THE REPUBLIC OF LEBANON The World Bank Group SECOND QUARTER 2004 A Quarterly Publication of the Lebanon Country Office 37122 Lebanon's Public Debt Crisis In this edition Page Editorial: Visible Commitment and Urgent Action are needed for the Economy 3 · Energy in Lebanon and the Role of the World Bank 4 · Recent Economic Developments 7 · Bank Group Operations 12 · Exchange Innovative Ideas at the Country Development Marketplace 14 · Measurement of Poverty: The International Experience and Lebanon - A Poverty Alleviation Workshop 15 · News, Recent and Upcoming Activities 17 · Recent World Bank Publications 18 Republic of Lebanon Update World Bank Contacts ­ Washington Joseph Saba, Country Director Sabah Moussa, Executive Assistant 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 Osman Ahmed, 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 World Bank Address: Tel. (202) 473-1859 - Fax (202) 477-0432 1818 H Street, NW E-mail: csilvajauregui@worldbank.org Washington, DC 20433 Shaha Riza, Acting Manager www.worldbank.org External Relations and Outreach Tel. (202) 458 1592 - Fax (202) 522 0006 To Order World Bank Publications: Email: Sriza@worldbank.org http://publications.worldbank.org/ecommerce Sophie Warlop, Operations Analyst For Information on World Bank Programs in Lebanon: Tel. (202) 473-7255 - Fax. (202) 477-1482 www.worldbank.org/mna/lebanon E-mail: swarlop@worldbank.org World Bank Contacts ­ Beirut Omar Razzaz, Country Manager Hadia Samaha Karam, Operations Officer Tel. Ext. 228 Tel. Ext. 241 E-mail: orazzaz@worldbank.org E-mail: hsamaha@worldbank.org Bassam Ramadan, Lead Operations Officer, Human Mouna Couzi, Program Assistant Development Tel. Ext. 231 Tel. Ext. 226 E-mail: mcouzi@worldbank.org E-mail: bramadan@worldbank.org Zeina El Khalil, Program Assistant Haneen Sayed, Lead Operations Officer, Human Tel. Ext. 234 Development E-mail: zelkhalil@worldbank.org Tel. Ext. 229 E-mail: hsayed@worldbank.org The World Bank Office in Beirut United Nations House, Sixth Floor Sebastien Dessus, Senior Economist Riad El Solh 1107-2270 Tel. Ext. 225 P. O. Box: 11-8577 E-mail: sdessus@worldbank.org Beirut ­ Lebanon Robert Bou Jaoude, Senior Financial Management Specialist Tel. (961-1) 987-800 Tel. Ext. 230 Fax (961-1) 986-800 E-mail: rboujaoude@worldbank.org www.worldbank.org.lb Imad Saleh, Senior Procurement Specialist Tel. Ext. 224 Editorial Team: E-mail: isaleh@worldbank.org Anna Bjerde Chadi Bou Habib Mona Ziade, Communications Officer Sebastien Dessus Tel. Ext. 239 Zeina El Khalil Email: mziade@worldbank.org Omar Razzaz Chadi Bou Habib, Economist Joseph Saba Tel. Ext: 233 Thirumalai Srinivasan Email: cbouhabib@worldbank.org Paolo Zacchia Mona Ziade With special thanks to Mary Saba 2 Second Quarter 2004 Republic of Lebanon Update EDITORIAL VISIBLE COMMITMENT AND URGENT ACTION ARE NEEDED FOR THE ECONOMY being pursued, with a potentially large, positive impact The challenges that any Government faces in the on private sector development. One area for quick current political context are: i) a more complex international environment; and ii) a population, which tangible reform on transparency and accountability is continues to be skeptical of any government's ability to procurement for which a draft law currently awaits carry out needed social and economic reforms. review and approval. To instill the confidence needed to go forward and Dealing with Lebanon's macro-economic imbalances. overcome these challenges, Lebanon's governing There are no quick solutions here. But in the short institutions (legislative, executive, and judicial) should term, the gains of the past few years need to be commit to a comprehensive reform agenda. The agenda protected and consolidated, namely, improved fiscal should be time-bound with an agreed direction conditions due to higher revenues and lower expressed in advance by the relevant parties to make expenditures in the form of lower debt service and a sure that the non-action which has characterized the last containment of non-debt outlays. Whether or not two years does not persist. As the scope left by Paris-II Lebanon is able to re-establish its cooling relations with narrows the Government will not be able to tackle all some of its key economic supporters, it will be well pending policy reforms at once. But, certain actions advised to look at homegrown solutions. A national early on in the life of the next Government (say the first dialogue has to be launched immediately on a 100 days) would send a very clear signal of the social/economic recovery plan to drastically reduce the Government's intentions, and either pump a new sense debt; distribute the burden of the economic adjustment of optimism or contribute to a state of social and fairly among the population; and put the country back economic malaise, in a tense international context. As on a sustainable path towards growth (see "Recent far as economic development and poverty alleviation Economic Developments" section of this issue). are concerned, five policy areas will require clear signals and immediate actions: governance, macro economy, poverty, privatization, and business Social spending versus poverty alleviation. Social environment. spending does not amount to poverty alleviation. Understandably, the past ten years have perhaps necessitated patterns of social spending, which aimed to Visible commitment to freedoms, transparency, and maintain internal peace, rather than target poverty per accountability. One of Lebanon's unique trademarks se. But Lebanon should wean itself off such patterns of in the region has been its relative good record in terms broad/untargeted social spending as it can no longer of respect for freedoms (see article on "Governance" afford it. This is especially true at a time when abject in our Update - Fourth Quarter 2003). The next poverty (estimated to be 5 to 10 percent of the Government will have to take upon itself not to dispel Lebanese population) is still to be addressed in a this important capital, and to commit itself to systematic way, and social programs, such as social safeguarding, and even extending, freedoms in the security, are in desperate need to be restructured (see country. Transparency and accountability, on the other "Proceedings of the Workshop on Poverty" in this hand, have not been the country's strength, and have issue). contributed to strong perceptions among the public of mismanagement of public funds and widespread corruption. The Government needs to move Privatization and the urgent case of the power sector. aggressively towards more transparency and Privatization is not an end in itself, but a means to accountability in public decision-making and achieving an end. The end should not be to get cash to appointments. This would send a clear and positive reduce the debt, but more importantly, to develop the signal to the public that the general economic interest is market structure to spur economic growth. The most Second Quarter 2004 3 Republic of Lebanon Update pressing case is perhaps that of the power sector. The monopolistic profits, while reducing administrative desired end should be clear: to stop the financial obstacles for small and medium firms, will reduce the bleeding, reduce the cost to consumers, and improve pressure on consumers and make producers and the service. The country is losing over US$1 million exporters more competitive (see "Recent Economic per day (excluding interest on debt) to this sector and Developments" section in this issue). Telecom, fuel oil, no restructuring plan is yet in sight. While full-fledged LPG, pharmaceuticals, and others would all deserve privatization is not an immediate option, measures can focused strategies and action plans to bring their prices be taken to reduce the loss and begin restructuring the more in line with international rates. sector (see article on the "Energy Sector" in this issue). With the formation of the next Government, the World Bank, along with other donors and international Monopolies and oligopolies. About half of all agencies, will be ready and available to assist Lebanon Lebanese markets in agriculture, manufacturing, and in its efforts to overcome physical, economic, and services are considered oligopolistic or monopolistic; social legacies of the war and to occupy its prominent and a third of them have a dominant firm with a market place in the region and the world. share of about 40 percent. The reasons for high concentration (and hence, little internal competition) are of different natures, but always relate in one-way or another to barriers to entry and operation, most of which are regulatory in nature. Cutting down ENERGY IN LEBANON AND THE ROLE OF THE WORLD BANK By Anna Bjerde Senior Infrastructure Specialist EDL's high reliance on imported oil and the lack of cash generation are very closely linked. With oil prices at an all time high, and given Lebanon's already high Introduction retail tariffs (see Figure 1), the Government is rightly concerned. To address