37124 FOURTH QUARTER 2004 ·Editorial: To the People of Lebanon ...................................................................................................................... 3 · Perspectives for Pharmaceutical Reform in Lebanon ............................................................ 4 ·Recent Economic Developments ............................................................................................................................................. 7 ·Bank Group Operations ...................................................................................................................................................................................13 ·Lebanon Development Marketplace - 2005 Competition ...................................................... 15 · News, Recent and Upcoming Activities ............................................................................................................................ 16 ·Recent World Bank Publications ........................................................................................................................................................... 18 Joseph Saba, Country Director Sabah Moussa, ExecutiveAssistant Tel. (202) 473-2992 - Fax (202) 477-1482 Tel. (202) 473-9019 - Fax (202) 477-1482 E-mail: jsaba@worldbank.org E-mail: smoussa@worldbank.org OsmanAhmed, Lead Country Officer Sereen Juma, Communications Officer Tel. (202) 473-7063 - Fax (202) 477-1482 Tel. (202) 473-7199 - Fax (202) 522-0003 E-mail: oahmed@worldbank.org E-mail: sjuma@worldbank.org Carlos Silva-Jauregui, Senior Economist Tel. (202) 473-1859 - Fax (202) 477-0432 World BankAddress: E-mail: csilvajauregui@worldbank.org 1818 H Street, NW Washington, DC 20433 Shaha Riza,Acting Manager External Relations and Outreach www.worldbank.org Tel. (202) 458 1592 - Fax (202) 522 0006 Email: Sriza@worldbank.org To Order World Bank Publications: http://publications.worldbank.org/ecommerce Sophie Warlop, OperationsAnalyst Tel. (202) 473-7255 - Fax. (202) 477-1482 For Information on World Bank Programs in Lebanon: E-mail:swarlop@worldbank.org www.worldbank.org/mna/lebanon Omar Razzaz, Country Manager Chadi Bou Habib, Economist E-mail: orazzaz@worldbank.org, Tel. Ext. 228 Email: cbouhabib@worldbank.org, Tel. Ext: 233 Haneen Sayed, Lead Operations Officer Mouna Couzi, Senior ProgramAssistant E-mail: hsayed@worldbank.org, Tel. Ext. 229 E-mail: mcouzi@worldbank.org, Tel. Ext:231 Radwan Shaban, Lead Country Economist May Ibrahim, ProgramAssistant E-mail: rshaban@worldbank.org, Tel. Ext. 246 Email: mibrahim@worldbank.org, Tel. Ext. 245 Robert Maurer, Lead Urban Sector Specialist Sophie Urnechlian, ProgramAssistant E-mail: rmaurer@worldbank.org, Tel. Ext. 224 Email: surnechlian@worldbank.org Sebastien Dessus, Senior Economist E-mail: sdessus@worldbank.org, Tel. Ext. 225 The World Bank Office in Beirut United Nations House, Sixth Floor Robert Bou Jaoude, Senior Financial Management Riad El Solh 1107-2270 Specialist P. O. Box: 11-8577 E-mail: rboujaoude@worldbank.org, Tel. Ext. 230 Beirut - Lebanon Hadia Samaha Karam, Operations Officer Tel. (961-1) 987-800 E-mail: hsamaha@worldbank.org, Tel. Ext. 241 Fax (961-1) 986-800 www.worldbank.org/lb Lina Fares, Procurement Specialist Email: lfares@worldbank.org, Tel. Ext. 244 Editorial Team: Mona Ziade, Communications Officer Chadi Bou Habib Email: mziade@worldbank.org, Tel. Ext. 239 Sebastien Dessus Hadia Karam Mona El-Chami, Financial Management Specialist Zeina El Khalil E-mail: melchami@worldbank.org, Tel. Ext. 223 Omar Razzaz Joseph Saba Diana Masri, Financial Management Specialist Andreas Seiter E-mail: dmasri@worldbank.org, Tel. Ext. 238 Paolo Zacchia Zeina El Khalil, Public InformationAssociate Mona Ziade E-mail: zelkhalil@worldbank.org, Tel. Ext. 234 With special thanks to Mary Saba 2 Fourth Quarter 2004 EDITORIAL To the People of Lebanon With great sorrow, the staff of the World Bank received the news of the tragic death of Rafic Hariri, former Prime Minister of Lebanon. Mr. Hariri was a man possessed of vision, eternal optimism and the will to succeed, rebuilding Lebanon's economy to put Lebanon back on the map of the world after 15 years of strife. Throughout turbulent times in the MENA region, Mr. Hariri maintained his optimism and worked tirelessly to steer his country through the many chal- lenges Lebanon faced. This unshaken resolve earned Mr. Hariri the admi- ration and respect of leaders from around the world; and in international institutions. The World Bank was no exception. The death of Mr. Hariri is not only a loss for Lebanon, but a loss for the MENA region and the world community at large. His stature and wisdom will be missed. Mr. Hariri's drive, determination and vision rekindled hope in the hearts and minds of the youth of Lebanon for a future filled with prosperity and free of conflict. This hope should never be eliminated. Itisinsadtimeslikethesethatanation'sresolveisputtothetest.Thenation's grief is deep, but so is the commitment to a future in which all Lebanese peo- ple find a place to live freely in a united and prosperous homeland. The World Bank has been a partner of Lebanon in its 15 years of reconstruction. Today, the Bank reaffirms its commitment to help Lebanon achieve its full potential in the world community. The World Bank extends its heartfelt condolences to Mr. Hariri's family, to the families of all the victims and to the Lebanese people at large. The Bank wishes its friend Beirut MP Basil Fuleihan, a speedy recovery. Fourth Quarter 2004 3 PerspectivesForPharmaceuticalReformInLebanon Pharmaceuticals Are a National tives (more expensive drugs mean more profit for the Burden pharmacists).Itisimpossible,evenforahighly-educated patient, to assess whether the procedures suggested or Pharmaceutical policies are at the core of national health the medicines prescribed are cost-effective and in line systems in the world. But in Lebanon, whose annual with scientifically confirmed "good practice". healthcarebillstandsat12.4percentofitsGrossDomes- tic Product (GDP) - one of the highest in the region and An Archaic Pricing System the world at large - medicines have emerged as a stum- bling block for healthcare reform. An initial analysis suggests that some drugs, but not all, are more expensive in Lebanon, largely due to an inflex- Pharmaceuticals account for 25 percent of the health- ible pricing system that is negotiated between the manu- care bill, and surveys indicate that up to 21.5 percent facturer or importer, on the one hand, and the Admin- of household health spending is on drugs. In a country istration on the other hand. This analysis is based on a where about 50 percent of the population has no insur- country-of-origin price, which in today's world of mul- ance plans to cover the cost of medication and the rest tinational companies is difficult to define and control. of the population is only partially covered, drugs are a Companies can keep prices artificially high in markets significant burden, especially on the population of the that are used as reference for setting prices elsewhere.A lower middle class and the poor. better solution to reduce cost would be a pricing system which is based on comparisons with a number of coun- In a bold effort to address this critical social issue, the tries that are similar in terms of economic development Ministry of Public Health recently introduced mea- and medical practice. sures to lower drug prices by 12-15 percent, in a first step towards an aspired reform of the health sector. The The bigger problem, however, is the fast growth in the adjustment depends largely on reducing wholesale and prescription of new drugs, supported by the market- retail profit margins and lowering logistical costs (cus- ing efforts of manufacturers and their importers. While toms'fees, shipments, etc.). some multinational companies have introduced internal guidelines against unethical marketing practices, there The lack of price control systems and an insufficiently is no external control or enforcement of such rules in equipped regulatory body to monitor the flow of drugs Lebanon. It is generally assumed that in such a situa- into the local market are often cited as the causes of tion some doctors are influenced by material incentives, this chaos. But there are other reasons, too, for which such as invitations to conferences at attractive locations patients share the responsibility. The primary healthcare abroad, to prescribe a particular medicine that might not system is not being properly utilized. Patients who need be the most cost-effective choice for the patient. treatment seek a specialist rather than a family doctor. In general, specialists tend to prescribe "more advanced" A Small Generics Market treatments, which might not be the most economic solu- tionforaparticularproblem.Also,thereisanabundance In Lebanon, the generic drug market is significantly of doctors and pharmacists in the country - one pharma- small. Nearly 80 percent of prescriptions are written for cist for every 2,500 citizens. As such, maximizing their the original brand of a certain drug, and only 20 percent return from every patient or client becomes a matter of for generics and the so-called "branded generics".There economic survival. are three main reasons for the low percentage of generic