Somalia - Agricultural Sector Adjustment Project

Document of The World Bank FOR OFF1CIAL USE ONLY J 1;, f ( i . ( Y Report No. 10162 -r ':i 11'. ( 1 {;^ "i.- j ; >: f i ' ) PROJECT COMPLETION REPORT SOMALIA AGRICULTURAL SECTOR ADJUSTMENT PROGAM (CREDIT 1711-SO/A20-SO) DECEMBER 13, 1991 Agricultural Operations Division Country Department II Africa Regional Office 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.  Abbreviations ADC Agricultural Development Corporation AIP Agricultural Inputs Program ASAP Agricultural Sector Adjustment Program CG Consultative Group CSD Central Statistics Department ENC National Commercial Agency (Ente Nazionale Commercio) GOS Government of Somalia HASA Hides and Skins Agency IFPRI International Food Policy Research Institute SOMPET National Petroleum Agency ONAT Tractor Hire Agency (Organizzazione Nazionale Agricultura Trattore) PIP Public Investment Program PR President's Report SFA Special Facility for Sub-Saharan Africa SJF Special Joint Financing USAID United States Agency for International Development  FOR OMCIL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of DirectcetaI Opc.amoK Evalkatkn December 13, 1991 MEMORANDUM TO T EXECUTIVE IRECTORS AND E PRESIDENT SUBJECT: Project Completion Report or, Somalia - Agricultural Sector Adustment Program_(Credit 1711-SO/A20-Sg)_ Attached, for information, is a copy of a report entitled "Project Completion Report on Somalia - Agricultural Sector Adjustment Program (Credit 1711-SO/A20-SO)" prepared by the Africa Regional Office. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment This document has a restricted distribution and may be used by reciplents only In the performance I of their offcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  FOR OFFICIAL USE ONLY PROJCTCOMPLETION REPORT AGRICULTUR 0M ADJUST O (Cr.171 1/a SO) Table of Conent Preface . .................................................... i Evaluation Summary ........................ iii PART I - PROJECTr REVIEW FROM BANKCS PERSPECTIVE ....... ............ 1 INTRODUCION ........... .1 ECONOMIC AND SECrOR BACKGROUND ......................1............ Begnning of the Crisis ......................................... 1 Early Efforts to Achieve Stabilization and Adjustment ......... ............... 2 The Government's Adjustment Program in 1985 ............ ................. 2 Agricultural Polcy Refom and Sector ssues ................ ............... 3 Role of the Bank ........................................ 4 Agriculture Sector Policy Operations ................ ............... S Investment Operations . 5 AGRICULTURAL SECITOR ADJUSTMENT PROGRAM (ASAP. 6 Origin and Objectives .............................................. 6 PoUcy Actions Envsaged Under the Program ............................... 7 Implementation .................... Macroeconomic Reform ................... 8 Exchange Rate Management and Foreign Exchange Auctions ..... .. 9 Interest Rate Adjustment ............... ................... 10 The Private Sectorand Price Policy ............. ................... 12 Distribution of Petroleum Products ........................... 12 DieselFuelPricing ....................................... 13 Grain PriceSupports ...................................... 13 Food Aid Management .................................... 14 HidesandSkins Makedng ................................. 14 ONAT Cost Recovery ..................................... 15 Public Investment Program . ................................ 17 Strengthening Institutions Responsible for Reform ........ ............. 18 Conditionaty ...................................... 18 Covenants .............................. 18 Second Tranche Release Conditions ................... ............. 18 HEdesand Sins ....................................... 19 AgricultralPolicy ...................................... 19 Interest Rates ...................................... 19 ONAT RentalCharges .................................... 19.. Assessment of Second Tranche Compflance . . 19 Prourementand Disbursement ...................................... 20 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.  Procurement ................ ................ ............... 20 Disburements ........................ .. ......... 20 Disbuisement by Categones . , . ........................ .. 20 Imports of xyoods ............ ..... 20 Inports ofFuel ... 22 Imports by Ministries .. . ........................... 22 TechnicalAssistance .................................... 22 Cofinanc'mg .. .. . .... ... .. . . . . . . . . .. .. . . 22 Technical Assissnie.t ..................... 22 Ministry ofFinancea .............22 Mintryof National Planning . . .. ... .. . .. .. ... .. . . .... ....... 22 hinistry of Agricuture....................... 23 Accounts and Audits ...... .. .. ................... 