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25(iv) after the crisis, the new government had launched a series of emergency measures totackle corruption and strengthen public financial management (see para. 6.22 below). 266.11 Upon completing the review, the Credit was restructured and the conditions forthird tranche release revised, with a notable shift in favor of governance and financialmanagement. Some conditions were amended, others deleted, and still others added. Thecore measure relating to air transport was amended from the sale of a majority of sharesin Air Madagascar to the signing of a management contract. The additional measures 2,4, 7 and 8 were modified as discussed below. Annex D lists the changes in detail. On thewhole, the conditions were substantially diluted: not only were they less constraining, butthey essentially confirmed measures taken since the end of the crisis in June/July 2002,thus ratifying a de facto situation. GOM and the Bank agreed on a supplement to theoriginal LDP and on amendments to the DCA. The Board approved the restructuring inSeptember 2002 and the tranche was released in October 2002.Achievements under Economic Management6.12 Up to the end of 2001, macro-economic stability was maintained. Growthreached an average of 5.2 percent over 1999-2001 due to the good performance of privateinvestment, in particular of foreign direct investment (FDI) in textiles, petroleum, andmobile telephony, with a large spillover effect on small businesses and employment.There was also a substantial increase in tourism. Inflation remained contained, hoveringjust below 10 percent per year. But tax revenues continued to perform poorly, stagnatingat an average of 10.6 percent of GDP over 1999-01 as a result of tax exemptions, weaktax administration, and widespread fraud in the run-up to the presidential elections of2001. The fiscal deficit rose from an average of 5.6 percent of GDP over 1996-98 to anaverage of 6.3 percent over 1999-01 (Table 1 in Section 4). The crisis led to a dramaticreversal in performance, with GDP falling by 12.7 percent in 2002, and investment from18.5 percent of GDP in 2001 to 14.3 percent. 27 After the crisis, the economy reboundedwith a cumulative growth rate of about 15 percent over 2003-04.Achievements under Privatization and Competitive Regulatory Frameworks6.13 The LDP specified that the state had total or partial ownership of about 136enterprises and that, by June 30, 2000, it would sell its controlling interests in—orproceed with liquidations of—46 of these, i.e., the list of May 1997 plus TELMA.However, SAC-II included specific conditions only for BTM, SOLIMA, TELMA, andAir Madagascar. As a result, and as noted earlier, SAC-II focused on these latter threeand on concluding BTM’s transaction, which was a condition of second tranche release.Divestiture of the other PEs continued to be carried out under the PATESP.6.14 The sale of BTM was completed in November 1999. In the petroleum sector, theregulatory framework and regulatory body became operational in September 1999, but26 During the crisis, corruption had flourished, public resources squandered, and the President’ Special Funds overspentto the tune of US$25 million vs. a budgeted amount of US$400,000.27 The largest drop was in FDI, falling from US$93 million in 2001 to US$8.5 million in 2002 and, in the textile sectorwhere foreign investment dominated, output fell by 81.1 percent.