Albania - Technical Assistance Project for Social Safety Net Development

Documeat of The World Bank FOR OMCIAL USE ONLY Report No. P-6058-ALB MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 3.9 MILLION TO ALBANIA FOR A TECHNICAL ASSISTANCE PROJECT FOR SOCIAL SAFETY NET DEVELOPMENT AUGUST 18, 1993 FILE COPY Report No: P- 6058 ALB Type: MOP This document has a restricted 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. CURRNCY IUIALNTS Currency Unit - 7ak US$1.00 - Lek 104 (June 1993) WKIGRTS AND MEASURES Metric System PISCAL YA January 1 - December 31 ABBREVIATIONS AND ACRONYMS ASAC - Agricultural Sector Adjustment Credit CSYI - Cooperative Farmer Social Insurance BMD - European Bank for Reconstruction and Development SC - European Community EC/PEARE - European Community/Poland-Hungary Assistance for Economic Reconstruction EFSAC - Enterprise and Financial Sector Adjustment Credit BRA - Enterprise Rehabilitation Agency ISAP - Enhanced Structural Adjustment Facility FY - Fiscal Year GDP - Gross Domestic Product GSP - Generalized System of References IBRD - International Bank for Reconstruction and Development IDA - International Development Association IPC - International Finance Corporation ILO - International Labor Organization IMP - International Monetary Fund LMDP - Labor Market Develo,ament Project MIGA - Multilateral Investment Guarantee Agency MCOLSP - Ministry of Labor, Immigration, Social Protection, and Ex-Politically Persecuted People NEAP - National Environment Action Plan NGO - Non-Governmental Organization OECD - Organization for Economic Cooperation and Development PASAC - Public Administration Structural Adjustment Credit PCU - Project Coordination Unit PrP - Policy Framework Paper PIP - Public Investment Program PPF - Project Preparation Facility SIF - Social Insurance Fund SII - Social Insurance Institute SIR - Social Insurance Register SSND - Social Safety Net Development TA - Technical Assistance UNDP - United Nations Development Programme UNICEF - United Nations Children's Fund FOR OFFICIAL USE ONLY ALBANIA TECHNICAL ASSISTANCE PROJECT FOR SOCIAL SAFETY NET DEVELOPENT Credit and Proiect Summary Borrowert Government of Albania Reneficiarv: Ministry of Labor, Social Assistance, Emigration and ex-Poitically Persecuted People (MOLSP), Social Insurance Institute (SII). Amountt SDR 3.9 Million (USS5.5 million equivalent) Termas Standard IDA terms, with 40 years maturity. Financina Plant hocal Foreian Total --------- US$ Million-------- Government of Albania 0.7 0.0 0.7 IDA 0.1 5.4 S.5 Total Financing Requirements 0.8 5.4 6.2 WWW Economic Rate of Return: Not Applicable Poverty Categorys Program of Targeted Interventions The Project will help reform the social safety net and the social insurance system. Staff Anpraisal Report: 11443-ALB Map: IBRD #24697, IBRD #24698 This document has a restricted 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 RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO ALBANIA FOR A TECHNICAL ASSISTANCE PROJECT FOR SOCIAL SAFETY NET DEVELOPMENT PART I: INTRODUCTION 1. I submit for your approval the following memorandum and recommendation on a proposed development credit to the Republic of Albania for SDR 3.9 million, the equivalent of US$5.5 million, on standard IDA terms with a maturity of 40 years, to help finance needed reforms to its social protection systems. PART II: COUNTY POLICIES AND COUNTRY ASSISTANCE STRATGY A,.Recent Economic and Political Develogments 2. Albania, having suffered from perhaps the most centralized and repressive regime of all former communist countries, has moved .-apidly to participate in the great economic and political transformation sweeping Eastern Europe. The demise of communism in 1991-92 was accompanied by economic and political chaoss after a totalitarian regime that lasted almost 50 years, no alternative political or economic institutions were in place when it crumbled. Public order was gravely disrupted, and control, not only over state enterprises, but also over national infrastructure such as railways or power lines, virtually disappeared. For decades, central planning had decided, allocated, and distributed everything in all sectors. When it was abolished, the result was a general collapse of production. GDP declined by about 28 percent in 1991 and by 10 percent in 1992, after a fall of 10 percent in 1990. With a 1992 GDP per capita of about US$290 (Atlas methodology), Albania--with a population of about 3.5 million-- is by far the poorest country in Europe. 3. This dramatic supply collapse plunged Albania into a fiscal crisis of unprecedented dimensions, even in Eastern Europe. State-owned enterprises (SOEs) constituted the main tax base; with the collapse of production, budget revenues decreased drastically. At the same time, control over most categories of expenditures virtually disappeared and the fiscal deficit exploded to 42 percent of GDP in the first half of 1992. Inevitable monetary financing of the deficit pushed monthly inflation into the 10 to 15 percent range. High inflation and the collapse of production in export-earning sectors led to the virtual exhaustion of foreign exchange reserves. Lastly, Albania, at one time a small net exporter of food products, became heavily dependent on food aid as a result of the collapse of agricultural production. 4. The first fully democratic elections, held in March 1992 under these crisis conditions, had a very high participation rate of 90 percent, and resulted in a parliamentary majority of nearly two-thirds for the new Democratic Party, led by Dr. Sali Berisha, with a platform of commitment to establishing an open and liberal market economy. Following the elections, the new government, without hesitation and with the strength of a comfortable majority in Parliament, took decisive steps to restore public order and macroeconomic stability. In April - 2 - 1992, Albania embarked on a comprehensive program of stabilization and systemic reforms, designed with the advice of the Bretton Woods institutions. Quick mobilization of international aid supported the program. By mid-1992, the IDA- financed Critical Imports Project, a Stand-by Arrangement with the IMF, and extensive external financing from the EC and other G-24 donors were in place. 5. The Government's first actions included drastic stabilization measures. The budget deficit was cut in half, mainly through a sharp curtailment of expenditures. Budgetary subsidies to state enterprises were immediately abolished. Strict monetary targets were enforced. interest rates were sharply increased, and the automatic extension of bank credit to state enterprises was also stopped. The first steps toward the development of a two-tier banking system were taken, with the implementation of laws on central and commercial banking operations. The privatization of most agricultural land, which had started in a chaotic fAshion before the elections, was completed in more orderly conditions. Most prices were freed except for basic consumer items, the prices of which were sharply increased. The currency was floated, private exchange transactions legalized, and all current account transactions liberalized. 6. Since the implementation of the program one year ago, macroeconomic stability has been established. Inflation has fallen from 14 percent a month at the beginning of 1992 to less than 2 percent on average over the first half of 1993 - a result better than programmed in the Stand-by. All performance criteria under the IMP Stand-by Arrangement have been met. Equally important, the social consensus appears to have held, despite a rise in unemployment to about 26 percent of the labor force and a fall in real wages of more than 30 percent since August 1992. 7. This quick success of stabilization is largely attributable to the uncompromisingly tight monetary policy followed by the authorities. The resulting decline in inflation has been accompanied by an inflow of reserves, with official fcreign exchange reserves increasing from virtually zero in mid-92 to about three weeks of imports at end-1992. At the same time, the Lek appreciated by about 30 percent at the start of the program and has subsequently remained fairly stable in nominal terms in a freely floating exchange market, implying some appreciation in real terms. That all this could happen in a country crushed by almost 50 years of totalitarian rule, where the political transition took place in the form of a total institutional collapse, sets an outstanding example and is a tribute to the determination of the authorities. B. Economic Prosects and the External Environment 8. Economic Prospepts. The challenges remain immense. Shock therapy has produced stabilization. It cannot, by itself, lead to restructuring, institutional development, and sustained growth. steering Albania onto a sustainable growth path without endangering its hard-won macrostability, will require further major efforts and more complex decision-making than the courageous but relatively simple implementation of tight monetary policy alone. 9. Working closely together, the Albanian authorities and the Bretton Woods institutions prepared a medium-term macroeconomic framewzrk, presented in a -3- Table 1: Albania - Key Macroecononic Indicators, 199 . 1996 / PEP Scenario Estimated Projected 199 1993 199 199 1996 (Percentage change unless otherwise indicated) GDP and Prices GDP growth -10 4 4 S 5 Inflation, end of period 237 40 21 17 15 Inflatihn, period average 226 91 27 19 16 Man0 Growth of broad money4l 153 53 21 19 17 Resmve accumulation (US$m) 27 106 40 6 s CrediW 68 48 29 17 15 to central government 86 61 32 13 5 to non-government sector 4 25 23 26 36 (Percentage Share of GDP) public Finance Total revenue 25 29 30 31 32 of which: tax revenue 17 21 26 28 30 Total expenditure 47 47 46 44 41 Overall Balance -22 -18 -16 -13 -9 Sav&o and Ivsmn National savings -53 -30 -15 -1 5 Foreign savings 60 42 31 20 16 Domestic investment 7 12 16 19 21 (Millions of USS) External Fynancing Requiremonts Uses 475 574 430 323 287 Current account deficit 439 442 381 308 265 Amortization 9 26 9 9 17 Reserve accumulation 27 106 40 6 5 Sources 475 574 430 323 287 Identified disbursements 475 486 272 166 142 Financing gap 88 158 157 145 Memorandum It-em Gross reserves in weeks of imports 3 11 14 16 17 Source: Government of Albania a/ End-year, percentage change from previous period - 4 - Policy Framework Paper in May-June 1993, and discussed by the Board on July 8, 1993. Table 1 summarizes the key macroeconomic indicators of the PFP. The growth scenario projected in this policy framework paper reflects a caution dictated by Albania's still fragile institutional base and the uncertainties that continue to plague its external financing prospects. This medium-term program requires further major fiscal efforts. The budget defIcit, that was 42 percent of GDP in the first half of 1992, is to be reduced still further, from 18 percent of measured GDP in 1993 to 9 percent by 1996. Increasingly, the still- substantial deficit would be financed by foreign credits, with very little recourse to domestic bank finance, allowing a modest monetary expansion to take the form of credit expansion to the new private sector. (For more detailed economic and social data, see Schedule 3 entitled "Selected Economic and Social Data-.) 