prescriptions: Experiences in other countries show that these realities often lead to over-consumption of certain goods and services. In Lebanon, many pharmacists sell prescrip- Doctors do not have enough information on the tion drugs without prescriptions, according to their own availability of therapeutically equivalent generics assessment and they are influenced by economic incen- or are encouraged to only prescribe branded 4 Fourth Quarter 2004 drugs, without being held accountable for the A Weak Regulatory Capacity costs caused by their prescriptions. Pharmacistsprefertosellmoreexpensivebranded An essential pillar of a rational pharmaceutical policy products because of the higher profit margins. is confidence in the regulatory body that registers drugs and controls the quality of pharmaceuticals on the mar- Patients are unaware about the generics option ket. In this regard, Lebanon has to catch up with coun- and, therefore, do not ask for them.Alternatively, tries in the same income bracket and with countries that they are skeptical of the quality of generic drugs. have a comparably-developed health sector. The current These obstacles could be addressed in the context of regulatory system is described as slow, not sufficiently comprehensive pharmaceutical policy reforms. The tar- transparent,lackingthecapacityforthoroughtestingand get should be a market that acknowledges and endorses analysis and not always fair and predictable in its pro- innovation to benefit individual patients and public ceedings. Also, requirements for drug registration seem health, while promoting lower-cost generic drugs where weaker than in other countries. Generic drugs, for exam- appropriate to free resources for more expensive mod- ple, can be registered without proving bioequivalence, ern treatments. On a practical level, doctors need a com- the experimental proof that the generic drug would gen- pendium that makes it easy for them to identify generic erate the same concentration curve of active substance alternatives and compare prices. Also, pharmacists for the recipient organism as the original brand. should be rewarded for cost-conscious behavior, for example by introducing a minimum dispensing fee for Amodern, transparent and rigid drug approval system is cheaper, and a maximum fee for more expensive drugs. important to build confidence in medicines on the mar- Patients will start trusting generic medicines only when ket.As long as doubts about the quality of some cheaper they are persuaded that the regulatory process is strict generic drugs persist, patients and professionals will and transparent, and allows only drugs with proven effi- continue to opt for well-known brands. Equally impor- ciency, quality and safety on the Lebanese market. tant in confidence building is strict control of the distri- bution chain that exposes any illegal activities which put Dynamics of Public Opinion in the public health at risk, such as the distribution of counter- feit drugs or the sale of medications which have passed Political Economy their shelf life. The Lebanese Order of Pharmacists is working hard to fill the gap in the control and execution The general public plays an important role in the politi- processes, left in jeopardy by an Administration which cal economy of pharmaceutical reform. There are two does not have sufficient capacity in this field. But, con- dominant factors that come into play: a healthy person trol and enforcement are only one part of the problem. seeks insurance with low premium rates and expects to Building up confidence can also be achieved through limit spending to the necessary level. However, once regular and open communication on drug quality issues. faced with a serious illness, the patient naturally expects Regulatory agencies in other countries routinely com- the best possible treatment, irrespective of costs. This municate with the public through the media, disseminat- contradiction must be addressed and discussed in a way ing reports of findings and decisions, warnings on the that engages credible public opinion leaders represent- discovery of bad quality drugs or new side effects and ing different viewpoints. Otherwise, reform processes awareness messages to help professionals and patients could easily get stuck in controversial and emotional identify bad quality drugs. discussions. The medical profession, including public health officials, tends to ignore the views of lay people, Support for National who ought to be heard, even if they lack technical exper- tise. Lay people, on the other hand, are normally sensi- Manufacturers tive to potential conflicts of interest. Allowing patients and credible public figures (who speak a non-scientific Another important role of the regulatory agency is to language and have no financial interest in the sale of control national manufacturers and license production pharmaceuticals) to become involved in pharmaceutical facilities. This type of regulatory supervision will in reform is a way to address this concern and work toward the mid term serve as an endorsement of the quality of building a public consensus for reform which would nationally-manufacturedmedications,helping manufac- require concessions from all. turers establish a strong export business. While many countriesroutinelyupgradetheirregulatorycapacityand strengthen their processes, manufacturers in countries with weak supervisory bodies have increasing problems Fourth Quarter 2004 5 in registering and marketing their products. On the other pricing systems and payment modalities usually have a hand, because national manufacturers usually produce limited impact and over time, the players in the market generic drugs, they are also more likely to benefit from find ways to adapt and neutralize the change. a policy which creates incentives and stimulates growth of the generic part of the market. Agood example of this dilemma is the widespread prac- tice of reference pricing with a reimbursement ceiling. Patents and Intellectual Property Such a system existed in the Netherlands for some time, Rights and was later abandoned because all competitors had set their price just under the ceiling, which turned out to At present, since international manufacturers and their be higher than the market price in other EU countries importers dominate the Lebanese market, their partici- with free pricing competition. Instead of lowering the pation in the discussion of pharmaceutical policy reform price for the customer, manufacturers tried to boost their is important. The main policy goal, supported by multi- market share through bonuses for wholesalers and phar- national companies and the governments of their home macists. markets, is the strengthening of intellectual property protection in Lebanon. This would make the manufac- This demonstrates that, in the long term, governments turing and selling of copies of drugs still under patent are not necessarily best positioned to balance market protection in OECD countries illegal. Such a strong forces and ensure an efficient and effective pharmaceu- intellectual property regime may be beneficial to overall tical sector. Information asymmetry and a comparative economic growth and would encourage foreign direct disadvantage in technical, management and negotiation investment in Lebanon. However, the current situa- skills are inherent in the public sector, independent of tion gives the government of Lebanon an opportunity the development level of a country. to capitalize on ongoing negotiations to ask for some concessions, which are likely to include the pricing sys- Europe and the United States tend to lean toward tem, incentives for generic competition and a market- strengthening institutions to benefit the payer, so that ing codex with real sanctions and external verification. they can negotiate on behalf of patients and secure If Lebanon moves closer towards OECD countries in good quality treatment at the best possible prices, mov- its trade and intellectual property rules, Lebanon might ing from passive payment or reimbursement to active as well consider introducing an OECD country level of purchasing. This requires an integrated payment system safeguards against unlimited growth of pharmaceutical with a sophisticated collection and analysis of input and expenses and unethical marketing practices. outcome data. One potential model could be a social insurance fund that defines a benefit package and nego- The current relationship between international and tiates prices and performance criteria with providers, national manufacturers is partially collaborative, based trying to strike a balance between optimal outcomes on contract manufacturing of branded medications for and affordability. Several variations of such systems are the Lebanese market. But there is also competition under development in OECD countries. While none of through locally manufactured unlicensed copies of them is perfect, the trend clearly goes in this direction. drugs still under foreign patents. The market share of these products is limited. Nevertheless, local manufac- turers would expect a friendly and collaborativesolution to protect their commercial interests, should Lebanon decide to broaden its intellectual property protection to include patents which predate 1999, when