C~~-- C- vC < tC I -t N CTDocument of

The World Bank

FOR OMCAL USE ONLY

£Bepart No. : P- b833 ANG ype: (PM)Title: FINANCIAL INS'TITUTIONSAuthor: MARTINEZ. HB. IRewt No P-5833GEYt.: 350} RoOMr:J7 0)'73 Dept. :AF3NO

I43g)R&UDUl AND (ROONMENDTION

OF THE

PRESIlDENT OF THE

INTENTIONAL DEVELOPMENT ASSOCIATION

TO THE

ERECUTIVE DIRECTORS

ON A

PROPOSED CBEDIT

Di THE AMONT EWIVALENT TO SDR 14.8 MIIJO1N

TO

THE PEOPLE'S REPUBLIC OF ANGOLA

FOR A

FINANCIAL INSTITUTIONS MDENZATION PROJECT

August 14, 1992

This docQment hb a vestrcted distn'bution and may be osed by redipientg only In the perfrmnanK of|their offidal duties. Its contents rmy not otherwise be disclosed without World Banks authorization.

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CURRENCY LEUIVALENTS

Currency Unit = New kwanza(NKz)US$1 exchange ratel' = NKz 550 (April 1992)

WEIGHTS AND MEASURES

Aletrc WBritish/US Equivalent

1 meter (m) = 3.28 feet1 square meter (sq. m) = 10.76 square feet1 kilometer (km) = 0.62 mile1 square kIlometer (sq. kIn) = 0.39 square mile

FISCAL YEAR

January I - December 31

ABBREVIATIONS AND ACRONYMS

BCI Bank of Commerce and Industry (Banco de Comercio e Industria)BNA National Bank of Angola (Banco Nacional de Angola)BPC Bank of Savings and Credit (Banco de Poupanga e Credito)CAP Agricultural and Fisheries Credit Fund (Caixa de Credito Agropecudria e Pescas)GNP Gross National ProductIDA International Development AssociationIFBA National Banking Training Institute (Instituto de Formaso BancAria de Angola)p.a. Per AnnumUAN Agostinho Neto University (Universidade Agostinho Neto)

I/ Appliable to impoiftsw andewost, officia financia tUnsactio and calultonsU Of custom duti. mmnApr 19. Othe tnsacton ma be conducd throgh the cormei bank at maka ste. In Ju1992, the pwveding markBt ae was about NKz 1,800 = US$1.

FOR OFFICIAL USE ONLY

PEOPLE'S REBIC OF ANGOLA

Credit md ProM Summary

People's Republic of Angola

Amount: SDR14.8 million (US$21 million equivalent)

1 : Standard IDA terms with 40 year maturity

Einancing Plan: U$1S Miion

IDA 20.6Government 3M

23.6

Staff Anpraisal Report: 10804-ANG

MM N:Q IBRD 24089

IThis document has a rstricted distribution and may be used by recipients only in the performance|of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

MEMORANDUM AND RECOMMENATION OF THE PRESIDENT OF THEINT NATIONAL DEVELOPMENT ASSOCIATION TO TH E DIRCTRS

ON A PROPOSED CREDIT TO THE PEOPLE'S REPUBLIC OF ANGOLAFOR A FINANCIAL INSlITUTIONS MODERNIZATION PROJECT

1. I suibmit for your approval the following report and recomendation on a proposeddevelopment Credit to the People's Republic of Angola for SDR14.8 million, the equivalent of US$21.0million, on standard IDA terms with a maturity of 40 years to help finance a Financial InstitutionsModernization Project.