10. Positive factors for the future are: the dominance of agriculture in the economy (a sector where private activity can more easily yield quick supply responses); significant natural resources (notably chromium and ample water suppl7 with potential for electricity exports); great potential for tourism on a beautiful and unspoiled coastline (Corfu is only a few miles away); Europe's lowest labor costs (combined with universal basic education, including surprisingly good language skills); strong family ties providing elements of an informal social safety net; and potentially large remittance flows from a substantial emigr6 population that now provides an income cushion for the population and could also constitute a very important sou*ce of savings for private sector development. Negative factors include: the threat of continued regional instability in the Balkans; a dilapidated industrial capital stock that must mostly be scrapped; an essentially non-existent banking sector; and unresolved foreign debt problems threatening the development of foreign trade and investment. 11. The most recent data suggest that GDP growth in 1993, led by agriculture and small services, is likely to be in the 7 to 9 percent range rather than the 4 percent projected in the PFP. In the absence of bad weather or negative external shocks, recovery should proceed at a similar rhythm in 1994 and beyond. This would be the highest growth rate likely to be achieved in the ECA region and as such, very impressive. On the other hand, it should be viewed against the background of the 1990-1992 output collapae which, at over 40 percent, was also unequalled in the region. The authorities have been prudent in their growth projections, concerned as they are about fiscal discipline and determined not to allow a resurgence of inflation. It is probable, however, that Albania, at least in terms of growth, will outperform the PFP projections. This will help maintain political support for the very drastic reform strategy and help to make up for years of stagnation under the communist regime and the output and income collapse associated with the two chaotic transition years. 12. Eaternal Environment and Risks. Much of the higher-than-projected growth will initially be concentrated in agricultural products, mainly for local consumption and in small-scale services; it will not greatly affect the external and fiscal balances projected in the PFP. Other factors could affect both. Albania's exports consist mostly of minerals, electricity, and agricultural products. With chromium products accounting for about 20 percent of total exports, Albania is particularly vulnerable to variations in chromium prices. Total convertible currency exports in 1992 were 50 percent below their 1989 levels. This dramatic decline has, however, been more than compensated for by transfers from Albanian workers abroad. After the political liberalization and the 1990-1992 output decline, large numbers of Albanians moved to neighboring countries in search of work. The majority of these workers are in an uncertain legal uituation, and may have to return to Albania at short notice should the regional situation duteriorate - an event which would cut transfers dramatically. While these transfers are mostly informal and a decline would not affect the official external position of Albania, they have acted as a do facto safety not for a large segment of the population, cushioning the adverse impact of the reforms on household incomes and employment. A significant decline could therefore adversely affect the sustainability of the reform program. 13. Because of Albania's location and the small size of the domestic economy, access to EC markets will play a crucial role in the medium term. In March 1992, the Council of Europe decided to include Albania in the Generalized System of Preferences (GSP), which grants preferential tariff treatment (mostly on unprocessed goods) to developing countries. Furthermore, all quotas on imports from Albania have been removed, except for textiles and a few agricultural goods. Albania is currently negotiating additional reductions in tariffs and non-tariff barriers which will further enhance its access to EC markets. 14. Despite the strong domestic adjustment effort, substantial inflows of foreign savings are required to support the program in the initial years: preliminary estimates of total financing requirements over 1993-96 amount to US$1.6 billion, including food aid and the costs of normalizing the situation with external creditors. Excluding food and commodity aid, the financing gap is some US$530 million. For external viability to be a realistic goal by the end of the 1990s, the projected gaps would have to be filled on highly concessional terms, and the arrears problem would need to be resolved in a manner compatible with Albania's exceptionally weak external position. Most of this external financing is expected to come from IDA, the IMF, the EC, and the G24, initially as balance-of-payments support, shifting progressively toward project financing. Based on the current lending program, and assuming plans for IDA allocations are maintained, IDA disbursements over the 1994-96 period would reach a total of about US$80 million, i.e., about 15 percent of projected financing needs, excluding food and commodity aid. C. Development Priorities 15. Building a new democracy and a new market-oriented economy from the initial conditions prevailiag in Albania in 1992 amounts to nothing short of building a new country. Fitting such an endeavor into a detailed quantitative framework can only be a tentative exercise. Neither Albania's own development strategy, nor the Bank's assistance strategy should attempt to be a blueprint for the future. The challenge for Albania and the Bank over the next years will be to create an integrated framework for change that will be compatible with short- term macro stabilization; will combine "rules with discretion"; and will be flexible enough to accommodate the major structural shifts that are likely to - 6 - continue to take place in the economy. As noted by Czech Premier Vaclav Klaus and others, it would be ironic indeed if the international community moved to replace the discredited five-year plans of communism with detailed and rigid quantitative targets or mechanistic rules prescribing policy actions far in advance of the unfolding experience, and based on necessarily uncertain data. What is needed is a flexible strategy that responds quickly to new information while maintaining an overall framework that promotes (i) stabililty; and (ii) new entrepreneurship and private initiative. 16. Within such a strategy, it is possible to identify priority areas, but with the understanding that relative allocation of domestic and foreign resources, as well as the deployment of scarce economic minagement capabilities, will depend on implementation speed and sectoral absorptive capacities. There will also be social and political pressures, which cannot be accurately forecast in advance. The maintenance of macro-economic and socio-political stability is, of course, a must. Hstory has shown time and again that without it, economic development cannot succeed. The Albanian authorities' uncompromising commitment to stability so far augurs well for the future. In addition to maintaining macroeconomic stability, the PFP process has identiied the following areas of priority for policy attention and resource allocations - Rehabilitation of basic infrastructure; - Support for the development of private agriculture; - Establishing a new social safety net; - Rescuing basic education and health services; - Privatizing small- and medium-scale enterprises; - Downsizing large public enterprises; - Developing a financial system; - Building a new central administration; and - Normalizing relations with external creditors There is no strict or compelling sequencing or necessary prioritization of these objectives. To some degree, they must all be pursued simultaneously, although at different times, based on the situation of that moment and the experience gained, choices will have to be made to push harder or faster in certain directions, for example, to relieve the most constraining bottlenecks to growth, or to forestall a political crisis. Rapid privatization of all small- and medium-scale enterprises, for example, is absolutely essential for generating growth in the urban areas. It should not be delayed. It cannot be successful, however, without a rapid improvement in elements of infrastructure and public utilities, including the transport network and power availability, both key to enterprise development. Priv-te enterprise is also dependent on income growth in agriculture to widen the market for simple products and services. The priority areas for Albania's development, described below, are characterized by such interdependencies, and it is not useful at this stage to attempt a precise ranking. Rehabilitation of Infrastructure 17. Albania's dilapidated infrastructure is a major impediment to private sector development as well as to foreign direct investment. Recognizing this, - 7 - the Government has already started to mobilize some resources for its rebuilding. The public investment program is being overhauled, with government investment in the directly productive sectors being sharply reduced in favor of investments in infrastructure, basic services such as health and education, and key utilities. A large role is to be played by local authorities responding to concrete local needs. The priorities are in the electricity distribution system, where reduced fuel wood deliveries to urban areas since 1991 have led to capacity overloading, which causes severe damage to electrical equipment; the trananort syatem, which has deteriorated to the point where a significant share of the main roads are in need of repair and the Durr8s port facilities need rehabilitating; and housina, where overcrowded Jwellings and poor sanitation reduce both productivity and well-being. support for the Development of Private : culture 18. Since 1991, the Government has pursued the privatization of state farms and price reform with speel and determination. The results have been extremely encouraging, with agricultural production bouncing back strongly, and the sector showing a remarkable dynamism. However, it would be misleading to think that Albania is other than at the beginning of a long-term process. The reform of the price and incentive framework must be sustained, as food aid (which still fills a large proportion of domestic needs) can have potentially adverse implications on domestic producer prices. Following the privatization of state farms and cooperatives, arable land is now occupied by small, subsistence-oriented farms with a high labor-to-land ratio. The challenge over the next few years is to create an en'-ironment that will induce small farmers to market their production and to bpec.alize according to their comparative advantage. 