Statement by Mr. Arnaud Chneiweiss at the executive directors' meeting of July 30, 1996

 79878 CONFIDENTIAL International Ba~k for Reconstruction and Development International Development Association International Finance Corporation FOR OFFICI;\ L t:SE O~L Y EDS96-286 July 26, 1996 . Statement by Mr. Arnaud Cbneiweiaa ExegJtjye Directon' M'eetiQ:•.July 30. 199& Subject: Zambia - Second Economic and Social Adjustment Credit. I appreciate Management• s efforts to find a compromise by adding a condition of eifectiveness to this adjlutment credit for Zambia. · Four issues should be considered: 1- Is there my advantage in moving ahead with the credit approval today if actual disbursements are not to take place, say, before late August or early September? An alternative route would have been to await the findings of the joint Fund-Bauk sta1fmission before considering approval of that credit, a.s we all know that it will be VCJY difficult for the Zambian authorities to bring their program back on track. I would have been ready to support this altemative possibility. To approve the proposed credit today, I would be reassured if Management could con!irm that our conditionality would be better managed by using the proposed approach than by delaying credit approval 2- Does the proposed condition of effectiveness meet the main concems expressed by this chair during the last Board meeting? The question is worth asking as I found the condition of effectiveness fonnulated in quite general terms in the updated note on Zambia: - On ZCCM' s privatization program, staff provided me with useful detailed information for deteiiDining whether or not Zambia is satisfactorily implementing the action plan for privatization. I would appreciate it if the staff could circulate the answer I received on this issue: the speci:tic targets meet my expectations; • On the macroeconomic framework, the note needs to be clearer: Zambia cannot meet end-June targets of the ESAF program. We can only assess economic performance against the revised targets established under the staff-monitored program., which are significantly weaker than the original targets. In fact, we are looking foiWard to macroeconomic policies being sufficiently strengthened to permit the Fund to complete its mid- ten:u review, including any further adjustment measures that may require continued shortfalls in external assistance. In sum. while being aware that there is no cross-conditionality between the Bank and the Fund, I would be very reluctant to see IDA money being disbursed for this adjustment credit if no prospects are foreseen for the Fund to resume its disbursements under the ESAF program. This.docu~ent has a restricted distribution and may be used by recipients only in the performance of their ofiictal dut1es. It should not be distributed without the consent of the E.'l:ecutive Director concerned.  -2- 3- Who bears responsibility for assessing Zambia's performance? I find that requesting another Board meeting to assess Zambia,s compliance with the condition of effectiveness would clearly create an inappropriate precedent. In my view, Management is responsible for making this assessment. The Executive Directors' responsibility is to provide guidance to Management in exerting judgement. I consider the kind ofjudgement that was made for the release of the third tranche of the PlRC last June to be clearly unsatisfactory. I would find it more appropriate to request a progress report to Executive Directors that would increase our confidence in the course of policies undertaken in Zambia. 4- Does it make sense to provide balance of payments support to Zambia without a resumption of bilateral assistance which is needed for the reform program to be sustained? In this regard, Management's proposal to chair m infoiiD.al donors meeting is welcome. But, I do not like the political flavor of a request for a po~onement that would be driven by the timetable of resumption of bilateral assistance which is also contingent upon political developments in Zambia. I respect donors' concerns but they should not intedere with our deliberations.