Backromud

2. Angola, with a GNP per capita of US$620 (1989) and a population of about 10.6 million,is one of the richest countries in Africa in natural resource endowment, while Its economy has been oneof the most distorted in the continent. The courmy was torn by a civil war which began at independencein 1975 and which ended only last year. In spite of its considerable agiculural potential, Angola hasbecome extremely dependent on oil, as the war made much of the countryside too insecure foragricultural production and transport. The war also made large claims on government resources anddestroyed mucd c' the country's economic and fnancial infrastructure. In addition, ipropriaeecono: p policies .Ier independence created an economic system with a formal economy (mostly public)maged through idministraiive controls and a large parallel economy. Also affecting the economy are

unu,;Wuly severe human resource constraints. This is, in part, the result of the masive exodus ofPortugsvvw setlers who were in control of the economy at independence.

3. The Government is aware that current economic problems are due to a large ext tohiappropriate policies, and has begun introducing changes with the objective of orienting the economyto a free market system. Decisions on the economic front have coincided with the end of the war andthe opening up of the political system. Free elections are now scheduled for September 28 and 29, 1992.A key aspect of the economic reform program is the establishment of a financial system to serve thepnvate sector during the recovery and beyond.

4. The financial system was well developed in colonial times, but independent Agola onlyhad two financial institutions: one bank which had some central banking and commercial bankingfunctions and a savings bank where the deposits of individuals were placed. As the foma productivesector was largely publicly-owned, banks were used to channel savings to public enterprises. As In mostsocialist fnancial systems, decisions regarding the volume and allocation of credit were made in theMinistry of Planning, with the banking system acting as a conduit. Thus, analytical functions associatedwith banks in market-oriented economies were not performed; banks were not supervised; and bank creditassessment, regarded as largely irrelevant, was not developed.

5. Starting in November 1991, the Government began introducing reforms to the price andexchange rate structre, changes which significantly improved the prospets and the need for a well-functioing financial system. The remonetization of wages and the application of a more realisticexchange rate is an important step towards the rationalization of trading and price relationships. Theeconomic reform package approved in November 1991 includes a new schedule of interest rates.Althougb still highly negative when taking into account current and projected inflation, the new rats(maximum deposit rate of 14 percent p.a. and maximum lending rate of 20 percent p.a.) represent a movein the right direction. To be effective, the reform package will need to be accompanied by a mnmber ofmeasures designed to reduce the budget deficit (and thereby the inflation rate). Only then will there beoppormitdes for lines of credit to the productive sectors and a meaningful discussion of the interest ratestructure.

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6. The Government has begun to establish a two-tier banking system by enacting a law onfinancial institutions and one on central bank statutes. In addition, the Government has established threefinancial institutions - two commercial banks, the Bank of Commerce and Industry (BCI) and the Bankof 'avings and Credit (BPC), and 2 specialized credit institution - the Agriculture and Fisheries CreditFund (CAP). The cental and commercial banking functions of the central bank, the National Bank ofAngola (BNA) have been split, and BNA has already stopped most of its commercial banking functionsin Luanda (e.g., deposit taking; lending to the private sector). The Governmerw has stated its intentionto prvatize the two commercial banks it has created, and has spelled out the approach =nd calendar tomeet this objective. In addition, the Government proposes to restructure CAP to make it mole effective.Lasty, the Government has decided in principle to allow privately-owned banks, and foreign banks, todo banking in Angola. Three foreign banks have received an authorization in principle to open branchesin Luanda. The Government's reform program in the financial sector is summarized in its Statement onFiacial Sector Reform. The Statement confirms the Government's commitment to the adjustment ofthe sector, including the privadzation of government-owned banks; and gives plans for the losing ofBNA branches and for the cessation of trade financing operations by BNA.

7. Although the Government has moved fast in setting the legal framework for a two-tierbanking system, there are serious obstacles to this development. First, there is little central bankingexperience in Angola. In addition to limited qualified personnel, BNA does not have well-definedoperating practices, and works with a severe shortage of modem equipment. BNA will, therefore, findit difficult to carry out its policy and supervisory roles. The shortage of qualified personnel and ofmodern techniques extends to the whole financial system. Second, the legal, regulatory andadministrative framework in which financial institutions are operafing is rudimentary. It is thereforedifficult to enforce the rights of lenders and borrowers. For instance, because of administrativeweaknesses, it is difficult to constitute and enforce loan guarantees. Also, there are no nationalaccounting standards which could help banks determine the financial position of commercial clients, acritical issue in Angola, as very few national companies have financial statements.

