FROM: The President December 23,2004 REPUBLIC OFBURUNDI EconomicRehabilitationCredit (Cr.3710-BU) Release of the ThirdTranche-FullCompliance 1. On August 29, 2002, the Executive Directors approved an Economic Rehabilitation Credit (ERC) o f SDR 40.8 million to the Republic of Burundi ("the Borrower"). The ERC i s an integral part o f the Bank's Transitional Support Strategy (TSS) discussed by the Board on March 7, 2002, to support the transition process and the implementation of the Borrower's reform program. The Credit was declared effective on October 23, 2002, and the first tranche, o f SDR 15.1 million, was released upon effectiveness. A second tranche, o f SDR 15.1 million, was made available for disbursement on April 28, 2003 upon liberalization o f the Borrower's foreign exchange system and fulfillment o f budget-related conditions for that tranche, and a third and final tranche, o f SDR 10.6 million, was to be made available for disbursement upon fulfillment of the conditions for that tranche, describedinthis memorandum. 2. This memorandum informs Executive Directors that the Third Tranche, of SDR 10.6 million, has been made available for disbursement. As provided in Section 3.01 o f the Development Credit Agreement, staff has reviewed with the Borrower the progress achieved in implementing the program. This memorandum summarizes these reviews and reports on the actions taken by the Borrower. It concludes that: (a) the macroeconomic policy framework for growth and poverty reduction i s consistent with the objectives of the reform program; (b) satisfactory progress has been achieved in the overall execution of the program; and (c) all specific conditions pertainingto the release of the ThirdTranche have been met. James D.Wolfensohn President By ShengmanZhang Vice President : GobindNankani CountryDirector : GerardA. Byam Sector Manager : CadmanA. Mills Task Team Leader : EricR.Nelson REPUBLIC OF BURUNDI EconomicRehabilitationCredit (Cr. 3710-BU) Releaseof the ThirdTranche-FullCompliance OVERALL PROGRESSOF THE PROGRAM I. .BACKGROUND 1. Efforts to end a crisis engendered by recurrent conflicts and rivalry between the two main ethnic groups are making significant progress. Following an eight-year conflict in which it i s believed that more than 250,000 people were killed and 1.2 million displaced, negotiations in Arusha, Tanzania resulted in a comprehensive peace agreement (Arusha Accord), signed in August 2000. A new Government of national unity, inaugurated on November 1, 2001 in accordance with this Accord, shares power among the groups during the 36-month transition period leadingto general democratic elections; the two groups, which had refused to negotiate in Arusha, have since joined this government. The transition period has two phases, to respect the power-sharing principle. Pierre Buyoya, a Tutsi, led the first 18-month period, ceding power to his HutuVice President, DomitienNdayizeye, on April 30,2003 for the second 18-monthperiod. As the transition comes to an end, a referendum in December 2004 will ratify the new constitution to provide a framework for legislative elections and, in April 2005, a Presidential ballot based on universal suffrage. These are important steps toward durable reconciliation and peace. However, the situation on the ground remains fragile. 2. Burundi continues to face difficult development challenges. These include fostering inclusiveness, peace and security, promoting national reconciliation and good governance, resettling and reintegrating displaced persons and other victims o f conflict, rehabilitating destroyed economic and social infrastructure, revitalizing the economy and strengthening human resource capacities. 3. Inthis environment, beginningin 1999 the World Bank provided emergency assistance within the framework of an Interim Strategy (Report No. 1592-BU dated July 30, 1999) to help support the peace process,jump-start the economy, and rekindlethe reformprogram. Buildingon this, the TSS discussed by the Board on March 7, 2002 made an exceptional IDA allocation to the Borrower to consolidate the progress made and to support economic reforms for growth and poverty reduction. Within the TSS, the Economic Rehabilitation Credit (ERC) i s designed to support the transition process in Burundi through the rehabilitation and the recovery o f the economy by helping to build the foundation for (a) the improvement o f public service delivery and basic social services, (b) the Borrower's efforts to deepen institutional and structural reforms for sustained economic recovery and poverty reduction, and (c) the establishment o f a track record for early access to relief under the Enhanced Highly Indebted Poor Country (HIPC) Initiative. The ERC also builds on the reforms and analytical work on the public expenditure management system carried out under the TSS. 2 11. RECENT POLITICALAND SECURITY DEVELOPMENTS 4. Restoration of peace. While two rebel groups, Forces Nationales de Liberation (FNL) andForces de Defense de la Democratie (FDD-CNDD) did not signthe PeaceAccord inAugust 2000 and were not part o f the initial Transition Government, negotiations that continued under the joint chairmanship of President Mkapa of Tanzania and Deputy President Zuma o f South Africa led to signing a cease-fire in 2002 and participation by both groups in the transition Government. Leaders o f both sides of the ethnic divide appear determined to do whatever they can to keep the peace process on track. The constitutional referendum and legislative and presidential elections, while delayed by funding and logistics and for that reason rescheduled by regional leadership, are on course to be completed inearly 2005. 