objectives has been modest at best. t t New loan commitments have fallen far short of the amounts proposed in the restructuring CAS, and no adjustment loans have been approved. Joint Bank-government of some loans meetings (CSIRs) held in July 1995 and in June 1996 recognized the need for fur- d ther consolidation of the Bank's assistance program and focused on loan imple- and dropping mentation issues, on the use of nonlending instruments of assistance, and on aid a large number coordination issues. of projects in A new CAS for Poland has just been completed following one year of intensive the pipeline collaboration and reflection within the Region and with counterparts in the gov- ernment, representatives of Polish civil society, and OED. Throughout the prep- aration of the country assistance strategy, the OED team evaluating the Bank's assistance program to Poland shared with the country team its findings as they emerged, including background papers for a number of sectors, results from the OED survey of ministries, and other inputs. At a time of change and uncertainty over the future direction of Bank's involvement in Poland (especially with the prospect of Poland's accession to the European Union), the OED evaluation helped to take stock of the Bank's experience to date in the country, and make recommendations on the basis of this. The new country assistance strategy incorporates the major findings and recommendations of this report. FIGURE 1.z: TOTAL BANK COMMITMENTS TO POLAND BY FISCAL YEAR ($ millions) 1,600 1,440 1,400 1,200 1,00090 90 91 92 ~930405 96 9 781 800 600 390 400 215 8 200 146 182 90 91 92 93 94 95 96 97 Fiscal year Note: Fiscal 1997 data are for half a year only. Source: World Bank lending database. TABLE r.l: BANK ASSISTANCE VERSUS REFORM PROGRAM, NEEDS, AND ENVIRONMENT Period World Bank assistance Major assistance issues Macroeconomic Political Social Reform progress 1986-89 Consists mostly of economic Lack of creditworthiness; need to External debt crisis, Authorities becoming Growing public sup- Reform proposals (country and sector work, policy reschedule debt; and need to formulate hyperinflation, and increasingly reform port for reforms. becoming increasingly strategy advice, and project perfor- feasible reform program. For Poland to heavily subsidized minded. 1989 Solidar- radical. paper mance facility. Frequent mis- succeed in its reform proposals, it production. ity government. 1987) sions. Proposal to begin lend- needs strong support from interna- ing in 1988, but lending does tional financial institutions. If institu- not begin. The Bank per- tions do not support attempted ceives major lending risks reforms, Poland's debt position to be Poland's lack of credit- could worsen, further slowing worthiness, political uncer- market reforms. tainty, economic instability, and distortions. 1990-91 Mobilizing donor assistance. Debt overhang and creditworthiness; Price and trade liberal- Successive reform Impact of unemploy- Radical Economic (country Stabilization Fund with G24. macroeconomic instability following ization, large devalua- minded governments. ment and other harm- Transformation Pro- strategy The Bank commits 15 loans to economic liberalization; and enterprise tion, followed by over- ful social impacts cush- gram implemented. note 1989) Poland in an amount equiva- reform, privatization, and growth of shot inflation and ioned in part by social Program lays founda- lent to $2.6 billion: 43 percent private sector. Need to reorient the stabilization of econ- safety net. tions for reorienting are fast-disbursing or hybrid country's infrastructure (including omy. Collapse of Coun- Poland from planned loans, 20 percent are for financial sector infrastructure) to sup- cil of Mutual Economic to market economy. financial intermediation. By port a market economy. Need to help Assistance. Current end-1992, $487 million dis- improve all sectors of economic activ- account in surplus in bursed, leaving a balance of ity. Strengthening of the social safety 1990 but in deficit ($1.4 $2.1 billion. net to help the country offset the social billion) in 1991. impact of transformation process. 1992-93 Continued support of gov- Growth emerges in Poland, inflation is Economy stabilizes. 1992-93 period of An expectations gap Signs that reform (country ernment efforts to strengthen brought under control, and creditwor- Economic growth political crisis, with 27 emerges as benefits of efforts will pay off as strategy macroeconomic framework thiness improving. Need to maintain driven by private sec- parties in Sejm. Coali- reform are slow to be economy stabilizes and paper and stimulate private sector macroeconomic discipline to consoli- tor. Trade with Europe tion governments lack felt by public. growth emerges. 1992) development. The assistance date position toward medium-term growing. political direction on Government "Strategy program targets areas of eco- growth. Privatization and restructur- reforms. for Poland" medium- nomic activity that remain ing not progressing as quickly as term economic pro- within the state's domain, as hoped; need to accelerate this process. gram issued in 1993. well as investment and reha- Subsidized credit remaining in some bilitation of infrastructure, sectors; need to remove this. Current while encouraging private account recovery in 1992 with deficit of sector participation. $269 million as exports grow. Deficit slips again to $2.3 billion in 1993 as imports increase and recession in West- ern Europe reduces volume of Polish exports. 1993-94 This strategy outlined in CAS On balance, executive directors The private sector is Government is making Largest strikes wit- Government reform (country 1993 is essentially the same as endorse the strategy proposed in CAS leading growth. Public progress on reforms. nessed since 1980s. progress being assistance for the preceding year. But 1993, although there are some com- finances threaten mac- held back by insuffi- strategy this is the first time that the plaints about the size, composition, roeconomic stability. cient implementation 1993) Bank formally presents its and instrumentation of the lending capacity. strategy to the Board. Some program. executive directors criticize the CAS for its lack of speci- ficity on fiscal projections (which some executive direc- tors think are overly optimis- tic), safety net targeting needs, and the social conse- quences of restructuring. 1994-present Bank focuses on public Public finance reforms become increas- Poland is experiencing Coalition govern- Large volume of Reform efforts are (country finance reform, downsizing ingly significant issue with explosive the fastest growth in ments, increasing imported consumable increasingly oriented assistance of large loss-making sectors, trend of social transfers, particularly Europe. The increasing divisions over direc- goods. Growing mid- toward meeting strategy and financial sector reform. social security expenditures, and con- burden of public tion of reforms. dle class. requirements for acces- 1994) Bank continues to work on a tinned operation of large loss-making expenditures coupled Increasing reluctance sion into EU. Poland relatively diversified lending enterprises in key sectors (coal, steel, with low level of to borrow from Bank in becomes a member of program of medium-sized and railways), and the portfolio prob- investment in social social sectors. the Organization for investment projects in social lems of some specialized banks are a infrastructure threat- Economic Cooperation and economic infrastructure, burden on the government budget. ens future growth and Development. and puts more emphasis on Poland needs to maintain momentum prospects. work at local government of reforms and widen the benefits of level. Bank perceives a shift the new market-driven growth. Invest- in financing needs away from ment in social infrastructure is too low, macroeconomic oriented threatening future growth. Macroeco- toward financing for micro- nomic discipline needs to be main- economic and structural tained. Poland needs to meet require- reforms. Diverging agenda ments for accession in European within government coalition Union (EU). leads to stop and go imple- mentation of reforms. Future Future role of Bank in Poland Same as above: speed up enterprise Improving economy, EU-oriented. Seeking High unemployment, EU-directed reforms; (country to be decided. Important restructuring and privatization but persistent inflation, membership in gender inequality. need to address politi- assistance questions include impact of (including commercial banks). fiscal deficit, need for North Atlantic Treaty cally sensitive reforms. strategy Bank assistance on Poland's Public finance and safety net reforms. macro monitoring. Organization. 1997) accession to EU. Should the Energy restructuring. Infrastructure Bank consolidate its assis- development. tance program? Source: World Bank data. aN 66 The new CAS recognizes that, having gained good access to international mar- kets, Poland's need for the Bank's financial assistance is small. Poland's expected accession to the European Union will further reduce the policy lever- age of the Bank. Therefore, the Bank's future role will remain as an independent adviser in policy formulation and as a partner in building and strengthening market-oriented institutions. As a consequence, the CAS proposes to assist Poland with greater selectivity in three major ways: (1) by helping formulate and implement policies that are required for sustained growth; (2) by providing an independent evaluation capacity, as well as investment support in selected areas such as the environment and labor market policies; and (3) by helping to ensure the social sustainability of reform and reduce poverty. This strategy is highly relevant to today's needs and is consistent with the recommendations of this review. Notes 1. The successive formal enunciations of the evolving Bank strategy can be found in the November 1987 country strategy paper, September 1989 country strategy note, 1991 draft country strategy paper, November 1992 country strategy paper, April 1993 country assis- tance strategy, and October 1994 country assistance strategy. 2. This initiative led to a constructive series of country strategy implementation reviews that have been held regularly since 1993. 3. Commitment fees charged by the Bank on undisbursed investment loans in FY94 were $4.3 million, equivalent to 3.3 percent of disbursements on investment loans in that year. For the period FY90-96, the equivalent percentage was 1.9 percent. 4. The process of dropping projects continued into FY96. In FY95-96, a total of 15 projects were dropped, after having invested in them at least 710 staffweeks at a cost of $2.3 million (these figures include only direct costs, and exclude overhead and manage- ment time). These costs are higher (in relation to total lending costs) than regional and Bankwide averages. Dropping projects when it is realized that they are not likely to suc- ceed is a good managerial practice. However, the direct cost of dropped projects for Poland has been much higher than for other countries. In FY93-96, the cost was 53 staff- weeks, compared with 29 for EC2 (Division II of the Europe and Central Asia Region, or ECA), 26 for ECA, and 33 Bankwide. This suggests that the Bank allowed these projects to drag on too long before deciding to scrap them. POLAND COUNTRY ASSISTANCE REVIEW 2. Systemic and institutional transformation and social amelioration The Bank assisted Poland's transformation program through a broad program of lending, technical assistance, and advice. Much of this assistance was directed at helping Poland put in place a legal and institutional framework compatible with the needs of a market economy. This was done through adjustment loans, the conditionality embodied in most loans, technical assistance, and economic and sector work. In the social sectors, the Bank recognized the importance of easing the impact of the transition on vulnerable groups and of ensuring the handover of responsibility for social services. The Bank provided extensive advice and studies, complemented by project preparation and loans. Most of the loans that the Bank has made to Poland are still under implementa- tion, and of the few that have been closed, only three have been evaluated by a completion report. This chapter and the next present a brief analysis and evalu- ation of the Bank's Poland portfolio. Systemic and institutional transformation Collateral law and registry of liens-underestimating the complexity of legal reform Why. An important part of the Bank's assistance strategy was to help Poland put in place a legal framework to support a market economy. However, unlike a number of other countries in Eastern Europe and the former Soviet Union, the Bank did not receive a clear request from Poland to provide assistance on systemic legal reform. In addition, in the early days of the Poland program the Bank had no vehicle-such as the Soviet Union Trust Fund or an institutional development fund-to offer the Poles to analyze the legal system or provide grant-based technical assistance. Moreover, because Poland was fairly sophisticated in its approach to the legal Since 1994, The framework and relatively self-sufficient, the Bank received few requests for assis- tance. The result of these factors was that the Bank had few opportunities to engage Bank has placed the government in a broad dialogue on legal reform and the Bank's legal assistance more emphasis activities tended to be limited and sporadic. Even when the Bank was able to pro- vide grant assistance such as on the Banking Law, there were clearly sensitivities in on systemic legal the Polish government about receiving assistance that was perceived to be tilted reform and has toward particular external jurisdictions. Consequently, Poland is not a very good model to judge the effectiveness of Bank activities in the legal area. Since 1994, how- recognized the ever, when the Private Sector Development Unit in the Legal Department became need for legal the Legal Reform and Private Sector Development Unit, the Bank has placed more emphasis on systemic legal reform as a foundation for a market economy and has education recognized the need for legal education and stronger legal drafting capability. What. The story of collateral law reform in Poland illustrates both the many attempts to provide assistance for legal reforms and the many disappointments. 67 68 Realizing that the lack of a modern collateral law and of an effective central regis- try of liens was a serious obstacle to financial development in Poland, the Bank retained a British law firm to draft a collateral law for Poland. The Bank's regional staff intended to include approval of a collateral law as a condition for disburse- ment of the second tranche of the Financial Institutions Development Loan of June 1991, but the condition was not included in the legal agreement, and the draft collateral law was never approved. The Polish legal establishment was offended that the Bank would suggest the immediate adoption of a law based on Anglo- American legal concepts that were not consistent with other elements of Polish law (including contract, property, and bankruptcy, and with procedures for exe- cuting court orders) or integrated with registries of liens. The law also needed to undergo public debate, to make it acceptable and useful in the business sphere.1 There was no mention of a condition on the collateral law in the March 1995 ini- tial executive project summary for the proposed Judicial Reform Loan. Despite questions about whether the proposed lien registry would be effective without a new collateral law, it was agreed to go ahead with Board presentation in view of the long period of time required for reform of registries and the limited lever- age that a small investment operation could exert on legislative approval of a new collateral law. After a long and disputatious process, a new collateral law has been approved recently by the Sejm (Poland's Parliament). Findings. The Bank's experience with the collateral law and registry in Poland illustrates that: * Legal reform considerations should have been fully integrated with the Bank's assistance strategy. * There should have been a systematic review of the need for legal reforms at the beginning of Bank assistance, followed by comprehensive monitoring of progress. * Bank lawyers should have been more directly involved in the formulation of the Bank's assistance strategy and in the design and implementation of indi- vidual projects. * Clear links should be established between proposed legal reforms and their impact on economic growth and the broader transformation process, to improve understanding of the purpose of reforms and advance their adoption. * Legal reforms must be complemented by other necessary reforms, especially institutional reforms, to facilitate the successful transformation to a market economy and the emergence of private enterprises. Getting rid of monopolies-a dramatic increase in competition Mhy. An early concern of the Bank was that the monopolistic or oligopolistic structure of Poland's industrial, commercial, and transportation enterprises would be a serious obstacle to the transition program. The Bank's objectives in anti-monopoly policy were congruent with those of Poland's Anti-Monopoly Office: to develop the policies and institutional frameworks needed for compet- itive markets. This has involved dismantling old structures and changing old attitudes among producers, opening up the economy to international trade, removing barriers to the entry of new businesses, and developing legal and institutional frameworks for natural monopoly sectors. These efforts have dra- matically increased the level of competition in the economy. 69 What. While the World Bank did not provide technical assistance to the Anti- Monopoly Office, the two organizations have worked together to promote com- petitive structures in several sectors in which the World Bank has extended loans. The Anti-Monopoly Office has been involved in ongoing negotiations initiated in 1993 between the Bank and Poland on appropriate regulatory institutions in water supply and wastewater removal. The Bank and the Anti-Monopoly Office also cooperated in the negotiation and implementation of the Agricultural Sector Adjustment Loan, as it related to anti-monopoly policy (legal frameworks for agro-industrial processing, restructuring of the milling industry). The Bank also supported the Anti-Monopoly Office's work on competition rules for the restruc- turing of the energy sector. There was some disagreement between the two in the telecommunications sector, however, with the Anti-Monopoly Office viewing the Bank's role as protective of the monopolistic position of the state company and not as a strong force for demonopolization and privatization. Findings. Despite considerable progress, serious problems remain. Development of regulatory frameworks for the natural monopoly sectors still lags. The government's commitment to expanding competition in the economy weakened considerably after 1994. Recent proposals to limit competition in certain sectors suggest some dan- ger of backsliding on anti-monopoly policy. Government ministries and elements in the Sejm have proposed the creation of cartels in sugar refining and tobacco and the exclusion of foreign trucking firms from the Polish market. In telecommunications and energy more decisive action is needed to accommodate private investment. The Bank's Procurement-establishing a competitive procurement environment insistence on Why. In socialist economies, government bureaucracies were not accustomed to strict procure- operating in a transparent manner and had no experience with the practical proce- ment procedures dures of competitive bidding for public procurement contracts. Thus the Bank's insistence from the beginning on the adoption of strict procedures for the procure- was initially a ment of goods and services under Bank loans was initially a source of friction and source of friction delay. Borrower representatives complained frequently of alleged rigid and cumber- some procedures, which implementing agencies did not always fully understand. and delay There was a feeling that the Bank's procurement officials could have responded faster and with greater flexibility to resolve unexpected problems. Bank-sponsored procurement seminars in Poland suffered from overcrowding and language diffi- culties. And much of the external assistance on procurement procedures has suf- fered from the same kinds of difficulties that donors encountered in legal reforms, particularly in trying to apply foreign practices and rules to the Polish environment. What. To help implementing agencies apply Bank procurement rules, the Bank organized many procurement seminars and workshops in Poland. Both public and private sector agencies, including foreign trade companies, have benefited from these seminars. The Bank also provided training for the procurement staff of implementation agencies. As the Polish authorities came to understand the importance of competitive procurement practices and the savings they entailed, these practices became more acceptable. Polish implementing agencies were able to save up to 40 percent on goods contracts over estimated costs on the Telecom- munication Project, District Heat Projects, Power Transmission Projects, and oth- ers. Applying competitive procedures also meant introducing discipline and accountability to public spending. Findings. The Bank's insistence on strict procedures, complemented by intensive training efforts, has paid off and Poland has made great progress in its public pro- curement procedures, culminating in passage of the Act on Public Procurement in June 1994. Initial efforts to draft a public procurement law grew out of a 1992 World 70 Bank grant of $300,000 from the Institutional Development Fund to support public administration reform. The Bank also provided direct technical assistance, includ- ing technical inputs by the Legal Department and the Regional procurement staff. However, it would have been helpful to have an experienced procurement special- ist based in the field office. By the spring of 1994 the draft law had been approved by the Council of Ministers and was being defended in Parliament. After vigorous debate, the draft law was passed largely intact. Bank attention to procurement reform and the advice provided at this important juncture contributed to success- ful passage of the law and to lower prices for public sector purchases generally. The persistent and widespread attention to procurement practices in Bank- financed projects helped establish a culture of competitive procurement in Poland based on economic efficiency, transparency, and accountability criteria. Decentralization-analytical work and advice as a vehicle for donor coordination Why. Poland's record on decentralization is mixed, with some successes and some missed opportunities. Decentralization is often viewed as crucial to the consolidation of democracy in post-communist societies, but it represents a major institutional challenge. The tendency is to pass far-reaching legislation, while falling short on implementing the institutional changes needed to enable local and regional governmental entities to function effectively. Poland made considerable progress in 1990 and 1991, with the gminas (elected local govern- ments) taking on new responsibilities in a way that contributed to the success of the transition, especially in leasing municipal property to private firms and in raising the prices of some municipal services. What. The World Bank's objective through its analytical work and advice was to help Poland develop an appropriate assignment of responsibilities to different levels of government, improve the administrative capacity of gminas, and develop clear rules for fiscal transfers to gminas and the collection of local taxes. The Bank's 1992 report on decentralization and reform of the state was the first of its kind for a transition economy and was intended as an input into the gov- ernment's decisionmaking. It was used by the Ministry of Finance as a vehicle for donor coordination among the World Bank, Organization for Economic Cooperation and Development (OECD), European Commission-Poland and Hungary Assistance in Restructuring Economies (EC-PHARE), USAID, and the Council of Europe. The report recommended the establishment of a municipal development agency in the central government, whose job it would be to develop the national strategy and promote decentralization. The Municipal Development Agency (ARK) finally came into existence in March 1995, but so far it has not been given the necessary political clout to conduct its activities. The Bank is contributing to the development of municipal borrowing under a proposed Municipal finance Project. This is a creative approach, and if successful, could be expanded. Other donors are rushing to facilitate the capacity of the gminas to borrow on capital markets, but this is occurring at a time when their taxing authorities are constrained and intergovernmental fiscal relations are unclear. There may be a case for the Bank to take a position urging caution in the promotion of gmina access to capital markets. Support for social amelioration Before 1990 the main goal of Poland's social safety net was to prevent excessive income differentiation and to preserve the welfare state. Universal and equal access to social benefits and the gradual replacement of wages with centrally 71 allocated social benefits were its guiding principles. The system was tremen- dously costly, a disincentive to productivity growth, and not very efficient in poverty alleviation. To win public support for economic reform, the social safety net had to be an integral part of the program. During the first stage of the reform, efforts to improve the social safety net concentrated on unemployment benefits, retrain- ing, and job creation. Social services were not to be reduced suddenly to the lower, constitutionally mandated levels. Rather, one of the goals of the economic reform program was to raise standards of living while protecting groups that were hit hardest by the reform. From the begin- From the beginning of the transformation process the Bank recognized the ning, the Bank importance to the sustainability of reforms that the stabilization process have a recognized the human face. Early work in Hungary gave the Bank a slight headstart when it .pt that entered the social spheres in Poland. Providing rapid assistance to the govern- ment in preparing and putting in place a social safety net package was the major a stabilization challenge of Bank missions at the end of 1989 and the beginning of 1990. process have a Poverty assessment-reweaving the safety net human face Why. The Bank's 1990 World Development Report (World Bank 1990) recon- firmed the Bank's three-part strategy for poverty reduction: promotion of labor- intensive growth, investment in the human resources of the poor, and provision of safety nets to protect vulnerable groups and the very poor. A poverty assess- ment for Poland was completed in December 1994. It provides a comprehensive profile of poverty in Poland and of how poverty is related to unemployment, educational status, and gender. The following paragraphs summarize key find- ings that are relevant to the Bank's CAS and future project design. What. At 15 percent of GDP, Poland spends more for social transfers (for both social assistance, which is aimed at poverty reduction, and social insurance, mainly pensions, which is not) than do market economies at similar or higher levels of income. Chile, with income comparable to Poland's, spends 7 percent, and Portugal and Spain, with GDPs two and three times higher than Poland's, spend 11 and 13 percent. With current imperfect targeting, it is estimated that an additional 1.7 percent of GDP would need to be spent in social transfers to close the poverty gap. Therefore, there is an urgent need to streamline and improve the targeting of social transfers in Poland. In 1988, the family of a basic vocational school graduate was 2.7 times more likely to be poor than that of a university graduate; by 1992, this had risen to almost nine times. Eighty percent of the unemployed poor have only a voca- tional education or less. The poverty assessment concluded that a guaranteed minimum income should not be introduced because it would be too costly and would create the wrong incentive. Rather, the poverty assessment explored effi- cient measures for reducing poverty such as better targeting of family allow- ances. Shifting the income threshold from the minimum wage to 50 percent of the average wage would save about 0.65 percent of GDP without increasing the poverty rate. Doubling family allowances for households with four or more chil- dren could reduce poverty rates by 1.2 percentage points at a cost of only 0.1 percent of GDP. A similar result could be achieved by providing kindergarten vouchers to families with four or more children. Improved income testing for social assistance, provision of school meals for poor children, and the use of actual poverty rates as the criteria for allocating central social assistance funds to local governments were identified as other measures to explore. 