Economies in Transitionieg.worldbankgroup.org/sites/default/files/Data/... · En los países de...

Economies inTransitionAn OED Evaluation of World Bank Assistance

2004The World Bank

Washington, D.C.

W O R L D B A N K O P E R A T I O N S E V A L U A T I O N D E P A R T M E N T

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Library of Congress Cataloging-in-Publication Data.

Galenson, Alice, 1948–Economies in transition : an OED evaluation of World Bank assistance / Alice C. Galenson.

p. cm. — (Operations evaluation studies)Includes bibliographical references.ISBN 0-8213-5934-7

1. Economic assistance—Europe. 2. Economic assistance—Asia. 3. World Bank. I. World Bank, OperationsEvaluation Dept. II. Title. III. World Bank operations evaluation study.

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v Preface

vii Acknowledgments

ix Foreword, Prólogo, Avant-Propos

xv Executive Summary, Résumen, Résumé Analytique

xxxix Abbreviations and Acronyms

1 1. Strategy, Implementation, and Outcome1 Bank Strategy2 Implementation4 Outcome

13 2. Thematic Findings15 Private Sector Development 20 Governance, Public Sector Management, and Institution Building 25 Financial Sector 29 Social Protection 34 Energy

39 3. Lessons and Recommendations

43 Annexes45 A: Supplementary Tables61 B: CAE Lessons and New CASs65 C: People Interviewed69 D: Management Response79 E: Chairperson’s Summary: Committee on Development Effectiveness

(CODE)

83 Endnotes

89 Bibliography

Boxes9 1.1 CAE Lessons and the CAS Record11 1.2 Borrowers’ Views of Economic and Sector Work 14 2.1 Reforming Agricultural Policy in Transition Economies

Contents

14 2.2 Supporting a Healthy Transition: Evidence from Selected Countries16 2.3 IFC’s Support to Transition Economies 17 2.4 MIGA Operations in Transition Economies21 2.5 Lessons from Transition—The First Ten Years

24 2.6 Reducing Corruption through E-Government in India25 2.7 Ukraine—Strengthening Civil Society31 2.8 Hungary—Promoting Public Debate on Pension Reform40 3.1 Stakeholder Participation 41 3.2 Aid Coordination

Figures3 1.1 Lending by Subregion, FY89–033 1.2 Commitments by Instrument, FY89–034 1.3 Commitments and Projects by Sector, FY89–035 1.4 Capital Flows by Source, 1989–016 1.5 Real GDP Changes, by Group of Countries, 1990–026 1.6 Present Value of Debt as Percentage of GNI, CIS, 20017 1.7 Change in Life Expectancy at Birth, 1990–018 1.8 Number of Countries Achieving Substantial Progress (Rating 3 and

Above), 1994–0310 1.9 Project Ratings by Country Group and Bankwide, Approved FY89–0315 2.1 Private Sector Share of GDP, 200222 2.2 Improvements in Governance Indicators, 1996–0227 2.3 Change in Domestic Credit to Private Sector, 1993/95 to 200231 2.4 Poverty Headcount Index ($2.15/day), Latest Year, 1995–9936 2.5 Change in GDP per Unit of Energy Use, 1992–00, and Energy Reform

Score, 1998

E C O N O M I E S I N T R A N S I T I O N

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Preface

This evaluation examines the Bank’s assistance to the transition economiesof the Europe and Central Asia Region since 1989. It is largely a meta-evaluation of Bank products and services in the transition countries,

based on existing evaluative material—Country Assistance Evaluations (CAEs),Project Performance Assessment Reports (PPARs), Project and Implementa-tion Completion Reports (PCRs, ICRs), Quality Assurance Group (QAG) dataand reports, OED sectoral and thematic studies, and Bank- executed client sur-veys—as well as on other Bank strategic and project documents, economicand sector work, interviews, and literature from outside of the Bank. IFC andMIGA contributed information on their programs in the transition countries.

A series of background reports was commis-sioned for this study; they are noted in the Bib-liography. A review of the literature captures therange of views on the Bank’s role in supportingthe transition, including alternative perspectiveson methods of privatization. A Working Paper as-sesses the policies followed by the transitioncountries and the extent to which known alter-natives might have resulted in superior out-comes. Another Working Paper reviewsprivatization and enterprise reform from thepoint of view of a Bank insider, elucidating thestates of mind that prevailed in selected coun-tries, the perceptions of the Bank at varioustimes, the initial conditions faced by reformersand those who assisted them, and the policyframeworks that evolved. To complement thecountry-level evaluative material in CAEs and

PPARs, and to learn more about Bank assistancefrom the point of view of the borrowers, paperswere commissioned from former government of-ficials and researchers in Hungary, Kazakhstan,and Poland; additional country views were foundin Bank client surveys and in comments sub-mitted by borrowers on CAEs and PPARs. Finally,five papers cover selected themes in depth: eachone analyzes a particular area of Bank assistanceto determine its expected contribution to the ob-jectives of transition, the instruments used, andthe relative success of these instruments inachieving the objectives.

An entry workshop was held in Washington onMay 15, 2002. Speakers included experts fromHungary, Kazakhstan, Poland, and Russia; coun-try and sectoral specialists from inside and out-side the Bank; executive directors of the Bank

representing transition countries; and Bank andIMF staff. A transcript of the workshop is avail-able on OED’s Web site.

This evaluation was financed in part by a grantfrom the Swiss Agency for Development andCooperation (SDC) under the Bank-SDC Part-nership Program on Development Effectivenessthrough Evaluation.


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Acknowledgments

The task manager for this report was AliceGalenson. Thematic background paperswere prepared by Robin Bates (energy),

Raj Desai (private sector development), PierreLandell-Mills (governance and public sector man-agement), Fred Levy (financial sector), andLawrence Thompson (social protection). Addi-tional papers were written by Bruce Kogut andAndrew Spicer (review of the literature), JohnNellis (the World Bank’s role in privatization andenterprise reform), and Jan Svejnar (alternativepolicies). Views from borrowers were preparedby Gusztáv Báger (Hungary); Barbara Blaszczyk,Jacek Cukrowski, and Joanna Siwiñska (Poland);and Oraz Jandosov (Kazakhstan).

Two internal peer reviewers—ChristopherGerrard and Roberto Rocha—and four externalpeer reviewers—Marek Dabrowski (DeputyChairman, Center for Social and Economic Re-search, Warsaw, Poland), Peter Murrell (Profes-sor of Economics and Chair of the AcademicCouncil of the Center for Institutional Reformand the Informal Sector, University of Maryland),Vanessa Mitchell-Thompson (Principal Econo-

mist, EBRD), and Ivan Szegvari (Senior Econo-mist, EBRD)—contributed detailed and valuablecomments on the background papers and thefinal report. The study also benefited from theadvice and support of Ruben Lamdany, formermanager of the Country Evaluation and RegionalRelations group of OED, and from many staffmembers of OED.

The financial support of the Swiss Agency forDevelopment and Cooperation, along with theirconstructive comments on the background pa-pers, is gratefully acknowledged.

OED received comments on an earlier draft ofthe report and on the background papers fromthe Bank’s Europe and Central Asia (ECA) Re-gional management and from a number of cur-rent and former Bank staff involved in the Bank’sassistance program to the transition countries.

Olga Vybornaia, Anar Omarova, DanutaDanilova, and Gulmira Karaguishiyeva providedstatistical and research assistance; and SilvanaValle and Janice Joshi, administrative support.Caroline McEuen edited the report for publi-cation.

Director-General, Operations Evaluation: Gregory K. Ingram

Director, Operations Evaluation Department:Ajay Chhibber

Senior Manager, Country Evaluation andRegional Relations: R. Kyle Peters

Task Manager: Alice Galenson

PRÓLOGO

Tras la división de la Unión So-viética, gran parte de Europa y Asiacentral experimentó cambios políti-cos, económicos y sociales sin pre-cedentes. Esa transición planteóenormes desafíos, entre ellos profun-dos trastornos económicos, graves dis-torsiones del comercio y la falta deinstituciones orientadas al mercado.Como se había pronosticado, el PIBsufrió una brusca caída al comienzodel período. En los países de Europacentral y oriental, la recesión vincu-lada a la transición fue relativamentemoderada, pero en la CEI (Comunidadde Estados Independientes), el PIB dis-minuyó en promedio más del 40%, yse registró un marcado aumento de lapobreza y la desigualdad. Ninguno delos países miembros de la CEI ha re-cuperado aún su PIB per cápita ante-rior a la transición.

El Banco Mundial, en colabora-ción con el FMI, la Unión Europea(UE) y otros donantes, se prepararonrápidamente para respaldar la esta-bilización macroeconómica y la re-forma estructural. Muchos países entransición lograron liberalizar los pre-cios y el comercio en poco tiempo.Las privatizaciones en pequeña es-cala ya han prácticamente terminado,y en la mayoría de los países está enmarcha un proceso de privatizacionesen gran escala. Si bien los progresosen lo que respecta a la reforma delsector financiero, la reforma del sec-tor público, los sistemas de protec-ción social, la reestructuración de lasempresas y la política de competen-cia han sido lentos, se observa una

AVANT-PROPOS

Une grande partie de l’Europeet de l’Asie centrale a été le théâtre detransformations politiques, écono-miques et sociales sans précédentaprès l’éclatement de l’Union sovié-tique. Les obstacles à surmonter aucours de cette transition étaient consi-dérables : graves distorsions écono-miques, perturbations majeures au plancommercial et absence totale d’insti-tutions favorisant les mécanismes dumarché. Comme prévu, le PIB a brus-quement chuté au début de cette pé-riode. Dans les pays d’Europe centraleet orientale, les effets récessifs de latransition ont été plutôt superficiels,mais dans le Commonwealth des Étatsindépendants (CEI), le PIB a baissé deplus de 40 % en moyenne, et la pauvretéet les inégalités se sont nettement ac-crues. Dans aucun pays du CEI, le PIBpar habitant n’a encore retrouvé le ni-veau d’avant la transition.

La Banque mondiale, en collabo-ration avec le Fonds monétaire inter-national (FMI), l’Union européenne(UE) et d’autres bailleurs de fonds,s’est rapidement préparée à contri-buer à la stabilisation économique etaux réformes structurelles. De nom-breux pays en transition ont rapide-ment libéralisé les prix et le commerce.La privatisation des petites entreprisestouche à sa fin et la plupart des paysont entrepris de privatiser leursgrandes entreprises. Dans d’autresdomaines, comme le secteur finan-cier, le secteur public, la protection so-ciale, la restructuration des entrepriseset la politique de la concurrence, lesprogrès sont moins rapides, mais l’évo-

FOREWORD

Much of Europe and CentralAsia faced unprecedented political,economic, and social change after the break-up of the Soviet Union. Thechallenges to the transition were for-midable, including deep economic dis-tortions, major trade disruptions, andthe absence of market-oriented insti-tutions. As was foreseen, GDP fellsharply at the beginning of the period.In the Central and Eastern Europeancountries, the transition recession wasrelatively shallow, but in the CIS (Com-monwealth of Independent States), GDPfell an average of over 40 percent, andpoverty and inequality increasedsharply. No CIS country has yet re-gained its pre-transition per capita GDP.

The World Bank, in collaborationwith the IMF, the European Union(EU), and other donors, geared uprapidly to support macroeconomicstabilization and structural reform.Many transition countries quicklyaccomplished price and trade liber-alization. Small-scale privatization isvirtually complete, and large-scaleprivatization is under way in mostcountries. While progress has beenslower in financial sector reform,public sector reform, social protec-tion, enterprise restructuring, andcompetition policy, the trend is up-ward. The private sector share ofGDP across the transition countriesis nearly 70 percent, and eight Cen-tral and Eastern European and Balticcountries have joined the EU. Muchhas been achieved, but much re-mains to be completed, especially inthe CIS countries.

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In assessing the effective-ness of Bank assistance, itmust be recognized that thecollapse of the Soviet Unionand the ensuing transitiontook place with little warn-ing and on an unparalleledscale. Political pressures com-

pelled the Bank to move quickly andlend large amounts. Staff were fre-quently confronted with the needto act, often under difficult circum-stances, in the absence of relevantexperience or country knowledge,learning along the way.

Overall, Bank assistance to thetransition countries has been suc-cessful, but there were mistakesearly on when the true nature oftransition was not fully understood.Not unexpectedly, the Bank’s evolv-ing knowledge and the rapidlychanging circumstances led to manymid-course corrections. The strat-egy was to promote macroeconomicstability and sound economic man-agement; reorient and strengthenpublic sector institutions; build thebasic institutions of a market econ-omy and an enabling environmentfor private sector initiatives; andcushion the social cost of the tran-sition. These objectives were rele-vant, but effectiveness was limited byan initial underestimation of theneed to focus on poverty alleviationand good governance and the use ofrapid privatization to promote pri-vate sector development (PSD) with-out a supporting legal and in-stitutional framework. Lending wasbased on the expectation of a short,shallow transition recession; the pro-longed recession in some CIS coun-tries led to the accumulation ofsignificant levels of indebtedness.The Bank internalized emerging les-sons and shifted its emphasis ac-

tendencia ascendente. Entodos los países en transición,la cuota del PIB correspon-diente al sector privado es decasi 70%, y los ocho países deEuropa central y oriental y delBáltico están listos para in-corporarse a la UE. Es mucho

lo que se ha logrado, pero aún quedauna larga lista de cuestiones pen-dientes, sobre todo en los países dela CEI.

Al evaluar la eficacia de la asisten-cia prestada por el Banco Mundial, espreciso reconocer que el colapso dela Unión Soviética y la transición sub-siguiente se produjeron en formabastante sorpresiva y a una escala sinparangón. Las presiones políticas obli-garon al Banco a actuar con rapidezy prestar grandes cantidades de di-nero. El personal se vio muchas vecesen la necesidad de actuar, a menudoen circunstancias difíciles, sin la de-bida experiencia o el conocimientosuficiente del país, por lo que debióaprender sobre la marcha.

En términos generales, la asisten-cia prestada por el Banco a los paísescon economías en transición ha sidosatisfactoria, pero se cometieron erro-res al principio, cuando no se teníauna comprensión cabal de la verda-dera índole de la transición. Como erade esperar, a medida que evolucio-naban los conocimientos del Bancoy las circunstancias cambiaban rápi-damente, fue necesario introducirmuchas correcciones sobre la mar-cha. La estrategia consistió en pro-mover la estabilidad macroeconómicay una gestión económica racional;reorientar y fortalecer las institucio-nes del sector público; crear las ins-tituciones básicas de una economíade mercado y un entorno propiciopara las iniciativas del sector privado,y amortiguar los efectos del costo

lution actuelle laisse bien pré-sager de l’avenir. La part dusecteur privé dans le PIB del’ensemble des pays en transi-tion est de 70 %, et huit paysbaltes et d’Europe centrale etorientale sont sur le point d’en-trer dans l’UE. Des progrès

importants ont été réalisés, mais ilreste beaucoup à faire, surtout dans lespays du CEI.

Pour évaluer l’efficacité de l’aidede la Banque, il ne faut pas perdrede vue que l’effondrement del’Union soviétique et la transitionqui s’en est suivie sont intervenussans beaucoup de préavis et ont euune ampleur sans précédent. Sousla pression d’impératifs politiques, laBanque a dû agir vite et prêter dessommes importantes. Ses servicesont fréquemment été contraints d’in-tervenir dans des conditions sou-vent difficiles, apprenant sur le tas,sans avoir acquis l’expérience ni laconnaissance nécessaires des pays.

Globalement l’aide de la Banqueaux pays en transition est concluantemême si des erreurs ont été com-mises initialement lorsque la véri-table nature de la transition n’étaitpas encore parfaitement connue. Onne peut donc s’étonner que lesconnaissances accumulées par laBanque et l’évolution rapide de lasituation aient conduit à rectifier lecap à plusieurs reprises au fil dutemps. La stratégie a été d’encoura-ger la stabilité macroéconomique,favoriser une gestion économiquesolide, réorienter et renforcer lesinstitutions du secteur public, mettreen place les rouages essentiels d’uneéconomie de marché, créer un en-vironnement favorable au secteurprivé et amortir le coût social de latransition. Ces objectifs étaient bons,mais deux facteurs ont limité l’effi-


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cordingly: poverty monitor-ing and alleviation and goodgovernance are now promi-nent objectives in both lend-ing and analytical work, andthe approach to privatizationand PSD has evolved con-siderably.

The following recommendationsemerged from a detailed study ofPSD, governance, public sector man-agement (PSM) and institution build-ing, the financial sector, socialprotection, and energy in the tran-sition economies:

• Legal and judicial reform, with anemphasis on implementation, iscritical for improvements in thebusiness climate, the financial sec-tor, social protection, and gover-nance in general.

• Financial sector lending shouldbe conditioned on progress in en-forcing prudential regulations andinternational accounting stan-dards, and raising the effective-ness of bank supervision. Trainingof bank supervisors, judges, audi-tors, and other skilled profes-sionals needed to make the systemwork should be a priority.

• In the energy sector improvedcommercial performance and cor-porate governance are priorities.The sequencing of reforms, in-cluding the feasibility of immedi-ate privatization, depends oncountry circumstances.

• Privatization of large enterprisesshould focus on encouraging acarefully prepared, transparent,competitive process, open to for-eign participation.

• A strategic approach, distin-guished by the capacity of thecountry, is needed for pension re-form and for better targeting of

social de la transición. Estosobjetivos eran acertados, perola eficacia se vio limitada poruna subestimación inicial dela necesidad de centrar laatención en el alivio de la po-breza y una buena gestión degobierno, y por el recurso a

las privatizaciones rápidas para fo-mentar el desarrollo del sector pri-vado sin un marco jurídico einstitucional que lo sustentara. El fi-nanciamiento se basó en la creenciade que la recesión vinculada a la tran-sición sería corta y moderada; la pro-longada recesión en algunos paísesde la CEI dio lugar a la acumulaciónde altos niveles de endeudamiento.El Banco internalizó las nuevas en-señanzas recogidas y cambió su en-foque para adecuarlo a ellas: lavigilancia y el alivio de la pobreza y labuena gestión de gobierno son ac-tualmente objetivos primordialestanto de la concesión de préstamoscomo de la labor analítica, y la formade encarar las privatizaciones y el de-sarrollo del sector privado ha evolu-cionado considerablemente.

Las recomendaciones siguientessurgieron de un estudio detalladodel desarrollo del sector privado, lagestión de gobierno, la administra-ción del sector público y el fortaleci-miento institucional, el sectorfinanciero, los sistemas de protec-ción social y la energía en los paísescon economías en transición:

• La reforma legal y judicial, cen-trada en el cumplimiento, son fun-damentales para mejorar el climacomercial, el sector financiero, lossistemas de protección social y lagestión de gobierno en general.

• Los préstamos al sector financierodeberían condicionarse a los pro-gresos en la aplicación de regla-

cacité de la stratégie : la né-cessité de privilégier systé-matiquement la lutte contrela pauvreté et la bonne gou-vernance a été sous-estimée,et, en l’absence d’un cadrelégal et institutionnel propice,l’effort de développement du

secteur privé par la privatisation ra-pide des entreprises n’a pas toujoursporté les fruits attendus. Le volumede prêt reposait sur l’hypothèsed’une récession superficielle etéphémère liée à la transition. Danscertains pays du CEI, la longue ré-cession a conduit à un niveau d’en-dettement élevé. La Banque ainternalisé les enseignements se dé-gageant de ses interventions et a re-centré son action en conséquence.Le suivi et la réduction de la pau-vreté, tout comme la bonne gou-vernance, sont aujourd’hui au cœurdes opérations de prêt et du travaild’analyse, et la façon d’aborder laprivatisation et le développementdu secteur privé a considérablementévolué.

Les recommandations suivantessont le fruit d’une étude détailléedu développement du secteur privé; de la gouvernance, de la gestion dusecteur privé et du renforcementdes institutions ; du secteur financier; de la protection sociale ; et del’énergie dans les pays en transition.

• La réforme du système juridiqueet judiciaire est d’une importancecritique pour améliorer le climatdes affaires, le secteur financier,la protection sociale et la gou-vernance en général. L’accent doitêtre placé sur l’application de lalégislation.

• Dans le secteur financier, l’octroide prêts devrait être subordonnéà la réalisation de progrès dans

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other social assistance pro-grams.

The study presents a num-ber of findings that cut acrosssectors and lend themselvesto recommendations that arebroadly applicable, not only

to the transition countries, but tomany others as well:

• When the Bank begins to work ina country––or after a long hia-tus––lending should be held toprudent levels until a solid knowl-edge base is established, withconvincing evidence of govern-ment and societal ownership ofthe programs.

• The rate of progress of any reformis largely determined by govern-ment ownership, and a well-in-formed civil society can become amajor driver for change. Countryassistance strategies should pro-mote ownership and consensusfor reform through capacity build-ing for governments and civil so-ciety and through analysis of thepolitical, social, and economicprocesses that affect stakeholderbehavior. Recent Bank initiativespromoting stakeholder awarenessand participation in several coun-tries bear wider replication.

• A comprehensive, long-term ap-proach is needed in developingstrategies for institutional changeand PSM reform. Analytical workon governance and PSM shouldprecede large amounts of Banklending, particularly where prob-lems are likely to affect assistanceprograms.

• Economic and sector work canserve to increase knowledge andtrain researchers; its quality in thetransition countries has been high,

mentaciones prudentes y nor-mas internacionales de con-tabilidad y a una supervisiónmás eficaz del sistema banca-rio. Debería asignarse priori-dad a la capacitación desupervisores de los bancos,jueces, auditores y otros pro-

fesionales idóneos necesarios paraque el sistema funcione.

• En el sector de la energía es prio-ritario mejorar el desempeño co-mercial y el gobierno de lasempresas. El orden en que debenintroducirse las reformas, así comola factibilidad de la privatización in-mediata, dependen de las cir-cunstancias de cada país.

• La privatización de las grandes em-presas debería hacer hincapié enalentar un proceso de licitacióncuidadosamente preparado, trans-parente y competitivo, abierto ala participación extranjera.

• Es necesario adoptar un enfoqueestratégico que distinga según lacapacidad de cada país, para la re-forma del sistema de pensiones ypara mejorar la orientación de otrosprogramas de asistencia social.

El estudio expone una serie deconclusiones pertinentes a varios sec-tores y que permiten formular reco-mendaciones aplicables en un planomás amplio, no solamente a los paí-ses en transición sino también a mu-chos otros:

• Cuando el Banco comienza a tra-bajar en un país ––o después deun largo período de inactividad––,el monto de los préstamos debe-ría mantenerse dentro de límitesprudentes, hasta que se haya es-tablecido una base de conoci-mientos sólidos, con pruebasconvincentes de que el gobierno

l’application des réglemen-tations prudentielles et desnormes comptables interna-tionales ainsi qu’à une plusgrande efficacité du contrôlebancaire. La formation despersonnes chargées d’exer-cer un contrôle bancaire, des

juges, des auditeurs et des autresprofessionnels nécessaires dansce secteur doit être une priorité.

• Dans le secteur de l’énergie,l’amélioration des résultats com-merciaux et du gouvernementd’entreprise sont des priorités.L’ordre dans lequel doivent sefaire les réformes, notamment lafaisabilité d’une privatisation im-médiate, dépend des conditionsparticulières de chaque pays.

• La privatisation des grandes en-treprises doit s’articuler sur unmécanisme soigneusement pré-paré, transparent et ouvert à laconcurrence, y compris étran-gère.

• Il faut arrêter une stratégie claire,adaptée aux capacités propres àchaque pays, pour réformer lerégime des retraites et pour amé-liorer le ciblage des autres pro-grammes d’aide sociale.

La présente étude débouche surplusieurs conclusions recoupant di-vers domaines d’intervention etconduisant à des recommandationsapplicables de façon très généralenon seulement aux pays en transi-tion mais également à bien d’autrespays.

• Lorsque la Banque entame pourla première fois des activités dansun pays — ou lorsqu’elle y re-prend ses activités après unelongue interruption —, la plusgrande prudence est de rigueur


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but its impact on the countrydialogue might have beengreater had it been more rel-evant and timely.•Greater transparency can in-crease public accountabilityand discourage corruption.The Bank needs to implement

fully its own disclosure policiesand disseminate its analyticalwork, and encourage govern-ments to report more regularlyand fully to both their parliamentsand the public.

• The Bank can be better preparedto identify and address rapidlygrowing poverty by giving highpriority to the monitoring ofpoverty levels from the beginningof its involvement in a country.

• Aid coordination can increase theeffectiveness of all assistance. Re-cipient governments should leadaid coordination, with donors help-ing them define clear developmentstrategies, including monitorableaction plans for implementation.

y la sociedad se identificancon los programas.• El grado de progreso decualquier reforma dependeen gran parte de que el go-bierno sienta esa reformacomo propia, y una sociedadcivil bien informada puede

convertirse en una importantefuerza impulsora del cambio. Lasestrategias de asistencia a los paí-ses deberían promover el sentidode identificación y el consenso entorno a las reformas, mediante elfortalecimiento de la capacidad delos gobiernos y de la sociedad civily el análisis de los procesos políti-cos, sociales y económicos queafectan el comportamiento de laspartes interesadas. Las iniciativasrecientes del Banco que promue-ven la sensibilización y la partici-pación de las partes interesadasen varios países merecen ser apli-cadas en forma más generalizada.

• La elaboración de estrategias parael cambio institucional y la reformade la administración del sectorpúblico deben encararse con uncriterio amplio y a largo plazo. ElBanco debe hacer un análisis de lagestión de gobierno y la adminis-tración del sector público antesde otorgar préstamos, en parti-cular cuando existe la probabilidadde que los problemas afecten losprogramas de asistencia.

• Las actividades económicas y sec-toriales pueden servir para am-pliar los conocimientos y capacitarinvestigadores; su calidad en lospaíses en transición ha sido alta,pero su influencia en el diálogo na-cional podría haber sido mayor sihubiera sido más pertinente yoportuna.

• Una mayor transparencia puedemejorar la rendición de cuentas en

dans l’octroi des prêts aussilongtemps que l’on ne dis-pose pas de connaissancessolides ni d’éléments per-mettant d’établir clairementque les pouvoirs publics etla société reprennent les ac-tions menées à leur propre

compte.• Le rythme de progression des ré-

formes dépend pour beaucoupde l’adhésion des pouvoirs pu-blics, et une société civile bieninformé, peut devenir un puis-sant facteur de changement. Lesstratégies d’aide-pays doivent fa-voriser l’appropriation des ré-formes et l’émergence d’unconsensus, par le biais d’un ren-forcement des capacités des pou-voirs publics et de la société civileet d’une analyse des processuspolitiques, sociaux et écono-miques ayant une incidence sur lecomportement des parties pre-nantes. Les récentes initiatives dela Banque ayant pour objet desusciter une prise de consciencede la part des parties prenantes etd’encourager leur participationdans plusieurs pays devraient êtrelargement reproduites.

• La transformation des institutionset la réforme de la gestion du sec-teur public doit s’inscrire dansune stratégie globale à longterme. Un travail analytique sur lagouvernance et la gestion du sec-teur public doit être effectuéavant que la Banque ne décided’octroyer des prêts importants,surtout lorsque des problèmesrisquent de porter atteinte auxprogrammes d’aide.

• Le travail économique et sectorielpeut servir à renforcer lesconnaissances et à former deschercheurs. Il a été de qualité

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el sector público y desalentarla corrupción. El Banco debeaplicar plenamente sus pro-pias políticas de libre accesoa la información y difundir sulabor analítica, como así tam-bién alentar a los gobiernos apresentar informes más com-

pletos y periódicos a sus parla-mentos y al público.

• El Banco puede estar mejor pre-parado para detectar rápidamenteun aumento de la pobreza y tomarmedidas paliativas si asigna mayorprioridad al seguimiento de losniveles de pobreza desde el co-mienzo de su actuación en un país.

• La coordinación de la ayuda puedeaumentar la eficacia de toda la asis-tencia. Los gobiernos receptoresdeberían dirigir la coordinaciónde la ayuda, con la colaboración delos donantes en cuanto a definirestrategias claras de desarrollo,incluidos planes de acción para laaplicación susceptibles de segui-miento.

dans les pays en transition,mais son impact sur le dia-logue avec les pays aurait puêtre plus important s’il avaitété plus pertinent et s’il étaitvenu plus à son heure.• Une plus grande transpa-rence peut aider à responsa-

biliser le secteur public et àprévenir la corruption. La Banquedoit appliquer systématiquementsa propre politique de diffusionde l’information et faire connaîtreson travail d’analyse. Elle doitaussi encourager les autorités àfaire rapport de façon plus régu-lière et plus complète au corpslégislatif et à la population.

• La Banque sera mieux à mêmed’identifier et de combattre lamontée rapide de la pauvreté sielle s’attache davantage à en sur-veiller les niveaux dès le com-mencement de ses activités dansun pays.

• La coordination de l’aide peutcontribuer à renforcer l’efficacitéde tout le dispositif d’aide. Lesgouvernements bénéficiaires doi-vent piloter la coordination del’aide, les bailleurs de fonds sechargeant de les aider à définirdes stratégies de développementclaires et notamment des plansd’action vérifiables.


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Gregory K. Ingram Director-General, Operations Evaluation

RÉSUMÉ ANALYTIQUE

Depuis 1989, début de l’écla-tement de l’Union soviétique, unegrande partie de la région Europe etAsie centrale (ECA), est le théâtre detransformations politiques, écono-miques et sociales sans précédent,souvent regroupées sous le vocabletransition. Les obstacles à surmonterétaient considérables : graves distor-sions économiques, perturbations ma-jeures au plan commercial et absencetotale d’institutions favorisant les mé-canismes du marché. Comme prévu,le produit intérieur brut (PIB) a brus-quement chuté au début de cette pé-riode. Dans les pays d’Europe centraleet orientale (PECO), les effets récessifsde la transition ont été plutôt superfi-ciels et éphémères. En moyenne, lePIB a reculé de moins de 15 % et, dansde nombreux pays, le revenu par ha-bitant s’était redressé à la fin de la dé-cennie. En revanche, dans l’ex-Unionsoviétique (le Commonwealth des Étatsindépendants, le CEI, comme on le dé-signera ici), le repli a été beaucoupplus marqué que prévu. Le PIB a baisséde plus de 40 % en moyenne et, malgréla reprise de ces dernières années,aucun pays de la CEI n’a encore re-trouvé le niveau d’avant la transition.Dans beaucoup de ces pays, la pau-vreté s’est accrue nettement plus queprévu et les inégalités se sont creu-sées. La mortalité infantile a baissédans la majorité des pays en transition,mais l’espérance de vie a aussi reculédans la plupart des pays de la CEI. Letaux brut de scolarisation dans l’édu-cation de base est également tombédans beaucoup de pays en transition.

EXECUTIVESUMMARY

Large parts of Europe and Cen-tral Asia (ECA) have undergone un-precedented political, economic, andsocial change since 1989, when theSoviet Union began to break up—achange often referred to as the tran-sition. The challenges to this transitionwere formidable, including deep eco-nomic distortions, major trade disrup-tions, and a total lack of market-oriented institutions. As was foreseen,gross domestic product (GDP) fellsharply at the beginning of the period.In the Central and Eastern Europeancountries, the transition recession wasrelatively shallow and short-lived; GDPfell on average by less than 15 per-cent, and per capita incomes recov-ered in many countries before the endof the decade. However, in the formerSoviet Union (hereafter referred to asthe Commonwealth of IndependentStates, CIS), the decline was far moresevere than expected. GDP fell on av-erage by over 40 percent, and althoughgrowth has picked up strongly in re-cent years, no CIS country has yet re-gained its pre-transition per capitaGDP. Poverty increased well beyondexpectations in many CIS countries,and inequality rose as well. Infant mor-tality fell in most of the transition coun-tries, but life expectancy fell as well inmost CIS countries. The gross enroll-ment rate in basic education fell inmany of the transition countries.

The World Bank, in collaborationwith the International MonetaryFund (IMF), the European Union(EU), and other donors, geared uprapidly to support macroeconomic

RÉSUMEN

En gran parte de Europa y Asiacentral se han producido cambios po-líticos, económicos y sociales sin pre-cedentes desde 1989, cuando comenzóa dividirse la Unión Soviética, cambioque con frecuencia se denomina latransición. Esa transición planteó enor-mes desafíos, entre ellos profundostrastornos económicos, graves distor-siones del comercio y la falta de ins-tituciones orientadas al mercado.Como se había pronosticado, el pro-ducto interno bruto (PIB) sufrió unabrusca caída al comienzo del período.En los países de Europa central y orien-tal, la recesión vinculada a la transi-ción fue relativamente moderada y decorta duración; el PIB disminuyómenos del 15% como promedio, y el in-greso per cápita se recuperó en mu-chos países antes del final del decenio.Sin embargo, en la ex Unión Soviética(en lo sucesivo denominada Comuni-dad de Estados Independientes (CEI)),la declinación fue mucho más grave delo que se esperaba. El PIB se redujo enpromedio más del 40%, y si bien el cre-cimiento ha vuelto a adquirir un fuerteimpulso ascendente en los últimosaños, ninguno de los países miembrosde la CEI ha recuperado aún su PIBper cápita anterior a la transición. Enmuchos países de la CEI, la pobreza au-mentó mucho más de lo que se preveía,y lo mismo ocurrió con la desigual-dad. La mortalidad infantil disminuyóen la mayoría de los países en transi-ción, pero la esperanza de vida tam-bién se redujo en la mayoría de lospaíses de la CEI. La tasa bruta de ma-trícula en la enseñanza básica dismi-

E X E C U T I V E S U M M A R Y

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stabilization and structuralreform (and later, in South-eastern Europe—SEE—toprovide post-conflict sup-port). In most countries, pol-icy reform has progressedsteadily, with few reversals.Within the first few years,

many transition countries had un-dertaken comprehensive price andtrade liberalization, and quite a fewhad achieved substantial privatiza-tion of small enterprises. At pres-ent, small-scale privatization isvirtually complete, and large-scaleprivatization is under way in mostcountries. While progress has beenslower in financial sector reform,public sector reform, social protec-tion, enterprise restructuring, andcompetition policy, the trend is stillupward, with reforms either beingplanned or under implementation.Substantial overall progress has beenachieved: the private sector shareof GDP across all transition coun-tries reached nearly 70 percent in2002 from virtually nil in 1989, evenincluding the late-starting post-con-flict SEE countries and the most re-luctant reformers. Eight Central andEastern Europe and Baltic (CEB)countries joined the EU this year,and two others are expected to joinin the next several years.

In assessing the effectiveness ofBank assistance, it must be recog-nized that the collapse of the SovietUnion and the ensuing transitiontook place with little warning and onan unparalleled scale. Political im-peratives put the Bank under pres-sure to move quickly and lend largeamounts, and staff were frequentlyconfronted with the need to act,often under difficult circumstances,in the absence of relevant experi-ence and with virtually no country

nuyó en muchos de los paísesen transición.

El Banco Mundial, en co-laboración con el Fondo Mo-netario Internacional (FMI),la Unión Europea (UE) y otrosdonantes, se preparó rápida-mente para respaldar la esta-

bilización macroeonómica y lareforma estructural (y luego en Eu-ropa sudoriental, para prestar apoyoen el período posterior al conflicto).En la mayoría de los países, la re-forma de las políticas ha avanzado apasos firmes, con pocas contramar-chas. En los primeros años de la tran-sición, muchos países liberaroncompletamente los precios y el co-mercio, y varios países lograron pri-vatizar un gran número de pequeñasempresas. En el momento actual, lasprivatizaciones en pequeña escala yahan prácticamente terminado, y en lamayoría de los países está en marchaun proceso de privatizaciones en granescala. Si bien los progresos en loque respecta a la reforma del sectorfinanciero, la reforma del sector pú-blico, los sistemas de protección so-cial, la reestructuración de lasempresas y la política de competen-cia han sido lentos, la tendencia siguesiendo ascendente, con reformas enetapa de planificación o ejecución. Entérminos generales, los progresoshan sido considerables: en todos lospaíses en transición, la participacióndel sector privado en el PIB llegó a serde casi 70% en 2002 a partir de prác-ticamente cero en 1989, incluso enlos países de Europa sudoriental quese sumaron tardíamente a la transi-ción en la etapa posterior al conflictoy en los países más renuentes a las re-formas. Ocho países de Europa cen-tral y oriental y del Báltico seincorporaron a la Unión Europea esteaño, y se prevé la incorporación de

La Banque mondiale, encollaboration avec le Fondsmonétaire international(FMI), l’Union européenne(UE) et d’autres bailleurs defonds, s’est rapidement pré-parée à contribuer à la stabi-lisation économique et aux

réformes structurelles (puis à four-nir une aide aux pays du Sud-Est sor-tant d’un conflit). Dans la plupartdes pays, les réformes progressent ra-pidement et les revirements sontrares. Dès les premières années,beaucoup des pays s’étaient enga-gés sur la voie d’une vaste libérali-sation des prix et du commerce, etun bon nombre d’entre eux avaientprivatisé de multiples petites entre-prises. Ce dernier aspect touche au-jourd’hui à sa fin et la plupart despays sont maintenant en train de pri-vatiser les grandes entreprises. Dansd’autres domaines, comme le sec-teur financier, le secteur public, laprotection sociale, la restructurationdes entreprises et la politique de laconcurrence, les progrès sont moinsrapides, mais les réformes prévuesou en cours laissent bien présager del’avenir. Globalement, des progrèsimportants ont été réalisés, la part dusecteur privé dans le PIB de l’en-semble des pays en transition étantpassée de quasiment 0 % en 1989 àprès de 70 % en 2002, même si l’ontient compte des pays d’Europe duSud-Est qui, sortis d’un conflit, ontdémarré plus tard, et des pays quiétaient les plus réticents à entre-prendre des réformes. Huit PECOet pays baltes sont entrés dans l’UEcette année, et deux autres devraientle faire dans les années qui viennent.

Pour évaluer l’efficacité de l’aide dela Banque, il ne faut pas perdre de vueque l’effondrement de l’Union so-viétique et la transition qui s’en est


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knowledge, learning alongthe way. The Bank’s role,though small relative to over-all financial flows—except ina few small countries—wassignificant in terms of ana-lytical work and policy ad-vice. This report, a meta-

evaluation largely based on previ-ous evaluative work, and with the ac-knowledged benefit of 20/20hindsight, attempts to identify thelessons to be learned from this ex-treme experience, in the hopes thatthey will prove useful in countriesundergoing similar, if less extreme,changes in the future.

The Bank’s assistance to the tran-sition countries was on the wholesuccessful, but clearly there weremistakes early on when the true na-ture of transition was not yet fullyunderstood. Not unexpectedly, theBank’s evolving knowledge and therapidly changing circumstances ledto many course corrections alongthe way. Of the nine Country Assis-tance Evaluations (CAEs) under-taken by OED for transitioncountries, six rate the outcome ofthe country program satisfactory, atleast for the most recent time period(Bulgaria, Kazakhstan, Kyrgyz Re-public, Lithuania, Poland, and Rus-sia). CAEs rated the outcome of thecountry programs in Albania, Azer-baijan, and Ukraine, as well as theearlier periods in Bulgaria and Rus-sia, unsatisfactory.1

The Bank’s strategy was to pro-mote macroeconomic stability andsound economic management, re-orient and strengthen public sectorinstitutions, build the basic institu-tions of a market economy and anenabling environment for privatesector initiatives, and cushion thesocial cost of the transition. These

dos más en los próximosaños.

Al evaluar la eficacia de laasistencia prestada por elBanco, es preciso reconocerque el colapso de la Unión So-viética y la transición subsi-guiente se produjeron en

forma bastante sorpresiva y a una es-cala sin parangón. Las urgencias po-líticas presionaron al Banco a actuarcon rapidez y prestar grandes canti-dades de dinero, y el personal se viomuchas veces en la necesidad de ac-tuar, a menudo en circunstancias di-fíciles, sin la debida experiencia y conun desconocimiento prácticamentetotal de los países, por lo que debióaprender sobre la marcha. El papelque desempeñó el Banco, aunque re-ducido en comparación con el volu-men total de flujos financieros —salvoen unos pocos países pequeños—fue muy importante en lo que res-pecta a la labor analítica y el asesora-miento en materia de políticas. Elpresente informe, que es una meta-evaluación basada principalmente entrabajos de evaluación anteriores, ycuenta con la reconocida ventaja queotorga una clara visión retrospectiva,trata de identificar las enseñanzas queha dejado esta experiencia extrema,con la esperanza de que puedan re-sultar útiles en países que sufran cam-bios similares, aunque no tanextremos, en el futuro.

La asistencia prestada por el Bancoa los países con economías en tran-sición fue satisfactoria en términos ge-nerales, pero es indudable que secometieron errores al principio,cuando no se tenía una compren-sión cabal de la verdadera índole dela transición. Como era de esperar, amedida que evolucionaban los co-nocimientos del Banco y las circuns-tancias cambiaban rápidamente, fue

suivie sont intervenus sansbeaucoup de préavis et onteu une ampleur sans précé-dent. Sous la pression d’im-pératifs politiques, la Banquea dû agir vite et prêter dessommes importantes. Ses ser-vices ont fréquemment été

contraints d’intervenir dans desconditions souvent difficiles, appre-nant sur le tas, sans avoir acquis l’ex-périence nécessaire ou avoir uneconnaissance suffisante des pays. Parson travail d’analyse et ses conseilssur les réformes, la Banque a jouéun rôle important, bien que limitéau regard du volume total de finan-cement, sauf dans quelques pays. Mé-taévaluation reposant largementelle-même sur d’autres évaluations,et établi avec tout le bénéfice du reculnécessaire, ce rapport cherche à dé-gager des enseignements de cetteexpérience extrême dans l’espoir queles acquis serviront aux autres paysqui seront à l’avenir confrontés à deschangements similaires, même s’ilssont moins radicaux.

Globalement l’aide de la Banqueaux pays en transition a étéconcluante même si, de toute évi-dence, des erreurs ont été commisesinitialement lorsque la véritable na-ture de la transition n’était pas en-core parfaitement connue. On nepeut donc s’étonner que les connais-sances accumulées par la Banque etl’évolution rapide de la situationaient conduit à rectifier le cap à plu-sieurs reprises au fil du temps. Surles neuf évaluations de l’aide auxpays en transition réalisées parl’OED, six ont jugé « satisfaisants » lesrésultats des programmes, au moinspour la période la plus récente (Bul-garie, Kazakhstan, Lituanie, Pologne,République kirghize et Russie ). Enrevanche, ces programmes ont été


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objectives were relevant. Theinitial strategy’s effectiveness,however, was limited for tworeasons. First, it underesti-mated until the late 1990sthe need to focus systemati-cally on poverty alleviationand good governance. Sec-

ond, the use of rapid privatization topromote private sector developmentdid not always achieve its intendedeffect without a supporting legal andinstitutional framework. Over time,the Bank internalized emerging les-sons and shifted its emphasis ac-cordingly: poverty monitoring andalleviation and good governance arenow prominent objectives in bothlending and analytical work, and theapproach to privatization and pri-vate sector development has evolvedconsiderably.