19. The Government intends to give high priority to upgrading the rural infrastructure, particularly the irrigation network, which is in a state of disrepair. To respond to the requirements of the new forms of land ownership, the Government plans to restructure the agricultural extension and support system, which vanished almost completely as the collectivist system was dismantled. The capacity of trading and agro-processing enterprises to process domestic crops was also greatly affected by the general crisis in the state enterprise sector during 1991-92. These enterprises remain barely functional, while new private operators, although quite active, play only a marginal role. The Government intends to foster competition in input and output markets by privatizing agricultural enterprises and removing regulatory and administrative impediments to entry. Lastly, a functioning rural credit system is to be promoted by reforming the Agricultural Bank to finance commercially viable projects, and by encouraging the creation of informal credit systems for small farmers. Establishing a New Social Safety Net 20. Albania's low per-capita income makes its population particularly vulnerable to the social costs of the transition. Without an effective social safety net, the costs of transition could become extreme for some segments of the population. Albania faces a difficult policy trade-off between spending enough resources on the social safety net and pursuing fiscal consolidation. To improve - 8 - this policy trade-off, the Government's strategy is two-prongeds (i) to move social insurance toward actuarial balancel and (ii) to target social assistance to the most needy. 21. Social insurance in Albania consists mainly of unemployment insurance* pensions, and health and sickness benefits. Under central planning, lifetime employment was guaranteed by the State, the notion of social insurance was almost non-existent, and the relation between contributions and benefits was at beat tenuous. Now, the financial viability of the unemployment insurance and pension programs is threatened by overly generous provisions, a shrinking contribution base, and an increase in the number of beneficiaries. The Government passed the Social Insurance Law in June 1993, rationalising the provisions of the current system and providing an actuarial balance in the long run. Implementation of this law will, however, require a major institution-building effort, particularly in strengthening the newly autonomous Social Insurance Institute. 22. The current social assistance system comprises the few remaining price subsidies, price controls on broad and a few essential products, as well as several cash transfer schemes. As means testing for the inccme support programs is not feasible, given the limited administrative capacity, Che Government has opted for a system whereby grants are distributed to poor families by the local authorities at the municipal level, within parameters set out in the Social Assistance Law. The system is expected to come under considerable administrative and financial pressures implementation capacity at the local level is weak, and some 150,000 long-term unemployed will enter the system in 1993, as their unemployment benefits expire. Rescuino Basic Education and Health Services 23. Albania is struggling to preserve what has been the only achievement of the communist years - relatively good health and education status - evidenced by high life expectancy and literacy. Many school buildings are obsolete due to lack of preventive maintenance and one-third were damaged by vandalism during the years of social turmoil. Enrollment is dropping as a result of inadequate facilities, the cost of keeping children in school, and an outmoded curriculum. The health situation has also deteriorateds almost all primary care facilities and hospitals have ceased to function properly due to lack of preventive maintenance, basic equipment is missing, and drug production and distribution are at a near standstill. At the same time, the network of hospitals far exceeds Albania's maintenance capacity and ability to provide efficient services. The Government has launched a program for the rehabilitation of schools and is preparing a restructuring plan for health care. Privatizinq Small- and Medium-Scale Enterprises 24. After twelve months sf very slow progress, privatization is now underway, with local authorities having been given an increased role and a new Deputy Prime Minister for Economic Affairs having assumed leadership of the process. So far, the Government has successfully completed a program of privatization of small- scale units and has puLlished a list of 248 medium-sized enterprises for immediate privatization. However, following the adoption of the Law on - 9 - Restitution, many future privatizations are likely to take place through restitution, and the legal framework for the privatisation of medium-sized enterprises remains unclear. The Government is currently preparing a new legal framework to speed up the privatization process. Downsaimna Larae Enterorises 25. Most of Albania's industrial sector will require significant restructuring and significant downsizing to be viable. For small- and medium-scale enterprises, it is intended that this restructuring be attempted by the new owners. For some larger enterprises, this approach is unlikely to work. Therefore, the larger "problem cases" will be addressed separately. To this end, the Government has established a temporary Enterprise Rehabilitation Agency (ERA), with direct oversight respons3bility for about 30 key problem enterprises. The goal of the ERA is to restructure these enterprises so that they achieve &n operating balance within a reasonable period of time, and to deal with the layoffs in an orderly fashion. Eventually, these enterprises will be privatizedl those that cannot be, will be liquidated. Developinq a Financial SysteM 26. Another critical area of reform is restru 'uring the bankina system into a more effective two-tier system. The authorities, long-run goal is to privatize the existing commercial banks. This can only be done once the appropriate banking infrastructure--regulations and supervision, an accounting framework, an operational payments system and training--is in place. In the meantime, the Government will strengthen the existing banks through recapitalization and extensive training of the staff, intensify competition through the provision of incentives for the entry of new private financial intermediaries, and build up the infrastructure required by a modern banking system. All this cannot be achieved overnight, and yet, financial intermediation must begin. To minimize risks, the biggest "problem enterprises" (under ERA) will be separated from the rest, and the budget will deal with only ERA enterprises; the banks, on a new voluntary basis, will deal with the remaining firms on strictly commercial terms. Building a New Central Administration 27. The implementation of structural reforms can happen only with a significant institution-building effort in government agencies. Specific actions are required to support public finance reform, a crucial ament of the adjustment strategy. Furthermore, the central administratJ . has to be completely reconfigured to adapt to the new role of the government in a market economy. 28. In the area of fiscal reform, the stabilization program will require a major revenue effort, based on the development of a new tax bases the present tax base (largely SOEs) will continue to shrink over the next few years. The development of new tax instruments will continue to be conditioned by overriding administrative constraints, which are particularly acute because the growing sectors of the economy--such as small-scale farming, services, and manufacturing- -are mostly informal and notoriously difficult to tax. The composition and level - 10 - of public expenditures will also need to change. Social programs will require downsizing and re-targeting towards the most disadvantaged sectors of the economy. Sustained Public investment in Albania's dilapidated public infrastructure is required to attract foreign investment and to pave the way for private sector activity. 29. With respect to gublic administration reform, .e number of ministries has been reduced to cut costs and improve efficiency. However, the mandates of the ministries remain unclear, with inadequate mechanisms in place for policy formulation and coordination in vital reform areas. Furthermore, civil servants have yet to be trained in their ministries' new objectives and in their new roles. Normalizing Relations with External Creditors 30. Despite the good performance so far under the adjustment program, Albania's medium-term outlook remains overshadowed by the adverse impact of the external debt on external trade, credit, foreign investment, and confidence. Albania's debt situation is exceptional in that 90 percent of its convertible currency debt consists of arrears on various types of short-term debt, accumulated between end-1989 and early-1991 during the final days of the old regime. Major foreign banks continued to extend credit and cover to a country in turmoil, where the collapsing communist order had yet to be replaced by a new, clearly perceptible authority. Albania also has some non-convertible currency debt, consisting mainly of balances accumulated under clearing agreements with former CMEA countries. The Government has initiated the renegotiation of its debt with public and private creditors. D. Main Obiectives of the Bank Assistance Strategv 31. Oyerall Objectives. After three years of turmoil (1990-92) and a year of strict stabilization policy (1993), it is crucial for the reform momentum to be maintained, so that tangible signs of rapid growth materialize in 1994 and beyond. The emphasis of the first IDA-financed operation (Critical Imports Project, Credit No 2405) has been on relieving critical input shortages to promote an early supply response to the extensive price reforms. As mentioned above, the economy, in particular agriculture, which was one of the three target sectors for this credit, has responded well, and the initial supply response now has to be sustained through wide-ranging structural reforms. The Bank's strategy is to provide support to the structural reforms through policy advice and lending in the priority areas outlined above (para 16). Although support for the reform program is strong and Albania's needs are urgent and pervasive, the pace of reform is dictated by Albania's limited implementation capacity. Because the dilapidated state of infrastructure constitutes perhaps thM major bottleneck for private sector development and, indeed, for growth in general, the Bank's lending program has a strong sectoral orientation, oriented towards investment projects. Furthermore, the recent dramatic decline in income has rendered the Albanian population particularly vulnerable to the social cost of adjustment. The Bank's assistance strategy therefore relies on investment projects, as well as technical assistance, policy advice, and ESW to form a coherent program for poverty alleviation. Lastly, in order to maximize the impact of IDA interventions, - 11 - maximum leverage for our lending operations through cofinancing is a strategic objective. 32. Policy Advice. Bank staff have, since the outset, been involved in the design and implementation of Albania's reform program. This involvement has led to the preparation, with the IXF, of the Policy Framework Paper. The Bank has also provided a major input in the preparation of sectoral policies, in particular agriculture, enterprise and financial sector reform, privatization, and the social safety net. This has required a substantial amount of Economic and Sector Work* as Albania was, until 1992, one of the least known economies in the world. For the next few years, three areas of ESW will be emphasized$ sector studies in potential lending areas, the public investment program, and poverty alleviation. 