the ailing financial position of The Republic of Lebanon has no proven fossil fuel the power sector and improve the country's public resources, thus this lack of domestic energy sources and finances, the Government has decided to introduce an increase in the demand for energy are major natural gas to the Lebanese energy market, initially contributors to Lebanon's chronic trade and current targeting the segment of power generation. An account deficits. In 2002, Lebanon's trade deficit increased usage of natural gas and subsequent accounted for more than US$5.3 billion, or about 30 substitution of the relatively more expensive fuel and percent of the annual Gross Domestic Product (GDP) gas oil is expected to have a positive impact on and the country's Public Debt stood at US$29.5 billion, Lebanon's foreign exchange position, trade balance and equivalent to 170 percent of GDP.1 Also in 2002, the the financial viability of the power sector. The oil import bill reached about US$720 million, which introduction of natural gas will also have positive was nearly 60 percent of the country's revenues from effects on the environment, and promote increased tourism and exports of merchandise.. Electricité du competition among various sources of energy for Liban (EDL), the national power utility, is incurring commercial and domestic usage. However, the critical annual operating losses estimated at US$400 million, factor for successful introduction of gas will be a financed by Treasury. turnaround of the extremely fragile power sector, given that natural gas consumption will be anchored in the power sector. 1 Ministry of Finance. Public Finance Prospects 2002­­ Ministry of Finance Yearly Report (January ­December 2002). Obtained at http://www.finance.gov.lb in October 2003. 4 Second Quarter 2004 Republic of Lebanon Update Figure 1. Electricity Tariffs in the Middle East and Water (MEW). EDL's assets, human resources and North Africa Region (US cents per kWh) administrative facilities were severely damaged during the civil war in Lebanon, and most efforts in the post- (Household war period concentrated on the rehabilitation of assets, Country Industry Household as % of with a lesser focus on strengthening the company from Industry) an institutional, administrative and financial Algeria 3.84 1.72 (-55%) perspective. As a result, the company is characterized Egypt 2.80 2.50 (-11%) by a lack of technical and managerial capacity, Iran 1.80 0.70 (-61%) inefficient systems to manage and monitor performance Jordan 6.0 5.90 ( -2% ) and severely depleted finances. Retained losses now Lebanon 12.0 7.20 (-40%) exceed US$1 billion. At the operational level, losses, Morocco 6.92 9.53 (+38%) Oman 4.90 5.20 (+6%) primarily non-technical (i.e., theft), are approaching 45 Saudi percent (see Figure 2 for a comparison with the rest of 3.10 1.30 (-58%) Arabia the region) and continued transmission constraints and Syria 2.00 2.00 ( - ) unreliable service have resulted in a surge in self- Tunisia 4.61 6.47 (+40%) generation. Attempts to privatize EDL have been WBG 15.00 15.00 ( - ) undermined by the lack of financial performance Yemen 8.90 6.00 (-33%) required to attract private investors and the absence of Data: IEA 2002, WB 2003 political consensus on a privatization framework. The fiscal drain EDL poses has reached critical dimensions and options to improve the performance of the The Lebanese Power Sector company, and the sector in general, are desperately needed. Fuel switching to natural gas, while an The power sector in Lebanon is dominated by EDL, important measure, will not alone solve the financial which is organized under the Ministry of Energy and crisis of the sector. Figure 2. Transmission and Distribution Losses in the Middle East and North Africa Region Transmission and Distribution Losses 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Lebanon Yemen Algéria Egypt Morocco Jordan Saudi Tunisia China OECD Arabia Data: IEA 2002, WB 2003 Second Quarter 2004 5 Republic of Lebanon Update The World Bank's Recommendations contract with Syria) be optimized and used in for Introducing Natural Gas to power plants, where savings potential is the Achieve Sustainability greatest. § However, as the natural gas volumes from Syria Between June 2003 and June 2004, the World Bank are limited, Lebanon will, in the not too distant worked closely with officials from the Ministry of future, be faced with multiple sources of natural Energy and Water and EDL to formulate a plan for the gas, thus giving rise to competition. Likewise, a introduction of natural gas (Hydrocarbon Strategy competitive market will likely develop in the Study, 2004; Report No. 29579-LE) to Lebanon. The import, shipping and supply of natural gas. To plan formulates a comprehensive strategy to introduce achieve efficient competition, a market structure natural gas to meet the Government of Lebanon's goals based on the following three policy and of reduced power production costs; cleaner energy for regulatory principles is recommended: (i) the environment; and a more efficient and economic unbundling of monopoly transportation activities way to market hydrocarbon products. The main from competitive import, shipping and supply findings and conclusions of the Study are: businesses through - at a minimum - separate accounts; (ii) separating commodity gas contracts § The introduction of natural gas to Lebanon will from transportation contracts; and (iii) creating be very beneficial, contributing to an regulated third party access to the transportation improvement in the financial position of the network. A downstream gas law and subordinate power sector through reduction of power legislation and a regulatory agency should legally generation costs (estimated to be between enforce this market, which could be a joint gas US$140 million and US$300 million per year); and electricity regulator. avoidance of damage costs to the environment and public health sector of at least US$740 The World Bank is committed to assist the million over a 15-year period; and an Government of Lebanon develop a power sector improvement of security in the energy supply framework which will allow the power sector to due to fuel-mix diversification.. improve its performance and play the critical role § However, the introduction of natural gas will needed in order to achieve economic growth and require significant development in infrastructure. poverty alleviation. With the deteriorating financial and operational performance of the power sector, there is a significant risk that: (i) the natural gas sold to the power sector will not be paid for; and (ii) the investment required to build the natural gas transport infrastructure will not be forthcoming due to creditworthiness risks associated with the power sector, the main consumer of the natural gas. Therefore, immediate restructuring of EDL, through an interim management contract, is recommended in parallel with the formulation of a long-term sector strategy aimed at increased private sector participation and efficient competition. § Since Lebanon is strategically located in a gas- rich region and surrounded by several supply options, including: piped gas, LNG and potentially, even its own offshore resources, the Study recommends a phased approach to infrastructure development in line with natural gas sources becoming available, and an increase in demand for natural gas to avoid over- investment. In particular, the Study recommends that natural gas volumes (under the existing 6 Second Quarter 2004 Republic of Lebanon Update ECONOMIC DEVELOPMENTS IN THE SECOND QUARTER OF 2004 Fiscal and debt conditions improved at a faster pace macro-imbalances and will remain vulnerable to a sudden than initially expected during the first six months of reversal in confidence until it manages to restore full the year 2004, as a result of accelerated economic credibility through sound fiscal consolidation. activity. Tax collection was favored by greater economic activity - booming trade with Iraq and increased tourism Additional fiscal reforms are needed to push the debt and construction activities - compared to the first half of ratio on a steep declining slope and restore a 2003, a period during which these growth catalysts were macroeconomic environment more conducive to depressed by the war in Iraq. The negative impact of oil growth. Lebanese authorities are fully cognizant of the price surge on domestic activity seems to be offset by need to reduce fiscal imbalances and have already greater capital inflows from Gulf countries (remittances, undertaken major efforts in this regard, mainly through tourism, portfolio and direct investments). In terms of increased tax collection, debt restructuring, and the expenditure, Lebanon continued to exert a containment of adoption of privatization laws. Nonetheless, debt non-debt expenditures and to benefit from the mechanical sustainability analyses suggest that privatizations and effect of the Paris II financial package on the debt service. tighter debt management will not suffice to place the deb t As a result, the debt to GDP ratio could thus decrease by 4 to GDP ratio on a steep declining curve, unless percentage points. The primary surplus could itself grow accompanied with much higher primary surplus than what by approximately one percentage point, up to 4.3 percent is forecast for 2004. Furthermore, raising taxes and of the GDP, which should accordingly l essen the reducing public expenditures are obviously costly for the sensitivity of fiscal accounts to interest rates fluctuations. society. As such, support for economic reform can only be gained if: (i) the risks of non-action are clearly spelled out and understood; and (ii) the burden of the adjustment Figure 1. Debt to GDP Ratio Under Different equally shared across the population. Beyond technical Scenarios solutions or the recourse to the international community 180% for additional financial assistance, Lebanon will fix its imbalances through greater consensus on the pace and 175% design of fiscal reforms. 