Mozambique - Financial Sector Capacity Building Project

Documnt of The World Bank FOR OFFICIAL USE ONLY Report No. P-6209-MOZ MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT IN THE AMOUNT EQUIVALENT TO US$9 MILLION TO THE REPUBLIC OF MOZAMBIQUE FOR A FINANCIAL SECTOR CAPACITY BUILDING CREDIT MARCH 15, 1994 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. CURRENCY EOUIVALENT Currency Unit Mozambique metical (Mt) 1975 27.24 1980 32.40 1985 43.18 1986 40.43 1987 289.44 1988 528.60 1989 819.71 1990 1,038.15 1991 1,435.00 1992 2,433.00 1993 5,234.00 ABBREVIATIONS BFE Banco de Fomento e Exterior BM Banco de Mogambique/Bank of Mozambique BPD Banco Popular de Desenvolvimento/People's Development Bank BPA Banco Portuguese do Atlantico BSTM Banco Standard Totta de Moambique/Bank of Standard Totta (Mozambiqde) conto One thousand meticais CPI Consumer Price Indek EDI Economic Development Institute EFMTA Economic and Financial Management Technical Assistance Credit EMOSE Empresa Mogambicana de Seguros e.e./State-owned insurance company ERP Economic Rehabilitation Program FS CB Financial Sector Capacity Building GDP Gross Domestic Product GTZ Deutsche Gesellschaft Fur Technische Zusammenarbeit IFBM Instituto De Formaclo BancAria de Mogambique IMF International Monetary Fund MoF Ministry of Finance Mt Metical/meticais - currency of Mozambique NBFI Non-Bank Financial Institution OTC Over the Counter PPF Project Preparation Facility SAF Structural Adjustment Facility SERC Second Economic Recovery Credit SPA Special Program of Assistance SDC Swiss Development Cooperation SIDA Swedish International Development Authority SME Small and Medium Enterprise SOCIEF Sociedade de Investimentos e Estudos Financeiros TA Technical Assistance FISCAL YEAR Government = January 1 to December 31 FOR OFFICIAL USE ONLY MOZAMBIQUE FINANCIAL SECTOR CAPACITY BUILDING CREDIT CREDIT AND PROJECT SUMMARY BORROWER: Republic of Mozambique BENEFICIARY: Republic of Mozambique (Banco de Mogambique, Ministry of Fiance, and the commercial banks) CREDIT AMOUNT: SDR 6.6 million (US$9 million equivalent) TERMS: Standard IDA terms with a 40 year maturity, including 10 years of grace. FINANCING PLAN: IDA US$9.0 million Government US$0.5 million SDC US$1.0 million ECONOMIC RATE OF RETURN: Not applicable STAFF APPRAISAL REPORT: None POVERTY CATEGORY Not applicable 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. MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO MOZAMBIQUE FOR A FINANCIAL SECTOR CAPACITY BUILDING CREDIT 1. I submit for your approval the following memorandum and recommendation on a development credit to the Government of Mozambique for SDR 6.6 million, the equivalent of US$9.0 million, on standard IDA terms with a maturity of 40 years to help finance a project of Financial Sector Capacity Building. In addition to providing support for human resource development in the financial sector, the project also supports the Second Economic Recovery Credit (SERC) and the policies and activities that the Government has pledged to undertake, in its Letter of Development Policy to the Bank of December 1, 1993 (Annex VIII). The SERC is being processed concurrently with this operation. 2. BACKGROUND. With a per capita national income of US$80 (1991), Mozambique is one of the poorest countries in the world. The post independence period has largely been one of stagnation and decline resulting from the migration of most of the country's skilled workforce at independence, the institution of bad economic policies, and an on-going civil war. Over this period, national income declined signifidantly. Escalating warfare reduced the attractiveness of Mozambique ports for the land locked countries to the west, and trade was re-routed through alternative ports in South Africa and Tanzania. Tourism, also a major income earner in the pre-independence period, fell dramatically with the escalation of the war. Civil disturbances in rural areas also meant that agricultural activities declined, as large numbers of the rural population either fled to neighboring countries or migrated to the cities in search of safety. Migrant mine workers remittances, from the mines in South Africa, also declined over this period, as recruitment by the Republic of South Africa declined. 3. These developments led to declining levels of industrial and agricultural production and declining levels of national income growth. Consequently, in 1987, the Government embarked upon an Economic Rehabilitation Program (ERP) which sought to reverse the economic trends of the past decade by instituting a series of reforms which liberalized and deregulatcd the economy away from a rigidly planned system of socialism. This was followed in 1989-90 by the Economic and Social Rehabilitation Program (ESRP) which continued to pursue the economic aims and policies of the ERP but with a greater emphasis on poverty alleviation. 4. This led to strong economic growth in the years immediately following 1987. However, in the early 1990's several developments took place which adversely impacted growth. First, markets in the Soviet Union and the Eastern Bloc countries were lost as political reform took hold in those countries; second, migrant workers in East Germany were repatriated, as political change led to German unification; third, the Southern African region entered a period of prolonged drought; last, world wide economic recession had an adverse impact on growth throughout the entire Sub-Saharan region. These developments resulted in growth in real GDP falling from 5.4 percent in 1989 to 1.3, 2.7, and -2.4 percent in 1990, 1991 and 1992 respectively. However, in 1993 real GDP growth is estimated to have recovered to 5.6 percent. 5. Several recent developments, however, have greatly enhanced Mozambique's prospects for growth during the remainder of the 1990s. The signing of a peace accord between the Government and Renamo in 1992, has placed the Mozambique economy in a good position to achieve substantial growth throughout the remainder of the decade. Lasting peace, followed by democratic change, will permit the re-establishment of many of Mozambique's traditional sources of economic -2- activity - the development of agriculture, the growth of activity through the transport corridors, re- development of tourism -- as well as encouraging foreign investment (South African and Portuguese investors appear to be potentially large sources of foreign investment for the Mozambican economy). 6. THE FINANCIAL SECTOR. Macroeconomic control in Mozambique has been hampered by the amalgamation, until early 1992, of the central bank (Banco de Moqambique) and the largest commercial bank (Banco Comercial de Mogambique). Prior to 1987, this combined institution largely operated as an arm of the Government budget, allocating credit based upon the Government plan. The separation of fiscal from banking activities is an important objective of the overall adjustment program, and the development of audited, timely accounts from all banks, and the strengthening of these institutions is an important objective of both the Second Economic Recovery Credit (SERC) and this proposed Financial Sector Capacity Building (FS CB) Project. With no history of proper central banking, and a certain amount of confusion between central and commercial banking functions, it is vitally necessary to train competent central banking staff to operate in key central banking areas. Specifically this will mean a development of skills in the three key areas of macro-monetary management, supervision of the banking system, and foreign exchange management. These skills will need to be developed within the context of a market based and liberalized economic setting. 7. In addition, the financial sector has been identified as a key constraint to further growth in the economy. Payment systems have largely broken down, banking services are limited and inefficiently provided, and financial innovation in terms of institutions and instruments has been virtually non-existent. In addition, the majority of the staff working in the financial sector have a very limited formal education, and their training has mainly been acquired in a period when the banking system operated under the Government plan rather than in a free market environment. There is therefore, a need to train banking staff to adapt so that they can undertake banking business in a deregulated environment. 8. In 1992, Banco de Mogambique embarked upon a program of financial sector reform, which is being supported by the World Bank under the SERC and this proposed credit. The central bank and the largest commercial bank have now been split; the central bank has deregulated entry, allowing two Portuguese banks to commence operations as fully licensed commercial banks; other foreign banks are known to be interested in entering the market; insurance activities have been deregulated and two new insurance companies have commenLed operations; accounts for all institutions are being developed to an auditable standard; and regulations are being drafted on bank licensing, capital adequacy, provisioning policy, and exposure limits. These developments will help provide the legal and regulatory basis for the development of a competitive and well diversified financial sector, capable of servicing the needs of the real sectors of the economy. However, weakness in the human resource base remains a key major constraint to the development of the sector which needs to be addressed through a comprehensive program of reform. 9. PREVIOUS AND CURRENT SUPPORT IN THE AREA OF BANKING TRAINING. Training for banking sector staff has been provided in the past by the Swiss Development Cooperation and the Governments of France and Portugal. All three have a continuing interest in providing on-going support for training in this sector. The proposed project has been developed in full cooperation and collaboration with the Governments of Switzerland, France and Portugal. Co-financing support for the program will be provided by the Governments of Switzerland and the United Kingdom. Parallel financing of training programs and facilities will be provided by the Governments of France and Portugal. -3- 10. PROJECT OIJECTIVEs. The Financial Sector Capacity Building (FS CB) project will develop and strengthen the institutions charged with implementing the policy and institutional reforms agreed under the Second Economic Recovery Credit (SERC). The main objectives of the project are to: (a) train central bank staff so that they can undertake -- better macro-monetary management, prudential supervision of the financial sector, and manage a more effective system of foreign exchange allocation; (b) train staff in the commercial banks so that they can more effectively provide trade finance to importers, appraise credit applications and, for higher level staff in the banks, provide more effective overall management; (c) train a core of legal professionals in the central bank and the Ministry of Finance to review and re-draft financial and other related legislation for its applicability in a deregulated financial environment -- and to also strengthen legal systems which may beneficially impact upon the overall operation of the financial system; (d) support institution building within the financial sector, through the recruitment of technical assistance experts who can, in large part, train local staff and help develop local competencies; (e) study certain aspects of the financial sector in greater depth, to provide a better understanding of possible policy alternatives. The credit will be supporting the Government's initiatives in these areas, as enunciated in the attached letter from the Governor of the central bank to the World Bank, of December 1, entitled "Letter Describing the Government's Capacity Building Program in the Financial Sector" (Annex VIII). i. PROJECT DESCRIPION. The total project of US$10.5 million will be divided into five major components (the project is described in greater detail in Annex I); (a) Central Bank Training. The first component will consist of US$1.92 million to be used for central bank training. This component includes training staff in key areas of central bank activity -- specifically in macroeconomic policy analysis and policy making, banking regulation and supervision, foreign exchange control and foreign exchange management, and accounting strengthening. The development and strengthening of management information system (MIS) procedures will also be an important element of this sub- component. This program will include a series of short courses, over a period of four to five years, in key central banking activities (these are outlined in Annex III). The project will also support a very limited amount of postgraduate study abroad, attachments to other central banking institutions, and attendance at seminars, conferences and other courses. The training of local trainers is an important component of all the training programs under this credit -- such that the use of external trainers can be phased out over the program period as they are replaced by Mozambican trainers. (b) Commercial Bank Training. The second component, comprising US$1.44 million, will support commercial bank training -- both through identified short term courses to meet specific skills, as well as providing a limited amount of institutional support for the Banker's Institute being developed in conjunction with the local banks and the Government of France. Whereas the emphasis of the French Government program is on the development of longer term banking courses, the IDA program will focus on meeting immediate commercial bank training needs. Specifically, the credit will support training programs in bank credit analysis, project appraisal techniques, documentary credits, trade finance, and management training for commercial bank staff. Achieving full cost recovery on these commercial banking courses by the end of the program period, in 1999, is an important feature of this component of the credit. (c) Strengthening Legal Financial Capacities. Given the importance of an appropriate legal environment to the operation of the banking system - as well as requirements under -4- the SERC program to revise, inter alia, supplemental legislation with regard to Foreign Exchange Control, Insurance, Pension and Provident Funds, and Money and Capital Markets, the project will support a strong program of legal sector training. This training will not only focus on training central banking staff and staff from the Ministry of Finance, to develop the approp.iate legislative environment for the conduct of financial activities, but will also extend further to other aspects of institutional development 4s well as the dissemination of the law. Without such a strengthening of the overall legal financial environment, financial sector reform will remain un-enforceable. This component of the project represents US$2.72 million of the total. (d) Institutional Development. A fourth component of US$4.02 million will be used to assist institutional development through the funding of technical advisors to support the SERC program -- including advisors in the research, banking supervision and foreign exchange control departments of Banco de Mogambique. These funds will also be used to finance the development of Strategic Plans and subsequent restructuring work in the two State owned commercial banks. In line with moves within the Africa region, external technical assistance programs will be designed in a manner which will have the largest possible impact upon developing local African capacity. Use of long term external consultants will be maintained at the minimum required, and the transfer of skills to local counterpart staff will figure prominently in the terms of reference of all such staff. Innovative arrangements, such as twinning arrangements, with institutions such as Banco de Portugal and the Bank of England -- on an "in-out" basis -- will also be utilized, to help ensure the development of local competencies. Classification of technical assistance (based on outcome) is provided in Annex I, Table 3. (e) Studies/Project Support. A small component of around US$410,000 will be used to fund studies to underpin the on-going program of financial sector reform. These funds will be used to finance both internal and external consultants, however, emphasis will be placed on utilizing local consultancy capacity as much as possible. 12. A detailed description of the project components is provided in Annex I. A breakdown of costs and the financing plan are shown in Schedule A. Due to serious domestic resource constraints, the Government contribution will be limited to around 5 percent (mainly for the local cost contributions required to drive this program within Mo7ambique), with IDA and the Governments of Switzerland and the United Kingdom financing 95 percent of total project costs. Amounts and the method of procurement, and the categories and schedule of disbursement are shown in Schedule B. A timetable of key processing events and the status of Bank Group operations in Mozambique are given in Schedules C and D respectively. 13. PROJECT IMPLEMENTATION. Banco de Mogambique, will have the overall responsibility for administering the Credit and coordinating activities supported by it and the SERC operation. Specifically the Human Resources Department within BM will have overall coordinating responsibility -- and a project coordinator working within this department has been assigned overall responsibility for the program. Five coordinators for the above five sub-components have also been identified, and will have responsibility for implementing their particular component of the program. These arrangements were confirmed at appraisal. In addition, a Training Coordinating Committee, with representatives from Banco de Moqambique, the two state banks, and representatives of the private sector banks, has been formed to oversee coordination of the overall training program within the Banker's Institute. Over time, the Banker's Institute will develop overall responsibility for the -5- commercial bank training components of the program -- although this will depend on how quickly the Institute can be established and become operational. Although it is preferable that the Banker's Institute be established as quickly as possible -- as a vehicle for providing bank training - the implementation of this project is not contingent upon its operationalization. 14. The project will be reviewed on an annual basis, based upon agreed Performance Indicators and an Implementation Plan -- contained in this Memorandum as Annex VI. Annual reviews will commence at twelve monthly intervals after the credit becomes effective. There will also be a mid-term review of the program during 1996. Due to the supervision intensive nature of this operation, efforts are being made to strengthen the Resident Mission in Maputo, through the recruitment of appropriately qualified local Mozambican staff to help supervise this, and other, projects. This should greatly enhance the effectiveness and timeliness of implementation capabilities. 15. PROJECT SUSTAINABILITY. The availability of adequately skilled personnel is a particularly pressing problem in Mozambique. Projects have often been adversely impacted by trained staff moving on to higher paying positions in the private sector -- or to work as staff of the international aid agencies. The current project attempts to address these issues by (a) working mainly with an institution, the central bank, where the turn over of staff has been low (around half the professional staff of BM have been employed by the bank for over 15 years), and (b) supporting the establishment of commercial bank training programs -- which can be given through a Banker's Institute -- so as to help develop a critical mass of trained personnel to carry out commercial banking functions. The training facilities will be available to the commercial banks on a fee paying basis - and this may induce the commercial banks to bond staff that they pay to have trained, thereby addressing the problems caused by staffing movements. Given the poor performance of technical assistance in many African countries, the recruitment of external technical assistance will have an important focus on training of local staff. Innovative methods 3f utilizing technical assistance will also be adopted to ensure, to the extent possible, the development of local capacities. In addition, the strengthening of existing protocol arrangements with the Bank of Portugal -- for both training and technical assistance requirements -- will help in establishing a longer term relationship within which it will be possible to develop sustainable local capacity. 16. LESSONS LEARNED FROM PREVIOUS BANK/IDA INVOLVEMENT. The experience gained from the Economic and Financial Management Technical Assistance Project (EFMTA) has shown that there are long lead times between the development of a project concept and its operationalization - especially with respect to training and technical assistance. Fortunately, this project will be following on from the EFMTA project and will thereby be able to utilize systems which have already been developed under the auspices of that project. Experience from that project has also demonstrated that long lags can arise when the project is involved in the purchase of large pieces of capital equipment (in the case of the EFMTA -- this was a large computer system for BM/3CM). Consequently, capital goods purchases under the FS CB project are strictly limited to a small number of personal computers, associated software, and books and publications. Long lags also arose under the EFMTA project in the recruitment of technical advisors -- which further served to slow disbursement under this operation. Consequently, the FS CB program places much more emphasis on training, rather than technical assistance, and where TA is a requirement, the project has ensured that key steps in the recruitment process are well in train (for example, many key TA positions have already been advertised -- and some financed through the PPF). Lastly, commitment by the Government is a key ingredient of success for projects in Mozambique. The proposed program is supported by a dynamic Governor of the central bank who is determined to see the financial sector strengthened and made capable of serving the needs of a growing economy. -6- 17. RATIONALE FOR IDA INVOLVEMENT. The development of a strong central bank and a .ound commercial banking system is necessary to conduct appropriate macro-monetary policy and to ensure efficient and appropriate financial flows within the economy. In the absence of a strong, independent central bank, monetary control and overall nacro economic control cannot be ensured. The absence of a strong central banking supervisory authority will also increase the potential for future systemic distress within the commercial banking system. Commercially sound banking institutions are required to service the financing needs of all sectors of the economy. A recently completed Mozambique Financial Sector Report, undertaken by the World Bank in conjunction with SIDA, identified constraints which are being addressed in the context of the proposed SERC operation -- the strengthening of the banking system is considered a key element for success of the overall adjustment effort. Given the low implementation capacity within Mozambique, there is an associated need to support the training requirements of this vital sector, as well as provide technical assistance in key areas. 18. RELATIONSHIP TO COUNTRY ASSISTANCE STRATEGY. A Country Assistance Strategy is being prepared and will be presented to the Board in conjunction with the next adjustment operation, scheduled for Board presentation in the fourth quarter FY94. This project is fully in line with the CAS currently unde, preparation (and the previous Bank Country Assistance Strategy for Mozambique presented in November 1992), which notes the especially acute shortage of skilled manpower in Mozambique, and recognizes that capacity creation through education and training is an essential element of the Bank's overall strategy. The Country Assistance Strategy also stresses the importance of strengthening the financial sector -- for Mozambique's development -- both in terms of achieving macro-monetary stability, and as a vehicle for supporting private sector led growth. 19. ACTIONS AGREED. By Negotiations the following conditions were met: (a) request for funding, under the Project Preparation Facility (PPF), to develop a Strategic Plan for BCM; (b) selection of the firm which will provide the swat team for banking supervision; (c) approval of the contract with the legal firm which is providing support to the Legal Department of the central bank; (d) identification of the local counterpart trainers under the proposed program; (e) provision of a letter describing the Government's Capacity Building Program within the financial sector to IDA. Conditions of Board By Board presentation, the following two conditions had been met: (a) BM has prepared a satisfactory action plan to (i) reverse the dormant status of special accounts by submitting replenishment requests, and (ii) refund all outstanding amounts on closed credits, (b) selected an auditor for the project. Dated Covenants (a) the submissicn to IDA of a draft Strategic Plan for Banco Comercial de Mogambique, by October 1, 1994; (b) commencement of the implementation of BCM's Strategic Plan, by January 1, 1995; and (c) if required by the Strategic Plan, the selection and employment of management consultants to assist BCM management implement an agreed program as identified by the Strategic Plan, by July 1, 1995. 20. ENVIRONMENTAL ASPECTS. The Project will have no environmental impact. 21. PROGRAM OBJECTIVE CATEGORIES. The program will support the Government's program to improve public sector management (through enhanced macro-monetary control) and to create an enabling environment for private sector development. Although tht project will not have a direct poverty alleviation impact, it should indirectly assist this key objective through the development of a more stable macro economic environment and the development of a well functioning banking system which more appropriately and efficiently meets the financing needs of the real sectors of the economy. -7- 22. JUSTIFICATIONS AND RISKS. A risk of the program is that trained staff will move on to other banks or into other private sector institutions once they have been trained. Inasmuch as staff move into other banks, this will not be a particular problem, as the project aims to train staff for the financial sector -- and not for a specific financial institution. Making commercial banks pay for training on a graduated basis (up to full cost recovery by the fifth year of the program) will also make bank management focus on ways of retaining staff that they have incurred a cost in training -- either through bonding practices or other arrangements. Importantly, staff at the central bank are less mobile than other staff in quasi public institutions because of the relatively better salaries and other conditions provided by Banco de Mogambique. The Mozambique Government and Banco de Moqambique place a high priority on training Mozambican staff -- and hence there is strong support for the overall program. Another risk is that it may prove difficult and time consuming to recruit adequately qualified, Portuguese speaking technical experts in key fields. To address this issue, work on recruiting key individuals has already commenced. 