5. The situation remains fluid. A small FNL faction led by Agathan Rwasa continues occasional violent opposition inthe district neighboring Bujumbura, Bujumbura Rural province. International observers have been inplace since March 2003,and an international peace-keeping force, acting under the authority o f the African Union (AMIB) made up o f troops from South Africa, Ethiopia and Mozambique since April 2003 has, following a resolution o f the Security Council on May 21,2004 received a UNmandate and funding (UNOB). The force's mandate i s to demobilize and disarm all armed groups and to set up an integrated national army and police force. A committee to monitor the cease-fire, comprising representatives from the government, rebel groups and the international peacekeeping force, was established in February 2003. In response to a request from the Borrower to help it design a Burundi Ex-Combatants Assistance Program and to provide financial assistance within the framework o f the Multi-country Demobilization and ReintegrationProgram (MDRP), IDA approved the US$33 million Burundi Emergency Demobilization, Reinsertionand Reintegration Program on March 18,2004. 6. The peace process inneighboring Democratic Republic of Congo (DRC) is ontrack, with a transition coalition government appointed on June 30, 2003. Nonetheless, the localized violence, insecurity and instability that continues in the Eastern parts o f the DRC has a direct implication for the Borrower, interms of its security as well as its markets; inAugust 2004 this violence resurfaced as a massacre o f Congolese Banyumulenge in a refugee camp in Burundi. The internationalcommunity's support for boththe Lusakaprocess (which deals with the conflict in the DRC) and the Arusha process is essential for consolidating peace in the Great Lakes Region. 7. Collaboration i s the norm within the transition government, at all levels. Most stakeholders demonstrate commitment to peace and the maintenance o f a viable transition process, characterized by potentially credible institutions, a strong anti-poverty program and the protection of humanrights. Burundi produced in November 2002 an InterimPoverty Reduction Strategy Paper (I-PRSP), the World Bank-IMFjoint staff assessment which was accepted by the Boards in January 2004. The 2003 and 2004 budgets reflect priorities identified in the I-PRSP while the fullPRSP is progressing to beready inmid-2005 for deliveryto the government. 8. As peace progresses and takes hold, Burundi faces an enormous problem of demobilization o f combatants, the resettlement o f a million persons-nearly 15 percent o f the population-who are refugees or internally displaced, and assistanceto those have suffered from 3 conflict internally. Social and economic institutions must be rebuilt and social institutions that discourage violence as a method of resolving conflicts needto be buttressed. 111. MACROECONOMICFRAMEWORK POLICY 9. The economy has continued to recover since 2002. Favorable weather and a recovery of coffee production (tempered by a decline in other basic agricultural products following last calendar year's drought) are assisting a return to positive real growth in2004 after a 1.2 percent decline in 2003. Nevertheless, and despite a coffee crop in 2002-3 that was more than twice as large as the poor results of the 2001-2 season and a further increase in 2003-4, export revenues have fallen. This is due to an adverse shift in international coffee prices, lower quality of Burundian coffee as coffee plantations were poorly attended due to the conflict andthe parastatal auctioning board OCIBU allowed stocks to accumulate across seasons rather than accepting low market-clearing bids, to insufficient capability to transport the increased volume o f coffee to market, In late 2004 coffee receipts are recovering, increasing 155 percent compared to the previous year. Tea exports have also increased 35 percent while the recovering regional market has supported a 43 percent increase in exports of beer exports and a doubling o f those o f cigarette. 10. Inflation has been volatile in 2004, reflecting bottlenecks in the supply o f fuels, but has generally been in the single digits; in September 2004 (as in January, April, June and July) the consumer price index actually declined, though year-on-year inflation stood at 8.6 percent (down from 10.7 percent for 2003). The surge in world petroleum prices, along with continued depressed coffee prices, has kept the external current account under pressure throughout 2004 and had an impact on the fiscal balance as the government has attempted to partially absorb the price increase. 