Madagascar - Financial Institutions Development Technical Assistance Project

I~~~~~~~~. , I- ' K~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ I rI !1  Currency Unit = Malagasy Franc (FMG) U.S.S - FMO 1,899 (March 1993) Metric System ESC & January 1 - December 31 ABBREVAWIONS AND BCRM = Banque Centrale de la RApublique Malgache (Central Bank) BFV = Banky Fampandrosoana Ny Varota (State Owned Commercial Bank) BlTS = Swedish Agency for International Technical and Economic Coopeadon BTM = Bankin' Ny Tantsaha Npamokatra (State Owned Commercial Bank) CCBEF = Commission de ContrOle des Banques et Etablissements Finanders (Fiacial Supervisory Commission) USAID = Unted States Agency for Intenationl Development  FOR OMCIL USE ONLY FINANCIAI, INS=ON 11XnICA =WALSA=fCE PQIC CRIT AND = gZM UMRY Borrower: Republic of Madagascar Beneficiaries: Central Bank of the Republic of Madagasca (BCRM), Financial Supevisory Commission (CCBEF), and Ministries of Finance and Budget. Amount: SDR 4.6 million (US$6.3 million equivalent). I=m^: Standard IDA terms with 40-year maturity. Relending Terms: Goverment passes SDR 3.5 million of the credi to BCRM on a grant basis. Financing PIan: _________ ~~~(US$ millon) SOUP-CE ' .LOCAL FORE"O OTZ IDA 0.6 5.7 6.3 USAID 0.3 2.7 3.0 Switzerland 0.6 0.6 BITS o_0.5 0.5 TOTAL 0.9 9.5 10.4 11 All incremental staff and operating costs under fte project will be borne by the implementing agencies concered, mainly BCRM. Rate of Rturn: Not Applicable Staff Apraisal Report Number 11682-MAG Map: IBRD No. 20035R This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherw!se be disclosed without World Bank authorization.  MEMORANDUM AND RoECMMENDATION OF THE PRESIDENT OF THE INTlRNATIONAL DEVELOPMENT ASSOCUTION TO THE EXECUTIE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBIIC OF MADAGASCAR FOR A FINANCIAL INSTITllIONS DEVELOPMENT TECICAL ASSISTANCE PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed development credit to the Republic of Madagascar for SDR 4.6 million, or the equivalent of US$6.3 million, on standard IDA terms with a maturity of 40 years and a ten year grace period to help finance a Financial Insttions Development Technical Assistance Project. The project is exected to be supported with parallel financing by the United States Agency for Intenational Development (USAID), Switzerland and the Swedish Agency for ntrnational Technical and Economic Co-operation (BfTS). 2. Co.ntrX and rLK l unU . With a population of about 12 million, growing at 3% per year, and a per capita income of US$220, Madagascar is among the least developed countries in the world. Per capita income grew modesdy in the late 1980s following stabilization, and structural adjustment reforms implemented in the mid 1980s to rectify major economic imbalances that arose in the 1970s. The supply response was, however, smaller and slower than expeeted as reforms were incomplete and it was undermined by political events in 1991. 3. In the second half of the 1980s reforms in the financal sector centered on steps to strengthen the completely state-owned banking sector, which was completely state owned and was experiencing severe financial problems. By the end of 1989, the loan portfolios of these banks had been cleaned of most non-performing and doubl assets. In 1990, a new, fully private bank with majority foreign capital surted operations; in 1991, one of the sate banks was privatized and another obtained minority private participation while two private foreign banks opened representative offices in Madagascar. In parallel with these actions, the Central Bank embarked upon a process of replacing direct credit allocation with a more flexible system based on indirect market instruments. These financial sector reforms have had mixed results. The new private banks and the majority pdvaizatlon of one of the state banks has proved successfil. Progress was less sustainable, however, in maintining the overall health of the banking system following the portfolio clean-up of 1989, becuse the two majority state banks have shown Increasing weaknesses since 1991. These difficulties led to a virual standstill in the interbank money market, jeopardizing the success of a market-based system of interest rates introduced in November 1990. The establishment of market-based interest ntes was also undemined by the suspension of the Treasury Bill market in mid-1991. These institutional and market shortcomings have been aggravated by the lack of concise and comparable infotmation on the health of banking institutions. Furthermore, inadequacies In the prudential supervision syst, the accounting framework, and the financia disclosure and audit standards for banks, prevented early detection and correction of financial distress. At the same ime, the lack of independence of the Central Bank (BCRM) and Financial Supevisory Commission (CCB&) has led to conduct of monetary policy and prudential oversight being influenced by political factors. 