world bank document€¦ · john todd will introduce the proposal. john, please. mr. todd: thank...
TRANSCRIPT
STRICTLY ONFIDENTIAL
nm 1
NM
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
INTERNATIONAL DEVELOPMENT ASSOCIATION
Thursday, August 1, 1996
Washington, D.C.
The meeting of the Executive Directors was
convened at 10:05 a.m. in the Board Room, 700 Eighteenth
Street, N.W., Washington, D.C., Mr. Sven Sandstrom,
Chairman, presiding, followed by Mr. Wolfensohn, followed
again by Mr. Sandstrom.
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
STRICTLY CONFIDENTIAL
nm
ITEM
1
I
I
C 0 N T E N T s
Proposed Credit - Zambia (Second Economic and Social Adjustment Credit)
Mr. Mr. Mr. Mr. Mr. Mr. Mr.
_Mrs. Mr.
·-Ms. Mr. Mr. Mr. Mr. Mr. Mr.
-Mr. Mr. Mr. Mr.
Evans Li Loevbraek Good Crowe Rahman Schaffer
Herfkens Gerber Cordeiro Tamaki de Paiva Chneiweiss Alyahya Clark Al-Saad Galindez Rill Lodhi Mseka
-
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
2
PAGE
4 9
12 14 17 20 22 25 26 36 37 41 43 45 46 47 48 49 50 50 55
STRICTLY ONFIDENTIAL
nm 4
MR. SANDSTROM: All right. I think we should get
started. We have a couple of interesting items on the
agenda for today.
The first one is a proposed credit of 62.4 million
SDRs to Zambia for a Second Economic and Social Adjustment
Project.
You also received an updating note after the CAS
discussion which we had on July 18th.
We are very happy to welcome again Mr. Basu and
also Mr. van Til of the IMF, who are sitting there in the
back.
John Todd will introduce the proposal.
John, please.
MR. TODD: Thank you, Mr. Chairman.
Mr. Chairman, Members of the Board: The Board
discussion two weeks ago on the Zambia country assistance
strategy highlighted two central challenges.
First, Zambia faces a particularly long and
difficult task, especially in light of its large external
debt, in transforming its economy from one of controls,
parastatals, and dependence on copper to one of diversified,
private sector led growth.
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 5
As a result, the strategy will have to be
carefully designed and consistently implemented. We believe
the strategy Zambia has chosen - rapid liberalization and
extensive privatization in order to unleash a process of
private sector led growth coupled with increased attention
to social services and other direct efforts at poverty
reduction -- is a sound one.
The credit before you today is part of the Bank's
continuing support for that program and includes a special
emphasis on policies that promote the development of more
efficient private markets and the provision of vital social
services.
The more immediate challenge highlighted by the
CAS discussion is the uncertain macroeconomic environment.
In light of this, effectiveness and disbursement of the
first tranche will take place when we have additional
evidence of strong macroeconomic policy implementation.
We will determine that by sending staff to Lusaka,
in liaison with the August IMF mission, to look at end-June
performance against the Fund targets, recent progress in the
areas of structural reform, including the privatization of
ZCCM, and the outlook for continued strong performance on
the macro and structural fronts.
MILLER REPORTING COMPANY, INC. 507 c Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 6
As explained in the updating note distributed last
week to the Board, a determination on the effectiveness
condition will be based on the findings of that mission. As
suggested by many of you, we will also be redoubling our
efforts to rekindle a constructive dialogue between the
government and its bilateral partners. Thus, going forward
with this credit at this time is intended to provide a
bridge -- or breathing space -- to enable this dialogue on
governance issues to resume and thus to make it possible for
bilateral financing to resume at an early point.
Let me turn to the credit itself. The basic
approach behind this credit is to focus on some of the
specific areas that had been supported by the first Economic
and Social Adjustment Credit approved in 1994. Several new
areas have also been added, including procurement reform,
informal urban settlements and a follow-up on ZCCM
privatization.
In all areas, substantial actions have already
been taken by government. Let me give a few examples which
illustrate the range of issues covered and the strong
commitment of the government in these areas.
In the area of continuing reforms, the historical
Land Act passed last year is being implemented. Statutory
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202} 546-6666
STRICTLY ONFIDENTIAL
nm 7
instruments acceptable to the Bank have been issued, and the
Ministry of Lands has begun a program of improving the
administrative efficiency of processing the sale and
transfer of leaseholds.
In social sector spending, the government has
managed to meet the strict requirements of the IMF program
on the fiscal deficit while protecting the agreements on
social sector spending agreed to under this credit, both for
aggregate shares and for priority subsectors.
In addition, the 1996 budget included a major
reduction in tariff rates, particularly for capital goods
and inputs and an elimination of most tariff exemptions,
including for the government itself, that has made the trade
regime more conducive to exporters without lowering tariff
receipts.
The government is also moving on public
procurement reform. By itself, this program will not end
all of the problems in this area, but the enhanced
visibility of this process and the quicker movement towards
decentralization should open the process to greater
transparency and accountability.
We are also especially pleased about the
government's increased emphasis on the legal regularization
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY CONFIDENTIAL
nm 8
of Lusaka's many informal urban settlements.
The enhanced security of tenure should bring an
immediate improvement in the well being of hundreds of
thousands of inhabitants, as well as a needed boost in
construction and the launching of new small businesses.
The last five years of Zambian economic reform
program have witnessed considerable accomplishments. Much
more remains to be done, however, because as we have seen,
Zambia's legacy of structural and financial problems is a
daunting one. A sound longer-term agenda is set, but to get
there Zambia will need to meet its current challenges of
steadying the macro picture, moving ahead with ZCCM
privatization, and of special importance reestablishing a
cooperative relationship with all of its external partners.
If these challenges are met, Zambia's prospects
for sustainable growth are reasonable.
I would like to acknowledge the thoughtful
statement we have received from Mr. Chneiweiss. As he
requests, we will be happy to circulate more widely an EM we
prepared and sent to several of your offices on the specific
actions we will be reviewing with respect to the progress on
ZCCM privatization.
I also want to reemphasize that over the next
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 9
several weeks, taking advantage of the bridge afforded by
the proposed credit, we will be increasing our efforts to
encourage the government and its bilateral partners to come
to a common understanding on economic management and
governance actions which will allow a sustainable economic
reform program to remain in place.
Thank you.
MR. SANDSTROM: Thank you very much.
Are there any comments?
Huw Evans.
MR. EVANS: Thank you, Mr. Chairman.