A side effect of the prolongedtransition recession in the CIS hasbeen the build-up of significant debtproblems in some countries thatstarted with very little debt. Officiallending levels were based on the ex-pectation that the transition reces-sion would be shallow and of shortduration. In countries where the re-cession was far deeper and longerthan foreseen, and problems of gov-ernance more serious than antici-pated, this has resulted in significantlevels of indebtedness. The effects ofthis debt are likely to be long lasting.In these countries, with the benefitof hindsight, more prudent lendinglevels would have been better forthe long run.

It is increasingly evident that manycountries in Europe and Central Asiano longer fit the standard transition

model. For the CEB countries thatare integrating into Western Europe,issues facing middle-income coun-tries may be most relevant. Others fit

necesario introducir muchascorrecciones sobre la marcha.De las nueve evaluaciones dela asistencia prestada a los pa-íses en transición realizadaspor el Departamento de Eva-luación de Operaciones(DEO), seis consideran que

los resultados del programa para elpaís fueron satisfactorios, por lomenos en el período más reciente.Según esta misma evaluación, los re-sultados del programa en Albania,Azerbaiyán y Ucrania, así como enlos períodos iniciales en Bulgaria yRusia, fueron insatisfactorios1.

La estrategia del Banco consistióen promover la estabilidad macroe-conómica y una gestión económicaracional; reorientar y fortalecer lasinstituciones del sector público; crearlas instituciones básicas de una eco-nomía de mercado y un entorno pro-picio para las iniciativas del sectorprivado, y amortiguar los efectos delcosto social de la transición. Estosobjetivos eran acertados. Sin em-bargo, la eficacia de la estrategia ini-cial se vio limitada por dos motivos.El primero es que, hasta fines del de-cenio de 1990, se subestimó la ne-cesidad de prestar una atenciónsistemática al alivio de la pobreza y labuena gestión de gobierno. En se-gundo lugar, el recurso a las privati-zaciones rápidas para fomentar eldesarrollo del sector privado no siem-pre logró los efectos deseados, al noexistir un marco jurídico e institu-cional que lo sustentara. Con eltiempo, el Banco internalizó las nue-vas enseñanzas recogidas y cambió suenfoque para adecuarlo a ellas: la vi-gilancia y el alivio de la pobreza asícomo la buena gestión de gobiernoson actualmente objetivos primor-diales tanto de la concesión de prés-tamos como de la labor analítica, y la

jugés « insatisfaisants » en Al-banie, en Azerbaïdjan et enUkraine, ainsi qu’en Bulga-rie et en Russie pendant leurpériode initiale1.

La stratégie de la Banquea été d’encourager la stabilitémacroéconomique, favoriser

une gestion économique solide, ré-orienter et renforcer les institutionsdu secteur public, mettre en placeles rouages essentiels d’une écono-mie de marché, créer un environ-nement favorable au secteur privé etamortir le coût social de la transition.Ces objectifs étaient bons. Deux fac-teurs ont toutefois limité initiale-ment l’efficacité de la stratégie.D’une part, la nécessité de privilégiersystématiquement la lutte contre lapauvreté et la bonne gouvernance aété sous-estimée. D’autre part, enl’absence d’un cadre légal et insti-tutionnel propice, l’effort de déve-loppement du secteur privé par laprivatisation rapide des entreprisesn’a pas toujours porté les fruits at-tendus. Au fil du temps, la Banquea internalisé les enseignements sedégageant de ses interventions et arecentré son action en conséquence.Le suivi et la réduction de la pau-vreté, tout comme la bonne gou-vernance, sont aujourd’hui au cœurdes opérations de prêt et du travaild’analyse, et la façon d’aborder laprivatisation et le développementdu secteur privé a considérablementévolué.

Les problèmes d’endettementapparus dans certains pays aupara-vant très peu endettés sont l’un deseffets secondaires de la longue ré-cession liée à la transition dans leCEI. Le niveau des prêts de sourcespubliques reposait sur l’hypothèsed’une récession superficielle etéphémère. Là où la récession a été


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more appropriately into cat-egories such as highly in-debted, post-conflict, orlow-income countries understress. The issues faced byHungary and the Czech Re-public are quite different fromthose of Turkmenistan and

the Kyrgyz Republic. While the termtransition was used to discuss theirtransformation to market-basedeconomies, the label transition

economies no longer seems as rele-vant. However, the lessons from thisperiod—brought into sharper reliefby the large scale of the transition—can be applied more generally.

This evaluation examines in depthfive areas of Bank assistance, chosenfor their importance to the Bank’slending program and their potential foryielding lessons that are useful for boththe remaining transition agenda andmore broadly: private sector develop-ment; governance, public sector man-agement and institution building; thefinancial sector; social protection; andenergy. It does not include an in-depthreview of all areas where the Bank wasactive. The Bank’s experience in priceand trade liberalization, where signif-icant achievements were realized andsustained, is not reviewed. Some areashave been covered in other OED eval-uations, such as a review of agricul-tural policy reform, which foundconsiderable advances in agriculturaltrade liberalization, land reform, andthe development of rural financialmarkets, with less progress in post-privatization follow-up and the reformof state institutions. Other areas, suchas trade, are covered by ongoing OEDevaluations. The following sectionssummarize the findings and recom-mendations specific to the five areascovered by this evaluation. The finalsection presents some crosscutting

forma de encarar las privati-zaciones y el desarrollo delsector privado ha evolucio-nado considerablemente.

Un efecto colateral de laprolongada recesión vincu-lada a la transición en la CEIha sido la acumulación de

graves problemas de endeudamientoen algunos países que iniciaron latransición con una deuda muy pe-queña. El monto de los préstamosoficiales otorgados se basó en la cre-encia de que la recesión vinculada ala transición sería moderada y decorta duración. En los países en quela recesión fue mucho más profunday prolongada de lo previsto, el re-sultado han sido altos niveles de en-deudamiento. Es probable que losefectos de esta deuda perduren pormucho tiempo. Si se analiza la situa-ción en retrospectiva, en el largoplazo hubiera sido mejor para esospaíses que el volumen de los présta-mos se hubiera limitado a montosmás prudentes.

Es cada vez más evidente que mu-chos países de Europa y Asia centralya no encuadran en el modelo co-rriente de “transición”. En el caso delos países de Europa central y orien-tal y del Báltico que se están inte-grando a Europa occidental, puedenser más pertinentes las cuestionesque afectan a los países de ingresomediano. Otros países encuadranmejor en categorías como las de pa-íses fuertemente endeudados, en si-tuación de posguerra, o de ingresobajo en dificultades. Los problemasque enfrentan Hungría y la RepúblicaCheca son muy diferentes de los queaquejan a Turkmenistán y la Repú-blica Kirguisa. Mientras que el tér-mino transición se utilizaba parahacer referencia a su transformaciónen economías basadas en el mer-

beaucoup plus marquée etlongue que prévue et les pro-blèmes de gouvernance plusgraves qu’envisagés, l’endet-tement atteint un niveauélevé. Cette dette risqued’avoir des effets durables.Avec le recul, des opérations

de prêt plus limitées auraient étéplus judicieuses à terme pour cespays.

Il est de plus en plus manifesteque, dans beaucoup de PECO etpays baltes, le modèle traditionnel-lement applicable aux économiesen transition n’est plus d’actualité.Ceux qui entrent aujourd’hui dansl’Union européenne sont peut-êtredavantage dans la situation des paysà revenu intermédiaire. Les autrestomberaient plus dans la catégoriedes pays très endettés, des pays sor-tant d’un conflit ou des pays à faiblerevenu en difficulté. Ainsi, les pro-blèmes auxquels font face la Hongrieet la République tchèque ont peu àvoir avec ceux que connaissent leTurkménistan et la République kir-ghize. Si le terme transition étaitutilisé pour parler de la transforma-tion à l’économie de marché, le labelpays en transition ne semble plusaussi approprié pour les deux pre-miers pays. Les enseignements tirésde cette période, que l’ampleur dela transition a plus particulièrementmis en relief, sont toutefois d’une ap-plication plus générale.

La présente évaluation passe aucrible l’aide de la Banque dans cinqdomaines, retenus en raison de leurimportance dans les programmesde prêt de l’institution et des en-seignements qu’ils pourront per-mettre de tirer tant pour le travailrestant à effectuer dans les pays en-core en transition que d’une façonplus générale. Il s’agit du dévelop-


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findings and recommenda-tions.

Private SectorDevelopmentTransforming state-dominatedand -controlled economiesinto market-driven, private-

sector-oriented economies was amajor goal of the transition. This re-quired imposing market disciplineon state-owned enterprises, priva-tizing state assets, and encouragingnew private enterprises. Bank assis-tance programs initially reflected thebelief that privatization must occurquickly, taking advantage of limitedreform “windows,” and that new pri-vate owners would restructure theenterprises and provide adequatecorporate governance. This senti-ment also reflected the views of lead-ing policymakers throughout theRegion. In line with this approach,early Bank assistance put a lower pri-ority on reform of regulatory, anti-monopoly, commercial, capitalmarket, and bankruptcy regimes, theso-called “second generation” re-forms; they would be pursued oncea critical mass of privatized firms hadappeared. Private property has be-come the dominant basis for pro-ductive transactions in mosttransition economies. But a numberof countries, particularly in the CIS,have yet to establish conditions con-ducive to private sector developmentand growth, and ailing state-ownedenterprises continue to drain publicresources and bottle up valuable as-sets. In the more advanced reform-ers, largely in the CEB, firms havemade significant progress in re-structuring, but it is the entry of largenumbers of new firms that is mainlyresponsible for the recovery and jobcreation.

cado, la etiqueta de países

con economías en transición

ya no parece ser tan aplica-ble. Sin embargo, las ense-ñanzas que dejó ese período—y que han adquirido mayorrelieve debido a la gran es-cala de la transición— pue-

den aplicarse a nivel más general.Esta evaluación examina en pro-

fundidad cinco esferas de asistenciadel Banco, elegidas por su impor-tancia para el programa de financia-miento del Banco y su potencial paradejar enseñanzas útiles para lo queresta del programa de transición y, aun nivel más amplio, para el desa-rrollo del sector privado, la gestión degobierno, la administración del sec-tor público y el fortalecimiento ins-titucional, el sector financiero, lossistemas de protección social y laenergía. No analiza en profundidadtodas las esferas en las que actuó elBanco. No examina la experienciadel Banco en la liberalización de losprecios y el comercio, donde se hanobtenido y mantenido logros im-portantes. Algunas esferas han sidoobjeto de otras evaluaciones porparte del DEO, como un análisis dela reforma de las políticas agrícolas,que detectó avances considerablesen la liberalización del comercio agrí-cola, la reforma agraria y el desarro-llo de los mercados financierosrurales, y un menor grado de pro-greso en las actividades de segui-miento posteriores a la privatizacióny la reforma de las instituciones delEstado. Otras esferas, como el co-mercio, están siendo analizadas enevaluaciones del DEO actualmenteen curso. En las secciones siguientesse resumen las conclusiones y reco-mendaciones específicamente rela-cionadas con las cinco esferas objetode la presente evaluación. En la úl-

pement du secteur privé ; dela gouvernance, de la gestiondu secteur public et du ren-forcement des institutions ;du secteur financier ; de laprotection sociale ; et del’énergie. Tous les secteursd’intervention de la Banque

n’ont donc pas été examinés en dé-tail. Ainsi, l’action menée par laBanque pour favoriser la libéralisa-tion des prix et du commerce, do-maines dans lesquels les acquis sontimportants, n’a pas été évaluée. Cer-tains secteurs d’activité ont fait l’ob-jet d’autres évaluations de l’OED,comme l’examen de la réforme de lapolitique agricole qui a fait ressortirle long chemin parcouru au plan dela libéralisation des échanges agri-coles, de la réforme foncière et dudéveloppement des marchés finan-ciers en zone rurale, et mis en évi-dence le travail restant à accomplirau niveau du suivi après les privati-sations et de la réforme des institu-tions publiques. L’OED réaliseactuellement des évaluations por-tant sur d’autres domaines, commele commerce. Les sections qui sui-vent présentent une synthèse desobservations et des recommanda-tions dans chacun des cinq do-maines retenus. L’ultime section estconsacrée à des observations et re-commandations de portée plus gé-nérale.

Développement du secteurprivéLa transition avait particulièrementpour objet de transformer des éco-nomies dominées et contrôlées parl’État en économies organisées au-tour du secteur privé. Pour cela, il fal-lait soumettre les entreprisesdétenues par l’État à la disciplinedu marché, privatiser des biens pu-


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The Region has drawn aseries of lessons from the first

ten years of transition thatsupport privatization as partof a broad strategy of disci-pline and encouragement,quick sale of small enter-prises through open and

competitive auctions, case-by-caseprivatization of medium-size andlarge enterprises, an enforceablelegal system to protect investors, in-creased competition, clarification ofthe cash flow and property rights ofenterprises with continued stateownership, and great caution, alongwith an efficient regulatory regime,in divesting enterprises in sectorscharacterized by natural monopolyor oligopoly. OED’s findings are con-

sistent with these lessons. Moreover,

with the benefit of hindsight, OED

considers that the Bank should have

pursued this agenda sooner than

it did. In the earliest years of thetransition, many of the choices madeby the Bank were probably appro-priate, given what was known at thetime. However, by the mid-1990s, itis reasonable to ask whether theBank was focusing sufficiently onthe climate for private sector devel-opment (PSD) and the appropriatemethods for disciplining and priva-tizing medium-size and large enter-prises.

Governance, Public SectorManagement, and InstitutionBuildingAt the beginning of the transition,the Bank understood the need toreorient and strengthen public sec-tor institutions, but it greatly un-derestimated the consequences ofstill weak core institutions and pub-lic administrations managing thetransition process. Work in the Bank

tima sección se exponen al-gunas conclusiones y reco-mendaciones intersectoriales.

Desarrollo del sectorprivadoUno de los objetivos princi-pales de la transición fue

transformar economías dominadasy controladas por el Estado en eco-nomías impulsadas por el mercado yorientadas al sector privado. Para ellofue necesario imponer una disciplinade mercado a empresas estatales, pri-vatizar bienes del Estado y estimularla creación de nuevas empresas pri-vadas. Los programas de asistenciadel Banco reflejaron, al principio, lacreencia de que las privatizacionesdebían hacerse con rapidez, aprove-chando las escasas oportunidades deintroducir reformas, y de que los nue-vos propietarios privados reestruc-turarían las empresas y harían unabuena gestión de gobierno empre-sarial. Este sentimiento también re-flejó las opiniones de las autoridadesencargadas de formular las políticasen toda la región. De conformidadcon este criterio, la asistencia delBanco en la etapa inicial asignó unamenor prioridad a la reforma de losregímenes regulatorios, antimono-pólicos, comerciales, del mercado decapitales y de quiebra, es decir, las lla-madas reformas “de segunda gene-ración”, las que se aplicarían una vezque hubiera surgido una masa crí-tica de empresas privatizadas. La pro-piedad privada se ha convertido enla base principal de las transaccionesproductivas en la mayoría de los pa-íses con economías en transición.Pero en algunos países, en particularde la CEI, aún no han se han creadolas condiciones favorables para el de-sarrollo del sector privado y el creci-miento, y hay empresas estatales

blics et encourager la créa-tion d’entreprises privées. Audébut, les programmesd’aide de la Banque repo-saient sur la conviction que laprivatisation devait interve-nir rapidement, pour tirerparti des rares « fenêtres » de

réforme, et que les nouveaux dé-tenteurs du capital restructuraientleurs sociétés et mettraient en placele type de gouvernement d’entre-prise voulu. Les dirigeants de la ré-gion partageaient ce sentiment.Aussi l’aide initiale de la Banque n’a-t-elle pas mis l’accent sur la réformedes dispositifs régissant le cadre ré-glementaire et commercial, la luttecontre les monopoles, les marchésfinanciers et les faillites, des réformesdites de la « seconde génération ».Celles-ci ne seraient entreprisesqu’après l’émergence d’une massecritique d’entreprises privatisées.Dans la plupart des pays en transi-tion, la propriété privée est aujour-d’hui l’axe central des transactionsproductives. Mais, un certainnombre de pays, surtout dans le CEI,doivent encore créer les conditionspropices au développement du sec-teur privé et à la croissance, et faireen sorte que les entreprises d’État enperte de vitesse cessent de conti-nuer à ponctionner les ressourcespubliques et à immobiliser de pré-cieux actifs. Dans les pays où les ré-formes sont plus avancées,principalement dans les PECO et lespays baltes, la restructuration dessociétés a beaucoup progressé, maisla reprise et la création d’emploissont surtout dues à l’entrée sur lemarché d’un grand nombre de nou-velles entreprises.

La Région a tiré un ensembled’enseignements des 10 premières

années de la transition. Ces ensei-


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in the early 1990s recognizedthe quality of governance asan appropriate matter forBank attention, but the Bankas a whole had few specialistsin governance and public sec-tor management (PSM) re-form at that time. Despite

large transfers of resources from theBank to the transition countries, lit-tle analysis of public expenditureswas undertaken before the late1990s. Toward the end of thedecade, pioneering work by theBank’s ECA Region and surveys bythe Bank, the European Bank forReconstruction and Development(EBRD), and others documentedpervasive corruption and massivediversion of public resources in theRegion. This work highlighted the

importance of confronting cor-

ruption, an issue that had previ-

ously been taboo for the Bank, as

well as the need to link public ex-

penditure analysis with the broader

issues of public financial account-

ability, on which reporting is nowmandatory. Almost all recent transi-tion Country Assistance Strategies(CASs) place PSM reform at the cen-ter of assistance strategy, and thishas been reflected in projects. Trans-

parency is a key to increasing pub-

lic accountability and discouraging

corruption, and while the Bank hasincreased its focus on promoting aculture of transparency, more em-phasis is warranted.

Rule of law, including judicial re-form, is critical to building successfuldemocratic market-based economicsystems. The record in this areathroughout the Bank has been dis-appointing. Evaluations suggest thatwhile the majority of laws supportedby the Bank have been submitted orpassed, projects have not yet met

cargadas de problemas quesiguen drenando recursos pú-blicos y reteniendo activos va-liosos. En los países que máshan avanzado en las reformas,principalmente los países deEuropa central y oriental y delBáltico, las empresas han

hecho grandes progresos en cuantoa su reestructuración, pero la entradade un gran número de empresas nue-vas es la principal responsable de larecuperación económica y la gene-ración de empleos.

La región ha recogido una serie deenseñanzas de los primeros diez

años de transición que respaldan laprivatización como parte de una es-trategia amplia de disciplina y estí-mulo, la venta rápida de pequeñasempresas en subastas abiertas y com-petitivas, la privatización caso porcaso de las empresas grandes y me-dianas, un sistema jurídico con ga-rantías de cumplimiento paraproteger a los inversores, una mayorcompetencia, la aclaración del flujode efectivo y los derechos de pro-piedad de las empresas que siguensiendo total o parcialmente de pro-piedad del Estado, y mucha cautela,unida a un régimen regulatorio efi-ciente, al privatizar empresas de sec-tores caracterizados por monopoliosu oligopolios naturales. Las conclu-

siones del DEO concuerdan con

estas enseñanzas. Además, en re-

trospectiva, el DEO considera que el

Banco debería haber puesto en mar-

cha su programa más temprana-

mente. En los primeros años de latransición, muchas de las decisionesque tomó el Banco fueron proba-blemente apropiadas, habida cuentade lo que se sabía en aquel momento.Sin embargo, para mediados del de-cenio de 1990, es razonable pregun-tarse si el Banco estaba prestando la

gnements militent en faveurde la privatisation dans lecadre d’une stratégie globalede discipline et de promo-tion des entreprises, de lavente rapide aux enchèrespubliques des petites entre-prises, de la privatisation au

cas par cas des moyennes et grandesentreprises, de l’adoption d’un sys-tème juridique applicable pour pro-téger les investisseurs, durenforcement de la concurrence, dela présentation dénuée d’ambiguïtéde la trésorerie et des droits patri-moniaux des entreprises toujourssous le contrôle de l’État, et d’unegrande prudence, doublée d’un ré-gime réglementaire approprié, lorsdes désétatisations dans des sec-teurs caractérisés par une situationde monopole naturel ou d’oligo-pole. L’OED parvient aux mêmes

conclusions. En outre, avec le recul,

l’OED considère que la Banque au-

rait dû s’engager sur cette voie plus

tôt. Au cours des premières annéesde la transition, beaucoup des choixfaits par la Banque étaient certaine-ment justifiés, compte tenu de l’étatdes connaissances à l’époque. Tou-tefois, à partir du milieu des années90, on peut légitimement se de-mander si la Banque s’est suffisam-ment attachée à promouvoirl’émergence d’un climat favorisant ledéveloppement du secteur privé etl’adoption des mesures nécessairespour discipliner et privatiser lesmoyennes et grandes entreprises.

Gouvernance, gestion dusecteur public et renforcementdes institutionsAu début de la transition, la Banquea compris qu’il fallait réorienter etrenforcer les institutions du secteurpublic, mais elle a beaucoup sous-es-


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their broader objective of sys-temic change. PSM reform has

often been approached in an

ad hoc manner, without a

comprehensive long-term in-

stitutional development and

reform strategy.

Financial SectorAt the outset, transition economiespossessed financial systems whosebasic purpose was to allocate fundsaccording to the plan, with a lim-ited capacity to intermediate finan-cial resources and no need forprudential regulations or financialsupervision. The Bank, in close col-laboration with the IMF, quicklyformed a basic understanding of theessential elements of financial sectortransition, and these elements—macroeconomic stability, legal andregulatory frameworks, and ac-counting systems, with an emphasison the banking sector—were re-peated in most countries with ac-tive programs. Most transitioneconomies have made tangibleprogress toward market-based fi-nancial systems. However, some ofthe analyses and assistance effortsdid not take into account the inter-relationships between banking sec-tor and enterprise reform, andallowed the process to be subvertedby managers and interlocking own-ers. Privately owned banks stronglyinterlinked with major borrowingenterprises make poor candidatesfor sound and efficient intermedia-tion. Measures are needed at an

early stage to enforce prudential

regulations, including limits on

loan concentration and related-

party lending, and Bank projects

should be conditioned on such

measures. While substantial privati-zation has taken place, banks under

suficiente atención a la exis-tencia de un clima favorablepara el desarrollo del sectorprivado y a los métodos apro-piados para disciplinar y pri-vatizar empresas medianas ygrandes.

Gestión de gobierno,administración del sectorpúblico y fortalecimientoinstitucional Al comienzo de la transición, el Bancoentendió la necesidad de reorientary fortalecer a las instituciones del sec-tor público, pero subestimó excesi-vamente las consecuencias de dejaren manos de instituciones centralesy administraciones públicas aún dé-biles la conducción del proceso detransición. En trabajos realizados porel Banco a principios de los años no-venta se reconoció que la calidad dela gestión de gobierno era un asuntoque requería la atención del Banco,pero en aquel momento el Banco ensu conjunto tenía pocos especialis-tas en la reforma de la gestión de go-bierno y la administración del sectorpúblico. A pesar de las voluminosastransferencias de recursos del Bancoa los países en transición, el gasto pú-blico no fue objeto de mayores aná-lisis hasta fines del decenio de 1990.Hacia el final de la década, trabajos devanguardia de la Oficina Regional deEuropa y Asia Central del Banco y es-tudios realizados por el Banco Euro-peo de Reconstrucción y Fomento(BERF) y otras entidades, documen-taron que la corrupción y la desvia-ción de recursos públicos eranmoneda corriente en la región. Estetrabajo puso de relieve la importan-

cia de hacer frente a la corrupción,

un tema que hasta entonces había

sido tabú para el Banco, así como la

necesidad de vincular el análisis del

timé les conséquences quepouvait avoir la situation en-core fragile d’administrationspubliques et d’institutions debase chargées de piloter leprocessus. Au début des an-nées 90, elle n’ignorait pasque la qualité de la gouver-

nance devait s’inscrire dans le cadrede son action, mais l’institutioncomptait à cette époque peu de spé-cialistes de cette question et de la ré-forme de la gestion du secteurpublic. Bien que la Banque ait trans-féré un important volume de res-sources vers les pays en transition,aucune analyse détaillée des dé-penses publiques n’a été entrepriseavant la fin des années 90, époqueà laquelle des travaux innovants dela Région ECA et des études de l’ins-titution, de la Banque européennepour la reconstruction et le déve-loppement (BERD) et d’autres or-ganismes ont mis en évidence unecorruption généralisée et des dé-tournements massifs de ressourcespubliques dans la région. Ce travaila montré combien il était impor-

tant de s’attaquer à la corruption,

une question jusque-là taboue à la

Banque, et de replacer l’analyse

des dépenses publiques dans le

cadre plus large de la question de

l’éthique de responsabilité finan-

cière des pouvoirs publics, un aspectqui fait aujourd’hui systématique-ment l’objet d’un rapport. Les ré-centes stratégies d’aide aux pays(CAS) en transition s’organisentpresque toutes autour de la réformedu secteur public, comme en té-moignent les projets mis en œuvre.Le renforcement de l’éthique de res-

ponsabilité financière des pouvoirs

publics et les mesures dissuasives

en matière de corruption passent

nécessairement par la transpa-


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state ownership still need

strengthening, through

stronger governance, tighter

budget constraints, divesti-

ture of branches, and re-

strictions on the scope of

banking licenses.

Bank assistance programshave appropriately emphasized theestablishment of a proper legal andregulatory framework for the finan-cial sector, but the time and humanresource development required tomake the new laws and regulationseffective were underestimated. Train-ing was provided to project imple-mentation units, to financialintermediaries participating in Bankcredit lines, and to the restructuringand privatization agencies. Few re-sources were devoted to the ex-tended training needed to operatethe financial system as a whole. High

priority should be given to train-

ing bank supervisors, lawyers and

judges, accountants and auditors,

and other skilled professionals.

Progress in increasing the effec-

tiveness of bank supervision and

in enforcing (not just adopting) in-

ternational accounting standards

should be among the triggers for

lending.

Close to half of operations with fi-nancial sector components in thetransition economies included linesof credit, many of them in sectorsother than finance, and their out-come ratings have been low: fewerthan half the commitments in the fi-nancial, rural, social protection, andPSD sectors were rated satisfactory.Few of them treated the financialsustainability of the intermediaries asa key objective. Moreover, the un-derlying assumption that creditwould be a binding constraint onPSD in the early transition experi-

gasto público a la cuestión

más amplia de la rendición

de cuentas en el sector de las

finanzas públicas, en el quela presentación de informeses actualmente obligatoria.Casi todas las Estrategias deasistencia a países en transi-

ción elaboradas recientemente colo-can a la reforma de la administracióndel sector público en el centro de laestrategia de asistencia, y esto se hareflejado en los proyectos. La trans-

parencia es un factor clave para

mejorar la rendición de cuentas en

el sector público y desalentar la co-

rrupción, y si bien el Banco está asig-nando mayor prioridad a lapromoción de una cultura de trans-parencia, el tema amerita un énfasismayor.

El estado de derecho, incluida lareforma judicial, es fundamental parael éxito de los sistemas económicosdemocráticos basados en el mercado.Los logros del Banco en esa esferahan sido decepcionantes. Las eva-luaciones sugieren que si bien la ma-yoría de las leyes que han recibido elapoyo del Banco han sido propues-tas o aprobadas, los proyectos nohan logrado aún su objetivo más am-plio de cambio sistémico. La reforma

de la administración del sector pú-

blico a menudo se ha encarado

según las necesidades particulares

del caso, y no en el marco de una es-

trategia institucional amplia y a

largo plazo de desarrollo y reforma.

Sector financieroAl comienzo, los países con econo-mías en transición tenían sistemas fi-nancieros cuyo objetivo básico eraasignar los fondos de acuerdo con elplan, con una capacidad limitada paraactuar como intermediarios de re-cursos financieros y sin necesidad de

rence. Si la Banque s’attacheaujourd’hui davantage à pro-mouvoir une culture de latransparence, plus doit en-core être fait dans ce do-maine.

L’état de droit, qui sup-pose une réforme judiciaire,

est à la base de tout bon systèmeéconomique démocratique fondésur le jeu du marché. Dans ce do-maine, les résultats obtenus par laBanque sont décevants. Les évalua-tions réalisées tendent à montrerque la majorité des lois appuyéespar la Banque ont bien été présen-tées ou adoptées, mais que les pro-jets n’ont pas atteint leur objectifplus large de changement systé-mique. La réforme de la gestion du

secteur public est souvent abordée

de façon décousue, alors qu’elle

devrait s’inscrire dans une straté-

gie globale de développement et de

réforme des institutions à long

terme.

Le secteur financier Au départ, les systèmes financiersdes pays en transition avaient prin-cipalement pour objet de répartirles financements conformément auplan ; leurs capacités ne leur per-mettaient pas de jouer un rôle d’in-termédiaire susceptible d’apporterdes ressources financières et ilsn’étaient soumis ni à une régle-mentation prudentielle, ni à une su-pervision financière. La Banquemondiale, travaillant en étroite col-laboration avec le FMI, est rapide-ment parvenue à isoler quels étaientles principaux éléments de la tran-sition du secteur financier, et ceséléments — stabilité macroécono-mique, cadres juridiques et régle-mentaires et systèmes comptables,appliqués tout particulièrement au


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ence can be questioned inhindsight, as the utilization ofcredit lines was far less thananticipated. Financial sec-

tor staff should be involved

in the design of all financial

intermediary loans and

should ensure that the fac-

tors important to sustainability are

adequately taken into account. Mi-

crofinance projects should give

greater attention to developing sav-

ings services and should incorpo-

rate from the start a donor exit

strategy.

Capital markets development wassometimes overemphasized in theearly years of the transition, bothwithin and outside the Bank, and itmay have diverted attention frommore immediate concerns, andscarce regulatory and supervisoryresources from the banking system.No formal stock market could haveplayed the role assigned to it by themass privatization proponents with-out a properly functioning bankingsystem, adequate accounting andauditing with effective disclosure re-quirements, responsible corporategovernance, and protections for mi-nority shareholders.

Social ProtectionReform of the social protection sys-tem in transition countries was ini-tially viewed as a means to cushionthe impact of the structural reforms.Early operations concentrated onhelping employment services dealwith the expected surge of displacedworkers. Job displacements provedfewer than anticipated, however,and slow growth of alternative em-ployment opportunities under-mined retraining efforts. Moreover,insufficient attention was given tothe longer-term problem of people

normas reglamentarias pru-dentes o supervisión finan-ciera. El Banco, en estrechacolaboración con el FMI, seformó rápidamente un con-cepto básico de los elementosesenciales de la transición delsector financiero, y esos ele-

mentos —estabilidad macroeconó-mica, marcos jurídicos y regulatoriosy sistemas de contabilidad, con un én-fasis en el sector bancario— se repi-tieron en la mayoría de los paísescon programas activos. La mayoríade los países con economías en tran-sición han hecho progresos tangi-bles con miras a la implantación desistemas financieros basados en elmercado. Sin embargo, algunos delos análisis y medidas de asistencia notuvieron en cuenta las interrelacionesexistentes entre el sector bancario yla reforma de las empresas, y permi-tieron que el proceso fuera socavadopor administradores y propietarioscon intereses superpuestos. Los ban-cos de propiedad privada vinculadosmuy estrechamente a grandes em-presas prestatarias no eran buenoscandidatos para ejercer una inter-mediación racional y eficiente. Es ne-

cesario adoptar medidas en una

etapa temprana para aplicar nor-

mas reglamentarias prudentes, que

entre otras cosas limiten la con-

centración de préstamos y la con-

cesión de financiamiento a partes

vinculadas, y los proyectos del

Banco deberían condicionarse a la

observancia de estas medidas. Sibien ha habido un gran número deprivatizaciones, es preciso fortalecer

aún más los bancos estatales, me-

diante una gestión de gobierno más

sólida, restricciones presupuesta-

rias más estrictas, privatización de

las sucursales y limitación del al-

cance de las licencias bancarias.

secteur bancaire — ont étéreproduits dans la plupartdes pays ayant des pro-grammes en activité. Dans laplupart des pays en transi-tion, on observe des progrèstangibles vers la mise enplace de systèmes financiers

obéissant aux lois du marché. Tou-tefois, certains des efforts déployésen matière d’analyse et d’aide n’ontpas pris en considération les liensd’interdépendance qui existaiententre secteur bancaire et entreprisesfaisant l’objet de réformes, ce qui apermis aux directeurs et aux pro-priétaires de sociétés aux directionsimbriquées de détourner le proces-sus de son objectif. Du fait de leursprises de participations non négli-geables dans les entreprises aux-quelles elles accordent des prêtsimportants, les banques privées sontmal placées pour s’acquitter avecpertinence et efficacité du rôle d’in-termédiation que l’on attend d’elles.Il faut que des mesures d’exécution

des réglementations prudentielles

soient prises très rapidement, no-

tamment celles qui concernent les

limites à la concentration des prêts

et les prêts consentis à des parties

liées, et les projets de la Banque

mondiale devraient être subor-

donnés à l’existence de telles me-

sures. Il y a eu un mouvement deprivatisation important mais il faut

encore renforcer les banques qui

sont placées sous le contrôle de l’É-

tat et dans cette optique, il y a lieu

de renforcer leur gouvernance, de

leur imposer des contraintes bud-

gétaires plus strictes, de les amener

à se désengager de leurs succur-

sales et il faut également imposer

des restrictions au champ d’activi-

tés des institutions bancaires

agréées.


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too old to be retrained or tofind new jobs, which resultedin declining revenues andgrowing expenditures forearly retirement and disabil-ity programs. Financial diffi-culties in pension programsbecame major fiscal prob-

lems in most countries, while dete-riorating economies caused sharpincreases in poverty rates, exposingthe weaknesses in existing social as-sistance programs.

The Bank’s emphasis shifted topensions, where it helped manycountries—through technical assis-tance as much as lending—enactmajor reforms. However, the exis-tence of two alternative models forreform led to disagreements amonginternational agencies, as well aswithin the Bank, and probably de-layed reforms in some countries. Inothers, it led to the premature adop-tion of multi-pillar systems, with toolittle attention to the fiscal sustain-ability of the basic pension systemand to the capacity to meet the pre-conditions for a private pension sys-tem. A clear strategic approach to

pension reform is needed, differ-

entiated by the ability of the coun-

try to administer and fund the

system.

The weakest link in the Bank’ssocial protection reform strategywas in developing country-levelagendas. This resulted in missed op-portunities, particularly in social as-sistance benefits for the poor, towhich the Bank did not devote thesame kind of resources as it did topension reform. Too great a share ofbenefits—such as child allowancesand subsidized services—are di-rected to higher-income households.Those in poorer regions of a coun-try find it difficult to qualify for ben-

Los programas de asisten-cia del Banco han puesto eldebido énfasis en la creaciónde un marco jurídico y regu-latorio adecuado para el sec-tor financiero, pero sesubestimó el tiempo y el gradode capacitación de los recur-

sos humanos que se requeriría paraponer en práctica las nuevas leyes yreglamentaciones. Se impartió capa-citación a las unidades de ejecuciónde proyectos, a los intermediarios fi-nancieros que participaban en las lí-neas de crédito del Banco, y a losorganismos de reestructuración y pri-vatización. Se destinaron pocos re-cursos a la amplia capacitaciónnecesaria para hacer funcionar el sis-tema financiero en su conjunto. De-

bería asignarse alta prioridad a la

capacitación de supervisores de los

bancos, abogados y jueces, conta-

dores y auditores y otros profesio-

nales idóneos. Los progresos

alcanzados en cuanto a aumentar

la eficacia de la supervisión de los

bancos y de la aplicación (no sola-

mente de la adopción) de normas in-

ternacionales de contabilidad

deberían ser uno de los mecanismos

activadores del financiamiento.

Cerca de la mitad de las operacio-nes con componentes del sector fi-nanciero en los países con economíasen transición incluyeron líneas de cré-dito, muchas de ellas en sectores dis-tintos del financiero, y sus resultadoshan sido calificados de pobres: menosde la mitad de los compromisos asu-midos en los sectores financiero, rural,de la protección social y de desarro-llo del sector privado fueron califica-dos de satisfactorios. Pocos de ellosencararon la sostenibilidad financierade los intermediarios como un obje-tivo clave. Además, en retrospectiva,la presunción subyacente de que el

Les programmes d’aide dela Banque mondiale ont, àjuste titre, mis l’accent sur lacréation d’un cadre juridiqueet réglementaire adapté quipuisse être appliqué au sec-teur financier mais ils ontsous-estimé le temps qu’il fal-

lait pour que ces nouvelles lois etréglementations entrent en vigueuret les qualifications professionnellesrequises à l’appui d’une telle dé-marche. Une formation a été offerteau personnel des unités d’exécutionde projets, aux intermédiaires fi-nanciers participant aux lignes decrédit de la Banque, et au personneldes organismes de restructurationet de privatisation. On n’a pas consa-cré de ressources suffisantes à l’offred’une formation de longue duréepourtant nécessaire à l’exploitationde l’ensemble du système financier.La formation des personnes char-

gées d’exercer une surveillance ban-

caire, des avocats et des juges, des

experts-comptables et des auditeurs,

et d’autres professionnels qualifiés,

doit bénéficier d’un rang élevé de

priorité. L’octroi de prêts devrait

être subordonné à la réalisation de

progrès dans l’efficacité de la sur-

veillance bancaire et dans la mise

en application (et non pas seule-

ment dans l’adoption) de normes

comptables internationales.

Dans les économies en transition,près de la moitié des opérationsayant une composante liée au sec-teur financier porte sur des lignesde crédit, dont beaucoup se rap-portent à des secteurs autres que lesecteur financier et la notation des ré-sultats obtenus de cette manièrelaisse à désirer : moins de la moitiédes engagements dans les secteursfinanciers et ruraux, ainsi que dansles domaines de la protection so-


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efits, and they receive less;and benefit levels are too lowto be of much use in fightingpoverty. Lending tended toneglect administrative re-forms, often because the bor-rowers did not want to payfor technical assistance, and

both pension and other social as-sistance programs suffer from ad-ministrative shortcomings. Greater

attention should now go to strength-

ening the capacity of national in-

stitutions to analyze needs, develop

a policy consensus, improve col-

lections, and administer benefits.

In retrospect, the Bank shouldhave addressed additional areas

that have proven to be barriers to

social protection reform in virtually

every transition economy—laborlaws that encourage labor hoardingamong declining firms and discour-age hiring among expanding firms,strategies for sharing fiscal and pol-icy burdens of assistance programsamong different levels of govern-ment, and problems in coverage andadministration caused by the growthof informal sectors.

EnergyThe transition countries inheritedsubstantial energy infrastructure,consisting of vertically integratedpublic monopolies. Energy con-sumption and production wereheavily subsidized, while customerservice was inadequate, and facili-ties poorly maintained. Supply-sideproblems were exacerbated by lowefficiency of consumption, a lack ofmetering, and unwillingness to pay.None of the regulatory or institu-tional arrangements necessary forcommercial operations was in place,and there were serious environ-mental problems.

crédito sería una restricciónforzosa para el desarrollo delsector privado en la primeraetapa de la transición es cues-tionable, ya que la utilizaciónde las líneas de crédito fuemucho menor de lo que seesperaba. El personal del sec-

tor financiero debería participar en

el diseño de todos los préstamos de

intermediación financiera y asegu-

rarse de que se tomen debidamente

en cuenta los factores importantes

para la sostenibilidad. Los proyectos

de microfinanciamiento deberían

prestar mayor atención al desarro-

llo de los servicios de ahorro y de-

berían incorporar desde el comienzo

una estrategia referente a la reti-

rada de los donantes.

En los primeros años de la transi-ción se puso a veces un énfasis ex-cesivo en el desarrollo de losmercados de capitales tanto dentrocomo fuera del Banco, lo que puedehaber desviado la atención de pro-blemas más inmediatos y sustraídodel sistema bancario parte de los es-casos recursos de regulación y su-pervisión. Ningún mercado devalores oficial podría haber desem-peñado el papel que le asignaron losproponentes de las privatizacionesen masa sin contar con un sistemabancario que funcionara correcta-mente, un sistema adecuado de con-tabilidad y auditoría regido pornormas de libre acceso a la informa-ción, un gobierno empresarial res-ponsable y medidas de protecciónde los accionistas minoritarios.

Protección socialLa reforma del sistema de protecciónsocial en los países en transición seencaró inicialmente como un mediode amortiguar los efectos de las re-formas estructurales. Las medidas

ciale et du développementdu secteur privé ont été jugéssatisfaisants. Rares sont lesopérations qui faisaient de laviabilité financière des inter-médiaires un objectif clé. Deplus, rétrospectivement, ilsemble que l’on puisse dou-

ter du bien fondé de l’hypothèse dedépart selon laquelle le crédit seraitune contrainte incontournable pourle développement du secteur privéau début de la phase de transition,puisque les lignes de crédit ont étéutilisées de façon moins systéma-tique que prévu. Les services du sec-

teur financier devraient être

impliqués davantage dans la

conception de tous les prêts inter-

médiaires et devraient veiller à ce

que les facteurs qui jouent un rôle

important sur le plan de la viabilité

soient suffisamment pris en compte.

Les projets de microfinancement de-

vraient accorder plus d’importance

à la mise en place de services

d’épargne et incorporer dès l’ori-

gine une stratégie de désengage-

ment des bailleurs de fonds.

Au cours des premières annéesde la transition, on a peut-être prêtétrop d’importance, au sein de laBanque mondiale et à l’extérieur, audéveloppement des marchés finan-ciers et cela au détriment de préoc-cupations plus immédiates commel’insuffisance des ressources pou-vant être affectées à la réglementa-tion et à la supervision du secteurbancaire. Aucun marché boursier of-ficiel n’aurait pu jouer le rôle qu’au-raient voulu lui assigner les partisansdes privatisations de masse, en l’ab-sence d’un système bancaire fonc-tionnel, de systèmes comptables etd’audit satisfaisants, de mesures ef-ficaces de diffusion de l’informationau grand public, d’une gouvernance


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The Bank’s initial policyon lending for electric powerlinked Bank support to re-forms in commercialization,corporatization, and arm’s-length regulation. By 1996,the Bank had adopted an ap-proach that emphasized un-

bundling and privatization to achievecommercialization. Rehabilitation,

emergency relief, and critical im-

ports projects, which accounted forover one-third of energy projects,encountered difficulties because ofprocurement problems and conflictsbetween short- and long-run objec-tives; such projects should be de-

signed to minimize delays (use

negative lists rather than trying to

pre-identify critical imports) and

forego project implementation units

and long-term reform objectives.