33. Lending Instruments. The limited size of the IDA allocation gives the Bank a greater comparative advantage in project preparation and design than in scale of intervention. Cofinancing is therefore actively sought from other donors, with leverage of the Bank's interventions being a strategic objective. In this context, the Bank has therefore sought to support the EC, the main donor, in mobilizing and coordinating international support for the reform program. The lending program includes: investment loans to rebuild urban and agricultural infrastructure and to restore a minimum provision of public services targeted at the poor; quick-disbursing loans to support sectoral policies and to provide much needed balance-of-payments support; and technical assistance to support the implementation of the program. Because of Albania's limited implementation capacity, projects have been designed to be simple, narrowly targeted, and implementable by a single agency. Projects will also have to be very economical in their use of IDA'a administrative resources. With these considerations in mind, project size will be kept small, in many instances limited to a specific region; implementation will build on past experience, and successful projects will be replicated. The average cost of preparing projects in Albania for Board presentation has, so far, come to be about 50 staff weeks of IDA resources per project. We hope to keep this cost low, although some projects will inevitably cost much more to prepare. The objective remains a relatively large number of small, targetted operations, hopefully leading to flexibility in our ability to repeat what works and redesign what does not work; and, overall, to achieve a high degree of success in implementation. Cgmiposition of Lending 34. The Bank's central objective, pervading the entire lending program, is to target long-term poverty alleviation through the support of sectoral policies and the elimination of obstacles to growth, such as the lack of infrastructure and, when possible, through projects focussed on the poorest groups or regions. Possible lending operations can be grouped under the strategic priority headings discussed earlier. 35. Rehabilitation of Infrastructure. On the basis of sector strategies defined by an energy sector and a household energy study, a power project (FY95) will finance the rehabilitation of the electricity distribution network and - 12 - implement a pricing policy aiming at cost recovery. A transport project, already approved, will finance the rehabilitation of some 80 km of main roads, repairs to the port of DurrOs, and provide technical assistance for the development of a transport policy. A housing project, also approved, is financing the completion of public housing units on which construction was interrupted due to lack of funds. These units will be privatized immediately after completion of the work. The project also provides technical assistance to strengthen the institutional capacity of the Ministry of Housing. Building a modest but modern telecommunication system is also a high priority, but this is expected to be financed by the EBRD. 36. Su=port for the Development of Private Acriculture. Because agriculture produces one half of total value added, employs half of the labor force, and 60 percent of the population live in the countryside, IDA has placed special emphasis on this sector. A sector strategy was presented in the FY92 report, "Agricultural Strategy for Albania," prepared by IDA jointly with the Government and the EC. The Critical Imports credit chose agriculture (with transport and power) as one of its target sectors. IDA will support the development of private agriculture by improving infrastructure, the pricing and incentive policy, and access to rural credit, as described below. 37. To support the rebuilding of agricultural infrastructure, IDA is preparing an irrigation rehabilitation project and a rural roads project (FY94). The proposed irrigation rehabilitation project will not only rehabilitate existing structures and equipment, but will also ensure long-term sustainability of investments through appropriate pricing and farmers' participation in the operation, maintenance, and funding of the system. The proposed rural roads project will help provide year-round access to a number of villages and will substantially reduce farmers' marketing costs. In addition to these two investment projects, the recently approved Rural Poverty Alleviation Pilot Project, under implementation in a few pilot regions, aims at rehabilitating infrastructure at the village level, through labor-intensive work programs administered by the local authorities. Lastly, the restructuring of the existing agricultural extension and support system is supported by the Agricultural Sector Adjustment Credit (ASAC), approved in FY93. 38. Reform of the agricultural orice and incentive framework is also being supported by the ASAC. The Credit supports the pricing of food aid at import parity levels, together with the elimination of direct subsidies on bread, the main staple. In addition, private trade in agricultural products is being encouraged through the removal of price ceilings on privately imported goods, the removal of export licensing, and by contracting distribution and processing of food aid to private operators. A land registration and cadastre system will be established prior to legalizing the leasing of land, paving the way for land markets. Privatization of the state-owned marketing and processing enterprises is also supported by the ASAC. Increased private sector participation is expected to help restore the marketing and processing networks and to provide incentives for increased agro-industrial production. 39. The development of a rural credit system is being pursued on two levels. Formal credit needs are to be met through the creation of a new Agricultural - 13 - Bank. The ASAC supports a technical assistance program of institutional strengthening for the new bank and provides a credit line, which will allow onlending to farmers, traders and other rural entrepreneurs. The needs of small farmers and small-scale entrepreneurs, who are likely to require small uncollateralized loans that are unprofitable for a formal banking institution, will be addressed through the creation of village credit funds being set up under the Rural Poverty Alleviation Pilot Project. 40. Social Safety Net Reform and Poverty -Alleviation. The Technical Assistance Project for Social Safety Net Development will support the establishment of a new social insurance fund to administer pensions and other benefits. It will also develop a new system to collect individual contributions, develop an automated social insurance register; and strengthen the Social Insurance Institute's organizational structure. The accompanying Labor Market Development Project will support the administration of the unemployment insurance scheme and the development of a proactive labor market, training, and employment policies. The Technical Assistance Project for Social Safety Net Development will also advance the reform of social assistance by developing policies to rationalize the many existing programs, train staff and reorganize the Ministry of Labor and Social Protection, and develop a statistical data base for poverty monitoring. 41. Given administrative constraints in Albania, 2overty alleviation Proarams will have to rely extensively on "self-targeting" mechanisms. Such mechanisms have already been developed under the Rural Poverty Alleviation Pilot Project, where the combination of low wages and work requirements help to "self-screen" applicants. An urban poverty pilot project in FY95 could provide credit to micro enterprises in urban areas and create employment opportunities in the cities worst affected by the industrial downsizing. Lastly, with the deep structural changes currently taking place, new forms of poverty are emerging. Accurate poverty monitoring is difficult because of the lack of an appropriate statistical apparatus and a new system must be built from scratch. As a preliminary step, a simplified priority survey to identify and locate extreme forms of poverty is planned for FY95. 42. Education and Health. A school rehabilitation project (FY95) will rehabilitate primary schools, provide incentives for the entry of new private textbook producers, and develop a medium-term strategy for the implementation of a new curriculum. A health rehabilitation project (FY95) will aim at strengthening the primary care system, restoring essential hospital operations, consolidating the network of referral hospitals; and making the present system of drug production and distribution more competitive. Furthermore, it will provide technical assistance for improved sector management and planning by the Ministry of Health. 43. Privatization and Restructuring of Public Enterprises and Financial Sector Development. At the sectoral level, and going beyond investment projects, IDA also envisages significant support for reform in the public enterprise and financial sectors. A major tenet of IDA's strategy in this area is that reform in financial and enterprise sectors has to proceed concurrently. At the same time, a radically different approach is needed in Albania for the hundreds of - 14 - Table 2: Main Outlbe of IDA's Assistance Strategy-FY94-96 SECTOR OBJECTIVE NATURE OF IDA SUPPORT (Projects and ESW) Rehabilitation of infrastructure and *Rehabilitation of existing equipment and *Power Project basic public services now investments *Transport Project *Cost recovery for the main utilities *Water Supply Proiet Support to private agriculture *Improvement in Infrastructure *Rural Roads Project *Creation of incentive framework (pricing *Irrigation Project policy and new entries in agroprocessing *Privatization Study for Agro- and distributing sector) Enterprises *Building of rural credit Social sectors and policies *Move social insurance toward actuarial *Social Safety Net Project basis 'School Rehabilitation Project *Target better social assistance *Health Rehabilitation Project 'Develop policy for poverty alleviation 'Labor Market Project *Urban Poverty Project 'Poverty Surveys Privatization, restructuring and *Privatization of small- and medium - *Enterprise & Financial Sector financial sector restructuring scale enterprises Project 'Restructuring of ERA Enterprises 'Development of bank infrastructure *Introduction of competition in financial sector Development of now central, and *Improve capacity for reform preparation *1994-96 Public Invest. Program local administration and implementation *Study on Civil Service Reform *Improve absorptive capacity *Tax Administration Project *IDA-Only Debt Reduction Facility *Public Administration Action plan Foreign debt Facilitating a voluntary negotiated *Use of IDA-debt reduction settlement consistent with the nature of facility Albania's debt and the country's debt servicing capacity small- and medium-scale enterprises, and for the thirty or so larger problem enterprises. Small- and medium-scale enterprises will be privatized, as rapidly as possible and with the minimum amount of government involvement. The proposed EFSAL will support this kind of approach, which is now the strategy explicitly chosen by the Government. As explained above, the situation is different for a group of large enterprises with a large number of employees, often concentrated in specific towns or regions. Many (though not all) produce negative value-added at international prices. They cannot be simply and suddenly closed, adding massive unemployment to the already existing numbers. A focused, "hands-on" approach by the Government to deal with these problem enterprises appears more - 15 - desirable than leaving them in a state of limbo and as a source of chronic pressure on the financial system and the budget, or a source of potential social unrest. The proposed EFSAC, therefore, will support the newly created ERA (Enterprise Restructuring Agency) with the objective of achieving a rapid but orderly and socially acceptable downsizing of these enterprises. This will Include closure, liquidation or, wherever possible, complete restructuring with the participation of a foreign partner willing to form a new joint venture or willing to buy part or all of the enterprise. 