I think my colleagues and management will be aware
that a number of my colleagues, including many of the major
donors, would have preferred to delay this discussion for a
further ESAC to Zambia until after the forthcoming Bank/Fund
staff mission has reported.
We very much support the objectives of this ESAC.
But I have to say that the timing of this approval is wrong.
We are sympathetic to Zambia's situation.
The staff's updating note makes clear that in
Zambia's huge progress in recent years in carrying through
its economic reform program, there have been indeed
occasional and serious setbacks, including missing several
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 10
of the Fund program benchmarks at the end of last year.
But again there have been renewed and successful
efforts to get back towards the original track.
As we know, Zambia is now facing extremely
difficult circumstances with a big fall in copper prices and
the drop in assistance from bilateral donors.
I very much welcome the improvement we have seen
in performance this year, although, as we have noted earlier
in CAS and other discussions, Zambia could and certainly
should have acted earlier particularly on ZCCM where
privatization is still somewhere off and where I think the
company is still being run badly.
Continued donor assistance will certainly be
necessary to support successful reform and higher growth in
Zambia, which is what we all wish to see. Further donor
meetings will certainly be needed, but I cannot see any real
prospects for success in a meeting as early as September.
Now staff tell us that this credit is intended as
the bridge to give the Zambians time to secure renewed
bilateral balance of payments assistance and, although the
Bank papers are strangely silent on this to react to the
steep fall in the price of copper.
We are also waiting for Zambia to get back on
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 11
track on its macro program so that the ESAF program can
resume. As everyone knows, Zambia is currently on a staff
monitored program.
I think hence the importance in next month's
mission by Fund and Bank staff essentially to do two things:
first of all, to assess policy performance in recent months;
and secondly, to assess whether the authorities can mobilize
sufficient financing.
Those two conditions are being brought out clearly
in the note from Mr. Ouattara of the Fund but not specified
in that way in the Bank's updating note.
I very much hope that both conditions will be met
so that the ESAF program and all that goes with it can be
resumed.
Now, as I said, Zambia's efforts certainly require
substantial donor support, including from the Bank, but the
Bank's efforts have to be part of a viable economic and
balance of payments picture. There seem to be real dangers
in the Bank contributing the bridge to nowhere or
participating in a seriously under-financed program.
I wonder whether the staff can today give us any
assurances that would help us on this issue of finance for
the program.
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 12
That is why I and some of my colleagues would have
much preferred this discussion to take place in September
after the report back of the Bank and Fund mission. And
while I would like Bank management to give and undertake now
to report to and consult this Board before this loan becomes
effective, but failing that undertaking, Mr. Chairman, I
cannot support the timing of this loan approval and wish to
be recorded as abstaining in what I regard as a mistaken
recommendation by management.
Thank you.
MR. SANDSTROM: Thank you very much, Huw.
We will get back to your questions.
Mr. Li, please.
MR. LI: Thank you, Mr. Chairman.
At the outset, I would like to state that this
Chair strongly supports the Second Economic and Social
Adjustment Credit to Zambia.
The reasons are as follows. The first, I fully
understand the Zambian Government is facing serious
macroeconomic challenges, including pressure on balance of
payments, especially current account difficulties resulting
from declining copper prices and others.
However, the government has already taken measures
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 13
to counter these challenges. It is our view that the
country's economic reform is basically on track.
Secondly, Zambia's far-reaching efforts require
substantial financial resources; support from the
international community is urgently needed. The World Bank
being one of the most important multilateral development
institutions should not step aside at this critical time of
Zambia's economic reform.
It needs to be stressed that this is exactly the
right time for the Bank to step in to demonstrate what a
development institution can really do and to offer our
timely support to prevent the previous efforts from being
washed away or the whole Zambian economy from falling apart.
Thirdly, Mr. Chairman, as clearly stated by the
IMF staff during the last Board meeting, implementation of
the IMF staff monitored program in Zambia to date has been
satisfactory, and indications are there that the quantity of
performance targets for end of June were met.
The scheduled Fund staff mission in August is to
confirm, inter alia, satisfactory economic performance which
carries no presumption that the government failed to meet
its commitment. Therefore, there is no justification or
excuse for the Bank to hold up its proposed credit.
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 14
Finally, I would like to emphasize that the Bank's
credit is a timely financial support to Zambia's ongoing
effort, which addresses serious levels of poverty in the
country and to achieve significant improvements in living
standards of all Zambians who deserve our continued support.
Thank you, Mr. Chairman.
MR. SANDSTROM: Thank you very much, Mr. Li.
Asbjoern Loevbraek.
MR. LOEVBRAEK: Thank you, Mr. Chairman.
This is a rather difficult discussion. I think
the difficulty is that there are different perceptions about
the situation in Zambia, both in terms of the sort of real
economy and both in terms of the economic reform program
that the government is undertaking, and also very different
perceptions as to the assessment which bilateral donor
agencies are undertaking.
We would have preferred postponement of this
discussion and approval of this adjustment credit until
after the IMF/Bank mission in August.
We took that view on the basis of assessing the
project documentation, The updating note that we have got
from staff had not changed our view at all on that point.
So, I am also entering into the discussion with basically
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 15
the same position as Huw Evans has taken, that we would
abstain if we don't have assurances of sort of a second
discussion or the possibility of the second discussion on
releasing the funds under this adjustment credit.
A little bit more detail on what are the
differences in perception, fortunately it doesn't happen
very often that we these days get an assessment from our
bilateral agencies which is very contradictory to the
assessment that the Bank is doing.
But frankly, with the Nordic countries ten years
ago, it happened much more frequently than it does today.
But in this particular case in Zambia, I am a bit worried
that the assessment that we get from our bilateral aid
agency representatives in our embassies in Lusaka contradict
what the Bank is saying.
Now, of course, for a Board member that leaves the
question who you should trust, and my personal view is that
I would not automatically side with my bilateral people.
But in this particular case I do.
So, basically just to give you the flavor of some
of the arguments that they have been putting forward, they
do have a more critical assessment both of the fundamentals
of the economy in Zambia. They do think that the Bank and
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 16
Fund estimation of the situation is too optimistic. They do
point to problems with the implementation of budget
decisions that have been taken for this year. For instance,
that it seems that consumption expenditures and capital
investment expenditures are down compared with the budget
estimates.
They look at the budget balance situation. They
do look at the accumulation of domestic debt burden, and
they are also making comments relating to the currency
situation and the over-valuation of the kwacha, and there
are a number of other issues that I don't need to go into
detail on all of them.
