THE REPUBLIC OF LEBANON The World Bank Group THIRD QUARTER 2003 A Quarterly Publication of the Lebanon Country Office Public Disclosure Authorized Public Disclosure Authorized In this edition Page · Editorial: Moving Together on the Portfolio 3 Public Disclosure Authorized · Privatization: From Panacea to Pr econditions 4 · Bank Group Operations 8 · Recent Economic Developments 10 · Fundamental Transitions for the Region’s Greatest Challenge 18 · News, Recent and Upcoming Activities 23 Public Disclosure Authorized · Recent World Bank Publications 25 Republic of Lebanon Update World Bank Contacts – Washington Joseph Saba, Country Director Shaha Riza, Acting Manager Tel. (202) 473-2992 - Fax (202) 477-1482 External Relations and Outreach E-mail: [email protected] Tel. (202) 458 1592 - Fax (202) 522 0006 Email: [email protected] Osman Ahmed, Lead Operations Officer Tel. (202) 473-7063 - Fax (202) 477-1482 Sabah Moussa, Executive Assistant E-mail: [email protected] Tel. (202) 473-9019 - Fax (202) 477-1482 E-mail: [email protected] Carlos Silva-Jauregui, Senior Economist Tel. (202) 473-1859 - Fax (202) 477-0432 Sereen Juma, Communications Associate E-mail: [email protected] Tel. (202) 473-7199 - Fax (202) 522-0003 E-mail: [email protected] Sophie Warlop, Operations Analyst Tel. (202) 473-7255 - Fax. (202) 477-1482 www.worldbank.org E-mail: [email protected] To Order World Bank Publications: World Bank Address: http://publications.worldbank.org/ecommerce 1818 H Street, NW Washington, DC 20433 For Information on World Bank Programs in Lebanon: www.worldbank.org/mna/lebanon World Bank Contacts – Beirut Omar Razzaz, Country Manager Hadia Samaha Karam, Operations Officer Tel. Ext. 228 Tel. Ext. 241 E-mail: [email protected] E-mail: [email protected] Bassam Ramadan, Lead Operations Officer, Human Mouna Couzi, Program Assistant Development Tel. Ext. 231 Tel. Ext. 226 E-mail: [email protected] E-mail: [email protected] Zeina el Khalil, Program Assistant Sebastien Dessus, Senior Economist Tel. Ext. 234 Tel. Ext. 225 E-mail: [email protected] E-mail: [email protected] Robert Bou Jaoude, Senior Financial Management The World Bank Office in Beirut Specialist United Nations House, Sixth Floor Tel. Ext. 230 Riad El Solh 1107-2270 E-mail: [email protected] P. O. Box: 11-8577 Beirut - Lebanon Imad Saleh, Senior Procurement Specialist Tel. Ext. 224 Tel. (961-1) 987-800 E-mail: [email protected] Fax (961-1) 986-800 www.worldbank.org.lb Editorial Team: Chadi Bou Habib Sebastien Dessus Zeina El Khalil Omar Razzaz Joseph Saba Paolo Zacchia With special thanks to Mary Saba 2 Third Quarter 2003 Republic of Lebanon Update EDITORIAL MOVING TOGETHER ON THE PORTFOLIO In the past few months, the Lebanese press has actively into full implementation. The Bank introduced the reported on “un-disbursed” loans made by the Bank and ability to correct project design or implementation other donors to Lebanon and the possible cancellation aspects so as to provide the flexibility to ensure that the of such loans. We, in the Bank, applaud the role of the development objectives of the loan are achieved. These press in shedding light on developmental issues in include: minor adjustments to implementation Lebanon and the status of the portfolio. But, we are procedures; project restructuring (changes in also keen to ensure that the measures taken by the Bank components and amounts); or outright cancellation . and the Government are well understoo d and not This is not, as sometimes perceived in the press, a misinterpreted. Thus, we saw it fit to tackle this issue “punishment” to the country. It is rather, part and of portfolio performance and measures to correct it parcel of proactive portfolio management aimed at upfront in our editorial of the Update. ensuring that the scarce project funds are put to good use, and that the portfolio of projects is relevant to the The Bank does not shy away from risk taking to development agenda of the country and fully “owned” realize development objectives . The Bank in by its implementing agencies. Lebanon, as in other parts of the world, does not shy away from funding risky projects as long as the Corrective measures can be costly, but not as costly development outcomes justify taking such risks. Such as leaving problems unattended. Starting projects and projects are not limited to “brick and mortar” projects, restructuring them midway involves high transactio n but involve new and innovative ways of decisi on costs, both to the Bank and to the Government. It making; building new capacity for regulation and public underlines the importance of ensuring quality, realism, sector management; trying new approaches for reaching and full readiness at the outset of the process. A the most vulnerable groups and involving them in common misperception, however, is that cancellation setting their own preferences and priorities; and of un-disbursed funds denies the country fut ure challenging old bureaucracies with new syste ms which access to such fund. Not so. The Bank allows for a ensure transparency and higher efficiency. “lending