Nearly two-thirds of energy projectsfocused on longer-term objectives,and satisfactory outcomes tendedto result from a programmatic ap-proach, with a blend of adjustmentand investment operations, accom-panied by analytical work. This wasalso an effective way to include is-sues beyond the scope of energysector lending, such as the elimina-tion of subsidies to energy sectorentities; increased discipline in me-tering, billing, and collecting pay-ments; reforming pricing policies;and closing uneconomic energy pro-duction facilities. Stakeholder par-ticipation proved effective in somecases, such as the privatization ofRussian coal mines. In other cases,progress was limited. Efforts to in-tegrate environmental concernswere generally effective.

In retrospect, probably too muchemphasis was given to privatizationand restructuring, and too little toregulation, strengthening utility fi-

iniciales se centraron en ayu-dar a los servicios de empleoa lidiar con la oleada previstade trabajadores desplazados.Sin embargo, el desplaza-miento de empleos fuemenor al esperado, y el lentocrecimiento de otras oportu-

nidades de empleo menoscabó losesfuerzos de readiestramiento. Ade-más, no se prestó suficiente atenciónal problema a más largo plazo de lagente que ya tenía demasiada edadcomo para volver a capacitarse o en-contrar nuevos empleos, lo que trajoaparejada una disminución de los in-gresos y un aumento de los gastos delos programas de jubilación antici-pada e incapacidad. Las dificultadesfinancieras de los programas de pen-siones se convirtieron en graves pro-blemas fiscales en la mayoría de lospaíses, al tiempo que el deterioro delas economías provocó un fuerte au-mento de las tasas de pobreza, de-jando al descubierto las deficienciasde los programas de asistencia so-cial existentes.

El Banco dirigió entonces su aten-ción al sistema de pensiones, sectoren el que ayudó a muchos países —mediante asistencia técnica y prés-tamos— a aprobar reformassustanciales. Sin embargo, la exis-tencia de dos modelos de reformadistintos dio lugar a desacuerdosentre los organismos internaciona-les, así como dentro del Banco, yprobablemente retrasó las reformasen algunos países. En otros, llevó a laadopción prematura de sistemas depilares múltiples, que no tenían de-masiado en cuenta la sostenibilidadfiscal del sistema básico de pensionesy la capacidad de cumplir las condi-ciones previas necesarias para la cre-ación de un sistema privado depensiones. Se requiere un claro en-

responsable des entrepriseset d’un système de protec-tion des actionnaires mino-ritaires.

Protection socialeLa réforme du système deprotection sociale dans les

pays en transition était envisagéeinitialement comme un moyen d’at-ténuer l’impact des réformes struc-turelles. Les premières opérationsont surtout visé à aider les servicesde l’emploi à faire face à l’augmen-tation attendue du nombre de tra-vailleurs licenciés. Toutefois, lessuppressions d’emplois ont étémoins importantes que prévu et lacréation de postes de substitutionn’a pas suivi le rythme attendu, cequi a miné les efforts déployés pouroffrir une formation de reconver-sion. En outre, il n’a pas été prêtésuffisamment d’attention au pro-blème que posent, à long terme, lespersonnes trop âgées pour bénéfi-cier d’une formation de reconver-sion ou pour trouver de nouveauxemplois, ce qui s’est traduit par unebaisse des recettes et une augmen-tation des dépenses au titre de re-traites anticipées et de programmesd’invalidité. Les difficultés financièresque posaient les programmes de re-traites se sont converties, dans laplupart des pays, en de graves pro-blèmes budgétaires tandis que la dé-gradation des économies provoquaitune forte augmentation des taux depauvreté, révélant ainsi les faiblessesdes programmes existants d’assis-tance sociale.

La Banque mondiale a fait porterplus particulièrement ses efforts surles retraites et elle a aidé de nom-breux pays à mettre en œuvre d’im-portantes réformes dans cedomaine, par le biais d’une assis-


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nancial and managerial per-formance, and combating cor-ruption. As the ECA Regionhas noted, attempts to leapfrom noncommercial, state-owned entities to private com-mercial utilities generallyfailed, although in some cases

(Kazakhstan and some CEB coun-tries) they brought sector improve-ments (falling subsidies, for example),and even where this approach wasnot fully successful, service qualityand coverage have tended to im-prove. EU accession is a strong mo-tivating factor for some countries,but in many others it was unrealisticto expect restructuring and privati-zation to overcome legal, political,structural, and attitudinal obstacles.

The primary objectives for enter-

prises in the energy sector should be

improved commercial performance

and corporate and sectoral gover-

nance. The sequencing of reforms,

including the feasibility of immedi-

ate privatization, depends on coun-

try circumstances. The Bank needs

to develop operational guidance as

to what sequence of reforms and in-

terventions works best in particu-

lar country situations.

Crosscutting Findings andRecommendationsBank teams starting work in coun-tries in the ECA transition group,with limited prior knowledge ofthese countries, were often forced toengage in assistance programs with-out the luxury of careful analysis.With the benefit of hindsight, OED’sfindings and recommendationsbased on this tumultuous period ofeconomic, social, and politicalchange are meant to help guidemany of the Bank’s policy preceptsand procedures. With this in mind,

foque estratégico de la re-

forma del sistema de pensio-

nes, que varíe según la

capacidad de cada país para

administrar y financiar el

sistema.

El eslabón más débil de laestrategia de reforma del sis-

tema de protección social del Bancofue la elaboración de programas anivel de los países en desarrollo. Ellodio lugar a que se desaprovecharanoportunidades, particularmente en loque respecta a otorgar beneficios deasistencia social a los pobres, a loscuales el Banco no destinó el mismovolumen de recursos que a la reformadel sistema de pensiones. Una pro-porción excesiva de los beneficios—como las prestaciones por hijos acargo y servicios subsidiados— estádirigida a los hogares de ingresosmás altos. Las personas que viven enlas regiones más pobres de un país amenudo tienen dificultades para ac-ceder a los beneficios y recibenmenos; y la cuantía de las prestacio-nes es demasiado baja como para serde gran ayuda en la lucha contra lapobreza. El financiamiento tendió adescuidar las reformas administrati-vas, con frecuencia porque los pres-tatarios se negaban a pagar laasistencia técnica, y tanto los sistemasde pensiones como otros programasde asistencia social adolecen de de-ficiencias administrativas. Actual-

mente debería prestarse más

atención al fortalecimiento de la

capacidad de las instituciones na-

cionales para analizar las necesi-

dades, generar un consenso en

torno a las políticas, mejorar la re-

caudación y administrar las pres-

taciones.

En retrospectiva, el Banco deberíahaberse ocupado también de otras

esferas que han demostrado ser ba-

tance technique tout autantque par ses prêts. Cependant,le fait que deux modèles deréformes aient été en pré-sence s’est traduit par desdésaccords entre les orga-nismes internationaux et ausein de la Banque mondiale,

et a probablement retardé la mise enœuvre des réformes dans certainspays. Dans d’autres pays, cela aconduit à l’adoption prématuréed’un régime à plusieurs piliers, etl’on a pas prêté suffisamment at-tention à la viabilité budgétaire durégime de base des retraites, pasplus que l’on ne s’est préoccupé desavoir s’il existait des capacités suf-fisantes pour satisfaire aux condi-tions préalables d’un système deretraites privé. Il faut arrêter une

stratégie claire en matière de ré-

forme des retraites, et prévoir de

différencier cette stratégie en fonc-

tion de l’aptitude du pays à admi-

nistrer et à financer un tel régime.

Le maillon le plus faible dans lastratégie de réforme de la protectionsociale proposée par la Banquemondiale, tenait à ce que les pro-grammes n’étaient pas mis au pointau niveau de chaque pays. Il en estrésulté bien des occasions manquéesnotamment au plan des prestationsd’aide sociale destinées aux pauvres,un domaine auquel la Banque n’apas consacré autant de ressourcesqu’à la réforme du système de re-traites. Une trop grande part desprestations sociales — notammentles allocations familiales et les ser-vices subventionnés — vise des mé-nages à revenus plus élevés. Leshabitants des régions pauvres d’unpays ont du mal à faire valoir leursdroits à des prestations et ils tou-chent des sommes moins impor-tantes ; le niveau de ces prestations


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we present a number of find-ings that cut across sectorsand lend themselves to rec-ommendations that arebroadly applicable, not onlyto the transition countries,but to many others as well:

• When the Bank begins work forthe first time in a country—or aftera long hiatus, when the countryknowledge needs updating—pru-

dent levels of lending are advisableuntil better knowledge is built upand greater certainty regarding

ownership of programs can beperceived.

• Experience in countries such asPoland and Russia (coal restruc-turing) and Bulgaria (pension re-form) shows that however welldesigned a reform, its rate ofprogress is largely determined bythe government’s ownership of itand the degree of consensus it isable to mobilize in the society atlarge. A well-informed civil societycan become a major “driver” forchange. Programs to generate

stakeholder awareness and par-

ticipation should be replicatedwidely.

• Country assistance strategies, par-ticularly where reform progresshas been slow, should promotegovernment ownership and con-sensus in favor of reform throughcapacity building for both gov-ernment and civil society. Theyshould incorporate an analysis ofthe underlying political and so-cial, as well as economic, processesthat affect stakeholder behavior.

• An appropriate institutional andregulatory framework and a capa-ble, transparent public sector arekey elements of an efficient market-oriented private sector. Analytical

rreras para la reforma de

los sistemas de protección so-

cial en prácticamente todos

los países con economías en

transición, como leyes labo-rales que fomentan la acu-mulación de trabajadores enempresas en decadencia y de-

salientan la contratación por partede empresas en expansión, estrate-gias para distribuir la carga fiscal ynormativa de los programas de asis-tencia entre distintos niveles de go-bierno, y problemas de cobertura yadministración causados por el cre-cimiento de los sectores no estruc-turados de la economía.

EnergíaLos países en transición heredaronuna importante infraestructura ener-gética, compuesta de monopoliospúblicos integrados verticalmente.El consumo y la producción de ener-gía estaban fuertemente subsidiados,mientras que los servicios brindadosa los usuarios eran inadecuados y lasinstalaciones no estaban bien man-tenidas. Los problemas relacionadoscon el suministro se vieron agravadospor la baja eficiencia del consumo, lafalta de medición y la falta de volun-tad de pago. No existía ninguno delos mecanismos regulatorios o insti-tucionales necesarios para las ope-raciones comerciales, y había gravesproblemas ambientales.

La política inicial del Banco en ma-teria de préstamos para el sector dela energía eléctrica condicionó elapoyo del Banco a las reformas de lareglamentación relativa a la comer-cialización, la creación de socieda-des y la regulación por órganosindependientes. Para 1996, el Bancohabía adoptado un criterio que hacíahincapié en la desagregación y la pri-vatización para lograr la comerciali-

n’est pas suffisant pour per-mettre de lutter utilementcontre la pauvreté. De façongénérale, les prêts n’étaientpas octroyés au titre de ré-formes administratives, parcequ’il arrivait souvent que lesemprunteurs ne veuillent pas

payer l’assistance technique et dece fait, les programmes de retraiteaussi bien que les programmesd’aide sociale ont à pâtir des lacunesadministratives. Il y a lieu mainte-

nant d’accorder une plus grande

attention au renforcement des ca-

pacités dont disposent les institu-

tions nationales pour analyser les

besoins, parvenir à un consensus

politique, améliorer les rentrées de

fonds et administrer les prestations.

Rétrospectivement, la Banque au-rait dû s’attaquer à d’autres do-

maines faisant obstacle à la

réforme de la protection sociale

dans pratiquement toutes les éco-

nomies en transition — le droit dutravail, qui favorise la rétention demain d’œuvre dans les entreprisesen déclin et décourage le recrute-ment par les entreprises en expan-sion, les stratégies de répartition,entre différents niveaux de gouver-nement, des charges budgétaires etpolitiques qu’implique ces pro-grammes d’aide, et les problèmesde couverture et d’administrationposés par la croissance des secteursinformels.

ÉnergieLes pays en transition ont héritéd’une importante infrastructureénergétique constituée de mono-poles d’État intégrés verticalement.Consommation et productiond’énergie étaient fortement sub-ventionnées, mais les services auxconsommateurs étaient inadaptés


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work on governance and pub-

lic sector management needs

to precede large amounts of

Bank lending, particularlywhen obvious problems arelikely to affect assistance pro-grams. A comprehensive, long-

term approach is needed indeveloping strategies for institu-tional change and public sectormanagement reform.

• Legal and judicial reform is crit-

ical for improvements in the busi-ness climate (company, security,bankruptcy, and anti-monopolylaws; respect for private property,contractual rights), the financialsector (banking and central bank-ing, collateral, failed bank resolu-tion), social protection (laborlaws), and governance in general.The focus should be on imple-

mentation as much as on the pas-sage of laws.

• In the future, the Bank can be bet-ter prepared to identify and ad-dress rapidly growing poverty bygiving high priority to the moni-

toring of poverty levels from thevery beginning of its involvementin a country.

• Greater transparency can in-crease public accountability anddiscourage corruption. The Bankshould go out of its way to imple-ment its own disclosure policiesand disseminate its analytical workand should encourage govern-ments to report more regularlyand fully to their parliaments andto the public at large. The use ofinformation and communica-

tions technology has tremendouspotential to increase public ac-countability.

• Economic and sector work playsan important role through in-creasing knowledge and training

zación. La rehabilitación, el

socorro de emergencia y los

proyectos de importaciones

críticas, que representabanmás de la tercera parte de losproyectos energéticos, tro-pezaron con dificultades de-bido a problemas de

adquisiciones y conflictos entre losobjetivos a corto y largo plazo; esosproyectos deberían diseñarse de ma-

nera de reducir al mínimo las de-

moras (usar listas negativas en

lugar de tratar de identificar de an-

temano las importaciones críticas)

y dejar a un lado las unidades de

ejecución de proyectos y los objeti-

vos de reforma a largo plazo. Casidos tercios de los proyectos de ener-gía se centraron en objetivos a máslargo plazo, y los resultados satisfac-torios tendieron a ser el corolario deun enfoque programático, con unacombinación de operaciones deajuste e inversión, acompañadas deuna labor analítica. Esta fue tambiénuna forma eficaz de incluir cuestionesque excedían el ámbito del financia-miento del sector energético, comola eliminación de los subsidios a lasentidades del sector de la energía;una mayor disciplina en cuanto a lamedición, la facturación y la cobranza;la reforma de las políticas de fijaciónde precios, y el cierre de las instala-ciones antieconómicas de produc-ción de energía. La participación delas partes interesadas demostró sereficaz en algunos casos, como la pri-vatización de las minas de carbón deRusia. En otros casos, los progresosfueron limitados. Los esfuerzos porincorporar las preocupaciones am-bientales fueron en general eficaces.

En retrospectiva, es probable quese haya puesto demasiado énfasis enla privatización y la reestructuración,y muy poco en la reglamentación, el

et les installations mal entre-tenues. Les problèmes ducôté de l’offre étaient encoreaggravés par le manque d’ef-ficacité au plan de la consom-mation, le fait de ne pasmesurer cette consommationd’énergie et la réticence des

usagers à payer. Aucune des dispo-sitions réglementaires ou institu-tionnelles nécessaires à l’exploitationcommerciale n’était en place et ilexistait de graves problèmes envi-ronnementaux.

La politique initiale de la Banque enmatière de prêts au secteur de l’éner-gie électrique consistait à subordon-ner le financement de la Banque àdes réformes dans trois domaines : ex-ploitation du secteur sur une basecommerciale, exploitation des entre-prises publiques sur un mode com-mercial et réglementation dans desconditions de pleine concurrence.Dès 1996, la Banque adoptait une dé-marche privilégiant le dégroupage(« unbundling ») et la privatisationpour faire en sorte que ce secteurfonctionne sur une base commerciale.Les projets de modernisation, de se-

cours d’urgence et d’importations de

produits essentiels, qui représentaientplus d’un tiers des projets énergé-tiques, se sont heurtés à des difficul-tés en raison de problèmes depassation des marchés et de conflitsentre objectifs à court terme et à longterme ; de tels projets devraient être

conçus de façon à minimiser les re-

tards ( en utilisant des listes néga-

tives plutôt qu’en cherchant à

identifier à l’avance les produits es-

sentiels à importer) et renoncer aux

unités d’exécution de projets et aux

objectifs de réforme à long terme.

Près des deux-tiers des projets éner-gétiques portaient sur des objectifs àlong terme, et les réalisations satisfai-


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local researchers. Its quality inthe transition countries hasbeen high, but its impact onthe country dialogue couldhave been greater if it hadbeen more relevant and timely.•Aid coordination, which stillneeds improvement in many

transition countries, can increasethe effectiveness of all assistance.Recipient governments should leadaid coordination, with donors help-ing them define clear developmentstrategies, including monitorableaction plans for implementation.

fortalecimiento del desem-peño financiero y adminis-trativo de las empresas deservicios públicos, y la luchacontra la corrupción. Comoha señalado la Oficina Regio-nal de Europa y Asia Central,los intentos de convertir en-

tidades estatales no comerciales enempresas privadas comerciales deservicios públicos en general fraca-saron, aunque en algunos casos(como en Kazajstán y en algunos pa-íses de Europa central y oriental ydel Báltico) trajeron aparejadas me-joras en el sector (la reducción de lossubsidios, por ejemplo), e incluso enlos casos en que el método no tuvopleno éxito, la calidad y el alcancede los servicios han mostrado unatendencia a mejorar. La incorpora-ción a la UE es un factor de motiva-ción importante para algunos países,pero en muchos otros no era realistaesperar que la reestructuración y laprivatización permitieran superar losobstáculos jurídicos, políticos, es-tructurales y de actitudes. Los obje-

tivos primordiales de las empresas

del sector energético deberían ser

el mejoramiento del desempeño co-

mercial y la gestión de gobierno de

las empresas y del sector. El orden en

que deben introducirse las refor-

mas, así como la factibilidad de la

privatización inmediata, dependen

de las circunstancias de cada país.El Banco debe formular directrices

operacionales con respecto a qué

secuencia de reformas y medidas

funciona mejor en determinadas

situaciones nacionales.

Conclusiones yrecomendacionesintersectorialesLos equipos del Banco que comen-zaron a trabajar en países del grupo

santes résultaient plutôt d’unedémarche programmatique,alliant opérations d’ajustementet d’investissement et travailanalytique. Cette démarchepermettait également de trai-ter de façon efficace des ques-tions qui dépassaient le cadre

des prêts au secteur énergétique, no-tamment les questions ayant trait àl’élimination des subventions aux en-tités du secteur énergétique ; au ren-forcement de la discipline en matièrede mesure de la consommation, defacturation et de recouvrement dessommes dues par les usagers ; à la ré-forme des politiques de fixation desprix ; et à la fermeture des installa-tions de production énergétique non-rentables. La participation des partiesprenantes s’est révélée efficace danscertains cas, notamment dans celuide la privatisation des mines de char-bon en Russie. Dans d’autres cas, lesprogrès sont restés modestes. Les ef-forts déployés pour intégrer des pré-occupations d’ordre environnementalont donné de bons résultats dans l’en-semble.

Rétrospectivement, on a proba-blement accordé une trop grandeimportance à la privatisation et à larestructuration, au détriment de laréglementation, du renforcementdes résultats financiers et des résul-tats de gestion des entreprises deservices publics, et de la lutte contrela corruption. Comme l’a fait ob-server la Région Europe et Asie cen-trale, les tentatives de passer d’unsystème caractérisé par des entre-prises d’État ne fonctionnant passur un mode commercial, à un sys-tème d’entreprises de services pu-blics exploitées selon les lois dumarché n’ont généralement pas étécouronnées de succès, même si danscertains cas (Kazakhstan et certains


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de transición de la región deEuropa y Asia central, cuyoconocimiento anterior deesos países era limitado, confrecuencia se vieron obliga-dos a embarcarse en progra-mas de asistencia sin poderdarse el lujo de hacer un aná-

lisis cuidadoso. En retrospectiva, lasconclusiones y recomendaciones delDEO basadas en ese tumultuoso pe-ríodo de cambios económicos, so-ciales y políticos tienen por objetocontribuir a orientar muchos de lospreceptos de política y procedi-mientos del Banco. Con esta idea enmente, presentamos una serie deconclusiones pertinentes a varios sec-tores y que permiten formular reco-mendaciones aplicables en un plazomás amplio no solamente a los paí-ses en transición sino también a mu-chos otros:

• Cuando el Banco comienza a tra-bajar por primera vez en un país––o después de un largo períodode inactividad, cuando se hace ne-cesario actualizar los conoci-mientos sobre ese país–– esaconsejable mantener el monto

de los préstamos dentro de lími-

tes prudentes, hasta que se hayaadquirido un mejor conocimientode la situación y se perciba unamayor certeza en cuanto a si los

programas se sienten como pro-

pios.• La experiencia en países como Po-

lonia y Rusia (reestructuración delsector del carbón) y Bulgaria (re-forma del sistema de pensiones)muestra que, por bien que estédiseñada una reforma, los pro-gresos que ésta logre depende-rán en gran parte de que elgobierno se identifique con ella ydel grado de consenso que éste

pays d’Europe centrale etorientale ainsi que dans lespays baltes) cette évolutions’est traduite par des amé-liorations sectorielles (déclindes subventions, parexemple). Toutefois, mêmelorsque cette démarche n’a

pas apporté tous les résultats atten-dus, la couverture et la qualité desservices s’est plutôt améliorée. Pourcertains pays, l’entrée dans l’UE estune puissante motivation, mais dansle cas de beaucoup d’autres il n’étaitpas réaliste de penser que la re-structuration et la privatisation per-mettraient de surmonter lesobstacles juridiques, politiques,structurels et de modifier les atti-tudes. Les entreprises relevant du

secteur énergétique devraient se

fixer comme objectifs principaux

d’améliorer leurs résultats com-

merciaux ainsi que la gouvernance

des entreprises et du secteur. L’ordre

dans lequel doivent se faire les ré-

formes dépend des conditions par-

ticulières de chaque pays et la

faisabilité d’une privatisation im-

médiate doit également être déter-

minée au cas pas cas. La Banque

doit mettre au point un cadre opé-

rationnel permettant de détermi-

ner quel est l’ordre de succession

des réformes et des interventions le

plus adapté aux situations parti-

culières des pays.

Conclusions etrecommandations de portéegénéraleLes services de la Banque qui ontcommencé à travailler sur les pays entransition du groupe Europe et Asiecentrale sans avoir, au préalable, deconnaissances particulières sur cespays, ont souvent été amenés à en-treprendre des programmes d’aide


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pueda movilizar en la socie-dad en general. Una sociedadcivil bien informada puedeconvertirse en una impor-tante fuerza impulsora delcambio. Los programas des-tinados a hacer tomar con-

ciencia a las partes

interesadas y fomentar la parti-

cipación de éstas deberían apli-carse en forma más generalizada.

• Las estrategias de asistencia a lospaíses deberían promover el sen-tido de identificación del gobiernocon las reformas y el consenso afavor de éstas, mediante el forta-lecimiento de la capacidad de losgobiernos y de la sociedad civil.Estas estrategias deberían incluirun análisis de los procesos políti-cos, sociales y económicos sub-yacentes que afectan elcomportamiento de las partes in-teresadas.

• Un marco institucional y regula-torio apropiado y un sector pú-blico capaz y transparente sonelementos clave de un sector pri-vado orientado al mercado quesea eficiente. El Banco debe hacer

un análisis de la gestión de go-

bierno y la administración del

sector público antes de otorgar

préstamos por montos elevados,en particular cuando es probableque ciertos problemas evidentesafecten los programas de asisten-cia. La elaboración de estrategiaspara el cambio institucional y la re-forma de la administración delsector público deben encararsecon un criterio amplio y a largo

plazo.

• La reforma legal y judicial es fun-

damental para mejorar el climacomercial (leyes de sociedades,valores, quiebras y antimonopóli-cas; el respeto de la propiedad

sans pouvoir se permettre leluxe d’une analyse détaillée.Avec le recul, les conclusionset les recommandations quel’OED tire de cette périodeagitée de changements éco-nomiques, sociaux et poli-tiques, ont pour but de

contribuer à orienter un grandnombre des principes et procéduresde la Banque. En gardant cet élé-ment à l’esprit, nous présentons plu-sieurs conclusions recoupant diversdomaines d’intervention et condui-sant à des recommandations appli-cables de façon très générale nonseulement aux pays en transitionmais également à bien d’autres pays :

• Lorsque la Banque entame pourla première fois des activités dansun pays — ou lorsqu’elle y re-prend ses activités après unelongue interruption et qu’unemise à jour des connaissancesdont elle dispose à propos de cepays s’impose — la plus grande

prudence est de rigueur dans

l’octroi des prêts aussi longtemps

que l’on ne dispose pas de

meilleures informations et que

l’on n’arrive pas à déterminer

avec plus de certitude dans

quelle mesure les autorités sont

prêtes à prendre en charge les

programmes.• D’après ce que nous avons pu

constater dans des pays commela Pologne et la Russie (restruc-turation de l’industrie charbon-nière) et en Bulgarie (réforme durégime des retraites), quel quesoit le soin apporté à la concep-tion d’une réforme, la réussitede celle-ci est largement tribu-taire du sentiment d’adhésiondes pouvoirs publics et du degréde consensus de l’ensemble de la


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privada, los derechos con-tractuales), el sector finan-ciero (la banca y el bancocentral, garantías, decisionesrelativas a bancos fallidos), lossistemas de protección social(leyes laborales) y la gestiónde gobierno en general. De-

bería hacerse hincapié en el cum-

plimiento de las leyes tanto comoen su aprobación.

• En el futuro, el Banco puede estarmejor preparado para detectar rá-pidamente un aumento de la po-breza y tomar medidas paliativassi asigna alta prioridad a la vigi-

lancia de los niveles de pobreza

desde el comienzo de su actua-ción en un país.

• Una mayor transparencia puedemejorar la rendición de cuentas enel sector público y desalentar la co-rrupción. El Banco debería hacertodo lo posible por aplicar plena-mente sus propias políticas delibre acceso a la información y di-fundir su labor analítica, así comoalentar a los gobiernos a presen-tar informes más completos y pe-riódicos a sus parlamentos y alpúblico en general. El uso de la tec-

nología de la información y las

comunicaciones tiene un enormepotencial para mejorar la rendi-ción de cuentas en el sector pú-blico.

• La labor económica y sectorial de-sempeña un papel importantecomo medio de aumentar los co-nocimientos y capacitar a los in-vestigadores locales. Su calidaden los países en transición ha sidoalta, pero su influencia en el diá-logo nacional podría haber sidomayor si hubiera sido más perti-nente y oportuna.

• La coordinación de la ayuda,

que aún debe mejorar en muchos

population. Lorsque la so-ciété civile est bien informée,elle peut devenir un puissantfacteur de changement. Lesprogrammes ayant pourobjet de susciter une prise

de conscience de la part des

parties prenantes et d’en-

courager leur participation de-vraient être largement reproduits.

• Les stratégies d’aide-pays de-vraient favoriser la prise en chargedes réformes par les autorités etla formation d’un consensus à cesujet, par le biais d’un renforce-

ment des capacités des pouvoirspublics et de la société civile etcela plus particulièrement dansles pays où les réformes n’avan-cent pas au rythme désiré. Ellesdevraient intégrer une analysedes processus politiques, sociauxet économiques sous-jacentsayant une incidence sur le com-portement des parties prenantes.

• L’existence d’un cadre institu-tionnel et réglementaire adapté etd’un secteur public compétentet transparent sont des éléments-clés qui déterminent l’existenced’un secteur privé efficace fonc-tionnant selon les mécanismesdu marché. Un travail analy-

tique sur la gouvernance et la

gestion du secteur public doit

être effectué avant que la

Banque ne décide d’octroyer des

prêts importants, surtout lorsquedes problèmes évidents ont defortes chances d’avoir une inci-dence sur les programmes d’aide.La mise au point de stratégies vi-sant à introduire des change-ments institutionnels et uneréforme de la gestion du secteurpublic requiert l’adoption d’une

démarche exhaustive et à long

terme.


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países en transición, puedeaumentar la eficacia de toda laasistencia. Los gobiernos re-ceptores deberían dirigir lacoordinación de la ayuda, conla colaboración de los do-nantes en cuanto a definir es-trategias claras de desarrollo,

incluidos planes de acción para laaplicación susceptibles de segui-miento.

• La réforme du système ju-

ridique et judiciaire est

d’une importance critique

pour le climat des affaires(droit des entreprises, droitdes sûretés, législation rela-tive aux faillites des entre-prises et à l’encontre des

monopoles ; respect de la pro-priété privée, droits contractuels),le secteur financier (opérationsdes établissements bancaires etde la banque centrale, nantisse-ment, faillites bancaires), la pro-tection sociale (droit du travail),et la gouvernance en général.L’accent doit être placé sur l’exé-

cution de la législation autantque sur l’adoption des lois.

• À l’avenir, la Banque sera plus àmême d’identifier la montée ra-pide de la pauvreté et de s’y at-taquer si elle accorde davantagela priorité au suivi des niveaux de

pauvreté dès le commencementde ses activités dans un pays.

• Une plus grande transparence

peut renforcer la responsabilisa-tion du secteur public et décou-rager la corruption. La Banquene devrait ménager aucun effortpour mettre en œuvre sespropres politiques de diffusionde l’information et faire connaîtreson travail d’analyse, et elle de-vrait encourager les autorités àfaire rapport de façon plus régu-lière et plus complète à leur par-lement et au grand public.L’utilisation des technologies de

l’information et des communi-

cations peut jouer un rôle nonnégligeable dans la responsabili-sation des pouvoirs publics.

• Le travail économique et secto-

riel joue un rôle important puis-qu’il permet d’accroître le niveaude connaissances et de former


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les chercheurs d’un pays.Dans la mesure où il se rap-porte aux pays en transition,ce travail est de haute qualité,mais son impact sur le dia-logue avec les pays aurait puêtre plus important s’il avaitété plus pertinent et qu’il

était venu plus à son heure. • La coordination de l’aide, qui

doit encore être améliorée dansbien des pays en transition, peutcontribuer à renforcer l’efficacitéde tout le dispositif d’aide. Lesgouvernements bénéficiaires de-vraient prendre l’initiative d’as-surer la coordination de l’aide,les bailleurs de fonds se char-geant de les aider à définir desstratégies de développementclaires et notamment des plansd’action dont l’exécution puissefaire l’objet d’un suivi.


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AAA Analytical and advisory servicesAPL Adjustable Program LoansBMS Business Management System (IFC)CAE Country Assistance EvaluationCAS Country Assistance StrategyCDF Comprehensive Development FrameworkCEB Central and Eastern European and Baltic countriesCEE Central and Eastern EuropeCIS Commonwealth of Independent States (all countries of the former Soviet

Union except the Baltic states)CSE Central and South East EuropeDAC Development Assistance Committee of the OECDEBRD European Bank for Reconstruction and DevelopmentECA Europe and Central Asia RegionEFSAL Enterprise and Financial Sector Adjustment LoanESMAP Joint UNDP/World Bank Energy Sector Management Assistance ProgramESW Economic and sector workEU European UnionFDI Foreign direct investmentFIAS Foreign Investment Advisory ServiceFIL Financial Intermediary LoanFSU Former Soviet UnionGDP Gross domestic productGNI Gross national incomeIBRD International Bank for Reconstruction and DevelopmentIDA International Development AssociationIFC International Finance CorporationIFI International Financial InstitutionIMF International Monetary FundLIL Learning and Innovation LoanMIGA Multilateral Investment Guarantee AgencyOECD Organisation for Economic Co-operation and DevelopmentPPAR Project Performance Assessment ReportPSAPT Private Sector Advisory Services in Policy TransactionsPSD Private Sector DevelopmentPSM Public Sector ManagementQAG Quality Assurance GroupSAL Structural Adjustment LoanSDC Swiss Agency for Development and CooperationSECAL Sectoral Adjustment LoanSEE Southeastern EuropeSOE State-owned enterpriseSPRITE Social Policy Reform in Transition EconomiesTA Technical assistanceTATF Technical Assistance Trust FundWBI World Bank InstituteWDI World Development Indicators (World Bank)WDR World Development Report

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ABBREVIATIONS AND ACRONYMS

1

11Strategy, Implementation,and Outcome

Since 1989 the transition countries of Europe and Central Asia (ECA) haveundertaken massive reforms of their economic systems, transforming in-stitutions, processes, attitudes, and fundamental concepts of individual

and organizational behavior.1 The transition is the subject of a vast literature,and this report does not attempt to summarize what happened. Rather, it hasa narrower focus: to use the benefit of 20/20 hindsight to evaluate the WorldBank’s assistance to 26 countries in the ECA Region2 in the hopes that the les-sons that emerge will prove useful in countries undergoing similar, if less ex-treme, transitions in the future.

This chapter reviews World Bank assistance tothe transition economies and some of the evalu-ative evidence on its outcome.3 Five themes werechosen for fuller review, taking into account theirrelative importance in the Bank’s lending pro-gram, their relevance to the main goals of transi-tion, and their potential for yielding useful lessons.

Bank Strategy4

The Bank’s broad strategic objective in the tran-sition countries was to facilitate the transitionfrom a command to a market-based economythrough:

• Achieving macroeconomic stability and soundeconomic management

• Reorienting and strengthening public sector in-stitutions to promote the rule of law, encour-

age efficient resource allocation, and improveservice delivery

• Building the basic institutions of a market econ-omy and an enabling environment for privatesector initiatives

• Cushioning the social cost of the transition, es-pecially for the poor and vulnerable.

These objectives were relevant, and to someextent they were included in many of the Coun-try Assistance Strategies (CASs) produced since1992. (The most common objectives—stabiliza-tion and growth; private sector development, orPSD; and social safety nets—each appeared inroughly half of all CASs.) However, the effec-tiveness of the early strategy was limited for tworeasons. First, the initial emphasis on rapid pri-vatization to promote PSD did not always achieve

its intended effect because of the lack of a sup-porting legal and institutional framework. Sec-ond, the Bank underestimated the importanceof poverty alleviation and good governance. TheRegion acknowledges that “Poverty was not a cen-tral issue . . . a decade ago when [ECA] countriesstarted embarking on the transition from plan tomarket. The general expectation was that povertywas limited, and . . . very shallow. The pre-sumption was that growth would come quickly[and that] it would reduce the incidence ofpoverty rapidly. Poverty was believed to be largelytransitory in nature, and best addressed throughthe provision of adequate safety nets” (WorldBank 2000c, p. v).5 Over time the Bank inter-nalized the emerging lessons and shifted its em-phasis. The approach to privatization and PSDhas evolved considerably. While poverty allevia-tion was not an explicit CAS objective until 1997,it has become second only to PSD in frequencyamong objectives in the last five years. Similarly,good governance began to appear as a mainCAS objective in 1997.

ImplementationIn assessing the effectiveness of Bank assistance,it must be recognized that the collapse of the So-viet Union and the ensuing transition took placewith little warning and on an unprecedentedscale. The World Bank, like other assistanceagencies, faced an enormous challenge at the be-ginning of the 1990s: to mobilize the resourcesand knowledge necessary to offer credible sup-port to the new member countries of the ECARegion. Political imperatives put the Bank underpressure to move quickly and lend largeamounts, and staff were frequently confrontedwith the need to act, often under difficult cir-cumstances, in the absence of relevant experi-ence, learning along the way. Country knowledgein the Bank was limited to Hungary, Poland, andYugoslavia, which were already members.6

The Bank geared uprapidly. A new departmentwas organized, financialresources mobilized, andtechnical and managerialstaff recruited. In closecollaboration with the In-

ternational Monetary Fund (IMF) and other insti-tutions, the Bank initiated intensive consultationswith the country authorities, most of which had noexperience in dealing with these institutions andwere undergoing their own internal reorganizationsand priority setting. In FY89, the World Bank madethree loans to transition countries. Over the nextfour years, it made 57 loans, mainly to the Centraland Eastern European (CEE) countries (figure 1.1).During FY94–98, lending averaged 57 projectsyearly, and it peaked at 71 projects in FY99, withthe greatest number going to the Commonwealthof Independent States (CIS) of the former SovietUnion (FSU). Since FY00 lending has averaged 44projects yearly. Lending to some CEE countrieshas become relatively less important with gradua-tion and accession to the European Union (EU).Since FY89, the Bank has committed over US$42billion for about 600 projects in the 26 countriesunder review.

Investment projects comprised four-fifths ofthe total number of projects and over half ofthe commitments, although the shares varied sig-nificantly by country grouping (figure 1.2).Slightly under half of commitments to Russiaand 53 percent of lending to the other CIS coun-tries were for adjustment, while in the CEE andBaltic (CEB) countries, adjustment lending con-tributed 41 percent of the total.

The greatest single thematic category for lend-ing was economic policy, which received one-quarter of all commitments and ranked secondonly to the rural sector in numbers of projects(figure 1.3). Seventy percent of all projects werein these two areas plus transportation, socialprotection, public sector management (PSM),electric power and energy, and finance. As dis-cussed below, many of the projects categorizedunder “economic policy” include PSM, PSD, fi-nancial sector, and energy components.

Technical assistance (TA), both formal andinformal, played an important role in Bank as-sistance. For example, the Bank has had a sub-stantial impact on pension reform policy whereit invested administrative or grant resources;loans have rarely been a key part of this process,except to provide financing for the TA. Espe-cially in the smaller countries, focused investmentprojects with substantial TA often brought stake-

2


The collapse of the Soviet

Union and the ensuing

transition took place with

little warning and on an

unprecedented scale.

holders together for the first time and played animportant role in preparing for later policy-basedlending.7 Moreover, the simple exposure of localpolicymakers to staff from the Bank and otherdonors played an educational role.

In the early years of the transition, while theBank was building up its assistance, as much as

35 percent of total administrative resources weredevoted to analytical and advisory services (AAA).The proportion fellsharply, ranging from 11to 20 percent duringFY95–01, and increasedto 27 percent in FY02–03.

S T R AT E G Y, I M P L E M E N TAT I O N , A N D O U T C O M E

3

L e n d i n g b y S u b r e g i o n , F Y 8 9 – 0 3F i g u r e 1 . 1

0

5

10

15

20

25

30

35

40

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Number of loans

CEE Baltic States Russia Other CIS

Source: Annex table A.1. (Annex table A.2 shows which countries are included in each group.)

C o m m i t m e n t s b y I n s t r u m e n t , F Y 8 9 – 0 3F i g u r e 1 . 2

0

5,000

10,000

15,000

20,000

25,000

Adjustment Investment

$ Million

Other CIS Russian Federation Baltic States CEE

Source: Annex table A.2.

Technical assistance, both

formal and informal,

played an important role

in Bank assistance.

Within the analytical work, some sectors or themeswere covered more thoroughly than others. Forexample, agriculture received relatively high al-locations (Heath 2003, p. 7). In contrast, someareas now recognized as critical—poverty analy-sis, quality of governance, and public expenditurereviews (PERs)—came to the forefront only latein the decade. Although living standards surveyswere initiated quite early in a few countries, theytended to focus on short-term labor market andsocial protection issues; the first poverty assess-ments were carried out only in the mid-to-late1990s.8 A number of Country Assistance Evalua-tions (CAEs) identify the lack of analytical workand monitoring indicators as an impediment todeveloping anti-poverty programs.9 Although bil-lions of dollars were being infused into budgetsthrough quick-disbursing loans (US$5.4 billionto Russia alone), almost no PERs were under-taken in the first half of the decade, and manycountries had no public sector analytical work atall until the late 1990s or beyond. Lack of inter-est by borrowers contributed to this slow pace.10

The Bank is one of many actors in the transi-tion countries. In finan-cial flows, the Bank’s rolewas relatively small. Bi-lateral flows (includingthe private sector) have

been by far the most important; EU countries pre-dominate, though less so in the CIS than in theCEB. Multilaterals accounted for only about 16percent of total net flows in the CIS (14 percentin Russia) and 9 percent in the CEB through2001. The Bank’s share was 5 percent of thetotal in the CEB and 11 percent in the CIS (fig-ure 1.4). However, the Bank’s role was far moresignificant in terms of analytical work and policyadvice. In collaboration with the IMF, the EU, andother donors, the Bank moved quickly to sup-port macroeconomic stabilization and structuralreform.11 In Southeastern Europe, the Bank latermobilized—in conjunction with the EU, theUnited Nations, and others—to provide post-conflict support. The presence of multipledonors in multiple sectors makes coordinationa major task in its own right, and the Bank hassometimes taken the lead in this area. In othercountries, particularly those that have becomeEU members, the Bank has much less influenceover the development agenda.

Outcome12

As was foreseen, gross domestic product (GDP)fell sharply at the beginning of the transition. Inthe Central and Eastern European countries, the“transition recession” was relatively shallow andwas over fairly quickly; GDP fell on average by less

4


C o m m i t m e n t s a n d P r o j e c t s b y S e c t o r ,F Y 8 9 – 0 3

F i g u r e 1 . 3

Economic policy26%

Energy and mining17%

Financial sector

8%

Other13%

Private sector development

6%

Public sector governance

6%

Rural sector9%

Social protection

5%

Transport

Commitments by Sector Projects by Sector

10%Economic policy11%

Energy and mining11%

Financial sector

6%

Health, nutrition and

population6%

Other19%

Private sector development

6%

Public sector governance

9%

Rural sector14%

Social protection

9%

Transport9%


Many countries had no

public sector analytical

work at all until the late

1990s or beyond.

than 15 percent, and per capita incomes recov-ered in many countries before the end of thedecade. The decline in the CIS, however, was fardeeper and more prolonged than anyone ex-pected: GDP fell on average by over 40 percent(ranging from 18 to 76 percent), and none ofthese countries has yet regained its pre-transitionper capita GDP, although growth has picked upstrongly in recent years (figure 1.5 and annextable A.5).13 Since 2000, annual GDP growth hasaveraged over 3.5 percent in the CEB countries,and close to 7 percent in the CIS.14

A side-effect of the prolonged transition re-cession has been the build-up of significant debtproblems in some countries that started with verylittle debt. Official lending levels were based onthe expectation that the transition recessionwould be shallow and of short duration. In anumber of CIS countries, where the recessionwas far deeper and longer than foreseen, andproblems of governance more serious than an-ticipated, this led to significant levels of indebt-edness, with effects that are likely to belong-lasting (figure 1.6).

