**SELECTEDWORLD BANK/IBRD ACTIVITIES IN AZERBAIJAN IN 1999**

                              September 23, 1999

          Adapted froma report by the U.S. Commercial Office, Baku

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SUMMARY

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THE WORLD BANK'S IBRD (INTERNATIONAL BANK FORRECONSTRUCTION AND DEVELOPMENT) OFFICE IN AZERBAIJAN HAS 7 ONGOING PROJECTS AND3 ADDITIONAL PROJECTS WHICH HAVE BEEN APPROVED BY THE IBRD BOARD FORIMPLEMENTATION WHEN AZERBAIJAN MEETS FINAL PROGRAM CONDITIONS.  ONGOING PROGRAMS INCLUDE TECHNICALASSISTANCE TO THE PETROLEUM SECTOR, GAS SYSTEM REHABILITATION, BAKU WATERSUPPLY REHABILITATION, FARM PRIVATIZATION, AND ENVIRONMENTAL INVESTMENT.  PROJECTS IN IRRIGATION AND HIGHWAYDEVELOPMENT, AMONG OTHERS, ARE IN PREPARATION.  THESE PROGRAMS ADDRESS KEY ECONOMIC AND SOCIAL SECTORS THATHAVE DETERIORATED SINCE THE BREAKUP OF THE SOVIET UNION. 

 

FUNDS ARE MADE AVAILABLE FOR THESE PROGRAMS ON GENEROUSIDA TERMS.  A RECENT DEVELOPMENT,INDICATIVE OF AZERBAIJAN'S ECONOMIC PROGRESS, IS THAT THE GOVERNMENT OF AZERBAIJAN(GOAJ) IS NOW ELIGIBLE FOR IBRD LOANS AT COMMERCIAL RATES.  THE IBRD HIGHWAY DEVELOPMENT PROGRAM ISEXPECTED TO BE THE FIRST FINANCED AT COMMERCIAL RATES.

 

Note: IN EVERY IBRD CONTRACT THERE IS A CONDITION TO MAKEUSE OF LOCAL NGOS, BUT

THERE HAS NOT TO DATE BEEN A VIGOROUS EFFORT TO UPGRADETHE CAPACITIES OF THE NGOS.

 

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STRUCTURAL ADJUSTMENT CREDITS

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THE IBRD'S PROGRAMS INCLUDE A $70 MILLION STRUCTURALADJUSTMENT CREDIT (SAC), APPROVED IN JULY 1997 TO SUPPORT THE GOAJ BUDGET.  THE WORLD BANK RESPONDED TO THE AUGUST1998 COLLAPSE OF THE RUSSIAN RUBLE BY CONTRIBUTING AN ADDITIONAL $7.6 MILLIONTO THE SAC.  NOTE: AZERBAIJAN WASNOT IMMEDIATELY AFFECTED BY THE AUGUST 1998 RUSSIAN CURRENCY CRISIS.  RUSSIAN BANKS HELD NO AZERBAIJANCURRENCY RESERVES.  HOWEVER, THECONSEQUENCES WERE EVIDENT OVER THREE TO SIX MONTHS IN TRADE WITH RUSSIA.  THE NATIONAL BANK OF AZERBAIJAN ADOPTEDA POLICY TO DEVALUE THE MANAT GRADUALLY AT A RATE OF ONE-HALF PERCENT PERMONTH.  IN JULY 1999, WHEN THISPOLICY PROVED INSUFFICIENT, THE NATIONAL BANK OF AZERBAIJAN, WITH INTERNATIONALMONETARY FUND (IMF) APPROVAL, ALLOWED THE MANAT TO DEVALUE BY 7 PERCENT.

 

SAC FUNDS WERE CONDITIONED ON THE GOAJ'S COMPLETION OFCERTAIN LEGAL AND ADMINISTRATIVE REFORMS. THESE INCLUDED ENACTMENT OF A BANKRUPTCY LAW, CREATION OF A STATEPRIVATIZATION COMMITTEE (SPC), PASSAGE OF PRIVATIZATION LEGISLATION AND ASECURE TRANSACTION LAW, AND RESTRUCTURING OF STATE-OWNED BANKS.  THESE HAVE BEEN MET LEGALLY; HOWEVERSOME INADEQUACIES REMAIN, FOR EXAMPLE, A BANKRUPTCY LAW HAS BEEN ENACTED, BUTIMPLEMENTING PROCEDURES HAVE NOT BEEN COMPLETED.  THE SECOND PHASE OF PRIVATIZATION LEGISLATION IS IN DRAFT,BUT HAS NOT BEEN FORMALLY INTRODUCED IN PARLIAMENT.  AN SPC HAS BEEN CREATED AND HAS HELPED PRIVATIZE OVER 20,000SMALL ENTERPRISES, ALTHOUGH IT IS WIDELY CONSIDERED TO OPERATE IN ANON-TRANSPARENT MANNER.  EFFORTS TORESTRUCTURE STATE BANKS ARE BEHIND SCHEDULE.

 

THE IBRD'S PLANNED PROGRAM FOR PUBLIC SECTOR REFORM,BASED ON SIMILAR CONDITIONS AS THE FIRST SAC LOAN AND PLANNED AS THE BASIS OF ASECOND SAC LOAN, WOULD SUPPORT BADLY NEEDED CIVIL SERVICE, JUDICIAL, AUDITING,AND STATE BUDGET PROCESS REFORMS. 

 

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AGRICULTURE 

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THE FIRST $30 MILLION TRANCHE OF A $100 MILLIONAGRICULTURAL

DEVELOPMENT PROGRAM WAS APPROVED IN JUNE 1999.  WITH THESE FUNDS, THE IBRD WILL SUPPORTREAL ESTATE REGISTRATION, AGRICULTURAL ADVISORY SERVICES, RURAL

FINANCE PROGRAMS, AND RURAL POLICY DEVELOPMENT.  THE AGRICULTURAL SECTOR PRODUCES ABOUTHALF THE HARVEST LEVELS OF THE SOVIET-ERA COMMAND ECONOMY AND HAS

EXPERIENCED DIFFICULTY IN ADJUSTING TOPRIVATIZATION.  THE AGRICULTURALSECTOR

EMPLOYS 30% OF THE WORKFORCE AND MUST MAKE A PIVOTALCONTRIBUTION IF AZERBAIJAN IS TO DEVELOP A BALANCED ECONOMY WITH A VIABLENON-OIL SECTOR.