170% 165% REAL SECTOR DEVELOPMENTS 160% 155% The regrettable absence of updated economic statistics precludes the rigorous monitoring of economi c 150% activity. National accounts are missing, and there is no 145% up-to-date information on households' living conditions No Adjustment and unemployment, which makes any policy step 140% Adjustement speculative. The World Bank is encouraged by recent 135% efforts by the Government to develop quantitative 2002 2003 2004 2005 2006 2007 2008 information, notably regarding national accounts and households' living conditions. The Government's efforts Source: World Bank Staff calculations. should be sustained to make permanent the production and dissemination of reliable statistics in these fields, as a Though obviously welcome, this acceleration in critical element for sound governance. economic activity will, nevertheless, be insufficient to decisively put the debt to GDP ratio on a steep Indirect indicators point to a significant acceleration of declining slope. Most of the financial benefits of the Paris economic activity in the first six months of 2004 II package will expire after 2005 (soft loans from compared with the same period in 2003. The commercial banks in particular) and the external International Monetary Fund estimates that real GDP environment might not always be as favorable to Lebanon could grow by 5 percent in 2004 (against 3 percent in as it is today ­ particularly with regard to nominal interest 2003), while Audi Bank estimates that it could grow by 3 rates. While the risk of a financial contingency is limited percent. While most indirect indicators registered higher in the short run ­ as most of the foreign currency growth rates between the First Half of 2003 and the First denominated-debt maturing in 2004-2005 has already Half of 2004, it is believed that this is largely due to the been rolled over, Lebanon has not yet emerged from its fact that the First Half of 2003 was a period of particularly Second Quarter 2004 7 Republic of Lebanon Update depressed activity because of the war in Iraq. Indeed, most been sustained for several years, and could continue to of the current growth catalysts are sensitive to the regional represent major sources of growth in the foreseeable environment: tourism, workers' remittances, export to future should the regional situation stabilize. In particular, Iraq, and construction financed by the Gulf countries' tourism activity seems to be very promising, with an capital. annual growth rate in the number of tourists to approximately 6-7 percent a year since 1998, with a strong One of the most reliable indicators of economic activity acceleration over the last two summers. Lebanon seems to and transactions is the evolution of compensated have regained part of its market shares and reputation checks, which grew by 5.5 percent in real terms (7.5 enjoyed before the war, in particular vis -à-vis neighboring percent in nominal terms) in the first six months of 2004 Arab tourists, which constitute the bulk of newcomers. compared with the first six months of 2003. Cement deliveries, +9.6 percent, construction permits in Beirut and Mount-Lebanon, +6.6 percent, airport passengers, Figure 2. Passengers at Beirut International Airport +28.9 percent and tourists' numbers, +35 percent, suggest 450 a rise in construction and tourism activities. Another service sector seems to have benefited tremendously from 400 recent regional developments, foreign trade, with imports 350 and exports (including transit trade and re -exports) 300 growing by 34 percent over the period. The industry, on the other hand, seems to be lagging behind, as the demand 250 for electricity grew much less rapidly. 200 150 Imports of merchandises grew by 31 percent in 100 nominal terms, and could mirror a significant increase in overall private absorption (under the assumption that 50 the domestic demand for Lebanese goods grew in similar 0 proportions or the like). On the other hand, the relative stagnation of the Consumer Price Index (CPI) mitigates Jan - 98 Jan - 99 Jan - 00 Jan - 01 Jan - 02 Jan - 03 Jan - 04 the view that domestic absorption could have skyrocketed. According to the Consultation and Research Institute, the Source: Banque du Liban. CPI grew by 2.3 percent in 2004 compared with 1.4 percent in 2003 during the first six months of the year, and Trade activity has also been on the rise for a couple of as such does not suggest that the output gap significantly years now ­ since 2002 in particular, with an average narrowed during this period. A careful examination of annual growth rate of approximately 15 percent (that is, imports suggests that ­ once accounted for exchange rate much more rapidly than GDP), and could indic ate that fluctuations, the depreciation of the United States Dollar Lebanon also regained some market shares as a regional (US$), in particular vis-à-vis major other currencies, trade center. The increase in exports, of jewelry to Europe imported inflation and clearly identifiable re-exports ­ (+38 percent since 2002), and to Iraq (multiplied by eight import volumes actually grew by 19 percent between the compared with 2003, and mostly constituted in first six months of 2003 and the first six months of 2004. intermediate inputs and equipments), largely contributed Oil and oil derivatives import volumes grew 40 percent, to such a growth. The surge in re-exports and transit trade while other products (mostly manufactured goods) over the last year confirms this trend, with growth rates approximately grew by 15 percent. Audi Bank estimates respectively at 73 percent and 256 percent in the first six that private absorption could have grown by 17 percent months of 2004 compared with the first six mont hs of over the period in real terms. 2003. The extent to which these growth rates could be maintained in the near future remains to be seen. The Private absorption and exports became the main deceleration of export growth to Europe could suggest that drivers of growth between 2003 and 2004. Seemingly, it was mainly driven by the depreciation of the Lebanese GDP growth was driven in the First Half of 2004 by Pound vis-à-vis the Euro over the years 2002-2003. Future exports of goods (some of which are re-exports) and exports to Iraq will obviously depend, for the most part, services (tourism in particular), investment (construction) on the stabilization of the political situation. and private consumption (encouraged by tourists' expenditures), of domestic goods in some measure ­ although the share remains unknown. On the other hand, non-debt government spending was ­ unlike recent years ­ somewhat contained (+3 percent in nominal terms in the first six months of 2004). Some of these trends have now 8 Second Quarter 2004 Republic of Lebanon Update Figure 3. Foreign Trade, Imports, Exports, Re - did not exceed 5 percent. Therefore, the share of public Exports, Transit (US$ million) revenues to GDP is estimated to have grown tremendously over the said period, from 17.6 percent in 2001 to 24.5 1,200 percent in 2004 - a seven-percentage points adjustment in four years. The main increases in revenues in 2004 were 1,000 steered by VAT, telecom receipts, and tax on interest and customs, which together represent up to 96 percent of the total increase in budget revenues. VAT collection 800 increased by 35 percent due to the lowering of the turnover level of exemption. The increase in VAT 600 explains 42 percent of the total revenue increase. Telecom receipts have increased by 28 percent during the First Half of the year, which represents 28 percent of total increase 400 in revenues. Finally, tax on interest contributed to 14 percent of the revenue increase, while customs revenues, 200 which rose by 4 percent, contributed by 6 perc ent to the total increase in revenues. 