January 2003 0 'A J l I4z Ts - '-a- - h____~~;. '______ b OPERATIONS EVALUATION DEPARTMENT ENHANCING DEVELOPMENT EFFECTIVENESS THROUGH EXCELLENCEAND INDEPENDENCE IN EVALUATION The Operations Evaluation Department (OED) is an independent Ulilt within the Worlcl Bank, It reports diretly' to the Bank's Board of Executive Directors OED assesses what works, and whiat does not, how a borrower plans to run andc maintain a project; ancl the lasting contrilbution of the Bank tO a country's overall development 'I'he goals of evaluatoio are to learn from experience, to provide an objective basis for assessing the results of the Bank's work, and tO provide accountability in the achievemenit of its objectives It also Impro'ves Bank work by identifying and disseminiatinig the lessons learned from experience and by frammig recomimendations drawn from evaluation findings WORLD BANK OPERATIONS EVALUATION DEPARTMENT IED Assisting Russia s Transition An Unprecedented Challenge Gianni Zanini 2002 THE WORLD BANK D h ttp://vwwv.worldlbaiik.oi-g/oed Was h ingto n, D .C. © 2003 The International Bank for Reconstruction and Development / I'he World Bank 1818 H Street, NW Washington, DC 20433 All nghts reserved Manufacturecl in the United States of America First printing December 2002 1 2 3 4 03 02 The findings, interpretations, and conclusions expressed here are those of the author(s) and do not necessanly reflect the views of the Board of Executive Directors of the World Bank or the governments they represent Thc World Bank cannot guarantee the accuracy of the data included in this work Thc bounclaries, colors, denominations, and other information shown on any map in the work do not imply on the part of the World Bank any ludgment of the legal status of any territory or the endoresement or acceptance of such boundancs Rights and Permissions The matenal in this publication is copynghted No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or inclusion in any information storage and retneval system, without the pnor written permission of the World Bank The World Bank encourages dissemination of its work and will normally grant permission promptly For permission to plhotocopy or reprint, please send a request wvith complete information to the Copynght Clearance Center, Inc,222 Rosewood Dnve, Danvers MA 01923, USA, telephone 978-750-8400, fax 978-750-4470, wwwcopynght com All other quenes on nghts and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818 H Street NW Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights@worldbank org Cover photo By Peter Turnley/CORBIS Three Miners in the Bolshevik Coal Mine, Sibena ISBN 0-8213-5382-9 library of Congress Caraloging-in-Publication data has been applied for * Printed on Recycled Paper Contents vii Acknowledgments ix Executive Summary ix Executive Summary ix Pe3tOMe xxi Resume analytique xxi Resumen Ejecutivo xxxi Abbreviations and Acronyms I 1. Russia's Transition: From Plan to Market 1 An Extraordinary Challenge 2 Institutional, Economic, and Social Performance 4 Recent Achievements 5 2. The Evolution of Bank Group Assistance 5 The Bank's Goals 5 Early Phases 7 The "Renewed Lending" Phase 8 The "Crisis and Recovery" Phase 11 3. Bank Products and Services 11 Analytical and Advisory Services 13 Bank Lending Trends 13 Closed Project Performance 14 IFC and MIGA Interventions 15 Portfolio Management 16 Project Implementation Units (PlUs) 17 Cost-Effectiveness 18 Decentralization of Bank Operations 19 4. Development Impact 19 Private Sector Development 21 Financial Sector Development RUSSIAN FEDERATION 22 Public Sector Management and Financial Accountability 23 Social Protection 24 Energy Sector 25 Overall Impact of Bank Assistance 27 5. Contributions to Effectiveness of Bank Assistance 33 6. Lessons Learned and Recommendations 33 Key Development Challenges 33 Lessons Learned 34 Recommendations 37 Annexes 39 1 A Thematic Overview of Russia's Transition Challenges 49 2. A Chronological Overview of Russia's Transition Challenges 51 3. Evaluating Bank Assistance to the Transport Sector 53 4 Evaluating Bank Assistance to the Agriculture Sector 55 5: 1997 and 1999 CAS Objectives and Outcomes 57 6. Bank Performance in Sectoral Development 59 7: Discussion of Other Counterfactuals 61 8 Bank Management Views 63 9: Russia IFC Country Impact Review 69 10 Views of External Advisers and Others 75 11 Russian Federation Government Views 83 12 MIGAs Activities in Russia 85 13: The World Bank Institute's Activities in Russia 87 14: Russia's Chamber of Accounts' Views of World Bank-Funded Projects 89 15 Lessons from External Evaluations 91 16: Guide to OED's Country Evaluation Rating Methodology 95 17 Background Papers Prepared for the Russia CAE 97 18: Report from the Committee on Development Effectiveness (CODE) 101 19: Reference Tables 125 Endnotes 131 Bibliography Text Figures 6 2 1 World Bank Gross Commitments, Disbursements, and Net Transfers 13 3 1 Sectoral Composition of New Lending Text Tables 3 1.1 Selected Macroeconomic Indicators (1990-01) 9 2.1 World Bank Commitments (UJS$ million) 14 3 1 OED Evaluation Ratings of Bank Prolects Text Boxes 12 3.1 Good Analytical and Advisory Services 15 3 2 IFC Country Program Strengths and Weaknesses 16 3 3 Coal Sector Restructuring-Best Practice Bank-Supported Prolect 17 3 4 Selected Government Officials' Views of Portfolio Management 20 4.1 Trucking Privatization A Bank Group Success (FY93-94) 21 4.2 Boosting Russia's Comparative Advantage in Space Technology Iv CONTENTS 24 4 3 Bank Assistance for Gender Equality 29 5 1 External Views of Bank Performance Annex Tables 42 A.1 Selected Fiscal Indicators (1992-01) 64 A.2 Summary of the IFC's Strategic Priorities and Results 102 A 3 Russian Federation at a Glance 104 A.4 International Development Goals 105 A.5 IBRD OED Summary Ratings, FY95-0] 106 A 6 Evaluation Ratings of Closed IBRD Projects, 1995-01 107 A.7 1 Bank-GEF Loans, Guarantees, and Grants by Fiscal Year, 1992-01 109 A 7.2 Bank-GEF Loans, Guarantees, and Grants by Sector, Fiscal Year 1991-01 111 A 8 Recipient-Executed Grants (excluding GEF Grants and Special Initiative), as of November 1, 2001 112 A.9 IBRD Lending to Russian Federation (Exit/Approval FY92-01), as of August 31, 2001 114 A 10 Russian Federation-World Bank Economic ancl Sector Work and Research Papers since FY90, by Sector, Disclosecl 118 A 11 Assistance Program Annual Cost, FY92-01 ($'000) 119 A 12 Assistance Program Cost Effectiveness, FY92-96 and FY97-01 120 A.13 Russian Federation-IBRD Portfolio Performance Indicators, FY93-01 121 A 14 Russian Federation-IBRD Senior Management since Calendar Year 1991 122 A 15 International Finance Corporation 123 A.16 MIGA Guarantees Issued in the Russian Federation, FY92-01 Annex Figure 65 A 1 Russia InstItutional Investor Country Creclit Rating (IICCR) and IFC Net Approvals Acknowledgments T his Country Assistance Evaluation (CAE) from three angles The products ancl services di- assesses the development effectiveness mension applies evaluation criteria to major of the World Bank's lencling and non- Bank activities (strategic and policy advice, eco- lending assistance to the Russian Federation nomic and sector work, lending ancl resource since 1991, a 10-year period of tumultuous po- mobilization, anci aicd coordination) and OEG litical, economic, and social change The review ancl OEU criteria to the IFC and MIGA interven- focuses on four areas central to the transition tions. The development impact dimension as- agenda and to the Bank's assistance in Russia, ac- sesses the overall results of the assistance counting for more than 75 percent of the Bank's program. The attnbution dlmension relates these analytical work and lending commitments results to the performance of the Bank, the (a) public sector management, (b) private and client country, its aid partners, ancd exogenous financial sector development, (c) social protec- factors (see Annex 16) tion, and (d) energy. Sectoral reviews were con- This report was prepared by Gianni Zanini ducted by OED staff anci consultants, and by (Task Manager) Major contributors of back- experts from two Eastern European policy re- ground papers, whlich are listecl in Annex 17 and search institutes (the Institute for Economies are available online at http /Avwwworldbank.org/ in Transition, EIT, in Moscow, and the Center oed/russia_cae/ancl upon request from the OED for Economic and Social Research, in Warsaw) Working Paper Series, include Alexander Rady- The CAE also drew on project performance as- gin, Marina Kolosnitsyn-a, and Yuri Bobylev (IET, sessment reviews of individual projects Moscow), Barbara Blaszczyk, Jacek Cukrowski, The Operations Evaluation Group (OEG) of Helena Goralska, and Irena 'ITopnska (Center the International Finance Corporation (IFC) con- for Social and Economic Research, Warsaw), ductecl a parallel evaluation of IFC activities in Vinod Saghal and Deepa Chakrapani (OED, Russia, which is being issued as a separate report Worlcl Bank), Saul Estrin and Alan Bevan (Lon- (its executive summary appears as Annex 9) clon Business School), and Fred Levy, Baran The Operations Evaluation Unit (OEU) of the Tuncer, and Richard Berney (consultants, for- Multilateral Investment Guarantee Agency merly World Bank staff). Other inputs were pro- (MIGA) contributecd a review of MIGAs activities vicled by Marek Dabrowski and Jan Anthony (reproduced in Annex 12) Vincent Rostowki (CASE, Warsaw), Vladimir Mau Using OED's standard methodology, the CAE and Sergei Drobyshevsky (JET, Moscow), Vitto- assesses the effectiveness of Bank assistance rio Corbo (Pontificia Universidad Catolica de Vil ASSISTING RUSSIA'S TRANSITION Chile, Santiago, Chile), Hernan Levy (consultant), and IMF management. Bank management views and Anders Aslund (Carnegie Endowment for In- on past assistance and the CAE are reproduced ternational Peace, Washington, D.C.). in Annex 8 In July 2001, the government of the The peer reviewers and external advisers pro- Russian Federation, through the Federal Center vided extensive and substantive comments at for Project Finance, provided comments on pre- various stages of the work. The external advis- liminary drafts of the sectoral background papers ers' final views are presented in Annex 10. Peer in private and financial sector development, en- reviewers were Nick Stern (DECVP, World Bank), ergy, and social protection. Government com- Luca Barbone (ECCII), and Laurie Effron and ments on the CAE were provided in March 2002 Alice Galenson (OED, World Bank). The Panel of and have been incorporated in the report and re- Expert Advisers included Gur Ofer (NES, produced in Annex 11 The summary minutes of Moscow), Leonid Polishchuk (IRIS, University the discussion on the CAE (and on the OEG of Maryland), Wolfram Schrettl (DIW, Berlin), evaluation of IFC assistance) by representatives and Ivan Szegvari (EBRD, London) of the Bank's shareholders are reproduced in A mission led by Mr. Zanini, inclucing Ms Annex 18. Blaszczyk, Messrs. Berney, Corbo, Dabrowski, YusufAhmad provided research and data as- and Thompson, and IET experts, visited Moscow, sistance; William Hurlbut, editonal suggestions; T'ula, Tver, and Novokuznetsk in February 2001 and Roziah Baba and Norma Namisato, admin- to conduct field interviews with current and for- istrative support. mer federal, regional, and local government of- We wish to acknowledge Ruben Lamdany, ficials, policy advisers, and analysts. past manager of the Country Evaluation and Re- OED received feedback on a preliminary CAE gional Relations and Robert Picclotto, former draft from the current Russia country team in the Director-General, Operations Evaluation for their Bank Group, the Europe and Central Asia (ECA) oversight and contribution to this study Region's management, an International Monetary The study was publishecl in the Partnerships Fund (IMF) representative, and former Bank and Knowledge Group under the direction of Os- staff involved in the Russia program dunng an all- valclo Feinstein, by the Outreach and Dissemi- day discussion session held in July 2001 Formal nation team under the direction of Elizabeth comments on subsequent revised drafts were re- Campbell-Page, and includes Caroline McEuen ceived from ECA, the World Bank Institute (WBI), and Juicy Qureishi-Huq. Director-General, Operatons Evaluation Gregory K Ingram Acting Director, Operations Evaluation Department Nls Fostvedt Acting Manager, Country Evaluation and Regional Relations Rene Vandendnes Task Manager Gianni Zanmn: Vill EXECUTIVE SUMMARY Executive Pe3MoMe Summary The Country Assistance Evaluation (CAE) for OtIeHKa pe3y;JbTaToB Ae%]TeCjIHOCTH [plynfli Russia, covering the period from 1992 to 2001, showed opraHH3atHA BceMHpHoro 6aHKa B POCCHiUCKOU disappointing but improving results for the World Bank's fDejepatutH (KA3), oxBaTmieaiou.aq nepuoj activities in the Russian Federation. Although OED rated 1992-2001 rojoB, OTpaKaeT HeyTetUHTeCJbHbie, XOTS the outcome of World Bank assistance to Russia as un- H y.iymqwaIuuiecn pe3yYJbTaTbl AenTeJIbHOCTH satisfactory during 1992-98, with only a modest impact BceMHpHoro 6aHKa B POCCHUCKOii 4'eAepatUHH. on institutional development, for the period 1998-01 it AOOZ1 oIeHHBaeT pe3yJibTaTb6 COgeACTBHSI rated the outcome satisfactory and institutional devel- BceMHpHoro 6aHKa POCCHH B nepHOA 1992-1998 opment impact substantial. rOAOB KaK HeyAoBneTBOPHTenbHhie BBHAY HX The Russia CAE found that an assistance strategy CKpOMHOrO Bo3AeCCTBH5 Ha HHCTHTyttHOHaa6bHoe oriented around analytical and advisory services pa3BHTHe, B TO BpeMSI KaK aHanorWiHmbe (AAA) with limited financial support for Russia would pe3yJIbTaTbl 3a nepHOA 1998-2001 roqoB have been more appropriate than one involving large xapaKTepH3y1OTCsl KaK yqOBJ1eTBOpHTej1bHbie, volumes of adjustment lending, since such lending in Y-HTb6Blas HX 3HaqHTTeH.bHoe sBo3geHcTBHe Ha 1996-97 may have delayed rather than accelerated HHCTHTYIAHOHaJbHoe pa3BHTue. needed reforms. Disbursements should have re- B KA3 cogep)KHTCH BbiBOA 0 TOM, qTO RSi POCCUH warded actions rather than promises. In support of 6bmna 6b1 6o0iee yMeCTHa cTpaTerm% coAeHcTBH1, its overall outcome rating through June 1998, OED OPNeHTIPOBaHHas5 Ha OKa3aHtie aHaJlHTi4-eCKHX H higlilighted the large size of quick-disbur-sing and in- KOHCyjTbTaLuoHHbix ycniyr (AK,) npul orpaHwieHHOM vestment loans, including SAL III, with unsatisfactory 4CHHaHcoBoM cOAeHCTBHH, no cpaBHeHI41o co outcomes It noted that research and evaluation fincl- cTpaTeri4eH, npeAnoxiaratoieIl 3HaqI4TeJIbHbie o6-beMbl ings confirmed that large amounts of lending could KpeA14TOBaHI45 Ha CTPYKTYPHbie npeo6pa3OBaHHi4, not be relied upon to ensure country ownership HOCKOJibKy B nepiioA 1996-1997 roXoB npeAocTasne-He TaKoro poAa KpeAHToBaHHu9 cKopee A Decade of Rapid Political and Economic cAep)KHBaJiO, -LeM YCKOpsno npoBegeHHe Transformation Heo6xOAHMbLx petDopM. KpeAHTHbie cpeAcTBa AORX(Hbl When it joinec the Bank in June 1992, soon after the npegOCTasBJ1iTbC3i B o6MeH Ha geAcTBH51, a He dissolution of the Soviet Union, Russia was in the o6eumaHI41. B noATBepxKKef; declined, social services have deteriorated, and "mar- - ocna6&eHHe BJiaCTH B LeHTpan143OBaHHOH CJIO)KHOjU ket-type" social protection mechanisms have been 4,egepawbf[oA c14cTeMe. slow to develop Macroeconomic stability has been nepexoj Pocciu K pblHOYHOU 3KOHOMmKe oKa3a.nci difficult to achieve, partly because the authorities 6o0iee cnoxaibiM, ieM owKiuano MeXqyHapoiHoe lacked the instruments for indirect control of the coo6uiecTBo. B nepi4oA c Haqana gio cepeAuHbi 1990-x economy, but also because there was no consensus rOAOB cMeHsiBlliHe ,qpyr Apyra npaBHTenJbCTBa Poccmu on how to spread the costs of adjustment. Small and npHCTynHJB4 K Peanu3aLwm nporpaMM cTa6Hn4u3aqu1 u medium-size enterprise (SME) has been discouraged CTPYKTYPHbIX npeo6pa3OBaHiH npp4 cojeticTBRM by high costs of entry and of doing business, inclucl- MeXCAyHapoxHoro BanjiOTHoro 4)oH,a (MB(D) m BamKa ing weak rule of law and bureaucratic harassment. u norioiep;Ke CO CTOPOHbl MexQAyHapOXiuOrO x EXECUTIVE SUMMARY Yet, there have been no major policy rever- coo6UtecTBa. BOJ1bHiHHcTBo 3TUX nporpamm ,= sals and the economy has finally begun to re- 6b1rn4 BbionJIHeHbI JIIWb qaCTHWIHO B CB5i3H Co ;2 scover The rapicl privatization, dismantling of cna6blM IIHCTMTyqi4oHaAbHbIM [ioTeHLIHaJoM Hi controls, and price and tracle reforms carried ; HeAoCTaTOMHo1i noJITWIecKol BoJIeu. B out through the mid-1990s have made the aBrycTe 1998 rowa ocyuAeCTBJsn`1BwaLc5 yXe B process irreversible, although it is unclear T e4eeHie uejioro roRa nporpamma CTa6HnUH3auinH whether an easier transition path could have u CTpyKTypHbiX npeo6pa3o1aH4ff pyxHyna nog been found given the initial conditions ancl Bo3AeACTB1eM He6naronpH5iTHblx BHeWHIX the political realities The 1998 crisis was a turning cjaKTOpOB u HeaAeKBaTHO1 peqpopMbi 6ioAweTHo- point in Russia's transition Over the past three HanjorOBOu ccj:epbl. Pocciv o6-b5iB-a AeponJIT no years, the government has made significant progress CBOHM JRonraM, Kypc py6nJ CTanJ ntaBaioH],HM in fiscal acljustment, the incentive regime, legislation (o6ectkeH-ui13Mcb nplH 3TOM 6onee qCiM Ha 60 approvals for structural reforms, the strengthening npoi4eHToB), a o6feM nPOH3BOACT13a COKpaTHhICs9 of public institutions, and the restoration of public 6o0iee uieM Ha 5 npoixeHToB. trust in its ability to conduct policies Aicded by a HMmyuIeCTBeHHoe HepaBeHCTBO 14 HepaBeHCTBO B positive terms of trade shock ancl the effects of the YPOBHe AOXOAOB yBeluwH4J-ocb, OTraCTH B pe3yJThTaTe devaluation, growth recovered and inflation has HaqaTbix B 1980-e rogbi npeo6pa3oBaHHN, KorAa been reduced PYKOBOACTBo npeAnfpHsTH14 H BbiCUt1ie npaBHTe1bCTBeHHbie H napTHuHbie 4IMHOBiH"K HaHajnH From Investment to Adjustment Lending 6paTb noA CBOu KOHTPOnb rocyWapcTBeHHbie The Banik, the IMF, and the European Bank for Recon- npegnpmSTHfTHi H ux aKTHBb1 B paMKaX TaK Ha3bIBaeMog struction and Development (EBRD) were askecl by TCTHXUUHOU 1`pHBaTH3atmHT. OnpeAeJieHHylo pOnb B their shareholders to work together in plroviding acl- 3TOM npoL,ecce cbirpajii TaK)Ke HeKOTOpb1e vice and financial assistance to facilitate the transition oco6eHHocTH odpuHtiaJ1bHoA npHBaTH3aqtrH. The Bank was entrustecl withi the responsibility of en- MacmTa6bi 6exHocTH yBejiliHmnicb, nOKa3aTenJH couraging and overseeing structural reforms This was cotiHanb4Horo pa3BHTH4 H upa3BHTH1 JiiOACK1x pecypcoB an unprececlented challenge for the Bank since it CHH3i4JH4Cb, KaqeCTBO COt14anJbHb1X ycjiyr lacked country knowledge and historical precedent yyXYWHnIoCb, a MexaHH3MbI cotuH,anbHOA 3aUU4TbI for this type of process A series of strategy documents TpblHoqHoro THnaT pa3Bi4J3aBjcb foCTaToqHo established that, beyoncl its comlplementary assistance MeAUieHHO. AOCTH4b MaKpO3KOHOMH'leCKOU in support for IMF-funded stabilization efforts, the cTa64J1bHocTi4 6bino CnO)KHO, oTiaCTH 13-3a TO'O, 'TO Bank's focus would be on helping builcl tihe institu- y BJIaCTeu He 6buio HHCTpyMeHTOB KOCBeHHoro tions of a market economy, developing the private sec- KOHTpOJ1hI HaJ 3KOHOMUKOU, a TaKioe B CBsM3H c tor, and mitigating the social costs of the transition, To OTCYTCTBsUM coriiacutt B Bonpoce pacnpeAeneHH51 this end, the Bank commilittecd 55 loans for $12 6 bil- H3Aep)KeK CTPYKTypi-bIX npeo6pa3OBaHiH. Pa3B1THIo lion through end-FY01, of which US$7 8 billion has ManbiX H cpeAHHX ripeJgnpuiTKA (MCn) been disbursed and US$2.4 billion cancellecd Through 1-PenlTCT13OBsaH BbiCOK1e 3aTpaTbl, CB143aHHbie c FY96 lencing focused on rehabilitation and invest- BXo)KXeHHeM B pblHOK U OCytLkeCTBJieHHeM ment (with a heavy involvement in energy) There- KOMMepqecKof Ae5]TeJIbHocTH, B TOM q'Cne cna6b1A after, most lencing was cirected to acljustment npaBonOPsTnOK u 61opoKpaTwqecK14e npenoHbi. operations. Policy acivice was proviclecl through eco- TeM He MeHee, nPHHHrnHanibHOrO H3MeHeHH5h nomic and sector work, technical assistance, and de- nojiHTH'ecKoro Kypca He npOu30WJIO, H 3KoHoMiKa B sign ancl implementation of lencing operations. KOHUe KOH1oB Ha'4ana BocCTaHaBJ1HBaTbcs. At the behest of the international community, the CTpeMMTeJnbHa5i npH4BaTH3aLUv, YCTpaHeHHe CHCTeMbl Bank rushed the processing of many projects, both KoHTpoJnsT, peI)opMMbI B o6.nacT14 LteHoo6pa3oBaHHsi 14 for investment and general budget support, even TOpPOBJIH, OCymeCTBJieHHble B cepeAMHe 1990-x though the prospects for their success were highly roRoB, cieiaJuH npoiAecc HeO6paTi4MbiM, XOT5T OCTaeTC5 XI ASSISTING RUSSIA'S TRANSITION uncertain These high-risk/highi-payoff opera- HeAcHIMM, MO)KHo n1 6bino HATH 6onee a tions did not succeecd, as the Bank did not nPOCTOf nyTb nepexoxga K pbiHO'HO$ command the resources or the influence to * 3KoHOMHKe, yuHTbIBas cTapToBbie yCJIOBHs 4 overcome the unprecedented constraints n rOJlilTHeCKie peaxmrn. KpH3Hc 1998 roga described above. Results were better in oper- AiBi4 H nOBOpOTHb[M MOMeHTOM B nepexoAe ations dealing with privatization and social ' Pocciu K pbhHO4HOA 3KoHOMuKe. 3a nocnegHme protection than those dealing with stabiliza- TPH rogaa npauBTenJbCTBO Ao6nIocb tion, the financial sector, and oil restructur- CylLieCTBeHHblX ycnexOB B pecOOpMMpOBaHmm ing Bank advice and lending played a positive but 6ioKeTHo-HanIoroBof4 ccXepbI, (OpMpMpOBaHi4 marginal role in the design of policies and in their CI4CTeMbi CTHMYJIOB, 3aKOHO,qaTenbHOM OqlopmneHHH implementation until 1998. Since then, however, CTPYKTYPHbIX petpopM, yKpeniieHHI rocygapCTBeHHbX many of the lessons drawn out of Bank operations HHCTHTyToB, a TaKKe CMOrJIO BOCCTaHOBHTb Bepy and analytical advice have been put to work This o6uAecTBa B CBOIO cnoco6HocTb nIPOBOAHTb pa3YMHYiO helps explain why the sustainability ratings of Bank- noxwTrKy. E£1arogaps nOJIOXKUTeJbHOMy 3qCp4eKTy OT financed operations are higher than the outcome pe3Kiux riepemeH B o6JiaCTU TOprOBJIMI 14 AeBaJlbBauH1 ratings. Their modest but cumulative benefits, to- py6nsi BO3o6HOBMJICA pOCT 3KOHOMi4KH, a Hi4qpJiSiLH15 gether with the positive impact of Bank advice, con- cHH3Huiacb. tributed to building the foundations for Russia's recent turnaround. OT HHBeCTHIUHOHHOrO KpeqHTOBaHHJI K After the August 1998 financial crisis, both the rel- Kpe,rHTOBoaHH1o CTpyKTYPHI1X evance and efficacy of assistance improved signifi- Jpeo6pa3oBaHuu cantly The Bank has been cautious in new lending, AKLtHoHepbi BaHKa, MB4D H EBponeicKoro 6aHKa which has been focused on long-term social and in- peKOHCTPYKUuH u pa3BHTi4S (EI3PP) o6paTHnuicb c stitutional development. The continued policy dia- npOCb6oH K 3Ti{M opraHH3agusM o6 OCyuAeCTBYieHHH logue on structural reforms and the Bank's outreach COBMeCTHOH4 JeATeCJbHOCTi4 r1o rpeJoCTaBjieHmio activities played a role in preventing policy reversals, KOHcyjThTaLui 14 OKa3aH3Ho f)14HHaHCOBOrO coAe'icTBis in formulating the current reform program, and in B Ltemix o6iierieHuiA nepexoxa PoccHu K pbmO4HOiri strengthening client ownership. The Bank has be- 3KOHoMi4Ke. BaiKy 6bulo nopyqeHo 3aHHMaTbCH come the main external interlocutor on the micro- fonpocamj CTHMyJIHpOBaHHS CTpyKTypHbIX pecpopM u economic and social reform agenda, and the HaA3Opa 3a Hx ocyi.ecTBfieHieM. 3To OKa3ajiOCb government has adopted many of the policies that He6balianog Ho cBoei CJ1O)KHOCTH 3aAaqeri M,q BaHKa, the Bank had recommended. Achievements sup- fIoCKOJTKY OH He o6naJwan Heo6xoJRHMbiM o6feMoM ported by Bank interventions include the improve- 3HaHiu 0 cTpaHe, a pa3BopaqHBaL0AuecA s cTpaHe ment in fiscal management, the targeting of social npogeccbi He HMmeii4 lcTOpi4iecKoro npeAe,ieHTa. B assistance programs, and the restructuring of the ieniom pine cTpaTeri4-ecKHx 9OKyMeHTOB 6buIo coal sector. Portfolio performance has also improved onpeReJ1eHo, 4TO, nOMI4MO OKa3aHH$ since 1999, partly through the cancellation of trou- AOrIOJIHHTeJibHOrO coJeucTBisu qui4HaHcipyeMbiM bled projects and partly through joint Russia-Bank MB4> YCHJ1H5M no CTa6unU43aUuju, OCHOBHoe efforts to speecd up implementation. An open ques- BHuMaHHe l3aHKa qOJLKHo 6blTb cocpegoToqeHo Ha tion is the resilience of these achievements to exter- cogeriCTBKH B CO3JaHHH 4HCT4TyTOB pbIHO'-HOH nal shocks, in particular to a significant drop in the 3KOHOMHKU, pa3BHTHH 4acTHOrO ceKTopa u CHi{KeHlHH prices of oil or other export commodities. COLlu4aibHbiX H3,gep>KeK nepexoAa K PLiHOMMOM 3KOHOMHKe. B 3TUX IteIAx EBaHK B3nJI Ha ce6s IFC and MIGA Activities in Private Sector o6A3aTenbcTBa no npegocTaB£ieRmJo 55 3auiMoB Ha Development o6tuyio CyMMy 12,6 Mjipg. gonni. CWlIA nO KOH1xa 2001 An in-depth evaluation of the activities of the Inter- 4wiHaHcoBOro roga, 143 KOTOpblX 7,8 MJip,. gonAi. national Finance Corporation (IFC), the private sec- ClIIA 6blJm HcfOJtb3OBaHbi, a 2,4 MJipA. go1n. CW.IA Xii EXECUTIVE SUMMARY tor financing arm of the Woricl Bank Group, aHHynIHpOBaHbi. no 1996 qfr4HaHCoBbii4 ro, J was uncdertaken by the IFC's independent - OCHOBHasi iaCTb KpeAUITHbIX cpeACTB Operations Evaluation Group (OEG) H ianpaWbnmacb Ha BOCCTaHOBI4TeJibHyIO Through the end of 2001, IFC devoted the e- JSTeSjbHOCTb H HBseCTIRktHi4 (B OCHOsHOM B bulk of its efforts to technical assistance. 'This V o6nacTI 3HepreTHKH). locnie 3roro strategy reflected Russia's needs cluring the KpeAHTOBaHIe rnaBHbiM o6pa3oM first half of the 1990s, the availability of ample HanpaBJiHJiOCb Ha CTPYKTypHbie investment financing from the EBRD, and npeo6pa3oBaHmi. KoHcynbTatAu* B OTHOmeHI4i4 IFC's continuing concern with the high risks of in- Mep nOJH4THKi4 npeAOCTasBJ15JllCb B paMKax vestment operations in the country Commitments 3KOHOMu4ieCKOu 14 OTpacnieBoH ge5TeJibHOCT14, for loans and equity investments in 48 financial sec- TexHHqecKoro co)geHcTBI45, a TaK)xe pa3pa6OTKH u tor, manufacturing, and retail private enterprises peaAMa,Uu KpeCATHbIX onepa1lJuH. amounted to US$ 0.71 billion (US$ 0 51 billion in 34 B COOTBeTCTBHM C BOsneu meyHapoAHoro companies, net of cancellations) This was about coo6HLecTBa BaHK YCKOPHA paccMoTpeHHe MHOrIx one-seventh the scale of funding by the EBRD. IFC's npOeKTOB KaK B o6.naCTi OCyLIAeCTBJeH1 HHBeCTH4UAU, caution in making investments was prudent in the TaK 14 B cqepe o6uieA 6tog)KeTHoA noARep)KKH, AaxKe circumstances and reflectecl a successful and laud- HeCMOTP5I Ha TO, '-ITO riepCrieKT14BbI yCnllIHOH able i-esistance to external pressure and internal ap- peanu43aIHH 3THX npOeKTOB 6bmnH BCCbMa provals incenitives. Heonpe)AeneHHbiMH. 3Tm onepaiuJ, CBs3aHHbie c OEG found that the IFC had an impressive record BbICOKOHi CTelneHb1O pl4CKa, MOrii4 gaTb cyieCTBeHHbie of technical assistance operations; they adclressecd pe3ylbTaTbl B cnyLiae ux ycneWliHOu peaJi3atuyn, HO strategic needs and contributed materially to Rus- OKa3anJi4Cb HeyAaLHbtMH, nOCKOJIbKy IaHK He imeJi sia's transition process But along with other devel- Bo3MO)KHCOCTH pacnop%)KaTbcq pecypcaMti 14 He opment finance institutions, IFC rampecl up its o6naaan AOCTaTO4HbIM BJ1HiHu4eM JAn npeoAoJieHw5 investments in 1993-98 ahead of the reform process, 6ecnpeLteAeHTHbIx TPYAHOCTeV, ontucaHHbIX Bbiwe. with attenclant disappointing outcomes Mainly as a Pe3y.rbTaTbl onepaqiH14 B o6nacTH nP4BaTH3aqiJuu u result of the 1998 crisis and the generally difficult CORi,ianbHOg 3aWiTbi 6bui4 nyyqwe, LeM B o6nacTRx business environment that led to losses for most pri- cTa6nJl3aLui4, (t)4HaHCOB H peCTpyKTyP143akiuH vate companies, particularly In the financial sector, He(pTSHoI OTpacJi14. BnrIOTb Ao 1998 roAa only 35 percent of the 1FC's investment projects AReTTenJbHOCTb BiaHKa no o1a3afmiio achievecd satisfactory development outcomes By KoHcyJibTauUO1-IHbiX ycniyr 14 KpeAI4ToBaHHI`o rpana contrast, 96 perceint of the donors' grants channeled nOJiOK4TeJIbHyIO, HO BeCbMa He3Ha4HTeJrbHyIO POJ1b B through IFC for technical assistance achieved satis- pa3pa6oTKe H peaCi3agLmH mep nonJiT14KI. OfAHaKO factory development outcomes Nonetheless, de- BnOCJieACTBuH MHHorHe H3 ypOKOB, H3BAeqeHHbhX 143 spite the success of 1,100 privatization auctions the onepatuq u4 aHaji1uT14ieCKHX KOHCynbTaLIt,uH raHKa, IFC helped conduct for SMEs in the early 1990s, IFC HaUiJ CBoe BonJ0o11eH14e B npaKT4.eCKOH had not yet established a sustainable wholesale AeATeJibHOcTH. 3To nomoraeT noHTlTb, noiemy channel for investments in SMEs Looking forwarcl, periT1iHr yCTOa4liBOCTH qJThHaHCmpyeMbiX EaHKOM OEG's evaluation supported the planned expansion onepaitiuu npeBblwaeT peuT14Hr pe3yiibTaTi4BHOCT1 of IFC activities in response to the improving invest- onepaAtri. CKpOMHbIV, HO KyMyJ5IITHBHbIH 3a4eKT ment climate in the past two years 3TH4X onepagt,i Hapsuny c nOJlO)KI4TenbHbiM According to a desk review by its Operations Evalu- BO3JReACTB1eM KOHCyJIbTati,H, npeJoCTasBjeHHbIX ation Unit (OEU), the Multilateral Investment Guaran- BaHKOM, nOMOFJIH 3ajiOKiTb OCHOBY ARMs HeAaBHero tee Agency's (MIGA) guarantee program met H3MeHeHUA cnTyaqmH B POCCU4H B Jiy4yLIO CTOpOHy. prudently ancd selectively the demands from private rlocne (puHaHCOBorO KPH3ca aBFryCTa 1998 ro,ga foreign investors for political risk insut-ance. As a re- KaK aKTyaJTbHOCTb, TaK u 3CPI4eKTI4BHOCTb onepautR, sult, it has not sufferecd any claims losses in Russia, EaHKa no OKa3aHmio COAeAiCTB11A PoccUH cyYHeCTBeHHO Xiii ASSISTING RUSSIA'S TRANSITION which is ranked in the top five countries in the noBbIcHwwcb. aiaHK po0siBJSAUI OCTOpO)KHOCTb B Agency's portfolio. Before the outbreak of the - npe,ocTaBsieHmH HOBOrO KpeAWTOBaHAS, q financial crisis, MIGA covered transfer risks but OCHOBHsa5 'iaCTb KOTOporo 6bmna HanpaBjieHa Ha . did not offer coverage for currency convertibil- A JocTHiKeime jonirocpo'Hbix tgeieni coWambHoro ity MIGA continued to support projects after 14 u4HcTHTyLHOHaJIbHoro pa3BiTiR4. the country's default on foreign debt. Al- n * poAoJoKaIourHfic% Aianor no CTpyKTYpHbiM though there was relatively low demand for peqpopMaM, a TaKoxe nponaraHAiiuccKas MIGAs products, its $549 million in coverage ge5TenibHoCTb rBaHKa cbtrpajH CBOIO pOnl B issued for 18 projects-mainly in agribusiness, food npeAoTBparer4 Bo3BpaTa K npe)KHer 3KOHoMWiiecKoi processing and beverages, finance, and extractive in- nOJIHTKe, B 4popMyJIHpOBaHHR TeKyuJei nporpaMMbli dustries-nonetheless facilitated an estimated $1 3 pe4popm H noBbifleH4 CTeneHi 3al1HTepeCOBaHHOCTH billion of foreign direct investment in Russia (see CTpaHb1-KJi4eHTa B ocyUmeCTBJieHmH 3THx pecoprm. Annex 12) In investment marketing services, the ESaHK CTaii OCHOBHbIM BHeilHIM napTHePOM B Aene Web-based PrivatizationLink Russia was launched in npoBeAeHHAs MK0po03KOHOMW4ecKIHx H COLWaJbHbNX October 2000, providing important and timely infor- peqbopM, a npaBHTeJ1bCTBO B3SinO KYPC Ha mation to potential foreign investors OEU suggested OCym,eCTBjieHHe MHOrIHX mep noJITIIKH, that in the future the Agency should strive to maxi- peKoMeHROBaHHbiX SaHKOM. Tcnexm, AOCTHrHyTble mize the amount of foreign direct investment it facili- 6niarogap% yiacT'r0o BaiKa, BKUMOa1oT tates while diversifying its portfolio and minimizing coBepweHcTBoBaHme ynpaBneHmAs 6io)vKeTHo- net exposure in Russia. HajiOFoBOri cctepoA, nOBbIWeJHme ajpecHocTH nlpOrpaMM COilaJlbHOH HOMOiH 14 peCTpyKTypH3awi Next Steps yroJibHor4 oTpacnJ. Pe3ynmTaTbi peanu3awm nopTcTieJ5 Bank management agreed with the OED's recom- npoeKTOB TaK>Ke yJiyimunticb nocne 1999 roAa, KaK 3a mendations that the Bank should focus its assistance c,4eT a HHyJHPOBaHHM5 npo6jieMHbx rpoeKTOB, TaK 4 even more sharply on areas with strong government 6narogap,i COBMeCTHbiM yc4iHnmM Poccim R BaHKa no commitment to reform and relative social consen- ycKopeHi1o peallU3ai,4 npoeKToB. OTKpbirbiM sus Public sector management, legal and judicial re- ocTaeTc5r Bonpoc yCTOWiIilBocTII 3Tri4X AOCTHKenHul form, investment and business climate, pension nepex JIHAOM BHeuCHHx no'rpqceHHA, B 4acTHocTi, reform, land markets, and coal and electricity sector pe3Koro cHmvKeHsi UeH Ha HeCqTb uH4ll Ha gpyrne restructuring now offer high-potential development 3KcnopTHbie TOBapbl. rewards T'he ongoing policy dialogue and technical advisory program on banking sector reform should )JesTejnLHOCTb M(DK H M4FA B o6JIaCTH continue Responding to client demand, Bank assis- pa3BHTH31 gaCTHOFO CeKTOpa tance should provide for an expanded program of He3aBHciMasi Fpyrna olUeHKi onepaii,uoHHol4 good practice advice and strengthen the public de- AeiTenbHOCTH (rOO)i) MecWyHapogHoi cpuHaHCOBOA bate on reforms. Policy-based lending should be de- KopnopauWi (M4DK) - CTpyKTypbi BcemmpHoro signed to ensure a tight linkage between progress of 6aHKa, 3awuMaiouerici c4RHaHcHpoBaHHeM pa3BsTH45 reform and actual disbursements The Bank should iacTHoro ceKTopa - npoBena yr.iy6neHHyio oLIeHKY also consider targeting part of its assistance to se- Ae5TenbHOCTH M(DK. nO KOHeit 2001 roAa M4DK lected regions committed to reform HanpaBnBiia OCHOBHYIO -acTb CBOHX yCu4JIuH Ha oKa3aHie TeXHRiecKoro coJeCcTBHs5. 3Ta c`paTersi Lessons Learned oTpaiKaia IOTpe6HOCTH POCC4Hi B TeMeHue nepsOH The key generic lesson of the Bank's experience in nOJIoBHHbl 1990-x ro,o0B, Haim,-me 3HamfTellbHOrO Russia is that country ownership is crucial to the suc- o6'beMa I4HBeCTHUoHHHHoro 4*"iaHcVpOBaHKs co cess of assistance. Thus, it is important for the Bank CTOpOHbi EBPP, a TaKiKe coxpaHinoiLy1ocs to pay close attention to the political and institutional o6eCnoKoeiHocTb M4DK B oTHoLueH4H BbIcoKo rl aspects of reforms and consult with all relevant units cTeneieH piCKa HHBCCTi4U,OHHbIX onepaLutu B CTpaHe. XIV EXECUTIVE SUMMARY of government and civil society, to improve 6ObeM o65i3aTenbCTB no npeJAoCTasBeHmio w the relevance and design of its activities and - 3aIMOB H ocyLueCTBJleiirno IHBeCTRILkiUU B avoid operations where commitment is weak. ; aK14MOHCPHbll KanuTaJT 48 qaCTHbIX T here are a number of other general lessons: , npeAnpHATINA, AeUCTBYIOUJ4X B CIMHHaHCOBOM * In the face of a poor track record and narrow CeKTope, o6pa6aTbiBatoLueA npOMbIWllJHHOCTi4 country ownership of reform, a large adjust- 1H pO3HwiqHOH ToproBsn4, CoCTaasnI 0,71 MJip,. ment lending program (especially one with Jto.n. CWILA (0,51 MnpQ. gojun. CiIA Arig 34 front-loaded disbursements) risks cdelaying KoMn1aH14fi 3a BbiqeToM aHHyJinupoBaHi4u). 3To rather than accelerating reform. COCTaB14JIo OKOJIO OqHOA ceAbMou qaCTii o6-beMa * In the presence of a poor track record and new c4HHaHCHpO1aHHI9 EBPP. B gaHHbiX o6CToiTeJlbCTBax consensus on a reform program, adjustment lend- oCMoTpHTeJibHoCTb, npO54BiBeHHaR M(PK B OTHoweHHH ing should be offered after the government has Ka1[Tano13bo)KeHi4A, 6biia pa3yMHbIM uwarom i4 publicly adopted the necessary reforms or has oTpawKana ycneWHoe npOTHBOReHeCTBe BHeuwHeMy begun implementing them, as was the case for the ,RaBneHr1o 14 1OPMAKY YTBepAeH peWeHu - u Coal Sectoral Adjustment Loans (SECALs). Dis- JoCToiHa ofo6peHH5. bursements should be back-loacded and carefully roo,i npuarna K BbiBOiy, qTO M4K AOCTUr.a modulated on the basis of solid progress in imple- BneiaTnmiOulKx ycnexoB B npoBeAeHtuu onepatuii mentation. TeXHUiieCKOro COJefCTB41, KOTOpbie OTBelalaH * Adequate analytical work should be available up- CTpaTerHieCKHM noTpe6HoCTsM PoCCeIe 1u BHecJH4 stream of lending AAA slhould be funded to the ex- cyuieCTBeHHbih BKJsa, B nepexoA PoCCee K pbIHO'IHOA tent commensurate wlih the role the Bank is 3KOHOMIKe. OJAHaKO o6beM IUHBeCTu4uI, expectecl to play. ocyAeeCTBJ3`1eMbIX M4'K, TaK >Ke KaK u4 pyrnmH * Timetables for implementation should be realistic yqpe)KAeHiMi4, 3aHHMaioHii4MHcs npo6neMamm * For physical rehabilitation and investment projects cpm4HaHCIpOBaHI5;i pa3B14THsi, B Teet4eH 1993-1998 to achieve their development objectives, progress rOAOB onepe>Kai npoLtecc pe4sopM, iTO npu413enO K on policy and institutional reform is necessary COOTBeTCTBYOLIIU4M pa3OqapOBbiba3ioiuAM pe3ynbTaTaM. B OCHOBHOM 143-3a Kpu43Hca 1998 roga u4 Management and Government Response CJ1O)KHbIX ycClOn4B ocyLLtecT13ieHu KOMMep'4eCKOo Bank management disagrees that the shift from in- AeTrenbHoCTH B iAeioM, npHBeAWu1X K y6biTKaM ,Ai5i vestment lending to structural adjustment lending 6onburnHcTsa qaCTHbIX KOMnaHi4g, npeumyLeCTBeHHO was a misguided response to the systemic reform B c)1HHaHCOBoM ceKTope, TOJbKO no 35-TM npo1ieHTaM challenges that Russia faced ini 1996 In their view, NHBeCTHLk40oHHbiX npOeKTOB MDK 6biJmH nojiyqeHbI restricting assistance to AAA and small loans as the YAOBfeTBOPHTenbHbie pe3ynJbTaTbl B o6naCTi4 OED's counterfactual suggests would have meant a pa3BHTu4. B npOT141of3o1o,)KHOCTb 3TOMy 96 perpetuation of the Bank's limited impact on policy npo1xeHTOB rpaHTOB ROHOPOB, HanpasBjeHHbLX Iepe3 formulation The 1997 Structural Adjustment Loans MFK Ha OKa3aHi4e TexHHqecKoro coAeCTBIsIM, (SAL I and II) ancl Social Protection Adjustmenit Loan AOCTHrJIH yAoBneTJopNTeJbH61X pe3ynbTaTOB B (SPAL) were necessary to influence the design of the o6JlaCTH pa3BM4TH4. TeM He MeHee, HecMOTTp Ha ycnex structural reform agenda These operations, Bank 1100 ayKtwiOHOB no ripuBsaTH3aLIu, MCII, management further ai-gues, provided the right npOBeAeHHbIx npui coAeAeCTBfl MOK B Haqaine 1990-x tools and built the necessary trust to help prevent rOJIOB, MDK no HaCTORii,ee 3peMA He co3gania economic policy reversals, improve Bank-Russia rela- YCTO1qsBorO KaHania gim ocyWeCTB eHHs KpyniHbIx tions, and sowecl the seeds of the reform program HHBeCTHL4HH B McnI. OqeHI-mBa5i nepcneKTuBbi Ha first endorsecl by the governnment in 2000 and cur- 6yAytuee, rooJLr nOAepxurBaeT nniaHtpyemoe rently uncler implementation paciLupeHHe Ae5iTeJibHOCTI4 M(DK B OTBeT Ha Tlhe Russian authorities found that the CAF "pres- yiytliweHUe HHBeCTHL4HOHHOrO KJli4MaTa B nocniejHie ents a sufficiently objective picture of developments nBa roJa. xv ASSISTING RUSSIA'S TRANSITION in Russia over the past decade and outlines B COOTBeTCTBu14 c aHaii4HTHIeCK4M the factors behind the Bank's successes and = HccneJoBaHMeM CBoero OTgeIia oAeHKi , setbacks " While they "for the most part agree *. onepaLu4oHHO14 geRTeibHOCTH (OOO, ) with the [CAE's] assessments of the results of _ nporpamma rapaHTwH MeXqyHapoAHoro the Bank's activity in individual sectors," they i arCHTCTBa no uHBeCTu4,HOHHbIM rapaHTHAM assessed its overall outcome as satisfactory, as * (MIIrA) OCTOPO)KHO H U36HpaTeJIbHO the process of transition has been "very rapid" yAOBjieTBOp3iJna cnpoc HHOCTpaHffbIX iacTHblx and the positive developments post-1998 re- - 14HBeCTOPOB Ha CTpaxoBaHUe OT nOjinTW-IeCcKHX sulted from efforts made in the previous periocd and pu4cKoB. B pe3yJ1bTaTe MHirA He HOHecjio y6bLTKoB no the important role played by the Bank and Fund. Re- CTpaxOBbIM Tpe6O1aHsHiM B PoccHu, KOTOpaR BXOAMT B garding the relatively high share of problem projects iHcJIo FIRTH OCHOBHbIX CTpaH B nopTq,ejie AFeHTCTBa. in the past, they pointed to shared responsibility )o qrHHaHcoBoro KpuI43ca B PoccHH M1IFA with the Bank, as many operations "did not rely on a npeAocTasnmnIo rapaHTuIM no pi4cKaM, CBsi3aHHbIM C thorough understanding of the existing problems." nepeBoAoM cpeACTB, HO He rapaHTHPOBaIO OT p1cKOB, Finally, they found OED's recommendations to "coin- KOTOpble 6butl o6ycnoBneHIfi HecTa6wlbHocTbio Kypca cide to a greater extent with the provision of the Pro- HaLU4oHaJ1bHOA BajUOTbl. [locnie OTKa3a Poccmu OT gram for Russia's Cooperation with the Bank recently norawjieHusR cBoeu BHeLLHeCi 3aqoFJKeHHOCTH4 MII1A approved by the government" npogoJDKanio cpuHaHCHpO13Haue npoeKTOB. HecMoTpi Ha OTHOCWTeJIbHO HeBbICOKHA cnpoc Ha npOqYKTbi Executive Directors' Perspective MIIrA, nOKpblTiUe HHBeCTUHL4OHHbiX pI4CKOB B The Executive Board's Subcommittee of the Com- pa3Mepe 549 MnH. Aonn. CIliA B pamxax 18 npoeKToB mittee on Development Effectiveness (CODE) dis- - npeuMyllecTBeHHO B TaKHx ceKTopax, KaK ceJibCKoe cussed both the OED and OEG reports on May 8, Xo3IihCTBO, fmi4UeBaA npoMbILuieHOcTb, cIHHaHcbi u 2002. They broadly supported the evaluations' rec- ropHoAo6btBaiowasi npoMbiInjIeHHOCTb - nO3BOJnHJIO ommendations and noted management's assurances PoccHU nOJ1YqiTb OKORO 1,3 mnipq. qonn. CIIIA that they will be incorporated into the Country As- IiSIMbiX UiHOCTpaHHbiX HHBeCTHuJ4r (CM. npUi4io)KeH4e sistance Strategy scheduled to be considered by the KA3 12), KOTOpbie, B npOTusBHOM cjiy'ae, BspA Ji full Board in June 2002 Members urged greater co- nOCTyniHjH 6bi B CTpaHy H3-3a MopaTOp145i Ha BbmniaTy herence, coordination, and information sharing be- qJo.nroB. B oKTq6pe 2002 roja 6buJo HaqaTO tween the Bank and the IFC The chairman npegocTaBneRue ycniyr no uHIecT3euC oHHoMy concluded by underlining the importance of country MapKeTHHry c iicnOJIb3OBaHHeM Be6-cTpaHH,b1 ownership of reforms and capacity to implement "PrivatizationLink Russia", Ha KOTOpOU npeAcTaBneHa them, the need for the Bank to work in partnership Ba)KHaA 14 cBoeBpeMeHHaA uHcPopMatLW Ain with other donors, and the vital role of Bank en- nOTeHWtaJbI-bHb1X HHOCTpaHHbIX HHBecTopoB. OOO,I gagement in building ownership and strengthening peKOMeHAyeT AreHTCTBy B 6yAyigeM MaKcHMaJibHO institutions early in the process of transition yBeJiqliHTb o6tbeM npsmbix HHOCTpaHHbIX HHBeCTH1KA, In the course of the discussion, some Subcom- npHTOKY KOTOpblX OHO cnoco6CTByeT, mittee members wondered whether the large AHBepcH _p4pyA npu 3TOM CBOHi HOpTcpeJb 1 CBOAR K amount of adjustment lending in the early years MiHHMyMY JHCTyiO CyMMy pHCKOB B POCC4iHU. might not have retarded reforms by postponing the need to deal with critical structural issues They felt HlocaeAyiouiHe qCeHCTBHH that an assistance strategy oriented around AAA with PyKOBOqCTBO 13aHKa corIiacHj1OCb c peKoMeHJaHusiMm limited financial support for Russia would have been )pOOR) B OTHOlwleHHM TOrO, qTO BaRK AoiXceH eue more appropriate than one involving large volumes 6onee CKOHLteHTpuIpoBaTb cBoe coAeAcTBiie Ha of adjustment lending Others, however, felt that the o6iiacTTx, B KOTOPblX npaBsuTeJIbCTBO npiBepxeHo leverage provided by lending had been critical to the pecpopMaNM H B KOTOPbIX AOCTi4rHYTO OTHOCHTeJIbHOe Bank's dialogue with the Russian authorities and cornacule. B HacTORiu4ee BpeM.9 nepcneKT14BHb1MH C xv' EXECUTIVE SUMMARY that AAA alone would likely not have cap- TO-KH 3peHi5 AtOCTHiKeHS gtenieh B o6iacTH J tured the government's attention. Thus, they pa3BHTI45 ABJ1SKHOTCR ynpaBJneHHe argued that it could be difficult to wait to rocyAapCTBeHfHbIM ceKTOpOM, npoBeqeHt4e builci broad consensus, especially when faced r iOpA4JeCKOA Hi cyge6HoA pe(opM, withi crisis situations In such circumstances, COBepwIIeHCTBOBaHHe HHBeCTI4ULHOHHoro H the Bank might have to accept greater risks in ' nenoBoro KJ]HMaTa, ocyuLecCTBieHHe acting -particularly when it has relatively neHCHOHHOH pe(popMbl, ynop,AoqeHme less understanding of the economy-and try geRITeRbHOCTH 3eMeJIbHbiX pbIHKOB, a TaKiKe to build ownershiip through its engagement, even peCTpyKTypH3aIqH5 yrjieJo6biqH u thoughi there might be divicded views in the country 3neKTpo3HepreTHKH. Heo6xogutimo IPOAOJIKHTb TeKytIIUxi HaJiior no ocyuAeCTBjieHHio 3KOHOMH1eCKHX peqjopM, a TaKoKe nporpammy npeAoCTaBjieHHm KOHCyJ1bTaL[4HA nO TeXHHiqecKiM BOnpOCaM B o6nacTll pe)pOPMHpOBaHHu 6aHKoBcKoro ceKTopa. B CooTBeTCTBIUH4 C 3anpocaMH KJHIeHTa, coJeHcTBHe co CTOpOiHbI Baia HaqonKHo o6ecnetwHTb pacwi4peHHe nporpaMl,bl KOHCyJbTaIiA4H no BonpocaM nepeqoBoro OrIbITa H coBepweHcTBoBaRNe npaKTnKm ny6nJm4ibix Ae6aTOB no nOBOqy HpOBOqHMbIX pecIopM. KperHTOBaHae Ha npOBseeHIe 3KOHOMNIeCK14X pe4bopM ojiAKHo o6ecne4-rBaTb TeCHyIo YB'"3KY Mmewy peaJbHbIM HPOABH)KeHHeM peqpopM H o6tbeMoM qpaKTHqeCKH npeAoCTaB eHHbcX cpeACTB. BaHK TaK)Ke AOADKeH H3yLH4Tb B03MO)KHOCTb HanpaBJIeHWI q4aCTi4 cBoeA FOMOWl14 B H36paHHbie perHoHbl cTpaHbl, nPHBePCKeHHbie KYPCY Ha npOBeg,eHie pe(popM. HnOJy4eHHbI6 OnIb1T rnaBHblll xapaKTepHbIH ypoKK, H3BJIetieHHbiH 143 AeSiTeJbHOCTH BaHKa B POCCHH, 3aKJiOiaeTC5i B TOM, HTO 3aHHTepeCOBaHHOCTb CTpaHbl B peanti3aLuIH pepopm HripaeT pemLaioLyio pO.nb B o6ecneieffifin ycnexa CoAeiCTBNHi BaHKa. B CBSi3H C 3TIiM EaHKy Heo6xoXWMo YAeWflTb pHpCTanjbHOe BHHMaHHe nojiHTHieCKi4M H HHCTHTyIl4OHaJIbHbiM acneKTaM peqpOpM, npOBO,HTb KOHCyj1bTagiiH C COOTBeTCTBYIOI4I4MH nlpaBI4TeJIbCTBeHHb1MH CTPYKTypaMH H rpa)iJaHCKi1M o66ukecTBoM, LiTo6bi nOBbICHTb 3Ha'-IMOCTb H yJ]y'11HTb fJaHHpOBaH4e CBoeH AeS5ITeJ-bHOCTH H H36eraTb onepati4h, He nOAKpennieHHbIX B HeO6xOp,HMbIx o6beMax COOTBeTCTByJO0LlIMH o65]3aTeyibCTBaMm. l4MeeTC5I TaKoxe UejibiI ptJ jpyrHx o6wiix ypoOKoB: TL4HTbJBasI cna6bie pe3yflbTaTbi B npOWJIOM H HeAOCTaTO4HyO 3aHHTepeCOBaHHOCTb CTpaHbl B ocyLtecTBriem4ii pecpopM, o6mlIpHam nporpamma KpeWHTOBaHHSI Ha CTPYKTypHbie npeo6pa3OBaHHS XVII ASSISTING RUSSIA'S TRANSITION (oco6eHHO eCJnH OHa npegnonaraeT cpOpMIHpOBaHHe 3KOHOMIMeCKO U nOJHTITKH. = npeAocTaBjieHHe 6onbuiei -acTH KpegHTRbIX - HpeAocTaBneHHbie B 1997 rojy 3aAMbl Ha ., cpefCTB AO BbinojiHeiHm npaBHTeTcJICTBOM *, CTPYKTYPHbTe npeo6pa3OBaHH[ (3CH I H II H _ HnpSHHTbIx o6I3aTeJIbCTB B COOTBeTCTBHH C s 3aeM Ha CTPYKTYPHbie npeo6pa3oBaHHsi B cornamueHmem o 3a4me) MO)KeT 3aMeAJIHTb, a ' CoiHanjbHOH c4epe (3CICC)) 6bnmH __ He YCKOPHTb npOBeAeHme peq)OpM. ^ HeO6XOHuMbi lSA OKa3aHSI BWHISHH5 Ha * TqHTTbBaSi cna6ble pe3ynbTaTbl B HpOWJIOM H pa3pa6oTKy nporpaMMbl CTpyKTYPHMbX pec)OpM. HegaBHO CqpOpM14pOBaBIlfrH4CH KOHceHCYC nO flo ImleHllo PYKOBOACTBa E3aHKa, 3TH onepau.m nporpaMMe peCqOpM Kpe)1TOBaHHe Ha IBHIJIHCb AeHCTBeHHblM MexaHH3MOM B jejie CO3JaHm CTpyKTypHbie npeo6pa3oBaHim AOJDKHO Heo6xogHMoro KpeCHTa 9OBepH5, riO3BOJIIBero npeAoCTaBBJITbC51 riociie Toro, KaK npaBHTeJIbCTBO 136exKaTb BO3BpaTa K npe)KHeA 3KOHOMW-IeCKOH OqmL1jH4ajibHO npHMeT nporpamMy Heo6XOAHMbIX nonwrmKe, yJIyEUWrb OTHOueHmS mexqy I3aHKOM H pecpopM HuH HaqHeT HX peaJIH3atwlO, KaK 3TO PoccHeri H 3ajiOKHTb OCHOBy nporpaMlbi pecDopM, 6brno B cjIyqae OTpaCiieBb1X 3auMOB Ha BnepBbie yTBCpxKeHHO4 npaBUTeCJbCTBOM B 2000 rojy CTpyKTypHble npeo6pa3oBaHAsl B yrOJTbHOH H peaJIH3yeMOH B HaCT05U.ee BpeMI. rIpOMbiwIieHHOCTH (03CH). npegOCTaBJueRHe PoccHUCKUe BJIaCTH C'HTaioT, qTO KA3 KpeA,ITHbIX CpeJCTB XOJIKHo 6biTb o6ycuoBuieHo npeAcTaBsnHeT OCTaTo4HO o6%beKTIBHyIO KapT14Hy BbIHOnqHeHMeM o6.q3aTenbcTB, HpHSATbIX pa3BHTH5 co6blTUH B POCCUM B nociiegHee npaBHTeJlbCTBOM B COOTBeTCTBHH C corJiawLeHHeM JeC1ITHJleTiHe U HlomoraeT olipegeJIHTb qpaKTOpbI, o 3arme, H THuaTeCJbHO MOAYJ11POBaTbCq Ha OCHOBe ie)KawMe B OCHOBe yCneXOB H HeyAaq BaiKa". nipH peanfbHbIX JOCTH)KeHHA B ocyUieCTBjieHHH TOM, -TO pOCCUHUCKHC BJlaCTH "B 1tenjoM corJiacHbi C peqjopM. [cOAepxKauWeAC9s B KA3] o1AeHKOui pe3ynjTaTOB * Heo6xogmvaq aHanj4THMeCKaq pa6oTa qOjDKHa )qeqTejbHOCT4 B3amKa B OTJenbHbIX OTpaciSiX", OHU npeAmeCTBoBaTb KpegHTOBaHuWO. AKI ojiO)KHa OIeHMBa1OT o6Wue pe3yJtbTaThl Ae5lTenJbHOCTH KaK 4H4HaHCHpOBaTbc.I B o6beMe, copa3MePHOM y)OBneTBOpHTeRbHbie, nOCKOJLbKy npoLiecc nepexoAa K npejnojiaraemoA pojin r3a-Ka. pblHOUHOUl 3KOHoMjIKe 6brn "oHeHb 6blCTpbIM" H F rpa4rnK peajnu3agilu AOJDKeH 6biTb nO3I4THBHoe pa3B4THe Co6blTIH nocne 1998 roAa peaJHMCTH4HbIM. qBHnJIOCb pe3ynJbTaTOM ycunuu, npefnpl4HHTblX BO o nJIA Toro, qTo6bl pea6mnwTawOHHble U BpeMI npegweCTBytorero nepHoAIa, H BaKHOH POJIH t4HBeCT14LtHOHHbie npoeKTbl ROCTHrnJH CBOHX ueier B3amKa H P4OHHAa. ITO KacaeTC,9 OTHOCHTeJlbHO B o6niaCT pa3BHTH51, Heo6xogmv nporpecc B BbICOKOU AORn4 npo6neMHbix IIpOeKTOB B npOWnOM, TO npOBeAeHilH lOJIHTHgeCKi4X H PYKOBOWCTBO POCCHu OTMeTUJ10, 4TO OHO pa3Aeli5eT UHCTHTYLUOHaJbHbIX pecOpM. OTBeTCTBCeHHOCTb C EaHKOM, nOCKOJ]bKy 6oJIbwoe LHcJIO onepaiu "He OCHOBbIBajiOCb Ha $ICHOM PeaKLIAH pyKOBOACTBa UaHKa H nomHIMaHKH CymeCTBYIO1LtHX npo6neM". HaKOHeU, npaBHTeJIbCTBa poCCHHCKHe Bj1aCTH 3a5lBHJIH, '-TO peKomeHAaLIU PYKOBOAcTBO BaHKa He cor.nacHo C TeM, 'ITo nepexog )nooJI TB 6Onbwef4 mepe COOTBeTCTBYIOT OT KpeRHTOBaHH5( Ha HHBeCTiIH,OHHbie IeJM K nOjiO)KCHeSM llporpaMMbi COTPY4HH'1eCTBa PoccHm c KpeMuTOBaH410 CTPYKTYPHbIX npeo6pa3OBaHmh EaHiKOM, HeAaBHO oxo6peHHoU npaBHTeJfbCTBOMT. 