Download Report - Independent Evaluation Group - World Bank

216. The Second Structural Adjustment Credit (SAC-II)BACKGROUND6.1 The President’s Report of SAC-II stressed the continued validity of the 1997 CASand noted that progress under SAC-I had been slower than expected, particularly becauseof inadequate ownership of specific reforms, such as in privatization. In addition, itargued that, with a single tranche under SAC-I, the Bank had not had the leverage to pushthe reform agenda forward. Eighteen months had been spent in completing the SAC-Iagenda after its disbursement. Only then did the Bank feel that preparation of a secondoperation could be launched. This had created a dilemma, however, because, in theabsence of Bank involvement and sustained reforms, donors had been reluctant toprovide budget support. Indeed, a major concern of the Bank since early 1998 had beento press for the adoption of highly visible measures as a justification to start activelypreparing a second operation, and thus send a strong signal to the donor community toextend budget support in 1998.OBJECTIVES AND DESIGN6.2 The objective was to achieve higher growth and reduce poverty by: (i)consolidation of macro-economic stability; (ii) privatization and introduction ofcompetitive regulatory frameworks; (iii) improvement in the business environment bytargeting promising sectors and promoting transparency in licensing for the exploitationof natural resources; and (iv) strengthening of public finance by expanding the tax base,increasing non-tax revenues, and ensuring that resources allocated to the social sectorswere effectively used for the poor. The design reflected the lessons from SAC-I. Theissue of leverage was addressed by adopting a multi-tranche “menu-based” approachrecognizing that implementation evolved over time and that flexibility was needed. TheCredit had three tranches, with amounts increasing in steps. Excluding the generalcondition of maintenance of macro-economic stability and including those prior to Boardpresentation, there were four sets of conditions (see Annex C).• First, conditions prior to Board presentation covered the completion of SAC-Imeasures and some additional ones: (i) reforms in the telecom, mining, fisheries, andexemption regime; (ii) adoption of an Arbitration Law; (iii) reconciliation of thebudget and treasury classifications; and (iv) signing of a sale protocol for BTM.• Second, effectiveness of the Credit and disbursement of the first tranche were subjectto conditions ensuring progress before disbursement and a greater chance of successin implementation, especially of the privatization program. They included: (i)submission of a detailed action plan for the implementation of the PASERP; 22 (ii)establishment and registration of joint ventures relating to the sale of SOLIMA’s oiloperations and conclusion of contractual arrangements relating to the transfer of22 Even though this provision was specified in the Development Credit Agreement (DCA) as condition ofeffectiveness, it applied to the release of each tranche, as a Supplemental Letter stated that it was to be readas part of the general condition of "satisfactory progress in the carrying out of the program".