23. An important justification is that, with the advei* of the peace accord, Mozambique is well placed to re-develop economic activity and launch into a period of strong growth. Reform of the financial sector is extremely important to service the needs of the sectors which will now be able to perform productively in a peaceful environment. A further important justification is that with reform in the banking sector, and movement to a liberalized and deregulated banking environment, banking staff will need to develop skills hitherto not required in Mozambique. Central bankers will need to develop bank supervisory skills and monetary policy management skills in a deregulated environment; commercial bankers will need to develop a capacity to assess and price risks on lending activities -- as well as provide trade finance on an effective and efficient basis; and the legal environment will need to be rapidly upgraded to provide an appropriate legal framework for existing and newly envisaged financial activities. This will require a major effort in developing human resource capacities in the financial sector -- which this credit aims to address. 24. RECOMMENDATION. I am satisfied that the proposed Credit will comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed Credit. Lewis T. Preston President by Ernest Stern Washington D.C. March 15, 1994 -8- SCHEDULE A Page 1 of 2 MOZAMBIQUE: FINANCIAL SECTOR CAPACITY BUILDING PROJECT ESTIMATED COSTS AND INANCING PLAN A. Project Costs (in US$): Foreign Cost Local Cost TOTAL CENTRAL BANK TRAINING COMPONENT Basic Level Training 100,000 43,000 143,000 Intermediate Level Training -- Core Program 115,000 45,000 160,000 Superior Level Training -- Senior Management 136,000 56,000 192,000 Specialized Internal Courses 208,000 60,000 268,000 Overseas Seminars 293,000 293,000 Attachments to Central Banks 350,000 350,000 Post Graduate Studies 360,000 360,000 Books, Equipment and Other Supplies 140,000 10,000 150,000 SUB-TOTAL 1,702,000 214,000 1,916,000 COMMERCIAL BANK TRAINING COMPONENT Credit Analysis/Project Appraisal Training 378,000 125,000 503,000 Documentary Credits/Trade Finance Training 311.000 104,000 415,000 Management Training (Mid & Senior Levels) 229,000 76,000 305,000 Support for the Banker's Institute Books, Equipment and Other Supplies 165,000 55,000 220,000 SUB-TOTAL 1,083,000 360,000 1,443,000 STRENGTHENING LEGAL FINANCIAL CAPACITIES Training 341,000 70,000 411,000 Review of Finan'l Legal & Regulatory Framework 1,400,000 30,000 1,430,000 Institutional Development 200,000 30,000 230,000 of which Books, Equipment and Other Supplies (80,000) (80,000) Dissemination of the Law 530,000 115,000 645,000 SUB-TOTAL 2,471,000 245,000 2,716,000 INSTITUTIONAL DEVELOPMENT Bank Supervision Swat Team 450,000 50,000 500,000 Bank Supervisor 90,000 10,000 100,000 Strategic Plan for BCM 77,000 8,000 85,000 Insurance Expert 45,000 5,000 50,000 Money and Capital Market Expert 45,000 5,000 50,000 Treasury Bill Expert 54,000 6,000 60,000 Human Resource Management 90,000 10,000 100,000 Accounting and Auditing Support 108,000 12,000 120,000 Audit of Banco de Mogambique 450,000 50,000 500,000 Management Support Team for BCM 1,800,000 200,000 2,000,000 Other Unidentified T.A. Support 350,000 100,000 450,000 SL 9-TOTAL 3,559.000 456,000 4,015,000 STUDIES/PROJECT SUPPORT Studies/S.T. Consultancies 250,000 40,000 290,000 Project Support 90,000 10,000 100,000 Books, Equipment and Other Supplies 20,000 20.000 SUB-TOTAL 360,000 50,000 410,000 GRAND TOTAL 9.175,000 1,325,000 10,500,000 -9- SCHEDULE A Page 2 of 2 MOZAMBIQUE FINANCIAL SECTOR CAPACITY BUILDING PROJECT ESTIMATED COSTS AND FINANCING PLAN B. Financing Plan (in US$): Foreign Cost Local Cost TOTAL Internationai Development Association 8,320,000 680,000 9,000,000 Swiss Development Cooperation/ODA 855,000 145,000 1,000,000 Government of Mozambique ... 500,000 500,000 TOTAL 9,175,000 1,325,000 10,500,000 -10- SCHEDULE B Page 1 of 2 MOZAMBIQUE FINANCIAL SECTOR CAPACITY BUILDING PROJECT PROCUREMENT METHOD AND DISBURSEMENTSu2/ A. Procurement (in US$): Not Bank Project Element ICB' LCB41 Other Financed TOTAL (NBF)" GOODS Central Banking Component 1251000* 25,000 150,000 (100,000) (10(),000) Commercial Banking Component 220,000 220.000 (220,000) (220.000) Strengthening Legal Capacities 80,000* 80,000 (80,000) (80,000) Studies/Project Support 20,000* 20,000 (20,000) (20,000) CONSULTANCIESITRAINING (a) Central Banking Component Consultancies 266,000 403,000 669,000 (266,000) (266,000) Training 900,000 103,000 1,003,000 (900,000) (900,000) (b) Commercial Banking Component Consultancies 1,223,000 1,223,000 (823,000) (823,000) (c) Strengthening Legal Financial Capabilities Consultancies 1,880,000 100,000 1,980,000 (1,866,000) (1,866,000) Training 441,000 59,000 500,000 (400,000) (400,000) (d) Institutional Development Consultancies 3,665,000 200,000 3,865,000 (:,665,000) (3,665,000) (e) Studies/Project Support Consultancies 280,000 110,000 390,000 (260,000) (260,000) MISCELLANEOUS Refinancing the PPF 400,000 400,000 (400,000) (400,000) TOTAL 220,000 9,280,000 1.000,000 10,500,000 (220,000) (8,780,000) (9,000,000) ' IDA Contribution shown in parentheses. 21 Figures have been rounded. 3' International Competitive Bidding. As this project is essentially a training/technical assistance credit -- only minor quantities of equipment are required to facilitate the implementation of the various training programs. This equipment will include text books, some personal computers, and other sundry equipment. As such, it is not considered necessary to go to International Competitive Bidding on any elements of the credit. 41 Local Competitive Bidding. This represents the Swiss Contribution which IDA will administer on behalf of the Swiss Government. All other contributions, not covered by IDA and Swiss Funds, are from the Government of Mozambique. * To be procured through IAPSO. - 11 - SCHEDULE B Page 2 of 2 MOZAMBIQUE FINANCIAL SECTOR CAPACITY BUILDING PROJECT PROCUREMENT METHOD AND DISBURSEMENTS"2' B. Disbursements (in US$): Project Categories Amount of Credit Percentage of Expenditures to be Financed Consultant Services 6.655,000 100 percent of expenditures Training 1,300,000 100 percent of expenditures Equipment, Materials and Supplies 420,000 100 percent of expenditures Refunding of PPF Advance 400,000 Unallocated 225,000 100 percent of expenditures TOTAL 9,000,000 C. Estimated IDA Disbursements (in calendar years, US$): Project Categories 1994 1995 1996 1997 1998 1999 Annual 2,131,000 2,184,000 1,907,000 1,658,000 820,000 300,000 Cumulative 2,131,000 4,315,000 6,222,000 7,880,000 8,700,000 9,000,000 -12 - SCHEDULE C MOZAMBIQUE FINANCIAL SECTOR CAPACITY BUILDING PROJECT TIMETABLE OF KEY PROJECT PROCESSING EVENTS (a) Time taken to prepare Twelve months (b) First IDA Mission February 1993 (c) Appraisal Mission Departure October 1993 (d) Negotiations February 1994 (e) Planned Date of Effectiveness May 1994 This report is based upon the findings of an appraisal mission which visited Mozambique in October, 1993. The mission consisted of Simon Bell (Mission Leader and Senior Financial Economist), Teresa Genta Fons (Senior Counsel), Ulrich Camen and Melville Brown (Consultants). Assistance on the pre-appraisal mission was also provided by John Graves, R.I. Gopalkrishnan (Africa Technical Department), and Raphael Benarrosh (Consultant). The peer reviewer was Herminia Martinez. Secretarial support was provided by Joyce Chinsen. Mr. David Cook is the managing Division Chief, and Mr. Stephen Denning is the Department Director for the operation. - 13 - SCHEDULE D Page 1 of 3 MOZAMBIQUE STATUS OF BANK GROUP OPERATIONS IN MOZAMBIQUE SUMMARY STATEMENT OF IDA CREDITS (AS AT FEBRUARY 15, 1994) LOAN OR FISCAL BORROWER PURPOSE IDA UNDISBURSED CLOSING CREDIT NUMBER YEAR (US$ MILL) DATE 3 CREDITS CLOSED 132.65 18060-MOZ 1987 MOZAMBIQUE ENERGY TA & REHAB 20.00 4.30 12/31/1994 19070-MOZ 1988 MOZAMBIQUE EDUCATION 1 15.90 3.54 12/3111995 19490-MOZ 1989 MOZAMBIQUE URBAN REHABILITATION 60.00 14.44 12/31/1995 19890-MOZ 1989 MOZAMBIQUE HEALTH & NUTRITION 27.00 22.12 12131/1994 20210-MOZ(S) 1989 MOZAMBIQUE REHABILITATION Ill 90.00 1.06 04/30/1994 20330-MOZ 1989 MOZAMBIQUE HOUSEHOLD ENERGY CREDIT 22.00 16.33 12/31/1996 20650-MOZ 1990 MOZAMBIQUE TRANS. REH. (BEIRA CORRIDOR) 40,00 24.5$ 06130/1996 20660-MOZ 1990 MOZAMBIQUE ECON. & FIN. MANAGEMENT 21.00 15.31 1213111997 20810-MOZ 1990 MOZAMBIQUE INDUSTRIAL ENTERPRISES 50.10 50.38 12/31/1997 20820-MOZ 1990 MOZAMBIQUE SMALL & MEDIUM SCALE 32.00 25.45 12/31/1996 21750-MOZ 1991 MOZAMBIQUE AGRIC. REHAB. & DEVELOPMENT 15.40 12.94 0630/1999 22000-MOZ 1991 MOZAMBIQUE EDUCATION II 53.70 48.57 04130/99? 23370-MOZ 1992 MOZAMBIQUE AGRIC. SERVICES REHAB. 35.00 33.69 12/31/2000 23740-MOZ 1992 MOZAMBIQUE 1IRST ROAD & COASTAL 74.30 65.23 06/30/1998 23840MOZ(S) 1992 MOZAMBIQUE ECONOMIC RECOVERY CREDIT 180.00 62.72 060/1995 24360-MOZ 1993 MOZAMBIQUE CAPACITY BUILDING (HU) 48.60 46.60 06lw999 24370-MOZ 1993 MOZAMBIQUE LEG & PUB. SER. CAPACITY' 15.50 15.02 4630/1999 24540-MOZ 1993 MOZAMBIQUE MAPUTO CORRIDOR' 9.30 9.10 12131/1998 24790-MOZ 1993 MOZAMBIQUE RURAL RESTRUCTURING' 20.00 19.77 12131/1998 24870-MOZ 1993 MOZAMBIQUE FOOD SECURITY 6.30 6.34 02/28/1998 25300-MOZ 1993 MOZAMBIQUE LOCAL GOVERNMENT EN 23.20 22.60 03/31/1998 TOTAL = 21 credits 859.30 520.04 TOTAL: of which repaid 991.95 TOTAL held by IDA. Amount sold of which 991.95 repaid. TOTAL Undisbursed 20.04 Not yet effective. Total Approved, repayments, and Outstandirg balance represent both active and inactive Loans and Credits. (R) indicates formally revised Closing Date. (S) indicates SAL/SECAL Loans and Credits. The Net Approved and Bank Repayments are historical value, all others are market value. The signing. Lffective and Closing Dates are based upon the Loan Department official data and are t taken from the Task Budget file. - 14 - SCHEDULE D Page 2 of 3 MOZAMBIQUE STATUS OF BANK GROUP OPERATIONS IN MOZAMBIQUE LIST OF CLOSED SAL'S AND SECAL'S IN MOZAMBIQUE (AS AT FEBRUARY 15, 1994) LOAN OR FISCAL BORROWER PURPOSE IDA UNDISBURSED CLOSING DATE CREDIT NUMBER YEAR (US$ MILL) CAO330*MOZ 1988 MOZAMBIQUE REHABILITATION I 18.10 0.00 06/301199t(R) C18410-MOZ 1988 MOZAMBIQUE REHABILITATION II 69.89 0.00 06/30:1991(R) TOTAL MOZAMBIQUE 87.99 0.00 REMARKS ON IMPLEMITATION ISSUES Mozambique's portfolio of IDA-supported projects is relatively new, with the first operation dating to FY87. Although progress in implementation has generally been satisfactory, the performance of disbursements has been less so. For example, the first mid-term review for an investment project recently showed that while civil works were about 2/3 complete, disbursements were only 35 percent of the project estimates. A large part of the problem has to do with the fact that while the Government has moved quickly toward a market-based economy, Government agencies and administrative procedures remain largely unchanged. Thus, all IDA-supported projects were managed financially by the central bank, Bank of Mozambique (BM), which needs to be strengthened. The CIR last year determined that this was the main bottleneck to improving disbursements. The Bank has taken steps to decentralize the financial management of projects to the implementing agencies through discussions with BM and conditions of the ongoing Economic Recovery Credit. Four operations are moving slower than the average due to specific problems. ECONOMIC AND FINANCIAL MANAGEMENT (FY90). Delays in disbursements resulted from unfamiliarity of the implementing unit with procurement procedures necessary for fairly large consultant contracts and lots of equipment. A recent supervision mission has addressed this problem and disbursements are expected to improve soon. INDUSTRIAL ENTERPRISE RESTRUCIRING (FY90). Delays in this project, the objective of which was to restructure large public enterprises, are due primarily to the Government's decision to privatize rather than restructure these enterprises. Recent project restructuring will broaden access to the credit component by privame fimns, resulting in speedier disbursement. HEALTH AND NUTRITION PROJECT (FY89). Disbursement will increase in the near future as the project has been restructured extensively a year ago, making funds available for recurrent costs of the MOH. Training of the senior staff of the Project Unit in the Ministry of Health (GACOPI) in procurement and the preparation of standard bid documents has greatly facilitated the process. Currently, major quantities of pharmaceutical and medical supplies, as well as civil works, are being procured. SMALL AND MEDIUM SCALE ENTERPRISES (FY90). Again, the delays in this case are connected to up front processing of on-lending applications for small scale enterprises. About fourteen credit applications have been approved for about US$5 million equivalent, and another 70 applications are in the pipeline. Disbursements will show a significant increase in the near term. - 15 - SCHEDULE D Page 3 of 3 MOZAMBIQUE STATUS OF BANK GROUP OPERATIONS IN MOZAMBIQUE SUMMARY STATEMENT OF IFC INVESTMENTS (AS AT FEBRUARY 15, 1994) INVESTMENT FISCAL OBLIGATOR TYPE OP BUSINESS LOAN EQUITY TOTAL NUMBER YEAR (US$ MILL) 864.MOZ 1987 LOMACO AGRI-BUSINESS 2.69 0.00 2.69 31$7-MOZ 1993 POLANA TOURISM 3.50 0.00 3.50 HOTEL 978-MOZ 1988 XAl XAI OIL PETROLEUM 0.00 7.75 7.75 TOTAL GROSS COMMITMENTS 6.19 7.75 13.94 LESS CANCELLA 'IONS. REPAYMENTS. AND EXCHAN JE ADJUSTMENTS 1.50 7.75 9.25 TOTAL COMMITMENT HELD BY IFC 4.69 0.00 4.69 TOTAL 0.03 0.00 0.03 UNDISBURSED IFC TOTAL OUTSTANDING 4.66 0.00 4.66 IpC - 16 - ANNEX I TECHNICAL ANNEXES TO THE MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT FOR A FINANCIAL SECTOR CAPACITY BUILDING PROJECT DETAILED PROJECT DESCRIPTION A. INTRODUCTION 1. The credit will support training requirements in the financial sector, the provision of necessary technical assistance to support the overall program of financial and enterprise sector reform, and supporting studies required by the Second Economic Recovery Credit (SERC). Although the SERC focuses on a broad range of macroeconomic adjustment issues including the budget, the development of a salary incentive fund for civil servants, expenditures in the social sectors, support for a program of enterprise sector reform, and the integration of the national investment plan with the national reconstruction plan -- it also has an important focus on strengthening the financial system (the central bank, the commercial banks, and non-bank financial institutions). In addition, the development of capacity in the financial sector, through appropriately designed training programs, is considered a priority by the Government -- as enunciated in the attached letter from the Governor of the central bank to the World Bank, of December 1, entitled "Letter Describing the Government's Capacity Building Program in the Financial Sector" (Annex VIII). 2. The focus of the training program to be financed by the Financial Sector Capacity Building Credit is on the immediate training needs in the financial sector that arise from the implementation of the SERC Program. The program consists of courses and seminars that address the needs of staff of the central bank and commercial banks. Given the crucial role of Banco de Mogambique for a functioning financial system in Mozambique, special emphasis is given to the training of the staff of Banco de Mogambique under this Capacity Building Credit. B. PREVIOUS AND CURRENT SUPPORT IN THE AREA OF BANKING TRAINING 3. The SWISS DEVELOPMENT COOPERATION supported a program of bank training - primarily staff in commercial banks -- in the early 1990s. This program emphasized the training of trainers in teaching methodology. It started before the central bank and commercial bank functions of Banco de Mogambique were separated and lasted from mid-1990 to the end of 1992. Under the program the following staff were trained (i) eight methodological instructors (trainers of trainers); (ii) 38 specialized trainers who were trained to give courses in the areas of banking operations, credit, foreign exchange operations, and accounting; (iii) 36 training agents who are in charge of identifying the training needs in the divisions in which they work; and (iv) 90 supervisors for monitoring training and organizing on the job training. Currently, four methodological instructors and 28 specialized trainers are employed by BCM and four methodological instructors by Banco de Moambique. 4. BANCO DE PORTUGAL. Staff of Banco de Mogambique have also attended courses at the training institute of Banco de Portugal. These courses covered, among other topics, monetary policy, macroeconomic policies, foreign exchange operations, bank supervision, and accounting systems in a central bank. Only a small number of staff members -- twenty one individuals - participated in these courses in 1993. Banco de Portugal has a protocol arrangement with Banco de Mogambique - - as it has with other Lusophone countries in Africa - which provide a useful source of central banking talent and training facilities which the Mozambicans can access. Although very little use has - 17 - been made of this protocol in the post-independence period, attempts are being made under the auspices of this project to strengthen these ties -- with several successes to date. Recently, Banco de Portugal sent a mission to Banco de Mogambique to review human resource needs of the bank, and BP also recently agreed to provide a bank supervisor to work in BM for a six month period. 5. THE WORLD BANK has financed banking sector training over recent years through the Economic and Financial Management Technical Assistance Project ' the Small and Medium Enterprise Project. These projects include mainly computer training, aining of staff in the Legal and Economic Studies Department, and training in project analysis. In 1994, the Economic and Financial Technical Assistance Project will provide preparatory courses in economics -- to upgrade staff background in micro and macroeconomics. 6. THE GOVERNMENT OF FRANCE. A request to support the financial sector in Mozambique, by identifying training needs in this sector and by proposing measures, was also made to the Coop6ration Frangaise during a seminar of the Governors of the Central Banks in Portuguese- speaking Africa (PALOP) in Maputo, in November 1992. In response to this request a study was prepared by a French consultant in March 1993 proposing a comprehensive training program for commercial bank staff which would be organized and provided by an institute for bank training (Instituto De Formaqio Banciria de Mogambique, IFBM). The IFBM is to be jointly established by Banco de Mogambique and interested Mozambican banks. It will be located in Matola on the premises of the present training college of Banco de Mogambique. The statutes of the IFBM were approved in November, 1993. In addition, as a longer term aim, the banks in Mozambique intend to create a Banker's Association. 7. The training program at the IFBM has been discussed with officials of Banco de Mogambique and the Coop6ration Frangaise and will consist of eight main components: (i) a Bankers' Development Program to familiarize a relatively large number of senior staff rapidly with the functioning of a competitive banking system and the skills required; (ii) a Basic Certification Course in Banking which would last three years and terminate with an officially recognized degree; (iii) specialized and advanced professional training; (iv) basic skill training; (v) courses which prepare banking staff for the Basic Certification Program that do not have not the background for passing the entry exam required for the Certification Program; (vi) language courses; and (vii) training of trainers. While financial support for launching the IFBM will be provided by the French Government (and possibly the Swiss Government), additional funding will be required for initially financing current expenses. Progressively, training will be fully paid for by banks whose staff members attend courses at the IFBM. While staff of Banco de Mogambique will attend courses at the IFBM, more specialized courses -- that address the specific needs of staff of a central bank -- will also be provided under the proposed IDA supported program. These courses and seminars will be directly organized by Banco de Mogambique. 8. The main donors involved in the area of bank training -- namely the Governments of Switzerland, France, Portugal and the International Development Association -- have been working in close cooperation to prepare the existing program. Every effort has been made to ensure that future work in this area is fully coordinated. Further support may also be forthcoming from other donors -- such as the Government of the United Kingdom. - 18 - C. LEVEL OF STAFF EDUCATION IN THE BANKING SYSTEM IN MOZAMBIQUE 9. Education levels of staff in the banking system in Mozambique are extremely low -- a heritage of low levels of education achieved during the pre-Independence period. Education levels are shown in Table 1 and Chart 1 -- by bank, and for the system as a whole. These data clearly indicate that the majority of staff in the banking system in Mozambique have only a primary education or a small amount of secondary school education (38 percent and 37 percent respectively). Only 3.6 percent of staff have any form of tertiary education -- and within the commercial banking system (i.e. excluding Banco de Mogambique -- the central bank), this proportion is even lower at less than 3 percent. 10. It should be noted that these staffing numbers do not include staff involved in security, cleaning, gardening, and chauffeuring duties - hence, the staff numbers recorded here reflect the actual totals of staff involved in the day to day banking work of the institutions in which they are employed. 11. As the numbers are for the end of December 1992, they do not include staffing details for the two new Portuguese banks which commenced operations in Maputo in March and September, 1993, respectively. However, as neither of these banks has recruited large numbers of staff, to date, their inclusion is unlikely to alter the position indicated by this end-1992 data. Table 1: Educational Qualifications of Staff in the Banks in Mozambique, by Bank (by number of staff - as at end December 1992) Primary Some Completed Some Education Secondary Secondaty Tertiaty TOTAL Banco de Mogambique 83 56 58 42 239 Banco Comercial de Moambique 750 547 452 33 1,782 Banco Popular de Desenvolvimento 719 828 225 57 1,829 Bank of Standard Totta 21 116 131 19 287 Banco de Fomento e Exterior 0 0 0 0 0 Banco Portuguese do Atlantico 0 0 0 0 0 TOTAL 1,573 1,547 866 151 4,137 SOURCE: The dividual banks ti Mombique. NOTE: Data does not include all staff. Gardening staff, security staff, cleaning staff, and other non-bank work related staff have been onitted from this table. NOTE: The two aw Prtguese banks did not cornence operadons in Mozambique undl 1993. 12. More detailed information on staff numbers and educational qualifications by bank are provided in Annex II. Chart 1 -- Staff in the Banking Syste by Level of Education 1600- 1400/ 1200 1000- Primary M Some Secondary Secondary 600 I Tertiary 400-V 200-- Bank of Banco Comercial Banco Popular Bank of Standard TOTAL Mozambique de Mocambique de Totta Desenvolvimento - 20 - D. DETAILED PROJECT DESCRIPTION 13. CENTRAL BANK TRAINING COMPONENT. A major focus of the Capacity Building Credit is strengthening Banco de Mogambique. Hence, a key supporting element of the proposed program will be providing training support for crucial central bank functions. Staff at the central bank require training in areas related to the conduct of monetary policy in a liberalized financial environment, bank supervision, management and control of foreign exchange, accounting, legal issues, and human resource management. An important component of this training will come from on-the-job training from long and short term technical experts in the Research Department, the Banking Supervision Department, the Exchange Control Departments, the Human Resource, and Accounting Departments. Where there are areas of overlap between the training needs of the central bank staff and the Ministry of Finance, the training needs of the latter will also be addressed under this credit. 14. In addition to on-the-job training it will be necessary to provide training, through short term courses, seminars, attachments, and courses held overseas. These courses and seminars will provide a deeper understanding of macroeconomics, monetary policy, the economics of financial markets, and quantitative methods -- that is essential for effectively implementing indirect macro- monetary management in Mozambique. The seven main components of a training program for Banco de Mogambique staff will include: (i) a basic level training program for entry level staff; (ii) an intermediate level -- core level - training program for mid-level officers with university education or extensive practical experience; (iii) a superior level -- senior management -- development program; (iv) specialized internal seminars and courses; (v) overseas seminars; (vi) attachments to regional and other central banks; and (vii) a limited amount of post graduate study. Where relevant, this training will also be available to the staff of the Ministry of Finance. A detailed matrix of the training involved in (i), (ii), (iii) and (iv) above -- are listed in Annex III. The phasing of the training programs is given in Annex V. 15. Basic Level Training. This sub-component provides basic training in key areas that are required by Banco de Mogambique staff for day-to-day operations. This includes accounting, intensive courses in banking and legal English, and some computer training. This program supports existing entry level training courses already provided by the Human Resource Department of Banco de Mogambique. 