23 ITHE A .......... .. OO.** 23 Achievements and Shortcomings . .............. 23 Government Commitmentm.e. . .. . .. .. ..... 24 Ecwnomic Peoromance . .......... 25 Social Impact .... ............................... 26 LESSONS LEARNED ............. 27 PART I -PROJECr REVIEW FROM BORROWER'S PERSEPCTIVE .....29 List of Annees Annex1 - Credit Data Annex 2 - Macroeconomic Indicators A-ex 3 - Sources of Funds for Foreign Exchange Auctions Annex 4 - Results of Foreign Exchange Auctions AnnexS - Summary of Status of Covenants Annex 6 - Preliminary Training Program for Staff of the Central Department of Statistics List of Fi ures Figure 1 - Annula rates of Inflation (1980-1990) Figure 2 - Trends in Exchange Rates  PROJECT COMLETION REPORT SOMALI ~JOULTURAL SECTOR A2JUST[MENPRGA (Cr. 1711-SGIA20-SO) PREFACE This is the Project Completion Report (PCR) for the Agricultural Sector Adjustment Program in Somalia, for which Credit 1711-SO and African Facility Credit A20-SO in the amounts of SDR 26.4 million and SDR 28.7 million respectively were approved on June 19, 1986. Cr. A20-SO was fully disbursed and 3 balance of about US$12,000 remains in Cr. 1711. The credit account cannot be closed because the political turmoil in the country has hindered the reconciliation of the Special Account. The PCR was prepared by the Agriculture Operations Division, Country Department HI of the Africa Regional Office. Part II, Project Review from the Borrower's Perspective cannot be obtained because of the current political and security situation in Somalia. Preparation of this PCR is based, inter alia on the Prwsident's Report; the Credit Agreements; supervision reports; correspondence between the Bank and Borrower; and intemal Bank memoranda.  PROJECr COMPLETION RELPORT SOMALLA, AGRICULURAL SECrOR AI)JUSTMENT PROGRAM (Cr. 1711LA20-SO) Evaluation SuammaKy Introduction 1. The Agricultural Sector Adjustment Program (ASAP) in Somalia was approved in June 1986 following commitments by the Government to sustain a stabilization and adjustment program negotiated with the IMF. The objective of ASAP was to support the macroeconomic program, to foster the growth of the private sector and to strengthen institutions associated with economic and policy reform. ASAP became a central focus for the Bank's dialogue with the Somali Govermnent and provided important support for the Fund's program. 2. ASAP achieved its objectives for about a year, but after that was virtually suspended for another year, and then ended by achieving more than expected. In the meantime, however, the Government's credibility and the economy had suffered severe setbacks from which there has so far been no real recovery. In general it can be said that ASAP ultimately achieved most of its structural objectives, but since the stabilization program veered severely off track at various times, the expected growth and investment in the economy did not materialize. Therefore overall the achievements of ASAP can only be regarded as unsatisfactory. IDA approved a second ASAP in June 1989 but since the fail of the Government in December 199C, all operations in Somalia have been suspended. Stabilization Pram 3. The IMF Stand-by arrangement which had been approved in early 1985 was aimed at stabilization and improved resource allocation. The program under this arrangement was only partially implemented and there was a period during 1986 when it was off track. Nevertheless, the Government brought the Fund's program back on track in mid 1986 and soon thereafter ASAP was approved. The key measures to achieve stabilization were not, however, achieved. In mid 1987 the Fund approved another Stand-by arrangement. 4. The economy increased its rate of growth following the start of ASAP (about 7 percent during 1987 and inflation moderated substantially. But the complementary improvements in revenue and reduction in the budget deficit were not achieved. The most important shortfall in Government performance was the lack of control over credit to Government parastatals and the private sector. This lack of control over credit resulted in a subsequent jump in inflation during 1988 and 1989 and a sharp depreciation of the market exchange rate. 5. The authorities had underestimated the damage being done by the lax control over credit and its fundamental role in causing inflation and depreciation of the exchange rate. These trends soon became a political issue. The regular foreign exchange auctions, which were the mechanism for disbursement of the ASAP credit, and by that time also the instrument for unification of the exchange rate were blamed for the inflation and devaluation. The Government cancelled the  - iv - foreign exchange auctions and abandoned many other aspects of the program in September 1987. It was not until mid 1988 that the Fund and the Government reached understandings