11. Problems remain concerning the service and eventual reduction of the Borrower's external debt, most of which i s in arrears. In March 2004 the Borrower was accorded a Paris Club debt rescheduling under highly concessional Naples terms, and has since signed a bilateral agreement with Russia. Discussions are underway to secure comparable treatment from other bilateral and commercial creditors. A multilateral debt service trust fund has been established but to date, the contributions are insufficient to cover debt service in the medium term. IFAD has resumed lending activity and inJuly 2004 the African Development Bankreinstated its Burundi program with a grant-funded activity while it developed a strategy to clear arrears and resume lending, approved by its Board on October 27. The Borrower i s on track for admission to the Enhanced HIPC Initiative in 2005; debt sustainability analysis i s underway for the HIPC preliminarydocument. 12. Fiscal developments.Overall fiscal performance was in line with the objectives o f the revised budget law approved inAugust 2002 with assistance from the IMF. Government revenue collection was less than projected, mainly due to lack o f customs revenue from a fall inthe level o f imports overall and the application of the free exchange regime for COMESA countries which led to further trade diversion from dutiable sources, and to efforts to absorb part o f the international oil price increase, but this was more than offset by a decline in government expenditure.The primary budget deficit was 1.1 percent of GDP for the first half of 2004 (down from more than 2 percent in2003 but considerably below the surplus o f 0.5 percent programmed 4 under the IMF program), due to the oil tax adjustment and the endeavor to finance the peace process. At mid-year the government had paid off 0.3 percent of GDP o f domestic arrears, but this apparent progress was more than offset by the accumulation of new outstanding payment orders equivalent to one percent of GDP. 13. Under the transition, the Borrower faces significant increases in the wage bill from the need to accommodate the entry into government of various rebel factions and the temporary expansion of the armed forces to accommodate the security sector reform and demobilization program as well as from wage pressure from the civil service and teachers unions, which ledto a 6 percent salary increase in late 2004. On the revenue side, the government expects higher receipts from its application o f an 6 percent import service charge to all non-diplomatic imports and the planned publication in the 2005 budget of the names o f all those benefiting from exonerations together with the ceiling amount ofthe exoneration. 14. The composition of expenditures continues to demonstrate the Borrower's incorporation o f I-PRSP guidelines inthe budgetprocess, with pro-poor expenditure (as defined inthe I-PRSP) rising from 33.9 percent of primary expendituresin2002 to 42.5 percent for 2004, representing a rise from 6.1 percent of GDP to 9.3 percent over the period. 15. The exchange rate continued to stabilize, continuing the auction process launched under the EERC and since supported by the IMF. The auctions since May have been fully subscribed, with no unsoldbalances reflectingdisequilibrium.The official exchange rate has remained stable against the U S dollar, 1071 at end-2002, 1073 at end-2003, and 1089 inNovember 2004. More remarkable, the differential between the official andparallel rates, which exceeded one-third five years ago, has shrunk to less than 4 percent o fthe official value. 16. Despite the stagnation o f export revenues, the Borrower continued its program o f economic liberalization. The first two tranches of IDA'SERC, an EU program grant, and the introduction o f the STABEX program have permitted the amount o f foreign exchange sold to the private sector through the Central Bank auction to increase to a scale where the weekly auctions could be regularized and the amount sold standardized. The positive list o f imports eligible for foreign exchange was abolished in August 2002. The foreign exchange auction mechanism was changed from a first-price auction to a modified dutch auction producing a single, weighted transaction rate; in response the bids became more dispersed. From 2003 banks have been permittedto retain a portion of the foreign exchange from exports rather than surrender it to the Central Bank, increasing their ability to provide foreign exchange to their customers outside the auction process and improving the interbank market. In 2004, foreign exchange bureaux were granted access to the auction system, further providing liquidity to the private sector. Government treasury bills have been introducedto clear domestic arrears with oil suppliers (and thus their bankers), and measures are now being undertaken with the IMF to make these securities tradable andthus an instrument o f market-based liquidity-managementpolicy. 