16. Intermediate Level - Core Program. The courses of the core program provide the basic conceptual framework that underlies monetary policy and it is an essential component of a training program for mid-level officers at a central bank. The core program would consist of courses of about two weeks in macroeconomics, monetary policy, the economics of money and finance, and commercial banking. A good understanding of these subjects is crucial for effective management of monetary policy. Mid-level officers of all departments, especially the departments that are involved in monetary policy, should participate in the core program. A broad participation of officers would be critical to foster the usage of a common terminology across departments, which in turn would facilitate communication between departments and help to create a corporate culture within Banco de Mogambique. Officers that participate in the core program would generally follow all courses of the program. Initially, the core courses would be held by foreign lecturers with the participation of local lecturers. A core program consists of four courses which last for about two weeks each. It is anticipated that 25 staff would take this set of courses and that they would be repeated in 1994, 1995 and 1997 of the program period. - 21 - 17. Superior Level -- Senior Management Development. The principal objective of the senior management development program is to support senior management in the implementation of the financial sector reform program. Seminars, which last about one week, would be organized on strategies of monetary policy, on the management and organization of a central bank, on the function of bank supervision, and on the development of financial markets. Special emphasis will be given in these seminars to issues such as the design and implementation of indirect monetary policy and the organizational implications for Banco de Mogambique of monetary reform. During the period of the program two sets of four seminars each are proposed. The seminars would be held by foreign experts -- in the areas of monetary policy, central bank organization and management, development of financial markets, and bank supervision. Between 10 and 15 staff from Banco de Moambique would participate in these courses which would be held every second year over the program period. 18. Specialized Internal Courses. Apart from the core program, training in a range of n)ecialized subjects is required. Specialized training would be especially required for staff in the Bank Supervision Department, Foreign Exchange Management Department, the Economic Studies Department, and the Legal Department. Training would be provided in seminars on subjects such as the Fundamentals of Bank Supervision, Topics in Monetary Policy, and Treasury Bills. Seminars would be given by foreign experts and locally available staff -- and would last one to two weeks. They would be practice-oriented and take full account of the specific needs in the departments concerned. Staff members of the Foreign Exchange Management Department and in other related departments would attend courses in foreign exchange operations and trade finance that are be organized at the IFBM. 19. Overseas Seminars. The provision of specialized training may not be economical in cases where only a small number of staff members have to be trained and well-established training programs are available abroad. Banco de Mogambique staff have already participated in courses organized by the IMF Institute in Washington, as well as courses sponsored by EDI. Given the on- going need to strengthen the capacity to collect and prepare statistics at Banco de Mogambique, the attendance of several Banco de Mogambique staff members at courses on monetary statistics, balance- of-payments statistics and financial programming at the IMF Institute will be supported. At a later stage a staff member of the Bank Supervision Department could also attend advanced courses on bank supervision offered by the Federal Reserve Bank of New York or the World Bank. Advanced seminars in Monetary Policy will also be offered for staff at the International Monetary Fund and at the training center of the Swiss National Bank in Gerzensee, Switzerland. 20. Attachments to Other Central Banks. Training courses will be complemented by short attachments of Banco de Mocambique senior staff at other central banks. Such attachments will give management an opportunity to review the experience and practices in other central banks. It is specifically desirable for staff members of Banco de Mogambique to visit other central banks in the Southern African region since these central banks are experiencing similar reforms of monetary policy. It would also permit the establishment of closer working contacts with colleagues of central banks in neighboring countries. Central banks to be visited could include those in Botswana, Zambia, Zimbabwe, Tanzania, and South Africa. During these visits staff members would discuss these countries' experiences in key areas such as foreign exchange operations including experience with foreign exchange bureaus, bank supervision, organization and management of a central bank, and human resource management in a central bank. On an even more selective basis, attachments will be made available to other non-African central banks under a program being developed with EDI. -22 - 21. Postgraduate Studies. The number of staff in the financial sector with postgraduate qualifications is very limited. Currently, only a very small number of staff in banks, and lecturers at the university, have a postgraduate degree in economics, banking and finance, or accounting. The lack of personnel with a higher university degree is an important constraint on the availability of qualified Mozambican consultancy staff -- and the capacity of the education system to provide more advanced training. While the program's focus is on immediate training needs at the central bank and the commercial banks -- it also addresses the lack of personnel with postgraduate training since this is a crucial constraint to the provision of more advanced training in Mozambique over the medium term. To increase the number of staff with an advanced university degree it is proposed that nine fellowships be provided in the areas of accounting, banking and finance, and macroeconomics -- at an MBA level. Selection of staff to attend these courses would be extremely rigorous, would be from the brightest staff available in the central bank, and would generally require that staff chosen had completed some of the above training courses at a very high level of achievement. 22. Training of Trainers. A principal objective of the overall program is also to strengthen training capacities at Banco de Mogambique. Two approaches are employed to reach this objective. Although many of the courses taught under the above programs are initially taught by foreign experts - local scholars will actively be involved in these programs to enable them to conduct these courses themselves in the near future. In addition, funds will be allocated to finance postgraduate studies abroad of highly qualified Mozambican students (see above). This strategy has been chosen to improve the local teaching capacity in areas such as macroeconomics, banking and finance, and accounting. 23. COMMERCIAL BANK TRAINING COMPONENT. Training for staff of commercial banks will be primarily provided in Mozambique by the IFBM whose creation is planned for the first half of 1994. Given the urgent need for training in key areas such as trade finance and credit appraisal/project analysis, the FS CB credit will specifically support training in these key areas. Courses in these areas will be no substitute for a more structured course program to be offered by the IFBM, but would address the very immediate training needs in commercial banks and the central bank. At the same time, however, efforts will be made to ensure accreditation of short term courses into the longer cycle IFBM courses -- to ensure complimentarily and proper coordination between these two sets of training. Staff at commercial banks require rapid training in the following areas (i) fundamentals of bank credit analysis; (ii) project appraisal techniques; (iii) fundamentals of documentary credits; (iv) trade finance; and (v) management training. Courses in these subjects would last one to two weeks and would be organized and provided at the IFBM. They would be offered at several levels with a strong emphasis given to practice-oriented basic level courses. The first two sessions of each course would be taught by a foreign expert with the active participation of a local trainer. The foreign lecturer would establish a course outline jointly with the local counterpart that corresponds to the needs of the financial sector in Mozambique. The local trainer would teach courses alone starting with the third session. Preference would be given to local trainers who passed the training program for trainers to be organized at the IFBM. At a later stage in the program the foreign expert may return to review the training. The numbers of staff to be taught in these courses is shown in Table 2. 24. General Training. The two state-owned commercial banks in Mozambique have developed a series of in-house training programs which appear to address most areas of basic training for their employees. These training classes emphasize basic banking theory, entry level accounting, and on-the-job technical training. Additionally, the banks have conducted, on a sporadic basis, a series of seminars for more senior staff with outside consultants in more advanced and technical - 23 - subjects and have sent selected senior managers to short term foreign-based training programs. At the initial stage of the Capacity Building Project, these internal training programs, particularly the more basic level classes, will be continued in their present format, but in cooperation with the IFBM. The commercial banks will be encouraged to transfer most of the operational aspects of these training programs to the IFBM where this project will provide direct support for three years. 25. Funds for this sub-component are not specifically linked to any one class or program (although some emphasis will be placed on the structure and course content for the basic accounting classes) -- but consist of a pool of funds available to cover a variety of expenses such as selected external teachers and seminar leaders, acquisition and translation of correspondence course materials, textbooks, and a number of personal computers. The only access the commercial banks will have to this financial support is through the banking institute. They will have to conduct these courses at the institute and subject the course content to review by the institute management and the coordination committee. 26. Fundamentals of Credit Analysis. Development of credit analysis skills among the loan officers of the commercial banks is considered essential to the overall improvement in the loan portfolios of the banks. This component is scheduled to consist of two 10 day seminar sessions for 20 students each in 1994, increasing to three seminars during 1995. By mid-1995 it is anticipated that this subject will be one of the core courses taught be the banking institute and the number of annual classes directly sponsored by the project will be limited to two per year thereafter. 27. Project Appraisal Techniques. Training in project appraisal techniques and methodologies is fundamental to proper loan structuring and credit quality. This course will be a follow-on program to the credit analysis class and successful completion of this first course would be a prerequisite for participation in this program. Due to the complex nature of this subject, the seminar program is scheduled for 15 days. One session is scheduled for 1994 and three sessions are scheduled for 1995. Thereafter, it is anticipated that this subject will be covered in the banking institute - and only one session is scheduled for direct sponsorship by this project during the final three years. 28. Fundamentals of Documentary Credits. This is an essential training session that will emphasize the operational and administrative aspects of documentary credit activities. The course will be presented to bankers who work in the trade finance departments and who deal with letters of credit and other trade financing techniques. The class is scheduled for 10 days with only two sessions scheduled annually (mainly because of the limited universe of bankers who are actually involved in this type of activity). 29. Trade Finance. This will be a more detailed course on the credit aspects of trade finance and trade financing techniques (including an introduction to foreign exchange risks), and will be an optional follow-on course to the documentary credits class. Lending officers, as well as operational personnel dealing with letters of credit, would be the attendees. In 1994 one 10 day session is scheduled, increasing to three in 1995 before scaling back in subsequent years as the banking institute expands its curriculum and because the universe of bank employees directly involved in this credit area and who have not attended this course is reduced. 30. Management Training. It is recognized that the lack of general and specific management skills within the commercial banks is the single greatest impediment to their ability to improve their efficiency, profitability, product development, and customer relationships. There is - 24 - a strong need to improve management techniques within the banks in all areas -- from internal organization and administration to bank strategies and customer services. An overall change in attitudes regarding business philosophy, operating style, and efficiency needs to be created. This component includes two separate 10 day seminars, divided into separate classes for mid-level managers and senior managers/directors. Course curriculum will be specifically designed for the individual seminars based on the make up of the attendees. For mid-level managers, one session is scheduled for 1994, and two sessions in 1995; for senior managers one session is scheduled annually. 31. Cost Recovery. While initially participating banks are only charged a minimal amount to cover the costs of the courses, by the end of the project period, the participants would bear the full cost of the training program. It is therefore imperative that the training program remain relevant to the training needs of the commercial banks. With this in mind, under the auspices of the credit, a training needs assessment questionnaire has been developed, which will be refined and filled out on an annual (or semi-annual basis), to assess the evolving training needs of the commercial banks -- and adjust courses accordingly, to ensure their relevance. Table 2: Numbers of Students to be Trained in the Commercial Bank Training Component COURSE 1994 1995 1996 1997 1998 TOTAL Credit Analysis 40 60 40 40 40 220 Project Appraisal 20 60 40 40 40 200 Documentary Credits 40 40 40 40 40 200 Trade Finance 20 60 40 40 40 200 Management Training (mid- 20 40 40 20 20 140 level managers) Management Training (senior 20 20 20 20 20 100 management) 32. STRENGTHENING LEGAL FINANCIAL CAPACITIES. The Government of Mozambique has enacted a package of laws regulating the financial sector and providing for the separation of the commercial and central banking functions of Banco de Mogambique. The main laws are: (a) the Financial Institutions Law; (b) the Central Banking Law; and (c) the Statutes of Banco Comercial de Mogambique. Other regulations have been recently issued -- such as the foreign exchange decrees - - and there is further draft legislation under consideration. However, there are key aspects which have not been included in the above-mentioned laws or which need further revision in order to build a modem and efficient financial legal framework. Furthermore, the laws in force in Mozambique are scarcely known, not only by the public at large, but also by the legal staff responsible for their application and enforcement. 33. The legal profession and institutions in Mozambique are weak and lack the technical skills to undertake the massive task of overhauling the legal system under the current period of economic - 25 - and political reform. There are approximately 100 fully qualified lawyers in the country which are expected to provide, simultaneously, government advisory services, legal assistance to the emerging private sector, run the judiciary, and teach law to new generations of students. The legal staff working for the financial and banking institutions are scarce and particularly overburdened with the conflicting responsibilities of drafting and implementing the financial legislation and developing banking practices and contract documentation. Most Mozambican lawyers lack formal training in banking and financial matters, as the curriculum of the Law School of Eduardo Mondlane University does not include banking law. 34. Aware of the magnitude of the structural weaknesses affecting the legal sector the Government requested Bank assistance under the Capacity Building: Public Sector and Legal Institutions Project (Cr. 2437-MOZ) which aims at providing basic local training for judges and legal staff. With regard to financial institutions, the ongoing Economic and Financial Management Technical Assistance Project (Cr.2066-MOZ) includes, a modest legal assistance component aimed at strengthening the Legal Department of Banco de Mogambique. Advanced legal training, professional internships and a limited number of legal publications were financed. As funds near exhaustion, the authorities of Banco de Mogambique have expressed their satisfaction with the overall improvement of the Legal Department and requested that further capacity building activities be identified for financing under the proposed FS CB Project. The Ministry of Finance shares this concern, and wishes to extend to its staff, the benefits which will derive from a Project component designed to strengthen legal financial capabilities. 35. The Strengthening of Legal Financial Capabilities Component of the proposed FS CB Project will assist the Government to: (a) create a group of well-trained lawyers (within the central bank and the Ministry of Finance); (b) review the existing financial legal and regulatory framework and make amendments where required; (c) assist with institutional development within the legal financial environment; and (d) facilitate the dissemination of laws and regulations related to the financial sector. 36. Training Component. This component would seek to improve the quality and efficiency of legal and banking staff through the provision of short-term practical training in Mozambique, through institutional arrangements with international academic and professional institutions (for example, through ILI, IDLI, Harvard International Studies Institute, Institute of Graduate Studies, Geneva, and others); practical internships abroad, combined with specialized training seminars, as a follow-up of ongoing training under existing IDA credits; a limited amount of long-term graduate training in banking and financial law would be financed, in order to fill the technical gap and to attract new graduates to join Banco de Mogambique's Legal Department; formal training in banking law would be carried out at the Law School, starting with specialized graduate seminars and moving gradually towards the inclusion of Banking Law in the present curriculum. Where appropriate, this training would also be available to the staff of the Ministry of Finance. 37. Review of Financial Legal and Regulatory Framework. This Component would support the ongoing financial legal reform program through the provision of specialized legal advisory services. Sophisticated financial legal services presently not available in Mozambique would be employed. Special attention would be paid, through the selection stages, to qualifications such as: civil law proficiency, exposure to common law, fluency in Portuguese, practical professional experience in developing countries and availability to provide on-the-job training to Mozambican lawyers while performing their consultancy. The foreign lawyers would work closely with local counterparts to maximize the results of the assignment. It is envisaged that a contract on a retainer - 26 - basis could be negotiated with a reputable international law-firm or legal institution to provide services, as and when required, to avoid contracting delays and obtain beneficial contractual conditions. Besides this type of assistance, Banco de Mogambique would have access to Credit funds to contract individual legal experts to assist the Legal Department in dealing with new and complex legal issues. 38. Institutional Development. This component would support institutional development through the acquisition of basic office equipment, including legal software, photocopier and basic materials to support the legal department of Banco de Mogambique and the Legal Studies Departments of the Ministry of Finance. It would also support the acquisition, printing and translation of legal materials related to the training programs mentioned above. Lastly, it would support the establishment and operation of the Cartorio Notarial at Banco de Moambique, through the employment of local professionals and assistants, the acquisition of essential materials and equipment and training of the staff assigned to the Cartorio. 39. Dissemination of the Law. This fourth component would facilitate the dissemination of the law through the acquisition of legal materials, publication of laws and financial regulations, design of standard legal documentation and contracts; the publication of a Tax Legal Journal (under the Ministry of Finance), including the strengthening of the Ministry of Finance's National Directorate of Taxation to undertake this task; and possibly supporting the official gazette (Boletim da Republica) - although this will need to be discussed and further analyzed throughout the implementation of the project. 40. INSTITUTIONAL DEVELOPMENT. Technical assistance support for the overall SERC program will generally be of a short term nature (only the management support team for BCM is long term) and will have an important training component so that local staff can develop skills under the guidance of an expert in the relevant field. As much as possible the following elements of the program will be integrated into the training program described above - so as to yield long term benefits in terms of capacity building in the financial sector -- so that local skills are developed, and reliance on external assistance in key areas can be reduced over time. Other innovative arrangements, such as "in-out" and/or regular short term consultancy arrangements, as well as the enhancement of twinning arrangements (notably with Banco de Portugal), will also be developed to ensure that this element of the program is fully in line with IDA's, African regional policy with respect to technical assistance. Terms of Reference, for all the technical assistance discussed herein, are provided as Annex IV. 41. Banking Supervision Swat Team. As part of the SERC program, bank supervisory skills will be developed within Banco de Mogambique. This will be supported by the recruitment of a swat team of experienced bank supervisors, for a six month period, who will train a cadre of local Mozambican staff while simultaneously undertaking a loan portfolio review of the commercial banks. 42. Banking Supervision Advisor. Banco de Mogambique has requested the assistance of an experienced bank supervisor to work in the new!y created department of bank supervision to assist in its establishment, drafting of relevant regulations, and assisting in developing a system of off-site reporting for the commercial banks. Banco de Mocambique has approached Banco de Portugal concerning assistance with staff in this area and negotiations were successfully concluded during 1993. Terms of reference for this position are included as an annex to this Aide Memoire. Under an agreed arrangement with the central bank of Portugal, the selected individual will come initially for six months, after which he will return to Banco de Portugal. Further support will be assessed - 27 - thereafter -- on the understanding that this individual could be made available, for additional short term assignments, as required. 43. Developing a Strategic Plan for Banco Comercial de MoVambique. As part of the SERC program, the Government is expected to develop a Strategic Plan for Banco Comercial de Mogambique - the largest (Government owned), commercial bank - by the time of tranche release. Representing between 60 to 70 percent of the banking system, this bank represents the majority of Mozambique's banking system, but is in particularly poor financial health. Reviewing BCM's options for the future is a crucial step in addressing the problems of the entire commercial banking system. This represents less than six months work, which will need to commence immediately, by an experienced commercial banker working in close cooperation with the existing management of the bank. 44. Management Support Team for Banco Comercial de Mofambique. Once the Strategic Plan has been developed for BCM, it will be necessary to support the implementation of the agreed plan -- probably by the recruitment of a management support team for the bank. The Strategic Plan will contain clear, monitorable, time-bound benchmarks, which the management of the bank will be expected to meet. Both the central bank and the board of BCM have requested assistance from IDA in helping management implement this plan and address the difficult problems faced by this institution. Any required management assistance for BCM will be clearly defined in the Strategic Plan. 45. This sub-component constitutes the only long term technical assistance in the project. It also represents a large component of the total project (20 percent). However, given the importance of BCM to the entire banking system (around 70 percent of total banking system assets), and to the economy, it is vitally important that its problems are addressed in a decisive manner. Longer term external support has been requested, and is considered the only way in which the medium term objectives of downsizing and preparation for privatization can be achieved satisfactorily. Important initial steps have already been taken to address the problems of BCM - particularly with respect to stemming on-going losses in the bank. Providing external management support for the bank is not designed to confer an unfair advantage on BCM, but rather to deal decisively with the problems in the bank, stem further losses, and steer the institution towards profitable operations. It is also not designed to prop up an ailing Government institution, but rather to downsize the institution as rapidly as possible and prepare it for privatization over the medium term. 46. Insurance, Pension and Provident Fund Expert. Under the SERC program, it is intended that the insurance legislation will be extensively reviewed, and a proper legal framework established for the development of a financially strong and competitive insurance sector. The legal staff of Banco de Mogambique will be provided with support to undertake this work - under the provisions of the legal component of this project. However, it will also require the input of an experienced individual with a good knowledge of the workings of insurance activities in settings similar to Mogambique. This individual would therefore work with the lawyers, and the staffs of the Ministry of Finance and Banco de Mogambique in developing an appropriate legislative framework for insurance, pension and provident fund activities. Terms of reference for this piece of short term (six months) work are attached. 47. Money and Capital Market Expert. Expert support for developing an appropriate legal framework for money and capital market activities is also a requirement of the SERC program. Again, legal support will be provided to the legal department of Banco de Moqambique, but this work - 28 - will also require the input of an experienced individual with a sound knowledge of the development of money and capital markets in developing countries. Terms of reference are attached. 