4. The economic strains which murfaced in 1990 were exacerbated with the onset of political instability in 1991. Real GDP contracted by 6 percent; inflationary pressures built up; fimancial Imbalances widened significantly; and large do.uestic and external payments arrears were accumulated. Political disurbances in 1991 resulted in a shorfIll in tax collection and the rise in the budget deficit to about 10 percen of GDP; in 1992, tax collecion did not improve and budgetary discipline worsened. The tre size of the fiscal deficit was masked by the quasi-fiscal operations of the Central Bank which since 1983 has been assuming debt-servicing obligations once borne by the Treasury. The internal imbalances were reflected in a worsened exernal position of Madagascar, with the overall current account  -2- deficit reaching 10% of GDP in 1992. The growing shortage of foreign exchange had led to the suspension of the Open Genera License system in October 1991. The lack of independence and institutional ability of the Central Bank to independenty formdlate and conduct monetay policy, and o0 the Finacial Supervisory Commission (CCBEF) to effectively undertake prudential oversight of banks, contributed in major part to the unraveling of macroeconomic stability. Unless these insttutional weaknesses are addressed as first steps of an overall program of financial reform, the establishment of a trly market-driven financW system and growth in the productive sectors will be jeopardized. In recognition of this problem, the Goverament has recendy adopted an action program fo- financial sector .eforms, with specific measures for immediate institutional reforms. 5. Thied Qbieth. le project objective is to faitate investment and growth in the productive sectors by improving the fu-nctioning of the financial system. This is in line with the Bank's country assistance segy which emphasizes increased prvate sector savmgs and investment as engines of fiture growth. Ihe project aims at strengthening key financW institutions and markets in Madagascar (including psivatization of the two remaining state banks), thereby enhancing public trust in them and enabling them to mobilize sVinlgS to meet the investment financing needs of the private sector. The project wiil be Implemented in the context of the Government's Statement of Financial Sector Reform and Development Policy adopted in March 1993. Specifically, the project would aim at: (i) enhancing the Central Bank's (BCRM) ability to formulate and conduct monetary policy based on indirect instruments; (iH) improving the prudential supervision environment through the strengthening of the Financial Supevisory Commssion (CCBEF); (%ii) formulating and enforcing accouting audit ad finanial disclosure standards based on international norms; and (iv) supportng the privation of state banks. 6. Troect Descritig. The project is a technical assistance operation which has four components: (i) restructuring the Central Bank (BCRM); (Hi) strengthening the Financial Supervisory Commission (CCBEF); (il) improving the accounting and auditing framework; and (iv) support to the privatization of state banks. Project costs and the financing plan; procurement and disbursement arrangements; and processing events are presented in Schedules A, B, and C, respectively. (1) Restructuring the Cam iIk MBCRM) (US$ 8.9 million, 86% of project cost). To enable BCRM to effectively formulate and conduct monetary policy based on indirect instruments, a sategic development plan has been prepared and adopted by the Board of BCRM which defines overall objectives and a business plan for the Centra Bank over a three-year period. The plan aims at establishing the independence of BCRM and the elimination of all quasi-fiscal actvities. Ihe plan will be implemented in the contet of revised statumes of BCRM which have recenty been adopted by Government. The revised stautes strengthen the Centra Bank's legal independence and removes one of the