But I do make a fairly fundamental point, namely
that the likelihood of bilaterals deciding to release
balance of payments support for Zambia over the next few
months is -- let me put it this way -- somewhat limited.
Now the Bank's argumentation for approving the
loan now seems to be based fairly fundamentally on an
assumption that the bilaterals will come forward with new
balance of payments support before the election. That seems
to be the basis for arguing for the release of this credit,
for arguing for a donor meeting where one would persuade the
bilaterals to release balance of payments support.
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY CONFIDENTIAL
nm 17
The assessment, at least the Nordic
representatives in Lusaka, are making is that this is not
realistic. So, I think that is a fairly fundamental point
in getting to a conclusion at least until we have heard more
specifically from staff whether a second round discussion
would be possible after the return of the mission, and that
we are not convinced by the arguments.
We still maintain that there should not be a
decision taken today. If a decision is taken without an
assurance, that we will have the opportunity of management
making a recommendation to the Board on the release of the
funds and then the Board having an opportunity to discuss,
to approve or reject, such a recommendation, then we would
have to abstain.
Thank you.
MR. SANDSTROM: Thank you very much, Asbjoern.
Len Good, please.
MR. GOOD: Thank you.
I will not take too long because what I had to say
has been basically said by Mr. Evans and Mr. Loevbraek. I
would like to say that I fully endorse everything they are
saying.
Briefly simply to emphasize a couple of points.
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 18
One is that our preference would have been to see a much
more coordinated World Bank bilateral donor approach to this
problem than to one which at this point can be seen as the
World Bank in some sense working at odds with bilateral
donors, the latter having withdrawn balance of payments
support and the former at a point where we are about to
provide balance of payments support.
The issue is clearly one of ultimately -- because
we are all interested in the long-term success of Zambia --
of getting a fully funded program, and at this point we are
not at that situation. It seems to us that that is the
primary objective towards which we should be working.
We really do appreciate the response of staff
since our last meeting, where, in fact, they have made a
couple of suggestions, including this reference to trying to
work with donors in September. I think that is very helpful
and that is very much appreciated.
But in some sense, it seems to us that that is
much more what the orientation of the strategy should be and
one in which we take an action like this, in a situation,
where as everyone has said we don't have information and
where as a Board -- and this is a question of process which
is important to us -- we are being asked to approve a
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 19
decision in the absence of information.
Despite what Mr. Loevbraek has asked for and would
like, which I would also like too, I am led to believe that,
in fact, we will not have the opportunity to discuss the
results of the mission before disbursements.
So, as much as we would like that, as I read the
documentation that came from some decision back in 1990, it
is simply not the case, and that is very unfortunate. So, I
think it puts the Board in a very difficult situation.
The second point which I understand is the
argument which is the basis of the Bank's strategy which has
to do with bridging, I don't find in any of the
documentation the rationale that says over the next six
weeks, between now and mid-September, that the world is
going to fall apart.
I still have not fully grasped -- and if you could
comment on that, I would appreciate it -- what is going to
happen over the August and the first half of September that
requires the Board to be put in this position of approving
the loan without the requisite information or the ability to
look at it in the future before disbursement.
I simply don't find that convincing. As I like to
use the expression, you know, it is the bridge to nowhere.
MILLER REPORTING COMPANY, INC. 507 c Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 20
We should be working on the other end of the bridge before
we start doing what we are doing today.
Having said all of that, I recognize that there
are different approaches to this problem, and we had some
good discussions with staff a while ago. Clearly, I
recognize that there is some chance -- it is not one that I
would bet on -- that the argument is right and that this
loan is essential, and you have come to that judgment and I
understand that, and there is some chance that that is
right.
Secondly, we appreciate the changes that have been
proposed since our last meeting. From our point of view,
they don't go far enough, but we do appreciate that. And it
is on that basis that we choose to abstain on this
particular issue.
Thank you.
MR. SANDSTROM: Thank you very much, Len.
Brian Crowe, please.
MR. CROWE: Thank you, Mr. Chairman.
I don't think anyone here questions the very
difficult circumstances of the Zambian economy. We are
particularly worried by the depth and the tenacity of
poverty in that country.
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 21
I think we would all agree also on the importance
of a viable economic program. In fact, such a program
really is essential if Bank resources are going to be used
effectively.
As staff has commented, as have a number of other
speakers, we are a considerable distance from that point.
The IMF has not been able to conclude its mid-year cycle
review of the ESAF program, and has moved Zambia to a less
stringent staff monitored program.
The balance of payments gap has widened
significantly given the withdrawal of bilateral support and
the declining copper prices. Our reports from Lusaka
indicate the Bank unfortunately is probably overly
optimistic as to when the situation regarding bilateral
donors will be normalized.
Moreover, fiscal discipline in the pre-election
environment has been very uneven with significant foreign
exchange being spent on maintaining an artificially high
exchange rate, and inflation running two-and-one-half times
of the original targets.
I think the phrase that we are lending into a
bridge nowhere keeps coming across our minds. For that
reason, we believe it is far too premature for the Board to
MILLER REPORTING COMPANY, INC. 507 c Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 22
be asked to approve this credit. We just do not have all
the information we need. That is the reason we join with a
number of our colleagues in asking management to submit a
recommendation to the Board prior to loan effectiveness.
If that does not prove possible, regretfully we
would like to be recorded as opposing.
Thank you.
MR. SANDSTROM: Thank you very much, Brian.
Mr. Rahman, please.
MR. RAHMAN: Thank you, Mr. Chairman.
I would like to support the Second Economic and
Social Adjustment Credit for Zambia. The recent note
circulated by staff confirms many of the macroeconomic
trends that emerged during the CAS discussion.
In the main, Zambia has made considerable progress
in implementing its economic reform program in the past few
years and the corrections made to counter mid-course
slippage confirm that the policy orientation of the
authorities is correct. This is further confirmed by recent
initiatives on the structural front, particularly on trade
policy and privatization.
The certification provided by the IMF Fund was not
really necessary. We believe that the Bank report on the
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 23
proposed credit are an adequate assessment of the challenges
and risks and of the urgent necessity of this credit.
However, we welcome Mr. Ouattara's assessment to the effect
that end-June ESAF targets appear to have been met and that
the Zambian authorities should not be faulted for the
setbacks of the early 1996 period, the blame for which can
be laid at the door of the problems of the ZCCM, complicated
further by the reduction in bilateral support.
This, in fact, is a self-fulfilling prophesy we
often encounter. Balance of payments assistance gets
chopped off, reflecting concerns about economic performance
and governance issues. This in itself causes a further
decline in economic performance.