pharmaceuti- cal patents were first introduced. Backing the Payer Abouttwodecadesofcontinuouspharmaceuticalreforms in Europe and other parts of the world have shown that there is no easy solution to solve the dilemma between access to state-of-the-art treatment for all, and cost con- tainmentwithinalimitedbudget.Changesinlegislation, 6 Fourth Quarter 2004 EconomicDevelopmentsInTheFourthQuarterOf2004 The following report is based on available data on Lebanon has not yet emerged from its macro-eco- financialdevelopmentsduringOctober-December2004. nomic imbalances. Most of the financial benefits of Turbulence in the aftermath of the February 14, 2005, the Paris II package will expire after 2005, notably soft assassination of former Prime Minister Rafic Hariri loans from commercial banks, and the external environ- undoubtedly left its mark on Lebanon's financial scene. ment might not always be as favorable to Lebanon as it An up-to-date analysis of financial developments will be is today ­ nominal interest rates in particular. Further- published in the next issue of the Update. more, the deceleration of capital inflows in 2004 is also slowing down the growth in money supply, and, accord- Recent developments over the Fourth Quarter of ingly, the possibilities for the Government to finance its 2004 suggest a stabilization ­ possibly even a decline deficit without resorting to inflation and/or higher inter- ­ in the debt to GDPratio in 2004, the first time since est rates. While the risk of a financial contingency is 1992. Fiscal revenue continued to increase in the Fourth limited in the short term, Lebanon has not yet emerged Quarter of 2004, the result of greater economic activity from its macro-imbalances and will continue to remain and tax collection. On the expenditure side, Lebanon is vulnerable to a sudden reversal in confidence until it now fully benefiting from the lowering impact of the manages to restore full credibility through sound fiscal Paris II financial package on its debt service. On the consolidation. other hand, primary expenditures severely slipped over the Second Half of 2004, plummeting the fiscal adjust- Additional reforms are needed to push the debt ratio ment gains achieved over the First Half of 2004. on a steep declining slope. Debt sustainability analy- ses suggest that privatizations and tighter debt manage- Debt sustainability is crucial for growth. The debt sit- ment will not suffice to put the debt to GDP ratio on a uation is at the heart of Lebanon's growth challenge, and steep declining curve, unless accompanied with much cannot just be seen as a financial issue, notwithstanding higher primary surplus than realized in 2003 and 2004. its importance. Lebanon's debt, the highest in the world This will necessarily pass by a containment of non-debt as a percentage of GDP, is coupled with high levels of expenditures. International experience suggests that fis- real interest rates and risks, which discourage private cal stabilization, which concentrates on expenditure cuts investment­andinturngrowth.TheLebaneseeconomy rather than tax-based adjustment, is much more likely to is currently boosted by regional factors, but still finds succeed in reducing the debt to GDP ratio, as it better little relay domestically. As a matter of fact, domestic preserves growth and does not allot the whole burden of investment has remained desperately flat in real terms adjustment to the private sector alone. since 2001. This is regrettable in the face of Lebanon's high growth potentialities.With its large education base, Greater fiscal credibility could also help in reducing entrepreneurial skills, openness to the world and ability Lebanon'sborrowingcosts.TheLebaneseGovernment to attract foreign capital, Lebanon should grow much has little control on interest rates, but could lower its more rapidly every year,1 basing its prosperity on the borrowing costs by convincing investors of its capacity development of a modern, competitive and outward-ori- and will to tighten its fiscal policy. But there is no mira- ented web of services. However, this potential cannot be cle at this point to meet this daunting challenge: reforms realized unless the fiscal imbalances are first addressed. will need to be anchored in credible commitments and supported by a broad-based consensus. Enhancing the credibility of the adjustment requires tackling gover- 1 High deficits and debt levels entail enormous opportunity nance issues ­ the overall use of public funds ­ at their costs in terms of foregone growth. International experience roots. Only when policy measures are viewed as long suggests that increasing the fiscal deficit by 1 percentage term and credible will borrowing costs decline. In this point of GDP led, on average, to a decrease in per capita real economic growth of a 0.2 percentage point in Middle-Income regard, steps recently taken by the Lebanese Govern- Countries, where the deficit initially exceeded 2.5 percent of ment to tackle Electricité du Liban's (EDL's) structural GDP. Applied to Lebanon, this result would mean that public problems, consolidate public accounts and reinforce deficits recorded over the past decade have cost 3 percentage institutional safety nets are welcome. points of foregone real per capita GDP growth every year. Fourth Quarter 2004 7 Real Sector Developments with an annual growth rate in the number of tourists at approximately 6-7 percent a year since 1998, and a The regrettable absence of updated economic statis- strong acceleration in tourism in the summer of 2004.2 tics precludes the rigorous monitoring of economic Lebanon also appears to have regained part of the mar- activity. National accounts are missing, and there is no ket share and reputation it enjoyed before the Civil War, up-to-dateinformationonhouseholds'livingconditions, in particular, vis-à-vis neighboring Arab tourists, who consumer prices, wages or unemployment, all of which constitute the bulk of newcomers. Currently benefiting render any policy step speculative. The World Bank is from the surge in Iraq's reconstruction needs, Lebanon's encouraged by recent efforts exerted by the Government foreign trade activity also appears to be back on a solid of Lebanon to develop quantitative information, notably growth track. regarding national, fiscal and quasi-fiscal accounts, as wellashouseholds'livingconditions.TheGovernment's On the other hand, growth in public absorption efforts should be sustained to institutionalize the pro- remains undesirable in the face of fiscal imbalances, duction and dissemination of reliable statistics in these and domestic investment is low. The Government's fields, which is a critical element for good governance. primary (non-debt, Budget plus Treasury) expenditures grew by 14 percent in 2004 (see Table 1), seemingly Indirect indicators point to a significant acceleration much more rapidly than domestic prices3 or nominal of economic activity in 2004 compared with 2003. GDP. And, in spite of rapid broad money growth (+9.7 The International Monetary Fund and the Central Bank percent for M3 in 2004), banking credits to the domes- estimate that real GDP could have grown by 5 percent tic private sector have remained desperately flat in real in 2004 (against 3 percent in 2003), while Audi Bank terms since 2001,4 illustrating the absence of domestic estimates put growth at approximately 4 percent in 2004 investment counterparts to the current positive external (against 3 percent in 2003). The coincident indicator shocks, which can be observed elsewhere in the MENA computed by the Central Bank (Banque du Liban, BDL) region (Gulf tourism, remittances and investments recorded an 8.6 percent growth rate in 2004 (compared related to oil prices, reconstruction in Iraq).5 to a 6.5 growth rate in 2003). One of the most reliable indicators of economic transactions is the evolution of compensated checks, which grew by 8.6 percent in real terms between 2003 and 2004. The same indicator had registered a 3 percent growth between 2002 and 2003 2ThenumberoftouristsvisitingLebanonin2004wasestimated (source: BDL). The rapid growth in airport passengers, by the Immigration Department of the Surete General at 1.3 +18 percent and foreign trade, +25 percent in 2004 com- million­ up from 1 million in 2003.Audi Bank estimates that pared with 2003, suggests a rise in tourism and trade average spending per tourist also slightly increased in 2004, activities. On the other hand, construction activity (mea- to reach an aggregate figure of US$500 million. 3The Consultation and Research Institute (CRI) estimates that sured by cement deliveries, +2 percent in 2004 against consumer prices grew by 2.2 percent in 2004 compared to +5.3 percent in 2003, or construction permits, +3.4 per- 2003. Lebanon's Central Administration for Statistics (CAS) cent in 2004 against +11.2 percent in 2003), seems to estimates that price levels grew by 2.6 percent between June have decelerated over the course of 2004. 