major obstacles to its ability to pursue and maintain price stability. Ihe project will include the reform and restructring of both the primary functions (e.g. credit/open market operations, research activities) and the support functions (e.g. accounting, information technology) of the Centra Bank consistent with independence and transparency in its opeations. The project wil finance consultants and resident advisers as well as hardware and software to support the following elements of the strategic plan: 0) implementation of a human resources development plan, establishing the manpower needs over the project period, including a clearly defined program of nterna and externu recruitment, internal and extenal ta g, and periodic interchange of personnel across d tments or cross-ferization and skills enhancement; and (ii) design and implemeion of an information system throughout the Central Bank, in accordance with a clear timetable which includes a pilot phase involving one or two key departments. (ii) (Uengne the Flrmca Sugevso Comnison (CCBE (US$ 0.6 million, 6% of project cost). CCBEF is not a legal entity but is an independent commission chaired by the Governor of BCRM. The supervision capacity of the CCBEF will be strengthened so that it can undertake full  -3 - regulatory and supervision funcltioD of fcial institutions in an enviroment of greater relian on indirect controls In the conduct of monetary policy and increased competition among banks on boti sides of their balance sheets. The projeca complemeas the initiative of the Monetary and Exchange Affairs Department in IMP to recruit and place a seasoned bank inspector in CCBEF to lead its instittional development program. IMF was closely consulted in defining the stuctre and finctions of CCBEF and the complementary activities to be financed by toe project, including training and equipment, such as portable computers, and vehicles. This component will ensure that CCBEF assumes the primary role in on and off-site surveillance of banks, which has unti now been shared with BCRM, and that CCBEF develops adequate capacity for this purpose. (iii) norolirng the A=Mfuntig and Audit (US$ 0.7 miUlion, 6% of project cost). Tis component addresses two issues, corresponding to two sets of activities. First, improvements in accountng and audit practices are supported to accelerate the development of the accounig profession and to ensure the availability of reliabe financl information on enterprises based on international standards. Training nd technical assistance activities in this area will be implemented by the Ministry of Budget in collaboration with the Ordre des Experts Comptables et des Comptables Agres (Institute of Chartered Accou:tants). Modifications to the existing ordinance governing the profession, which esur that international stndards are suoscribed to and forelgn accounting and audit firns are not disaiminated against, were detaied during negotiations, and the promulgation of a revised ordinance is a condtion of disbursement for tis sibcomponent. Second, m order to establish, dissemine and implement transparent international acontng and audit procedures for commercial banks and financial instituions, specific technical assistance and training will be provided to bankers, auditors and other professionals. Ihe availabilit of appropriate financial information on banks also needs to accommodate the financial supervision requirements of CCBEE so that it can adequately perform its regulatory functions. Training and technical assistance activities in this area will be implemented by the Ministry of Budget in collaboration with CCBEF. (iv) SuMlIr1tng tFie Piahimlon of Banks (USS 0.2 million, 2% of project cost). The process of privatizing one of the two state banks, BTM, has already begun and the Government has committed itself to a similar process for the other state bank, BFV. A strategy, detailing steps to be take witi respect to privatzation of both barks, was agreed at negotiatics. The project will support the privaizaton process to the point of sale by financing specialized consultant services such as for valuation and placement of these banks widt private investors. In the course of the privatization pro. 'ss, it is expected that all regular activities such as amnual fiancial audits will continue to be self-financed by the banks themselves. 