48. Payment Systems Advisor. Banco de Mogambique has requested support from the IMF/IDA for the development of a better operating payment and clearing systems in the central bank and between the commercial banks. Long lags in clearing items in transit are clearly a major problem for the banking system which will need to be addressed in the near term. 49. Accounting and Auditing Technical Assistance. Accounting and auditing issues have been of particular concern to IDA -- in respect to its relationship with Mogambique. Strengthening accounting and auditing capabilities is a very important part of the training component of this proposed credit. There is also a strong emphasis on accounting and auditing in the SERC program - - tranche release conditions require the provision of audited financial statements from the three state banks (Banco de Mogambique, Banco Comercial de Moambique, and Banco Popular de Desenvolvimento). The World Bank's relationship with Mogambique also requires the provision of audited project accounts. Previous World Bank project accounts have been qualified by the auditors. This led to problems with the release of the second tranche of the Fourth Rehabilitation Credit. To help address this issue, the Financial Sector Capacity Building Credit will provide support for the development of accounting and auditing capacities in the central bank. It will also support the auditing of the central bank's accounts -- for the first time - for 1993. 50. Human Resource Development. The development and implementation of appropriate training programs for the staff of the banks requires a strong emphasis by the departments dealing with human resource issues in the two commercial banks (Banco Comercial de Mogambique and Banco Popular de Desenvolvimento). To ensure the development of appropriate training programs into the future, these departments should undertake full manpower audits of their staff, the development of job descriptions, and the ultimate drafting of a manpower development plan. Some short term assistance in these areas is therefore required if appropriate training programs are to be developed to meet the needs of the fast evolving banking sector. Similar assistance in the area of human resource development has been particularly beneficial in some of the Government Ministries. This work, in the Government owned banking institutions, would be undertaken jointly with a local counterpart. 51. Table 3 provides a summary of the technical assistance being provided under this sub- component of the project. This table breaks the technical assistance down by duration (long term and short term) -- as well as by potential outcome. As indicated in the table, the majority of the TA is for Institutional Development (US$2,855,000 or 71 percent of the component); followed by Project Preparation and Implementation Support (US$1,000,000 or 25 percent of the component); and Policy Support (US$160,000 or 4 percent of the component). 52. Other Technical Assistance. Additional technical assistance may be required to support elements of the overall financial sector reform program which will only be identified during the implementation of the project. For example, Banco de Mogambique may wish to engage an expert to assist in developing the Treasury Bill market -- advising on the practicalities of establishing such a market. In time, it may also be necessary to provide statistical assistance -- to help develop further the statistical data base for monetary policy decision making. Other, as yet unforeseen needs, are certainly likely to arise. Therefore, to permit some flexibility in meeting the needs of policy makers in Mogambique, a small contingency has been built into the program to meet short term technical assistance needs as they arise. - 29 - 53. STUDIES AND PROJECT SUPPORT. Under the Second Economic Recovery Credit (SERC), a series of studies have been identified as forming an important part of the program. Some of these studies will be undertaken "in-house" and will not require external funding. Others will require partial external assistance -- while yet others will be undertaken completely with external resources. Some of the studies will require survey work (particularly studies related to informal sector finance, credit unions, housing finance, and so on) -- and these will consequently require more time and additional resources to undertake. Table 3: Summary Table of Technical Assistance Support for the Institutional Development Component of the FS CB Proposed Technical Estimated Number of Individuals and Classification Brief Description Method of Assistance Cost Number of Man Months of T.A.' Selection2 (long term/short term) Bank Supervision Swat Team $500,000 4 individuals for 6 months I.D. Undertake loan portfolio reviews C.S. (short term) each in the commercial banks. Train bank supervision staff. Bank Supervision Advisor $100,000. I short term advisor - 6 I.D. Provide support in establishing C.S. (short tet !) months the bank supervision department at the central bank. Developing a Strategic Plan $85,000 1 short term advisor 3 to 5 I.D. Help develop a plan of strategic sole for BCM (short term) months options for BCM. source ManagementSupportTeam $2,000,000 possibly 4 individuals for PPIS/ Assist management in C.S. for BCM (long term) around 2 years each I.D. implementingthe above Strategic Plan. Insurance, Pension and $50,000 1 short term advisor for 3 to P.S. Provide advice on technical C.S. Provident Fund Expert 4 months aspects of insurance, pension and (short term) provident fund law. Money and Capital Market $50,000 1 short term advisor for 3 to P.S. Provide advice on technical C.S. Expert (short term) 4 months aspects of money and capital market law. Auditing for BM $500.000 Annual audits of the central I.D. Audit the central bank balance C.S. (short term/on-going) bank balance sheet sheet. Human Resource $100,000 ad hoc assistance to the 2 I.D. Undertake manpower audits and C.S. Development Advisors Government owned banks review of job descriptions at the (short term) state owned commercial banks. Treasury Bill Expert $60,000 1 short term advisor for 3 to P.S. Provide practical advice on C.S. (short term) 4 months establishing a T-Bill market. Auditing and Accounting $120,000 ad hoc assistance to the 3 I.D. Assist the development of C.S. Support (short term) Government owned banks accounting and auditing capacities within the banks. Other Technical Assistance $450,000 as required I.D. To be identified. n.a. (short term) NOTE A similar table for te Traimng TA is provided as Annex IX. P S = PMlicy SuppMwt PPIS - Project PreparaiwWan Implementaian Sulpt: I.D. = Insiuial Dewlqpnet (Capacity Buildifg). Hence. In WWat. technica asnistance for P.S. i equal to US$160,000; far PPIS -- US$L,.000,; am fie L.D. - US$2.855.000. C.S - Copetiave Selection 54. The studies identified under SERC include: (a) A review of interest rate developments; - 30 - (b) Review of ways to change the structure of deposits in the banking system; (c) Study of deposit mobilization; (d) Review of the National Social Security Scheme; (e) Evaluation of the impact of existing schemes to provide more long term credit - and the possible introduction of other alternative mechanisms; (f) Study on the issuance of Treasury Bills; (g) Study of ways in which banking competition can be enhanced; (h) The viability of credit unions in Mogambique; (i) Studies of housing finance mechanisms; (j) Studies on the development of leasing activities; (k) Agricultural credit; (1) Study of inter-enterprise debt. 55. It will also be necessary to review the financial position of some of the large enterprises which are borrowing from the banking system and which are distressed. Some of these have been commenced under other auspices, but additional enterprise review - which is an important component of the SERC program -- will be required during the course of this operation. The credit will need to be responsive to meet the need for any additional study and review which becomes evident during the subsequent preparation, and the implementation, of the overall financial and enterprise reform program. 56. Last, the credit also contains a very small component of project support, consisting of support to the coordinating departments within the central bank -- through the possible provision of a small amount of computing equipment; funding for project auditing; and other sundry expenses. E. BENEFICIARY ASSESSMENT/SYSTEMATIC CLIENT CONSULTATION 57. The project will also make serious efforts to listen to the beneficiaries of the credit and to adjust project components based upon feed back received. The proposed Financial Sector Capacity Building Credit has basically two types of beneficiaries. The first group is the banks and their staff - - while the second includes the clients of the banks. 58. Monitoring and consultation of banks and bank staff has already commenced during the pre-appraisal and appraisal missions of the credit. Discussions have taken place with bank management, personnel divisions, and with staff, on the types of training which are required in the banks. A questionnaire of bank training needs has been provided to the banks - and responses have been reviewed as an input into project preparation. This questionnaire will now need to be revised and regularly filled in by the personnel departments of the various banks. Course evaluations will also form an important input into adjusting training programs. These will form an integral - 31 - component of the training program. However, the ultimate success of the training programs will be shown by the enthusiasm of the banks, and their willingness to send their staff to training courses provided by the IFBM. Should there be any flagging of support for training provided by the IFBM, it will become important to undertake a re-evaluation of the training programs provided. Questionnaire responses and course evaluations will provide an important input into the annual evaluation of the project. 59. More difficult will be the assessment of banking clientele for the benefits which have accrued as a result of this project. For example, other forces will impact upon the quality of banking services and the efficiency with which they are provided -- most importantly, the entry of new banks, and a concomitant increase in banking sector competition. Nonetheless, in an effort to monitor the impact of the program upon this group of clients, a base line survey will be established on the level and quality of banking services, at the beginning of the project period. Monitorable indicators will be established, as will "performance standards", to assist in making this review process more systematic. These indicators could include measures such as: the number of days to open a letter of credit; amount of time required to deposit funds; time required to have a loan approved; and so on. These base line indicators will be determined by the consultants working on the Strategic Plans in the two state owned commercial banks. In addition, on-going discussions will continue, with groups such as the Chamber of Commerce, to obtain a more subjective feel for developments in the quality of banking services provided. Review of this client group would be incorporated into the mid-term review of the project. F. PROJECT ADMINISTRATION AND IMPLEMENTATION 60. ADMINISTRATION. Responsibility for project coordination will fall to Banco de Mogambique. Coordinating departments, and sub-component coordinators, within Banco de Moqambique have been selected for each of the five sub-components -- and an overall Project Coordinator has been selected from the Human Resources Department of the bank. Coordination with the IFBM (Banker's Institute) will be provided by a commercial banking coordinating committee which will oversee the operations of the Institute. The central bank representative on the IFBM coordinating committee is also the coordinator for the commercial bank training sub-component of the project -- thereby ensuring full coordination between the project and the work of the IFBM. 61. The five year project will be subject to annual reviews which will commence no later than twelve months after the project becomes effective. In addition, the project will have a mid-term review (no later than by the end of the second year of the project), during which performance will be assessed, changing circumstances taken into account, and the project modified and/or redesigned as necessary -- to take into account evolving training requirements. A Schedule of Performance Indicators and an Implementation Schedule are attached to this MOP as Annex VI. During the annual and mid-term review process, the project will be assessed against these agreed performance and implementation schedules. A supervision schedule/plan is attached to this MOP as Annex VII. 62. PROCUREMENT. Consultants and consulting firms will be recruited both internationally and nationally (where appropriate) on the basis of competitive selection, except for two consultancies: the consultancy to develop the Strategic Plan for BCM, where a well qualified individual has already been selected on the basis of his commercial banking background, his knowledge of BCM, and his knowledge of the Mozambique working environment (approximately US$85,000), and; the legal training consultancy, where a contract has been negotiated with a Brazilian legal firm, to provide the first year of legal training and legal support to the central bank (US$116,000). This firm was - 32 - selected on the basis of its high professional standing and its excellent understanding of Portuguese and Portuguese legal systems. Consultant selection, qualifications, experience, and terms of employment will be subject to standard IDA review procedures as set out in World Bank Guidelines. All terms of reference, short-lists, selections, and consultant contracts, for contracts greater than US$40,000 for firms, and US$20,000 for individuals, will be subject to prior IDA review. All other consultancy contracts will be subject to post review. Initial work (for the first year of the program) in the area of central bank training -- for the core course and the senior management course -- could be organized by the Institute of Graduate Studies based in Geneva. This institute has been selected on the basis of the wishes of the Mozambicans, the relatively small size of the contract (between US$100,000 and US$150,000 in the first year), and previous experience in teaching similar courses in neighboring African countries. Selection of the bank supervision swat team is currently on-going, based upon competitive selection procedures. 63. Funding is also available for training of central bank staff through overseas postgraduate courses, seminars, and so on, which will not involve the hiring of consultants. This will take place at local, regional and international institutions. This training will all be undertaken by central bank staff and will be based upon six monthly training programs, drawn up by Banco de Mogambique, and approved by IDA. The six month training programs will provide a schedule of training over the ensuing six months covering, iriter alia, the names and qualifications of the individuals to be trained, over which period the training will take place, estimated cost of training, what courses will be undertaken, which institutions will be providing the training, and the usefulness and appropriateness of the training within the context of the capacity building operation. This schedule will be cleared by IDA at six monthly intervals and expenses will be reimbursed against actual expenditures made. 64. Equipment and other goods are expected to cost, in the aggregate, about US$420,000. As this is essentially a training/technical assistance project, with only minor equipment purchases of text books, a small number of personal computers, and other sundry equipment to facilitate training, the project will not require any international competitive bidding. The purchase of this equipment will be in small packages and will be spread over several years during project implementation -- individual contracts will be below US$100,000. A total of US$200,000 worth of computers and books will be financed to support the various training programs in the central bank. These purchases will be made through the Inter-Agency Procurement Service Office (IAPSO)', International Shopping, or direct contracting. Due to the technical nature, and the language requirements, of some of the legal and economic text books, a small amount of direct contracting (US$25,000) from Portuguese publishers will be provided for under the credit. The remaining US$220,000 of goods is for the IFBM and will be purchased under LCB. The method of procurement is shown in Schedule B. Contracts estimated to cost US$100,00 or more would be subject to IDA's prior review. Contracts below the above threshold will be subject to IDA post review on a selective basis. Documentation on procurement, not subject to IDA prior review, will be forwarded to IDA for all contracts, as set out in the Guidelines, prior to disbursement. 65. Procurement and disbursement performance in Mozambique is generally poor. Delays are mainly related to weak procurement capacity in the implementing agencies, slow contract IAPSO has responsibility for procurement support to agencies and international aid organizations for which it has negotiated special prices. As a result of the volume of its purchases, IAPSO negotiated prices are economic compared to the price obtained by direct solicitation from local agents by Bank borrowers. It has been agreed, between the World Bank and IAPSO, that Bank borrowers are permitted to use IAPSO's services for the procurement of items which would otherwise have been procured through international shopping. - 33- clearance by the Ministry of Finance, inadequate counterpart funding, and the lack of adequate utilization of the Special Account Procedures. Actions to improve procurement and disbursements include: (a) utilizing personnel currently available within the Government of Mozambique who are familiar with World Bank procurement rules and procedures; (b) the delegation of contract approval, for the FS CB credit, to the Governor of the central bank; and (c) assurances that local counterpart funding will be made available to meet the project objectives throughout the life of the project. Delegating some supervisory authority to the Resident Mission staff in Maputo will also help to streamline procedures and facilitate faster procurement and disbursement. 66. Some activities have already commenced and are being funded under the Project Preparation Facility (PPF). These activities include, some legal training and the contracting of a legal firm on a retainer basis to assist the legal staff of the central bank and the Ministry of Finance in the re-drafting of certain financial sector legislation. Requests have also been made for funding of some bank supervision work (the bank supervisor from Banco de Portugal and the bank supervision swat team), and the commencement of work on the strategic plan for Banco Comercial de Mogambique. Further requests for funding from the PPF are anticipated prior to the project becoming effective. Should it be necessary, and in the interests of ensuring that the project proceeds smoothly as planned, a second PPF could be established. 67. DISBURSEMENTs. Disbursements will be made against standard Bank documentation. The proceeds of the Credit will be disbursed against 100 percent of total expenditures for consultant services, training, equipment, materials and supplies. In order to ensure the timely provision of funds available to finance the cost of services and goods to be procured under the project, Banco de Mogambique will open a Special Account in a banking institution acceptable to IDA in the amount of US$500,000. Funds in the Special Account will be available to finance only eligible expenditures under the project. The Special Account would be replenished regularly on the basis of documentary evidence as to payments made from the account for goods and services required for the proposed project. Expenditures for less than US$25,000 would be based on statements of expenditure. These arrangements were confirmed at Negotiations. The estimated schedule of disbursements is shown in Schedule B. The project is expected to be completed by December 31, 1999. The closing date is set for June 30, 2000. 68. ADVANCE CONTRACTING AND RETROACTIVE FINANCING. Initial costs, for preparation of the capacity building program have been funded out of a PPF advance, approved in 1993. These costs will be reimbursed out of the proceeds of the proposed Credit. Retroactive financing is not included under this Credit. 69. ACCOUNTING, AUDITING AND REPORTING. Auditing will be required, on a yearly basis, for expenditures related to the Project with particular attention to expenditures reimbursed against statements of expenditures. Audits would be performed by qualified auditors acceptable to IDA and would be sent to IDA within nine months of the end of each financial year. Furthermore, Banco de Mogambique will submit quarterly reports on project implementation progress, and a final evaluation report on implementation experience and project results, within six months of the Credit closing. These arrangements were confirmed at Negotiations. Auditors for the project were selected prior to Board presentation. 70. IMPLEMENTATION MANUAL. An Implementation Manual is under preparation and an outline was discussed with the Mozambicans at negotiations. The manual will be finalized by the time of effectiveness. -34- 71. ACTIONS AGREED. By Negodatom the following conditions were met: (a) request for funding, under the Project Preparation Facility (PPF), to develop a Strategic Plan for BCM; (b) selection of the firm which will provide the swat team for banking supervision; (c) approval of the contract with the legal firm which is providing support to the Legal Department of the central bank; (d) identification of the local counterpart trainers under the proposed program; (e) provision of a letter describing the Government's Capacity Building Program within the financial sector to IDA. Condim of Board By Board presentation, the following two conditions had been met: (a) BM has prepared a satisfactory action plan to (i) reverse the dormant status of special accounts by submitting replenishment requests, and (ii) refund all outstanding amounts on closed credits, (b) selected an auditor for the project. Dated covemts (a) the submission to IDA of a draft Strategic Plan for Banco Comercial de Mogambique, by October 1, 1994; (b) commencement of the implementation of BCM's Strategic Plan, by January 1, 1995; and (c) if required by the Strategic Plan, the selection and employment of management consultants to assist BCM management implement an agreed program as identified by the Strategic Plan, by July 1, 1995. March 15, 1994 - 35- ANNEX II Table 1: Total Number of Staff Working in Mozambique's Banking System (number of people) Total Number Banking of Staff Personnel' Banco de Moqambique 592 239 Banco Comercial de Mogambique 2,500 1,782 Banco Popular de Desenvolvimento 2,462 1,829 Bank of Standard Totta 394 287 Banco de Fomento is Banco do Adantico 0 TOTAL 5,963 4,137 Excludes non-banking personnel such as drivers, gadeners, cleaners, and so on. SOURCE: Le Secteur Bancire Moramblcai et sa Pbpdnon, Report undertaken for the French Ministry of Cooperation by Raphael Benarrash. Table 2: Number and qualifications of Staff in Mozambique's Banking System (number of people) Tertiary Completion of Some Secondary Some Primary Education Secondary Education Education TOTAL Education Banco de Mocambique 42 58 56 83 239 Banco Comercial de 33 452 547 750 1,782 Mo;ambique Banco Popular de 57 225 828 719 1,829 Desenvolvimento Bank of Standard Totta 19 131 116 21 287 TOTAL 151 866 1,547 1,573 4,137 This only includes actual banking personnel - and excludes non-banking staff such as drivers, gardeners, cleaners and so on. SOURCE: Le Secteur Bancaire Moabicain et sa Popumaio, Report undertaken for the French Ministry of Cooperation by Raphael Benarrosh. Table 3: Banco de Mogambique Staff by Professional Categories' (December, 1992) Special Special General General General Departments/Divisions Directors Head of Coordin. Head of Main Technicians Technicians Technicians Technicians Technicians Other TOTAL Division Services Career El EB GI GB IN Economic Studies 1 2 - 1 - 8 - 3 2 1 3 21 Internal Audit 1 - - - - - 2 - - 1 1 5 Human Resources 2 - 2 4 1 2 3 9 14 3 17 57 Acc. & Budget Control 1 - - 1 - 1 2 1 7 - 1 14 Computing - - I - 1 - I - - - - 3 Foreign Exchange Operations 1 - - 1 1 1 1 3 10 2 - 19 International Relations 3 - - - 1 - 8 2 4 2 4 24 External Debt 1 - - 2 1 4 1 2 4 - - 15 Small & Medium Enterprise 1 - - - 2 - - - - - 2 6 Project Credit Operations 1 1 - - 1 2 1 1 1 - 8 Issues & Treasury 1 2 - 3 - - I - 12 10 33 62 Bank Supervision I - - - - 1 - - - - - 2 Legal I - - - - 1 - - 1 2 5 Other Department& - - - - - - - - - - 351 351 ETOTAL 15 4 4 12 6 27 13 21 54 22 414 592 The data has been provided by the Training Department. Includes staff of the Material Resource Department, the Security Department, and the Public Relations Department. EB - Basic Level; El - Intermediate Level; IN - Initial Level; GB - Basic Level; GI - Intermediate Level. Table 4: Banco de Moambique Staff by Educational Qualifications (December, 1992) Directors Other Managers Economics Mathematics Law ISRI Others TOTAL Departments/Divisions 5 Years 3 Years Secondary 3 Years Secondary 3 Years 5 Years University University Education University Education University University Economic Studies - 1 4 1 - - 13 21 Human Resources 1 - - - 6 - - - 1 1 48 57 Acc. & Budget Control - - 1 - 2 - - - - - 11 14 Foreign Exchange Operations 1 - - - 2 - - I - - is 19 International Relations 3 - - - - - 3 - - 7 11 24 External Debt 1 - - - 2 2 1 - - - 9 is Small & Medium Enterprise - 1 - - - - 3 - - - 2 6 Project Credit Operations - 1 - - 1 2 - - - - 4 8 Issues & Treasury - 1 - - - - - - - - 61 62 Bank Supervision - 1 - - - - 1 - - - 2 Legal - 1 - - - - - - 1 - 3 5 Other Departments' - - 2 - 4 - - - - 353 359 TOTAL 6 6 4 1 17 5 12 2 1 8 530 592 Ineudes staff in the Iternal Audit Department and Informatics Department in addition to Material Resource Department. Security Department, and the Public Relations Department Table 5: Banco Comercial de Moambique Staff by Professional Categories' (Headquarters in Maputo) MANAGERS TECHNICIANS Departments/Divisions Directors Associate Assistant Heads of Superior Intermediate Basic Others TOTAL Directors Directors Services Human Resources 1 - 1 4 - 1 13 24 21 65 Internal Audit 1 - - - 2 3 8 9 23 Credit Operations 1 1 - 3 6 8 6 9 34 Liquidity Management I 1 - 1 1 5 3 4 16 Legal I 1 1 3 6 11 8 11 42 Organization and Computer I I - - 5 21 5 7 40 Foreign Operations 1 2 1 7 - 50 77 112 250 Material Resources 1 - - - 2 12 11 81 107 Technical Office - - - 1 2 3 2 2 10 Presidency - - - - I I - 3 5 Managing Board - - - - 1 3 2 16 22 Accounting 1 2 5 - - - - 8 Economic Studies 1 - - - - - - - I TOTAL 10 8 8 19 27 130 146 275 623 Data is preliminary. Table 6: Banco Comercial de Mogambique Staff by Professional Categories' (Branches) MANAGERS TECHNICIANS Managers Heads of: Departments/Division Branches Agencies Delegation Sub-Manager Services Sections Superir Intermediate Basic Others TOTAL Maputo 1 2 7 1 5 16 1 76 120 199 428 Beira 1 1 2 1 5 17 1 36 65 142 271 Chimoio 1 2 - - 1 9 - 12 40 63 128 Inhambane 1 1 1 - 2 7 - 10 56 52 130 Lichinga 1 1 - 1 - 4 1 4 28 56 96 Nampula 1 4 - - 6 21 - 106 78 172 388 Pemba 1 1 - 1 2 9 - 10 35 50 109 Quelimane 1 3 - - 2 12 - 17 47 143 225 Tete 1 1 - 1 2 9 1 18 29 88 150 Xai-Xai 1 4 - - 4 13 - 5 57 104 188 TOTAL 10 20 10 5 29 117 4 294 555 1.069 2.113 Data is preliminary. ANNEX II Table 1: Proposal for a Training Program Senior Management Development Subject Description Objectives Departments Priority (approximate duration) Target group (Size of group) Monetary Policy Seminar Seminar would deal with the design and implementation of monetary policies in To support management in Selected departments of BM Ist year a market economy. It would provide conceptual framework for monetary policy formulating monetary policy. and Ministries (MoF). FS CB and a forum for discussion of the functions and activities of BM and strategies Directors and Deputies. of monetary policy. Special emphasis will be given to the discussion of direct (40) and indirect monetary control. the role of monetary policy and of central banks in market economies (one week). Management and Seminar would deal with the organizational structure of a central bank. Topics To provide management tools and Selected Departments of BM Ist year Organization would include the design of operational procedures and job descriptions, the role support management in designing the and Ministries (MoF). FS CD of human resource planning and of computerization (one week). organization of BM departments and Directors and Deputies. in developing operational procedures (40) that are adapted to the new functions. of BM. Bank Supervision Seminar would provide an overview of the main techniques of bank supervision To introduce management into the Selected departments of BM Ist year and explain the role of bank supervision in a market economy (one week). basic concepts and principle and Ministries (MoF). FS CB methodolo3y of bank supervision. Directors and Deputies. (40) Financial Market Seminar would cover the principal conceptual tools that are required for To introduce management to the Selected departments of BM 1st year Development understanding the functioning of financial markets. Special attention would be issues that arise with the development and Ministries (MoF). FS CB given to the issues that arise with setting up Treasury Bill auctions in developing of financial markets. Directors and Deputies. countries (one week). (40) Attachments Short term attachments to central banks or commercial banks, i.e. Reserve Bank To support senior staff in organizing Selected departments. Isr/2nd year of South Africa, Bank of Botswana. Banco de Portugal. Banco de Brazil. their departments and in developing Directors and Deputies. operational procedures. Table 2: Proposal for a Training Program - Core Program Subject Description Objectives Departments Priority (approximate duration) Target group (Size of group) Preparatory Course: Review of basic micro and macroeconomics for officials who had no. or very To introduce staff who had no. or very Selected departments -- Preparatory Micro and limited, exposure to modem economics. Course would cover concepts such as limited, exposure to micro and especially Research Department phase Macrocconomics the functioning of markets. the importance of the price mechanism, allocation of macroeconomics to modem economics officers. (EFM TA) resources, and efficiency. so that they are able to follow the core (60) program. Open Economy Intermediate course in macroeconomics with emphasis on open economy To provide macroeconomic framework Selected Departments -- Ist year Macroeconomics macroeconomics. Main topics: IS-LM and AS-AD model; monetary and fiscal to analyze economic developments and especially Research Department policy in a closed economy; balance-of-payments theory; open economy IS-LM macroeconomic policies. officers. and AS-AD models; adjustments and policies under fixed and flexible exchange (60) rates (two weeks). Theory and Practice of Course would explain the role of monetary policy in a market economy under To support conceptual framework for Selected departments of BM 1st year Monetary Policy specific considerations of monetary policy in economies without developed the implementation of monetary (Research) and the Ministry of financial markets. The course would focus on the money supply process, the policies. Finance. demand for money, instruments and conduct of monetary policy, open market Senior Officers and Officers. operations, financing public deficits. and monetary policy, transition from direct (60) to indirect monetary control, interaction between monetary policy and foreign exchange markets, and the consequences of financial liberalization for the conduct of monetary policy. Workshops would be organized for applications and to encourage active participation in discussion (two weeks). Economics of Money and Course would explain the basic economic principles that underlie the functioning To explain the economics that underlie Selected departments of BM Ist year Finance of financial markets with special emphasis on the building of financial markets the functioning of financial markets and (Research) and Ministry of in developing countries. Main topics would include: Fundamentals of Financial to strengthen capacity to develop Finance. Markets (intermediation function of financial markets, role of interest rates, financial markets. Senior officers and officers. introduction to the basics of modem portfolio analysis. main characteristics and (60) development of financial instruments, financial institutions, international finance). Emphasis would be given to issues such as the developing of financial markets, financial liberalization, and improving market efficiency (two weeks). Commercial Banking Course would cover practical aspects of banking. Main topics include: To familiarize participants with the Selected departments of BM Istyear financial arithmetics, structure of capital markets (main instruments, issuers, impact of financial restructuring and and the Ministry of Finance. investors, and intermediaries) with emphasis of institutional aspects of banking liberalization on the activities of banks. Senior officers and officers. in Mozambique, developing and industrialized countries; payment and settlement (60) systems (national and international); main activities of banks. Emphasis would be given to issues that arise for banks in countries with financial liberalization and emerging financial markets (two weeks). Table 3: Proposal for a Training Program - Specialized Training, Economic Studies Department Subject Description Objectives Departments Priority (approximate duration) Target group (Size of group) On-the-job Training Main focus of the training would be: to develop a better quality and more To train staff in the tasks of a research Economic Studies Department. 1st year timely economic data base, and strengthen the statistical and analytical capacity. department. Officers. Topics in Monetary Seminar would deal with advanced issues in monetary theory and policy which To provide analytical and empirical. Economic Studies Department. 2nd year Policy are of importance for analytical and research activities in BM. Main topics tools used in the formulation of Credit Operations Department, covered would include selection of operational and intermediate targets, monetary policy, and to strengthen the Foreign Exchange Operations interpretation of economic indicators and monetary statistics, implementation of preparation and interpretation of and the Ministry of Finance. monetary policy, the link between monetary and exchange rate policy. monetary monetary statistics and analytical Officers. policies in the presence of domestic and external disturbances. Other topics to capacity required for the (20) be dealt with include monetary policy and expectations, rules versus discretion implementation of monetary policy. in the conduct of monetary policy (one week). Statistical Methods (i) Review of main statistical methods and their uses in central banks. To strengthen capacity to collect and Economic Studies Department. Ist year interpretation of data and statistics, graphical presentation, and application of analyze statistics especially monetary Foreign Exchange Control. spreadsheet programs and statistical packages used by BM. statistics and to produce a Quarterly Officers. (ii) Special courses on monetary and balance-of-payments statistics as well as Statistical Bulletin (ultimately a monthly financial programming - principally the courses of the IMF Institute. Bulletin). Quantitative Methods Introduction to more advanced quantitative techniques that are applied in To strengthen capacity to perform Economic Studies Department. 3rd year research departments of central banks such as regression and time series econometric analysis of data. analysis. The focus would be on application. Topics would include estimation of money demand functions, seasonal adjustment methods, univariate and multivariate time series analysis, forecasting techniques. Treasury Bills Seminar on the functioning of financial markets with special emphasis on To familiarize officials with treasury Economic Studies Department 2nd year treasury bill markets. Topics would include how to set up and organize treasury bills and the organization of treasury and Ministry of Finance. bill markets in economies with emerging financial markets (one week). bill markets. Officers. (20) - 43 _ а .. _ � � � � � м� � � N �. :� :� :�� �о � � � �� ��� �� �� � � � �� � � �' � � .� .� � я � � :� � � р � � :� .� . � � н� F �� F� � :� � � �о и `�� � � � �� � �� � � � � '� �� � � �, а � � 's , � Ri г � � � fM � �� � � � Q � � � �: � � � � �� Ч � � � � • � � � � а7ММ � i г н � S�CCYt � � � � � � � � � :� � � � � � � Table 5: Proposal for a Training Program - Specialized Training, Foreign Exchange Management Subject Description Objectives Departments Priority (approximate duration) Target group (Size of group) rn-the-job Training Practice of foreign exchange operations and aide finance. 6 months to 2 years To train staff in the tasks related to Foreign Exchange Operations, I st year working with external FOREX experts. foreign exchangt management. Foreign Exchange Control. (DANIDA?) International Relations. Officers. Foreign Exchange Course covers die functioning of foreign exchange markets and the products To train staff in die practice of foreign Foreign Exchange Operations, I st year Operations traded (three to five days). exchange operations. Foreign Exchange Control, Economic Studies Department. International Relations. Officers. (60) Trade Finance Course deals with the fundamentals of international trade procedures, To give staff an overview of the main Foreign Exchange Operations, I st year transactions and their documentation. instruments used in trade finance. Foreign Exchange Control. Officers. (20) Balance of Payments Course on balance of payment statistics organized by the IMF institute; see also To train staff in compilation of balance Foreign Exchange Operations. I st year Statistics courses on Statistical Methods for Economic Studies Department. of payments and forecasting. Officers. (3) Commercial Law Foreign Exchange Operations. 2nd year Foreign Exchange Control. Officers. Advanced Courses On topics such as foreign exchange and currency swaps; foreign exchange To provide training on advanced topics. Selected officer. Much later options; issues in trade finance (staff menthers will participate in courses held phase overseas). lb Attachments Short-term attachments of senior staff to central banks in neighboring countries To expose management to experience Foreign Exchange Operations. 2nd year (Botswana. Mauritius, Zambia, Zimbabwe). with respect to exchange rate operations Foreign Exchange Control. by other central banks. Directors, Deputies. Table 6: Proposal for a Training Program - Basic Skills Training Subject Description Objectives Departments Priority (approximate duration) Target group (Size of group) Computer Literacy Courses would train staff in the use of computers and the application of specific Introduction to use of PC's and All departments. Continuously software (Word processing, spreadsheet and data base programs). standard software. Officers and support staff. Accounting Courses would cover the areas: To upgrade accounting skills. All departments. Continuously (i) Modern accounting practices and the use of computers in accounting; to be Officers and support staff. coordinated with computerization program; (200) (ii) Accounting in a central bank and commercial banks. English Courses would be organized in: To improve proficiency in English. All departments. Continuously (i) Basic English (which exists already), and especially business and financial (ii) Business English. English. (iii) English for Bankers Technical Writing Training staff in writing technical reports, memos, and correspondence. To improve readability of documents. All departments. Continuously -46 - ANNEX IV TERMS OF REFERENCE ADVISOR - DEPARTMENT OF BANK SUPERVISION BANK OF MOZAMBIQUE INTRODUCTION 1.1 The Banco de Moqambique, Mozambique's central bank, established the Department of Bank Supervision in June of 1992 in order to carry out the supervisory functions elaborated in Lei no. 1/92 (Lei Organica). Until January of 1992, the nation's largest commercial bank (now Banco Comercial de Mogambique) was part of the central bank, which would have made unbiased surveillance of the institution difficult, if not impossible. With the separation of the Banco de Moqambique from the Banco Comercial de Mogambique and the establishment within the central bank of a Department of Bank Supervision, a supervisory function capable of promoting an efficient banking system has become a real possibility. 1.2 The Director of Bank Supervision, who reports to one of the five General Managers of the central bank, currently has a staff of one economist to aid in the development of the function. Not only is there a lack of manpower within the division, there is a complete lack of supervisory experience. As a result, the rapid development of relevant regulatory policies and procedures designed to secure a safe and sound banking system is not possible. Furthermore, an analysis of the loan portfolios of the three currently existing commercial banks (a fourth bank began operation mid-March 1993), a task essential to determining their capital adequacy, cannot be performed without experienced examiners and appropriate examination tools. SCOPE OF WORK TO BE UNDERTAKEN 1.3 In order to develop the supervisory function, it has become important to obtain the assistance of a long term advisor to the Department of Supervision, along with a short term swat team of examiners from a foreign supervisory agency. This long term advisor will stay for a period not less than one year and assist the Banco de Mogambique to: (a) develop banking regulations, (b) revise the bank licensing application, (c) format off-site reporting forms and determine the most appropriate off-site surveillance system, (d) elaborate a Report of Examination format, examiner worksheets and a manual to be used by examiners, (e) design appropriate examiner training classes and materials, and (f) promote the structuring and expansion of the Department of Bank Supervision, as well as facilitate the work carried out by the swat team. 1.4 Initially, the long term advisor should review existing legislation, statutes and regulations pertaining to the central bank and the financial institutions it supervises. The advisor should also review draft regulations and guidelines on capital adequacy, asset classification and provisioning, asset concentration, as well as revisions to the bank licensing application. By so doing, the long term advisor will become acquainted with the work that has been initiated by the central bank on regulations crucial to surveillance and will be able to contribute to the enhancement of these draft regulations. Also, the advisor should aid in the development of policies and procedures as they pertain to on-site surveillance, with special attention given to areas which, unlike asset quality and capital adequacy, have received less focus, such as earnings, liquidity, bank management and internal control procedures. - 47 - 1.5 The advisor should work closely with the General Manager in charge of supervision, as well as the Director of the Department of Supervision on the structuring of the division and the contracting of new staff. Also, the advisor should be available to the swat team of examiners, helping them with any difficulties they might encounter within the central bank or the commercial banks. 1.6 The long term advisor should help the Department of Bank Supervision with the development of the draft off-site reporting forms intended to indicate the financial condition and performance of each bank. These forms, to be further designed and subsequently sent out to the field for testing, should include monthly data on assets, liabilities, and off-balance sheet items, end-of- quarter data on earnings, a quarterly maturity/repricing profile of assets and liabilities, as well as information on asset concentrations and the quality of risk assets. The advisor should aid in the development of ratios and growth rates to be estimated on the basis of the data requested. These ratios and growth rates would serve as a tool for the Department of Bank Supervision to better understand each bank's true financial condition and as a supplement to insights gained from on-site bank examinations. The advisor should consider and make suggestions on the appropriate penalties to be put into effect, in cases where the off-site reports are late or incomplete. 1.7 The set of off-site reporting forms should be accompanied by instructions developed by the long-term advisor which includes clear definitions of all data items requested, plus an explanation of the rationale for each ratio and growth rate requested. In this way, the banks will understand better how to monitor themselves and will be encouraged to institute their own internal program of surveillance. 1.8 Once the user requirements have been defined, appropriate software must be selected to compile and analyze the data. The advisor should be prepared to communicate these requirements to technical advisors on computer software, so that the resulting off-site surveillance database will represent the system as it has been designed and intended. 1.9 The advisor should play a major role in the design of the Report of Examination reporting forms and the writing of an examiner instruction manual for completing the Report of Examination, as well as the formatting of on-site examination worksheets to be used by examiners. These should be developed so as to indicate the overall condition of the commercial banks under inspection and should follow internationally accepted norms. 1.10 The advisor should provide input into the development of training materials and a set of classes for examiners (i.e., courses in portfolio review and bank examination techniques at different levels of expertise). Also, working with the swat team of external examiners, who will provide on-the-job training to the examination staff of the Department of Bank Supervision, the advisor should design an on-the-job training program (accompanied by learning materials) for junior examiners working in the field (on-site examinations of commercial banks) which complements and enhances the formal classroom training given. TIMING OF THE WORK 1.11 You arrive in Maputo and stay for a period of one year (52 weeks). Your time should be allocated in the following manner: - 48 - (a) During the initial two-week period within the Banco de Mogambique you should review existing legislation, draft regulations, and proposed draft off-site reporting forms, as well as become acquainted with the supervisory staff. (b) The following 10 weeks should be devoted to providing suggestions that would enhance the draft regulations and the draft off-site reporting forms. You will be expected to write instructions to accompany the off-site reporting forms. Also, suggestions should be made on possible further revisions to the bank licensing application and procedures for investigating and evaluating completed applications. During this period you should work with the Director on structuring the department, contracting additional staff, and developing an orientation program for incoming junior examiners. (c) At the beginning of the following 12 week period, you should help the General Manager and the Director by meeting with the appropriate parties within the commercial banks to discuss the contents and focus of the off-site reporting forms that the banks will receive periodically. These meetings should be arranged to apprise the banks' management of the significance of these forms for purposes of internal surveillance and to ask for their full cooperation. Following these contacts, the off-site reporting forms should be sent to the banks for field testing. Supervisory staff should be made available to handle questions from the banks about the forms and you should be available to guide the staff in this process. Work should commence on the selection of appropriate software to be used to compile and analyze the data gathered off-site and you should do everything to facilitate this process by working with the technical advisors assigned to advise on computer software. (d) The following 12 weeks should be a period in which you devote time to the design of the Report of Examination reporting forms and the on-site examination work sheets, as well as to writing an examiner instruction manual. Work should also be initiated on the development of training materials for novice examiners and on classes designed to teach proper examinations techniques. The setting up of a formal teaching program should be implemented by you along with the design of an on-the-job training program (with learning materials) for junior examiners working on an actual examination. (e) The final 12 weeks will be a time for you to press forward on all the projects that you facilitated and/or initiated, so that you will leave the Department of Bank Supervision with appropriate regulations and guidelines in place, with off-site reporting forms which have been tested and approved, with a bank licensing application and evaluation procedure which is judged to be an effective screen, with a Report of Examination and Examination Manual which are effective supervisory tools, and with a bank supervisor training program which meets the needs of the department. - 49 - TERMS OF REFERENCE BANK EXAMINATION TEAM ON-THE-JOB TRAINING OF BANK OF MOZAMBIQUE SUPERVISORS AND COMMERCIAL BANK CREDIT REVIEW INTRODUCTION 2.1 Financial sector reform in Mozambique is proceeding at a rapid pace. New banking legislation has been enacted and the Government is keen to develop new banking competition within the sector which, since independence, has been dominated by a single banking institution. During 1991, the Government embarked upon a review of the financial sector in conjunction with the World Bank and A.S.D.I. (SIDA) which enunciated a plan of continuing reform for the sector. The World Bank will be supporting financial sector reform efforts in Mozambique, through a Financial Sector Adjustment Credit during 1993. 2.2 An important component of financial sector reform will be the financial restructuring of the two state owned commercial banking institutions -- Banco Comercial de Mogambique and Banco Popular de Desenvolvimento. The determination of the capital required in these two institutions will be dependent upon on-going accounting work within these banks as well a loan portfolio review undertaken by the bank supervision department of Banco de Mogambique. 2.3 Prior to 1992, Banco de Mogambique (Mozambique's central bank) did not have a banking supervision department. Had it existed before 1992, its ability to function effectively would have been hampered by the fact that Mozambique's largest commercial bank (now Banco Comercial de Mozambique) was, at that stage, part of the central bank. Conflict of interest issues would inevitably have arisen, as the central bank would have effectively been supervising itself. However, with the separation of Banco de Mogambique from Banco Comercial de Mogambique -- and the establishment within the central bank of a Department of Bank Supervision -- a properly functioning bank supervisory capacity has become a real possibility. 2.4 The functions and objectives of the central bank were defined by law (Lei No. 1/92) in January 1992, which states that all financial institutions (except insurance companies) are subject to central bank supervision. This law also confirms the central bank's (and the bank supervision department's) responsibility to assess bank license applications, carry out off-site inspections, as well as on-site examinations. In an effort to carry out the supervisory functions elaborated in Lei No. 1/92, Banco de Mogambique established the Department of Bank Supervision in June, 1992. 2.5 The new Department of Bank Supervision is in a very seminal stage. The Director of Bank Supervision, who reports' to one of the three General Managers of the Central Bank, currently has a staff of one economist to aid in the development of the function. Not only is there a lack of manpower within the division, but there is also a lack of supervisory experience. It will be necessary to develop this important central banking function and to establish regulations governing the examination and supervision of financial institutions in Mozambique. To this end, Banco de Mogambique is seeking external assistance in the form of a long term advisor to the department. This will be important in developing a capacity to oversee the banking system to ensure that prudent banking practices evolve. However, in addition to establishing governing regulations, it will also - 50 - be necessary to analyze the loan portfolios of the three currently existing commercial banks2 (so as to determining the, as yet, undefined capital adequacy of these institutions) as well as train local staff in portfolio review and bank examination techniques. WORK TO BE UNDERTAKEN 2.6 The comprehensive supervision of the three commercial banks in existence would benefit from outside assistance in the form of a team of four experienced examiners from a foreign supervisory agency. Given the current lack of detailed knowledge of the banks' loan portfolios, a team of four examiners with expertise in credit review is needed to work for a period of six months each (a total of 24 man months) within the Department of Bank Supervision of Banco de Mogambique. Analysis of troubled loan portfolios requires experienced hands-on review of a type as yet unknown in Mozambique. Without such review, not only will the performing and non- performing assets remain in question, but appropriate provisioning and the banks' capital adequacy cannot be determined. 