Proiect OQbectives

8. The Project supports institution building and reform in the financial system to helpstimulate resource mobilization, underpin private sector investment, and promote economicdiversification. Specifically, the Project would assist in: (i) strengthening the central bank so that it canperform its monetary policy and regulatory functions; (ii) developing banking inifrastructure; (iii)improving the legal and regulatory environment for financial operations; and (iv) establishing institutionalmechanisms for financing private investment. The Project complements technical assistance beingprovided to the BNA by the Interntional Monetary Fund, with financing from the United NationsDevelopment Programme, and the Bank of Portugal in the areas of banking legislation, supervision,monetary statistics and monetary policy instruments. The Project has been discussed with bothinstutions. The Project also complements assistance being provided to key ministries affecting policyin the real sectors under the IDA-financed Economic Management and Capacity Building Project (Credit2274-ANG).

Pxoiect Desn

9. The Project consists of: (i) strengthening of BNA, principally through improvements inits accounts and accounting practices, procedures and information systems, and staff skills inadministratve and functional areas (38 percent of tGW.l project costs); Q) development of banngirastructure, through the establishment of a national check clearing system, a training center for

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finanial sector persomel, and training of a core of fincial professionas (38 percent of total projeccosts); (iii) improvements in the dissemon and implementation of laws and regulations affecig tIhebanking sector to ensure their coherence; establishing the legal and reguatory famewrk for theinsuranc3 sector; and establishing accounting and auditing standards for the enterprise sector (10 percenof total project costs); Ov) Impovements in the Institutional mecnsm for investment financing andstudies on access to credit by the la-ivate sector (8 percent of total project costs); and (v) projecmanagement (6 percent of total project COSts). A timetable of key project processing events is given inSchedule C of this Memorandum.

10. The proposed Credit would finance: (i) technical assistance and trainig to strengtheninStitUtions associated with the operations of the financial sector for a four-year period statg in the firsthalf of 1993; (d) equipment, vehicles materials and supplies; and (iii) rehabilitation of DNA buildings forthe training institute and to house project consultants during the Project-implemntation period, as anacute housing shortage is a major constraint tD effetve project execution.

Project Cost and Financing

11. Total project cost is esfimated at US$23.6 million with a foreign exchange cost ofUS$20.6 million. The Credit would finance about 89 percent of project costs; the balance of project coisswould be financed by the Government. Details of project costs, financing plan, procement anddisbursemen arrangements are given in Schedules A and B of this Memorandum.

12. Project activities would be coordinat by a Project Coordinator who would be assistedby a Deputy, both of whom are senior DNA staff. Because of the substnti worldoad associated withthe Project, the Project Coordinator and the Deputy would be assisted by an experienced expatate

who has already been appointed, and who would be in chage of day-t-day activities suchas maintng project accounts. During project preparation and appraisa, the projeoct coordination teamdemonstrated the ability to carry out effectively a number of tasks associated with mpiResponsibility for implementing the specific BNA project compone would reat with the ProjectCoordinator and with the BNA Directorate which has the fuctionad responsibility for the particularcomponent. BNA's architect, who is well qualified, has been assigned on a part-time basis to supervisethe Project's civil works. The Project Coordinator, assisted by the relevant unit in the agencies, lowould be responsible for the components which are in the Ministry of Fmace (enterprise accounting andinsurane legislation), the Mistry of Justice (improvements in the notaries and pubic registries) and theAgostnho Neto University (training of a core of financi profossionals).

