Statement by Julio Nogues at the Board meeting of December 18, 1997

International Bank for Reconstruction and Development International Development Association 86866 International Finance Corportation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS97-487 December 17, 1997 Board Meeting of December 18, 1997 Statement by Julio Nogues MOZAMBIQUE: CAS I want to start by commending the Bank's management and staff work in Mozambique for the good results it is already showing. I also want to note prominently that these benefits would not have been forthcoming had the Government not introduced an important stabilization program and what appear to be quite significant structural reform measures. The impressive reduction of inflation, the liberalization program including an important reduction in barriers to foreign trade, and the measures already taken to strengthen the financial sector provide my view, the three crucial pillars on which to rebuilt this economy and create the conditions that will allow the Government to address the urgent social needs with a much higher likelihood of achieving important progress. I want to take this opportunity to make a few comments: 1. External Environment The Section on external environment deals in detail with debt and financial issues but nothing is said on the export problems that Mozambique might be facing in foreign markets. First, I would like to know where is Mozambique exporting its main products and whether the import barriers imposed by those countries are important. Second, I would like to know what if any might be the effects of the ongoing turmoil of several currencies on the country's exports. More generally, I would like to propose that trade policy issues should become a prominent part of the analysis contained in the future sections of CAS documents on External Environment. While perhaps I can understand not paying attention to these problems for middle income countries, I think that the issue of trade policy barriers faced by the exports of poor countries should become a prominent part of upcoming CASes. We have to make sure that the adjustments we recommend and support can materialize in higher levels of exports. 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.  2 2. Foreign Direct Investment In paragraph 20 I do not know how to interpret the comment that an " ...estimated U$5 7 billion in large, mostly foreign financed investment are under consideration..." Because this figure is quite high, I would appreciate very much a clarification on what are management's forecasts on FDI flows to Mozambique in the following two years and what are the macroeconomic and financial implications of the answer to this question 3. Privatization Although I commend the impressive progress already achieved on privatization objectives, nevertheless, because public enterprises still account for an important share of the economy's output, I would like to know with greater precision how much will the incidence of these enterprises decline during the next two years. 4. Tax revenues. The recent decline in tax revenues is quite worrisome. I have noted that a private firm has been hired to manage the customs and control its revenues. While I agree that although expensive, this is a good decision for managing an interim period while the structural reform of the custom office is designed, it is important at the same time to define a stable tariff policy. I would like to know whether there is evidence that the private firm has already been able to improve customs revenues. Finally, I want to wish the Government of Mozambique continued success with the implementation of the future economic and social reforms.