44. Parallel to these enterprise-focused activities, the EFSAC will address financial sector development, supporting the implementation of the new banking law and providing some new investment funds to those new banks that pass eligibility criteria appropriate to the specific Albanian circumstances. _The EFSAC will also support the overall development of banking infrastructure, such as the payments system, as well as the institutional strengthening of the banks, through technical assistance and twinning. Finally, the project will include the development of prudential standards and the strengthening of bank supervision functions, and it will try to foster greater competition through the establishment of a transparent licensing policy that will remove regulatory obstacles to the entry of new private financial intermediaries. The EFSAC would thus be a complex, multi-objective, adjustment operation, contrary to the simpler and more-focused design of most of the investment projects in the program. The reason for this complexity lies in the interdependent nature of the enterprise and financial sector problems, and the need to tie adjustment funds to a real "breakthrough" in the industrial sectors similar to the breakthrough already achieved by the ASAC in agriculture. 45. Reform of Central Administration. Finally, IDA is also planning to support the overall capacity of Albanian institutions to implement the reform program by facilitating institution-building and comprehensive reorganization. With respect to the reform of public administration, advice is being provided to the Government through an ongoing study of government organization and civil service reform, financed from grant funds under the Institutional Development Facility. So far the study has concentrated on the organization of the Ministry of Finance and Economy. It will be extended to other ministries, to a review of the civil service pay-scale, and to decentralization issues. A Public Administration Action Plan will then support the implementation of the recommendations presented in the study. 46. In the area of fiscal reforms, IDA is planning projects to support tax and expenditure reform. In FY94, a small tax administration credit will provide a unifying framework for the various assistance programs of external donors in this area, and will provide the training and technology required for tax and tax administration reforms. Through the preparation of the 1994-96 Public Investment Program (PIP), the first in Albania, IDA is helping the Government to establish mechanisms that will allow effective design, control and management of public investment. Furthermore, the PIP is to be one of the main supporting documents for a forthcoming donors' meeting under the auspices of the G24 and will thus be a crucial instrument in aid coordination. 47. Normalizin Relations with External Creditors. After difficult internal political debates, the Government has decided to try to reach a negotiated settlement to resolve its external debt problem and has requested the use of the IDA-Only Debt Reduction Facility. The Facility would provide part of the cost - 16 - of a mutually agreed settlement, thereby assisting Albania to buy back its commercial debt at a significant discount. R. Level of IDA Involvement and Triqqer Points Base Case Scenario 48. The base case strategy, outlined above and described in the PFP, had to be built on the present rather modest IDA allocation of SDR 65 million for FY94- 96: SDR 30 million in FY94, declining to SDR 20 million in FY95 and SDR 15 million in FY96 (about SDR 6.5 per capita, per annum). The base case reflects continued satisfactory macroeconomic performance and seeks to address the most striking deficiencies in infrastructure and to provide the first steps in a program for long-term development and poverty alleviation. The composition of lending over the next few years would reflect the sectoral priorities described earlier as well as the reform objectives and absorptive capacity of the authorities. The composition of the lending program most likely would be as followes investment lending (75 percent)l technical assistance (10 percent) and Table 3 adjustment lending (15 percent). Tentative Composition About half of investment lending will of IDA lending FY94-96 be for infrastructure and nearly one- third for agriculture, both of which will support private sector development. Support for social sectors, health and education, could Investment Lending 75 account for the remainder of - Infrastructure (40) investment lending. The presence of technical assistance reflects IDA's - Agriculture (20) strong emphasis on institution - Social Sectors (15) building in government ministries as well as in regulatory, oversight and Technical Assistance 10 governance agencies--critical to strengthening Albania's absorptive Adjustment Lending 15 capacity for foreign funds. It . represents a relatively modest share because significant resources are available from other sources, and it is targeted on areas of particular importance for IDA program implementation. 49. This base program has a good chance of success, given the results of the macroeconomic stabilization program and the progress in structural reforms to date (as described in the PFP, and referred to above). It is very constrained by the tight envelope of IDA resources, but thanks to cofinancing and close cooperation with other donors, could make a significant positive contribution to Albania's development. As mentioned earlier, there are good reasons to be optimistic about Albania's ability to grow more rapidly, as reforms take hold. Nonetheless, alternative scenarios could also result from changes in domestic performance or the external environment. A high case scenario and two possible downside scenarios are discussed below. - 17 - Hiah Case Scenario SO. Despite the limited IDA envelope, IDA projects have had an extremely good start, because of the strong emphasis on mobilizing cofinancing, and excellent cooperation at the highest political levels. Should implementation efforts succeed more rapidly than projected, it could become desirable to add an additional SDR 10 - 15 million to the three-year IDA allocation, and thereby maintain annual IDA commitments at SDR 30 million instead of having them decline already in FY95. The increased allocation would likely be devoted to additional investment projects of a follow-up nature, which would expand and build on the scope of the ongoing or planned portfolio of IDA-financed, regionally targeted projects (roads, irrigation, health, and education), or which would extend the present pilot projects (rural poverty). An essential trlcer for this (modestly) higher case would be faster-than-projected disbursement of IDA credits, as evidenced by effectiveness of the credits within, on average, 90 days of Board presentation, and an average disbursement faster than projected under the individual project profile of staff appraisal reports. Such a performance would provide a clear indication that the capability of Albanian institutions to successfully implement projects has increased. Continued macro-economic stability would of course remain a condition, perhaps accompanied by higher growth than that in the PFP. There are signs that absorptive capacity is improving: disbursement of the Critical Imports Project (CIP) and of the Rural Poverty Alleviation Pilot Project are going ahead at a sustained pace and the average period from Board to effectiveness for the Housing Project, the ASAC, the Transport Project, and the Technical Assistance Project, will be close to our 90- day target, despite the summer recess of Parliament. This, in addition to the good implementation of the reform program that has led to a solid macroeconomic performance, suggests that it may become possible and desirable to aim at the modestly higher case. Low Case Scenarios 51. The lending program described above is predicated on the consolidati n of the good results on the stabilization front. Further progress in reform is, however, subject to internal and external risks. Domestically, given the large decline in incomes experienced under the stabilization program so far, reforms could be interrupted by internal difficulties which would threaten their social sustainability. Furthermore, 45 years of self-inflicted autarchy have left a mark on the central administration. The current efforts to train and reorganize the civil service may not, in the short-term, be reflected in a significantly improved absorptive capacity. On the external front, the unstable regional situation could materially affect Albania's economy and prejudice reforms. For example, regional instability could reault in a sudden inflow of refugees or seriously reduce remittances from Albanian workers abroad. Either could have serious political and economic implications. 52. Implementation Slimaves. Should Albania fail to maintain the effort of domestic revenue mobilization and tight monetary policy, stability and recovery would be seriously endangered. The low case scenario assumes that the Government is unable to proceed with the restructuring of the public sector, privatization, or banking reform; and that reducing public expenditures and broadening the tax base do not occur at the pace projected in the PP. As a result, budgetary support to enterprises would increase, the budget deficit would remain close to its current level, and inflation could take off again. Over time, this situation would prevent sustained growth and thereby lead to renewed social tensions and general instability. Such performance would result in a loss of balance-of- payments support from the Bank and the IMF. 53. A formal triocaer for this low case would be evidence of increased macroeconomic instability, as evidenced by worse budget deficit and inflation than envisaged under the PFP. This would lead to a suspension of adjustment operations--both of planned tranche releases of approved projects (ASAC), and of the planned EPSAC. in addition, failure to implement the agricultural pricing policy agreed under the ASAC would require a reconsideration not only of disbursements under the ASAC, but also of investments in rural infrastructure. Pinally, failure to pursue sector specific reforms would lead to an interruption of lending in the sectors concerned. S4. Hogtile Egternal Invironment. There is unfortunately another externally driven set of circumstances that could lead to a low-case scenario or at least to substantive modification from the base case. It is possible that, over the next few month. or years, the unstable political situation in the region could worsen. This could result in a substantial decrease in transfers from Albanians abroad or in an inflow of refugees, with adverLe consequences for