5IBHJICSI oLm6oqHOI peaKwHeg Ha TPYAHOCTH B npOBeAeHHM CHCTeMHNbX peq)OpM, C KOTOPbIMH TO-Ka 3peHHS4 HcfoJIHHTeJIbHIx HXHpeKTopoB Pocc1s4 CTOJIKHyjiaCb B 1996 rogy. fio MHeH1O nOAKOMHTeT KOMHTeTa no 3(pq4eKTHBHOCTH pa3BHTHM pyKOBOACTBa, orpaHwH-eHme cOAeHCTBHA paMKaMU (K3P) CoBeTa HcnojHiHTenJbHblX AmpeKTOpOB AK,j H npeqocTaBneueHeM He6OJlbHIlix 3auiMOB, KaK paccmoTpeui OT4eTbI ),OO;) H roo), 8 Mas 2002 3TO npeAjnaraeT J100J1 B pa3Ae.ne <>, O3Hax-aJIo 6bl noAAep)Kanm peKOMeHAaLuim, coAepxKauAHec B coxpaHeHHe orpaHlmeHHoro BO3AeACTBHS E)aHKa Ha ogeHKax, H npTIHUSIJI K CBeAeHHlO 3aBepeHHM XVIII EXECUTIVE SUMMARY pyKOBOqCTBa 0 TOM, 'TO OHH 6yqyT npeAnonarafoiiai B OCHOBHOM ocyLeCTBneHHe BKJHo'-eHbI B CTpaTeruIo COeAICTBH45 CTpaHe, AK)j c orpaHuweHi-b1M o6leMoM (puHaHCOBOA V KOTOpylO nnaHHpyeTCsH pacCMOTPCTb Ha , noARepmaui PoccHiH, 6bmna 6bl 6onee _ - 3C3ceAaHIH COBeTa nOJIHOrO COCTaBa B UIOHe 77 riowoxsioMeHi, leM cTpaTerHi npegofCTanefHfi - 2002 roAa. JTieHbl CoBeTa npH3BajuH K 3Haqi4TenJbHbIX o6'beMoB KpeAHJTOBaHHH Ha Z^ 6o0imerl cj1a>KeHHOCTH H KOOpAHHaLJ,HH CTPYKTYPHbie npeo6pa3oBaHK1. )Ipyrte MneHbl AeS9TeCJbHOCTH Me)KAy I3aHKOM H M¢K, a nlOAKOMHTeTa, OAHaKO, BbICKa3aJIH MHefB4e, YTO TaKxKe K 6onee aKTHBHOMY o6MeHy o6uiee coAeAcTBHe, OKa3aHHoe noCpeACTBOM 4H(pOpMamatHe. HlpeAcegaTeJIb noAsBeh HTOrIH KpeAHTOBaHH5, HMeJiO npHHtHnHafIbHOe 3HaHeHlHe B o6cyxKAetHm,O nO;lepKHyB Ba)KHOCTb pamKax Haiiora BaHKa C POCCHHCKHM4iH rTiaCT5IM11 H 'ITO 3aHHTepeCOBaHHOCTH CTpaHbl B UpOBeCeHHH pecpOpM cama no ce6e AK)E BpRA JM cmorna 6bl npmBjieib H HaJlTW-H5 COOTBeTCTBYIOLAerO OpraHH3aUHOHHO- BHjAMaHIe npaBHTeJ]bCTBa. B CB5131i C 3THM OH0 TeXHuYeCKOrO nOTeHgj4aJ1a Aim HX OCyLtueCTBJieHHIs; yTBep)KIaTH, ITO HH'erO He flpeAflpHHHMaTb B Heo6XOgHMOCTb pa6oTbl B3aHKa B napTHePCTBe C Oxu4AHaH qpOpM14pOBaHm1 tllUpOKOrO KOHCeHCyCa, ApyrH1MH AOHopaMH; a TaKoKe Hp14Hl HaJIbHyto pOJlb oco6eHHO B YChIOBHIX KpH3HCHOH CMTyaLiHm, 6buIo y'laCTt4H aHKa B HOBblweHHH 3aHHTCpecOBaHHOCTH HenierKo. B TaKMX o6cTO5ITeJ]bcTBax bauKy nplHYIOCb H yKperineHum I4HCTHTYLqUOHajibHOHi 6a3bl Ha npHHSTb Ha ce6s nOBbiUweHHblA pI4CK nplH Ha'-anbHOM 3Tane nepexoua K pbIHO0lHO 3KOHOMIKe. ocyueCTBneHH CBOeC ,qe,TeJbHOCTH (oco6eHHo C B xojle o6CymqeHMH HeKOTOpble ifleHbi y'eTOM TOrO, LITO OH OTHOCnTeJIbHO cina6o noHMmal HogKom4TeTa nOHHTepeCOBaJH4cb, He MOr im 6oibmmou oco6eHHOCTH 3KOHOMI4K14 CTpaHbi) H nonbrraTbc.9 o6-beM KpeAHTOBaIH5i Ha CTpyKTypHbie yKpefl1Tb 3aHHTepeCOBaHHOCTb o6uAeCTBeHHOCTI4 B npeo6pa3oBaHHA B Ha'iaJIbHbie rOgbi OCy1UeCTBjieHHM nporpamm pa3BHTHsA nOCpeACTBOM paccmaTPHBaemoro nepHoQa BbICTynHTb B Ka'leCTBe CBoero y4aCTHSI, Aa)Ke HeCMOTpSI Ha TO, HTO eCUHCTBa TOpM03a peq)OpM, OTOAB4HYB HeO6XOU4MOCTb peweHl-i MHeHHH B OTHOwIIIHhH tSeeCoo6pa3HOCTN Ba>KHegIi4X CTpyKTypHbrX npo6jieM Ha 6onee nO3AHKH OCYLIeCTBieRHu TaKIX nporpaMM B CTpaHe Morjio H He CpOK. nO HX MHeHHO, cTpaTerFH COAeUCTBHS, 6blTb. xIx EXECUTIVE SUMMARY R,sume Resumen I analytique Ejecutivo Levaluation de l'aide par pays (EAP) pour la Rus- La evaluaci6n de asistencia a la Federaci6n de sie sur la periode 1992-2001 montre que les activites de Rusia correspondiente al periodo 1992-2001 demuestra que la Banque mondiale en Federation de Russie ont eu des los resultados de las actividades del Banco en la Federa- resultats decevants mais sont en voie d'amelioration. ci6n de Rusia mejoraron pero fueron decepcionantes. Aun- Bien que l'OED (Departement de 1'evaluation retrospec- que el Departamento de Evaluaci6n de Operaciones (DEO) tive) ait attribue une cote non satisfaisante aux resultats calific6 como insatisfactorio el resultado de la asistencia de I'aide de la Banque mondiale a la Russie pendant la del Banco Mundial a la Federaci6n de Rusia durante el pe- periode 1992-98 et indique que l'impact sur le develop- riodo 1992-98, con un impacto apenas moderado en el de- pement institutionnel n'avait ete que modeste, il a cote sarrollo institucional, ese mismo departamento consider6 les resultats pour 1998-01 comme satisfaisants et indi- que el resultado de la asistencia en el periodo 1998-01 fue que que l'impact sur le developpement institutionnel satisfactorio, con un considerable impacto en el desarro- avait ete substantiel. llo institucional. L'EAP pour la Russie fait ressortir qu'une strat6gie La evaluaci6n de la asistencia a la Federaci6n de d'aide articul6e autour des services analytiques et Rusia concluy6 que una estrategia de asistencia orien- consultaufs, accompagnee d'un soutien financier tada hacia actividades analiticas y de asesoria (AAA) russe limit6, aurait &te plus appropri6e qu'une strate- con un limitado apoyo financiero para la Federaci6n gie basee sur un gros volume de prets a l'ajustement, hublese sido mas adecuado que una estrategia que in- car il se pourrait qu'en 1996-97 de tels prets alent cluyera prestamos para fines de ajuste por grancles im- freinm les r6formes n6cessaires au lieu de les accele- portes, ya que es posible clue dicha activiclad de i-er. Les cl6caissements auraient dO etre effectues pour prestamos clurante el perioclo 1996-97 haya demorado recompenser des actions et non des promesses Pour en lugar de acelerar las reformas necesarias Los de- expliquer sa cote cles resultats a fin juin 1998, l'OED a sembolsos deberian recompensado acciones en lugar attire l'attention sur les gros volumes cle prets d'in- de promesas Como funciamento de la calificaci6n ge- vestissement a d6caissement rapide, dont le pret neral asignada a los resultados generales hasta junio de d'ajustement structurel (SAL III), qul ont eu des resul- 1998, el DEO hizo hmcapi6 en el volumen de presta- tats non satisfaisants Il a fait remarquer que les resul- mos de rapido clesembolso y de prestamos para pro- tats de recherche et d'6valuation confirmaient qu'on yectos de inversi6n, incluyendo SAL III, cuyos ne doit pas s'attendre a ce que de gros volumes cle resultaclos fueron insatisfactorios Observ6 que las prets assurent la proprike-pays. conclusiones de su trabajo de investigaci6n y evalua- ci6n confirmaron que las grandes sumas de financia- Une decennie de transformation politique miento no eran suficiente para garantizar la et economique rapide identificaci6n del pais con las meclidas a tomar. Lorsqu'elle a cl6cid6 de devenir membre de la Banque en juin 1992, juste apres la dissolution de Una decada de rapida transformaci6n politica l'Union sovi6tique, la Russie traversait une p6riode y econ6mica de recession severe et persistante. Le taux d'infla- Cuando ingres6 al Banco Mundial en junio de 1992, tion etait eleve et continuait son envol, et la balance tras la clisoluci6n de la Uni6n Sovi6tica, la Federaci6n des paiements subissait une pression severe aggra- de Rusia transitaba una profunda y prolongada rece- vee par la lourde dette ext6rieure h6rit6e de l'Union si6n. La inflaci6n era elevada y se clisparaba, y la ba- sovi6tique et la cldsintgration de la zone rouble La lanza de pagos experimentaba serias presiones, xxI ASSISTING RUSSIA'S TRANSITION dissolution du cadre institutionnel dans la situaci6n que se veia agravada por la enorme majeure partie du secteur des echanges a deuda externa heredada de la Uni6n Sovi&tica y exacerbe les changements extraordinaires re- s la desintegraci6n de la zona del rublo. La disolu- quis dans les prix relatifs Les Russes ont he- c aon del marco institucaonal para la mayor parte - site a prendre le chemin du capitalisme, del comercio de la Federaci6n de Rusia exacer- _ incertains qu'ils 6taient de l'impact sur leur baba las extraordinarias variaciones de precios vie et des risques d'un contrecoup politique necesarias en los precios relativos Los ciudada- Les obstacles aux reformes etaient les sui- nos rusos no se mostraban muy decididos a vants: adoptar el sistema capitalista, ante la incertidumbre de o Des institutions gouvernementales concues pour lo que esta decisi6n implicaria en sus vidas y la preocu- gerer et contr6ler l'activit6 &conomique au lieu paci6n que planteaban los riesgos de un posible con- de la reguler et de la surveiller tragolpe politico Los obstaculos a las reformas eran o Une structure economique basee sur la planifica- los siguientes tion centrale plut6t que sur les incitations et o Instituciones p6bhicas disefiadas para dirigir y con- I'avantage comparatif trolar la actividad econ6mica en lugar de regular y o Des systemes cle production et de clistribution supervisar dominms par de grandes entreprises d'etat qul as- o Una estructura econ6mica fundada en la planifica- suraient egalement les services et la protection ci6n centralizada en lugar de fundarse en incentivos sociales y ventajas comparativas o Un secteur financier nouvellement cree et mal re- & Sistemas de proclucci6n y distribuci6n dominados gule. por grandes empresas estatales que tambien presta- o Un ss teme de paiement non fo nctionnel ban servicios sociales y brindabani protecci6n social o Une autorite en d6clin dans un systeme federal 0 Un nuevo sector financiero recientemente creado central complexe. con una regulaci6n insatisfactoria La transition russe a et6 plus difficile que s'y atten- 0 Un sistema de pago que no era funcional dait la communaut6 internationale L'un apres o Debilitamiento cle la autoriclad en un sistema fede- I'autre, des gouvernements russes ont lance des pro- ral complejo y centralizado. grammes de stabilisation et d'ajustement du debut El proceso de transici6n de la Federaci6n de Rusia au milieu des annees 1990 avec le concours du Fonds ha sido mas dificil de lo esperado por la comunidad in- mon6taire international (FMI) et de la Banque mon- ternacional. Desde el inicio a mediados de la decada diale, et l'encouragement de la communaute interna- de 1990, sucesivos gobiernos lanzaron programas de tionale. La plupart de ces programmes n'ont et que estabilizaci6n y ajuste con la asistencia del Fondo Mo- partiellement mis en ceuvre en raison de la mediocre netario Internacional y el Banco Muncdial, y el apoyo de capacit6 institutionnelle et de l'insuffisance de vo- la comunidad internacional En su mayoria, estos pro- lonte politique En aout 1998, un programme de sta- gramas se i mplementaron apenas parcialmente debido bilisation et d'ajustement structurel d'un an a a la d6bil capacidad institucional y la falta de voluntad echoue du fait des bouleversements externes et de politica. En agosto cle 1998, como resultado de los im- 'inad6quation d'un ajustement fiscal La Russie s'est pactos externos y la insuficiencia del ajuste fiscal, fra- trouvee en defaut de paiement de sa dette, le rouble caso un programa de ajuste estructural y estabilizaci6n russe a flotte (d6pr6ciation de plus de 60 pour cent) puesto en marcha un ano antes La Federaci6n de et le rendement a chute de plus de 5 pour cent. Rusia suspendLi6 el pago de su deuda, se estableci6 la L'ecart entre l'actif et le passif qui s'est creus6 libre flotaci6n del rublo (con una depreciaci6n del etait en partie du a un processus lance dans les an- 60%), y el producto cay6 mas de un 5 por ciento. nees 1980, lorsque les chefs d'entreprise, les cadres La desigualdad de ingresos y bienes se ha incremen- gouvernementaux et la direction du parti ont com- tado, en parte a traves de un proceso iniciado en la de- mence a s'approprier les entreprises d'etat et leurs cada del ochenta durante el cual los directivos de las actifs dans le cadre cle ce que Ion appelait alors la empresas y los funcionarios del gobierno comenzaron XXII EXECUTIVE SUMMARY << privatisation spontanee ,, Mais quelques as- a tomar el control de empresas estatales y de pects clu processus de privatisation structu- sus activos a traves cle lo que se conoce como jW ree y ont aussi contribu6 La pauvrete s'est S "privatizaci6n espontanea" Sin embargo, tam- accrue et les indicateurs cle developpement bi6n contribuyeroni algunos aspectos del pro- social et humain ont d6clin6, les services so- ceso cle privatizaciOn formal El pais ha ,4 ciaux se sont ddtdrior6s et les mecanismes de registrado un aumento de la pobreza acompa- protection sociale < cle type marche >d ont te niado por una caida de los indicadores de desa- longs a se developper. La stabilit6 macro-eco- rrollo social y humnano, se deterioraron los nomique a ete difficile a atteindre, partiellement du serviclos sociales, y los mecanismos de protecci6n so- fait que les autorites ne poss6daient pas les instru- cial "cle la economia de mercado" han tardado en desa- ments n6cessaires pour reguler indirectement l'eco- rrollarse No ha sido facil lograr la estabilidad nomie et clu fait de dissensions su r la facon cle macroecon6rmica, en parte porque las autoridades no repartir les coits cle l'ajustement La petite ou contaban con los instrumentos para el control inci- moyenne entreprise a ete cldcouragee par le cout recto de la economia, pero tambi6n porque no existia eleve d'entree dans le commerce et cle s'y maintenir, acuerclo sobre como distribuir los costos (lel ajuste. Se du harcelement bureaucratique et de Ia faible pri- ha desalentado el desarrollo de la pequefia y meciana maute du droit. empresa (PYME) debido a los elevados costos de in- Pourtant, meme sans reforme politique majeure, greso y cle la actividad comercial, incluyendo el debil l'6conomie commence finalement a reprendre. La imperio de la ley y el acoso burocrAtico privatisation rapicle, le demantelement des contr6les Sin embargo, no se han experimentado grandes re- et, au milieu des annees 1990, les reformes au ni- veses en las politicas y la economia finalmente inici6 su veau cles prix et des echanges ont rendu le proces- recuperaci6n La rapidez con que se Ilevaron a cabo las sus irreversible - bien qu'on ne soit pas sir si une privatizaciones, la desarticulaci6n de controles, y las voie de transition plus facile aurait pu etre trouvee reformas de precios y cornercio durante el inicio de la clans le contexte des conditions initiales et des r6all- dcacla cle 1990 hlizo cue el proceso fuera irreversible, tes politiques. La crise de 1998 a ete un < virage » aunque no quecla claro si podria haberse identificado dans la transition russe. Ces trois dernimres annees, un camino mas facil en vista de las conciciones inicia- le gouvernement a fait d'importants progres en ma- les y las realidades politicas. La ci-isis de 1998 consti- tidre cl'ajustement fiscal, de rgime cl'incitations, tuy6 un punto de inflexi6n en el proceso de transici6n d'approbation Idgislative des reformes structurelles de la Federaci6n de Rusia En los Oltimos ties afnos, el et du renforcement des institutions publiques gobierno ha realizaclo grandes avances en materia cle Grace a des termes commerciaux favorables et aux ajuste fiscal, r6gimen de incentivos, sanciones legislati- effets de la devaluation, la croissance a repris et I'm- vas de reformas estructurales, el fortalecimiento de flation a dclimn instituciones publicas, y el restablecimiento de la con- fianza p6blica en la capacidad del gobierno para Ilevar De l'investissement au credit d'ajustement a cabo las politicas Gracias al impacto positivo cle las Les actionnaires cle la Banque, clu FMI et cle la concliciones del comerclo y los efectos de la clevalua- Banque europeenne pour la reconstruction et le dc- ci6n, el pais logr6 reanudar el camino cle crecimiento y veloppement (BERD) ont clemande a ces orga- se ieclujo la mnflaci6n nismes de travailler ensemble pour faciliter la transition en offrant des conseils et de l'aide finan- La transici6n de prestamos para la inversi6n ciere La Banclue a ete chargee d'encourager et cle a prestamos para fines de ajuste surveiller les reformes structurelles, ce clui lui a pose El Banco Mundial, el FMI y el Banco Europeo para la un defi sans prececlent clu fait qu'elle ne connaissait Reconstrucci6n y el Fomento (BERF) fueron instados ni le contexte ni les antecedents historiques cdu pays por sus accionistas a trabalar en conjunto para brindar n6cessaires pour ce faire Une sdrie cle documents asesoria y asistencia financie-a clestinacla a facilitar la de strat6gie ont etabli que, en dehors de son aide transici6n Al Banco Mundial le fue encomendada la XXIII ASSISTING RUSSIA'S TRANSITION compl6mentaire pour les efforts de stabilisa- responsabilidad de promover y supervisar las ion finances par le FMI, la Banque devact reformas estructurales. Esta tarea constitufa un concentrer ses efforts sur la reconstruction desafuo sin precedentes para el Banco ya que ca- des institutions dans une economie de mar- recia de conocimiento sobre el pais como asi che, le developpement du secteur prive et la tambien de precedentes hist6ricos para enfren- mitigation des couts sociaux de la transition tar este tipo de proceso Una serie de documen- A cette fin, la Banque s'est engagee a accor- tos de estrategia estableci6 que, ademas de su der 55 prets representant au total 12,6 mil- asistencia complementaria en respaldo de los liards de dollars jusqu'a la fin de l'annee budgetaire esfuerzos de estabilizaci6n financiados por el FMI, el 2001, dont 7,8 milliards de dollars ont ete decaisses Banco Mundial se concentraria en ayudar a construir et 2,4 milliards de dollars ont ete annules Jusqu'a la las instituciones de una economia de mercado, desa- fin de l'annee budgetaire 1996, les prets etaient ac- rrollar el sector privado, y mitigar los costos sociales cordes principalement pour des projets de rehabili- de la transici6n A tal fin, el Banco se comprometi6 a tation et d'investissement (a grande composante otorgar 55 prestamos por valor de $12 600 millones d'energie) Plus tard, les prets ont ete principale- hasta fines del ejercicio 2001, de los cuales US$7 800 ment axes sur les operations d'ajustement Les millones han sido desembolsados y US$2.400 millones conseils d'action politique etaient dispenses a tra- se han cancelado. Hasta el afno 1996 las operaciones de vers les travaux economiques et sectoriels, l'assis- prestamo se centr6 en actividades de modernizaci6n e tance technique, et la conception et mise en oeuvre inversi6n (con una importante participaci6n en el sec- des operations de credit. tor de energia). Con postenoridad, la mayor parte de A la demande de la communaut6 internationale, los prestamos se destin6 a operaciones de ajuste Se la Banque a accelere la preparation de nombreux brnd6 asesoria para el desarrollo de politicas a traves projets, tant pour l'investissement que pour le sou- de trabajo en el frente econ6mico y sectorial, asisten- tien budgetaire d'ensemble, bien que les chances de cia tecnica, y el diseflo e implementaci6n de operacio- reussite aient ete loin d'etre certaines. Ces opera- nes de prestamo tions haut risques/haut rendement n'ont pas reussi A instancia de la comuniclad internacional, el Banco car la Banque ne possedait ni le contr6le des res- apresur6 la tramitaci6n de muchos proyectos, tanto de sources ni l'influence necessaire pour surmonter les inversi6n como de apoyo general al presupuesto, aun- obstacles sans precedent mentionnes ci-dessus Les que las probabilidades de exito eran muy inciertas. resultats des operations axees sur la privatisation et Estas operaciones de alto nesgo y alto rendimiento no la protection sociale ont ete meilleurs que ceux des tuvieron exito, ya que el Banco no contaba con los re- projets cle stabilisation, du secteur financier et de re- cursos ni la influencia para superar las limitaciones sin structuration du secteur petrolier Les conseils et les precedentes antes descriptas. Las operaciones destina- prets de la Banque ont joue un r6le positif mais mar- das a pnivatizaciones y protecci6n social tuvieron mejo- ginal dans l'elaboration des politiques et leur mise res resultados que las operaciones dirigidas a la en ceuvre jusqu'en 1998 Depuis cependant, de estabilizaci6n, el sector financiero y la reestructuraci6n nombreux enseignements tires des operations de la del sector petrolero. Hasta 1998, la actividad de aseso- Banque et des conseils analytiques de cet organisme ria y financiamiento del Banco desempefn6 un papel ont ete pris en compte. Cela explique en partie positivo, aunque marginal, en el disefio e implementa- pourquoi les cotes de durabilite des operations fi- ci6n de politicas. Desde entonces, sin embargo, se han nancees par la Banque sont plus positives que les incorporado muchas de las lecciones recogidas de las cotes de rendement Les benefices modestes cumu- operaciones del Banco y de la actividad de asesoria les, conjugues a l'impact positif des conseils de la analitica. Esto explica porque las calificaciones de sos- Banque, ont contribue a etablir les fondations du re- tenibilidad de las operaciones financiadas por el Banco cent redressement en Russie son mas elevadas que las calificaciones de los resulta- Apres la crise financiCre d'aouit 1998, la perti- dos Sus beneficios modestos aunque acumulativos, nence et l'efficacite de l'aide se sonlt beaucoup ame- junto con el impacto positivo de la asesoria del Banco, xxiv EXECUTIVE SUMMARY lhor6 La Banque a et prudente quant aux han contribuido a crear los cimientos de la re- nouveaux pnrts qui sont maintenant axes sur ciente reconversi6n de la Federaci6n de Rusia le developpement social et institutionnel ai Tras la crisis financiera de agosto de 1998, long terme Le dialogue politique sur les r6- tanto la importancia como la eficacia de la asis- formes structurelles s'est poursuivi et les acti- tencia mejoraron considerablemente El Banco vit6s de la Banque au niveau communautaire ha adoptado una postura prudente en la nueva ont joue un r6le significatif dans la preven- actividad de financiamiento, que se concentr6 tion des renversements de politique, l'elabo- en el desarrollo social e institucional a largo ration du programme actuel de reformes et le plazo El dialogo ininterrumpido en materia cle polito- renforcement de la propri6t6 client La Banque est cas destinadas a reformas estructurales y las activida- devenue l'interlocuteur externe principal pour le cles de extensi6n del Banco influyeron para impedir programme de reformes sociales et micro-6cono- reveses en el desarrollo de politicas, formular el actual miques, et le gouvernement a adopt6 un grancl programa de reforma, y fortalecer la identificaci6n clel nombre cle recommanclations faites par la Banque cliente con el programa. El Banco se ha conver-tido en Parmi les r6alisations appuyees par les interventions el principal interlocutor externo en la agenda de re- de la Banque citons l'am6lioration de la gestion fis- forma microecon6mica y social, y el gobierno ha adop- cale, l'orientation des programmes d'assistance so- tado muchas de las politicas recomendadas por el ciale et la restructuration du secteur du charbon La Banco. Los logros respaldados por las intervenciones performance du portefeuille s'est egalement am6lio- del Banco incluyen el mejoramiento de la gesti6n fis- ree depuis 1999, partiellement en raison cle l'annula- cal, la selecci6n cle programas de asistencia social, y la tion des projets en difficulte et partiellement a reestructuraci6n del sector de carb6n Desde 1999 travers les efforts conjoints Russie-Banque visant a tambi6n se advierte una mejora en el rendimiento de accelerer la mise en ceuvre Une cquestion Cliscutable la cartera, lo que obeclece en parte a la cancelaci6n de est celle de la resilience de ces realisations aux bou- proyectos insatisfactorios, asi como tambi6n a los es- leversements externes, notamment a une chute im- fuerzos mancomunaclos de la Federaci6n de Rusia y el portante des prix du petrole et autres procluits Banco por acelerar la implementaci6n Aun resta eva- d'exportation luar la capacidad de respuesta de estos logros frente a impactos externos, en particular, la dristica caida de Les activites de la SFI et de I'AMGI dans los precios del petr6leo u otros productos primarios le developpement du secteur prive de exportaci6n Une dvaluation en profondeur des activit6s de la So- cietefinanciere internationale (SFI), branche du Las actividades de la CFI y del OMGI para Groupe de la Banque mondiale pour le financement el desarrollo del sector privado du secteur prive, a et effectuee par l'OEG (le El Departamento de Evaluaci6n de Operaciones (DEP) groupe independant de la SFI charge de l'valuation independiente de la Corporaci6n Financiera Interna- r6trospective des operations). Jusqu'a fin 2001, la cional (CFI) realiz6 una evaluaci6n minuciosa de las SFI a orient6 la majeure partie de ses efforts sur l'as- actividades de la CFI. Hasta fines de 2001, la CFI des- sistance technique Cette demarche r6pondait aux tin6 la mayor parte de sus esfuerzos a operaciones de besoins de la premi6re moiti6 des annees 1990 et re- asistencia tecnica Esta estrategia era reflejo de las ne- fl6tait la grande dispombilit6 de financement des in- cesiclades de este pais durante la primera parte de la vestissements de la BERD, ainsi que les inqui6tudles decada de 1990, el acceso a abundante financiamiento persistantes de la SFI au sujet des hauts risques as- para la inversi6n proveniente del BERF, y la continua soci6s aux operations d'investissement dans ce pays. preocupacion de la CFI por los altos riesgos de las Le montant des prets engages et des investissements operaciones de inversi6n en el pais. Los compromisos de participation dans 48 entreprises privees des sec- asumidos en virtud de prestamos e inversiones en ca- teurs financiers, de fabrication et de detail s'eleve a pital accionario en 48 empresas financieras, manufac- 0,71 milliard de dollars (0,51 milliarcl cle dollars dans tureras y minoristas del sector privado ascenclian a US$ xxv ASSISTING RUSSIA'S TRANSITION 34 soci6t6s, deduction fait des annulations). 71 millones (US$ 51 millones en 34 empresas, I Cela represente environ un septieme du vo- descontadas las cancelaciones) Esto equivalia a lume de financement de la BERD La SFI a una s6ptima parte del financiamiento aportado exerce beaucoup de pruclence en la circons- por el BERF. La prudencia cle la CFI en las ope- tance et a fait preuve d'une resistance louable raciones de inversi6n fue acertada dadas las cir- a la pression exteneure et aux incitations cunstancias, y reflej6 una resistencia exitosa y pour l'approbation interne loable ante la presi6n externa y los incentivos LOEG a mis en lumi&re les antecedents internos cle aprobaci6n impressionnants de la SF1 en mati&e d'op6rations El DEO concluy6 que la CFI tuvo un registro admira- d'assistance technique, sa reponse aux besoins stra- ble de operaciones de asistencia tcnica, estas dieron tegiques, et sa contribution mat6rielle au processus respuesta a las necesidades estrategicas y contribuye- de transition de la Russie Mais en 1993-98, cle ron en gran medida al proceso de transici6n de la Fede- concert avec d'autres institutions financieres de de- raci6n de Rusia. Sin embargo, junto con otras veloppement, elle a accel&e ses investissements, en instituciones financieras de fomento, la CFI elev6 sus avance sur le processus de reforme, et les resultats inversiones en el periodo 1993-1998 antes del proceso ont et decevants. Principalement en ralson de la de reforma, con los consiguientes resultados insatisfac- crise de 1998 et de l'environnement difficile du com- torios. Como consecuencia prncipalmente de la cnsis merce qui a entrain6 des pertes pour la plupart des de 1998 y la dificil coyuntura general de la actividad em- soci6t6s prives, notamment dans le secteur finan- presanal que provoc6 p6rdidas en la mayoria de las em- cier, 35 pour cent seulement des projets d'investis- presas del sector privado, especialmente en el sector sement cle la SFI ont eu des resultats satisfaisants en financiero, apenas el 35 por ciento de los proyectos de mattire cle developpement En revanche, 96 pour inversi6n de la CFl alcanz6 resultados de desarrollo sa- cent des subventions des donateurs, canalises a tra- tisfactorlos. Por el contrano, el 96 por ciento de las do- vers la SFI pour l'assistance technique, ont eu des naciones canalizadas a traves de la CFI para asistencia resultats satisfaisants sur le plan du developpement tcnica alcanz6 resultados de desarrollo satisfactorios Neanmoins, malgre les 1,100 encheres de privatisa- No obstante, a pesar clel exito obtenido por 1.100 pro- tion que la SFI a aide a r6aliser pour les PME au cesos de privatizaci6n que la CFI ayud6 a realizar para debut des annees 1990, la SFI n'a pas encore etabIi las PYME a comienzos de la decada del noventa, la CFI une canalisation en gros durable pour les investisse- no habia logrado establecer ain un canal mayorista sos- ments dans les PME En ce qui concerne l'avenir, tenible para las inversiones en este sector. De cara al fu- l'6valuation menee par l'OEG est favorable a l'expan- turo, la evaluaci6n del DEO respald6 la expansi6n sion planifi6e des activites de la SFI visant a am6lho- planificada de las actividades de la CFI en respuesta a rer le climat des investissements des deux dernieres un mejor clima de inversi6n en los dos 6ltimos afnos. annees. De acuerdo con un analisis documental de la Uni- Selon lPexamen des documents par son OEU dad de Evaluaci6n cle Operaciones (UEO), el programa (unite d'evaluation r6trospective des operations), le de garantias del Organismo Multilateral de Garantia de programme de garantie de l'Agence multilat&rale de Inversiones (OMGI) satisfizo con prudencia y en forma garantie des investissements (AMGI) a repondu avec selectiva las necesidades cle los inversores privados ex- prudence et de maniere s6lective aux demandes des tranjeros en materia de seguro contra riesgo politico. investisseurs prives etrangers pour une assurance- En consecuencia, no se han presentado reclamos por risque politique. Ainsi, il n'a pas subi de pertes au ni- p6rdiclas en la Federaci6n cle Rusia, que se ubica entre veau des revendications en Russie, l'un des cinq los cinco primeros paises en la cartera de dicho orga- pays les plus importants du portefeuille de l'Agence. nismo Antes de que se desencadenara la crisis finan- Avant le declenchement de la crise financiere, ciera, el OMGI brnd6 cobertura para nesgos de l'AMGI couvrait les risques de transfert mais n'offrait transferencia pero no ofreci6 seguro contra riesgo de pas de couverture pour la convertibilite mon6taire inconvertibilidad El OMGI continu6 brindando apoyo L'AMGI a continue de soutenir les projets apres le a proyectos despues de que el pais declarara la cesa- xxvi EXECUTIVE SUMMARY defaut de paiement de la Russie pour sa dette ci6n de pagos de su deuda externa Si bien la etrangere. Bien que la demande en produits demanda cle los productos clel OMGI era relati- AMGI alt et relativement faible, sa couver- vamente baja, otorg6 cobertura por $ 549 millo- ture de 549 millions de dollars pour 18 pro- nes para 18 proyectos - principalmente en el jets - principalement dans l'agroinclustrie, la sector agroundustr-ial, cle procesarniento de ali- . transformation alimentaire et les boissons, les mentos y bebidas, financiero y de industrias ex- finances et les industries d'extraction - a tractivas - lo cual facilito una inversi6n neanmoins facilit6 l'investissement cirect extranjera directa de aproximadamente $ 1.300 etranger de 1,3 milliarcl de dollars en Russie (voir millones en Rusia (ver Anexo 12) En octubre de 2000 l'annexe 12). Dans le secteur de l'investissement lanz6 sus servicios para promoci6n de las inversionies, dans les services de marketing, le site web < Privati- el vinculo PrivatizationLink Russia en la pagina Web La zationLink Russia» a et lance en octobre 2000 et UEO sugiriO que en un futuro el Organismo deberia fournit en temnps opportun cl'importantes informa- esforzarse por maximizar el volunmen de inversi6n ex- tions aux investisseurs etrangers potentiels. L'OEU a tranjera directa que facilita y al mismo tiempo diversifi- suggere qu'A l'avenir l'Agence s'efforce cle maximiser car su cartera, minimizando su exposici6n neta en le montant de l'investissement direct etranger qu'il Rusia. facilite, tout en diversifiant son portefeuille et en mi- nimisant ses risques nets en Russie. Pr6ximos pasos La cirecci6n del Banco concuerda con las recomenda- Etapes suivantes ciones clel DEO, segun las cuales el Banco deberla con- La direction de la Banque a adopte les recommanda- centrar auin mas sus operaciones de asistencia en areas tions de l'OED pour une concentration plus pointue clue cuenten con un firme compromiso de reforma cle son aide aux pays dont les gouvernements sont por parte del gobierno y con consenso social relativo fermement engages A legard des reformes et ou il La gesti6n clel sector p6blico, la reforma del marco existe un consensus social clans ce sens. La gestion legal y judicial, el clima cle inversi6n y empresarual, la du secteur public, la reforme du systeme legal et ju- reforma de las jubilaciones, los mercados de tuerras, y ridique, le climat des investissements et du com- la reestructuracuOn de los sectores de carb6n y electri- merce, la reforme des pensions, les marches cidad ofrecen actualmente oportunidades de desarro- fonciers, et la restructuration du secteur du charbon llo con alto potencial. El dialogo continnuo en materia et cle l'lectricit6 sont cles domainies A haut potentiel de reforma de pollticas y el programa de asesorla tec- de retombees de developpement Le dialogue poli- nica para la reformia del sector bancario cleberian con- tique en cours et le programme technique consulta- tinuar En respuesta a las demandas del cliente, la tif sur la reforme du secteur bancaire doivent se asistencia del Banco deberia brindar un programa am- poursuivre. Pour repondre A la demande des clients, pliado de asesoria en materia de buenas practicas, y l'aide cle la Banque clevrait comprendre un pro- fortalecer el clebate pibluco sobre las reformas Los gramme elargi de bons conseils pratiques et le ren- prestamos para reformas politicas deben estar disenia- forcement du debat public sur les reformes. Les clos para garantizar una relaci6n estrecha entre el prets en faveur des reformes devraient etre concus avance de la reforma y los desembolsos efectivos. El de manimre A lier etroitement la progression satisfai- Banco tambi6n debe considerar la posibilidad de foca- sante des reformes aux d6caissements effectifs. La lizar parte de su asistencia en regiones selectas que Banque devrait egalement etudier la possibilit6 estAn comprometidas con la reforma d'orienter une partie de son aide sur les regions spe- cifiquement engagees dans les reformes. Lecciones aprendidas La principal lecci6n generica que se desprende de la Leqons apprises experiencia del Banco en la Federaci6n cle Rusia es La le§on genernque cle de l'exp6rience cle la Banique que la identificacu6n del pais con el programa es esen- en Russle est que la proprin6t pays est cruciale A la cial para el exito de la asistencia Por lo tanto, es im- XXVII ASSISTING RUSSIA'S TRANSITION r6ussite de l'aide Ainsi, il est important que portante que el Banco preste especial atenci6n la Banque prete une attention particuliere a los aspectos politicos e institucionales de las 4l aux aspects politiques et institutionnels des | reformas, y consulte con todas las areas perti- reformes et consulte toutes les entit6s - nentes del gobierno y con la sociedad civil a fin concernees du gouvernement et de la societe de dar mayor relevancia, mejorar el diseflo de publique, a l'amelioration de la pertinence et sus actividades, y evitar las operaciones sin un de la conception de ses activit6s et a la pru- firme compromiso local Tambien se rescatan dence afin de ne pas se lancer dans des ope- otras lecciones generales rations la oi l'engagement laisse a d6sirer Les autres A la luz de antecedentes insatisfactorios y una es- lecons d'ordre general sont les suivantes casa iniciativa de reforma por parte del pais, un pro- * En raison des antecedents mediocres et de la grama de prestamo para fines de ajuste faible propriete-pays quant aux reformes, un (especialmente un programa con importantes de- grand programme d'ajustement de l'investisse- sembolsos iniciales) corre el riesgo de demorar en ment (notamment avec d6caissements en debut lugar de acelerar la reforma de periode) risque de retarder le processus cle re- o Ante la presencia de antecedentes insatisfactonos y forme au lieu de l'accelerer. un nuevo consenso para una programa de reformas, o En presence d'antecedents m6diocres et d'un las operaciones de prestamo para fines de ajuste de- nouveau consensus en faveur d'un programme berian ofrecerse despues de que el gobierno haya de reformes, les prets d'ajustement devraient etre adoptado en forma p6blica las reformas necesarias, offerts apres l'adoption gouvernementale des re- o las haya comenzado a implementar, tal como su- formes n6cessaires ou le lancement de leur mise cedi6 en el caso de los Prestamos para el ajuste del en ceuvre, comme ce fut le cas pour les prets sector de carb6n (SECAL) Los desembolsos deben d'ajustement du secteur du charbon (SECAL). Les realizarse en etapas posteriores y estructurarse en d6caissements devraient etre effectues en fin de forma cuidadosa en funci6n del avance firme en el periode et modules avec soin sur la base des pro- proceso de implementaci6n gres certains de mise en ceuvre. o Debe tenerse acceso a trabajos analiticos adecuados * Les resultats des activites analytiques adequates en las primeras etapas de las operaciones de pres- doivent etre disponibles en amont des prets. Les tamo Las actividades AAA deben financiarse en con- AAA devraient etre financees selon le r6le que la cordancia con el papel que el Banco pretende Banque devra jouer. desempefiar. * Les calendriers de mise en ceuvre dolvent etre o Los calendarios para la implementaci6n del pro- realistes grama deben ser realistas. o Pour que les projets d'investissement et de reha- - A fin de alcanzar los objetivos de desarrollo fijados bilitation physique atteignent leurs objectifs de en los proyectos de inversi6n y modernizaci6n de developpement, les reformes politiques et institu- activos fijos, se requieren avances en el proceso de tionnelles doivent progresser de maniere satisfai- reforma de politicas y del marco institucional sante Respuesta de la direccion y del gobierno Reponse de la direction et des autorites La direcci6n del Banco no coincide con la idea de que el gouvernementales cambio de prestamos para la inversi6n por prestamos para La direction de la Banque estime que le passage de la fines de ajuste estructural haya sildo una respuesta equi- politique de prets d'investissement a la politique de voca a los desafios de la reforma sistemica que la Fede- prets d'ajustement structurel n'etait pas une reponse raci6n de Rusia enfrentaba en 1996 En su opini6n, si la a faux aux defis que posait la reforme systemique en asistencia se hubiera limitado a las activcdades analiticas Russle en 1996 A son avis, une r6duction de l'aide aux y de asesoria (AAA) y a pequeiios prestamos, como su- AAA et les petits prets suggeres hypotheticluement giere la premisa hipotetica del Departamento de Eva- par l'OED auraient entraine la perpetuation du faible luaci6n de Operaciones (DEO), esto hubiese implicado EXECUTIVE SUMMARY impact cle la Banque sur l'6Iaboration des poli- perpetuar el impacto limitaclo del Banco en la 4 tiques. Les prets d'ajustement structurel de formulaci6ndepoliticas Los Pr6stamos cleAjuste 1997 (SAL I et II) et le pret d'ajustement pour Estructural de 1997 (SAL I y II) y los Prestamos cle la protection sociale (SPAL) 6taient n6cessaires l Ajuste para Protecci6n Social (SPAL) fueron ne- pour influencer la conception du plan cle re cesarios para influir en el diseilo de la agenda de forme structurelle Selon la Banque, ces ope- reforma estructural. La chirecci6n del Banco tam- rations ont et des instruments indispensables bien sostiene que estas operaciones proporcio- et ont contribu6 a gagner la confiance pour evi- naron las herramientas adecuadas y construyeron ter cles renversements de politique economique, ame- la confianza necesaria para impeclir reveses en la politica liorer les relations de la Banque avec la Russie et planter econ6mica, mejorar las relaciones entre el Banco y el pais, les jalons du programme de reforme approuve par le y sentar las bases del programa cle reforma que fue apro- Gouvernement en 2000 et actuellement en cours de bado por el gobierno por primera vez en 2000, y que se r6alisation encuentra actualmente en vias de implementaci6n Les autorites russes estiment que l'EAP < donne Las autoridades de la Federaci6n cle Rusia considera- une image objective des activit6s de developpement ron que la evaluaci6n de asistencia al pais (CAE) "presenta en Russie pendant la derniere cleennie et met en lu- una visi6n suficientemente objetiva de los aconteci- mirre les facteurs auxqLuels on peut attribuer les reus- mientos acaecidos en dicho pais clurante la 6ltima decada sites et les echecs de la Banque >, Bien qu'elles soient y explica en lineas generales los factores subyacentes a en grande partie cl'accord avec les evaluations des ac- los exitos y reveses clel Banco" Si bien "comparten en gran tivit6s de la Banque dans chaque secteur, elles estiment medida los conceptos vertidos en la evaluaci6n cle asis- que le resultat d'ensemble est satisfaisant etant donne tencia a este pais que analiza los resultados de la activi- que le processus de transition a et < tres rapide ,>, et dad del Banco en sectores particulares," calificaron al que les developpements ult6rieurs a 1998 etaient le fruit resultado general de la actividad como satisfactorio, ya des efforts faits pendant la p6riode precedente et clu que el proceso de transici6n ha siclo "muy rapido" y los r6le important jou6 par la Banque et le Fonds. Quant acontecimientos positivos posteriores a la crisis cle 1998 au grand nombre de projets probl6matiques du passe, fueroni fruto cle los esfuerzos realizados durante el peri- les autorit6s ont soulign6 le partage cles responsabili- oclo previo y el protagonismo clel Banco y el Fonclo En tes avec la Banque dont un grand nomilbre d'op6rations relaci6n con la porci6n relativamente alta de proyectos << n'6taient pas etay6es par une compr6hension pro- problemnticos en el pasado, seFialaron que la responsa- fonde des problemes de l'epoque >, Enfin, elles esti- bilidad era compartida con el Banco, ya que muchas ment que les recommandations avancees par l'OED operacionies "no se sustentaban en Ia comprensi6n ab- << coincident dans une plus gi-ande mesure avec la dis- soluta cle los problemas existentes" Por iltimo, consi- position clu Programme pour la cooperation cle la Rus- deraron que las r ecomendaciones del DEO "coinciclen en sie avec la Banque, recemment approuvee par le gran medida con las disposiciones del Programa para la gouvernement. ,, Cooperaci6n de la Federaci6n de Rusia con el Banco - que fue recientemente aprobado por el gobierno" Le point de vue des administrateurs Le sous-comit6 clu comit6 pour l'efficacit6 clu deve- Perspectiva de los directores ejecutivos loppement (Committee on Development Effective- El Subcomit6 de Directonio Ejecutivo del Comit6 sobre ness - CODE), organe clu Conseil des administrateurs, la Eficacia en terminos cle Desarrollo (CODE) analiz6 a examine aussi bien le rapport cle l'OED que celui cle los inforimies del Departamento cle Evaluaci6n de Ope- l'OEG le 8 mai 2002. Tl a approuve dans ses grandes raciones y del Gruipo cle Evaluaci6n de Operaciones el 8 lignes les recommaiclations contenues dans les eva- de mayo cle 2002 En lineas generales, sus miembros luations et a note les assui-ances clonn6es par la di- respaldaron las recomenidaciones realizaclas en tales eva- rection, a savoir qu'elles seront incorporees dans la luaciones y destacaron que la cdirecci6n se comprometia Strategie d'aide par pays clui cloit etre soumise a l'exa- a incorporarlas en la Estrategia de Asistencia por Pais men du Conseil cles administrateurs en pleniere au que sera someticla a considerac6n del Directorio Ejecu- XXIX ASSISTING RUSSIA'S TRANSITION mois de juin 2002 Les membres ont souligne tivo en pleno en la reuni6n fijada para junio de l'importance d'approfondir la coherence, la co- 2002. Los miembros exhortaron a una mayor co- ordination et le partage de l'information entre herencia, coordinaci6n, e informaci6n compartida la Banque et la SFI Le president a termrin son entre el Banco y la CFI. En sus conclusiones, el Pre- discours en soulignant l'importance de confier sidente del Directorio destac6 la importancia de au pays la responsabflit6 des reformes et d'as- la iniciativa de reforma por parte del pais y de la surer la capacite de mise en ceuvre; la neces- capacidad para implementarla, la necesidad de site, au niveau de la Banque, de travailler en que el Banco trabaje en sociedad con otros do- partenariat avec les autres donateurs , et le r6le vital nantes, y el protagonismo que tiene el Banco en la for- que joue la Banque en s'engageant a developper le sens maci6n de dicha iniciativa y en el fortalecimiento de las de responsabilit6 et a renforcer les institutions tres t6t instituciones en las primeras etapas del proceso de tran- dans le processus de transition sici6n. Au cours de la discussion, plusieurs membres du En el curso del analisis, algunos miembros del sub- sous-comite ont demande si, dans les premieres an- comit6 se preguntan si lagran cantidad de pr&stamos para nees, le gros volume de pr&s a l'ajustement n'avait pas fines de ajuste en los prnmeros afios no habria retrasado entramn& un retard dans l'application des reformes en las reformas al posponer la necesidad de abordar pro- raison de l'ajournement du reglement des questions blemas estructurales criticos. En su opini6n, una estra- structurelles cruciales. Ils estiment qu'une strat6gie tegia de asistencia onentada hacia las actividades AAA con d'aide axee sur les AAA, avec un soutien financier limit6 respaldo financiero limitado para la Federaci6n de Rusia a la Russle, aurait et plus appropriee qu'une strat6gie hubiese sido mas adecuado que la estrategia consistente de gros volume de prets pour l'ajustement. Cependant, en otorgar prestamos para fines de ajuste por elevados d'autres membres pensent que l'effet de levier des importes Sin embargo, otros consideran que el apalan- prets a et crucial dans le cadre du dialogue de la camiento generado por la actividad de pr6stamo ha sido Banque avec les autorites russes et que les AAA n'au- esencial para el dialogo del Banco con las autoridades de raient pu, a elles seules, capter l'attention du gouver- la Federaci6n de Rusia, y que probablemente las activi- nement Ainsi, leur argument est qu'il pourrait s'averer dades analiticas y de asesoria (AAA) por si solas no ha- difficile d'attendre un consensus general, notamment brian podido captar la atenci6n del gobierno En este en periode de crise Dans ces circonstances, la Banque sentido, sostienen que puede ser dificil esperar hasta al- pourrait se voir oblig6e d'accepter un r6le a plus haut canzar un consenso generalizado, especialmente cuando risque - en particulier lorsque sa compr6hension de se enfrentan situaciones de crisis En tales circunstancias, '&conomie est relativement faible - et d'essayer de de- el Banco podria tener que asumir mayores riesgos al in- velopper un sens de responsabilite a travers son en- tervenir - en especial cuando su grado de comprensi6n gagement, malgre les divergences d'opinion eventuelles de la situaci6n econ6mica es relativamente menor - e in- dans le pays. tentar construir la iniciativa del pais a traves de su pro- pio compromiso, si bien las opiniones en el pais pueden estar muy divididas xxx ABBREVIATIONS AND ACRONYMS AAA Analytical and advisory services AIDS Accluired Immune Deficiency Syncirome CAE Country Assistance Evaluation CAS Country Assistance Strategy CBR Central Bank of Russia CEB Central Europe and the Baltics CFAA Country Financial Accountability Assessment CIDA Canadian International Development Agency CIS Commonwealth of Inclependent States CMDP Capital Market Development Project CMEA Council of Mutual Economic Assistance COA Chamber of Accounts CPPR Country Portfolio Performance Reviews EBRD European Bank for Reconstruction and Development ECA Europe ancl Central Asia Region EFF - Extended Financing Facility ESSP Employment Services and Social Protection ESP Enterprise Support Project ESW Economic and sector work EU European Union FCPF Federal Center for Project Finance FDI Foreign clirect investment FIAS Foreign Investment Acdvisory Service FIDP Financial Institutions Development Project FSD Financial sector development GDP Gross domestic product GEF Global Environmental Facility GKO Government short-term securities GNP Gross national product HJV Human immunocleficiency virus HRMP Higlhway Rehabilitation ancl Maintenance Project IBRD International Bank for Reconstruction and Development (Worlcl Bank) IDA International Development Association IFC International Finance Corporation IFIs International financial institutions IMF International Monetary Fund LFS Loans-for-shares [scheme] MFTP Management Financial and 'Training Project MIGA Multilateral Investment Guarantee Agency MOF Ministry of Finance MPP Mass Prvatization Program OECD Organisationi for Economic Co-operation and Development OED Operations Evaluation Department OEDCR Operations Evaluation Department, Country Evaluation and Regional Relations OEG Operations Evaluation Group OEU Operations Evaluation Unit OFZ Government short-term securities PAR Performance Audit Report XXXI ABBREVIATIONS AND ACRONYMS PFA Public Financial Accountability PIAL Privatization Implementation Assistance Loan PIUs Project Implementation Units PSD Private Sector Development QAG Quality Assurance Group SAL Structural Adjustment Loan SECAL. Sector Adjustment Loan SMEs Small and medium-size enterprises SPAI. Social Protection Adjustment Loan TA Technical assistance TB Tuberculosis TCA Technical Cooperation Agreement USAID United States Agency for International Development WTO World Trade Organization Note All dollar figures mentioned in the text refer to U.S. dollars unless otherwise specified XXXII 17 . Russia's Transition: From Plan to Market An Extraordinary Challenge T he transition that took place during the past decade in Central and East- ern Europe and the former Soviet Union has led to unprecedented po- litical, economic, and social change.1 The obstacles that Russia, its governments, and outside supporters faced in the transition to a market economy were formidable: deep economic distortions, major trade disrup- tions, serious environmental damage, and a total lack of market institutions. In the mid-1980s, economic stagnation and productivity declines had led the Soviet government to launch an economic restructuring process (perestroika) in parallel with political openness (glasnost). Perestroika allowed private small-scale initiative inflation, and loss of control by central authori- and granted state enterprises considerable au- ties over economic management (Mau 2000) tonomy, but clid not create mechanisms to en- The collapse of the Soviet Union in 1991 exac- sure management accountability. As a result, erbated the shifts in relative prices and the clis- many "insiders" began to take over state enter- ruption of interenterpnse linkages An antiquated prises and their assets in a process referred to payment and legal system, the clismemelberment as "spontaneous" privatization A banking sector of the ruble zone, and soft budget constraints in- was created, initially by clivesting commercial duced a sharp rise of intereniterprise arrears and activities from the State Bank. With inadecluate the spread of barter tracle regulation and supervision and low barriers to The Russian Fedeiation (Russia) that emerged entry, the number of banks climbecd to the thou- in 1991 inhenrted weak institutions, a complex sancls Public investment and social expendi- federal system, and a distortecl economic struc- tures increased, but there were no adjustments ture dominatecd by oil and gas, heavy inclustry, and to prices and taxes. military production. Through late 1999, many ob- These policies led to the abolition of central servers fearecd policy backsliding with serious po- planning, but they also contributed to higher tential human and geopolitical consequences, as fiscal deficits, large external borr-owings, high the Russian authorities were spllit over the speecl ASSISTING RUSSIA'S TRANSITION and scope of market reforms, and the Duma op- modest, the impact on poverty, income distri- posed most of the economic and legislative mi- bution, equity, and human development has tiatives of the executive branch This led to been large, both in absolute terms and relative frequent government shakeups and to increasing to other transition economies. In mid-1999, 55 regional autonomy In turn, low trust in state in- percent of the population, especially children and stitutions underpinned weak ownership of the re- the elderly, was living in absolute deprivation 3 forms among the Russian people The need to Inequality had doubled by 1993, with the Gini co- build market institutions and reorient public at- efficient reaching 0.47. Human development in- titudes, as well as the overwhelming pnority of cre- dicators, which had deteriorated between the ating a democratic political order out of the ruins mid-1980s and the early 1990s, recovered only of centuries of autocratic rule, combined with modestly (see tables A 3 and A.4). Health and ed- the social impact of population movements ancl ucation indicators dropped, the quality of serv- with chronic environmental and demographic ices worsened, and social and geographic burdens, compounded the transition challenge 2 disparities in access grew From 1991, transition to an open market econ- Several stabilization programs were launched omy was the key goal of successive Russian ad- dunng 1992-94. But these were short-lived, as the ministrations. The initial steps were price authorities lacked the instruments to tighten fis- liberalization, unification of the exchange rate, cal and monetary policies In 1995, a stabilization and privatization Trade liberalization proceeded program adopted with International Monetary in most areas, but with some export restrictions Fund (IMF) support succeeded in reducing in- remaining in the energy sector. Other govern- flation for almost three years. It rested on three ment goals were regulatory reform, anti-mo- legs fixing the exchange rate as a nominal anchor, nopoly policies, financial sector strengthening, tightening credit to enterprises, and limiting Cen- and provision of an effective social safety net to tral Bank of Russia (CBR) credit. But the gov- protect the most vulnerable, but these were ernment could not hold to the program's fiscal slower in getting started policy nor implement the supporting structural reforms because of the opposition of key stake- Institutional, Economic, and holders. The fiscal slippage and low world prices Social Performance for Russia's exports required increasing external The World Bank's country policy and institu- borrowing to keep the progressively uncompet- tional assessment puts Russia in the middle itive fixed exchange rate. In August 1998, the sta- among transition economies, with high scores for bilization and structural adjustment program the shift of production toward the private sec- collapsed, triggered by declines in oil prices and tor and price liberalization, but low scores for fi- the spillover of the East Asia crisis that under- nancial sector development, competition policy, mined investor confidence 4 Russia had to default enterprise reform, corporate governance, envi- on its debt and the ruble was floated (depreciating ronmental sustainability, property rights, and by over 60 percent), leading to the insolvency of public sector governance (transparency, ac- most banks, a spike in inflation, and a severe, al- countability, and corruption). European Bank beit short-lived, recession. for Reconstruction and Development (EBRD) By the mid-1990s, the private sector was con- transition indicators portray a similar picture tributing more than 70 percent of gross domes- Over the past decade, Russia's gross national tic product (GDP). Most enterprises had been product (GNP) per capita declined substan- sold or otherwise transferred out of state hands, tially-by more than 50 percent, according to of- mostly to their workers, but without prior re- ficial statistics (see table 1.1), although the large structuring and breakup to enhance competition. changes in relative prices and the rise of a large Much of this transfer was done through a mass unofficial economy make comparisons of eco- privatization program (MPP). Eager to stop the nomic estimates before and after 1990 unreliable looting of state property by insiders, the re- Although the decline in consumption was more formers saw the voucher option for the MPP as 2 RUSSIA'S TRANSITION FROM PLAN TO MARKET Tab e 1 .1 O (D (DO ea(D (D Goc(BI? (D (D O(m cOD Fiscal year Indicator 1990 i 1991 1992 1993 1994 K1995 1996 { 1997 1998 F 1999' 2000 I , I ~ ~~ ~~~~~~~~~~~~~I I l10 GDP growth (annual %) -30 --50 -145 -87 -126 41 -3.4 0 9 49 1 54 90 50 GNP per capita grovvth l ¢ (annual %) -3 6 -5 5 -15.3 -8 4 -12 5 -4 4 -3 5 0 7 -6 4 3 3 11.2 7 5 GNP, Atlas method (US$ billion) . 