72 Findings. The poverty assessment focuses on how the transition to a market econ- omy and sectoral policies affect the demand for skilled and unskilled labor. With respect to the human resources of the poor, the assessment focuses more on edu- cation than on health or nutrition. Safety nets are analyzed in detail-their reach, targeting, and cost effectiveness. Overall, the poverty assessment is statistically strong, analytically competent, and gender sensitive, with transparent conclu- sions. However, it does not address how labor-intensive growth and investment in the human resources of the poor could contribute to poverty reduction. Attention to gender-missed opportunities MWy. To increase project efficiency and sustainability, gender issues and differen- tial needs can be explicitly addressed through gender analysis as an integral part of the design of new projects, followed by project activities integrating gender action and attention to gender aspects of implementation in supervision and evaluation. The three projects in the Poland portfolio in which gender issues could be expected to feature more prominently (Private Enterprise Develop- ment, Employment Promotion and Services, and Health Services Development) showed different degrees of attention to how gender would affect activities and outcomes. The private enterprise project included no gender analysis and no actions addressing gender differences. The employment project analyzed gender issues in some detail, but included no actions to address the problems identified. The health project analyzed some issues by gender and included some actions to address gender inequities for men. None of the projects took steps to promote project participation by women at the design stage or at the time projects were restructured, thereby missing opportunities to further overall project objectives. These projects are reviewed in detail in the next section, and here, from the point of view of missed opportunities for including a gender dimension. What. Gender and private enterprise development. Women made up only about 20 to 25 percent of new private entrepreneurs in 1991, and loans to women-owned businesses constituted just 15-30 percent of the loan portfolios of most banks. There was a clear need in 1991 to stimulate women's entrepreneurial activities, to ensure their participation in private enterprise development. These statistics suggest that gender-neutral programs were unlikely to reach women and that special efforts would be needed to introduce private enterprise to women as well as men in Poland. Yet the Private Enterprise Development Gender did not Project did not analyze private sector development by gender and took no form part of the action to widen participation across genders. Measures to ensure take-up by women might have included a component of lending to small and microenter- policy dialogue prises, business training programs, skills training, business incubators for or countyt women, business associations for women, and greater attention to credit and oracoun ry business development in the service sectors in which women are more active. strategy for Gender issues in the labor market. At the time of preparation of the Employment Poland Promotion and Services Project, there was already concrete evidence of greater unemployment problems for women. In 1990 there were 40 unemployed women per job vacancy compared with 14 unemployed men per job vacancy. Women's unemployment remained higher than men's throughout the period. Although the project staff appraisal report discussed female labor force issues, it failed to address them in programs and policies. Why this was so is not clear. On the Bank's side there may have been too great a belief in the ability of market forces to create an open labor market, coupled with a lack of incentive to address gender issues; gender did not form part of the policy 73 dialogue or country strategy for Poland. On the government's side there may have been a reluctance to encourage female labor force participation (a return of women to the home was sometimes perceived as a characteristic of the Polish way of life), a desire to abandon the protective labor market interventions of the socialist era, and an absence of a political constituency for female labor force interventions. Health issues. The two immediately apparent gender-related health issues in Poland are life expectancy differentials between men and women and reproduc- tive health issues. Life expectancy is 8.5 years shorter for men than for women. The rising rate of male mortality from cardiovascular diseases, strokes, and can- cers was identified early on in the Bank's health project through health promo- tions on critical and preventable risk factors (such as alcohol and tobacco con- sumption and unhealthy diets). Reproductive health issues such as fertility rates and maternal mortality appeared to be well addressed. However, the abortion rate is high, which is con- sistent with low use of modern methods of contraception. Abortions decreased dramatically following passage of legislation in January 1993 severely restrict- ing abortions. Thus the need for increasing the availability of modern contracep- tive supplies could have been expected. However, although including contra- ceptive supplies was discussed during project preparation, as a politically charged issue it met with weak response from Polish authorities. More attention could have been given to the high costs of abortion compared with contracep- tion. This was, however, a most difficult issue in view of its political and reli- gious dimensions. A switch to a greater reliance on contraception could have helped reduce state health care expenses. This failure to examine in detail the gender aspects of health care reform led to the omission of substantial cost sav- ings in the health care system. Findings. Overall, then, there was a lack of awareness of the potential to further project objectives through analysis of gender differences in project participation and impact. Opportunities were missed for the development of microenter- prises by women in the Private Sector Development Project, greater liberaliza- tion of the labor market by removing constraints to women's labor mobility in the Employment Services Project, and establishment of more cost-effective health services by promoting contraception in place of abortion. Instruments of Bank assistance for systemic and institutional transformation and social amelioration Structural Adjustment Loan-strong, early support for Poland's reform program Why. One of the earliest and more visible forms of Bank support for Poland's Economic Transformation Program was the $300 million Structural Adjustment Loan approved in July 1990. It was put together quickly, taking advantage of the window of opportunity offered by the unique political situation, which gave strong support for the radical transformation of the economy. The loan's main objective was to bolster the ETP by demonstrating the Bank's belief in the pro- gram's technical soundness and viability and by providing foreign exchange to boost the country's foreign reserves and add credibility to the stabilization pro- gram. Detailed objectives for the financial system, state-owned enterprises, social sectors, agriculture, and infrastructure were left to be tackled through future planned sectoral adjustment and investment loans. The SAL did, how- ever, include some conditions on environmental policy, which helped bring environmental issues to the attention of the top economic authorities. 74 Vhat. The president's report stated that the loan was not meant to finance a pro- jected foreign reserves gap, but rather was to be added to Poland's foreign reserves to help the country through a time of great uncertainty regarding medium-term prospects. The Board accepted this approach, recognizing the need to restore the country's creditworthiness. Because the senior government officials acknowledged the importance of this operation, the SAL became the main vehicle for Bank-country dialogue on issues of systemic transformation and social policy. Because the Polish authorities had made major progress in implementing parts of the reform program before Board presentation of the SAL, the loan carried no conditions for effectiveness. There were eight formally binding conditions for second-tranche release, but these were general and subject to sharper definition or interpretation at a future date. Some executive directors expressed serious concern about the lack of more precise conditionality on the speed of privatiza- tion and other structural reforms. Of particular significance was that no detailed conditionality regarding the macroeconomic framework was included in the loan agreement other than a general statement requiring satisfactory macroeco- nomic management. The government's Memorandum of Development Policy included an indicative medium-term macroeconomic framework and financing plan (consistent with the pre-existing IMF standby program). It was agreed that the Bank would monitor a list of parameters and indicators, but these were only indicative. The implicit understanding was that the Fund would monitor the macroeconomic conditionality, but there was no provision for monitoring in case the Fund program should cease to be active. Although the Bank recognized that implementation of the planned institutional reforms would require intensive technical assistance, the loan induded no resources for this purpose, in part because of government reluctance to accept loans for technical assistance on conventional terms. The Bank helped to arrange for $180 million in concessionary financing for technical assistance from other sources. The resident mission closely monitored economic developments. It reported monthly on the deteriorating fiscal situation, particularly when it became clear that the Fund program had gone off track in mid-1991. But the lack of precise conditionality made it difficult to press for corrective actions. Formal supervi- sion missions from headquarters gave general good marks for implementation, 1The Bank should although there were questions of interpretation regarding some conditionality. have pressed more drecsvedly Loan implementation was delayed by difficulties in complying with the Bank's more decisiveSy disbursement procedures. It took 10 months from loan effectiveness to fully dis- for faster imple- burse the first tranche, even though there were no outstanding conditions. The Bank provided assistance to solve these procedural difficulties, but similar prob- mentation of lems have persisted. main structural Findings. At loan closing, progress on planned institutional reforms was disap- reforms while pointing. Restructuring and privatizing of the larger state enterprises had stalled, political support largely because of insufficient support in Parliament. The mounting losses and arrears of the enterprises weakened the quality of banks' portfolios, pushing was strong many of them into virtual bankruptcy and delaying planned reforms. Institu- tional weaknesses delayed adoption of good accounting and auditing standards, supervision practices, and prudential regulation. With the benefit of hindsight, it would seem that the Bank should have pressed more decisively for faster imple- mentation of the main structural reforms while political support was still strong. Despite the mixed results, the loan's specific objective of providing strong and early support to the ETP was clearly relevant to Poland's needs at that time. 75 Although early expectations regarding economic growth and the pace of institu- tional reforms were not fulfilled, the loan was efficacious in providing the desired technical, moral, and financial support. Debt and Debt Service Reduction Loan- technical and financial assistance to improve Poland's creditworthiness Why. The London Club agreement of March 1994 was a critical step in restoring Poland's creditworthiness. The amount of debt relief provided by this agreement far exceeded the total value of disbursements on loans and grants from all sources during 1990-94. The Bank assisted Poland in arriving at this agreement with advice and technical assistance, with advice in its dealings with other donors, and with direct financial assistance. What. A Bank loan for $170 million was approved by the Board in October 1994. The IMF provided a similar amount of cofinancing. Two technical assistance projects financed by the Japanese Trust Fund and other technical assistance provided by the US Treasury enabled Poland to prepare and implement the oper- ation. The Bank loan was fully disbursed within two months of approval. The debt-relief operation aimed at assisting the Polish government in settling its arrears with commercial creditors and thus restoring Poland's full creditworthi- ness and access to international financial markets. To this end, the Bank provided additional finance by releasing set-aside funds from three ongoing adjustment loans: $30 million from the Financial Institutions Development Loan, $100 million from the Enterprise and Financial Sector Adjustment Loan, and $100 million from the Agricultural Sector Adjustment Loan. These funds were used to reimburse the government for part of the debt buyback costs incurred in implementing the Lon- don Club agreement. The Bank also granted a partial waiver of negative pledge clauses in the amount of $623.4 million, to allow for the collateralization of newly issued Polish bonds. Findings. Careful preparatory work by the government, with strong support from the Bank, Fund, and bilateral donors, resulted in smooth implementation of the operation. The government's determination to put together a sound financial program was facilitated by an earlier commitment to the Paris Club to seek debt relief from private creditors on terms comparable to those of the Poland's Paris Club and to comply with the conditionality of an ongoing IMF extended experience facility program. The operation resulted in debt reduction equivalent to $8.6 billion, or 60 percent of total eligible debt-more than generally provided confirms that in such cases. debt-relief opera- Poland's experience confirms earlier OED findings that debt-relief operations are tions are more more likely to succeed when they follow, rather than precede, successful stabili- likely to succeed zation and structural reform. The earlier commitment to the Paris Club to seek comparable terms from private creditors and to comply with IMF conditionality when they follow also contributed to the success of this operation. stabilization Labor market loan-modernization of Poland's unemployment services, and structural despite serious implementation problems reform Why. The World Bank's major activity in Poland's labor market has been the Employment Promotion and Services Project, a $100 million loan to improve the cost effectiveness of employment and social welfare programs; improve the occupational, sectoral, and geographic mobility of the labor force; increase the productivity of the labor force; promote investment; and test mechanisms 76 for job creation for the unemployed through microenterprise development. The project had five components and was to be implemented by December 1996. What. The project got off to a rocky start. Poles who worked on the project noted a lack of consensus regarding the project's direction. Results did not meet the bor- rower's or the Bank's expectations, and frustrations built up within the ministry. A Polish extemal assessment of the project led to public criticism of its low achieve- ments, high preparation costs, and concerns about the high cost and questionable value of foreign consultants in the provision of technical assistance. The project was 18 months behind schedule by mid-1994; it was restructured and reduced in scope in December 1994. At the request of the Ministry of Labor and Social Policy, the loan amount was reduced to $80 million and the closing date was extended to end-1997. Findings. Much of the implementation problems could be attributed to changes in government, high turnover and inexperience of project management staff, and poor definition of roles and responsibilities within the Project Coordination Unit and between the Project Coordination Unit and technical units. However, the borrower has indicated that the Bank did not take into consideration at the beginning of the project the need to integrate Polish experts in the teams, and that it provided insufficient substantive advice to the government team. Bank leadership in employment promotion was appreciated and even requested at different times during project development, but it was not translated into any systematic action to improve coordination among donors. An overall picture of all the donor resources available to the labor ministry was never put together, nor was there continuing monitoring of these resources to optimize their use. Bank efforts to lead donor assistance efforts in the social sectors and to coordinate sup- port to the ministry were insufficient to permit more comprehensive understand- ing of the project and optimal utilization of external inputs. This situation was exacerbated by weak communication within and across ministries. The Bank The Bank rushed to provide assistance to Poland following traditional Bank overestimated approaches to project preparation and implementation, but issues of participation, gender sensitivity, and project duration received little attention. The Bank overes- the borrower's timated the borrower's absorptive and managerial capacity and underestimated absorptive and institutional weaknesses and the time required for learning Bank procedures. albsorptive and Greater use of the resident mission to provide assistance in identifying stakehold- managerial ers, following up on key reform proposals, and offering a forum for policy dia- logue might have improved project implementation. The project has now reached capaci ty and its final and most decisive stage. Although it is too early to determine the project's underestimated contribution to its development objectives, the project certainly contributed to the institutional creation and modernization of Poland's unemployment services system.2 weaknesses Health Services Development Project- attempting too much in too complex a manner Mhy. The objectives of the $130 million Health Services Development Project were to improve the health status of the population through the introduction of health promotion and primary health care services; to strengthen the social safety net (through capacity building in health policymaking, planning, man- agement, and evaluation and access to improved information systems); and to contain rising budgetary costs (through decentralization in three pilot regions and better cost control). Mhat. The seven-year project had 4 components and 15 subcomponents. Gener- ally, the Bank prepared the project in a traditional way: initial broad macroeco- 77 nomic analysis followed by individual sector work. This work laid a good foun- dation for project design and involved many Bank health sector specialists. Missing were Polish specialists and some public sector management specialists, who could have provided more insight into the realities of institutional and organizational culture in a formerly communist state. Findings. From an implementation perspective, the project attempted too much in too complex a manner. It failed to adequately address institutional capacity or to explore alternative approaches. No piloting approach was considered, and sector and project work were combined. The Bank overestimated the leverage the project would provide as a financial incentive for reform, especially when considering annual government outlays. The complexity and expectations of the project design posed extraordinary difficulties. The Poles were unfamiliar with the project concept and had little understanding of (or capacity in) the basics of Bank-financed project implemen- tation. It took far more time than expected to mount, train, and operationalize project teams and support systems. These factors contributed significantly to a loss in project momentum, which was compounded by the transformation occurring within the ministries. What was needed instead of one large, complex project was a series of smaller projects, to provide greater flexibility and feedback in an environment undergoing such rapid and radical change.3 There were other institutional weaknesses as well. The project called for the establishment of coordinating committees, without considering whether they would have the political clout and money needed to implement priorities among competing voivodships (regional branches of the central administration) and to evaluate the activities. The project introduced a community nursing model that would require training of a new cadre of professionals, without a clear indication of how such training would be provided. The project also made no mention of the role of private practice. The project was restructured in 1994. The implementation unit was strength- ened and Polish specialists brought in. Implementation has improved following the restructuring. But it is too early to determine whether the project has met its development objectives. The project did get health promotion efforts started, introduced a family physicians program in primary health care, and promoted regionalization of health financing through the consortia approach. Before regionalization of health financing can be implemented, however, further reform and modernization of the Polish health system are required. Proposed Education Restructuring Project- a no-go, after long preparation, but the need for reform remains Why. Poland's high level of structural unemployment, reflecting a mismatch between skills demanded by employers and skills supplied by unemployed labor, is in part a reflection of the shortcomings of Poland's education and training system. Under communism, Poland's education system focused on the acquisition of narrow occupational skills, rather than on broad-based multidisciplinary programs to facilitate occupational mobility and the develop- ment of new fields of employment. In recent years only about 30 percent of secondary school graduates have found work immediately after graduation. The need for reform was identified as early as 1992 in two Bank reports (one a review of social sector expenditures and the other of investments in human cap- ital). The reports recommended reallocating resources from secondary voca- 78 tioaleducaiontohtrk sexodaygeeal and roadbase tecnd uicleducatoan.ec ondary teducastion was~ see asithe linch into~i the aucsflreastro curin afth,eok whole , setor. Bot rpots empasidatignificant tirpere of th titi&nidfkte coeib tainngoneconomic wer owth finca expendithats faclitiate stharbility, ind P lane' anidt toi comaleteitstransfWormatiee onceUae nfiaedni Wht in the basi othsecteor ts,a $27mllonEuctinRetrcurn Projiet ws prepaed orti theent11 ation rfeteo the Badir miavy1993pnThites pojet-fi hor aw knoe inDDiin~h pad we D Dtnpn js ^.7 well wee withthBank s country asithanieiy st nitegy atior193 w99ich placeg sthen spotrasfjor socialkeco rnefporm ramong its peirtes. ofThe propoedue proje- liie gP gte D-r D.'D', D DD n'eDt'-. W^me's p.ito .n '.' resd to2 ffli fteaethr6tl wg ol B9,1994) h2>Da'XDDDi AwaItI -&DD=D ho DDeve i e et 2a:._D D'..DD,bwDe D."DD:''' D' .