2.7 Initially, the examination team should review existing legislation, statutes and regulations pertaining to the central bank and the financial institutions it supervises. By so doing, the team of visiting examiners should become aware of and provide guidance on specific policies and procedures which are lacking and should be specifically defined by the nascent Department of Bank Supervision in order to pursue on-site examination. 2.8 During the examination team's six-month stay, it should carry out a targeted examination focusing on the asset quality and performance of each of the three commercial banks. The review of the loan portfolios should be carried out by the four examiners, accompanied and assisted by a team of trainee examiners from the Department of Bank Supervision of Banco de Mogambique. Each member of the visiting examination team has a responsibility to provide essential on-the-job training to the team of trainee examiners, so as to leave the Banco de Mozambique's supervisory staff self-sustaining as possible, able to review troubled loan portfolios without on-going external assistance. 2.9 Banco de Mogambique regulations are quite non-specific at this point in time. Therefore, the examination team should enter each of the three commercial banks utilizing its knowledge of standard international procedures when addressing: (a) classification of loans, (b) provisioning according to asset classification, (c) exposure limits reflecting credit concentrations (by borrower and industry), (d) identification of contingent liabilities arising from off-balance sheet lending, and (e) capital adequacy (taking the Bank of International Settlements' risk-based capital approach). These issues should be considered within the context of the information existing within each of the commercial banks - Banco Commercial de Mozambique (BCM), which represents approximately 95 percent of Mozambique's commercial banking assets, Banco Popular de Desenvolvimento (BPD), a smaller state-owned bank, and Banco de Standard Totta (BST), a small privately-owned bank (with Portuguese and British ownership). It should be noted that historical information on the credits which encompass the loan portfolios may well be limited and in a state of disarray. 2 In addition, the central bank has licensed two new foreign banks to commence commercial banking operations in Mozambique and they are expected to start operations in early 1993. -51- 2.10 The international procedures used should be applied in a flexible manner allowing for Mozambique's changed political and economic philosophy. That is, taking into consideration the fact that, until the beginning of 1992, Banco de Moqambique had been used to fund state-run enterprises in a planned economy. Only recently, its role has been modified to include the realization of a safe and sound banking system geared to promoting private enterprise (both rural and urban) within a market economy. 2.11 Reconmendations should also be made with respect to the development of, as yet, non-existent supervisory tools, such as an examination manual and examination forms, to be filled out by the examiner showing the overall condition of the commercial bank under inspection. 2.12 An examination team would be expected to work closely with any external long term advisor that Banco de Moqambique may place to work in the Bank Supervision Department. The two most important outputs of the work would be the development of bank supervisory skills within the central bank's bank supervision department, as well as calculations of the provisioning requirements for the three existing commercial banks -- to assist in determining their overall levels of required capital. TIMING OF TARGET EXAMINATIONS AND TRAINING 2.13 The team should remain in Maputo for a period of six months (24 weeks) each. The team's time should be allocated in the following manner: (a) Initial two-week period within Banco de Moambique to review existing legislation and regulations, to prepare material to be used to record examination findings, to prepare a plan of action which can be used as a simple guide for the trainee examiners, and to become acquainted with the supervisory staff and the team of trainees. (b) A three-month target examination within Mozambique's largest commercial bank, Banco Comercial de Movambique, focusing on asset classification, appropriate provi.ioning, credit concentrations, contingent liabilities, and capital adequacy. This examination should also focus on providing intensive on-the-job training for the trainees. (c) A one-month target examination in Banco Popular de Desenvolvimento, along with on- the-job training for the trainees. (d) A one-month target examination in Banco de Standard Totta, along with on-the-job training for the trainees. (e) A two week wrap-up period in which to write up an evaluation of findings with respect to the three on-site target examinations undertaken, to make written recommendations for further training of the bank supervision staff, as well as written recommendations with respect to other information and reforms which would aid in the effectiveness of the Department of Bank Supervision. - 52 - TERMS OF REFERENCE ADVISOR TO REVIEW AND ASSIST IN THE DEVELOPMENT OF INSURANCE AND PENSIONS LEGISLATION IN MOCAMBIQUE 3.1 Prepare technical draft for discussion and consideration by Government of:- (a) Insurance legislation to prudentially regulate the insurance industry in Moambique. (b) Pensions and Provident Funds legislation to prudentially regulate the contractual savings institutions in Mogambique. (c) Income Tax legislation applicable to all contributions, investment income, capital gains and benefits for all life assurance, occupational and private pensions funds, provident funds and retirement annuity schemes. 3.2 Review and prepare discussion paper on issues relating to the compulsory insurance of risks of injury and death caused in road traffic accidents in Mogambique and by Moambique registered vehicles in neighboring countries. 3.3 Review and prepare discussion paper on other insurances compulsorily required in Mogambique such as Aviation risks, Workmens Compensation and Employers Liability etc. 3.4 Prepare discussion paper on the establishment of regulatory bodies and the methodology to be utilized by the Registrar or Controller of Insurances and Pension and Provident Funds and provide estimates of manpower, training structures and material requirements of the Government departments charged with the prudential supervision of these financial sectors. - 53 - TERMS OF REFERENCE LEGAL CONSULTING SERVICES WITH RESPECT TO THE DEVELOPMENT OF FINANCIAL MARKETS (MONEY AND CAPITAL MARKETS) INTRODUCTION 4.1 The legal framework for the financial markets in Mogambique needs strengthening and consolidating. The relevant legislation is that governing the different types of market-participants including issuers, financial intermediaries, providers of market facilities and investors. In addition, the statutory basis for the powers and responsibilities of the relevant market regulators -- in particular, the Ministry of Finance and the Central Bank -- needs review. NATURE OF THE WORK 4.2 The consultant should familiarize himself with the reports on capital market development, and on contractual savings institutions, recently undertaken for the World Bank. 4.3 In close coordination with duly appointed Mogambican lawyers, the consultant should identify what the relevant laws are for the financial markets, and the various types of market participants. There are at least three sets of legal instruments which need examination: (a) those which are directly relevant to the financial markets, including the Diploma Ministerial No. 162/88 concerning the issuance of debt of 7/12/1988, the Diploma Ministerial No. 163/88 creating the official secondary market of 7/12/1988, Decree No. 43/89 regulating financial intermediaries of 28/12/1989, Law No. 28/91 on credit institutions of 31/12/1991, and Law No. 1/92 on the Central Bank of 3/1/1992. (b) those concerning the privatization process which affect the financial markets, including Decree No. 21/89 concerning the sale of state enterprises of 3/5/1989, Law No. 13/91 concerning intervention of 3/8/1991, Law No. 15/91 concerning restructuring and privatization of 3/8/1991, Decree No. 27/91 concerning privatization of 21/11/1991, and Diploma Ministerial No. 87/92 concerning UTRE of 24/6/1992. (c) and those in other areas relevant to the financial markets, including various aspects of company law such as the duties of directors, bankruptcy provisions, accounting procedures and taxation issues. 4.4 The consultant should review these laws, and assess the extent to which they need modification in order to further the development of capital markets. Short- medium- and long-term priorities should be identified, The recommendations made in the recent World Bank report concerning the legal framework governing issuers, financial intermediaries, and the providers of market facilities, should be assessed. 4.5 The consultant should assess whether the regulatory duties of the Ministry of Finance and the Central Bank need legal clarification, and if so, how. This will require an assessment of the capabilities and preferences of both institutions. Again, the recommendations made in the recent World Bank report should be assessed. - 54 - 4.6 The consultant should advise on how best to implement his recommendations. This will require an assessment both of the case with which consolidation of the laws may be achieved, and of the extent to which the recommendations may be achieved by non-statutory modifications. 4.7 The consultant should be a Portuguese speaker. - 55 - TERMS OF REFERENCE LEGAL CONSULTING AND TRAINING WORK IN BANCO DE MOVAMBIQUE INTRODUCTION 5.1 The Bank of Mozambique (BM) intends to carry out a number of projects through the Economic and Financial Management Technical Assistance Project and the Financial Sector Adjustment Credit. One of these is to strengthen the technical capacity of the Legal Counsel Department by staffing it with individuals capable of lending effective legal support in the performance of its central banking duties. This is in consideration of the important role the BM plays as the head of the banking system. SCOPE, STAGING, CONTENT AND TASKS 5.2 To implement this project in the best way, it will encompass three separate types of activities: (a) Refresher Courses in Banking Law These will be staged in three modules which will deal with international financial law, material banking law and material financial law; (b) Advisory Assistance (On The Job) Accompanying the refresher courses, which will be offered on a daily basis (in the mornings), the advisory assistance would support normal daily operations in specific areas; (c) Legal Consulting on a Mutually Agreed Basis In areas to be determined, annually. FIRST STAGE 5.3 MODULE 1 International Financial Law (a) Domestic law History of the Mozambican financial system; Origins; Stages; Description; Difficulties; Prospects Banks and quasi-banking establishments; Concept; Description; Listing; The banking system; History; Composition; Regulations; Inspection system Public banking law; Concept; Scope; Regulations The central bank; History; Concept; Scope, structure and functions; Central bank independence; Regulations - 56 - (b) International Law International lending institutions; International monetary system The IMF and the World Bank; History; Objectives; Area of competence; Scope; International agencies linked to the World Bank (IDA, IFC, International Center for the Settlement of Investment Disputes, and others). Their importance; Legal personality; World Bank and IMF by-laws. Their importance; The role of the World Bank and the IMF in the development of third-world countries; Special drawing rights (their role as financial reserve of the international monetary system); International liquidity (concept and importance) Regional financial institutions: ADB, PTA, SADC; History; Description International economic law - the new economic order; International; Meaning and scope; Subjects and principles of international economic law Concept of economic order - new economic order; International; Economic institutions and communities; The generalized system of preference (regional economic integration) On-the-Job Advisory Assistance Area: International relations (c) Second Stage Annual legal consultation for the Legal Department in reviewing and adding financial legislation, in the first year, with other subjects being identified in later years. (d) Third Stage 5.4 MODULE II (a) Material banking law Lending and deposit transactions - banking monopoly; Definition of each; Classification/types/characteristics; Importance/function; Modem trends in classifying lending and deposit transactions (regulations); Bank liquidity (concept and importance) The bank account; client relations; The bank deposit - concept and regulations; Types of deposits; The main legal problems that arise in connection with irregular deposits; Requirements to open bank accounts; Precautions to take in opening bank accounts; Rules and regulations on checks from other markets and endorsed checks Bank credit; Basic aspects of the concept/moral, economic and legal; Types or varieties, their importance; Design criteria/regulations (rules); Concept applicable to contract opening credit; Simple credit; Current account; Term of validity (differences between term of validity and term of use) Bank discount; Types or varieties; Legal nature of credit relations - 57 - Bank loan security; Security for internal credit contracts; Types/importance/execution; International bank security/execution -- For documentary credit, For international loan contracts; Principal types of bank security; International or contractual clauses on equality of creditors in international loans Interest rates; Factors in setting rates; Authority that sets rates. How?; Interest rate patterns in underdeveloped economies (rate-setting system) Credit papers; Meaning/function/characteristics/types; Concept of letter of credit law; Literality/independence; Classification of credit papers; According to the concept of letter of credit or proxy law; According to normal method of circulation; Concept of bill of exchange; Accommodation bill; Essential requirements of the bill; The draft; participants; Concept; Other important legal aspects of the draft; The acceptance; Concept and other important aspects; The endorsement; Concept and legal nature; Other developments in endorsements, e.g., security endorsement; Co-signature, relationship between signer and co-signer; Explanation and legal nature; Other important aspects concerning the bill of exchange; Other credit papers: bills and checks; their importance Prescription and its interruptibn 5.5 ON-THE-JOB ADVISORY ASSISTANCE Areas - Exchange transactions, exchange control and external debt MODULE III (a) Material financial law; Exchange law, payments system; Concept; Relationship between law and exchange; Description; Exchange systems; Payments systems; Secondary foreign exchange market; Regulations applicable to exchange transactions and exchange trade; Other important legal aspects of exchange transactions; Exchange authority Foreign transactions; goods, capital and current invisibles; Principal legal aspects concerning foreign transactions; Documentary credit; History; Concept; Principles of documentary credit; Letter of credit (types); Forms of issue and use; Opening documentary credit; Validity/main documents; Security for letters of credit; Regulations Foreign investment; Forms of investment; Characteristics of each form; Controls on establishment of corporate bodies and their agents; Repatriation of capital; The role of the central bank in foreign investment; Joint ventures, concept, reasons to participate in joint ventures, legal aspects of contracts, disputes and means of resolving them (conciliation, arbitration, forum); Factoring: introduction, concept, usefulness, types, formation and legal aspects, essential clauses, rights and duties, international forum; Franchising: introduction and concept, formation and legal aspects, characteristics, extinction, international forum; Leasing: concept, types, categories, establishment, contracting parties, legal aspects, extinction, international forum, arbitration, standard international leasing contract International financial transactions; Important legal aspects of international loan contracts (negotiation, main clauses and types) - 58 - Resolution of disputes; arbitration; Law applicable to loan contracts Law applicable to technical consulting contracts; international services and technical assistance; Law applicable to other international contracts; Forum for the settlement of disputes; Rules for choosing forum or arbitration venues; Efficacy of arbitral decisions Debt rescheduling; The role of the central bank in debt rescheduling; Can external assets secure the external debt?; Forms of extinguishing external debt; Other important legal aspects concerning external debt rescheduling International Agreements. Area -- Bank supervision DEFINITION OF TASKS 5.6 For the first and third stages of the project the consultants shall; (a) Supervise course preparations, develop manuals, translations, documents, and all materials he considers necessary to offer the courses; (b) Propose the technical qualifications the consultants must have to participate in the training activities; (c) Organize the arrival of the consultants in coordination with the client. 5.7 For the second stage of the project (a) Support the client in identifying the areas and assist in preparing the annual training and advisory activities on a mutually agreed basis; (b) Prepare the list of qualifications for the advisor; (c) Select and purchase legal bibliography or publications needed to support this advisory assistance. - 59 - TERMS OF REFERENCE PROVISION OF SENIOR MANAGEMENT DEVELOPMENT PROGRAM AND CORE PROGRAM IN ECONOMICS INTRODUCTION 6.1 For supporting the implementation of the Financial Sector Reform Program training will be provided for senior and mid-level management at the Banco de Moambique (BM). Important components of the training program are the Senior Management Development Program and the Core Program in Economics for mid-level management. For designing and organizing the training program a contractor will be hired. OBJECTIVES 6.2 The main objectives of the training program are: (a) to up-grade the knowledge and competence of BM staff in the fields of macroeconomics, monetary economics and finance; (b) to facilitate the re-orientation of thinking required for the implementation of the financial sector program and specifically for the transition from direct to indirect monetary control; (c) to strengthen the analytical capacities for that are required for the analysis of economic development and their implications for monetary policy; (d) to provide a common terminology for all departments that would facilitate the communication between departments and help to create a corporate culture within BM. SEMINARS AND COURSES TO BE PROVIDED 6.3 Senior Management Development would consist of four seminars each of which lasts on week (more details on the seminars can be found in the training matrix): (a) Management Policy Seminar; (b) Management and Organization; (c) Bank Supervision for Management; (d) Financial Market Development. 6.4 The Core Program in Economics for mid-level officers consisted of four two week courses on the following topics: (a) Open Economy Macroeconomics; (b) Monetary Economics; - 60 - (c) Economics of Money and Finance; (d) Commercial Banking. 6.5 The courses provide intensive training that require full-time attention of participants. They take place in the morning and afternoon for a block of five to six hours per day. In the courses, lecturing will alternate with practical exercises to apply material learnt. Seminar and courses will take place in Mogambique. The number of participants in a core courses would be about 25. Tests will be taken by participants of the core courses at the end of each course. TUITION 6.6 Seminar and courses would be developed and given by experts in the field. The seminars should be given by senior lecturers with extensive practical experience in the fields. The seminar on Monetary Policy may even be given jointly by a more theoretically oriented lecturer and a practitioner from a central bank. 6.7 Core courses should be given by university lecturers with a good grasp of the practical requirements at a central bank. Each course would be given by an expert in the fields of macroeconomics, monetary policy, finance, and commercial banking. 6.8 Lectures will be given in Portuguese. 6.9 The contractor will select suitable lecturers and support them in the development of courses. In the case of the core courses a lectures will be assisted by a tutor. The tutor will aid the lecturer in the organization of the course and help in the supervision of working groups. If possible a tutor would be chosen from the reaching staff of the local university. An important task for the local tutor would be ensure that conditions specific to Mogambique are incorporated into the teaching. A local tutor also benefits from the participation in the course. The experience should enhance his own teaching of the subject and ideally enable similar courses to be taught by local staff in the future. TASKS OF CONTRACTOR 6.10 The tasks include: (a) design and coordination the overall training program for one year; (b) identification and appointment of qualified lecturers and tutors; (c) briefing of lecturers on the objectives of the training program and supporting them in developing courses that take into account the specific needs of the BM; (d) selection of suitable textbooks and teaching material; (e) preparation of course evaluation sheets and conducting evaluation of the courses after their termination. -61 - TIME SCHEDULE 6.11 The courses should begin as soon after agreement about the terms of reference and insurance of funding as suitable personnel may be appointed to carry out the assignment. 6.12 After the termination of the first set of courses the course outcome will be evaluated. On the basis of this evaluation the training program may be revised before it is repeated in the following year. - 62 - TERMS OF REFERENCE CONSULTANTS FOR AUDIT OF PERSONNEL MANAGEMENT IN BCM AND BPD INTRODUCTION 7.1 Within the Financial Sector Capacity Building credit short term technical assistance and training will be provided to the commercial banks. Human Resource management in the commercial banks is essential for supporting management in its efforts to prepare banks for the needs of financial institutions in a market economy. To strengthen the human resource management already in place - - the short term assistance of two external experts in human resource management in financial institutions is required. OBJECTIVES 7.2 Main objectives of the assignment are to undertake a comprehensive audit of personnel management currently in place at Banco Comercial de Mogambique (BCM) and Banco Popular de Desenvolvimento (BPD) and to design a personnel management system in the two commercial banks that corresponds to the requirements of liberalized financial management in the financial sector. SCOPE OF WORK 7.3 The scope of the work will include: (a) undertake comprehensive audit of personnel management at BCM and BPD; (b) design plan for personnel management in each of the banks and propose information systems for personnel planning; (c) establish job descriptions and performance standards in accordance with the requirements of banks in a liberalized financial environment and develop manpower plans for the banks; (d) undertake audit of skills and competencies of present staff to establish inventory of present stocks of skills, qualification and experience; (e) identify critical gaps in personnel as well as training needs; (f) provide on-the-job training of staff in the manpower department; (g) review in-house training in the two commercial banks and help to develop plan for in- house training under the assumption that the training institute for bank staff (IFBM) will be established in Mogambique, QUALIFICATIONS OF THE CONSULTANTS 7.4 The consultants will have the following qualifications: (a) MBA or comparable degree with specialization in human resource management; - 63 - (b) extensive work experience in the area of human resource management in commercial banks; (c) familiarity with the use of personal computers in human resource management; (d) proficiency in Portuguese and English. ADMINISTRATIVE DETAILS OF THE ASSIGNMENT 7.5 The senior consultants would need to spend an initial period of three months in Mogambique and return to Mogambique after about three to four months for a month to follow-up the project. The external consultants would be assisted by two to three local consultants. The local consultants have the important task to ensure that conditions specific to Mogambique are taken into account. At the same time their participation helps to develop local capacity in this area. - 64 - TERMS OF REFERENCE SHORT-TERM ADVISOR TO HELP BANCO COMERCIAL DE MOC AMBIQUE CLASSIFY ITS ASSETS AND DEVELOP AN INFORMATION (DATA) BASE COMPATIBLE WITH CENTRAL BANK REPORTING STANDARDS INTRODUCTION 8.1 A prerequisite to the reform of the Banco Comercial de Mogambique (BCM) is that this government-owned bank be restructured so as to allow it to commence operations with sound assets and a clear idea of its net equity value. Aside from the classification of assets in the loan portfolio, "Contingent Liabilities under Guarantees" and "Letters of Credit" should also be carefully scrutinized in order to determine items of a doubtful character. With respect to assets and liabilities reflecting inter-branch transit accounts, many of these balances do not match and may never match, even after a full reconciliation. Therefore, once the size of the mismatch is identified, this net amount will need to be written off or otherwise cleared from the accounts. 