569 469 412 , 343 333 348 383 331 256 246 253 Inflation, consumer prices (annualavg %) 56 926 113541 1 8953 303.2 1887 47.5 148 277 857 206 21 5 REER index (1 997 = 1 00) 161 2 121 5 16 5 34 0 1 56 6 68 0 91 7 100 0 72 0 46 0 58 9 70 4 Real wage rate (annual growth) -8 0 -28 0 6 0 4 7 -13 4 1-22 0 20 9 Corporate profit, current prices I% of GDP) 3 0 2 4 1 3 1 6 0 6 0 7 0.4 1 5 1.5 Gross domestic fixed invest i 4 I (% of GDP) 29 231 24 201 22 211 21 19 18 116 18 18 Exports (annual % growth) -30 0 -28 7 2 1 3 3 10 3 8.7 4 6 -2 3 -1 7 2 7 2 8 Current account balance I (% ofGDP) | . 0 1 07 20 17 25 04 03 I 105 161 112 Source Official statistics and World Bank Unified Survey, 2002 the only realistic method to privatize quickly reliable enforcement, and unclear and conflict- and fairly Transferring economic assets to private ing laws and regulations, particularly those re- hands was expected to create a strong con- lated to property andc shareholders' rights. The stituency for the necessary legislative and insti- high costs of entry and doing business, includ- tutional changes that would underpin enterprise ing burcaucratic harassment, discouragcd small restructuring But involvement by outside in- anct medlum-size enterprise (SME) growth The vestors was minimal, primarily because of man- same factors have constrained International Fi- agement's opposition and the decision to allow nance Corporation (IFC) and Multilateral In- majority employee ownership Enterprise man- vestment Guarantee Agency (MIGA) activities agers eventually succeeded in controlling most and, thanks also to continuing soft budget con- privatized enterprises 5 Subsequent efforts at straints, led to very slow enterprise restructur- case-by-case, cash privatization inclucled the ing Through 1998, the ellergy sector was at the loans-for-shares (LFS) scheme, through which center ofa growing nonpayment problem, which the government divested itself in 1995-96 of 13 complicated economic management large and valuable companies, mostly in the pe- By 1998, gains included the elimination of troleum and metals sectors This divestiture was shortages of consumer goods, greatly improved done in a nontransparent way and for only a quality and variety of goods and services, own- fraction of the market value of the companies ership titles to housing for most households, involved. greater social mobility, no longer shackled by Enterprise development and foreign direct pervasive administrative restrictions, and ex- investment (FDI) have been discouraged by cor- panded access to the domestic political process ruption, poor macroeconomic management, un- and global information New employment serv- 3 ASSISTING RUSSIA'S TRANSITION ices were established, administration of pension tax policy, urban land sales, the pension sys- benefits improved, and social assistance became tem, the land code, and business deregulation. better targeted However, proposed reforms of Some, including tax reform, have been suc- the labor laws and the pension system had not cessfully implemented been adopted, and absolute levels of social ben- The last three years have seen strong eco- efits remained low nomic performance. Good fiscal management, large balance of payments surpluses, and an im- Recent Achievements pressive output recovery have been accompa- The Primakov government that came to power nied by an improvement in business confidence after the 1998 crisis was widely expected to pur- and a drastic reduction of barter and enterpnse sue lax monetary and fiscal policies Instead, it payment arrears. Poverty incidence has declined improved fiscal discipline, kept a lid on inflation, sharply (from its peak in mid-1999 to 33 percent allowed only a moderate amount of food aid so by the end of 2000, according to official esti- as not to damage agricultural producers' in- mates). The economy has been boosted by higher centives, and abstained from reversing liberal- world energy prices and improved competitive- ization and other reforms. Unlike other countries ness of the non-oil export sector, thanks to the that experienced financial crises during the 1998 devaluation Political stability and a broader 1990s, Russia overcame the 1998 crisis quickly consensus on reform have also played significant and without international financial assistance In roles. Russia has effectively moved from a centrally mid-2000, the Kasyanov government endorsed planned to a market economy, albeit with con- a comprehensive medium-term program of pol- siderable distortions and weak social services and icy and institutional reforms. Important reforms safety net. Policy, institutional, and ownership have since been acloptecl, including those in changes have gone too far to be reversed. 4 The Evolution of Bank Group Assistance The Bank's Goals T he Russian Federation officially joined the Bank onJune 16, 1992, as an upper-middle-income country on the basis of an estimated GNP per capita of $3,830 for 1991.1 In 1994, Russia was reclassified as a lower- middle-income country, with a GNP per capita of $2,310. The Bank has de- veloped nine annual country assistance strategies (CASs) or progress reports since 1992 that have consistently stressed the country's difficult initial conditions, the severe constraints on reform, and the risks involved in providing devel- opment assistance.2 During FY93-01, the Bank's lending commitment to Rus- sia averaged slightly more than $1 billion a year-almost 0.4 percent of current GDP and 10 percent of the capital expenditures of the consolidated govern- ment. Throughout this periocd, the Bank Group's strate- ficient public resource allocation, and improved gic objectives were to ease Russia's transition service delivery from a planned to a market economy and help avoicd the human costs and geopolitical conse- Early Phases quences of a policy reversal by facilitating (a) the restructuring of olcl enterprises, (b) the creation The "Approach" Phase of new enterprises, (c) an improved environ- Bank assistance to Russia between 1990 and ment for investment, ancd (cl) reform of social 2001 can be divided into five phases The first was pi-otection. The last was requirecd because of the an "approach" phase that began at the Houston budget crisis, to ease the restructuring of the old Economic Summit in July 1990, when the lead- enterprises, to help manage divested social as- ers of the G-7 countries, with the agreement of sets, and to target benefits to the poor Later, the President Gorbachev, asked the IMF, the World Bank sought to help institute the rule of law, ef- Bank, the Organilsation for Economic Co-oper- 5 ASSISTING RUSSIA'S TRANSITION ation and Development (OECD), and the EBRD The IMF and the Bank could not provide to undertake a joint study of the Soviet economy quick-disbursing funds at short notice and before (World Bank and others 1990 and OECD and membership (the Soviet Union applied for Bank others 1991). The study was intended to provide membership on July 1). Moreover, little bilat- recommendations for reform, offer guiclance to eral assistance was granted during the turbu- external assistance providers, and prepare the So- lent period after the failed coup d'etat in August viet Union for membership in the international 1991, the subsequent dissolution of the Soviet financial institutions (IFIs). Union, and the appointment of a reformist gov- In March 1991, even before the establishment ernment in late 1991. The absence of external of a Moscow office in the fall, the Bank approved support for Russia during this period has been a $30 million grant to finance a trust fund to criticized by several reformers and observers provide technical assistance (TA) and project (see Sachs 1996; Aslund 1995, 2001). preparation. After the Soviet Union's collapse, the *Bank reached a new agreement in December The "Learning and Investing" Phase 1991 with what was now the Russian Federation This phase, from mid-1992 to mid-1995, began over a share ($13.5 million) of the original Tech- with the Bank emphasizing analytical work and nical Cooperation Agreement (TCA) grant. Ac- staff-level inputs to policy discussions, particu- cording to former government officials, however, larly on the MPP Given the consensus of the the advisory services financed by this trust fund Bank's main shareholders, it also embarked on came too late to help in the preparation of the a rapid expansion of lending.3 During the ensu- Gaidar reform program and its initial imple- ing three years, the portfolio swelled from almost mentation in early 1992. nil to a cumulative $4.6 billion.4 Bank manage- Figure 2.1 World Bank Gross Commitments, Disbursements, and Net Transfers Million US$ 2,500 -- Gross disbursement Commitment - 2,000 - 1,500- 1,000 - / Net transfer 500 \-_______ -00 -500 1993 1994 1995 1996 1997 1998 1999 2000 2001 Year Source- SIMA and Global Development Finance. THE EVOLUTION OF BANK GROUP ASSISTANCE ment was reluctant to provide large-scale budget tions, the authorities moved forwarcl with im- support in the absence of a credible stabilization portant decisions, and the Bank approved $1 4 and structural reform program Still, in August billion for investmetit and TA projects (for en- 1992, at the request of the G-7 and in parallel with terprise housing divestment, capital market de- the first IMF-supportecl program, the Bank ap- velopment, legal reform, and medical proved a $600 million Rehabilitation I Loan with equipment) and $0 5 billion for a Coal Sectoral virtually no conditionalities However, Bank man- Adjustment Loan (Coal SECAL I) This phase agement held up Boarcd submission of the Re- also signaled enhancecl attention to the social hlabilitation II Loan until micl-1995, when a sectors number of trade reforms had been adoptecl and Until early 1997, the Bank had not taken part a new Standby Arrangement provicied an IMF seal in the high-level Ciscussions between the gov- of approval for Russia's macroeconomilic man- ernment and the IMF on the structural reform agement. During this period, the Bank lent for agenda. Its contribution had been indirect, 17 investment and TA projects, anc in support through economic and sector work (ESW) ancd of structural reforms (mostly in privatization), in- background inputs to the IMF In March 1997, the stitutional development (including procurement, new government led by Prime Minister Cher- employment services, pension payment acmin- nomyrclin appointed key reformers as deputy istration, private and financial sector develop- prime ministers The Bank perceivecd a new win- ment, land, agriculture, environment, housing, dow of opportunity ancl through December ap- and tax administration), and infrastructure re- proved loans for an acditional $3 4 billion. Of this habilitation (including oil fields, highways, and amount, $3 0 billion was the first installment on urban transport) a rnultiyear program of expanded adjustment lending ($1.2-$2 billion annually) to support The "Consolidation" Phase stabilization and tax reform, elimination of A high share (65 percent) of project commit- budget arrears; transparent case-by-case priva- ments experienced serious implementation prob- ti7ations; pricing reforms and competitive re- lems (see table A. 13), because Russia's institutions structurings in power, natural gas, and railways, were not prepared to cleal with the Bank's fi- banking reform (Structural Adjustment Loans nancial and administr-ative requirements.5 Hence, I SALs] I and II), social protection reform (Social from mid-1995 to early-1996, the Bank made only Protection Acljustment Loan [SPAL]), ancl fur- $27 million in new commitments to Russia This ther coal sector reform (Coal SECAL II) phase was marked by an intensification of su- The 1997 CAS called for the Bank Group to pervision efforts, the start of annual Country move forwarcd more aggressively with policy acd- Portfolio Perfoi-mance Reviews (CPPRs), ancl vice, technical assistance, and financial instru- major project restructurings. Portfolio perform- ments to support private sector investments in ance turned around by 1997 Within a declining natural resources, manufacturing, banking, and administrative budget, however, portfolio man- consumer industries The IFC increased its gross agement work crowded out analytical and acdvi- investment approvals in Russia to more than sory services 6 $200 million Demand for MIGA's political risk coverage also rose With a gross exposure out- The "Renewed Lending" Phase standing of about $260 million, Russia is today This phase began in March 1996, when the Bank MlGA's fourth-largest client came under renewed pressure to lend after ap- The 1997 CAS also placecd great emphasis on proval of the IMF's $10 1 billion Extended Fi- regional infrastructure projects (water and san- nancing Facility (EFF) 7 New commitments by the itation, cistrict heating, urban transport, and Bank over the next two years amounted to $5.3 highway rehabilitation) Providing assistance to billion, imluch of it ($3 5 billion) for five quick-dis- the regions had become popular among donors bursing adjustment operations During the four in the micl- and late 1990s. Subnational units months before the July 1996 presicdential elec- wei-e expectecl to compete for externally funded 7 ASSISTING RUSSIA'S TRANSITION projects, based on their interest and commitment bursements under the SAL III were limited to a to reform Support for environmental activities, first tranche of $300 million and, following re- including through the Global Environment Fa- structuring of the loan in mid-1999, a smaller cility (GEF), was highlighted. Finally, the strategy tranche of $100 million. called for selective Bank assistance to hligh-pri- The 1998 crisis derailed the Bank's assistance ority institution-building programs (including strategy and adversely affected many projects, legal reform, financial sector development, and both directly, as in the case of banking sector op- science and technology) erations, and indirectly, through the reduced Until the ripple effects of the 1997 East Asia ability of many beneficiaries-especially at the financial crisis began to be felt in Russia toward local level-to repay subloans extended by the the end of that year, quick-disbursing loans were Ministry of Finance (MOF). Through mid-1999, not needed for balance of payments support, be- the Bank focused on uncderstanding the social cause the current account had always been in fallout from the crisis (for example, food and surplus and the ruble was appreciating in real pharmaceutical needs, energy system break- terms. The emphasis given to adjustment lend- downs, supplies to the far north) and preparing ing was justified by the Bank as necessary to a new program of support for those hit hardest focus government attention on the longer-term It assessed the damage to the financial sector, reforms. But, apart from a handful of reformers provided advice, and mobilized technical assis- in the government, commitment to the reform tance in this area. It also engaged almost im- agenda of the SALs and SPAL was negligible The mediately with the new Primakov government in loan conditions were mild and mostly tied to an intensive and high-level dialogue on structural preparatory reform steps, such as submission of policy This dialogue was continued through legislation to the Duma, rather than adoption of mid-1999 and, with the added leverage offered legislation, enforcement, and implementation. by the restructuring of the adjustment loans Reform efforts began to slow down early in the (SAL III, Coal SECAI II, and SPAL), contributed summer of 1997, following the first signs of sta- to improved macroeconomic management and bilization (Gaidar 1999) Yet, at the end of 1997, a strengthened linkage between reform progress at the behest of the international community, the and future disbursements The Bank also took Bank increased the size of the SAL II ancl the Coal steps to protect the projects' special accounts in SECAL II, with substantial front-loading of dis- troubled banks, made the CPPRs a biannual bursements. event, and worked with government officials on restructuring the portfolio. The "Crisis and Recovery" Phase After the crisis subsided, new Bank lending In April 1998, the appointment of a new prime was held back because of slow progress in the minister with a reformist track record and the im- implementation of agreed reforms and in the pending financial crisis offered the Bank an un- preparation of new projects to higher standards precedented opportunity to influence the reform (as agreed under the CPPR process). Lending was agenda. At the same time, the Bank was called also restrained by the new government's deter- upon by its major shareholders to contribute mination to formulate and reach a broader in- around $6 billion, much of it in quick-disbursing ternal consensus on a new medium-term reform funds, to theJuly 1998 international emergency program, and because the country's balance of financial package aimed at counteracting the payments and fiscal positions had improved A growing lack of confidence in the ruble. The $400 million Highway Rehabilitation and Main- Bank responded by accelerating the processing tenance Project (HRMP II) was approved at the of the $1 5 billion SAI. III already in the pipeline, end of 1998 (to signal the Bank's determination but this time insisted on multi-tranching, back- to remain engaged), but it never became effec- loading of disbursements, and stronger condi- tive New commitments from January 1999 tions that included actual passage of reform through June 2001 amounted to only $614 mil- legislation by the Duma As it turned out, dis- lion, with no new adjustment loan. About $2 8 8 THE EVOLUTION OF BANK GROUP ASSISTANCE Ta b I e 2.1 W®i0(c( [DIG3t @ 0 OMG7u01o3Mi(DD3§ MQ9% caUOoua®wD Fiscal year 1992-95 r 1996 1997 r 1998 1999 | 2000 2001 rCancelled| Total Rehabilitation loans 1,200 1 a 0 0 0 0 0 1,200 SALs 0 500 1,400 1,600 1,500 0 0 1,100 3,900 Oil, gas, and energy 1,180 528 40 0 0 0 85 352 981 Social sectors 110 470 137 29 O a 130 120 755 PSD/FSD/infrastructure 1,519 763 216 0 400 0 182 1,069 2,012 Agriculture/environ. 529 80 0 0 0 60 226 118 777 Econ. public sector mgt. 70 21 58 0 30 30 0 2 195 Total 4,608 1,899 1,816 1,629 1,930 90 624 2,761 9,834 Memo: disbursements 729 981 2,086 2,172 657 606 605 7,836 Note: The two Coal SECALs and the SPAL are in the SAL category. billion of commitments were cancelled, includ- ceived more emphasis-particularly in how to ing two lapsed loans (the Enterprise Restruc- improve governance. The CAS documents turing Services Project in August 1998 and the stressed that Russia's transition will be a long HRMP II Project in September 1999) and the process, and therefore a correspondingly long- large residual balances of the SAI. III ($1.1 billion term operational engagement was needed. in August 2000).8 The crisis also affected MIGA's Since early 2000, in response to stronger Russ- portfolio by causing some investors to cancel or ian ownership of the reform agenda, the Bank reduce MIGA coverage. has approved new technical assistance, invest- The assistance strategy for the Bank Group ment, and guarantee operations to improve pub- since 1999 has centered on support for (a) pub- lic sector management (statistical system, lic acdministration reform and reduction of cor- regional fiscal management, forestry manage- ruption; (b) budget management, tax collection, ment), private investors' incentives in forestry and federal-regional fiscal relations; (c) im- and coal, basic public services (municipal water, provements in the business environment; (d) pri- wastewater, and heating; urban transport; edu- vate sector investments, including through partial cation reform; AIDS and TB), and social devel- risk guarantees and equity participation; and (e) opment (in the north) and environmental rehabilitation of the education and health sys- concerns (with a grant to end production of tems and efforts to address health crises, such ozone-depleting substances). The government as tuberculosis (TB) and acquired immune de- and the Bank have also agreed to intensify their ficiency syndrome (AIDS). The analytical and policy dialogue, although there has been no de- advisory (AAA) role of the Bank Group has re- mand for adjustment lending. 9 ~~~~~1 Bank Products and Services Analytical and Advisory Services T he 1990 joint study (OECD and others 1991) identified the transition challenges and laid out a quick and radical approach to macroeco- nomic, price, and structural reform, based on political economy con- siderations and the transition experience of other economies. The study stressed the need to achieve both macroeconomic stabilization and price lib- eralization before introducing other reforms-such as privatization, and in- stitutional and legal reforms-that would take much longer to implement. Much of the Bank's early advice and assistance was informed by the joint study, but the elusive stabilization and the slow pace of structural reforms soon presented the Bank with a new challenge. In general, Bank studies have been highly re- ment, ecducation, ancl poverty and inequality garded both inside and outsicle Russia, offering Knowledge about other sectors exists among staff, sound diagnoses and acivice (box 3.1). Beginning but OED founci that only a small number of gov- in 1995, however, the Bank gave only secondary ernment officials and advisers had a good grasp priority to ESW ancd did not cisseminate its find- of the Bank's current views on reformil 2 ings to a wicder auclience 1 Most stuclies were pub- Thanks to project funding or donors' trust lished as research papers or working papers No funds, Bank staff and consultants have provicded comprehensive formal country economic report significant technical acivice, but the policy dia- was produced after April 1996 Until 2000, the logue was very limited through 1996. The Bank's government was not interested in Bank stuCies on advisory role expanded from the coal sector in the expenditure side of the budget or financial ac- 1996 to economy-wide Issues in 1997-98, with countability Important exceptions were studies an impact evident since 1999. The World Bank of coal subsicies, intergovernmental fiscal rela- Institute's training activities-which the CAE clicl tions, ancl tax aciministration. Between 1997 ancl not attempt to evaluate-have reached about 2000, the Bank procluced formal sector reports 2,150 trainers, 10,000 professionals, and 200 only on the nexus of energy and the environ- training institutions (see Annex 13) ASSISTING RUSSIA'S TRANSITION As of mid-2001, panel reviewers for the issues for World Trade Organization (WTO) ac- Bank's Quality Assurance Group (QAG) had cession, and worked with Novgorod Oblast on evaluated five ESW tasks on Russia, finding one investment promotion. Since 2000, it has been of them highly satisfactory (the nonpayment assisting the central government and several study) and three satisfactory. They found the en- oblasts by carrying out a series of studies of ad- ergy and environmental review "marginal" be- ministrative barriers to investment. At the re- cause of a lack of original analysis, weak gional level, Novgorod Oblast acted on most of presentation, too broad a scope at the con- the FIAS recommendations and improved its ceptual stage, and little evidence of Russian risk rating among the oblasts from tenth to sec- input and of response to inputs from the peer ond.3 FIAS's earlier efforts at the federal level had reviewer or networks. In addition, the Making relatively little impact until recently Political op- Transition Work for Everyone regional study position to the recommended reforms has (World Bank 2000c) was also rated highly sat- blocked progress, and many of the problems isfactory. It updated and supplemented vari- identified in the early 1990s continue to dis- ous studies on poverty, highlighted the very courage investments today negative consequences of Russia's transition In October 2000, MIGA launched an initiative for poverty and inequality, was well written, called PrivatizationLink Russia in partnership candid on difficult issues, and timely. with the Canadian International Development The Foreign Investment Advisory Service Agency (CIDA) and Russian government agen- (FIAS) of the Bank Group has carried out several cies. The initiative was designed to reduce trans- assignments in Russia. During the 1991-93 pe- action costs and to provide easy, cost-free, riod, it offered advice on improving the business transparent online access to information on pri- climate and the institutional structure for regu- vatization for investors around the world. This lating FDI. In later years, it advised federal au- initiative is raising awareness about investment thorities on successive versions of the foreign opportunities, but it would be premature to as- investment law and on investment-related sess its impact at this early stage. Box 3.1 Good Analytical and Advisory Services Transport. The diagnoses and solutions of a 1993 sector study Although coal subsidies reached 1 percent of GDP in 1993 and were comprehensive and well articulated. The report covered 1994, the retrenchment of the sector was driven by loss of mar- all subsectors and included excellent chapters on their economic kets and the failure of many users to pay their bills, but was ad and financial performance and institutional framework. Its rec- hoc, chaotic, and politically explosive. In 1993-94, the Bank ommendations were practical and articulated for the short, joined with the government to analyze the sector's problems re- medium, and long term. The study presented the basis for the in- gion by region, and considered the prospects for affected mine stitutional and policy objectives of Bank-funded transport proj- workers and their communities. The study was the basis of a suc- ects and the SAL transport components. It was also discussed cessful restructuring program supported by the two SECALs. at several national and international seminars. A 1998 update was also well focused and practical, but was issued justtwo months Nonpaymentstudy(a version of which was published in Pinto, before the financial crisis and had little impact. Drebentsov, and Morozov 2000). A QAG review panel found this study very good on all criteria (relevance, internal quality, pres- Coal. The Bank's first economic report on Russia in September entation, and likely impact). By the time it was presented in 1992 accurately captured the main problems of the coal sector, 1999, however, Russian economists already had a good under- which was operated by a monopoly and was characterized by standing of the issue, and the problem of nonpayment was massive cross-subsidization between high- and low-cost mines. decreasing. 12 BANK PRODUCTS AND SERVICES Bank Lending Trends The composition of the Bank's lending dif- As of the end of June 2001, the Bank hacl made ferecl substantially between the first and seconcl gross loan commitments to Russia amounting to half of the clecade (see figure 3 1) In FY92-96, $12 6 billion for 55 projects On two occasions, Bank funding ($6.5 billion) went to rehabilitation responding to worsening portfolio performance, ancl investment operations in many sectors, with the Bank and the government restructured cer- a large presence in the energy sector (mainly oil tain projects. In the period FY95-98, loans and ancd gas) Assistance in later years ($6 0 billion) loan components amounting to $315 million was clominated (90 percent of all new commit- were cancelled In FY99-01, $2.4 billion was can- ments) by acljustment operations and compan- celled, including the balance ($1.1 billion) of ion TA loans. the SAI. III and the full $400 million of HRMP II The cumulative commitment net of cancella- Closed Project Performance tions amountecd to $9.8 billion Disbursements As of the encl ofJune 2001, OED had evaluated have totalecd $7 8 billion, of whichi $2 8 billion was 15 projects (inclucing the TCA grant) with a for investment or TA projects and $5 billion for total commitment value of $5 1 billion Seven balance of payments and budgetary support projects were rated satisfactory for outcome, Thus, unclisbui-sed commitments at the encl of while stx were rated substantial in terms of in- June 2001 amounted to $1.9 billion Annual gross stitutional clevelopmelit (ID) impact A starker commitments have averagecd $1 3 billion and picture emerges in terms of commitments, as disbursements $0 8 billion, ranging fiom $1.9 only 28 percent of Bank lencing in closecd op- billion in FY99 to $0 09 billi on in FY00. The clis- erations was ratecl satisfactory for outcome and bursement ratio, which measures disbursements 16 percent was ratecd substantial for ID impact.4 against the previous year's uncisbursed balance, When the 1997 adjustment loans are excludecl, ranged from a low of 1.3 percent in 1994 to a high 7 of the 11 closecl projects (64 percent) and 57 of 20 percent in 1998, largely thanks to dis- percent of net commitments receivecd a satis- bursement of adjustment loan tranches factory outcome rating Reflecting the irre- Figure 3.1 Sectoral Composition of New Lending Sector distribution by commitment, Sector distribution by commitment, 1992-96 ($6.5 billion) 1997-01 ($6.0 billion) Urban Economic Urban Economic infrastructure management infrastructure management 6% 1% Transportation 2% 1% Energy 16%on Transportation Energy Social 9% 27% services 0% 3% protection resources! 8% ~~~~~~~~~~~~150/ 4 Social n; i i ...............''" 4% protection1% _ _l.- Environment Public sector Public 4% management :- sector Natural0% management resources/ I agriculture Private/financial Pseator sector development - \ Multisectoral sector IvMultisectoral47 development 18% 1% 14% Source Bank data 13 ASSISTING RUSSIA'S TRANSITION versibility of most of the policy and institutional costs, the OEG rated 96 percent of IFC operations changes, sustainability was rated likely in 67 per- as satisfactory. The IFC's privatization efforts, cent of projects and 78 percent of commitments. which contributed significantly to, among other Except for sustainability, though, Russia's per- things, the transfer of most small enterprises in formance has been well below that of compara- the country to private hands and created mo- tors as well as Bankwide and ECA averages (see mentum for the overall privatization program, table 3.1). The ECA Region's overall assessment were particularly successful (see box 3.2). of closed project outcomes differs fundamentally The IFC's investments in Russia were limited from OED's.5 by the high-risk environment and by a corporate Among the 15 closed projects, OED rated only decision to leave the EBRD to provide the bulk 9 satisfactory for Bank performance at appraisal of IFI financing to the private sector. The IFC's and during supervision.6 The long average lag of commitments for its own account (that is, ex- nine months between approval and effective- cluding B loans for the account of participants) ness and the high number of restructurings (13 totaled $0.5 billion. Roughly 20 percent was for projects) are largely explained by the inadequa- financial institutions and investment funds. The cies of the operating environment and weak do- results of the IFC's mature investments have mestic ownership of project objectives. been disappointing. Only 35 percent yielded sat- isfactory or better development outcomes (48 IFC and MIGA Interventions percent weighted by disbursements), and only A parallel evaluation of IFC assistance by the 20 percent yielded satisfactory investment out- Operations Evaluation Group (OEG) concluded comes for the IFC (33 percent weighted). These that the results of its mature TA operations were results are significantly worse than the IFC's per- impressive. It gave satisfactory ratings for the formance worldwide and elsewhere in Eastern development contributions of all IFC privatiza- Europe and the former Soviet Union, but were tion and post-privatization TA projects, but to less broadly in line with EBRD experience in Russia than half of its other TA activities (sector re- (see Annex 9). On a net basis, before deducting views, project identification, and project prepa- administrative expenses, the IFC lost $37 million ration). Weighting these operations by their on its lending and equity investment operations Ta b I e 3. 1 OED Evaluation Ratings of Bank Projects Substantial Satisfactory Net institutional Bank Number commitment Satisfactory Likely development performance of (US$ outcome sustainability impact at appraisal projects millions) (percent) (percent) (percent) (percent) Russian Federation 15 5,094 28 78 16 50 Brazil 51 6,545 88 70 51 70 China 52 6,958 87 83 72 84 Hungary 15 1,422 95 91 51 94 Poland 14 1,820 82 89 76 99 Mexico 28 2,542 79 67 40 84 Region/Bankwide ECA 115 11,427 85 75 44 83 Bankwide 1,070 88,492 79 60 39 73 1 4 BANK PRODUCTS AND SERVICES from 1993 through the second quarter of FY02 facilitated an estimated $1 3 billion FD1 in Rus- After deducting $63 million of administrative ex- sia (see Annex 12) that coulcl have been ad- penses (including $29 million for advisory and versely affected by the moratorium. In TA operations), the IFC's operations in Russia investment services, the Web-based Privatiza- made a net negative contribution of $100 million tionLink Russia was launchecl in October 2000, to the IFC's profitability during this period These providing important and timely information to costs and losses had to be covered by cross-sub- potential foreign investors. sidies from the IFC's operations elsewhere According to a desk review by its Operations Portfolio Management Evaluation Unit (OEU), MIGA's guarantee pro- In the mid-1990s, once it became evident that gram prudently ancl selectively met demands many operations had not met the Bank's stan- from private foreign investors for political risk dard quality-at-entry requirements, the Bank insurance As a result, MIGA has not suffered any and the government developed the CPPR process losses in Russia, which is ranked in the top five with a strong focus on performance and a will- countries in the agency's portfolio Before the ingness to discuss problems and take remedial outbreak of the financial crisis, MIGA covered action, including major project restructuring transfer risks but did not offer coverage for cur- and cancellations A number of shortcomings rency convertibility Stop-loss limits and rein- were identified, such as excessive delays in es- surance were employecd to manage the agency's tablishing implementation units and in finalizing net exposure in Russia MIGA continued to sup- subsidiary loan agreements and procurement port projects after the country's default on for- documentation A subsequent tighteninlg of readi- eign debt. Although there was relatively low ness requirements led to a slowdown in new demand for MIGA's prociucts, its $549 million in project lending after 1997 coverage issued for 18 projects-mainly in Since 1997, internal QAG panels have as- agribusiness, food processing and beverages, sessed 10 projects for quality at entry They finance, and extractive industries-nonetheless rated the Coal SECAL II (see box 3.3) and Elec- Box 3.2 °G @ 0i2 T Strengths: Weaknesses: •Strategic priorities were relevant and well aligned with coun- * Ramp-up of investment operations in 1995-98 ahead of sig- try needs and the IFC's capabilities. nificant reforms-with high droppage/cancellation rates and • Active pursuit of all strategic priorities, with consistently disappointing development and investment results. sound execution of TA operations. * Mainly as a result of the crisis, Russia operations were a net o Unprecedented country-level scale of TA operations, region- drain on the IFCs profitability. ally focused for strategic impact. * The IFC yielded to pressure to make investment commitments * Satisfactory or better outcomes for 96 percent of TA projects in the hostile and unfamiliar business environment and, in (weighted by value), major impacts. some cases, lowered its standards and took risks that could o Nimble adjustment to evolved country needs and opportunities. not be mitigated. o Effective refocus on supervision follow-up in the wake of the * IFC strategies recognized the importance of developing SMEs, 1998 crisis. but it did not succeed in developing a sustainable wholesale o Application of lessons learned in new investments, drawing intermediation channel that could be scaled up. from early lessons. * Substantial expansion of investment approvals in 2001 in re- sponse to improving conditions. ASSISTING RUSSIA'S TRANSITION The Coal SECAL 11 Project was highly praised bV a (IAG review o The environmental and social aspects were addressed by panel and the authors of the CAE background evaluations, despite specialists. the need for restructuring after the financial crisis and delays in o Concrete progress had already been made in restructuring the meeting loan conditions. Its key achievements have been the coal sector before the project's approval. sharp reduction and reorientation of budget subsidies to ration- o The project's objectives were closely linked to the CAS. alization and downsizing ratherthan to inefficient production, the o The project's design was technically sound, reflected the breakup of the coal monopoly,transparent privatization of viable lessons from the Coal SECAL 1, and allowed the Bank to coal mines, and enhanced public expenditure tracking and con- strengthen the hand of the reformers in govemment at key, del- trols. There are several reasons for this project's success: icate moments during its implementation. a The government had already worked on the design of the re- ° A companion project (Coal IAP) providing implementation TA structuring program with help from the British Know How effectively complemented the adjustment loan. IFund before the Bank's involvement. o The shor appraisal period and the quick disbursement of the o The Coal SECAL I was designed on the basis of a solid sec- first tranche reflected the skill of the task team, the respon- tor report (see box 3.1). sive management review system (at all levels), and prior o The project was preceded by extensive consultations with knowledge. stakeholders. tricity Sector Reform Projects highly satisfac- tween OED ratings at completion and Bank su- tory and best practice (although the latter was pervision ratings at exit (35 percent for the Rus- to suffer severe implementation problems), and sia portfolio, compared with 6 percent forECAand rated the St Petersburg Rehabilitation, Electric 10 percent Bankwide) points to the possibility of Sector Reform, Bureau of Economic Analysis, strong upward bias in self-evaluation (see table SPAL, SAL 1, SAL II, and the HRMP Projects sat- A 5) Moreover, project implementation remains isfactory. The Health Reform Pilot and SAL III problematic, as suggested by relatively poor in- Projects were rated as marginal Of the 15 proj- dicators for project age and disbursement ects assessed for quality of supervision, the Legal Reform and Komi Projects were rated as Project DmpWementafion Units (PGIIs) highly satisfactory and best practice, 13 other In 1995, faced with unsatisfactory portfolio per- projects were rated satisfactory, and none was formance, lack of clarity about whether min- rated marginal.7 istries could legally enter into contracts for goods The percentage of projects at risk (according and services, and scarcity of skilled staff among to QAG and Bank supervision reports) peaked at Russia's underpaid civil servants, the MOF pro- 65 percent (68 percent by commitment) in FY96 posed, and the Bank agreed, to carry out im- and at 68 percent (92 percent by commitment) in plementation through independent legal entities FY99. In both cases, intensive supervislon, re- established as noncommercial foundations. The structuring, and cancellations succeeded in im- foundations are overseen either by management proving the portfolio ByJune 2001, projects and boards with government representation or by in- commitments at risk had been reduced to 24 per- terministenal committees Bank loans have fi- cent and actual problem projects to 9 percent (6 nanced 100 percent of most PlUs' operating percent by commitment) of 34 active projects costs, including salaries in line with private sec- ($3.8 billion).8 These figures, however, remained tor norms, which drew criticism from Russia's higher than those for comparators and Bank- Chamber of Accounts (COA) (Annex 14) In wide and ECA averages The high disconnect be- some cases, Bank objections to high salaries 1 6 BANK PRODUCTS AND SERVICES Box 3.4 @ DL2UDG0 0 0 _ Q The views shared with the CAE February 2001 mission by the MOF Bank staff, however, do not always show a proactive ap- officials directly responsible for overseeing the Bank's activi- proach to solve management and ownership issues, often ties included some critical ones regarding the efficiency of the leaving problem solving entirely to the Russian side. Bank's project preparation and management (for more on the gov- * Russian bureaucracy is often matched by that of the Bank, ernment's views, see Annex 11): which is relatively slow in providing "no-objections" or * While hurried preparation often causes delays and problems Sclearances.' Witthe implementation of projects, sometimes these are * The professional quality of Bank staff is uneven. caused by the need to address complex instittiional changes * Since the interministerial committee for Russia and the Bank * Staff from both sides lack incentives to work expeditiously is difficult to convene and is also not the right body to deal and deliver on time. with details of project preparation and implementation, a * Russian staff are not always performing adequately, notably working-level group of government and Bank officials needs when it concerns accepting a high degree of responsibility. strengthening to ensure communication and cooperation on an ongoing basis. have triggered corrective actions by the man- tween FY93-95 and FY95-97, by 75 percent (to agement boards 20 percent of Bank resources). In an environmllent In late 2000, the MOF raised the possibility of of rapidly expanding lending, mounting portfo- transferring implementation -esponsibilities from lio problems, and constrained budgets, Bank the foundations to incdiviclual ministries The Bank management gave priority to project preparation welcomed further discussions on thlis issue, but ad- and supervision Spending on ESW almost dou- vised that such a transfer would requlre loan bled between FY98 ancl FY01, reaching 30 per- amendments and new formal agreements. The cent of the country program buclget Successive Bank and the MOF are currently exploring realis- country directors have commented on the in- tic alternative options Meanwhile, the MOF has aclequacy of the resources for AAA, in light of the assigned new projects to the best existing PIUs on complexity of the transition challenge. a competitive basis, rather than creating new ones. Lending preparation costs also declined markedly in real term-ls (22 percent per project and Cost-Effectiveness 39 percent per commitmenet) between FY92-96 In the 1990s, the Bank's annual average admin- and FY97-2001 and have been considerably lower istrative budget devoted to Russia was arouncd on a per commitment basis than for most com- $11.2 million in constant 2001 prices-compa- parators Meanwhile, supervision intensity in- rable to that for Brazil It exceecled substantially creased by more than threefolcd on a per what would have been allocated on the stan- commitment basis, reflecting the stronge- efforts dard country norm until the mid-1990s. Since to improve portfolio performance in FY97 and then, asicle from the rebound associatecd with the again in FY99-00. Whlile supervision intensity re- Bank's internal Strategic Compact, the country mains in the middle of the range for comparators budget was reducecl, given Bankwide budget on a commitment basis, it is consiclerably iiigher pressures and the maturity of the programn The on a per project basis This pattern is due to the highest amount ($14.1 million) was in FY94, the late 1990s concentration on a few large adjustment lowest ($9 6 million annually) in FY96 and FY97 loans with complex supervision requirements. Following a 15 percent increase in FY98, the WX7hen program costs are relatecl only to commit- bucdget declined in FY99 and FY00 before rising ments rated satisfactory for closed and ongoing to $9.7 million in 2001 (see table A. 11). projects, the cost-effectiveness of Bank assistance AAA experienced especially deep cuts be- to Russia is very low (see table A 12). 