13. An Interagency Committee consistng of r es of the Ministies of Plan andFinanmce and of the BNA would be established to provide guidance on policy issues; to monitor progressof the Project; and to address issues requiring interagency coordination. The Project Coordinator andDeputy Coordintor would be members of the Committee. Reprntati of other ititution aedwith the Project would be invited to the meengs as required. Ibis would ensre involvement of keygovernment agencies in the Project.

14. Becase of the Proect's focus on ins onl development, it is exected dtsupervisim by IDA staff would be heavier than that for a normal nvestment project, ecaily In thefirt years of project Implento In addition, annual impil reviews would enable theGovement and IDA to monitor closely the Project's progress. To fcilitate project Ximp a

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manual has been prepared, and would be finalized during a project launch workshop to be carried out inOctober 1992.

EPject Sustainability

15. The ipstitutional Improvements and capacity building activities under the Project addressspecific weaknesses. They are designed to strengthen the central bank's capacity, and ensure theavailaoility of basic financial services and financial skills In the financial sector. As such, they areexpected to 'lave a lasting impact on financial stability and, in time, on the quality of financialintermediation. The training center and the check clearing system are expected to be self-financing.

Lessons Learned from Previous IDA Involvement

16. The Project takes into account the Bank's experience with the first operations in Angola.There is increasing familiarity with the Bank's procedures in Angola, and the staff appointed to theProject has demonstrated considerable implementation capability during project preparation. This shouldreduce startup problems encountered by other projects. In addition, the Project focuses only on thefinancial system, and the institutions involved have close working relations, which will simplify projectimplementatuon. The Project also has been designed talkng into account recommendations drawn fromregional experience with technical assistance projects (Operations Evaluation Department Report No.8573) relating to Government commitment and activities financed. The Government, which has beenactively involved in project design, has shown a strong commitment to the Project's objectives, asreflected in actions taken to create a two-tier banking system as well as those planned, and which arecontained in the Government's Statement of Financial Sector Reform. In manpower development, theProject emphasizes training in accounting, auditing and management, programs which were effectiveelsewhere. Consulting work would be judged in part on its training content, and specific conditionalityof the Project would ensure that benefits from training accrue to the government agencies for which itwas intended.

Rationale for IDA Involvement

17. The Bank's strategic priority in Angola is to lay the foundation for sustainable growthwith equity through a supportive policy framework and the provision of physical and instiuionalinfrastructure. Principal imnediate objectives are to facilitate the transition to a peacetime economy andto support the process of economic reform. The correct phasing of reforms in the financial and realsectors and appropriate institutional support for their effective implementation are critical elements in thetransformation of socialist economies. The proposed Project would be the first of a series designed tosupport the restructuring and development of the fiancial sector, as a key vehicle for private sectordevelopment. To set the stage for this support, the Government and other donors are looking to the Bankto help put in place a sound financial sector infrastructure. This Project would complement work beingcarried out under other IDA-financed operations such as the Economic Management and CapacityBuilding, and Education projects.

Agree Actions

18. During negotiations, the Government has given ts hat: (i) the rehabilitated BNAbuilding would be used exclusively for consultants employed under the Project and the National BankingTraining Institute (IFBA) building would be used exclusively for the training institute; (ii) it would

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prepare documentation and piarticipate in annual project -mplementation reviews; (iii) staff receiving long-term fellowships would be assigned to positions where acquired skills would be used, and would haveminimum work requirements after completion of training; and (iv) BNA staff would be assigned to workwith project information systems consultants in a ratio of two to one. Tbe following vould be conditionsof disburment for specific items under the Project: (i) the Information Systems Strategic Plan wouldbe completed prior to IDA's disbursement for the equipment, technical assistance and tralning associatedwith the information systems development program of BNA, (i) procedures for the legal establishmentof IFBA would be completed prior to IDA's disbursement for civil works, equipment and taining underthis component; and (Wii) CAP would be restructured and qualified staff would be appointed prior toIDA's disbursement for technical assistance, training and equipment. Pfi to CredittEfhtie e, meGovenment would: (i) appoint the Interagency Committee to advise and provide guidance on policyissues and overall project coordination; and (ii) sign the Adinisitraton Agreement for the transfer offunds to BNA.