17. Donor response. Following the Arusha Accord in August 2000, an international donors meeting called by President Mandela was held in December 2000 and raised over US$400 million. Donors met again in December 2001, and in April 2002 the I-PRSP was presented and endorsed by the donor community at a thematic meeting. In UNDP-sponsored round-table meetings, donors pledged US$981 million inNovember 2002 and US$l.O32 billion in January 5 2004. In January 2004 the Directors o f IDA and the IMF considered and concurred with a joint staff assessmento f the I-PRSP. IV. PROGRESS UNDER ERC THE 18. The ERC is an integral part of the Bank's Transitional Support Strategy to support the transition process and the implementation of the transitional government's reform program. The government's program seeks to support poverty reduction efforts, increases the efficiency o f resource allocation and utilization, and establish transitional institutions. A series o f measures already taken moved the government budget from deficit to surplus, reduced inflation, and reduced indebtedness to the bankingsystem. The strategy outlined inthe I-PRSP emphasizes: (i) diversification o f sources o f growth and rural income, (ii) macroeconomic stability and economic growth, (iii)private sector development, (iv) peace, security and good governance, (v) rehabilitation and reintegrationof victims and internally displaced persons, and (vi) strengthening humanresources and combatingHIV/AIDS. 19. Inthe period supported by this ERC the Borrower seeks to lay the basis for sustainable growth and poverty reduction by establishing an environment favorable to private sector development, within a stable macroeconomic framework. The objective to achieve a real GDP growth rate o f 5 percent on average over the period 2002-2004 has not beenmet: real growth o f 4.5 percent in 2002 and 5.5 percent (projected) in 2004 was offset by decline o f 1.2 percent in 2003 due to drought. Growth for the period 2004-2010 i s unlikely to reach 7 percent despite the promising increase in 2004. Inthe area o f humanresources, key reforms include the reduction o f ethnic, regional and gender disparities and promotion o f inclusion and the local and community levels, and in all the different branches o f the administration, and rehabilitation o f social infrastructure coupled with improved access to social services. The Government i s pursuing a privatization strategy that i s intended to improve management, modernize production facilities and revive output, and set the stage to revive the coffee and tea subsectors, but implementation steps have been hesitant. Within the administration, the ERC-supported strengthening and transparency for public procurement administration are underway and an Auditor General (Cow des Comptes) positionhas been created. After some delay on determiningthe authority o fjudges, an actionplan i s now underway to make this operational by early 2005. 20. The ERC supports broad reforms in national reconciliation, economic stabilization, growth and poverty reduction in a program supported by a number o f donors. Implementationi s generally satisfactory. As described above, the Borrower has successfully maintained a macroeconomic policy framework for growth and poverty reduction that i s consistent with the I- PRSP and the objectives o f the reform program, one of the requirements for the tranche release. The remainder of the present memorandum concentrates on specific steps and the associated requirements for release o fthe thirdtranche. v. CONDITIONS FORRELEASEOF THE THIRDTRANCHE 21. Section 2.02(e) o f the Development Credit Agreement, referring to the third tranche, states that "No withdrawals shall be made from the Credit Account after the aggregate o f the proceeds of the Credit withdrawn from the Credit Account shall have reached the equivalent o f 6 thirty million two hundred thousand Special Drawing Rights (SDR 30,200,000), unless the Association shall be satisfied, after an exchange o f views as described in Section 3.01 o f this Agreement based on evidence satisfactory to the Association: (i) the progress achieved by with the Borrower in the carrying out of the Program; (ii) the macroeconomic policy framework that o f the Borrower i s satisfactory, as measured on the basis of indicators agreed between the Borrower and the Association; and (iii) the actions described inPart B o f Schedule 2 to this that Agreement have been taken." Part B of Schedule 2, lists the following specific conditions for release o f the thirdtranche, that the Borrower has: 0 adopted, through its Council of Ministers, a gender action plan acceptable to the Association, as described inparagraph 24 of the Letter o f DevelopmentPolicy (LDP); 0 adopted, through its Council of Ministers, a comprehensive strategy acceptable to the Association to revive the coffee and tea sub-sectors, as described inparagraphs 35 and 37 ofthe LDP; adopted, through its Council o f Ministers, an action planacceptable to the Association on the reform o f the public procurement administration, as described inparagraph 42 of the LDP; and 0 adopted, through its Council o f Ministers, and submitted to the National Assembly, a draft legislation acceptable to the Association for the creation o f an Office o f the Auditor General responsible for auditing the Borrower's financial operations, as described in paragraph 43 of the LDP. Overall execution of the ERC Program 