on revised economic and financial policies. Later that year disbursements from ASAP for the import of goods was resumed, but the economy had in the meantime suffered from an inflation rate which had reached as high as 100 percent and a severe shortage of foreign exchange. Also GDP growth had become negative during 1988. Implementation 6. During the implementation of ASAP the Government continued to allow free trade in the grain sector. This had the impact of stimulating growth in agricultural production which was in contrast to the trend in the rest of the economy. In addition the Government agreed to the 1econtrol of the domestic trade in hides and skins. This was a more limited adjustment than IDA had sought at the time of the second tranche release, but the dialogue on this issue had an impact and the Government agreed later to the complete decontrol of the industry. 7. Structural changes in the import and distribution of petroleum products did not progress as expected under ASAP. SOMPET, the Government fuel trading parastatal, and the Govermment- backed fuel distribution cooperative continued to hold a dominant position in the fuel business. Only some of the project entities and a few private enterprises were involved in the limited import and distribution of petroleum products. 8. Trade in non-injectable veterinary drugs was to be pursued during the ASAP credit. There is visible evidence that this occurred, although the legal instruments for the liberalization of trade in these drugs were not promulgated before the credits were closed. 9. The structure of interest rates was not adjusted adequately in line with changes in the inflation rate. The Government argued that short term interest rates as high as 50 percent had already reduced the rate of investment and higher rates would further reduce incentives to invest. 10. There was both good and bad news in respect to cost recovery for tractors rented by ONAT (the Government tractor and machinery hire agency). On the one hand a study of ONAT operations financed by ASAP led to a substantial restructuring of ONAT operations and cost consciousness; on the other hand complete cost recovery had not yet been achieved by the time the credits were closed. 11. A restructuring .of the Government's grain and food marketing parastatals was the subject of a study under ASAP. Although delayed, a study was completed which set out the Government's views on the restructuring of ADC and ENC. These recommendations were followed up during the second ASAP. Impact 12. The impact of ASAP on the Somali economy was weakened because of the inability of the Government to adhere to the macroeconomic program. In particular, the Government was not able, or prepared to control the flow of credit to parastatals and the private sector. Its performance on structural measures was weak until the closing phases of the credit when substantial reforms were announced. In general the Goverment lacked political credilbility; this resulted in a lack of confidence in the future of the economy which in turn had a depressing impact on private investment.  13. A continuing benefit from ASAP, despite the lapses in adherence to policy measures, was that it gave the Bank and otlher donors a basis for a vigorous dialogue with the Government o3n policy issues. This dialogue appeared to have had a substantial impact reflected and is in the Government's announcements on major policy changes in early 1989. LesMsons 14. There were three important lessons learned during the implementation of ASAP. Eig a credit such as ASAP will not be successful unless the Government has "ownership" of the p:)licy objectives. Second, crucial policy conditions should be negotiated "up front" before the creclit is approved. Third, there should be a close relationship between the Bank and the IMF durin.g the preparation and supervision of an adjustment credit to ensure that the macroeconomic prol!,ram is being implemented. Finally, it is clear that unless the macroeconomic program is being adequately implemented, especially with respect to stabilization, structural changes in the economy will have only a limited impact on growth. These lessons were incorporated into the preparation andl supervision of the second AS-iP.  PROJECT COP REPORT SOMALIA AGRICULTURAL SECTOR ADJUSTMENT PRO.GRAM (Cr.1711/A20SO) I. INTRODUCTION 1. In the 1980s the Goverrment of Somalia (GOS) began a stabilization and adjustment program which also involved structural policy reforms with special emphasis on measures in the dominant agricultural sector. Reports which describe and analyze the Government's actions, policies and challenges in the economy as a whole and the agricultural sector were prepared by the Bank between 1985 and 1987.1/ The Bank first i7-troduced policy-based lending in Somalia in 1985 through the Agricultural Inputs program (AIP) in support of the Government's economic adjustment program. By then Somalia had come quite a way in liberalizing its economy from the earlier controls under "scientific socialism". The AIP was followed up by the Agricultural Sector Adjustment Program (ASAP) in 1986. This was subsequently followed in mid 1989 by the second Agricultural Sector Adjustment Program. 