7. Proeet .mglemtatl BCRM is the implementing agency for the first two components and the Ministies of Budget and Finance wvll implement the tird and fourth components respectively. Components implemented by BCRM will be coordinated by a project coordinator, a new director-level position created by BCRM to implement its strategic developmet plan, and a coordaor appoit by CCBEF. Ihe Central Bank and CCBEF components of the project will be guided by their respective Strategic Development Plans (SDPs) and the compodte Human Resource and Information Technology plans. The third component will comprise two sets on activities which will both be implemented by the Ministy of Budget in collaboration with the Ordre des Experts Comptables et des Comptables AgrEs in one set of activities and with CCBEF in the other (see Par 6 (ii) above). The fourth component will be implemented by the Mistry of Finance in collaboration with BCRM. The Mnistries of Finance and Budget, BCRM, CCBEF and IDA will jointly organize a project launch workshop immediately after Credit effectiveness to familiarize key officials of all agencies with important aspects of the project includig proement and disbsment procedures. The scope of the project workshop has been  -4 - dissed with the beneficiary agencies. hnplemenation will follow monitoring indicators in Anmex 8 of the Staff Appraisal Report which were agred at negotiations, and will be evaluated accordingly during a mid-term review to be held by September 30, 1994. 8. XO*d asbigll. Ihe project is aimed at strengthening key Institutions of the financial sector - BCRM and CCBEF - through human resource and systems improvements and through increased transparency ad accountability. These improvements are expected to have a lasting irpact on financial stability and on the quaity of fin ciantermediation for the benefit of private sector-based economic growth. By strengtening these key finanil Instiions, the institutional basis will also be laid for a viable and sustainable system of market-based interest rates and, evently, a market-based exchange rate. About seventy BCRM and CCBEF staff, inluding all senior mnagers and department manaers and professional staff, have been involved In the preparation of strategic development plans (SDPs) for both Insttutions since August 1992, providing a solid basis for inteization of the objectives of both SDPs. Furtermore, the formultion nd ipl on of M ay Generally Acceptd Accountng Principles should ensre lasting improvments in financial disclosure by enterprises and fiani insltDons. 9. Lamom Flrom ,Pous IpDA Involvement. Adjustment experience in Madagascar has shown that macroeconomic reforms have suffered setbacks, pardy due to the lack of institutional capacity to manage monetary aggrgat to control inflation and implement market-based interest and exchange rate policies. These deficiencies need to be tacked within a clearly articulated and systemaically implemented oveall strategy for financia sector reforms. IDA's experience with ongoing financial intermeiiary loans in Madagascar has also demonsrJa the need for institonal strengtening to improve the quality of accounts and facilitate the supion of commercW banks (Cr. 1804-MAG and Cr. 2104-MAG). Key aspects of such institutional reform and strenening have been discussed over an extended period and agreed upon with the Government. They include CCBEF capacity to undertake effective bank supervision, through accounting and auditig standards based on inteional norms, and the use of market,based istumens by BCRM for conducting monetary policy. Detailed terms of reference for consultants have already been defined (Annex 3 of the Staff Appraisal Report No. 11682-MAG). This project is a first step in implementing an overall financial sector strategy for Madagascar. This strategy, which has been articulated in a Statement of Finacial Sector Reform and Development Policy (Annex 1 of the Staff Appraisal Report), is in line with the Bank's recent guidelines for financial sector operations which stress the importance of ensuring a strong institutional framework within the financial system. 