1 7 ASSISTING RUSSIA'S TRANSITION Decentralization of Bank Operations prove the policy dialogue and operational ef- To make its assistance more effective, the Bank fectiveness and reduce supervision costs by del- posted the country director to the field in 1997 egating task management responsibilities to local and transferred more operational responsibilities professionals Both goals have been substan- to the field office The main goals were to im- tially achieved 9 18 Development Impact Private Sector Development In the key reform areas of private sector development (PSD),' the 1990 joint study (World Bank and others 1990) recommended clarification and legal protection of property rights as a necessary first step. The study also rec- ommended a flexible approach to privatization tailored to the type of activity and size of the enterprise, making use of the advantages of both "giveaway" and commercial methods of privatization. Revenues from the latter method were expected to help cover some of the costs of economic reform. Demonopolization ancl the enforcement of hard law, financial, land, and housing markets, and re- bucdget constraints were noted as crucial meas- duction of bureaucratic harassment and of the ures for the restructuring of existing enterprises, tax burden on enterprises The Bank Group cor- the transfer of underused assets to new enter- rectly aimed at facilitating prlvatization and at fos- prises, and increased competition. An effective tering an enabling environimlent, with extensive legislative and judicial basis, institutional capac- analytical work, policy aclvice, TA grants (in- ity, and political commitment to the rule of law, cluding donor-funded programs malnaged by corporate governance, ancl competition policy the IFC), hybrid loans combining TA and credit were also viewed as urgent. The study's prionties lines (almost $1 billion of commitments under reflected the broad consensus on these funda- the Privatization Implementation Assistance Loan mental issues among government reformers, the (PIAL), the Financial Institutions Development acacleniic community, ancl IFI officials. The stucly, project (FIDP), the Enterprise Support project however, gave insufficient emphasis to public (ESP), the Capital Market Development project governance and bureaucratic harassment issues, (CMDP), the Enterprise Housing Divestiture which proved central to the investment climate project (EHDP), the lapsed Enterprise Restruc- and the entry ancd growth of new enterprises turing Services projects, and cluick-disbursing Throughout the decade, the Bank Group's loans (two Rehabilitation loans and three SALs) sector assistance strategy was to focus on insti- Beginninig in late 1991, Bank staff played a sig- tutional development and policy reforms for nificant role (together with United States Agency competition; enterprise restructuring, rule of for Internationial Development [USAID]-fundecl 19 ASSISTING RUSSIA'S TRANSITION consultants) in the operational design of the arranged noncompetitive sales or outright trans- MPP, whose implementation was mostly funded fers to managers and workers Regardless of by other donors, especially USAID, the EBRD, the manner of privatization, however, various and the European Union (EU) The IFC also surveys of privatized small businesses have helped conduct 1,100 auctions in 5 regions Al- found evidence of major industry restructuring, ternative strategies that included breaking up en- higher profitability, lower prices, and better terprises before privatization were considered, products and services (IFC 1994, Barberis and but the reformers regarded all such schemes as others 1996) unacceptably slow and complex (see Annex 7). Overall, Russia made significant progress in The IFC also played an important role in terms of divesting state-owned enterpnses. How- small-scale privatization. In April 1992, in Nizhny ever, little headway was made on transparency Novgorod Oblast, the IFC conducted Russia's of ownership and secondary redistribution of first privatization auction of small-scale enter- property Moreover, the LFS scheme, which the prises The central government gave its ap- Bank neither supported nor publicly opposed, proval to the process a few months later, and inflicted significant damage to the credibility of the IFC then took steps to extend it to truck- the reform program. As a result, the privatization ing (see box 4 1) and farming and to replicate program has slowed significantly since 1996, de- it on a national scale By the end of 1993, vir- spite the adoption in 1997 of a transparent frame- tually all small-scale enterprises in Nizhny Nov- work for case-by-case privatization goroci had been privatized. The IFC approach Bank assistance for improving the enabling emphasized fair and open auctions. Where the environment had limited results through 1998, IFC was involved only indirectly, many cities with litde progress in establishing a conducive pol- sold their small businesses through commercial icy and institutional framework for enterprise tenders rather than auctions, and some restructuring, corporate governance, competi- Both the government and the Bank considered privatization of As it had done earlierforsmall-scale enterprises,the lFCthen the oversized and badly managed regional trucking monopolies sought to extend the truck privatization process nationwide by to be an urgent priority. A request by the government of Nizhny distributing a privatization manual to regional officials, dis- Novgorod for IFC assistance in doing so provided the basis for patching resident teams to nine other regions, and establishing close collaboration between the IFC and the Bank. Thanks to sec- a unit to provide short-term advisory and technical assistance tor work, Bank staff were able to gain the support of the federal to regional authorities elsewhere. lMinistry of Transport for privatization. Discussions among IFC BV 1S95, competition had taken hold in Russian trucking, 88 and Bank staff, oblast authorities, and trucking monopoly man- percent of all automotive enterprises in Russia (including pas- agers and workers led to adoption of a scheme to auction 20 per- senger transport enterprises) were no longer government con- cent of the regional fleet and thus create hundreds of small trolled, all regions had completed or were carrying out transport businesses, and for the remaining 80 percent to be di- privatization of common-carrier trucking, and 70 percent of them vided among 42 new, medium-size trucking firms to be estab- had used the ldizhny Mlovgorod model. In a follow-up IFC survey, lished and privatized under the MPP (the October 1992 auction 90 percent of the truck buyers in Rlizhny lNovgorod reported was the first successful test of the vouchers distributed to all cit- being satisfied with their purchases, and only 29 percent reported izens under the MPP). By July 1993, IFC-managed auctions in difficulty in earning a profit. Ione of the industrial enterprises Ndizhny Ndovgorod had transferred more than 880 trucks to poivate visited foT the OEG evaluation of IFC assistance reported prob- owners. lems with truck transport. Source: OEG and IFC data. 20 DEVELOPMENT IMPACT tion, new entry, and prnvate investment. However, adequate accounting and reporting standarcls; the Bank helped prepare legislation and establish slow progress toward effective bank and capital institutions conducive to PSD (e.g., the Anti-mo- market supervision, weak definition and en- nopoly Commission, the Fecleral Energy Coni- forcement of property, shareholdcer, and credi- mission). There also is evidence of success for the tor rights, inadequate bank and corporate Management and Financial Training project governance, and lack of transparent ancl effec- (MFTP), and for the on-the-job training provicled tive processes for dealing with failed banks under most Bank-fundec projects Finally, much In the 1990s, the Bank and other donors of the Bank's acdvice during the last decade has sought to assist the authorities in promoting found its way into the current reform program. the development of the financial system. The Bank provided technical assistance to the CBR, Financial Sector Development2 and to selected banks and capital market over- In the late 1980s, an abrupt opening of the So- sight agencies, in the form of information systems viet financial system led to a rapid proliferation hardware, credit lines, and policy advice through of new financial institutions operated by sector the FIDP, the ESP, and the CMDP through loans ministries, state and cooperative enterprises, totaling $489 million (4 percent of total Bank and private financial-industrial groups The new commitments for the decade) Other projects system, however, failed to provicle prudential dealing with environmental management and regulation ancleffectivesupervision EquiLty issues housing divestiture also contained credit-line were used primarily to establish control over components The three SALs inclucdecd proposecl existing assets rather than to finance new in- financial sector reforms Only modest accom- vestment. The emergence of a healthy, market- plishments could be attributecd to these efforts oriented financial system was impeded by a weak by 1998, when the financial crisis left virtually all enterprise sector and by policy and institutional financial institutions insolvent The monies avail- weaknesses 3 Among these were soft bucdget able for strengthening bank supervision had constraints for both enterprises and banks, in- been left unused, ancl the credit lines saw only The Sea Launch project is an international joint venture involv- So far, nearly a dozen rockets have been manufactured and ing the Boeing Company (United States), Kvaerner Maritime exported, and there have been seven successful launches. The (Norway), Energia (Russia), and Yuzhnoye/Yushmash (Ukraine) risk prevention and mitigation mechanisms appear to be oper- to manufacture and export rockets and launch systems. The ating well. When problems have appeared, they have been rockets are used to launch commercial satellites from a float- solved systemically, so thatthe government did not have to pay ing plafform in the middle of the Pacific. Convinced thatthis pri- any claim and all companies doing business in Russia-not vate sector project could preserve thousands of skilled jobs in just Sea Launch-benefited from the rule of law. Another par- Russia and Ukraine, the Bank decided in 1996 to support the Russ- tial guarantee project was approved by the Bank in September ian and Ukrainian portions of the project with a partial risk 2000 for the coal and forestry sectors and is expected to begin guarantee.a operation soon. a. The guarantees are designed to help local enterprises increase or resume production, boost exports, and retein or create employment while strengthening governance and the rule of law. They support commercially viable, private transactions and unbundle risks so that private participants bear 100 percent of the commercial risk, while the government is responsible only for damages caused by its own actions. The government promises (a) not to interfere with private transactions, (b) to solve problems that arise frone unwarranted government interference, and (c) to pay compensation if government interference causes harm to the covered enterprise The Bank's role is that of a counter-guarantor. If the government fails to pay a legitimate claim, the Bank pays and presents the government with a demand for reimbursement. Source: Personal communication with Sea Launch's Task Manager and supervision reports. { 21 ASSISTING RUSSIA'S TRANSITION moclest demand and hardly any disbursement. countability (PFA) in Russia, in either analytical Little progress had been made in aclopting in- studies or lending operations, until 1999 Bank ternational accounting standards and in en- staff attribute that to (a) the paucity of reliable couraging the entry of foreign banks information and analysis of Russia's system of The 1998 crisis kindled the authorities'inter- government, (b) high turnover of senior and est in receiving advice and technical assistance. middle-level administrators in the government, Since then, frequent joint missions of Bank and and (c) the reluctance, until recently, of Russian IMF staff have focused on spurring reform and officials to discuss such matters with the Bank enhancing coordination of the assistance of- Government officials, however, stressed the sec- fered by the international community. A sys- ondary priority that the Bank gave to these mat- tematic effort has also been made to explain the ters during the 1990s. reforms to a broader range of parties and inter- Bank ESW on public sector issues customar- ests With substantial input from the Bank and ily focused on intergovernmental finance in the the IMF, an Inter-Agency Coorclinating Commit- early and mid-1990s, and there have been sev- tee directed by the CBR, has drafted an agree- eral Bank studies of tax-related issues, including ment for the provision of technical ancd financial the administrative burden and harassment of assistance by donors Agreemiients have also been productive enterprises. However, Bank staff did reached on the restructuring of the FIDP (to only preliminary work on management of gov- focus on bank supervision and drop its flawed ernment expenditures and civil service issues accreditation process), the ESP, and the CMDP because of resistance by the MOF The resulting Russia's banks have to adopt international ac- knowledge gap hlad a negative impact on the counting stanclards by 2004, and some have al- Bank's ability to advise on how to revamp the ready done so. But many tasks remain on the public sector reform agenda, and the emergence of a growth- The Rehabilitation Loans in 1992 and 1995 supporting, stable, market-oriented financial sys- did not incorporate PSM issues, although the tem remains uncertain Bank's work to reform coal subsidies con- tributed substantially to the broader debate Public Sector Management and Financial about how to improve controls on government Accountability4 expenditure. The 1997 and 1998 SALs included Poor design and implementation of government requirements for improving tax administration, programs have been major problems since So- budget management, and intergovernmental viet times Moreover, the rules developed dur- finance. Implementation through 1999, how- ing that time were inadequate to deal with the ever, fell short of the agreecd goals The Bank ap- new realities of public sector management (PSM) proved sIx other relevant sector loans (for $211 during the transition. This resulted in signimf- million) to support project portfolio manage- cant negative effects on fiscal discipline, the ef- ment and development, the Bureau of Eco- fectiveness of public services, and the legitimacy nomic Analysis, tax administration (closed, with of public institutions. Moreover, as in most tran- a satisfactory outcome rating), statistical ad- sition countries, the primary financial account- ministration, and legal reform Supervision rat- ability institutions are still in their infancy. Much ings are satisfactory, but it is too early to assess remains to be done to achieve fiscal transparency, the efficacy of these projects estimation of implicit subsidies and contingent Since the 1998 financial crisis, the Bank has liabilities, standard accounting practices, inde- placed stronger emphasis on capacity building, pendent assurance of the integriy of financial in- especially in public administration, the judicial formation, and legislative/public scrutiny of system, revenue and expenditure management, government financial transactions. and financial accountability The Bank prepared With notable exceptions, the Bank paid little position papers to assist the government's de- attention to fiscal management, capacity build- liberations on modernizing public administration ing, good governance, and public financial ac- Recent and ongoing ESW covers public invest- 22 DEVELOPMENT IMPACT ment, anti-corruption, and federal budget man- Accountability Assessment, and a review of stan- agement, while other donors are funding re- dards and codes by the IMF views of public expenditut-es in specific sectors 'lo date, however, expenditure clata inadequacies Social Protection have severely hampered these efforts The Bank's The Bank has viewedl assistance for reform of so- proposed lending includes relevant projects on cial protection5 programs as an impor-tant ele- treasury matters, regional fiscal reform, and cus- ment of its assistance strategy since the early toms reform 1990s Its advice focused on improved targeting Through the early and mid-1990s, the Bank's of social assistance programs, enhancement of assistance was directed mainly at improving ac- institutional capability, recdesign of the social se- counting and auditing systems in the private curity system, and modernization of the labor sector, where limited progress took place The code The strategy has been implemented Bank paid limited attention to checks and bal- through its ESW and the 1992 Employment Ser- ances in the public sector Neither the prepa- vices and Social Pi-otection (ESSP) loan, the 1997 ration of consolidated financial statements of the SPAI, the Coal SECALs of 1996 ancl 1997, and the government in accordance with generally ac- 1998 Social Protection Implemiientation Loan cepted accounting principles, nor public ex- (SPIL) of 1998. The three SALs also had social penditure and internal control reviews, nor the components strengthening of capacity for an annual mde- The ESSP was a TA loan intended to help deal pendent public audit of government expendi- with the anticipated loss of jobs causecd by en- tures were priorities, even when the Bank terprise restructuring It also was intended to provided large loans for general budget sup- help develop plans for reforming the pension port, as in 1997. system and other aspects of the social safety net, The Bank, however, adhered to the Bankwicle but the government was not prepared to address fiduciary guidelines for project lending and, in the these areas at a time when it had more pressing wake of allegations of misuse of IMF resources concerns, such as stabilization ancd market policy after the 1998 financial crisis, reviewecl all ad- reforms In the face of slow enterprise restruc- justment loan disbursements Although the Bank tunng ancd a two-year delay in implementation, the was satisfied that its funcls were fully accounted objectives of the loan were changed to focus on for and used in accordance with the loan agree- the introduction of active labor market programs ments, the autlhorities agreed to take additional and on smoothing pension administration measures of control and reporting on future dis- through the procurement of computers for local bursements The Bank also attempted to im- offices. The ESSP achieved these more modest ob- piove specific aspects of financial management jectives The collection of taxes (including for the and control in the public sector, such as inter- pension fund) remained unsatisfactory through national competitive bicdcling on the infrastructure 1998 and resulted in arrears in pension benefits projects it funded and the development of a new and wage payments Insufficient attention was law on government procurement in 1997 These given to social assistance targeting, even as poverty efforts have yet to yield visible r esults. Until early was increasing 2000, the COA, the public sector's chief auchit Bank lending for restructuring the coal mining institution, did not take up an offer of Bank as- industry includecl highly relevant components to sistance for capacity builcting, exchange of in- ensure that wages and social protection benefits formation, and dialogue over th-e performance of were paid, that employment services were pro- Bank-funded projects (see Annex 14 for a sum- vided to clisplacecd miners, and that social assets mary of COA reviews of Bank projects that were were rehabilitated before being transferred from shared with the Bank only in February 2001). In mines to local governments. These projects were the past two years, Bank knowledge has been en- highly effective in achieving the first objective, sub- hancecl by a solid Country Procurement Assess- stantially effective in achieving the second, and dis- ment, preparatoty work for a Country Financial appointing in meeting the third 6,7 Bank efforts to 23 ASSISTING RUSSIA'S TRANSITION ~~~~ / @ I mcSc &e®a1Ts OG 1101!)? IQij ofl0 "Feminization of Poverty" (World Bank 20(13b) argues that the rise but never articulated an assistance strategV to deal with gender in unemployment, the drop in average earnings, and the deteri- issues. The 1997 Health Reform Pilot project included a compo- oration of social services during the 1990s affected women nent targeted at women and children, and several components more severely than men. Male life expectancy, however, dete- of the SPAL packtage also benefited mostly women. Chief among riorated more sharply than women's, with the gap widening these were increases in minimum pension and unemplovment from 10 years in the late 1980s to 16 years in 1994 (it since has benefits. However,the Bank did notaddress other aspects of the fallen to 12 years). At the same time, the collection of data dis- proposed pension reform (such as the funded second pillar, with aggregated by gender declined in qualiiV and coverage. a close linkage of work earnings to retirement benefits) that The Bank sponsored a number of studies and conferences on may have a more negative impact on women than on men. It the impact of the transition on women and their changing roles, also did not address the issue of lower male life expectancy. improve the tracking of funds from the treasury working with the government on improving to the recipients were also successful the quality of household budget surveys and The SPAL-SPIL package addressed several im- poverty estimates portant reforms of the social protection struc- ture. It focused government attention on the Energy Sector complexity of pension reform, and on the need The energy sector8 has a more important role in for more effective targeting and for moderniz- Russia than in most countries Oil, coal, and nat- ing the labor laws. It helped increase minimum ural gas are among Russia's main exports. Do- pensions, eliminate pension arrears, strengthen mestic supplies of energy are critical for coping the financial status of the pension, child al- with Russia's harsh winters And energy pro- lowance, and unemployment benefit programs, duction is a major cause of environmental degra- and improve the targeting of many existing so- dation All of the energy subsectors faced similar cial benefits. SPAL conditions requiring the sub- problems in the early 1990s persistently low mission of pension and labor market laws to prices, a poor regulatory framework, little com- the Duma were formally met, but these reforms petition, and environmental failure By accept- did not pass until 2001 Moreover, the project ing nonpayment or barter for its output, the lacked a strong implementation focus at the re- energy sector funneled large subsidies to the gional level and ignored the important issues of rest of the economy and allowed many enter- consumer subsidies and group privileges. prises to enjoy soft budget constraints. In addi- Since the SPAL's closing in September 2000, tion, each subsector faced its own unique the Bank has remained engaged with timely circumstances and transition challenges.9 advice and technical assistance. Current The Bank has been active in the energy sec- prospects for meeting the Bank's objectives in tor from the very beginning of its work in Rus- the sector appear greatly improved Reflecting sia, taking advantage of windows of opportunity a broad new consensus on pension and labor in different subsectors and supporting those market reform, the Duma is expected to ap- emergency activities and reform programs for prove new legislation in early 2002. Some as- which the government showed a clear sign of pects of the proposed reform (e.g., the fiscal ownership. Oil sector issues (production, pric- viability of the new pension system and the ing, taxation, legislation to support joint ven- readiness of the financial sector to get involved tures, and investment requirements) were in the funded pillar) still pose concerns, but im- important topics in the Bank's first country eco- plementation rather than policy design has nomic report in 1992 and in later CAS docu- come to the forefront The Bank has also begun ments '° However, the Bank gave only limited 24 DEVELOPMENT IMPACT attention to the linkages between energy pro- tor. However, the outcome of both projects was Cluction and environmental sustainability The rated unsatisfactory by the Region and OED be- 1994 coal sector report stands out as a highi- cause of failure to make sufficient progress on quality sector work (see also box 3 1) The Bank policy anc institutional reform objectives has also hacl an active dialogue with the gov- ernment on reform of the electric power sector Overall Impact of Bank Assistance" The results of Bank assistance (inclucing $2 6 The Bank set high standards for its assistance, re- billion in lending) to the sector have been mixed iterating in all CASs its end goals (consistent The outcome of the ongoing coal sector re- with those announced in 1991 by President structuring program (including $1.3 billion in Yeltsin) of promoting an environment conducive Bank lending) has been satisfactory. More than to economic growth while protecting the poor 70 percent of the least efficient minles have been and vulnerable Through 1998, the relevance of closecl, more than 65 percent of production has the Bank's operational objectives was substan- been privatized, and payments of wages and tial when set against the complex challenges of benefits to miners are now on schedule A GEF the transition, the fast-changing domestic and in- project for reclucing the consumption of ozone- ternational situation, and the Bank's institutional depleting substances (ODS) was successfully im- priorities The efficacy of Bank assistance, how- plemented, as was the Komi Emergency Oil Spill ever, was modest Recovery and Mitigation project A recently ap- Through the mid-1990s, the Bank Group's proved project in district heating reflects the main achievement was the changes in ownership lessons learned from previous pilot interven- under the mass privatization program for tions that had mixed success, especially after medium-size and large enterprises ancl under the 1998 crisis weakened the financial capabili- the small-scale privatization program. Bank as- ties of local administrations. sistance was also instrumental in counteracting Consicderable progress has been made in re- protectionist pressures and in setting up or sup- forming the electric power sector, as envisaged porting various institutions, which were, how- under the SALs-more rational pricing since ever, only able to perform their functions to a 1997, great improvement in cash collection since limitecd extent (e.g., employment services, pen- 2000, and a new resolve to demonopolize the in- sion administration, the Federal Energy Coin- dustry since mid-2001 Moreover, cash collection mission, the Federal Securities Commission) in the gas sector now exceeds 95 percent, a Other achievements were the limited introduc- more than fourfold increase over 1998 This tion of competitive bidding in public procure- turnaround has had salutary implications for fis- ment and an increase in oil production cal revenues and service delivery, in addition to At the core of the transition challenge, how- contributing to the recluction of arrears in other ever, PSM ancl the incentive regime for private sectors. The reforms since 2000 were under- sector development had not improved signifi- taken without any lending from the Bank, al- cantly through 1998. Moreover, the results of though they benefited from earlier policy sectoral assistance were mostly disappointing, as dialogue with the Bank The Bank also had made the preceding sections illustrate (see also An- sound proposals to restructure and bring more nexes 3, 4, and 5) The IFC's contributions after transparency to the natural gas sector, suggest- the micl-1990s hacl less of an impact than those ing the breaking up of Gazprom into inde- of earlier years The tentative steps towarc mak- pendent procluction, transmission, and sales ing the regions the focus of assistance also had companies to enhance competition But a com- limited success because of the absence of a prehensive r-estructuring plan for this sector re- sound national environment in which competi- mains low on the government's priority list The tion among subnational units coulcd lead to pos- two completed oil rehabilitation projects con- itive results tnbuted to significant increases in production ancl Considering the overall poor development re- moclest improvement in the taxation of the sec- sults as of mid-1998 and the large volume of lend- 25 ASSISTING RUSSIA'S TRANSITION ing, the outcome of Bank assistance for the pe- nomic growth, minimum pension benefits, the nod FY1992-98 (throughJune 1998) is rated un- targeting of social assistance programs, and the satisfactory and its impact on institutional restructuring of the coal sector. Most important, development is rated as mocdest.'2 At the time of the dialogue between the Bank and senior Russ- the financial crisis, Russia's fundamental changes ian policymakers on structural reform, which has in enterpnse ownership and in other structural re- intensified since late 1998, played a major role in forms (e.g, pnce and trade liberalization) were not helping the current government formulate its likely to be reversed However, the sustainability program of market-oriented reform, good gov- of macroeconomic policy was highly unlikely ernance, and social responsibility These are solid In the three and a half years since the 1998 cn- achievements sis, however, the relevance and design of Bank Thus, the outcome of Bank assistance for the assistance have improved significantly, although period from mid-1998 to 2001 is rated satisfac- the slow pace of loan disbursements ancd delays tory and its institutional development impact is in new project effectiveness continue Impor- deemed substantial. The economy remains vul- tant reform legislation has been successfully nerable to external shocks, in particular to a sig- adopted. Implementation of the reform program nificant and prolonged drop in the price of oil. has only started in a few areas, but its efficacy- However, Russia's improved economic man- that is, its contribution to economic perform- agement, the heightened focus of Bank assis- ance-has been substantial, aided by the tance on results, institutional development, and cumulativeimpactofearlierBankefforts Bythe public sector management, and the broader end of 2001, Bank assistance had helped im- ownership of the reform program suggest that prove the incentive regime for sustained eco- satisfactory outcomes are likely to be sustained. Contributions to Effectiveness of Bank Assistance T his evaluation confirms the crucial role of country ownership and do- mestic capacity in determining the outcome of Bank assistance. It also highlights the consequences of extraordinarily difficult initial condi- tions and severe external shocks. Internal divisions within the government that reflected the Russian electorate's unease about the pace and direction of tran- sition prevented the formulation and conduct of a coherent reform program, although throughout the 1990s, Russia stayed the course in its economic and social transformation. Wher-e consensus was achieved, it was tenuous, tinue to be long delays in the use of loan funds given frequent changes at senior levels of gov- A call for closer scrutiny of borrowing for TA in ernment The reformers, who were usually found the president's budget speech in 2001 was in- in core economic ministries, had clear goals and terpreted by some government ministries as a programs But they could not sway many line ban on such borrowing I As a consequence, ministries (energy and agriculture, for example) only one of the six loans and one guarantee ap- to implement needed reforms. Long delays in de- provecl since May 2000, all of which have TA cisionmaking on Bank-funded projects were components, had become effective by the encd common, reflecting differences within the gov- of 2001 clespite the government's declarations ernment on how to use Bank funding and ofinterest whether the conditions attached to individual It is difficult to construct plausible counter- loans were warranted. Furthermore, until the factuals in the case of such a complex program spring of 1997, the Bank-unlike the IMF-was as Russia's, where much of what the B3ank has not always perceivecd as a key interlocutor on pol- done responcded to explicit shareholders' ex- icy matters pectations The Bank had to organize itself Since 1999, the government has adopted quickly ancl had to reassign and recruit a large many of the macroeconomic policies and struc- number of staff with the required skills 2 Exter- tural measures that the Bank had supported nal lending pressure ancl the high potential re- since the early 1990s but that the reformers had wards of timely reforms induced overoptimistic been unable to push through Still, there con- risk assessments and project designs. In rela- 27 ASSISTING RUSSIA'S TRANSITION tion to its sectoral objectives, Bank perform- tensification of supervision and cieep restruc- ance has been mixed.3 This section describes turing, the corrections in most projects carried how the Bank tackled difficult challenges and, substantial transaction costs and amounted to with the benefit of hindsight, identifies cases scaling down the projects' initial objectives, and where it might have been more appropriate to thus their potential impact. adopt a different stance. The ECA Region contends that its flexible and Offering Bank assistance mainly through an- adaptable approach, which sought to build good- alytical and advisory services and technical as- will ancl provide meaningful support to hard- sistance loans-with less weight given to lending pressed reformers, was the most effective one volume and short-term budget needs-would for operating in an environment characterized have been more relevant to the longer-term by exceptionally difficult initial conditions, weak needs of institutionial reform, capacity building, country ownership of reform, and an inadequate and public sector governance It also would have institutional framework. In its view, the Bank been less costly for the country. A less proactive made reasonable judgments about borrower com- stance in Bank programming by major share- mitment at the time that projects were presented holders would also have allowed the Bank to to the Board Similarly, the government believes exercise more caution in project selection and that allowances should be made for the extraor- design From the start, the Bank should have dinary circumstances of going through dramatic adopted the self-regulating lending strategy it fol- political, social, and economic transformations. lowed after 1998-when resource transfers were OED agrees with this view as far as some projects no longer a priority for Russia and for the Bank's are concerned (e.g, in the social protection and shareholders Such a strategy would have linked electricity sectors, and in tax administration), but project selection to ownership of systemic re- disagrees with respect to larger operations The forms, project approval to adoption of reforms Bank should have adopted a more cautious stance and readiness for implementation, and dis- on lending for those larger efforts while relying bursements to concrete progress on reform. more on the provision of analytical and advisory While unlikely to change the main course of services and TA loans and grants. events in Russia, this approach would have im- The general environment in Russia for Bank plied substantially lower disbursements and, advice and lending improved only marginally probably, better project outcomes and fewer op- between 1996 and 1998 In fact, deep disap- erations pointment with the LFS scheme4 implemented In the first half of the 1990s, under pressure in 1995-96 led the Bank to stress-albeit with- from shareholders, the Bank approved many TA out success-transparent, case-by-case privati- and investment projects that were overly ambi- zation in its policy dialogue and in the design of tious, far from ready for implementation, and in the SALs. It was also clear that Russia's structural sectors with a weak commitment to reform (e g, problems-serious fiscal imbalances, soft budget oil, agriculture, banking, and highways). More- constraints, large capital flight, little enterprise over, the Bank also lent for new investments in restructuring, poor governance, weaknesses in areas where (as in the housing and urban trans- the institutional framework, lack of broad own- port projects and in its credit lines) the frontier ership of the reform program, and widespread between public and private roles was shifting nonpayment and barter-were persisting or very rapidly ancd where the emphasis should worsening. All of these issues were the object of have been on privatization and the strengthen- warnings from academic sources and were dis- ing of regulatory frameworks and corporate gov- cussed at seminars and working meetings by ernance. Significant project design weaknesses the IMF, the EBRD, and Bank staff. were tolerated at entry in the belief that they There are different views about the decision could be corrected later. While the government made by the Bank at the time OED believes and the Bank did succeed in turning the portfolio that the Bank's lending expansion in 1996-97 was around by early 1997 through commendable in- not an appropriate institutional response, even 28 CONTRIBUTIONS TO EFFECTIVENESS OF BANK ASSISTANCE tlhough the international community expectecl ancl promises rather than on adoption and im- the Bank to support the Russian government plementation of reforms, although many post- with enhanced lending, not weaken it with open disbursement actions agreed to in the SAL I had crticisms or threats to lending Gaidar (1999) de- not been taken, was mistaken. scribes well the misplaced euphoria of the re- The modest results achieved by the SAls I and formers in March 1997 that induced the Bank and II suggest that the Bank should have insisted the IMF to provide substantial financing with on strong, concrete actions to address the crit- weak loan concltions.5 While the Bank perceived ical issues of fiscal responsibility, financial ac- its shift to policy-based lending to be the ap- countability, transparency in privatization, propriate response to acldress systemic reform banking reform, the nonpayment system, and issues, the message sent to the Russian author- rule of law. ByJune 1997, the EBRD's president ities was that geopolitical consicderations would had warned the international capital markets of keep the international community's funding the high risk of financial investment in Russia window open, regardless of missteps and hesi- Once the Bank decided to proceed, the SALs I tation in adopting the reform agenda and Il and the SPAL should have been much Poor implementation by Russia of expected smaller, multi-tranched, and back-loaded. Such post-disbursement actions agreed to in the Re- a stance would probably have preventecl the in- habilitation II loan in 1995 should have rein- crease in Bank exposure of $2 2 billion between forced concerns within the Bank about the June 1997 anc January 1998. And it might have efficacy of adjustment lending Given Russia's induced an earlier reassessment of the coun- poor recorcd up to that point, the design of the try's creditworthiness by international financial SAL I was inappropriate and the combinecl size markets, counteractecl the pressures for real ap- ($1 4 billion) of the acljustment loans approved preciation of the ruble, hastened its beneficial cle- in June 1997 was excessive. The decision to fol- valuation, and incluced Russia to improve tax low up with a larger loan package ($1.6 billion) acdministration ancl expedite tax reform. six months later, accompanied by conditions Absent a consensus for reform and visible that once again focusec on preparatory activities actions, general budget support by the Bank B. o x 5.1 WB209M1 (D Dmt3 P O® 091ime Observers who have been highly critical of Russia's policies dur- previous preoccupation with investment projects that did not ing the transition (e.g., Stiglitz and Ellerman 2001; Cohen 2000; work out" (Aslund 2000). Reddaway and Glinski 2001) have also been critical of the Bank's The Russian and international experts who have reviewed assistance priorities and lending choices, especially its support the Bank's assistance to Russia as part of the background work for voucher privatization, its narrow circle of government in- for this evaluation have been critical of the timing of most of the terlocutors, and the SALs in 1997 and 1998. And one defender of Bank's adjustment lending as well as the large size of the loans Russia's achievements has also criticized the Bank, but from an- and their soft and unfocused conditions. They have also re- other angle: "The Bank has also been important [in Russia, al- marked on the frequent turnover of staff dealing with Russia, and though less so than the IMFI. It has had a broader front of the consequent loss of knowledge and experience. They have activities, but that has also meant that it has been less focused expressed a high regard for the quality of Bank experts and re- and less effective. It has tended to be slower in its actions than spect for the Bank's ESW and research work on the issues in- the IMF, and its agreements were overloaded with lots of small volved in the transition. In addition, they have praised its policy conditions which distract from the most important conditions. advice, technical assistance, and support for skills training, Over time, the Bank has become more focused on essential and contend that these activities had a substantial, albeit indi- structural reforms that are doable, and it has abandoned its rect, impact on advancing the transition agenda. 29 ASSISTING RUSSIA'S TRANSITION should have been limited and directed only to In hindsight, Russia would have been better sectors where the government had authority off by allowing the currency to float while pledg- to implement a reform program and additional ing to address fiscal and structural reforms. By resources were needed to compensate for the anticipating the crisis, Russia could have avoided social costs of reform. Only assistance in support incurring additional foreign debt ($16 billion) in of trade reforms (Rehabilitation II) and to the its unsuccessful attempt to avoid default (see coal sector (Coal SECAL I and 11) met these cri- Kharas, Pinto, and Ulatov 2001). But many other teria Elsewhere, the Bank should have offered influential commentators and market analysts AAA and TA loans (if donor grants were insuffi- were arguing for a bailout, and the Bank had no dent) to help prepare legislative proposals and direct responsibility for the macroeconomic and action plans financial aspects of the program. While sharing The ECA Region agrees that, by 1996, Russia the Bank's assessment that the fixed exchange faced systemic reform issues, and for precsely this rate would be very difficult to sustain, the IMF reason, the Bank decided to shift from invest- nevertheless thought it was best in the circum- ment lending to structural adjustment lending. But stances to push for more fiscal adjustment and it disagrees that this was a misguided response, an unchanged exchange rate regime, backed up as the risks involved were worth taking at the by large-scale external assistance. As this view was time, given the potential rewards While retro- also advocated by the Russian government and spectively questioning the amount of structural by the Bank's major shareholders, Bank man- adjustment lending, the Region believes that re- agement opted to participate in the July 1998 stricting Bank assistance to AAA and small loans emergency package would have meant a perpetuation of the Bank's Bank management did absorb the lessons limited impact on policy formulation. The 1997 from the SALs I and 11 and sought to minimize SALs and the SPAL were necessary to influence the the Bank's exposure by tranching and back-load- design of the structural reform agenda, beyond ing the funding of the SAL III The first dis- the limited impact of analytical and advisory serv- bursement was only $300 million out of a total ices The SAL II, moreover, was justified by the $1 5 billion Bank loan, which was itself only a need to address the fallout from the East Asia cri- small part of the $22 6 billion international pack- sis The Region further argues that the lack of fun- age of assistance. The SAI III also had more re- damental reversals in economic policy, as well as sult-oriented conditions than previous loans, improved Russia-Bank relations, would not have addressing the fundamental problems of the taken place without the trust-building actions nonpayment system, the fiscal deficit, and the taken by the approval of the SALs I and II and the poor regulatory framework. The SAL III was SPAL Moreover, these operations sowed the seeds geared to send a clear message to international of the reform program adopted in 2000 and cur- investors that Russia had made a renewed and rently under implementation (see also Annex 8) strong commitment to structural reform 6 There By the spring of 1998, the Bank found itself seemed to be a decent chance that the various in a dilemma ECA's economists had concluded reforms would finally be approved by the Duma. that it would be difficult to maintain the fixed ex- Although they might have been too late to fore- change rate and avoid a debt default They were stall the financial collapse, such reforms would also concerned at the loss of competitiveness of have moderated its negative impact the manufacturing sector due to the real ap- Given the limited progress on the reform preciation of the ruble Hence, the Region was agenda, only an additional $100 million was dis- reluctant to offer additional Bank resources to bursed at the time of the SAL III's restructuring fend off the mounting crisis of confidence In in July 1999, before the loan's cancellation in Sep- 1997, the Region had already expressed its con- tember 2000 The large undisbursed balance cern about the trend in the exchange rate and and multi-tranched nature of the SAL III helped about the advisability of further lending to the the Bank maintain the policy dialogue with the IMF It did so again in early 1998 Primakov government. The subsequent re- 30 CONTRIBUTIONS TO EFFECTIVENESS OF BANK ASSISTANCE structuring of the SAL III aimed more at gaining operations-focused on institutional and social government buy-in than at modifying the pro- development ancd the facilitation of private in- ject's reform agenda, which remained as relevant vestment The Bank applied stricter standards for after the crisis as it was before Moreover, the negotiating loans, even at the cost of a slow- Bank devoted significant efforts to strengthen- down in project lending Since micd-1998, the ing andc broadening ownership of the reform Bank has also reached out more to the Duma and program through seminars and high-level policy other stakeholders and has succeecled in im- clialogue These efforts made a significant con- proving its relationship with the MOF and the tribution to the internalization of the SAL III re- CBR These activities represent a major im- foi-m agenda, which is reflected almost entirely provement in Bank performance in the government's cur-ent program. Aid coordination has been a challenge In late Furthermore, Bank-funded technical assis- 1992, the G-7 decided that the Bank should tance to develop policy measures and support chair donor meetings to coordinate aid to Rus- administrative capacity proved useful in adjust- sia. The Bank organized only one such meeting, ing utilities' tariffs, enforcing cash collections, and however, because the government has pre- monitoring performance-critical steps in the ferred to deal with donors on a bilateral basis clismantling of the system of nonpayment. The In 1994, the G-7 posted a retired Bank manager Bank's contribution to guaranteeing the regu- to Moscow to take the lead in coordinating as- latory and institutional framework already on sistance programs, but the arrangement did the books provecl critical in helping to attract for- not work as expected and was soon abandoned eign private financing to Russia's space ventures In the aftermath of the 1998 crisis, the Bank suc- (see box 4.2). The Bank also succeedecl (jointly cessfully coordinated food assistance to Russia, with the government) in bnnging about a marked and coordination has also been close, albeit improvement in portfolio performance through yet to show results, in the banking sector, where cleep project restructuring and loan cancella- the Bank and the IMF share leadership re- tions, and in improving the relevance of new sponsibility 31 Lessons Learned and Recommendations Key Development Challenges ussia has made major progress in its transition from a planned to a mar- ket economy Although the challenges remain daunting, the country is K _ tnow much better positioned to address them. Domestic ownership of reforms to address the strategic challenges outlined below is now largely in place. Many reforms have been adopted by the Duma (see Chapter 1 and Annex 1), and swift and efficient implementation is now the main challenge. A key item on the reform agencla is to make the mitigate the social costs of the transition by public sector effective, efficient, and transparenit strengthening the social safety net, and the so- To spur private investment, it remains neces- cial protection system, and by clealing with an sary to improve the business environment to acute tuberculosis epicdemic, an emerging HIV- foster enterprise restructuring and new enter- AIDS crisis, growing alcoholism, ancd serious air prise creation by better defining property rights pollution and environmllental degradation and strengthening the judicial system, corpo- rate governance, ancd competition. Building con- Lessons Learned ficlence in, and improving the efficiency of, the The key lesson of the Bank's experience in Rus- financial system is also needed to mobilize the sia is that countty ownership is crucial to the suc- savings needed to sustain growth ancd to reverse cess of assistance 'I'hus, it is important for the the massive outflow of private capital A con- Bank to pay close attention to the political and sensus does not yet exist, however, on whether institutional aspects of reforms and consult wlth state-owned banks and certain other key indus- all relevant units of government ancl civil society tries should be privatizecl and on how monop- to improve the relevance and clesign of its ac- oly power should be curbed. Proposals to allow tivities and avoid operations where commitment the clevelopment of agricultural land markets is weak remain highly contentious. There are a number of other general lessons Russia risks a further deterioration of its * In the face of a poor track recorcl and narrow human achievements unless corrective meas- country ownership of reform, a large acllust- ures are taken and adclitional resources founcl to ment lending program (especially one with 33 ASSISTING RUSSIA'S TRANSITION front-loaded disbursements) risks delaying with the government and other donors to con- rather than accelerating reform.' duct periodic reviews of public expenditures. It • When there is a poor track record and a new should also seek to raise public awareness of consensus on a reform program, adjustment PSM and financial accountability issues and in- lending should be offered after the govern- tensify its dialogue with legislators and non- ment has publicly adopted the necessary re- governmental organizations. The Bank can offer forms or has begun implementing them, as to finance TA directly and encourage its provision was the case for the Coal SECALs Disburse- by other donors. ments should be back-loaded and carefully In private sector development, the Bank modulated on the basis of solid progress in im- Group should (a) renew TA to anti-monopoly in- plementation.2 stitutions and regulatory agencies at the federal * Adequate analytical work should be available and regional levels, (b) complete its analytical upstream of lending AAA should be funded to work on the cost of doing business, (c) begin the extent commensurate with the role the preparing a judicial reform project, (d) expand Bank is expected to play. support for arbitration mechanisms and volun- * Timetables for implementation should be re- tary mechanisms for the settlement of business alistic disputes, (e) intensify the ongoing efforts to * For physical rehabilitation and investment proj- prepare Russia for WTO membership and ana- ects to achieve their development objectives, lyze Russia's linkages with the EU and the Com- progress on policy and institutional reform is monwealth of Independent States (CIS) necessary countries, (f) offer new insurance guarantees to encourage private investment, and (g) invest di- Recommendations rectly in promising private ventures In support of banking sector reform, the Bank Focal Areas Group could (a) continue its technical assistance, As already set out in the 1999 CAS, rather than advice, and promotion of a broader debate on fi- lending in niche areas or for pilot programs that nancial sector reforms among public officials, are better left to bilateral donor agencies, Bank the academic world, and the Duma, (b) support Group support for Russia should be directed to a training project for bankers and bank supervi- the areas where government commitment to sors at both the managerial and technical levels, systemic reform is strongest. As of the end of given the continuing need to develop modern 2001, these are PSM and governance, legal and banking and other financial market concepts, at- judicial reform for the protection of contract titudes, and skills; (c) continue the policy dialogue and property rights, business climate, pension on the restructuring of state banks, (d) concen- reform, land markets, and coal and electricity sec- trate the financing of the private sector through tor restructuring. The rapid progress being financial intermediaries in the IFC, as the 1999 achieved on the federal-level reform agenda and CAS proposed, and (e) encourage further in- the shift in focus on implementation issues, volvement of foreign banks in the country The many of which have strong regional dimensions, case for renewing Bank assistance for capital as well as the large needs of the regions, suggest market development is weaker at the moment, that the Bank should consider targeting part of and it will depend on progress regarding proper its assistance to selected regions committed to disclosure, accounting standards, corporate gov- reform ernance, and shareholders' rights. In thepublic sector, the Bank today is better Given its record in the energy sector, it would positioned to help improve expenditure alloca- be appropnate for the Bank to (a) make a follow- tions, public administration, agency implemen- up sectoral loan to support the completion of the tation and monitoring capacity, and financial coal restructuring program, (b) continue its as- management and accountability. The Bank sistance to improve the efficiency and financing should build on its recent work and cooperate of household energy use, (c) offer new assis- 34 LESSONS LEARNED AND RECOMMENDATIONS tance to regional governments to reduce urban ciated policy changes Flexible policy-based sec- air pollution, (d) continue to build consensus on tor operations, including programmatic loans, are a program for reducing gas flaring by oil pro- attractive instruments to support differing paces ducers, and (e) encourage the government to of reforms among sectors and ensure owner- strengthen