Poverty increased far beyond expectations: atthe beginning of the decade, fewer than 4 per-

cent of the population ofECA had to survive onless than US$2.15 perday; by 1998, an esti-mated 20 percent livedbelow that level. The in-cidence of poverty ismuch greater in the CISthan in the CEB (annextable A.6 and figure 2.4). Inequality, which rankedamong the lowest in the world at the beginningof transition, increased as well, more so in thecountries with less growth. In some countries—Armenia, Bulgaria, and Russia—the Gini coeffi-cient has nearly doubled (annex table A.6).15

Infant mortality has dropped in all but two coun-tries, but life expectancy has fallen in most CIScountries (figure 1.7).16

The Region made substantial progress in cre-ating market economies: eight countries of theCEB joined the EU this year, and two others are ex-pected to join in the next several years. The Euro-pean Bank for Reconstruction and Development(EBRD) maintains a set oftransition indicators show-ing progress by country


5

C a p i t a l F l o w s b y S o u r c e , 1 9 8 9 – 0 1F i g u r e 1 . 4

CEB

5%3% 1%

10%

81%

Russia

3% 0%11%

68%

18%

Other CIS

35% 48%

11%

2% 4%

EC+EU members Other bilaterals IBRD+IDA+IFCEBRD Other multilaterals


The decline in the CIS was

far deeper and more

prolonged than anyone

expected: GDP fell on

average by over 40

percent.

Poverty increased far

beyond expectations.

in a number of reform areas (annex table A.7).Scores range from 1, representing little progress,to 4+, which represents standards and perform-

ance typical of advancedindustrial countries. Witha few exceptions, policyreform has progressedsteadily since 1989. By1994, 20 countries (out of

2717) had already achieved a 3 (substantial progress)or higher in price liberalization, and 15 had achieveda 3 or more in trade and foreign exchange liberal-ization (figure 1.8). By 2003, almost all of the re-maining countries showed substantial progress inboth these areas.18 This evaluation does not ex-amine these early reforms, or the loans that sup-ported them, except to the extent that theyincluded the thematic areas covered in Chapter 2.

6


R e a l G D P C h a n g e s , b y G r o u p o f C o u n t r i e s ,1 9 9 0 – 0 2 ( 1 9 9 0 = 1 0 0 )

F i g u r e 1 . 5

0

20

40

60

80

100

120

140

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Central and Eastern Europe Baltic States Russia CIS

Source: World Bank data.

P r e s e n t V a l u e o f D e b t a s P e r c e n t a g e o fG N I , C I S , 2 0 0 1

F i g u r e 1 . 6

0

10

20

30

40

50

60

70

80

90

100

Armenia Azerbaijan Belarus Georgia Kazakhstan KyrgyzRepublic

Moldova RussianFederation

Tajikistan Ukraine Uzbekistan

Percentage

Source: World Bank, World Development Indicators.

With a few exceptions,

policy reform has

progressed steadily since

1989.

In 1994 only one country had privatized morethan 50 percent of large state-owned enterpriseand farm assets, and 7 (mostly CEB) had priva-tized at least 25 percent; 10 (9 of them CEB) hadcompleted small-scale privatization, and another5 had implemented a nearly comprehensive pro-gram. By 2003, 20 had privatized at least 25 per-cent of large enterprises, and all but 2 hadcompleted or were on the verge of completingsmall-scale privatization. Nine of the countries (8of them CEB) had a private sector share of GDPof 50 percent or more in 1994; by 2002, 22 coun-tries derived at least half of their GDP from theprivate sector, and 11 of them (9 CEB), 70 per-cent or more. The areas with the least progresswere financial sector reform, corporate gover-nance/enterprise restructuring, and competi-tion policy, where only 12, 8, and 5 countriesrespectively (all but one CEB) had achieved ascore of 3 or higher by 2003.

Differences in initial conditions may explainsome of the variations in the extent of reformamong countries, but the magnitude of their in-fluence is not clear. The EBRD (1999, pp. 27–28)analyzed the impact of initial conditions, using fac-tors such as the degree of industrialization, the ge-

ographical orientation oftrade, the extent of initialmacroeconomic imbal-ances, and the legacy ofcentral planning. Theyfound that while initialconditions were impor-tant, they were not solely responsible for the pat-tern of reform. For example, the Baltic countrieshave achieved substantially greater progress thanthe western CIS countries, despite similar start-ing points, and Poland is one of the most ad-vanced countries, although it started in a positionvery close to Romania. Other pairs of countriesthat started out with similar conditions but ex-perienced widely different rates of reform includeCroatia and Bulgaria, and the Kyrgyz Republicand Uzbekistan. De Melo and others (2001) alsoconcluded that while initial conditions (levels ofdevelopment and resources, macroeconomic dis-tortions, trade interdependence, location, yearsunder central planning, and so on) helped explainthe rate of economic liberalization and growth,economic liberalization was the most importantfactor determining differences in growth. Politi-cal reform was, in turn, the most important de-


7

C h a n g e i n L i f e E x p e c t a n c y a t B i r t h ,1 9 9 0 – 0 1

F i g u r e 1 . 7

CEE

Baltics

Russia

Other CIS4

3

2

1

0

–1

–2

–3

–4

–5

–6

–7

Number of years

Czec

h Rep

ublic

Polan

dSl

oven

iaHu

ngar

ySl

ovak

Rep

ublic

Bosn

ia an

d Her

zego

vina

Alba

niaFY

R M

aced

onia

Croa

tiaBu

lgaria

Roma

nia

Lithu

ania

Latvi

aEs

tonia

Arme

niaGe

orgia

Mold

ova

Turkm

enist

anUz

bekis

tan

Ukra

ineTa

jikist

anKy

rgyz

Rep

ublic

Belar

usKa

zakh

stan

Azer

baija

n


By 2003, all but 2

countries had completed

or were on the verge of

completing small-scale

privatization.

terminant of the speed and comprehensivenessof economic liberalization. Falcetti, Raiser, andSanfey (2002) found that initial conditions dom-inated the impact of reforms on growth, and thatthe positive impact of reforms was less robustthan previously thought. They concluded that al-though the final verdict on the importance ofeconomic liberalization and privatization to growthin the transition was not in, early reforms alone

were insufficient to gen-erate sustainable growth.

OED has producedCountry Assistance Eval-uations (CAEs) for ninetransition countries. Sixrate the outcome of thecountry program satis-factory, at least for themost recent time periodexamined (Bulgaria, Kaza-khstan, Kyrgyz Republic,Lithuania, Poland, andRussia). CAEs rated theoutcome of the country

programs in Albania, Azerbaijan, and Ukraine, aswell as that of the earlier periods in Bulgaria andRussia, unsatisfactory (annex table A.8).19 Thisdistribution of outcome ratings is lower than thatfor OED’s other CAEs, but the two groups are notnecessarily comparable or representative.20 In-stitutional development impact was rated high orsubstantial in only three transition countries (mod-est in the others), and sustainability was ratedlikely in five cases, and uncertain in four.

The areas most frequently identified in CAEsas warranting greater attention have been PSD,institutions, and public governance and ac-countability, as well as public awareness and par-ticipation, and capacity building for monitoringand evaluation. Box 1.1 discusses the extent towhich lessons from the transition CAEs havebeen reflected in subsequent CASs for the samecountries. In some cases, such as the impor-tance of participatory CAS preparation and theneed for greater attention to governance andlegal reform, the increased focus in the CASsprobably reflects trends in the Bank as much asit does CAE recommendations.21

8


N u m b e r o f C o u n t r i e s A c h i e v i n g S u b s t a n t i a l P r o g r e s s ( R a t i n g 3 a n d A b o v e ) ,1 9 9 4 – 0 3

F i g u r e 1 . 8

0

5

10

15

20

25

30

Small-scaleprivatization

Priceliberalization

Trade andforeign

exchangesystem

Large- scaleprivatization

Bankingreform and

interest rateliberalization

Governanceand enterpriserestructuring

Competition policy

Number of countries

1994 2003


The areas most frequently

identified as warranting

greater attention have

been PSD, institutions,

and public governance

and accountability, as

well as public awareness

and participation, and

capacity building for

monitoring and

evaluation.

Project outcomes in the transition countriesare rated lower than those for the Bank as awhole by amount of net commitments (74 per-cent satisfactory, compared with 78 percentBankwide), but higher by numbers of projects(82 percent satisfactory, compared with 74 per-cent Bankwide, figure 1.9).22 Institutional de-velopment impact and sustainability rate higherby both measures in transition countries thanBankwide. The bulk of the transition countriesfall into the middle-income category. When bro-ken down separately for low- and middle-in-come countries, the former retain their rankingsrelative to the Bankwide numbers with respectto outcome—better by number of projects andworse by commitments—but their performanceis relatively lower for sustainability and institu-tional development impact. Outcome ratingsfor middle-income countries remain below the

Bank average by commitments and about thesame by numbers of projects (annex table A.9).

Across the Region, the project ratings areabove the Bank average for all of the CEB coun-tries (annex table A.9). There are large varia-tions among the CIS countries, where outcomeratings vary from close to 100 percent satisfac-tory by commitments (Kazakhstan, Kyrgyz Re-public, Ukraine) to 5 percent or less satisfactory(Belarus, Turkmenistan).23 In Russia, only 40percent of commitments have been rated satis-factory; high ratings for sustainability reflect theirreversibility of most of the policy and institu-tional changes.24 The percentage of active proj-ects rated at risk, by numbers and bycommitments, is about the same as the Bankaverage, but much higher in the CIS than in theCEB (annex table A.10). Ratings by sector areshown in annex tables A.11 and A.12. Although


9

CAEs call for building ownership of the lending program throughhigher relevance, sharper prioritization, and greater participa-tion in CAS preparation. Most recent CASs have been preparedwith adequate consultations, and they focus on efficiency in dis-cussing portfolio lessons; they generally pay less attention to rel-evance.

CAEs for the transition countries emphasize the need forcore economic and sector work (ESW) (including Poverty As-sessments and Public Expenditure Reviews) as a prerequisitefor a sound program in any country. The Bank should use the ESWto build local capacity, and disseminate it in the country. RecentCASs emphasize core ESW products; they do not discuss dis-semination strategy, nor how these products will be used to helpauthorities formulate policies and programs. Some large proj-ects still precede relevant ESW.

CASs do not discuss how to encourage increased governmentmanagement of aid coordination or better monitoring and eval-uation. While they often cite the principle of comparative ad-vantage, they rarely use it as an operational guide. Gooddiscussions of comparative advantage can be found for Hungary,Kazakhstan, the Kyrgyz Republic, and Slovenia. Few CASs ad-equately explore the role of the IMF, nor do they provide thespecifics of how the International Finance Corporation (IFC),the Multilateral Investment Guarantee Agency (MIGA), and theBank will work together.

CAEs have pressed for greater realism in discussing risk,along with improved contingency planning for risky countries.Most CASs have a good discussion of risk to the Bank, but riskmitigation strategy is defined mainly in terms of lending volumes.Many indicators proposed in CASs are couched in qualitativeterms and are not monitorable, although the use of monitorableindictors is growing.

As recommended by CAEs, CASs now give substantial at-tention to governance, and, to a lesser extent, to legal reform.While CASs acknowledge that enforcement of laws and regu-lations is weak and the judiciary ineffective, the strategy todeal with these issues is not clear, although in the case of in-frastructure, CASs do emphasize the regulatory framework. At-tention to financial sector issues is generally satisfactory, withthe exception of improving financial accountability. There is lit-tle discussion of corporate governance issues and remedies.

Regarding other issues raised in the CAEs, CASs have virtu-ally no discussion of which projects or programs will be usedto mainstream gender issues and objectives, and rarely dis-cuss decentralization. However, agriculture is receiving greaterattention in CASs, which are now addressing the issue of howto respond to the vested interests that dominate the sector in anumber of countries.

Source: Annex B.

C A E L e s s o n s a n d t h e C A S R e c o r dB o x 1 . 1

the transition countries have higher rates of sat-isfactory outcomes than the Bank average inmany sectors, in three of the sectors with thegreatest amount of lending—economic policy,rural, and transportation, representing 44 percentof commitments—they are substantially lower.25

Economic and sector work (ESW), to the ex-tent that it has been done, receives high marks,particularly for quality, both inside the Bank and

among clients. TheBank’s Quality AssuranceGroup (QAG) has re-ported on the quality ofESW since FY98. In all butone of those years, tasksin ECA countries scored

above the Bank average in percentage of reportsrated at least satisfactory (annex table A.13).26 Allof the tasks sampled in FY01 and FY02 were ratedsatisfactory. OED’s knowledge of the impact ofPERs indicates that, in the cases where they were

carried out, their outcome and impact were higherin ECA than in any other Region. PERs for Latvia

(1994), Russia (1995), andBosnia and Herzegovina(1997, impact not evalu-ated) were cited as bestpractice. Borrowers are

positive about the role of ESW; some point out thatknowledge, including ESW and TA, was the Bank’smost valuable contribution, and others wouldhave liked more of it (box 1.2).

CAEs, however, have questioned the ade-quacy of ESW. Eight CAEs found the quality ofESW to be satisfactory, but found its relevance ortimeliness unsatisfactory in three countries, andits impact on the country dialogue unsatisfactoryin five. The Russia CAE (OED 2002c, p. ix) con-cluded that “An assistance strategy orientedaround analytical and advisory services . . . withlimited financial support for Russia would havebeen more appropriate than one involving largevolumes of adjustment lending,”and a project as-sessment for a series of adjustment and TA loansto Georgia stated that more ESW (particularly anearlier PER) would have helped in designing thereform program.

Bank administrative costs, both per dollar oftotal commitments and per dollar of commit-ments with satisfactory outcome or nonriskystatus, have been nearly the same on average inthe transition countries as in the Bank as a whole,but with large subregional variations. Costs perdollar of commitments were about average forthe CEE countries, more than double the aver-age for the Baltic states, about half the average

1 0


P r o j e c t R a t i n g s b y C o u n t r y G r o u p a n dB a n k w i d e , A p p r o v e d F Y 8 9 – 0 3

F i g u r e 1 . 9

0102030405060708090

100

Bankwide ECA transition CEE Baltics Russia Other CIS

Outcome (% satisfactory)

Percent of commitments Percent of projects


Economic and sector

work receives high marks,

particularly for quality,

both inside the Bank and

among clients.

CAEs, however, have

questioned the adequacy

of ESW.

for Russia, and about 50 percent above averagefor the rest of the CIS. After adjusting for the av-erage size of projects, more transition countrieshad costs per dollar of commitments below whatwould be expected than above.


1 1

Hungary: “The Bank’s economic and sector work was of highquality both in terms of the incorporated knowledge and viewsfrom within the country and of practical recommendations….[Its]efficacy … can be seen in its contribution to intellectual debates,particularly in the debates on pension reform and higher edu-cation…. The Bank’s high level [ESW] has been an indispensa-ble part of its assistance.”

Kazakhstan: “ESW was, to a large extent, relevant and helpfulto the country’s policymakers. It laid the background and framedthe thinking for discussions with the World Bank.”

Poland: “The impact of the World Bank experts and the [ESW]was assessed as very considerable for the policy dialog in thecountry and for the capacity building of the government andother elites, especially in the early years … when the decisionmakers in the country learned the new, market approach to theeconomy.”

Source: Blaszczyk, Cukrowski, and Siwiñska 2002, p. 5; Báger

2002, pp. 6, 11, 18; Jandosov 2002, p. 12.

B o r r o w e r s ’ V i e w s o f E c o n o m i c a n d S e c t o r W o r k

B o x 1 . 2

1 3

Thematic Findings

Chapter 1 presented standard evaluative data on the effectiveness of Bankassistance to the transition economies, but this information alonedoes not lead to recommendations for improving the Bank’s effec-

tiveness. Accordingly, this chapter looks at a few key areas of Bank assistancewith a view to identifying lessons.

It summarizes the main findings of five back-ground papers prepared for this study.1 The fiveareas—PSD, PSM, financial sector, social pro-tection, and energy—were chosen because oftheir importance to the Bank’s lending program(see figure 1.3) and to the critical issues of tran-sition.2 A sixth lending category, economic pol-icy, includes a significant number of componentsand conditions in the five areas. However, theevaluation does not include all areas where theBank was active. The Bank’s experience withprice and trade liberalization, where significantachievements were realized and sustained, isnot reviewed; the latter is the subject of an on-going OED study. Two other important sectors—agriculture and health—have been addressedin previous OED studies (see boxes 2.1 and 2.2).3

The education sector, which has not been re-viewed by OED, and which accounted for lessthan 3 percent of commitments through FY03,has recently been highlighted in a Regional strat-egy paper (World Bank 2003). That paper foundthat although, at the start of the transition, boththe Bank and the countries thought that edu-

cation was not a problem sector, a much moresobering picture has emerged. The curricula,textbooks, and teaching practices do not supportacquisition of the skills necessary for marketeconomies and open societies; inequities inlearning opportunities are growing; the gross en-rollment rate in basic education has fallen inmany countries (annex table A.6); most countrieshave significant inefficiencies; the sector is stilldominated by government, inadequately coun-terbalanced by competition and participation;and severe limits on public budgets compoundthe problems, with energy and wage bills crowd-ing out other inputs, and a severe infrastruc-ture crisis in the CIS. Systematic monitoring ofthe situation could have revealed these problemssooner.

The five selected thematic areas are interre-lated. For example, PSD in the transition coun-tries is as fundamentally about restructuringinstitutions that deal with fiscal expenditure, wel-fare provision, regulation, monitoring, and ad-judication as it is about promoting the growth ofthe private sector. A poorly clarified division of

22

1 4


The Bank has provided substantial support to the reform of agri-cultural policies, including high-quality analytic work. Rurallending in the transition economies is second only to multi-sector projects in the number of projects financed (figure 1.3),and more than half of all Bank agriculture sector reviews in theearly 1990s were devoted to these countries. Rural projects asa whole have lower rates of satisfactorily rated outcomes thaneither the average for ECA or rural projects Bankwide, but re-sults vary significantly across themes. Trade liberalization islargely complete, and considerable advances have been madewith land reform and in developing rural financial markets, butless has been accomplished in post-privatization follow-up andthe reform of state institutions serving the sector. Land policy andrural finance, which have received more Bank resources thanhave other areas, are also associated with the best project re-sults. There is evidence of a moderately positive relationship be-tween the level of agriculture policy reform and agriculture

productivity growth. Despite the greater attention to rural povertyin recent strategy statements from the ECA Region, there is noevidence yet of improved project monitoring of living standardindicators. Nor is there much discussion of poverty in project documents.

OED’s study found no evidence that particular instruments ofBank assistance were more effective than others, emphasizingthe need to tackle policy reform with a battery of complemen-tary instruments, including analytic work, technical assistance,adjustment lending, and investment lending. Experience suggeststhat institutional and land reform should have been addressedat the beginning of the transition. Some small pilot projectsachieved major results; for example, most state and collectivefarms in Azerbaijan have been privatized, based on a pilot proj-ect financed by the Bank.

Source: Heath 2003.

R e f o r m i n g A g r i c u l t u r a l P o l i c y i n T r a n s i t i o n E c o n o m i e s

B o x 2 . 1

Health reform is a difficult, long-term process involving a widerange of stakeholders, and it is further complicated by the ab-sence of a widely agreed model for the financing and structureof health systems. The Bank’s financial contribution is typicallysmall relative to total health financing in a country, so its influ-ence depends on catalyzing wider reforms. The outcomes of re-forms have varied considerably: some countries achievedimprovements in system performance and outcomes (Estonia);others face continued deterioration in health services and stag-nation in health indicators (Romania).

The Bank’s initial health projects in the Region underesti-mated the political and institutional difficulties of reforms, andwere thus over-optimistic regarding the pace and prospects forreform. There is remarkably little evidence on the impact of re-forms, reflecting the lack of priority given to monitoring andevaluation. The Bank’s most successful projects, and its most sig-nificant contributions to the sector reform process, resulted

from lending or nonlending support for building capacity and con-sensus for reform. Given regular turnover of governments andministers, engagement with a wide range of stakeholders, in-cluding Parliament and opposition parties, is essential. Pro-jects were also more likely to be successful when carried outin partnership with other donors, nongovernmental organizations,or research institutes. The impact of studies and analyses de-pended on the extent of local involvement and dissemination (Al-bania, Hungary, Romania) and on the government’s absorptivecapacity for technical analysis (Albania, Romania). The Bank canfurther enhance its contribution to sector reform through im-proved monitoring and evaluation at the project and sector lev-els and through continuing to experiment with new lendinginstruments, including Adjustable Program Loans and Learningand Innovation Loans.

Source: Johnston 2002.

S u p p o r t i n g a H e a l t h y T r a n s i t i o n : E v i d e n c e f r o m S e l e c t e d C o u n t r i e s

B o x 2 . 2

fiscal responsibilities between branches and lev-els of government created an unstable businessenvironment. The limited capacity of tax admin-istrations led to tax evasion and arrears, unevenlyapplied tax rules, and a gap between effective andstatutory rates, driving entrepreneurs into the in-formal sector. The competitiveness of existing en-terprises was undercut by their energy inefficiency(spurred by past state energy subsidies) and bytheir social safety net responsibilities. The fi-nancial impact on the enterprises of collapsingmarkets, economic pricing of energy, and con-tinuing social expenditures was cushioned bycontinued subsidies through the banking sys-tem and from the energy companies. The failureof governments to develop sustainable, finan-cially sound welfare systems has made these gov-ernments loath to sever ties with enterprises,and has encouraged them to support loss-mak-ing enterprises that provide significant non-wagebenefits to employees. These issues and otherswill be taken up in the remainder of this section.Chapter 3 will discuss some crosscutting lessonsand recommendations.

Private Sector Development4

A major goal of the transition was to transformstate-dominated and controlled economies intomarket-driven, private sector–oriented economiesthrough the privatization of state assets, the im-position of market discipline on state-owned en-terprises (SOEs), and encouragement of newprivate enterprises.5 Both borrowing govern-ments and the Bank quickly identified PSD as acentral reform priority. Loans to Poland and Rus-sia in 1991–92 helpedshape a Bank strategy forPSD assistance with en-terprise reform at itscore. The central objec-tive was to establish a crit-ical mass of profit-seeking corporations, nolonger dependent on state support for their sur-vival, and a class of owners willing to invest in theirenterprises and manage their restructuring. Morerecently, post-privatization restructuring and as-sistance programs have grown in importance.Other categories of Bank assistance that con-

T H E M AT I C F I N D I N G S

1 5

Private property has

become the dominant

basis for productive

transactions in most of

the transition economies.

P r i v a t e S e c t o r S h a r e o f G D P , 2 0 0 2F i g u r e 2 . 1

0

10

20

30

40

50

60

70

80

90

100

Percent

CEE Baltics

Russia Other CIS

Czech R

epub

lic

Hunga

ry

Slovak

Repub

lic

AlbaniaPo

land

Bulgari

a

Roman

ia

Sloven

ia

FYR M

acedo

nia

Croatia

Eston

ia

Lithu

ania

Latvia

Armen

ia

Geor

gia

Georgi

a

Kazakhs

tan

Ukraine

Azerba

ijan

Kyrgyz

Repub

lic

Moldova

Tajiki

stan

Uzbekis

tan

Turkm

enist

an

Belarus

Russian

Fede

ration

Bosnia-

Herzeg

ovina


1 6


tained PSD components include financial sectorstrengthening, regulatory and judicial reform,and compensatory programs for vulnerablegroups (all discussed later in this report). The con-tributions of IFC and of MIGA are summarized inboxes 2.3 and 2.4 and annex tables A.14 and A.15.IFC provided substantial amounts of technical as-sistance in addition to its investments.

Private property has become the dominant basisfor productive transactions in most of the transi-

tion economies (figure2.1), but privatizationalone could not create areceptive investment cli-mate. Privatization led tobetter outcomes in theadvanced reformers of

the CEB than in the CIS countries. In the more ad-vanced reformers, firms have made significantprogress in cutting ties to the state, resolving fi-nancial difficulties, attracting investment, devel-oping new products, and finding new exportmarkets. The entry of large numbers of new firmsis responsible for much of the job creation in thesecountries. By contrast, the countries lagging behindhave yet to establish favorable conditions for firm-level reforms. Initial reforms have not created thefoundations for renewed growth, and significantparts of the enterprise sector in several countriesremain in a low-investment, low-restructuring trap.

Bank lending for PSD has had a number of ef-fects. It appears to have had the greatest impacton private sector growth in the CIS, where coun-tries receiving high levels of PSD commitments

The countries lagging

behind have yet to

establish favorable

conditions for firm-level

reforms.

IFC’s country assistance strategies focused on privatization as-sistance (including advisory work); pre- and post-privatizationfinance; development of financial markets; assistance to smalland medium-size enterprises (SMEs); and investments in infra-structure and export-oriented industries generating foreign ex-change. IFC broadly succeeded in following these strategies.Approval volumes were constrained mainly by external factorssuch as the absence of necessary reforms or interested sponsors,the Russian crisis, and the EBRD’s substantial market presence.

IFC strategies emphasized non-investment operations as away to leverage IFC’s expertise for maximum impact, initially inthe FSU countries (where viable investment opportunities werelimited by the dearth of suitable local companies having an ac-ceptable sponsorship or ownership structure and by the macro-economic downturn), and later also in Central and SouthernEurope as IFC increased its selectivity in that region. This strat-egy led to unprecedented volumes of technical assistance (TA),totaling US$170 million and including US$55 million in trustfund (TATF) assignments and US$12 million in PSAPT assign-ments, or one-third of TATF and PSAPT approvals worldwide, inFY90–03. The Foreign Investment Advisory Service (FIAS) per-formed 104 diagnostic reviews and other assignments, one-fifthof its global work.

Within its investment operations, during FY90–03 IFC ap-proved a net US$5.9 billion, or 14 percent of its worldwide netapprovals for the period, in 432 transition country projects, with

particularly high volumes in Russia (US$1.7 billion); Czech Re-public and Kazakhstan (US$0.5 billion each); and Hungary,Poland, and Romania (US$0.4 billion each). In line with strate-gic priorities, approvals were concentrated in finance (27 per-cent), infrastructure (17 percent), and oil and gas (10 percent).IFC also mobilized US$2.2 billion in syndicated loans from com-mercial banks.

A comparison of 61 mature investment projects in transitioncountries with 317 evaluated projects in other countries showsthat transition country projects had similar development out-come success rates and similar IFC work quality ratings, but significantly lower investment outcome success rates, and thusa significantly lower proportion of projects with both satisfac-tory-or-better development and investment (win-win) outcomes.This is not a surprising result given the pioneering nature of IFC’soperations in the Region—they were likely to produce sub-stantial development impacts, but exposed IFC to a greater de-gree of investment risk. Outcomes in Central and South EastEurope (CSE) and the Baltics were somewhat better than thosein the FSU. Projects in strategically targeted sectors and areasyielded mixed results:

• Privatization-related projectshad lower developmentand investment outcome success rates than other projects,reflecting problems related to the sustained “old-style” man-agement of privatized companies.

I F C ’ s S u p p o r t t o T r a n s i t i o n E c o n o m i e s B o x 2 . 3


1 7

• Financial marketsprojects had similar development out-come success rates, but significantly lower investment out-come success rates, than those in the rest of IFC, reflectingthe impact of the Russian financial crisis and the slower-than-expected pace of banking system development in most coun-tries.

• SMEprojects, which IFC supported mainly through financialintermediaries, had higher development outcome successrates than similar projects elsewhere. Projects in CSE coun-tries, where entrepreneurial culture was more developed, out-performed non-SME CSE projects on both development andinvestment outcome, while those in the FSU out-performednon-SME FSU projects on development outcome, but hadsimilar investment outcome success rates.

IFC’s transition country investment portfolio has performedvery poorly, making a significantly negative net contribution toIFC’s income for the FY90–03 period.

While comprehensive evaluation data are not available, TAwas delivered in a satisfactory manner and largely yielded pos-itive impacts. On both an ex-ante and ex-post basis, the Oper-ations Evaluation Group (OEG) concludes that the TA-intensivestrategy was appropriate, particularly for FSU countries, as anefficacious and efficient way of contributing unique addition-ality with pioneering reach, achieving broad development out-comes while minimizing investment losses.

The EBRD operates only in transition countries where it hasa broader mandate that includes public sector operations. Evenexcluding the public sector, EBRD’s commitments have ex-ceeded IFC’s nearly fivefold in CEE countries, nearly fourfold inthe FSU, and threefold in the Baltics, and its non-investment sup-port has exceeded IFC’s fivefold. EBRD’s appetite for investingsignificant amounts sometimes precluded IFC from attractive in-vestment opportunities, but, overall, its presence alleviated thepressure on IFC to commit larger volumes and enabled IFC to bemore selective, albeit within a much-reduced pipeline of op-portunities. Because the EBRD has played a major role in the Re-gion’s transition for the benefit of PSD in general, it isindeterminate whether its presence had a net positive or neg-ative impact on IFC’s investment and development results.

Among the lessons from IFC’s experience in transitioneconomies are the need to (1) tailor the mix of investment andnon-investment instruments to country circumstances and IFC’slearning curve; (2) analyze not only the client’s nominal share-holder structure, but also its underlying ownership; and (3) beprepared to intervene with the government to ease regulatorybarriers and protect the emerging private sector from unfairpractices.

Source: Operations Evaluation Group, IFC.

During FY90–02, MIGA issued guarantees supporting 88 projectsin 20 countries, for a maximum aggregate liability of over US$2billion (annex table A.15). These guarantees facilitated more thanUS$5 billion in foreign direct investment (FDI). Four countries ac-counted for two-thirds of the FDI: Russia alone received 27 per-cent; Bulgaria, 19 percent; and the Czech Republic and Poland,10 percent each. Close to half of the guarantees were for finan-cial services, and another quarter for manufacturing, 11 percentfor infrastructure, and 9 percent for mining. MIGA also providesinformation for potential investors through its Investment Pro-motion Network Web site (IPAnet) and other country-specificsites, such as PrivatizationLink Russia, launched in October 2000.

MIGA’s guarantee program in Russia prudently and selectivelymet demands from private investors for political risk insuranceand has suffered no losses. Similarly, in Bulgaria, MIGA did notsuffer any claim losses during the 1996–97 economic crisis.However, MIGA did not realize its potential in Bulgaria andKazakhstan. Bank staff, government officials, and the investmentcommunity are not always familiar with MIGA guarantee andtechnical services, and MIGA could do more within the coun-tries to promote its activities and increase its cooperation withother development institutions, including IFC.

Source: Operations Evaluation Unit, MIGA.

M I G A O p e r a t i o n s i n T r a n s i t i o n E c o n o m i e sB o x 2 . 4

quintupled the size of their private sectors rel-ative to GDP during 1992–00, while countries re-ceiving low levels of assistance only tripled therelative size of their private sectors.6 In the CEEcountries, the Bank had less apparent impact: therelative size of the private sector doubled re-gardless of the level of PSD assistance. A possi-ble explanation is that foreign direct investmentwas relatively more important in these coun-tries (see figure 1.4). While revenue generationwas not a central objective of privatization, thesale of large SOEs did generate significant pro-ceeds, as high as 20–30 percent of GDP (in Geor-gia, Hungary, Kazakhstan). More important, PSDassistance appears to have had a substantial pos-itive impact on enterprise reform, although thecausality could run the other way, with crediblesignals from governments regarding reformprompting greater amounts of lending.7

The most successful projects for SOE reformand restructuring tended to be either the firstmajor loans to countries, with borrowers whowere highly committed to reform (Hungary andKazakhstan), or loans following major TA or ad-justment efforts that laid the groundwork (Ar-menia, Latvia). The least successful projectsgenerally suffered from powerful domestic op-position, usually from trade unions (for example,in Bulgaria, Poland, and Romania); internal op-position within the governments; or overly am-bitious targets based in part on overestimationof borrower capacity and commitment.

Privatization of small enterprises was generallyrapid and successful (see figure 1.8). However, the

speed and methods usedfor the privatization ofmedium-size and largeSOEs—and the role ofthe World Bank therein—have been the subject ofmajor international de-bate since the beginningof the transition. Thisevaluation does not at-tempt to determine whowas right and who waswrong, or whether alter-native methods mighthave led to better out-

comes. Rather, it presents some of the lessonsthat can be gained from looking back at the ex-perience.

Critics have argued that the Bank (along withother donors) gave inadequate attention to in-stitutional deficiencies in the rush to promote thedivestiture of medium-size and large SOEs—particularly through sale mechanisms such asvouchers that did not ensure adequately con-centrated ownership—and that the Bank de-voted insufficient attention to regulatory regimesto strengthen post-privatization ownership struc-tures, corporate governance, and enterprise per-formance.8 Reviews of the literature and ofinternal Bank documents show that reformersand their advisors recognized the need to reformregulatory, anti-monopoly, commercial, capitalmarket, and bankruptcy regimes, but that thesewere often regarded as “second-generation” re-form issues, to be pursued once there was acritical mass of privatized firms. Bank assistanceprograms initially reflected the view that priva-tization must take place quickly, taking advantageof limited reform “windows,” to prevent the pos-sibility of reversals, including the return of thecommunists, and that new private owners wouldrestructure the enterprises, provide adequatecorporate governance, and lobby for further lib-eralizing reforms and supporting institutions.9

An analysis of CAS objectives shows that in theBaltics, Bosnia and Herzegovina, Kazakhstan,the Kyrgyz Republic, Moldova, Tajikistan, andUkraine, institutional reform objectives were in-cluded before or alongside privatization objec-tives, and a number of the early lending programsdid include projects to support institution build-ing, in addition to privatization and enterprise reform. However, for 17 other countries, insti-tutional objectives appeared late in the decadeor not at all. An examination of project docu-ments reveals that very few of the early Bank PSDprojects contained specific “institutional” com-ponents, and the majority of regulatory reformand competition policy projects were initiatedafter privatization in most transition countries,especially in the CIS.10

It should be noted that borrowers often pre-ferred reform packages that emphasized enter-prise reforms (especially privatization) at the

1 8


Privatization of small

enterprises was generally

rapid and successful.

However, the speed and

methods used for the

privatization of medium-

size and large SOEs—and

the role of the World Bank

therein—have been the

subject of major

international debate.

expense of institutional efforts, and in severalcases where “institution building” loans weremade before enterprise reforms or privatizationhad progressed substantially (Armenia, Bulgaria,and Ukraine in 1993, Georgia in 1995), the out-comes of these loans were unsatisfactory, mainlybecause of weak borrower commitment. Wheresignificant attention has been devoted to post-privatization regulatory structures and institu-tional frameworks to support markets, results aremixed: while many of the laws and institutionssupporting markets are now in place in mosttransition countries, the capacity of a number ofgovernments to enforce them has been severelyweakened by frequent changes in regulations,their discretionary interpretation by public offi-cials, and the resulting corruption.

The ownership structure emerging fromvoucher privatization schemes has been associ-ated with low investment and little restructuring(Djankov and Murrell 2000). In some countries—particularly those for which EU accession was acentral policy objective—the requirements ofaccession prompted the pursuit of second-gen-eration reforms. But in many CIS countries thismomentum did not materialize. It soon becameevident in some countries that vested interestshad become powerful enough to oppose theadoption of institutional and regulatory frame-works that would constrain their further acqui-sition of wealth. With the knowledge afforded by

hindsight, it is apparent that the Bank, along

with other donors, should have tried harder to

promote the improvement of the institutional

framework for business and investment, as well

as, and in parallel with, privatization. All transition countries have enterprises whose

sale and restructuring has proven highly prob-lematic. In the worst cases, these ailing firmshave continued to drain public resources andhave bottled up valuable assets that could beused by new firms. In many cases, it was evidentearly on that the enterprises were value sub-tracting and would receive little new investment.Reliance on bankruptcy procedures—no mat-ter how well designed—in addition to burden-ing the limited capacity of the judicial systems,proved disappointing, even in some advanced re-formers. Administrative or other out-of-court

procedures were oftenoverwhelmed by theenormity of the task, theshortage of staff and in-stitutional capacity, andsocial or political pres-sures. The approach to

problematic firms could

be improved in the fu-

ture through greater at-

tention to the design of

rule-based administra-

tive procedures to initi-

ate the liquidation of

enterprises while they

are on the state’s bal-

ance sheets. The emphasis in future

privatization should,

when circumstances permit, be on more meas-

ured, better prepared transactions and on help-

ing governments ensure that the process is

transparent, competitive, and open to foreign

participation. The lagging reformers often have lit-tle knowledge of trade sales, workouts and liqui-dation, or investor-led restructuring. For internalpolitical reasons, government officials are fre-quently reluctant to use outside experts. The Bank

and IFC/EBRD should work in tandem, with the

Bank helping to organize the process, and the

IFC/EBRD making investments.11

The bulk of PSD assistance until the late 1990swas devoted to the privatization of existing SOEs,rather than support for new firms. Experiencedemonstrates, however, that in both advancedand slow reformers, recovery was achievedlargely because of the the expansion of newfirms. The Bank is now focusing more heavily

on promoting improvements in the business

environment, with an emphasis on removing

barriers to the entry of new firms and barriers

to exit for others, and creating incentives that

allow existing firms to

move out of the infor-

mal sector (World Bank

2002b). A variety of legal

reforms are needed—incompany law, collaterallaws, security laws, bank-


1 9

While many of the laws

and institutions

supporting markets are

now in place in most

transition countries, the

capacity of a number of

governments to enforce

them has been severely

weakened by frequent

changes in regulations,

their discretionary

interpretation by public

officials, and the

resulting corruption.

Future privatization

should ensure that the

process is transparent,

competitive, and open to

foreign participation.

ruptcy and anti-mo-nopoly laws. Moreover,respect for private prop-

erty and contractual

rights and the assurance

that judicial enforce-

ment is competent and non-corrupt will re-

main critical for the growth and expansion of

the private sector.

Finally, political analysis could have informedthe Bank’s work to a greater extent than it did.For example, staff communications regardingPoland’s privatization program reveal a fear of en-terprise workers’ councils, particularly when itcame to granting them a veto over the privati-zation of their firms. In the event, widespreadprotests against reform by workers did not, forthe most part, materialize. There were strikes anddemonstrations against enterprise reforms—particularly among coal miners in Ukraine, Ro-mania, and elsewhere—but these were relativelylocalized. More often, workers—and laborunions—emerged as allies of enterprise reform.In Poland and the Czech Republic, for example,it was the labor unions that served as a check onthe excesses of SOE managers (limiting theirasset-stripping and theft) and that demandedsecond-generation regulatory and institutional re-forms following privatization. This finding sug-gests that greater emphasis should be placed on

building local constituencies—not merely en-

trepreneurs, but workers and reform-minded

local politicians as well—capable of demand-

ing further policy reforms. These constituenciescan be developed through consultations withcivic groups—particularly those representinglabor interests and business associations.

The Bank’s ECA Region carried out its ownstudy of the transition after 10 years (World Bank2002b). The lessons and agenda for the futurethat emerge from that study are reproduced inbox 2.5. OED agrees with these lessons. With the

benefit of hindsight,OED also considers thatthe Bank should havepursued this agendasooner than it did.12 Inthe earliest years of thetransition, many of the

choices made by the Bank were probably ap-propriate, given what was known at the time.However, by the mid-1990s, it is reasonable to askwhether the Bank was focusing sufficiently on theclimate for PSD and the appropriate methods forprivatizing medium-size and large enterprises.13

Governance, Public Sector Management,and Institution Building14

At the start of the transition, few in the Bankwere focused on assistance for governance andPSM reform. The World Development Report

1983: Management in Development had high-lighted the role of good government in devel-opment, and the Bank’s first PSM team had beenestablished in the early 1980s within central proj-ects staff, but from the late 1980s through the mid-1990s, the subject received little attention. TheECA Region established a small group in the early1990s, but did not build up a substantial numberof specialists until 1997 (the year in which theWorld Development Report focused on the roleof the state). The Bank’s approach to governancewas first set out in a 1992 publication entitled Gov-

ernance and Development, which recognizedthat the quality of governance had a determiningimpact on economic development and was there-fore an appropriate matter for the Bank to address(see also Shihata 1991).

A review of transition CASs in the early tomid-1990s shows little concern with governance,a finding not unique to the ECA Region. Duringthe period FY94–98, the proportion of lendingBankwide for public sector governance was 8 per-cent, and for rule of law, 1 percent. In ECA, lend-ing for these areas was 9 percent and 2 percentof the total respectively; only the Latin Americaand Caribbean Region lent as high a share of itsresources to these areas. Nonetheless, in retro-spect, the modest efforts—by the Bank; by otherdonors; and, most important, by the countriesthemselves—to address the countries’ weak ca-pacity to manage the reform process were notsufficient in the face of the persistence of poorgovernance, a high degree of “state capture” by private interests, and pervasive bureaucraticcorruption.

The first Bank report to discuss corruptionopenly appeared in 1997 (World Bank 1997b). In

2 0


Political analysis could

have informed the Bank’s

work to a greater extent

than it did.

At the start of the

transition, few in the

Bank were focused on

assistance for governance

and PSM reform.

2000 the ECA Region published Anticorruption

in Transition. In the same year the Bank issuedits first major strategy paper on public sector re-form (World Bank 2000d), which confirmed thatgovernance had become a central concern ofthe Bank. Almost all transition CASs now placePSM reform at the center of the assistance strat-egy, and this has been reflected in recent proj-ects. An example of this turnaround is Albania:the CAE found that the lack of focus on gover-nance and institutional reform was a criticalomission during 1992–97. Since 1999, however,OED project assessments have found that theBank has made a substantial contribution to PSMreform, including the introduction of a medium-term expenditure framework and initiation of ju-

dicial and public administration reform. Simi-larly, in Russia the Bank largely neglected PSM atfirst—neither of the first two quick-disbursingloans (1993 and 1995) included PSM reform—but since 1998, it hassupported significantpublic sector reforms. As-sistance to the Kyrgyz Re-public through 2000included only one proj-ect and no ESW address-ing governance and PSM; the most recentprojects take a comprehensive approach, usingadjustment and TA and covering a wide set of in-terrelated issues, including civil service reform,accountability, and civil society voice and access.


2 1

• Privatization should be part of an overall strategy of disciplineand encouragement.

• Small enterprises under state ownership (generally enter-prises with fewer than 50 employees) should be sold quicklyand directly to new owners through an open and competitiveauction, without restrictions on who may bid for the shares.

• Medium-size and large enterprises should target sales tostrategic outside investors. With a concentrated, controllinginterest, they will have a clear stake to best use the enterprises’assets. Although several transaction methods may be used, in-cluding negotiated sales, this can be brought about most ef-fectively through competitive “case-by-case” methods, moredeliberative than voucher schemes or rapid, small auctions.They use independent financial advisors who both prepare theenterprise for sale and act as sales agents on behalf of the state.

• Investor protection should be enshrined in the legal systemand enforced, covering rules to protect minority sharehold-ers; rules against insider dealings and conflicts of interest;creditor surveillance accounting, auditing, and disclosurestandards; and takeover, insolvency, and collateral legislation.When court enforcement of contracts is weak, these provi-sions should be supplemented by a stock market regulationfor financial intermediaries, such as investment funds and bro-kers, who then have an incentive to ensure compliance byother participants in financial markets. This will set the stage

for privatization of future medium-size and large enterprises.It will also improve the performance of existing privatized en-terprises by assisting transparent consolidation of shareswhere ownership is diffuse. It will also facilitate bank- andnonblank-based financial intermediation.

