Minutes of Loan Committee Meeting to Consider BOLIVIA - Reconstruction Import Credit Held on April 11, 1986 in Conference Room E-1208, Loan Committee - Minutes and Reports - 1986 - 89093-01, Folder ID 30043699, ISAD(G) Reference WB IBRD/IDA LC-01, World Bank Group Archives, Washington, D.C., United States

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Yale University EliScholar – A Digital Platform for Scholarly Publishing at Yale YPFS Documents (Series 1) Browse by Media Type 4-28-1986 Minutes of Loan Committee Meeting to Consider BOLIVIA - Reconstruction Import Credit Held on April 11, 1986 in Conference Room E-1208 World Bank/World Bank Group Follow this and additional works at: https://elischolar.library.yale.edu/ypfs-documents Recommended Citation World Bank/World Bank Group, "Minutes of Loan Committee Meeting to Consider BOLIVIA - Reconstruction Import Credit Held on April 11, 1986 in Conference Room E-1208" (1986). YPFS Documents (Series 1). 14269. https://elischolar.library.yale.edu/ypfs-documents/14269 This Document is brought to you for free and open access by the Browse by Media Type at EliScholar – A Digital Platform for Scholarly Publishing at Yale. It has been accepted for inclusion in YPFS Documents (Series 1) by an authorized administrator of EliScholar – A Digital Platform for Scholarly Publishing at Yale. For more information, please contact elischolar@yale.edu. THE WORLD BANK C7NF IDENTIALLOAN COMMITTEE DEC -1EDWBG AlC HIVESLC/M/86-12April 28, 1986Minutes of Loan Committee Meeting to ConsiderBOLIVIA - Reconstruction Import CreditHeld on April 11, 1986 in Conference Room E-1208A. PresentCommittee: Others:Messrs. E. Stern (Chairman) Messrs. Gue, LC2DR Collell, LEGLCDherse, EISVP Dubey, CPDDR Carter, LC2DRKnox, LCNVP Finzi, LCPDR K5pp, SVPOPGoldberg (Acting LEGVP) Asanuma, PBDDR Roger, VPERSMrs. Krueger, VPERS Lysy, PBDCP Flickenschild, IMFMesdames. Marshall, LC2PBJavier, LC2PBManley, LEGLCFox, CONB. IssuesThe meeting was called to discuss the proposed Reconstruction Import Credit(RIC) of US$55 million to Bolivia as described in the documents submitted to theCommittee under cover of a memorandum dated March 27, 1986 from the Regional VicePresident. The discussion focussed on the issues raised by the Office of FinancialPolicy, Planning and Budgeting and the Country Policy Department's memorandum ofApril 9, 1986.DISTR IBUT IONCOMMITTEE OTHERSSenior Vice President, Operations (Chairman) Standard (see OMS 9.25 page 7)Senior Vice President, FinanceVice President & General CounselVice President, Operations PolicyRegional Vice President concerned*Vice President, Energy & Industry (for lendingin these sectors and SALs)Vice President, Economics and Research (for non-project lending)'Copy to all other Regional Vice Presidents-2-C. Discussion1. Medium-term Development Program. The Committee raised the issueof whether it was appropriate to proceed with the proposed operation beforethe Bolivian Government has defined a satisfactory medium-term developmentprogram and has reached a satisfactory arrangement with its variouscreditors, including the commercial banks. The Region replied that thecountry has suffered from a long history of disastrous economicmanagement. The Government has now initiated a far reaching stabilizationand structural reform program and urgently needs the internationalcommunity's support to sustain its implementation. The proposed operationshould be viewed as the first in a series of financial and technicalassistance efforts needed to rebuild Bolivia's productive capacity. TheBank is actively assisting the Government in putting together a medium-termprogram; this will be discussed at a Consultative Group Meeting tentativelyscheduled for October 1986. It was noted that the implementation of thestabilization reform is a pre-requisite for pursuing a medium-termdevelopment program. An IMF Stand-by is now being processed in support ofthe stabilization program. The Stand-by is scheduled to be presented tothe Fund Board in mid-May. The Committee remarked that Bolivia is indeedin a transition period and it would probably take a year or two before amedium-term program can be fully put in place. The Chairman concluded thatthe Region should proceed with the proposed operation. It should bepresented to the Board once the Fund Stand-by is effectively ready forBoard approval (i.e., assurance that all outstanding issues have beenresolved).2. Credit Tranches. The Committee stressed the need to ensure thatthe Government is