2003 and June 2004. Worth noticing is the CRI Index, which is believed (by its authors) to systematically underestimate actual inflation for technical reasons linked to the weighting Private consumption and exports became the main of various basket components. By the same token, however, drivers of growth between 2003 and 2004. Seemingly, housing costs are not included in the CAS Index, also GDP growth was driven in 2004 by exports of goods suggesting that prices grew faster in 2004 than reported by (+15 percent in value compared to 2003; +25 percent the CAS. Indeed, the Construction Cost Index grew by 5.9 as measured in tons) and services (tourism in particu- percent in 2004. 4Between December 2000 and December 2004, commercial lar), public and private consumption of goods and ser- banks'credits to the private sector grew by 8 percent (source: vices (some of which are domestic, others imported, as Banque du Liban, BDL). During the same period the reflected in the rapid growth of merchandise imports in Consumer Price Index rose by 8 percent (source: Consultation 2004, +31 percent in value compared to 2003; +29 per- and Research Institute), and money supply (M3 plus non cent as measured in tons). Some of these trends have residents'deposits) increased by 47 percent (source: BDL). 5 now been sustained for several years and could continue On the other hand, imports of industrial machinery equipment rose by 30 percent in 2004, and could suggest a to represent major sources of growth in the foreseeable steady increase in investment expenditures.Yet, their absolute future should the regional situation stabilize. In par- number, US$142 million, remains marginal, as it represents ticular, tourism activity appears to be very promising, less than 1 percent of GDP, and makes it, hence, difficult to derive any significant conclusion from this indicator. 8 Fourth Quarter 2004 Fiscal Accounts noted that Lebanon benefited in 2004 from a rapid nominal growth in imports and private consumption, Public deficit dropped in 2004. The overall deficit on which most taxes (tariffs and VAT) are based. From decreased from 37 percent of public expenditures in an accounting point of view, the increase in VAT rev- 2003 to 29 percent in 2004. In other words, Government enues accounted for almost half of the total revenues revenues covered 71 percent of public expenditures in increase in 2004; other tax revenues (interest and prop- 2004, up from 63 percent in 2003. erty taxes notably) accounted for a third; and non-tax revenues (mainly telecom receipts) contributed to the The drop in the deficit is entirely due to lower debt remaining increase. servicing. In 2004, the debt service decreased by 17 per- cent, thanks to the direct (soft loans) and indirect effects However, concurrently, primary expenditure grew (drop in market interest rates) of the Paris II financial rapidly as well, by 14 percent in 2004 compared package. On the other hand, the primary balance (the to 2003. While primary spending had been contained difference between revenue and non-debt expenditure) during the first six months of 2004, it severely slipped only slightly increased in nominal terms, from US$620 thereafter. Compared with the same periods in 2003, million in 2003 to US$660 million in 2004. In other primary expenditures were respectively 22 and 29 per- words, Lebanon did not use the opportunity provided by cent higher in the Third and Fourth Quarters of 2004. A a very positive economic environment in 2004 (greater detailed breakdown of expenditures was not available as economic activity and tax collection) to improve its pri- the Update went to print ­ only the split between Bud- mary balance, as most of additional revenues were used get and Treasury expenditures. The latter, which mainly to finance additional non-debt expenditures. finances arrears, transfers to municipalities and public enterprises (EDL in particular) grew by 25 percent in 2004, while Budget expenditures grew by 9 percent. Table 1. Fiscal Accounts Compared with the Budget Law 2004, actual primary expenditures were US$440 million higher than bud- Figures in US$ geted, while the debt service was US$180 million lower million 2001 2002 2003 2004 Total receipts 3,082 3,878 4,414 4,985 than budgeted; revenue was US$440 million higher than Budget revenues 2,826 3,581 4,125 4,693 budgeted, and therefore, the overall deficit was US$180 Tax revenues 1,965 2,650 2,986 3,429 million lower than budgeted. This performance, though, VAT 0 659 903 1,170 cannot be considered satisfactory in the face of the Customs 1,079 1,070 1,089 1,072 highly positive external environment Lebanon benefited Other tax revenues 885 921 994 1,187 from in 2004 and the lack of ambition for fiscal consoli- Other 861 931 1,139 1,265 dation reflected in the Budget Law 2004. Treasury receipts 256 297 289 291 Total payments 5,886 6,725 7,026 6,992 As a result of fiscal imbalances, debt continued to Excluding debt 2,277 2,564 2,611 2,842 grow in 2004. Gross public debt reached US$35.8 bil- service lionbyend-2004,upfromUS$33.3billionayearbefore. Debt service 2,860 3,066 3,233 2,668 in LBP 2,302 2,174 2,062 1,490 This corresponds to a 7.6 percent annual increase, and in FX 559 892 1,172 1,178 marks an acceleration compared to 2003, when pub- Treasury payments 749 1,096 1,182 1,482 lic debt grew by 6.1 percent. However, accelerating in Surplus / Deficit -2,805 -2,847 -2,612 -2,007 2004, debt growth remains largely contained compared to the years preceding the Paris II Conference. Between Source: Ministry of Finance 1999 and 2002, the average annual growth rate in public debt had reached 14 percent. Government revenues increased by 13 percent in 2004. Beyond GDP growth, which mechanically sus- The public debt profile evolved towards longer tained revenue growth, Lebanon also increased its maturities. The weighted average life of Lebanese capacity to collect taxes and generate revenues, for Pound Treasury Bills (TBs) increased to 18 months in a given level of economic activity. Various elements December 2004, compared to little less than 15 months explain this trend: the lowering of the threshold for in December 2003. Following the swap operation in VAT exemption, the full effect in 2004 of the tax on August 2004 and the new issuance of Eurobonds in interest revenues introduced in 2003, and the restruc- November2004,theaveragelifeofEurobondsincreased turing of cellular phone companies. It should also be to 6 years by year end, up from 5.8 years by the end of Fourth Quarter 2004 9 June 2004. In the sense that it reduces the frequency at net private capital inflow in 2004 exceeded that of 2003 which the Government needs to roll-over its debt, the by US$840 million. For the Last Quarter of the year extension of maturities is good news. alone, private net capital inflows for 2004 were US$270 million higher than in 2003. The share of the public debt labeled in foreign cur- rency also increased. The share of the public debt Figure 1. Cumulated Net Capital Inflows labeled in Lebanese Pounds (LBP) decreased from 53.4 (US$ million) percent in 2003 to 49 percent in 2004. The dollariza- tion of the debt presents some advantages, as borrow- ing costs in foreign currencies are lower than that in local currency, thereby reflecting a positive perceived exchange rate risk. The downside of this is an increased default risk, as the Government cannot print foreign cur- rencies. Fortunately, this risk is considered mitigated by the high level of foreign liquidities in Lebanese banks, some US$23 billion by end-2004. Finally, the increased dollarization of the public debt reflects that of the Gov- ernment's main creditors, the depositors in Lebanese banks. In 2004, the share of deposits labeled in foreign currencies rose significantly, to reach 70 percent against 66 percent by end-2003. Source: World Bank Staff Calculations LebaneseBankscontinuedtoabsorbnewpublicdebt in 2004. Lebanese banks' exposure to public debt (as a The merchandise trade deficit soared by US$2 billion percentage of their assets) was broadly kept in 2004 at in 2004 compared to 2003. Merchandise exports con- its 2003 level, but their share in total debt continued to tinued to grow in 2004 (+15 percent, to reach US$1.7 grow. By end-2004, Lebanese commercial banks were billion), but at a lower pace than in 2003 (+46 percent). detaining 48.4 percent of the gross public debt, up from The Last Quarter of 2004 even witnessed a decrease in 43.4 percent a year back.The Central Bank saw its share exports by 4.5 percent compared to the same period in stagnating, at 17.5 percent in 2004 against 17.2 percent 2003. The increase in exports could not, in any case, a year before. Nevertheless, the increase in the absolute compensate for the substantial rise in imports. Imports value of the debt means that the Central Bank resorted rose by 31 percent in 2004, compared to 11 percent in to money creation to finance approximately one-fourth 2003, to reach US$9.4 billion. of the public deficit in 2004. In contrast, other public institutions, such as the National Social Security Fund With higher trade deficit and lower net capital and the Institute of Guarantee of Deposits held only 4 inflows, the net foreign assets of commercial banks percent of the debt by end-2004 against 5 percent in and the Central Bank hardly grew in 2004. In cumu- December 2003. Moreover, the share of the debt directly lated terms, the change in Lebanon's net foreign assets held by households decreased from 6 percent in 2003 to was limited to US$169 million, with a positive US$265 2.4 percent in 2004. The remainder, 28 percent of the million change in