• Privatization should be accompanied by increasing compe-tition in the market for the products sold by the enterprise inquestion and vigorously enforced by the competition policyauthority. This can discipline managers in an environmentwhere corporate governance is weak.

• The cash flow and property rights of the state should be clar-ified for enterprises in which the state continues to hold anownership stake.

ª Divesting enterprises in sectors characterized by natural mo-nopoly or oligopoly (where average production costs declinecontinuously as scale increases and the market and societyare best served by one or a few enterprises) must proceed withgreat caution, if at all. Advances in technology have made suchsectors increasingly rare. But where they exist—as in localdistribution of natural gas—an efficient regulatory regimethat protects the public interest is a prerequisite, lest di-vestiture transform an inefficient public monopoly into apoorly regulated or nonregulated private monopoly.

Source: World Bank 2002b pp. 79–80.

L e s s o n s f r o m T r a n s i t i o n —T h e F i r s t T e n Y e a r s

B o x 2 . 5

Almost all transition CASs

now place PSM reform at

the center of the

assistance strategy.

Given the many influ-ences at work, it is diffi-cult to distinguish theimpact of Bank assis-tance from that of otherparticipants. At leastsome of the available

data suggest an improvement in governanceover the past six years. The World Bank Institute’s(WBI) governance database includes indicatorsof governance performance across 6 dimensionsfor 27 transition economies. Ninety-five obser-vations showed improvement between 1996 and2002, while 65 recorded deterioration.15 Progresswas uneven across the dimensions: “regulatoryquality” showed the greatest improvement (18countries), while “control of corruption” showedthe least (11 countries). “Voice and accounta-bility,” “political stability,” and “rule of law” eachimproved in about 16 countries. The CEB coun-tries, particularly those acceding to the EU, havemade greater progress than the others (figure2.2). In 2002, the lowest scores for the CIS coun-tries were generally in “control of corruption” and

“voice and accountability,” while the lowestscores for the CEB countries (though still abovethe CIS) were in “control of corruption,” “ruleof law,” and “government effectiveness.” Fur-ther evidence is found in the Bank’s reports oncorruption in ECA (World Bank 2000a; 2004),which show mixed but generally encouragingtrends in both the CEB and CIS.16 However, con-cerns over data comparability put these con-clusions in doubt, and other sources of data—forexample, the Global Competitiveness Survey—indicate that corruption in ECA is increasing,not decreasing.

It appears that an inadequate understanding ofthe political and social situation contributed to fail-ures in some operations, such as when the UkraineParliament rejected a loan that had already beennegotiated.17 The design and implementation of

reform initiatives should be based on an un-

derstanding of the underlying political and so-

cial processes at the core of government that

determine the motivation and behavior of stake-

holders. Such understanding would enable the re-forms to take into account the realities that help

2 2


Stakeholder analysis

should be standard

practice, and an integral

part of program and

project design.

I m p r o v e m e n t s i n G o v e r n a n c e I n d i c a t o r s ,1 9 9 6 – 0 2

F i g u r e 2 . 2

0

2

4

6

8

10

12

14

Voice andaccountability stability

Political Governmenteffectiveness quality

Regulatory Rule of law Control ofcorruption

Number of countries showing improvement

CEE + Baltics (14 countries) CIS (12 countries)

Note: Total sample, 26 countries: Bosnia and Herzegovina not included in government effectiveness and control of corruption measures.

Source: WBI Governance Indicators (http://www.worldbank.org/wbi/governance/govdata2002).

explain the functioning of public institutions.18

Stakeholder analysis, which until recently waslargely absent from the ECA Region’s work pro-grams, should be standard practice, and an inte-gral part of program and project design. TheRegion has recognized the importance of thiswork in recent publications (World Bank 2002b)and seminars; boxes 2.7 and 3.1 provide good ex-amples from a number of countries.

Many of the components of a PSM reformstrategy are interdependent, with financial, legal,administrative, and personnel aspects. They alsocut across sectors. Yet in most of the cases ex-amined for this study, reform was approached inan ad hoc, incomplete manner, without a com-prehensive, cross-sectoral institutional devel-opment and PSM reform strategy. Moreover,institutional reform goes beyond changing or-ganizational structures and rules; it also involvesdiscarding long-established habits and patternsof behavior—a complicated and lengthy process.Major institutional changes of the kind neededin the transition economies may have to bespread over several decades, rather than com-pressed within the time frame of one or a few adjustment loans. Two relatively new instru-ments—Adjustable Program Loans (APLs), withtheir ten-year horizon, and Learning and Inno-vation Loans (LILs), designed to support reformsinvolving a long learning process—seem to bewell suited to the situation in some transitioneconomies. A Bank review of the early experiencewith such lending noted that it was particularlysuitable for dealing with institutional reformsinvolving substantial changes in bureaucratic be-havior. Where it is relevant, the ECA Region

should seek to adopt a long-term strategy for in-

stitution building assistance, based on a “learn-

ing approach,” with a 10–20 year commitment,with the understanding that programs will needto be modified over time.19

Public expenditure analysis has long been acentral focus of Bank economic work, but, asnoted above, it received little attention in thetransition economies until the late 1990s. In themeantime, the Bank had transferred considerablesums to transition economies (especially Russia)in the form of adjustment loans, without thebenefit of credible systems of public financial

accountability, detailedknowledge of inter- andintra-sectoral expendi-ture allocations, or in-formation on thedistortions from budgetexecution, which maydeviate substantiallyfrom budget allocations. Toward the end of thedecade, the pioneering work by the ECA Re-gion, and the surveys by the Bank, the EBRD, andothers, documented pervasive corruption andmassive diversion of public resources in the Re-gion and opened this area to wide public de-bate.20 This work highlighted the importance ofconfronting corruption, an issue that had pre-viously been taboo for the Bank, as well as theneed to link public expenditure analysis withthe broader issues of public financial accounta-bility (Sahgal and Chakrapani 2000). In 2000 itbecome mandatory for country teams to pre-pare a Country Financial Accountability Assess-ment, a Country Procurement AssessmentReport, and a Public Expenditure Review foreach borrower. To date, all three have been com-pleted for only nine transition countries, al-though the ECA Region is planning to completethese diagnostic studies for all of its countries bythe end of FY04. Given the pervasive corruption

so well documented in Anticorruption in Tran-sition, this work is clearly of great importance.OED’s recent review of progress in main-streaming anti-corruption activities in Bank as-sistance (OED forthcoming) concluded that the

Bank should set minimum governance pre-

requisites for lending, and this is particularly

important when large amounts of money are

at stake.

Improving public financial accountability de-pends on the willingness of the political leadersand key officials to change the system. One wayto build ownership of the reforms is to have the

key players participate in and share the diag-

nostic. Most studies to date have not been jointexercises, and it is not clear whether borrowersare truly eager to achieve genuine public finan-cial accountability. Strengthening of public fi-nancial accountability generally results in some“losers”; stakeholder analysis can help those pro-


2 3

Institutional reform

involves discarding long-

established habits and

patterns of behavior—a

complicated and lengthy

process.

moting reform to under-stand and modify the in-centives facing key actorsto motivate them to sup-port reform. Followingthe studies, the govern-

ments should prepare

time-bound, monitorable action plans, agreed

with the donor community.

A key tool to increase public accountability anddiscourage corruption of all types is transparency.The Bank has had a major influence through itsinsistence in projects on transparent practices inareas such as procurement and tax administra-tion.21 While recognizing that increasing atten-tion is being paid to promoting a culture oftransparency, more emphasis is warranted. TheECA Region should go out of its way to make allits studies and documents public and to dis-seminate them fully— the Bank already has a dis-closure policy that is very supportive of thisobjective, but the delivery is still weak.22 In ad-dition, through all its operations, the Region

could encourage gov-

ernments to report more

regularly and more fully

to their parliaments and

to the public at large

(through government

Web sites). Equally, the Region could encour-age all governments to replace their secrecy lawswith public information acts along the lines nowbeing proposed in Uzbekistan.23

E-governance, the use of information andcommunications technology, has tremendous

unexploited potential to increase public ac-

countability by improving the transparency ofgovernment actions, tracking the movement offunds, and reducing the number of face-to-faceinteractions between the officials and the pub-lic where corruption might arise (in paying cus-toms duties and taxes, obtaining permits,registering land, tendering and procurement,and the like). The ECA Region has only a pilotproject in this area. Box 2.6 presents some ex-amples of the benefits of e-governance in anotherRegion.

Establishing the rule of law is critical if the tran-sition economies are to build successful demo-cratic market-based economic systems. Mosttransition economies urgently need assistance forjudicial reform, an important aspect of the ruleof law, but the ECA Region, along with the restof the Bank, geared up slowly in this area. NoCASs discussed judicial reform before FY97, andin the following four years, only three cited prob-lems in the judiciary, although many identifieddeficiencies in specific laws. Through 2001, the

2 4


The governments should

prepare time-bound,

monitorable action plans,

agreed with the donor

community.

The Department of Revenue in Karnataka has computerized 20million records of land ownership by 6.7 million farmers in thestate. Previously, farmers had to seek out the village account-ant to get a copy of the Record of Rights, Tenancy and Crops (RTC),a document needed for many tasks such as obtaining bankloans. There were delays and harassment. Bribes had to bepaid. Today, for a fee of Rs.15, a printed copy of the RTC can beobtained online at computerized land record kiosks in 140 offices.

The Central Vigilance Commission has begun to share withcitizens a large amount of information related to corruption. ItsWeb site has published the names of officers from the elite ad-ministrative and revenue services against whom investigationshave been ordered or penalties imposed for corruption. Through

the use of computers and other electronic devices at 10 remoteinterstate border check posts in Gujarat, India, a team of pub-lic officials has reduced corruption and significantly increasedthe state’s road tax revenue.

The Vijaywada Online Information Center (VOICE) delivers mu-nicipal services such as building approvals and birth and deathcertificates, and handles the collection of property, water, andsewerage taxes. The VOICE system uses five kiosks locatedclose to the citizens. It has reduced corruption, made access toservices more convenient, and improved the finances of themunicipal government.

Source: http://www1.worldbank.org/publicsector/egov/india.htm

R e d u c i n g C o r r u p t i o n t h r o u g h E - G o v e r n m e n t i n I n d i a

B o x 2 . 6

Most transition

economies urgently need

assistance for judicial

reform.

Region had supported only six stand-alone ju-dicial reform projects. While another 11 had sig-nificant judicial reform components, and 79 hadlegal reform components, these often supportedpassage of laws or supplied equipment, ratherthan encouraging the reform of systems. More-over, three-quarters of these projects came onlyafter FY95. Evaluation reports suggest that themajority of laws supported by the Bank havebeen submitted or passed, but that legal reformhas not yet met the broader objectives stated inthe loan documents (Gupta, Kleinfeld, and Sali-nas 2002). This is a big issue for EU accessioncountries. While the focus on this important

area has increased, additional attention is

warranted, possibly including the creation

of judicial reform capacity within the ECA

Region.24

Governments are unlikely to carry through amajor reform of PSM unless pushed and moni-tored by a vocal, informed, and organized civilsociety. A well-conceived strategy for public sec-

tor reform will include initiatives to mobilize

and build the capacity of civil society, includ-ing NGOs, civic organizations, professional as-sociations, business chambers, and thepress—the “drivers for change.” The Bank largelyignored civil society in this context, but some in-

novative initiatives have taken place during the

last three years (box 2.7); they should be greatly

expanded in the future.

Financial Sector25

At the outset, transition economies possessed fi-nancial systems whose basic purpose was to al-locate funds according to the plan, with a limited

capacity to intermediatefinancial resources andno need for prudentialregulations of financialsupervision. Initial CASs,with few exceptions,treated financial sectorreform as a central element of the transition.The immediate objectives were to create an ef-ficient and unified payments and settlement sys-tem; the policies, institutions, and instrumentsnecessary to design and execute monetary pol-icy operating through market processes; and anefficient system for mobilizing savings and di-recting them toward the most promising in-vestors and investments, bringing marketdiscipline to bear on the decisions and man-agement of the borrowers themselves. In broadterms, the assistance programs have been highlyrelevant. A basic understanding quickly formedin the Bank with respect to the essential ele-ments of financial sector transition, and these el-ements were repeated in almost all the countrieswhere active programs and dialogues were sus-tained. Macroeconomic stability was emphasizedas a precondition for healthy financial develop-ment. Bank programs focused on putting inplace the basic legal and regulatory frameworkand accounting systems for a market-based fi-nancial system, with initial emphasis on thebanking sector. Efforts were made to imposemarket discipline on the decisions of banks andenterprises through hard budget constraints.However, such constraints were not always en-forced. Moreover, the need to reform the en-terprise and banking sectors in parallel was


2 5

A well-conceived strategy

for public sector reform

will include initiatives to

mobilize and build the

capacity of civil society.

A “People’s Voice” project, promoted by the Bank, aims to buildintegrity in municipal government and pressure local leaders frombelow to improve public service delivery. Surveys have been usedto provide monitoring and feedback. This has led, for example,to the establishment of one-stop citizen service centers. Onemunicipality established working groups to respond to the serv-

ice weaknesses revealed by the surveys. The 2000 CAS, recog-nizing that governance and institutional reform would only be suc-cessful if there was true ownership by government, Parliament,and a majority of civil society, stated that the Bank will work “inpartnership with stakeholders and will incorporate benchmarksof increased transparency and accountability in its operations.”

U k r a i n e — S t r e n g t h e n i n g C i v i l S o c i e t yB o x 2 . 7

sometimes ignored, and the magnitude of the re-quired shift in social expenditures away fromenterprises was underestimated.

The Bank’s financial sector analytical workhas generally been of high quality, but its timingmay have reduced its impact: fewer than one-third of the reports reviewed for this evaluationwere completed in the first half of the decade(through 1996), but during this time more thanhalf of the lending operations with financial sec-tor components were approved. Some extremecases were Armenia, Georgia, and the KyrgyzRepublic, where the first pieces of formal finan-cial sector work appeared only in 1999–00, fol-lowing substantial Bank lending in the financialsector, and Albania, Bosnia and Herzegovina,and Poland, where no dedicated formal financialsector work was found at all, despite numerousloans aimed at least partly at financial sector objectives.26

The number and volume of Bank loans for fi-nancial sector development rose rapidly after1991. Lending began to taper off after 1996, re-flecting progress in some cases, frustration inothers, and a tendency of the EU accession coun-tries to rely increasingly on European assistance.Both governments and external donors often re-sponded to rapidly unfolding events with stop-gapmeasures, and lending programs and policy dia-

logues were interruptedby changing governmentsor by policy reversals.Country circumstancesvaried widely. Thus, al-though specific reform el-ements are common tomost programs, it is notsurprising that the Bankdid not follow a commonapproach to the selectionor sequencing of opera-tions. For example, in afew cases (such as the1995 assistance strategy

for the former Yugoslav Republic of Macedonia),staff asserted that Bank credit line operationswould require the satisfactory implementationof banking reforms under the ongoing adjust-ment loan. In other cases, staff argued that credit

was essential for spurring a supply response fromthe private sector and could not wait until themacroeconomic and sectoral policy and institu-tional framework were perfected (Albania andBosnia and Herzegovina). In a few cases, lendingprograms comprised only one or two operationsover the entire decade, either because of lack ofagreement on strategy (Belarus, Slovak Republic,Turkmenistan) or lack of interest in borrowing(Czech Republic).

The Bank’s assistance to financial sector tran-sition cannot be evaluated by adding up or av-eraging the programs undertaken in 26 differentcountries. At the extremes, a very modest Bankintervention in Estonia was associated with highlypositive results because of foreign investmentand the reform dynamic and skills already avail-able in the country (annex table A.7 includessome indicators of financial sector reform). Lim-ited interventions in Belarus and Turkmenistan,in contrast, were associated with virtually noprogress at all, which was explained largely by thecountries’ resistance to change. Among countriesranked as top performers by the end of thedecade, Hungary and Poland each benefitedfrom substantial financial sector lending pro-grams.27 However, after a very large lending pro-gram with financial sector objectives, Russia wasstill in the lower echelon of countries in finan-cial sector development. The size of the pro-grams responded to the degree of interest ofgovernments in borrowing, the rate of progressin implementation, and the degree of externalpressure on the Bank to keep resources flowing.In addition to differences in initial conditions, re-sults depended largely on the ability and will-ingness of governments to reform institutionsand make the difficult political decisions required.

Most transition economies have made tangi-ble progress toward the development of market-based financial systems. Figure 2.3 shows, forexample, growth in credit to the private sector.However, levels of financial development var-ied widely by the end of the decade, with the CEBcountries significantly more advanced than thoseof the CIS.28 Major issues remain to varying de-grees in all countries, including inadequate fi-nancial sector supervision and accounting

2 6


Both governments and

external donors often

responded to rapidly

unfolding events with

stop-gap measures, and

lending programs and

policy dialogues were

interrupted by changing

governments or by policy

reversals.

standards, poor corporate governance, low lev-els of monetization and intermediation, small andilliquid capital markets, and weak bankruptcylaws and protection of creditor rights. Effortsto tighten budget constraints on banks and en-terprises were largely unsuccessful because ofweak administrations and legal institutions, in-adequate information, and the heavy social andpolitical costs of enforcement. A number of les-sons have emerged.

The constitution of a proper legal and reg-

ulatory framework is essential for an efficient

market-based financial sector, and Bank pro-grams have correctly emphasized putting thisframework in place. However, submitting andeven enacting laws is not enough. Some of thelaws that were enacted were hastily drafted, andlater had to be modified or replaced. The key is

implementation of the legal framework, in-

cluding laws governing banking and central

banking, bankruptcy, and collateral. Slowprogress in upgrading the authority and effec-tiveness of the bank supervisory agency, in-cluding the resolution of failed banks, has beena consistent predictor of poor financial sectorperformance. Increasing effectiveness of bank

supervision should be an important trigger for

financial assistance. Similarly, while most Bankassistance for financial sector transition haspressed for their adoption, progress in the ef-

fective enforcement of international account-

ing standards should be viewed as an early

indicator of the authorities’ determination to

carry out reform and as another trigger for

Bank financial assistance.

The most serious shortcomings in the Bank’ssupport to legal and regulatory reform were inunderestimating the time and the additional as-sistance and human resource development re-quired to make the new laws and regulationseffective. The virtual ab-sence of specializedlawyers, judges, ac-countants, and otherprofessionals was recog-nized and given consid-erable emphasis in theBank’s policy papers andESW reports, and highlyspecific training was pro-vided through TA and in-vestment loans to the


2 7

C h a n g e i n D o m e s t i c C r e d i t t o P r i v a t e S e c t o r , 1 9 9 3 / 9 5 t o 2 0 0 2

F i g u r e 2 . 3

–10

–20

–40

–50

–30

0

10

20

30

Croatia

Hunga

ry

Sloven

iaPo

land

Roman

ia

Albania

Slovak

Repub

lic

Bulgari

a

FYR M

acedo

nia

Czech R

epub

licLat

via

Eston

ia

Lithu

ania

Russian

Fede

ration

Ukraine

Kazakhs

tan

Moldova

Azerba

ijan

Belarus

Georgi

a

Armen

ia

Turkm

enist

an

Kyrgyz

Repub

lic

Percent of GDP

CEE

Baltics

Russia Other CIS

Note: Data for Turkmenistan are for 2000.

Source: World Development Indicators.

The most serious

shortcomings were in

underestimating the time

and the additional

assistance and human

resource development

required to make the new

laws and regulations

effective.

staff of project implementation units, to finan-cial intermediaries participating in Bank creditlines, and to the restructuring and privatizationagencies. However, few resources were devotedto the extended training needed to operate thelarger system. High priority should be given to

the intensive training of bank supervisors,

lawyers and judges, accountants and auditors,

and the other skilled professionals on whom

the effectiveness of the legal and supervisory

framework depends. As noted above, growing

recognition in the Bank of the time required for

the institutional changes needed to sustain

structural change has led to the introduction of

new lending instruments, such as APLs, de-

signed to provide continuing support over a

longer time horizon.

Strong, financially sustainable banking insti-tutions are essential to the development of sta-ble financial systems and to the efficientintermediation of financial resources. State-owned banks, especially those emerging from thecentral planning tradition, have seldom demon-strated long-term prospects for becoming soundand efficient financial intermediaries, and earlyefforts should be made to attract reputable pri-vate strategic investors. Among 17 transitioncountries to which the Bank lent for privatization,the public share of assets in banks fell from 94percent in the early 1990s to 20 percent a decadelater; this compares to a decline from 77 percentto 25 percent in a worldwide sample of countries.In cases where privatization is not rapid or com-plete, however, state-owned banks cannot beignored. While fully commercialized behavior

may be an overly optimistic expectation, sub-

stantial efforts are still needed to improve the

incentive framework that guides the behavior

of state-owned banks, through stronger gover-

nance, tighter budget

constraints, enforce-

ment of prudential reg-

ulations, divestiture of

branches, and restric-

tions on the scope of

banking licenses.

Although the Bankwas a leader in analyzingthe interrelationships be-

tween banking sector and enterprise reform andin developing comprehensive programs for re-forming the two in parallel, some of the majoranalyses and assistance efforts did not take theminto account. In Russia the early, rapid privati-zation of both banks and enterprises apparentlyobscured the continuing interlocking owner-ship and accompanying governance issues thatundercut the reliance on private operators to re-alize the real sector restructuring and credit re-allocations. Country strategies did not paysufficient attention to how the process couldbe subverted by the perverse incentives of bankand enterprise managers and interlocking own-ers. Privately owned banks strongly interlinkedwith major borrowing enterprises make poorcandidates for sound and efficient intermedia-tion. Measures are needed early in the transi-

tion process to strictly enforce prudential

regulations, which can include minimum cap-

ital requirements and limiting loan concen-

tration and related-party lending. Bank

ownership and governance issues should, along

with financial viability, be scrutinized care-

fully in determining the eligibility of financial

institutions to participate in Bank TA programs

and credit line operations.

Institutional development programs for par-

ticipating banks should attach high priority to

strengthening basic banking skills, such as credit

policies and procedures, risk management, in-

ternal controls and information systems, in-

cluding accounting standards. Support to the

development of sound financial and regula-

tory institutions requires a multi-year com-

mitment and is highly supervision-intensive.The Bank and other donors have provided largeamounts of TA for this purpose. Even when otherdonors finance the assistance in the context ofa broader Bank program, the Bank should mon-itor its progress, since it is crucial to the successof the overarching objectives. Assessment of thisprogress should be a central consideration in thedecision of whether to go forward with a follow-up project.

Close to half of all operations with financialsector components in the transition economiesover the past decade have included lines ofcredit intermediated through private or public

2 8


Support to the

development of sound

financial and regulatory

institutions requires a

multi-year commitment

and is highly supervision-

intensive.

financial institutions, although total commit-ments for such projects have fallen dramatically.Over three-quarters of the Financial Intermedi-ary Loans (FILs) in the ECA Region have been insectors other than finance, with the biggest con-centration in the rural sector. The wide variationfound in the timing, design, implementation,and evaluation of FILs suggests a continuedwidespread ambivalence within the Bank abouttheir proper objectives, including the financialsustainability of the intermediaries, and the con-ditions under which they should be carried out.Moreover, the underlying assumption that creditwould be a binding constraint on PSD in theearly transition experience can be questioned inhindsight, as the utilization of credit lines was farless than anticipated: 40 percent of commit-ments approved during FY93–02 were canceled.Ratings of projects containing lines of credithave been particularly low in the financial, rural,social protection, and PSD sectors (less thanhalf of commitments satisfactory). Financial

sector staff should be systematically involved in

the design of financial intermediary opera-

tions and should ensure that the factors that will

determine the sustainability of the financial

flows, instruments, and institutions being sup-

ported are adequately taken into account. 29

As the number of FILs has fallen, a growingshare of recent operations has supported thestart-up of rural and microfinance institutions,which initially depend on government and/ordonor resources. Their eventual sustainabilityand independence will require a capacity to mo-bilize savings and attract commercial funds. Mi-

crofinance projects should give greater attention

to developing savings services and the resulting

supervision requirements, and they should in-

clude a donor exit strategy from the start.

Capital markets development was sometimesoveremphasized in the early years of the transi-tion, both within and outside the Bank, as aprincipal means to rationalize corporate gover-nance and finance enterprise restructuring, andthe attention given this issue was counterpro-ductive to the extent that it drew attention awayfrom more immediate concerns. No formal stockmarket could have played the role assigned to itby the mass privatization proponents without first

having a properly functioning banking system, ad-equate accounting and auditing conditions witheffective disclosure requirements, responsiblecorporate governance, and protections for mi-nority shareholders, and the problem was exac-erbated by most shares being in the hands ofindividuals with little idea of their meaning andworth. While the development of efficient cap-

ital markets is an important component of fi-nancial sector development, it does not have

the same urgency as the need to build a strong

banking system.

Social Protection30

The transition strategy adopted by the donorcommunity gave high priority to stabilization ofthe economy and structural reforms to mod-ernize and privatize key economic sectors. Reformof the social protection system was viewed largelyas a way to cushion the impact of the disruptionsfrom the structural reforms.31 But the transitionpresented major challenges for social protectionsystems. The changes in industrial structure in-creased, at least in the short run, the demand forassistance to job losers. Lower-income house-holds needed protection from consumer price in-creases resulting from the removal of indirectsubsidies, and assistance programs required moreeffective targeting as unemployment rose andcompensation differentials increased. Privatizationof enterprises that had formerly maintainedrecords and paid most social protection benefitsrequired the creation or reform of governmentor other specialized institutions to administerbenefits. Finally, all of these changes took placeat a time of diminished fiscal capacity. Pension pro-grams were particularly affected. With privatiza-tion and increased self-employment, often up tohalf of the labor force fell out of the formal sys-tem, sharply reducing contributions, while mostof those already eligible, along with new retirees,still qualified for benefits based on previous em-ployment. It also became clear that new forms ofintergovernmental fiscal arrangements wereneeded to allow nationaland local governments toshare the fiscal burden.

The Bank had had lit-tle experience with so-


2 9

Often up to half of the

labor force fell out of the

formal system.

cial protection programs. Its initial social pro-tection reform agenda for the transitioneconomies emerged from sector reviews un-dertaken in the early 1990s on several countries,and was articulated most completely in Labor

Markets and Social Policy in Central and East-

ern Europe (Barr 1994). Bank activities gener-ally followed this agenda, and subsequentinternal analyses confirmed its relevance.32 Areasof primary emphasis included strengthening em-ployment services, reforming pension systems,and improving benefits targeting. The agenda forpension reform, particularly the recommendedmove to flat benefits, was not popular in manytransition countries.

The situation was complicated by an alterna-tive model, presented in Averting the Old Age Cri-

sis (World Bank 1994), based primarily onexperience in Latin America and focused exclu-sively on pension reform, where it advocated athree-pillar system.33 This model was not incon-sistent with the long-run agenda in Labor Mar-

kets (Barr 1994)—the first pillar would providethe minimum income guarantee of the flat ben-efit structure—but if adopted too early in thetransition, its shift to advance funding for thesecond pillar (comprising individual accounts)would exacerbate the fiscal problems of transitiongovernments by diverting some of the pensioncontributions being used to finance paymentsto current retirees. It also ignored first-pillar sus-tainability problems, especially evident in tran-sition countries with their mature demographicstructures. Moreover, its implementation re-quired the creation of fairly sophisticated finan-cial and regulatory institutions.

Lending focused initially on helping employ-ment services deal with the expected surge of

displaced and unem-ployed workers.34 Al-though rated satisfactory,these early projects, likethose in other sectors,suffered from instabilityin the government insti-tutions and inexperienceof the borrowers in deal-ing with Bank projects.Most important, job dis-

placements proved far fewer than anticipatedin the short term, particularly in the CIS coun-tries, and where unemployment rates had risen,the slow growth of alternative employment op-portunities undermined retraining efforts. More-over, the governments and the Bank had notanticipated the longer-term unemployment prob-lem—people too old to be retrained who couldnot realistically find new jobs. The result waslarge expenditures for programs not originally de-signed to deal with this problem, such as pen-sions for early retirement or disability.

By mid-decade, financial difficulties in thepension programs of most transition countrieshad become major fiscal problems, while dete-riorating economies were causing sharp increasesin poverty rates, particularly in the CIS, expos-ing the weaknesses in existing social assistanceprograms (figure 2.4). The Bank’s emphasisshifted to pension reform, supporting majorchanges to the structure of the benefit formula;increases in the retirement age; and the intro-duction of mandatory, funded pillars in severalcases. Twenty countries enacted at least onemajor reform, usually with significant assistancefrom the Bank.

The pension reform aspects of a number ofthe early adjustment loans failed, even whenthe loans as a whole were rated satisfactory.Later loans, including two to Latvia for a fundedsecond pillar, were more successful.35 The Bank

has had a major impact on pension policy re-

form efforts in Bulgaria, Croatia, Estonia, Hun-

gary, Latvia, Lithuania, Poland, and Romania.

In many cases the main impact came about

through substantial TA—often in cooperationwith other donors—for seminars, interactionwith local analysts, and other methods to trans-fer knowledge to local officials.36 The TA fre-quently was associated with lending, and, insome cases, loans helped focus the borrowers’attention on the need for reform, even if the re-forms did not occur in the time frame envi-sioned (for example, Russia in 1997); in othersthey followed the adoption of the reform and fa-cilitated its implementation (Croatia in 2002).

All the pension reforms followed, at least inpart, the model developed for transition coun-tries, and about half incorporated features from

3 0


By mid-decade, the

pension programs of most

transition countries had

become major fiscal

problems, while

deteriorating economies

were causing sharp

increases in poverty rates.

Averting, whose system of individual, fundedaccounts was attractive to reformers (box 2.8).Averting broadened the debate about pensionreform and helped secure a place for it on thepolicy agenda of most countries, but its contro-versial approach led to major disagreementsamong international agencies active in assistingpension reforms, as well as within the Bank, andits publication probably delayed pension re-forms in some countries (such as Russia). Im-plementing the approach has been difficult, and

many Bank staff now believe that it is probablybeyond the institutional capacity of the less de-veloped of the transition countries (see, for ex-ample, Lindeman, Rutkowski, and Sluchynskyy2000). A clear strategic approach to pension

reform, one that differentiates according to the

capacity—both institutional and fiscal—of the

country, has been needed for years, and still is.

The Bank did not devote the same kind of re-

sources or energy to social assistance reform as

it did to pension reform. Although the Bank’s


3 1

P o v e r t y H e a d c o u n t I n d e x ( $ 2 . 1 5 / d a y ) , L a t e s t Y e a r , 1 9 9 5 – 9 9

F i g u r e 2 . 4

0

10

20

30

40

50

60

70

Baltics

Russia

Other CIS

Percent of population

CEE

FYR M

acedo

nia

Bulgari

a

Slovak

Repub

lic

Hunga

ryPo

land

Croatia

Czech R

epub

lic

Sloven

iaLat

via

Lithu

ania

Eston

ia

Russian

Fede

ration

Tajiki

stan

Moldova

Kyrgyz

Repub

lic

Armen

ia

Azerba

ijan

Georgi

a

Turkm

enist

an

Kazakhs

tan

Ukraine

Belarus

Albania

Roman

ia


The World Bank’s monograph, Averting the Old Age Crisis, gen-erated wide public debate over the issue of pension reform. Anunprecedented professional and public dialogue emerged onthe introduction of the three-pillar pension system. There wasno previous example of such a vivid discussion of policy issuesamong government experts, stakeholders, and individuals in

Hungary. The government and the Parliament finally passedthe three-pillar pension system bill in the fall of 1997, and it be-came effective as of January 1, 1998.

Source: Báger 2002, p. 11.

H u n g a r y — P r o m o t i n g P u b l i c D e b a t e o n P e n s i o n R e f o r mB o x 2 . 8

portfolio of social assistance–related activities islarger than that of pension activities, and most ofthe project outcomes (or implementationprogress) have been rated satisfactory, the suc-cesses in the former are far more modest.37 Con-ditions attached to adjustment loans weresuccessful in supporting program expansions (forexample, Romania), the clearing of arrears (Albaniaand Tajikistan), or improvements in targeting (Ar-menia, Bulgaria, and Russia). They were less suc-cessful in implementing new programs, asillustrated by the failure in the Ukraine and the can-cellation of the last tranche of the Bulgarian So-cial Protection Adjustment Loan. Many of theactivities involved building local capacity to con-duct and analyze household surveys (Belarus,Bulgaria, Latvia, and Romania). Even there, TAoffered outside of the loan process appears to havebeen more effective than the lending itself.38

ESW has devoted considerable attention to an-alyzing safety net issues and, starting in the mid-1990s, poverty. Most Bank poverty and socialsafety net assessments, along with a number ofCAEs, conclude that improvements are neededin the size and structure of assistance programs:too great a share of benefits goes to higher-in-come households; inhabitants of poorer regionsof a country find it more difficult to qualify forbenefits and receive less; and benefit levels aretoo low to be of much use in fighting poverty. Ifpoverty reduction is to remain a major goal in

the transition countries,

the Bank will have to de-

vote as much attention

to the reform of social

assistance programs in

the future as it has to

pension programs in the

past.

Lending tended to

neglect administrative

reforms, often becausethe borrowers did notwant to pay for techni-cal assistance. Only asmall number of the (rel-

atively few) investment loans in the pension andsocial assistance areas aimed at strengthening thebasic institutions responsible for collecting so-

cial insurance contributions and delivering ben-efits. Most pension administration loans dealtwith relatively modest administrative improve-ments, with some notable exceptions, such as aloan to Bulgaria in which TA funded throughgrants from other donors strengthened the ca-pacity of the social security administration andhelped achieve a national consensus on changesnot previously acceptable to the public or the Par-liament. Half of the loans related to pension ad-ministration supported the development ofsecond-pillar institutions, rather than improve-ments in the operations of the basic system.ESW and the many Bank-sponsored seminarsfocused almost exclusively on the policy issuesassociated with pension reform, and virtually ig-nored administrative issues.

Most transition countries still lack adequatecapacity to monitor and analyze their social pro-tection needs and to develop appropriate policyresponses.39 The Bank supported actuarial train-ing in Bulgaria, Macedonia, and Russia. Bankstaff worked closely with local analysts on the Pol-ish and Hungarian pension reforms; this assis-tance focused on the preparation of reforms,with fewer resources to help with implementa-tion. The World Bank Institute (WBI) manageda Training Program on Social Policy Reform inTransition Economies (SPRITE) supported bybilateral donors during 1994–01. An evaluationcarried out for WBI (World Bank 2001) found thatin the 12 CIS countries it covered, the programhelped build a consensus on health and pensionreforms, improved technical skills of local spe-cialists, provided continuity to the reformprocess, created a network of trainers, con-tributed to collaboration among a variety of in-stitutions, and provided materials that wereadopted by academic institutions. However, theprogram itself was not sustainable when its fund-ing ended, as it did not provide for full cost re-covery. A review of recent CASs found virtuallyno discussion of strategies to further build do-mestic capacity for carrying out either analysisor projects. Where Bank-assisted reforms havebeen successful, it is usually only after an ex-tended period of time, during which Bank staffand consultants interacted repeatedly with localreformers, helping them understand and de-

3 2


Too great a share of

benefits goes to higher-

income households;

inhabitants of poorer

regions of a country find

it more difficult to qualify

for benefits and receive

less; and benefit levels are

too low to be of much use

in fighting poverty.

velop their reform options and form a consen-sus in favor of reform among local leaders. Ad-

equate resources for these participatory

activities are one key to successful social pro-

tection reforms; assistance with implementation

is also important. The Bank should devote ad-

ditional attention to building institutional ca-

pacity in policy analysis and administration of

both pensions and social assistance.40

The contributors to Labor Markets and Social

Policy (Barr 1994) anticipated the problemsmany transition economies would have in im-proving targeting because of their large informalsectors and inadequate information systems.However, until recently the Bank did far too lit-

tle to help develop techniques to improve tar-

geting of social assistance benefits. The case ofArmenia shows what can be accomplished: in thelate 1990s, the Bank supported integrated livingstandards surveys. Together with adjustmentlending, these surveys facilitated the introduc-tion of a single, targeted poverty benefit, re-placing a complex system of child allowancesand other benefits that went to poor and non-poor alike. In addition, highly subsidized ratesfor electricity, transport, and communal serv-ices were substantially eliminated, and replacedwith cash transfers to a more narrowly definedgroup of highly vulnerable beneficiaries. Else-where, the Bank held a conference on alterna-tive targeting approaches, sponsored at leastone report (Grootaert and Braithwaite 1998),and supported three pilots in Russia. Far moreis needed.

While the results of Bank activities in the tran-sition economies generally confirm the rele-vance of the strategy described in Labor Markets

and Social Policy, in retrospect, the strategy

should have addressed additional areas that

have proven to be barriers to social protection

reform in virtually every transition economy:labor laws that encourage labor hoarding amongdeclining firms and discourage hiring amongexpanding firms; strategies for sharing fiscal andpolicy burdens associated with operating assis-tance programs among levels of government;and special problems in coverage and adminis-tration caused by the growth of informal sec-tors.41 The strategy should also have recognized

more prominently the re-gional differences, par-ticularly the differencesin institutional capacity,among transition coun-tries.

Social protection sys-tems consist of large,complex, and politicallysensitive programs. Fun-damental changes inthese systems that reduce or eliminate promisedbenefits are major political challenges. They re-quire extended public discussion and politicalconsensus building, and adjustment loans haveproven to be poor mechanisms for helping thisprocess. Adjustment loans are more likely to beeffective in encouraging policy change when itinvolves modest but affordable expansions orwhen it reflects an existing consensus about theneed for and nature of the reform—for example,incorporating an adequate minimum pensionprovision in Kazakhstan and increasing the min-imum pension in Russia in 1997.42 Investmentneeds in social protection tend to be rathermodest, and clients are reluctant to borrow forTA. Even the ESW sponsored by the Bank willhave only limited impact without adequate fundsto finance dissemination and discussion of its re-sults. Thus traditional instruments have not

been well suited to reforming social protection

systems.

The weakest link in the Bank’s strategy of so-

cial protection reform for the transition

economies was in translating the larger vision

into systematic and strategic agendas at the

country level. Only two countries, Russia andBulgaria, had ESW that attempted to focusbroadly on this area.43 Al-most without exception,the social protection sec-tions of CASs were littlemore than listings ofprojects in the pipeline.44

They rarely provided anyappreciation of the linkbetween social protec-tion reform and publicsector administrative re-


3 3

The Bank should devote

additional attention to

building institutional

capacity in policy

analysis and

administration of both

pensions and social

assistance.

The weakest link in the

Bank’s strategy of social

protection reform for the

transition economies was

in translating the larger

vision into systematic

and strategic agendas at

the country level.

form, or sequencing of projects to make sure thatthe administrative and policy aspects were syn-chronized. There have been some notable reformsuccesses, particularly in the pension area, butalso a number of missed opportunities, partic-ularly in social assistance. The failures appear tobe linked to insufficient attention to the devel-opment of a policy consensus within the clientcountries, to improving administrative and otherinstitutional capacities and linking them to thepolicy development process, and to developingnew and innovative ways to target benefits. Coun-tries need a broad public understanding of thereasons for and the nature of the reforms and re-form prescriptions, closely tailored to their par-ticular situation. Social protection reform works

best when analytical work, consensus build-

ing activities, and institutional capacity build-

ing precede the enactment of legislation.

Energy45

The transition countries inherited substantialinfrastructure and, in some cases, possessed sig-nificant quantities of oil, natural gas, and coal. Tra-ditionally, these sectors were vertically integratedpublic monopolies, a structure that led to seri-ous inefficiencies in investment, operations, andpricing. Most companies and service providerswere heavily subsidized, while customer servicewas inadequate and facilities were poorly main-tained. Supply-side problems were exacerbatedby low efficiency of consumption, lack of me-tering, and unwillingness to pay. None of theregulatory or institutional arrangements neces-sary for commercial operations was in place,and there were serious environmental prob-lems. Moreover, the sector is particularly proneto corruption because the stakes are high, and

the opportunities forrent-seeking, plentiful.

The Bank did not havea great deal of experiencein this area (OED, OEG,and OEU 2003a). By thebeginning of the 1990s,many Bank staff had con-cluded that “business-as-usual” lending to publicpower utilities was un-

tenable and—after a lengthy process of discus-sion and debate both within the Bank and be-tween the Bank and outside stakeholders—theBank issued a policy paper in 1993 on electricpower lending (World Bank 1993). The policy(also supported by IFC and MIGA) linked Banksupport to country commitment to reforms inthree areas: commercialization, corporatization,and arm’s-length regulation. This approach calledfor commercialization and corporatization priorto privatization, as a means to introduce com-petition, but it did not include strategic or op-erational guidelines for implementation.

Power sectors in most transition countrieshad little prospect of reaching commercial stan-dards because of the inefficiencies of state own-ership and poor governance, and by 1996, theBank had in practice adopted a reform approachthat also included unbundling and primarily ad-vocated privatization as a means to achieve com-mercialization. Formally adopted in 1998, thisstrategy had four main objectives (Lovei 1998;World Bank 1998): (i) protecting the public in-terest through improved regulatory regimes,demonopolization, increased safety, less envi-ronmental impact, and transformation of thesector from a net user to a net provider of budg-etary resources; (ii) rehabilitating energy supplyfacilities, assisting with the institutional aspectsof restructuring and privatization, and mitigatingthe social impact of restructuring; (iii) facilitat-ing private investment; and (iv) promoting re-gional initiatives to increase energy trade andsharing of information.

An analysis of over 100 completed projectsconfirms that these long-term objectives were anintegral part or even the main objective in nearlytwo-thirds of them. The rest, primarily for re-habilitation, usually contained institution build-ing or some reform conditionality. In less thanone-quarter of the rehabilitation operations didthe long-term objectives appear to play no sig-nificant part. In retrospect, probably too muchemphasis fell on privatization and restructur-ing, and too little on regulation, strengtheningutility financial and managerial performance,and combating corruption.46 While projects pur-sued restructuring objectives in 22 out of 24countries, they dealt with regulation in only 10.

3 4


Power sectors in most

transition countries had

little prospect of reaching

commercial standards

because of the

inefficiencies of state

ownership and poor

governance.

Nonlending instruments focused mainly onpolicy advice, through freestanding sector re-ports or notes; training (both formal and on-the-job); and technical assistance, such as thatprovided by the Joint UNDP/World Bank EnergySector Management Assistance Program(ESMAP). The strategy also emphasized improvedcooperation with external partners and buildingstakeholder participation.