10. Rationale z MIA volvea et. The project conforms to the Banks country assistance stzategy as presented to the Board on lune 9, 1992, in that It supports the coutry's key objectives to: (i) improve macroeconomic management by strengthening formulation and execution of monetary policy, which would entail increased Central Bank independence, with a view to promoting the productive use of credit and conining inflation; (ii) reduce tLe role and scope of the public sector, notably in the financial system; and (iii) promote private sector development by enhancing the quality of financial intermediation. The project forms part of the Bank's 'core* lending program to Madagascar aimed at capacity building. Ihe project follows 1DA's Madagac financial sector study (Report No. 9817-MAG, March 1992) an extensive dialogue and preparaton in close collaboration with the IMP, notably in the areas of reviewing the BCRM stattes and the design of the CCBEF component. The project will lay the foundations for broader finmcial sector reform to revive private savigs and investment. 11. #d cions. Ihe project is being implemented in the contet of a Statement of Financial Sector Reform and Development Policy that clearly defines financial and fiscal objectives, which has been adopted by Govemment. The Govement also has adopted revised statutes for BCRM which will ensure its increased independence and accountability. The process of undertakdng an external audit of BCRM  -5 - is under way and its completior is a condition of credit ffecivene. Ts fist exter audit will lay the gVound for regular annual audits of BCRM and publication of Its audited accounts. Governent and the Central Bank have also a1ready agreed to: (a) annual on site inspections by CCBEF of every commercial bank; (b) streamlined bank supervision functions between BCUM and CCD, giving the latter prmay responsibility for these actions; and (c) proe necessary ifomatin and paticipate in semi-annual project imple nand mid-mtem reviews to he conducted by the project codnators and the World Bank staff to monitor progess in project execution. In addition to the extera audit of BCRM, other conditions of Credit effeciveness are: (a) promulgation of reised statutes for BCRM; and (b) signing of a subsidiary credit agreement between the Government and BCRM. 12. Tnviron n d Pt Obkcve Cabgdrilhe project does not have any adverse emironmetal Impact, and has been rated 'C'. The project will contibute to the follbwing objective categories: (a) finaca intermediation; (b) privat sector development; and (c) economic management, through building capacity in monetary management. 13. Jeefits. The major benfits of the project will derive from its conion to the establishment of an efficient financial system, with an effective banking system at its core, which is eeial for the development of a market-oriented economy. The project will help implement an overall stt for market oriented financial reforms, particularly in strengthening the frmnework for prudential supervision, accountig and audit. In turn a sound financial system wil facilitate producdve investments and contribute to accelerated economic growth and the creation of employment opportunites which are key factors in poverty alleviation. Specifically, the project is expected to: Oi enhance the effeciveness of BCRM to conduct monetary policy; (i) strengthen the prudeni supervision role of CCBEF and over time engender greater confidence in the use of indirect controls rather than direct controls to allocate resources; (iii) enhance the security and efficiency of financi transactions and the quality of finani intermediation through a greater stimulu for financial savings and more efficient alocadon of capital; and (iv) help avert future financial crise rather than simply react to them. 14. RBids. The major risks of the project stem from the possible impact of the present tansitional political decision-making structure on effective implemention. Successful implemention is predicated on political will being maintained to preserve the authority of BCRM and CCBEF, respectively to formulate and execute monetary policy and to exercise prudential oversight of banks. At the same time, the institutional development goals for BCRM and CCBEF are complex and ambitious, including significantly redefined business objectives and etsive use of information technology, and could be subject to implementation slippages. These risks are mkigated by: I) the high level of commitment to project objectives and to the project's urgency expressed by a broad spectrum of political figures and technicians; (ii) limiting the project core to BCRM which has demonstrated continuity in its insftiutional capacity; (di) the progress already made, by BCRM and CCBEF themselves, towards preparing this project, indicating early ownership and internalization of project design and objectives; and (v) up-front agreement and implementaion of key organizatonal and institonal changes necessary to execute the project. 