22. The macroeconomic policy framework is satisfactory and program execution is satisfactory, in spite o f delays in external aid disbursements. The IMF Board approved a PRGF arrangement on January 23, 2004, and a first review is underway with missions in August- September and November 2004. This review mission has found macroeconomic developments broadly on track with program objectives', though structural reforms have lagged reflecting limited administrative capacity and the complex political environment. Overall progress in implementation o f the ERC financed program i s satisfactory. Progress has not been as timely as that leading to the second tranche in 2003, as measures related to liberalizing the important coffee sector proved difficult to implement in the transitional political environment. Government's commitment remains firm. Specific conditions pertaining to the third tranche 23. Condition 1 -Gender Action Plan: "the Borrower has adopted, through its Council of Ministers, a gender action plan acceptable to the Association, as described inparagraph 24 o f the LDP." 1Burundi-IMF Office Memorandumto the ManagingDirector, DeputyManagingDirectors; October 28, 2004. 7 24. Background: Article 7 o f the Arusha Accord, in the section "principles and measures relating to exclusion", offers "constitutional guarantees o f the principle of the equality of rights and duties for all citizens, men and women, and all the ethnic, political, regional and social components o f Burundiansociety." This guidance underlies the Borrower's effort to establish a gender action plan. The Borrower's LDP (Para 24) states that "key reforms areas include the reduction o f gender disparities and promotion o f inclusion and the local and community levels, and in all the different branches of the administration. This reform i s consistent with the provision of the Arusha Peace Accord, which establishes a minimumthreshold of 30 percent for the representation o f women in all the different branches of the administration, and may be viewed as steps towards its implementation. More specifically, the proposed ERC will support the preparation o f a Gender Action Plan to be adopted by Cabinet. This Action will be prepared in consultationwith the stakeholders and in collaboration with the civil society. It will support the implementation of institutionalreforms to eliminate any form of gender discrimination andto increase accessto ownership and inheritance by women." 25. Action Taken: The Politique Nationale Genre (National Gender Policy) prepared by the Ministryof SocialAction andPromotionofWomenwas approved bythe Council ofMinisters at its regular meeting of September 30, 2003 after an active debate (summarized inthe minutes) on whether the policy i s sufficiently pro-active. The plan calls for strategic actions to promote equality in all sectors of national life, public and private, and provides a framework for judging progress. It defines rights and calls for progress where these have not been met in(i) (ii) culture, security and mobilization for peace, (iii)the fight against poverty, (iv) employment, (v) agriculture, (vi) health, (vii) the fight against HIV/AIDS, (viii) education and training, (ix) equal rights, (x) the fight against violence against women, (xi) decision making, (xii) information and communication. It describes the constraints to be addressed and provides indicators o f monitoring and evaluation. The documents are listed inparagraph 37(a). The staff considers that this conditionhasbeensatisfactorily met. 26. Condition 2 - Coffee-tea sector strategy: "The Borrower has adopted, through its Council of Ministers, a comprehensive strategy acceptable to the Association to revive the coffee andtea sub-sectors, as described inparagraphs 35 and 37 ofthe LDP." 27. Background: The coffee sector, and to a lesser extent the tea sector, has been in decline due to conflict and mismanagement. Burundian coffee, which formerly commanded a premium on world markets, in recent years has been sold at a discount. The government paid out $11 million in 2004 to cover guarantees it had made to the banks for them to lend to the parastatal processing and marketing organizations (SOGESTALs), at same time as SOGESTALS marketing margins were swollen by a policy which forced producers to receive a price less than two-thirds of which producers can receive (albeit illegally) from foreign traders. A study financed by the EU's STABEX found that nearly half of this loss was due to financial charges, most of which are attributable to inefficiency in the SOGESTALS and in the coffee auction facility, OCIBU. This i s evidence of the inefficiency o f the marketing sector, and the fiscal cost that this inefficient marketingi s creating. 