To the extent that the Fund supervision will help
the authorities directly address issues relating to the
management and performance of the ZCCM, fiscal adjustments
aimed at reducing debt one percentage point of GDP,
rebuilding international reserves and moving ahead with the
Bank supervision, the World Bank is then free to focus on
other aspects.
To the extent that both prudent advice and
development assistance are eventually fungible across
sectors, we see the proposed credit as not merely
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 24
cofinancing the Fund program for macroeconomic management.
Of course, we accept that the benchmarks should be linked to
continued progress in satisfactory implementation of the
macroeconomic program.
But this is an opportunity for the authorities to
address the social services through the social safety net
programs and the public procurement process.
The lot of the poor particularly can come under
severe pressure with the liberalization of trade and prices
and we, therefore, endorse the proposed growth strategy that
would seek to improve terms of trade in agriculture, while
facilitating enhanced productivity and improving beneficiary
participation.
I will not attempt to list at this juncture the
various initiatives that can be covered under the project
but can agree with the report on some of the main priorities
the authorities need to address: first, initiating the
process of land transfer to enable a stepped-up investment
in agriculturei second, moving further on the national
housing policy document, including addressing the problems
of the informal urban settlementsi third, reform of labor
regulationsi fourth, maintaining the budget allocation on
the social sectors with further focus on the national drugs
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 25
policy and nutrition policy.
Finally, we can endorse the report's focus on
capacity building and ownership of the program by the
Zambian authorities, both measures vital for the eventual
success of their efforts. Zambia is one of the most
indebted low-income countries and we feel it would benefit
from a strong endorsement of the credit by this Board.
Thank you, Mr. Chairman.
MR. SANDSTROM: Thank you very much, Mr. Rahman.
Helmut Schaffer, please.
MR. SCHAFFER: Thank you, Mr. Chairman.
We worry about the same questions that were raised
in the circulated statement by Arnaud Chneiweiss. The
reasons given for proceeding now have not been able to
address these preoccupations sufficiently and, therefore, we
remain rather unconvinced.
It is not satisfactory and risky for IDA to submit
to the Board a bridge financing arrangement in a situation
where we face a high degree of insecurity with an overall
under-financed program.
Like others, we would have preferred to discuss
this credit upon the return of the joint mission of the IMF
and the Bank and with a clear outlook for a viable program
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 26
that we then can support.
As I pointed out in the CAS discussion, we were
not convinced that Zambia is meeting the criteria for the
high-case scenario.
On the other hand, we see the difficult situation
of this country. The bilaterals are an important element
for closing Zambia's financing gap and we very much hope
that the Zambian Government will secure this support because
it is in their hands and within the reach of their decision-
making to achieve this needed financial support in order to
continue the path of substantial economic growth.
Please record me as abstaining for this credit.
Thank you.
MR. SANDSTROM: Thank you very much.
Eveline Herfkens.
MRS. HERFKENS: Sven, I am not sure if this is
useful if I reiterate my position at this stage, but, as Huw
Evans started by saying that he reflected the view of many
major donors and representing at least one major donor, I
would like to reiterate and let me just cite The Hague to
prevent any questioning on whose behalf I speak -- "if based
on economic performance criteria only, the second ESAC
should be approved by the Executive Directors".
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 27
Clearly, there is a huge difference of opinion
among donors about the reasons why they withdrew balance of
payments assistance. I clearly represent one that does
that, not for reasons of economic performance. I find it
very disturbing that the Bank should follow, given the
background of these reasons.
So, I do support the credit very much because it
is not the Bank business to be involved in these issues of
non-economic governance, and I also would like to say that I
find it disturbing that we would set a precedent in which
the Board would be involved in judging if effectiveness
conditions are met. I would find that very disturbing, but
maybe I am in a minority.
MR. SANDSTROM: Thank you very much, Eveline.
Maybe this is a good time actually to respond to
two or three points that have come up.
I would first ask Daoud to describe the procedure
agreed by the Board for deciding on effectiveness conditions
and tranche releases and then Callisto to comment on the
differing perceptions within bilaterals and staff and on the
funding prospects.
I think it would be good to get these comments in
now before we continue.
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 28
I have four or five speakers more, but let's take
a break right now.
Daoud.
MR. KHAIRALLAH: Well, the established practice of
the Bank and IDA based on the provisions of the Articles of
Agreement as consistently applied to all loans and credits
has been that the Executive Directors approve the conditions
of Bank loans and IDA credits and that management determine
whether these conditions have been met.
If these conditions have not been met, management
does not disburse and may seek Board approval of amending
these conditions.
Now this policy has been approved by the Board
back in June 1990 and basically states the following:
Management will be responsible for determining whether
conditions have been fulfilled. If it is satisfied that
they have been fulfilled on all material grounds, then it
releases the tranche in question and immediately inform the
Board so the Board can exercise oversight over management.
If management determines that the fulfillment has
not taken place in a satisfactory manner, then it would
decide either to suspend or cancel or, if it finds reason
either to amend the conditions or to waive them, it brings
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 29
the matter to the attention of the Board who will decide
then.
This has been the practice and I don't see reason
for departing from it.
MR. SANDSTROM: Thank you very much, Daoud. It is
very clear in the minutes of the Board meeting on this that
if the conditions have been fulfilled, the Bank is
contractually obligated to release the tranche.
But if there are doubts, that is when the
management comes back to the Board and that decision is left
up to the management.
So, this is very clear and this is the way we have
consistently applied this.
Huw Evans.
MR. EVANS: I don't think, Mr. Chairman, this is a
legal problem. The fact is nobody, and certainly not I, is
suggesting that we change our basic policy. There will· be
the difficult decision to make when management sees the
results of the mission in August.
As I made clear in my statement, I thought that
the conditions for disbursement set out in the updating note
were not sufficient in that they did not include any
reference to a fully financed program. Therefore, that is
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 30
one of the reasons why I say I don't think this appeal to
this 1990 decision is important for our decision today.
Thank you.
MR. SANDSTROM: Thank you very much, Huw.
So, let's move on then to the issue of the
bilaterals and funding.
Callisto.
MR. MADAVO: Thank you, Mr. Chairman.
Let me make three points. The first one is
obviously that it is fundamental that the bilaterals come
back to the table if we are going to have a program that is
fully funded. There is absolutely no question about that.
Now in looking at the prospects for this coming
about, we have to look at two things that drive, in fact,
the position of the bilaterals. On the one hand are the
economic factors: the strength of the program, the
performance to date and so on.