The outcome ratings of the completed dedi-cated energy projects are about the same as theaverage for all projects in the ECA transitioncountries and higher than the Bankwide averagefor the sector (annex tables A.11 and A.12).Short-term objectives were achieved throughquick-disbursing rehabilitation and emergency re-covery projects. The satisfactory achievementof long-term objectives appears to have resultedfrom a programmatic approach in 14 countrieswhere the Bank used a blend of adjustment andinvestment operations. Efforts to integrate en-vironmental concerns were generally effective.The Bank’s aid coordination efforts seem tohave been productive, with some exceptions,but there were shortcomings in promoting stake-holder participation and, most important, incombating corruption.

A recent study by the ECA Region of powersector reforms (World Bank forthcoming) foundthat in the most aggressive reformers, subsidiesto utilities appear to be falling; tariffs have risen,along with revenues per kilowatt-hour, for pub-lic and private operators; and reforms slightly im-proved energy efficiency in power plants.However, electricity expenditures as a share ofincome increased, especially for the poor, sug-gesting a need for measures to mitigate this ad-verse impact, and the study also identified aneed for more and better monitoring and datato evaluate these results more fully.

The Scorecard project funded by ESMAP in199847 provides indicators of progress toward cer-tain key objectives in the energy sector. TheScorecard identifies six central steps: corporati-zation/commercialization of the state-owned util-ity; passage of an energy law; start-up of aregulatory body; private sector investment inindependent power producers; restructur-ing/unbundling of the core state-owned utility;

and privatization of partof the state-owned utility.Countries receive 1 pointfor each of the six steps,so countries that have taken all six steps receivea score of 6.48 Although results are available forall segments of the energy sector, electric poweris used in this evaluation as a proxy for energysector reform, since that sector is uniformly sig-nificant in all the countries. The reform indica-tors for 24 transition countries confirm thepriority given to commercialization, corporati-zation, and unbundling, which were objectivesin 22 of the countries; 16 had taken steps towardcommercialization and corporatization, and 13toward restructuring by mid-1998. Only 10 coun-tries had regulation as an explicit objective, and11 had taken that step by mid-1998. Three coun-tries had some privatization in the absence of anenergy law (Russia) or without a law or a regu-lator (Bosnia and Herzegovina, Kazakhstan).

Figure 2.5 shows the reform scores for eachcountry, superimposed on a chart showing thechange in their energy efficiency between 1992and 2000. Four countries (Armenia, Georgia,Hungary, and Poland) received a score of 6. Theyare among the countries showing the greatest im-provement in energy efficiency, and they arealso among the eight countries where this eval-uation judged the outcome of the programmaticapproach followed by the Bank to be fair togood.49 The one country where the outcomewas poor (Romania) has a score of zero, butthere was substantial reform subsequently. Theother countries with a zero score are Azerbaijan,Kyrgyz Republic, Slovak Republic, Tajikistan, andUzbekistan; their performance in energy effi-ciency has been mixed. The average number ofsteps taken by the group of 24 as a whole is2.83; that is, they had on average taken less thanhalf of the requisite steps toward energy sectorreform. Compared with other Regions of theBank in mid-1998, the 24 countries come out be-hind the Latin America and the Caribbean Regionand the South Asia Region on the reform score-card, but ahead of the Africa, East Asia and Pa-cific, and Middle East and North Africa Regions.

The evidence on sequencing of reforms is am-biguous in ECA, as it is in other regions (OED,


3 5

Efforts to integrate

environmental concerns

were generally effective.

OEG, and OEU 2003a). The Region’s own reviewof power sector reform and private participationconcluded that the push for unbundling and pri-vatization was premature (as in Ukraine) and, ingeneral, attempts to leap from a totally non-com-mercial state-owned entity to private commercialutilities did not work (Krishnaswamy and Stug-gins 2002). However, in some cases (Kazakhstanand Central European countries) “leapfrogging”to privatization as a means to achieve commer-cialization did lead to positive sector change,and even where this approach was not fully suc-

cessful, service qualityand coverage havetended to improve.

Of course, the indica-tors of overall progressdo not necessarily meas-ure the relative impor-tance of Bank assistance.OED reviews indicatethat the Bank’s involve-ment in Hungary’s en-ergy sector probably hadbeneficial effects on the

progress toward restructuring and privatization,although it is likely that the government wouldhave implemented the reforms in any case. Pri-vatization of coal mines in Russia was a highlycomplex task carried out in an environment ofdifficult political and industrial relations, andmight not have been possible without stronggovernment commitment and efforts to consultimportant stakeholders, together with Bank flex-ibility in the design and implementation of proj-ects. Closure of loss-making mines in Russiareduced budgetary subsidies for the coal sectorfrom over 1 percent of GDP in 1993 to under 0.1percent by 2001, and such economic benefitswere also found in Poland and Ukraine (OED,OEG, and OEU 2003b). Inadequate governmentcommitment and consensus appears to havelimited progress in privatizing Poland’s coal sec-tor, but a review of PSD in energy in Polandfound a clear association, if not causality, be-tween the Bank program and most of the insti-tutional changes in the subsectors affected byBank projects. Bank performance was rated assatisfactory in 89 percent of the projects re-viewed for this study, but this statistic, which is

3 6


C h a n g e i n G D P p e r U n i t o f E n e r g y U s e ,1 9 9 2 – 0 0 , a n d E n e r g y R e f o r m S c o r e , 1 9 9 8

F i g u r e 2 . 5

CEE

Baltics

Russia

Other CIS6

5 6 2 0 40 2

12

4

42

6

6

0

0 03

4

0

5

4

1995 US$ per kg. oil equivalent

1.3

1.1

0.9

0.7

0.5

0.3

0.1

–0.3

–0.1

–0.5

Polan

d

Albania

Hunga

ry

Bosnia

and H

erzeg

ovina

Slovak

Repub

lic

Czech R

epub

lic

Roman

ia

Sloven

ia

Croatia

Bulgari

aLat

via

Eston

ia

Lithu

ania

Russian

Fede

ration

Armen

ia

Georgi

a

Tajikis

tan

Kyrgyz

Repub

lic

Moldova

Kazakhs

tan

Belarus

Azerba

ijan

Uzbekis

tan

Ukraine

Turkm

enist

an

Source: WDI and World Bank, 1999.

Privatization of coal

mines in Russia might not

have been possible

without strong

government commitment

and efforts to consult

important stakeholders,

together with Bank

flexibility.

significantly higher than the ratings given toBank performance in all projects Bankwide, doesnot lend itself to any conclusions about the linkbetween the Bank’s role and country outcomes.50

It does, however, support the Region’s view thatthe Bank succeeded in fundamentally changingthe debate in the ECA transition countries fromwhether or not to carry out certain reforms towhen they should be undertaken.

Rehabilitation, emergency relief, and criticalimports accounted for over one-third of the 102energy projects. Given conditions at the start ofthe transition period, the Bank may well havebeen right to emphasize these objectives at first.However, difficulties in attaining the objectivesin as many as two-thirds of the projects, partic-ularly because of procurement problems andconflicts between short- and long-run objec-tives, point to three key lessons for project de-

sign. First, intensive efforts to pre-identify critical

import needs are usually inadequate to enable

a new borrower to administer the Bank’s pro-

curement regulations—negative lists are prefer-

able. Second, the Bank should not count on

project implementation units to resolve diffi-

culties in implementing standard procurement

and disbursement procedures.51 Institutionalcapacity can be strengthened through on-the-jobtraining of local counterparts, and assistancewith procurement matters can be best providedthrough specialists based in Bank resident mis-sions. Third, rehabilitation-type projects should

not be encumbered with long-term reform ob-

jectives, either formal or informal.52

Reform of the energy sector was linked witha broader need for reform in other sectors, andalso with the profound political, economic, so-cial, and institutional changes taking place atwidely different rates in the economies in tran-sition. That linkage had important implicationsfor the Bank’s lending and non-lending opera-tions. Four main lessons emerge for the longer

term. First, energy sector reform is not in itself

sufficient to deal with some key problems, suchas the elimination of subsidies to energy sectorentities; increased discipline in metering, billing,and collecting payments; reforming pricing pol-icy; and closing uneconomic energy productionfacilities.53 Reforms such as tariff policy must go

hand in hand with con-trol of the macroeco-nomic situation. In suchcircumstances, the Bank

appropriately chose to

apply a blend of lending

instruments in many countries, including struc-tural adjustment, sector adjustment, specific in-vestment, technical assistance, emergencyrecovery, and programmatic structural adjust-ment loans. Moreover, lending was usually ac-

companied by ESW.54

Second, energy sector reform is a complex

and long-term process that must alter deep-

rooted incentive systems and cultural attitudes,

as well as institutions and markets. In somecountries, accession to the EU is a strong moti-vating factor to maintain sound economic poli-cies, but it was unrealistic to expect restructuringand privatization to overcome legal, political,attitudinal, and payment obstacles and be im-mune to destabilizing macroeconomic factors.Regulatory reforms are essential, but are notsufficient. Improving commercial performance

and corporate and sectoral governance are

primary, regardless of sector structures and

ownership. Whether privatization is feasible as

an immediate option to achieve these goals de-

pends on country circumstances. The Bank

needs to develop operational guidance as to

what sequence of reforms and interventions

works best in particular country situations.55

Third, because of the complexity and long-

term nature of energy sector reform, borrowers

usually require TA to help them design and im-

plement the necessary measures. In one case,OED suggested that Bank coal sector restruc-turing programs in transition countries shouldinclude TA to familiarize local technical expertswith modern, cost-saving procedures for closingmines. Transition countries have generally re-sisted borrowing for TA, but the Bank must con-tinue to stress its importance and seek ways tosupply it. Field office staff can play an importantrole in ensuring the success of a major reformprogram through effective day-to-day manage-ment of operations.

Finally, it is highly desirable to foster the par-

ticipation of a wide cross-section of society in


3 7

Energy sector reform is

not in itself sufficient to

deal with some key

problems.

the reform of the energy sector. Variations on thislesson are reported in more than half the coun-tries with energy lending, and it probably con-stitutes the most common lesson, also found inother sectors. In its most obvious version, itrefers to the importance of borrower commit-ment to and ownership of the reforms, but it alsoextends to seeking, identifying, and workingwith “champions” in strategic decisionmaking po-sitions, explaining the purpose of the reforms tothe most affected parties and trying to soften theimpact on the most vulnerable social groups.

These lessons suggest an approach to lending

that might be applied to countries with poor or

damaged infrastructure and energy sectors still

dominated by state-owned enterprises. Initially,quick-disbursing rehabilitation and emergency re-covery operations would tackle the shortage ofcritical supplies and the need for urgent restora-tion and maintenance of facilities. Disbursementformalities would be kept to a minimum—for ex-

ample, working from a “negative” list rather thantrying to pre-identify critical imports. Little or nopolicy conditionality would be involved, althoughESW and the policy dialogue would be con-ducted intensively from the beginning, alongwith training and TA (both in addition to and aspart of the ESW). Furthermore, significant effortswould be devoted at this early stage to donor co-ordination and building stakeholder participa-tion. The latter would help frame the TA andlending, which would move from emergencyoperations to a combination of investment andadjustment projects. The timing of critical pol-icy measures should benefit considerably fromstakeholder involvement, especially that of keycounterparts, who could help evaluate alterna-tives and choose the timing of politically difficultdecisions. Projects would deal with corruptionand ensure that the foundations of good gover-nance are laid in the sector entities as a prepa-ration for later privatization.

3 8


3 9

Lessons and Recommendations

The Bank shared the optimism of many early reformers and Western ob-servers about the speed with which economic liberalization and legaland policy changes would produce robust supply responses in the

transition economies—particularly those of the CIS—and consequently aboutthe depth and duration of the initial declines in output and employment andthe related social costs and political turbulence. In large part, this optimismwas related to the expectation that the rapid shift of control over resourcesto private hands, along with the liberalization of prices and trade, would leadquickly to more rational resource use under market discipline.

But this did not happen in many countries. Mean-while, the Bank, along with other donors, greatlyunderestimated the impact of corruption and ofthe weakness of core institutions and public ad-ministrations in managing the transition process,and did not address these areas adequately in itsassistance programs. An appropriate institu-

tional and regulatory framework and a capa-

ble, transparent public sector are central

elements of an efficient, market-oriented private

sector. Analytical work on governance and

public sector management should precede large

amounts of Bank lending, particularly in sit-

uations where obvious problems are likely to af-

fect assistance programs.

Poverty has also been a far more serious prob-lem than the Bank expected in countries mak-ing the transition from plan to market, mostnotably in the CIS. In the future the Bank can

be much better prepared to identify and address

rapidly growing poverty by monitoring poverty

levels as a priority from the very beginning of

its involvement in a country.

The transition from a centrally planned econ-omy requires a vast web of interrelated changesin attitudes and concepts as well as laws, policies,and institutions. One of the key generic lessonsthat emerges from evaluations of the transitionexperience is that a care-

fully crafted external as-

sistance program can

help to design and im-

plement these changes

and ameliorate their so-

cial costs, but however

well designed a program

of reform, the rate of

progress will be largely

33

The transition from a

centrally planned

economy requires a vast

web of interrelated

changes in attitudes and

concepts as well as laws,

policies, and institutions.

determined by the government’s ownership of

it and the degree of consensus it is able to mo-

bilize in the society at large. A well-informed

civil society can also be a major “driver” for

change, and stakeholder analysis is an impor-

tant input to understanding the political and

social processes at work in a country that can

have a major impact on the outcome of assis-

tance. The growing Bank emphasis on stake-holder participation—for example, in thepreparation of CASs and PRSPs—is a move in theright direction; many other specific examplescan be found, as this approach becomes main-streamed in all forms of Bank assistance (box 3.1).

A related theme that emerges from OED as-sessments of Bank assistance to the transitioneconomies has been the limited capacity of mostof the borrowing governments to design andimplement complex and difficult programs and

legal structures and thetendency of the Bank tounderestimate the dura-tion and intensity of theassistance needed. Re-

habilitation and other

projects with short-term

objectives should be de-

signed to minimize delays (use negative lists

rather than trying to pre-identify critical im-

ports); do without project implementation units;

and forego long-term reform objectives. Beyond

the short term, capacity building should be cen-

tral to any country strategy. 1

OED’s 2001 Annual Review of Development

Effectiveness (OED 2002a) found that stand-alone TA loans fared better than any other formof lending in countries with low ratings for pol-icy and institutional environment, particularlyin the ECA Region, suggesting that the Bankshould focus on creating capacity and institutionbuilding in these countries. However, many (par-ticularly CIS) countries are averse to borrowingfor TA, often leaving it to bilateral grants, whichhave been less successful. The Bank provides TAthrough other means as well, such as collabo-rative project preparation and ESW, and bor-rowers value this contribution.

A number of relatively new Bank instruments,such as APLS and LILs, along with the effectiveuse of TA, can be used to promote policy reformand institutional change over the longer term.Experience has demonstrated the lengthy timeoften needed for ownership and consensus toemerge and the importance of learning from

4 0


A key element of the Bank’s country strategy implementation inthe Ukraine was a significant market reform education andawareness program. The Resident Mission, along with the WorldBank Institute, carried out a program of seminars, workshops, androundtable discussions with government officials, parliamen-tarians, academics, and others on the need for reform, the natureand objectives of the reform, and the benefits and outcomeslikely to result. The director for Ukraine, Belarus, and Moldovahas instituted stakeholder analysis for all projects. Public in-formation campaigns in Armenia for judicial reform and in Bul-garia for pension reform facilitated implementation by ensuringthat policies were widely acceptable to the people. Preparationof the 2002 Albania CAS included consultation with representa-tives of civil society and the private sector, as well as with par-

liamentarians. In Lithuania the Structural Adjustment Loan teambriefed multi-party committees throughout the period of parlia-mentary elections. Intensive dialogue between the government,mining companies, and trade unions, and the participation of theunions in program design, contributed significantly to the suc-cessful implementation of the employment restructuring pro-gram in the Poland Coal Sectoral Adjustment Loan. Both OED andQAG have praised the Bank’s work in Russia’s coal sector, in par-ticular its extensive consultations with stakeholders. In theBank’s Structural Adjustment Participatory Review Initiative(SAPRI), Hungary was one of seven countries in which civil or-ganizations were included with the Bank and governments to as-sess and analyze the economic and social impacts of adjustmentlending (Báger [2002] describes this exercise and its results).

S t a k e h o l d e r P a r t i c i p a t i o n B o x 3 . 1

APLS and LILs, along with

the effective use of TA, can

be used to promote policy

reform and institutional

change over the longer

term.

experience. Perhaps the most important com-

ponent of a successful strategy for supporting

transition is flexibility. Political and social

analysis should play a role, along with eco-

nomic and institutional analysis, to identify

problems and develop solutions along the way.

ESW plays an important role, not only in en-suring that lending operations are based onsound country knowledge, but also in inform-ing public debate on the issues of transition. Itis valued by borrowers, sometimes above fi-nancial assistance. Given its importance to the

Bank’s country dialogues and to the design of

country strategies and projects, all ESW, in-

cluding informal reports, should be subjected

to more systematic retrospective evaluation of

both quality and impact, and an effective strat-

egy for its dissemination should be an integral

part of the Bank’s country assistance strategies.2

Borrower participation in carrying out ESW

can be an effective means of building capac-

ity in a country.3

Aid coordination in ECA still falls well short ofthe ideal, at the level of both policy and imple-mentation (box 3.2). The conflicts, duplication,and lack of an agreed development agenda insome countries reduce the effectiveness of alldonors. The goal should be to help governments

define clear development strategies, with mon-

itorable action plans to

implement them; these

would provide the

framework for the

donors to agree with the

government on how much external support is

to be provided, by whom, and for what, with aview to avoiding overlaps and allowing donorsto specialize in sectors or areas where they haveboth a special interest and the relevant expert-ise. Ideally the process is led and coordinated

by the recipient government.4 The PRSP is im-proving the alignment between donors and re-cipient countries for the poorest countries, butOED’s joint evaluation of the ComprehensiveDevelopment Framework found that the trans-action costs of delivering aid remain high anddonors continue to engage in unproductive com-petition (CDF Secretariat 2003). The donorsneed to identify one among them to be the mainpartner for a particular sector, program, or proj-ect, to lead the policy dialogue in that area andassist the government in coordinating the donorcontributions, both technical and financial.

Chapter 2 of this report identified a numberof sectoral and thematic areas where the Bankneeds to define clearer strategies for assistance,differentiated by the state of governance and in-

stitutional capacity in each country:

L E S S O N S A N D R E C O M M E N D AT I O N S

4 1

Aid coordination in ECA

still falls well short of the

ideal.

As laid out by the Bank and the Development Assistance Com-mittee (DAC) of the Organization for Economic Cooperation andDevelopment, aid coordination should integrate external as-sistance with the development priorities of the recipient; re-sponsibility for coordination should reside primarily with therecipient government; and both recipients and donors should ad-here to strategic objectives and investment programs (OED2001). CAEs present a mixed picture of the quality of aid coor-dination in the transition countries, but provide no examples ofcountries meeting the DAC criteria. Few if any of the transitioncountry governments are equipped to provide the necessaryframework for coordination, and often they do not view this asa priority; their interest lies mainly in resource mobilization.

The absence of an integrated development agenda paves the wayfor supply-driven assistance, with each donor focusing on areasit feels are most important, often with little consultation with thegovernment or with other donors, and, in some cases, compet-ing with other donors or financing activities with conflicting ob-jectives. Such instances are common, for example, in financialintermediary loans, where other agencies have funded creditlines with lower interest rates than those required in Bankloans, or sponsored narrowly directed credit lines in conflict withBank efforts to convince governments to phase out the use of di-rected credit. Provision of technical assistance by bilateralgrants, in conjunction with Bank projects, has often proven notto be useful, particularly when it is tied to national suppliers.

A i d C o o r d i n a t i o nB o x 3 . 2

• Legal and judicial reform is critical for im-provements in the business climate (companylaw, collateral laws, security laws, bankruptcylaws, anti-monopoly laws, respect for privateproperty, contractual rights), the financial sec-tor (banking and central banking, bankruptcy,collateral, failed bank resolution), social pro-tection (labor laws), and governance in general.The focus should be on implementation asmuch as on the passage of laws.

• Improved governance, including transparency,can increase public accountability and dis-courage corruption. The Bank should go outof its way to make its own studies and docu-ments public and should encourage govern-ments to report more regularly and more fullyto their parliaments and to the public at large.The use of information and communicationstechnology has tremendous potential to in-crease public accountability.

• Given the alternative models for pension re-

form, a clear strategic approach is needed, dif-ferentiated by the ability of the country toadminister and fund the system.

• Improved commercial performance and cor-porate and sectoral governance should be theprimary objectives for enterprises in the energy

sector. The sequencing of reforms, includingthe feasibility of immediate privatization, de-pends on country circumstances. Some oper-ational guidance is needed on what sequenceof reforms and interventions works best inparticular country situations.Chapter 2 also identified a number of other

areas that warrant greater attention:• Additional efforts are needed to assess and

improve the business climate, particularly byremoving barriers to the entry of new firms andcreating incentives for firms to move out of theinformal sector; providing a capable, trans-parent public sector; and strengthening thefinancial sector.

• The emphasis in future privatizations should,when circumstances permit, be on more meas-ured, better prepared transactions and on help-ing governments follow a transparent,competitive process open to foreign partici-pation. For firms that continue to drain pub-lic resources and whose sale and restructuring

have proven to be difficult, greater attention isneeded to the design of rule-based adminis-trative procedures to initiate their liquidation.

• Additional measures to strengthen the finan-

cial sector include enforcement of prudentialregulations, including limits on loan concen-tration and related-party lending; training forbank supervisors, lawyers and judges, ac-countants and auditors, and other skilled pro-fessionals; and for state-owned banks, strongergovernance, tighter budget constraints, di-vestiture of branches, and restrictions on thescope of banking licenses. Progress in in-creasing the effectiveness of bank supervisionand in not just adopting, but also enforcing, in-ternational accounting standards should beamong the triggers for financial sector lending.

• Financial sector staff should be involved in thedesign of all financial intermediary loans andshould ensure that the factors important to sus-tainability are adequately taken into account. Mi-crofinance projects should give greater attentionto developing savings services and should in-corporate a donor exit strategy from the start.

• Reform of social assistance programs (otherthan pensions) should include capacity buildingto help national institutions analyze needs, de-velop a policy consensus, and improve targetingof benefits; administrative reforms to improvecollections, targeting and efficiency; and actionsin areas that have proven to be barriers to socialprotection reform in virtually every transitioneconomy—labor laws that encourage laborhoarding among declining firms and discouragehiring among expanding firms, strategies forsharing fiscal and policy burdens of assistanceprograms among different levels of government,and problems in coverage and administrationcaused by the growth of informal sectors.

• Energy sector reform is not in itself sufficient todeal with all the problems affecting the sector,such as the elimination of subsidies to energy sec-tor entities; increasing discipline in metering,billing, and collecting payments; reforming pric-ing policies; and closing uneconomic energyproduction facilities. A blend of instruments, in-cluding investment, adjustment, technical assis-tance, and programmatic lending, as well as ESW,can support the necessary elements of reform.

4 2


ANNEXES

4 5

ANNEX A: SUPPLEMENTARY TABLES

A.1: Number of IBRD/IDA Approved Projects for Transition Countries, FY89–03A.2: IBRD/IDA Commitments to Transition Countries, by Instrument, FY89–03A.3: IBRD/IDA Commitments to Transition Countries, by Sector, FY89–03A.4: Total Receipts by Source, Official and Private, 1989–01A.5: GDP Per Capita of Transition Countries, FY89–02A.6: Social IndicatorsA.7: Progress in Transition by Country, 1994–03A.8: CAE Ratings for Transition Countries through FY03A.9: OED Project Ratings by Country, Approved FY89–03A.10: At-Risk Ratings for Transition Countries, February 2004A.11: OED Project Ratings in Transition Countries by Sector, Approved FY89–03A.12: Comparison of Bankwide and ECA Ratings by Sector, Approved FY89–03A.13: Quality of Economic and Sector WorkA.14: IFC Activities in Transition Countries, FY90–03

A. IFC Approvals and Net Commitments by Country, FY90–03B. IFC Technical Assistance, FY90–03

A.15: MIGA Guarantees by Country, FY90–02


4 6

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

CEE 3 8 13 10 15 19 17 21 26 33 29 23 26 18 17

Baltic States 3 4 8 5 7 1 5 4 3 3 1

Russia 4 6 9 9 8 3 3 2 5 2 5

Other CIS 4 12 22 24 24 28 34 14 18 17 19

Total 3 8 13 10 26 41 56 59 65 65 71 43 52 40 42


N u m b e r o f I B R D / I D A A p p r o v e d P r o j e c t s f o rT r a n s i t i o n C o u n t r i e s , F Y 8 9 – 0 3

T a b l e A . 1

Adjustment Investment TotalCountry # Projects $ million # Projects $ million # Projects $ million

Central and Eastern EuropeAlbania 7 170 42 530 49 700Bosnia-Herzegovina 6 339 36 495 42 834Bulgaria 11 1,051 19 751 30 1,801Croatia 2 297 18 740 20 1,037Czech Republic 1 450 2 326 3 776Hungary 5 1,025 19 1,677 24 2,702Macedonia, FYR 6 319 19 311 25 631Poland 7 1,820 30 3,565 37 5,385Romania 6 1,680 32 2,120 38 3,800Slovak Republic 2 257 3 84 5 341Slovenia 1 80 4 98 5 178Total 54 7,488 224 10,696 278 18,184Baltic StatesEstonia 1 30 7 121 8 151Latvia 4 166 15 250 19 416Lithuania 3 239 14 252 17 491Total 8 434 36 623 44 1,058RussiaRussian FederationTotal 9 6,320 47 6,821 56 13,141Other CISArmenia 6 335 23 401 29 736Azerbaijan 3 202 17 395 20 597Belarus 1 120 3 73 4 193Georgia 5 280 27 445 32 725Kazakhstan 5 1,070 18 854 23 1,924Kyrgyz Republic 8 346 19 304 27 649Moldova 5 295 16 234 21 529Tajikistan 4 167 14 155 18 322Turkmenistan 3 90 3 90Ukraine 7 2,260 19 1,263 26 3,523Uzbekistan 1 160 12 439 13 599Total 45 5,234 171 4,653 216 9,887Overall result 116 19,477 478 22,793 594 42,269


I B R D / I D A C o m m i t m e n t s t o T r a n s i t i o n C o u n t r i e s , b y I n s t r u m e n t , F Y 8 9 – 0 3

T a b l e A . 2

A N N E X A : S U P P L E M E N TA R Y TA B L E S

4 7

By number of projects By $ millionSector # Projects Sector $ million

1 Rural 84 1 Economic policy 10,638

2 Energy and mining 66 2 Energy and mining 7,061

3 Economic policy 66 3 Transport 4,077

4 Transport 56 4 Rural 3,957

5 Public sector governance 55 5 Financial 3,571

6 Social protection 52 6 Public sector governance 2,597

7 Financial sector 37 7 Private sector development 2,431

8 Health, nutrition and population 35 8 Social protection 2,305

9 Private sector development 35 9 Health, nutrition and population 1,468

10 Education 27 10 Urban development 1,327

11 Urban development 25 11 Education 1,162

12 Water supply and sanitation 23 12 Water supply and sanitation 759

13 Environment 20 13 Global information/communications technology 483

14 Global information/communications technology 7 14 Environment 393

15 Social development 6 15 Social development 42

Total 594 Total 42,269


I B R D / I D A C o m m i t m e n t s t o T r a n s i t i o n C o u n t r i e s , b y S e c t o r , F Y 8 9 – 0 3

T a b l e A . 3


4 8

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Tota

l

Cent

ral E

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e an

d B

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s

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rs7

7,57

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5,44

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156,

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bl

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try

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9619

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Cent

ral a

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Alba

nia

942

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607

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621

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789

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914

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981

1,29

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1,55

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1,63

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1,85

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1,58

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1,56

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Croa

tia..

5,43

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5,28

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5,38

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Hung

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5,01

84,

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4,28

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5,13

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2,74

12,

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2,57

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2,31

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286

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2,54

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Pola

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2,60

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2,46

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557

2,68

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868

3,03

83,

242

3,39

63,

536

3,67

83,

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3,76

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Rom

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1,80

81,

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1,48

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377

1,39

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1,56

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632

1,53

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1,45

11,

462

1,54

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Slov

ak R

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322

4,21

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3,77

13,

977

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4,26

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4,59

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Slov

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8,78

48,

331

8,69

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9,41

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Bal

tic S

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nia

4,86

14,

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3,15

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154

3,34

83,

531

3,92

14,

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4,14

84,

464

4,70

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Latv

ia3,

731

3,70

33,

328

2,19

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900

1,94

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52,

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614

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644

546

047

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751

152

5

Not

e: In

bol

d: T

he y

ear o

f the

low

est G

DP p

er c

apita

.

Sour

ce:W

DI d

atab

ase

as o

f Aug

ust 2

003.

GD

P

Pe

r

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ta

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an

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ti

on

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ou

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es

(

co

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nt

1

99

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US

$)

,

FY

89

–0

2T

ab

le

A

.5


5 0

Basic educationPoverty gross enroll-

headcount Gini coefficient Life expectancy Mortality rate, ment rateindex for income at birth, infant (per (% of 6/7–14/15

($2.15/day), per capita total (years) 1,000 live births) age group)latest year 1987– 1996– 1989– 1996–

Country 1995–99 90 99 1990 2001 1990 2001 90 97

Albania 11.5 .. 0.27 72 74 37 23 90.8 87.6

Armenia 43.5 0.27 0.59 72 74 50 31 95.5 82.9

Azerbaijan 23.5 .. .. 71 65 84 77 89.5 96.6

Belarus 1 0.23 0.28 71 68 18 17 95.8 94.1

Bosnia and Herzegovina .. .. .. 71 74 18 15 .. ..

Bulgaria 3.1 0.23 0.41 71 72 15 14 98.4 94.0

Croatia 0.2 0.36 0.35 72 74 11 7 96.0 89.0

Czech Republic 0 0.19 0.25 72 75 11 4 97.6 99.1

Estonia 2.1 0.24 0.37 69 71 12 11 96.2 93.7

FYR Macedonia 6.7 .. 0.37 72 73 32 22 89.4 86.9

Georgia 18.9 0.29 0.43 72 73 24 24 95.2 80.7

Hungary 1.3 0.21 0.25 69 72 15 8 99.0 99.2

Kazakhstan 5.7 0.3 0.35 68 63 42 81 93.9 89.2

Kyrgyz Republic 49.1 0.31 0.47 68 66 68 52 92.5 89.2

Latvia 6.6 0.24 0.32 69 70 14 17 95.8 90.7

Lithuania 3.1 0.23 0.34 71 73 10 8 94.0 95.8

Moldova 55.4 0.27 0.42 68 67 30 27 95.8 91.6

Poland 1.2 0.28 0.33 71 74 19 8 97.9 98.0

Romania 6.8 0.23 0.3 70 70 27 19 93.6 95.0

Russian Federation 18.8 0.26 0.47 69 66 17 18 93.0 90.8

Slovak Republic 2.6 .. .. 71 73 12 8 96.8 96.3

Slovenia 0 0.22 0.25 73 76 8 4 96.1 99.8

Tajikistan 68.3 0.28 0.47 69 67 98 91 94.1 85.5

Turkmenistan 7 0.28 0.45 66 65 80 69 94.3 83.1

Ukraine 3 0.24 0.33 70 68 18 17 92.8 90.7

Uzbekistan .. .. .. 69 67 53 52 92.2 89.7

Sources: Poverty headcount and Gini coefficient from World Bank 2000c. Life expectancy and mortality rate from WDI. Enrollment rates from World Bank 2003.

S o c i a l I n d i c a t o r s T a b l e A . 6


5 1

Ente

rpri

ses

Mar

kets

and

trad

eFi

nanc

ial i

nstit

utio

nsIn

frast

ruct

ure

Priv

ate

Ban

king

Se

curi

ties

sect

or

refo

rm

mar

kets

sh

are

of

Gov

erna

nce

Trad

e an

d

and

and

GD

P (E

BRD

an

dfo

reig

nin

tere

st

non-

bank

In

fras

truc

-Po

pula

tion

estim

ate,

La

rge-

scal

e

Sm

all-

scal

e

ent

erpr

ise

Pric

e ex

chan

ge

Com

petit

ion

rate

fin

anci

al

ture

(m

ilion

s)%

)pr

ivat

izat

ion

pr

ivat

izat

ion

rest

ruct

urin

glib

eral

izat

ion

syst

empo

licy

liber

aliz

atio

nin

stitu

tions

refo

rmCo

untr

y

2

001

1994

2002

1994

2003

1994

2003

1994

2003

1994

2003

1994

2003

1994

2003

1994

2003

1994

2003

1994

2003

Alba

nia

3.4

5075

12+

34

22

4-4-

44+

12-

22+

12-

12

Arm

enia

3.0

4070

13+

2+4-

12+

4-4+

24+

12

12+

12

1+2+

Azer

baija

n8.

120

601

21

4-1

2+4-

41

4-1

21

2+1

2-1

2-

Bela

rus

10.0

1520

2-1

22+

11

3-3-

12+

22

12-

22

11+

Bosn

ia a

nd H

erze

govin

a4.

345

12+

23

12

14

14-

11

12+

12-

12+

Bulg

aria

8.1

4070

24-

24-

23-

44+

44+

22+

23+

12+

1+3-

Croa

tia4.

640

602

3+4

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3-4

44

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2+3-

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3-2-

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Czec

h Re

publ

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44

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3

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nia

1.4

5580

34

44+

33+

44

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23+

FR Y

ugos

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640

12+

33

12

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11

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12

1+2

FYR

Mac

edon

ia2.

035

602

34

42

2+4

44

4+1

22

31

2-1+

2

Geor

gia

5.4

2065

13+

24

12

4-4+

14+

12

12+

12-

12+

Hung

ary

10.0

5580

34

4-4+

33+

4+4+

4+4+

33

34

24-

3-4-

Kaza

khst

an14

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652

32+

41

23-

42

3+2

21

32-

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2+

Kyrg

yz R

epub

lic4.

730

603

34

42

24+

4+3

4+2

22

2+1

21+

1+

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ia2.

455

702

3+4

4+2

34+

4+4

4+2

3-3

4-2

32

3-

Lith

uani

a3.

750

753

4-4

4+2

34

4+4

4+2

32

32

31

3-

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dova

4.3

2050

23

23+

22-

4-4-

24+

2-2

22+

22

12

Pola

nd38

.755

753

3+4

4+3

3+4

4+4

4+3

33

3+2

4-2

3+

Rom

ania

22.3

3565

23+

2+4-

22

44+

44

12+

23-

22

13

Russ

ian

Fede

ratio

n14

5.4

5070

33+

34

2-2+

4-4

33+

22+

22

2-3-

2-2+

Slov

ak R

epub

lic5.

455

803

44

4+3

34

4+4

4+3

33-

3+3-

3-1

2+

Slov

enia

2.0

3065

23

44+

3-3

4-4

44+

23-

33+

3-3-

2-3

Tajik

ista

n6.

215

501

2+2

4-1

2-2+

4-1

3+2

2-1

2-1

11

1+

Turk

men

ista

n5.

415

251

11

21

12+

3-1

11

11

11

11

1

Ukra

ine

49.3

3065

13

24

12

3-4

13

22+

12+

2-2

12

Uzbe

kist

an25

.020

452

3-3

31

2-4-

3-2

2-2

21

2-2

21

2-

Sour

ce:E

BRD

data

.

Pr

og

re

ss

i

n

Tr

an

si

ti

on

b

y

Co

un

tr

y,

1

99

4–

03

Ta

bl

e

A.

7


5 2

Institutional Country Dates Outcome development impact Sustainability

Albania 1992–97 MU M U

Azerbaijan 1995–98 MU M L

Bulgaria 1991–97 U NR NR

1998–01 S M L

Kazakhstan 1990–99 MS M U

Kyrgyz Republic 1993–00 MS S U

Lithuania 1991–02 S H HL

Poland 1989–96 S S L

Russia 1992–98 U NR NR

1999–01 S M L

Ukraine 1992–98 MU M U

Note: Outcome: S = satisfactory, MS = moderately satisfactory, MU = moderately unsatisfactory, U = unsatisfactory.

Institutional development impact: H = high, S = substantial, M = modest.

Sustainability: HL = highly likely, L = likely, U = uncertain.

NR = not rated.

Source: OED.

C A E R a t i n g s f o r T r a n s i t i o n C o u n t r i e st h r o u g h F Y 0 3

T a b l e A . 8


5 3

Total a Sustaina- Inst. dev. Total a Sustaina- Inst. dev. evaluated Outcome bility impact evaluated Outcome bility impact

Country (no.) (% sat.) (% likely) (% subst.) ($m) (% sat.) (% likely) (% subst.)Central and Eastern EuropeAlbania 25 84 68 48 337.8 88 67 45Bosnia-Herzegovina 26 100 83 42 506.0 100 80 56Bulgaria 20 80 78 53 1,049.0 95 83 43Croatia 10 90 90 50 482.0 83 98 45Czech Republic 6 100 83 67 661.7 100 100 98Hungary 24 88 91 58 2,003.0 96 94 71Macedonia, FYR 14 79 83 54 403.1 95 73 49Poland 28 79 74 57 3,214.4 87 90 69Romania 15 80 87 53 2,003.7 71 76 32Slovak Republic 3 100 67 100 130.4 100 100 100Slovenia 5 100 100 75 130.9 100 100 100Total/ average 176 86 81 54 10,921.9 89 87 60Baltic StatesEstonia 7 100 100 86 109.6 100 100 74Latvia 11 82 90 82 296.5 95 97 77Lithuania 11 100 90 80 267.5 100 90 74Total/ average 29 93 93 82 673.5 98 95 75RussiaRussian Federation 26 52 90 36 7,124.9 40 89 23Total/ average 26 52 90 36 7,124.9 40 89 23Other CISArmenia 15 87 86 67 466.5 84 90 75Azerbaijan 3 67 50 0 148.5 48 44 0Belarus 5 60 40 60 158.0 5 21 5Georgia 15 80 93 60 417.1 57 84 47Kazakhstan 16 81 69 69 1,157.6 97 94 96Kyrgyz Republic 12 83 58 42 363.3 95 48 39Moldova 10 70 50 20 316.4 78 46 18Tajikistan 7 71 57 29 145.3 63 82 42Turkmenistan 1 0 0 0 21.1 0 0 0Ukraine 16 87 60 47 2,434.0 96 63 46Uzbekistan 4 67 33 0 245.6 35 9 0Total/ average 104 78 66 48 5,873.4 84 67 52ECA transition countries b 335 82 78 53 24,594 74 83 48World Bank overall 2,125 74 62 43 178,811 78 70 46Low-incomeECA 51 76 65 36 1,636 66 53 28World Bank overall 1,022 66 49 35 69,564 74 61 36Middle-incomeECA 279 83 80 56 22,827 74 85 49World Bank overall 1,076 81 73 51 108,703 81 76 53

a. The total commitments or number of projects evaluated is not equal to the commitments or projects rated, since some evaluated projects are not rated in all categories. Therefore this

column is not necessarily the denominator for the subsequent columns.

b. ECA countries excluding Cyprus, Kosovo, Portugal, Serbia & Montenegro, Turkey, and Yugoslavia.

Source: World Bank data as of February 2004.

O E D P r o j e c t R a t i n g s b y C o u n t r y , A p p r o v e d F Y 8 9 – 0 3

T a b l e A . 9


5 4

Net CommitmentNumber of commitment, Projects Projects at risk, Commitment

Country projects millions US$ at risk at risk, % millions US$ at risk, %

World Bank total 1,323 89,852 252 19 15,596 17

ECA transition countries 243 9,276 43 18 1,692 18

Central and Eastern Europe

Albania 20 268 2 10 23 9

Bosnia-Herzegovina 19 296 0 0 0 0

Bulgaria 8 241 1 13 14 6

Croatia 11 448 1 9 5 1

Hungary 1 32 0 0 0 0

Macedonia, FYR 8 106 1 13 13 12

Poland 9 994 1 11 38 4

Romania 19 1,145 4 21 175 15

Slovak Republic 5 282 0 0 0 0

Slovenia 2 25 0 0 0 0

Total/ average 102 3,836 10 10 268 7

Baltic States

Latvia 6 78 0 0 0 0

Lithuania 5 106 1 20 20 19

Total/ average 11 184 1 9 20 11

Russia

Russian Federation 24 2,043 9 38 779 38

Total/ average 24 2,043 9 38 779 38

Other CIS

Armenia 13 230 2 15 26 11

Azerbaijan 13 321 1 8 30 9

Belarus 1 23 0 0 0 0

Georgia 16 297 5 31 111 37

Kazakhstan 7 546 0 0 0 0

Kyrgyz Republic 15 272 3 20 70 26

Moldova 12 150 1 8 11 7

Tajikistan 10 166 4 40 95 57

Turkmenistan 0 0 0 0

Ukraine 11 889 2 18 80 9

Uzbekistan 8 317 5 63 202 64

Total/ average 106 3,213 23 22 626 19


A t - R i s k R a t i n g s f o r T r a n s i t i o n C o u n t r i e s ,F e b r u a r y 2 0 0 4

T a b l e A . 1 0


5 5

Institu- Institu-tional tional

develop- develop-Total Sustaina- ment Sustaina- ment

evaluated Outcome bility impact Total Outcome bility impact(# (% (% (% evaluated (% (% (%

Sector Board projects) satisfactory) likely) substantial) (US$ million) satisfactory) likely ) substantial)

Education 11 82 100 55 347 98 100 91

Energy and mining 41 80 89 50 4,419 74 81 57

Environment 20 95 80 80 78 100 93 100

Economic policy 57 74 77 39 8,556 62 84 29

Financial sector 25 83 79 54 1,787 94 91 81

Global information/

communications

technology 6 100 100 67 287 100 100 90

Health, nutrition

and population 14 86 86 50 657 93 93 32

Public sector

governance 26 92 85 73 1,372 97 82 76

Private sector

development 20 80 68 58 1,506 92 91 85

Rural sector 43 72 62 49 2,050 75 55 36

Social protection 26 85 82 62 1,488 44 96 36

Transport 26 88 79 60 1,593 76 87 45

Urban development 12 82 56 18 314 89 71 8

Water supply and

sanitation 8 86 60 29 139 92 87 36

Overall result, ECA

transition countries 335 82 78 53 24,594 74 83 48

World Bank overall 2,125 74 62 43 178,811 78 70 46


O E D P r o j e c t R a t i n g s i n T r a n s i t i o nC o u n t r i e s b y S e c t o r , A p p r o v e d F Y 8 9 – 0 3

T a b l e A . 1 1


5 6

Sustaina- Sustaina- ID impact , ID impact, Outcome, Outcome, bility, bility, % substan- % substan-

% sat % sat % likely % likely tial tial Sector Board (Bank) (ECA) (Bank) (ECA) (Bank) (ECA)

Education 84 98 74 100 43 91

Energy and mining 71 74 64 81 45 57

Environment 62 100 69 93 39 100

Economic policy 68 62 64 84 34 29

Financial sector 81 94 77 91 55 81

Global information/communications technology 95 100 97 100 64 90

Health, nutrition and population 80 93 78 93 50 32

Public sector governance 86 97 84 82 55 76

Private sector development 88 92 81 91 57 85

Rural sector 79 75 63 55 49 36

Social development 100 a 100 a 100 a

Social protection 88 44 76 96 45 36

Transport 90 76 77 87 63 45

Urban development 83 89 71 71 28 8

Water supply and sanitation 59 92 37 87 25 36

Overall result 78 74 70 83 46 48

a. No projects in ECA.


