Банкеръ Weekly

Briefs

WHERE DO MONEY FROM THE WORLD BANK VANISH?

WB Gave Its First Warning to the Government of Simeon II

The World Bank (WB) will assume from the International Monetary Fund (IMF) the role of a chief supervisor of reforms in Bulgaria, after still in the autumn of 2000 IMF's missionaries drew a conclusion that our country has achieved durable financial stabilization. In the future the WB will undertake the burden of financing the development of the economy, of the financial, social and health care sectors, of services, administration, education, and of the judiciary. Therefore, WB's next resident representative for Bulgaria will have much more work to do than Piritta Sorsa - the recently appointed resident representative of the IMF in Sofia. The assessment of the WB's new resident representative will be decisive for the release of the necessary financing to Bulgaria or for the reduction of WB's credits to the minimum.
The WB has already warned that it would reconsider funding to Bulgaria if the country and its new Government in particular let the macroeconomic situation to get worse.
If the Cabinet of Simeon Saxe-Coburg-Gotha holds successful negotiations with the WB on the new project Strategy for Supporting Bulgaria in 2002-2004 and signs a 3-year agreement with the bank, the country will have a chance to get USD750MN by the end of 2004. If the negotiations fail, the WB will extend USD230MN at the most, which will be extremely insufficient for even part of the reforms in the economic, social and public sectors.
Official negotiations with the WB on that project are scheduled to start in September 2001, but preparations for them have been in progress since last March. However, it is not yet known if the incumbent resident representative of the WB in Sofia - Thomas O'Brien - the term of whose mandate expires in August, will take part in these negotiations.
Some ten days ago, outgoing Premier Ivan Kostov asked Mr. O'Brien to postpone his leaving the country in order to ensure continuity in the relations between the WB and the new Government and to assist the negotiations between them on the 3-year agreement. Thomas O'Brien was appointed resident representative of the WB to Bulgaria with a 3-year mandate in the summer of 1998.
On his arrival to this country Mr. O'Brien found a financial sector that had just stabilized and production which had not been restructured yet. Winding up of loss-making enterprises, privatisation, reforms in the pension, social and health care insurance, and restructuring of agriculture, were the major tasks to be solved by the WB and the Government. These targets were put down in the joint 3-year programme, signed in the ened of 1998. Loans for the restructuring of the financial and production sectors under FESAL I and II, and credits for agriculture under ASAL I and II, were released as a part of the programme's implementation.
The WB and the Government also closed agreements on loans for financing ecological projects, development of small and medium-sized enterprises, social and health care insurance, water supply, power engineering, and railways.
Mass media hope that Mr. O'Brien will submit a detailed report on the funds, utilized by Bulgarian institutions and companies. It is known that the country received credits of USD850MN (half of WB's entire portfolio for Bulgaria), but no one knows where part of that money went.
After considering the bank's portfolio for Bulgaria in March 2001, WB's Country Director for Bulgaria, Romania and Croatia Andrew Vorkink voiced his assessment that the loans have successfully financed various programmes. However, neither WB's reports, nor these of the Bulgarian Government, gave any specific details. The mechanism of distributing the money from the WB has never become clear to the average Bulgarian.
It is known that the credits, extended under FESAL and ASAL, go to budget and are used to support Bulgaria's balance of payments. In other words, the money is directly used to pay expenses of the country's foreign debt. But there are a number of other investment loans, which are at the disposal of individual ministries and even of some state-run and municipal companies, such as the National Electricity Company (NEC), the Bulgarian State Railways (BDZ), the Water Supply and Sewage Utility, etc. They use the funds to finance various projects, which are implemented by state-owned and private firms. It is namely the utilization of these funds, that is wrapped in mist.
Thomas O'Brien admited that most of the problems were solved thanks to the efficient economic programme of Ivan Kostov's Cabinet. However, he did not miss to point out the still existing defects that are detrimantal to Bulgaria.
Mr. O'Brien is concerned about the future of enterprises, which have been purchased by their management-employee buyout teams. Many of them are not viable, according to him, as it is difficult for them to get credits and they have no access to state-of-the-art technologies and know-how. WB's resident representative to Bulgaria is adamant in his assessment of the administrative apparatus and of the judiciary, which he describes as inefficient because they do not facilitate the establishment of normal business relations. On the contrary, they create a feeling of instability in foreign investors. These problems have been specified as well in the WB's Strategy for Supporting Bulgaria in 2002-2004 project, but the way they are solved by the new Government is to be monitored by Mr. O'Brien's successor. His task will be certainly be more difficult than that of the bank's outgoing missionaries.

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