}'D'.fDD.'.disd~rnae w ,DDD.-S% i t life,2 expect-'^ D Jd nsi..9 towbegfislto severety restrctingabotion, 'p'eviously'a tioal duction to scondry gen~erladibrtoasd-based technical,eduatin.Sec whole sector. Both reports o emhszd h infiatipat feucto n traniongtn ointei ekn~ economic andth hiclepniueslt poliica tailit, woeand Polnd'seability to co plete its tranformtk~ion.tei4~J er fteta What On pthe oasi ~of tesien reports, y a12 million Educetion o wesr meurng irojetwa prinepaedifor presmntationto the 7 toar in percent93. Th9e wrojefi tionl eductio toe Baksecoundary generalande btroa-asedy tec193hnical paeducation.gec sprojet wasorepocare fecor presentsationgt ithe Broardintmd-99. The pooe projectfi 79 aimed at increasing the relevance of the system of secondary and post-second- ary schooling by producing graduates with broader-based skills tailored to the needs of Poland's changing economy. The project would also improve the man- agement and cost effectiveness of the overall education system by strengthening the effectiveness and efficiency of the Ministry of Education. After long preparation, the government decided not to go ahead with loan nego- tiations, dropping the project in mid-1995 after the green cover president's memorandum had been produced. Following a change in government, the Min- istry of Education was no longer as interested in the project. Also, the Ministry of Health and the Ministry of Labor had expressed some dissatisfaction with their experience with earlier Bank loans in social sectors. The government was also reluctant to accept conventional loans for social sectors, expecting to get concessionary financing elsewhere. Findings. Though the project itself did not work out, its strategies and the policies it supported are still relevant to Poland's education and training reform needs. Poland's current system threatens to impede economic growth and exacerbate unemployment. Development gains that might have been realized had Poland begun its education sector reforms earlier have been forgone, and a significant cost has been incurred to maintain an inappropriate education system. The proposed project is well designed, although it is being superseded by the Ministry of Education's own sector reform program, produced at the request of the Sejm and presented on National Education Day in October 1996. The proposal is in line with the Bank's Education Restructuring Project propos- als in emphasizing general education, but it also addresses tertiary education reforms. Its overall goal is to increase the number of secondary and university graduates and to bring Poland's education up to European standards by 2010-2015. The financing plan for the reform package has not yet been announced, but the government has indicated that it may consider non- budgetary sources of finance. If the Bank proposes to continue with the Education Restructuring Project, it must consider how it will fit with the government's own sector reform package. It might be useful to present the government with arguments on the advantages of borrowing from the Bank, compared with financing the reforms through its own budget or through bilateral sources. Just this year the Ministry of Education The Bank could proposed financing the sector reforms proposed by the Bank through its own have done more budget, even though the ministry has been unable even to finance the operation of existing schools under its jurisdiction. Financing sector reforms through bilat- to encourage the eral sources would likely involve a large number of relatively small donor con- government to tributions. While this option might cost the government less, it might imply sig- nificant coordination and ownership problems. Again, the risk would be that take earlier the reforms might not be implemented effectively. action on The Bank and Poland were preoccupied with macroeconomic reforms in the education first few years of Bank lending to Poland, to the detriment of some social sectors. The Bank could have done more to encourage the government of Poland to take earlier action on education by giving a higher profile to the restructuring of edu- cation for economic growth, employment, and harmony with EU standards. If the Bank decides not to pursue the Education Restructuring Project, it may yet have a role to play in advising Poland on implementation of its education reform program. The Bank might also play an important role by prodding Poland to implement its proposed sector reforms as soon as possible, pointing out the opportunity costs incurred by staying with an outdated education and training system. 80 Notes 1. The private sector assessment of January 19,1993, contains a description of the 1990- 91 experience with collateral law reform that is consistent with the above description. It also makes the point that there was also something of a growing xenophobic reaction, with the senior Polish bar showing an increasing resistance to foreign bankers, lawyers, and experts telling Poland what laws to enact. No important piece of legislation, it seemed, that had not been prepared mainly by Polish law professors personally known to members of the commissions, would be adopted in Poland. 2. The Ministry of Labor and Social Policy expressed dissatisfaction with the Bank's un- derutilization of local expertise. According to the ministry, the usefulness of foreign con- sultants was often limited by their lack of understanding of the Polish situation and the high cost of these experts compared with local ones. The quality of advice would have been better had consulting teams consisted of a greater number of local specialists. The ministry also noted that while the project was of some importance, it was one among many government actions in this area, and so its importance should not be overstated. 3. The Ministry of Health and Social Welfare expressed dissatisfaction at the irregularity of Bank communications, which suggested to them wavering Bank commitment to the project. The ministry provided the example of when the loan was reduced from $130 mil- lion to $100 million, but rescheduling took one year to arrive from Washington, in spite of seven letters from the Polish party and the Bank's commnitment to send it in several days. While communications with the resident mission have improved following the ap- pointment of a liaison officer, the mission still lacks the authority to act as anything but a transmitter of information. The ministry believes that if the Bank could provide a contin- uous counterpart in the Bank and if the resident mission were empowered with greater decisionmaking authority, project implementation could improve significantly. POLAND COUNTRY ASSISTANCE REVIEW 3. Private sector and infrastructure development In terms of resource allocation, the largest part of the Bank's country assistance efforts in Poland went to facilitating the expansion of the private sector and help- ing Poland build a physical infrastructure capable of accommodating the growth of a market economy that is fully integrated internally and with the rest of the world. To these ends, the Bank's strategy evolved from initial support to state enterprises (before the start of Bank lending) to promoting the participation of the private sector in agriculture, industry, housing, and the financial sector. The Inter- national Finance Corporation had similar objectives in its own operations. The Bank's strategy also called for conventional and hybrid projects to rebuild and restructure the main infrastructure sectors, particularly transport, energy, and telecommunications. Poland's severe environmental problems were addressed through a small free-standing loan and specific conditionality in the Structural Adjustment Loan and various investment loans. The Bank's efforts to carry out its assistance strategy were repeatedly frustrated by the frequent changes in gov- ernment and by the resulting ups and downs in official support for the reforms. Instruments of Bank assistance for private sector development As explained in Chapter 2, the SAL became the focal point for dialogue on most The structural of the broad issues of adjustment. More detailed sectoral and institutional ques- adjustment loan tions were addressed through numerous other loans. This section is devoted to a selected review of the principal instruments of the Bank's assistance for pri- became the vate sector development. focal point for Coalitions have come and gone, but the main outline of Poland's private sector dialogue on development policy has remained consistent since 1989. A booming private sec- most broad tor has continued to grow-despite the absence of many of the conventional "preconditions" for private sector expansion-with output increasing in some adjustment sectors and falling in others. To the surprise of many, most private sector devel- issues opment has been driven by the creation of new enterprises and not by the priva- tization and restructuring of large state-owned enterprises. Burdened by their old operational procedures, lack of marketing experience, heavy debt, and out- dated technology, privatized and restructured state enterprises have generally lacked the dynamism needed to compete in new markets. The private sector is flourishing despite the absence of a fully evolved legal and institutional frame- work for the private sector. It is developing beyond small-scale street traders, with the emergence of organized businesses with wide distribution networks. Enterprise restructuring and privatization-falling far short of expectations, despite helpful technical assistance Why. The Bank's major contribution to the emergence of Poland's market econ- omy has been its support of macroeconomic reforms and liberalization of prices 81 82 and international trade. The Bank's strategy was also to play a major role in pro- moting the restructuring and privatization of state-owned enterprises. The 1991 Private Enterprise Development Project was designed to support the develop- ment of new businesses, which was at the center of the government's economic transformation program, and to build support services for private enterprise development. To complement the Private Enterprise Development Project and to support Poland's efforts to develop and implement an enterprise privatiza- tion program, the Bank also prepared a Privatization and Restructuring Project. It was designed to implement an effective enterprise privatization program and to support restructuring across a broad range of industries by assisting with the establishment and strengthening of the institutional framework for privatiza- tion; providing finance in ways that would mobilize additional resources in sup- port of the government's objective of privatizing half the state-owned assets within three years; and providing finance for enterprise restructuring programs, where warranted. Whal. In 1991 the Bank formulated the $60 million Private Enterprise Develop- ment Project, with $58 million for investment financing and $2 million for insti- tution building. The investment financing component was intended to be onlent by the Polish Development Bank (PDB) to participating banks and then to enter- prises at market interest rates to support the creation of new private businesses. In addition to providing investment financing for private enterprises, an insti- tutional strengthening component targeted improvements in the Office of the Undersecretary for Business Promotion, the Project Support Unit of the Cooper- ation Fund, and local business promotion agencies. The complementary Priva- tization and Restructuring Project included a policy component ($75 million) to support implementation of the necessary policy and institutional conditions to facilitate enterprise transformation and privatization. Up to $50 million of this component was proposed to be used for the Debt and Debt Service Reduction operation. A second technical assistance component ($65 million) was designed to support the key agencies involved in the privatization and restructuring pro- cess. An investment component ($140 million) for privatization and restructur- ing was to be channeled through the PDB and eligible banks to finance the direct foreign exchange investment costs, including physical improvements to pro- duction facilities, permanent working capital, interest during construction, licenses or other types of technology transfer, as well as software, technical assis- tance, and training at the enterprise level. Findings. At the time the Private Enterprise Development Project was conceived in 1991, Poland was very short of foreign exchange and of funds for medium- term instrument lending. By the time of project implementation in 1993, how- ever, other sources of funds had become available. The apex lender PDB was not well suited to its task under the project, and very little of the loan was disbursed. Meanwhile the objectives of the project were being supported by other donors, who provided grant support for business training and start-up centers. Bank efforts were not well coordinated with those of other donors, but there was little opportunity for the Bank to take the lead in coordination since its loan funds did not disburse and its technical assistance funds were not utilized. Thus despite good economic analysis, the project accomplished little. Implementation of the Privatization and Restructuring Project suffered as well. It was hurt by the frequent changes in government and the consequent waver- ing in official support for privatization. The credit component was compro- mised by the same factors that affected other Bank credit line operations in Poland, including overoptimistic projections of demand for credit, competition from other credit sources, weak domestic banking institutions, and reluctance to 83 Bo 3.1: POLISH ENTERPRISE BEHAVIOR STUDY, 1991-92 How woul state enterprises rspond to the reforms introduced as part of Poland's big bang"' MiJanuary 1990?TWhscr questio arosesoon after the start of transkion because of the enterprise sector's dominance in output exports, employment and tax revenues. But enterprise behavior remnaied a black box, with most contemporary sudies onfined to macroeconomic issues. A Bank sty was therefore designed to examine the behavior of 75 large state: enterpises drawn frm five different sectors all over Poland. The goal was to answer topical questions, such as, were state enterprises merely decapitalizing assets or restuing; were banks extending "soft" loans; was the excess wage tax working; wuld inability or unwiligness of state enterprise man- agers to adapt lead to a ollapse of idustry, thereby sabotaging reforms . These questions were formulated joitly with Professor Stan Welisz, Adviser to Mr. Leszek Balcerowkz, then Deputy Prime Minster and Minister of Firance. Mr. Balcerowicz signed letters of introduction to the enterprise managers, express- ing his interest in the poicy implications and assuring them of confidentiality The study was donejointly with two Polsh economists, professogs Marek Belka and Stefan Krajewsli of Lodz Univerty, with the task manged by staff of the Tesident mission It involved two rounds of visits to the ample enter- prises, oe 18 months after the onset of reform and the second a year later. Prevailing opinion in 1990-91 held that state enterprise managers were inca- pable of restructurig and were lkely to destroy their companies. However, lle evidence was found to supportthisvietw. On the orary, spurred by' hard budgets and competitn, managers were responding posively even though privazatin had not yet occurred The resuts showed managers attempting to restucture their companies through laor force reductiton divestment of neessary assets and attempts at enhancing efficency in existing operations whie attempting to repackage their products and find new markets. Not all managers met with success, and many comparies were making losses; but everyone was trying. In addition to the discipline of hard budgets and competition, this unexpectedly positive behavior wag attributed to managers' concems for their own reputations. Managers were using restrucr as an opportunit to signal their own abity to operate success-- fuy in a market envinment Lastly, they expected to be rewarded when privatization occurred, wlich they believed would happen sooner or later, underlining the importanceof a credible privatization program. Source: Brookngs hIstitute 1993. comply with cumbersome Bank procedures. The technical assistance compo- nent of the loan did, however, help solve complex privatization issues, despite original concerns that this component was too large. Still, overall the project stagnated and fell far short of achieving its objectives. After many delays and false starts, however, the government recently launched a Mass Privatization Program, and the Bank's efforts to support privatization may begin to pay off. Financial sector assistance-a major role in transforming the financial sector Why. The dual objectives of the World Bank strategy for financial sector assistance in Poland were (1) removal of the major policy constraints and development of the institutions required for financial intermediation in a market-based system, 84 and (2) use of the banks as a major vehide to help bring about the restructuring, privatization, and consolidation of the large network of state-owned enterprises. An ultimate objective was to stimulate sustained growth based on a dynamic pri- vate sector and to speed Poland's economic transformation. The reforms and interventions under the Financial Institutions Development Loan and the Enter- prise and Financial Sector Adjustment Loan were ambitious in scope. The pro- gram focused on three main areas: modernization of the financial system (FIDL and EFSAL), and enterprise restructuring and privatization (EFSAL). Mhat. Modernization of the financial system through FIDL focused on revision of banking legislation, strengthening of bank supervision, development of deposit insurance and mechanisms to deal with insolvent banks, and the introduction of a collateral law. EFSAL focused on development of the National Bank of Poland's (NBP) supervision capabilities. FIDL conditionality entailed removing subsidies on lending rates (mainly in agricultural and housing credits) and reducing directed credit and NBP refinancing. Twinning arrangements between seven Polish and seven foreign banks-focused on institutional strengthening and privatization of banks (FIDL and EFSAL)- were the core of commercial banking institutional strengthening. Moreover, to pre- pare banks for privatization, a major recapitalization was carried out under the bank-led enterprise restructuring program. The recapitalization and privatization of the nine commercial banks represented another important area where the World Bank played a major role, especially in providing a general framework for donor assistance. The Bank coordinated these activities with the US Treasury, which has been the main actor in setting up the Bank Privatization Fund, an offshoot of the stabilization fund established by the G24 to prop up the zloty against speculation upon its convertibility. Once the zloty was stabilized, most of the participating countries agreed to redirect about $500 million from the stabilization fund to the recapitalization of banks under the EFSAL program. To be eligible, banks were to be privatized before the end of 1996. However, to implement the program in accordance with its original design, the remaining five banks would have to be privatized by the end of 1996; it is now evident that this was not feasible. Bank privatization turned out to be far more complex than expected. Finding strategic investors was difficult, and the absorption capacity of capital markets was grossly overestimated. In October 1996 the Polish authorities adopted a new blueprint for consolidation and privatization of the banking sector for the coming years, to replace the 1991 program. Thus, the original Memorandum of Understanding between Poland and donors is likely to be modified in the near future. Enterprise restructuring and privatization were tackled through innovative legisla- tion designed to change the incentives and governance framework of enter- prises and banks in order to promote debt resolution, privatization, and restruc- turing. Banks were expected to play a leading role in enterprise restructuring through out-of-court conciliation, and enterprises were provided with new opportunities to succeed in a market environment following their reorganiza- tion. The government and the World Bank agreed that for special key or sensi- tive enterprises, restructuring or liquidation could be too disruptive and politi- cally costly to be feasible. Under the Intervention Decree, the government would assume new responsibilities for certain large state-owned enterprises to mitigate the consequences of reorganization and downsizing. For these difficult cases, the EFSAL supported specific annual budgetary allocations to finance restructuring or to cushion the impact of liquidation. Findings. Preparation, design, and implementation of the loans have generally been positive, except for bank privatization.' The resident mission played a cru- 85 cial role in launching the reform program, in giving the Bank credibility and vis- ibility, and in coordinating the Bank's program with other donors. The innova- tive programs designed and implemented under the two loans contributed to the rapid recovery and transformation of the Polish economy. The bank twin- ning arrangements and the decentralized approach to dealing with banks' bad The twinning loans were pathbreaking innovations that were later applied in other countries. The development of bank supervision capabilities progressed successfully as arrangements well, although upgrading took longer than expected. and decentralized There were some problems in preparation and implementation as well. For FIDL approach to the lack of adequate protection for lenders has held back the development of safer dealing with bad intermediation services. Twinning arrangements could have been improved by increasing the involvement of the domestic banks, providing more information loans were about the Polish environment for the foreign banks, and paying more attention to potential conflicts of interests between partners. There were also some procure- ment problems, and Polish banks made only limited use of FIDL funds. Overall, innovations World Bank supervision has been considered insufficient too. EFSAL suffered from the long delay between preparation and implementation and from political instability. Though the bank-led enterprise restructuring program seems to have been largely successful, uncertainty remains about the outcome of restructuring through the conciliation agreements. It is not clear whether enterprises have moved to a healthy and viable path or whether prob- lems have merely been postponed. The recent operation of the Intervention Fund is also cause for concern. Some of the initiatives financed by International Development Agency funds at very low interest rates seem outside the spirit of the EFSAL, which was intended to deal with some well-defined and time-bound special exceptions. These concerns were heightened by the government's request (formulated in June 1996) to cancel the third tranche of the EFSAL, thus preventing the Bank from reviewing the operations of the Intervention Fund. The burden of enterprise financing could become a heavy drain on the govern- ment budget while distorting the functioning of credit markets and conflicting with the general approach of the reform program. Some of these problems might have been prevented had there been more economic and sector work on the financial sector and a better understanding of rapidly changing conditions. Despite these implementation problems, the Bank's strategy produced many positive outcomes. World Bank support lent credibility to some Polish initia- tives and strengthened many projects. The structure of Poland's banking sector is suitable for a modern market economy. An independent central bank has responsibility for monetary policy, and a professional bank supervision depart- ment has been developed. Some banks have been privatized, capital adequacy ratios of participating commercial banks exceed international standards, prob- lem loans are fully provisioned, workouts have been actively pursued, and most of management is considered progressive and market oriented. Foreign banks have entered the Polish market, fostering competition for good corporate cli- ents, and the banking sector seems relatively efficient and profitable. Interest rate spreads are drastically smaller, and the menu and quality of financial ser- vices have improved significantly. The FIDL and EFSAL have helped banks improve key banking skills. But the privatization of most