C o m p a r i s o n o f B a n k w i d e a n d E C A R a t i n g sb y S e c t o r ( p e r c e n t o f n e t c o m m i t m e n t s ) , A p p r o v e d F Y 8 9 – 0 3

T a b l e A . 1 2


5 7

Satisfactory or better (percent)a

FY98 FY99 FY00 FY01 FY02

Bankwide 72 73 86 90 92

AFR 56 47 85 85 94

EAP 75 82 91 96 88

ECAb 82 69 90 100 100

LCR 72 89 82 81 77

MNA 100 94 100 89 100

SAR 90 100 78 83 100Tasks (number)

Bankwide 40 60 65 70 75

AFR 11 13 9 11 9

EAP 4 11 12 12 10

ECAb 9 16 16 16 22

LCR 8 8 12 11 16

MNA 2 7 6 8 8

SAR 6 5 10 12 10

a. Weighted average to account for oversampling of costlier tasks.

b. Includes four tasks in Turkey.


Q u a l i t y o f E c o n o m i c a n d S e c t o r W o r kT a b l e A . 1 3


5 8

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5 9

B: IFC Technical Assistance, FY90–03

Donor-funded TA Private Sector Advisory Foreign Investment (including Services in Policy Advisory Service

TATF) Transactions (PSAPT) (FIAS)By volume By volume By number

Transition Region/ Approvals Percent of all Approvals Percent of all No. of Percent of all country (US$M) transition (US$M) transition projects transitionCentral EuropeAlbania 415,370 0 — — 3 3Bosnia 4,735,400 3 — — 4 4Bulgaria 822,000 1 77,777 1 7 7Croatia 965,510 1 — — 7 7Czech Republic 1,976,000 1 2,668,262 20 4 4Hungary 1,613,600 1 62,630 0 4 4Macedonia 1,407,460 1 — — 3 3Poland 1,635,000 1 3,687,916 27 1 1Romania 4,489,300 3 3,877,495 29 7 7Slovak Republic 332,029 0 — — 3 3Slovenia 52,700 0 312,363 2 3 3Regional (including SEED) 12,745,000 8 — — — —

Subtotal, Central Europe 30,685,369 20 10,686,442 79 46 44FSU & RussiaArmenia 1,064,670 1 214,980 2 6 6Azerbaijan 966,160 1 — — 2 2Belarus 8,890,000 6 — — 1 1Georgia 824,850 1 571,528 4 5 5Kazakhstan 913,000 1 28,008 0 3 3Kyrgyz Republic 643,980 0 — — 7 7Moldova 1,802,970 1 — — 2 2Russia 56,758,430 36 521,259 4 10 10Tajikistan 3,325,860 2 — — — — Turkmenistan 60,000 0 — — — — Ukraine 39,637,379 25 1,441,511 11 2 2Uzbekistan 1,404,900 1 — — 1 1Regionala 2,559,000 2 — — — —

Subtotal, FSU & Russia 118,851,199 76 2,777,286 21 39 38BalticsEstonia 600,000 0 — — 3 3Latvia 327,500 0 — — 7 7Lithuania 1,349,150 1 — — 3 3Regional 1,547,500 1 — — — —

Subtotal, Baltics 3,824,150 2 — — 13 13Europe, regional 3,940,389 2 — — 2 2Total transition 157,301,107 100 13,463,728 100 104 100

a. Amounts raised through Private Enterprise Partnerships (PEPs) since FY01, totalling US$29 million, are distributed among individual PEP client countries.

Source: OEG.

I F C A c t i v i t e s i n T r a n s i t i o n C o u n t r i e s ,F Y 9 0 – 0 3 ( c o n t i n u e d )

T a b l e A . 1 4


6 0

Maximum FDI aggregate Country facilitated

Contracts liability (% of (US$ Country (% Country Projects issued (US$ thousands) total) thousands) of total)

Albania 2 2 8,585 0.42 10,700 0.21

Armenia 1 1 2,700 0.13 3,000 0.06

Azerbaijan 3 5 74,888 3.63 59,455 1.18

Bosnia and Herzegovina 7 20 96,391 4.67 62,676 1.24

Bulgaria 7 10 70,005 3.39 979,317 19.43

Croatia 2 3 75,712 3.67 68,285 1.36

Czech Republic 6 10 232,276 11.26 537,966 10.68

Georgia 1 1 3,402 0.16 2,130 0.04

Hungary 5 9 70,644 3.42 199,304 3.96

Kazakhstan 5 10 66,169 3.21 135,582 2.69

Kyrgyz Republic 3 7 109,980 5.33 360,089 7.15

Macedonia 1 1 19,164 0.93 30,740 0.61

Moldova 2 2 63,792 3.09 139,000 2.76

Poland 9 12 146,398 7.09 486,660 9.66

Romania 6 9 207,255 10.04 215,206 4.27

Russian Federation 20 30 617,538 29.93 1,353,672 26.86

Slovak Republic 4 8 91,565 4.44 201,474 4.00

Turkmenistan 1 1 8,000 0.39 13,800 0.27

Ukraine 2 2 49,000 2.37 70,000 1.39

Uzbekistan 1 2 50,000 2.42 110,000 2.18

Total 88 143 2,063,464 100.00 5,039,056 100.00

Total overall MIGA

guarantees, FY90–02 376 597 11,056,000 45,822,247

Transition country (%) 23.4 24.0 18.7 11.0

Source: OEU, MIGA.

M I G A G u a r a n t e e s b y C o u n t r y , F Y 9 0 – 0 2T a b l e A . 1 5

6 1

ANNEX B: CAE LESSONS AND NEW CASS

Lesson

ESW:

Need more analytical work, especially Poverty Assess-

ments (PAs) and Public Expenditure Reviews (PERs). Good

Living Standards Measurement Study needed.

Emphasize dissemination (inadequate in Poland, Bulgaria).

Sequence properly.

Build domestic capacity.

Participation:

Consult with stakeholders, explain to population how Bank

strategy tries to alleviate poverty.

Aid Coordination:

Examine IMF role and show transparently in the CAS the

areas supported by IMF, other donors, Bank.

Need to encourage govt. management of aid coordination.

Lending Instruments, Project Design:

Build ownership for investment lending by improving rel-

evance and efficacy and developing project prioritization

skills.

Take better account of country-level relevance in compo-

nents of investment projects (Kazakhstan urban transport,

Bulgaria health financed low-priority investments).

Risk Assessment:

Need more realism in assessing progress, risks, government

commitment.

Need to improve contingency planning for risky countries

(Kyrgyz).

Recent CASs

CASs emphasize core ESW.

Do not discuss dissemination or strategy to achieve im-

pact on authorities.

Not done: big loans do not always follow important ESW

(e.g., social sector work in Bosnia and Herzegovina, Azer-

baijan; PER in Albania done after major Structural Ad-

justment Credit dealing with public administration reform).

ESW was properly sequenced in Armenia.

ESW as tool to build domestic capacity not discussed.

Most CASs, especially from 2000+, developed in consul-

tation. Client surveys/consultations show Bank has not yet

been able to convincingly explain how the strategy will al-

leviate poverty.

All CASs discuss aid coordination. IMF role not high-

lighted.

No discussion of this in CASs.

CASs discuss portfolio performance, lessons, but do not

discuss how to improve relevance of projects.

CASs do not discuss allocation of investments within proj-

ects.

Most CASs have very good discussion of risk to the Bank,

especially Russia, Ukraine, Romania. Very transparent

about lack of political support for reform. Risk mitigation

strategy is defined solely in terms of lending volumes.


6 2

Lesson

In projects avoid broad Structural Adjustment Loans (SALs)

if uncertain commitment; use floating tranches, Sectoral Ad-

justment Loans (SECALs) instead of SALs.

Selectivity, Comparative Advantage:

In choosing sectors for Bank lending, look at subsectors as

well (e.g., other donors active in transport, but Bank could

have financed rural roads; other donors active in education,

so Bank stayed out, but not clear what others doing).

Capacity Building:

Need to develop capacity for monitoring and evaluation and

for donor coordination.

Monitorability of CAS:

CAS benchmarks should be monitorable.

Need to say how will identify turning points in a country’s

performance (for poor performers).

Governance, Legal Reform, Institutions:

Bank has paid insufficient attention to these areas. They

are key to EU accession, and they are binding constraints

in non-EU countries.

Focus on broader governance and accountability arrange-

ments, not narrowly on PSM.

Need more balance between PSM and PSD.

Poverty, Gender:

Need greater government commitment to poverty allevia-

tion, particularly in targeting social assistance to the vul-

nerable.

Use existing work to inform design of projects on gender.

Design should include poverty identification and targeting.

Recent CASs

Lending scenarios avoid SALs when uncertain commitment;

they do not suggest floating tranches or SECALs.

All CASs say Bank will be selective, according to com-

parative advantage, but basically a list of where other

donors involved. Underlying theme is that Bank will stay

out of infrastructure because other donors supporting it,

but not clear if all subsectors relevant to constraints are

covered.

Good discussion of comparative advantage in Slovenia,

Kazakhstan, Kyrgyz, Hungary.

No discussion in any CAS of strategy to build domestic ca-

pacity for either area

Performance monitoring a separate section in most CASs.

But indicators are not monitorable (e.g., reduction, steady

improvement, continued progress).

Very well done in Slovak Rep., Armenia, Kazakhstan.

CASs for Turkmenistan, Belarus say no new loans unless

policy performance improves. Belarus shifts focus to ESW,

supervision. But monitoring system to identify turning

points is not evident.

CASs have substantial focus on governance, and greater

attention than earlier to legal reform.

CASs are focusing on broader governance issues, but not

clear what and where the weaknesses are in accounta-

bility arrangements. The discussion across countries is vir-

tually indistinguishable in diagnosis.

CASs have very balanced discussion of PSM, PSD.

Govt. commitment to poverty alleviation is assumed, ex-

cept Kazakhstan, where a difference between govern-

ment and Bank is noted.

Link between poverty reduction and proposed actions is

not stated.

No discussion of potential social impact of policy reforms.

Social protection discussion more extensive than health,

education.

No statement of which projects will mainstream gender.

A N N E X B : C A E L E S S O N S A N D N E W C A S S

6 3

Lesson

Decentralization:

Need more advice on decentralization issues (Kazakhstan,

Bulgaria devolved responsibility for social assistance to local

governments, but it became a residual in the budget and

exacerbated inter-regional inequalities).

Privatization, PSD:

Need more work on enabling environment, governance, legal

and regulatory framework and its enforcement, judicial

reform, transparency in privatization, reduction in arbitrary

tax laws.

Mass privatization only for small enterprises; auction ap-

proach in environment of weak corporate governance led

to asset stripping. Don’t encourage management employee

buyouts (MEBOs) (e.g., Bulgaria). Address fiscal aspects of

privatization. Trying to restructure large SOEs without

strategic investor involvement rarely works.

Use full range of Bank Group instruments—IFC, MIGA,

Bank.

Apply lessons from IFC, MIGA experience.

Financial Sector:

Needs greater attention.

Avoid directed credit.

Agriculture:

Needs greater attention.

Where vested interests dominate (Ukraine), with monop-

sonistic/monopolistic powers, no adjustment lending. Focus

on locally based integrated farm support projects.

Beware privatization projects that lead to very small hold-

ings.

Infrastructure:

Work with government to set up infrastructure privatiza-

tion program and related regulatory framework. Do not

work with dysfunctional public utilities. Need fundamen-

tal change in management, employee incentives, ac-

countability structures.

Energy:

Needs greater attention, especially to get prices right.

Persuade authorities that power sector needs to operate

independently and commercially.

Education:

Source: ECA Region CASs and OED CAEs.

Recent CASs

Rarely discussed.

CASs acknowledge that enforcement of laws and regu-

lations is weak and the judiciary ineffective, but the strat-

egy to deal with these issues is not clear.

Little discussion of privatization methods.

No discussion of corporate governance.

CASs describe what IFC, MIGA and Bank are doing, and

have generic statements of how these activities comple-

ment each other, but no specifics on how the three will

work together in specific PSD areas.

Results from PSD surveys, client surveys are noted, but

nothing on actual transaction experiences of IFC, MIGA.

CASs give attention to financial sector.

No CAS suggests directed credit.

Receiving more attention.

Vested interests dominate in a number of transition

economies, and adjustment lending is still given.

CASs emphasize regulatory frameworks before privatiza-

tion.

Stopped working with dysfunctional public utilities in

early 1990s.

CASs discuss public administration reform, but not re-

source based management or accountability.

Relatively neglected.

6 5

ANNEX C: PEOPLE INTERVIEWED1

Asad Alam Lead Economist, Poverty Reduction and Economic Management (ECSPE)James Anderson Economist, Poverty Reduction and Economic Management (ECSPE)Robert J. Anderson Former Lead Economist, ECAVPEmily Andrews Lead Economist (ECSHD)Laura Ard Lead Financial Sector Specialist, Financial Sector Operations and

Policy Department (OPD)Asad Alam Sector Manager (ECSPE)Konstantin Atanesyan Consultant (ECSPE)Marie Bakker Lead Financial Sector Specialist, Private & Financial Sectors

Development Sector Unit (ECSPF)Luca Barbone Country Director, Belarus, Moldova, Ukraine Sandra Bloemenkamp Senior Public Sector Management Specialist (ECSPE)Lilia Burunciuc Country Program Coordinator, Central Asia Country Unit (ECCU8)Henk Busz Sector Manager, Energy Unit, Europe and Central Asia Regional OfficeDavid Craig Country Director, Burkina Faso, Mali, Mauritania, São Tomé and

Príncipe, (AFC15)Maria Dakolias Lead Counsel, Legal and Judicial Reform Unit (LEGLR)John Eriksson Consultant, Corporate Evaluations and Methods (OEDCM)Gabriella Ferencz Lead Financial Sector Specialist (OPD)Gary Fine Senior Private Sector Development Specialist, Private & Financial

Sectors Development Sector Unit (ECSPF)Alexander Fleming Sector Manager, Finance and Private Sector Development,

World Bank Institute (WBIFP)Louse Fox Lead Specialist (AFTPM)Michael Fuchs Lead Financial Specialist, Financial Sector Unit, Africa,

Africa Technical Families (AFTFS)Kathryn Funk Country Officer, AlbaniaPrem Garg Director, Quality Assurance Group (QAG)Jit Bahadur Gill Lead Public Sector Management Specialist (ECSPE)Roger Grawe Country Director, Czech Republic, Hungary, Moldova, Slovak Republic,

SloveniaCheryl Gray Sector Director (ECSPE)Poonam Gupta Senior Evaluation Officer, Country Evaluation and Regional Relations

(OEDCR)Sanjeev Gupta Assistant Director, Fiscal Affairs Department, IMFJohn Hegarty Manager, Operations Policy and Services (ECSPS)Joel Hellman Senior Public Management Specialist (ECSPE)Jane Holt Sector Manager, Environment (ECSSD)

Elliot Hurwitz Consultant, Country Evaluation and Regional Relations (OEDCR)Alma Kanani Senior Economist (ECSPE)Basil Kavalsky Former Country Director, Armenia, Belarus, Estonia, Georgia, Latvia,

Lithuania, Moldova, Poland, UkrainePhilip Keefer Lead Economist, Development Research Group (DECRG)Ioannis Kessides Lead Economist, Development Research Group (DECRG)Hoonae Kim Sector Manager, Rural Development, East Asia & Pacific Regional

Office (EASRD)Jeni Klugman Lead Economist, Poverty Reduction Group (PREMPR)Peter Kyle Lead Counsel, Private Sector Development, Finance, and Infrastructure

(LEGPS)Geoffrey Lamb Director, Resource Mobilization Department (FRM)Michael Lav Consultant, Country Evaluation and Regional Relations (OEDCR)Ira Lieberman Senior Policy Adviser, Private & Financial Sectors Development Sector

Units, Europe and Central Asia Regional Office (ECSPF)Robert Liebenthal Former Manager (ECHSD)David Lindeman ConsultantJohannes Linn Regional Vice President, Europe and Central Asia (ECAVP)Robert Liu Adviser (OPD)Laszlo Lovei Economic Advisor, Delivery Management, Operations Policy and

Country Services (OPCDM)Alexandre Marc Sector Manager, Environmentally and Socially Sustainable

Development Unit Albert Martinez Lead Private Sector Development Specialist, Quality Assurance

Group (QAG)Kathleen McCollom Chief Administrative Officer (ECA)Rick Messick Senior Public Sector Specialist, Public Sector Management Division

(PRMPS)Michael Mills Lead Economist (ECSHD)Pradeep Mitra Chief Economist (ECA)Allister Moon Lead Economist (ECSPE)Helga Muller Sector Manager (ECSPE)Craig Neal Senior Public Sector Specialist (ECSPE)John Nellis Senior Fellow, Center for Global Development (Former World Bank

Staff, PSD)Judy O’Connor Former Country Director, GeorgiaNeil Parison Senior Public Sector Management Specialist (ECSPE)Kyle Peters Senior Manager, Country Evaluation and Regional Relations (OEDCR)Christiaan Poortman Former Country Director, Albania, Bosnia and Herzegovina,

Macedonia, SerbiaSanjay Pradhan Sector Director (PRMPS)Svetlana Proskurovska Public Sector Management Specialist (ECSPE)Mansoora Rashid Sector Manager (SASHD)Gary Reid Lead Public Sector Management Specialist (ECSPE)Roberto Rocha Lead Financial Sector Economist (OPD)Michal Rutkowski Manager (ECSHD)Randi Ryterman Sector Manager, Public Sector Management Division, Poverty

Reduction and Economic Management Network (PRMPS)Gerald Saunders Deputy Legal Counsel, EBRD


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Hjalte Sederlof Consultant (ECSHD)Paul Siegelbaum Former Director, Private & Financial Sectors Development Sector

Unit (ECSPF)Sander Sipos Sector Manager, Social Protection (HDNSP)Martin Slough Senior Financial Specialist, Private & Financial Sectors

Development Sector Unit (ECSPF)John Spears Consultant, Environment Department (ENV)Gary Stuggins Lead Energy Economist, Energy Unit, Energy and Water DepartmentHelen Sutch Sector Manager (PRMPS)Peter Thomson Sector Manager, Energy Unit, Europe and Central Regional Office (ECSIE)Tunc Uyanik Sector Manager, Financial Sector Unit (ECSPF)Herman von Gersdorff Lead Economist (ECSHD)Deborah Wetzel Sector Manager, Macroeconomics (ECSPE)Suzy Yoon Operations Officer, Delivery Management (OPCDM)

Interviewed Earlier by Transition Evaluation Team in Context of Russia CAEWilliam Alexander IMFAnastossia Alexandrova Consultant (ECCU1)Lajos Bokros Director, Financial Advisory Services (ECAVP)Jeanine Braithwaite Senior Economist (ECSHD)Cesare Calari Vice President and Head of Network, Financial Sector Vice Presidency

(FSEVP)Russell J. Cheetham Former Country Director, RussiaMichael Carter Country Director, IndiaWalter Cohn Consultant, IFC, OEGKathryn Dahlmeier Social Protection Specialist (ECSHD)Ruben Lamdany Director, Sector and Thematic Program, World Bank Institute

(WBIST)Ken Lay Deputy Treasurer and Director, Banking, Capital Markets &

Financial Engineering Department (BCF)Andrei Markov Senior Human Development Specialist (ECSHD)Gerhard Pohl Consultant, Informatics Program (ISGIF)Nicholas Stern Former Chief Economist, EBRD and IBRDJacques Toureille Lead Financial Sector Specialist, Staff Exchange Program (PA9ES)Elena Zotova Senior Technical Specialist (ECSHD)

A N N E X C : P E O P L E I N T E R V I E W E D

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IntroductionManagement welcomes the review by the Op-erations Evaluation Department (OED) of WorldBank assistance to the transition economies. AsOED notes, this is a meta-evaluation, which islargely based on previous evaluative work. Likeother evaluative work, it uses the benefit of 20/20hindsight. The review assesses the effectivenessof World Bank assistance to the transition coun-tries in the Europe and Central Asia Region(ECA), with a view to eliciting lessons for coun-tries undergoing similar, if less extreme, changesin the future.

OED FindingsThe report concludes that the countries of theRegion have achieved substantial overallprogress. The private sector share of gross do-mestic product across all transition countries, vir-tually nil in 1989, reached nearly 70 percent in2002, even including the late-starting post-con-flict Southeast European countries and the mostreluctant reformers. Eight Central and EasternEuropean and Baltic countries joined the Euro-pean Union on May 1, 2004, and others are ex-pected to join in the next several years.Furthermore, policy reform has progressedsteadily in most countries, with few reversals.

World Bank Support. The World Bank, in collabo-ration with the IMF, the European Union, andother donors, geared up rapidly to supportmacroeconomic stabilization and structural re-form and, later, to provide post-conflict supportin Southeastern Europe, in particular. The reportnotes that the Bank’s strategy was to promotemacroeconomic stability and sound economicmanagement, reorient and strengthen publicsector institutions, build the basic institutions of

a market economy and an enabling environmentfor private sector initiatives, and cushion the so-cial cost of the transition. It considers these ob-jectives to be relevant and concludes that theBank’s assistance to the transition countries wason the whole successful. In assessing the effec-tiveness of such assistance, OED recognizes thatthe collapse of the Soviet Union and the ensu-ing transition took place with little warning andon an unparalleled scale. The report mentionsthat political imperatives put the Bank underpressure to move quickly and lend largeamounts, and that staff were frequently con-fronted with the need to act, often under diffi-cult circumstances, with no relevant experienceand little country knowledge, learning along theway. It also recognizes that the Bank’s role,though small relative to overall financial flows—except in a few small countries—was significantin terms of analytical work and policy advice.

The Report’s View of the Shortcomings of Bank Sup-port, with Hindsight. The report argues that clearlythere were mistakes early on when the true na-ture of transition was not yet fully understood,and that the effectiveness of the initial strategywas limited because (a) the Bank underesti-mated the need to focus systematically onpoverty alleviation and good governance, and (b)its use of rapid privatization to promote privatesector development did not always achieve its in-tended effect without a supporting legal and in-stitutional framework. Over time, the Bank isseen as having internalized emerging lessonsand having shifted its emphasis accordingly:poverty alleviation, monitoring, and good gov-ernance are now prominent objectives in bothlending and analytic work, and the approach toprivatization and private sector development

ANNEX D: MANAGEMENT RESPONSE

has evolved considerably. The report also takesthe view, again with the benefit of hindsight,that more prudent lending levels would havebeen better in the long run for those low-in-come Commonwealth of Independent States(CIS) countries—where the transitional recessionwas far deeper and longer than originally fore-seen and where problems of governance weremore serious than anticipated—that which nowface significant levels of indebtedness.

Recommendations. The report concludes withthree recommendations for the Bank: (a) pro-mote ownership and consensus, (b) improvethe effectiveness of its instruments, and(c) define clear strategies for assistance—dif-ferentiated by the state of governance and in-stitutional capacity in borrowing countries—inthe following areas: legal and judicial reform;energy sector enterprise reform; privatization;pension reform; and transparency and ac-countability, including through wide dissemina-tion of its own studies. Management is in generalagreement with the thrust of these recommen-dations. Details are provided in the Manage-ment Action Record, attached as an annex tothis Management Response.

Management CommentsThe issues highlighted by the OED report are un-deniably better understood in retrospect. Thepace of change was so tumultuous, particularlyin the early years of transition, that the informa-tion available with perfect hindsight is necessar-ily very different from that available earlier, aconsideration that limits the applicability of thelessons OED seeks to draw as a guide to actionin countries undergoing similar, if less extreme,changes. Inasmuch as future actors in such situ-ations must base policies on information availableex ante, it would have been useful to evaluatewhether the Bank made the best use of knowl-edge available at the time; how well its processesbalanced the need to draw on a range of diverseopinions with the need for timely intervention incrisis-like situations; and how it responded topressures from major shareholders, clients, andother constituencies. At the same time, the eval-uation provides a thoughtful contribution to the

analysis of this unique experience. As the reportindicates, the Bank has internalized and acted onthe emerging lessons coming from its experi-ence in supporting transition economies, no-tably with regard to poverty, support for privatesector development, and governance.

An Unprecedented Event in History. The transition inEastern Europe and the former Soviet Union wasa seminal event, involving political, social, and eco-nomic transformation on an unprecedented scale.No one working on the transition economies,whether in the Bank or outside it, foresaw thedepth and severity of the transition recession inthe CIS countries. The report acknowledges therelatively short and shallow recession in CentralEurope, which had been broadly foreseen. Theexpectation of a comparably short and shallow re-cession in the CIS, held by many, including theBank’s key counterparts, combined with the factof low poverty and inequality in the Region to startwith, implied that any increase in poverty wouldbe transitional. Thus an emphasis on poverty al-leviation would have been misplaced. The Banktherefore focused on alleviating transitionalpoverty to the extent tight budgetary realitieswould permit, by protecting pensions because theelderly were at risk, and on retargeting social as-sistance to those affected by downsizing of en-terprises rendered unviable following priceliberalization. It must also be noted that gov-ernments in transition countries during the earlyyears were reluctant to accept the notion of so-cial assistance, possibly because of the enduringstigma of poverty, and to borrow for that purposefrom institutions associated with developingcountries. In this context, clients would not havebeen receptive to a stronger Bank emphasis onpoverty alleviation. Later, when it became clearthat the recession was deeper and more severethan originally expected, the Bank focused itsprograms more strongly on poverty reduction. Inthe realm of analytic work, the Region took thelead in publishing a landmark study on povertyand inequality in Europe and Central Asia (WorldBank 2000c; at the same time as the World De-velopment Report 2000/2001 on poverty, WorldBank 2000e), which has been influential in sen-sitizing the development community to poverty


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and inequality issues across transition countries.Indeed, as the OED report notes, reflecting thisevolution, poverty alleviation is now prominentin the Region’s lending and analytic work, alongwith support for growth.

The Prevailing Environment in the Early Years of Tran-sition. The observation that the Bank’s strategy wasmistaken because it paid little attention to goodgovernance in the early years of transition couldusefully take more fully into account the envi-ronment prevailing in the countries of the Regionat that time. The Bank’s assistance program startedamid massive uncertainty and real concerns, es-pecially in the CIS, as to whether the old, highlyrepressive regime might come back to power orenterprises might be grabbed by local govern-ments—more broadly, whether the irreversibilityof steps toward a market economy was guaran-teed. In 1991, for example, President Yeltsinmounted a tank to stop an insurrection by thecommunists in Russia. The fluidity of these situ-ations called for speed on the part of the re-formers and the Bank and, as a practical matter,precluded the luxury of taking a significant amountof time to analyze governance and public sectormanagement issues. Nevertheless, the Bank’sprograms worked to depoliticize the allocation ofresources through price and trade liberalizationand through a more transparent budget processto make explicit the myriad of implicit subsidiesand greater transparency in the tax system. It alsoneeds to be remembered that the Bank started de-veloping its strategy on anticorruption and goodgovernance in the mid-1990s; these issues wereto become explicit institutional priorities onlylater in the decade when the analytic toolkits foraddressing them were developed. When this in-ternal shift occurred, ECA’s efforts to opera-tionalize these policies placed it at the forefrontamong the Bank’s Regions.

Administrative Structure and Public Institutions. In asimilar vein, the report observes that while theBank understood the need to reorient andstrengthen public sector institutions, it greatly un-derestimated the consequences of still weakcore institutions and public administrations man-aging the transition process. The Region’s own

retrospective (World Bank 2002b) on transitionacknowledges that, while developing market-compatible institutions had been on the reformagenda since the onset of transition, the chal-lenge of doing so in countries without recentmarket experience was underestimated. OEDalso believes that the Bank often approachedpublic sector management reform in an ad hocmanner, without a comprehensive, long-terminstitutional development and reform strategy.But the report may overstate its case in sayingthat little analysis of public expenditures wasundertaken before the late 1990s. Althoughstand-alone Public Expenditure Reviews wererelatively rare in ECA and throughout the Bank,many public sector interventions in ECA werepreceded by analytic work on public expenditurein Country Economic Memoranda or sector re-ports carried out in the earlier part of the decade.

Emphasis on Privatization. The report questionsthe relevance of Bank strategy in the early yearsbecause of its heavy emphasis on privatizationto achieve private sector development in coun-tries where institutions of corporate governancewere not in place, thus risking the expropriationof minority shareholders’ assets and income ofthose who had gained control over the enter-prise. Since privatization of small enterprises iswidely regarded as having been highly success-ful, this is a critique of privatization of mediumand large enterprises. But the report does notmention that the alternative of delaying privati-zation of medium- and large-scale enterprisesuntil institutions of corporate governance hadbegun to function was extremely problematicas well. It would have left enterprise assets in thehands of enterprise managers where state au-thority had collapsed, leaving the state in thehands of a self-serving and corrupt nomenklaturaand intensifying the use of asset stripping andother forms of capture. Hence, except in situa-tions where there was a strategic investor towhom assets could be directly sold, policymak-ers were faced with an extremely difficult choicebetween two unattractive alternatives. Indeed, itis not clear now, even with the benefit of perfecthindsight, which of these would have been thepreferred course of action. The fact that—as

A N N E X D : M A N A G E M E N T R E S P O N S E

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OED notes in its report—there have been no sig-nificant policy reversals in the transition coun-tries, except in those that have not substantiallyembarked on market reforms, is a remarkableachievement and must owe something to the re-formers’ strategy of creating a new and evidentlyirreversible economic reality through rapid andearly privatization. This is a complex and con-troversial area, and not enough time has elapsedto allow a considered judgment to be made.

Second-Generation Reforms. On a related note, thereport observes that, in line with views of lead-ing policymakers throughout the Region, earlyBank assistance put a lower priority on reformof regulatory, antimonopoly, commercial, capi-tal market, and bankruptcy regimes—the so-called “second generation” reforms—leavingthem to be pursued once a critical mass of pri-vatized firms had appeared.1 It takes the view thatin the earliest years of the transition, many of theBank’s choices were probably appropriate, givenwhat was known at the time. This position mightseem to be at odds with the report’s criticism ofthe Bank’s emphasis on privatization, a criticismthat is based on hindsight, illustrating the diffi-culty of making some kinds of judgments in anenvironment of rapidly changing information.However, with the benefit of hindsight, the re-port also considers that the Bank should havebeen quicker to pursue the lessons drawn by theRegion in its retrospective, which are noted asbeing consistent with OED’s findings. It goeson to say that by the mid-1990s it is reasonableto ask whether the Bank was focusing sufficientlyon the climate for private sector developmentand the appropriate methods for discipliningand privatizing medium and large enterprises.

The Lessons from the Region’s Retrospective. The les-sons from the retrospective that are relevant withregard to this issue call for (a) privatization aspart of a broad strategy of discipline (imposinghard budget constraints on enterprises and banksand monitoring managerial behavior) and en-couragement (a business environment that levelsthe playing field among state-owned, privatized,and de novo firms); (b) quick sale of small en-terprises through open and competitive auctions;

(c) case-by-case privatization of medium and largeenterprises; (d) an enforceable legal system to pro-tect investors; (e) increased competition; (f) clar-ification of the cash flow and property rights ofenterprises with continued state ownership; and(g) an efficient regulatory regime before divesti-ture of enterprises in sectors characterized bynatural monopoly or oligopoly. However, under-standing the context in which these lessons weredrawn is of the utmost importance.

The Context for Learning the Lessons on the Private Sec-tor in Transition Economies. There are two relevantpoints to be made. First, as already noted, theneed to create an irreversible economic realityoften dictated rapid privatization in the earlyyears, when the return of Communism was feltto be an ever-present danger in the CIS countries.But once that threat had receded over time, it wasappropriate for the Region’s retrospective, draw-ing on 10 years of country experience, to advo-cate taking a more nuanced approach toprivatization in the context of a strategy of disci-pline and encouragement. That said, the Bankshould have critiqued poor privatization deci-sions, such as the loans-for-shares scheme inRussia, and expressed its reservations regardingmass privatization using vouchers in Bosnia in themid-1990s. Second, a greater emphasis on entryand expansion of de novo firms (“the new privatesector”), which have played an important role ineconomic recovery and job creation in conjunc-tion with privatization and restructuring, wouldhave been appropriate in the mid-1990s. How-ever, it must be noted that it was not until the Re-gion’s retrospective was written that thedevelopment community fully understood themutual complementarity of entry and expansionof de novo firms on the one hand and privatiza-tion and restructuring on the other, so that nei-ther could proceed very far without the other.

Initial Conditions and Policy Response Lags. The re-port’s assessment of the early years of transitioncould set the developments of those years in abroader context. The literature on initial condi-tions, policy reform, and outcomes makes clearthat, when initial conditions are controlled for,countries that implemented policy reforms wit-


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nessed a favorable impact on output growth overthe medium term. This importantly implies thatthe favorable outcomes noted in the later part ofthe period under review owe something to the re-forms undertaken in the early years of transitionand, therefore, that an assessment of the Bank’sassistance in the early years cannot be undertakenby looking solely at outcomes in those years.

Debt Sustainability in CIS Countries. The report ar-gues, again with the benefit of hindsight, thatmore prudent lending levels would have beenbetter in the low-income CIS countries, which arenow significantly indebted. The report notesthat this was because official lending levels werebased on the ex ante expectation that the tran-sition recession in the CIS countries would beshort and shallow. This issue has been exam-ined in the context of the CIS 7 Initiative that theBank and the IMF have undertaken, in con-junction with the European Bank for Recon-struction and Development and the AsianDevelopment Bank (see http://www.cis7.org).As already noted, neither the international fi-nancial institutions (IFIs) nor other observersforesaw the extent of disruption arising fromthe dissolution of the Soviet Union. In the event,financing of the initial transition by the IFIs andother donors prevented a further compressionof living standards in countries where they werealready in precipitous decline. Hence OED’sview that less lending would have been better im-plies that such a further compression—in coun-tries that were undergoing significantadjustment—and the resulting lower debt wouldhave been preferable to the situation that pre-vails today. The trade-off between cushioningthe fall in living standards and ensuring debtsustainability would have been moderated ifmore grant financing had been forthcoming inthe early years, which could then have been fol-lowed by Bank (and other IFI) financing to sup-port structural reform. This raises the questionof whether more efforts should have been madeto secure grant financing for the low-incomeCIS countries in those years. However, it alsoneeds to be pointed out that substantial andsteady growth in the low-income CIS countriessince 2000, together with debt relief granted by

official creditors, has played a major role in re-ducing their debt burden since 2001.

OED Recommendations. As OED notes, its findingsand recommendations are broadly applicableacross World Bank support for most countries.All of the recommendations on sectoral issues—legal and judicial reform, financial sector lend-ing, energy sector reform priorities andsequencing, support for privatization, and adviceon pension reform—are useful and timely. Thecross-sectoral findings—importance of a knowl-edge base and relevant and timely economicand sector work; the promotion of governmentownership and leadership on aid coordination;a comprehensive, long-term approach to publicsector management reform and institution-build-ing; and the high priority of poverty monitor-ing—are of relevance for ongoing work on Banksupport to client countries. Detailed responsesto OED’s specific recommendations are attachedin the Management Action Record.

ConclusionsBank Management welcomes the OED review ofBank support to transition economies and the op-portunity to discuss and contrast its own self-evaluation of this unique experience with theviews of OED. While the recommendations aregeneric and not particularly related to transitioneconomies, Management finds them intuitiveand accepts them, with a few small qualifications.As noted above, Management believes that, while20/20 hindsight is one approach, the report couldhave benefited from analysis that took more intoaccount what was known about the transitioneconomies at the time critical support decisionswere taken. That type of analysis might havebeen more useful for informing the develop-ment community on how best to draw on avail-able information and balance diverse views whengoing into a totally new environment and how tobalance the need for timely financial supportand learning by doing against the need for a solidanalytic foundation. That said, Managementthanks OED for a thoughtful review. As the reportnotes, the Bank has acted to incorporate themajor lessons learned in its support to thesetransition economies.


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1. The Bank should help promote ownership and

consensus:

a. CASs should support capacity building for

government and civil society, promote stake-

holder participation, and take into account

the underlying political and social processes

that affect stakeholder behavior.

b. ESW should be undertaken with borrower

participation and CASs should include a strat-

egy for its dissemination.

2. The Bank should improve the effectiveness of

its instruments:

a. Poverty levels should be monitored regularly,

particularly in new borrowers.

b. Analytical work on governance and public

sector management, along with analysis al-

ready required to understand the structure of

1. Management agrees with the recommendation that the Bank should

promote ownership and consensus. That concept is at the heart of the

Comprehensive Development Framework, which is now mainstreamed.

a. Management monitors CASs for the inclusion of support for capacity build-

ing. The current work on guidance on social development is addressing

issues related to stakeholder analysis and participation. That work is

planned for completion before the end of FY05. It should be noted,

however, that Bank promotion of stakeholder participation must be

done in the context of government ownership and leadership, support-

ing and encouraging country efforts, rather than trying to impose a sys-

tem from the outside.

b. Management encourages active borrower participation in most ESW

tasks, particularly in core diagnostic ESW. In fact, QAG’s assessments

have demonstrated a growing trend in the share of participatory ESW.

Regional as well as Sector Board guidelines emphasize the benefits of

client participation in the preparation of diagnostic ESW products.

Therefore, in most cases, client participation is expected. However,

there will always be some cases in which clients are primarily interested

in the Bank’s own analyses and views, as that of a neutral, independ-

ent party. In these instances active borrower participation in the prepa-

ration of the report/policy note would be counterproductive. At Bankwide

reviews of draft CASs, ESW programs, including issues of dissemina-

tion, are regularly part of the agenda. However, the CAS is already

heavily loaded and Management does not intend to impose a new re-

quirement with regard to a strategy for ESW dissemination.

2. Management agrees with the overall recommendation. The Bank works

constantly to improve the effectiveness of its instruments and uses self- and

independent evaluation to measure progress. Management would like to

note that it does not agree with several of the separate recommendations

embedded in the sub-recommendations, in particular one concerning ana-

lytic work as a prerequisite to sizeable lending. In general, this will be the

case; but there are likely to be cases (notably in emergencies and turn-around

situations) where Bank support that might be regarded as sizeable will

have to proceed before or in parallel with analytic work.

a. This is Bank policy; however, in many cases there are issues of capacity

that must be addressed with the support of the Bank or other donors,

particularly in new borrowers.

b. Three years ago, Management launched a systematic effort to strengthen

the diagnostic underpinnings of Bank lending to clients with sizeable lend-

ing programs, particularly in the areas of public expenditure manage-

Management Action Record

OED Recommendation Management Response

7 5

public expenditures and enhance public fi-

nancial accountability, should precede sizeable

lending.

c. The quality and impact of ESW should be

evaluated retrospectively.

d. Recipient governments should lead aid coor-

dination, with donors helping them define

clear development strategies, including mon-

itorable action plans for implementation.

3. The Bank should define clear strategies for as-

sistance in the following areas, differentiated by

the state of governance and institutional capac-

ity of each country:

ment, financial accountability, and procurement. The diagnostic instru-

ments used by Bank staff (PER, CFAA, and CPAR) have evolved consid-

erably since then, with increasing emphasis on governance issues.

While additional analytic work dedicated specifically to governance

and public sector management issues may be needed in some countries,

Management believes that a formal requirement applied to all countries

with planned lending operations above a certain size may lead to du-

plication of effort—in cases where sufficient knowledge can be gained

from work undertaken/planned by partner agencies or local institu-

tions—and can also crowd out traditional sector work essential to en-

sure high-quality investment lending.

c. This is already the case. QAG undertook several rounds of ESW quality

assessments in the FY98-03 period. Likely impact was one of the di-

mensions along which the quality of individual ESW products was as-

sessed. Recognizing the limitations of this product-by-product impact

evaluation methodology, QAG has moved to the quality review of entire

ESW and (nonlending) TA programs in selected countries. These com-

prehensive country AAA assessments—one has been recently completed

for Slovakia—have proven to be better suited to judge the impact of ESW.

Management has also recognized that there is a need to improve the

self-evaluation of individual ESW products and has developed a new very

simple and cost effective results framework that will require ex ante the

clear identification of the goals for each ESW task and ex post the

evaluation of the extent to which these goals were achieved. This new

framework will be implemented in SAP starting during FY05. In addition

CAS Completion Reports look at the impact of ESW programs. If, as ex-

pected, CAS Completion Reports are mainstreamed, these reports and

the related OED reviews will provide regular assessments of the impact

of ESW at the appropriate level: the entire country ESW program over

the CAS period.

d. The PRSP process provides a framework in low-income countries for re-

cipient governments to take the lead in aid coordination. Donors including

the Bank help PRSP countries define clear development strategies with

monitorable action plans for implementation. Regular Progress Reports

by IMF and Bank staff measure progress.

3. Management agrees in principle that clear strategies are important but

does not agree with all of the details in the many complex recommenda-

tions that are imbedded in the overall recommendation and does not plan

any new SSPs in the near future. Guidance to staff exists or is under prepa-

ration in each of these areas.