On the other hand, it is very important that we
all be honest and be very clear that it is their governance
preoccupations that also drive the position of the
bilaterals.
What we, the staff, are saying is that on the
economic side, we working together with the Fund have seen
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 31
progress by the authorities in addressing the shortfalls
that occurred in the Fund program in December, at the end of
December last year.
We are, however, very conscious of the fact that
the position that was put to you in the documents is based
in some cases on preliminary information that we need to
confirm, and that this would be done through the mission in
August where we would have Bank staff in liaison with the
IMF mission working together and confirming whether or not
(a) the targets that have been agreed in the revised IMF
program have been met, whether the prospects continue to be
good that progress would be made in the economic program
and, therefore, in a certain sense, whether the prospects
are there that we will have an effective program.
On this front, we believe that there may be
different perception between us and the bilaterals, in a
certain sense, but we think that, on the basis of the
information that we have, on the basis of the analysis that
the two institutions have, we think progress has been made
in recent months and that the prospects remain good, if
financing is available, to maintain this progress in the
program.
The funds would not be released unless, in fact,
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 32
management is satisfied that these prospects remain viable.
The second driver which is the governance issues,
Mr. Chairman, what we are, in effect, saying is that some of
the elements that are in that basket are beyond the reach of
Bank staff to assess, are beyond the reach of the mandate
that we have to take into account. That is why we have not
introduced that particular element in the condition of
effectiveness.
At the same time, we are very aware that these
issues need to be dealt with, which is why we took Mr.
Good's suggestion from the discussion during the CAS that we
see whether there are ways in which we might encourage the
government and the bilaterals to get together to discuss the
specifics surrounding these governance issues.
We have been careful to limit ourselves and our
involvement to the economic governance dimension of that
discussion and not the political.
So, to summarize then, Mr. Chairman, I would say
that there may well be different perceptions by the
bilaterals on the recent economic progress made from that of
the Bank staff and the Fund staff. But we think on the
basis of the information that we have, that the position we
have taken is in fact a sound position.
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 33
On the issue of governance, as I said, we can
facilitate a discussion but I don't think we could
realistically link it as an element of the condition of
effectiveness.
MR. SANDSTROM: Thank you very much.
Let's move on and hear five or six more views
here.
Huw again.
MR. EVANS: Sorry, Mr. Chairman.
I thought when you introduced the speakers, you
said we were going to hear something more about the finance
of this program. We have heard something about the attitude
of the Bank towards governance issues, but I have not heard
any more statements about the financeability of this
program. It would be helpful to hear a bit more about that
either from the Bank staff or perhaps from the Fund at this
stage.
MR. MADAVO: Mr. Chairman, I think we can make two
points on that and I will call on my colleague, John Todd,
to perhaps provide some numbers about the financing
requirements particularly over the next period ahead, in the
third quarter.
But I want to preface that by saying again that we
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY CONFIDENTIAL
nm 34
don't think this program can be financed in the medium term
for Zambia if all the players do not come around the table.
That is why it is so very important that there be
a dialogue between the government and the bilaterals leading
at an early point to their coming back to the table. That
will give us the basis on which we can say in the medium-
term the program can be, in fact, financed.
Now there is the issue of whether the requirements
over the next few months, which would enable the government
to continue to make their progress, that we and the Fund
would expect to see if they keep their commitments, and
perhaps my colleague would lay out the requirements in terms
of the numbers.
MR. TODD: Let me just start by saying that I
agree with Mr. Good that there is risk on both sides, and
none of the estimates that we have or the assessments that
we make are certain, but this is our best judgment at the
time.
On the annual side, I think the numbers that were
conveyed to the Fund Board remain a reasonably good estimate
for total need, which was the $263 million. I think to that
one might need to add in the neighborhood of $20 million as
the net change for the year due to all of the copper and
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 35
cobalt machinations. It could be 30; it is in that range.
Available assistance in the absence of any
additional assistance from bilaterals would be in the range
of $215 million, and that is the same number that had been
conveyed before.
So, that represents the challenge and that
challenge would best be met by additional assistance. It
would undoubtedly be met to some extent by compression of
the Zambia program as needed and appropriate and determined
through the August mission.
The point I wanted to emphasize relates more to
the third quarter. The number that we had given you before
is still the primary number, which is that there is $62 debt
service owed in the third quarter alone. There is the added
liquidity problem that the fire in the smelter, of which
most of you are probably are aware, is probably going to
have a short-term impact of $10 million to $12 million.
This will probably be made up over the course of the year as
the backlogged copper is finally processed through the
smelter once it is back in operation, and I believe it is,
in fact, already beginning to be back in operation. But
there is that short-term liquidity problem.
Then the uncertainty of copper prices, which is in
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
,, ·""'"·~
STRICTLY ONFIDENTIAL
nm 36
the neighborhood of $5.00 per month per dyne (Phonetic), and
we are running about 10 cents to 12 cents below the previous
projections we had made for the year on copper prices, only
somewhat offset by the good news on cobalt.
So, we cannot prove that everything comes unstuck,
but clearly if all of the assistance, including the
multilateral assistance, lies behind the bilateral
assistance, there is a very substantial risk that the
program would come unstuck over even the course of the next
months.
Thank you.
MR. SANDSTROM: Thank you very much.
Jean-Daniel Gerber.
MR. GERBER: Thank you, Mr. Chairman.
Mr. Chairman, I think Asbjoern Loevbraek has
fairly well resumed the position this constituency is
taking. I may add one or two more points.
The first is the historic perspective. Those who
have participated in the discussion a month or two months
ago in the country assistance strategy review on Zambia will
certainly confirm that the Bank and particularly the Board
in the last fifteen years has always, without exception,
been over optimistic about the program and the performance.
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY CONFIDENTIAL
nm 37
If we always are speaking about taking the lessons
from the past, I think we should bear that in mind.
The second, also as a matter of fact, lesson we
have drawn time and again in CODE is what has been said by
the predecessors here around the table. When a program is
not fully financed, whatever the reason is, be it now
politically, be it now economically, be it internal,
external economic factors, the program, which is financed
partially by the Bank will in no likelihood fail and, at the
same time, our President time and again here in your chair,
Sven, tells us the Bank has to increase its performance.
We all agree with that. But we, the Executive
Directors, are the first responsible that the Bank does not
perform well. It is not management, but it is the Board
which gives it agreement to such kind of credits where we
know in advance that the likelihood that it will fail is
fairly substantive.