Enviromental Aspects

19. The Project consists of technical assistance, training, and the supply of equipment whichdo not have environmental effects. The rehabilitation of the two BNA buildings is not expected to havean impact because of the small size and urban location of the works.

Program Objective Categories

20. The Project would contribute in the following categories: (i) public sector reform, throughthe strengthening of BNA, and (ii) private sector reform, through the establishment of institutionalfirnework which would permit financing for the private sector and an accounting framework forentcrprises. Ihe technical assistance contemplated under the Project would assist policy makers inimplementing and monitoring reforms; it would also promote instiutional development by strengtiheningthe BNA and key units of the Ministry of Finance and of the Directorate of Registries and Notaries ofthe Ministry of Justice.

Project Benefits

21. An efficient, broadly-based financial sector with an effective banking system at Its coreis necessary for the development of a market-oriented economy. At present, financial infiastucture andinstitutions are at a rudimentary state. ITe Project aims at laying the groundwork for the developmentof a financial system in Angola, which would facilitate the mobilization of savings and their investmentin productive uses. The Project would be the first vehicle for the Bank's dialogue with the Governmenton financial sector issues. The establishment of sound financial insttons; support for strengtheningthe banking profession; the introduction of necessary regulations for the system; and the supervision andsurveillance of financial institutions would help increase confidence in the system and facilitate the processof intermediation.

Project Risks

'z. Project risks are associated with the slow implementation capability of a new member witha w man resource capacity. As mentioned earlier, BNA staff, led by a Project Coordinator, andassisted by an expatriate Project Administrator has already demonstrated considerable project

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implementation skllls. The risk that a new government after the elections in September 1992 will notagree with the objectives and scope of the Project is small, as there is a consensus among the majorpolitical parties about the general direction of ecoitomic reform. The project is non-controversial, withits focus on institution building. Experience elsewhere in Africa shiows that governmental changes havenot affected materially projects aimed at institutional development and capacity building. Lastly, reformsin the financial sector, and therefore the long-term success of the project, will be affected by reforms inthe macroeconomic framework. The Government of Angola has requested dhe Bank and the Fund toassist in the preparation and implementation of a reform program. Following the forthcoming elecions,the Bank will make a major effort to help the new Government give a fresh impetus to macroeconomicreform.

Recommendatins

23. I am satisfied that the proposed Credit would comply with the Articles of Agreement ofthe Association and recommend that the Executive Directors approve it.

Lewis T. PrestonPresident

Attachments

Washington D.C.August 14, 1992

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ScheduleAiPage I of 1

ANGOLA - FINANCIAL INSFITUMIONS MODERNIZATION PROJECT

Estimated Proect Costs and Financing Plan

Estinmated Project Cost:Local Foreign Total

1. Strengthening BNA

A. Information Systems 0.8 3.1 3.9B. Improving Accounting 0.1 1.3 1.4C. Improving Skils 0.1 1.4 1.5D. Housing IL 0 8 M

Subtol 1.1 6.6 7.7

J1. Banking Infrastructure

A. Check Clearing 0.1 1.9 2.0B. IFBA 0.8 2.6 3.4C. Development of Core Professionals Q&0 Zft 2,Q

Subtotal 0.9 6.5 7.4

mII. Legal & Regulatory Environment

A. Banking LegIslation 0.1 0.8 0.9B. Developing Insurance Legislation 0.0 0.5 0.5C. Accounting and Auditing Standards Q&0 0 00