15. RemmemdaLion. I am satisfied that the proposed Credit will comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve it. Lewis T. Preston President Washington, D.C. Aprfl 28, 1993  Page I of 1 MADAQASCAR MIANCIA INSTlMUION DEVELg)PMENT TEHIAASSISTNCE PROJECr SLMMARY PROlECT CO MA (US$ thousand) ElMA PIOlECT COM: ,______________________________ LO l Foreign Total 1. Strengthening BCRM , _ _ Adioy Sevrices for C a B Organization _ 60.0 60.0 Research Dqatment - 832.0 832.0 Credit D_atment - 295.0 295.0 Foreign Excbanp - 315.0 315.0 Externa Debt Management - 218.0 218.0 Planning & Manageme of Ciculation of Notes & Coins 53.0 854.0 907.0 Accnting 82.0 499.0 581.0 Intemal Audit 26.0 307.0 333.0 Informton Systems 345.0 4,014.0 4,359.0 Human Resources 144.0 380.0 524.0 Projct Managemet Assae - 502.0 502.0 2. StrengthenIng CCBEF 21.0 556.M 577.0 3. hnproving the Audit & Accounting hm-nework 204.0 456.0 660.0 4. Supporting the Privatzation of State Banks - 200.0 200.0 IQ& _ 03.0.. ,,,,_...^,,, , j/ Includes physical contingencies of 5% per aum, and price contingencies of 4% per annum in US$.  -7 - Page I of 2 MADAAQ~R FINANCIALd R4S]TMMONS D)EVELOPMINT IE3CHb=I 0IAs&= CTc SUJMY OF PRO,POSEID PRQOC04+ AMENTSJZ (US$ million) - .PROCURENMNT METHOD Project Element Total I.C.B. L.C.B. Other N.B.F. Cost 1. Goods 1.1 Equipmet Vehicles nd 0.3 0.3 0.1 0.7 Supplies (0.3) (0.3) (0-1) (07) 1.2 ifonaics 2.0 0.3 0.1 . 2.4 (2.0) (0.3) (0.1) - (2.4) 2. Teabical Assstance, Auditing Sarvcs . 2.8 4.1 6.9 & Taining (2.8) (2.8) 3. Miwusaneou 3.1 Refinancing PPF 0.4 0.4 l . ' (0.4) (0.4) TOTAL 2.3 0.6 3.4 4.1 10.4 l ____ ,____-_____________ (2.3) (0.6) (3.4) - (6.3) Note: Figpe. in pae e th amounts financed by the IDA credit N.B.F: Not Bank-financed.  Peg. 2 of 2 ,MADMA=CAR EWASQ& RMONS DAYLZMM9M ASSTANC SUMMARY OQDSU E I r_ .....~~~~~~wcnb us$ l ~~~~~~~Pr~ , US$ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Th ianced M illion 1. Equipment, Vehicles and Supplies 100% 1/ 3.1 2. Technical Assistance, Auditing Services & Trainig 100% 2.8 3. Refinding of Projet Prepartion Facility Amounts due 0.4 TOTAL 6.3 I Based on foreign costs excluding taxes and duties. For local expenditures, the Credit wi finance 85% of local costs. ESTIMATED IUDA-DISIBURSE!MaT (US$ million) . ..w|- I = ;e - , =, . . -, FY 1994 199S 1996 1997 1998 1999 Annual 0.7 1.8 1.6 1.1 0.7 0.4 Cumulative I Q0.7 2.5 4.1 5.2 5.9 6.3  Page 1 of I TlMETABLEO KEY PROCSSING KOMNT First IDA Mission March 1992 Preparati' , by Govenment Augut 1992 to February 1993 Appraisa Mission Departure Febnrary 1993 Negoiations April 1993 Planned Date of Effectiveness Sepmber 1993 Ths report is b bas n oQ t findin of a Bak apprl mison which vitd Mdgsar fiom February 20, 1993, to Ms 5, 1993, compriing of Mes /Mme Govxn Nair, Financial Econom t, (AP31E - Missn T and Tast Magr); Sim Gray, Economit, (AF3IE); Claudwe Mora, lawyer (LEGAP); Mu&d Borg (consultat cntral bak nmtgeammnt); and Alm Andolf (osutt,iformao sy0ms). Mr. Kaid Sus (ASTrP) wa led rviw and Mr. Psal Bouvier (M) was pee rvwe Contributions ae mackowledged fom Mr. Cohn Lyle, auditing and accouing pciaist (AIT) aod Mes.a S&c a nd Tonut, respctively coslta for USAYD and tho Swiss Govemnnt, who also pticipated i- 'aiu aspects of te appisal misson Biingud scretl support was provided by Ms. Iudite Feandes, Staff Asita (AP3I). Mmessr. Faciso Aguire,4mm (AP3DR) and Mie N. Sun (AP3I) ar repetivey th Departmnt Dircto and die _naging Diviio Chief for the opertdonL  Sciedul -D Page 1 of S STMATU OF BAN}C ZQ-.= OPERATInS IN MADAGASCA A. SATEMEUNT OF BAN LOAQNS AM EDA CREDIT KAAGASCM Statw Of aark crou Operaticrs In KADAGASCAR PFOPR2S - Sumury Statemwrt Of Loarm ad IO.A Credits (LOA data as of 3/30/93 - MIS data as of 04/27193) .................................................... By Conttr Contry: MA4AGASCAR Amunt in USS mitLion (Less cancelLations) Loan or Fiscal .rndis- CLosing CredIt No. Year 8crrower Purose 8ar.k tCA b.rsed Date .......... ...... ........ ....... .... ... ...... ....... Credits 46 Credits(s) ctLsed 630.45 C14970-MAG 1984 MAAGASCAR URSAN I 12.80 2.80 C6/30/93(.q) C13890-MAG 19S5 1AAe.ASW IRRICATICN REM3. 