28. In the area of agriculture and rural development, the LDP notes (Para 34) "while the cause of falling production, particularly in the 1990's are intimately associated with the conflict 8 context which causes massive displacement of persons, and other exogenous shocks such as drought, some o f the causes are more structural and relate to institutional setting characterized by constant government intervention particularly in the coffee and tea export sub-sectors." It continues "the Transitional Government strategy to revive agricultural production and diversify the sources o f income is based on a number of measures, including actions to revive output inthe country's traditional export sectors (coffee, tea, cotton, quinquina) with attention both to volume and to quality (Para 35). The proposed ERC will support the government's efforts to revive the tea and coffee sub-sectors through elaboration of a comprehensive strategy that promotes increased participation o f private sector operators. (Para 37). The outcome benchmark for reform i s "Adoption by cabinet o f a comprehensive strategy developed in consultation with the stakeholders to revive the coffee and tea sub-sectors.'' Despite the risk of a populist political backlash, the Borrower decided to reform the sector and disengage the State, while exposing the sector to market incentives for producers and intermediaries to improve efficiency and quality. 29. Action taken: Assisted by technical assistance studies prepared by STABEX and IDA, a Coffee Sector Strategy and Action Plan was prepared by the Borrower's authorities. This was debated and passed by the Council of Ministers as described in the minutes o f its meeting o f October 28, 2004. This policy calls for immediate liberalization o f entry into the sector at all stages o f purchasing, marketing, processing and exporting; liberalization of purchasing and pricing as o f the 2005-6 season; governance reforms o f the coffee auction house OCIBU to reduce holding o f coffee stocks, to facilitate smallholder transactions and to enhance quality differences in the auction process; and disengagement o f the State through privatization at auction of individual coffee washing stations and then the SOGESTALs. While adopting this policy, the Borrower expressed grave concern about possible negative impacts on poor smallholder producers during the first season of liberalization, and has requested support from the EU and IDA for necessary accompanying measures, should they be necessary. Bank Staff is preparing assistance to the Borrower, with technical assistance and a possible future credit, if required to provide the necessary transitional safety net to poor producers while intermediaries adapt to market forces. 30. The Council at the same meetingadopted a plan and calendar for disengagement of the State from the tea subsector, with the instructions to the Ministry o f Agriculture to prepare an action plan for the next monthly meeting. The tea sector i s already largely privatized, and represents only one-twentieth the export revenue generated by the coffee sector. The documents are listed inparagraph 37(b). The staff, having reviewedthese documents for the coffee and tea reforms, considers that this conditionhas beenmet satisfactorily. 3 1, Condition3 -Publicprocurement:"The Borrower has adopted, through its Council o f Ministers, an action plan acceptable to the Association on the reform o f the public procurement administration, as described inparagraph 42 o fthe LDP." 32. Background: The Borrower's program inthe area o f public expenditure management and governance includes efforts to (i)strengthen the budget process with the introduction o f the MTEF; (ii) improve the prioritization of the budget inline with the PRSP; (iii) strengthenpublic procurement administration, (iv) establish an Office o f Auditor General, (v) strengthen institutional capacity in macroeconomic management, (v) establish a system for monitoring the 9 flows o f government's resources and expenditures, and (v) implement a public expenditure tracking study to monitor the flows of public spending to facilities; and create an independent audit office (Cow des Comptes) to fight fraud and corruption. 33. Action taken: The Borrower's authorities requestedtechnical assistance from the Bank to strengthen the public procurement administration, to support the reform of the public procurement administration which i s essential to strengthen the competitive aspect o f public procurement procedures, and increase the efficiency inpublic expenditure allocations. An IDA- financed project - Burundi Economic Management Support Project (EMSP) approved in April 2004 - i s providing capacity enhancement to addressthe shortcomings. The documents presented by the Borrower are listed in paragraph 37(c). It is the staffs view that this condition has been met satisfactorily. 