the First Half of 2004 and a negative gross public debt ­ about US$10 billion, was mainly US$96 million in its Second Half. Gross reserves at the held by non-residents, including foreign governments Central Bank decreased by US$700 million compared and international financial institutions. This share was to December 2003. The decrease in reserves is linked broadly kept at its 2003 level. to the 3.9 percentage point increase in the dollarization rate of deposits (see below). However, the impact of the External Accounts dollarization of deposits was partly offset by the Euro- bond emissions of May and November, as well as by Private capital inflows rose substantially in 2004, but increased commercial banks' deposits in United States fell short of compensating for the decline in public Dollars (US$) at the Central Bank. World Bank Staff transfers. Net capital inflows continued to decrease estimates those deposits to have increased by US$1.4 throughout the year 2004. Cumulated net capital inflows billion since December 2003. at end-2004 were estimated at US$7.8 billion, against US$9 billion in 2003. If Paris II inflows were excluded, 10 Fourth Quarter 2004 Financial Markets Developments Symmetrically, interest rates on private lending decreased in 2004. Average interest on US$-denomi- MoneygrowthdeceleratedintheFourthQuarter2004. nated loans decreased to less than 8 percent by year-end Money supply growth remains critical to finance Govern- 2004,downfrom8.8percentinDecember2003.Interest mentdeficit.Moneysupplyincreasedby10.2percentover rates on LBP loans decreased to around 10.4 percent in theyearcomparedtoa13.6percentincreasebetween2002 December 2004, down from 11.3 percent in December and 2003. The deceleration in 2004 is mainly due to the 2003. The spread between lending and depositors inter- low 1.4 percent growth of the money supply in Lebanese estratesinLBPstoodat354bpsatend-2004,standingat Pounds (M2) compared to 29 percent in 2003. Growth the same level as that of end-2003. The spread between in money supply was driven by the increase in domestic lending and depositors interest rates in US$ continued credits by 10 percent, while net foreign assets increased to decrease and reached 473 bps in December compared by 2.5 percent since end-2003. Credits to the public to 538 bps in December 2003. The decrease in lending sectorhaverisenby15percent,whilecreditstotheprivate interest rates is consistent with the relative stagnation of sector have increased by 5 percent since end-2003. lending to the private sector, and with the change in the structure of lending towards more subsidized loans. The dollarization of deposits rose again in 2004, to reach 70 percent in December2004 against 66 percent Despite the tendency for an increase in global inter- in December 2003. The drop in the spread between the est rates, the authorities managed to negotiate US$ and LBPremuneration on deposits ­ 68 basis points favorable conditions for the issuance of Eurobonds (bps) between December 2003 and August 2004 ­ might in November 2004. The US$1,375 million issuance of havebeenfelttooabruptlybydepositorsinthefaceofcon- November 2004 was divided into three parts. The first tinuous perceived exchange rate risk, hence, encouraging part, about US$625 million, was constituted in five- conversions to foreign currencies. Since then, the spread year bonds with a six-month variable interest rate set only further dropped by 8 bps, but increased political at 5.9 percent, which is respectively 190 and 133 bps turmoil might have further altered depositors'confidence below the rates offered on the swap operation inAugust in the ability of the authorities to maintain the parity. 2004 and on Eurobonds issued in May 2004 (for simi- lar maturities). The second part, about US$425 million, Interest rates on deposits decreased in 2004. consisted of five-year bonds with a fixed interest rate (Weighted) average interest rates on LBP-denomi- at 7 percent, or respectively 76 and 19 bps below the nated deposits decreased by almost 100 bps and stood rates of August and May 2004. The third part, US$325 at slightly higher than 6.8 percent in December 2004, million, comprised eight-year bonds with a fixed inter- down from 7.8 percent at end-2003. In comparison, the est rate of 7.75 percent, for which no direct comparator decrease in US$ interest rates was more moderate, as (withsimilarmaturities)exists.Yet,ratesofferedonthis average interest rates on US$-denominated deposits new issuance are respectively 61 bps and 8 bps lower decreased by approximately 20 bps in 2004, from 3.4 than that offered in August and May 2004 on seven- percent in December 2003 to 3.2 percent in December year bonds. 2004. By end-2004, the spread between average rates on deposits in LBP and US$ stood at 360 bps, down from Interest rates on Treasury Bills also declined in 2004. 436 bps by end-2003. In 2004, almost all Treasury Bills coming to maturity were rolled-over, at longer maturities and lower interest Figure 2. Average Lending Rates rates. The latter declined on average from 9.1 percent in 2003 to 6 percent in 2004. On the other hand, the Gov- ernment did not issue any new Treasury Bills in 2004. As a result, the outstanding stock of TBs available on the market remained roughly unchanged at LBP 26,368 billion, or equivalently, US$17.5 billion. Thestructureofbanks'assetscontinuedtoreflectthe strong tie between the banking sector and the public sector (Government and Central Bank). Commercial banks' deposits at the Central Bank represented 29 per- cent of their total assets by end-2004, while claims on the Government (in LBP and foreign currencies) repre- sented another 24 percent.While these ratios are slightly Source: Banque du Liban Fourth Quarter 2004 11 below those of December 2003, the banks'exposure on the public sector increased by more than US$3 billion in 2004 in absolute terms, and by US$928 million in the sole Fourth Quarter. Foreign assets of banks reached 20 percent of total assets in December 2004, compared to 16.5 percent in December 2003, mirroring the increased dollarization of deposits. Erratum In the Third Quarter 2004 issue of the Update, a technical error resulted in the inadvertent publica- tion of the Recent Economic Development article during the editing process. The Update Editorial Staff regrets the error. 12 Fourth Quarter 2004 BankGroupOperations IBRD Ongoing Projects ectinclude:(a)improvingtheaccessofsatisfactorywater supply and wastewater services to the region's residents; The current World Bank portfolio in Lebanon consists (b) introducing appropriate sector reforms­ particularly of seven Projects for a total commitment amount of the development and strengthening of the capacity of US$321.85 million, of which US$85.20 million has the existing Ba'albeck Hermel Water and Irrigation been disbursed through March 31, 2005. Authorityand,onceitisestablished,theBekaaRegional Water Authority; and (c) involving the private sector in Revenue Enhancement and Fiscal Management Tech- the operation and maintenance of water and wastewa- nical Assistance Project (REFMTAP). (US$25.25 mil- ter facilities by preparing for a Management Contractor lion). The Project seeks to support Government efforts (MC) through a lease or concession contract that would to enhance revenue and strengthen fiscal management. secure the long-term financial needs for sector invest- ments.TheWorld Bank Board of Directors approved the Education Development Project (EDP). (US$56.6 mil- Project in June 2002. lion). This Project is designed to support the Govern- ment's efforts to enhance the capacity of the Ministry Urban Transport Development Project (UTDP). of Education to function as an effective manager of the (US$65.0 million). The Project's objectives are to pro- education sector and to restore the credibility of the vide the city of Beirut and the Greater Beirut Area with Public Education System. the basic institutional framework that is currently lack- ing, and to support critical investments needed to maxi- First Municipal Infrastructure Project (FMIP-I). mize the efficiency of existing urban transport infra- (US$80.0 million). This Project aims at addressing structure. The World Bank Board of Directors approved urgent municipal works while setting the stage for the the Project in June 2002. gradual assumption of responsibility for municipal ser- vices at the local level. Cultural Heritage and Urban Development Project (CHUD). (US$31.5 million). The Project will finance Community Development Project (CDP). (US$20.0 site conservation, enhancement investments, and associ- million). This Project is designed to raise living stan- ated urban infrastructure improvements in selected sites, dards in targeted poorer communities, and to raise eco- and provide technicalassistance to strengthen the capac- nomic activity levels in such communities by investing ity of the Directorate General ofAntiquities, Ministry of in grass-roots social and small infrastructure activities, Tourism, and targeted municipalities in cultural heritage and in employment creation. preservation and tourism development. A signing for implementation of the Project was held in July 2003. Ba'albeck Water and Wastewater Project. (US$43.5 million). The major development objectives of the Proj- Commitments and