0 Jan-02 Jan-03 Jan-04 Table 1. Fiscal Accounts Source: General Directorate of Cu stoms Figures in US$ million 2001 2002 2003 2004 The last component of GDP - investment - seems to Total receipts 1,493 1,872 2,187 2,475 also be on the rise, but such a trend still needs to be confirmed. Beyond construction, which might be biased Budget receipts 1,382 1,736 2,014 2,344 towards residential investments, the growth of imported Tax revenues 949 1,316 1,473 1,734 industrial equipments, +46 percent over the first six VAT 0 236 402 542 months of 2004 suggests a significant increase in Customs 489 504 505 526 productive capacities (although part of it could have been Other tax revenues 459 576 565 667 re-exported). Public investment could also grow by 7 Other 434 420 542 609 percent in 2004, according to the International Monetary Treasury receipts 111 137 172 131 Fund. A continuous decline in lending rates could further Total payments 2,660 3,159 3,581 3,322 encourage investment. Indeed, the unabated high demand Excluding debt service 1,020 1,049 1,197 1,320 for subsidized loans (Kafalat) indicates that investment Debt service 1,327 1,489 1,652 1,332 projects could develop more rapidly with lower borrowing in LBP 1,116 1,094 1,082 782 costs. But, structural reforms to enhance domestic in FX 211 395 570 550 competition could also exert a great leverage on domestic Treasury payments 313 621 732 670 and foreign direct investment by reducing barriers to entry Surplus / Deficit -1,167 -1,287 -1,395 -847 in some key sectors (see box on domestic competition). Source: Ministry of Finance. FISCAL ACCOUNTS Public expenditures decreased by 7.3 percent, the result of declining interest rates on debt service. The Public finance improved significantly in 2004. Total share of public expenditure (Budget plus Treasury, debt deficit decreased to 26 percent of total payments from 39 and non-debt expenditures) to GDP remains stable, around percent in the first six months of 2003. Primary surplus 34 percent since 2001. The recent drop in expenditures is increased to 15 percent of expenditures against 7 percent a mainly due to a substantial drop in debt service, which year earlier. As a ratio of GDP, and if recent trends are declined by 19 percent in the first six months of 2004 confirmed, primary surplus could reach 4.3 percent of compared with the same period in 2003. Debt service is GDP at year-end, against 3.3 percent in 2003. We estimate absorbing 54 percent of revenues, against 73 percent in the primary surplus requested for the stabilization of the 2003 and 93 percent in 2001, respectively. Primary debt ratio at 2.1 percent of GDP. expenditures slightly increased by 3.1 percent. The increase in primary expenditures is linked to the rise in Public revenues increase rapidly, in absolute terms capital expenditures, transfers to municipalities, to Social and as a proportion of GDP. Revenues increased by 16 Security and to hospitals. percent in 2004, and by 19 percent on annual basis since 2001. Yearly nominal GDP growth over the same period Second Quarter 2004 9 Republic of Lebanon Update Public Debt continues to grow, but at a slower pace. Figure 4. Cumulated Net C apital Inflows at Mid Year The double impact of fiscal consolidation and Paris II (US$ million) financial engineering entailed a deceleration in Public Debt growth, which stood (in gross terms) at US$34.8 billion in June 2004, up from US$32.3 billion a year 5000 earlier. As GDP grows faster, the gross debt to GDP ratio 4500 could be lower by the end of 2004 than in 2003, at about 4000 172 percent (against 178 percent). Weighted average life of the Lebanese Pound (LBP) reached 407 days against 3500 393 days in June 2003. Average life of Eurobonds is 5.8 3000 years. The share of Public Debt in LBP slightly increased 2500 to 53 percent in June 2004, from 51 percent a year earlier, 2000 due to the new issuance of LBP-denominated Treasury 1500 Bills subscribed by the commercial banks. The share of commercial banks in total debt is at present 47 percent, 1000 while the Central Bank's share is at least 20 percent. Other 500 public institutions, such as Social Security and the 0 Institute of Guarantee of Deposits, hold 4.5 percent of the 2000 2001 2002 2003 2004 debt, while the public bears 4.8 percent. Source: World Bank Staff calculations. EXTERNAL ACCOUNTS FINANCIAL MARKETS DEVELOPMENTS Net capital inflows decreased compared to the First Money growth continued unabated in the First Half of Half of 2003. Cumulated net capital inflows in June 2004 2004, but at a slower pace. Money supply growth reached US$3.6 billion, against US$5 billion in June remains critical to finance Government deficit. Money 2003. However, if we exclude the US$2 billion Paris II supply increased by 4.4 percent since end-December inflows, net private capital inflows for the first six months 2003, that is one percentage point below the increase of 2004 largely exceed that of the same period in 2003 - between end-2002 and June 2003. Growth in money by US$733 million. The increase in tourists' arrivals supply was driven by the increase in domestic credits, largely contributed to the rise in capital inflows. Lebanon especially to the public sector, while net foreign assets also benefited from the global rise in capital inflows to the remained stable at their level of end-2003. Credits to the region linked to the increase in oil prices. private sector increased by 1.3 percent since end-2003, and by 1.1 percent compared to June 2003. Foreign assets of commercial banks and the Central Figure 5. Money Supply M3 (US$ million) Bank remained stable in the First Half of 2004. In 900 cumulated terms (over the first six months of 2004), change in Lebanon's net foreign assets was limited to 600 US$264 million. Gross reserves at the Central Bank remained stable at US$10.2 billion. This stability reflects 300 two opposite trends: on the one hand, increased dollarization (see below) mechanically reduced the Central Bank's reserves. On the other hand, the emission 0 of US$1.2 billion worth of Eurobonds in May, (temporarily) deposited by the Government at the Central -300 Net Foreign Bank, and the creation of special deposits labeled in US$ Assets (which attracted another US$1.2 billion from commercial -600 Other items banks) permitted to maintain gross reserves unchanged. Q 1 - 02 Q 2 - 02 Q 3 - 02 Q 4 - 02 Q 1 - 03 Q 2 - 03 Q 3 - 03 Q 4 - 03 Q 1 - 04 Q 2 - Source: World Bank Staff calculations. The dollarization rate increased over the past six months, to reach 67.1 percent of commercial banks' deposits in June 2004 against 66.2 percent in December 10 Second Quarter 2004 Republic of Lebanon Update 2003. The recent drop in the spread between US$ and to 15 percent a year earlier. Banks might be tempted in the LBP remuneration on deposits might have contributed to near future to invest this poorly remunerated liquidity in this rebound. Average interest on US$ denominated loans government Eurobonds. Indeed, the Ministry of Finance to the private sector grew to 8.41 percent in June after a has recently announced the swap of US$2.25 billion historical minimum of 8.24 percent reached in May, Eurobonds maturing in 2005 at the implicit rate of 7.76 possibly the result of the recent rise in LIBOR. On the percent for five years, and 8.36 percent for seven years. other hand, interest rates on LBP loans to the private sector continued to decrease, reaching lower than 11 Figure 6. Average Lending Rates percent in June (10.95 percent). Since December 2003, 9.8 16.5 spread between lending rates and depositors rates US$ LBP 9.7 16.0 increased in LBP and remained stable in US$. The 9.5 15.5 decrease in the return on Government bonds probably 9.4 15.0 pushed the banks to maintain the spread over their loans to 9.2 14.5 the private sector (so as to maintain their profitability in the short run) ­ and, accordingly, lending to the private 9.1 14.0 sector hardly increased in the first six months of 2004 (+ 1 8.9 13.5 percent compared with the same period in 2003). 