2. This Project Completion Report for ASAP summarizes in Section II the economic and sectoral background to this credit, the Goverinment's adjustment efforts and the Bank's role in support of this adjustment. The objectives and implementation of the credit are examined in Section III. The final section provides an evaluation of Government and Bank performance and points out some lessons learned under ASAP. The Govermnent did not provide a completion report to IDA. This report could not be submitted to the Gov2rnment for comment because there was no de facto Government in Somalia when if was completed. II. ECQONOMIC AND SECTOR BACKGROUND Befning-of- the, Crisis 3. Following a major border conflict with Ethiopia in 1977n78, Somalia experienced a number of serious economic and financial crises in the face of stagnating production. Because of a combination of policy-related and exogenous factors (erosion of incentives under pervasive government controls; mismanagement of economic and financial policies; an under-funded and inefficient public sector; the drought of 1974/75) outpiut growth barely exceeded the 3 percent annual increase in population, so that the average annual growth of GDP per capita was virtually nil during the 1970s. Underlying the stagnation of per capita GDP was a sluggish growth of agricultural production due to a number of 1/ Discussed in greater detail in project documents, and in the following economic and sector reports: Bank Report No. 5584-SO, "os Economic Recovery and Goh", August 1985; Bank Report No. 6542-SO, "Somalia Develonmn an ediuMT.Qra.=rQm A", February 10, 1987; and Bank Report No. 6131-SO, "'ma1iO. Agiltural Souy: Main Re:ort ad Srategy, December 30, 1987.  major factors: (a) fragile physical environment for agriculture with unreliable supplies of water vesources, extensive but as yet not fully productive arable land, overstretched grazing land; (b) inadequate producer incentives; (c) unstable external markets and prices of livestock and other export crops; (d) inadequiate supply anid use of important agricultural inputs such as fertilizer, improved seeds, and veterinary drugs; and (e) inadequate delivery of critical agricultural support services such as research, extension and animal health. In addition, steep increases in defence expenditures and the resultant large budget deficits financed by Central Bank credit fueled domestic inflation and generated large balance of payments deficits from 1978 onwards. 4. The external current account deficit ro:e sharply (from about US$100 million in 1977 to over US$250 million in 1979) and was no longer sustainable with the earlier levels of grants and concessional loans. Moreover, capital inflows decreased, and grant aid dwindled in 1978 and 1979, as aid from the USSR ceased before other donors stepped up their assistance. The second oil price hike of 1979/80 compounded Somalia's financing problems. Somalia's recourse to some commercial, nonconcessional loans, and short-term balance of payments support from Arab and other international organizations raised the coamtry's external debt from about US$300 million in 1977 to about US$1,200 million in 1983, and debt service obligations increased from US$5 million to US$60 million, while arrears began to accumulate. Early rts to Achieve Stabilization and Adiustment S. Beginning in 1981, the Government decided to introduce policy and institutional reforms towards improving incentives, liberalizing the economic system from extensive government controls and correcting policy-induced distortions that led to grossly inefficient resource use and stagnation of output in the 1970s, and to external and internal financial imbalances since the late 1970s. The reform measures, mainly comprising exchange rate adjustments, fiscal and monetary restrainit, and de facto elimination of Government monopoly of grain purchases, and livestock marketing, generated some recovery in the economy especially in agricultural production and exports during 1981-83. These changes also led to increased external aid mobilized through a Consultative Group process. 6. The Government's medium term recovery program for 1984-86 called for improvement of macroeconomic management through fiscal, monetary and exchange rate policies and further liberalization of agricultural pricing and marketing and encouragement of the private sector. However, economic recovery and financial stabilization suffered a serious setback in 1984 due to sharply reduced livestock exports, and the Government's failure to implement some of its policy reform measures including devaluation and financial restraint. Inflation reached 92 percent in 1984 and external debt service arrears continued to increase reaching US$214 million at end 1984. 