Docwn2tof

The World Bank

FOR OFFCIAL USE ONLY

Rep1t N. P-6434-IVC

MEMORANDUM ANID RECOMMENDATION

OF TIHE

PRESIlDENT OF THE

IrTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXEKCUTIVE DIRECTORS

ON A

PROPOSED CEDIT

OF SDR 70.7 MILLION

TO THE

REPUBLIC OF COTE D IVOIE

FOR AN

EONOMIC RECOVERY CREDIT

SEPTEMBER 27, 1994

MICROGRAPHICS

Report No: P- 6434 IVCType: MOP

This docment has a resticted distibution and may be used by recipients only in the performasce oftheir official duties. Its contet may not otb.mise be discosed wihout World Dank authorization.

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CURRENCY EQUIVALENTS

Currency Unit CFAF Franc (CFAF)US$1 CFAF 545 (August 1994)

SYSTEM OF WEIGHTS AND MEASURE

Metric System

ABBREVIATIONS AND ACRONYMS

ADB African Development BankCAISTAB Caisse de Stabilisation (Coffee/Cocoa Marketing Board)CAA Caisse Autonome d'Amortissetment (External Debt Agency)CIE Compagnie Ivoirienne d'Electricit6 (Ivorian Electricity Company)CIR Country Implementation ReviewCGPP Caisse G6n6rale de P6requation des Prix (Price Equalization Fund)CPPR Country Portfolio Performance ReviewESAF Enhanced Structural Adjustment FacilityEU European UnionMEFP Ministry of Economy, Finance and PlanMTF Medium-Term Economic FrameworkNEAP National Environmental Action PlanNTB Non-tariff BarrierQIC Office Ivoirien des Chrgeurs (Ivorian Office of Shippers)PFP Policy Framework PaperPSD Private Sector DevelopmentSIVOMAR Societ6 Ivoitienne Maritime (Ivorian Maritime Company)SITRAM Societe Ivoirienne de Transport Maritime (Ivorian Maritime Transport

Company)SOPRORIZ Soci&e Ivoirienne de Promotion du Riz (Rice Promotion Company)

FISCAL AND PROJECT YEAR

January 1- December 31

FOR OmCL USE ONLY

REPUBLIC OF COTE D'IVOIRE

ECONOMIC RECOVERY CREDIf

Table of Contents

PART 1:COTE D'IVOIRE'S DEVELOPMENT OBJECIVES AND POLICIES

A. Economic Developments and Soci Performance .......................... 2

Economic Developments in the 1980s ........ .................... 2Recent Economic Deviopments .......... ..................... 3Preliminary Econonic Results after the Devaluation ................... 4

B. CBte d'lvoire's Development Objectives and Policies. 5

C. Medium-Term Prospects ......................................... 8

D. Bank Group's Country Assistance Strategy .10

IFC and MIGA .11Relations with Other Donors .11

PART II: THE ECONOMIC RECOVERY CREDIT

A. Reforms in Support of an Economic Recovery .12

Central Govermment Finance Reform .12Trade and Price Reform .14Rice Policy .16Maritime Transport .17

B. The Proposed Economic Recovery Credit .18

Size of ERC and Proposed Conditionality .18Procurement, Disbursement and Audiing .19Befitsand Risks .19

PART III: RECOMMENDATION

I doc=Mm has ar td distuto and may be wused by *iwat3 onl In th W'ina e Ofthrjoiai dnieu Its content may no tews edicoe ihu W**W0 World ank 8utb*iil_I

Ames

Annex A: Key Economic MdicatorsAnmex B: Letter of Development PolicyAnnex C: Status of Bank Group OperaionsAnne D: Supplement Credit Data Sheet

Table 1: Macroeconomic Indicato's, 1980-1993 ............................ 2Table 2: Prelimnary Resuts for January - June 1994 ........................ 4Table 3: Key Economic Indicators, 1993-1996 ............................. 8Table 4: Finaning Rquiemen and Sources,193-199 ..................... 9Table 5: Centrl Government Revenue ................... , . . .13