environmental oversight. The Bank ship by the implementing agencies, provided should remain engaged in the debate over the they relate disbursements to performance restructuring options for the gas monopolies To respond to a strong demand for high-qual- and should be ready to expand, if necessary, its ity advisory services, the next phase of assis- ongoing technical assistance for the restructur- tance should provide for an expanded AAA ing of the electricity monopoly The Bank Group program designed to deliver good practice ad- should also consider guarantees, equity invest- vice based on the Bank's global experience. The ments, and lending for power generation and most urgent ESW task, the planning of which transmission and oil and gas export pipelines, but began in the fall of 2001, is preparation of a com- only after restructuring is well under way prehensive economic report to take stock of In socialprotection and in the social sectors, Russia's progress to date and assess the reform the Bank should continue its current advisory program To ensure its ability to provide concrete role on the implementation of reforms, especially and specific policy and implementation advice pension reform, and its financial support for ca- during 2002-03, the Bank needs to build its in- pacity building Selected interventions to support stitutional knowledge in key reform areas, in- education and to prevent major public health cluding regulatory reform, public service delivery crises are justified by the serious threat that in- and targeting, and regional level reform efforts adequate financial and policy responses to these To contribute to the strengthening of consensus problems pose to long-term, equitable growth on the reform agenda, a broad dissemination of such work remains crucial. Instruments of Assistance The next CAS should be based on consulta- A shared vision with the government for im- tions with a wilder range of Russian stakeholders proving PSM and financial accountability should than has occurred in the past, including repre- precede any quick-disbursing operations. Their sentatives of regional institutions, civil society as- design should ensure a tight linkage between dis- sociations, and external partners It should also bursements, reform progress, and cost of asso- be disseminated more widely 35 ANNEXES ANNEX 1: A THEMATIC OVERVIEW OF RUSSIA'S TRANSITION CHALLENGES Transition Challenges industry to services, from heavy to light indus- The rules of the game changeci dramatically in try, and from machinery ancd weapons to con- Central Europe and the Soviet Union in the late sumer goods Such restructuring clepended on 1980s and early 1990s, as major political and the emergence of new firms as much as on a re- economic reforms-before ancd after the col- orientation of existing companies However, lapse of communist rule-opened up new op- planned economies contained virtually no small portunities It is difficult to overemphasize the firms and lackecd the institutional infrastructure magnitude of the changes required to move to induce and aid thelr creation (supply of funds, from a centrally planned to a market economy. legal frameworks, level playing fields with in- On the eve of transition, communist countries cumbents, etc ) The political system, largely had inappropriate policy, institutional, and legal built on relationships between managers and frameworks, were overindustrialized, with cap- politicians, also favorecl incumbents. ital stocks largely unsuitable for production in a Ti-ansition countries facecl the dual tasks of market economy; and often provided excessive building modern political democratic institu- social protection and infrastructure. tions and transforming their economies from Planners determinecd resource allocation, with centrally planned to market-basecd, from state- scant regard for scarcity prices Resources for in- dominated to private sector-driven, from closed efficient investments were extracted compulso- to open, and from industry- to services-oriented rily through high enterprise profits taxes ancl By the end of the 1980s, there was a broad con- forcecl savings Competition, inclucling from sensus among reformist economlsts in transi- trade, was nonexistent. Firms did not have fi- tion countries and among Western economists nancial independence from the state and rarely that the transition path requirecl macroeconomic had direct contact with their suppliers, whole- stabilization and the eradication of budgetary sale purchasers, or final consumers When plan- deficits (eliminating enterprise subsicdies), price ning disappearecl, it took a consiclerable time for liberalization, an effective legal framework facil- firms to create these relationships. To ease the itating voluntary contracts ancl free entry and exit; informational demands of planning, firms were competition in private markets to be enhanced gigantic, often highly vertically integrated, and through tiade opening (exchange rate convert- onentecl toward production rather than sales In- ibility, reclucecd tariffs) and anti-monopoly policy, centives to innovate and implrove efficiency were and the privatization of existing enterprises For- weak, with firms facing soft budget constraints eign direct investment (FDI) was seen as crucial The structure of output favored industrial in supplying private capital, managerial skills, production, notably machine tools, heavy in- and technology dustry, and clefense, while economic geography The transition challenge was compounded was cleterminecl in ways that would not have by the collapse of the Council of Mutual Eco- emerged through competitive forces (giving rise, nomic Assistance (COMECON) trading bloc and for example, to the Soviet mono-towns) Massive of the Soviet Union, which caused severe dlis- restructuring was required to make supply con- ruptions of trade and interenterprise linkages, sistent with demand, implying major shifts from and extraordinary shifts in internal prices All 39 ASSISTING RUSSIA'S TRANSITION the transition economies suffered a decline in Russia's initial conditions were more difficult output, but with strong reform programs, growth than in the CEB countries Few Russians had was restored in most of the Central Europe and any memory of the brief and distant experience the Baltic (CEB) countries by 1993, and FDI with capitalism, entrepreneurship, and markets flows were significant by 1994 before World War I and the 1917 Bolshevik rev- olution. The economy had been shaped by at Russia's Specific Challenges least six decades of distorted relative prices, re- In the early 1980s, with stagnant real output per pressed inflation, forced collectivization, and capita and declining efficiency of investment, central planning. The country's wasteful, rigid, dissatisfaction with the performance of the So- largely resource-based, military-oriented, and viet economy was mounting In parallel with overintegrated economic structures were very President Gorbachev's policy of glasnost (polit- vulnerable to shocks and international price fluc- ical openness),perestrozka (economic restruc- tuations. Its large size, wiclely dispersed popu- turing) began in the minc-1980s with an increase lation, poor transport infrastructure, and in social and investment expenditures, but no ad- economic geography made it difficult for trade justment to prices and taxes Private small-scale to ensure sufficient competition outside a few initiative, including cooperatives, was permit- large urban centers The fecleral structure and an ted State enterprises gained considerable au- inadequate state apparatus added layers of com- tonomy, albeit without accountability This period plexity to economic and governance challenges. also saw a liberalization of the banking system The 1993 constitution provided for a strong and the start of spontaneous privatization-the presidency and established a bicameral legisla- transfer of state property and enterprises to ture-an upper Federation Council represent- theirmanagers Togetherwithdecliningworldoil ing the constituent states, and a lower State prices ancl an anti-alcohol campaign that re- Duma, representing the disparate interests of po- duced important sources of government rev- litical parties However, neither the Duma enues, these policies contributed to hligler elected simultaneously with the constitutional budget deficits, a dramatic growth in external referendum nor the one elected in mid-1995 debt, and growing black markets. The central au- expressed majorities aligned with the president thorities lost effective control over economic and his reformist economic team. It was not management (Mau 2000) 2 All efforts to frame an until the election of a new Duma in late 1999, economic reform program met with strong in- and of President Putin in early 2000, that a more ternal resistance ancl only rhetorical backing harmonious political relationship was estab- from Western governments. lished between the legislative and executive A failed coup d'etat in August 1991 triggered branches. The period through late 1999 was the dissolution of the Soviet Union, which was characterized by ideological and political splits later replaced by a consultative association (the over market reforms, perceived risk of back- Commonwealth of Independent States [CIS]) sliding, frequent shakeups ancl major divisions among most former Soviet republics. The inde- within the government itself-including be- pendent Russian Federatuon (Russia) that emerged tween the regions and the center, and parlia- inherited an industrialized and urbanized society mentary opposition to the reform efforts and high level of human capital, but also a back- Frequent use of the presidential power to rule log of environmental, military, and demographic by decree also weakened the political consen- imbalances The country was also in a severe re- sus Russia's transition was also hindered by cession, but continued to have global significance the state's loss of control over natural resources, It is the world's largest country (17 million square hostility to foreign investment, poor compli- kllometers), covenng 11 time zones, and the sixth ance by economic agents with the new rules of largest in population (146 million in 2001). It in- the game, and a low level of trust in state insti- cludes 22 percent of the world's forests and 32 per- tutions and among market participants them- cent of its natural gas reserves. selves. Sizeable internal population movements 40 ANNEX 1 A THEMATIC OVERVIEW OF RUSSIA'S TRANSITION CHALLENGES (mainly from Siberia to more temperate areas) ownership changes have gone too far to be re- added to the challenge.3 versed, although the spread of their benefits to On top of these problems, government at- the poor remains crucially depencdent on further tention was clominated by crisis management, improvements in economic, social, and envi- with short-term and frequently improvised pol- ronmental performance. Russia has effectively icy reactions to new emergency situations, rather moved from a centrally planned to a market than to the implementation of a longer-term economy, albeit with considerable distortions and comprehensive stabilization ancl reform and weak social services and safety net (see Mau blueprint. Major reforms came in surges, driven 2000; Dabrowski, Gomulka, ancl Rostowski 2000, by a thin layer of reformers temporarily enjoy- Shleifer and Treisman 2000, Fischer 2001). This ing the president's personal support and by the is a historic achievement, to which the Bank imperatives of the latest crisis situations As a con- made a significant contribution sequence, achievements were generally more successful when the state hacl to stop doing Economic Performance something rather than in longer-term institu- Official statistics portray one of the cleepest and tion building or reforms requiring concerted ac- longest contractions of output among transition tions in different policy fields. Broader ownership economies. Gross national product (GNP) per of the reforms and policy implementation ca- capita contracted by more than 50 percent pacity remained funclamentally stunted, although through 1998 (see table 1 1 in Chapter 1). Such the commitment of the reformist wing of the gov- a deep recession can be largely explained by the ernment was never in doubt, all Russian gov- necessary adjustment following the end of the ernments pledged their support to the reforms, Soviet economilc system and the Cold War, which and the electorate votecd at every crucial turn for required sharp reductions in the production of continuing the transition. military hardware and capital goods with lim- ited appeal on the international market Most Transition Goals and Achievements economists, however, do not believe that gross in the 1990s domestic procluct (GDP) estimates before and The key goals of the new reformist Russian ad- after the transition can be compared, because of ministration were to move quickly to a Western- pi-e-1992 overreporting of output, distorted val- style liberal democracy and an open, market uations, extensive barter and rationing by non- economy The first two post-communist Russian market means, and the recent growth of the governments (through December 1992) began unofficial economy, estimated in the mid-1990s a series of market-oriented reforms, which pro- at 42 percent of GDP (Aslund 2000). Moreover, ceeded irregularly through the end of the the impact of the production adlustment on decade Russia's economic objectives were an- welfare was less severe, due to a more modest nounced by President Yeltsin in October 1991 consu mption decline and relative price correc- * Liberalization of most prices tions. In fact, at purchasing power parity, Russia's * Unification of the exchange rate and liberal- 1998 GNP per capita of $6,186 was comparable ization of current account transactions to Lithuania's, and was higher than Latvia's and * Macroeconomic and financial stability to re- Bulgaria's Positive economic growth finally re- duce inflation sumed in 1999 * Accelerated transition to a market-based econ- Domestic price liberalization was undertaken omy through privatization, regulatory reform, swiftly in most regions. Between January 1992 anti-monopoly policies, and improvements and early 1993, price controls were de facto within the financial sector eliminated on most goods at the retail and whole- * Provision of an effective social safety net to sale levels, with the exclusion of a few sensitive protect the most vulnerable citizens. food items, housing rents, utilities, and petro- This evaluation takes the majority view among leum products. Due mostly to the large mone- transition experts that policy, institutional, and tary emissions ancd in smaller part to the 41 ASSISTING RUSSIA'S TRANSITION monetary overhang, officially recorded prices The government expects accession to the World increased over 14-fold in 1992. While savers, Trade Organization (WTO) by 2003, which will workers, and pensioners were adversely affected, further improve Russia's trade regime and inte- the social costs without price liberalization (in- gration in the world economy volving severe shortages and black market ac- The initial stabilization effort aimed at re- tivities) might have been higher (Mau 2000) ducing inflation and the consolidated fiscal deficit Russia also made rapid progress in liberaliz- (to below 10 percent by the end of 1992). How- ing its domestic and foreign trade and its pay- ever, the central banks in the ruble zone (dis- ment regime A unified exchange system with a solved in 1993) pursued a highly inflationary freely floating exchange rate was introduced in monetary expansion that spilled over into Rus- July 1992 (but see the next paragraph). On the sia. Moreover, the Central Bank of Russia (CBR) import side, the tariff structure was largely ra- in July 1992 and a new government in Decem- tionalized by 1995, with the import-weighted ber 1992 abandoned all efforts at establishing fis- average duty rate at 13-14 percent with a stan- cal discipline and credit restraint ' The dard deviation of about 7 percent. The growth stabilization strategy finally adopted in 1995 with of exports outpaced that of imports, the cur- IMF support rested on three legs fixing the ex- rent account balance was positive throughout the change rate as a nominal anchor, tightening decade, and foreign tracle already amounted to credit to enterprises, and limiting central bank 45 percent of GDP by 1996-97, before the run- credit to the treasury. This strategy succeeded in up in oil prices. There was a substantial change reducing inflation to single digits by early 1998 in the geographic composition of trade, with Progress on the fiscal deficit, however, re- CIS countries accounting for just 20-30 percent mained insufficient until 1999, when the federal of Russia's exports and imports by 1996. How- accounts first recorded a primary surplus (see ever, exports remained dominated by raw ma- table A. 1) A variety of tax measures were intro- tenals, of which natural gas and crude and refined duced, but with declining output, weak tax ad- petroleum products were the major component, ministration and compliance, flaws in fiscal while machinery and foodstuffs were the lead- federalism, and continuous tax exemptions for ing imports High subsidization of the domestic inefficient enterprises, government revenues economy through price clistortions and arrears fell sharply. Expenditures were also cut, especially in the energy sector was at the root of the econ- in military spending, subsidies, and investment, omy-wide system of "nonpayments" and barter. but not commensurately with the fall in tax rev- Table A.1 - Fiscal year Indicator 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Federal govt balance (% of GDP) -10 4 -65 -11.4 -5 7 -8 4 -71 -5 9 -4 2 0 9 2 7 Revenuel%of GDP) 166 137 118 129 125 123 110 128 160 145 Expenditure(%of GDP) 27.0 202 232 18.6 20.9 194 16.9 171 15.1 145 Consolid govt balance (%ofGDP) -8.9 -79 -80 -32 32 28 Revenue 1% of GOP) 33 5 36 5 33 4 34 0 38 4 35 8 Expenditure (% of GDP) 42 4 44 4 41.4 37 2 351 33 1 Source IMF staff estimates 42 ANNEX 1 A THEMATIC OVERVIEW OF RUSSIA'S TRANSITION CHALLENGES enues After a tight monetary policy was im- lost confidence in the ability of the government posed in early 1995, continuing large-deficit fi- to maintain the exchange rate in the announced nancing shifted to new sources (a) domestic corridor and levy and collect sufficient taxes to and (after 1996) foreign portfolio investors, who service the debt. They began to cash out of Russ- bought high-yielcling short-term government ian markets, thus dnving interest rates up sharply securities (GKOs and OFZs) and foreign cur- The protracted cabinet shakeup in early 1998- rency Eurobonds; (b) the lMF and the Bank (the despite the new prime minister's reformist cre- annLial net resource transfer by the IMF and the dentials-was a further blow to investors' Bank during 1995-97 was equivalent to 1.1 per- confidence Moreover, the continuecd political cent of GDP), and (c) foreign governments, stalemate among key stakeholders-the federal mainly through debt rescheduling executive, the Duma, regional leaders, oh- Government institutions, policies, and regu- garchs-impeded sound fiscal management and lations perpetuated soft budget constraints for the structural reform agenda (Shleifer and Treis- enterprises and banks by tolerating a dramatic man 2000). increase in barter, tax, wages, pensions, and sup- Fearful that a financial collapse in Russia could pliers' arrears within the public sector and among have cdramatic internal and external social, eco- energy and infrastructure monopolies. In the nomic, and political consequences, a large in- hands of managers incapable of or unwilling to ternational emergency financial package of $22 6 restructure and under pressure from import lib- billion was quickly assembled and was an- eralization, shrinking private and public demand, nounced in July 1998.6 The bubble, however, the real appreciation of the ruble, and the high burst on August 17, 1998, with a debt default and real interest rates, enterprises and banks read- a forced float of the ruble. The worsening de- ily seized on the governmlent's political unwill- velopments in some parts of East Asia ancl other ingness to cause bankruptcies and root out the emerging markets had only deliverecd the coup "nonpayments system " The share of barter trans- de grace. The Russian financial crisis was rooted actions in the economy peaked at 54 percent, and in a fiscal crisis, which was in turn rooted in a total payment arrears rose to about 40 percent deeper structural crisis I The ruble depreciation of GDP in August 1998. The energy sector was by 65 percent as of the end of September ancl the at the center of this system that helped conceal disruption in Russian access to international fraud and tax evasion 5 capital markets triggered the insolvency of most The unsustainability of deficit financing be- banks that were heavily exposed to foreign ex- came apparent onlygradually, as yields fluctuated change risks, a spike in inflation, and a severe, wiclely in 1996 in reaction to the president's albeit short-lived, recession electoral and health prospects. After allowing nonresidents to trade in short-term government Social Performance debt instruments, yields continued to decrease Country performance on poverty, equity, and from the end of 1996 through September 1997. human and social development has been dlisap- Despite the government's renewed promises to pointing, both in absolute terms and relative to the international financial institutions (IFIs), other transition economies. Gains during the however, the nonpayments system, poor fiscal last decade included the elimination of acute performance, and ballooning short-term debt shortages of consumer goods, which were the issues persisted By the end of October, a rapidly most clebilitating social feature of the previous sys- spreading international financial crisis and de- tem; ownership titles to housing for most house- clining world market prices for oil, gas, ancd met- holds, greatly improved quality and variety of als, superimposed on an uncompetitive fixed goods and services, expanded access to the do- exchange rate and chronically weak fiscal man- mestic political process ancd global information agement and microeconomic fundamentals, ancl opportunities; and social mobility no longer began pushing the Russian economy toward the shacklecd by pervasive administrative restrictions. precipice With mounting debt service, investors However, in mid-1999, accorcling to official sta- 43 ASSISTING RUSSIA'S TRANSITION tistics, 55 percent of the population, especially Public financing for health and education has children and the elderly, was living in absolute dropped sharply in real terms since the late deprivation, up from about 32 percent in 1997. 1980s. According to government officials, the The long-term poor represent about 13 percent main factor behind this trend was the lack of in- of the population 8 Inequality had doubled by dexation of budget outlays 10 Whatever the rea- 1993 to Latin Amencan levels (the Gini coefficient sons, the result has been serious imbalances was estimated at 0 46 in 1993 and 0 47 in 1998). between supply and demand of skilled man- Human development indicators show a sharp power in a rapidly changing labor market, wors- deterioration between the mid-1980s and the ening quality of services, and growing social and first half of the 1990s, and then either stagnation geographic inequalities in access to secondary ed- or only modest recovery While recovering from ucation and professional training. The health their worst levels, infant and maternal mortality sector, moreover, is suffering from chaotic de- remain high, life expectancy (especially male) centralization, misplaced priorities, and inade- low, and access to health services inadequate, quate health insurance contributions. relative to CEB countries (see tables A.3, A.4, and A 5). Institutional Performance Previous achievements in the social sphere European Bank for Reconstruction and Devel- were based on unsustainable and costly public opment (EBRD) transition indicators for 2000 put systems for social protection, health, and edu- Russia in the middle among transition cation 9 Nonetheless, these systems continued economies, with high scores for fraction of out- to crumble during the 1990s, because they were put in the private sector and price liberalization, only partially reformed The inability to maintain but low scores for financial sector development, previous levels of social services and to provide competition policy, enterprise reform, and cor- a safety net to vulnerable groups in the face of porate governance (EBRD 2000) The Bank's as- rising costs and declining revenues has set back sessment of policy and institutional performance Russia's human and social achievements and for the same period painted a bleak picture, but undermined the political consensus on needed for 2001 shows substantial improvements Poor reforms-especially enterprise restructuring. performance is still noted in environmental sus- The social protection system Russia inher- tainability, property rights, and transparency, ac- ited required major restructuring. Social bene- countability, and corruption in the public sector fits needed to be targeted to help those most in While conversion of state and party nomen- need of assistance, for example, the unemployed klatura control over the factors of production and poor households. Reforms were needed in into de jure ownership had already begun in social insurance institutions to reduce the role the late Soviet years, it intensified in Russia in the previously played by enterprises and improve the early 1990s. The country also experienced a high administrative capacity at the local government degree of "state capture" by industrial-financial- and national levels New employment services media tycoons (the so-called oligarchs) at the na- were established in the early 1990s, administra- tional and local level, at least through 1998.11 tion of pension benefits improved, and social as- These developments, together with inflation sistance became better targeted in the late 1990s. and the arrears and massive drop in real wages However, proposed reforms of the labor laws and and pensions, largely explain the cynical atti- the pension system were not adopted Absolute tude about the free market among Russians that levels of social benefits remain to this date low- has been noted by some Western reporters (Free- for example, the child allowance in 1999 is about land 2000). 6 percent of the under-16 subsistence minimum, Compared to most other transition down from about 13 percent before 1998, and economies, privatization in Russia was rapid, the minimum pension is below the level man- largely motivated by the fear of a communist re- dated by law, that is, below 80 percent of the sub- turn. Recognizing the state's inability to regulate sistence minimum for the elderly the activities of enterprise managers, a small 44 ANNEX 1 A THEMATIC OVERVIEW OF RUSSIA'S TRANSITION CHALLENGES group of committed reformers exploited the pe- They argued that support for the spontaneous nod of "extraordinary politics" in 1991-92 to privatization (through lease buyouts and coop- initiate a quick reversal of the collective owner- eratives) by insiders that had started duringper- ship of the factors of production created by the estroika would have been a better choice uncder Bolshevik revolution In this, they succeecled. By conditions of poorly established property and the mid-1990s, virtually all small-scale enter- legal rights and corporate governance, as it would prises hacl been sold or otherwise transferred out have minimized agency relationshlips 12 of state hands, mostly to their workers Under the Many other experts, however, maintain that mass privatization program (MPP) for medium- Russia did not have a sufficiently developed in- and large-scale enterprises, by June 1994, the stitutional environment to prevent large-scale government had (a) corporatizedc and registerecd managerial expropriation of assets under the more than 24,000 enterprises as joint stock com- latter scheme. In any case, the sequencing of the panies, (b) distributed vouchers to virtually the MPP-privatization first, institutional and regu- entire population in some 89 oblasts, territo- latory reform later-was not ciriven by faulty un- ries, and autonomous republics, ancd (c) priva- derstancling of economic principles on the part tized transparently over 16,000 enterprises, most of the reformers or their foreign advisers, but by of which were in the tradable sector More than domestic political realities The choice of voucher 70 percent of all Russian firms privatized under privatization, involving the country's entire pop- the MPP dicd so by choosing the majority em- ulation in the recistribution process, was based ployee ownership option (Logue, Plekhanov, on a legislative compromise aclopted in the sum- ancl Simmons 1995) More than 41 million Rus- mer of 1991 (before the first post-communist gov- sians became shareholclers through direct share ernment) between reformers and legislators ownership or voucher investment funcis. By the eager to stop the looting of state property by in- mid-1990s, the private sector was contributing siders Fearing a resurgence of communism, ancd more than 70 percent of GDP faced with keeping foreign investors at bay and Enterprise managers eventually succeeded with a lack of basic legal regulations, secured by legal means and/or intimidation to accumu- property rights, and a capital market, they saw late controlling stakes in most privatized enter- the voucher option as the only realistic methocd prises. Involvement by outside investors was to privatize quickly and fairly Transferring eco- minimal, due primarily to management's oppo- nomic assets to private hancis was expected to sition, facilitated by the decision to allow 51 per- create a strong constituency for the necessaiy leg- cent insider ownership (an option chosen by islative and institutional changes.13 Unfortu- most enterprises) and by the government's fail- nately, this proved not to be the case until the ure, until recently, to impose hard budget con- end of the 1990s. straints on enterprises The measures taken to Subsequent efforts at privatization on a trans- sustain transparent ownership, assist in the sec- parent, case-by-case, cash basis included the ondary redistribution of property, and protect loans-for-shares (LFS) scheme, through which shareholders from fraucd and abuse proved in- the government civested in 1995-96 its shares aclequate As a consequence, and also clue to in 13 large and valuable companies, mostly in the continuing soft budget constraints, enterprise re- petroleum and nonferrous metals sectors, in a structuring was very limited Lack of demonop- nontransparent way and for only about $1 billion olization and restructuring before and after the (Lieberman and Veimetra 1996) The lFS scheme, MPP perpetuated low competition which entrenched powerful financial-industrial Some commentators have argued that the groups and undermined government revenue- MPP involved overly complex relationships be- raising efforts, was a quid pro quo for the so- tween various principal agents ("long agency callecl oligarchs' support of President Yeltsin's chains") for the Russian economy just exiting successful 1996 reelection campaign This de- from seven decades of central planning, and velopment and the MPP's shortcomings dam- thus its sequencing should have been reversed. aged the credibility of, and strengthened 45 ASSISTING RUSSIA'S TRANSITION opposition to, the privatization process. Indeed, locked in structural inefficiencies Important ob- further dilution of large government stakes has stacles to private sector development (PSD) con- remained blocked to date.14 tinue to characterize the Russian economy. (a) Efforts to promote demonopoltzation, new en- concentration of ownership and control in the terprises, and investment were lukewarm and hands of insiders who have failed to restructure achieved little. The economy remained plagued the enterprises, (b) high costs of entry and doing by inefficiencies and an unfriendly business cli- business, including severe bureaucratic harass- mate. The initial rapid growth of small and ment of SMEs, (c) insecure property rights; (d) medium enterprises (SMEs) in the early 1990s weak legal and judicial systems; (e) limited com- was driven by the numerous niche-filling and petition in product markets; and (f) a poorly arbitrage opportunities that abounded at the regulated, undercapitalized, and deficient fi- time This growth, however, was later stalled by nancial sector an adverse institutional environment, a predatory bureaucracy, and lack of access to financing '5 Cu- Recent Achievements mulative net FDI inflows to Russia in the past The last three years have seen strong economic decade have been minimal (less than $12 billion), performance and considerable progress on the largely limited to natural resource sectors and ge- reform agenda. Good fiscal performance, large ographically concentrated, with the cities of balance of payments surpluses, and an impres- Moscow and St Petersburg and the surrounding sive output recovery have been accompanied oblasts accounting for substantially more than by an improvement in business confidence and half of total inflows of FDI (Broadman and Re- a drastic reduction of enterprise payment ar- canatini 2001). rears and barter. The economy has been boosted Unclear and conflicting laws, poorly defined by higher world energy prices and improved property rights, excessive regulations, an unre- competitiveness-through lower real wages-of liable judiciary, corruption, opacity of owner- the non-oil export sector thanks to the 1998 de- ship, corporate governance abuses, crime, and valuation, but political stability, a clearer policy lack of confidence in the inadequate banking direction, and a broader consensus on reform system and the government's economic man- have also played significant roles agement have discouraged investors from con- The Primakov government, which came to sidering operations in Russia and constrained power in September 1998 and was widely ex- International Finance Corporation (IFC) and pected to adopt a new policy agenda-that is, Multilateral Investment Guarantee Agency abandoning monetary stringency, increasing (MIGA) activities. Until August 1998, old and un- spending, and reversing the limited structural re- profitable firms continued to stay in business- forms already adopted-soon realized that the by not paying taxes, utility bills, and suppliers Russian people had no desire for high inflation instead of shedding their assets-while an over- or for abandoning the efforts to develop a mar- valued exchange rate discouraged investment ket economy In fact, the government improved outside the export commodity sector During fiscal discipline, thus keeping a lid on inflation, the same period, a dual pricing system kept do- allowed only a moderate amount of food aid so mestic prices especially low and discouraged in- as not to damage agricultural producers' incen- vestment in the oil sector As a result, and also tives, and abstained from taking steps to reverse due to poor overall economic management and liberalization and other reforms. rising crime and illegal gains, capital flight aver- In mid-2000, the Kasyanov government en- aged $11-$19 billion annually during 1994-99 dorsed a comprehensive medium-term program (IMF 2000) 16 of policy and institutional reforms, developed by The failure to put in place an appropriate reg- Russian experts-but remarkably similar to that ulatory framework and to restructure huge, mo- long advocated by the international commu- nopolistic enterprises before their partial nity'7 Important tax reform-which brought the privatization entrenched powerful interests and income tax rate down to a flat 13 percent, ex- 46 ANNEX 1 A THEMATIC OVERVIEW OF RUSSIA'S TRANSITION CHALLENGES pansion in coverage of the federal treasury, and implementation, and a number of legal changes an overhaul of the center-region relationship- were to be submitted to the Duma by the end has been successfully implemented, resulting of 2001 Already further along the legislative in greater tax compliance and the reimposition pipeline are other major reforms of social trans- of the center's authority over the regions In fers, agricultural land markets (on a voluntary re- 2001, the Duma approved legislation that re- gional basis), further tax simpllfication and tax formed corporate taxes, cut the profit tax from burden reduction, the legal system, the judiciary 35 percent to 24 percent, clarified ownership further improvements in the business climate and liberalized transactions in nonagricultural and corporate governanice, and WTO accession land, reformed the pension system, modern- A major reform of the banking sector, a renewed ized the labor code, deregulated business activ- privatization drive, further capital account lib- ities, and brought needed changes in banking eralization, improvements in the health ancl ed- legislation. A restructuring plan for the electric- ucation systems, and financing for science are ity monopoly has been adopted and now awaits also on1 the administration's agenda. 47 ANNEX 2: A CHRONOLOGICAL OVERVIEW OF RUSSIAS TRANSITION CHALLENGES 1990-91 1994-95 During the last two years of the Soviet Union, the The December 1993 elections were perceived as government lost control of economic policy as a defeat for the radical reformers, ancl the gov- it gave in to populist demancls for spending ernment became dominated by state enterprise while collecting less revenue The rising budget managers, who hlad benefitecl fi-omll the mass deficit was financed by monetary emissions, privatization (Completed by mid-1994, it left causing hyperinflationary pressures Because about one-fifth of the issued shares in their price controls were in place, shortages in all hands and another two-fifths with their em- markets intensified enormously. Output plum- ployees, according to Blasi, Kroumova, and Kruse meted as a result of the shortages, disruptions 1997). The state bureaucracy started applying the in interenterprise linkages after the disintegra- restrictive regulatory laws that had remained on tion of the Soviet and central European trading the books. Despite a halt to structural reforms, blocs, and general chaos Unregulated banks monetary stabilization was finally accomplished (mostly finance arms of enterprises) mush- in 1995 under an IMF Stand-by program Crime roomed Managers started the "spontaneous pri- became inci-easingly organized, although it vatization" of their enterprises, over which a started to decline 1987 law had given them effective control, through lease buyouts. With the general col- 1996-98 lapse of law and order, crime rates rose rapidly At the end of 1995, the loans-for-shares (LFS) pri- vatization of a dozen major companies marked the 1992-93 end of the state managers' dominance and the n-se A new reformist Russian government (formec in in influence of the so-called oligarchs from 1996 November 1991) launched a program of radical until 1998, a rise connected with their financing market economic reform in January 1992 This of the reelection of President Yeltsin in the sum- initial reform period lasted through 1993. Its merof 1996 Afewwell-connecteclbusinessmen, salient achievements were price liberalization who had made their fortunes in the late 1980s and and privatization of small, medium, and large en- early 1990s on arbitrage between state-controlled terprises. However, initial attempts by the re- and free markets in various industries, strength- form government at balancing the budget failed, ened their control over powerful financial-indus- and the nonenforcement of price controls al- trial groups. These groups with their substantial lowed previously repressed hyperinflation to security services also edged out organized crime surface. The Russian central bank did not even This period was characterized by rising economy- attempt to bring monetary policy under con- wide barter and arrears that were supported and trol, and competition in the issuance of rubles subsidized by the energy sector, a persistently among Commonwealth of Independent States large budget deficit, ballooning short-term public (CIS) central banks continued, thus fueling the debt, rising stock prices, and a relatively stable inflation. Little was clone to reform government but increasingly uncompetitive exchange rate. In institutions, and crime rates continued to rise August 1998, this phase of weak and ineffectual 49 ASSISTING RUSSIA'S TRANSITION government ended in a financial collapse with a forms emerged for the first time Tax reform debt default and a large devaluation that had long been discussed was finally under- taken in a more radical form than anyone had ex- 1998-200D pected Other reforms to improve the business Since August 1998, a more functional economic climate and urban land markets were also system has emerged. The government was forced adopted. From 1999, contrary to most expecta- to balance its budget because no financing was tions, Russia experienced vigorous economic available The discredited system of nonpay- growth on the strength of rising oil prices, a real ments and barter that was at the root of the fi- devaluation, and better economic policies Crime nancial crash dwindled swiftly As a result of and corruption have become endemic, but gov- parliamentary elections in December 1999, a ernance, judiciary reform, and social reforms solid majority in support of market economic re- have risen on the policy agenda 50 ANNEX 3: EVALUATING BANK ASSISTANCE TO THE TRANSPORT SECTOR1 The transport system Russia inherited in 1992 during implementation In total, close to 50 per- from the Soviet Union had been designed to cent of the approved loan funcls for transport move large volumes of bulk commodities among have been cancelled The Bank also assisted the centralized production facilities over long clis- transport sector by way of the first Rehabilitation tances, with scant attention to scarcity pnces The Loan, which included financing of spare parts for resulting inefficient transport ancl price distor- buses and for seaport equipment An in-clepth tions affected the competitiveness of Russian sector review of Russia's ports by the Bank rec- industry and exports In 1992, the fiscal burden ommended fundamental reforms to enhance of transport subsidies was large and growing competition and transparency It also found that (11 percent of total budgeted subsidies, or 2 investment requirements were relatively mocdest percent of GDP) The greatest problem was large (because of past overinvestment) and were deficits among urban transport systems, although needed mostly for rehabilitation ancl adaptation there were also significant and growing cleficits of superstructures Nonetheless, at the request in suburban commuter railways and airline serv- of the central government, the Bank began work ices. Deteriorating road conclitions also signaled on a port project, with a focus on St. Peters- the need for reforms and public investment in burg; this effort foundered because of the un- this subsector. willingness of local authorities to undertake The Bank's analytical work emphasized fiscal funclamental organizational changes According issues and the need to transform transport in- to an agreed division of labor, the European stitutions and services into competitive, mar- Bank for Reconstruction ancd Development ket-oriented, privately owned ones, avoid (EBRD) lent money to the railways, while Bank investments in modernizing facilities unlikely to assistance focused on improved pricing and see much demanc in the new economic envi- competition in the subsector. However, these and ronment; and protect strategic public assets similar efforts under the Structural Acljustment The strong views of Bank sector reports, com- Loans (SALs) to improve the transparency of the plemented by project focus on maintenance Road Fund were unsuccessful. rather than new investments, played a significant The relevance of the first highway project role in preventing large misinvestments was substantial Its focus on maintenance and re- Gross Bank lending for the sector at $1 5 bil- habilitation ensured a high internal return, and lion (11 percent of total Bank lending to Russia) private sector contractors were stimulated by has been relatively small compared to lending for the introduction of competitive bidding for work transportation projects in other large countries previously done by the public sector Efficacy such as Brazil, China, and India The Bank ap- was only mocdest, however. The project was ham- proved road projects in FY94, FY96, and FY99; perecl by higher than expected costs, mainly an urban transport project in FY95, ancl a Moscow due to limits in the biclding competition and urban transport project in FY01 However, the en- the Highway Agency's resistance to auditing the tire $400 million for the FY99 highway project, Road Fund according to international standards which inclucled a regional road component, was The focus of the urban transport project was cancelled, and other projects were scaled down on raising cost recovety from minuscule levels, 51 ASSISTING RUSSIA'S TRANSITION in exchange for the financing of new buses Its hand buses from Western Europe The urban relevance, however, is questionable The Bank transport loan, moreover, turned out to be a would have done better by assisting municipal- disaster for most municipalities, whose debt ities to privatize quickly and establishing regu- service quadrupled after the 1998 devaluation latory institutions rather than financing public (the Ministry of Finance [MOF] had insisted that purchases of costly new buses. Indeed, transport subborrowers take the full foreign exchange capacity in cities not covered by the Bank proj- risk).2 These problems caused large loan can- ect was maintained by a better combination of cellations, and progress was modest on railway privatization and public purchases of second- pricing and negligible on restructuring. 52 ANNEX 4: EVALUATING BANK ASSISTANCE TO THE AGRICULTURE SECTOR Agriculture has proven to be one of the sectors and a viable private sector seed industry Assis- most resistant to change, even though relative tance to the sector has consisted of two loans ap- prices are now largely market-cletermined, sub- proved in June 1994 a $240 million Agriculture silies fell from over 10 percent of GDP in 1992 Reform Implementation Support (ARIS) proj- to 2 percent by the end of the decade, and pri- ect and an $80 million Land Reform Implemen- vatization has left only 10 percent of farmland tation Support (LARIS) project I in the hands of the state. But there has been The loan components, however, were more very little change in farm structure or manage- prosaic than their description in the 1994 CAS mnent, and gigantic privatized farms continue to and included strengthening information serv- operate as state and collective enterprises, with ices to farmers and demonstrating the role of the low factor procluctivity and few incentives to re- private sector in agriculture by establishing pilot spond to changes in market signals. As in the wholesale markets and seed processing facili- early 1990s, the sector still baclly needs (a) a ties. Other goals included changes in seed qual- clear legal framework establishing agricultural ity production and marketing subprojects, the land markets, (b) reforms of marketing, distri- introduction of a uniform land registration sys- bution, and agricultural credit institutions, pri- tem and cadastral mapping, ancl training marily at the regional level; and (c) a Progress on these narrowerobjectives has been reorientation of public support to facilitate the very slow but is nlow reportedly satisfactory (ex- emergence of efficient farms rather than main- cept that the private seed enterprises cannot taming inefficient ones repay the sub-loans uncler the ARIS project) The Bank's recommenclations throughout These achievements, however, have meant little the decade were consistent ancl appropriate In so far, because the necessary legislative and pol- light of the poor policy and institutional envi- icy reforms required to address the priority ronment, Bank lending was limited to a core needs of the agricultural sector have yet to be program aimed at supporting market-based in- adoptecl ARIS was premature, and its relevance stitutions, particularly land reform and farm pri- was moclest at best The focus of LARIS on build- vatization and restructuring, as well as assistance ing government capacity, however, may prove to the Ministry of Agriculture in developing mar- timely, given recent progress on land reform ket infrastructure, farmer information services, legislation. 