7. In response to the deteriorating situation, the Government adopted an adjustment program and tried to implement policy changes during 1985 and 1986. The Govermen's Adjustme PRogram in 1985 8. The adjustment program initiated in 1985 had the objectives of (i) stabilizing the economy by reducing aggregate demand through reductions in the budget and balance of payments deficits; and (ii) improving resource allocation and productive efficiency by reforming price policy and the incentive structre. The program was supported by a new IMF Stand-by Arrangement in early 1985. In the fomnulation of this program Bank staff were closely involved with staff from the Fund to ensure complementarity of stabilization and structural adjustment measures.  3 - 9. The main elements of the stab-lization program were to increase reveniue by improving collection of existing taxes, especially import tariffs, .imit government expenditure, constrain the size of the public investment program to available concessional financing, limit credit expansion and pursue a flexible exchange rate policy. 10. The main elements of the Government's structural adjustment program were liberalization of trade and prices, reform of agricultural marketing, and reform of public enterprises and the banking system. TMe last two were longer term objectives. 11. A large devaluation of the Somali shilling became effective January 1, 1985, and a free foreign exchange market for most non-government transactions was also established. Almost all price controls were dismantled de jure. Most controls with respect to trade and current payments abroad were removed. Licensing requirements for most import and export transactions were abolished de jure. Furthertnore, traders were permitted to export and import some goods previously controlled exclusively by the Government. The exceptions were certain commodities which, for reasons of public policy, were either prohibited or subject to prior approval. Exporters were required to surrender 35 percent of export proceeds at the official rate and allowed to use the remainder in the free ma-ket. This provided incentives for exports, and access to foreign exchange for the private sector. In agriculture, liberalization of crop prices and marketing was largely accomplished with resultant increses in production of maize end sorghum (main domestic cereals), bananas (main export crop) and sugarcane. 12. Overall, the Government's adjustment program for 1985 constituted a bold attempt towards fostering a more market-orienited economy for financial stabilization, resource use efficiency and growth, and constituted a significant departure for the strategy and policies of the 1970's. At a special Consultative Group meeting in January 1985, and at the Second Consultative Group meeting in November 1985, donors commended the program and pledged quick-isbursing assistance to support Somalia's balance of payments, so that the economy's essential import needs including consumption requirements and inputs for maintaining and increasing (especially agricultural) prod ntion were adequately met. However, Somalia's stabilization and adjustment efforts were unsteady and financial support from the Stand-by arrangement with the IMF could not be utilized for several months in late 1985 and early 1986 due to noncompliance with performance criteria. The Fund program was on track again in mid 1986. Despite the past "stop-go" reform efforts by the Somali govermnent, there was confidence that Somalia had committed itself to a stabilization and adjustment program. It was in this light that the Agricultural Sector Adjustnent Program (Credit 1711-SO) was appraised in February 1986, negotiated in April 1986, and submitted to the Board in June of the same yer. Aricutua Poliey Reform and Sector Isses 13. Several reform measures which the government had taken even before 1985, especially liberalization of pricing and marketing of crops and exchange rate adjustments, improved production incentives and led to increase agricultural output. The growth of agricultural production during 1981- 85 had averaged about 5 percent per year; this was much better than the 1970s when the average rate was 0.4 percent per annum. However, there were still major constraints to sustained agricultural growth: * There were important areas in agricultural pricing and marketing which remained to be liberalized in order to provide incentives for output and increased exports through the  -4- participation of the private sector. One such area was trade