Subtotal 0.1 1.9 2.0

IV. Support for Investnent Financing 0.0 1.5 1.5

V. Project Coordination 0.4 QS_ Li

TOTAL BASE COSTS 2.5 17.4 19.9

Physical Contingencies 0.2 1.3 1.5Price Contingencies 0.3 1.-Total Contingencies 0.5 3.2 3.7

TOTAL PROJECT COSTS 3.0 20.6 23.6

Financing Plan:Amount Percent

(in US$ mfllions)IDA 21.0 89%Goverment 2.6 11%Total 23.6 100%

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Schedule BPage I of 2

ANGOA - FENAMUIAINUITI U1OMN MOpI:N! ATIO PRO.lECr

Procuremen an DisbursUM Methods

Procurement Methgd

Project Element ICB LCB Other NBF Total Cost

1. Works

1.1 Buildings 0.9 0.9 -.- 0.51 2.3(0.8) (0.8) . . (1.6)

2. Goods

2.1 Equipment, 0.5 0.3 0.2 -.- 1.0Vehicles and (0.5) (0.3) (0.2) , (1.0)Furniture

2.2 Informatics 2.1 0.1 0.2 -.- 2.4(2.1) (0.1) (0.2) (2.4)

3. Consultancies

3.1 Studies -.- -.- 1.6b -.- 1.6( - -.- 1.6) -.- (1.6)

3.2 Design/ . . 0. 2b 0.2Supervision . . (0.2) - (0.2)3.3 Technical -.- -.- 4 .8b 1.2 6.0Assistance -.- -.- (4.8) . (4.8)3.4 Training . . 8.2b 0 .7 8.9

(8.2) -. (8.2)

4. Miscellaneous

4.1 Refinancing -.- -.- 1.2 -.- 1.2PPF ---- ( 0_( 2

Total 3.5 1.3 16.4 2.4 23.6m SL 2_ xM

Note: Figues in parnts the amotuns fianced by the IDA credit N.B.F.: Not Bank-financed.

a Includes civil works for segional check clearing houe and for Poect coodon unit.b Savices shmou be selected in accord with Wodd Bank, Guik: Use @1 Coew by Wld Bank Bomw* nd by Ow

World Bank at a Ewa&Wng Agef (Washntn, D.Cr, Aust 1992).c Ihcludes salries of project staff, aares of local conerpar and suqpdes.d Inlde sbrie ofd ostff and sUp .

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Scbedue BPage 2 of 2

]Disbursements

Cm= PaE=ge FinancedTo

(1) Civil Works 85% of total(a) Housing 0.6(b) IFBA 0.6

(2) Goods, Vehicles and Services 100% of total(a) BNAIlnformatics 2.8(b) IFBA 1.7(c) Investment Financing Mechanisms 0.9

(3) Equipment, Vehicles, Materialsand Supplies 100% of total 1.3

(4) Consultants' Services and Audits 100% of total 4.6

(5) Trainng lOO0o Of total 4.9

(6) Refunding of Project PreparationFacility 100% of total 1.2

7)Unallocated,

TOTAL 21.0

Esdmated IDA DtisbursementsIDA Fisul Year

([JS$ million)

Year Annual Cumulative

1993 0.6 0.6

1994 1.5 2.1

1995 3.4 5.5

1996 3.4 8.81997 5.0 13.8

1998 3.4 17.2

1999 2.5 19.7

2000 1.3 21.0

-10- Schedule CPage 1 of 1

ANAM- MUMCz ROMUMMON MODERI,T-ONE

Time,ble of Key Pro3ect Pacessing Event

(a) Time taken to prepare: 8 months

(b) Prepared by: Government/BankV

(c) First IDA mission: September 1991

(d) Appraisal mission departure: May 1992

(e) Negotiations: July 1992

(t) Planned date of effectiveness: December 1992

(g) List of relevant PPARs: N/A

,I/ The B a coibton to th prepaation of tho pntot was tae reponbiiay of Ms. Heminia Martnz anMr. John wves.