53 ANNEX 5: 1997 AND 1999 CAS OBJECTIVES AND OUTCOMES Progress Development Main 20011 2002-03 objective results 1999 | Actual Prospects(%) Private sector * Regulatory framework for case-by-case privatization in place C C 100 * Transparent case-by-case privatizations N N <33 * Enterprise restructuring N S >33,<67 * Improvements of institutional capacity to 3 handle bankruptcy cases S S >33, <67 * Accession to WTO N i G >67 Financial sector * Regulatory framework in place (e g, prudential regulations, exit legislation, IAS) S S <33 * Upgrade regulatory and tax framework for securities markets S S >33,<67 Social safety net * Real minimum pension at acceptable level S S >67 * Pension reform N S >67 * Modernize labor legislation N S >67 * Improve unemployment benefits S G >33, <67 * Improve targeting of social assistance S G >33, <67 Social services * Agreement on health financing reform S S >33, <67 * Agreement on education financing reform | S >33, <67 Public sector and * Restructure intergovernmental fiscal relations S G >67 economic * Improve tax administration and tax system S G >67 management * Coverage of treasury system increased S G >67 * Wage and pension arrears eliminated G C >67 * Strengthen legal framework and judiciary i S >33, <67 * Corruption Diagnostic Study (1999 CAS) I N/A S >33, <67 * Public administration reform N/A S >33, <67 Agriculture and * Adoption of legislation and procedures rural development to facilitate land market transactions N N <33 * Restructuring of bankrupt farms N N <33 Energy, environment, * Reduction in subsidies to coal enterprises and infrastructure * for investment and production G C >67 * Private sector participation in power generation and distribution projects N N >33, <67 * Utility tariffs to cover full economic costs, and cross-subsidization phased out S S >33, <67 * Independent regulatory agencies for infrastructure monopolies fully operational S S >33, <67 * Implementation of Environmental Action Plans at federal and regional levels S S >33, <67 Note N=negligible, S=some, G=good, C=completed 55 ANNEX 6: BANK PERFORMANCE IN SECTORAL DEVELOPMENT In private sector development (PSD), the Bank jectives would have been better served by more Group's sectoral performance has been mixed. vigorous monitoring and active advocacy of the The IFC moved quickly in the early years to ad- institution-building components of its loans, es- dress needs for technical assistance in PSD, earn- pecially the CBR supervision component The ac- ing a high level of gooclwill In the second half creclitationi and monitoring process for of the decade, however, TA operations have fo- participating banks under the Financial Institu- cused on narrower objectives less central to the tions Development project (FIDP) was flawecd transition process The IFC's investments-along ancl supervision seriously deficient I Appraisal with its losses-have been limited In light of the and supervision reports befoi-e 1998 presented generally unfriendly investment environment, an overly optimistic view Much of the work done the IFC's matching of its skills and resources to under the Capital Markets Development project potentially viable investmenit opportunities in (CMDP) to strengthen the legal, regulatory, and Russia not covered by EBRD financing has been institutLional fiamework for the capital market was appropriate and, to the extent it reflects resist- premature, given the inadequate government ance to the prevailing approval culture and ex- commitment to resolving the key issues of dis- ternal pressure to invest, laudable. MIGA's closure standards, corporate governance, ancl decision to offer coverage on a prudent and se- protection of shareholders' riglts, without which lective basis was equally appropriate. Bank analy- improvements in the capital markets' infra- ses, advice, and TA on PSD were timely ancd on structure would prove sterile.2 Through 1998, lit- the mark The Bank's credit lines to private en- tle attention was paicd to the restructuring of terprises, however, if viable from a commercial state-owned banks-even though this issue was standpoint, shoulcd have been left for the IFC highlighted in prior economic sector work (ESW) In the financial, transport, and agricultural on the sector-and to improving the conditions sectors, Bank performance has also been mixecd for foreign bank entry Unlike the approach taken (see Annex 3 for the transport sector and Annex in successful Central Europe and the Baltics 4 for the agricultural sector) The Bank's early di- (CEB) countries, moreover, the policy dialogues agnosis of the financial sector was souncl, with surrounding enterprise ancl bank restructuring a clear recognition of the technical and political in Russia were not clearly integrated Finally, the difficulties of the required reforms and institu- Bank did not do enough projects to create a tion-builcling processes Its advice and the TA broacder understanding of the key issues ancl loan components also were appropriate, and disseminate its own strategic vision for finan- have helped create a promising foundation of cial sector development. laws and institutional capacity However, several The Bank's program of lencling assistance to aspects of its lending assistance were deficient (and through) the banking sector should have The Bank should not have lent in the bank- been more limited, better clesigned, and closely ing sector without full ownership of reform by, supervised to minimize the Bank's reputational and a good working relationship with, the Cen- risk ancl achieve better coordination before 1999 tral Bank of Russia (CBR). The Bank's policy ob- between the Bank and other international fi- 57 ASSISTING RUSSIA'S TRANSITION nance institutions (IFIs) and donors In all like- each year in which adjustment loan disburse- lihood, however, the end results-the sector's ments took place As for the remaining portfo- insolvency after the 1998 clebt default and de- lio, Bank staff have implemented diligently the valuation-would not have been very different "ring fencing" approach mandated Bankwide for in light of the poor institutional and microeco- project financial management. They took inno- nomic environment and the dynamics of un- vative steps to recover ineligible payments and sustainable public debt in the context of a fixed to improve project audit quality, including re- exchange rate regime viewing the qualifications of private auditing In public financial management and ac- companies and accrediting the competent ones. countability, the Bank hacl a decisive impact on In the social protection sector, the Bank's ini- the development of basic expenditure tracking tial projections overestimated the risk of un- systems in the Ministry of Finance (MOF) under employment, because they assumed downward the Coal Sector Adjustment Loan (SECAL) I, as real wage rigidity and a much faster adoption of well as a significant impact on the initial devel- harcd budget constraints on enterprises, as had opment of the accounting profession Until rel- been the case in CEB countries Nonetheless, atively recently, however, the Bank made only Bank performance was commendable under the slow progress in diagnostic work and in sup- early TA efforts and under the coal loans. porting the building of key institutions at the Throughout the decade, the Bank was success- countrywicle level-even during 1996-99, when ful in keeping social protection on the govern- it provided substantial quick-disbursing loans ment's reform agenda With the Social Protection for budget support. The Bank's relationship with Adjustment Loan (SPAL), however, it was mis- the supreme audit institution-which through taken in its expected timetable for major insti- 1999 the government considered an instrument tutional reforms and its weak conditionalities of the opposition parties in the Duma-was dif- The better alternative would have been to lend ficult, but the Bank's efforts to establish a pro- only for TA, until evidence of concrete reform ductive dialogue were limited. The inadequate steps and a need for compensatory financing of assistance in this area reflected an insufficient ap- implementation costs became apparent preciation by the Bank of the role of public sec- in the energy sector, the Bank performed tor governance in Russia's transition well not only in the successful restructuring of However, the Europe and Central Asia (ECA) the coal subsector, but also in the electricity and Region did adhere to the formal, Bankwide fi- the natural gas subsectors, where responsibility duciary guidelines for lending and, furthermore, for the failure or limited progress of reform took some additional steps In the wake of alle- rested squarely with the government In the oil gations of misuse of IMF resources after the production subsector, however, the Bank moved 1998 financial crisis, the Bank reviewed all ad- too quickly to make a rehabilitation loan-that justment loan disbursements Although satis- is, before the government adopted the necessary fied that they were fully accounted for and used reforms. The Bank was also unable to influence in accordance with loan agreements, it intro- the oil transport subsector, which has been the duced a tracking system to ensure that dis- majorbottlenecktoexpandingol exports.Finally, bursements of its remaining adjustment loan the Bank could not prevent-through policy di- balances reached the MOF's budget accounts alogue or the leverage of its lending program- or were only used bv the CBR for external debt the mistaken decisions of the government to payments The Bank also endeavored to obtain partially divest its shares in the gas and elec- a comprehensive report by the Chamber of Ac- tricity monopolies before their restructuring and counts (COA) on federal budget execution for the establishment of a regulatory framework. 58 ANNEX 7: DISCUSSION OF OTHER COUNTERFACTUALS Could greater budget support in 1991 and preferred case-by-case transactions and com- 1992 have led to a faster and smoother petitive restructuring before privatization, but progress toward macroeconomic stabi- the views of foreign advisers had little influence lization and reform? Unlikely Because the at that time By mid-1991, the reformers and the Bank could not provide assistance until Russia legislature had already chosen the mass privati- became a member of the Bank, such support zation strategy without prior competitive re- could only have come from the G-7 countries. In structuring, on the basis of their political any case, the Soviet Union's large borrowing in objectives and the realities on the ground. The its final years had allowed it to be complacent Bank was left with no role other than helping to about embarking on a serious transition pro- design the mass privatization program (MPP) gram Moreover, the tide turned against the re- The Bank's subsequent efforts to minimize the formers despite the $1 6 billion made available MPP's shortcomings proved fruitless, but not by the IMF and the Bank in mid-1992 with vir- for lack of trying The government did not ad- tually no conditions, clearly indicating that other dress the issues of competition and corporate loans would follow. governance, and thus the Bank's advice and technical assistance (TA) remained largely un- Could early large-scale financing of the used. Instead of the envisaged transparent cash safety net have encouraged faster restruc- auctions and case-by-case transactions that the turing and stemmed the increase in Privatization Implementation Assistance Loan poverty? Unlikely, since the adclitional cost of (PIAL) was to support, the government chose in maintaining social programs at their 1992 levels 1995-96 the opaque loans-for-shares (LFS) (11 percent of GDP) during the next six years scheme The subsequent strong push through would have been roughly $20 billion annually Ex- 1998 by the Bank also yielded nothing but an ternal assistance of this magnitude was simply not empty shell of a privatization framework. available Would more attention by the Bank to fis- Would more determined support by the cal issues have been possible and fruitful? Bank for the lease buyout privatization While the Ministry of Finance (MOF) did not option, pro-competition policies and insti- welcome work or advice by the Bank in the sen- tutions, or transparent case-by-case priva- sitive areas of tax structure reform and expen- tization have led to better privatization diture management and allocations, the Bank did outcomes? Probably not, although the Bank in- not use sufficiently tlle leverage available to it fluence was diminished by its lack of grant re- from its lending program to engage the gov- sources and, in the late 1990s, by differing views ernment in technical analyses Nor did it use among senior Bank managers In 1991-92, Bank sufficiently its relationships with Russian policy staff shared the reformers' view that, given the institutes and the IMF to indirectly affect policy weak control environment, the lease buyout with decisions. The IMF would have welcomecd con- no share-trading rights option was a recipe for crete recommendations on expenditure re- asset stripping by the enterprise insiders They structuring as input to its 1996-97 Extended 59 ASSISTING RUSSIA'S TRANSITION Financing Facility (EFF) program, but the Bank istries. The MOF and the IMF, however, did not had little to say Only in the areas of oil taxation take up the Bank's recommendations on oil tax- and coal subsidy reduction was the Bank able to ation because they were more concerned about make technical contributions to fiscal policy op- the short-term revenue implications than the tions, as its main interlocutors were sector mmn- longer-term effects on incentives and revenues 60 ANNEX 8: BANK MANAGEMENT VIEWS1 We welcome this evaluation of the Bank Group's tance before 1998 was modest, while since 1998, assistance to Russia between 1991 and 2001, the relevance and design of Bank assistance has which has been prepared during the first sus- improved considerably We do not find this di- tamed period of growth in the Russian econ- vision very useful, since we think it is the cu- omy since the breakup of the Soviet Union in mulative impact of our involvement over the 1991 The CAE concludes that Russia's transition period as a whole that needs to be considered to a market economy was more difficult than Notwithstanding the merits or otherwise of cli- anticipated,2 but the very rapid privatization, viding the evaluation of the Bank's work into two dismantling of controls, and redirection of pro- somewhat arbitrary periods, the unstable and duction and trade have led to an irreversible sometimes chaotic environment in which the transformation of the Russian economy, albeit at Bank worked throughout much of the 1990s high cost. We agree that Russia is now irreversibly must be emphasized. The breakup of the Soviet on the path to a market economy, and believe Union, the disruption of trade, the construction that the World Bank Group played an impor- of a new federal political and administrative sys- tant part in this transformation tem, the neecl to build a market economy from After the traumatic financial meltdown in scratch, massive fiscal problems, volatile energy 1998, Russia used the breathing space provided prices, and the large-scale movements of people by high energy prices to develop its own com- and dislocation of established patterns of life prehensive reform program In a more stable were the daily backdrop to the Bank's work political environment, the government has over- The early periocl of our engagement in Rus- seen the passage of important legislation through sia was a timie of great unknowns and needs, the Duma in key areas of the structural reform and the Bank was usually without tested reform agenda, inclucling a new tax cocle, judicial reform, models. We triecl to respond and learn quickly deregulation, restructuring of the natural mo- in many key sectors Some of these experiments nopolies, urban land reform, and pension re- failed, and some succeeded, but we believe form. Much remains to be done, and the strongly that essential lessons were learnecl-by implementation of these reforms will be difficult the Bank, by Russia, and by others-and that and complex The Bank cannot, of course, claim these lessons provided the platform for subse- sole or even major creclit for these advances, quent reforms The investments, acdvice, and di- that must go to the Russian government and alogue that worked have had a big payoff since people. But in our view (which we believe is 1998, and this payoff far outweighs the costs of shared by the government), the Bank Group, the fallecl efforts We therefore agree with the through the cumulative impact of its lending and CAE's conclusion that the cumulative benefit nonlencling work over the last 10 years, played over the last 10 years of Bank operations, to- a substantial role in assisting the reformers en- gether with the impact of Bank advice, con- sure the irreversibility of the reforms tributed positively to Russia's performance since The CAE divides Bank Group performance 1998 into two periods, 1991-98 and 1998-01 Ac- We achieved this by pursuing a high-risk, cording to the CAE, the efficacy of Bank assis- high-reward strategy over the past 10 years 61 ASSISTING RUSSIA'S TRANSITION During crisis periods, we came under pressure that by taking risks, we contnbuted to the irre- from many sides to speed up and increase re- versible transformation that has taken place. source transfers, because of legitimate concerns We agree with the general thrust of the lessons regarding the geopolitical, economic, and social learned and recommendations, and the pro- consequences of failure in the reform process posed Country Assistance Strategy (CAS) for The debate will go on for a long time about the 2002-04 is largely congruent with the focal areas optimal mix of money and advice during peri- and instruments of assistance suggested in the ods of macroeconomic instability, and we read- CAE. However, we would caution about the ily agree that we did not always get it right. We CAE's approach to the question of country own- also agree that our objectives were sometimes ership. Country ownership is crucial to the suc- too ambitious, with insufficient government cess of assistance. But achieving country ownership of the needed institutional reforms ownership requires more than paying attention Ideally, technical assistance (TA) for institutional to the political and institutional aspects of re- development should precede large-scale in- forms and consulting widely. Governments and vestment,3 but investment may be important countries are usually not homogenous, and the even without institutional change For exam- political process is rarely so clear cut that the ple, the two oil rehabilitation loans failed to in- Bank can guarantee "ownership" in advance of troduce needed institutional reforms, but they lending The Coal Sector Adjustment Loan did improve productivity and finance essential (SECAL) II project is a case in point. This proj- rehabilitation that allowed production to be ect is regarded in the CAE as best practice, and maintained. TA alone to the oil sector likely indeed it was from the point of view of prior an- would have produced neither institutional re- alytical work, consultations, and design. But the forms nor improved productivity project would never have started if we had waited We have learned that policies, however rele- for consensus-it was then, and still is now, vant, cannot be implemented absent strong in- highly controversial. It is clear now that privati- stitutions-and, indeed, the Russian experience zation of the coal sector is unlikely to be re- has contributed to a rethinking of the develop- versed, but this was absolutely not guaranteed ment paradigm and a rebalancing of the relative when the program started roles of policies and institutions. Also with the ben- We believe strongly, therefore, that the Bank efit of hindsight, we can see areas that we should must play a catalytic role in the reform process, have emphasized more, such as public finance and and must be prepared to act quickly and deci- corruption 4 At times, we were overoptimistic sively should the need and demand arise. We about the speed and complexity of the reform should always try to recognize, manage as well process, while we sometimes underestimated the as possible, and be transparent about risks, but capacity of the Russian people to undergo such we should not shy away from engagement even a seanng transformation. And arguments will con- if broad-based country ownership is not fully tinue for a long time about the pros and cons of assured at the outset Country ownership should many government actions, including the mass be as much the goal of our work as a sine qua pnvatization program (MPP) and efforts to main- non for our participation, and it often cannot be tam the exchange rate. But the bottom line is achieved without failures and setbacks. 62 ANNEX 9: RUSSIA: IFC COUNTRY IMPACT REVIEW INTERNATIONAL FINANCE CORPORATION OPERATIONS EVALUATION GROUP Executive Summary focused on two of the biggest immediate challenges in Russia's transition to a market Scope economy-privatization and capital market This review evaluates the IFC's operations in clevelopment. The IFC's contributions were Russia from late 1991 through December 2000 on an unprecedented scale, and the results of lt considers the IFC's strategies, technical assis- its efforts stand among its most significant tance (TA) activities, investment operations, and country-level achievements In adclition, the the effectiveness of collaboration between the IFC's TA efforts in Russia provided the IFC and the Bank.i experiential basis for similar activities in Ukraine and other former Soviet Union Overview countries. During the 1990s, the IFC devoted the bulk of its efforts in Russia to TA rather than investments Investment-Related. In line with Russia's This strategy reflected Russia's needs cluring the evolving needs and clonor objectives and first half of the 1990s, the availability of investment constraints, the IFC's more r ecent TA has financing from the European Bank for Recon- addressed narrower, second-generation struction and Development (EBRD), and the transition objectives for deepening the IFC's continuing concern with the high risks of transition process These TA operations, many investment operations in the countr-y By moving of which emerged from earlier activities, have quickly and effectively to address strategic, high- been relevant and useful priority TA needs in the initial years, the IFC con- tributed materially to Russia's transition process Outcomes. Overall, the IFC's TA activities were and earned a high level of gooclwill Opportuni- broadly consistent with its strategies. This ties for adclressing core transition issues through review finds that when weighted by their total TA, however, decreased by the mid-1990s and, in cost, the development outcomes of 96 percent light of the poor business climate before and of the IFC's TA projects (46 percent by after the 1998 crisis and its attendant losses, the number) have been satisfactory or better. IFC was appropriately cautious in expanding its investment operations. The IFC's matching of TA-Related Recommendations. The IFC's past use its skills and resources to country needs ancl po- of donor TA funds aggregated to $47 million tentially viable opportunities not covered by the cluring the review period It has yieldecd EBRD has been well focused and appropriate excellent outcomes, but the IFC must still be concerned with the impact of its future TA Technical Assistance Operations operations The IFC should consequently assess how it can best use the human and Privatization and Capital Market Development. In financial resources it can devote to TA to the early 1990s, the IFC adclressed a unique contribute to Russia's development, without opportunity. The scope and scale of Russia's losing the flexibility to react quickly to new needs were unprececlented. Initially, the IFC needs and opportunities, as it has in the past 63 ASSISTING RUSSIA'S TRANSITION VSa (D o ~ d) 2) ! S o00 (DO D C1 0 Q G DQ_ Focus Proposed actions Delivery atcoirncs Privatization TA for small-scale privatization, Substantial, except for All satisfactory Major impact privatization linked to foreign privatization linked to foreign investment, pnvatization of investment Though not trucking, land privatization envisaged initially, assisted with voucher privatization Financial TA for financial sector Substantial advice on Though less than hoped, outcomes of TA sector and capital market capital market architecture operations still satisfactory or better development development and leasing legislation Financial Investments in new financial Disbursed investments in 9 Development outcome satisfactory sector institutions and institution- institutions (3 new) and 4 funds, for 25% of evaluated institutions and investments building investments, creation but no credit lines directed funds on unweighted basis vs 55% of investment fLnds, al] at SMEs for all evaluated IFC financial credrt lines to assist markets projects outside Russia; SMEs. 5% for institutions and 52% for funds on weighted basis Real sector Investments in oil, gas, and Disbursed investments in 19 Development outcome satisfactory for 50% investments other resource businesses, ventures Specific types of ventures of investments o i un-weighted basis (vs businesses that generate approved fit the IFCs strategies in 68% for all evaluated IFC real sector foreign exchange, infrastructure, some cases but not others projects outside of Russia), 70% on manufacturing, emerging weighted basis businesses, restructuring, areas where foreign investors see strong competitive advantage and lower country risks, locally owned companies, services, SMEs. Note Investment disbursement data reflect approvals through 2000, outcomes relate to 20 mature investments approved before the August 1998 financial crisis and evaluated in January- April 2001 o In particular, it should look into the possibil- o Providing donors with fuller, more objective re- ity of a TA project to develop alternative dispute porting, including evaluations of all TA activi- resolution mechanisms, such as third-party ar- ties In accordance with the IFC's prescribed bitration, In Russia standards. 'To avoid excessive costs, however, o It should also review the EBRD's experience to the depth of the evaluation work and the de- consider how best to couple TA support for gree of independence should depend on the small and medium-size enterprises (SMEs) relative amount of money spent on the TA. with sustainable wholesale investment opera- e Showing a greater willingness to consider tions through a variety of intermediary in- donors' views on substantive matters struments. o Showing a greater sensitivity to the donors' in- The IFC must nurture continuing donor sup- terests in sharing favorable publicity. port Donor funding depends on a wide range In the broader context of better Bank-IFC- of factors, including changes in donor priori- Multilateral Investment Guarantee Agency ties, but the IFC can reduce the risk of losing (MIGA) integration of efforts to improve the in- donor support by vestment climate and financial sector, the IFC 64 ANNEX 9 RUSSIA IFC COUNTRY IMPACT REVIEW should establish close coordination with the enhanced Russia's investment appeal to Bank in soliciting ancl using donor TA funds in financiers both Institutional Investor and relation to these World Bank Group priorities. Euromoney raised Russia's credit risk rating in their most recent (March 2002) updates Investment Operations Reflecting renewed investor interest, and following a steady four-year decline, the IFC's Private Investment Climate. Unclear and net approvals during 2001 reached an all-time conflicting laws, poorly defined property high level (see figure A 1). Serious obstacles rights, excessive regulations, an unreliable remain, however, and if it is to sustain judiciary, an inadequate banking system, improvement in its investment climate, Russia corruption, opacity of ownership, corporate must establish the rule of law through judicial governance abuses, and crime have reform, level-playing-field enforcement of laws discouraged foreign investors from and contractual commitments, and fair considering operations in Russia. Domestic competition There also remain a number of investors face the same problems, ancl as important unresolved issues in the areas of recently as April 2001, President Putin accounting and banking sector reformis, crime, estimated capital flight at $2 billion a month, and creating an SME-friendly environment, broadly the same as World Bank estimates which neecd to be addresseci to make Russia an Over the past year, there have been favorable attractive investment target and lay the basis changes in Russia's investment climate The for sustainable growth State Duma approved legislation aimed at deregulation, the reduction of administrative Volume. The IFC's net approvals for and other barriers to investment and business investments in Russia during FY93-00 totaled activity, ancl better protection of property $0.71 billion in 48 enterprises, putting Russia rights These institutional reforms have 10th between Thailand and Korea among the Figure A. 1 | Russia: Institutional Investor Country Credit Rating (IICCR) and IFC Net Approvals IICCR score US$, millions _ _ _ _ _ __ ___ 200 45 0 IICCR = 32 2 March 2002 Russia joins IFC Financial crisis _ E April 1993 ' ui 6 IFC net E n Putin elected approvals 30 0 140 -IICCR rating 120 if ~~~~~~~~~~~~~100 60 fl ~~~~40 0 0 -0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Period covered in this review Recent developments 65 ASSISTING RUSSIA'S TRANSITION IFC's 15 largest countries of operation (by size 44 percent was from net loan and equity of the economy) for the period. Net of losses, 32 percent from related administrative droppages and cancellations, the IFC made 37 expenses, and 24 percent for TA-related commitments totaling $0.51 billion in 34 execution expenses companies, financial institutions, and investment funds. Outcome Drivers. The performance of the IFC's investments in Russia largely reflects the types Constraints. Except for oil and gas, private of businesses in which the IFC invested; the sector investment has been small, and foreign partners and managers with which the IFC companies have been wary of investing in collaborated; developments in the Russian Russia. Russian companies have often resisted economy (especially the 1998 crisis); issues restructuring or have been tainted by related to government, governance, and crime corporate governance abuses, opacity of in Russia; and the related learning curve for ownership, or even links to criminal activity. the IFC's own work quality, especially in The EBRD has been available to meet the screening, appraisal, and structuring. financial needs of most projects having reasonable success prospects-through 2000, Looking Ahead. The challenge the IFC faces in the EBRD committed $3 66 billion in 112 Russia today is to base its investment strategy private sector investments in Russia, more and judgments on future prospects while than seven times the scale of the IFC's bringing to bear past lessons While important investment volume. impediments remain, foreign financiers perceive that Russia's enabling environment Outcomes. The overall record of the IFC's has been improving recently Reflecting better mature investments is poor Only 35 percent post-crisis selectivity coupled with these (57 percent by value) have yielded satisfactory changes in the enabling environment and the project development outcomes, and only 20 improved economic conditions in Russia, the percent (40 percent by value) have yielded current combined credit ratings for the IFC's satisfactory investment outcomes for the IFC. Russian investments closely approximate In contrast to the IFC's worldwide evaluated those of the IFC's overall portfolio and are sample, where development-investment "win- significantly better in terms of the weighted win" outcomes are the primary outcome proportion of substandard investments As a category (42 percent of cases), in Russia, result, past performance may not be a "lose-lose" outcomes have predominated (65 harbinger of future outcomes. The IFC must percent of cases). The EBRD's experience has monitor developments and should be paralleled the IFC's, but on a significantly prepared to move quickly (as it did in 2001) as larger scale. Had the IFC invested before the opportunities and conditions allow, signaling 1998 crisis in projects that it considered but through judiciously selected investments its dropped for reasons of perceived reputation, confidence in the prospects for Russia's investment, and/or development risks, the private sector development (PSD). likelihood is that their outcomes and the IFC's aggregate losses would have been worse. The Investment Recommendations. On a more specific IFC's caution in making investments was level, the IFC should consider: prudent in the circumstances and reflected a Concentrating its promotional efforts mainly on successful and laudable resistance to external oblasts with a good business climate (subject, pressure and internal approvals incentives of course, to pnvate investors' being interested in investing in these oblasts) A selective ap- Profit Contribution. The IFC has suffered a proach may reduce the nskiness of the IFC's op- negative net contributLion from its operations erations and may even encourage improved in Russia 2 Of the total negative contribution, behavior by regional governments, particularly 66 ANNEX 9 RUSSIA IFC COUNTRY IMPACT REVIEW if the IFC makes clear the linkage between the to it, as it has recently begun to do business climate and the oblasts in which it Playing a more active role in developing Rus- will focus its investment promotion activities sia's capital markets by exploring the possibil- Ensuring that it promotes good practice in ity of (a) issuing ruble bonds itself or providing front-end work and applies past lessons: The partial credit enhancement for ruble obligations IFC's regional department should lead penodic (as it is now considenng) and (b) explonng the workshops that focus on past lessons learned possibility of establishing insurance compa- that are specific to the Russian environment nies and pension fund management compa- and relevant to current operational activity. nies The development of Russia's capital Participation could include other PSD finance market is now constrameci by the demand for institutions active in Russia together with IFC and supply of long-term instruments. The IFC B lender banks to capture as wide a range of should seek to address both constraints. expenences as possible Past lessons should be * In the context of the joint CAS and its pursuit, carefully considered and applied, particularly developing jointly with the Bank and MIGA a in front-end work. coordinatecd approach and division of labor Increasing its efforts to finance Russian-spon- for addressing obstacles and promoting im- sored businesses. The IFC should not com- provements in the investment climate: The pletely exclude the possibility that some World Bank Group must be more effective financial-industrial groups may become reli- than it has been to date in realizing synergies able business partners Moreover, it should from its substanual skills, experience, resources, get to know medium-size Russian businesses, and leverage potential for catalyzing change particularly those based on Russia's highly The way forward lies in introducing coherent trained technical manpower. The lFC should incentives across the three Bank Group agen- continue its efforts to assist financial interme- cies around shared priorities for sustained, diaries that can provide financing to larger mutually reinforcing pursuit of actions for im- numbers of Russian enterprises, and to use proving the investment climate and banking TA funds to develop local suppliers for large en- system. terprises. Giving greater attention to SMEs- The EBRD has General Recommendation indicatecd to the IFC's G-7 shareholders that its Looking beyond Russia, the IFC should considler experience with lending to SMEs through in- applying the positive lessons of its strategy pur- termediaries has been successful. This evalua- suit in Russia in other early transition countries, tion has not encompassed the EBRD's by taking stock of country strategic needs and in- experience beyond its reported overall success vestment climate risks, bringing to bear its les- rates and loss experience, but the potential im- sons learned in Russia, and shifting its resources portance of the SMEs sector, and the challenges nimbly between investment and strategically tar- of developing sustainable wholesaling chan- geted TA operations as volatile country condi- nels, call for the IFC to devote greater attention tions and opportunities evolve 67 ANNEX 10: VIEWS OF EXTERNAL ADVISERS AND OTHERS Professor Gur Ofer (extemal adviser) report, or instead of doing so, which many might New Economic School (NES) do, one receives a somewhat rosier picture of Moscow, Russia what happened and of the Bank's role The rel- egation of parts of the story of the transition in 1 find the Country Assistance Evaluation (CAE) Russia (in Chapter 1) and of the development im- by OED on Bank assistance to the Russian Fed- pact of Bank assistance (in Chapter 4) to An- eration very good and mostly accurate and bal- nexes 1-5 also fragmented the flow of the anced, in the description of the transition in narrative and made it more difficult for the reader Russia over the last decade, in the evaluation of to follow the complex interaction between do- the successes ancl failures of the reform, in the mestic developments and the role of the Bank overall impact assessment, and in the discus- There are many factors that made Russia (and sion of the roles played by the main players In most Commonwealth of Independent States particular, I appreciate the ability to criticize the [CIS] countries) a more difficult transition case role of the Bank when it was warranted. The than most of the East European economies, and project ratings assigned are mostly accurate and this is described in the report (Annex 1) The re- fair The evaluation confirms the general per- form in Poland may have created overoptimistic ception that the success of transition in Russia expectations, and the earlier attempt to emulate depended primarily on what Russia and its gov- it may have caused more negative consequences ernments were able to achieve The Bank's ef- than expectecl. Given the more severe initial forts were well intentioned, but could not go conditions, including political ones, and the spe- beyond what the client was ready to own. Both cial global status of Russia, one may conclude that Russia and the Bank made many mistakes and Russia emerged after 10 years of reform better could have done better Still, with the help of the than could have been expected Still, many mis- international community, Russia managed to takes had been made, including by the Bank. The pull itself out of the old regime and initial clis- most important oversight of the Bank was that order and to put a solid foot on the way to a mar- it failed to appreciate the especially difficult and ket economy complex situation (historical, political, social, However, I also find that the revisions ancl and psychological) presented by Russia, includ- cuts in preceding versions of the Executive Sum- ing the deep feeling of humiliation for the col- mary, Chapter 1, and Chapter 4 diluted the key lapse of the empire, in contrast with the feeling messages and weakened their "bite" significantly of liberation in East Europe The Bank there- In these three chapters, there is less detail, use fore failed to tailor a specific assistance para- of more general terms to indicate failures, and a digm that will take Russian complexities and somewhat rosier overall picture when compared sensitivities into account. with earlier drafts and with what I believe is the Chapters 2 and 3 are good. Early on, it became case. When one reads the Executive Summary clear that Russia is a special case in many re- after reacling the full report and its annexes, one spects and that lessons from other developing finds almost evelything in the summary. However, countries may not be enough This should have if one reads the summary before reacling the full justified a significantly higher budget for eco- 69 ASSISTING RUSSIA'S TRANSITION nomic sector work (ESW) preparation, technical Privatization and Its Aftermath: assistance (TA), supervision, and deeper re- The Crisis of 1998 search work. In 1997, the special research divi- The discussion of the pnvatization process in Rus- sion that provided research and support for sia (mostly in Annex 1) is balanced and correctly transition work was closed The decision to move presents the systemic, economic, and political more operational work to the Moscow office constraints under which the mass privatization and to give it more authority was correct, albeit via vouchers was decided upon and imple- late It is not clear at this point to what extent the mented. The report also mentions some of the plan was implemented, not only in terms of serious negative consequences that followed number of staff members but also in terms of real and the heavy price paid later, in lack of proper decision power. corporate governance, little institutional devel- Chapter 5 is focused and fair. It needs a specific opment, minimal restructuring and investment paragraph that discusses the nature of the imple- (including foreign), and the growing phenomena mentation difficulties and lack of willing ownership of arrears, nonpayment, and barter and their fis- encountered by the Bank staff More such diffi- cal consequences.i The report mentions that culties had to be anticipated, at least after a while, there was a lot of enterprise "stripping," also and more projects rejected not as inadequate but under the voucher scheme, not only before, and because of weak commitment and dedicated do- that this gave a bad name to the process. There mestic owner and/or as nonimplementable It was is also an appropriate emphasis in the report on and still is the responsibility of the Bank staff to de- the political motivation of the choice There is, termine implementability Therefore, when the however, little or no mention of two conse- implementation fails in otherwise good projects, quences of the chosen mode of privatization- it is also their responsibility. first, the very serious political fallout and the Chapter 6 incorporates the lessons from pre- loss of a chance for political consensus on the re- vious failures (and achievements) It empha- forms (see more in the discussion of the coun- sizes domestic ownership, even matching as a terfactuals below), and second, the negative precondition (as with respect to the highly developments in the real sector were a major needed banking reform); more careful exami- cause of the 1998 crisis, maybe more important nation of implementation potential; higher level than the fiscal and other causes mentioned in the of conditionality, partly through the segmenta- report tion and stepwise execution of larger projects, The report mentions the difficulties caused for and a sharp increase in analytical and research the Russian economy by the overvaluation of work and training, with an emphasis on the in- the currency during the micl-1990s and also the stitutional dimension of projects. beneficial influence of the real devaluation, one Chapter 4, together with a number of an- of the consequences of the 1998 crisis It is nexes, discusses the main policy packages of somewhat ironic that one of the most beneficial the transition process in Russia and the in- impacts on the recovery of the Russian economy volvement of the Bank The emphasis of the came about as a consequence of a crisis that Bank on institutional development, especially everybody tried to prevent, rather than as a re- in the public sector but also in the social sphere, sponse to an initiated policy by the government came late More emphasis on these two areas at or a strong policy recommendation by, for ex- an early stage could have improved the transition ample, the Bank process significantly Recommendations in these directions are included in the CAE. Unfortu- Financial Sector Development nately, the outcome table and other project rat- A well-operating financial, especially banking, ings are relegated to annexes sector is essential for the restructuring of the What follows is a more detailed discussion of Russian economy The report emphasizes the in- a few major reform areas where I disagree with stitutional weakness of the financial sector the main thrust of the OED report throughout the period, but there is not enough 70 ANNEX 10 VIEWS OF EXTERNAL ADVISERS AND OTHERS emphasis on the fact that, even with much bet- democratic processes and, possibly, less need to ter regulatory and cultural environment than rely on the oligarchs and buy their support with were available, there were not enough know- the corrupt loans-for-shares (LFS) scheme. De- how and skills in Russia to properly perform mar- spite all the fears, the near-communist Primakov ket-oriented banking services In this respect, government, after the 1998 crisis, clid not re- the early evaluations by Bank staff of the capability verse any of the reform steps taken and main- of the banking sector to improve and to fulfill its tained a relatively solid fiscal stance Even the idea very important role were much too optimistic. of creating state development banks didn't fly. This is why an early opening up to foreign banks, Couldn't an effort at building political consensus with active government support, might have have been attempted earlier? helped, first to do the job and second to help train What could the Bank have done better (other and upgrade domestic banks It has to be ad- than doing everything a little better)? I agree mitted, however, that any such move would have with most of the CAE's suggested alternatives, encountered a strong resistance by the domes- such as the avoicdance of some major loans in the tic banks, the central bank (until very recently), mid-1990s; making more grants for technical as- and the "nationalistic" political forces (see coun- sistance (TA); avoiding going into projects with terfactual discussion below) In many transition no clear Russian ownership and low chances of economies in Central ancl Eastern Europe, foreign satisfactory implementation (which constituted banks now own most or even the entire banking the majority of the projects), anticipating the sectors, with beneficial consecluences. This should crisis, even at the earlier stages of the emer- have happened in Russia (and in the above-men- gence of the virtual economy, and so forth. tioned countries) much earlier The Bank couldl have made a difference in the early 1990s with more money The huge sums The Counterfactual (Chapter 5 and mentioned in Annex 7 were, of course, unreal- Annex 7) istic However, substantial aicd until a better fis- There are two levels of the counterfactual story, cal balance could have been achieved might that of the reform in Russia and that of the in- have been possible (with all the other donors to- volvement of the Bank For the reform program, gether). The Bank put too much emphasis on a one can offer many improvements in the pri- small budget as compared with a balanced one. vatization program, financial sector reform, fis- Campos (1999) found evidence that in transition cal behavior, institutional reform, and so forth. countries, government expenclitures are posi- A somewhat slower privatization process with tively, not negatively, associatecl with economic fewer insider schemes, precedecl by a serious growth in transition economies A position by the bank reform that includecl bringing in foreign Bank that a balanced budget is more important banks, could have reduced the extent of the than a small one had the potential to create "virtual economy" synctrome and achieved a bet- more public resources for social support, thus ter fiscal stance in earlier stages-a stance that also mitigating the discontent and the fear of a could have been used to mitigate the social out- communist takeover and contnbuting to a higher comes and the extent of poverty A more care- level of political consensus ful exchange rate policy could have, with all the above, avoicled the crisis Leonid Polishchuk (external adviser) The political instability ancl policy oscillations Project Director and Research Associate should be partly credited to the personality of Center for Institutional Reform and the President Yeltsin ancl to the ruling culture that Informal Sector (IRIS) he brought with him from the olcl regime. Still, At the University of Maryland, had there been more attention paid to the so- United States cial strife and to measures to mitigate it, there could have been a higher degree of political and The evaluation candidly acknowledges that a social consensus, less rule by decree, better very limited country knowledge ancl little prior 71 ASSISTING RUSSIA'S TRANSITION experience of assistance in post-communist eco- dow of opportunity opens up It could be argued, nomic transition were available at the beginning however, that support in the society for reform of the Bank's involvement in Russia However, and reform policies themselves are comple- over the last decade, such knowledge has been mentary factors of successful transition. This steadily increasing, by way of learning by doing, leads to the question of whether it was prudent through numerous studies of Russian reforms, for the Bank to concentrate large resources on and from international comparisons This evolv- the latter of these ingredients, while conceding ing knowledge background is important for eval- that the former is beyond any significant influ- uation of the Bank's Russian programs, as it ence Evidence of this stance includes the down- allows identification of "second-best" bench- grading of the initial social protection programs marks reflecting the level of understanding of the aimed to provide safety nets at the early stages situation at the decisionmaking time. of transition to small-scale technical projects, The original choice of main thematic priori- such as procurement of computers for pension ties by the Bank, which emphasized institution administration offices, and the general inclina- building, private sector development (PSD), and tion to respond to a lack of reciprocity and com- social safety nets, was fully justifiable in the early mitment in implementation of social programs 1990s, and remains so in hindsight Although by reducing such programs to purely TA efforts. the Bank was slow to reflect the need to pay The massive privatization-another major pro- greater attention to public sector management gram that was intended to broaden support in and accountability in its assistance programs, the society for the new economic and institu- necessary adjustments have eventually been tional order and to which, admittedly, the Bank's made. attitude was ambivalent-has led to the opposite However, until late 1999, the progress in the results, leaving widespread resentment and con- above areas remainecd modest, and the programs tempt of the Bank had little impact on unlocking the While much of the report deals with the as- policy reform stalemate that prevailed for most sessment of nsk associated with various Bank of the decade. Moreover, at times politically mo- projects, it remains silent on whether the over- tivated "quick fixes" offered by the Bank without all approach of betting on exogenous emergence necessary conditionality prolonged the impasse of domestic winning conditions was excessively by softening policymaking constraints and un- risky. This is not a purely counterfactual inquiry dermining the credibility of the reform pro- relevant solely for the assessment of earlier poli- grams cies-the report itself acknowledges that "the re- The Bank can take credit, at least in part, for silience of [the recent policy reform] the accelerated reforms after 1999, when many achievements to external shocks" remains "an of the policies that it previously advocated and open question " It would have been also useful helped develop have been finally put to work. to discuss what, if any, means the Bank could Critically important conditions for this break- have deployed, given the constraints of its sta- through were stronger political will and social tus and role, to advance the emergence of the consensus for reform, missed for most of the past winning conditions as an explicit programmatic decade. These ingredients for successful transi- objective. tion were supplied "exogenously," with no im- Overall, the report provides a balanced, ac- mediate relation to the Bank's earlier efforts. curate, and fair assessment of the World Bank's The report concluctes that the Bank "did not programs in Russia It is useful and relevant not command the resources or the influence to over- only in retrospect, but for the future involve- come the unprecedented [domestic sociopolit- ment of international donor agencies in Russian ical] constraints"-an argument intended to reform. Some of the conclusions of the report, vindicate the strategy of waiting for winning con- such as the importance of domestic ownership ditions while accumulating the stock of policy and capacity, and the role of political constraints, blueprints that would be available when a win- as well as an assessment of the Bank's efforts to 72 ANNEX 10 VIEWS OF EXTERNAL ADVISERS AND OTHERS reflect these factors in its programs, highlight use- pursuecl stabilization course and the entire re- ful lessons for policy reform and development form process, and to a deep political crisis We around the world all know now that all this happened anyway We also know that the overall implications of the cri- Ivan Szegvari (extemal adviser) sis turned out to be in many respects less dam- Senior Country Economist aging than thought-or even salutary. It does not European Bank for Reconstruction and change, however, the then-perceived policy- Development (EBRD) making constraints, assumptions, and expecta- London, United Kingdom tions-that is, the actual circumstances of the decisionmaking process The evaluation report is a very well-written, in- Related to the international dimension of the formative, and balanced evaluation of the first above policy dilemma, the same paragraph con- decade of Russia's economic transition and the tinues. "But many other influential commenta- World Bank's role in this tumultuous process. I tors and market analysts were arguing for a fully share most of the conclusions of the report, bailout and the Bank had no direct responsibil- including the general assessment according to ity for the macroeconomic and financial aspects which the modest but cumulative benefits of of the program " I think the first part of the sen- the Bank's operations, together with the positive tence is a bit of an understatement Those in- impact of its advisory activities, contributed to fluential commentators included the U S and building the foundations for Russia's recent turn- German presidents, the undersecretary of the around. Educating a generation of experts and U S Treasury, and the deputy managing director policymakers and providing support for the re- of the International Monetary Fund (IMF), among formers in crucial periods is, in my view, the key others. The second part suggests that the Bank component of this contribution. as an institution had a different view about the Russia's transition, the report rightly claims, bailout If I am not mistaken, the differences in involved and still involves an extraordinary chal- views were about using the international finan- lenge The only thing I would have emphasized cial institutions (IFIs) as a channel for a clearly more is the inherent lack, in the case of Russia, politically driven rescue program (and the as- of a longer-term integrating objective, a shared sociated double standards) and not about the ne- vision, and a powerful social and political cohe- cessity or desirability of the bailout itself. sive force, like nation building and the Euro- I like more the reserved tone of another re- pean Union (EU) accession have been for the lated assessment of the report "It is unclear Central European countries and the Baltics whether an easier transition path could have I guess that the single most debated sentence been f6und given the initial conditions and the of the entire report will be the one related to the political realities " Yes, a large dose of intellectual policy dilemma dunng the run-up to the 1998 cri- modesty is warranted when it comes to our un- sis "In hindsight, Russia woulcl have been bet- derstanding of the clynamics of the Russian tran- ter off by allowing the currency to float while sition process Despite the benefits of hindsight, pledging to address fiscal and structural reforms " Russia's history remains full of surprises. Who I am not sure The actually available policy would have thought the speeci of political stabi- choices at that time were much more complex lization since late 1999 was possible? Who would and formidable than that The alternative was def- have dreamed that a full-fledged radical reform initely not a simple change in the exchange rate program was feasible, even in early 2000? Who regime combined with some recalibration of the would have expected the post-crisis government reform agenda The devaluation was generally to implement the tightest financial policies since seen (partly because of the huge foreign currency the start of the transition process? cxposure of most of the large banks) as a policy "The key lesson of the Bank's experience in step inevitably leading to the collapse of the Russia is that countr y ownership is crucial to the banking system, to the loss of credibility of the success of assistance " I could not agree more 73 ASSISTING RUSSIA'S TRANSITION However, I have a slightly different interpretation try ownership of their stabilization and reform of what follows from that First, what exactly does program and, closely related to that, their pol- "country ownership" mean in the case of pre-cri- icy implementation capacity. sis Russia, given its divided government, the un- predictable president, and the enormous political Marek Dabrowski (contributor to the opposition to the stabilization and reform Country Assistance Evaluation) process? Given also the geopolitical context and Deputy Chairman implications of Russia's transformation, the IFIs Center for Social and Economic Research support of the reformers and their agenda under Warsaw, Poland these circumstances was a risk worth taking-in fact, a risk that had to be taken Moreover, if we I found the CAE draft to be a well-balanced and push the ownership lesson too far, we may end very well-written document up saying-rather unhelpfully-that assistance I generally support the decision to divide the should be delivered and wll be most successful analyzed period into two subperiods and agree when there is no need for it. with the views on Russia's and the Bank's con- When discussing the effectiveness of Bank tributions to the overall improvement of the assistance, the report states in several places economic and political situation, greater do- that instead of the large policy-based lending mestic consensus around reform-oriented pol- programs, the Bank should have relied more icy, and greater ownership of the reform as and mainly on policy advice. I think the report expressed in the Executive Summary, Chapters has a somewhat romantic view about the po- 4 and 5 of the main text, and Annex 8 tential role of policy advice, especially in the The political changes after the December context of the 1997-98 pre-crisis developments 1999 Duma elections and the March 2000 pres- It basically assumes that there were ready-made idential elections became the most powerful good policy recipes waiting to be communicated factor behind the more comprehensive and con- to and implemented by the Russian policy-mak- sistent reform strategy of the government in re- ers. With the possible exception of the first years cent years, in contrast to the earlier periods. of transition, the lack of policy advice has never External conceptual contributions, including been to my knowledge a serious decisionmak- that of the Bank (even when cumulated from pre- ing constraint By the latter part of the 1990s- vious years, like the conditionality of Structural thanks to, among others, the Bank-established Adjustment Loan [SAL] III) were helpful to the Bureau of Economic Analysis-the Russian ex- government in designing its reform program perts and politicians were already in a much bet- and concrete actions, but cannot be seen as the ter position to make informed judgments about primary factor that influenced the course of their realistically available policymaking choices events. In fact, the same good policy advice did than any outside adviser or organization. What not have a chance to be implemented earlier was missing above anything else was the coun- because of the political obstacles. 