That is the reason I would also like to be
recorded as abstaining.
Thank you.
MR. SANDSTROM: Thank you very much.
Helena Cordeiro.
MS. CORDEIRO: Thank you, Mr. Chairman.
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY CONFIDENTIAL
nm 38
This is, in fact, a difficult situation and it is
not the first time that this Board has confronted difficult
options in the Zambia case. I think our deliberations
today, as we already said during the CAS discussion, have
been made more difficult for the lack of a clear and
transparent dialogue between management and the Board and
the bilaterals.
We know that the options are limited if one can
even put it in the plural, but a cooperative approach would
have been preferable than the approach chosen by management
in this case.
The donor community has supported strongly Zambia
and the economic program. That support is failing for
reasons of doubts on the economic performance and on the
political commitment towards the core objectives of the
program.
As it has been said by several speakers, both
staff and my colleagues, donor support is crucial. We are
not sure when and if it is going to be available.
We are also concerned with the approach taken in
using IDA money as a breathing space or as others said
bridging nowhere. We are seriously concerned with that.
Although not benefiting from the assessment of our
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY CONFIDENTIAL
nm 39
bilateral agencies, we share the concerns expressed by
previous speakers of the current situation. We would have
preferred to consider this credit after being able to
benefit from the outcome of the mission.
We also attach considerable importance to the main
objectives of the mission, as Huw Evans reminded us, based
on Mr. Ouattara's memo.
We recognize the late movement done by introducing
an additional condition of effectiveness, which, as many
others said, goes in the right direction, but we wish it had
gone further in spelling out all the elements that make
possible to fill that IDA money is going in support of a
sustainable and viable program.
We fully support the thorough statement circulated
by Arnaud Chneiweiss on the issues that remain for us. We
are also very reluctant to see IDA money being disbursed for
this adjustment credit if the prospects for resuming funding
under the ESAF are not confirmed.
Our constituency is not involved in bilateral
support to Zambia. So, we cannot add any words if it is
coming from our side; no. We are interested to see how our
donors will, in fact, assess their own views of the
political and economic situation.
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 40
So, somehow I share most of what has been said by
previous speakers, but I take a different view regarding the
issue of who is responsible for assessing the fulfillment of
effectiveness conditions. I agree with Eveline of creating
a precedent for which we are not in favor.
We consider that management has the responsibility
of assessing progress as it has been stated today by this
Board, taking into account the concerns, as they have been
expressed, as the guidance for management's judgment of
conditions of effectiveness.
We entrust management with such responsibility,
and we think that this Board has been clear during our CAS
discussion and today of what our concerns are. Our
concerns, and in particular my constituency's concerns, are
on economic performance and commitment to pursue the
economic program.
We expect in view of this debate and this
divergence of views or different perceptions, as some others
have called it, that in this case management will take an
in-depth and detailed approach in reporting to the Board
when and what its assessment is of the conditions of
effectiveness.
So basically, what I would like to state 1s that,
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY CONFIDENTIAL
nm 41
although we share all the concerns, we feel that for reasons
that we may not fully understand, management decides that it
is in a bad situation, it is better to bring this credit to
the Board now in order not to make the situation worse that
we are willing to support this credit and the conditions
that I have expressed which put on management a stronger and
heavier responsibility in assessing performance after the
August mission and share with us a very detailed report on
meeting those conditions.
Thank you, Mr. Chairman.
MR. SANDSTROM: Thank you very much.
These were very helpful suggestions and the rest
of you may want to comment on those too.
Mr. Tamaki, please.
MR. TAMAKI: Thank you, Mr. Chairman.
It is of great concern for us if we should support
Zambia at this time. As the alternative plan suggested by
the management could be seen as a progress to me, my
reasoning is quite similar to Helena and Arnaud.
The crucial point in undertaking this plan is
obviously the condition of effectiveness, namely the content
of the condition and the method of evaluating its success.
The conditions should not be too rigid so as not
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY CONFIDENTIAL
nm 42
to encourage the Zambian Government to proceed with the
reform process. However, I agree with the French statement
on its macroeconomic framework that IDA money should not be
disbursed if no prospects are foreseen for the Fund to
resume its ESAF program disbursement.
The conditions should also be concrete so that it
will be obvious for all of us if Zambia has met the
conditions or not. As long the conditions are concrete, I
believe that another formal procedure by the Board would be
unnecessary.
Besides, considering the importance of the timing
of this assistance, it would be better to give the
responsibility to the management for making assessment of
compliance with the condition of effectiveness. In doing
that, the management should take the concerns expressed at
the Board into full consideration.
So, my conclusion is that I could accept the
alternative with a strong request for the management to keep
a very close eye on the reform process in Zambia, to
evaluate its success carefully and to report it back to the
Board appropriately.
Thank you.
MR. SANDSTROM: Thank you very much.
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (2 02) 546-6666
STRICTLY ONFIDENTIAL
nm 43
That was also very helpful. Thank you.
Marcos de Paiva, please.
MR. DE PAIVA: Thank you, Mr. Chairman.
Mr. Chairman, none of the countries that I
represent runs a bilateral agency. So, I have to rely on
the information provided by the Bank.
I am certain that the Bank tends to have
information of very good quality. I know the involvement of
the Bank in countries' realities based on the experience I
have with the countries I represent, and I tend to believe
that the political judgment that the Bank makes on realities
usually works well.
No doubt about the fact that this is a very
ambitious loan that one disbursement upfront, based on
general conditionality, and additional conditionalities very
strong, touching macro performance, budget priorities, land
reform, a new Labor Act, a number of things.
I tend to believe that the Bank has in its
relations, regular relations with a country like Zambia, the
obligation to be responsive at a critical moment. I tend to
believe that, given the commitments accepted by the
Government of Zambia in the context of the whole loan I
am not talking only about the macro performance -- there is
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 44
a gain in going ahead with the loan and getting the
government engaged with the measures that are foreseen here.
We tend to judge the Bank operation based on the
quality of the project on the country commitments and on not
on elements that are not included in the project or do not
belong to the economic reality of the country.
So, if one looks at this project, it is very
difficult to object to it, given the very strong commitments
that are accepted by the Government of Zambia.
So, for this reason, I am very much supportive of
this operation. If the dialogue were lost with other
international financial institutions, the Fund, for example,
we would have a reason to stop. But the dialogue is going
on, and, in this case, I tend to believe, based on the
information provided, that it would be a mistake for the
Bank not to be supportive.