the sustainability of the reform program. in such an event, the macro-economic framework as well as the nature and level of IDA involvement would have to be reconsidered. It is possible, for example, that massive bloodshed in Kosovo could lead hundreds of thousands of refugees to cross the border into Albania. While this may not have to imply a decrease of IDA activities in the country, the strategic framework would have to be changed and larger amounts of humanitarian assistance from other donors would become essential. Were such external events ~to affect our program, a new overall assistance strategy would have to be discussed with the Board. F. Qofinancing,. Portfolio Managiement and Special Areas 55. Albania has attracted strong emergency support from other foreign donors: aid commitments, including food aid, for 1993 amount to US$420 million. Coordination with other donors has been excellent, both formally during aid meetings organized by the G-24 and informally among staff working on Albania. As a result, projects have become vehicles for aid coordination and catalysts for mobilizing funding. Cofinancing has helped IDA leverage not only its resources, but also project impact. The beneficial results of this coordinated approach are evidenced by the large number of projects where IDA funding has been more than matched by bilateral donors. It is clear, however, that aid levels will decline as emergency aid is replaced by project finance and that it is all the more important to obtain maximum impact from what will remain. Portfolio Manaan2ent 56. Project supervision will require substantial resources. The Critical Imports Proj ect (CIP) , the Bank Group's9 f irst operation in Albania, has provided useful lessons, applicable to future operations, and has highlighted the need for strong institutional arrangements to be put into place to ensure adequate project management. Despite many start-up difficulties, implementation of the CIP to - 19 - date has been a success, with bidding underway or completed on 100 percent of the credit and contracts awarded for 60 percent, only one year after Board presentation. Adapting the experience of the CIP should facilitate the management of future projects, particularly in terms of procurement and disbursements, two areas where Government staff assisted by IDA have gained valuable experience during the past year. Areas of Special Emphasis 57. Poverty Issues. The level and distribution of income (still very equal) in Albania is such that rapid development is, in the short-run, the only relevant route to poverty alleviation. Nonetheless, IDA's strategy aims at addressing poverty issues in the medium-term and helping to mitigate the social costs of adjustment in several ways. Strong emphasis on agriculture will alleviate rural poverty and create rural employment. The ASAC, the Rural Roads Project and the Rural Poverty Alleviation Pilot Project address issues of poverty in rural areas by improving access to land, increasing farm incomes and employment opportunities. The proposed social sector projects would help reform the social safety net, the unemployment compensation mechanism, the education system and the health care delivery system. The proposed water supply project will reduce water-borne diseases affecting the poor in the port city of DurrAs. In addition, IDA will carry out a full-scale poverty assessment as soon as reasonable reliable data allow such an effort to yield useful results. 58. Although -wome have had, and continue to have, access to all levels of education and employment (49 percent of the work force are women), Albanian women have been concentrated in lower paid and less prestigious occupations and are under-represented in managerial and higher level positions. The transition period is expected to impose added hardships on women: the proportion of women among the unemployed may increase substantially, as men may be rehired faster. IDA is attempting to protect the welfare of women through the design of the social safety net, and the provision of employment services a-4 training. 59. Environmental de&radation is less acute in Albania tha- in other East and Central European countries. Nevertheless Albania is committed to addressing its environmental problems. An Environmental Strategy Study (FY93) identified the main problem areas and established a list of priorities for environmental actions. It also made recommendations to strengthen the various bodies involved in formulating and implementing environmental policy. The study will lead to the implementation of a National Environmental Action Plan. IDA will place special emphasis on the implementation of this Plan. Furthermore, a water supply project (FY94) will reduce water shortages and associated environmental and health risks in the second largest city of the country. Lastly, great care is being given In project design to the environmental impact of measures such as pesticide and fertilizer pricing, energy and natural resources pricing, and the building up of institutional awareness of environmental issues. G. Role of IFC/MIGA 60. IFC faces a particularly difficult challenge in Albania and an immediate program is unlikely in industry. The mining and the service sectors, however, could attract early IFC involvement. So far, IFC has focussed on a joint venture project in chromium and further operations in mining and the tourism sector are - 20 - under consideration. It is also considering technical assistance for the development of capital markets. 61. MIGA's guarantee program is fully available for investment in Albania. It has already extended a guarantee for a tourism project. MIGA is currently reviewing the legislation on foreign investment. H. Collaboration with Other Institutions 62. The IMF has an active program in Albania. It has supported the stabilization and reform agenda through an Sk 24 million, 12-month Stand-by Arrangement and recently with the conversion of this Arrangement into a three- year arrangement under the Enhanced Structural Adjustment Facility (ESAP). IDA has been working very closely with the IMP, and jointly prepared the Policy Framework Paper, the supporting document for the ESAF. 63. IDA is at present the third largest financier in Albania, behind the SC and Italy. In addition, all the major European countries, including Turkey, have snall bilateral assistance programs, and the EBRD is developing a program. The SC has assumed the principal role in mobilizing external assistance. IDA is also playing a crucial role in the effective coordination of investment technical assistance, thanks to its extensive SSW and support to the Government's reform program, and its financial support for the key sectors of the economy. This has resulted in a high degree of leverage in IDA-financed projects: based on IDA commitments of SDR60 million to date, another US$29 million has been committed or disbursed through cofinancing, with an additional US$S million for technical assistance and project preparation activities to be administered by the Bank. Further cofinancing is expected as donors commit resources to fill the external financing gap. I. Summary and Key Issues for Board Consideration 64. The Bretton Woods institutions have assumed a high profile role in Albania, both in terms of policy advice and in terms of lending. Their advice is eagerly sought and, as outlined in the PFP, there is broad agreement on the main objectives of the reform. Very close cooperation between the IMF and the World Bank, as well as a real atmosphere of trust between the Bretton Woods institutions and the Albanian authorities, has clearly been a determining factor in the success of the stabilization and adjustment program over the past 12 months. 65. Although there is an excellent understanding between the Bank and. the authorities on the reform strategies and their implementation, the program envisaged by the authorities is wide-ranging and ambitious. Over the next few years, it includes privatization of all small and medium-scale enterprises, drastic downsizing of large public enterprises, pricing of food aid at import parity levels, contracting distribution and processing to private operators, progress in utility pricing at cost recovery levels, privatizing the public housing stock and abolishing rent control, implementing the new targeted income support program, introducing the VAT, and many other such reform measures. This is a huge challenge, and major difficulties can and should be expected. What is essential for continued strong IDA support is a lasting willingness on the Albanian side to address these difficulties, and the ability to work together to - 21 - find solutions that do not endanger: (I) macroeconomic stability, and (U1) long- term sustainable growth. For example, delaying critical infrastructure Investments to compensate for a shortfall in tax revenues would not be an acceptable solution. Increasing the present 5 percent across-the-board import surcharge temporarily to 10 percent could be acceptable. Should there be a resurgence of macroeconomic instability, the Bank would review its adjustment lending operations. In response to a slackening of the agreed pace of reform in a sector, the corresponding lending operations would be reconsidered. On the other hand, if the implementation of the reforms were better that expected, and the macroeconomic program remained on track, maintaining IDA's present level of support in the outer years FY94-96 would seem appropriate. Finally, if the country were hurt by a severe externally-imposed disturbance, the Bank would have to reconsider the scale and scope of its activities. 66. The Board may wish to discuss the following issues: a. progress in mobilizing the remaining external financing gap projected in the PFP and, more generally, the external financial environment, including the debt overhang; b. the strong emphasis on investment lending to build infrastructure in IDA's lending strategy; and c. possible contingency plans for a future worsening of the regional environment. PART III: THE PROJECT 67. Sector Background. Due to very low levels of income and an extremely egalitarian income distribution, unusually large sections of the population became vulnerable to the dramatic compression of real incomes which took place in 1991 and 1992 as a result of the crisis and economic reforms. Against this backdrop, the social safety netl has an especially important role in Albania in increasing confidence in democratic institutions and maintaining a social consensus during a particularly difficult economic transition. From an immediate and medium-term perspective, the establishment of a sustainable and carefully designed social safety net is the only hope that the social fabric of the nation will not break down and that massive deterioration in human resources will not occur. 68. The current social safety net is facing major financial problems. With the abolition of agricultural cooperatives, 42 percent of the formerly insured population stopped paying contributions while the Government maintained the payment of their pensions and social insurance benefits. Large numbers chose to retire early (38 percent of all retirees in 1992) to avoid becoming unemployed. The number of unemployed rose from 9 percent of the labor force in June 1992 to about 26 percent of the labor force by end of 1992, while the number of contributing members and beneficiaries fell from about 1.4 million to 1.2 2/ The social safety net can be defined as the sum of the social insurance and social assistance systems and related social policies (including employment services and public work schemes and in-kind benefits such as medical care). However, this Project will focus primarily on cash benefits. - 22 - million. As a result, large and rising governme:.t subsidies are needed merely to maintain the present social insurance system at its present low protection levels. 