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Schee DPage 1 of 2

ANGOLA - FINANCIALmsmN I[ONS MODERNIZATION PROlECT

STATUS OF BANK GROUP OERATIONS IN ANGOLA

A. STAEMENT OF BANK LOANS AND IDA CREDITSJune 30, 1992

Loan or Fiscal j P J (C:redit Year Borrowera. Purdose s

Cr. 2274 91 Angola Economic Mgmt.Cap.Bldg. 23.00 23.73

Cr. 2289 92 Angola Infrastructure Rehab. 37.70 38.24-_________ __________ Engineering

Cr. 2326 92 Angola Lobito Benguela Urban Env. 45.58 47.91Rehabilitation (2)

Cr. 2375 92 Angola Education 1 (2) _ 27.10 28.37

Cr. 2385 93 Angola Power Sector Rehab. (2) 33.50 34.93

Sub-Total active Projects 166.88

Total less cancellations: 0.00 166.88of which has been repaid 0 0

Total due Bank and IDA: 0.00 166.88 (1)

Total undisbursed 0.00 173.18

(1) The sum of total undisbursed is highe than total due Bank and IDA because of depreciation of the US$.(2) Not yet effective.

B. STAEMENT OF MC INEST

No IFC investmets to date.

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Schxedule DPage 2 of 2

C. BANK GROUPS INMAL EXPERIENCE

1. Angolajoined the Bank, IFC and MIGA in September 1989. The Bank's initial approachhas been to nurtre trust between Angola and the Bank so as to develop the type of mature partnershipthat the Bank has with other Borrowers; to help strengthen the country's weak institutions; to assist inthe rehabilitation and reconstuction of infrastructure by carrying out pre-investment studies aimed ataddressing evident, high-priority bottlenecks; and, finally, to initiate a dialogue on policy reform prioritiesand reconstruction needs. IDA lending to Angola in FY91-92 was planned before the politica! andeconomic policy breakthroughs of 1991 and 1992, and in the context of a 'start-up" IDA assistanceprogram of limited scope, with emphasis on capacity building, along with preparation work for high-priority projects for rehabilitation of physical and social infrastructure. Concurreny, the Bank beganan active economic and sector work program to build knowledge of the economy and identify the manpolicy reform priorities. The projects approved in FY91-92 consist of a Credit for an EconomicManagement and Capacity Building Project, an Infrastructure Rehabilitation Engineering Project, anUrban Environment Project for the Lobito-Benguela area (the second largest urban area in Angola), anEducation Project, and a Power Rehabilitation Project.

2. The Economic Management and Capacity Building Credit became effective in December1992. It was off to a slow start, partly because of inexperience and lack of familiarity with Bankprocedures and partly because of objective difficulties in the working environment and logistical supports.The project is now staffed with a good team of competent and dedicated professionals; the office isreasonably weil organized; satsfactory work procedures have been established; and implemeion isunderway. Some key components, notably human resource development, are on arget, while others,such as the studies on economic liberalization, are just stardng. Credit disbursements are about fivemonths behind appraisal projections, but are expected to accelerate in the first half of 1993 after severallarge conacts are signed. The lInfastructure Rehabilitation Engineering Credit became effective inFebruary 1992, and Implementation has been satisfactory though disbursements are about three monthsbehind schedule because of delays in processing payments and disbursement applications.

3. Project implementatIon will receive the attention that the Borrower's relative inexperienceand ntiuional weakes require. Consequently, in order to build the implementation capacity of thisBorrower who is relatively unfamiliar with Bank procedures, and to help ensure that operations get offto a good start, the allocation of resources for supervision planned for FY93-95 is about 30% higher thanthe regional average. Country procurement assessment and training will be given high priority. The firstCountry Implemnentation Review is planned for 1993. The Bank's Resident Mission, which is in theptocess of being established, is expectk. to make a major contribution in project implementation andsupervision.

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