I think that the challenge now is to help the
Government of Zambia to work with all the elements that are
included in this project and then assist them in making it
possible the release of the additional tranche.
Thank you.
MR. SANDSTROM: Thank you very much, Marcos.
Arnaud Chneiweiss, please.
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 45
MR. CHNEIWEISS: Thank you, Sven.
It will not be a surprise if I tell you that I
agree with Helena and Rintaro. I would have preferred to
have a discussion and the approval of this credit early in
September rather than today. I think I understand the
reasons why management is proposing the approval of this
credit today. I am still a little bit unconvinced.
If you could stress one more time the rationale
for going ahead so quickly, I would appreciate it. But, to
a certain extent, I admit that it is your judgment and we
have to trust you on that.
I appreciate the fact that you have added one
condition of effectiveness, and it is your responsibility,
the responsibility of management to exert your judgment
whether or not this condition of effectiveness will be met.
But I would really urge caution and I request management to
take a very prudent conservative approach to see whether or
not conditions have been met on the macroeconomic
stabilization program.
I appreciate that Callisto reemphasized the fact
that we will look both at the targets, whether or not they
have been met in the past, and also at the prospects for the
future. If there is no prospect for the IMF to conclude a
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 46
program, if there is no prospect for the IMF to resume its
disbursements under the ESAF program, I don't think we
should go ahead disbursing an IDA credit. It would be a
waste of IDA money.
At this time, this credit has become a very
sensitive issue. All of our capitals are aware of this
credit now, even those who don't care too much about Zambia.
I agree with Helena that you have special responsibility in
exerting your judgment in this case.
If we give the feeling over the next few months to
our capitals that in this case IDA money has been wasted, it
would have disastrous consequences for IDA support generally
speaking, more than Zambia is at stake with this credit.
So, I really urge you to exert your judgment in a
very prudent way, and to provide us a detailed progress
report after exerting your judgment.
Thank you.
MR. SANDSTROM: Thank you very much, Arnaud.
Mr. Alyahya, please.
MR. ALYAHYA: Thank you, Mr. Chairman.
At this stage of the discussion, I will be brief.
I have two comments.
First, I have noted management's arguments for
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 47
going ahead at this time with this credit. So, I support
it, as revised, with the additional condition of
effectiveness.
There are no doubt risks to going ahead, but there
are in my view even greater risks in the kind of signal that
inaction would send.
Second and for the record, like Eveline Herfkens,
I retain a sense of unease about the way this whole issue
has been handled procedurally and otherwise. I think there
could be implications which go beyond the specifics of
Zambia, including the potential for undermining the
cooperative nature of this very Board. Perhaps we should
all reflect on this and consider how we can avoid such
situations in the future.
Thank you, Mr. Chairman.
MR. SANDSTROM: Thank you very much.
Mr. Clark, please.
MR. CLARK: Thank you, Mr. Chairman.
There is very little we can add to the debate at
this stage in the proceedings. However, we are disappointed
that management has chosen not to follow the directions
suggested by Mr. Evans, Mr. Good and Ms. Piercy, which we
would like emphasize should not be seen as a rejection of
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY CONFIDENTIAL
nm 48
the credit.
The arguments advanced by those Chairs we saw as
compelling, and particularly for an assessment of the Board
following the Bank staff mission before any decision is made
on this ESAC. The current attitude, to highlight one thing,
of major donors whose support is vital is of great concern
to us.
Mr. Good's comment on the desirability of a
coordinated approach is particularly pertinent and really
supported by Mr. Madavo's own comment that without the other
bilaterals the financing plan will not be fulfilled.
In this light, Mr. Chairman, and to keep it short,
we would also like to be recorded as abstaining.
MR. SANDSTROM: Thank you very much.
Mr. Al-Saad, please.
MR. AL-SAAD: Thank you, Mr. Chairman.
Our position was clearly stated in our statement
previously distributed, that we endorse the proposed credit.
We think approval of such credit should give a strong signal
of Bank continued commitment for the reform effort of
Zambia.
On the question of timing, I tend to disagree with
some of our colleagues. The timing we believe is right to
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 49
ensure that the reform momentum is maintained.
Thank you.
MR. SANDSTROM: Thank you very much.
Mr. Galindez, please.
MR. GALINDEZ: Thank you, Mr. Chairman.
I would like to extend our support to this
operation. I would also like to point out that in FY96
Zambia had negative net transfers with the IBRD in the
amount of $46 million. This is an IDA country transfer to
IBRD in one fiscal year, and this is something to be taken
into account, particularly in view of the $450 million which
will be needed in 1996 as balance of payments assistance.
We also endorse Mr. Tamaki's suggestion that
management keeps the responsibility to monitor future
developments in Zambia and report it to the Board in the
best possible way.
As it was said by other speakers, a dialogue is
going on and this is the right time for the Bank to go ahead
in our opinion and take what we call, and everybody calls, a
calculated risk.
Thank you.
MR. SANDSTROM: Thank you very much.
Walter Rill.
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 50
MR. RILL: Picking up on the calculated risk, I am
not so sure whether we really are calculating our risks
here, but I am ready to go forward, despite some uneasiness
with taking that risk.
Like Mr. Chneiweiss, Ms. Cordeiro, Mr. Tamaki and
others, I think the responsibility should remain with
management as appropriate for making the final judgments
before disbursement and effectiveness.
But picking up on Mr. Gerber's comment that we are
responsible for keeping up the quality of our work here, I
would like to strongly remind management and staff that
there may come a time when we will discuss in CODE a country
assistance review for Zambia and then you had better be
prepared to explain what went wrong afterwards if something
goes wrong.
Thank you.
MR. SANDSTROM: Thank you very much, Walter.
Mr. Lodhi, please.
MR. LODHI: Thank you, Mr. Chairman.
Countries do get into difficulties and yet, like
Zambia, they demonstrate a resolve that they can move
towards reform. This country has demonstrated that. Even
in its efforts to privatize, it has done that.
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 51
Its shortcoming perhaps has been aggravated by the
price of its exports not being competitive. Are we going to
penalize them for that? If you are going to wait for the
Bank and Fund mission to go and to certify, what are these
six weeks going to produce really?
On the other hand, if you deny the credit at this
time, loaded as it is with the conditions of effectiveness
and the fulfillment thereof, you will generally be casting
disincentives and perhaps eroding confidence.
Yes, it is absolutely desirable that the donors
move along with the Bank. But the Bank is the senior
partner in this partnership of the donors and the Bank and
it is a more discerning partner. It is a partner that sees
that these risks are tenable.