envelop” for any country. The cancellation of funds or the closing of a project that is not fully Implementation problems do occur, and have disbursed simply increases the room for new lending several sources. Given the challenging agenda, it is within this envelop and allows the Bank to focus more not uncommon for projects to run into implementation of its own resources on addressing current needs rather problems. Sources of problems vary. First, in than trying to salvage old operations. designing projects, we sometimes run the risk of “over - shooting,” and ending up with over -designed projects The task ahead for both the Bank and the Government which are too ambitious or far exceed existing of Lebanon is to continue to ensure the relevance and capacities. Second, we sometimes find that exogenous effectiveness of the portfolio in meeti ng the priority factors affect project performance such as natural needs of the people of Lebanon. This partnership is disasters, conflict, change of government, macro - indeed underway, and is being reflected in improved economic difficulties, etc. These often disrupt project disbursement, shorter ratification of loans by performance in ways that are hard to predict or prepare Parliament, willingness to restructure/close projects, for. Third, we sometimes find that the “development and jointly thinking of new prior ities within the next objectives” for which the project was in itially designed period of the Country Assistance Strategy. are no longer a priority, either because they have been addressed through other means, or because other This Update covers a number of areas directly relevant pressing priorities have come to the surface. Finally, to policy debate in Lebanon. The economic quarterly some projects face problems from within: competency update takes stock of recent developments and points to of the implementing team, delays in decision making, the risks of giving up on an aggressive reform strategy etc. Some of these problems are within the Bank’s to reverse the debt dynamics. The article on control, others are within the Government’s control, and privatization takes on the issue of “preconditions” to yet others are beyond both the control of the Bank or successful privatization. Another article provides the the Government. gist of the four reports produced by the Bank for the MENA region (trade and investment, governance, labor Corrective measures are there to ensure that markets, and gender). This Update also contains the development objectives are realized and scarce regular sections on the portfolio, recent and upcoming resources not wasted. A lot can happen between the events, and recent Bank publications. time a Bank project is designed, and the time it goes Third Quarter 2003 3 Republic of Lebanon Update PRIVATIZATION: FROM PANACEA TO PRECONDITIONS This essay summarizes the theoretical debates and of privatization techniques ranging from free share empirical evidence from around the world, and draws distribution to the population to negotiated deals. useful lessons. The evidence, coming mostly from the Eastern block and, specifically, the telecom sector, Who is the best new owner? sheds a more nuanced light on this particular policy and identifies preconditions for its success. The empirical literature on the privatization effect on restructuring in Eastern Europe and the FSU is now Privatization has been touted as a solution to two main endowed with at least 30 studies. A review of these problems: (i) revitalizing the private sector by studies shows the following main conclusions: improving the management of assets previously owned by public enterprises, encouraging investments and § Privatization to concentrated owners not linked technological catch up, and closing up incestuous to the preexisting management or employees relations between the State and public firms which has been the most beneficial to the restructuring prevent fair competition; and (ii) helping out the of privatized enterprises. distressed finances of heavily indebted governments. § Privatization to diffused owners and to enterprise workers and/or mangers has not been The common assumption is that the value of the beneficial. enterprise (measured by the satisfaction of its consumers) in private hands is higher than in public One reasonable hypothesis for the ineffectiveness of hands, and that the productivity of public money diffused or insider ownership is the lack of mechanisms (measured by the satisfaction of citizens with the in these countries to protect minority shareholders and delivery of public services) is higher than that of private to establish clear corporate governance rules. This money. Of course, there is no strong theoretical reason allows some of the new owners to “cannibalize” the to uphold these assumptions all the time, and all assets of the privatized enterprises (asset stripping) for possible configurations can apply. Empirically, though, their own interest (see the Box on Kazakhstan on the the economic literature generally finds private firms following page).