in hides and skins, and in frankincense and myrrh where existing public sector monopoly powers controlled domestic and export marketing. * Government control on the import, pricing and distribution of peeroleum products was hindering efficient pricing and distribution as the agencies involved sought to maximize their monopoly powers. * The subidization of tractor services by ONAT (the Governent tractor hire agency) and its inefficient operations led to considerable losses and created obstacles to entry of private sector investment in tractor services. * While ADC (the Government grain prw1urement and distribution agency) monopoly was broken in 1983, and its minimum buying prices for maize and sorghum were generally b,;.tween import and export parity, ADC was wek and inefficient in carrying out its market support function. -- Management of food ai needed improvement to ensure that producer incentives were not reduced and that the benefits of food aid were adequately captured and equitably distributed. The need for ENC (the parastatal responsible for Goverunent food imports and distribution) was also being questioned. * Subsidized markeing of ggriculturA inuts remained an important issue to be resolved. While private traders imported inputs under AEP and other commodity import programs, there were still only a small number of private sector distribution networks for agricultural inputs. ADC and ONAT remained the largest providers of a full range of inputs and machinery services, usually at subsidized prices. In addition fertilizers, seeds and veterinary drugs received through donor commodity input programs were largely distributed through government ministries (e.g. Agriculture and Livestock); this distribution was often at less than free market prices. Without the departure of Government involvement in input marketing, private sector equipment and input dealerships were slow in getting established. To encourage private sector investment in distribution inputs and services, Government needed to go further than legalize entry into the market as it had done, but also to eliminate subsidized pricing and marketing by Government ministries and parastatals. Rtol gf thw Bnk 14. Prior to 1985, Bank lending to Somalia consisted entirely of investment projects. Over thirty percent of total lending was for agriculture. Projects in general, and agricultural projects in particular, experienced problems in implementation, often due to poor design and lack of local currency funds from the budget. The Bank reached agreement with Government to restructure several ongoing Bank-financed projects in the mid 1980s because they were not successfiil as originally formulated. While the restructuring of projects was important to their success, it was increasingly evident to the Bank that economic reforms towards liberalization of prices and markets, and improvement in macroeconomic management and financial discipline were essential for Somalia's recovery and sustained longer term development as well as for the effectiveness of external assistance.  - - 15. The Bank's new strategy for assisting Somalia's agricultural and economic development was supportive of the Government's policy orientation to improve efficiency of resource use through greater reliance on the market mechanism and the encouragement of the private sector. The Bank's economic and sector work showed the need for economic reform, and provided analytic inputs for a dialogue with the Government and for the work of the Consultative Group for Somalia, which the Bank initiated. The Bank collaborated with the Government in the preparation and review of the periodically updated Public Investment Program (PIP) at the aggregate and sectoral levels, collaborated in reviews with the government and donors on major issues in agriculture, carried out sector work and opened a dialogue on public enterprise reform, and provided assistance (in collaboration with the Fund) to improve macroeconomic management. The Bank's analytic work mentioned earlier 2/ showed that improving macroeconomic management is necessary for sustaining appropriate incentives for agricultural production and exports, and for making resources available for the rehabilitation and improved utilization of agricultural resources and related infrastructure. This led to a greater emphasis in the dialogue between Government and the Bank on the need to improve macroeconomic and sector policies. The Bank mobilized donors to provide adequate and appropriate assistance in support of the economic reform program for adjustment and growth, while its investment projects emphasized rehabilitation and improved utilization of existing capacities. (a) Agricuilture Sector Policy Operations 16. As the Government began to implement, albeit in a faltering way, far-reaching reforms to liberalize the