Disbursements as of March 31, 2005 Approval Loan Amount Project Name Year Amount Disbursed US$ Million Revenue Enhancement and Fiscal Management TechnicalAssistance 1994 25.25 24.33 Education Development 2000 56.57 6.08 First Municipal Infrastructure 2000 80.00 48.04 Community Development 2001 20.00 1.51 Ba'albeck Water and Wastewater 2002 43.50 1.83 Urban Transport Development 2002 65.00 2.06 Cultural Heritage and Urban Development 2003 31.50 1.34 TOTAL 321.85 85.20 Fourth Quarter 2004 13 IFC Projects in Lebanon LebanonLeasingCompany(LLC).TheProjectinvolves the establishment of Lebanon's first leasing company, Uniceramic. The Project supports the modernization of providing leasing finance to local small- and medium- the company's existing production line and the expan- size enterprises. It also includes two credit lines from sion of the plant's capacity of glazed ceramic floor IFC to fund LLC's leasing activities. tiles. Middle East Capital Group (MECG). The Project con- Bank of Beirut and theArab Countries (BBAC) Credit sists of the establishment of the first regional investment Line. The Project offers innovative residential mort- bank in the Middle East, and is headquartered in Bei- gages to middle income customers. rut. Banque Saradar SAL. The Project involves an equity Banque Libano-Française. The Project offers innova- investment in common shares of the company. tive residential mortgages to middle income customers. ByblosBankSyndicatedCredit.TheProjectaimsatpro- BankofBeirutLebanonCreditLine.TheProjectconsists viding long-term project finance to small- and medium- ofcreditlinestofourLebaneseprivatesectorcommercial sized enterprises in Lebanon for infrastructure project banks for on-lending to local small- and medium-sized finance, and to increase its housing loan portfolio. enterprises in the private sector, and to middle income families to finance either the purchase of their first resi- Société Générale Libano-Européenne de Banque. IFC dence, or the expansion of their existing home. extended a Line of Credit to Société Générale Libano- Européene de Banque to be utilized in support of its Idarat, SAL. The Project funds the company's invest- housing finance program. ment program in hotels and restaurants, and is designed to help revive the tourism industry, which is a key sector Fransabank. IFC extended a credit line to Fransabank in Lebanon. to support its housing finance program. Idarat SHV (Société Hôtelière "de Vinci" SAL). The Agricultural Development Company (ADC). The Proj- Project supports the Company's investment in a Green- ect is designed to rehabilitate and expand the existing field 5-plus star "boutique" all suites hotel in an up-scale facilities ofADC, which is involved in the poultry busi- residential district of Beirut. ness, into an integrated broiler meat production facility. MIGA in Lebanon Lebanon has been a member of the Multilateral Invest- Also, Lebanese investors have submitted four pre- ment Guarantee Agency (MIGA) since 1994. Over the liminary applications in the finance, infrastructure and past decade, MIGA has received 23 preliminary appli- manufacturing sectors for investments in Cote d'Ivoire, cations from investors in Austria, Canada, France, Lux- Ghana, and Syria. Eligible investors include those from embourg, Saudi Arabia, and Spain for investments in MIGA-member countries investing in Lebanon, Leba- Lebanon in the finance, infrastructure, telecommunica- nese nationals repatriating funds for investments in Leb- tions, and tourism sectors. In addition, the Lebanese anon, as well as Lebanese investors investing in devel- investor community has become increasingly interested oping countries, including the Middle East region. in MIGA's ability to provide non-commercial risk cov- erage for their investments into other developing coun- MIGA's online investment promotion services tries. The Agency has underwritten one infrastructure (www.fdixchange.com and www.ipanet.net) feature 90 project in Syria in the amount of US$75 million. In documents on investment opportunities and the related fiscal 2002, MIGA issued US$8.1million in guarantees legal and regulatory environment in Lebanon. to Investcom, a Lebanese-owned company, for its tele- communications project in Benin involving installation of a new GSM mobile telephone network in the country, which has one of the lowest teledensities in the world. 14 Fourth Quarter 2004 LebanonDevelopmentMarketplace­2005Competition The first phase of the Lebanon Development Market- "Harvesting Youth and Community Ideas for a Bet- place Competition entitled "Harvesting Youth and ter Environment" is a competition aimed at supporting Community Ideas for a Better Environment" has been community innovations and initiatives to clean up and completed with 18 finalists selected to compete for seed protect the Lebanese landscape, air, and water. The aim funds for project implementation. of the Competition is to raise awareness about environ- mentaldegradation;involvetheyouthandlocalcommu- In all, 87 applications were submitted to theWorld Bank nities in creative thinking and implementation; and pilot Office by the January 14, 2005 deadline. The projects new ideas on the environment which could be scaled up were selected for the final stage along set criteria: inno- at the national level. vation, impact, sustainability and replicability and the institutional capacity of the applicant organizations. A workshop was convened at the World Bank Office to help guide the 18 finalists draft full proposals for the A total grant amount of US$130,000 has been raised final phase of the Competition, during which they would for the Competition, with the World Bank contributing compete for start-up funding of up to US$20,000 per US$100,000 and the United Nations Development Pro- project. The winners will be announced on the impend- gramme (UNDP) contributing US$30,000. ing Innovation Day, which culminates this year's Com- petitionandduringwhichanindependentjurywillselect seven to eight final proposals for funding. Applicant Proposal 1 Regional Cooperative Union in South Transformation of Olive Residue into Firewood Lebanon 2 Lebanese House for Environment Adoption of Olive Tree for its Resuscitation 3 TheAssociation of Chouf Cedars Sustainable Use of Medicinal Plants in the ProtectedArea ofArzAl- Chouf 4 LebaneseAssociation for the Protection of Protecting and Cleaning the Barouk River Banks and the Environment, Natural andArchaeological Sites in the Chouf and Enhancing Local Economy 5 Association of the Friends of Tannourine Cultivation of Medicinal Plants, Capacity Building for Farmers Cedars 6 Association of Rural Development inAarsal Creating a Recycling Plant for Processing Quarry Waste 7 Lebanese ScoutsAssociation Breeding the Endangered Lebanese Partridge 8 Cultural CharityAssociation-Al Doha Processing Food Waste for Pet Consumption Secondary School 9 Catholic School of Christ the Savior Recycling of Used Tires 10 Torch of Passion and Unity Composting, Reprocessing Waste from Silk Factory 11 Lebanese Geological Society Embellishment ofAin Mreisseh Corniche Waterfront 12 Animal Encounter Conserving Lebanese Biodiversity by Outreach Programs to Rural Areas 13 BaldatiAssociation Eco-Club: Creation of Country-Wide Virtual Environmental Societies 14 ARocha Eco-Guide Training Module 15 Friends of Nature Nesting Sites for Birds in Urban Schools 16 Association for Volunteer Services Learning to Care for the Environment 17 Public School of Haqleet Plantation of Productive Trees ­ Chestnut and Carob 18 Scouts of Lebanon ­ St. Joseph Group Traditional Food Processing Festival Fourth Quarter 2004 15 News,RecentAndUpcomingActivities Launch of the World Bank's Public Information Center at the Institute of Finance The World Bank Lebanon Office and the capacity building. The Institute of Finance also houses a Institute of Finance of the Ministry of LibraryofFinancewhichholdsalargecollectionofpub- Finance opened the first Public Informa- lications, journals, periodicals and information sources. tion Center(PIC) in Lebanon on January 18, 2005. A typical day at the PIC witnesses various activities which aim to promote public awareness of and access The mission of Public Information Centers (PICs) is to to documents, publications and data, respond to pub- effectively disseminate Bank and development-related lic inquiries, arrange seminars, dialogues, workshops, information in order to enhance public understanding of and record and share programs with other countries. the Bank's role in member countries and to encourage The PIC will seek to establish further partnerships with dialogue with the public.Activities of PICs complement other international and funding organizations to enrich the World Bank's efforts to communicate and interact its collection of resources and expand the scope of its with various public institutions, as well as civil society activities. organizations. PICs aim to establish forums for research, informationexchangeandknowledgeforinformeddeci- In the Middle East and North Africa region where sion-making, and promote civic engagement of various information flow is limited, PICs operating in partner- groups in development-related activities. ship with local institutions are strengthening the World Bank's ability to exchange and disseminate