8.8 13.0 However, both the decrease in the spread: (i) between 8.6 12.5 US$ and LBP depositors rates; and (ii) between US$ 8.5 12.0 deposits in Lebanon and LIBOR, underline a decrease in 8.3 11.5 risk to Lebanon as perceived by the market after Paris II. 8.2 11.0 8.0 10.5 Structure of assets confirms the growing exposure of the banking sector to the public sector. Deposits with the Central Bank account for 30 percent of the ba nks' assets, Source: Banque du Liban and loans to the Public Sector in LBP and foreign currencies absorb another 24 percent. Foreign assets of banks reached 17 percent of total assets in June 2004 compared Domestic Competition and Investments in Lebanon A recent Study for the Lebanese Ministry of Economy and Trade* measured concent ration indexes in agriculture, manufacturing and services, separating the economy into some three hundred and twenty homogenous markets (excluding non profit activities). The Study suggests high concentration indexes: about half the markets are considered oligopolistic to monopolistic, and a third have a dominant firm with market share above 40 percent. The reasons for high concentration (hence, little internal competition) are for different reasons, but always relate in one way or another to the existence of barriers to entry and exit. Some of them are natural, in the presence of economies of scale for instance. Others are artificial, and stem from rules, regulations, and norms that practically restrict entry at least to some enterprises. In this regard, the Study lists outdated commercial laws, long delays in commercial dispute settlements, unfriendly business administrative regulations, corruption, or the existence of exclusive agencies as important artificial barriers to entry. However, the Study do es not measure the contribution of these artificial barriers to the lack of competition. Unpublished research from the World Bank and the Ministry of Economy and Trade** combined the findings of this Study with the most recent national accounts published in Lebanon. It suggests that the level of rents accruing from monopolistic practices exceed 15 percent of GDP. In turn, using a multi -sectoral simulation model, it examines the impact of halving, across the board, sectoral mark-ups currently permitted by the absence of competition. Preliminary results suggest that Lebanon would benefit tremendously from a domestic liberalization of its markets. The impact would be particularly pronounced on investment opportunities, which could grow 5 to 15 percent, depend ing on the response of foreign investments. Domestic liberalization would also allow reduction in the cost of several key industries - to the benefit of others, and would render the economy more competitive internationally. Part of the rents that currently accrue to foreign companies would also be eliminated, hence relaxing the balance of payments constraint. Finally, the analysis suggests that reducing domestic barriers to entry would be much less costly from a fiscal point of view than reducing import tariffs, with a view to enhance domestic competition. *Competition in the Lebanese Economy, A Background Report for a Competition Law for Lebanon, Consultation and Research Institute for the Ministry of Economy and Trade, May 2003, Beirut. ** Lebanon ­ Between Market Liberalization and Fiscal Consolidation: A General Equilibrium Analysis with Imperfect Competition, Mimeo, S. Dessus and J. Ghaleb, World Bank, Washington D.C. and Ministry of Economy and Trade, Second Quarter 2004 Beirut. 11 Republic of Lebanon Update BANK GROUP OPERATIONS IBRD Ongoing Projects The current World Bank portfolio in Lebanon consists Ba'albeck Water and Wastewater Project. (US$43.5 million). The major development objectives of the of nine Projects for a total commitment amount of US$387.82 million, of which US$119.84 million has Project include: (a) improving the access of satisfactory been disbursed through June 30, 2004. water supply and wastewater services to the region's residents; (b) introducing appropriate sector reforms­ particularly the development and strengthening of the Revenue Enhancement and Fiscal Management Technical Assistance Project (REFMTAP). (US$25.25 capacity of the existing Ba'albeck Hermel Water and million). The Project seeks to support Government Irrigation Authority and, once it is established, the Bekaa Regional Water Authority; and (c) involving the efforts to enhance revenue and strengthen fiscal management. private sector in the operation and maintenance of water and wastewater facilities by preparing for a Management Contractor (MC) through a lease or National Roads Project (NRP). (US$42.0 million). concession contract that would secure the long-term The objective of this Project is to improve the capacity financial needs for sector investments. The Board of of the road administration to undertake the Directors approved the Project in June 2002. rehabilitation of the primary road network. Urban Transport Development Project (UTDP). Agriculture Infrastructure Development Project (US$65.0 million). The Project's objectives are to (AIDP). (US$24.0 million). The Project's objectives provide the city of Beirut and the Greater Beirut Area are: (a) increasing farmers' incomes and conserving the with the basic institutional framework that is currently environment through land terracing and development lacking, and to support critical investments needed to and storage of runoff water; (b) improving access to maximize the efficiency of existing urban transport rural areas; and (c) upgrading institutional capabilities. infrastructure. The Board of Directors approved the Project in June 2002. Education Development Project (EDP). (US$56.6 million). This Project is designed to Commitments and Disbursements support the Government's efforts to as of June 30, 2004 enhance the capacity of the Ministry Approval Loan Amount of Education to function as an Project Name Year Amount Disbursed effective manager of the education US$ Million sector and to restore the credibility of Revenue Enhancement and Fiscal the Public Education System. 1994 25.25 21.16 Management Technical Assistance National Roads 1996 42.00 32.31 First Municipal Infrastructure Agriculture Infrastructure Development 1996 24.00 18.69 Project (MIP-I). (US$80.0 million). Education Development 2000 56.57 3.39 This Project aims at addressing urgent Municipal Infrastructure ­ I 2000 80.00 38.72 municipal works while setting the Community Development 2001 20.00 1.4 stage for the gradual assumption of Ba'albeck Water and Wastewater 2002 43.50 1.16 responsibility for municipal services Urban Transport Development 2002 65.00 1.99 at the local level. Cultural Heritage and Urban Development 2003 31.50 1.02 TOTAL 387.82 119.84 Community Development Project (CDP). (US$20.0 million). This Project is designed to Cultural Heritage and Urban Development Project raise living standards in targeted poorer communities, (CHUD). (US$31.5 million). The Project will finance and to raise economic activity levels in such site conservation, enhancement investments, and communities by investing in grass-roots social and associated urban infrastructure improvements in small infrastructure activities, and in employment selected sites, and provide technical assistance to creation. strengthen the capacity of the Directorate General of Antiquities, Ministry of Tourism, and targeted municipalities in cultural heritage preservation and 12 Second Quarter 2004 Republic of Lebanon Update tourism development. A signing for implementation of the Project was held in July 2003. IFC Projects in Lebanon Lebanon Leasing Company (LLC). The Project Uniceramic. The Project supports the modernization involves the establishment of Lebanon's first leasing of the company's existing production line and the company, providing lease finance to local small- and expansion of the plant's capacity of glazed ceramic medium-size enterprises. It also includes two credit floor tiles. lines from IFC to fund LLC's leasing activities. Bank of Beirut and the Arab Countries (BBAC) Middle East Capital Group (MECG). The Project Credit Line. The Project offers innovative residential consists of the establishment of the first regional mortgages to middle income customers. investment bank in the Middle East, and is headquartered in Beirut. Banque Saradar SAL. The Project involves an equity investment in common shares of the company. Banque Libano-Française. The Project offers innovative residential mortgages to middle income customers. Byblos Bank Syndicated Credit. The Project aims at providing long-term project finance to small- and Bank of Beirut Lebanon Credit Line. The Project medium-sized enterprises in Lebanon for consists of credit lines to four Lebanese private sector infrastructure project finance, and to increase its commercial banks for on-lending to local small- and housing loan portfolio. medium-sized enterprises in the private sector, and to middle income families to finance either the purchase of Société Générale Libano-Européenne de Banque. their first residence, or the expansion of their existing IFC extended a Line of Credit to Société Générale home. Libano-Européene de Banque to be utilized in support of its housing finance program. Idarat, SAL. The Project funds the company's investment program in hotels and restaurants and is Fransabank. IFC extended a credit line to designed to help revive the tourism industry, which is Fransabank to support its housing finance program. a key sector in Lebanon. Agricultural Development Company (ADC). The Idarat SHV (Société Hôtelière "de Vinci" SAL). Project is designed to rehabilitate and expand the The Project supports the Company's investment in a existing facilities of ADC, which is involved in the Greenfield 5-plus stars "boutique" all suites hotel in poultry business, into an integrated broiler meat an up-scale residential district of Beirut. production facility. Second Quarter 2004 13 Republic of Lebanon Update EXCHANGE INNOVATIVE IDEAS AT THE LEBANON DEVELOPMENT MARKETPLACE The World Bank will soon launch