Development Policy Loan (formerly PAL 3) The DPL 1 aims to improve public governance by supporting priority reforms in social and economic spheres of the Government's "Action Plan for Meeting the People" relating to (a) the investment climate, (b) public administration and public finance, and (c) social inclusion.   The following outcomes are expected:  (a) Investment climate - by the end of 2007, the Government program supported by DPL attempts to make Ukraine more attractive place to invest through improvements in the investment climate, corporate governance, and financial intermediation.  Considerable improvements in investment climate and corporate governance would be reflected in an increase in the investment ratio by 2 percentage points of GDP (to about 22 percent of GDP), and doubling of the FDI per capita inflows.  The financial sector would further deepen without deterioration of main prudential ratios.  There will be continuing diversification and strengthening of the economy through reductions in cost of doing business, and deepening integration into the world market, including WTO accession. The Program is expected to achieve improvements in the consumer and business services provision, including communications and energy services.  (b) By the end of 2007, the Government program supported by DPL is expected to facilitate development of a more efficient, transparent and accountable management of public resources consistent with more stable, single digit inflation. There would be better coordination between fiscal and monetary policy, in part reflected by an ongoing dialogue between the Government and the National Bank.  Improvements in public financial management would be reflected in elimination of budget arrears, reduction of tax arrears, streamlining of tax administration.  More adequate and higher quality coordination and information flows are expected between Ministry of Finance, Treasury, STA and Customs Administration.  The quality of internal and external audits, of both sides of the budget (revenue and expenditure administration), are expected to materially approve.  Civil service and procurement standards would gradually converge to EU standards.  SOE management also would improve considerably as reflected by increased SOE profitability levels. As a result of these developments, credit ratings of Ukraine are expected to approach investment grades.  (c) social inclusion - by the end of 2007, the DPL is expected to contribute to creation of the basis for broad participation of society in the benefits of economic development and reduction of social tensions.  It will be done by encouraging rural development reflected in high quality issuance of land titles, improving the efficacy of social services while increasing the flow of resources to them, developing the mortgage system, strengthening the financial system for local governments, bringing social insurance to actuarial balance without creating undue burden for workers, improving the efficiency and transparency of social fund administration, and improving the targeting of direct social assistance programs. As a result of all these changes, the poverty incidence is expected to further decline by 3 percentage points, with a an even larger reduction in rural poverty, by 6 percentage points.