banks has not pro- ceeded in line with earlier plans. On the enterprise side it is too early to assess the final results of the restructuring program. On the positive side are the success of bank influence on enterprise governance, incentives for avoiding the unloading of debts on the government, and resolution of conflicts between creditors without triggering unnecessary 86 liquidation. But the pace of enterprise restructuring and privatization is much slower than expected. If privatization were to continue at the rate of recent years, it would take another 10 years to complete the privatization of state- owned enterprises. These delays and some lack of transparency in financial sec- tor support for enterprises make it necessary to hold off on assessing the out- come of the Bank's efforts. Agriculture-a successful blueprint for reform, but some misses as well Why. Prior to 1990, the Bank did not have a clearly articulated strategy for assist- ing Polish agriculture. The stated goal of agricultural lending was to improve the efficiency of the agricultural system by alleviating constraints to agropro- cessing and agricultural exports. The Bank conducted an Agricultural Trade Study and Agricultural Sector Study, prepared an Agro-industrial Export Devel- opment Project, and initiated preparation of an Agricultural Development Project. But since the Bank was not really prepared for lending under the pre- vailing political and economic conditions, its efforts were inconsistent, leading to strained relations with the government. Unable to proceed with lending before a specific economic stabilization program was in place, the Bank appeared ineffective and inefficient in its use of resources. Following the political and economic reforms in 1989-90, the Bank's agricultural strategy aimed at supporting the transition to a market-based system. This new strategy was fully consistent with the Bank's overall assistance strategy and with the objectives of the government. The Agricultural Strategy for Poland, prepared by a joint Polish-EC-World Bank Task Force, became the basis for the government's Medium-Term Sector Adjustment Program and provided a framework of priorities for much of the bilateral assistance to agriculture in Poland. What. Following preparation of the agricultural strategy, the Bank's assistance program for this sector included a review of the livestock sector, of market logis- tics, and of the rural financial sector, a land policy study, and about a dozen informal sectoral analyses. These studies provided useful, if expensive, inputs to the decisionmaking process by the Polish authorities. They were of mixed effectiveness in terms of the adoption of proposed recommendations and the generation of projects for Bank support. In the push by major shareholders of the Bank for immediate and accelerated lending to Poland after 1990, however, the Agro-industrial Export Development Project and the Agricultural Development Project, operations that had been pre- pared for pre-reform conditions, were hurriedly readied and approved by the Board. The objectives of these two projects-to provide lines of credit to agro- industries and farms-were consistent with the post-reform strategy, but their design did not conform to the new economic environment. By contrast, the Agricultural Sector Adjustment Loan, prepared immediately after completion of the Agricultural Strategy for Poland, embraced almost the full range of policy elements needed for the transition of agriculture. The ASAL supported systemic changes in agriculture in accordance with the Bank's sectoral and overall assis- tance strategy. The loan was followed by the Forest Development Support Project, which, although focused on increasing the efficiency of a socially, eco- nomically, and environmentally important sector, is only indirectly related to the sectoral strategy mapped out in the Agricultural Strategy for Poland. Findings. OED has reviewed only one implementation completion report for an agricultural project-the Agro-industries Exports Development Project. The 87 Box 3y: AcRIcuLTuRAL TASK FORCE-A VEHCLE FOR PROVIDING NONLENDING SERVICES Following the political and economic reforms of 1989, the Bank's Regional management and the govment decded in April 199 to establish three task forces to prepare reform stategies for agricuture, infrastrucure, and heath. While planing, fieldwork, an responsibility for the Agrkultural Task Force proceeded with extraordinary speed, the infrastructure and health task force exercises were much less dynmic. The Agricultural Task Force was planned and implemented as a joint under- standing between the government of Poland, the Ba, and the EU. The chair- man was the Undersecretary of State in the Ministy of Agriculture and the task force leader was the Senior Operations Advisor in the Regional Vice Pres- ident's office. Of the 57 professionals, 14 were Bank staff, 34 were Polish pro- fessionals, and 9 were cosultants. After a preparatory mission in Aprfl 1990, the task force started its fieldwork on May 28, 1990, and submitted its report, "An Agricultural Strategy for Poland, to the Ministry of Agriculture in July 1990t The ministry submitted the report to the Council of Ministers for delib- eration. Its recommendations then became the basis for the goverrunent's Medium-Term Sector Adjustment Program. The cost of the exercise is esti- mated at $1 million, of wich about 90 percent was covered by the Bank and the EU in equal shares and the remaining 10 percent by the government. Factors underlying the success indude: a Conducting the exercise as a joint undertaking with intensive partictipon of Polsh individuals and institutions and with the EU as an important donor helped build consensus and led to a widespread understanding of and identification with the proposed strategy and its adoption in the form of the Medium-Term Sector Adjustment Progranm It alo helped pave the way for extensive EU assistance to Pohsh agriculture and cofmaning of future Bank-supported operatons. The personal involvement of the Regional Vice President and the Minister of Agriculture gave the exercise authority and prominence in the Bank and in Poland, which freed it of bureaucratic and administrative constraints in implementing, staffin, financing, and dissemninatingof recommendations. a Using a task force approach with management outside of the sector opera- tions division prevented the task from getting lost among competing divi- siorn work program priorities, eliminated an unwanted focus on project generaton in the strategy work, and freed the task force of administrative and financal demands and restrictions that the operations divisions have to contend with. Source: World Bank data. project's outcome was rated unsatisfactory by the Region. In fact, both the credit- line projects were ill-suited to the post-1989 situation, and only half the aggre- gate loan amounts had been disbursed by loan closing. The projects were unable to cope with an environment of monetary instability, the financial difficulties of enterprises and their loss of traditional markets, and the absence of a functioning system of financial intermediation. The appropriate remedy would have been a drastic restructuring of the projects to reduce their credit components and strengthen their institution-building components. For the ASAL and the forestry 88 project, however, implementation has been good. The government pursued the action program agreed to in ASAL credibly and with good, though uneven suc- cess. Bank supervision and implementation assistance was much above the Bank's average supervision intensity, but "hands on" field supervision was still not enough to allow this project to be used as a vehicle for dealing with unfin- ished policy issues. Implementation of the technically oriented forestry project The projects has reflected full ownership of the project by the implementing entities. were unable to The resident mission greatly facilitated project preparation and supervision by cope with an providing logistical support, following up on pending issues, supervising con- environment of sultants, providing clarifications and assistance to implementing agencies, orga- nizing training seminars, and performing other activities. However, there was monetary insta- some sentiment in Poland that the resident mission did not have sufficient deci- bility, financial sionmaking authority to quickly resolve operational matters. Having an agricul- tural project officer with full supervision authority stationed in Warsaw objectives, and between 1991 and 1995, especially during the ASAL implementation period, lack of financial might have helped resolve some of these issues. intermediation While substantial progress has been made in adjusting the agricultural policy system framework, much institution building remains to be done, and key productive subsectors of agriculture (small private farms and state farms) need restructur- ing if agriculture is to become a source of growth. The early, almost exclusive priority given to supporting agro-industries delayed efforts to address the seri- ous issues of the state-farm and the small-farm sector and of much-needed agri- cultural services.2 The Bank's most valuable contribution at this time may have been its expertise in conceptualizing solutions. It spent considerable resources and made proposals for addressing state-farm restructuring and the problems of the rural financial system and agricultural marketing. Except in agricultural marketing, the government has shown no interest in Bank support, mainly because it expects to have access to less expensive resources through its affilia- tion with the EU. The Bank's role in agriculture may thus be limited to an occa- sional, heavily cofinanced project. Housing-too much too soon? Why. In February 1990 the newly elected Solidarity government asked the World Bank President to expedite assistance for housing and agriculture. The Bank established a joint task force on housing policy reform, which culminated in project preparation discussions with the architects of the Polish reform program and rapid agreement on a $200 million housing loan in June 1992. The loan would be cofinanced by the European Bank for Reconstruction and Develop- ment and USAID. The Housing Project built on extensive work on housing undertaken for the first country economic memorandum in 1986 and the work of the joint Poland-Bank task force. It was supported by technical assistance from USAID and a grant for project preparation from the government of Japan. It was the first of a number of housing loans made to reforming socialist economies. However, the project was in two respects more ambitious than the housing projects pursued in other reforming economies. First, the project attempted to support the government's movement away from heavily subsidized housing production to a market- based system that eliminated subsidies for new housing. The goal was to subsi- dize the most needy rather than the purchasers of new homes, who tend to be middle- and upper-income families. Second, it attempted to replace existing subsidies with finance, with the finance modeled on a successful series of hous- ing finance projects in Mexico. 89 What. The project consisted of two lines of credit that were intended to provide mortgages for households seeking to buy property (27,000 loans) and loans for housing construction companies (15,000 dwelling units). To get the credit to the intended recipients, a financial system for housing lending was to be estab- lished. A network of financial institutions would onlend funds from an apex lender (BudBank), which would also show the banks how to market and admin- ister housing loans. Implementation would be supported by a housing finance project office, a group of consultants reporting to the Ministry of Spatial Econ- omy and Construction, staffed largely by Polish specialists. An operational manual would specify the eligibility criteria that the onlending institutions were to follow. The guidelines would ensure that credits went to appropriate recipi- ents and would help financial institutions learn how to conduct credit risk anal- ysis. Important legal reforms were also needed to liberalize housing finance and construction markets. In addition to the Bank's $200 million loan, project-related technical assistance to the apex bank (BudBank) and the onlending financial institutions would be funded through grants amounting to $10 million. At the beginning of reform, despite large subsidies, housing conditions in Poland were among the worst in the 12 Eastern and Central European economies in tran- sition. By 1994 housing investment in Poland was even worse, having fallen more sharply than in the other countries of the region. Although Poland was one of the first reformers to restore economic growth, the level of housing investment in 1994-the third year of positive growth-was probably not enough to prevent the stock of housing capital from contracting. Yet the Bank-financed housing project was unable to disburse funds, much less catalyze other resources, for investments in a sector that almost certainly had high long-run economic rates of return. At the time of the country strategy implementation review in June 1996, only $1.5 million of the loan had been disbursed (an amount less than the com- mitment fees paid on the loan). The Polish government requested that all but $20 million of the loan be canceled (there had been a previous cancellation from $200 million to $50 million). Poland also informed the Bank that it is no longer inter- ested in other loans earmarked for the housing sector. Findings. From a loan disbursement perspective, this project clearly did not work. Yet in some ways this result is not surprising. In an economy undergoing major restructuring of production and ownership rights, and simultaneously experienc- ing a severe recession, it is reasonable to expect housing investment to contract In such a sharply-all the more so considering that housing was one of the most highly sub- disruptive sidized and publicly controlled goods under central planning. The project had quite ambitiously sought to eliminate all housing subsidies for new housing pro- environment, the duction, and replace them with a mortgage instrument that through indexation of housing project repayments to inflation would eliminate the need for subsidies. In such a dis- rupted environment the project may have tried to do too much too soon. may have tried However, there is also another explanation as to why the project did not dis- to do too much burse-the withdrawal of government commitment to the project. By the time too soon of project initiation the designers of the program-those seeking to improve subsidy targeting and reducing the government role in those parts of the econ- omy where the private sector was demonstrably more efficient-had left the government. After these interlocutors left the government, the new authorities were reluctant to embrace the project's most basic concept: replacing subsidies for new construction with housing finance. Nevertheless, throughout the project the publicly owned National Savings Bank (PKOBP) supported a line of credit with terms similar to those of the project, with slightly higher interest rates but lower monthly repayments. A highly liquid bank with direct access to budget- ary support, PKOBP relied on its own funds to finance its housing portfolio, 90 little success Crortoncane acodn inefC' niil civtesi using bankladsoue o dvsrywr> rviiggeealavi nesalihn sompetn directlwiath fthprojec~t.Ink such dta contxtpi asnyficl foarze the projet funder ntodisurse.A othern sandtie list oithe prareswas Stock oxchanae- lihng lmvne thefitad propeblyythrigstssucessfilesecor a privatei-sn ake.We h 11onrs"eoftheoa hou~siitning tc arhterelutranat tonoprat hingawa tha maximize little successhe inurn o t f cptheNtoal,Btaskficl forfinance tohe pusedmehfectieasy ub 91 (Box 3.3 continued) invested have committed to a numbe of promising investments, but the amounts are quite small, and the funds tend.not to cater to smaller or purely local companies. It is difficult for most projects to meet the crteria of high pro- jected return, minimum size, and management wth a track record of success, Nevertheless, private equity investment funds are likely to become more important as local companies mature. Providing small companies with access to finaning on reasonable terms remains a major issue. The IFC is considering an investment in a specialist bank in Gdansk and a regional investment company in Lodz. In view of expe- rience elsewhere showing that leasing is well suited to financing, the IFC is reviewing a number of prospects, indluding a faclity to finance the leasing arms of a group of local banks as well as joint-ventures with several foreign partners. However, development of the leasing sector in Poland has bee frus- trated by the lack of specific legislation and by legal uncertainties. Over the period, the IEC also approved commitments of $445 niliMon on 24 large projects involving foreign partners, mostly on projects based on privati- zations. These included a hotel, the first new office development in Warsaw, two paper projects, a float glass plant, a specialty steel company, and a consor- tium bank. IPC's involvement was critical since there were very few sources of long-term finance available for major projects at the time-the London Club agreement had yet to be signed, foreign banks faced heavy provisioning requirements, local banks' services were very limited, and the political and economic environment stil seemed unstable. The IFC's involvement and political risk umbrella were an important reassurance to foreign investors. The situation changed radically, however, foUowing the signing of the Lndon Club agreement, Poland's memnbersh in the OECD, and the economy's impres- sive performance. Multiationals can now raise project financing and corporate loans from both foreign and local baiks. The biggest local firms are also wel ser- viced. Serious legal and administrative problems still remain, however, because Poland's system of commercial law has evolved litde since the 1930s. And more initiatives ae needed to acoelerate privatization and generate momentum in cer- tam key privatizatons, such as steel and infrastucture, which will requre mas- sive private capital to finance modernization and expansion needs. The IFC has committed significant resources bt move several smaller($100- 150 millon) infrastructure projects forward, especially in the power sector. However, developments on a broader scale wll require far-reaching regula- tory changes. Promoting these developments through policy dialogue with the govermment is among the Bank Group's most important tasks for support- ing private-sector development over the medium and long term. In addition, IFC is focusing on capital market development, particularly widening the range of nonbank financial institutions and services. Source World Bank dta. One could also argue that the project did not disburse because the Bank refused to renegotiate the project as the Poles requested shortly after the change in gov- ernment. But, to argue that the project had a basic design flaw or that the lack of disbursement is evidence that the project should have been renegotiated is con- tradicted by what occurred in the sector.3 Now, five years after loan approval, 92 many of the aspirations of the project are in place: interest rate subsidies for new housing have been eliminated, and unsubsidized finance has developed. In short, a project that did not disburse because of an unwillingness on the Bank's part to provide subsidies for a good-new housing-that could not justify such subsidies, at least did no harm. The project may have also accelerated the devel- opment of sustainable finance. Instruments of Bank assistance for infrastructure development This analysis of the effectiveness of Bank assistance to infrastructure projects in transport, energy, and telecommunications is mainly qualitative, focusing on the relation of sector developments to the economic and political transition in Poland and to the Bank's macroeconomic work. It is based on the understanding that efficient and responsive infrastructure services are essential to economic growth. Transport-moving ahead, but a need for better donor coordination Why. The Bank's involvement in the transport sector began with an economic mission in 1986, culminating in the 1987 country economic memorandum. A transport sector memorandum followed in April 1989 and provided a frame- work for discussions with Polish officials. Considering the economic and polit- ical uncertainty at the time, the memorandum was remarkably optimistic in pre- suming that Poland would continue to move toward greater market reliance, financial transparency and accountability, efficiency pricing, competition, and decentralization. According to the memorandum, the sector's main problems were closely linked to the efficient functioning of the economy itself: the scant attention to pricing, a pronounced vertical integration of enterprises, a high degree of centralization, the lack of an intermodal transport system, major needs for modernization of procedures, installations, and equipment, as well as uneco- nomic services, especially in railways. Recommendations for a more efficient transport system covered policies, institutional and regulatory concerns, and investment for modernization. In the fall of 1988 the decision was made to accelerate preparation for the first lending operation in transport. Project identification and preparation were undertaken in close cooperation with the Ministry of Transport and Maritime Economy, the General Directorate of Public Roads, and the Polish State Rail- ways (PKP). Prepared for the most part by the borrowers, the project was found ready for appraisal in May 1989. The Bank task manager in charge of the 1988 transport sector memorandum led the appraisal mission and remained project task manager throughout implementation. What. The project addressed priority needs in the sector consistent with a strat- egy of improving the economy's ability to compete in international markets. Two loans were approved in May 1990, one for $145 million for the state rail- ways and one for $8 million for highways and sector reform. Loan conditions addressed mainly sector policies and improved financial objectives and greater efficiency for PKP and major associated suppliers, including the elimination of uneconomic lines and stations. The Railways Project. Implementation of the Railways Project was overshadowed by the collapse of railway system traffic as a result of the severe recession and sharp curtailment of trade with former COMECON, or Council of Mutual Eco- nomic Assistance, partners. Though the staff appraisal report had projected a long-term economic decline, it had anticipated little change in freight traffic lev- 93 els during this period. Freight traffic plummeted from 383 million tons in 1989 to 200 tons in 1992. This dramatic change had two important positive results: PKP took the opportunity to reduce staffing from 435,000 (including affiliated enterprises) to about 240,000, and it accelerated the closing of uneconomic lines and stations called for in loan covenants. On the negative side, the collapse in traffic made it much more difficult for PKP to achieve the financial viability objectives agreed to under the loan. PKP adjusted its tariffs periodically and succeeded in covering most costs in freight traffic. Passenger traffic continued to show a yearly loss of almost $1 billion in 1991-95. The Bank agreed to a downward adjustment in the ratio of operating expenditure to operating revenue, which reduced the pressure on the state rail- ways to adjust and required continuing large government subsidies. The new railway law of November 1995 introduced performance contracts between PKP and the government, which should allow closer scrutiny of PKP's performance. The European Investment Bank (EIB) used the project as a vehicle for starting its own operational involvement in Poland, extending a loan of ECU 20 million to fund part of the Bank-assisted project. In 1993, the bank followed up with an ECU 200 million loan to modernize the Kunowice-Warszawa section of the E-20 line. Two years later, in December 1995, EIB continued with an ECU 40 million loan to modernize the Warsaw-Minsk Mazowiecki section of the Berlin-Moscow line. These loans were part of the European Union's efforts to integrate an improved Eastern European railway system into that of Western Europe. While there had been extensive discussions with the Bank on this project, the Bank was not persuaded that the project was justified and feared its effect on the state rail- way's finances. Findings. Relations between the Bank and Polish State Railways improved over time, and cooperation has generally been excellent. At the beginning, lack of familiarity on both sides made for a slow start, despite initial high disburse- ments for a few urgent purchases. As a result of close collaboration, project investments were adapted to PKP's changing circumstances, and there have been no significant procurement problems. The most difficult lesson for the Bank, though not entirely unexpected in the light of its general experience with railways projects, has been the much larger dependence of PKP on government subsidies than had been projected. True, there were good reasons for this devel- opment (collapse in traffic), which led the Bank to accept a marked softening of the pertinent financial covenant. Thus, the results of the railways project, though reported to be satisfactory on the investment side and especially on the managerial handling of the critical labor issue, leave a large unfinished agenda for major future adjustments. The Roads Project. As the post-1989 reforms took