Management Action Record (continued)



7 6

a. Legal and judicial reform, with a focus on im-

plementation, is needed to improve the busi-

ness climate (e.g., company, security,

bankruptcy, and anti-monopoly laws, con-

tractual rights, and respect for private prop-

erty); the financial sector (banking, central

banking, collateral, failed bank resolution);

social protection (labor laws); and governance

in general. Financial sector lending should be

conditioned on progress in enforcing pruden-

tial regulations and international accounting

standards, and in increasing the effective-

ness of bank supervision.

b. The primary objectives for enterprises in the

energy sector should be improved commercial

performance and corporate governance; the

sequencing of reforms, including the feasi-

bility of immediate privatization, depends on

country circumstances. Rehabilitation proj-

ects should minimize delays (use negative

lists) and forego project implementation units

and long-term reform objectives.

c. The emphasis in future privatizations should

be on encouraging a carefully prepared, trans-

parent, competitive process, open to foreign

participation.

d. A strategic approach is needed for pension re-

form and for improved targeting of social as-

sistance programs other than pensions,

a. The Legal Department and the Public Sector Governance Board of the

PREM Network are working together on developing modes of support

for both legal and judicial reform, in support of private sector develop-

ment (and poverty reduction). Much of the guidance for supporting

countries embarking on legal or judicial reform is summarized under Top-

ics in Development on the Bank’s external website under Law and Jus-

tice and also Public Sector Governance (Legal Institutions of the Market

Economy). The Legal Department also maintains a list of qualified con-

sultants in this field. Quality assurance with regard to financial sector

lending, including on issues of effective prudential regulation, interna-

tional accounting standards, and the effectiveness of Bank supervision

is undertaken by the Financial Sector Network, based on the Board-en-

dorsed Financial Sector Strategy.

b. In response to the OED/OEG/OEU review, Private Sector Development

in the Electric Power Sector, Management provided a guidance note to

staff regarding the roles of the public and private sectors in the supply

of electricity services. The note calls on staff who are providing advice

to client countries to consider the full range of options, from purely pub-

lic to purely private interventions. It notes that the course that power

sector reform can take and the speed at which reforms can be imple-

mented vary from country to country, and that reform is a continuous,

evolving process. With regard to rehabilitation projects, negative lists

may sometimes be appropriate. However, rehabilitation of capital stock

often focuses on catching up on deferred maintenance and component

replacement, requiring a detailed technical analysis followed by a tar-

geted set of investments. It is not clear that using a negative list would

be appropriate or would save time in these situations. Management

agrees that long-term objectives should not be included in this type of

investment loan and has made this clear to staff. As noted in the Man-

agement Response to the OED review of the CDF, Management is

preparing a good practice note on PIUs and plans to have it available

early FY05.

c. This is, in general, the kind of advice being given by Bank staff supporting

privatization efforts. There is a large amount of information on this

issue available within and outside the Bank. However, as in all Bank sup-

port, country conditions need to be taken into account, including on the

issue of foreign participation.

d. With regard to pension reform, the Social Protection Sector Board is pro-

ducing a pensions position paper calling for an approach to Bank sup-

port that is both differentiated and strategic. The Social Protection




7 7

differentiated by the ability of the country to

administer and fund the systems.

e. The Bank should promote transparency and ac-

countability by ensuring that its own studies

and documents are widely disseminated when-

ever possible, and by encouraging govern-

ments to report more regularly and more fully

to their parliaments and to the public at large,

including through information and communi-

cations technology.

Strategy, now under implementation, calls for support for social assis-

tance that is differentiated by the country’s situation, priorities, and needs.

The upcoming Sector Strategy Implementation Update will report on

progress on all dimensions of the Social Protection Strategy, including

these.

e. Transparency and accountability are at the center of the Bank’s Public

Sector Management Strategy, under implementation. On the basis of that

strategy, Bank support to governments emphasizes the importance of

these issues, notably in the context of PERs, CFAAs, and CPARs. Within

the Bank, recent revisions of the disclosure policy have significantly ex-

panded the set of Bank documents that are made available regularly to

the public. Further changes are under consideration by Executive Directors.



7 9

On May 19, 2004, the Committee on Develop-ment Effectiveness (CODE) discussed the OEDreport entitled An Evaluation of World Bank As-

sistance to the Transition Economies togetherwith the Management Response to the OED Re-

view. Written statements were issued by threemembers.

Background. The OED study, undertaken in re-sponse to a request from CODE members, ex-amined the effectiveness of World Bank assistancein 26 transition economies in the Europe andCentral Asia Region (ECA) since 1989, with aview to eliciting lessons for countries undergo-ing similar, if less dramatic, changes in the future.Although the evaluation did not include all areaswhere the Bank was active, it provided an in-depth examination of five areas of Bank assis-tance: private sector development; governance,public sector management and institution build-ing; financial sector; social protection; and energy.Overall, the OED report ranked Bank assistanceto the transition countries as successful, but ar-gued that there were mistakes early on whenthe true nature of transition was not fully un-derstood. The report found the Bank’s objec-tives relevant, but of limited effectiveness duringthe early years. The main reasons for that, ac-cording to the report, were an initial lack of focuson poverty and good governance and the use ofrapid privatization to promote private sector de-velopment without a supporting legal and insti-tutional framework. The report mentioned thatthe unexpectedly prolonged recession in someCIS countries led to the accumulation of signifi-cant levels of indebtedness. At the same time, theOED evaluation noted that, over time, the Bankinternalized emerging lessons and shifted its em-phasis accordingly. The study concluded with a

number of findings and recommendations thatcut across sectors and are broadly applicable formany regions: holding lending at prudent levelsin a new country context, or after a long hiatusin lending, while building a knowledge base, withconvincing evidence of government and societalownership of the assistance program; promotingstakeholder inclusion and government ownershipand leadership of aid coordination; improving theeffectiveness of Bank instruments and definingclear strategies; carrying out relevant and timelyeconomic and sector work (ESW); taking a com-prehensive, long term approach to public sectormanagement reform; according high priority topoverty monitoring and analysis of governancefrom the beginning of Bank involvement in acountry; and ensuring transparency and ac-countability, including wide dissemination ofBank studies.

Management, in its Response to the OEDstudy, welcomed the review and expressed itsgeneral agreement with the thrust of the evalu-ation. Management found the report’s recom-mendations acceptable, with a few qualifications(see MR), and noted that it could have benefitedfrom analysis that took more into account whatwas known about transition economies at thetime critical support decisions were taken. Man-agement sought the Committee’s guidance onwhether an assessment of a seminal event, suchas the transition in Eastern Europe and the for-mer Soviet Union, using perfect hindsight, wasuseful as a guide to action to teams that must takesupport decisions in real time in rapidly evolv-ing crisis and near-crisis situations.

Conclusions and Next Steps. Members welcomedthe OED evaluation and the Management Re-sponse and commended the staff for preparing

ANNEX E: CHAIRPERSON’S SUMMARY: COMMITTEE ON DEVELOPMENT

EFFECTIVENESS (CODE)

an informative, well-written and candid assess-ment. They broadly agreed with the report’sfindings and recommendations, and noted thatit had clearly articulated several important les-sons from the unique transition experience in theECA region. The Committee focused its discus-sion on the extent to which management hastaken the OED recommendations on board andsought more details on how the response couldbe best implemented, especially in the areas oflegal and judicial reform, privatization, financialsector, debt analysis, turnaround situations andpoverty analysis. Interest was also reiterated inthe efficacy of CAS triggers and other bench-marks. Some members wished that the reporthad also addressed a few additional areas, in-cluding: cooperation with the Fund; investmentoutcomes of the IFC; analysis of the differencesacross countries; focus on results and compar-isons with other institutions; and decentraliza-tion. Among issues identified for going forwardwere: employment generation; lessons on cur-rent practices on governance and public sectormanagement; portability of lessons across sec-tors and regions; capacity building and use oflocal expertise; aid coordination; and the issueof “gap countries”.

Among the specific issues raised by the Com-mittee were:

Lessons learned: utility of perfect hindsight approach.Many members agreed with the managementthat the transition period in the ECA region wasan unprecedented event, and many of thechanges were difficult to foresee. However, theyalso emphasized the usefulness of the perfecthindsight approach employed by OED, giventhe Bank’s frequent involvement in post-con-flict and emergency situations, and noted that les-sons deriving from a perfect hindsight approachare useful not only in checking assumptions,identifying blind spots and judging the validityof conventional wisdom, but also in assessingwhen and how corrective actions or adjustmentsto strategies could be undertaken. One memberwanted to know more on variations in the pat-tern of Bank Group engagement in policy dia-logue with clients across the region, given thevolatile political situation in many countries, and

the impact on the Bank’s portfolio. OED notedthat the high fluctuation in policy dialogue intransition countries was partly due to the unevenlevel of civil society development across the re-gion and the legacy of high reliance on the state.Management concurred with OED’s view andadded that frequent government changes inmany cases could be perceived as a positive phe-nomenon for countries previously not accus-tomed to free elections. Management alsounderlined the positive impact of decentraliza-tion of the Bank in maintaining consistent dia-logue with the clients. Members concurred withthe OED recommendation to emphasize the im-plementation aspect, as opposed to legislative ac-tions, and asked whether a new approach will bereflected in the triggers and benchmarks for theupcoming CASs. Management agreed with thenecessity to shift the focus to actual implemen-tation and noted that recent CASs, as well asAPLs and other operations are increasingly put-ting more emphasis on outcomes.

Role of the Bank and results. Speakers acknowl-edged the important role played by the Bank inthe ECA region, and stressed the significance ofthe Bank’s analytical work. Some membersstressed the importance of looking at the over-all results of Bank interventions (including IFCinvestments) and comparing them with other in-stitutions, such as the EBRD. One member ques-tioned whether the Bank possesses enoughflexibility for quick and effective engagement in“turnaround” situations, given the rigidity ofCPIA criteria. Management agreed that the CPIAis by definition a backward-oriented assessmenttool, and not best suited as a basis for allocatingresources in turnaround situation. Managementalso noted that there was continuous discus-sion within the institution to improve the CPIAmethodology. In management’s view, althoughIDA has overall been quite forthcoming in ac-commodating some incremental resource needsin turnaround situations; it would be equallyimportant for bilateral donors to stay engagedand play a substantive and constructive role.

Sectoral focus and sequencing. Members welcomedthe report’s recommendation to focus on gov-


8 0

ernance, reforms in judicial, legal and financialareas, as well as on the ex-ante analytical work ongovernance, and stressed the importance of wide-range capacity building to expedite the process.Management replied that the ECA Region is in-creasingly giving more prominence to the legaland judicial reform components in many of theprogrammatic loans, as well as to the freestand-ing legal and judicial reform operations. Man-agement also noted that many aspects of legal andjudicial reform agenda are financed through theIDF (Institutional Development Facility) grants.Several members noted that the paper wouldhave benefited from additional coverage of suchtopics as employment, decentralization and co-operation with the Fund. OED replied that, al-though it was not a joint or parallel evaluationwith the IMF, its analysis did take a careful lookat the IMF programs in many of those countries,especially in the context of the Bank’s adjust-ment lending. On employment, managementnoted that the Region has been advocating flex-ibility of the labor markets as part of the reformagenda, but there certainly was a gap in impacton unemployment. Management informed themembers that the Region is currently finalizinga flagship regional report on employment, whichwill shed more light on that issue.

Privatization. While some members agreed withthe management’s view that in many cases rapidprivatization was necessary to make the reformprocess irreversible, others noted the impor-tance of adjusting reform sequencing to coun-try circumstances and adopting a more gradualapproach, e.g. choosing commercialization as asubstitute to full privatization in the energy sec-tor. OED noted that while it agrees with the crit-ical importance of commercialization, especiallyin the energy sector, actual privatization is verymuch dependent on the country situation. Man-agement replied that the new guidance to thestaff does follow up on the OED, OEG and OEUrecommendations to consider the full range ofoptions—from pure public to private interven-tions—depending on country circumstances.Some members felt that the paper would havebenefited from a more detailed cross-regionalcomparative analysis of privatization outcomes

and lessons learned in the process, impact on en-terprise performance, employment, prices andtheir affordability, tax revenues, development ofindigenous entrepreneurship, and poverty. Man-agement noted that in many cases the reformagenda, and namely the quick privatization, hadbeen advocated by the reformist governmentsthemselves, which had often moved at a fasterpace than the Bank. Management stressed thatin some countries quick privatization, combinedwith the related FDI, has been instrumental incementing a culture of market-orientation.

Debt sustainability. Some members supported theOED finding that the current high indebtednessof some CIS states was partly induced by the un-derestimated depth of the recession, but notedthat resource flows were vital for future growthand that lending decisions were appropriategiven all the analysis of debt capacity at that time.In that context, some members asked whetherthe debt systems have been improved and are cur-rently in place to avoid this type of situation infuture. OED replied that systems are being putin place, citing creation of the position of a Di-rector for debt as one of the major steps in thatdirection. Management noted that economicgrowth throughout the region since 2000 hascontributed to significant reduction of the shareof debt service to exports (approximately 20 per-cent) in the most indebted CIS-7 countries, but,at the same time, acknowledged their persistentvulnerability in that regard. Management alsoadded that in most of the countries in the region,debt is more of a collective, rather than just a Bankproblem. Some members expressed their inter-est in the Bank’s future approach in similar situ-ations and the use of grant financing. Onemember called for more flexibility in the Bank’sapproach towards the “gap” countries—thosethat have higher than IDA threshold income lev-els, but lack creditworthiness of a typical IBRDcountry—at the upcoming IDA discussions. Man-agement replied that it would actively continueto engage, including on the IDA front, to find so-lutions for the “gap” countries.

Poverty reduction. Members agreed with the man-agement’s view that the drastic drop in living

A N N E X E : C H A I R P E R S O N ’ S S U M M A R Y: C O M M I T T E E O N D E V E L O P M E N T E F F E C T I V E N E S S ( C O D E )

8 1

standards in many transitional economies washard to foresee, and emphasized the importanceof continuous poverty monitoring. One memberwished the report had contained informationon income distribution and changes therein inthe region. OED concurred with the members’view on the crucial importance of poverty mon-itoring, but noted that some countries in theregion still lack the capacity to collect data. OEDalso noted that the report includes a table show-ing changes in income distribution in the re-

gion, and the text mentions the increases in in-equality.

Cooperation. A member urged the Bank to stay en-gaged in the region and maintain close associa-tion with the EU initiatives, given the persistenceof considerable differences in income levels in-side the EU. Management noted that it is planningto continue cooperation with the EU and stressedthat the EU accession of some countries pro-vided a strong stimulus for the whole region.


8 2

Chander Mohan Vasudev, Chairman

8 3

Executive Summary1. Management disagreed with the unsatisfactory

rating for the early period in Russia. Recent OED proj-

ect assessments show that the effectiveness of Bank

assistance to Albania has improved since the CAE was

written.

1. La Administración no estuvo de acuerdo en cali-

ficar de insatisfactorio el período inicial en Rusia. Según

evaluaciones recientes de proyectos realizadas por el

DEO, la eficacia de la asistencia prestada por el Banco

a Albania ha mejorado desde que se redactó el informe

de evaluación de la asistencia prestada a ese país.

1. La direction rejette la notation « insatisfaisant »

pour la période initiale du programme d’aide en Rus-

sie. Les évaluations récentes de l’OED montrent que

l’aide de la Banque à l’Albanie est plus efficace que lors

de l’évaluation initiale.

Chapter 11. This report covers the transition countries of the

Europe and Central Asia Region of the World Bank; it

does not cover other transitional countries, such as

China or Mongolia.

2. Serbia and Montenegro is not included, except

where otherwise noted.

3. Throughout this report, references to the Bank

or the World Bank should be understood to include

the International Development Association (IDA),

and references to loans to include credits.

4. There was no definitive statement of Bank ob-

jectives at the beginning of the transition; see, for

example, World Bank (1996).

5. The 1996 WDR on the transition confirms this

emphasis (World Bank 1996, pp. 70-71). More re-

cently, client surveys in 9 countries (out of 12 carried

out in transition countries) rate the Bank as having rel-

atively low effectiveness in giving the appropriate pri-

ority to poverty reduction, or in reducing poverty; in

4 of the 9, however, the clients themselves did not as-

sign great importance to poverty reduction.

6. Romania had also been an early member of the

Bank, but relations were effectively broken off in the

early 1980s. Yugoslavia was in the midst of political

breakup at the start of the 1990s.

7. For example, OED’s review of the Armenia Sec-

ond Structural Adjustment TA Credit found that this

project, which supported four adjustment operations

and was the catalyst for significant resources from

other donors, was the key to reform.

8. Poland in 1994; Russia and Kyrgyz Republic in

1995; Belarus, Estonia, Ukraine, and Azerbaijan in

1996-97.

9. Even in the agricultural sector, poverty moni-

toring and lessons learned about poverty impact in

projects were rare (Heath 2003 pp. 17-18).

10. The Russia CAE noted (OED 2002c, p. 11) that

“Until 2000, the government was not interested in

Bank studies on the expenditure side of the budget

or financial accountability.” Some work may have been

done in the context of non-sector-specific country

economic memoranda.

11. This report deals only with the World Bank.

12. Svejnar (2002) provides data on a number of

areas of performance not covered here, including in-

flation, exchange rates and current accounts, external

debt, budgets and taxes, employment and wages, and

several additional social indicators.

13. Conceptual and measurement problems make

it difficult to compare pre- and post-transition GDP

data; the likelihood that the former was overesti-

mated and the latter underestimated means the col-

lapse may not have been as deep as these data indicate.

However, the decline in many countries was un-

doubtedly severe.

14. It is not clear to what extent the recent growth

in CIS countries reflects recovery rather than new in-

ENDNOTES

vestment, or the degree to which it is influenced by

the performance of the Russian economy.

15. The measures of inequality at the beginning of

the period were skewed by shortages, administered

pricing, and privileged access to some goods, so the

deterioration is probably less than the numbers indi-

cate.

16. For comparison, life expectancy in middle-in-

come countries worldwide rose by 1.4 years, and in

low- income countries by 1.9 years, during the same

period.

17. Including Serbia and Montenegro.

18. Belarus, Turkmenistan, and Uzbekistan still

rated a 1 or 2 in trade and foreign exchange liberal-

ization.

19. Management disagreed with the unsatisfactory

rating of the earlier period for Russia, noting that

many reforms implemented after 1998 reflected Bank

advice provided during 1992-98 and built on reforms

of that period. Recent project evaluations by OED

show that the effectiveness of Bank assistance to Al-

bania has improved since the CAE was prepared in

1998. The satisfactory category includes moderately

satisfactory ratings, and unsatisfactory includes mod-

erately unsatisfactory.

20. Of CAEs for 40 non-transition countries, 29, or

73 percent, rated outcome for the most recent period

satisfactory, compared to the two-thirds for transi-

tion countries. Taking all periods rated, 33 of 52 (63

percent) have satisfactory outcomes, compared to

55 percent for ECA. It should be noted that the coun-

try programs chosen for evaluation, both for ECA and

Bankwide, were not a random sample, but rather a

function of business needs and CAS schedules.

21. Client surveys show that the clients them-

selves often give little priority to such issues as im-

proving governance, strengthening civic participation,

and reflecting different viewpoints across the popu-

lation.

22. The satisfactory category includes highly sat-

isfactory, satisfactory, and moderately satisfactory. It is

not unusual to find a “disconnect” between ratings at

the project level and outcomes at the country level.

23. Sachs, Zinnes, and Eilat (2000) create seven clus-

ters of countries based on similar initial conditions,

but they do not provide additional explanatory power

with respect to project outcomes; i.e., the range of out-

come ratings within each of the seven clusters is large.

For example, the proportion of satisfactory outcomes

ranges from 5 to 96 percent in the western FSU, and

from 0 to 97 percent in Central Asia.

24. The low rate of satisfactory outcomes in terms

of commitments for Russia reflects unsatisfactory rat-

ings by OED of major adjustment loans. The ECA Re-

gion disagreed with those ratings.

25. Dedicated lending for some sectors, including

PSD and PSM, is only a fraction of total lending for

those sectors, much of which comes from economic

policy operations, so the ratings may overstate their

success.

26. The tasks rated in ECA included 4 in Turkey out

of a total of 79. Ratings are not provided for individ-

ual countries.

Chapter 21. These papers were based on available OED and

Regional evaluative material, as well as on other coun-

try, sector, and project material and interviews with

Bank staff. See the Bibliography.

2. It was noted in Chapter 1 that PSD, institutions,

and public accountability and governance were the

areas most frequently identified by CAEs as needing

greater attention.

3. In addition, many critical issues in transport are

related to PSD.

4. During FY89-03, the Bank lent US$2.4 billion to

transition countries for 35 PSD projects. About US$14

billion additional lending had PSD components, in-

cluding the approximate share of these components

only, PSD-related assistance amounted to roughly

US$10.5 billion. The analysis in this section is based

on 133 projects, of which 87 have been closed and

rated, as well as on documents from OED and else-

where.

5. World Bank (2002b) presents these themes in de-

tail.

6. The results are not markedly different if only

commitments with satisfactory outcomes are used.

However, since many of the projects contained non-

PSD components, the ratings may have little meaning.

7. PSD commitments per capita were plotted

against the EBRD scores for enterprise reform (annex

table A.7). The results suggest that an increase in the

former of US$36 is associated with a full point in-

crease in the EBRD index, the difference between

the extent of reforms in Uzbekistan and in Latvia.

8. Several Background Papers for this evaluation

touch on this debate. Kogut and Spicer (forthcoming)


8 4

review the literature on the Bank’s role in the priva-

tization process. See also Svejnar (2002) for a summary

of the debate; the transition country CAEs for com-

ments on the Bank’s role in those countries; and the

country papers (Bager 2002; Blaszczyk, Cukowski,

and Siwiñska 2002; Jandosov 2002) for the point of

view of some borrowers.

9. Nellis (2002) elucidates the states of mind that

prevailed in selected countries and in the Bank, and

describes the reforms as they evolved. He concludes

that although in many cases privatization could have—

and probably should have—been better managed, it

has proven its worth in CEE countries, while the CIS

countries that tried to transit without much change

of ownership have not had much success.

10. Institutional components did appear in ad-

justment and rehabilitation loans before 1996 to the

Czech Republic, Hungary, Moldova, Poland, and Ro-

mania.

11. The World Bank lends a degree of impartiality

in facilitating enterprise reforms that investment banks

do not. The signal sent to investors by IFC or the

EBRD when they invest their own money is extremely

valuable.

12. In recent evaluative work on Bosnia and Herze-

govina, OED found that the Region continued to sup-

port mass privatization through vouchers beyond the

mid-1990s, when a consensus had already emerged

that this was a mistake.

13. The Region has acknowledged that in at least

one case (Armenia), earlier and more aggressive at-

tention to improvements in the business environ-

ment might have led more quickly to dynamic growth.

14. This section is based on a review of Bank as-

sistance to 14 countries, selected to be representative

of the different categories of countries: Russia (in a cat-

egory of its own), one Baltic state (Latvia), three Cen-

tral European countries (Hungary, Poland, and

Romania), two in Eastern Europe (Moldova and

Ukraine), two in South-Eastern Europe (Albania and

Bulgaria), and five other CIS countries (Armenia,

Georgia, Kazakhstan, Kyrgyz, and Tajikistan). This

sample includes the largest country and the smallest,

the richest and the poorest, and one of the most and

one of the least democratic states.

15. http://www.worldbank.org/wbi/governance/

govdata2002/. These data are associated with large mar-

gins of error and should be used with caution. Two

points were not recorded for 1996. For the underly-

ing methodology, see Kaufman, Kraay, and Mastruzzi

(2003).

16. These reports, expected to be issued every

three years, are based on the firm-level Business En-

vironment and Enterprise Performance Surveys

(BEEPS), carried out in collaboration with the EBRD.

17. Kogut and Spicer (forthcoming) conclude that

economics has been the only real player in policy dis-

cussions, and that sociology and political science were

neglected. ECA’s publication Transition: The First Ten

Years (World Bank 2002b) recognizes the primacy of

political factors in determining economic develop-

ments.

18. OED’s recent report on Mainstreaming Anti-

Corruption Activities in World Bank Assistance (OED

forthcoming) similarly called for a better under-

standing of social and political factors at the country

level to enhance the quality and impact of Bank ad-

vice and improve the design of anti-corruption in-

terventions.

19. Such a long-term approach may not be ap-

propriate for all countries, such as those that have grad-

uated or for which EU accession issues shorten the

time horizon. Even in these cases, however, institu-

tion building should be placed within a long-term

framework. The Region notes that it is already applying

this lesson.

20. World Bank (2000a) and the World Bank/EBRD

Business Environment and Enterprise Performance

Surveys (1999 and 2002).

21. Jandosov (2002, p. 8) acknowledges the im-

portance of Bank assistance in introducing transpar-

ent procurement procedures in Kazakhstan’s public

sector, only one of many examples.

22. OED’s evaluation of knowledge sharing in the

Bank found that while clients welcome improvements

in the accessibility and timeliness of Bank information,

they still see a need to improve dissemination of the

Bank’s knowledge at the country level (OED 2003, p. 27).

23. The Region notes that most adjustment oper-

ations in this sector now have measures to promote

transparency, including publishing information such

as audit reports, reporting to Parliament, and setting

up Web sites.

24. The Region notes that in recent months the or-

ganization of this work has improved: projects are now

jointly overseen by the Region and the Legal Depart-

ment, and a thematic group has been created that in-

cludes all stakeholders.

E N D N O T E S

8 5

25. This section is based on a review of 26 coun-

try programs, including policy papers, ESW, and almost

200 projects identified as having financial sector de-

velopment objectives during the period 1991–00.

OED is currently carrying out an evaluation of the

Bank’s financial sector assistance worldwide.

26. Informal financial sector work may have been

prepared, but was not reviewed for this evaluation. The

joint IMF–World Bank Financial Sector Assessment

Program (FSAP), initiated in 1999, was also not re-

viewed; OED is undertaking a separate evaluation of

the this program.

27. See, for example, Báger (2002, p. 5) on the

Bank’s role in Hungary, and Blaszczyk, Curkowski,

and Siwiñska (2002, p. 26) for a description of a highly

satisfactory financial sector adjustment project linking

bank recapitalization to enterprise restructuring in

Poland.

28. The countries can be broken down into four

groups, but the CIS countries are concentrated in

the weak and partial reformer categories, while all of

the CEB countries fall into the progressing and ad-

vanced reformer categories (see also annex table A.7).

29. The ECA Region and the Bank’s Financial Sec-

tor Board are putting in place new procedures to en-

sure that financial sector staff review all such

operations.

30. This section is based on a review of 83 sector

reports and 60 projects with social protection com-

ponents, of which two-thirds have been closed and

rated. Some projects included components in sev-

eral areas, so the sum of the numbers of projects re-

ferred to in this section is greater than 60.

31. All five of the CASs in 1992 raised this topic, as

did about 60 percent of the CASs in the subsequent

three years.

32. For example, Andrews and Ringold (1999); Fox

(2002); Lindeman, Rutkowski, and Sluchynskyy (2000);

World Bank (2000b). This evaluation confirms that if

the report were rewritten today to reflect experience,

most of the original recommendations would remain,

although a few new ones might be added, and rela-

tive emphases changed.

33. This study was never adopted as official Bank

policy in the pension area, but it became a reference

for policymakers and Bank staff, and was perceived ex-

ternally as the Bank’s vision for pension reform.

34. Nine investment and two adjustment operations

had employment service components. Nine pieces

of ESW focused on labor markets, unemployment,

and employment services, but none preceded projects.

35. The Bank supported pension reform in 9 in-

vestment and 17 adjustment loans, in a total of 16

countries. The outcomes of most have been rated

satisfactory, or, if still active, they are being imple-

mented satisfactorily. In only two cases were reforms

analyzed in advance of the policy debate, and in only

one (Poland) was the reform adopted. Early failures

included loans to Belarus, Romania, and Russia. OED’s

upcoming evaluation of pension reform Bankwide

will assess in more detail the effectiveness of the

Bank’s direct assistance in the pension area.

36. For a Polish view of the Bank’s contribution to

pension reform, see Blaszczyk, Cukrowski, and Si-

wiñska 2002, pp. 32–33.

37. Eleven investment and 18 adjustment loans

had social assistance components, and 40 reports

were written. With a few notable exceptions since

1998, the ESW focused mostly on documenting prob-

lems rather than on analyzing desirable policy re-

forms.

38. Only the effort in Romania was linked to a par-

ticular loan.

39. Lack of administrative, including analytical, ca-

pacity is cited as a major impediment to improving so-

cial assistance programs in the transition economies

by the ECA Region (Andrews and Ringold 1999; World

Bank 2000b).

40. The ECA review of its social protection activi-

ties reached a similar conclusion (World Bank, 2000b).

41. Some recent adjustment loans have begun to

address labor market issues.

42. The success in Russia was temporary, as the gov-

ernment could not afford to maintain the real value

of the minimum pension after the 1998 fiscal crisis.

43. A good Regional assessment of social protec-

tion strategy was issued in 2000 (World Bank 2000b).

44. A notable recent exception is the 2002 CAS for

Bulgaria.

45. The findings in this section are based on 102

projects in 24 countries (there were no projects in Be-

larus or Turkmenistan) that were either dedicated

energy projects or had an energy component, as well

as on information from CAEs and other Bank docu-

ments.

46. As noted earlier, underlying the objectives of

the Bank was the concern that reforms might be re-

versed if they were not implemented quickly and suc-


8 6

cessfully. The Georgia Sector Adjustment Credit was

the only project to mention the explicit objective of

combating corruption.

47. World Bank (1999). The scores are based on a

questionnaire completed in 1998 by World Bank staff

with experience in the energy sector in 115 coun-

tries, including the 24 ECA countries.

48. A point was awarded if either generation or dis-

tribution or both had experienced some privatiza-

tion. ESMAP criteria do not cover financial

performance, and in some cases (Georgia, for exam-

ple, because of poor performance in governance and

law and order), successful structural reforms did not

lead to improved financial performance during the

time period covered by this report.

49. These assessments do not correspond to OED

ratings of the projects, but are based rather on an as-

sessment of the outcome of the energy component

only of each project, as revealed in evaluation re-

ports. The other countries judged fair to good were

the Czech Republic, Kazakhstan, and Moldova; they

received scores of 4, 4, and 3 respectively on policy

reform, and are in the middle range of improvement

in energy efficiency.

50. Taking only the 31 projects classified as en-

ergy projects, 87 percent received satisfactory ratings

for the Bank’s performance, compared with 70 per-

cent of all energy and mining projects Bankwide.

51. This conclusion affirms other OED findings, for

example, in the evaluation of the Comprehensive De-

velopment Framework (CDF Secretariat 2003).

52. This conclusion is in line with Bank opera-

tional policy.

53. For example, in Bulgaria and Kazakhstan, the

Bank needed to understand the business environ-

ment in which SOEs operated in order to impose

hard budget constraints and financial discipline. Cut-

ting them off from the budget and imposing penalties

for a build-up of interenterprise arrears achieved lit-

tle if they simply financed their losses from the state

banking system.

54. Good examples were Bulgaria, Kazakhstan, the

Kyrgyz Republic (despite limited energy lending),

Lithuania, Poland, Romania, and the Russian Federation.

55. This is a key finding in OED, OEG, and OEU

(2003a, p. 44), which also discusses individual coun-

try experience.

Chapter 31. OED’s evaluation of knowledge sharing by the

Bank (OED 2003) echoes this recommendation.

2. OED’s 2001 Annual Review of Development Ef-

fectiveness (OED 2002a, pp. 25, 59) confirmed the crit-

ical importance of ESW for country programs, and

called for a strong evaluative framework to ensure its

continued effectiveness. Activity completion sum-

maries for ESW, while mandated for tasks above

$50,000, are often not done.

3. Jandosov (2002, p. 15) stresses the importance

of building local analytical and research capacity

through joint ESW and the role of its dissemination

in promoting dialogue and consensus in the country.

OED’s evaluation of knowledge sharing also finds

that “clients give particular emphasis to enhanced ef-

forts by the Bank to incorporate local knowledge and

collaborate with local experts, strengthen institutional

capacity, and expand in-country knowledge dissemi-

nation” (OED 2003, p. 29).

4. The Region points out that they have made

country-by-country or subregional attempts to en-

courage this kind of behavior; and that a lot of donor

coordination already takes place in the EU accession

countries.

Annex C1. In some cases, the positions listed are those

held at the time of the interview; some of the people

no longer occupy the same positions.

Annex D1. This observation is not fully consistent with an-

other of the report’s observation: that capital market

development was sometimes overemphasized in the

early years of transition.

E N D N O T E S

8 7

8 9

Background Papers for the evaluationcan be identified by the asterisk (*) thatprecedes them. All papers will be availableon the study Web site:< h t t p : / / w w w. w o r l d b a n k . o r g / o e d /transitioneconomies>.

Andrews, Emily, and Dena Ringold. 1999. “SafetyNets in Transition Economies: Toward a Re-form Strategy.” Social Protection DiscussionPaper No. 9914. World Bank, Europe and Cen-tral Asia Region, Human Development SectorUnit, Washington, D.C.

*Báger, Gusztáv. 2002. “Evaluation of the WorldBank’s Role in the Transition: Hungary.” OED,Washington, D.C. <http://www.worldbank.org/oed/transitioneconomies>.

Barr, Nicholas (ed.). 1994. Labor Markets and So-

cial Policy in Central and Eastern Europe.

New York: Oxford University Press.*Bates, Robin W. Forthcoming. “Evaluation of

World Bank Assistance to the TransitionEconomies: Energy Sector Background Paper.”OED, Washington, D.C. <http://www.worldbank.org/ oed/transitioneconomies>.

*Blaszczyk, Barbara, Jacek Cukrowski, and JoannaSiwiñska. 2002. “Evaluation of the World Bank’sRole in the Transition: Poland.” OED, Wash-ington, D.C. <http://www.worldbank.org/oed/transitioneconomies>.

CDF Secretariat. 2003. Toward Country-led

Development: A Multi-partner Evaluation

of the Comprehensive Development Frame-

work. Washington, D.C.: World Bank.de Melo, Martha, Cevdet Denizer, Alan Gelb,

and Stoyan Tenev. 2001. “Circumstances andChoice: The Role of Initial Conditions andPolicies in Transition Economies.” The World

Bank Economic Review 15 (1): 1–31.

*Desai, Raj. Forthcoming. “Private Sector De-velopment Assistance to the TransitionEconomies: A Decade of World Bank Lending.”OED, Washington, D.C. <http://www.worldbank.org/oed/transitioneconomies>.

Djankov, Simeon, and Peter Murrell. 2000. De-

terminants of Enterprise Restructuring in

Transition: An Assessment of the Evidence.Washington, D.C.: World Bank.

EBRD (European Bank for Reconstruction andDevelopment). 2001. Transition Report 2001:

Energy in Transition. London.————. 1999. Transition Report 1999: Ten

Years of Transition. London.Falcetti, Elisabetta, Martin Raiser, and Peter San-

fey. 2002. “Defying the Odds: Initial Condi-tions, Reforms and Growth in the First Decadeof Transition.” Journal of Comparative Eco-

nomics 30 (2): 229–50.Fox, Louise. 2002. Safety Nets in Transition

Economies: A Primer Paper. Social Protec-tion Discussion Paper 306, World Bank Insti-tute. Washington, D.C.: World Bank.

Grootaert, Christiaan, and Jeanine Braithwaite.1998. “Poverty Correlates and Indicator-BasedTargeting in Eastern Europe and the FormerSoviet Union.” Policy Research Working Paper1943. Washington, D.C.: World Bank

Gupta, Poonam, Rachel Kleinfeld, and GonzaloSalinas. 2002. “Legal and Judicial Reform in Eu-rope and Central Asia.” OED Working Paper,Washington, D.C.

Heath, John. 2003. “Agriculture Policy Reformin the ECA Transition Economies, 1991–2002:An Assessment of the World Bank’s Ap-proach.” OED Working Paper, Washington,D.C.

*Jandosov, Oraz. 2002. “Evaluation of World Bank As-sistance to Kazakhstan (Borrower’s point of view).”

BIBLIOGRAPHY

OED, Washington, D.C. <http://www.worldbank.org/oed/transitioneconomies>.

Johnston, Timothy. 2002. “Supporting a HealthyTransition: Lessons from Early World BankExperience in Eastern Europe.” OED WorkingPaper, Washington, D.C.

Kaufmann, D., A. Kraay, and M. Mastruzzi. 2003.Governance Matters III: Governance Indi-

cators for 1996–2002. World Bank Policy Re-search Working Paper, Washington, D.C.

*Kogut, Bruce, and Andrew Spicer. Forthcoming.“Critical and Alternative Perspectives on In-ternational Assistance to Post-CommunistCountries: A Review and Analysis.” OED, Wash-ington, D.C. <http://www.worldbank.org/oed/transitioneconomies>.

Krishnaswamy, V., and Gary Stuggins. 2002. “Pri-vate Sector Participation in the Power Sectorin ECA Countries: Lessons Learnt from the LastDecade.” World Bank Working Paper, Europeand Central Asia Region, Infrastructure and En-ergy Department, Washington, D.C.

*Landell-Mills, Pierre. Forthcoming. “An Evalua-tion of World Bank Assistance for Governance,Public Sector Management and InstitutionBuilding in the Transition Economies1990–2002.” OED, Washington, D.C.< h t t p : / / w w w. w o r l d b a n k . o r g / o e d /transitioneconomies>.

*Levy, Fred. Forthcoming. “World Bank Assis-tance for Financial Sector Development inthe ECA Transition Economies.” OED, Wash-ington, D.C. <http://www.worldbank.org/oed/transitioneconomies>.

Lindeman, David, Michal Rutkowski, and Olek-siy Sluchynskyy. 2000. The Evolution of Pen-

sion Systems in Eastern Europe and Central

Asia: Opportunities, Constraints, Dilemmas

and Emerging Practices. Washington, D.C.:World Bank.

Lovei, Laszlo. 1998. “Energy in Europe and Cen-tral Asia, a Sector Strategy for the World Bank.”Discussion Paper No. 393. Washington, D.C.:World Bank.

*Nellis, John. 2002. “The World Bank, Privatization andEnterprise Reform in Transition Economies: a Ret-rospective Analysis.” OED Working Paper, Wash-

ington, D.C. <http://www.worldbank.org/oed/transitioneconomies>.

OED (Operations Evaluation Department). Forth-coming. Mainstreaming Anti-Corruption Ac-

tivities in World Bank Assistance: A Review

of Progress Since 1997. Operations Evalua-tion Department. Washington, D.C.: TheWorld Bank.

———. 2003. Sharing Knowledge: Innovations

and Remaining Challenges. Catherine Gwin,task manager. OED Study Series. Washing-ton, D.C.: World Bank.

———. 2002a. 2001 Annual Review of Devel-

opment Effectiveness: Making Choices. BillBattaile, task manager. OED Study Series.Washington, D.C.: The World Bank.

———. 2002b. “Evaluation of World Bank As-sistance to the Transition Economies: EntryWorkshop.” May 15. Transcript. OperationsEvaluation Department, Washington, D.C.

———. 2002c. Assisting Russia’s Transition: An

Unprecedented Challenge. OED Study Se-ries. Gianni Zanini, task manager. Washington,D.C.: World Bank.

———. 2001. The Drive to Partnership: Aid Co-

ordination and the World Bank. OED StudySeries. John Eriksson, task manager. Wash-ington, D.C.: World Bank

OED, OEG, and OEU, World Bank Group. 2003a.Power for Development: A Review of the

World Bank Group’s Experience with Pri-

vate Participation in the Electricity Sector.

Rafael Dominguez, Fernando Manibog, andStephan Wegner, task managers. OED StudySeries. Washington, D.C.: World Bank.

———. 2003b. Extractive Industries and Sus-

tainable Development: An Evaluation of

World Bank Group Experience. Vols. 1–4.OED Study Series. Washington, D.C.: WorldBank.

Sachs, Jeffrey, Clifford Zinnes, and Yair Eilat.2000. “Patterns and Determinants of Eco-nomic Reform in Transition Economies:1990–98.” Harvard Institute for InternationalDevelopment, Consulting Assistance on Eco-nomic Reform II Discussion Paper No. 61.Cambridge, MA.


9 0

Sahgal, Vinod, and Deepa Chakrapani. 2000.“Clean Government and Public Financial Ac-countability,” OED Working Paper No. 17,Washington, D.C.

Shihata, Ibrahim. 1991. The World Bank in a

Changing World: Selected Essays. Dordrecht:Nijhoff (Kluwer Academic).

*Svejnar, Jan. 2002. “Assistance to the TransitionEconomies: Were There Alternatives?” OED Work-ing Paper, Washington, D.C. <http://www.worldbank.org/oed/transitioneconomies>.

*Thompson, Lawrence. Forthcoming. “SocialProtection and the Transition.” OED, Wash-ington, D.C. <http://www.worldbank.org/oed/transitioneconomies>.

World Bank. Forthcoming. Power’s Promise:

Electricity Reforms in Eastern Europe and

Central Asia. World Bank Technical Paper.Washington, D.C.

———. 2004. Anticorruption in Transition:

Corruption in Enterprise-State Interactions

in Europe and Central Asia, 1999-02. Wash-ington, D.C.

———. 2003. Hidden Challenges to Education

Systems in Transition Economies: Education

Sector Strategy Paper for Europe and Central

Asia Region. Washington, D.C.———. 2002a. “Economic Development and Pri-

vate Sector Growth in the Low-income CISCountries: Challenges and Policy Implications,”CIS-7 Initiative Paper, ECSPF, Lucerne Confer-ence of the CIS-7 Initiative, January 20-22, 2003.

———. 2002b. Transition: The First Ten Years.Washington, D.C.

———. 2001. “Training Program on Social Pol-icy Reform in Transition Economies (SPRITE).”WBI Evaluation Briefs. Evaluation Unit, WorldBank Institute, Washington, D.C.

———. 2000a. Anticorruption in Transition—

A Contribution to the Policy Debate. Wash-ington, D.C.

———. 2000b. Balancing Protection and Op-

portunity. A Strategy for Social Protection

in Transition Economies. Washington, D.C.———. 2000c. Making Transition Work for

Everyone: Poverty and Inequality in Europe

and Central Asia. Washington, D.C.———. 2000d. Reforming Public Sector Insti-

tutions and Strengthening Governance.Washington, D.C.

———. 1999. “Global Energy Sector Reform inDeveloping Countries: A Scorecard.” ESMAP(Energy Sector Management Assistance Pro-gram) Paper ESM219. Washington, D.C.

———. 1998. “Profile of Energy Sector Activitiesof the World Bank in Europe and Central AsiaRegion,” Vol. I, “The Overall Profile.” WorkingPaper 18891, Washington, D.C.

———. 1997a. “Central and Eastern Europe:Power Sector Reform in Selected Countries.”ESMAP (Energy Sector Management Assis-tance Program) Report No. 196/97. July.

———. 1997b. World Development Report: The

State in a Changing World. New York: OxfordUniversity Press for the World Bank.

———. 1996. World Development Report: From

Plan to Market. New York: Oxford UniversityPress for the World Bank.

———. 1994. Averting the Old-Age Crisis: Poli-

cies to Protect the Old and Promote Growth.New York : Oxford University Press.

———. 1993. The World Bank’s Role in the Elec-

tric Power Sector: Policies for Effective Insti-

tutional, Regulatory and Financial

Reform—A World Bank Policy Paper. Wash-ington, D.C.

———. 1992. Governance and Development.

Washington, D.C.———. 1983. World Development Report: Man-

agement in Development. New York: OxfordUniversity Press for the World Bank.

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