10.57 4.99 06/30/93(R) C16610-MAG 1986 P.AZAaASA ACCT./MGHT. T.AINING 10.30 9.00 12/31/93%R C1.1VO-MAG 1986 MAGASCAR AZ.tNsr.TAs It 10.00 1.51 12/31/92'R) C17520-MAG 198? MAOAGASCAR FORT REHIAS(LlTATICN 16.CO 6.90 0331/94(R) C17S70-MAG 1987 MADAASCAR ENERGY 1 25.00 9.62 12/31/94(R) C18C40-MAG 1987 1'ADAGASCAR AGRI.CR.II(STM) 10.00 1.09 c6/30/94 C18780-MAG 1988 MWAGASCAR FCREST MGt 7.00 3.52 01/31/96 C19050-MAG 1988 MADAGASCAR HIGHWAYS Vtt 40.C0 26.18 06/30/93 C19280-MAG 1988 MAGASCAR IWtINETE ENG 8.55 5.18 06/30/93(R) C19410-MAGCS) 1988 MADAGASCAR P:SLIC SEC.AZJ 125.00 46.03 09/30/93R C19670-IkAG 1989 MA0AGASCAR MACRO EMSAP/TA 22.00 16.06 C6/30/94 C20420-MAG 1989 MADAGASCAR AcatC RES3ARCON 24.00 23.54 12/3./96 C20940-MAG 1990 *MADAGASCAR EDUC SECT REINF 39.00 34.28 06/3;/96 C21040-MAO 1990 MADAGASCAR fIN SECTCR/APEX 48.00 45.24 06/30/97 C21170-NAG 1990 MIDAGASCAR TANA PLAIU OEV 30.50 29.77 06/30197 C21250-AG 1990 MADAGASCAR ENVIRONMENT 26.00 23.73 06/30/96 C21500-MAG 1990 MADAGASCAR PILOT EXTENSION 3.68 2.09 C6/30/94 C22430-MAG 1991 MADAGASCAR LIVESTOCX 19.80 17.17 06/30/s9 C22510-MAO 1991 MADAGASCAR NAT HEALTH SECTOR 31.C0 30.64 06/30/97 CZ3820-MAG 1992 WADAGASCAR VOC. EDUCATICN 22.80 22.35 06/30/98 C19415-MAO(S) 1993 MADAGASCAR PUKLIC SEC.ADJ 1.37 1.37 01/21/94 C24590-MAG 1993 FADAGASCAR RURAL fIN 3.70 3.75 12/31/97 C24740-MAG 1993 MADAGASCAR f0CO SECURITY & NUTR 21.30 21.51 07/31/98 TOTAL rndbr Credits a 24 568.37 388.82 Loans 5 Loans(s) ctosed 32.57 ALL closed for MADACASCAR TOTAL nmrber Lo3ns 0  Page 2 of 5 MADAGASCAR Status Of Bank Group Operations In MAGASCAR PFOSR2S Surury State?nent Of Loans ard IOA Cred" Is (LCA data as of 3/30/93 - HIS data as of 041Z?/93) .......................................................................................... By Country Country: MADAGASCAR Aunit in USS million (Less cancellat4ons) Low or pfs"i ~~~~~~~~~~~~~..................... Uds tsn Loan or Fiscal lJrdis- Closing Credit No. Year Borrower Purpose Bank IDA bursed Oata ., .................. ............ ....... ........... .............. .... . ........ . .... ........ ....... TOTAL** 32.57 1,198.82 of which repaid 18.56 27.7? ........ ......... TOTAL held by Bank & IDA 14.01 1,171.05 Amxnt sold of ktich repaid TOTAL urdisbursed 388.84 Notes: * Not yet effective lNot yet sigfed T'otal Approved, Repawguts, aid Outstarding balance represent both active ard inactive Loams ard Credits. (R) indicates formulty revised Closing Oate. CS) indicates SAL/SECAL Loans d Credits. The Met Approved'" Bank Repa>ments are historical value, all others are market value. The SignirA, Effective, ad Closing dates are based upon the Loan Department offical data and are not taken fran the Task Budget file.  - 12 - MADAGASCAR B - Statement of IFC Investments (as of December 31, 1992) (US$ mi3non) Irnvestmens Fiscal Obligo Type of Busine Lon Equity Total Ouwstaing Undisbned Number Year Commit 367-MAO 19 Socid6t Textile de Majungy , S.A. Tetils 14.7) 0.30 15.00 3.50 0.00 S30-MAG 1980 BeW S.A. Mgpe Shoe Mnfactuing 1.30 1.30 0.00 0.00 690-MAG 1984 Ptheries de Nossi-Be Fishing 6.90 0.20 7.20 4.80 0.00 800-MAG 1986 La Cotouni2re dAntbo S.A Textiles 10.90 0.20 11.10 9.70 0.40 1219-MAG 1990 Financi d'wesswmt ARO Ventwu Capil 0.00 O.M0 0.50 0.50 0.00 2116-MAG 1992 Bank' Ny Idoria Co_mercial Dak 0.00 2.60 2.60 2.60 0.00 3243-MAG 1992 Aqualm Aribmuiness 1.90 0.60 2.S0 0.00 2.50 Toedll GWO coosstwoLO un L9.040.10 I La Rqwpum, C _waUsfion, 16.16 0.00 16.16 Tadai and Sdal Total comnOtnienow beld by 19.54 6.60 23.94 'PC Totl Undisbursed 2.26 0.60 2.86 Total Diursed 17.28 3.80 21.1  - 13 - Schedule D Page 4 of 5 NM ON PRJCr WMWNCAI A 1. Most Madagascar projects have suffred from slow diIburseme--s due pardy to generic problems, including (a) lack of counterpart funds; @b) difficulties for project managers to access IDA fuds deposited in special accounts opened by the Centra Bank and operated by sigaries in the Treasry; and (c) cumbersome publicprocurement procedures due to repeated reviews by cental agencies. The siton worsened in July 1991 with the onset of political umoil. Large scale de ons and strikes paralyzed public administation and severely disuWted economic acdvity. The country is now in a proces of political transition (elecions undew, with a new government expected to be in place by mid-1993), wbich is still slowing project implementation. These generic problems have affected atl projects, in additon to project-specific delays. Ihe following projects have the most sgnificant dbrement lags: rrndon Rehabittion PrWect (Cr. 1S9MAG). Start-p delays due to lack of adequate technial assistance and the severiy of the above generic problems were among the main caues for slow disburs s. Implementtion has