hold, there was a marked shift in traffic from railways to roads. Following preparation work done in Poland, a road project was ready for appraisal in mid-1992, and a loan of $150 million was approved on March 9,1993. It addressed institutional issues in the Ministry of Transport and Maritime Economy and the General Directorate of Public Roads; policies on maintenance of highways, planning and project evaluation tech- niques, competitive procurement procedures, and road safety; and rehabilita- tion and modernization of roads within the 1993-95 investment program. Findings. With the exception of some legal problems early on over interpretation of clauses in Poland's new Provisional Constitution, which delayed project effectiveness and the start of road construction, implementation has generally moved ahead well. Cooperation between the Bank and the borrower has been 94 good, having started well before negotiations. This was the first infrastructure project implemented almost entirely under construction contracts rather than purchases of foreign equipment. The project helped the public roads directorate to learn to use new, sound contracting procedures and offered excellent oppor- tunities for Polish contractors, mostly commercialized public companies and a number of private companies. Forty of an expected 48 contracts were signed (only 5 with foreign firms) at the beginning of 1996, without any major prob- lems. An internationally recruited consulting firm with extensive experience in supervising contract work provided technical assistance to Polish contractors. Because of the government's reluctance to use loan funds when it could get grant funds, the loan for highways and sector reform was reduced early on from $8 million to $4.75 million. The General Directorate of Public Roads also expressed some concern about the $9 million limit set for the revolving fund established under the loan, fearing that difficulties in paying contractors could arise because of the abbreviated period for highway construction in Poland, between June and August. No payment problems have surfaced so far, but the subject should be kept under review. EU-related financial institutions have taken the lead in the development of a modern system of motorways in Eastern Europe, linked to the Western Euro- pean system (an ECU 45 million EBRD loan for a section of toll-motorways and an ECU 125 million European Investment Bank loan for sections of the A-4 Motorway). The Polish government is interested in seeing a privately financed investment program emerge for such roads. The Bank has been cautiously sup- portive, making available its experience and offering the possibility of guaran- tees, where appropriate. Since the Bank is considering further assistance to the non-motorway highways system, it should satisfy itself that Poland has a real- istic program for motorways and for coordination between the public roads directorate and the motorways' administration. General programs. The Bank has also been involved in efforts to develop an urban transport strategy, beginning with a request for assistance for a subway project in Warsaw in 1992. Other cities (Krakow, Lodz, Poznan, Wroclaw, Katowice, and Gdansk) expressed similar interest. Following several missions in 1993, the Bank produced an urban transport review. Despite considerable interest in this Poland's trans- analytical work, the review's impact has been limited in large measure because of local political commitments to other actions. More recently, a good dialogue port sector still on the ports sector led to appraisal of a first port project in late 1995. needs massive Findings. The transport sector in Poland still requires massive investments, and investments, an there may be room for a future role for the Bank, depending on Poland's access to external capital markets and on opportunities for the Bank to engage in effec- area in which the tive dialogue on critical reforms needed in railways (downsizing, cost reduc- Bank may have tions, paving the way for privatization) and in the institutional arrangements for motorways (for example, by developing opportunities for the private sec- a future role tor). Better coordination with EIB and EBRD on substantive reforms and institu- tional issues is also critical for Bank effectiveness in the sector. Energy-overoptimistic assessment of political support Why. The Bank's first economic report on Poland in October 1986 saw problems with the high energy intensity of the economy and identified the energy sector as the country's greatest source of pollution. By the time the Bank was prepared to engage in lending to Poland (FY90), it had identified the principal issues underlying the vast inefficiencies and waste in the sector: overcentralization, 95 resulting in significant inefficiencies in decisionmaking, and the absence of mar- ket-related price signals (except for coal exports). The Bank's initial strategy was to increase efficiency through a restructuring of sector institutions, increased private sector participation, progressive elimination of subsidies, and a move toward international prices. What. Though the initial intention of the government and the Bank was to develop an operation covering all primary energy sectors (coal, lignite, oil and gas), the powerful coal sector was not prepared to work on a Bank-assisted project. Thus during appraisal the energy project was narrowed to a $250 mil- lion loan to the Polish Oil and Gas Company. The EIB cofinanced the project with a $60 million loan. The Bank project provided assistance for increasing the production and distribution of natural gas as a substitute for hard coal, for encouraging energy conservation and efficiency through assistance for appro- priate energy pricing and development and implementation of energy sector restructuring programs, and for developing a framework for private sector par- ticipation in the oil and gas sector. The $250 million loan to the national oil and gas company was followed in June 1991 by five loans ranging from $25 million to $100 million for district heating enterprises in Gdansk, Gdynia, Katowice, Krakow, and Warsaw and a $20 mil- lion credit line to the Bank of Poznan for onlending to smaller district heating enterprises (supplemented by a $50 million loan from EBRD). The loan to the Bank of Poznan was canceled when it became evident that there was no demand for such funds. The Katowice loan, which was never signed (because the system area was redistricted), was replaced by a $45 million loan in November 1994. The Polish Power Grid Company received a $160 million loan in November 1995. All these investment operations fit into the sector strategy and were linked to an energy sector adjustment loan on sector conditionality. These operations addressed aspects internal to the borrowing entity and were designed to improve organizational, technical, and financial arrangements. Other energy sector issues were addressed through the Structural Adjustment Loan, which focused on the removal of subsidies and a managed transition toward international energy prices. The main vehicle for systematic reform and strengthening of the sector was the $75 million Energy Sector Adjustment Loan (ESAL) approved in June 1991. The ESAL was an ambitious program of action for a new energy sector strategy. It included demonopolization of the sector, starting with coal, and commercialization and privatization-from establishing a dozen or so commercial mining companies in coal to identifying new commer- Both the govern- cial power companies, transferring the district heating system to local govern- ment and the ments, and restructuring the oil and gas company into viable divisions, fol- lowed by commercialization. In addition, regulatory bodies were to be Bank were established for power, gas, and district heating, and residential prices for power ove t t and gas were to be raised to full parity with commercial prices. roptimistiC about reforming Findings. Though implementation of the program started out well, the second the eergset tranche ($37.5 million) of the ESAL was canceled because of inadequate the energy sector progress on the regulatory system. A new Energy Law with regulatory provi- sions was drafted, but there was not enough support to submit the bill to Parlia- ment. Though dialogue with the government continued, the comprehensive program of action for the energy sector no longer guided government actions. Since 1993 progress has been limited, with much slower than agreed increases in tariffs and hesitation in promoting private sector involvement, especially in power generation. It is evident that both the government and the Bank were overoptimistic about reforming the sector. 96 The price policy agreed under the program would have benefited from greater scrutiny of its social impact. The Bank may have lost an opportunity to help the government follow through on its intended price policy changes by failing to press for energy cross-subsidies to low-income groups since letting energy prices rise to Western European levels would have meant an enormous jump in household spending on energy. The lower-than-agreed levels of prices have seriously reduced the sector's self-financing ability. As the economy grows, the failure to achieve efficient pricing will become increasingly costly, consider- ing the need to close a significant number of uneconomic plants, to install improved pollution-abatement technology, and to meet the rising demand for generating capacity. Shortfalls on the institutional reform side also reflect too optimistic an assess- ment of political support. Demonopolization, commercialization, and privatiza- tion became contentious issues in the wider political debate, reflected in the many changes in government during the period. Resistance to change in the energy sector came not only in coal, with its large and unionized labor force, but also in the monopolized gas and oil sectors, where those making the policy deci- sions benefited most from the old system. The overoptimism that characterized these efforts seems to have continued unabated, as reflected in the staff appraisal reports of the two loans approved in 1994 (Katowice heat supply and conservation) and 1995 (power transmission), which presented pending institutional changes in a very positive light. Thus, for example, the October 1994 staff appraisal report expected the critical Energy Law to be submitted to Parliament during 1994; the November 1995 staff appraisal report expected submission in 1995. By early 1996 the government's proposal was about to be considered by a parliamentary commission-together with a proposal for a much greater role for local authorities in the sector (includ- ing ownership). In sum, while Bank lending in the initial years of reform benefited from a solid knowledge of the energy sector acquired through a series of sector studies linked to the overall economic assessment, discontinuities associated with gov- ernment changes after 1992 led to a bumpy ride for sector reforms and a post- ponement of formerly agreed institutional and policy actions. As one borrower put it, it was "a bad period for long-term investment decisions." The mix of lending instruments was well adapted to the initial situation, but cancellation of the ESAL's second tranche limited the Bank's capacity to influence sector reforms. Stronger conditionality built into individual investment operations appears appropriate under these conditions. The inability to establish a basis for greater private sector involvement in running energy enterprises and financing investment has been disappointing. Given the Bank's depth of knowledge of the sector, its close relations with Poland's energy institutions, and the large amount of unfinished business, there are good reasons for the Bank to remain associated with the energy sector as long as Poland requires large external funds that it cannot get from the EBRD or EIB or from direct access to foreign capital markets. However, Bank involve- ment would have to be based on getting reforms back on track. Telecommunications-success in financial terms, but inadequate preparation for competition Why. The Bank's 1987 economic report found Poland's telecommunications sys- tem to be one of the worst in Europe and a serious impediment to the country's 97 FIGURE 3.1: WORLD BANK LENDING TO POLAND BY PURPOSE Total commitnents in FY90-97: $4,122 million Telecommunications Power transmission Industrial exports development Heating supply Agro-industrial exports restructuring projects Agricultural development Energy sector Agriculture sector adjustment adjustment Energy resource asbucture development development and Forestry development I environmnental // / Ports protection: $1,326m sector Privatization and Roads development: restructuring Transport Syste a Water institutional Finandal institutions Environmental management transformaton: development Debt and debt $470Tn service reduction Structural ameliorabon: Enterprise and finandal adjustment $230m sector adjustment HeaIth Private enterprise Employment Housing development promotion Source: World Bank data. economic development. As soon as prospects for Bank lending to Poland improved in 1989, a mission visited Poland to assess the possibilities for Bank involvement in the sector. A $120 million loan for the Telecommunications Project was approved in April 1991 for quickly executable investments in the Polish Post, Telephone, and Telecommunications Company (PPTT). The Euro- pean Investment Bank provided $90 million in cofinancing. A more comprehen- sive program of rehabilitation, modernization, and expansion was to follow, based on a major sector survey. This led to a proposed $400 million second tele- communications project, which was appraised in the summer of 1994, but nego- tiations never materialized. Eventually, a $150 million EIB loan was the only financing from an international financial institution for the second project. WVat. The first loan from international finance institutions came just after the 1990 Post and Telecommunications Act transformed the telecommunications activities of the state-owned PPTT into the joint-stock Polish Telecommunica- tions Company (TPSA) and lifted restrictions on private ownership of public switched telephone networks. Because of this timing, the Bank's knowledge of the sector and the effectiveness of its dialogue with the ministry had not reached the depth achieved in other infrastructure sectors. The sector was in the midst of a major institutional reform when the loan was extended, and commitment to the changes in the sector was mixed. After initial procurement delays, physical implementation moved ahead well. Unexpected savings, made possible by the adoption of international competi- tive bidding procedures, allowed more purchases than had been planned, lead- ing to further extension of the disbursement schedule. Discontinuities in man- 98 agement occurred on both sides. The project had three Bank task managers between 1991 and 1995, and project supervision was less intensive than for other infrastructure projects. Findings. In financial terms, the project was highly successful. The appraisal for the second telecommunications project found the new telecommunications company to be one of Poland's most profitable companies. However, some con- cerns remained with the incomplete separation of operations from regulatory and policy functions, the legal setting of the regulatory regime, and the intro- duction of alternative suppliers of services and competition. The unfinished business at the enterprise and network level included the need to modernize at a faster pace, to increase commercialization and possibly to privatize TPSA (after 1997), and to prepare for a multi-operator environment. TPSA did not feel ready to negotiate a loan for the appraised second telecom- munications project during FY95. Ostensibly, TPSA's Board wanted to see the first loan drawn down more (less than half of the $120 million had been dis- bursed at the time). However, there remained a sense on the Polish side that dia- logue on critical institutional issues had not advanced to the point of readiness for formal negotiations and that the Bank strategy in the sector did not fully match the Polish position. The availability of EIB funds with less onerous con- ditionality also dampened interest in a second loan from the Bank. Environmental protection-bringing environment into the core economic dialogue Why. The Bank's involvement in environmental issues in Poland began in 1987, when the first economic report noted the serious health effects of environmental deterioration in Poland. A follow-up background paper on the environment put Poland among the worst countries for water, air, and soil pollution. Four decades of central planning had left Poland with an inefficient materials- and energy-intensive and geographically concentrated industrial sector, based mainly on coal. Together with lax pollution controls, inadequate wastewater treatment, and neglect of maintenance, rehabilitation, and modernization, this had resulted in very high levels of air and water pollution and large quantities of solid and hazardous wastes. What. The Bank's early country strategy papers also identified environmental deterioration as an important structural issue. Although they did not contain a statement of objectives for the environment or develop a clear strategy for addressing them, the operations that emerged in 1990-91 were fully integrated with the Bank's overall strategy for the country. Operations included the Envi- ronmental Management Project; the Structural Adjustment Loan; investment projects addressing major sources of pollution in specific F-ctors, including those identified in the Baltic Sea Environment Program; the environmental strat- egy sector report; and projects on biodiversity protection and global warming, funded through the Global Environment Facility. Findings. Six years after the Bank's initial involvement in environmental issues in Poland, the level of pollution has been reduced, although the Bank's contribution is difficult to assess. The government's commitment to environmental manage- ment was the main driving force behind the establishment of funding mecha- nisms that led to a high level of investment in pollution abatement. The Bank played a supporting role through its integration of environmental issues into the core economic dialogue (through the SAL), its broad engagement in the Eco- nomic Transformation Program, the strengthening of key institutions, support of international environmental agreements (such as the Baltic Program), and its 99 unwillingness to support investments in energy, mining, industry, and urban infrastructure unless they complied with environmental guidelines. This stance contributed to the mainstreaming of these guidelines and the working through of market forces that led to the closure of some of the most polluting plants. The most important new environmental policies and instruments that the Bank supported were the issuance of national emission standards for air pollutants, improved environmental monitoring of air and water and increased fees for the emission of pollutants, and better environmental assessment guidelines. Poland's environmental fees are among the highest in the world, and it has established effective institutions for funding environmental investments. Another important outcome of the BanKs involvement has been the strengthen- ing of the foreign aid coordination and management capabilities of the Ministry of the Environment. According to an OECD review, total environmental assis- tance to Poland had reached $230 million as of November 1993. Such an extensive environmental program might not have been manageable without the support provided by the Bank's Environmental Management Project. In addition, the Bank's insistence on local consultations in the Forest Biodiversity Project provided a useful lesson about the importance of community participation from the early stages for projects, for which community involvement is a condition for success. Notes 1. The loan documents, however, did not always spell out clearly the intended condi- tionality. For example, contrary to the understanding of the staff, neither the introduction of a collateral law nor the limits to the scope of the Intervention Fund were included as tranche release conditions of the Financial Institutions Development Loan and the Enter- prise and Financial Sector Adjustment Loan, respectively. 2. However, the Ministry of Agriculture and Food Economy disagrees with this, indi- cating that priority given to agri-food industry is expressed in about 50 loans with a total value of approximately $70 million. 3. Commenting on an eaTlier draft of this report, the Ministry of Finance had the follow- ing observations: with regard to credit for housing construction purposes, the report places the blame for the project's failure on the Polish side. The ministry noted, however, that the most important reason for this failure was the Bank's adoption of incorrect as- sumptions with regard to the need for credit resources of this type, the cost of which was both known and high under the conditions in Poland at the time. The application of other lending forms for housing by the state (which was very limited anyway) was of secondary significance. Since 1989 the state has been consistently withdrawing from preferential terms of granting housing loans that are competitive for the Mortgage Fund. In practice the credit preferences in this area were already marginal, and therefore cannot be regard- ed as the reason for the low interest in loans granted from World Bank resources. The ba- sic reason for the low absorption of loans should be sought in the high "price" of these resources for the end recipients and the complicated procedures of application for such credit, not adjusted to the Polish conditions, and also in the social and technical require- ments of the World Bank. At the same time, it should be emphasized that the program of the Mortgage Fund has unquestionably fulfilled a useful role in the promotion of mort- gage loans as the basic instrument of financing housing construction. 