CONFIDENTIAL International Bank for Reconstruction and Development International Development Association 87088 International Finance Corporation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY EDS97-57 March 6,1997 Board Meeting of March 6,1997 Statement by Eugene Miagkov El Salvador - Country Assistance Strategy 1. ยท We welcome and support this new Country Assistance Strategy for El Salvador; however we also have a couple of points which we would like to raise with the staff. Let me start by naming the reasons why we support this CAS document, and then talk about our concerns. 2. We believe this El Salvador CAS is an important and timely document. The country provides an example of the second stage of post-conflict reconstruction when the emphasis shifts from attaining peace to sustaining it and resuming stable economic development. A success in this endeavour would therefore not only mean a better future for the country in question, but also provide valuable experience -- and inspiration -- for other nations emerging from situations of conflict. 3. We also note and welcome the use of the new CAS format which makes for a better and more comprehensible document. In particular, we are pleased to remark on the efforts made by the staff to involve the government, the NGOs and other representatives of civil society, as well as various international development agencies in CAS preparation. We hope that this approach will indeed become standard practice, as was proposed at the recent review of CAS's. We would also like to get a clearer indication of whether there are disagreements between the Bank and the Government on any of the issues pertaining to this country assistance strategy, or whether the fact that no such disagreements are mentioned in the document means that none exist. 4. The document presents a well-balanced approach to development and clearly identifies the challenges facing the country in the near future. We are especially pleased to see the emphasis put on social development and poverty alleviation based on improved access to key social services. Such an approach is not only appealing from the humanitarian perspective, but also improves the chances of sustainable growth, both from the political and human capital point of view. 5. Another commendable aspect of the CAS under consideration is its continuity. We are pleased to find such a high success rate of projects already under implementation and hope that this is an indication of future performance. This document has a restricted distribution and may be used by recipients only in the perfonnance of their official duties. It should not be distributed without the consent of the Executive Director concerned. 2 6. There are two general concerns we would like to raise with respect to this document. First, the report indicates that the Government has not yet achieved internal consensus on many important issues such as, for example, the appropriate way to tackle rural poverty or priorities for health and education sectors. A separate concern, as indicated in the section dealing with risks, is that even when this consensus is achieved, it might not be shared by the society at large. Furthermore, we agree with the paper that implementation of the proposed projects is key, but such practical issues are not being considered at this stage, not least because due to budget cuts LAC staff are not able to work on any projects beyond this fiscal year. We hope these issues will be resolved in the near future in close collaboration between the Bank and the Government of El Salvador. 7. Second, the report includes a candid assessment of the country's economic prospects in the context of global and regional development. In particular, there is a discussion of the effects ofNAFTA expansion on El Salvador and growing competition for foreign investment. Given the analysis in the paper, perhaps the Bank Group should do more to counteract the unfavourable trend and help avoid El Salvador's marginalization by offering it a few investment projects. While proposed investments in information and knowledge are important to the country's future competitiveness, more tangible investments in productive sectors are also needed. Such well selected projects-- carried out by the Bank or by the IFC --could both help expand the country's export base and play a catalytic role in attracting private foreign investment. From the Bank's point of view, this would mean exercising its comparative advantage in paving the road for subsequent private sector-lead growth. 8. In conclusion, let me reiterate our support for this Country Assistance Strategy and wish the people ofEl Salvador every success in achieving its objectives.