Rehabiliation loan project
Report No: ; Type: Report/Evaluation Memorandum ; Country: Latvia; Region: Europe And Central Asia; Sector: Macro/Non-Trade; Major Sector:
                                                  Economic Policy; ProjectID: P008525


Latvia: Rehabilitation Loan (Loan 3525-LV)

The Implementation Completion Report (ICR) for the Latvia Rehabilitation Loan (Loan 3525-LV, approved in
FY93 for an amount of US$45 million equivalent) was prepared by the Europe and Central Asia Regional Office,
with Annex 2 contributed by the Borrower, the implementing agencies, and selected beneficiaries. The loan closed
on April 20, 1995, sixteen months after the originally-planned closing date. US$2.6 million was cancelled after
Latvian importers obtained ample access to alternative financing. The Export-Import Bank of Japan provided
parallel financing of US$35 million equivalent, and the Swedish Government provided grant technical assistance
equivalent to US$0.25 million.

This project was the first operation approved for Latvia following re-establishment of the country's independence.
Its major objectives were to: (i) assist the government in the design and implementation of its reform program; and
(ii) moderate declines in economic activity, notably in the power, health, and agriculture sectors. For these purposes
it provided quick-disbursing finance for essential imports and technical assistance, mainly for implementing
procurement.

The government carried out its reform program as planned. The operation also financed imports essential to the
continued delivery of public services and the operation of selected industrial and agricultural enterprises during a
very difficult period of economic transition. But frequent turnover in the Governmental agencies managing the
project, rigidities in Bank procurement procedures, and Latvia's rapidly-changing pattern of import demand led to
significant delays in receiving imports, which undermined somewhat the emergency character of the operation.

The ICR rates project outcome as satisfactory, sustainability as likely, institutional development as not applicable,
and Bank performance as satisfactory. Since the project included a US$1 million component for technical
assistance, two-thirds of which was disbursed, and since the Borrower specifically recognizes the "extensive
education" provided by the Bank to members of the Project Implementation Unit, OED has rated institutional
development as modest. OED is in agreement with the other ICR ratings.

The principal lessons to be learned are that: (a) the Bank should encourage more flexible import procurement
practices which do not rely so heavily on public purchasing agencies and allow for higher thresholds for
international competitive bidding; and (b) grant-financed technical assistance for procurement is most effective
when it begins well in advance of loan commitment and focusses on training local counterparts, rather than on doing
the daily work of procurement reviews and approvals.

The ICR is of satisfactory quality, providing a clear exposition of the progress of the loan and the adjustment
program it supported. Given the short-term nature of the Loan, and the fact that no future such loans to Latvia are
contemplated, the omission of any plan for operation of the project beyond closing was appropriate. An audit is
planned.