its first their ideas and attracting funding, not only from the Development Marketplace (DM) competition in World Bank, but also from other donor institutions. Lebanon, offering social entrepreneurs a unique opportunity to sell and attract seed funding for innovative, cutting-edge projects that could help § The Theme and Community reverse or, at the very least, curb the country's environmental degradation. Ownership The World Bank's Lebanon Country Office has The Lebanon Development Marketplace (LDM) is chosen Environment Safeguards and Resource an offshoot of the Development Marketplace, which Management as the broad theme for the competition the Bank created in 1998 as a global innovation and the knowledge-sharing exercise. The Bank hopes competition. The larger event continues to be held to help raise awareness about this vital development every 18-24 months at the World Bank headquarters component and expose the calamities that are in Washington, DC, but its success over the years has touching every household, every individual, in encouraged country offices to hold local replicas, Lebanon, where natural wealth is in serious jeopardy known Bank-wide as the Country Development and, as a result, so is the health of the citizens. Marketplace (CDM). The LDM not only offers a pragmatic alternative to Just like its parent, the CDM is designed to include a promoting grass-roots development, but tests competition and a knowledge forum. A public inclusive approaches where development is managed invitation to applicants, expected this Fall 2004 will by the communities both at the design and mark the launch of the competition; and the implementation stages. Innovation, sustainability, knowledge forum, or Innovation Day, will spell its potential impact, replicability and cost-effectiveness conclusion in the Spring of 2005. are the key criteria for assessing the winning projects, which could receive up to US$20,000 each. § How Does the CDM Differ from The idea is quite simple and effective. Social the Development Marketplace entrepreneurs are invited to come up with viable project proposals that address environmental The CDM differs from the global event, in that it is problems. The proposals are then entered into a tailored to address country-specific issues and competition. Winners are subsequently provided with present opportunities for small, locally-based the necessary funding to implement their projects projects. It encourages the development community through the World Bank and its partners. to work in new ways, drawing people and institutions with varied affiliations and objectives (NGOs, The LDM will be a competitive process open to government agencies, donor agencies, academic informal groups, local communities, national NGOs, institutions, and private sector companies) to work in private sector enterprises and academic institutions, partnerships. be they private or public. Proposals would be invited from both urban and rural communities. Since its creation, the DM program has awarded US$22 million in seed capital for more than 370 § The Vetting Process projects in over 60 countries spanning Latin America, Eastern Europe, Asia, Sub-Saharan Africa The LDM is committed to enforcing a transparent and the Middle East and North Africa. and competitive selection process. Competition will be promoted amongst the most remote and LDM will offer the country's copious entrepreneurs marginalized communities and civic groups. To and social visionaries high exposure for promoting ensure wide participation, all materials will be translated into Arabic, and efforts will be made by the Bank partners to solicit proposals by organizing 14 Second Quarter 2004 Republic of Lebanon Update presentations and workshops, and using existing § Funding distribution lists and networks. A web page will promote competition and offer up-to-date The Bank's DM Committee has allocated an amount information on progress. Furthermore, country level of US$150,000 as seed money to initiate the LDM. evaluators will be drawn from the technical expertise Of this allocation, US$50,000 is earmarked for of well known NGOs and donor agencies with administrative overheads, leaving US$100,000 for experience/interest in the environment. grants to the finalists. It is envisaged that at least 12 awards will be provided to participants, but this can Assessors will vet the applications, mostly from increase with anticipated additional contributions outside the Bank, such as fellow members of the from other partners in the Donor community. The Donor community, academia and the private sector, Bank is in the process of approaching partners and and NGOs. The finalists will then be invited to a international NGOs to participate actively in the daylong public display of their ideas and hosted to a event by providing both financial assistance and public awards ceremony. expertise. The first and second selection stages will comprise § Conclusion an in-country evaluation based on proposed outlines. The brief proposals will be reviewed by assessment panels , which will select the most promising The Bank believes that several ideas and initiatives proposals. The selected teams will then be asked to could emerge if innovation is encouraged through a submit full proposals. These proposals will be venture capital approach, diversifying risk and reviewed by a technical team, which will select unleashing creative thinking. With a vibrant civil finalists from each country to compete for funding society in Lebanon and through the support of during Innovation Day. partners and sponsors, the LDM will certainly be as successful as events in Washington, DC and other The nominees will exhibit their proposals at countries. Innovation Day. A Grand Jury comprising non- World Bank experts and Donor representatives will For more information on the CDM: evaluate each exhibited proposal against an objective Mona Ziade, Communications Officer, score card and award funds to the winners. The jurors mziade@worldbank.org will be appointed in consultation with development partners and leading NGO representatives. MEASUREMENT OF POVERTY: THE INTERNATIONAL EXPERIENCE AND LEBANON - A POVERTY ALLEVIATION WORKSHOP At the request of the Government of Lebanon, a two- § Workshop Outcomes day Workshop on Poverty Alleviation was held in Beirut on June 29-30, 2004. About 80 representatives The Workshop reached a reasonable consensus on attended the event from the Lebanese government, conceptual and measurement issues of poverty: local academics, NGOs, international organizations Lebanon is well advised to measure absolute poverty and the World Bank. A round table discussion with by a conventional consumption expenditure the Prime Minister formed the highlight of the approach. In deriving poverty lines, international best second day of the Workshop, followed by a meeting practice needs to be followed, adhering to sound with the Prime Minister to discuss follow-up theoretical foundations. Poverty lines will need to be measures. varied by the demographic needs of households and geographic area of residence. The "Unmet Basic- Second Quarter 2004 15 Republic of Lebanon Update Needs" approach can be a useful complement to the poverty needed to be well defined and appropriate expenditure-based approach. instruments identified. Poverty alleviation strategies need to address both The follow-up steps were summarized as follows: the currently poor, and the vulnerable that may fall into poverty. Integrating child labor issues into the i) Close follow-up on the household survey; poverty alleviation strategy is important, particularly in the Lebanese context. There is essential similarity ii) focused attention in the first stage of work on in social protection strategy followed in the Latin programs targeting abject poverty, to be America and Middle East and North Africa regions. followed by enhancing health, education and The strategies seek to enlarge opportunities for the social services to the poor; poor to overcome poverty, mitigate risk of poverty and help cope with the risk of poverty. The rise and iii)establishment of the macro linkages of poverty, fall of poverty in the former Soviet Union in the especially as it relates to employment 1990s underscores the importance of growth and generation; and weakness of targeted programs for poverty reduction. iv)development of a coordination mechanism The impact of social safety nets on poverty can be through establishment of a Working Group of improved by better design, such as conditional cash concerned agencies and stakeholders reporting transfers. By conditioning cash transfers with to the Prime Minister. mandatory attendance in schools, or hospital visits, programs have achieved better outcomes. However, the effectiveness of improved design will be influenced by the state of governance, as exemplified by the Jordanian experience. If, for example, transfers are conditional on the degree of disability, doctors can issue fictitious certificates