knowledge. TheWorld Bank hasso farestablishedPICs in70capital Central and satellite PICs have already been established cities and has 60 satellite PICs in 80 countries world- in Algeria, Egypt, Lebanon, Morocco, West Bank and wide, and there is at least one PIC in every country Gaza and Yemen. Many of these PICs were opened where the Bank operates. While PICs have traditionally in partnership with public organizations, universities, been established in Country Offices, the recent trend is national libraries and chambers of commerce. Plans are to open them in coordination with a partner institution in underway to open PICs in Jordan, Iran and Tunisia dur- a conveniently located premise which ensures free and ing the course of 2005. open access to the widest possible audience. The InfoS- hop coordinates with all Public Information Centers to ensure broad dissemination of information related to the Visit the PIC at the Institute of Finance, 512, Cor- Disclosure of Information Policy. niche al-Nahr, 4th Floor, tel: 01-426177 PICs maintained at variousWorld Bank Country Offices For further information, contact Zeina el Khalil, or at partner organizations, serve as the central contact Public InformationAssociate, for individuals seeking information on Bank operations zelkhalil@worldbank.org and related documents. They offer project documents specific to the country in which the office is located, and offer a library of recent Bank publications. They also offer Internet access in order to browse through the World Bank's online resource databases, videos, and popular journals and periodicals. In Lebanon, the choice of the partner organization was based on the Institute of Finance's role as one of the leading institutions in knowledge dissemination and 16 Fourth Quarter 2004 Arabic Glossary of Development Terms The launch of the publication "The Ara- tional Agreements, and International Organizations and bic Glossary of Development Terms" Agencies. took place at the UN House in Beirut on December 17, 2004. This 325-page pub- This Glossary targets individuals and communities lication addresses a present deficiency in involved in development at large, namely, civil soci- Arabic/English translation. It should contribute to a bet- ety organizations, interacting with various international ter understanding by regional NGOs of the terminology donor agencies involved in project proposal writing used by international development organizations and and training activities and the Glossary also targets use thereby help those NGOs in getting access to interna- by students, researchers, academics, and the media. tional funds. While the Glossary does not claim to be an exhaustive The Glossary is based on an initiative of the Imam Sadr and comprehensive tool, neither in number nor in sub- Foundation (ISF), a Lebanese NGO which deals with stance, it does aim to provide the right base to initiate improving the living conditions of marginalized groups dialogue and exchange, and provide the framework for in rural and poor suburban areas, through direct service interaction and improvement. delivery, capacity building and empowerment activi- ties. The ISF presented this initiative to the Small Grants In that respect, this Glossary can be accessed at Program of the World Bank in 2002. The ISF initiative http://glossary.imamsadrfoundation.org, for on-line aspiredtodevelopatoolwhichwouldcontributetobetter search inArabic, English or French. An interactive win- comprehension and use of uniform development termi- dow has also been created to allow exchange of com- nology inArabic and also contribute to facilitating better ments, queries and potential additions and/or amend- public understanding of the work and policies of various ments to the definitions. donor agencies and United Nations organizations. The proposed initiative fulfill the purposes of the Small For more information, contact: Grants Program's objectives: to support civil society Imam Sadr Foundation, organizations in their work to strengthen marginalized glossary@imamsadrfoundation.org.lb or excluded groups and individuals' abilities to realize or Zeina El Khalil, zelkhalil@worldbank.org greater ownership of development processes, thereby making these processes more inclusive and equitable. In addition to the World Bank Grant, ISF also sought the support of the UN Economic and Social Commis- sion for Western Asia (ESCWA) and thus, a Steering Committee was formed to oversee the compilation of the Glossary. Furthermore, subcommittees of technical experts from ESCWA, as well as independent experts, researchers, academics and social activists in various fields were formed to undertake the review of existing literature, the compilation of lists of terms, the develop- ment of definitions, and their review and validation. This 325-page Glossary consists of 14 chapters and an alphabetical listing of all terms in Arabic, English and French. The chapters vary in length and cover the fol- lowing topics: Environment, Human Development and Empowerment, Human Rights, International Relations, Telecommunications and Technology, Gender, Local Development, Health, Education, Economy and Public Finance, Microfinance, Project Management, Interna- Fourth Quarter 2004 17 RecentWorldBankPublications Migration and Trade in MENA: Problems or Solu- The Handbook provides an overview of the key ele- tions? (WPS31092). The Middle East and North Africa ments of a successful customs modernization strategy (MENA) region is going through a difficult demo- and draws lessons from a number of successful customs graphic transition which is putting enormous pressure reforms, as well as from customs reform projects that on its labor market. MENA countries are increasingly have been undertaken by the World Bank. The Hand- unable to generate the number of jobs needed to absorb book also describes a number of key import procedures their growing populations. As a result, unemployment that have proved particularly troublesome for customs has increased considerably during the past two decades, administrations and traders, and provides practical with significant heterogeneity among countries. Migra- guidelines to enhance their efficiency. tion has been an important safety mechanism to reduce pressure on domestic labor markets in the past, transfer Intellectual Property and Development: Lessons oil rents from the Gulf and increase income prospects from Recent Economic Research (ISBN: 0-8213- for households through remittances. While the econo- 5772-7 SKU: 15772). International policies toward pro- mies of the MENA region have not integrated much tecting intellectual property rights have seen profound via trade, they have integrated via migration, which has changes over the past two decades. Rules on how to pro- played the role of both substitute and complement to tect patents, copyright, trademarks and other forms of trade. Migration to the Gulf and to countries in Europe intellectualpropertyhavebecomeastandardcomponent helped reduce the unemployment rates of the region, as of international trade agreements. Most significantly, wellassupplyneededworkersfortheGulf(andEurope). during the Uruguay Round of multilateral trade negotia- This Paper analyzes migration and trade in the MENA tions (1986-1994), members of what is today the World region from the employment perspective, as well as the Trade Organization (WTO) concluded the Agreement extent migration and trade can provide as a solution to on Trade Related Intellectual Property Rights (TRIPS), the ever-growing employment problem. which sets out minimum standards of protection that most of the world's economies have to respect. LaborMarketReforms,Growth,andUnemployment inLabor-ExportingCountriesintheMiddleEastand How will developing countries fare in this new interna- NorthAfrica (WPS3328). The Paper studies the impact tionalenvironment?Thisbook bringstogetherempirical of labor market policies on growth and unemployment researchthatassessestheeffectsofchangingintellectual in labor-exporting countries in the Middle East and property regimes on various measures of economic and NorthAfrica. The analysis is based on a framework that social performance--ranging from international trade, captures many of the main features of the labor market foreign investment and competition to innovation and in these countries.The Paper presents a variety of policy access to new technologies. The studies presented point experiments, including a reduction in payroll taxation, toanimportantdevelopmentdimensiontotheprotection cuts in public sectorwagesandemployment,anincrease of intellectual property. But, a one-size fits all approach in employment subsidies, a reduction in trade unions' to intellectual property is unlikely to work. There is a bargaining power, and a composite reform program.The need to adjust intellectual property norms to domestic key message is that to foster broad-based growth and needs, taking into account developing countries'capac- job creation in the region, labor market reforms must ity to innovate, technological needs, and institutional not be viewed in isolation, but rather as a component of capabilities. In addition, governments need to consider a comprehensive program of structural reforms. a range of complementary policies to maximize the ben- efits and reduce