Mr. Chairman, therefore, we very much support the
time and the content of this project.
Thank you.
MR. SANDSTROM: Thank you very much, Mr. Lodhi.
The last name on my list here is Mr. Mseka.
Leonard, please.
MR. MSEKA: Mr. Chairman, I will say something
after you have summed up or whatever.
MR. SANDSTROM: You really want to be the last
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 52
name?
MR. MSEKA: Yes.
MR. SANDSTROM: Callisto, do you want to say a few
words and then I will try to wrap it up?
MR. MADAVO: Mr. Chairman
MR. SANDSTROM: Asbjoern, do you want to come in
first?
MR. LOEVBRAEK: Yes, I think so, just to clarify
on the procedural issues. I appreciate the explanations
that were given from staff and also the comments around this
table. In fact, I share those of you who have said that it
would, in principle, very unfortunate that the Board in a
sense had a second round and discussed conditions of
effectiveness.
I would have been willing to make an exception in
this rather exceptional case, but I just note that the road
that was suggested by Huw Evans and others is not possible.
That makes my decision more easy, which is abstention.
Thank you.
MR. SANDSTROM: Thank you.
Callisto, please.
MR. MADAVO: Let me just make a few points.
Obviously, as is obvious from the discussion
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 53
around the table, Mr. Chairman, this is not an easy case.
It is a difficult case and we are taking some risks. We
wanted to share honestly some of these points with the
Board.
I think a second observation I would make is that
we listened very carefully and we agree that the assessment
of whether or not the condition of effectiveness has been
met should not be just a mechanical one; that we really
should exercise judgment not just about numbers but about
prospects.
So, I just wanted to be responsive to the Board on
that particular point.
My third observation, Mr. Chairman, is we had
wanted to proceed in this way so that we could remain
relevant in the question of trying to encourage a
cooperative approach. We didn't see, in fact, this way of
proceeding, as the Bank detaching from the partnership.
It was really to give us influence within the
partnership, the ability to play this role or bring in the
government to the table, bringing the bilaterals to the
table with some credibility. We could manage the risks and
proceed prudently.
So, I just wanted to make those observations, Mr.
MILLER REPORTING COMPANY, INC. 507 c Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY
nm
ONFIDENTIAL
54
Chairman.
MR. SANDSTROM: Thank you very much.
This is clearly a very difficult case. As we now
have heard, there are very different perspectives on the
economic and political governance and, in particular, on the
links between these two, which makes it very difficult for
the Bank and its management.
We also have the difficult judgment on the funding
prospects where the IDA credit clearly is a linchpin, and
the way we go on this will affect the flow of other
resources to at least some extent. There may be different
judgments on exactly the extent on which it has an impact,
but certainly it will have an impact.
My suggestion is that we proceed, but that we
follow up on the many, I think, very constructive
suggestions that have been made here and, in particular,
that we take guidance from this discussion when we assess
the situation in August and when we assess the satisfaction
of the conditions of effectiveness, and that we then provide
a full report to you.
But in doing that, we follow the established
procedures. So, if we are fully satisfied that the
conditions have been met with the guidance we have received
MILLER REPORTING COMPANY, INC. 507 c Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 55
today, we will release the tranche at the same time.
However, if there are doubts, if the conditions
with your guidance today has not been fully met, we will
come back to you. So, we will follow the normal procedures
and we will try to do this to the best of our ability.
With that, Leonard, do you want to come in before
I say that it has been approved?
All right. Well, the credit is approved on the
terms proposed with Mr. Crowe opposed, or not it is Ms.
Piercy, I assume, and with the following abstaining: Mr.
Evans, Mr. Loevbraek, Mr. Good, Mr. Schaffer, Mr. Gerber and
Mr. Clark.
Did I get that right? No changes?
[No response. ]
MR. SANDSTROM: All right.
Leonard.
MR. MSEKA: Thank you, Mr. Chairman.
Although it is not customary that an Executive
Director representing the country whose operation is being
discussed takes the floor, I feel I should say a few words,
particularly in view of the controversy that has surrounded
this particular operation.
First of all, I would like on behalf of my Zambian
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 56
authorities to thank the Board and particularly those who
have openly supported this operation for approving this
adjustment credit.
In particular, I would also like to thank Callisto
Madavo and the entire Zambian country team, led by Phyllis
Pomerantz, for working so tirelessly on this operation. We
commend them highly for their mature judgment in the case of
Zambia and their dedication to the cause of development.
Second, Mr. Chairman, I wish to register a concern
and to submit a request.
As I noted almost two weeks when we discussed the
CAS, what has happened to Zambia in the course of the last
two weeks is the fourth time it has happened in our
constituency to varying degrees during the past eighteen
months.
We find this totally inequitable. It is an open
secret that governance issues are increasingly being
camouflaged with economic arguments. In this respect, I
wish to commend Eveline Herfkens for her statement made
earlier today.
Yet, governance issues, or shall I say non-
economic issues, are not peculiar to Sub-Saharan Africa
only. Examples can be found in other regions as well.
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ONFIDENTIAL
nm 57
It is not that we do not wish to uphold democratic
principles; we do. And evidence across Sub-Saharan Africa
clearly demonstrates our people's commitment to democracy,
the rule of law and economic reforms.
What we find intriguing and unacceptable is that,
when it comes to non-economic issues, African countries are
treated differently and are held to a different standard by
this Board from countries in other regions, even where the
record of economic reform and the implementation is clearly
not satisfactory.
If it is necessary that we should keep repeating
this observation every time it happens like a broken record,
we shall do so until we are heard.
However, we think this is not necessary if the
Board is willing to discuss this issue openly.
Therefore, I should like, Mr. Chairman, to submit
a request that CODE and/or OED examine this issue
critically. Our countries are members of these institutions
and they, like other members, deserve all the deference from
the institutions as stipulated in the Articles of Agreement;
thus, my request.
Once again, I wish to thank the Board for
approving the credit.
MILLER REPORTING COMPANY, INC. 507 C Street, N.E.
Washington, D.C. 20002 (202) 546-6666
STRICTLY ON Fl DENTIAL
nm 58
Thank you .
MR. SANDSTROM: Thank you very much , Leonard.
I think we should all reflect on this discussion
and this case and the earlier cases that Leonard has
mentioned, and we will come back to this issue.
-••
---·---
•
----
MILLER REPORTI NG COMPANY, I NC . 507 c St reet, N. E .
Washington, D.C. 20002 (202) 546-6666
• --·--
I
--