ICRR 10296 Report Number : ICRR10296 ICR Review Operations Evaluation Department 1. Project Data : OEDID : OEDID: C2134 Project ID : P006179 Project Name : Private Enterprise Development Country : Bolivia Sector : Public Sector Management Adjustment L/C Number : C2134 Partners involved : none Prepared by : Luis A. Ramirez, OEDCR Reviewed by : Alain A. Barbu Group Manager : Ruben Lamdany Date Posted : 06/01/1999 2. Project Objectives, Financing, Costs and Components : The Board approved this credit on May 17, 1990 and an amendment to the credit on July 25, 1995. The original objective of this operation was to "strengthen the private industrial sector " through a line of credit to the Central Bank for the equivalent of about US$ 14.0 million. The Central Bank would lend these resources to approved financial institutions that would in turn lend them to eligible private enterprises . The total credit was for US$16.1 million equivalent, including about US$ 2 million for technical assistance . The amendment to the credit authorized shifting resources from the Central Bank line of credit towards partial financing for a newly adopted Government Privatization Program. The new objectives included strengthening the regulatory capacity of SIRESE (Sectoral Regulatory System) and financing for consultants, publications and advisory services for the privatization/capitalization of state-owned enterprises. 3. Achievement of Relevant Objectives : The line of credit to the Central Bank achieved modest results toward the main objective of strengthening the private industrial sector. After reformulating the credit in 1995, the allocation given to the line of credit was reduced from SDR11 million to SDR3.3 million due to serious implementation problems (see section 5). The funds reallocated were used to finance technical assistance ($8.7 million), lines of credit ($6.1 million), studies to support privatization ($4.8 million) and support to SIRESE's regulatoty framework ($0.9 million). Of these, about US$2.7 million were channeled to finance micro-enterprises, 60% of which went to small enterprises led by women, with apparently satisfactory results. The ICR concluded that the technical assistance component had a positive impact; but it also concluded that its specific contribution towards the achievement of the objectives was unknown due to a lack of data and of adequate monitoring and evaluation systems . Of the new objectives, regulatory capacity and privatization, the ICR found the credit's contribution to strengthen the regulatory capacity of SIRESE modest; and it found the contribution to support privatization as highly satisfactory because it helped with studies and consultants needed for the sale of about fifty small public enterprises . The ICR, however, did not evaluate the effectiveness or efficiency of this last component. OED concluded that this component might have been helpful, but it was marginal, i .e., it had modest relevance towards the main objective, the new capitalization /privatization program of the Government, which included most large public enterprises and was mainly supported by other Bank credits . 4. Significant Achievements : The most significant achievement was the establishment of an appropriate policy and institutional framework for lending to small and micro-enterprises. 5. Significant Shortcomings : Design of the original credit . The credit intended to promote Private Enterprise Development, but its design did not address the most relevant constraints to private sector development . At the time of project preparation these constraints included excessive government involvement in productive activities, inoperative judicial system, unclear property rights, corruption, poor infrastructure, inefficient civil service and, in general, overall weak government institutions. This credit, instead, was designed as a typical financial intermediation loan that added restrictions to the capital market (like artificial limits to the maximum size of individual loans ) and did not address PSD constraints . As a result, the development outcome of the line of credit was highly unsatisfactory . 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Marginally OED concluded that the contribution of Unsatisfactory the credit to PSD improved after 1995, but its total contribution was modest . Institutional Dev .: Substantial Modest The project's efficacy in achieving institutional objectives towards financial intermediation and private sector development was only modest. Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf .: Deficient Unsatisfactory Quality of ICR : Satisfactory 7. Lessons of Broad Applicability : ---This credit (C2134-BO) corroborates that Financial Intermediation Loans (FILs) are not appropriate lending instruments to promote private enterprise development . None of the main constraints to PSD could be addressed by this credit (see significant shortcomings above ). In addition, the credit suffered from well known problems common to many FILs: By imposing restrictive conditions to the size of loans and by fixing the price of intermediation in an already distorted capital market, the loan increased capital market segmentation and was unable to disburse (due to prevailing financial instruments offering better conditions ). ---Self-evaluation of the development effectiveness and efficiency of Bank lending (particularly FILs and TA components) needs strengthening. For this purpose, the evaluation criteria should be established in advance and the monitoring and evaluation system should be included in the design of the lending (or non-lending) instrument. The ICR for this credit emphasized very clearly the difficulties to evaluate an assistance instrument in the absence of relevant data and of evaluating and monitoring systems . 8. Audit Recommended? Yes No 9. Comments on Quality of ICR : OED rates the quality of the ICR as marginally satisfactory . OED found the ICR of C-2134 marginally satisfactory because it did not meet significant requirements of operational guidelines OP 13.55. The ICR’s coverage of important subjects was incomplete and the ICR did not provide sufficient or convincing evidence to justify its findings. In particular, the ICR did not evaluate development effectiveness of the main component of the credit, technical assistance (US$8.7 million). It partially evaluated the second main component, the line of credit (US$6.1 million): it provided partial evidence of development outcome of micro -credit (US$2.7 million), and it did not evaluate the outcome of credits to SMEs (US$3.4 million). Moreover, the ICR did not provide an aide -memoire of the ICR mission, a plan for future operations and a plan for monitoring and evaluation of future operations . OED originally rated the ICR as unsatisfactory . However, OED realizes that it was difficult to comply with ICR operational guidelines OP 13.55 in a complex case such as C -2134. To establish the development outcome of technical assistance would have required expensive independent research because the credit did not initially design a monitoring and evaluation system . This was unfortunate. A recently finished Bolivia CAR and the audits of EMSO and its sister operation PFMO-I found that TA in Bolivia has often been used to finance foreign consultants who became heavily involved in administrative line responsibilities, with uncertain development outcome . The ICR of C-2134 made too little attempt to define what was done with this major component of the credit (technical assistance) and insufficient effort to evaluate it . The same happened with the second main component of the credit, the line of credit. OED is aware that to establish the development outcome of the line of credit would have also required additional research. Nevertheless, to evaluate results was especially needed in this case since C - 2134 was formally amended in 1995 precisely because the original line of credit failed .