Moldova - Pre-Export Guarantee Facility

 ICRR 10204 Report Number : ICRR10204 ICR Review Operations Evaluation Department 1. Project Data : OEDID: OEDID : L3851 Project ID : P038641 Project Name : Pre-Export Guarantee Facility Country : Moldova Sector : Financial Sector Development L/C Number : L3851 Partners involved : None Prepared by : Edgard Rodriguez, OEDCR Reviewed by : Robert Buckley, OEDCR Group Manager : Rene Vandendries, Acting Manager, OEDCR Date Posted : 08/14/1998 2. Project Objectives, Financing, Costs and Components : The US$30 million contingent loan aimed to attract foreign private funds to finance exporters' working capital in the Moldovan private sector. A government-owned Guarantee Administration Unit (GAU) would sell guarantees to foreign suppliers, trading companies and financial institutions . These clients would bear full commercial risks, but the guarantees would protect them from changes in government performance and other political risks . The loan would support claims against outstanding guarantees up to $ 30 million at any time. The project was approved in FY 96 and it closed in FY98 with 100 percent of the original loan cancelled . 3. Achievement of Relevant Objectives : The project did not meet its main objective . No guarantees were sold. The Government requested to cancel the loan to avoid further commitment fees seven years before the original closing date . 4. Significant Achievements : In retrospect, this innovative project failed but it also served as an experiment for a new kind of guarantee to cover political risks in transition economies with little or no financing of working capital for private firms . Based on the experience, the Bank has now two similar and successful facilities in Eastern Europe . 5. Significant Shortcomings : The project failed to assess the demand for guarantees from the Moldovan private sector . Also, the project failed to obtain full cooperation from key ministries within the public sector . 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Unsatisfactory Unsatisfactory Institutional Dev .: Negligible Negligible Sustainability : Unlikely Unlikely Bank Performance : Satisfactory Satisfactory Borrower Perf .: Deficient Unsatisfactory Quality of ICR : Satisfactory 7. Lessons of Broad Applicability : The project illustrates two basic lessons . First, projects should assess systematically the demand for a new financial instrument among its potential clients . This assessment should also be done early and it should consider alternative pricing scenarios. Second, the project shows the importance of government's ownership . Only a government committed to not interfere with the market can credibly support an agency that sells insurance against government interference in private business . 8. Audit Recommended? Yes No 9. Comments on Quality of ICR : The ICR is satisfactory. It candidly acknowledges the failure of the project .