economy and improve efficiency of resource use, the Bank moved towards sector lending operations in support of these objectives, and to provide the Government with quick- disbursing support to finance the resource gap during a period of acute financial difficulties. The improved policies in 1985 led to the Agricultural Inputs Program (Credit No. 1612-SO) approved in 1985. That credit had been narrowly focussed on agriculture sector issues and contained few policy conditions. The need to build on the process started under AIP and to broaden the perspective was recognized and as a result, the Agricultural Sector Adjustment Program made up of an IDA credit (1711-SO) and an African Facility credit (A-20-SO) were negotiated with the Government. The credits were approved by the Board in June 1986. The Bank's sector work underpinning the issues in ASAP was summarized in the Agricultural Sector Survey which was based on the reports of several Somali-led task forces. 2/ Other relevant analyses of sector issue are contained in various grain marketing studies, PIP Reviews, and country economic memoranda. 4/ (b) Investmnt Operations 17. At the time ASAP was approved, the portfolio for Somalia contained 13 projects financed by the Bank and valued at $247 million. These projects included IDA credits in livestock, rainfed agriculture, agricultural extension, port modernization and power rehabilitation. They continued to provide investment support to help the economy take advantage of the reforms implemented by the Government. ZI See footnote 1. I/ "S,malia Aculturl-Sctr Sur. Main Ror a S=Qge.", op. cit. {I See for example "Somalia: Towads Ecnomic Rver and GroWh", op. cit.  -6- III. CULTIJRATL RDJUSiMENT PR RM (ASAP) 18. The Agriculikural Sector Adjustment Program was conceived and negotiated as a follow up to the Agricultural Inputs Program to provide continued support to the Government's stabilization and adjustment program. At the second Coinsultative Group (CG) meethig held in November 1985, donors had commended the Government for the adjustment measures it had taken, and supported the Government's development strategy that emphasized medium term public investment mainly for rehabilitation of existing capacity, and economic policy reform to improve resource use efficiency and promote the private sector. It was stressed at the CG meeting that the Government's success in sustaining implementation of the adjustment and reform program would depend on adequate and timely financial assistance from donors. While at the time of the CG meeting, the Government's program under the 1985 Stand-by arrangement with the IMF was still off track, in April 1986 the Govermment paid its arrears to the Fund, and the 1985 Stand-by program continued in 1986 and beyond. The Government also expressed its intent: to strengthen the adjustment program through, inter alia, gradual unification of the exchange rate, ensuring positive real interest rates on deposits to mobilize resources, and raising prices of petroleum and petroleum products to full import parity and allowing the private sector to import and distribute petroleum products. 19. ASAP, which was approved by the Board on June 19, 1986, became effective on August 25, 1986. E/ It had a number of objectives: (a) support the _ nomic refos currently being undertaken by the Borrower; (b) assist the Borrower to develop and enlarge the priciaion of tset in the economy including an improved supply and distribution of agricultural inputs; and (c) e e instit responsible for carrying out the economic and policy reforms in the agricultural sector. 20. The largest component of the credits was for the financing of the inport of goods, subject to a negative list. Entitlements for foreign exchange were purchased by importers at foreign exchange auctions. Another large component was fuel to be imported by SOMPET, the Government's parastatal. The other smaller components were for the import of goods by Ministries of Agriculture, Livestock and Fisheries. There was also a technical assistance component directed at institution building. I/ The ASAP credit was financed with two credit agreements, namely an IDA credit (1711-SO) and an Africn Facility credit (A-20-SO), which were, except for Schedule 1, the same credit agreements.  -7 - 21. The components to be financed by ASAP are shown in Table 1. Table 1: COMPONENTS OF ASAP CREDIT (SDR million) African Components IDA Facility Total Imports of Goods Public and private sector enterprises 17.6 19.9 37.5 Fuel imports by SOMPET 5.9 5.9 11.8 Imports by Government Agricultural Ministries 1.5 2.9 4.4 Technical Assistance Ministries of Finance, Agric. and Planning 1.4 - 1.4 26.4 28.7 22. The IDA and African Facility credits were disbursed in the same manner; the credit agreements were identical. In addition to these credits, a grant of