misdirecting resources. Thus, technocratic solutions alone cannot deliver effective poverty reduction. The Lebanese context presents an additional institutional risk to cash transfer programs. Also, the different religious groups in the country may compete to receive cash transfers that could defeat the purpose of targeting transfers to the poorest. Social funds are flexible financing schemes for poverty alleviation executed by local groups that build public infrastructure in local communities. They have worked well primarily in pockets of poverty in rural areas. The use of social funds in Lebanon is new and seems to have important successes. However, caution is advised as international experience shows that social funds are not eminently pro-poor (pervasive leakages to the non-poor occur), and suffer from concerns about accountability and quality of created infrastructure. § Follow-Up Steps The follow-up meeting with the Prime Minister focused on drawing the main conclusions and practical steps for moving forward. The Prime Minister stressed that there was a political will to deal with the poverty problem in Lebanon, but that 16 Second Quarter 2004 Republic of Lebanon Update NEWS, RECENT AND UPCOMING ACTIVITIES Youthink! Action = Results World Bank's New Website For Youth Launched The World Bank's new Youthink! invites young people to explore the website about development research, knowledge and experience gathered by issues that matter to young World Bank experts on issues like poverty, people hit the cyber newsstand in April 2004. development, and conflict. Youthink! also invites young people to share what they see Young people, who typically represent the web's around them through personal stories, photos, savviest users, have been one of the Bank's largest, etc. but most underserved Internet audience. For more information on each subject, visit: Youthink! is a lively, interactive, dynamic website http://youthink.worldbank.org/ that provides relevant content to young people, written in an age-appropriate language. Vulnerable Youth In A Volatile Region One of the key topics at the workshop was the While extreme poverty in the Middle East and North plight of street children. During the discussion, Africa (MENA) region is low, infrastructure NGOs voiced the need for all associations to work development high, and social development progress together, and for World Bank support in the visible, the people continue to face challenges, development of activities and facilities for particularly in the social development arena. Currently, children who take to the streets, to integrate these one of the greatest focuses in MENA is the inclusion of street children into a process that will allow them youth and improving the welfare of vulnerable to earn a living and also allow them to become children. In June 2004, the World Bank held a client- independent. staff learning workshop on youth in MENA in Washington, D.C. The workshop reflected on the daunting challenge faced by the Middle East and North Africa Region The program, entitled, "Reaching Vulnerable Children for the need to: create jobs for a burgeoning and Youth in MENA," brought together development young population; engage this population in the experts to share information on the challenges facing development process; and determine the kind of children and youth; to present new analytical work secondary and university education these children addressing risks related to their welfare; and to discuss need in order to lead an active life. a collaborative strategy for moving forward. Development partners from Egypt, Morocco, Yemen, The three-day workshop also highlighted the need and Jordan shared experiences on education, to integrate child issues within a national unemployment, social protection and HIV/AIDS, and framework so that decisions concerning other issues affecting youth and disadvantaged children vulnerable children and youth are more inclusive in the MENA region. of their needs. For more information on the subject, visit: http://www1.worldbank.org/sp/ Second Quarter 2004 17 Republic of Lebanon Update RECENT WORLD BANK PUBLICATIONS Doing Business in 2005: Removing Obstacles to countries, and international financial institutions--are Growth (ISBN: 0-8213-5748-4; SKU: 15748). Doing playing their part under the agreed development Business in 2005: Removing Obstacles to Growth is the partnership, and highlights progress on the development second in a series of annual reports investigating the policy agenda. scope and manner of regulations that enhance business activity and those that constrain it. New quantitative indicators on business regulations and their Reforming Infrastructure: Privatization, enforcement can be compared across 145 countries-- Regulation, and Competition (ISBN: 0-8213-5070-6; from Albania to Zimbabwe--and over time. SKU: 15070). Infrastructure is crucial for generating growth, alleviating poverty and increasing international The previous report, Doing Business in 2004: competitiveness. For much of the 20th Century and in Understanding Regulation, presented indicators in five most countries, the network utilities that delivered main topics: starting a business, hiring and firing infrastructure services--such as electricity, natural gas, workers, enforcing contracts, getting credit and closing telecommunications, railroads and water supply--were a business. Doing Business in 2005 updates these vertically and horizontally integrated state monopolies. measures and adds another two sets: registering This approach often resulted in extremely weak property and protecting investors. The indicators are services, especially in developing and transition used to analyze economic and social outcomes, such as economies, and particularly for poor people. Common productivity, investment, informality, corruption, problems included: low productivity, high costs, bad unemployment and poverty, and identify what reforms quality, insufficient revenue and shortfalls in have worked, where and why. investment. In Doing Business in 2005, you will also find answers Recognizing infrastructure's importance, many to such questions as: Which are the Top 10 reformer countries over the past two decades have implemented countries since last year? Which are the Top 20 far-reaching infrastructure reforms--restructuring, economies for doing business?, as well as Which privatizing and establishing new approaches to countries implemented more harmful regulations? regulation. Reforming Infrastructure identifies the challenges involved in this massive policy redirection within the historical, economic and institutional context Global Monitoring Report 2004: Policies and of developing and transition economies. It also assesses Actions for Achieving the Millennium Development the outcomes of these policy changes, as well as their Goals and Related Outcomes (ISBN: 0-8213-5859-6; distributional consequences--especially for poor SKU: 15859). The turn of the century was marked by households and other disadvantaged groups. And, some significant and promising events for world drawing on a range of international experiences and development. The Millennium Declaration - signed by empirical studies, it recommends directions for future 189 countries in September 2000 - led to the adoption reforms and research to improve infrastructure of the Millennium Development Goals, which set clear performance--identifying pricing policies that strike a targets for eradicating poverty and other sources of balance between economic efficiency and social equity, human deprivation. Following other major international suggesting rules governing access to bottleneck meetings came broad agreement on the goals and infrastructure facilities, and proposing ways to increase strategies to achieve them. poor people's access to these crucial services. The task now is implementation - to translate vision into action. Drawing attention to priorities for action Battling HIV/AIDS: A Decision Maker's Guide to and related accountabilities, the new Global Monitoring the Procurement of Medicines and Related Supplies. Report 2004 provides an integrated assessment of the (ISBN: 0-8213-5848-0; SKU: 15848). Battling policies and actions needed to achieve the Millennium HIV/AIDS sets out principles and provides advice on Development Goals. Produced in cooperation with the the procurement of HIV/AIDS medicines and related International Monetary Fund (IMF) and other supplies for programs scaling up Antiretroviral Therapy international partners, the Report assesses how the (ART) and associated health services. This technical various parties--developing countries, developed guide examines the elements required to establish and 18 Second Quarter 2004 Republic of Lebanon Update ensure continuity of supplies, including medicines and Urban Environment and Infrastructure: Toward other commodities. It provides extensive guidance on Livable Cities. (ISBN: 0-8213-5796-4; SKU: 15796). key topics: Quality