now picked up, with a number of conats under execution. The credit is expected to be closed by the end of 1993, when a second phase project is planned. Ac=coudogc and NWMnaDeme Tralning Projeet (Cr. 1661-MAG Even though the project has atained most of ks goals, disbursements are low due to larger than anticipated co-finncing from grans by Canada and France. A supenrion mission currently in the field is reviewing prospects to use some of the remaining fud and cancel those which will not be used. 1nt Ut {Cor M&G1. Implementaon of this project has been delayed by a wide variety of protlems (organizational, personal, counterpart funds, markeing). A mid-term review in March 1992, made recommendations to redirect and streamline the project, concentrating on two key components. A supervision mission tenatively planned for June - July 1993, will review progress with a view to reconding any futher required actions. Seventh Hglahwy Proct (Cr. 1905-MAG) This project was mostly affected by the generic problems of cumbersome procurement procedures and lack of counterpart funds. Many contracts have now been signed and disbursements are expected to increase significantly during 1993. Ibuedte Mil Engkwdlltect (Cr0 l V-MAG . Ihis project has suffered from delays in finaizing agreements on legal and technical aspects of the investment and shareholder agreement, as well as on environmental clearance by the Govermnent, during the period of political transition. Most of the credit is expected to be cancelled on June 30, 1993. Publle Sector Adjustment Credit (Cr. 1941-MAG). The economic reform program was negatively affected by the political turmoil which started in mid-1991; delays in meedng the conditions for third tranche release are the main factor preventing full disbursement. Steps must be taken to implement public enterprise reform, to agree on a public expenditure program, and to reinstate a viable macroeconomic framework including rigorous public finance management and a return to a liberalized system for foreign exchange allocation. The Bank has agreed to the Government's request to extend the closing date to September 30, 1993 to allow more time to meet the third tanche condtkions.  - 14- Sechedule D Page 5 of 5 Economic Management and Sedal Action BProMet (Cr. 1967-M&X. Imple on of IDA-financed cwponents has been slow, pardy due to complexity of project design. Components financed by gran from Switzerland and UNDP were disbursing more rapidly. Following the establishment of a project execution unit, the disbursement rate has pic"ed up and the project was redesige in October 1992 to streamline its actvities. Nafional 4gda1mW ltese4= P ect (Cr. IA G). 'mTe project experienced an eight-month start-up delay in meeting credit effectiveness conditions. Project execution was disrupted in 1991 due to the political tunmoil in the country and continues to be affected by institutional disputes. A Januay 1993 supervision mission agreed on severa immediate actions, as well as on a project reppraisal for September 1993. 2. Some recent breakthroughs have been made which should go some way towards addressing the generic problems involving procurement and access to special accounts. These breakthroughs followed the Country Implementation Review (CIR) in Antannarivo in December 1990 and a folow-up CIR in March 1992. Government agreed to: (a) issue new regulations for procurement and use standard bidding documents which comply with Bank guidelines; and (b) publish a decree allowing project managers to have direct access to special accounts to be opened in commercial banks to ensure that funds for project impIementation are available as and when needed. Standard Bank bidding documents are already being used, and arrangements are being finalized to make the new special accounts operational for all projects. In addition, attention is being given to the availabflity of countrpart funds for Bank projects within the conWt of public exenditure/ investment reviews, and to identiffing areas where shifting priorities or resource constraint may necessitate restrucuring. Another CIR will be planned soon after a new goverment, resulting from the forithcoming elections, is in place. In the first nine months of FY93, disbursement on investment operations accelerated to US$30 million, i.e. more than the total amount disbursed in FY92.  IBRD 20035R M1ADAGASCAR cW<tiatn A_ -e _ ,^lJ3her roa"Rffds ef#t NOSY-f-E P Om.lb Chrmrn eJe fer 3,ooeo|; - - Aki#s QS 2 .