maintaining the momentum of implementation of the reformsand that adjustments to these reforms, if necessary, are undertaken. Inthis regard, the Committee inquired why the proposed credit is not to bedisbursed in tranches. The Region replied that the proposed operation isstructured in such a way as to permit it to be disbursed over a two yearperiod against priority imports instead of against general importrequirements. Both the mid-term program review and Credit allocationmechanisms would, in the event of Government's failure to sustain thereform program, allow a reassessment of the operation and possible recourseto suspension. The planned mid-term review of implementation progress ofthe program would be undertaken within nine months of Credit effectivenessbut could be brought forward at IDA's request. Hence, although the Creditis not tranched, appropriate legal recourse exists to suspend disbursementsif necessary.3. Credit Allocation. The Chairman inquired why the proposed Creditis pre-allocated to specific enterprises and sectors rather than allowingthe free foreign exchange market mechanism to determine the mostappropriate use of the foreign exchange resources. The Region respondedthat the public enterprises and the private sector do not have the fundsnor local credit to purchase the foreign exchange. Hence, the importfinancing under the proposed Credit has to be onlent to them. The-3-indicative allocation would ensure that the priority public enterprises,which account for almost 80% of Bolivia's exports, would get foreignexchange credit financing and at the same time would not crowd out theprivate sector. It was stressed that available financing to the publicenterprises which are currently in dire straits, is a first step in theirrehabilitation and reconstruction programs, which will be implemented withBank assistance. The Chairman recommended that the justification in thePresident's Report for RIC financing for the public enterprises should bestrengthened by emphasizing the linkages between the proposed operation andmedium-term rehabilitation plans for these enterprises.4. Mining Taxation. The Committee inquired about the implementationof the mining taxation proposals. The Region replied that the Government'sinitial decree establishing the program included a reform of the miningcode which places a tax on profits. However, with low world prices,profits have been negative. Hence, the issue is academic at present. TheCommittee inquired about the reference made in the President's Report onthe Government's delay in updating the presumed mining production costs.The Region clarified that these costs have now been updated. The Committeestressed that the Bank should ensure that the mining tax reforms whichaffect an important export sector of Bolivia are carried out efficiently.5. Use of Local Funds. Referring to paragraph nine of the Region'sMarch 27 memorandum, the Chairman disagreed with the proposal toexplore during negotiations the use of reflows from the private sectorsubloans either as (i) a continuing credit line for the private sector withthe funds maintained in a dollar-denominated account in the Central Bank;or (ii) counterpart funds for projects in an agreed public investmentprogram. The Government should be allowed to use the local funds generatedby the Credit for the purposes it deems appropriate, within the context ofpublic expenditure programs which will in any event be under continuousdiscussions with the Bank Group.6. Other Comments. In response to Mr. Stern's inquiries followingthe Meeting, the Region confirmed that (i) the economic projections in thePresident's Report are consistent with those of the IMF; and (ii) thePresident's Report will discuss to the extent allowed by availableinformation the essential elements of the Government's medium-term economicprogram.D. Conclusion7. Subject to the clarification noted in paras. 1-5, the Committeeapproved the recommendations to proceed with the negotiations of theproposed Credit on the terms and conditions proposed by the Region.Cleared with and cc: Messrs. Knox, LCNVP; Gue, Carter, LC2DR;Ms. Manley, LEGLC

Minutes of Loan Committee Meeting to Consider BOLIVIA - Reconstruction Import Credit Held on April 11, 1986 in Conference Room E-1208

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Minutes of Loan Committee Meeting to Consider BOLIVIA - Reconstruction Import Credit Held on April 11, 1986 in Conference Room E-1208

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