the cost of reformed intellectual prop- Customs Modernization Handbook (ISBN: 0-8213- erty regulations 5751-4 SKU: 15751). Trade integration contributes sub- stantially to economic development and poverty allevia- The Impact of Macroeconomic Policies on Poverty tion. In recent years much progress was made to liberal- and Income Distribution: Macro-Micro Linkage ize the trade regime, but customs procedures are often Models (ISBN: 0-8213-5778-6 SKU: 15778). The still complex, costly and non-transparent. This situation Report deals with theoretical challenges and cutting- leads to misallocation of resources. edge macro/micro linkage models.The authors compare 18 Fourth Quarter 2004 the predictive and analytical power of various macro/ a national nutrition program. micro linkage techniques using the traditional RHG approach as a benchmark to evaluate standard policies, Spending Wisely: Buying Health Services for the such as, a typical stabilization package and a typical Poor (ISBN: 0-8213-5918-5 SKU: 15918). With a spe- structural reform policy. cial focus on strategic purchasing and contracting of services from nongovernmental providers, this Report AddressingtheChallengesofGlobalization:AnInde- reviews ways to make public spending on health care pendent Evaluation of the World Bank's Approach more efficient and equitable in developing countries. to Global Programs (ISBN: 0-8213-6065-5 SKU: It is recommended that: 16065). The accelerated pace of globalization has stim- ulated dramatic changes in trade, finance, intellectual · experiments and pilot projects for improving property, private investment, information and commu- public sector hospitals should focus on mission nications technology, health, environment, security and clarity and organizational simplification; civil society. Addressing the challenges posed by glo- balization often requires collective action at the global · programs for improving the composition of level. Increasingly, global programs are used as a means utilization should experiment with payments to to organize global collective action, particularly for pro- consumersandwithhealthlaborforcecomposition viding global public goods. and training; and · initiativestoattractproviderstoruralareasshould The World Bank is an important participant in such pro- use explicit deferred compensation contracts to grams and activities because its global reach, its abil- improve monitoring. ity to mobilize resources, and its multisectoral expertise position it well to deal with the challenges of globaliza- Local Approaches to Environmental Compliance: tion.AddressingtheChallengesofGlobalizationderives Japanese Case Studies and Lessons for Develop- crosscutting lessons for the Bank on program selectiv- ing Countries (ISBN: 0-8213-6101-5 SKU: 16101). ity, design, implementation, governance, management, Despite recognition of the ill effects of pollution and the financing and evaluation. The book also identifies areas enactment of environmental regulations, pollution mon- where further Bank action on its global-level strategy itoring and compliance in developing countries continue and programming is needed to improve the global pro- to lag. LocalApproaches to Environmental Compliance gram effectiveness. demonstrates how community and local government initiatives played a key role in arresting pollution dur- Strengthening Country Commitment to Human ing Japan's industrialization in the 1960s and 1970s. Development: Lessons from Nutrition (ISBN: 0- The approaches described are relevant to current pollu- 8213-6037-X SKU: 16037). Malnutrition persists in tion problems and are reviewed from the perspective of most developing countries. It contributes to the deaths developing countries. of 3.4 million children annually and reduces the intel- ligence, health, and productivity of those who survive. Street Addressing and the Management of Cities Nutrition programs--indeed all human development (ISBN: 0-8213-5815-4 SKU: 15815). The most spec- programs--succeeds or fails depending in part on the tacular change in Sub-Saharan Africa over the last few commitment of politicians, bureaucrats, and communi- decades has been the dramatic demographic shift from ties to properly implement them, both initially and over rural areas to cities.As a result, more than 50 percent of the long term. the city streets in the region have no names or addresses, and the problem is particularly acute in the poorest Focusing on a variety of country programs in nutri- neighborhoods. tion--both successful and failed--the book describes practical ways to assess and strengthen commitment This Report reviews the role of addressing within the and outlines an agenda for "learning by doing." In addi- array of urban management tools and explores the links tion to political will, programs need to build support between addressing and civic identity, urban informa- and commitment across government and civil society, tion systems, support to municipal services, tax systems, from local leaders to parents. To sustain that commit- land management and tenure issues, slum upgrading, ment, organizational structures and processes must be support to concessionary services, and economic devel- designed to motivate communities and officials over the opment. It outlines current and future applications, high- fifteentotwentyyearsittakestosuccessfullyimplement lights practices in many African countries, and offers a Fourth Quarter 2004 19 methodological guide for implementing street address- The Sourcebook draws on a wide range of experiences ing initiatives which is widely applicable in other parts from donor agencies, governments, institutions, and of the world. other groups active in agricultural development. It is an invaluable reference tool for policy makers, profession- Infrastructure Services in Developing Countries: als, academics and students, and anyone with an interest Access,Quality,Costs,andPolicyReform(WPS3468). in agricultural investments. ThePaperreviewstheevidenceonthestateofinfrastruc- ture in the developing world, emphasizing investment Also available: needs and emerging policy issues. While the assessment is seriously constrained by data gaps, it provides useful Gender and Development in the Middle East insightsonthemainchallengesahead,emphasizingthat, and North Africa: Women in the Public Sphere in addition to the widely discussed access problems, the (ISBN: 0-8213-5676-3 SKU: 15676). poorest also face major affordability and service quality issues which were not well addressed by the reforms of Unlocking the Employment Potential in the the 1990s. The Paper makes a case for a stronger com- Middle East and North Africa: Toward a New mitment by the international community to generate Social Contract (ISBN: 0-8213-5678-X SKU: information needed to assess and monitor infrastructure 15678). needs and policies. Better Governance for Development in the Middle East and North Africa (ISBN: 0-8213- Agriculture Investment Sourcebook (ISBN 0-8213- 5635-6 SKU: 15635). 6085-X). Investing to promote agricultural growth and poverty reduction is a central pillar of the World Bank's Trade, Investment, and Development in the Middle East and North Africa: Engaging with current rural strategy, Reaching the Rural Poor (2003). the World (ISBN: 0-8213-5574-0 SKU: 15574). One major thrust of the strategy outlines the priorities and the approaches that the public sector, private sec- tor, and civil society can employ to enhance produc- tivity and competitiveness of the agricultural sector in Ordering World Bank Publications ways that reduce rural poverty and sustain the natural Phone: (001) 1-800-645-7247 resource base. These actions involve a rich mixture of or (001) 703-661-1580 science, technology, people, communication, manage- Fax: (001) 703-661-1501 ment, learning, research, capacity building, institutional development, and grassroots participation. On-Line: http://publications.worldbank.org/ecommerce E-Mail: books@worldbank.org This Sourcebook addresses how to implement the rural Research and working papers are also available in elec- strategy, by sharing information on investment options tronic format free of charge at: and identifying innovative approaches that will aid http://econ.worldbank.org/ the design of future lending programs for agriculture. It provides generic good practices and many examples which demonstrate that investment in agriculture can Data and Statistics provide rewarding and sustainable returns to develop- ment efforts. The World Bank offers multiple databases online, some freeofcharge,andsomeonanannualsubscriptionbasis. This Sourcebook is divided into eleven self-contained Almost all the data reported in the site mentioned below modules. Each module contains three different types are derived, either directly or indirectly, from official of subunits that can also be stand-alone documents: I. statistical systems organized and financed by national Module Overview, II. Agricultural Investment Notes, governments. and III. Innovative Activity Profiles. The stand-alone nature of the subunits allows flexibility and adaptabil- To access the on-line databases, visit: ity of the material. Selected readings and web links http://www.worldbank.org/data/ are also provided for readers who seek more in-depth information. 20 Fourth Quarter 2004