Statement by Andrei Bugrov at the Board meeting of March 17, 1998

International Bank for Reconstruction and Development 87339 International Development Association International Finance Corportation Multilateral Investment Guarantee Agency FOR OFFICL\L USE ONLY CONFIDEN'TIAL EDS98-105 March 16,1998 Board Meeting of March 17, 1998 Statement by Andrei Bugrov Argentina- CAS Progress Report I would like to thank the Staff for preparing this update on the Argentine CAS implementation and congratulate the Government on its recent achievements. I was pleased to observe that the lending program is on track and that portfolio performance continues to improve. Argentina is now facing the second generation of reforms, a task which is inherently more difficult, and I was extremely glad to note that the Bank is fully aware of the new challenges and responds to them readily by allocating more resources to supervision. Combined with the increased importance of the local mission, this is a good example of the Bank's growing responsiveness to clients' needs. When reading this document, three points came to my mind, and these I would like to share with you. The first one relates to the effects of the East Asian crisis. It is extremely gratifying to see that, at least so far, it had no severe consequences in Argentina, and this in itself is a proof of the robustness of Argentine economy. However the recent crisis is significant in more than one respect: among other things it demonstrates how easily a crisis in the financial sector can destroy some impressive achievements in economic and social development. I therefore fully agree with the assessment that this remains a significant risk, and I would urge the Bank to be extremely vigilant as to the developments in the financial sector around the world. Of course, the expressed willingness to offer quick support in case of external shocks is also very welcome and reassuring. My second observation relates to the persisting problem of inequality and poverty. I find this very disturbing. Even though I am reassured by the Government's clear commitment to the issue -expressed so well in Mr. Nogues's statement- I still believe that it may take a long time before the problem is resolved. Given the strong link between poverty and unemployment in Argentina, labor market policies may hold the answer. In this respect temporary job creation through public works may be useful in the short run, but cannot substitute for a more lasting solution such as improving labor market flexibility. I do think that the reported contribution of public programs to the reduction in the rate of unemployment is quite impressive; however I think it is more important to know whether the participants in these programs are able to reintegrate successfully into the labor market. There is a clear danger of instilling labor market exclusion, a problem that must be articulated and addressed. For example, I would like to know more about the proposed private sector based employment scheme included in the Social Protection IV project. ~f'his document has a restricted distribution and may be used by recipients only in the !;: ::rf::FnFu~s:e of their official duties. Its contents may not otherwise be disclosed without · •. odd Bank \1ll;_, •. orization.  2 More broadly, the policy to promote equity and increase employment should include such components as better education and better infrastructure for development. Both of these concerns are very prominent on the Government's agenda, and these are also the areas where the Bank can usefully participate. Indeed, the project that we are considering today -National Highways Rehabilitation and Maintenance Project- is a good example of this joint program. I hope that this collaboration between the Bank and the Government of Argentina will help the country to achieve its goal of growth with equity. My third and final point refers to the results of the client survey reported in Box 2. The complaint that the Bank is perceived as excessively bureaucratic comes as no surprise, to a certain extent this may be unavoidable, but I certainly hope we can do something to improve the matters somewhat. More shocking is the fact that some of our staff come across as arrogant. This is clearly unacceptable even as an isolated incident. I wonder whether any steps were taken to address this problem, and also whether the results of client surveys elsewhere confirm this finding. As for frequent personnel changes in mid-stream, these are a cause for concern not only in Argentina, and the recent internal changes in the Bank must have worsened the situation - temporarily, we hope. I certainly believe that consistent and stable project teams are essential for effective work as well as for insuring greater accountability within the Bank for the quality of services provided. In conclusion, let me reiterate our support for the ongoing economic reforms in Argentina. I am particularly grateful to Julio Nogues whose detailed statement complements the report we are considering today with the Government's own vision ofthe country's progress. Clearly the way forward in the Bank's collaboration with Argentina lies in building on successes and supporting the programs that have proved their viability, as well as tackling together the new, more complicated challenges of development.