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2growth for the first time in decades. However, Madagascar’s political scene continued tobe marked by tensions between different factions and party rivalries, a feature of thecountry’s political life. This erupted in the open when the December 2001 presidentialelections were contested by the two main candidates, President Ratsiraka and hiscontender, Marc Ravalomanana, mayor of the capital. It led to a deep political andeconomic crisis, during which two parallel governments were established, criticalinfrastructure was destroyed, key social services were discontinued, and export activitiesvirtually stopped. The crisis was resolved in July 2002, when the internationalcommunity recognized the Ravalomanana government. Growth and poverty wereadversely affected by the crisis with GDP falling by 13 percent in 2002. Stabilization andreform resumed after a new government was in place and the economy rebounded in2003. Madagascar reached the decision point under the enhanced Heavily Indebted PoorCountries (HIPC) initiative in December 2000, and the completion point in 2004.2.3 Decades of poor performance had a dramatic impact on poverty, which reached 73percent in 1997 (76 percent in rural areas). Extreme poverty (those who cannot afford tobuy a basic food basket even if they spend their total income on food items) had reached 63percent in 1997 (66 percent in rural areas). The relatively strong growth during 1997-2001failed to reduce poverty significantly, while the 2002 crisis wiped out whatever benefitshad been gained. In 2002, poverty had reached 81 percent nationwide (62 and 86 percentin urban and rural areas, respectively). Madagascar issued its Interim Poverty ReductionStrategy Paper (I-PRSP) in November 2000 and its full PRSP in July 2003.THE STRATEGY CONTEXT2.4 The early attempts at reform during the late 1980s and early 1990s led GOM totake several liberalization measures in 1994, including floating the exchange rate andabolishing import prohibitions. The same year, the Bank issued a Country AssistanceStrategy (CAS) focusing on promoting a private sector- and export-led growth, tacklingpoverty, improving natural resource management, building capacity, and improvingproject implementation. Underlying themes were the redefinition of the role of the state,improving the quality of public services, and expanding the role of the private sector ininvestment and the provision of services.2.5 The four operations reviewed here were in gestation during this period and wereidentified in the 1994 CAS. At the time, there was an increasing recognition inMadagascar that increased investment was the pre-requisite to growth which would helpalleviate poverty. This was seen as urgent and required a redefinition of the role of thestate. Preparation of an adjustment program started in this context but progressed veryslowly, over three years, 1994-96, and moving in parallel with the ups and downs in thepolitical situation. It was not until the new leadership in place in mid-1996 was willing toundertake reforms, that a coherent program could take shape. The Bank seized thisopportunity to deepen its dialogue and structure its intervention by launching a new CAS,(January 1997), a structural adjustment program (SAC-I), and two technical assistance(TA) projects to help implement the latter. The CAS concluded that poverty could onlybe reduced through growth and that only the private sector could deliver such a growth.Its major themes were aligned on GOM's priorities: broad-based growth led by foreign