8.2 After restructuring, periodic (monthly/quarterly) internal monitoring of the BCM's balance sheets and income statements should be carried out as an integral part of the institution's on- going financial management, as well as part of its efforts to comply with the central bank's (Banco de Mogambique - BM) off-site supervisory system. In order for this to be done regularly and systematically, an appropriate data base must be developed to provide necessary balance sheet, off- balance sheet, and earnings information. SCOPE OF WORK TO BE UNDERTAKEN 8.3 Restructuring BCM's portfolio and the development of an in-bank data base will require the technical assistance of an experienced commercial banker. This short-term consultant will stay for a period not less than three months and assist BCM to: (a) analyze the bank's credits, as well as any contingent liabilities arising from off-balance sheet lending, and (b) develop internal reporting forms which are compatible with the reporting standards required by the bank supervisors in BM and useful to the financial management of BCM. 8.4 Initially, the consultant should review existing legislation, statutes and regulations as they pertain to commercial banks in the system. The consultant should also review draft regulations and guidelines on capital adequacy, asset classification and provisioning, as well as asset concentration in order to become better acquainted with the work initiated by the central bank on regulations crucial to commercial bank surveillance. Another important aspect of the process will be to contact the long- term advisor to the Department of Banking Supervision who will be involved in the central bank's development of off-site reporting forms which are being designed to show the financial condition and performance of each bank. These forms will include monthly data on assets, liabilities, and off- balance sheet items, end-of-quarter data on earnings, a quarterly maturity/repricing profile of assets and liabilities, as well as information on asset concentrations and the quality of risk assets. 8.5 When considering the development of an in-house data base, the consultant should think of ratios and growth rates which would serve as tools for BCM to better understand its true financial condition and performance. The set of reporting forms should be accompanied by instructions developed by the consultant which includes clear definitions of all data items requested, plus an explanation of the rationale for each ratio and growth rate requested. In this way, BCM management will learn how to better monitor itself. - 65 - 8.6 Once the user requirements have been defined, appropriate software must be selected to compile and analyze the data. The consultant should be prepared to communicate these user requirements to technical advisors on computer software, so that the resulting database will represent the system as it has been designed and intended. TIMING OF THE WORK 8.7 You will arrive in Maputo and stay for a period of three months. Your time should be allocated in the following manner: (a) During the initial two-week period you should contact the long-term advisor and members of the swat team of examiners with the Department of Supervision of the BM, so as to initiate an ongoing cooperation and interaction with them. Also, you should review existing legislation, draft regulations, and proposed draft off-site reporting forms prepared within the Department of Supervision at the BM. (b) The following four weeks should be devoted to an analysis and classification of BCM loans and any contingent liabilities arising from off-balance sheet lending. (c) During the subsequent four weeks, the consultant should focus on the development of: an internal surveillance system, its design, a written description of the data base, with definitions and interpretations (from a financial management perspective). Also, you should work with technical advisors, assigned to advise on computer software, in order to facilitate the selection of appropriate software to be used to compile and analyze the data. (d) The final two weeks will be a time for you to press forward on all the work you initiated and/or facilitated, so that you will leave BCM with a fully analyzed and classified loan portfolio, as well as a data base which will allow BCM to easily comply with central bank reporting requirements and to provide its own efficient financial management. - 66 - TERMS OF REFERENCE SHORT-TERM ADVISOR TO HELP BANCO POPULAR DE DESENVOLVIMENTO CLASSIFY ITS ASSETS AND DEVELOP AN INFORMATION (DATA) BASE COMPATIBLE WITH CENTRAL BANK REPORTING STANDARDS INTRODUCTION 9.1 A prerequisite to the re.m of the Banco Popular de Desenvolvimento (BPD) is that this government-owned bank be restructured so as to allow it to commence operations with sound assets and a clear idea of its net equity value. Aside from the classification of assets in the loan portfolio, "Contingent Liabilities under Guarantees" and "Letters of Credit" should also be carefully scrutinized in order to determine items of a doubtful character. With respect to assets and liabilities reflecting inter-branch transit accounts, many of these balances do not match and may never match, even after a full reconciliation. Therefore, once the size of the mismatch is identified, this net amount will need to be written off or otherwise cleared from the accounts. 9.2 After restructuring, periodic (monthly/quarterly) internal monitoring of the BPD's balance sheets and income statements should be carried out as an integral part of the institution's on-going financial management, as well- as part of its efforts to comply with the central bank's (Banco de Mogambique - BM) off-site supervisory system. In order for this to be done regularly and systematically, an appropriate data base must be developed to provide necessary balance sheet, off- balance sheet, and earnings information. SCOPE OF WORK TO BE UNDERTAKEN 9.3 Restructuring BPD's portfolio and the development of an in-bank data base will require the technical assistance of an experienced commercial banker. This short-term consultant will stay for a period not less than three months and assist BCM to: (a) analyze the bank's credits, as well as any contingent liabilities arising from off-balance sheet lending, and (b) develop internal reporting forms which are compatible with the reporting standards required by the bank supervisors in BM and useful to the financial management of BPD. 9.4 Initially, the consultant should review existing legislation, statutes and regulations as they pertain to commercial banks in the system. The consultant should also review draft regulations and guidelines on capital adequacy, asset classification and provisioning, as well as asset concentration in order to become better acquainted with the work initiated by the central bank on regulations crucial to commercial bank surveillance. Another important aspect of the process will be to contact the long- term advisor to the Department of Banking Supervision who will be involved in the central bank's development of off-site reporting forms which are being designed to show the financial condition and performance of each bank. These forms will include monthly data on assets, liabilities, and off- balance sheet items, end-of-quarter data on earnings, a quarterly maturity/repricing profile of assets and liabilities, as well as information on asset concentrations and the quality of risk assets. 9.5 When considering the development of an in-house data base, the consultant should think of ratios and growth rates which would serve as tools for BPD to better understand its true financial condition and performance. The set of reporting forms should be accompanied by instructions developed by the consultant which includes clear definitions of all data items requested, plus an explanation of the rationale for each ratio and growth rate requested. In this way, BPD management will learn how to better monitor itself. - 67 - 9.6 Once the user requirements have been defined, appropriate software must be selected to compile and analyze the data. The consultant should be prepared to communicate these user requirements to technical advisors on computer software, so that the resulting database will represent the system as it has been designed and intended. TIMING OF THE WORK 9.7 You will arrive in Maputo and stay for a period of three months. Your time should be allocated in the following manner: (a) During the initial two-week period you should contact the long-term advisor and members of the swat team of examiners with the Department of Supervision of the BM, so as to initiate an ongoing cooperation and interaction with them. Also, you should review existing legislation, draft regulations, and proposed draft off-site reporting forms prepared within the Department of Supervision at the BM. (b) The following four weeks should be devoted to an analysis and classification of BCM loans and any contingent liabilities arising from off-balance sheet lending. (c) During the subsequent four weeks, the consultant should focus on the development of: an internal surveillance system, its design, a written description of the data base, with definitions and interpretations (from a financial management perspective). Also, you should work with technical advisors, assigned to advise on computer software, in order to facilitate the selection of appropriate software to be used to compile and analyze the data. (d) The final two weeks will be a time for you to press forward on all the work you initiated and/or facilitated, so that you will leave BPD with a fully analyzed and classified loan portfolio, as well as a data base which will allow BPD to easily comply with central bank reporting requirements and to provide its own efficient financial management. - 68 - TERMS OF REFERENCE TO DEVELOP A STRATEGIC PLAN FOR BANCO COMERCIAL DE MOCAMBIQUE A. INTRODUCTION 10.1 Banco Comercial de Mogambique was formed at the time of independence from the amalgamation of a number of commercial banking institutions of Portuguese origin. It was also combined with the Portuguese bank which, prior to independence, was undertaking central banking functions in Mozambique. Therefore, the combined institution (Banco de Moqambique) took over both central and commercial banking functions within newly independent Mozambique 10.2 In the early 1990s, the Government commenced a financial sector reform program, the first step of which, was to split the central and commercial banking functions of Banco de Moqambique. The first step in this process was to provide a separate legal status for the two independent institutions, and this occurred in late 1991/early 1992 with the enactment of a new central banking act, a credit institutions act, and a decree covering the operations of the newly formed Banco Comercial de Moqambique (which assumed the commercial banking functions of Banco de Mogambique). 10.3 The splitting of the managements of the two institutions also took place at this stage, and the process of accounting separation was commenced. By mid-1992, the accountancy team working on separating the accounts, produced the first (preliminary) set of accounts for Banco Comercial de Mogambique. Final accounts will be produced towards the end of 1993, and these will subsequently be audited for the fist time, during 1994. Physical separation of the bank will take place in early 1994 with the movement of Banco Comercial de Mogambique from its present headquarters in the central bank's main building in Maputo - to a new headquarters building in a nearby building. B. FINANCIAL REFORM OF BANCO DE MOCAMBIQUE 10.4 Although the data provided by the accountants is only preliminary, it indicates several serious financial problems with the bank. The current balance sheets appears to indicate that the bank will only continue to generate losses, unless important action is taken to stem the main sources of loss in the bank. Of particular concern are the following: (a) A loss difference between total assets and total liabilities in the order of US$120 million (Mt360 billion); (b) Although the reported capital account balance is Mt30 billion -- this has yet to be paid-in by the Government. In addition, if the bank is to meet internationally accepted norms of capital adequacy (as is currently being suggested by the central bank and supported by the World Bank), its capital injection will probably need to be around three times this level; (c) A substantial mismatch exists between foreign liabilities and foreign assets at BCM. Foreign currency deposit liabilities exceed foreign based assets by more than Mt261 billion. Meanwhile, the currency has been depreciating throughout 1993, generating substantial losses; - 69 - (d) A growing, and disproportionately high level of other assets -- which, it is understood, represents various transitory accounts within the bank. This growth has occurred despite the fact that the KPMG accounting team reconciled the majority of these accounts less than twelve months earlier; (e) The fact that Banco Comercial de Mogambique does not appear to hold the minimum statutory reserves as required by law. Holding such a non-remunerative asset, will mean, an even less financially viable position; (f) The fact that the Government may have to make good on a substantial amount of Government guaranteed debt in the banking system which has currently not been provisioned (in the recent set of accounts) and therefore has not been costed as part of the reform (recapitalization) of the bank; (g) The structure and concentration of BCM's loan portfolio to a number of financially weak state-owned enterprises; (h) The fact that BCM appears to rely heavily upon the central bank for liquidity. 10.5 Although the data is only preliminary, it is indicative of a serious problem in the bank. As this information is audited, the exact magnitude of the problem will become clearer. Therefore it is important that the consultant should work closely, and in cooperation with the KPMG Peat Marwick team which is currently developing the accounts of BCM. Nonetheless, the information that is already available is indicative of what must be done. These problems must be addressed urgently. 10.6 The strategic plan would be expected to indicate how the above issues should be addressed - plus identify any further problems, not herein identified. It should indicate priorities in dealing with these problems and make suggestions for change. 10.7 The Strategic Plan will provide clear monitorable benchmarks for dealing with the financial problems in the bank in a clear, precise manner. 10.8 In developing the Strategic Plan, it is important that the consultant consult fully with the management of Banco Comercial de Mogambique, and the staff of the central bank -- so as to develop a common approach to dealing with the financial problems that have been identified. C. OTHER ISSUES FOR REVIEW 10.9 In addition to addressing financial issues within BCM, the consultant will also be expected to work with the management to help develop a long term vision for Banco Comercial de Mogambique - indicating where the bank is headed in Mozambique's changing financial environment. Given the recent moves to encourage greater competition in the banking sector, the impact of the reform process which is increasingly treating all commercial banks in non-differentiated manner, and the increasing financial deregulation in the sector, the plan should address how the bank should be expected to operate in this changing environment. The plan should therefore also address the following; - 70 - (a) Branch reform and rationalization. The consultant will be expected to help develop, in conjunction with the management, a view of what BCM's future branch net work should be like. The Plan should address the rationalization that should take place (if any) and should comment on branch expansion. It will be necessary for the plan to develop systems for assessing the cost effectiveness of BCM's branch structure and make recommendations accordingly. (b) Management reform. The plan should assess the capabilities of current management to implement a program of substantial reform and should recommend how management can be strengthened and how management information systems can be improved to deal with the problems in BCM. (c) Equity participation. The consultant should review the equity participations of BCM and recommend on the future direction of policy with respect to equity participation in both public and private companies. (d) Staffing reform. The Strategic Plan should review current staffing levels in the Banco Comercial de Mogambique and make recommendations for change, as appropriate. The report should provide options for dealing with any staffing changes which it recommends. The report should also focus on human resource development within the bank and recommend on the types of training programs which will need to be put in place to support the bank's activities. (e) Recapitalization. The plan will need to suggest options for recapitalizing the bank. The consultant will be expected to work closely with the staff of the central bank and the Ministry of Finance, on helping to develop possible methods of recapitalization -- including assessing plans which are currently under consideration by the Government. (f) The Consultant will be expected to review the current level of banking services in Banco Comercial de Mogambique and make suggestions for how services can be both improved and expanded. The consultant will be expected to make recommendations on the introduction of "corporate" branches, the introduction of new services and activities, and so on. (g) Privatization. The consultant will be expected to develop a plan which will help "commercialize". This plan should clearly indicate how the bank could become a "privatizable" candidate over the medium term. (h) The consultant will also be expected to identify the additional expert skills that will be required to work within the bank and draft terms of reference for a management consulting team to work in Banco Comercial de Moqambique on a longer term basis. 10.10 To undertake this work, the bank should "cost" its activities -- by breaking the bank down into cost centers. Activities should be costed and recommendations made on whether those making losses should be stopped or modified so as to make them profitable. - 71 - D. TIMING OF THE WORK 10.11 It is expected that this work will take three months -- and should be commenced as soon as possible. The consultant will be expected to involve the managements of both Banco Comercial de Mogambique and Banco de Mogambique in developing the action plan -- developing consensus and understanding on the issues and how they should be addressed. 10.12 The consultant will also be expected to work closely with KPMG Peat Marwick, the accounting firm currently working with the bank to help develop its accounts. Over the period of the assignment, the final accounts for the bank will be made available from the accountants, and the Consultant will be expected to understand fully the accounts, as developed by the accountants, and any differences which may arise from the accounts provided in mid-1993. 10.13 The Strategic Plan must contain "clear monitorable, time bound bench marks" by which its success can be measured. 10.14 The consultant would be expected to discuss a draft of the Strategic Plan with the Government, the management of BCM, and the World Bank during an appraisal mission of the Second Economic Recovery Credit (SERC) in February 1994 and help to finalize an agreed plan shortly thereafter. - 72 - TERMS OF REFERENCE TO DEVELOP A STRATEGIC PLAN FOR BANCO POPULAR DE DESENVOLVIMENTO A. INTRODUCTION 11.1 Banco Popular de Desenvolvimento (BPD) formed at independence from the amalgamation of several commercial/development banking institutions of Portuguese origin. It was established as a development finance institution. It also took over the savings collection role of the post office savings system. 11.2 Banco Popular de Desenvolvimento has a wide reach throughout the Mozambican economy, through its wide range of savings collection posts and its wide branch net work. It has traditionally been a major source of credit to the agricultural sector in Mozambique -- although this has been changing over the 1990s. Agricultural lending now represents around a third of the bank's total loan portfolio. Lending to commerce and industry has correspondingly increased over this period. As a result of these developments, BPD has increasingly assumed the status of a commercial banking entity rather than a development banking institution. 11.3 In the early 1990, the central bank -- Banco de Moqambique -- commenced a vigorous program of financial sector reform. As part of this exercise, the commercial banking functions of BM were split from its central banking functions; Banco Comercial de Moambique was established as a separate entity; and new banks were permitted to enter the market for the first time. At the same time, accountants were retained to help develop the accounts of Banco Popular de Desenvolvimento, so that they could be audited for the first time in 1993. New regulations are also being drafted on provisioning policy, capital adequacy of banks, and exposure limits to single customers (or groups of related customers). 11.4 Banco Popular de Desenvolvimento faces many challenges in the immediate future. It will need to adjust to a fast changing and increasingly deregulated financial environment, within which greater competition will increase the need for cost effective and efficient banking operation. It is therefore essential that BPD develop a longer term vision for its overall development. Such a Strategic Plan will provide the basis for future operations in the bank. B. AREAS OF FOCUS FOR THE STRATEGIC PLAN 11.5 Financial Restructuring. The team of accountants currently working in BPD - - KPMG Peat Marwick - have produced a preliminary balance sheet for the bank. The balance sheet information indicates a difficult financial position for the bank which will require immediate attention and ultimate resolution. Of particular concern, are the following: (a) A loss difference between total assets and total liabilities in the order of US$20-30 million; (b) A high level of non-performing loans in the bank's lending portfolio; - 73 - (c) The bank is currently insufficiently capitalized. If the bank is to meet internationally accepted norms of capital adequacy (as is currently being suggested by the central bank and supported by the World Pank), its apital injection will need to be substantial. (d) A high level of "other assets" which requires resolution; 11.6 Although the data is only preliminary, it is indicative of financial problems within the bank. As this information is audited, the exact magnitude of the problem will become clearer. Therefore it is important that the consultant should work closely, and in cooperation with the KPMG Peat Marwick team which is currently developing the accounts of BPD. Nonetheless, the information that is already available is indicative of what must be done. These problems must be addressed urgently. 11.7 The strategic plan would be expect to indicate how the above issues should be addressed -- plus identify any further problems, not herein identified. It should indicate priorities in dealing with these problems and make suggestions for change. 11.8 The Strategic Plan will provide clear monitorable benchmarks for dealing with the financial problems in the bank in a clear, precise manner. 11.9 In developing the Strategic Plan, it is important that the consultant consult fully with the management of Banco Popular de Desenvolvimento, and the staff of the central bank and the Ministry of Finance -- so as to develop a common approach to dealing with the financial problems that have been identified. 11.10 In addition to addressing financial issues within BPD, the consultant will also be expected to work with the management to help develop a long term vision for Banco Popular de Desenvolvimento -- indicating where the bank is headed in Mozambique's changing financial environment. Given the recent moves to encourage greater competition in the banking sector, the impact of the reform process which is increasingly treating all commercial banks in non-differentiated manner, and the increasing financial deregulation in the sector, the plan should address how the bank should be expected to operate in this changing environment. The plan should therefore also address the following issues. 11.11 Branch reform and rationalization. The consultant will be expected to help develop, in conjunction with the management, a view of what BPD's future branch net work should be like. The Plan should address any rationalization that should take place and should comment on branch expansion. It will be necessary for the plan to develop systems for assessing the cost effectiveness of BPD's branch structure and make recommendations accordingly. It will be important, however, to also take into consideration the important social economic role that BPD's wide branch net work plays in providing even limited banking services to a wide segment of Mozambique's rural population. An appropriate balance will need to be achieved between these two competing objectives. 11.12 Management Review. The plan should assess the capabilities of current management to implement a program of substantial reform and should recommend how management can be strengthened and how management information systems can be improved to deal with the problems in BPD. - 74 - 11.13 Involvement in Foreign Exchange Activities. Although BPD has not had an historical involvement in foreign exchange dealing, it was recently granted a foreign exchange license by the central bank. The consultant will be expected to help develop a plan for how the bank should develop its foreign exchange dealing capabilities -- while not exposing itself to potential exchange fluctuation losses as has been evidenced in other banks operating in Mozambique. 11.14 Equity participation. The consultant should review the equity participations of BPD and recommend on the future direction of policy with respect to equity participation in both public and private companies. In the past, equity involvement by BPD has resulted, in some instances, from the conversion of bank debt into bank equity. This policy should be reviewed and clear guidelines established for entering into future equity participations. Policy for dealing with existing participations should further be assessed. The role of BPD in developing capital markets in this regard should also be reviewed in the light of its recent underwriting activity. 11.15 Staffing reform. The Strategic Plan should review current staffing levels in Banco Popular de Desenvolvimento and make recommendations for change, as appropriate. The report should provide options for dealing with any staffing changes which it recommends. The report should also focus on human resource development within the bank and recommend on the types of training programs which will need to be put in place to support the bank's activities. 11.16 Recapitalization. The plan will need to suggest options for recapitalizing the bank. The consultant will be expected to work closely with the staff of the central bank and the Ministry of Finance, on helping to develop possible methods of recapitalization -- including assessing plans which are currently under consideration by the Government. 11.17 Banking Services. The Consultant will be expected to review the current level of banking services in Banco Popular de Desenvolvimento and make suggestions for how services can be both improved and expanded. The consultant will be expected to make recommendations on the introduction of "corporate" branches, the introduction of new services and activities, and so on. 11.18 Legal Status. The consultant will be expected to review the legal status of Banco Popular de Desenvolvimento and comment on its appropriateness. Currently the bank is a legally a development banking institution. Its activities, however, reflect a more commercial banking orientation. Recommendations on reform - including legal reform - in this area, will be an integral part of the Strategic Plan. 11.19 Development Banking vs Commercial Banking. Related to its legal status, the consultant should address the issue of what BPD can most effectively undertake within the Mozambique economy. Should it be a commercial bank or a development banking institution -- or some combination of the two. Options should be provided and recommendations made for achieving the most desirable outcomes. 