34. Condition 4 - Governance: "The Borrower has adopted, through its Council o f Ministers, and submitted to the National Assembly, a draft legislation acceptable to the Association for the creation of an Office o f the Auditor General responsible for auditing the Borrower's financial operations, as described inparagraph 43 of the LDP." 35. Background: The Arusha peace Accord emphasizes governance and accountability inthe management o f public resources, and the promotion o f inclusion. A number o f measures to improve governance have already been taken by the Borrower's authorities to strengthenpublic expenditure management. However, audits and ex-post controls systems were not implemented systematically. Amelioration of the functions and attributes of the Transitional Parliament have been substantially improved. The Transition Government also appointed a Minister o f Good Governance with broad responsibility for accountability inall government operations. The office o f Auditor General (Cow des Comptes) responding to the Parliament was created in 2003. However, the status o f Magistrates was not provided for inthe initial legislation, which required rectification. In its October 28, 2004 meeting the Council o f Ministers affirmed an Action Plan (while recognizing that it is not their prerogative to approve or deny the plan, as the Auditor's Office i s independento f the Administration) to assure it would be operational by early 2005, and beginto audit the 2004 government accounts. 36. Action taken: The office of Auditor General (Cow des Comptes) responding to the Parliament was created in 2003. However, the status o f Magistrates was not provided for in the initial legislation, which required rectification. The Inspectorate General o f Finance has been moved to the Ministry o f Good Governance, and an Inspectorate General o f State has been created within that Ministry. A new internal inspectorate for the Ministry o f Finance i s being created under IMF guidance. An IDA-financed project - the EMSP referenced in the above section - i s providing capacity enhancement to address the shortcomings. Inits October 28,2004 meetingthe Council of Ministers confirmedtheir adherenceto an Action Plan(while recognizing that it is not their prerogative to approve or deny the plan, as the Auditor's Office i s independent o f the Administration) to assure it would be operational by early 2005, and begin to audit the 2004 government accounts. The documents presented by the Borrower are listed in paragraph 37(d). It i s the staffs findingthat this condition has been satisfactorily met. 37. The following documents have beenprovidedinsupport ofthe above actions: 10 Gender Policv andAction Plan: (i) Republic o f Burundi, Ministry of Social Action and Promotion o f Women (nd). Lapolitique nationale genre (Thenationalgender policy). (ii) Republic o f Burundi, Office of the President, General Secretariat o f the Government (September 2003 with cover letter dated 20 Oct 2003). Compte rendu de la reunion ordinaire du Conseil des ministres tenue le mardi 30 septembre 2003 (Minutes o f the regular meeting o f the Council o f Ministers held Tuesday September 30,2003). Reformo f the Coffee and Tea Subsectors: IDA has received a package consisting of : Council of Ministers, Compte Rendu No 26/2004, Reunion ordinaire du Conseil des Ministres du vendredi 28 octobre 2004. (Minutes No. 26/2004, meetingo fthe Council of Ministers o f Friday October 28, 2004) Reforme du Secteur Cafe (nd), (Reform o f the Coffee Sector) short form with summary calendar and action plan. Strategic de Desengagement de 1'Etat du Secteur Cafe : Actions Court et Moyen Terme (nd) (Strategy for Disengagement o f the State from the Coffee Sector: Short- and Medium-termActions), long form, with detailed calendar and actionplanannex prepared by IDA and STABEX. Republic o f Burundi, Ministry of Finance, Office o f Assistance to the Management o f STABEX Counterpart Funds, and Ministry o f Good Governance, Service Responsible for Public Enterprises. (March 2004). Plan de disengagement de 1'Etat des filieres de cultures de rente (cafe, the et coton). (Plan for State Disengagement from the Plantation Culture Subsectors (Coffee, Tea, Cotton). Public Procurement (9 Republic o f Burundi, Office o f the President o f the Republic, General Secretariat o f the Government (August 2004). Compte rendu de la reunion ordinaire du Conseil des Ministres tenue le Lundi2 soot 2004. (Minutes o f the regular meeting of the Counsel o f Ministers Held Monday August 2, 2004). (ii) Republic of Burundi, Ministryof Finance (August 2004). Projet de re'forme des marches publics au Burundi-Plan d'action de la rdforme, Note de pre'sentation. (Proposal for reform o f public procurement in Burundi-Action Planfor the reform, PresentationNote.) (iii) World Bank. Projet d'appuie h la gestion e'conomique (PAGE): Description du projet. (Economic Management Support Project (EMSP) : Project Description). 11 (d) Governance (i) Republic of Burundi, Cabinet of the President. Loi No 1/002 du 13/03/2004portant cre'ation, missions, organisation et fonctionnement de la Cour des Comptes. (Law No. 1/002 o f 31 March 2004 Concerning the Creation, Mission, Organization and Functioningo f the Cour des Comptes [Auditor General's Office]. 38. All conditions for the release of the Third Tranche of the Economic RehabilitationCredit have been met. Overall execution of the program is satisfactory. The macroeconomic framework i s consistent with the objectives o f the program and execution i s satisfactory. VI. CONCLUSION 39. Inview of the overall performance and progress with the implementation of the program supported by the Credit, and incompliance with the specific conditions of release as described in Section 2.02 (e) and Schedule 2 o f the Credit Agreement, the Bank has informedthe Borrower of the availability o f the Third Tranche inthe equivalent o f SDR 10.6 million. 12