74 ANNEX 11: RUSSIAN FEDERATION GOVERNMENT VIEWS Transmittal Letter March 26, 2002 Mr J Linn Vice-President Woricl Bank Dear Mr Linn, On instructions of the IBRD Governor for the Russian Federation, Mr V B Khristenko, I have en- closed comments of the Governmient of the Russian Federation made on the paper "Russian Fed- eration CountryAssistance Evaluation" that was prepared by the Operations Evaluation Department Please take into account the submitted comments during the review of the report "Russian Fed- eration Country Assistance Evaluation" Sincerely, A Bugrov Executive Director of the Woricl Bank for Russia 75 ASSISTING RUSSIA'S TRANSITION [Abridged] Comments of the Russian Federation Government on the Report "Russian Federation: Country Assistance Evaluation" of the Operations Evaluation Department of the World Bank' Basic Conclusion That they have been forgotten today is evidence We take a generally positive view of the pro- of successful transformation. An alternative sce- posed draft document, which relies on an analy- nario of a smoother progress of reform than sis of the concrete circumstances influencing that which has actually taken place would be an the operations of the World Bank Group in the abstraction. The document itself bears evidence Russian Federation and offers a well-balanced as- of how difficult it is to formulate a univocal as- sessment of their results. The document presents sessment of the progress of reform in Russia. For a sufficiently objective picture of developments example, contrary to the authors' above asser- in Russia over the past decade and outlines the tions, they say in Annex 1 that "the progress to factors behind the Bank's successes and set- date was unexpected by most observers.... This backs The recommendations offered as to fur- is a[changed to match current text] historic ther areas of the Bank's operations in Russia achievement to be." [This reference has been ed- generally do not conflict with the views of the ited out from Annex I] Russian leadership and, to a greater extent, co- Nor can we agree with the statement that all incide with the provision of the Program for the reform programs attempted in Russia until Russia's Cooperation with the Bank that has the late 1990s failed Although some of them been recently approved by the government. We were not fully implemented, for various reasons, hope that these recommendations will be fully a continuous trend for carrying on transforma- taken into account as the Bank's new Country As- tions was generally in evidence. There is every sistance Strategy is drafted for Russia reason to believe that not a single program of re- At the same time, there seems to be room for forms has ended in failure, that is, in a slip to the improving the document Below are our com- past or reversal of any measures taken earlier [In ments, which could be taken into account in fi- response to this comment, the CAE now refers nalizing the document to lack of implementation instead of failure of programs ] Evaluation of the Reform Process in In this context, the statement to the effect that Russia in the 1990s "through late 1999 there was a chronic risk of The Executive Summary, the Introduction, and backsliding" seems absolutely groundless. More- Annex 1 attempt to analyze the reform process over, that statement is effectively then denied, in Russia over the past decade Overall, we share with the admission that "throughout the 1990s most of the assessments, but the following points Russia stayed the course in its economic and deserve attention. social transformation " [Text has been modified The authors say that "the Russian transition in response to this comment.] has been more difficult than expected" (Execu- The interpretation of the political processes is tive Summary) [This reference has been quali- simplistic and misrepresents the nature of real fied in the CAE in response to the comments that Russian democracy Characteristically, the docu- follow] But in fact, the opposite argument would ment takes a negative view of the nse of open con- be more valicl: transition to the market that in- tradictions between the State Duma and the volved dramatic changes in the government and Russian Federation government, while stating political setup has been generally more smooth that "the Bank paid limited attention to checks and and trouble-free than many people would expect. balances." In our opinion, these two statements Ten years ago, apocalyptic scenarios of inevitable are in serious conflict [See Chapter 1, note 2 ] chaos, famine, and civil war across the expanses We take exception to the approach charac- of the former Soviet Union were commonplace. terizing the year 1998 as the divide between sLx 76 ANNEX 11 RUSSIAN FEDERATION GOVERNMENT VIEWS years of "wasted time" and the subsequent pe- cient technical assistance to a country whose riod of accelerated structural reform In our institutions and economy were in fact a mystery view, the economic developments of 1998 offered to the Bank is rather doubtful The principle of an opportunity to make better use of the po- adaptive learning through practical operations re- tential of reform bullt up over the preceding mains valic both for the borrowing countries period. The consequences of the 1998 crisis in- ancd for the Bank itself. cluded a dramatic change in the clomestic struc- We would expect the document primarily to ture of relative prices that triggered the offer a more detailed and critical analysis of de- restoration of the normal discipline of payments cisionmaking processes not only in the borrower and tax collection and also helped rid the budget country, but also Il the Bank itself, which woulcl of the unbearable burclen of debts, one result of better conform to the character of the docu- the latter being a substantive streamlining of ex- ment. Nevertheless, the institutional misjudg- penditures. However, the institutional and struc- ments of the Bank itself are often explained tural preconditions for this positive change had away in the document through extraneous cir- been put in place before 1998. cumstances (such as "pressure from sharehold- Finally, the 1998 crisis provided evidence of ers"), while the numerous objective problems the most important achievement of the pre- confi-onting the democratic government in a ceding period, namely, the ultimate victory of country going through dramatic political, social, anti-inflationary approaches in formulating mon- and economic transformations are taken into etary and fiscal policies. account to a lesser extent it is these conclusions that are prompted by the sufficiently convincing outline of reforms Cooperation Aspects Not Covered in the set out in Annex 1 In this sense, we share the Bank's Report better-balancecl position of the ECA Region, pre- In our view, some important aspects of Russia's sented, in particular, in note 12, Chapter 4. cooperation with the Bank have not been ade- quately appreciated Assistance Efficiency Evaluation Generally speaking, one of them is such a We have some cloubts about the results of proj- fundamental fact as the very rapid process of ect evaluation as presented uncder "Closed Pro- transition from the planned economy to the ject Performance " They seem to suggest that the market The successful experience of such trans- evaluation methodology used does not take full formation, carried out both in Russia ancl in account of the comprehensive character of the other transition economies during the 1990s, is Bank's operations, overall results of projects im- substantially different from the practice of trans- plementation, and specifics of the conditions formations supported by thle Bank in other re- for their implementation in Russia gions throughout the more than 50 years of its We believe that the retrospective analysis of existence. In a short period of time, many coun- the Bank's possible operations scenarios in Rus- tries have traveled the road from joining the sia, in particular, the hypothetical option of the Bank to restoring sustainable economic growth prevalent use of technical and consultative as- and gradually cutting back on the Bank's loans. sistance with limited loans, is one-sided. The It would seem that no other group of borrower position of the ECA Region seems to be more re- countries (including industrialized nations that alistic. In our view, financial support, including actively used the Bank's resources all the way support for the budget, provided by the inter- until the 1970s) made such progress so speed- national community at crucial junctures of Rus- ily This unique achievement gives us reason to sia's recent history played a certain, though not assess the operations of international financial decisive, role in strengthening the consistent institutions in Russia and other transition course of reform and structural change. Apart economies as generally successful from that, in the absence of a vigorous lending As Russia's conduct as an individual borrower program, the very possibility of the Bank's effi- is analyzed, we would hope for recognition of the 77 ASSISTING RUSSIA'S TRANSITION country's unique achievement in overcoming orities, and make better use of Russia's research the 1998 crisis Out of the large number of potential. Positive developments in that sphere medium-income countries that went through inspire certain optimism. crises and dramatic devaluation during the 1990s, The quality of the Bank's Russian projects Russia was, perhaps, the only one that was ac- portfolio is a constant subject of discussions be- tually cut off international financial assistance tween the Bank and the Russian Federation gov- during its most difficult time of trial. The re- ernment. A relatively high share of problem peated positive appreciation of the Russian au- projects is due to factors on the side of both the thorities' actions after August 1998, we think, borrower and the Bank itself Box 3.3 offers a gen- should include mention of that fact. [This has erally adequate reflection of the views of the been noted in the "Recent Achievements" sec- Russian Federation government as regards the tion in Chapter 1.] management of the projects portfolio. There Finally, at the level of concrete developments are quite a few unresolved problems in this mentioned in the clocument, it would seem ap- sphere, including, in particular propriate to lay additional emphasis on the fact * High costs and poor quality of project prepa- noted in Annex 6 Indeed, in spite of the re- ration peated accusations that the Russian side has o The role of project implementation units and been misapplying the Bank's funds, a thorough their relationships with line ministries investigation has confirmed that "they were fully e An excessively high share of administrative ex- accounted for and used in accordance with loan penditures in project costs agreements " Nevertheless, the Russian side * An excessively high cost of the services of con- agreed to additional measures of control over the sultants recruited for the implementation of the application of the Bank's funds [This has been Bank's projects in Russia-such costs are often noted in Chapter 4 in response to this comment.] incomparable with the amount and quality of The document lacks a detailed analysis of the services rendered work with the SAL III. In our view, that work has 9 An excessive share of expenditures on techni- laid bare senous problems in preparing such cal assistance both under individual projects Structural Adjustment Loans, problems that and the portfolio as a whole could be important to the Bank as a whole; these o The financial sustainability of projects imple- include, in particular, inefficiency caused by ex- mented through subloans to end borrowers cessive loan conditionalities and excessively The problems also are the focus of internal dis- broad coverage of many sectors simultaneously cussions in the government Lack of a stream- [See note 6, Chapter 5 ] lined and efficient mechanism of project evaluation and implementation is the most sen- Issues of Implementing Bank Operations sitive aspect of the Bank's relationship with the in Russia Russian Federation. The Russian side has a great It should be frankly admitted that many of the interest in technical assistance and in gaining Bank's operations in the key sectors, such as cutting-edge experience in organizing such a the financial one, dicl not rely on a thorough system In particular, we would expect the Op- understanding of the existing problems That erations Evaluation Department to offer a more fact was partially admitted by the Region in the in-depth analysis of project implementation. Re- 1999 interim CAS We agree that the Bank's ap- grettably, the report does not pay sufficient at- plied research program for Russia needs to be re- tention to this aspect vitalized considerably, which calls not only for adequate financing under the administrative Sector-Based Country Assistance budget, but also for a more extensive use of Strategy local researchers and consultants. The program We for the most part agree with the assessments should be coordinated more closely with the of the results of the Bank's activity in individual Russian Federation government, fully meet its pri- sectors. 78 ANNEX 11 RUSSIAN FEDERATION GOVERNMENT VIEWS As regarcls the Bank's contribution to the pri- Bank is actively repairing the omission and puts vate sector development, the authors are correct these issues on the top of its agenda in Russia in saying that the contribution could have been The Russian party generally appreciates the weightier if the Bank had had a more critical at- Bank's contribution to the reforming of the so- titude toward the issues of providing trans- cial sector. Its accomplishments in this area are parencyof privatization measures Furthermore, quite rightfully noted It should be also men- the Bank should have insisted with greater res- tioned, however, that after the 1998 crisis, which olution on providing a linkage between the pri- entailed a steep worsening of the standards of vatization programs and creation of an adequate living, the Bank reduced the overall volume of legal and regulatory environment for the devel- lending to Russia without offering any supple- opment of the private sector. mentary assistance to mitigate the social conse- ln the financial sector, where the outcome of quences of the crisis the Bank's activity is the least impressive, the au- We are ready to agree with the authors' con- thors correctly note the shortcomings of the clusions that the goals of the Bank's activities in Financial Institutions Development project, in- Russia set 10 years ago proved to be too ambitious cluding the inadequate process of accreditation comparecl with the outcomes At the same time, of commercial banks and poor coordination with we believe that the insufficiently impressive results the Bank of Russia Many of the participating of the Bank's activities are more than offset by the commercial banks are known to have gone bank- irreversibility of the reforms catalyzed with Bank rupt during the 1998 crisis, which affected the participation. The dialogue between the Bank and Bank's reputation and brought about large fi- the Russian Feceration government on the key is- nancial losses for Russia It should also be noted sues of the structural reforms, development of that the costs of project administration (which the social protection system, improvement of the was done by the consulting firm Arthur Ander- investment climate and business environment, sen) amounted to a record high share as com- and improvement of state institutions, as well as pared with Bank's other investment projects in the implementation itself of the Bank projects in Russia Russia, is known to have significantly promoted the We believe that the failure of the project is ex- general progress of the country along the track of plainable, apart from the structural and mana- transformations, which led to adoption and launch- gerial problems inside Russia ancl the exogenous ing of implementation of the current program of factors, with low quality of project preparation the government of the Russian Federation that in- and management, insufficient knowledge, and corporates many of the Bank recommendations lack of practical experience on the part of the Bank staff. We are aware that similar problems oc- Coordination of International Assistance curred elsewhere in the world, too, which re- to Russia and Project Quality at Entry flected the little attention that the Bank generally The authors of the report correctly point out the paid to the clevelopment of the financial sector lack of an efficient mechanism for coordination In our view, the current level of the Bank's efforts of international assistance rendered to Russia, in this sector does not yet correspond to its sig- which caused significant dissipation of resources nificance for the future sustainable development The lack of coordination brought about a situa- of Russia tion where similar technical assistance projects or The authors correctly note that at the initial applied research programs would be implemented stage, until 1998, the Bank clid not pay proper in the same sectors or regions at a short time in- attention to the issues of providing proper qual- terval between those, whose results nobody con- ity of the state administration system, including trolled or used. Often the Bank insisted on Russia management of state resources and reform of the borrowing its funds to finance technical assis- civil service and legal system This considerably tance or project preparation programs despite worsened the efficiency of the Bank-financed the fact that similar projects had already been programs. We are satisfied that at present the implemented with the help of other donors 79 ASSISTING RUSSIA'S TRANSITION As regards the assessment of the activities of vatization and capital market development The the Bank itself, we agree that low input quality bulk of its efforts and resources were concen- and hasty preparation of projects, as well as too trated on providing technical assistance in the large a volume of operations that eventually area of privatization, which was in line with the caused cancellation of the large sums of previ- Russian government's priorities The IFC was ously committed resources, were the reasons by far not the only participant that actively as- for the unsatisfactory outcomes of implemen- sisted in carrying out the complicated, large- tation of a number of the earlier Bank projects scale process of privatization However, very in Russia We believe that if the Bank had had good results, both qualitative and quantitative, available instruments such as the APL and LIL at were achieved in those regions and areas on the time, the resulting effects of its Russian pro- which the IFC focused its efforts. Here we share grams would have been much better the opinion of the authors of the report. As regards the IFC's technical assistance in the Overall Evaluation of the IFC Country area of development of the financial market, Assistance Strategy in Russia while sharing on the whole the positive assess- In the early 1990s, the formation of the general ment made in the report, we at the same time strategy of the IFC in Russia was influenced by believe that the IFC could have been more ac- multidirectional factors. On the one hand, the op- tive there and could have made a more signifi- portunities for profitable investments in Russia cant contribution to it were limited, while the risks were high On the In their report, the authors cautiously speak other hand, the key IFC shareholders prompted in favor of the continuation of the IFC technical the corporation to intensify technical assistance assistance programs in Russia. Apart from the to Russia for the development of a market econ- area indicated in the report (creation of courts omy, placing at its disposal sizeable sources of of arbitration), technical assistance promoting the grant resources to finance such programs. Fur- development of small and medium-size busi- thermore, from the very beginning, the IFC met nesses in Russia could be of special significance. with certain competition from the recently es- Because providing support to small and medium- tablished European Bank for Reconstruction size enterprises has been a priority for the Russ- and Development (EBRD) ian government, earlier and more systematic While appreciating the positive role that the participation of the IFC in this area can only be IFC played in the development of the private sec- welcomed. Technical assistance programs could tor in Russia, including through its technical as- serve as a basis for more successful preparation sistance programs, we nevertheless believe that and implementation of investment support pro- the IFC simply had no clearly formulated strat- grams for this segment of the private sector egy for Russia at all for a long time This had an adverse impact on its activities and caused un- 2. Evaluation of the IFCs Investment profitableness of its operations in this country at Operations the early stages To a certain extent, this is also The report characterizes the amount of IFC in- true for the technical assistance strategy, be- vestment operations in Russia as modest, while cause in those operations, the IFC relied on the emphasizing the impossibility of giving a simple grant financing provided by donor countries answer to the question of whether the IFC could and, therefore, was under the influence of the and should have done more. At the same time, preferences of the latter. the authors are inclined to believe that the IFC was responding to the opportunities of poten- 1. Areas for Technical Assistance to tially viable investments untapped by the EBRD Russia by the IFC in a way that matches well its available knowledge initially, technical assistance provided by the IFC base, skills, and resources focused on two of the most important problems If one should proceed from an assumption of Russia's transition to a market economy: pri- that the IFC chose the role of a minor player in 80 ANNEX 11 RUSSIAN FEDERATION GOVERNMENT VIEWS the Russian arena (compared with the EBRD) and order to help the IFC learn a valuable lesson has preferred to follow the same line ever since, from the past experience so as to improve the then, indeed, one should hardly expect it to be efficiency of its investments in the future more active in its investment activity But in this On the whole, we share the views set forth in case, one should recognize that the principal the report concerning the future lines of IFC factor restraining IFC investments in Russia has investment activity in Russia and believe that been its own strategic aims, and that by far not they should form the basis of a future strategy all is explainable by the difficulties of Russia's in- for IFC activities in Russia vestment climate It should be also noted that the Russian Federation government was not aware Coordination of IFC Activities with Other of this "division of labor" with the EBRD. Bank Group Members We cannot agree with the so-called losses of Cooperation between the IFC and the IBRD is, the lFC from its operations in Russia (Chapter 3, in our opinion, a very important subject Re- "IFC and MIGA Interventions") Two-thirds of gretfully, the report cloes not properly cover it. those "losses" are the administrative costs, in- It seems to us that the strategic partnership and cluding the costs of consulting services, which operational interaction between the IFC and the were known at the very beginning to be unable IBRD that are required to improve the efficiency to yield any profit. The report also says that the of assistance rendered to this country and pro- low level of IFC investmiients in 1998 was a pos- mote the development of the private sector itive factor, inasmuch as if the IFC had invested should be the main object of analysis there in the projects that it considered, but then re- The Russian party has more than once called fused to implement, then its operating outcomes for making the support provided to the devel- in the development area andfinancial results opment of the private sector into a set of well- of its operations, in allprobability, would have coordinated, mutually complementary, and been even worse In our opinion, those results synergistic actions taken by the IFC, the IBRD, are evidence of the shortcomings in the IFC in- and the Multilateral Investment Guarantee vestment activity in Russia. In particular, those Agency (MIGA) Therefore, first, we deem ad- investors who had made investments in the real visable any organizational changes inside the sector of the economy mostly benefitecl from the World Bank Group that would be conducive to implications of the 1998 crisis, because the de- such actions, including changes to the Bank preciation of the ruble improvecl the situation for Group's field units in Russia Second, we deem both exporters ancl manufacturers serving the do- necessary a closer integration between the mestic market Country Assistance Strategies of the Bank and As regards the analysis of the causes of the cur- of the IFC along with their respective work pro- rent situation, the report, regretfully, does not go grams, including research and technical assis- beyond those on the Russian side, while mistakes tance programs. Third, we would like to and errors of the IFC remain without proper at- emphasize our interest in their undertaking tention. We view this as a grave flaw in the report, joint or parallel operations using a combination bearing in mind that one of its key objectives was of various instruments that the World Bank to make a thorough and impartial analysis in Group has available 81 ANNEX 12: MIGAS ACTMTIES IN RUSSIA MIGA Guarantee Program sector began only in FY1996, and some invest- The Russian Federation joined MIGA on De- ments have been scalecl down considerably in the cember 29, 1992 MIGA insurecl its first project aftermath of the financial crisis However, MIGA- in Russia in June 1993 and has since issued 26 supported projects provide specialized financial more guarantees These contracts supported services in the agricultural sector (e.g., com- estimated foreign investments of $1 3 billion in modlity financing) and thus broadened financial 18 projects MIGAs maximum aggregate liability markets In adclition, mining, manufacturing, and of all issued contracts (active and nonactive) in services projects also received MIGA support. Russia is $549 million Russia's share of MIGAs In successfully collaborating with the IFC, total coverage issued between FY1990 and FY OPIC, and other development institutions on 2001 is 6 percent of the gross liability assumed. several projects, MIGA has increased its leverage MIGAs outstanding portfolio in Russia on June ancl used its resources efficiently Insofar as MIGA 30, 2001, was $263 5 million (gross) has thus far not suffered any claim losses in Rus- MIGA's guarantee portfolio was affected by the sia, it can be assessed that the agency has made financial crisis of 1998 as private investors scaled prudent underwriting decisions in an environ- down their investments and subsequently can- ment of political and financial instability Selec- celled or reduced MIGA coverage Some can- tive coverage, stop losses, and reinsurance were cellations occurred in an effort to cut costs while usecl to limit the agency's net exposure. MIGA continuing the projects. Other potential investors continued to support projects in Russia even abandoned or delayed projects Since FY2000, after the country's default on foreign debt, help- MIGA has seen its guarantee volume increase ing facilitate some private investment flows in a slightly critical periocl. Overall, MlGA-supportecd projects constituted a significant share of the moclest cumulative net Investment Marketing Services Activities foreign direct investment (FDI) flows of $9 9 MIGA has implemented the PrivatizationLink billion between 1996 and 2000 1 Russia remains Russia project (PLR)2-an initiative to develop a one of the top five countries in MIGA's portfo- free online service for investors interested in lIo. Relative to International Bank for Recon- Russian pn-vatization opportunities in partnership struction and Development (IBRD) loan with the Canacdian International Development commitments ancd International Finance Cor- Agency (CIDA) The project was carried out in poration (IFC) financing, MIGA's guarantee op- cooperation with the Russian Ministry of Prop- erations in Russia have been proportionate erty Relations and the Russian Federal Property MIGA's portfolio is biased toward agribusi- Fund The PLR is designecd to make information ness, food processing, and beverages, priority on privatization in Russia more transparent and sectors icentified by the 1995 Country Assistance accessible to investors around the world and Strategy (CAS). While the agency has contributed lower transaction costs Although it is too early to the development of the banking and financial to assess the impact of this effort, it is raising sector, it has not played a major role in financial awareness about investment opportunities in markets reform MIGA support to the financial Russia by providing easy, cost-free access to in- 83 ASSISTING RUSSIA'S TRANSITION formation for potential investors and establish- currently limited by a relatively low demand for ing effective means of communication between coverage from investors investors and the privatization agency The great In the future, the agency should continue its demand for information posted on this Web site, prudent underwriting while seeking to diversify as well as the support from the government, are its Russian portfolio to make it less vulnerable to indicative of its appeal future crises MIGA should strive to simultane- ously maximize the amount of FDI facilitated Conclusions while minimizing its net exposure in Russia. MIGA has clearly contributed to the develop- The PLR is providing vital information tai- ment of the Russian private sector through its lored to investors' needs, which may lead to ad- guarantees and investment marketing services. ditional foreign investment in Russia. MIGA Its guarantee program has prudently and selec- should continue its successful investment mar- tively met demands from private foreign in- keting activities in cooperation with the Russian vestors for political risk insurance and has government These are cost-effective and ap- enabled a number of investment projects to go propriate tools to disseminate information to forward However, MIGA guarantee activities are potential foreign investors. -Operations Evaluation Unit (OEU), MIGA (July 31, 2001, updated submission) 84 ANNEX 13: THE WORLD BANK INSTITUTE'S ACTMTIES IN RUSSIA The assistance of the World Bank Institute (WBI, to contribute to the Bank's intensified portfo- previously EDI) is aimed at creating human and lIo management efforts, the WBI providecl train- institutional networks, sharing best worlcl ex- ing in project management, administration, perience and knowledge, providing exposure procurement, and disbursement (more than 25 to market economics concepts, ancl dissemi- seminars were delivered upon request of local nating the finclings of Bank studies. By the end Project Implementation Units [PlUs] in the last of FY94, the WBI's Moscow office had 15 Russ- three years). Moreover, WBI staff participated in ian professionals By the mid-1990s, it helped cre- Bank missions related to education and training ate strata of market-oriented professionals as it projects. trained 2,150 trainers, partnered with 200 Russ- In the last three years, the WBI has movecl the ian institutions, ancl reached indirectly 10,000 in- focus of its programs to the local level, builcling dividuals through its training courses, for which institutional capacity in the regions, and in 2000, it prepared textbooks, glossaries, and case stud- the Canadian International Development Agency ies It made use of modern information tech- (CIDA) and the WBI signed a three-year part- nology, opening a Russian language Web site, nership agreement on training ancl capacity producing videos and CD-ROMs, conducting building in Russia in fiscal fecleralism and media distance learning, and electronically network- development in Russian regions The efficiency ing partners. It reached parliamentarians, the of WBI outreach efforts was magnified by bring- mass iriedia, government administrators at the ing the existing pool of local partners and WBI federal and local levels, project managers, local alumni into informal networks of professionals. experts, and private sector legal entities. More than 200 Russian institutions now have Since 1996, WBI programs have been inte- WBI-trained staff, using WBI-approved training grated into the Russia CASs ancl WBI staff have materials and operating within the network of worked more closely in supporting Bank Group WBI local partners According to the WBI's eval- operations In line with CAS priorities, WBI ac- uation and tracer studies, many WBI alumni tivities have focused on macroeconomic and were promoted as advisers to central and local public resource management, corporate gov- authorities, used efficiently new analytical tools, ernance, the social sectors, and the environ- and were involvecl in decisionmaking for various ment As part of linking learning and lending and development initiatives and programs -World Bank InstLtute 85 ANNEX 14: RUSSIA'S CHAMBER OF ACCOUNTS' VIEWS OF WORLD BANK- FUNDED PROJECTS Preface The COA overview report raised other generic The following is a summary of an overview report issues (presumably in late 1998) to the Duma by the * Currently, major control and managerial func- Chamber of Accounts (COA), Russia's supreme tions in preparation ancl implementation of audit institution, on the "basic problems related projects are carried out by Bank experts, rather to effective use of the funds borrowed from the than by appropriate governmental agencies IBRD" and of the views expressed by senior COA * The government (the MOF and other min- officials to the Operations Evaluation Depart- istries) actively participate in the preliminary ment (OED) CountryAssistance Evaluation (CAE) stages of project preparation, but lose interest mission in February 2001 It does not reflect the after loan effectiveness and the beginning of position or concurrence of the World Bank or PIU financing OED All COA reports on Bank-financed projects The wide range of the projects' objectives and were considered confidential until recently and the predominance in the portfolio of projects were made available for the first time to the not directly linked to the investment needs of Bank's Moscow office in February 2001. the procluctive sectors show a lack of long- term cooperation of Russia with the Bank that Overview Report reducecl the effectiveness of Bank loans The Russian Federation is facing two major issues vis-A-vis the World Bank at the moment the ne- Criticisms Raised during the OED cessity of a portfolio review in order to save the CAE Mission borrowing program, and the necessity of urgent * COA officials bemoaned the excessive salaries actions to recover sub-lent funds from encl bor- paid to PIU officials, which create perverse in- rowers The preliminary estimate of the COA centives for govertnment officials. and the Federal Center for Project Finance * COAofficialsbelievedthatBankassistancefor (FCPF) (a nonprofit foundation funded by the the coal restructuring program was misplaced, Bank and supervised by the Ministry of Finance as it focused on reducing production rather [MOF], which is the Project Implementation than on enhancing supplies of those types of Unit [PIU] for the Portfolio Development proj- coal most suited to the existing power plants ect) is that the total amount of active loans can [Thlis finding is in marked contrast with OED's be reduced by $700-$800 million. The situation positive assessment of Bank assistance in this regarding the payback of borrowed funcls was fa- area ] vorable at the date of the COA review (only in- terest and commitment payments were Other Views Contained in Selected requirecd) However, starting from 1999, when the Project Reviews first loan's repayment was scheduled, the situa- * The main objectives of the Structural Adjust- tion would become worse, as the end borrow- ment Loans (SAL) I and II in the areas of tax re- ers who received sub-loans from the federal form, private sector development (PSD), budget are unable to repay their debts because banking system reform, and export trading re- of the 1998 financial crisis forms were not achieved 87 ASSISTING RUSSIA'S TRANSITION o Adjustment loans were spent on debt service and various budget expenditure items unre- lated to the purpose of the loans. [That is in- deed the nature of all adjustment loans.] o Various projects had weak implementation monitoring systems o In the projects reviewed, the COA found only minor expenditures deemed unreasonable or contrary to the loan agreements. 88 ANNEX 15: LESSONS FROM EXTERNAL EVALUATIONS Lessons of evaluations from the European Bank * Avoid projects in sectors and incustries with a for Reconstruction ancl Development (EBRD), high clegree of barter the European Union (EU), the United States, * Define clearly the objectives of interventions the Netherlands, and Sweden point to important ancl link them to concrete measures neces- recommendations that are also relevant to im- sary for their achievements prove the effectiveness of external lending and * Ensure flexible project clesigns and manage- nonlending assistance ment * Plan for monitoring and evaluation systems Portfolio Management and follow up on their findings The evaluations from the EBRD, the EU, and * Clarify procedures early on rather than during Sweden pointed out that operationalization in implementation the region requirecd that developmentalists * Tailor the project to country-specific conclh- * Ensure adequate knowledge of country polit- tions ical, economic, and social conditions relevant * Minimize dependence on inclividuals to the specific areas of interventions * Plan ahead for coordination among govern- * Commit to a long-term framework for assis- ment agencies and partners. tance. * Monitor carefully the relevance of project ob- * Focus on institution builcling, training, and jectives in the course of implementation and legislation acljust, if necessary, with the changing envi- * Ensure adequate resources and influence by ronment the donor agency in a few selected areas of in- a Rely for implementation on professional man- terventions rather than spreacd assistance thinly agers with operational autonomy, but within * Identify clearly all opposing and supportive clear mandates, guidelines, and effective mon- stakehoiclers' coalitions itoring of performance * Stress cost sharing, twinning, demand-clriven facilities, and use of Russian professionals in Privatization Reforms and Partnerships technical assistance (TA) projects The EBRD, the EU, ancl the Netherlands also rec- ommended that the programs take measures to Project Management * Partner with other donors and other relevant Evaluations fi-om the Netherlands, the EBRD, organizations in transition countries of cen- the EU, and Sweden also reflectecd the impor- tral Europe tance of the neecl to: * Design support for balance of payments and * Rely upon, and involve from the start, benefici- budgetary support should support the reforms anes and stakeholders with common objectives that will prevent the reoccurrence of the same * Ensure the ownership and support of central problems as well as local authorities, and of key civil so- * Embed advice ancl interventions in support of ciety organiizations. refori in a strategic framework Source Various evaluation reports summarized and reviewed by Rema Balasunclaram (OEDPK) in a background note prepared as an input to the CAE 89 I ANNEX 16: GUIDE TO OED'S COUNTRY EVALUATION RATING METHODOLOGY This methodological note presents the basic el- * Clients that achieved above-average develop- ements of OED's Country Assistance Evaluation ment results, even though the Bank's assis- (CAE) rating methodology for the Bank's coun- tance did not fare nearly as well (e.g., Costa try assistance. The Bank's role has been in- Rica) creasingly country based, policy oriented, and * Clients in which the Bank's assistance achieved programmatic Hence, over the past seven years, significant development results, clespite lag- (FY95-01), OED has evaluated the development ging country development (e g., Ethiopia) impact of country assistance programs in 45 Also of note is that, in conform-lity with its countries. This note reflects the lessons of this mandate, OED does not rate the development evaluation experience. performance of the client country or the aid performance of its non-Bank partners Yet, it is Bank Country Assistance Performance critical to have a clear view regarding both these versus Country Performance versus Bank issues to correctly assess the outcome of the as- Performance sistance program and any obstacles the Bank Three possible objects must be distinguished contended with in designing and implementing in country-related evaluations the country's de- its Country Assistance Strategy Hence, active velopment performance, the performance of participation of the client, non-Bank partners, the Bank's assistance program, ancd the Bank's and the Region in the evaluation process is likely own performance in designing ancl implement- to lead to the best results ing the program While interrelated, they are not identical. Favorable Bank program outcomes Building a Metric Algorithm do not always translate into favorable economilc Intermediate development objectives, such as fi- and social development results for the country, nancial sector adjustment and integrated rural de- nor does a strong Bank performance necessar- velopment, are often the indispensable pathways ily mean that the assistance program was suc- to the realization of higher-order objectives, cessful. Poverty reduction in a country may fail such as poverty reduction So the causative links to occur even if the specific programs supported between the two must be identified Work can by the Bank have had good outcomes Equally, then proceed toward design of a ratings scale the programs supported by the Bank may suc- with appropriate weights ceed even if the Bank's own performance has not At times, clients may have some development been satisfactoiy goals at odds with the broad-based goals em- Thus, the results of a Bank assistance program bodied in the Bank's Comprehensive Develop- could be rated as highly satisfactory even for a ment Framework (CDF) Normally, such conflicts client that did poorly in areas not addressed by would be identified and resolved in the Country the Bank's program. From the record of the CAEs Assistance Strategy (CAS), enabling the evalua- we have done to date, we discovered there were: tor to focus on whether the tradeoffs adopted * Clients whose prolonged periods of develop- were reasonable In other instances, key devel- ment were matched by successful Bank assis- opment constraints may not have been identified tance (e.g., Poland, Ghana, and El Salvador) or addressed by the Bank's assistance program 91 ASSISTING RUSSIA'S TRANSITION Such omissions tend to emerge upon examina- * Economic management tion of development behaviors and endowments * The structure of the public sector and, in par- observed during and preceding the period under ticular, the civil service evaluation. Finally, the evaluator must be alert to * The institutional soundness of the financial possible major shortcomings in the assistance sector program results, such as violations of the Bank's * Legal, regulatory, and judicial systems safeguard policies. * Monitoring and evaluation systems Rating the outcome of the assistance pro- * Aid coordination gram then involves an investigation into the rel- * Financial accountability evance of its primary objectives in contributing * Building nongovernmental organization ca- toward a resolution of one or more key con- pacity straints hampering client country development, * Social and environmental capital. the program's efficacy in having achieved its major relevant objectives with minimal short- Sustainability comings, and its efficiency in containing the This measures the likelihood that the develop- costs per unit of benefit delivered. ment benefits of the country assistance program will be maintained. Sustainability can be rated as Institqtional Development Impact highly likely (4), likely (3), unlikely (2), highly un- This can be rated as high, substantial, modest, likely (1), or nonevaluable. Future work will and negligible/negative. Ratings are based on focus on refining the definition of sustainability an assessment of the Bank's assistance impact on to distinguish between the expected duration of strengthening the client country's capacity to benefits versus the likelihood that some or all of manage, among others, the following areas: the expected benefits may not materialize. Ratings Scale Outcome. Currently, OED uses six rating categories for outcome, ranging from highly satisfactory to highly unsatisfactory ighly satisfactory The country assistance program achieved significant progress toward all major relevant objectives, possibly with minor shortcomings. Best practice de- velopment impact was achieved in one or more areas. Satisfactory The country assistance program achieved significant progress toward all major relevant objectives, possibly with minor shortcomings. Partially or moderately satisfactory The country assistance program achieved significant or acceptable progress toward a majority of the major relevant objectives, but failed to address- or did not make acceptable progress toward-at least one major relevant _ ~ ~ ~~~~~~~__objective._ Partially or moderately unsatisfactory The country assistance program failed to address-or did not make ac- ceptable progress toward-a majority of its major relevant objectives. However, progress toward at least one major relevant objective was ac- ceptable. Unsatisfactory The country assistance program failed to address-or did not make ac- ceptable progress toward-any of its major relevant objectives. Highly unsatisfactory The country assistance program failed to address-or did not make ac- ceptable progress toward-any of its major relevant objectives, and it had at least one major shortcoming, such as a violation of the Bank's safeguard policies. 