11.20 Tax Status of BPD. Currently Banco Popular de Desenvolvimento is not taxed by the State - given its different legal status. Within an increasingly liberalized banking environment, in which banks are increasingly being expected to compete with one another on a level playing field, the consultant should assess the important (or otherwise) of BPD paying tax -- in common with other banking institutions in Mozambique. - 75. 11.21 Commercialization. The consultant will be expected to develop a plan which will help "commercialize" the activities of BPD. Within this plan, the consultant should assess the potential for medium term privatization options for the bank. To undertake this work, the bank should "cost" its activities -- by breaking the bank down into cost centers. Activities should be costed and recommendations made on whether those making losses should be stopped or modified so as to make them profitable. D. TIMING OF THE WORK 11.22 It is expected that this work will take three months - and should be commenced as soon as possible. The consultant will be expected to involve the managements of Banco Popular de Desenvolvimento, Banco de Mogambique, and the Ministry of Finance in developing the action plan - developing consensus and understanding on the issues and how they should be addressed. 11.23 The consultant will also be expected to work closely with KPMG Peat Marwick, the accounting firm currently working with the bank to help develop its accounts. Over the period of the assignment, the final accounts for the bank will be made available from the accountants, and the Consultant will be expected to understand fully the accounts, as developed by the accountants, and any differences which may arise from the accounts provided during 1993. 11.24 The Strategic Plan must contain "clear monitorable, time bound bench marks" by which its success can be measured. 11.25 The consultant would be expected to discuss a draft of the Strategic Plan with the Government, the management of BPD, and the World Bank during an appraisal mission of the Second Economic Recovery Credit (SERC) in February 1994 and help to finalize an agreed plan shortly thereafter. ANNEX V Table 1: Capacity Building Yearly Training Program Banco de Mogambique 1993 1994 1995 1996 1997 1998 Senior Management Development Monetary Policy x x Organization and Management x x Bank Supervision x x Development of Financial Markets x x Core Program Open Economy Macroeconomics x x Monetary Policy x x Economics of Money and Finance x x Commercial Banking x x Specialized Seminars Fundamentals of Bank Supervision x x Topics of Monetary Policy x x Treasury Bills x x Foreign Exchange Operations x x x x x Trade Finance x x x x x IMF Courses x x x x x Advanced Courses in Banking Supervision (FED. World Bank) x x Monetary Policy (Gerzensee, Switzerland) x x Basic Skill Training Accounting x x x x x Table 2: Capacity Building Yearly Training Program Commercial Banks (Figures refer to number of courses given in a year) 1993 1994 1995 1996 1997 1998 Bank Accounting and Financial Accounting Basic Level 4 4 4 4 4 Intennediate Level 2 4 4 4 4 Advanced Level 2 2 2 2 2 Auditing 2 2 2 2 2 Financial/Project Analysis Basic Level 4 4 4 4 4 Advanced Level 2 2 2 2 2 Foreign Exchange Operations Basic Level 2 2 2 2 2 Advanced Level 2 2 2 2 2 Trade Finance 2 2 2 2 2 - 78 - ANNEX VI MOZAMBIQUE Financial Sector Capacity Building Project PERFORMANCE INDICATORS Indlos Year Year 2 Year 3 Yea 4 Year 5 1. Central Bank Traiig_ (a) Basic Lavel Course Full courss ught Second cye of full Thrd cycle of full Fourth cycle of full Fifth cyck of full cour m uh course mught course taughi coursc tauglt (b) Cort Cours Full cours. taught Second Oyele of full No action Third cycle of full No action (25 saf course aught (25> cours taught (25) () Snior Managem~ Cours Fulcours l ght Second cycl of f No scthhn Third cyctle of full No action (10.15 staf cours. (10.1$) cours (10-15) (d) Spocialised Courses Bank Superviion Course tagh (-10) Cours. taught (5) Topics of Montary Policy co ( Coursc taught (5) Trasury Bills Course taugh (5) Courst taught (5) For Operations (IBM) Course ug (10) Course aught (10) Courst taugit (10) Cours aughm (10) Course taught (10) Trade Pitseic (M) Cours (ught (10) Cours ugh (10) Cours ught (10) Cours. tught (10) Course taught (10) (a> Attachmsoesi Fo divd~ Fime lod~l Flme indiiiual Fkve indvivdual Ave ivdividual suh~nas to a attachmania to a atutchmrnts to a attuchmems to a attacments to a foreign cenral bank reg ~ etälbutk. foreign cemtral bank. foreign central bank foreign central bank. (0 Semiar pour semits Four senars Four semisn Four semmars Four seminärs attended attended attended attended attended (g) Postgraduss Studis One saff member Two uff m"bers Two stff mombas Two staff members Two staff members sen for post sett for post sent for post sent for post sent for post gradua i studiet. graduae studios. graduae studies. graduate Studies. graduatc studies. 2. Commerc~al Bank Traning (a) Pundamenials of Bark Crdit Afnlysit Cours. taught twice Cours. ught *hret Course taught twicm Cours. ught twice Course aught twice (40 sf0 mes(Ostafo (40 stao (40 staft (40 staff) (b) Projec AnWysis Techniqub s Cours. taught otte Cours unght thred Cours. tught t wice Course taught twicc Course taught twlca (20 staf> times (60 stffi (40 stf0 (40 staff) (40 staff) (c) Fuwdamnals of Documetary Credi Cos. taught twice Course mught twc Course taugh twic Course taught twsc Course taught twice (40 ~sf (40 ssf (40 stif) (40 ~sa (40 staff) (d) Trade F~uorc Cose. ngt one Cours. taug dm three Cows. taught twice Cours. iught twice Course taught twice (20 staff) tms (40 stf~ (40 stf> (40 stafn (40 staff) (e) Maagemes Trainiug (mid-evel Cours. aught oe Cours. ught ticpm Course taught twe Course taugist orce Course taught once (20 ~sf (40 ~suf (40 sam (20 staft) (20 staf) (0 Managernsn Training (Senir Managseen Cors. tagh once Cours. taughm o n Cours. taughst ouc Cours m maght osce Course taught once (_0_141111205f (20sf(2 (20 msf (20 ttaft) (g) BaicCord coa~e (h) Genra Supor for iFnM 3. S& ~ ~tuin Ladlims~i..æ. () T Co 2 courses tat (8) 2 cooss ught (8> 1 ourse taugh (5) l cours taught (5) 1 course taught (5) atre two the two two (o) Corio Nourial training comupleed professioruls sutap conminue operation conpmue operation -79 - (d) Review of the Foreign Exchange Act completed (e) Exchange Control Regulations De~loped review commenced comIpei (f) Review other Legislation (e.g. Pension and commenced completed Provident Fund Legislation) (g) Review of Money and Capital Markets review commenced copleted Legislation (h) Dissemination of the Law comnmence printed continuc oncelyear continut one/year continue once/year compilation public public public 4. Intitutional Development/fehtieat Ass~ac Bankt Supervision Swat Team work comle~ Bank Supervisr work cofpleted Strategic Plan for 8CM work compleed Isurance Expert work completed Money and Capital Market Expert work completed Treasury Bill Expert work completed Statistics Expert work o Auditing and Accounting work cofmeiwed work ongoing work ongoing work ongoing work ogoing External Management for BCM work commenced ongoing engoing ongong ong 5. ~tde Review of Rural Financial Mechanisms work conmend work ongoing Review of Development of Credit Union work commenced Review of po~ential sourcs of long term finaee work commenced Review of Treaaury Bill Marke work commenced work completed Other studie 6. Project supportlmpementaio Auditin of Project Accoums proje~c em" for prrwerojec^oaco for p w t for project accounts for 1994 audited 1995 audited 1996 audited 1997 audted NolT: Number in pareni rean numer of suff vnima durmga 8padicular par in e ars/fon of naining. PERFORMANCE INDICATORS FOR THE FINANCIAL SECTOR CAPACITY BUILDING CREDIT 1994 1995 1996 1997 1998 1999 Cenal Bank Training Besc Level Course Cora Course Senior Management SpeciaWze Courses .- . I. M MM Attachments Seminars Postgraduate Studes . . Comeim Bank Tro~ning Crodit Analysis Project Analyss.~-. . Documentary Credits Trade Finance Management Traning L Finncil Cé Trainig Courss Seminars and InteMships C> Contorio Notarial Exchange Control Act Exchange C~ntrol Reguatons Review of Insurance Legislation Review of Mney Mkt Legulation. hotkutnola ovelöpen Bank Superv~sion Swat Team Bank Supevsor Strategic Plan for 8CM Insurance Expert Money Market Expert Treasury Sill Expert Statistics Expert Auditing and Accounting Extemal Management for BCM Studies Rural Financial Mechanisms Credit Unons. Long Term Finance Treasury BWi Markets . - 81 - IMPLEMENTATION PLAN FOR THE FINANCIAL SECTOR CAPACITY BUILDING CREDIT, 1. By the end of 1994, the following actions should have taken place/commenced: (a) a banking supervision advisor to assist in strengthening the Banking Supervision Department appointed; (b) the work of the bank supervision swat team completed - with a completed loan portfolio review undertaken for all the commercial banks; (c) a technical expert to assist in strengthening of the foreign exchange departments of the central bank to be appointed; (d) Banco de Moambique to have commenced producing month-end unaudited statement of accounts - with a minimal time lag; (e) A Strategic Plan for Banco Comercial de Morambique to have been completed; (f) A Strategic Plan for Banco Popular de Desenvolvimento to have been completed; (g) Core course in Banco de Mogambique to have commenced; (h) Senior Management Course in Banco de Mogambique to have commenced; (i) Commercial banking training courses to have commenced; (j) Human Resource consultants appointed in the banks. (k) Final audited accounts of the central bank and the two state owned commercial banks to have been completed, and submitted to IDA, for the year ended 1993; (1) The Instituto De Formaglo Bancria de Mogambique (IFBM) to be fully established and operational. 2. By the mddle of 1995 (a) A sadsfactory final draft Foreign Exchange Control Act to have been completed; (b) A comprehensive diagnostic review and action program for the enactment of a regulatory framework pertaining to insurance, pension and provident fund activities to have been completed; (c) First cycle of the Core program and Senior Management Program to have been completed in Banco de Moambique; 3. By the end of 1995 (a) a pilot Treasury Bill auction designed and implemented; - 82 - (b) draft Exchange Control regulations for the commercial banks to have been completed; (c) a comprehensive review and propose a legal and regulatory framework aimed at assisting the development of money and capital market activities to have been completed; (d) an action plan to deal with institutional weaknesses and business environment problems which have an adverse impact on the development of the industrial sector to have been completed; (e) second cycle of training courses to have been completed in Banco de Mo;ambique; (f) second cycle of training courses to have been completed in the commercial banks. (g) Cost recovery on commercial banking courses to have increased from 40 percent in the first year to 60 percent in the second year. 4. By the end of 1996 (a) Cost recovery on commercial banking courses to have increased from 60 percent in the second year to 80 percent in the third year. 5. By the end of 1997 (a) Cost recovery on commercial banking courses to have increased from 80 percent in the third year to 90 percent in the fourth year. 6. By the end of 1998 (a) Cost recovery on commercial banking courses to have increased from 90 percent in the fourth year to full cost recovery by the final year of the project. - 83 - ANNEX VII Page 1 of 2 MOZAMBIQUE Financial Sector Capacity Building Credit Supervision Plan IDA Supervision Input 1. It is envisaged that about 20 staff weeks, per year, will be required for supervision of the Financial Sector Capacity Building (FS CB) credit. Supervision will involve, inter alia, review of training programs, procurement and disbursement actions, correspondence, donor coordination, annual reviews and mid-term reviews of the program. 2. The annual reviews and the mid-term review will form an important formal component of the supervision of the credit. These reviews will assess program performance against agreed bench marks and will adjust the program where necessary. Project modification and redesign will be possible at the time of the mid-term review. 3. Supervision of the credit is most likely to be undertaken in conjunction with the supervision of the Second Economic Recovery Credit (SERC) given the synergies between the two projects. Supervision froa the Resident Mission 4. Given the highly supervision intensive nature of the Financial Sector Capacity Building credit, emphasis will be given to supervising some aspects of the program from the Resident Mission in Maputo. Consequently, efforts are currently in train to recruit a local staff member to work in the Resident Mission to work on the supervision of this, and the adjustment (the Second Economic Recovery Credit), credit. 5. This decentralized supervision will make it possible to have a quick turn around on contract approval, no-objection, procurement and disbursement issues. As implementation capacities are known to be limited in Mozambique, it will be particularly important to have such a capacity based locally, to assist in speeding up project implementation. Borrower's Contribution to Supervision 6. The central bank will take a lead role in supervising the implementation of this program. The members of the Board of the Bank of Mozambique, chaired by the Governor of the central bank (Mr. A. Maleiane), are all coordinators for the sub-components of the Capacity Building credit. The Director of the Human Resources department is the overall project coordinator. 7. The central bank will also be responsible for supervising and incorporating the Ministry of Finance in those aspects of the program with direct relevance to Ministry staff -- particularly legal training for Ministry of Finance personnel. The central bank will also be responsible for coordinating the commercial bank training elements of the program through its membership of the training coordinating committee for the Banker's Training Institute (the IFB). - 84 - ANNEX VII Page 2 of 2 Organization and Timing of Supervision Missions 8. Review missions will be led by the FS CB Task Manager (Senior Financial Economist) and will include staff and/or consultants who are specialists in areas of finance, training, procurement and disbursement. Due to the complimentary nature of this credit with the Economic and Financial Management Technical Assistance credit, close cooperation will be maintained with the task manager for that project within the Country Operations Division of the Southern Africa Department. Given the relevance of trained commercial banking staff to the implementation of other projects with on-lending components, currently in effect, or under preparation by World Bank staff in Mozambique, close cooperation and coordination will also be maintained with relevant task managers to ensure the appropriateness of training under the FS CB in meeting specific project needs. 9. Given the close coincidence of interest in central banking and monetary policy matters, close cooperation will also be maintained with the International Monetary Fund with respect to technical assistance and training related to the central bank. Where appropriate, coordination will also be undertaken with relevant donors (the Governments of France, Portugal, Switzerland, and the United Kingdom - in particular). 10. In addition to regular monitoring of the program by World Bank staff based in Maputo, two to three supervision missions per year are anticipated - with supervision heavier in the earlier years of the project. The initial two missions will take place in May and October 1994. An important task of the initial mission will be the development of an Implementation Manual for the project in conjunction with the Mozambican authorities. This mission will also follow up with the coordinator of the project to ensure that the central bank training programs, and the commercial banking training programs are in place and ready to commence by the second half of the year. Training of legal staff has commenced with funding under the Project Preparation Facility, and it will be neces-ary to ensure that this is proceeding as planned. 11. It will also be necessary during this first supervision mission to ensure that as much of the technical assistance, as is possible, is in place. In particular, work on the two strategic plans for Banco Comercial de Mogambique and Banco Popular de Desenvolvimento should either be completed, or close to completion. Work should also have commenced on going to tender on the management consultancy assistance to help implement the Strategic Plan within Banco Comercial de Mogambique. Outstanding technical assistance requirements within Banco de Mo;ambique should also be in place by this stage. 12. The second supervision mission in 1994 will thereafter be able to focus more on initial reactions to the training undertaken within both the central and the commercial banks. Staff will be surveyed for the appropriateness of courses taught, duration of courses, appropriateness of course material, and provide suggestions as to how course work can be improved. This mission will also focus on the development of a cadre of local trainers, who will be gradually trained to take over from foreign trainers in the implementation of the program. A more complete re iew of the first year of operation, measured against agreed performance benchmarks will then be possible in the first part of 1995 - as part of the Annual Review process. -85- AANNEX VIII Letter of Sector PoHcies BANCO DE MOCAMBIOUE GOVERNADOR of. nQ 354/G/CA/93 Maputo, 01-12-93 Levis Preston, President, World Bank 18l8 Street, N.W., Washington, D.C. 24033, UNITED STATES OF AMERICA Dear Mr. Preston, Letter describing the Government's Capacity Building Program in the Financial Sector The Government of Mozambique, through its central bank (Banco de Mogambique) has embarked upon a program of substantial reform within the financial sector. Support for this program will be requested by the Government of Mozambique, from the International Development Association (IDA), within the context of the Second Economic Recovery Credit (SERC). An important component of financial reform is the development of human resource capabilities operating within the sector. The central bank places important emphasis on developing the capacity of this sector, so that financial services can be provided in an efficient and effective manner, such that the needs of the real sectors of our economy can be met. This is particularly important for Mozambique as we steer through a transition to peace. Two specific areas are of particular importance with respect to capacity building within the sector - central bank training and commercial bank training. Central banking activities in Mozambique have long been compromised by the combination of both commercial and central banking functions within Banco de Mogambique. Since 1987, however, substantial progress has been made on splitting central and commercial banking functions within this institution. Legislation was enacted in early 1992 which created Banco Comercial de Mogambique. Progress is being achieved on the process of cleaning up the BcM accounts and the separation will be completed in early 1994 with the physical separation of the banks. -86- BANCO DE MOIAMBIOUE GOVERNADOR Within this new environment, and within an economy which has been substantially deregulated and liberalized since the reform process commenced in 1987, the staff of the central bank are having to undertake new activities and learn new skills. The development of central banking capacity is crucial to the overall macroeconomic reform program which Mozambique is undertaking. Banco de Mogambique will be required to apply indirect tools of monetary management; exchange control activities have been substantially deregulated and new methods of operating in this liberalized environment will have to be developed by central bank staff; and lastly, banking supervision skills will need to be developed as a matter of urgency - to ensure appropriate review of both the existing banks operating in Mozambique and the new foreign banks which have started operations in our country as a consequence of our new policies which encourage banking sector competition. The development of central banking skills is therefore fundamental to overall macroeconomic management and prudential development of a banking sector which can meet the financing needs of the real sectors of our economy in this new era of peace. It is antecipated that actions to support the development of central banking skills will take place under the proposed Financial Sector Capacity Building credit which has been appraised by the world Bank, and which is likely to be supported by the Governments of Switzerland and the United Kingdom. In addition, it is important that the staff of the commercial banks can perform banking functions for their clients in a timely and effective manner. Skill development in the banks is also very important for the financing of economic activities and growth within our economy. In recognition of the importance of the development of skills in the commercial banks, the central bank has been working closely with the commercial banks resident in M6zambique to help develop both a Banker's Training Institute and a Banker's Association. Significant support has been provided to us in these efforts by the Government of France. As a consequence of this work, it is antecipated that a Banker's Training Institute will be operational by early 1994 with all the banks (including the central bank) operating as joint and equal partners in an effort to better train the staff of our commercial banks - in areas of pertinence to their work. Support for this Institute is also anticipated from the Government of Switzerland, and indirectly by the World Bank - through the Financial Sector Capacity Building Credit - through the provision of short term courses to meet specific skill needs in the banks, which will be run within the Institute. 2 -87- BANCO DE MOQAMBIOUE GOVERNADOR Development of both central and commercial banking skills is accorded the highest priority by the central bank and the Government. Training of staff through formal courses (both short and long) and on-the job training, is an important component of this development of skills. In addition, the transfer of some skills will require the utilization of foreign technical expertise, especially in areas which are new to the banking sector. Consequently, external technical assistance for support of banking supervision activities will be required - as this is a function which has hitherto not existed in Mozambique since independence. However, our policy with respect to such recruitment is that it should contain an important element of training for our local staff - such that skills are properly transferred and local capacity is developed. Terms of reference for any external expertise will place an important emphasis on this issue. Lastly, it will also be important to both deepen broaden the range of financial services and instruments which are available in Mozambique. New institutions will need to be developed and new skills will necessarily have to be acquired. As control within the financial sector increasingly transfers from the public to the private sectors, the development of human resourse capabilities will also increasingly become the responsability of the private sector. Nonetheless, in this transitional phase, strong central bank support and emphasis on skills development and capacity building is considered essential. The proposed World Bank Financial Sector Capacity Building credit is an important component of the overall development of capacity within this sector, and in conjuction with assistance from the Governments of France, Switzerland, Britain, and others, will go a long way to financing real growth potential in our economy as we move towards a new era of peace. Yours sincerely, driano .Maleiane ecM rnor l ' co de Mogambique 3 - 88 - ANNEX IX Page 1 of 1 Summary Table of Consultancy (TA) Support for the Training Components of the FS CB Project (Non-Institutional Development Components) Proposed Technical Estimated Number of Individuals and Classification Brief Description Method of Assistance Cost Number of Man Months of T.A.' Selectioni (long term/short term) Intermediate Level Training $160,000 4 individuals teaching for 11 I.D. Core program course for BM sole in BM (short term) days (course taught twice) staff in macroeconomics, source monetary policy, finance and banking. Superior Level Training in $192,000 4 individuals teaching for 6 I.D. Senior management course for sole BM (short term) days (course taught twice) BM staff in advanced central source banking & management. Specialized Internal Courses $268,000 various I.D. Various short term seminar C.S. for BM (short term) courses taught ov"r five years. Credit Analysis Training for $250,000 1-2 individuals. teaching 8 I.D. Train commercial bank staff in C.S. IFBM (short term) ten day courses over a three credit analysis techniques. year period Project Appraisal Training for $253,000 1-2 individuals, teaching 7 I.D. Train commercial bank staff in C.S. IFBM (short term) fifteen day courses over a project appraisal techniques. three year period Documentary Credits $215,000 1-2 individuals, teaching 6 I.D. Train commercial bank staff in C.S. Training for IFBM (short ten day courses over a three documentary credit techniques. term) year period Trade Finance Tra:ning for $200,000 1-2 individuals, teaching 7 I.D. Train commercial bank staff in C.S. IFBM (short term) ten day courses over a three trade finance techniques. year period Mid-Level Management $140,000 1-2 individuals, teaching 5 I.D. Train mid-level management of C.S. Training for IFBM (short ten day courses over a three commercial banks in term) year period management techniques. Senior Level Management $165,000 1-2 individuals, teaching 5 I.D. Train senior-level management C.S. Training for IFBM (short ten day courses over a three of commercial banks in term) year period management techniques. Legal Firm for BM $1,195,000 ad hoc assistance to the legal I.D. Assist the Legal Department of C.S. (short term) Department of BM - BM to up-date legislation and employed on retainer basis. train legal staff in BM and MoF. ?.$. = PAlicy Suppon. PPIS PMjec Preparatim ami tmplememadn Suppot; ID. - Intiutional Dcvlopmes (Capacity Bwldg). Hence. in tal. tdmical assistance fr I D. - US$3.038,000. CS. * Caapctitive Sdectn NTE Cnaum win he adwrtisel on an amnal tasis.