Assurance, Selection and Urban environmental issues, the "Brown Agenda" Quantification Methods, Intellectual Property Rights, became an important part of the International Policy Procurement Strategies, Pricing and Financing, the Agenda following the United Nations Conference on Supply Cycle and Policy Issues. Environment and Development (Rio de Janeiro, 1992). Urban environmental issues continue to remain a major Specializing in procurement for HIV-related programs, challenge in the cities of developing countries. The Battling HIV/AIDS is a valuable resource for World Bank strengthened its focus on urban implementing agencies and donors dealing with environmental management with the adoption of the HIV/AIDS related procurement. Brown Agenda as part of the Bank's Urban Livability Program. The Human Right to Water: Legal and Policy Urban Environment and Infrastructure reviews the Dimensions (ISBN: 0-8213-5922-3; SKU: 15922). World Bank's activities to improve urban The Human Right to Water traces the issue of the right environmental quality, and sets out the Bank's to water through a number of international legal expanded Brown Agenda, emphasizing the crucial instruments, particularly General Comment No. 15 that importance of infrastructure and environmental recognizes such a right. It analyzes the international interventions in order to improve livability in cities in legal regime for human rights, and argues that the developing countries. The World Bank has more than nexus between development, water and human rights is US$12 billion worth of active commitments aimed at well established therein. Although the central theme of improving urban environmental quality. While the the Study is General Comment No. 15 issued by the Bank's investments are directed at much needed basic Committee on Economic, Social and Cultural Rights in environmental services, especially for the urban poor, 2002 which explicitly recognizes a human right to the challenge of improving urban environment, or water, the Study argues that the Comment supports the livability, in large cities needs further attention. The idea that there is an incipient right to water emerging in increase and impacts in climate variability(especially international law today. This right is buttressed by a the rise in sea-level), and impacts of natural disasters in large number of soft law instruments, emerging urban areas are becoming more and more a part of the customary international law, as well as an increasing daily challenges facing cities (70 percent of which are number of domestic law instruments. located on the coast) in the developing world. Urban Environment and Infrastructure provides pragmatic recommendations on how to deal with the challenge of The Institutional Economics of Water: A Cross- the expanded Brown Agenda. Country Analysis of Institutions and Performance (ISBN: 0-8213-5656-9; SKU: 15656). The Institutional Economics of Water evaluates water Customs Modernization Handbook (ISBN: 0-8213- institutional reform and water sector performance from 5751-4; SKU: 15751). Trade integration contributes an institutional economics and political economy substantially to economic development and poverty perspective. Against an exhaustive review of the alleviation. In recent years much progress was made to theoretical and empirical literature on institution and liberalize the trade regime, but customs procedures are performance, both in general and in water sector often still complex, costly and non-transparent. This contexts, the title develops an alternative methodology situation leads to misallocation of resources. built on: an "institutional ecology" principle, an "institutional decomposition and analysis" framework, Customs Modernization Handbook provides an and a "subjective theory" of institutional change. overview of the key elements of a successful customs modernization strategy and draws lessons from a The book concludes that an empirical application of number of successful customs reforms, as well as from this methodology, with information collected from 127 customs reform projects that have been undertaken by water experts from 43 countries/regions and a cross- the World Bank. The Handbook describes a number of country review of recent water sector reforms within an key import procedures that have proved particularly institutional transaction cost framework, leads to troublesome for customs administrators and traders, significant implications for both theory and policy in and provides practical guidelines to enhance their the realm of water sector reform, in particular and efficiency. The procedures discussed are: customs institutional reforms, in general. Second Quarter 2004 19 Republic of Lebanon Update valuation, definition of the origin of goods, customs advent of globalization, there are growing pressures on procedures for duty relief and exemption control, transit governments and organizations around the world to be and security issues, and the use of information more responsive to the demands of internal and external technology. The Handbook reviews the appropriate stakeholders for good governance, accountability and legal framework for customs operations, as well as transparency, greater development effectiveness and strategies to combat corruption. In the final chapter the delivery of tangible results. Governments, parliaments, Handbook provides guidance on administrative issues citizens, the private sector, NGOs, civil society, that customs administrators frequently face, such as: international organizations and donors are among the appropriate autonomy of customs administration, stakeholders interested in better performance. As training and staff renewal and use of private service demands for greater accountability and real results have providers to enhance the efficiency of customs increased, there is an attendant need for enhanced operations. results-based monitoring and evaluation of policies, programs, and projects. Intellectual Property and Development: Lessons This Handbook provides a comprehensive ten-step from Recent Research (ISBN: 0-8213-5772-7; model that will help guide development practitioners SKU: 15772). International policies toward protecting through the process of designing and building a results- intellectual property rights have seen profound changes based monitoring and evaluation system. These steps over the past two decades. Rules on how to protect begin with a "Readiness Assessment" and take the patents, copyrights, trademarks and other forms of practitioner through the design, management, and intellectual property have become a standard importantly, the sustainability of such systems. The component of international trade agreements. Most Handbook describes each step in detail, the tasks significantly, during the Uruguay Round of multilateral needed to complete each one, and the tools available to trade negotiations (1986-1994), members of what is help along the way. today the World Trade Organization (WTO) effected the Agreement on Trade Related Intellectual Property Rights (TRIPS), which sets out minimum standards of protection that most of the world's economies respect. Ordering World Bank Publications Phone: (001) 1-800-645-7247 or (001) 703-661-1580 How will developing countries fare in this new Fax: (001) 703-661-1501 international environment? This book brings together On-Line: http://publications.worldbank.org/ecommerce empirical research that assesses the effects of changing E-Mail: books@worldbank.org intellectual property regimes on various measures of Research and working papers are also available in economic and social performance--ranging from electronic format free of charge at: international trade, foreign investment and competition, http://econ.worldbank.org/ to innovation and access to new technologies. The studies presented point to an important development dimension for the protection of intellectual property. Data and Statistics But, a "one-size fits all" approach to intellectual property is unlikely to work. There is a need to adjust The World Bank offers multiple databases online, some intellectual property norms to domestic needs, taking free of charge, and some on an annual subscription into account developing countries' capacity to innovate, basis. Almost all the data reported in the site mentioned technological needs and institutional capabilities. In below are derived, either directly or indirectly, from addition, governments need to consider a range of official statistical systems organized and financed by complementary policies to maximize the benefits and national governments. reduce the costs of reformed intellectual property regulations. To access the on-line databases, visit: http://www.worldbank.org/data/ Ten Steps to a Results-Based Monitoring and Evaluation System: A Handbook for Development Practitioners (ISBN: 0-8213-5823-5; SKU: 15823). An effective state is essential to achieving socio- economic and sustainable development. With the 20 Second Quarter 2004