92 ANNEX 16 GUIDE TO OED'S COUNTRY EVALUATION RATING METHODOLOGY Three-Dimensional Evaluation independently and then blended into a di- OED has developed three modules dealing with mensional rating. However, to minimize the nsk different perspectives, or dimensions, of Bank as- of steering all debate among the key partners sistance over their performance ratings, OED does not 1 Products and services dimension: The evalua- make these explicit in its CAEs. tor adopts a "bottom-up" analytical approach The dimensional scores should be equal (or to the major Bank Group inputs loans, eco- nearly so), because they capture different facets nomic sector work (ESW), strategic advice, aid of the same assistance result Were a large dis- coordination, and resource mobilization. parity to arise, this would signal some inconsis- 2. Development impact dimension: The evalua- tency, requiring adjustments among the three tor adopts a "top-down" analytical approach, dimensional scores, in this way mitigating the ef- rating the overall outcome and results of the fects of rating subjectivity For example, good Bank's program of assistance Counterfactuals partner performance (assessed against curi-ent are applied policies and standards) combined with favor- 3 Partner performance dimension The evalua- able exogenous conditions may contrast with tor assesses responsibility for the impact of an apparently poor clevelopment impact, thus re- the country assistance program to four sets of quiring a revision of one or both assessments actors the Bank, its aid partners and stake- (e.g., by concentrating on the aclequacy of poli- holders, the client countiy, and exogenous fac- cies ancl standards or on the accuracy of the de- tors The contribution of each is rated velopment impact indicators) 93 ANNEX 17: BACKGROUND PAPERS PREPARED FOR THE RUSSIA CAE1 Title Author(s) Report date Russia Bank Assistance for Social Protection Lawrence Thompson (consultant) November 15, 2001 Russia Bank Assistance for Social Protection Marina Kolosnitsyna (IET) November 3, 2001 and Irena Topinska (CASE) Russia Bank Assistance for the Energy Sector Richard Berney (consultant) December 4, 2001 Russia Bank Assistance for the Energy Sector Yuri Bobylev (IET) and December 7, 2001 Jacek Cukrowski (CASE) Russia Bank Assistance for Private Sector and Alexander Radygin (IET) January 8, 2002 Financial Sector Developments and Barbara Blaszczyk (CASE) Russia Bank Assistance for Financial Sector Fred Levy (consultant) October 26, 2001 Development Russia Bank Assistance for Private Sector Saul Estrin and Alan Bevan January 8, 2002 Development (consultants) Russia Bank Assistance for Public Sector Baran Tuncer (consultant) January 8, 2002 Management and Governance Russia Bank Assistance for Public Financial Vinod Sahgal and January 8, 2002 Accountability Deepa Chakrapani (OEDCM) Russia Thoughts on the Privatization Debates David Ellerman (DECVP) February 4, 2002 a Decade Later 95 ANNEX 18: REPORT FROM THE COMMITTEE ON DEVELOPMENT EFFECTIVENESS (CODE) The Informal Subcommittee (SC) of the Com- since the beginning of the program, it had been mittee on Development Effectiveness met on actively encouraged by shareholclers-for ex- May 8, 2002, to discuss the Country Assistance ample, in view of the global liquicity crisis of Evaluation (CAE) for Russia (CODE2002-0021) 1997-98. While welcoming OED's evaluation and the international Finance Corporation (IFC) ancl agreeing with its recommendations, man- Country Impact Review (CIR) for Russia agement disagreed with OED's assessment of (CODE2002-0026), both covering the period the outcome of Bank assistance. It notecl that from 1992 to 2001 While OED rated the outcome many reforms implementecl after 1998 reflected of World Bank assistance to Russia as unsatis- Bank advice provided during 1992-98 and built factory between 1992 ancd 1998, with only a mod- on reforms from that period. Therefore, the out- est impact on institutional development, the come of Bank assistance ought not to be rated outcome in the periocd 1998-2001 was rated sat- over separate subperiocls. IFC management wel- isfactory and the institutional impact deemecl comeci the CIR and the OEG's assessment that substantial. The OEG's evaluation found the IFC's strategic focus on technical assistance (TA) IFC's efforts relevant and well-executed, while and its decision to follow the lead of the Euro- outcomes were mixed OED emphasized the pean Bank for Reconstruction and Development two main lessons of the evaluation: the impor- (EBRD) had been appropriate It noted that les- tance of broad-baseci country owncrship for the sons, particularly relating to TA, were already success of policy-basecl lending and the need informing IFC operations in other transition for the Bank to resist pressures to lend It felt that countries an assistance strategy oriented around analytical ancd advisory activities (AAA) with liimited finan- Overall Conclusions cial support for Russia would have been more ap- The SC broadly supported the recoinmenda- propriate than one involving large volumes of tions of OED ancd the OEG's evaluation reports adjustment lending, since suchi lending in and noted management's assurance that they 1996-97 may have delayed rather than acceler- will be incorporated into the clevelopment of ated needed reforms Disbursements should future Country Assistance Strategies (CASs). have rewarded actions rather than promises In Members unclerlined the importance of country support of its overall outcome rating through ownership of reforms and capacity to imple- June 1998, OED highlighted the large size of ment them, the need for the Bank to work in quick-disbursing and investment loans, includ- partnership with other donors, and the vital role ing the Structural Adjustment Loan (SAL) III, of Bank engagement in building ownership and with unsatisfactory outcomes It noted that re- strengthening institutions early in the process of search and evaluation fincings confirmed that transition. large amounts of lending could not be relied The chair representing Russia welcomed the upon to ensure country ownership CAE ancl CIR and appreciated their having taken Management responded that financial sup- accountofthegoverilment'scomments Noting port had been critical for progress in the Bank's that the synergies from the Bank's engagement dialogue with the Russian government, and, went beyond the impact of individual projects, 97 ASSISTING RUSSIA'S TRANSITION he underlined the role of the Bank in assisting 1998, although some noted that the penod after in the development of ownership of policy re- 1998 was short and the irreversibility of recent re- form in Russia, evidenced by the lack of back- forms remained to be seen One member wished sliding in the reform process In view of the fact to understand better the evolution of the Bank's that positive developments post-1998 resulted strategy in Russia over the decade from efforts made in the previous period and the Some members wondered whether the early important role played by the Bank and the In- phase of Bank support had been used to build ternational Monetary Fund (IMF) in this, the knowledge on Russia and whether existing government felt that the outcome of the Bank's knowledge had been adequately integrated into assistance to Russia during the entire period the program in a timely manner. Management re- ought to be considered satisfactory sponded that analytical work had indeed been Issues raised by the SC that are relevant for undertaken. Some of this work from outside the forthcoming CAS discussion at the Board and inside the Bank had provided key under- are as follows: pinnings for the SALs. Members noted that a major lesson from the Russian experience was Ownership the need to focus on institutional issues early on, Members commented on the complexity of defin- particularly the evolving role of the state in the ing ownership, assessing its existence ex ante, transition to a market-oriented economy and and applying the concept operationally OED concomitant political economy and public sec- clarified the criteria used to judge ownership tor management (PSM) issues. A clearer recog- and the need to take account of it in the design nition of Russia's capacity constraints would and choice of instruments Members noted that have resulted in more realistic expectations on the political compulsions behind the volume the part of the Bank and a program better cali- and speed of initial Bank lending to Russia had brated to the circumstances in terms of the pace resulted in unsatisfactory outcomes for policy- and sequencing of reform based loans and some investment projects. At the Members also asked whether the IFC had same time, some members felt that it could be largely reacted to events rather than having a difficult to wait to build broad consensus, espe- strategy for engaging with Russia IFC manage- cially when faced with crisis situations In such ment responded that the IFC had indeed artic- circumstances, the Bank might have to accept ulated the country strategy for Russia described greater risks in acting-particularly when it has in the OEG report and, in pursuit of the strategy, relatively less understanding of the economy- had resisted political pressure to invest. Overall, and try to build ownership through its engage- members acknowledged the difficulty of oper- ment, even though there might be divided views ating in a volatile and evolving environment in the country about which the institution had been relatively uninformed while facing pressure from share- Bank Strategy holders to lend Some members felt that the leverage provided by lending had been critical to the Bank's dialogue Partnership with the Russian authorities and that AAA alone Members wished to understand the lessons for would likely not have captured the government's better coordination from the partnership with attention Other members wondered whether the IMF, particularly with regard to the appro- the large amount of adjustment lending in the priate role of the Bank in situations in which early years might not have retarded reforms by the two institutions disagreed but the Bank did postponing the need to deal with cntical structural not have the lead. Some members noted the issues Several members agreed with both OED need for joint evaluations with partners when and management that the seeds of the improved working in complex political environments performance of the Russian economy after 1998 Other members expressed concern about the could be discerned in Bank assistance before lack of collaboration between the IFC and the In- 98 ANNEX 18 REPORT FROM THE COMMITTEE ON DEVELOPMENT EFFECTIVENESS (CODE) ternational Bank for Reconstruction and Devel- Poverty opment (IBRD) indicated in the CIR Members Several members emphasized that the Country urged greater coherence, coordination, and in- Assistance Evaluation (CAE) ought to have ad- formation sharing between the Bank and the dressed in more detail the problems of poverty IFC. They also asked for greater clarity on the re- and inequality in Russia, particularly because lationship of the IFC with the EBRD Manage- declining living standards in the mid-1990s had ment responded that while the overall made reform more difficult They asked for more relationship between the IBRD and the IFC has information on the impact of the Bank's assis- been synergistic and collaborative in key areas, tance strategy on social disruptions and poverty with the IFC focusing on specific operations in the country OED pointed out that these issues while the Bank addressed the business envi- had been treated in Annex 1, and management ronment more broadly, more could be done to commented that methocdological issues had con- enhance collaboration. It also said that the IFC strained past analyses of poverty Resolving these and the EBRD collaboratecl on larger projects, but issues during the forthcoming CAS period will there was healthy competition on smaller proj- make it possible to address poverty issues more ects; client preferences prevailed. systematically. Sharon Weber, Chairperson 99 ANNEX 19: REFERENCE TABLES 101 ASSISTING RUSSIA'S TRANSITION Ta blIe A .*3 _11111111 Poverty and social Russian Europe & Lower-middle 2001 Federation Central Asia income Population, mid-year (millions) t447 475 j 2,164 GNI per capita lAtlas method, US$) 1,750 1,960 '.240 Development diamond* GNI (Atlas method, US$ billions) 253 4 930 2,677 Average annual growth, 1995-2001 Life expectancy Population I%) -04 0 1 1 10 Labor force 1% 0 006 2 Most recent estimate (latest year available, 1995-2001) Poverty (% of population below national poverty hne) 28 GNI Gross Urban population I% of total population) 73 63 46 per primary Life expectancy at birth Iyears) 65 69 69 capita enrollment Infant mortality (per 1,000 live births) 16 20 i 33 Child malnutrition I% of children under 51 3 1 11 Access to an improved water source 1% of population) 99 90 s0 Illiteracy I% of population age 15+) 0) 3 15 Access to improved water source Gross primary enrollment 1% of school-age population) 117 102 107 Male 117 103 13/ - Russian Federation Female 116 101 137 Lower-middle-income group Key economic ratios and long-term trends 1981 1991 2000 2001 GOP(US$billions) 5421 259.0 3100 Gross domestic investment/GDP 363 6 6 221 EconomiC FatiOS* Exports of goods and services/GDP 133 44 5 363 Gross domestic savings/GDP 366 370 34 7 Gross national savings/GDP 36 3 32 9 317 Trade Current account balance/GDP 163 97 Interest payments/GDP 11 26 Total debt/GDP 125 62 4 498 Total debt service/exports 9.9 145 Domestic Present value of debt/GDP 57 0 savings Investment Present value of debt/exports . 127 5 1981-91 1991-01 2000 2001 2001-05 (Average annual growth) Irl GOP -2 9 90 50 40 Indebtedness GOP per capita -27 96 5 56 45 Exports of goods and services 23 91 05 27 Russian Federation Structure of the economy 1980 1990 1999 2000 Lower-middle-icome group % of GDP) Agriculture 14.3 64 69 Growth of investment and GDP (% Industry 47 39 C 37 6 40 Manufacturing 20 Services 381 545 556 0 Private consumption 46 9 46 2 50 9 O 9 99 = _ General government consumption 165 160 143 -20 o 80- 97 *, 96, 99 00 01 Imports of goods and services 130 24 1 23 6 -40 .... GDI - GDP 1981-91 1991-01 2000 2001 (Average annual growth) Agriculture -45 50 108 Growth of exports and imports (/a Industry -4 8 11 60 30 Manufacturing i 20 Services . -03 67 43 10- Private consumption 03 167 60 -10 96 9799 0 01 General government consumption -1 0 16 -10 -20 Gross domestic investment -14 6 18 6 170 -30 Imports of goods and services -2 5 20 ? 20 5 1 0 2 ANNEX 19 REFERENCE TABLES Fill ~~~~~~~ urnF11 .2-uu 1F.1 - W FI- uMu mA uw. a m . . u.CFIMTT1WK7IrIM Prices and government finance 1981 1991 20W0 2001 Domestic prices (percent change) i Inflation (/) Consumer prices 92 6 20 8 21 5 200 ImplicitGDPdeflator 1286 405 179 11 Government finance (percent of GOP, 150 -* includes current grants) 100-. Current revenue 37 2 34 4 Current budget balance 7 7 5 6 50 Overall surplus/deficit 29 3.1 O 96 97 98 99 00 01 ..... GDPdeflator -.-. CCPI Trade 1981 1991 2000 2001 (US$ millions) i Export and import levels Total exports (fob) 105,565 104 Exor,603m ot evl Crude oil 25319 2426 (US$ millions) Natural gas .. 16,644 17,760 1 Manufactures 10,000 11,200 125,000 Total imports (cif) 47,191 56,748 I 100,000 Food .. 7,400 9.000 75,000 Fuel and energy .. 899 1,000 j 50000 Capital goods 10,600 14,000 I Exportpriceindex j1995=100) 105 100 25,000 Import price index(1995= 100) .. 83 79 0 Terms oftrade (1995= 100) 126 126 95 96 97 98 99 00 01 -- - _E! Exports * Imports Balance of payments 1981 1991 2000 2001 (US$ millions) Current account balance to GDP (l) Exports of goods and services . 115,200 112,506 Imports of goods and services 62,467 73,168 20 Resource balance 53,072 39,338 Net ocome -10,789 -9-793 15 Net current transfers i 90 381 Current account balance . 42,374 29,926 ' 10 Financing items (net) -23,959 -15,623 Changes in net reserves | -18,415 -14,303 j Memo 0 Reserves including gold (US$ millions) 2,813 27,972 36,622 ' 95 96 97 98 99 00 01 Conversion rate (DEC, local/US$)| 2 58E-3 28 1 29 2 External debt and resource flows 1981 1991 2000 2001 (US$ millions) - _ | Total debt outstanding and disbursed 67,590 162,023 154,411 Compoitionof 2001 debt IBRD 6,844 6,746 Co pstn IDA 0 0 (US$millions) Total debt service I 11,510 16,490 AG 20,972 6,746 IBRD 679 739 I C 7,400 IDA 0 . D 223 Composition of net resource flows Official grants Official creditors -688 -1,245 Private creditors . -2,658 -2,259 Foreign direct investment . -463 -122 F 61,970 E 57,100 Portfolio equity ,. -100 610 World Bank program Commitments | . 30 275 Disbursements 540 377 A - IBRD E - Bilateral Principal repayments 267 355 B - IDA D - Other multilateral F - Private Net flows 274 22 | C - IMF G - Short-term Interest payments 412 384 Net transfers -139 -362 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 Negligible GDP Gross domestic product Note 2001 data are preliminary estimates 1 0 3 C Table A.4 UQd®m3 S ®iiJGThS @3G1B, Goal/ 1996-2000 indicator 1990 1994-96 1997-2000 Ukraine Brazil Hungary Poland Goal 1. Reduce share of people in extreme poverty by half from 1990 to 2015 Indicator Poverty Incidence people living on less than $2 a day (%) 14 3* 13 3 18 8 43.5 10 7 15 1 Goal 2. Enroll all children in primary school by 2015 Indicator School enrollment, primary (% net) 98 6 96 1 99 9 96.5 97 4 98 1 Goal 3. Make progress toward gender equality and empowering women by eliminating gender disparities in primary and secondary education by 2005 Indicator Ratio of literate females to literate males (15-24 year olds) 1.0 1 0 1 0 1 0 1 0 1 0 1 0 Goal 4. Reduce infant/child mortality rates by 2/3 from 1990 to 2015 Indicator Mortality rate, infant (per 1,000 live births) 17.4 181 16.9 141 335 97 10.6 Goal 5. Reduce maternal mortality ratios by 3/4 from 1990 to 2015 Indicator Maternal mortality ratio (per 100.000 live births) 50 0 25 0 160 0 8 0 Goal 6. Provide access for all who need reproductive health services by 2015 Indicator Contraceptive prevalence (% of women 15-49) 34* 34 0 7G 7 Goal 7. Implement national strategies for sustainable development by 2005 so as to reverse the loss of environmental resources by 2015 Indicatora Biodiversity protected land area (%) 31 . 1 6 42 68 96 Indicator b Energy efficiency GDP per unit of energy use 1 6 1 7 1 7 1 1 6 6 3 9 2 6 Indicatorc CO2 emissions, industrial (kg per PPP$ of GDP) 5 1 1 5 2 3 0 3 0 6 1 3 Memo item Life expectancy i 69.0 640 670 670 670 710 730 Negilgible GOP-Gross domestic product Note Data are for atest avaiiable year. those with * are for 1992. the earliest avaiiable data point Source World Bank SIMA database. RLMS (World Bank) for poverty ANNEX 19 REFERENCE TABLES Table A.5 IBRD OED Summary Ratings, FY95-O1 Projects closed/evaluated' Z1 W Percent e($m _ Percent Adjustment loans 40 01hIt1 75 Nonadjustment loans 60 25 TOTAL 100 100 ECA Region 110 Bankwide iti OED outcome ratings Satisfactory outcome Adjustment loans 33 0 32 Nonadjustment loans 56 2 17 Total satisfactory outcome 47 09l 28 ECA Region 81 85 Bankwide 71 ( 79 OED sustainability ratings Likely sustainability Adjustment loans t 100 3Jt 100 Nonadjustment loans 44 0) 13 Total likely sustainability 67 78 ECA Region 68 75 Bankwide 48 0 60 OED Institutional development ratings Substantial 10 Adjustment loans 17 .0 16 Nonadjustment loans 56 17 Total substantial ID l 40 )0 16 ECA Region 41 44 Bankwide 34 39 ARPP ratings of ongoing projects (as of April 20, 2001) Development objectives satisfactory Satisfactory 100 3 100 Unsatisfactory l0 0 Total, including not rated 2 J1 ECA Region (sat) 95 0 98 Bankwide (sat) 0 92 1tl66 94 Implementation Progress Satisfactory Satisfactory 2 80 60 Unsatisfactory 20 40 Total ECA Region (sat) 82 Z 90 Bankwide (sat) 89 90 Disconnect percentages Number of projects - % _ OED % sat. _a__......._.... Russian Federation - 36 p 3 ECA Region 816 5 Bankwide )X 723 3 Aggregate project performance (APPI) indicator_ FY95-99 , it 7 _R) APPI (avg.) Ad Russian Federation ¶l - 56 .16 ECA Region 71 Bankwide 0S1 66 1116 a Based on projects evaluated (and under evaluation) by OED through August 31, 2001 The disconnect is the difference betwecn the share of projects rated satisfactory during the last supervision year and the share of projects rated satisfactory after completion Thus it is an indication of the optimism in supetvision ratings in CPPR Note The figures in this table exclude the two evaluated projects that were approved by the Board but lapsed without disbursements One is the Enterprise Restructuring Service, and the other is Highway Rehabilitation & Maintenance 11 1 0 5 0 Table A.6 O0o00( l J ®Q @OG(Doo1 UI023t t A. Disbursed loans i i i Institutional ! Net Lending Project name Outcome Sustainability development impact Bank performance Borower perfoomance APPI commit instrument OEDES ECA ICRC OED ES ECA ICR OEDES ECA ICR OEDES ECAICR O ES ECAICR Technical Co-op. Program Sat. Sat. Unlikely Unlikely Substantial Substantial Not rated Not rated Not rated Not rated | 7.50 13.40 Oil Rehab. I UnsaL Unsat. Unlikely Unlikely I Modest Modest Unsat. Sat. Unsat. Unsat. 4.25 414.04 IL Oil Rehab. II Unsat. Unsat. Unlikely Unlikely Modest Modest [Unsat. Sat. Unsat. Unsat. 4.25 346.46 IL Rehab. lb Sat Sat. Likely Likely Substantial Substantial |Sat Sat. Sat, Sat. 6.50 600.00 AL Rehab. Ilb Sat. Sat. Likely Likely Modest Not rated Sat. Sat. Sat. Sat. 5.00 1 600.00 AL Management & Financial I Training Sat. Sat. :Nonevaluable Uncertain 1, High High Sat. Sat. Sat Sat. 7.50 40.00 IL Highway Rehab. & Main. la Mod. unsat. Sat. iNonevaluable Likely I Modest Modest Unsat. Sat. I I Unsat. Sat. 5.00 297.00 IL Employment Serv. & Social Prot.b Mod. sat. Sat. Likely Likely Substantial Substantial Sat. Sat. Sat. Sat. 6.50 I 60.00 IL Greenhouse Gas Reduction Mod. unsat. Unsat. Likely Likely I Modest Modest Sat. Sat. Unsat. Unsat. 5.00 3.20 IL Tax Administration Sat. Sat. Likel Hi ie Substantial Substantial Sat. Sat. Sat Sat. 8.25 16.80 IL Social Prot. Adjustment Loanb Mod. unsat Unset. Likely Likely Modest Modest Unsat. Unsat. Unsat. Unsat. 5.00 800.00 AL Privatization Mod. sat. Sat. Likely Likely 5uOa.C1ti FPanlial Sat. Sat. Unsat. Sat. 7.50 86.05 IL Structural Adjustment Loan lb Unsat. Sat. Likely Uncertain Modest Partial FUnsat. at. Unset. Sat 5.00 600.00 AL Structural Adjustment Loan 11h Unsat. Sat. Likel Uncertain Modest Partial l Unset. Set. 3.25 800.00 AL Structural Adjustment Loan IlIl Unsat. Unsat. Likely Likely i Modest Modest Sat. Sat. Unsat. Unsat. 4.25 400.00 AL i i ~~I I----.. 1 B. Cancelled/lapsed loans s N deveInstitutional B p i Net e Lending Project name Outcome Sustainability development Bank performance Bonowerperformance commit instrument Highway Rehab. & Main. II Not rated n.a. Not rated Not rated Not rated j 400 IL Enterprise Restructuring Service Not rated Not rated Not rated Not rated Not rated 85 IL n.a. Not applicable. a. A Performance Assessment Report IPARI was completed for the Highway project, not just an Implementation Completion Report review. b. Pending PARs. The PAR under preparation for the Rehab. Il is proposing unsatisfactory outcome and Bank performance ratings. c. ECA outcome ratings are on a 4-point scale, while OEO outcome ratings are on a 6-point scale, including marginally satisfactory and marginally unsatisfactory. Note: Boxed areas indicate disagreement between OED and Region ICR ratings. ES, Evaluation Summary; ICR, Implementation Completion Report; Mod. sat., Moderately satisfactory; Mod. unsat., Moderately unsatisfactory; Sat., Satisfactory; Unsat., unsatisfactory. Source: OED project evaluation database as of August 31, 2001. ANNEX 19 REFERENCE TABLES I Gross Net Dis- Lending Original Approval commitment Cancelled commit- Effectiive bursed instr. closing Project name date (US$ million) (US$ million) ment date mUiS o)code date Closed The World Bank's Tech Co-op Program (RF)a J4/3/19921 13 44 0 13 44 _____ 13 44 G 6/30/1992 13 44 Total in FY92 __ I 13 44 013.44 I_ __[ 13 44 _ __ _ _ __ _ _ _ _ Rehabilitation I D8/06/92 00 0 00 1600 00 12/29/92~ 600 00 I AL 2/1 6/1 993 9/30/1994 Employment Services and Social Protection 08/24/92 70 00 i 14 42 55 58 09/09/941 55 58 IL 4/30/1996 4/30/2000 Privatization and Implementation Assistance 12/17/92 90 00 3 95 86)05 12/07/931 86 05 TAL 6/30/1999 Oil Rehabilitation I 06/17/93 610 00 195 96 414 04 11/15/931 414 04 IL _____ 12/31/1998 Total in FY93 1,370 00 1 21433 ~1,155 67 1 ___ 1,15567 _______ ____ Highway Rehabilitation -_ _ _ _ _ _ _ _ _ _ _ _ _ _ and Maintenance 02/17/94 300 00 I 19 22 280.78 10/21/94 290 78 IL 12/31/1998 1/119 Financial Institution I ~ 1/119 Development-restructured 05/19/94 200 00 59 50 I140 50 07/28/95 I 73 80 I L 12/31/2002 Agricultural ReformI Implementation-restructured 06/16/94 240 00 118 20 121 80 11/21/941 116,89 IL I6/30/2001 Land Reform Implementation 06/16/94 80 00 0 00 80 00 04/26/951 38 20 IL 3/31/2002 Enterprise Support-restructured 06/21/94 200 00 0 00 200 00 07131/951 36 99 IL I3/31/2003 Oil Rehabilitation II 06/29/94 1 500 00 153 54 346 46 05/25/051 346 46 IL I6/30/1997 12/31/2000 Total in FY94 1,520 00 350.46 11,169 54 1 893 12 b__ ___ ____ Environment Management I' '0'3R 110 00 0.00 1110 00 08/30/95 54 50 jIL 12/31/2002 Management and Financing Training 12/15/94 4000o 001 39 99 07/03/95 3999 IL 11/1/1999 Portfolio Development 02/16/95 40 00 1 81 38 19 01102/961 22 95 TAL 9/30/2002 Housing 03/07/95 400 00 150 73 I249 27 I07/27/95 177 73 IL 12/31/2001 Tax Administration Modernization 03/09/195 1 16 80 I 0 06 16 74 07/03/95 16 74 I TAL I12/31/2000 Komi Emergency Oil Spill Recovery II I and Mitigation 04/25/95 I 9900o 00 o 990 OD .29 5i 93 63 IL 9/30/2001 Energy Efficiency 05/02/95 70 00 I000 7000O 12/26/96 1 89 I 6/30/2001 Urban Transport-restructured 05/16/95 329 00 77 80 251 40 03/28/961 247 04 IL 6/30/2001 Rehabilitation 11 106/06/95 600 00 0 00 600 00 09/28/951 600 00 AL I10/5/1995 6/30/1996 Total In FY95 1_ _ I 1,704 80 23021 11,474 59 1,7 57____ ____ Standard Development 11/30/95 I 24 00 0.00 I 24 00 06/05/96 20 25 IL 13/30/2001 Greenhouse Gas Reduction (GEF) 12119/95 3 20 2 67 0 53 12/12/96 I 53 G 6/30/1999 Bridge Rehabilitation 03/28/96 350 00 195 33 154 67 08/19/96 124 35 IL 112/31/2001 Community Social Infrastructure 04/30/95 200 00 56 50 143 50 I01/31/97 65 14 IL 12/31/2002 Enterprise Housing Divestiture 05/07/96 300 00 43 60 I256 40 I11/18/96 40 57 IL 12/31/2003 ODS Consumption Phase-Out (GEF) 05/30/96 20 10 0 00 60 00 09/29/96 24 73 1G 6/30/2002 Biodiversity Conservation (GEF) 05/30/96 20 I 0 00 20 10 I11/27/66 12 95 G 63022 Capital Markets Development- restructured 05/30/96 89 00 33 75 55 25 I12/17/96 19 41 TAL 6/30/2003 Medical Equipment 06/04/96 270 00 I 46.45 I223 55 01/30/971 219 53 IL I6/30/2001 Legal Reform 06/13/96 58 00 0.00 58 00 09/09/961 25 38 TAL 6/30/2002 Coal Sector Adtustment I 08/27/96 500 00 0 00 500 00 07/02/961 500 00 AL 3/31/2001 12/31/1997 Coal Sector Restructuring i Implementation 06/27/96 25 00 0.00 25 00 07/25/961 16 20 iTAL 12/31/2001j______ Totral in FY96 1 1,899.30 37830 1,521 00 ____ 1,069 04 _______ St Petersburg Center City- _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Rehabilitation 03/27/971 31 00 0 00 31 00 iQ-,1i J 23 48 ITAL 12/31/2001 Sea Launch Protect Guarantees 05/29/97 10000o 00 10000 o 01/05/98 100 00 IGE I 1/5/2006 Bureau of Economic Analysis 06/05/97 I 22 60 i 0 00 I 22 60 '12/18/97 15 75 1TAL 9/30/2003 Education Innovation 06/05/97 71 00 1 3 00 I 68 00 04/20/98 10 41 I IL 12/31/2003 Electricity Sector Reform Support 06/05/97 40 00 I 0 00 40 00 08/12/98 2 08 TAL 12/31/2001 Structural Adjustment Loan I 06/05/97 600 00 0 00 60000D 06/17/971 600 00 AL 3/31/1 998 Enterprise Restructuring Services 06/05/97 85 00 85 00 I 0 00 I 00 IL 112/31/2002 Health Reform Pilot Protect 06/05/97 66 00 0 00 I 66 00 04/20/981 1 6 400 IL 4/30/2004 Social Protection Adjustment 06/25/97 I 8000 OD 000 8000 oo 06/27/971 800 00 iAL I12/31/1998 3 i _,0 2f.iflL Total In FY97 1,815 60 88.00 1,727 60 1,568 12 Li ( Table continues on the follo wing page) 1 07 ASSISTING RUSSIA'S TRANSITION V3 DO(D 7 b7 E$g O W@6.og i Gross Net Dis- I ending Original Approval commitment Cancelied commit- -"jcc1iue bursed rnstP. closing Project name date (USS million) (US$ million) ment d3tie (USS million) code date Clased Social Protection Implementation 10/07/97 28 60 0 00 28 60 07/01/98 12 10 TAL 12/31/2001 Coal Sector Adjustment II- restructured 12/18/97 80000 000 80000 12/19197 65000 AL 3/31/2001 Structural Adjustment Loan II 12/18/97 80000 000 80000 17/22/97 80000 AL 12/31/1998 Total in FY98 1,62860 000 1,628 60 1,462 10 Structural Adjustment Loan IlIl 08/06/98 1,500 00 1.100 00 400 00 08/07/98 400 00 AL 12/31/1999 12/31/2000 Highway Rehabilitation and Maintenance Protect II 12/22/98 400 00 400 00 0 00 0 00 IL 12/31/2004 State Statistical System Project 05/13/99 30 00 0 co 30 00 05/31/00 0 98 IL 3/30/2004 Total in FY99 1,930 00 1,500 00 43000 40098 Regional Fiscal Technical Assistance 12/22/99 30 00 0 00 30 00 08/30/00 1 90 [Al 12/31/2004 Sustainable Forestry Pilot Projectb 05/23/00 60 00 0 00 60 00 0 00 IL 9/30/2004 Total in FYOO 1 90 00 0 00 90 00 1 90 Forestry and Coal Guarantee Facility 09/12/00 200 00 0 00 200 00 0 00 GE Special Initiative for ODS Production Closure 10/25/03 26 20 0 00 26 20 0 00 G 6/30/2006 Municipal Water and Wastewater Project' 12/21/00 12250 000 12250 000 IL Moscow Urban Transport 02/06/01 6000 000 60.00 06/23/01 000 IL 12/31/2005 Municipal Heatingb 03/27/01 85 00 0 00 85 00 0 00 12/31/2005 Education Reformb 05/24/01 50 00 0 00 50 00 0 00 IL Northern Restructuringb 06/07/01 80 00 0 00 80 00 0 00 IL Total in FY01 623 70 000 623 70 000 Grand total FY92-01 (56 projects) 12,59544 276130 9,834 14 7,83594 43 r5 Grand total FY93-01 (55 projects) 12,582 00 2,761 30 9,820 70 7,822 50 43 14 a Total count for the former USSR was $30 million b Loan approved but not yet effective Note AL, Adjustment Loan, G, Grant, GE, Guarantee, IL, Investment Loan, ODS, Ozone depleting substance, TAL, Technical Assistance Loan Source World Bank data 1 08 ANNEX 19 REFERENCE TABLES Net enig! Original Approval Committed Effective Cancelled commit- Disbursed isr closing Project name date (US$ million) date (US$ million)' ment (U $million) coe date I Closed - Economic management World Bank's Tech Co-op Program (USSR), 4/3/992 13 44 0 13.44 13 44 G 6/30/1992 6/30/1992 Portfolio Oevelopment 02/16/95 40 00 01/02/95 1 81 38 19 22 95 TAL 9/30/2002 Bureau of Economic Analysis 06/05/97 22 60 12/18/97 0 00 22 60 15 75 TAL 9/30/2003 State Statistical System Project 05/13/99 30 00 05/31/00 0 00 30 00 0 99 IL 3/30/2004 ______ Sector total 106 04 1 81 10423 53 12 _____________ Energy I Oil Rehabilitation 1 06/17/93 610 00 11/15/93 195 96 414 04 I 414 04 IL I12/31/1998 Oil Rehabilitation 11 05/29/94 500 00 05/25/05 153 54 346 46 346 46 IL 6/30/1997 12/31/2000 Greenhouse Gas Reduction (GEF) 12/19/95 i 3 20 12/12/96 2 67 0 53 0 53 G -. .II, ~i9 Energy Efficiency 05/02/95 70 00 12/26/96 000 70 00 18 99 IL 6/30/2001 Coal Sector Adjustment I 06/27/90 50000o 07/02/96 0C0 0.0 500 L 33/01 1/119 Coal Sector Restructuring 00 500 00 L 33/01 1/119 Implementation 06/27/96 25 00 07/25/96 0 00 25 00 16 20 TAL 12/31/220001 Electricity Sector Reform Support 06/05/97 40 00 08/12/98 0 00 I40.00 2 08 TAL 12/31/200 Coal Sector Adjustment 11- restructured 12/18/97 800 00 12/19/97 0 00 800.00 650 00 IAL 3/31/2001 Muncipal Heatingb 32/1 80 0 00 85 00 1 0 00 j ___ 12/31/2005 _______ Sector total Z___ 6 ,33 20 352 17 Z281.03I 1,948 30 I__ _________ Environment Environment Management 1 1/08/94 I 110 00 08/30/95 0 00 110 00 54 50 IL 12/31/2002 Komi Emergency Oil Spill Recovery and Mitigation 04/25/95 99 00 06/29/95 0 00 99 00 I 93 63 IL 9/30/200 1 ODS Consumption Phase-Out (GEF) 05/30/86 60 00 09/29/96 0 00 60,00 24 73 G 6/30/2003 Biodiversity Conservation (GEF) 05/30/96 20 10 11/27/96 000 20 10 12 95 G 6/30/2002 Special Initiative for ODS Production Closure 10/25/00 26 20 0 00 26 20 0 00 G 6/30/2006 - ______ Sector total _ __ 31530 000 31530 j 18581 ___ _________ Natural resource mgmt./agri Agricultural ReformI Implementation-restructured 06/16/94 240 00 11/21/94 118 20 121.80 116 89 IL 6/30/2001 Land Reform Implementation 06/16/94 80 00 04/26/95 0 00 80 00 38 20 IL 3/31/2002 Sustainable Forestry Pilot Project 05/24/0 60 00 t0 00 60.00 0 00 IL 9/30/2004 Forestry and Coal Guarantee Faciliy 09/12/00 200 00 0 00 200,00 0 00 GE _____________ Sector total 580 00 17820 l46180~ 155 09Dg______ _____ MultisectorT- T Rehabilitation I 080/2 6001:~2 0 00 600.00 600 00 I AL 2/16/1993 9/30/1 994 Rehabilitation 1I 06/08/95 600 00 1, R i15 0 00 600 00 6000 A 10/5/995 Structural Adjustment Loan I 06/05/97 600 00 06/17/97 0 00 600 00 600 00 AL 3/31/1998 Structural Adjustment Loan II 12189 8000 122/7 00 00 800 00 IAL 12/31/1998 Structural Adjustment Loan III 08/06/98 1,500 00 08/07/98 1,100 00 400 00 1 400 00 AL -12/31/1999 12/31/2000 Sector total ____14,100 00 j1,10000 3,000001 3,000 00 _____________ Private/financial sector development-I Privatization and Implementation Assistance 12/17/92 90 00 12/07/3 3 95 -86 05 86 05 TAL 6/30/1999 Financial Institution - Development-restructured 05/19/94 200 00 i3 ?J 59 50 -I J.G~' 73 80 IL 12/31/2002 Enterprise Support-restructured 06/21/94 200 00 07/31/95 0 00 200.00 36 99 IL I3/31/2003 Capital Markets Development- restructured 05/30/96 89 00 12/17/96 33 75 55.25 19 41 TAL 6/30/2003 Standard Development 11/30/95 24 00 05/05/96 0 00 24 00 20 25 IL 3/30/2001 Enterprise Housing Divestiture 05/07/196 300 00 11/18/96 43 60 256,40 40 57 IL 12/31/2003 Enterprise Restructuring Services '9 01 50 95 00 -0.00 0 00 1 IL 12/31/2002 ______ Sector total 98800 j225 80 76220 27707 ______________ ( Table continues 00 ihe following page I 1 09 ASSISTING RUSSIA'S TRANSITION Table A.7.2 b 7 D 0 0 0 03O 0 7 ' ¶( tF1~~~~~~~~~~~~~~ t&s (u M eog 2 S 39 2 Tio 2@@ D a@ i o i @M Xr t I iendirg Original AparavcJ Committed Eliectivo Cancelled crrnmi°- Disbursed 0ristr. closing Projectname date lUS$million) date (USSmillion) wnsnt (US$million) code date Closet' Public sector management Tax Administration Modernization 03/09/95 1680 07/03/95 006 1674 1674 TAl 12/31/2000 Legal Reform 06l/13/96 58 00 09109/'96 0 00 58 00 25 38 TAL 6/30/2002 Regional Fiscal Technical Assistance 12122/99 30 00 08/30/f00 0 00 30 00 1 90 TAL 12/31/2004 Sector total 104 80 006 104 74 44 02 Social protection Employment Services and Social Protection 08/24/92 70 00 09/09/94 14 42 35 58 55 58 IL 4/30/1996 4/30/2000 Social Protection Adjustment 06/25/°7 80000 06/27/97 000 833 co 80000 AL 12/31/1998 9/30/2000 Social Protection Implementation 10/0//97 28 60 07/01/98 0 00 28 60 1210 TAL 12/31/2001 Northern Restructuringb 05/31/01 80 00 0 00 80 O0 Sector total 97860 14 42 964 18 867 68 Social services Management and Financing Training 12/15/94 40 00 07/03/95 0 01 39 99 39 99 IL 11/1/1999 Community Social Infrastructure 04/30/9E 20000 01/31/97 5650 -3 50 6514 IL 12/31/2002 Medical Equipment 06/04196 27000 01/30/9/ 4645 22355 21953 IL 6/30/2001 Education Innovation 06/05/97 71 00 04/70/98 3 00 ie 00 10 41 IL 12/31/2003 Health Reform Pilot Prolect 06/05/97 66.00 04/20/98 0 00 E6 00 16 40 IL 4/30/2004 Education Reform' 05/24/01 50 00 0 00 fn 00o Sector total 69700 10596 59104 35147 Transportation Highway Rehabilitation and Maintenance 02117194 30000 10/21/94 1922 200/8 28078 IL 12/31/1998 12/31/1999 Urban Transport-restructured 05/16/95 329 00 03/28/96 77 60 251 40 247 04 IL 6/30/2001 Bridge Rehabilitation 03/28/96 35000 t19/19/`G 19533 1'467 12435 IL 12/31/2001 Sea Launch Project Guarantees 05/29/97 100 00 01/05/98 000 1Co0000 100 00 GE 1/5/2006 Highway Rehabilitation and Maintenance Prolect II 12/22/98 400 00 400 00 0500 0 00 IL 12/31/2004 Moscow Urban Transport 02106/0 i 60 00 06/25/01 000 iO 03 12/31/2005 Sector total 1,53900 69215 8A1685 75217 Urban infrastructure Housing 03/07/95 40000 07/27/95 15073 7'e927 17773 i 12/31/2001 St Petersburg Center City Rehabilitation 03/27/97 31 00 04/13/98 000 31 DlO 2348 1AL 12/31/2001 Municipal Water and Wastewater Project' 12/21/00 12250 000 !2250 000 IL Sector total 55350 15073 4G2.77 20121 Grand Total FY92-01 (56 projects) 12,595.44 2,761 30 5,/JN 14i 7,83594 43 15 Grand Total FY93-01 (55 projects) 1258200 2,76130 9,820 /0 7,83594 43 14 Note AL, Adjustment Loan, G, Grant, GE, Guarantee, IL, Investment Loan, ODS, Ozone depleting substance, TAL, Technical Assistance Loan a Total count for the former USSR was $30 million b Approved loan but not yet effective Source The World Bank data 1 1 0 Ta ble A.8 Recipient-Executed Grants (excluding GEF Grants and Special Initiative), as of November 1, 2001 Ji5w Amount ( B59M Total Toa - nt Grant OmDMiII cancelled omtxt disbursed s Effective Time P Grant name onor num ber 0l$irnii$mir (US$ million) (US$ million) date d elapsed d Closed, fully disbursed, and lapsed grants Farm Restructuring Support MR 29681 Tim 0 99 001 @0w't 05/18/99 , 't, Subnational Fiscal Reform Adjustment a 25361 0 00 b 048 1 12/21/98 Krasnodar Power Gen 29327 _ 030 1 033 __ 10/13/95 3 Legal Reform Jm 29492 i 0 02 198 i . 03/20/96 ( Development of State Statistics 4 25359 A 0 05 1 0 39 f 05/20/99 ( Social Protection Adjustment I 29493 A 005 51 039 W 06/11/96 N W1 FIDP i5 25149 9 5 21 8 09 J 09/28/94 MINIM Privatization and Restructuring Program M 25152 lama 198 0a 12 02 t 05/02/95 M1W Municipal Water and Wastewater 4R 25555 A 0 04 tfL 0 78 06/09/98 qw /0 Agricultural Sector Adjustment 41 29128 1__ 020 m 055 i 09/20/99 Municipal Heating AJl 25554 (C 001 GI 0 67 ( 06/09/98 Education Restructuring w 25716 A 008 5 086 it 04/21/99 go Subtotal _ 93 2655_ Signed, not yet effective Dutch Grant for Environment_ Management ML 23337 000 i . 15 01139 3 Reduction of Nutrient Discharges and_ Methane Emissions on_ Rostov-on-Don Project 27721 o oo0 Subtotal _0_ 0o Effective grants i Environment Management %M 3810 WA000 o ootTX 57 01/13/97 loo Hazardous Waste Mgmt System 5iV 20217 ano 000 250 . 19 07/14/95 2 1 95 Treasury Modernization Project W M 25812 0 000 0 o 10 o A 12/22/99 12 01 84 Second Tax Administration InW 26119 000i - ooo V 021 06/14/00 79 Subtotal 0 00 438 Total 8 93 30 93 Note GEF, Global Environment Facility, JPN, Japan, NOL, Netherlands, SWTZ Switzerland 0 (3 [g FP3 I (D lt1) 0 (i) t7 S0 17 2 ( @ a~ eD (A 9 OD 1 3 3 (E 03 ft I? 5D 2 0 ( O Table A.9 Id~ m~rt W i ® OED evaluation ratings Bank supervision at exit Institutional Bank performance Approval Sustaina- development Borrower Development Implementation Title date Outcome bility impact At appraisal Supervision Overall performance impact progress At risk Economic mangement Tech Cooperation Program 4/3/1992 Sat Unlikely Substantial Sat Sat Portfolio Development 2/16/1995 Sat Sat Bureau of Economic Policy 6/5/1997 Sat Sat State Statistics System 5/13/1999 Sat Sat Energy GHG Red in Natural Gas 12/19/1995 Mod unsat Likely Modest Sat Unsat Unsat Unsat Oil Rehab I 6/17/1993 Unsat Unlikely Modest Sat Unsat Unsat. Unsat Unsat Sat Oil Rehab 11 6/29/1994 Unsat. Unlikely Modest Sat Unsat Unsat Unsat Ursat Unsat Actual Russia Energy Efficiency 5/2/1995 Sat Unsat Potential Coal IAP 6/27/1996 Sat Sat Coal SECAL I 6/27/1996 Sat Sat Electricity Sector Reform 6/5/1997 Sat Sat Actual Coal SECAL 11 12/1B/1997 Sat Unsat Municipal Heatinga 3/27,'2001 Sat Sat Environment ODS Consumption Phase-out 5/30/1996 Sat Sat. Emergency Oil Spill MIT 4/25/1995 Sat Sat Actual Environment Management 11/8/1994 Sat Sat Actual Biodiversity 5/30/1996 Sat Sat Special Initiative for ODS Production Closure i Q25/200Uf Sat Sat Multisector Rehabilitationb 8/6/1992 Sat Likelv Substantial Sat Sat Sat Sat Sat Sat Rehabilitation llb 6/6/1995 Sat Likely Modest Sat Sat Sat Sat Sat Sat SAL lb 6/5/1997 Unsat Likely Modest Unsat Unsat Unsat Unsat Sat Sat SAL llb 12/18/1997 Unsat Likely Modest Unsat Unsat Unsat Unsat Sat Sat SAL III 8/6/1998 Unsat Likely Modest Sat Unsat Unsat Unsat Actual Natural resources management/ agriculture Agric Reform Impl 6/16/1994 Sat Sat Land Reform Impl Su 6/16/1994 Sat Sat Actual Sustainable Forestry Pilota 5/23/2000 Sat Unsat Forestry & Coal Guarantee' 9/12/2000 Sat Unsat Public sector management Tax administration 3/9/1995 Sat Likely Substantial Unsat Sat Sat Sat Sat Legal Reform Project 6/13/1996 Sat Sat Reg Fisc Ta 12/22/1999 Sat Sat Private/financial sector development Privatization 12/17/1992 Mod sat Likely Substantial Sat Unsat Sat Unsat Financial Institution 5/19/1994 Sat Sat Actual Enterprise support 6/21/1994 Sat Sat Actual Standards Development 11/30/1995 Sat Sat Entp Housing Divestiture 5/7/1996 Sat Sat Capital Market Development 5/30/1996 Sat Sat Actual Enterprise Restructuring Services 6/5/1997 Highly unsat Not rateo Negligible Unsat Highly unsat Social protection Employment Serv & S 8/24/1992 Mod sat Likely Substantial Sat. Sat Sat. Sat Sat Sat Actual Social Protect Ad1 6/25/1997 , Mod unsat Likely Modest Unsat Unsat Sat Sat Social Protect Imp[ 10/7/1997 Sat Unsat Northern Restructuringa 6/7/2001 _ _ _ Social services Management & Finance 12/15/1994 Sat Nonevaluable High Sat Sat Sat Sat Sat Sat Community Social lnf 4/30/1995 Sat Unsat Medical Equipment 6/4/1996 Sat. Sat Health Reform Pilot 6/5/1997 Sat Sat Actual Education Innovation 6/5/1997 Sat Sat. Education Retorma 5/24/2001 ' _I, _ I Transportation Highway Rehabilitation & Maintenanceb 2/17/1994 Mod unsat Nonevaluable Moderate Unsat Sat Unsat., Unsat Sat Sat Urban Transport 5/16/1995 Sat. Sat Actual Bridge Rehabilitation 3/28/1996 Sat Sat Actual Sea Launch Protect 5/29/1997 Sat Sat Highway Rehabilitation & Maintenance 11 12/22/1998 Not rated n a Not rated Not rated Not rated Actual Moscow Urban transporta 2/6/2001 Sat Sat Urban infrastucture Housing 3R/1995 Sat Unsat Actual St Petersburg Rehab 3/27/1997 Sat Sat Potential Municipal Water & Wastewater' 12/21/2000 n a Not applicable Note Ratings (current1 outcome-highly satisfactory, moderately satisfactory, moderately unsatisfactory, unsatisfactory, highly unsatisfactory, sustainability-highly likely, likely, unlikely, highly unlikely, nonevaluable, ID impact-high, substan- tial, modest, negligible, Bank performance-highly satisfactory, satisfactory, unsatisfactory, highly unsatisfactory, bowrower performance-highly satistactory, satisfactory, unsatisfactory, highly unsatisfactory * Outcome was initiated as satisfactory and unsatisfactory, expanded to highly satisfactory and highly unsatisfactory in 1993, marginally unsatisfactory in 1994, and moderately saisfactory and moderately unsatisfactory in 2000 * Sustainability and institutional development impact were initiated in 1989 on a 3-pomnt marginally satisfactory scale, the latter was expanded to a 4-point scale in 1994 . Bank performance was initiated on a 3-point scale in 1991, as was borrower performance in 1993, both were adjusted toa 4-point scale in 1994 a Not yet effective b Pending Performance Assessment Reports ASSISTING RUSSIA'S TRANSITION r) 0 (g3 & o 'tg oo e ) ciG i) a OD - M@ ci) 7? Dt §)O 9; D,3 ff OD ,7 OD3 Cik DOD ) C r Q OD (3 Report title _ Date .'e: z Agnculture sector 1 Food and Agricultural Policy Reforms in the Former USSR An Agenda for the Transition S'udy r0 Econnomies in Transtrcmalton 9/1/1992 11271 2 Land Reform and Farm Restructuring in Russia Se tur Fioport 2/1/94 12179 3 Land Reform and Farm Restructuring in Russia \Wior1ld Hali a15ISCUSSiOri Papcr 2/1/94 233 4 The Significance of Credits and Subsidies in Russian Agricultural Reform Policy Research Woriking Paper 3/1995 1441 5 Agricultural Reform in Russia A View from the Farm Level Wl'orld Bank Discuision Papor 6/1/96 32/ 6 The World Bank Research Observer 13(1) WVorld Bank Rcsczrch Obsei ver 2/1/98 17528 7 The Agrarian Economies of Central and Eastern Europe and the Commonwealth of Independent States- Situation and Perspectives, 1997 World Rank Oiscubsion Paper 6/1/98 387 8 Transforming Agricultural Research Systems in Transition Economies The Case of Russia Cicl 14 arik Discussion Papcr 8/1/98 396 9 Agricultural Support Policies in Transition Economies Woid Ban! lerchncal Paper 5/1/00 470 Economic management 1 Colloquium on the Former Soviet Union for the Executive Directors of the World Bank Pi uiteeririgs 2/1/92 19565 2 Trade Policy and Exchange Rate Issues in the Former Soviet Union 'ol.oa Hescarcih Wor'ing Papor 5/1/92 91 5 3 Crossing the Threshold of Structural Change Vorld Eano, Country :;tudy 9/1/92 11207 4 Economies of the FSU An Input-Output Approach to the 1987 National Accounts Policy Riecarch VVorking Paper 12/1/92 1060 5 Statistical Handbook 1993 States of the Former USSR ,-tudy ou, Economies in Transfornation 9/1/93 1 2346 6 Financing the Storm Macroeconomic Crisis in Russia, 1992-93 olicy Rcsparch Wotking Paper 1/1/94 1240 7 Service as a Major Source of Growth in Russia and Other Former Soviet States Po9cy Rasearch Working Paper 4/1/94 1292 8 Statistical Handbook 1994 States of the Former USSR Study of Economies in Tranisforination 9/1/94 13557 9 Trade in the New Independent States Study of Economies in Transtor iatiori 12/1/94 13810 10 Comment on "Russia's Struggle with Stabilization Conceptual Issues and Evidence" .r'e.licatio'l 3/1/95 14421 11 Russia's Struggle with Stabilization Conceptual Issues and Evidence Puilirat.,oi 3/1/95 1442,J 12 Foreign Trade Statistics in the USSR and Successor States Slud'1 of Economia-. in Traursformation 11/1/95 i 5178 13 Macroeconomic Management and Fiscal Decentralization FDI Seminar Paper 12/1/95 15305 14 Statistical Handbook 1995 States of the Former USSR Srudy of tconorntes in Transformatinn 12/1/95 1'j2b5 15 Toward Medium-Term Viability 'Vo,lo Bairk Countr Study 4/1/96 15559 16 Statistical Handbook 1996 States of the Former USSR Study of Fconomies riTransforma'ion 12/1/96 16157 17 The Economics of Customs Unions in the Commonwealth of Independent States Pohliy Research Working Paper 6/1/97 1785 18 Global Economic Prospects and the Developing Countries 1997 Vol 1 Departmrntal Working Paper 9/1/97 17072 19 Stabilization, Adjustment, and Growth Prospects in Transition Economies ilr,bal F,Uiiornfn. Prospects and the 11/1/97 1855 DO.veloping Countries 20 Russian Trade Policy Reform for WTO Accession WVid Dani Discussion Paper 12/1/98 401 21 A Vision of the Future and Country Competitiveness An Integrated Approach 'Aicrking PNper 1/1/99 19220 22 Who Wants to Redistribute1 Russia's Tunnel Effect in the 1990s Pnlicy ResearLh Wf/orking Paper 7/1/99 2150 23 Does Democracy Facilitate the Economic Transition An Empirical Study of Central and Eastern Europe and the Former Soviet Union Eel cy Rcsearch Working Paper 10/1/99 2194 24 Ten Years of Transformation-Macroeconomic Lessons Policy Res,s Ugaiida Polmcy, PI'Jti(patllOt, Peoiple 'I he Wo Ic Batink's Expet ience vitli PosIt-Conflict Reconsti LcCtio Ihe Xot0 Id Bank's Foi est Sti ategy Sti kinig the Right Balaince Zamiiia Counti v AsiStdaieL Review lILii fling ai Ictionomiiy Ai ouind Evaluation Country Case Series Bomnia anid Hierzegovina Post.-Conilliet RcLtoistIl et on Bi-azil Fotests [II the BalaiLeC Challengei of Conse vaAton wiLth Developmiietit Caieticoots Fut est SectoiI Development in a Dilficult Political Ecoilomy Chitia Froins Affot es[tatoni iii PovetityAlleviationi and Natur'al Fittest M1an1agement Costa Rica Fotest Sriategv atid the- Evolutioti of Land Use El Sdlvidoi P(st-COifhiCt R1ecOI1sti UctIOtI Iidia Alleviating Poverty through Foies! Development Indonesa ''lThc Challeniges of Woid Baiik Involvemicint in Potests Ugainda Posi-Cctnlict ReconmstrueLttOn Proceedings Global Public Policies and Piog (ii m Implications fot Pi1ancimLIg and Evaluattion Lessons of Fiscal AdjUstmient Lessotn from Utban ltanspoit Evaluating the Gendet Impact of Worlid Bank Assistallee Fvaluatonn atid Demelopment The Iiistitutionial Dimoension (Transad(ion Publishets) F'valuation aiicl l'ovettv Reduction Montot tng & FvalJadtOIi CapLcity Developmente IIn Altile Public 5ector Petfotosaisaee-ThIe Ciiceal Role of 'valuLai tiii Multilingual Editions ALse.sing Development Effectiveniess Evtluation In the Wot6 kI Batik aiid tle Intei niational Fitianee Coi piOt aO,tio App&emciarion dce l ejicacztte dti d6veloppemienit L'evaluafion di la Baequv mat-ntai/ ,t cl /ea loeimeh]mnantcle,v ,intevr,7atiosnale Detern,tiita, la eJ,coILeia cle lets acttvmdlades (le dseari ol/o L.a eva/Oamctd, eri el Banco Altindhal yla Cli tpomac/cln l Inaricvl,a lntei nacional Cdte dilvoite l?vve dv lair/v c/a Ba,iquv atondtale an pays Philippicn Frott Cii,is to Oppoitunity Fthpisma Crisis V opotumtdadves Rbudcling thle iMozaatabrqvee Liconomly Ase-nsintii oJ a Demvelonpment IPitraership R'econsti ima a hconomta dleA' li 17amtbique h[[p //vwwwoit ddhatik oig/oed ThoW.oi 9 7881332 XEB llMll LlSQ 1~~ ~~~~~~ 5 38