4. On April 25,1990, a few days prior to Board approval of the First Transport Project, the government of Poland sent the World Bank a fax requesting the cancellation of a $3.25 million technical assistance component of the proposed loan. The reason for this request was that the government was seeking alternative financing for the component in the form of grant money. Since the government had not received a guarantee of grant financing, the World Bank persuaded the government to retain Bank financing of the component for the time being, and if grant money were found, a cancellation could be made at that later date. This explains the early cancellation of the technical assistance component that took place soon after loan approval. POLAND COUNTRY ASSISTANCE REVIEW 4. Implementation and supervision Implementation of Bank projects was generally difficult in Poland, and many factors contributed to the problems. For one, loans were prepared quickly and early in the transition, which often did not allow for adequate preparation and for full participation of the stakeholders in project design. Second, a certain overoptimism was prevalent in the Bank, which led to inflated financial projec- tions and to insufficient attention to the institutional and administrative weak- nesses faced by the fledgling market economy.' Third, loan documents did not always clearly spell out the intended conditionality. Fourth, frequent govern- ment changes meant that Bank task managers often had to deal with newly appointed officials who did not know or even share the projects' original objec- tives. Fifth, communications between field staff and headquarters were not always swift and fluid, and staff on the ground lacked enough delegated author- ity to solve emerging implementation issues. Sixth, in other cases, as in the financial sector, economic and sector work was inadequate to support extensive lending operations, particularly with respect to institutional capabilities and Annual country legal frameworks. strategy imple- Bank staff tackled these problems creatively, but in general implementation was mentation reviews slow, and disbursements lagged behind expectations. Additional challenges the Bank faced in implementing its assistance program for Poland were due to the became an rapid transformation Poland was experiencing. Transitions on several fronts- effective tool for from an authoritarian to a parliamentary type of government, from one-party rule to frequently shifting coalitions, from a command economy to a market sys- -resolving issues tem, from a highly protected productive sector to an open economy-compli- and maintaining cated the day-to-day activities of team leaders and task managers. constructive Realizing the potential difficulties of working in a rapidly changing environ- dialogue, ment, the Bank correctly decided early on, in 1990, to establish a high-level rep- resentation in Warsaw to assist the government in the design and implementa- tion of the country assistance program. The intention was to include the head of this office on the Region's management team and to provide a full complement of experienced staff who would work hand-in-hand with government counter- parts. As the Regional office went through significant management changes at headquarters, the role of the resident office was gradually weakened, and the authority of local staff to deal with implementation issues was curtailed. Because of these changes, the Bank lost the ability to respond quickly to prob- lems on the ground. Short, frequent missions from headquarters became the main channel for Bank-country dialogue. Portfolio management The annual country strategy implementation reviews became an effective vehi- cle for resolving implementation issues and, more generally, for maintaining a constructive dialogue with the government on operational matters. Four CSIRs 100 101 have been held, all in Warsaw (January 1993, April 1994, July 1995, and June 1996). These reviews reflected the evolving relationship with a new borrower. They also reflected the management and staff changes in the country depart- ment and the resident mission, as responsibility for preparing the CSIR shifted in 1994 from the resident mission to the country department at headquarters. The CSIR provided a mechanism for dealing with both generic and specific implementation issues and for preventing them from imperiling projects. In particular, the CSIR was a new instrument for high-level exchange with the bor- rower on strategic and systemic issues affecting the Bank's operational relations, with a view to facilitating and accelerating disbursements under Bank-assisted operations. The letter from the Resident Representative to the Ministry of Finance of June 30, 1992, transmitting a draft briefing paper for a first CSIR meeting, noted that a balance of $2.1 billion equivalent remained to be disbursed from the Bank's portfolio, thus making it of mutual interest to ensure that these resources be transferred to the Polish economy efficiently and expeditiously. The emphasis was on speeding up the use of funds in Poland's loan accounts with the Bank; no reference was made to the substantive objectives of individual operations or to the possible tradeoffs between expediting disbursement and taking the steps needed to obtain a loan's development objectives. The evolution of the CSIRs shows their changing emphasis. For the first meeting the agenda consisted of a macroeconomic update, major adjustment issues, a pipeline overview, and portfolio implementation issues. The agenda for the sec- ond meeting covered the portfolio, the pipeline, and economic and sector work. By the third meeting the agenda covered only portfolio and pipeline. The ... and over agenda for the fourth meeting was the same, with the addition of a suggested procedure for preparing a new country assistance strategy in FY97. Thus, over time, became a time the CSIRs became an instrument for dealing with portfolio implementation precursor to issues as a precursor to discussions on a pipeline of future projects. discussions on Findings of the country strategy implementation reviews a pipeline of The first review observed from disbursement data that the second generation of future projects Bank loans (those approved after 1990) had performed considerably below Bank averages and worse than the 1990 loans. This was attributed to delays in signing and in effectiveness of loans, delays in procurement, delays in setting up and funding project implementation units, sluggish restructuring of the state-owned enterprises responsible for implementing projects, abrupt personnel changes, and delays in making counterpart funds available. The lack of familiarity with procurement procedures under Bank-financed operations and the absence of regulations for public sector procurement were discussed during the review, but no policy issues on procurement emerged. The Bank agreed to provide more assistance on procurement, which it did through supervision missions and sev- eral procurement workshops. The second review in spring 1994 commented that the strengthened cooperation between the Ministry of Finance and other government agencies should prevent further problems or delays in signing and effectiveness. The review recognized good progress on procurement among "old" borrowers but again noted delays in the case of new implementing agencies. It was expected that the proposed new Public Procurement Code (prepared with assistance from the Bank) would make competitive procurement procedures much more familiar throughout the public sector. Because confusion on applicable procurement procedures under credit lines was seen as a contributor to the low demand for funding under these 102 loans, procurement procedures under the different lines of credit were simpli- fied and made uniform. The government was found to have made progress in integrating Bank loans and counterpart funds for projects in the budget, though the problem was not completely resolved. By the time of the third and fourth reviews, the focus had shifted from general implementation issues to issues in individual operations. Specific, well-pre- pared objectives were discussed for improving operations, and cancellations were proposed for parts of loans with little prospects of completion. The Board, apparently believing that enough progress had been made, did not bring up the generic issues of the previous reviews, One issue that should have been on the agenda but was not was problems with audits and accounting (see Annex 5, Volume II of the grey cover version of this report). Audits have generally been submitted on time, but overdue revolving fund audits have been a serious shortcoming, given the time-bound purpose of such funds. Also worrisomne, 17 audits (under six loans) are listed as unsatisfac- tory, spread over agriculture, energy, housing, and industry. With so many unsatisfactory audits, the issue should have come to the attention of the CSIR. Other generic implementation issues evident from a review of operations In addition to the generic issues addressed through the CSIRs, other factors also Both the affected the implementation of projects in the initial phase of cooperation with Poland, especially in infrastructure and human resource areas. One was the government need to anticipate change and be ready to adapt to the vast political and eco- and the Bank nomic changes occurring in Poland in the short period (less than six years) of Bank-assisted operations there. Projects were not always successful in doing so. overestimated The government's capacity for change in the initial 1989-91 period was overes- the government's timated by both the government and the Bank, and several economic blows- the severe recession of the early 1990s and the total collapse of COMECON- capacity for were not fully anticipated. Many institutional and policy changes introduced by change during one government and built into many agreements with the Bank were later ques- tioned by succeeding governments. These developments have severely tested 1990-91 project implementation and have raised questions about the adequacy of project design and the ability to respond to changed circumstances. Some projects were better than others at weathering this transition period. These included projects that were well insulated from political changes and projects whose borrowers were more technical, such as the General Directorate of Public Roads, or that had significant institutional and financial independence, such as the Polish Telecommunications Company. Close dialogue with the resi- dent mission appears to have been helpful to implementation of projects in areas in which the mission had seasoned staff, although the mission's ability to address implementation issues has been circumscribed following the reconcen- tration of staff at headquarters. At the other end of the spectrum were projects in the social sectors (health, housing, employment promotion), which seem to have attracted the immediate attention of incoming governments and whose management has had to justify the validity of agreements with predeces- sor governments. During this initial period, project design was often severely tested. Adaptability to changing circumstances and a reliable policy and institutional framework were emphasized. The broad macroeconomic policy framework has been gen- erally supportive. In most infrastructure sectors, the policy and institutional framework had improved enough during the initial period of cooperation that 103 sector viability conditions existed for most infrastructure projects (though with larger than anticipated subsidies to the Polish State Railways). That was not the case in some social sector projects, particularly in housing. Unrealistic designs (in the employment project) and less experienced staff (in the health sector) con- tributed to implementation problems in some projects. Unfamiliarity with Bank procurement procedures (and with competitive pro- curement generally) also had an effect on project implementation and disburse- ment by adding to the length of implementation. The cost savings introduced by following Bank procurement procedures were a pleasant surprise to borrowers, but there was considerable unhappiness about large commitment charges that resulted from the extended disbursement periods. Some inefficiencies in project supervision The overall intensity of supervision on Bank projects in Poland has been compa- rable to that for other Bank projects. However, budget statistics indicate a dimin- ishing allocation of resources to supervision in Poland in recent years. And sev- eral inefficiencies in project supervision suggest a need for management (division chiefs and higher) to become more involved in monitoring the quality of project supervision. Supervision was not always effective for a variety of reasons: Thze resident mission lacked authority and resources.2 In general the resident mis- sion was not given sufficient autonomy or resources to fulfill its potential for supervision in the field. Supervision and implementation performance were effective in cases such as infrastructure projects and (until recently) the Enter- prise and Financial Sector Adjustment Loan, where the Bank maintained sea- soned staff members in the resident mission, but this was not the general rule.3 A considerable * Problems withfield missions. Bank records show that a considerable amount of amount of staff staff supervision time was expended at headquarters rather than in the field. More time in the field could have improved the quality of supervision. Also, supervision time coordination among successive supervision missions to Poland was poor. was spent at Occasionally, successive Bank supervision missions would ask the same questions of Polish officials. Often, supervision missions did not touch base headquarters with the resident mission while in Poland, to improve coordination and ben- rather than efit from the resources available there. In some cases supervision mission teams met with the wrong people, senior officials who were not personally in thefield working on project implementation. Some of this could have been avoided by consulting with the resident mission first. * The quality of back-to-office reporting is mnixed. Without trying to assess whether the quality of written supervision reports reflects the quality of actual super- vision on the ground, it is possible to make a number of observations from a review of back-to-office reports: There is marked difference in quality among back-to-office supervision reports, ranging from excellent through perfunc- tory to poor. Good reports included monitorable indicators, clearly stated mission objectives, a detailed statement of the mission's success in achieving these objectives, and a balanced update of the strengths and weaknesses of implementation performance. However, issues important to project imple- mentation were not always systematically or satisfactorily addressed, and in some cases they were side-stepped. Excessive use of jargon made some reports inaccessible to reviewers with a different technical background. There were often long delays in completing reports following a mission. 104 FIGURE 4.1: AVERAGE LENDING COMPLETION COSTS BY SECTOR FOR PROJECTS APPROVED BETWEEN FY9O AND FY96 250 200 150 100 50 0 . - _ L co . ) z z w..-. 0 -C)~~~~~~ U~~~~~ >, E E > 4, Sector e D1 Poland * ECA El Bank Source: World Bank data. Sometimes Form 590s were not fully completed, or they assigned better rat- ings than would seem justified from other sources. Slow disbursement of credit line operations Credit lines Various lines of credit were approved by the World Bank to finance investments in specific sectors (agriculture, housing, energy, industry, and others). The lines disbursed slowly, of credit were thought to be an adequate instrument for alleviating Poland's for- eign exchange constraint in the late 1980s and early 1990s. However, because of above all because the speed at which Poland was changing, the Bank did not always have a deep the Bank overes- understanding of the microeconomic and sectoral constraints militating against a faster drawdown of these funds.4 timated demand for credit Although the reasons for the slow disbursement of funds differed across sectors, some systemic factors seem to have contributed to the poor disbursement per- formance, particularly an overestimation of the demand for credit from credit- worthy borrowers in a period of political and economic uncertainty. Poland experienced near hyperinflationary conditions in 1989-90 and political instabil- ity. Property rights were unclear, and the legal framework failed to provide suf- ficient security to lenders and investors. The Bank's efforts to modernize Polish commercial legislation, establish a registry of liens, and adopt a law on collateral did not proceed as expected. 105 TABLE 4.1: AVERAGE ELAPSED TIME FOR LOAN APPROVALS (months) Average FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY90-96 Poland 30.5 27.8 22.2 21.5 22.3 23.9 44.1 27.7 Group A Hungary 18.2 19.6 46.4 28.5 25.5 38.7 - 25.9 Turkey 31.9 24.5 30.0 21.9 5.3 58.0 18.5 27.9 Bolivia 25.9 23.7 27.9 11.3 25.7 26.3 32.9 26.1 Philippines 19.7 14.8 30.8 21.7 40.6 36.5 30.0 24.3 Group B Albania - - 5.2 8.1 16.4 19.7 22.4 16.8 Bulgaria - 8.1 4.2 13.2 32.5 24.0 31.7 20.4 Russia - - - 7.6 13.8 21.9 15.8 16.1 Ukraine - - - 8.4 - 12.0 16.0 13.2 Bankwide 25.0 21.4 26.5 16.9 21.7 24.6 24.6 22.6 Source: World Bank data. In addition, some of the terms and conditions of loans were a disincentive to the use of credit lines. World Bank interest rates were not always competitive with those offered by other foreign donors or by domestic alternatives. Pooled-cur- rency loans were another problem. Borrowers and intermediaries were not offered single-currency loans in dollars, and they found it difficult to under- stand and hedge loans priced against a currency pool. Moreover, given the rel- atively high weights in the currency pool of currencies that were appreciating (deutsche mark, yen), the dollar cost of Bank loans was ex ante uncertain and ex post too high in dollar terms. The compounding of fees charged by different intermediaries added further to the high cost of loans to the borrower. Just accessing the Bank's funds was a challenge for new borrowers, who were unfa- miliar with the many contractual, reporting, and disbursement requirements. In addition, the use of Bank funds was linked to specific subproject selection and appraisal (including more rigorous financial and cost-benefit analysis, compli- ance with environmental standards, and the like) and to the requirement to fol- low the Bank's procurement rules. These procedures discouraged financial intermediaries and final borrowers. Financial intermediaries not only had a hard time finding creditworthy borrowers, they also lacked experience manag- ing and supervising long-term investment projects (a task handled in the past Aid coordination by the planning agency or line ministries). Developing this expertise was costly, and there was a lack of qualified and skilled banking personnel. Finally, was not always although most of these difficulties were probably known to the Bank, remedial good and actions to expedite disbursements were often slow to come. g sometimes Aid coordination: changing dynamics of donor operations5 contributed to implementation Aid coordination, important for maximizing the impact of donor assistance, has problems not always been good and on occasion has contributed to implementation prob- lems. In some cases where donors acted together effectively and in full agree- ment, results were excellent, as in putting together the $1 billion stabilization package in support of the currency convertibility program, debt relief opera- tions under the Paris and London Clubs, and the original task force for agricul- 106 TABLE 4.2: POLAND: COST (STAFFWEEKS) OF DROPPED LENDING ACTIVITIES (staff weeks, except where otherwise noted) Total FY93 FY94 FY95 FY96 FY93-96 Bankwide Cost of dropped lending 6,156 6,229 11,288 9,461 33,134 Total lending cost 28,202 29,640 29,392 30,356 117,590 Percent 22 21 38 31 28 Average cost of dropped projects 31 42 24 36 33 ECA Cost of dropped lending 506 206 1,620 1,848 4,180 Total lending cost 2,498 5,385 7,243 7,587 22,713 Percent 20 4 22 24 18 Average cost of dropped projects 20 23 25 36 26 EC2 Cost of dropped lending 429 39 1,281 384 2,133 Total lending cost 886 1,133 1,105 1,205 4,329 Percent 48 3 116 32 49 Average cost of dropped projects 27 13 29 48 29 Poland Cost of dropped lending 51 0 351 359 761 Total lending cost 452 125 94 294 965 Percent 11 0 373 122 79 Average cost of dropped projects 51 0 35 72 53 Number of dropped projects 1 1 10 5 17 Source: World Bank data. ture.6 But in other cases where there were problems of competition among donors, the result was wasteful duplication of efforts, conflicting advice to the government, and some undermining of the conditionality of other donors. The Bank took a leadership role early on to ensure good coordination among donors.7 The Bank's 1992 country economic memorandum was used by the Ministry of Finance as a means for coordinating the activities of the World Bank, OECD, EC-PHARE, USAID, and the Council of Europe. Seminars, workshops, and symposia on generic problems of the economic transition organized by the Bank were another important vehicle for dissemination and coordination of pol- icies. But aid coordination was sometimes frustrated by the Polish government's inability to reach consensus on the appropriate institutional framework for aid coordination. This further complicated the Bank's assistance effort since the government was not clear about which organizations would fulfill which tasks. Internal rivalries among Polish ministries led in 1993 to complaints that Bank staff sometimes discussed new projects directly with sector ministries, without the knowledge of the Ministry of Finance. Steps were proposed for creating a new coordinating mechanism. The government would systematically prioritize requests for assistance, and the Bank would ensure that information on the main elements of proposed projects was sent to the Ministry of Finance at an early stage of preparation, with a request for a formal response. The kick-off meeting for preappraisal missions would take place in the Ministry of Finance.8 Recently, 107 TABLE 4.3: POLAND: COST (DOLLARS) OF DROPPED LENDING ACTIVITIES ($ thousands, except where otherwise noted) FY93 FY94 FY95 FY96 Total FY93-96 Bankwide Cost of dropped lending 80.5 108.5 59.4 101.8 350.2 Total lending cost 304.3 362.6 352 366 1,384.9 Percent 26 30 17 28 25 Average cost of dropped projects 81 109 59 102 88 ECA Cost of dropped lending 1,501 659 4,596 5,832 12,588 Total lending cost 7,427 16,559 22,056 23,512 69,554 Percent 20 4 21 25 18 Average cost of dropped projects 60 73 71 114 80 EC2 Cost of dropped lending 1,278 124 3,528 1,280 6,210 Total lending cost 2,770 3,609 3,360 3,775 13,514 Percent 46 3 105 34 46 Average cost of dropped projects 80 41 80 160 90 Poland Cost of dropped lending 169 0 1,116 1,173 2,458 Total lending cost 1,387 357 285 980 3,009 Percent 12 0 392 120 82 Average cost of dropped projects 169 0 112 235 172 Number of dropped projects 1 1 10 5 17 Source: World Bank data. the Polish government has undertaken a major reorganization of its own aid coordination role, establishing a committee to take on this function. The Bank has continued to search for effective coordination mechanisms, both at a general level and in the context of specific sectors and projects.9 It has contin- ued to participate in donor coordination meetings with USAID, the EU, and the government of Poland. At these meetings it was recognized that the coordina- tion mechanisms now in place (particularly the G24 format) had not been effec- tive, that more informal ways of preventing duplication of effort were needed. The Bank's resident mission has been exploring options for new mechanisms. Technical assistance is another area that needed better coordination. A large mar- ket for technical assistance emerged following the launching of Poland's Eco- nomic Transformation Program, but there was no effective mechanism to help the government choose among the sources of advice being offered. The govern- ment lacked the institutional capacity to coordinate or assess the quality of for- eign experts, and the advice they gave was sometimes useless or conflicting. It is not clear how much the Bank or other donors actually did in this area. The World Bank, with its extensive experience working with consulting firms, would have been well qualified to help the government create a filtering mech- anism to help it make rational and effective selections. The Bank could have helped improve the quality and impact of advice by creating a register of con- 108 sultants or by funding an independent assessment of the quality of each consult- ing firm. The Bank could have held training seminars for international consult- ants to improve their effectiveness, as the Bank is now doing in Moscow, and as a vehicle for consultant coordination. The Bank might also have helped build institutional capacities within an appropriate Polish ministry, to help the gov- ernment coordinate and effectively use the large volume of consultants. Thus the record on donor coordination is mixed. There have been successes but also waste and duplication of effort. The primary responsibility for ensuring coherence in donor efforts rests with the Polish government. Donor countries can help to ensure that conditionalities of foreign assistance are consistent both through their own bilateral aid programs and through their role as governors of the various multilateral institutions. The Bank could perhaps play a more effec- tive role by strengthening its presence on the ground. Cost effectiveness: room for improvement A comparative study of the cost of Bank activities in nine countries10 found the Poland program to be more costly than the programs in the other countries.1 Specifically, it found: * All-in and total direct costs are higher than for most comparators. * Lending completion costs are relatively high, as are the resources spent on The large projects that were ultimately dropped (see annexes 5 and 6, Volume II of the grey cover version of this study, for a list of dropped lending and economic amountof and sector work projects). subsequently * The Poland field office has the highest cost in dollars per staffyear among cancelled lending comparator countries, while the direct contribution of local staff to the pro- raises questions gram is relatively low. about the quality The study also found that the time to prepare projects is higher in Poland than of loans and the the Bank average and than for all comparator countries other than Turkey. The long time between the initial executive project summary and appraisal government s accounted for much of the difference. commitment The large amount of lending that was subsequently canceled raises questions to them about the quality of the loans made and the Polish government's commitment to them-was the Bank spending resources on preparing projects the govern- ment of Poland did not want or did not need? Of the $2.61 billion committed for Poland in FY90-92, 17 percent ($446.8 million) has subsequently been canceled. Of the 15 projects approved during FY90-92, 9 were partially canceled; 61 per- cent of FY92 commitments were subsequently canceled. Only Turkey of the comparator countries had a higher cancellation rate during this period. In addition to the approved loans that were later canceled, numerous Bank activities (possible new loans, economic and sector studies) were initiated but later "dropped," after having absorbed considerable Bank resources. Fifteen projects were dropped in FY95-96, after having invested in them at least 710 staffweeks at a cost of $2.3 million (these are direct cost figures; they do not include overhead/management costs or the direct time spent on certain projects that was reclassified as economic and sector work). For the period FY93-96 the direct recorded cost of dropped projects to Poland was equivalent to four fifths of the total direct cost of lending activities. This ratio compares with 49 percent 109 for EC2, 18 percent for ECA, and 28 percent Bankwide. Dropping projects as soon as it is realized that they are not likely to succeed is a necessary management tool. However, the direct cost of projects for Poland has been much higher than for other countries. In FY93-96, the cost was 53 staffweeks compared with 29 for EC2, 26 for ECA, and 33 Bankwide. This suggests that the Bank allowed these projects to drag on too long before deciding to scrap them (see tables 4.2 and 4.3). Notes 1. Internal Bank records show that Bank staff on occasion alerted managers against making overoptimnistic assumptions, but such voices seem to have been ignored by their superiors. 2. Some Poland task managers interviewed felt that their personal ability to supervise the implementation of their projects would have been more effective had they been sta- tioned in the resident mission in Poland. One senior task manager who had the experi- ences of supervising Poland projects from both the resident mission and headquarters, said that working from headquarters was much more difficult and less effective than do- ing it from the resident mission. This was because in headquarters he was not exposed to the daily issues and events relevant to the project. Managers in the field were much more involved and better informed of the issues concerning the projects they were managing. 