69. Government StrategX. The Government has realized that international emergency aid cannot be expected to continue for more than a short transItional period. Meanwhile, permanent, rationally funded support systems must be established. Social policy reforms must be consistent with the ongoing economic reforms, and income support systems must be established which provide appropriate incentives to productive employment and critical protection against poverty to the vulnerable segments of the population, while at the same time containing upward pressure on the Government budget. The Government, with the assistance of the World Bank, has developed a coherent strategy to achieve these objectives. The new Social Insurance Act (#7703 dated May 11, 1993, and effective from October 1, 1993), which provides guidelines for the proposed Technical Assistance Project for Social Safety Net Development (SSND), will limit the effective retirement age by tightening eligibility conditions and limiting exemptions. It will link social insurance benefits to contributions, and establish a framework for a social insurance scheme for private sector employees and self-employed persons. The newly independent Social Insurance Institute (SII) will modernize and rationalize its activities to implement this strategy. The reform of the social assistance system will extend means-tested benefits of last resort for the most vulnerable families by rationalizing and expanding the ndhima ekonomike scheme, an existing community-managed program for the neediest. The new social assistance benefits, financed by earmarked block grants from the central budget, will be administered by local governments with the supervision of the Ministry of Labor, Social Protection, Emigration and Ex-Politically Persecuted Persons (MOLSP), which is assigned overall responsibility for social policy in Albania. 70. Rationale for IDA Involvement. As has been the case with the Bank's previous engagements in the development of effective income support systems elsewhere in the region, the issues involved with the establishment and strengthening of these systems are complex. The Bank is well-suited to support the proposed project initiatives because of its knowledge of sector issues gained from past lending and sector work in other countries, as well as the technical expertise which it can mobilize. The Bank and the Government agree that developing such an income support system is a long-term process. The proposed Project will support the Government,s first steps in developing r. modern, sustainable and comprehensive income support system. This process has technical requirements that extend beyond the resources now available through the international donor community (UNDP, UNICEF, EC/PHARE, Red Cross and other international non-governmental organizations [NGOs]). The social assistance component of the Project will help the Government to put social assistance into a unified framework and thus improve its donor coordination activities. 71. The proposed Project is being prepared and negotiated in parallel with the proposed Labor Market Development Project (FY94), because management of unemployment benefits and income support needs to be closely linked with development of an effective labor market. The Project will complement the World Bank program to assist in the social aspects of Albania's economic transition, as reflected in the Rural Poverty Alleviation Pilot (FY93), Health Rehabilitation (FY94), and School Rehabilitation and Technical Assistance (FY95S) Projects. - 23 - Project Objectives 72. The Technical Assistance Project for Social Safety Net Development (SSND) will provide technical assistance to the Government in reforming its systems of social protection in order to alleviate the disruption resulting from the economic transitic.t, while at the same time configuring these systems to be compatible with a market-oriented economy. Specific project objectives are to: (a) provide assistance to policy formation and implementation in social insurance and social assistance programs; (b) strengthen institutions responsible for planning and management of cash benefits; and (c) strengthen (or develop, as required) training, research and statistical capacities to support social policy formation and Implementation. Prolect Descri2tion 73. The Project will provide technical assistance, training, fellowships, equipment, computer hardware and software, and civil works to support the proposed reforms in social safety net development. The Project comprises two components: 74. Social Insurance Reform (US$4.2 million). The aim of this component is to help the SII to carry out fundamental changes in the way it defines its principal tasks in response to its newly attained autonomy and its assumption of responsibility for the Social Insurance Fund (SIF). Whereas in the past, its main task was to pay out benefits according to rules defined by the state's central planning unit, the SII now must take initiative and share responsibility with MOLSP in setting policies to ensure the financial viability of the SIP, while maintaining an actuarial balance between financial and social obligations of the social insurance system, as well as in carrying out operations to implement these policies. This component will support *the SII in: (a) establishing the new SIP, strengthening policy-making skills in the course of implementing the new Social Insurance Law, and developing actuarial methods to assess contribution needs for the Fund; (b) designing new systems for collection of individual contributions, monitoring and ccllection of arrears in contributions, control of collection fraud, determination and payment of benefits, and control of recipient fraud and abuse; (c) developing an automated Social Insurance Register to serve as the basis for determining eligibility; and (d) strengthening SII's organizational structure, including staff training and establishment of a Project Coordination Unit (PCU). 75. Social Assistance Development (US$2 .0 million). The second component will support the MOLSP in: (a) developing general social policies and policies for a new social assistance scheme (to be based on an improved ndhim ekonomike; and defining the appropriate institutional framework for program administration; (b) strengthening the capacity of the institutions (MOLSP, local government and the University of Tirana) to manage and implement the social assistance program; and (c) developing a statistical database to monitor the evolution of household welfare needs for general social policy purposes, and for block grant distribution and means-testing, in particular. - 24 - Proect Implementation and Sustainability 76. The Project will be implemented over four years by the SII and the MOLSP. Improved determination of eligibility, collection of social insurance contributions, targeting of cash benefits, and strengthening of the institutional capacity of the social insurance and social assistance systems will contribute to the medium-term sustainability of the Project. The Project's two components are linked conceptually, but they are implemented separately by SII and MOLSP. Final responsibility for implementing the first component (Social Insurance Reform) will be with SII. A PCU has been established under the Office of the SII Director General which will coordinate implementation of the four Social Insurance sub-components by designated existing line units of SII. MOLSP will have final accountability for the implementation of the second component (Social Assistance Development). The Director of the Social Assistance Department will be assisted by the MOLSP-PCU (which will coordinate the proposed Labor Market Development Project) in the areas of procurement, contract administration, disbursements and liaison with external agencies, including IDA. 77. Close coordination with the Labor Market Development Project, which shares the same PCU in MOLSP, is crucial both at central and local Government levels during implementation. Apart from implementing a new division of labor between the two entities, the two projects have a number of complementary features (e.g., social insurance provisions for retraining, certification of eligibility for unemployment benefits, etc.) which call for such coordination. The Project includes the earliest and most pressing interventions needed to establish a foundation for future institutional development and a sound program for social insurance and social assistance. Many project activities are therefore not expected to be self-sustainable in the absence of future investments. In recognition of this fact, and their modest value, incremental recurrent costs financed by IDA (US$150,000) are not being constrained to the usual declining scale. 78. Lessons Learned from Previous IDA Involvement. This is among the earliest IDA-financed projects in Albania, and the first IDA project to assist in the development of an effective income support system for the country. Early experience with the implementation of IDA projects, which to date has been limited to the early stages of the Critical Imports (FY92) and Rural Poverty Alleviation (FY93) Projects, has confirmed the anticipated need for strong support for institution building. Bank experience in developing income support systems elsewhere in the region underlines the importance of having a close dialogue with Government on redesigning cash benefit and other income support systems. Cash benefits and in-kind transfe-s are generally costly and poorly targeted in the region. Retargeting these benefits is key boe to reducing budget deficits and to improving the efficiency of social safety nets. Countries like AlLania, late starters with market-oriented reforms, have a pressing need for technical assistance in this field to ensure that thp appropriate policy objectives are implemented adequately. These lessons have beerwincorporated into the design of the present Project. 79. Environmental Aspects. This is a Category C project: "no appreciable environmental impact". - 25 - 80. Program Ob1ective Categories. The Project supports the Government in reforming its social protection syseems to alleviate the disruption resulting from the economic transition, while at the same time configuring these systems to be compatible with a market economy. It includes the following categories: Human Resources (75 percent), Poverty Alleviation (40 percent). 81. Agreed Actions. During negotiations, assurances were obtained that a mid- term review would examine the feasibility and timetable of transferring responsibilities for unemployment benefit payments from local labor offices to SII offices. For project effectiveness, IDA will require that: (a) the Subsidiary Agreement on behalf of the Borrower and SII be executed; (b) the new Social Assistance Act be enacted in form and substance satisfactory to IDA; and (c) the implementing regulations of the new Social Insurance Act be enacted in form and substance satisfactory to IDA. 82. Benefits. The Project's major benefit will be to strengthen the institutions responsible for planning and implementing the social safety net, and to improve the structure and financial viability of the social insurance and social assistance schemes. Through assistance in developing more efficient systems, the Project will contribute to reducing the fiscal drain from the social insurance system. It will strengthen the institutional capacity of the social insurance system through support to policy development, planning, management and evaluation. It will also improve the administrative infrastructure which is necessary for more effective and efficient client services. 