Philippines - Industrial Restructuring Project

 Industrial restructuring project Report No: ; Type: Report/Evaluation Memorandum ; Country: Philippines; Region: East Asia And Pacific; Sector: Industrial Restructuring; Major Sector: Industry; ProjectID: P004585 Philippines: Industrial Restructuring Project (Loan 3287-PH) The Implementation Completion Report (ICR) for the Philippines Industrial Restructuring Project (Loan 3287-PH, in the amount of US$175 million equivalent, approved in FY91 and closed ahead of time in FY95) was prepared by the East Asia and Pacific Regional Office. The Borrower's limited comments are mentioned in Part I of the Report. The loan was cofinanced by: (i) export credits under the Bank's Export Credit Enhanced Leverage Program (EXCEL) facility, for an amount of US$75 million; and (ii) bilateral grants and soft loans for US$15 million to support training and technical assistance programs. The main objectives of the loan were to: (i) support the strengthening of the industrial sector and the institutional framework for environmental protection; (ii) finance investments in industrial sectors free from major trade and regulatory distortions; (iii) help selected industries to become more competitive through policy changes and technical assistance; and (iv) strengthen the institutional capacity of the Development Bank of the Philippines (DBP) to act as a wholesale bank and play a more active role in the capital market. The project achieved most of its objectives. Physical progress in industrial restructuring has been satisfactory. The loan financed 76 private business enterprises covering a wide range of industries. Moreover, DBP's proficient management of the technical assistance component led to effective implementation of training and environmental protection programs. From the perspective of its institutional development, DBP changed to a predominantly wholesale banking institution and diversified its long term financing towards private sources. DBP, however, still needs to address major ownership and management issues to achieve its long term development objectives. Finally, the project quickly helped remove quantitative import restrictions, eliminate price controls and lift administrative barriers to entry, and thereby succeeded in stimulating private sector development. The EXCEL cofinancing facility was open for more than one year, but remained unused despite vigorous marketing efforts. The lack of interest in using the related export credit lines was mostly due to their unattractive terms and conditions. The other cofinancing program for technical assistance was, on the contrary, very successful. The ICR rates the project outcome as highly satisfactory, institutional development as substantial, and sustainability as likely. The Operations Evaluation Department (OED) agrees with these ratings, with the exception of project outcome which is rated as satisfactory because of the moderate progress of DBP in undertaking the major institutional changes foreseen at the time of loan negotiation. OED also rates Bank performance as satisfactory. The principal lesson is that successful private sector development involving industrial restructuring requires adequate lead time, substantial financial resources and technical expertise, as well as motivated institutions. A second lesson is that, due allowance should be given to sociopolitical realities that may cause delays in the implementation of the development program of a large state owned financial institution. The ICR is satisfactory. No audit is planned.