3. For example, the lines of credit projects were relatively expensive to manage in Poland compared to Hungary. The Bank's Annual Report on Portfolio Performance for FY93 at- tributes this largely to the presence of a large resident mission (hub for the Region) in Hun- gary, which had the capacity to resolve routine supervision obstacles as they arose. 4. It should be noted that fast disbursement of the credit lines should not be seen as an end per se. If a distorted policy environment persists (for example, permanence of subsidized credit that competes with the Bank's funding), the "no disbursement" of the credit lines should not be seen per se as a negative factor. In other words, the cause (policy distortions) and the effect (no or slow disbursement) should be clearly identified and addressed. 5. See Annex 2, Volume II of the grey cover version of this study, for a listing of major donors in Poland. 6. Other good examples of donor coordination are the ASAL and the forestry project. In both cases the Bank's assessment of the technical assistance needs was shared with the do- nors, and the close coordination through the project cycle ensured strong donor interest, which was later translated into specific grants to finance the majority of the technical assis- tance components envisaged under the projects. In the environmental area, the Bank helped establish the Ministry of the Environment's capacity to coordinate and manage ef- fectively some 200 project proposals from different donors. Coordination between the Bank and the Fund has generally been very good. Until late 1995 the Fund normally took the lead in macroeconomic and fiscal policy issues. The future role of the IMF, however, is not clear. 7. In November 1989 the President of the Bank, in an effort to deal with the emerging do- nor coordination problems, wrote to a senior US government official reinforcing the per- ceived need for better coordination among multilaterals, bilaterals, commercial banks, and creditors. Bank staff also proposed a variety of measures to better coordinate donor assis- tance. One suggestion was to establish a systematic record of technical assistance and aid offered to Poland, to facilitate a more coordinated approach. No such system was created. 8. Donor coordination is generally handled by the Polish government's Council of Minis- ters' Foreign Aid Office. However, donors often bypass this office and deal directly with the relevant ministries, or rely on organizations outside the government of Poland to imple- ment their programs. For example, most US assistance programs have been implemented either directly with the private sector recipients or through contractors and nongovernmen- tal organizations with little direct involvement on the part of the Polish government. 9. For example, a major accomplishment of the environment project has been the strength- ening of the foreign aid coordination and management capabilities of the relevant ministry. 10. In addition to Poland, the analysis included four countries that share some program characteristics with Poland (Bolivia, Hungary, Philippines, and Turkey), called here "group A," and four "new borrowers" in the ECA Region (Albania, Bulgaria, Russia, and Ukraine), called "group B." 11. The cost study on which this section is based was carried out by the Bank's Planning and Budgeting Department at OED's request for inclusion in this report. POLAND COUNTRY ASSISTANCE REVIEW 5. Findings and recommendations Since Poland launched its Economic Transformation Program in 1989, the Bank's strategy has been to support the country's market-oriented reforms. Initially, this open-ended strategy of supporting government reform initiatives was accompanied by careful monitoring of progress to determine when to start formal loan negotiations. This strategy allowed the Bank considerable flexibility and was highly relevant to the needs and priorities of the country. Specifically, the objectives of the Bank's strategy were to secure stable macroeconomic management and thus to strengthen Poland's creditworthiness; to support enterprise reform, restructuring and privatization, and private sector growth; to upgrade the physical and financial infrastructure in support of a market econ- omy, including modernization and eventual privatization of the banking sys- tem; to protect the environment; and to strengthen the country's social safety net. After the first few years, implementation difficulties began to emerge, especially with credit-line projects. Some projects were too large and compli- cated, institution building lagged in some sectors, loan documents failed to specify conditions clearly enough, and the changing social and political situa- tion, especially the many changes in government, further impeded implemen- tation. And after the first few years, the attention of some managers and senior staff shifted from Poland to other countries in the region. Overall, however, tangible progress was achieved on most of the Bank's early objectives, and nearly all the sectors in which the Bank has been involved have benefited from its advice and intellectual contributions-perhaps more so than from its tradi- Tangible tional lending operations. Outcome progress has Tangible progress has been achieved on most of the Bank's early objectives. been achieved Poland has made great strides toward macroeconomic stability (Table 5.1). Bank on most of the support was pivotal in securing exceptional levels of debt reduction and in restoring creditworthiness. Private sector growth has been spectacular, Bank's early although it originated more from the spontaneous establishment of new firms objectives than from the hoped-for restructuring and privatization of state-owned enter- prises. Thanks to early and careful planning and to remarkable staff continuity, the Bank has been instrumental in assisting to upgrade the country's infrastruc- ture in power, transport, and telecommunications. Financial sector reforms are under way. Environmental issues have been addressed decisively in most sec- tors. In the social sectors the Bank warned early on about many of the worri- some problems now facing the country, such as the explosion of pension funds, but the government did not fully address these issues owing to their political sensitivity. However, intensive ongoing dialogue on public sector reforms, decentralization, education, health, and other social policies are expected to yield positive results in the near future. Nearly all the sectors in which the Bank was involved have benefited from its advice and intellectual contributions. In transport and power the Bank helped to introduce new ideas, technology, and production methods, as well as open 110 111 TABLE 5.1: POLAND: ECONOMIC RECOVERY 1990 1991 1992 1993 1994 1995 1996 GDP growth (% per year) -11.6 -7.0 2.6 3.8 5.2 7.0 6.2 (est.) Real sector activity Industrial production index 91.7 80.8 83.9 89.2 100 109.4 119.2 (July) (1994=100) Employment Unemployment rate (%) 6.5 12.2 14.3 16.4 16.0 14.9 13.2 (Nov.) Prices and wages CPI inflation (% per year) 585.8 70.3 43.0 35.3 32.2 27.8 19.7 (est.) Real wages index 105.6 105.3 102.5 99.5 100 104.5 110.9 (July) (1994=100) Unit labor costs in $ index 54.8 100 117.1 150.0 182.6 221.0 (1991=100) External accounts ($ million) Exports of goods 10,863 12,760 13,997 13,585 16,950 22,878 24,692 (est.) Imports of goods 8,649 12,709 13,485 15,878 17,786 24,705 31,992 (est.) Trade balance a 2,214 51 512 -2,293 -836 -1,827 -7,300 (est.) Current account balance 716 -1,359 -270 -2,287 -944 5,455 -524 (est.) Foreign direct investment (net) 11 117 284 580 542 1,134 2,138 (est.) Change in official reserves -2,177 866 -473 6 -1,748 -8,935 -3,070 Change in international -4,942 995 -1,614.5 -634 -2,534 -9,147 1,231 reserves (- increase) Real effective exchange rate 100.0 155.7 166.0 178.6 180.0 193.2 189.5 (1990=100) a. Current account balance in 1995 and 1996 includes $7,754 million and $7,153 million respectively of estimated net unrecorded trade (before included in short-term capital). Source: Bank staff and National Bank of Poland estimates. the door for private sector participation. For example, the privatization of bus and truck transport was well supported by the Bank, though without a direct financing program. In agriculture the Bank's leadership helped to coordinate the efforts of different donors. Together with the IFC, the Bank helped to set up twinning arrangements that proved valuable in modernizing several Polish banks; bad loans have declined sharply. Cutting across sectors, the Bank's involvement has helped put in place good management practices, transparent public procurement procedures, and strong environmental protection mea- sures. Bank research and economic and sector work, complemented by the dis- semination activities of the Economic Development Institute, have been influen- tial in bringing about a better understanding and acceptance of Poland's market-oriented policies. On balance, Poland's transition performance has been excellent both in compar- ison with other transition economies and in its own right. Among the key indi- cators reflecting this remarkable performance are that Poland has experienced the highest average GDP growth rate in the period 1990-95 compared with other transition economies, and by mid-1995 its private sector activity accounted for 60 percent of GDP (see Table 5.2). Also, in 1996 Poland became a member of OECD, and its prospects for early accession into the European Union are good. In EBRD's 1995 Transition Report (EBRD 1995), Poland ranked among the top performers in an analysis of the progress of transition economies, in par- ticular in the areas of small-scale privatization, trade and foreign exchange 112 reforms, and on setting up a regulatory environment conducive to private investment (see Table 5.3). On the other hand, inflation and unemployment remain high. While poverty also remains relatively high, it should be noted that it is declining, and that the majority of poverty in Poland is classified as "shallow," and is therefore expected to improve substantially with sustained economic growth. In many areas, Those achievements are remarkable, even if they fall short of the Bank's original there is still an expectations. In many areas, however, there is still an unfinished agenda of unfinished important reforms that must be carried out to ensure the sustainability of Poland's transformation: agenda of important * The restructuring and privatization of unprofitable state enterprises and state-owned commercial banks need to be accelerated (public enterprises reforms still account for three fifths of industrial employment). Heavy industry (coal, steel, oil and gas) needs particular attention. So do the large state-owned spe- cialized banks (housing, rural finance), which account for one third of the assets and liabilities of the banking system, are in precarious financial shape, and impose a heavy burden on the budget. * Reform of the social safety net is another urgent task. Programs should be targeted to the most needy and should address the special problems of women and children. Failure to reform the pension system will lead to unmanageable public sector deficits. The legal foundations for a smooth-working market economy need to be strengthened by implementing the unfinished agenda: enforcing the collat- eral law and registry of liens, regulating leasing activities, strengthening bank supervision, and developing more fully the institutions of capitalism and commercial law to facilitate private investment in infrastructure and the development of capital markets more generally. * Agriculture needs to be modernized and opened up more to market forces, not only to permit its fuller development, but also to begin to meet the requirements of eventual accession to the European Union. * Critical reforms, including a regulatory regime aimed at encouraging private investment, need to be completed in railroads, motorways, energy, and tele- communications. Assessment of Bank assistancel Overall, the Bank's strategy was highly relevant to support Poland's needs at a most critical time in its history. The efficacy of the Bank's support varied over time and among sectors. It was perhaps high in the case of adjustment loans that dealt with the central authorities and in loans to strong, highly technical sectors. On the other hand, in those sectors that were more subject to frequent political changes, a stronger Bank presence could have yielded better results. On balance, however, the efficacy of the Bank's assistance is rated as satisfactory. When com- pared with other comparable borrower countries in the ECA Region and else- where, the Bank carried out its assistance program at a relative high cost in terms of staff and financial resources; its efficiency can, at best, only be rated as marginally satisfactory. But, in assessing the Bank's and the borrower's performance, it is necessary to keep in mind that this was a completely new, unprecedented experience for both. And although mistakes were made on all sides, the overall TABLE 5.2: MACROECONOMIC PERFORMANCE: INDICATORS FOR SELECTED TRANSITION COUNTRIES Gross domestic product Balance of Reserves Labor Export Government payments Gross Dollar Unit Po?verty value Inflation finance Current international wage in labor cost Foreign Headcount Average (average Consumer Overall account reserves industry in industry direct index annual % annual % prices surplus/deficit balance months of import Unemployment (average % in $ (average investment (% of growth growth) (% change) (% of GDP) (% of GDP) coverage) (%) change) % change) ($ million) Country population) 1990-95 1990-95 1995 1995 1993-95 1993-95 1993 1994 in 1994 1994 Poland 24 b 2.4 9.2 27.8 -1.8 -4.4 3.2 16.4 11 -6.3 542 Czech Republic - -2.6 - 9.1 0.6 -0.4 4.6 3.5 17.8 13.1 850 Estonia 8.9 c -9.2 57.9 28.8 -0.8 -2.9 2.8 1.9 a - - 253 FYR Macedonia - - 4 16 -1.1 - - - - - 5 Hungary 25 b -1 3.6 28.2 -4.1 -8.9 5.6 12.1 5.2 -2.6 1,146 Latvia - -13.7 - 25 -3.4 3.5 4.3 5.8 - - 155* Moldova - - - 30.6 -5.5 - - 0.7 a - - 23* Romania 21.5 c -1.4 7.3 32 -2.6 -3.3 3.6 10.6 a 7.3 -5.3 428 Russian Federation 31 c -9.8 - 189.2 -4.8 2.1 1.9 1.1 a - - 1,000* Slovak Republic - -2.8 - 9.9 0.6 1.4 2.9 12.7 13 5.3 187 Slovenia - - 16.7 12.6 0 1.7 1.9 - - - 88 Ukraine 32 d -14.3 - 376 -4.7 - - - - - 91 Note: * = 1994 estimated; a = Official unemployment rate. (registered unemployment only); b = survey year 1993; c = survey year 1994; d = survey year 1995; - =not available. Source: United Nations 1997, EBRD 1995, and World Bank 1997. TABLE 5.3: PROGRESS IN TRANSITION: RATINGS FOR SELECTED COUNTRIES Financial institutions Legal reform Private sector Markets and trade Banking Securities Extensiveness % share Enterprises Trade and reform and markets and and effectiveness of of GDP, Large-scale Small-scale Enterprise Price foreign exchange Competition interest rate non-bankfinancial legal rules Country mid-1995 privatization privatization restructuring liberalization system policy liberalization institutions on investment Poland 60 3 4* 3 3 4* 3 3 3 4 Czech Republic 70 4 4* 3 3 4* 3 3 3 4 Estonia 65 4 4 3 3 4 3 3 2 3 FYR Macedonia 40 2 4 2 3 4 1 3 1 2 Hungary 60 4 4* 3 3 4* 3 3 3 4 Latvia 60 2 4 2 3 4 2 3 2 2 Moldova 30 3 3 2 3 4 2 2 2 2 Romania 40 2 3 2 3 4* 1 3 2 2 Russian Federation 55 3 4 2 3 3 2 2 2 2 Slovak Republic 60 3 4* 3 3 4* 3 3 3 3 Slovenia 45 3 4* 3 3 4* 2 3 3 3 Ukraine 35 2 2 2 3 3 2 2 2 2 Note: EBRD estimates. Except for the first column, the ratings range from I (least advanced) to 4* (most advanced). The majority of advanced industrialized economies would qualify for the 4* ratings for almost all categories. Source: EBRD 1995. 115 evaluation is that both were satisfactory. The institutional development impact of the Bank's assistance was substantial, and the sustainability of the benefits is likely. Major findings for Poland The Bank's efforts had a strong impact in many ways in the important area of The Bank had a institution building. Public sector management practices, such as procurement, prioritization of public expenditures, foreign-debt management, and opening strong impact in up to private sector participation in transport, clearly benefited from the Bank's many ways in involvement. The modernization of commercial banks also reflects successful Bank support for institutional development. But progress has been disappoint- the important ing in other areas of institution building, such as ending the dependence of area major enterprises on fiscal subsidies, bringing down inflation, rationalizing the Of management of specialized banks, and sustaining the pace of privatization. institution Despite a generally positive outcome in many areas, several factors diminished building the efficacy of the Bank's assistance. During 1989-91, the Bank clearly established support to the unprecedented reforms through high levels of lending as the main objective for the Poland assistance strategy. Initially, the only available opera- tions were credit lines that had been previously appraised and set aside. These were quickly approved, without due consideration to their adequacy as a vehicle for resource transfer under the complex change of circumstances. As some had predicted, the credit lines failed to achieve their objectives, and became in the end a major hindrance to Bank-Poland relations. At the same time, several other projects were developed, addressing more directly the difficult problems of the transition in several areas. With all the difficulties connected to designing policy changes in this unprecedented environment, it is here that the Bank gave its best contribution to Poland's agenda. Other problems during the early period of assistance included the frequent changes in government and in government commitment to reform, creating bureaucratic gridlock and disrupting policy dia- logue and program implementation. Competition to lend to Poland from several donors, some with different policy objectives, reduced Poland's receptivity to Bank advice. And changing priorities within the Bank sometimes resulted in less continuity and sustainability of effort than were needed to carry out the ambi- tious reform agenda. Partly as a result of these problems, the cost effectiveness of the Bank's country assistance program was relatively low. The difficulties were aggravated by the lack of flexible instruments for assis- tance. Early pressure to lend resulted in poor quality at entry for many projects, notably those that relied on credit lines for disbursement. Loan conditionality was not always clearly spelled out, in part because the Bank's lawyers were not involved at the project design stage. The Bank's heavy reliance on quick-dis- bursing adjustment loans (55 percent of disbursements in fiscal 1990-96) limited its ability to influence sector policies and institution building at the project level. The problem was compounded by excessive Bank centralization of decision- making, by ambiguity in the conditionality of certain loans, by weak enforce- ment of conditionality, and by loan cancellations before all conditions had been carried out. Inadequate coordination with other donors also weakened policy reforms and contributed to wasted technical assistance funds. There is clearly a useful role for the Bank in helping Poland address much of its unfinished agenda. But Poland's transformation has come a long way, and its need for Bank assistance is much less than it was. It has abundant foreign exchange, first-class development experts of international caliber, and easy access to international capital markets and to European financial institutions, which are 116 eager to provide technical and financial assistance. The Bank, on the other hand, must take the needs of its other member countries-many of them in the ECA Region-into account as well, particularly the countries that are just beginning the transformation process and for which Bank help is vital. Therefore, in formu- lating the Bank's role in Poland, selectivity should be the guiding principle. The focus of The focus of future Bank assistance should be policy formulation and institution building rather than the transfer of resources. Assistance could still be directed future Bank toward sectors such as transport, energy, and telecommunications, provided assistanceshould that there is a full commitment to carry out the remaining reforms and to open up the sectors to private participation. In agriculture and the social sectors a pre- be policy condition for additional Bank support should be an unequivocal commitment formation and to needed reforms by all the ministries involved. More generally, the Bank's fJ emphasis should be on encouraging private sector participation, cofinancing institution with other international financial institutions, and cooperating closely with the building IFC. It is also important not to neglect the monitoring of macroeconomic and fis- cal management, particularly in the absence of any IMF conditional assistance programs. Conventional medium-term creditworthiness analysis should con- tinue, notwithstanding Poland's comfortable foreign-exchange position. If it is decided that future Bank assistance should consist largely of nonlending ser- vices, such as special studies, technical assistance, or guarantee arrangements for private sector investment, the Bank could consider charging Poland for the cost of such services. Findings for transition countries The Bank's experience in Poland also has implications for its assistance pro- grams in other transition countries. Strategy * The Bank needs flexible instruments to support a government's reform pro- gram other than through rapid approval of new loans. In Poland, although the Bank's loan disbursements helped to strengthen the country's external position in the early years, its technical inputs, advice, and intellectual sup- port were more valuable than its financial assistance. The Bank provided valuable support for Poland's home-grown reform program through advice, technical backing, dissemination of market-oriented ideas, and endorsement of Poland's debt relief proposals to other creditors. * Relatedly, staff should not be pressured to rush projects to the Board for approval when that means sacrificing quality at entry. The first two years of lending to Poland were more intensive than expected. The last strategy paper (1987) prior to the onset of lending in 1990 had proposed a small trial portfolio. When instructed to prepare a portfolio much larger than antici- pated, the country team did not have the time to fully prepare new projects or to modify existing project proposals to suit the new environment. * The Bank's budget allocation for work on individual countries should not be rigidly linked to the amount of its lending there, to avoid building in per- verse incentives for lending. * Frequent monitoring and self-evaluation of progress on meeting strategy objectives are essential. Completion reports should be prepared without delay, so as not to miss opportunities of learning from experience. 