83. Riskj. The Project's maJor risks include: (i) the time lag and coordination difficulties involved in creating institutional capacity at lover levels of administration, both in social insurance and social assistance; (ii) the rapidly rising number of people with no source of income beyond the expiration of their unemployment benefits, which could exceed the implementation capabilities of local social assistance administration; and (iii) potential conflicts of interest within the central government and between central and local government organizations. Extensive technical assistance will be provided by the Project to strengthen project management capacity in the institutions involved, assist in the detailed design of strategic systems plans, and enhance project implementation. A mid-term review will assess project implementation experience in light of current economic developments, as the basis for possible adjustments or refinement in implementation of project components during the last half of project implementation. Significant efforts will be made to improve external donor coordination and internal division of labor among various government agencies. - 26 - 84. Recommendation. I am satisfied that the proposed Credit will comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve it. Ernest Stern Acting President Attachments Washington, D.C. August 18, 1993 - 27 - Schedule A ALBANIA TECHNiCAL ASSISTANcs PROJECT FOR SOCIAL SAFETY NET DwVEoPMET Estimated Costs and Financing Plan Nstimated Project Costs: 1/ LoGal Poregtn Toa ------US$ Million------ Social Insurance l.Financial Mgt./Policy Development 0.0 0.6 0.7 2.Collection/Benefit Delivery System 0.4 1.3 1.7 3.Information Management/Automation 0.1 0.3 0.4 4.Central/Regional Administration 0.1 0.9 1.0 Subtotal Social Insurance 0.6 3.1 3.7 Social Assistance 5.Policy/Program Development 0.0 0.2 0.3 6.Social Welfare Inst. 0.0 1.0 1.1 7.Poverty Monitoring 0.1 0.4 0.5 Subtotal Social Assistance 0.2 1.6 1.8 Total Baseline Costs 0.7 4.8 5.5 Physical Contingencies 0.1 0.4 0.4 Price Contingencies 0.0 0.2 0.3 Total Project Costs 0.9 5.4 6.2 ==mum === === Financing Plan Local Foreign Total ------US$ Million----- Government of Albania 0.7 0.0 0.7 IDA 0.1 5.4 5.5 Total Financing Requirements 0.8 5.4 6.2 Deaie sbsan ===m 1/ Detailed numbers may not add to totale because of zoundin9* - 29 - Sceu IL Page 1 of 2 ALANIA TECNICAL AS~ISTANCE PROJECT FOR SOCIAL SAETY NET DEVELOPMENT Procuremnt mArangemente 1 (US$ million) Procurement Method Proect slement rca onuER up IfL 0csT SO * @flfs*ls.f. ...S . **f 0 *fS .... . ... .8. .. aquipment, Vehicies, Purniture 1.4 0.4/ 1.0 and Materiale (1.4) (0.4) (1.0) Civil Worka 0.41 0.4 (0.3) (0.2) Technical asistance. Pellowhipg. and Training 3.4/ 0.3 3.6 (3.4) (0.0) (3.4) xnremental meourrent Cotg 0.1j/ 0.3 0.4 <0.1> (0.0) (0.1) Total Pinancing equirments 1.4 4. 0.5 6. Total ank pinancing (/ (1.4> (4.1) (0.0) (5.5) 1li: Detailed nubers may not add up to totals du* to zounding. A/ Pigures in parenthgeses are the repective amounte fInce by the DA Credt. k/ International hoppIsng (aggregate US$300,000) packages eutimated at lesa thn US$100,000 per contracti Local Shoppiug (aggregate US$25,000) packages estlmated at le9 than Us$5,000 per contracti and intellectual property purchaed directlylnegotiated with publichera or copyight owner (aggregate US$55.000). j/ Civil works Iclude returbishing/rmodelling of buildingo to be procured through local shopping. / Service of conultantn/institutions (adviaora. expertg. tellowshipg/training) to be engaged in accordance with IDA Guidelineg for Une of Consultante. / 2DA would finance 100 percent of foreign exohange cogta (totalling US$150. 000), including equipment operation and maintenance, etc. and materialg and supplies for the PCU and central and local social ineurance ofticeg, which would be procured in accordance with 3ank guidelineo. Government would inance 100% of local coste (US$300.000), including itema auch as statt galariea. travel/perdiem, euipment and building maintenana,. gupplies, ax.e. duties and local labor. In light of the modest num involved, IDA han not ininted that itg financing for incremental recurrent costg be on the noral declining basis. / Under ffP. US$135.000 allocated for procurement of equipment vould bo used in accordance with nota kl above, and US$265,000 for servicec would be used in accordance with g/ above. - 30 - Schedule . Page 2 of 2 ALEANIA TECHNICAL ASSISTANCE PROJECT FOR SOCIAL SAPETY NET DEVELOPMENT Proooed Dibursement Categories Ca~egory Amount % of Expenditures to be Financed (US$ MlOn) 1) Civ work 0.2 50% 2) Good Part A Social Insrance Refor~' 0.9 100% of foreign expenditures, 100% of toea expenditur (ex-factory ~oo). and Part B: Social Assitance Development 0.6 85% of local expenditures for other Items procured locally. 3) Conmukant Servicea and Traning 100% Part A: Social Insurance Ref. 1.9 Part B: Social Ausistance Dev. 0.9 4) Inremental Operating Costs 0.1 35% of total expenditur e 5) Refunding of Project 0.4 Preparatio Advance 6) Unailocated 2 TOTAL 5.5 Eutimated Disbursement: (US$ million) IDA FY FY94 FY95 FY96 FY97 Annual 2.9 1.6 0.7 0.3 Cumulative 2.9 4.5 5.2 5.5 Cumulative as % of Total 53% 82% 95% 100% - 31 - Sichedulegk ALBANIA TECHNICAL ASSISTANCE PROJECT FOR SOCIAL SAFETY NET DEVELOPMENT Timetable of Key Proiect Processing Events (a) Time taken to prepares 9 months (b) Prepared by: SAndor Sipos (Task Manager) Leonardo Concepcion (Sr. Impl. Spec.) Virginia Jackson (Operations Officer) (c) First Bank mission: July 1992 (d) Appraisal mission departed: January 25, 1993 (e) Negotiations: May 26, 1993 (f) Planned date of effectiveness: October 1993 (g) List of relevant PCRs and PPARes None - 33 - SCHEDULE D TECHNICAL ASSISTANCE PROJECT FOR SOCIAL SAPETY NET DEVELOPMENT STATUS OF BANK GROUP OPERATIONS IN ALBANIA A. STATEMENT OP IDA CREDITS (As of June 30, 1993) USS Million Credit Fiscal (Less Cancellations) g.- JYML Borrower ProLect _MA Undisbursed 2404 1992 Republic of Albania Critical Imports Project 41.1 22.49 2461 1993 Republic of Albania Rural Poverty Alleviation 2.4 1.59 2492 1993 ' Republic of Albania Technical Assistance 4.0 4.05 2499 1993 Republic of Albania Transport/Infrastructure 18.0 18.16 2524 199 Republic of Albania Agriculture Sector Adjustment .20, 12,3 Total 85.5 Of Which: Repaid Total Now Held by IDA ss' Total Amount Sold 0.0 Of Which: Repaid 0.0 Total Undisbursed .1. B. STATEMENT OF IFC INVESTMENTS (As of June 30, 1993) To date, ther am no IFC operations in Albania August 20, 1993 nKnswanSMWA rrAM hI The status of thes projects is described in a separate report on all Bank/IDA financed projects in execution, which is updated twice yearly and circulated to the Executive Directors on April 30 and October 31. gf Not yet effective. - 35 - S6hedule.E Page 1 of 2 ALBANI TECHNICAL ASSISTANCE PROJECT FOR SOCIAL SAF T NET DEVELOPENT Albania - Selected Economlk and Social Data 1990 1991 1992 1993 GDP growth -10.0 -27.7 -10.0 7.91 Agriculture -4.4 -20.9 18.0 - Industry -19.6 -36.9 -60.0 - Construction -14.6 -30.4 5.0 - Other Services -16.4 -13.9 5.0 - Net Material Growth -13.8 -27.6 -14.4 - Atlas GDP per capita (USS) 675 417 290 250 Population (thousands) 3255.6 3319.0 3384.0 3450.0 Labor Force (thousands) 1567.0 1600.0 1680.0 1743.5 Employment (thousands) 3 1434.0 1370.0 1247.0 1042.0 Public Sector Finances (As percent of GDP) Total Revenue 46.8 31.4 25 29.0 Tax Revenue 42.2 26.7 17.4 21.0 Turnover Tax 23.4 13.7 4.9 5.0 Excise Taxes 0.0 0.0 2.6 4.0 Profit Tax 7.9 2.9 3.3 4.0 Social Security 5.8 8.7 3.5 3.0 Customs Duties 0.0 0.6 3.1 5.0 Non-tax Revenue 4.6 1.9 2.3 1.5 Counterpart Revenues 0.0 2.8 5.3 5.5 Total Expenditure 61.3 61.9 47.0 47.0 Current Expenditure 43.3 55.8 42.7 40.8 of which: Wages 8.3 11.3 11.1 9.5 Operations & Maintenance 7.0 9.3 11.1 7.4 Pensions 8.6 12.0 7.0 7.1 Unemployment and Other Social Assistance 0.0 0.0 7.7 9.3 Capital Expenditure i8.8 6.1 4.2 6.2 Overall Balance -14.5 -30.6 -22.0 -18 Source: Government of Albania and World Bank and IMP staff estimates. 11 PPP Projections unless otherwise indicated. Z' Based on preliminary data for the first half of 1993. I/ Does not include urban informal sector. - 36 - Schedule E Page 2 of 2 ALUAIA TECHNICAL ASSISTANCE PROJECT VOR SOCIAL SAFETY NET DEVELOPMENT Albania - Selected Economll and Social Data (continued 1990 1991 1992 19931 Balance of Payment (Millions of US dollars) Trade Balance -169.8 -207.9 -454.0 459.0 Exports 286.1 73.1 70.0 91.0 Imports 455.9 281.0 524.0 550.0 Net Services -0.9 -49.3 -132.0 -1430 Current Account Balance Including official grants -155.7 -167.9 -106.1 -160.0 Excluding official grants -155.7 -249.1 438.0 -442.0 Net Medium and Long-torm Capital 27.1 21.4 78.1 129.0 Reserve Accumulation (.=increase) 194.2 223.8 -27.0 -106.0 Foreign Aid S (Millions of US dollars) Total 0.0 117.8 404.8 482.1 Grant Total 0.0 97.5 351.6 333.5 Food Aid 0.0 70.0 225.0 66.4 Other Emergency 0.0 25.6 73.7 17.6 Input and Spare Parts 0.0 0.0 26.7 57.3 Investment Leading 0.0 LS 5.9 45.6 TA 0.0 0.4 203 59.1 BOP Support 0.0 0.0 0.0 87.5 Loan Total 0.0 20.3 53.2 148.6 Inputs and Spare parts 0.0 20.3 32.1 44.4 Investment Lending 0.0 0.0 1.6 50.0 BOP Support 0.0 0.0 19.5 54.2 Money and Prices Broad Money Growth (year-on-year) 23.4 104.4 153.0 53 Growth of Credit (year-on-year) 21.9 100.1 68 48 Inflation (annual average) 0.0 35.5 226.0 87.62 Inflation (year-on-year) 0.0 104.2 236.5 36.52 Exchange Rate (period average) 8.0 14.6 70.1 105.2 Soarce: Government of Albania and World Bank and IMF staff estimates. ,l PFP Projections. 2/ Based on preliminary date for the first half of 1993. I Discrepanoics between official grants in balance of payments and recorded foreign aid are due to classifaction of grants for investment lending and technical assistance. MAP SECTION FED. RE P 0 YUGOSLAVIA CR IA roSamieo ADRIATI C SEA Cenie 44 ALBANIA TECHNICAL ASSISTANCE PROJECT N E N F Y R. FOR SOCIAL SAFETY NET DEVELOPMENT OF 8 SOCIAL INSURANCE REGIONS MACEDONIA E8 SOCIAL »INSRACE REM Shiia IREGIONAL HEADQUARTERS o ELECTED IOWNS AND CMES HNA I.oNAL cAokTA. RMALROADS c AL *AMRPORT ;PORTS - INTER~ NAL BOUNDARIES RNERSMa ELEVATIONSIN METERS: u > 200 0 ITALY 0 8 16 24 GREECE To loonninc IONIAN SE A F ED. RER OF0 YUGOSLAVIA21 IA rrojevo aBa an t o pr"si" TROPOJE 1 RT KUKES- ES E MAS Priuren A RIATI C T A . en< SE AAV,, o Cetinje lqi Komon -42° k Puke K 42° A L B A N l A MRD Ni Dl TECHNICAL ASSISTANCE PROJECT L H 15.F Y. R. FOR SOCIAL SAFETY NET c MATe DEVELOPMENT OIF 10 POOREST DISTRICTS 'i"e° 10 POOREST DISTRIC1S MCDN 0 SELECTED TON AND CMES ShijakTRA E NATIONAL CAPAL LM --MAIN ROADS vaie - RANLROADS DURRES n Tok NOhrd 41' Cerrik SPORTS ELBASA --DWSTRCT BOUNDARIES* Lush samnINTERNATIONAL BOUNDARIES rAM 3/RIVERS Fier ELEVATIO1,S IN METERS: 1200 BERAT 200 40 &"ies fstto n m 3 haen t been dm"wn LoKcr OLONJ PERMET TALY GJI 0 8 16 24 19 0 1 a- % To lonnin & iONIAN SE0