117 Design * Major stakeholders should participate fully in project design, and the Bank should ensure that there is consensus and ownership within the government at early stages of project preparation. In some loans to Poland, loan docu- ments failed to spell out clearly what actions the borrower was required to take, relying instead on general understandings reached with officials who Risk analysis and were no longer in office. flexibilyshould flexibility should * In a fast changing and uncertain environment, Bank staff should be ready to be built into modify projects as the environment changes. Risk analysis and flexibility should be built into project design. Similarly, projects should allow for easy project design... changes in implementation in light of new developments. allowing for easy * Project design should incorporate gender and poverty targeting whenever changes in feasible. In the case of Poland's Structural Adjustment Loan some of the Bank's executive directors expressed concern that its conditionality was too general, particularly on subsidy reductions and the pace of privatization. Although they strongly endorsed the loan, their concern proved warranted since subsidy reductions remained a sticking point and privatization pro- ceeded more slowly than anticipated. Similarly, some executive directors called for more decisive action to protect vulnerable groups during stabiliza- tion. Again, more could have been done. When subsidies were reduced and state enterprises cut back on free social services, the cost of living rose and real wages fell sharply. Women suffered a dual blow from the loss of daycare facilities and higher than average unemployment. * Loans such as the SAL can be an important vehicle for Bank-government dia- logue on issues such as environmental management. By including condition- ality on environmental policy, Poland's SAL helped bring environmental issues to the center of Bank-government economic dialogue. * The need for flexibility in an uncertain environment makes it risky to start projects that are difficult to modify as the environment changes. Small, sim- ple projects are better than complex projects involving several implementa- tion agencies. Implementation and resident missions * The Bank should make sure that sufficient staff are committed to ensure suc- cessful implementation. If the project is pursuing difficult policy changes, the Bank should be prepared to station seasoned staff members in the field until the project is well under way. * High staff turnover may disrupt the continuity of projects and lead to a loss of institutional memory. Continuity of project staff is particularly important when there are frequent changes on the borrower's side. * Implementation decisions should be delegated as much as possible to the staff who are working on the ground, subject to clearly formulated project objectives and monitorable indicators of performance. Institutional and legal issues * The Bank should give early attention to the creation of a legal and institu- tional framework for a market economy. Legal experts should be involved early and more fully in program design, playing a substantive role. TABLE 5.4: SUMMARY OF STRENGTHS AND WEAKNESSES OF THE BANK'S COUNTRY ASSISTANCE TO POLAND Strengths Weaknesses Design of strategy The Bank provided timely help with substantial commitments Bank commitment to Poland grew partly in reaction to increasing ($2.6 billion) to support reform; it has recently decided to be pressure and limelight, but fell away with diminishing pressure more selective. and limelight. Aid coordination The Bank's endorsement of and active participation in reforms The deluge of donor assistance in Poland was not well mobilized others to get involved in Poland. coordinated, putting a strain on the absorptive capacity of the Polish government. The Bank was involved in all key areas of reform. The Bank's ambitious program should have been backed up with larger administrative resources. There was also sometimes a lack of the big strategy picture in project dialogue. The Bank was instrumental in bringing about renegotiation of Since creditworthiness has been restored in Poland, there is a dan- Poland's debt and reestablishment of creditworthiness. ger that the Bank has become complacent in monitoring this important concern. Implementation The Bank recently restructured its portfolio in Poland to increase The Bank was too slow in restructuring poorly performing its relevance to assistance needs in Poland and weed out the poor projects. Many of the Bank's activities have been dropped. performers. Bank strategy papers were sufficiently broad to allow the Bank There is a lack of continuity among strategy papers, making it dif- flexibility in its program. The quality of the 1994 strategy paper ficult to monitor the Bank's evolving strategy and progress in was notably better than that of its predecessors, perhaps reflecting achieving program goals. Strategy papers did not give sufficient that strategy papers are now reviewed by the Board. guidance on how to implement the proposed strategies. The Bank resident mission played an important role in project The resident mission is insufficiently staffed. Need staff in the field identification, preparation, and implementation. who can handle frequent implementation obstacles: disburse- ments, and legal and procurement issues. Staff in the field should have sufficient autonomy to resolve issues and speak for the Bank. Need more resources in resident mission to facilitate effective dis- semination of reports and conduct public relations work. Economic and sector work Bank economic and sector work was an important input into the The findings of economic and sector reports were not always formulation of a number of sector reform strategies in Poland and incorporated into the country policy dialogue or into Bank opera- helped fill the Bank's own information gap. The strategy invest- tions. ESW was relatively costly, with poor utilization and dissem- ment review, poverty assessment, social expenditure review, and ination of results. A notable omission was an early and compre- studies on reorienting investments in human capital and Poland hensive review of the financial sector. at the crossroads are some examples of best practices. The Bank correctly emphasized the importance of building insti- In some cases the Bank went ahead with project implementation tutional capacity before implementing projects. before institutional capacities were adequate to facilitate effective implementation. The Bank offered many creative solutions to problems Sometimes the Bank was too doctrinaire in offering solutions, facing Poland. applying solutions without sufficiently taking into account local conditions. In the early period the Bank's work was made easier by high-level In not all cases was it most effective, or most appropriate, to con- dialogue. duct dialogue with high-level officials. The Bank was able to influence policy and encourage macroeco- The Bank has lost a lot of leverage in recent years, because of the nomic discipline, and tough but necessary reforms through policy increasing volumes of alternative assistance now available from based lending. EDI produced important research inputs. other donors, the changing composition of the Bank's portfolio away from policy-based lending, and the growing independence of the Polish government in its dialogue with the Bank. Supervision Bank supervision was intensive In recent years supervision has been less intensive, reflecting a at the beginning of the lending program. shift of Bank interests and resources away from Poland. The Bank has been slow to produce completion reports, thereby not system- atically learning from its mistakes. Source: World Bank data. \D 120 * Institutional development and capacity must be carefully assessed. Much of the initial lending to Poland was through financial intermediaries that were expected to onlend to beneficiaries. But the Bank did not first ascertain whether Polish banks had the institutional capacity to perform this pivotal onlending role, and subsequent developments showed that they did not. There was little if any disbursement from Bank projects involving credit lines, a consequence of lack of demand, slow and cumbersome Bank proce- dures, and emerging competition in credit lines from donors offering more flexible procedures and better terms than the Bank. Maximizing combined donor impact * Aid coordination must be monitored to ensure consistency of policy advice and to avoid duplication of effort. � Donor coordination can be crucial to success. The joint efforts of the Bank, the Fund, and other major donors were essential in putting together a debt and debt-service reduction package on Poland's massive debt to private banks, which had been in default. The Bank's support-financial and technical-for the successful London Club arrangement reached in March 1994, was piv- otal. Poland received exceptional amounts of debt relief and was able to restore its creditworthiness and access to international financial markets. Dissemination * The Bank should make a greater efforts to disseminate its studies and intel- lectual products in the client countries, including the translation into the local language of at least the summaries of its economic and sector studies. Note 1. Commenting on an earlier draft of this report, the Ministry of Finance noted that, apart from the issues dealt with above, the report accurately analyzes the successes and failures in the cooperation of the World Bank and Poland, although in several parts it ex- cessively points out the causative role of the World Bank. The ministry went on to note that in the process of transforming the Polish economy, the Bank has played a very im- portant role, among other things by supporting the reconstruction of the institutional sys- tem. But in most cases the Bank's actions supplemented and authenticated the economic programs already taken up and being carried out by Polish authorities. POLAND COUNTRY ASSISTANCE REVIEW Annexes 1. Poland at a glance 122 2. The Bank's loan portfolio to Poland 125 121 122 POLAND AT A GLANCE Poverty and social Europe and Lower- Central middle- Development diamond Poland Asia income Population mid-1995 (millions) 38.6 488 1,154 GNP per capita 1995 (US$) 2,800 2,240 1,700 G \ GNP 1995 (billions US$) 108.3 1,093 1,962 Pe, p rapita ~~~~enrollment Average annual growth, 1990-95 Population (%) 0.3 0.4 1.4 Labor force (%) 0.8 0.6 1.7 Acess to safe water - Poland Lower--niddle-income group Most recent estimate (latest year available since 1989) Poverty: headcount index (% of population) 24 - - Urban population (% of total population) 61.8 65 56 Life expectancy at birth (years) 72 68 67 Infant mortality (per 1,000 live births) 13.6 23 36 Child malnutrition (% of children under 5) - - - Access to safe water (% of population) 100 - 73 Illiteracy (% of population age 15+) - - - Gross primary enrollment 99 97 104 (% of school-age population) Male 98 97 105 Female 97 97 101 Key economic ratios and long-term trends 1985 1994 1995 Economic ratios* GDP (billions US$) 71.1 92.6 117.7 Opennessofe-nomy Gross domestic investment/GDP 27.7 15.9 17.0 Exports of goods and non-factor services/ 18.2 24.0 27.9 GDP Gross domestic savings/GDP 29.0 16.9 18.6 Saing_ Investment Gross national savings/GDP 26.5 16.7 18.2 Current account balance/GDP -1.7 -1.0 -1.8 Interest payments/GDP 2.1 1.9 1.0 P ndebtedness Total debt/GDP 46.9 46.1 37.5 - ePoland - Lower-rniddle-mDinrne group Total debt service/exports 17.1 15.8 6.3 Present value of debt/GDP - 38.4 - Present value of debt/exports - 179.6 - Average annual growth 1985-95 1994 1995 1996-04 GDP 1.1 5.2 7.0 4.7 GNP per capita 1.2 3.6 8.3 4.1 Exports of goods and nfs 7.4 13.1 25.8 9.2 123 (Poland at a glance continued) Structure of the economy % of GDP 1985 1994 1995 Growth rates of output and Agriculture 14.5 7.0 7.3 investment Industry 51.0 42.6 44.0 30 Manufacturing - 36.2 37.6 Services 34.4 50.3 48.7 15 0 Private consumption 61.8 64.3 63.2 -15 91 93 94 95 General government consumption 9.2 18.8 18.2 Imports of goods and non-factor services 16.9 23.0 26.3 -30G Average annual growth 1985-95 1994 1995 - GDI GDP Agriculture -3.2 -15.1 11.6 Industry -4.5 8.8 11.1 Manufacturing - 10.3 12.0 Growth rates of exports and Services 7.5 5.1 1.5 imports (%) 30 Private consumption 2.9 3.8 4.5 20 General government consumption 2.5 2.8 3.0 Ai Gross domestic investment -3.9 9.0 18.5 - 13.1 25.8 -o Imports of goods and non-factor services 7.9 11.3 26.5 \9 91 92 93 94 9s Gross national product 1.5 5.4 8.3 -Expos pos Prices and government finance 1975 1985 1994 1995 Domestic prices (% change) Inflation (%) Consumer prices 2.3 11.5 32.2 27.8 60 Implicit GDP deflator - 16.7 28.4 27.0 400 Government finance (% of GDP) Current revenue - - 47.8 46.6 Mc Current budget balance - - -0.2 0.0 Overall surplus/deficit - - -2.2 -1.8 90 91 92 93 94 95 Trade -GDP defidt CPT Millions $ 1985 1994 1995 Total exports (fob) - 17,047 22,895- Export and import levels ($ nillion) Other metals - 1,057 - Other metals - 267 - 30,000 Manufactures - 11,695 15,879 Total imports (cif) - 21,569 28,050 20,000 Food - 1,876 2,338 Fuel and energy - 2,263 2,662 10,000 Capital goods - 6,226 8,688 89 90 91 92 93 94 95 Export price index (1990=100) - 109 106 1 Er Imports Import price index (1990=100) - 124 118 Terms of trade (1990=100) - 103 105 (continued on next page) 124 (Poland at a glance conitinued) Balance of payments Millions $ 1985 1994 1995 Exports of goods and non-factor services 5,677 19,050 26,068 Imports of goods and non-factor services 4,615 19,829 27,745 Resource balance 569 -779 -1,677 Current account balance to GDP ratio (%) Net factor income -2,557 -2,087 -628 6 Net current transfers 778 1,816 6 4 Current account balance, 2 before official transfers -1,382 -1,835a -2,580a -2 Financing items (net) 974 1,812 10,513 4 Changes in net reserves 236 -2,534 -8,147 89 90 91 92 93 94 95 Memo Reserves including gold (millions $) 1,025 6,028 14,963 Conversion rate (local/$) 1.47E-02 2.2 2.4 External debt and resourceflows Millions $ 1975 1985 1994 1995 Total debt outstanding and disbursed 698 33,307 38,538 40,964 IBRD 0 0 1,736 - IDA 0 0 0 - Total debt service 190 2,045 3,093 - IBRD 0 0 88 - Composition of total debt, 1994 ($ million) IDA 0 0 0 - IBRD $1,736 Short term $845 IMF $1,341 Composition of net resource flows 588,789 al Official grants 0 0 1,664 - -$3,401 Official creditors -6 693 565 - Private creditors 328 -193 -636 - Foreign direct investment 0 15 1,875 - Portfolio equity 0 0 5 - $29,228 World Bank program Commitments 0 0 215 - Disbursements 0 0 672 - Principal repayments 0 0 0 - Net flows 0 0 672 - Interest payments 0 0 88 - Net transfers 0 0 585 - * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. a. Figures supplied by Ministry of Finance on April 7, 1997. Note: 1995 data are preliminary estimates. Goverrnent finance represents general government accounts. Balance-of-payments financing item includes cross border trade surplus (around $3,350 million). - not available. Source:World Bank, International Economics Department. THE BANK'S LOAN PORTFOLIO TO POLAND (as of March 1, 1997, $ million) Loan ICR Project ID number Project name Approval Effectiveness Closing Approved Disbursed Canceled Undisbursed Project status produced?a 8569 L3166 Industrial export development b 2/6/90 5/8/90 6/30/97 260.0 75.9 45.0 139.1 Active 8565 L3167 Agro-industrial exports b 2/6/90 5/7/90 12/31/94 100.0 71.6 28.4 0.0 Completed Yes 8586 L3190 Environmental management 4/24/90 7/24/90 12/31/96 18.0 18.0 0.0 0.0 Active 8567 L3193 Transport-General 5/1/90 9/11/90 12/31/96 8.0 4.7 3.3 0.0 Active 8567 L3194 Transport-Railways 5/1/90 9/11/90 12/31/96 145.0 142.2 0.0 2.8 Active 8568 L3215 Energy resource development 6/5/90 11/14/90 6/30/97 250.0 198.7 0.0 51.3 Active 8588 L3247 Structural adjustment loan I c 7/31/90 10/1/90 12/31/91 300.0 300.0 0.0 0.0 Completed Yes 8574 L3319 Telecommunications I 4/23/91 12/9/91 6/30/97 120.0 81.4 25.0 13.6 Active 8582 L3338 Employment promotion 6/4/91 9/30/91 12/31/97 100.0 26.1 20.0 53.9 Active 8564 L3343 Agricultural developmentb 6/11/91 3/4/92 7/31/95 100.0 25.2 74.8 0.0 Fully disbursed Yes 8571 L3342 Privatization and restructuring b 6/11/91 11/7/91 6/30/98 280.0 143.9 47.3 88.8 Active 8585 L3341 Financial institutions development c 6/11/91 1/14/92 6/30/98 200.0 178.5 0.0 21.5 Active 8576 L3377 Energy sector adjustment loan 6/26/91 5/21/92 3/31/94 75.0 37.5 37.5 0.0 Fully disbursed No 8576 L3378 Heat supply restructuring 6/26/91 5/21/92 6/30/97 40.0 25.3 0.0 14.7 Active 8576 L3379 Heat supply restructuring 6/26/91 2/24/92 6/30/97 25.0 16.6 0.0 8.4 Active 8576 L3380 Heat supply restructuring 6/26/91 6/30/97 55.0 0.0 55.0 0.0 Canceled No 8576 L3381 Heat supply restructuring 6/26/91 2/27/92 6/30/98 25.0 19.2 0.0 5.8 Active 8576 L3382 Heat supply restructuring 6/26/91 2/19/92 6/30/97 100.0 47.5 0.0 52.5 Active 8576 L3383 Heat supply restructuring b 6/26/91 2/18/92 6/30/97 20.0 0.0 20.0 0.0 Fully disbursed No 8584 L3467 Private enterprise development b 5/7/92 12/18/92 6/30/99 60.0 2.0 58.0 0.0 Fully disbursed No 8587 L3466 Health 5/7/92 1/15/93 6/30/99 130.0 37.2 30.0 62.8 Active 8590 L3499 Housing b 6/25/92 5/6/93 12/31/98 200.0 2.5 180.0 17.5 Active 8599 L3564 Roads 3/9/93 9/30/93 6/30/99 150.0 93.9 0.0 56.1 Active 8583 L3600 Agriculture sector adjustment loan c 5/4/93 9/29/93 3/31/96 300.0 300.0 0.0 0.0 Fully disbursed No 8589 L3599 Enterprise and financial sector 5/4/93 1/6/94 6/30/96 450.0 324.9 125.1 0.0 Active adjustment loan c 8610 L3641 Forestry development 7/29/93 11/29/93 6/30/00 146.0 89.9 42.0 14.1 Active (continued on next page) Ul (continued) Loan ICR Project ID number Project name Approval Effectiveness Closing Approved Disbursed Canceled Undisbursed Project status produced?a 8609 L3804 Debt and debt service reduction c 10/25/94 11/15/94 6/30/95 170.0 170.0 0.0 0.0 Completed Yes 8614 L3809 Katowice heat supply 11/17/94 12/19/94 6/30/00 45.0 8.4 0.0 36.6 Active 8604 L3959 Power transmission 11/28/95 3/8/96 12/31/01 160.0 11.6 0.0 148.4 Active 8595 L4032 Bielsko-Biala water 6/4/96 1/16/97 6/30/03 21.1 0.0 0.0 21.1 Active 36061 L4080 Port access and management 8/1/96 12/6/96 6/30/02 67.0 0.0 0.0 67.0 Active Total 4,120.1 2,452.7 791.4 876.0 a. For fully disbursed loans. b. Policy-based loans (including hybrids). c. Includes a credit-line component. POLAND COUNTRY ASSISTANCE REVIEW References Brookings Institute. 1993. "Transforming State Enterprises in Poland: Evidence on Adjustment by Manufacturing Firms." Brookings Papers on Economic Activity, 1 (Spring):213-270. David, Henry, and Anna Titkow. 1994. "Abortion and Women's Rights in Poland, 1994." Studies in Family Planning 25(4). European Bank for Reconstruction and Development (EBRD). 1995. Transition Report 1995. London: EBRD. Fong, Monica, and Gillian Paul. 1992. "The Changing Role of Women in Employment in Eastern Europe." MENA Technical Department 8213. World Bank, Washington, DC. United Nations. 1995. The World's Women 1995: Trends and Statistics. Statistical Division. New York: United Nations. . 1997. Human Development Report 1997. New York: United Nations. US Bureau of the Census. 1995. "Women in Poland." Population Division, Inter- national Programs, WID/95-1. US Bureau of the Census, Washington, DC. World Bank. 1990. World Development Report 1990. Washington, DC: World Bank. .1994. "Poverty in Poland." Sector Report. World Bank, Washington, DC. 1997. The World Bank Annual Report 1997. Washington, DC: World Bank. 127 Supplement Introductory note 130 Management response 131 Summary of Committee on Development Effectivenss findings 135 129 Introductory note Feedback of evaluation results within the World Bank Each study by the Bank's independent Operations Evaluation Department is reviewed by the Bank's management before being discussed by a committee of the board of executive directors. Management provides a detailed re- sponse to the recommendations outlined in the study. This response is discussed by the committee and, together with a record of actions promised and taken, is recorded in a "policy ledger" accessible to all Bank staff. The Bank's executive directors have requested that all published studies by the Operations Evaluation Department include a synopsis of the management response and the committee's findings. 130 Management response The attached policy ledger does not attempt to repeat all lessons and recom- mendations in the country assistance review. Instead, it focuses on specific areas, among those identified in the CAR, where specific actions by the Re- gion can be taken, and later reassessed in the context of future Country As- sistance Strategy Papers for Poland. The review has been prepared in close consultation with the Region, and the findings and recommendations of an earlier CAR draft, dated January 27, 1997, were taken into account by the Re- gion in preparation of the CAS dated April 14, 1997. 131 POLAND COUNTRY ASSISTANCE REVIEW LEDGER OF OED RECOMMENDATIONS MANAGEMENT RESPONSES AND ACTIONS OED recommendations Management response Actions promised Contents of the Bank strategy There is clearly a useful role for the Bank in help- A more selective role for the Bank is the guiding Utilize the three criteria established in the 1997 CAS ing Poland address its unfinished agenda, but principle of the Region's CAS for Poland. Selectivity for determining content of assistance program: co- Poland's need for Bank assistance is much less will be based on explicit criteria and not by an a incidence between Bank's comparative advantage than it was. Therefore, in formulating the Bank's priori decision on the number of areas to support. and Poland's priorities; Bank participation only in future role in Poland, selectivity should be the areas where necessary to promote development of guiding principle. particular sector or issue and no other partner can more productively and efficiently achieve same ob- jectives; no explicit lending targets. Recommendations for the design of Bank strategy * The focus of future Bank assistance should be This is reflected in the 1997 CAS. No action required other than to consistently imple- policy formulation and institution building more ment an assistance program that conforms to 1997 than transfer of resources. CAS. * Assistance could be directed toward infrastruc- Fully consistent with current strategy set forth in No action required. ture sectors such as transport, energy and telecom- 1997 CAS. munications, provided that there is a full commit- ment to carry out the remaining reforms and open up the sectors to private participation. * In agriculture and the social sectors, a pre-con- In agriculture, programs to address market failure If needed reforms not implemented, assistance dition for additional Bank support should be the (i.e., wholesale markets, warehouse receipts) can be strategy will be redefined to either build consensus unequivocal commitment to needed reforms by all successfully implemented without further sector re- for reform, or if this is not feasible, resources would the ministries involved. forms. Proposed social sector program supports re- be redeployed. form agenda, and lending would be linked to re- form progress. * Bank should emphasize encouraging private Fully reflected in 1997 CAS. Monitor progress in this area over time. sector participation, cofinancing and cooperating closely with IFC. OED recommendations Management response Actions promised On economic and sector work * Bank monitoring of macroeconomic and fiscal The IMF remains actively involved in a monitoring The Bank will continue to monitor macroeco- management should continue, particularly in the and support function and continues to take the nomic and fiscal management. absence of IMF conditional assistance programs. lead in short and medium term macroeconomic Conventional medium-term creditworthiness discussions. analysis should also continue, notwithstanding Poland's comfortable foreign-exchange position. * Bank should increasingly utilize local expertise Decentralized country management effectively sup- Bank will continue to utilize local expertise in in production of ESW. ports this objective. ESW preparation. On instruments * The Bank needs flexible instruments to support The 1997 CAS recognizes the growing importance The composition of the assistance program will government reform programs other than through of non-lending services and raises the possibility of be closely monitored to ensure that Bank and conventional Bank loans. If future Bank assistance cost-sharing at some point in the futu-re. Polish cost-sharing is appropriate. to Poland should consist largely of non-lending services, such as special studies, technical assis- tance or guarantee arrangements, the Bank should consider charging Poland for the cost of providing such services. * Budget allocations for work on individual Bankwide structural changes resulting from overall In monitoring the CAS, the Region will ensure countries should not be rigidly linked to the change management initiatives provide flexibility to that resources for Poland are deployed consis- amount of lending there, to avoid building in per- redeploy resources. tently with the CAS. verse incentives to lend at the expense of non-lend- ing services. On implementation * Frequent monitoring and self-evaluation of The Region fully endorses this recommendation. ICR backlog is being cleared. progress on meeting objectives are essential. Completion reports should be prepared without excessive delay following loan closings. (4 OED recommendations Management response Actions promised * Resident mission staff should be empowered to The decentralization of Poland country manage- Effective implementation of decentralization will be make day-to-day implementation decisions with- ment should help in this regard. monitored by regional management. out the need to get prior approval from headquarters. * It would be useful to assign a procurement spe- Region will consider recommendation as it imple- No action required. cialist to the field office. ments its decentralization plan. On dissemination * With increasing emphasis on ESW, targeted dis- Region agrees on need to make ESW as effective Country director will agree with task manager and semination of reports will be essential, including as possible. Polish authorities on dissemination strategy for ma- reports translated into Polish. jor pieces of ESW. Summary of Committee on Development Effectiveness findings The Committee on Development Effectiveness (CODE) considered the Po- land Country Assistance Review on April 30, 1997, and was pleased to note that despite the challenges facing Poland, tangible progress had been achieved in most of the Bank's early objectives, and that nearly all the sectors in which the Bank has been involved have benefited from its advice and in- tellectual contributions. In discussing the negative effects of the "pressure to lend," CODE emphasized that the Bank needs flexible instruments to sup- port a government's reform program other than the rapid approval of new loans. In particular, it cited the vital importance of economic and sector work to underpin project design. CODE also stressed the critical need for donor coordination and for greater focus on the Bank's comparative advantage. Al- though the primary responsibility for ensuring coherent effects of donor funds rests with the government, the Bank could play a more effective role by strengthening its presence on the ground. CODE emphasized the importance of a strong resident mission, where staff are empowered to make day-to-day implementation decisions without the need for prior approval from headquarters. It acknowledged the ongoing de- centralization of the Bank's management team for Poland, particularly the intention to place country strategy work and work programming responsi- bilities in the field. The committee urged that more attention be given to the different impacts that Poland's transition to a market economy has on men and women. Finally, it stressed that the Bank should make greater efforts to disseminate its studies and intellectual products in client countries, includ- ing the translation into the local language of at least the summaries of eco- nomic and sector studies. 135 The World Bank 1818 H Street, N.W Washington, D.C. 20433, U.S.A. Telephone: (202) 477-1234 Facsimile: (202) 477-6391 Telex: MCI 64145 WORLDBANK MCI 248423 WORLDBANK Cable Address: INTBAFRAD WASHINGTONDC World Wide Web: http://www.worldbank.org/ E-mail: books@worldbank.org = i =~~~~~~~~~~~~~~~38 9 780821 339800 Cover design by Joyce C. Petruzzell ISBN 0-8213-3980-X