Cham

Chart}1: Monthly flation Rates, January - June 1994 ........................ SChart 2: Non-Taff Baiers ............................. 14Chart 3: Cocoa and CoffeePcs .............................P 15

REPUBLIC OF COTE D'IVOIRE

ECONOMIC RECOVERY CREDiT

CREDfT AND PROJECT SUMMARY

Boirower: Republic of C6te d'Ivoire

Excti Ayencv: Ministry of Economy, Finance and Plan

Amountl: SDR 70.7 million (IDA: US$100 million equivalent)

Terms: Standard IDA terms with 40 years maturity

Description: The proposed credit would support meaDS that are critical to asustained economic recovery. They include: (i) reforms in centalgovernment fiances, especially with regard to tax base broadenngand improved investment programming; (ii) deepening tadereform through the elimination of most non-tariff barriers; (iii)price liberlization and electricity tariff reform; (iv) improving riceimport and distribution policies; and (v) increasing competition inmaritime transport.

Benefits: Implementation of the economic reform program supported by theproposed credit will be critical in creatg the conditions forrenewed economic growth and increased employmentopportunities. At the same time, the proposed credi willcontribute to the closure of the financing ga for 1994. Overall,the reforms supported by the ERC should contiute to a return topositive per capita income growth and improved incomes for thepoor. The further pass-through of the benefits of the devaluationto farmers through producer price inreases in September 1994will contriute direy to poverty alleviation in the nual areas andhigher exports. The removal of non-tariff barriers would helpestablish a more neutral system of incentives and stimulate efficientproduction. The rice policy reforms would help increasetransparency in marketig of imported rice, stimulate domesticproduction, as well as eliminate a potentialy expensive subsidy.The maritime transport reforms will lower shipping costs which,in turn, should help hicrease the international competitiveness ofexporters and benefit consumers by a reduction in the cost ofimports. These reforms wil also help create the reltoryenvironment that would allow for a timely privatzaton of

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SfTRAM. Finally, the reglar review of the public invemprogram agreed with the Govenment will contribute to hthe poverty alleviation focus of the Govnment's program. isis expectd to be trnlated into ireased social invementexpenditure in the 1995 investment budget.

EJik. 1The proposed operaion faces the risk that the agreed measures wilnot be implemented on schedule, in part because the presidentialand parliamentary elections in late 1995 could divert theGovement's attention away from pudent economicand also because strong vested economic interests oppose many ofthe reforms designed to increase competition and reduce rnts. Onthe other hand, many in Govement are strongly -committed tothese deep reforms, and there are many gainers from the proposedreforms, even though they may not be as powerfully organized assome vested business interests. The proposed credit willstrengthen the position of reformers. Moreover, the Governmentknows that the sustained and timely implementation of tie ERCreforms are in tbemselves the trigger mechansms for the proposedfiture adjustment operatons in agriculture and tansport. As setout in the CAS, policy reversals or ip n delays of thereform program would aumatically slow down the furerpreparation of new adjustment credits.

Disbursements: The proceeds of the credit would be disbursed in a single trancheupon effectiveness.

Applaisal Rceg. No separate staff appraisal report.

MEMORANDUM AND PECOMMDATION OF THE PESIDENTOF THE INTERNATIONAL DEVELOPNMENT ASSOCIATION

TO THE EXEUTIVE DItECTORS ON A PROPOSEDECONOMIC RECOVERY CREDIT

OF SDR 70.7 MILLION (US$100 MILLION EQUIVALENT)TO THE REPUBLIC OF COTE D'IVOIRE

1. I submit for your approval the following report and recommendation on a proposed EconimiicRecovery Credit (ERC) to the Republic of C6te d'Ivoire for SDR 70.7 million, the equivalent ofUS$100 million. The proposed IDA credit would support structural reforms that are critical to arecovery of the economy. It would be repayable over 40 years on standard IDA terms, including 10years of grace.

PART I: COTE D'IVOIRE'S DEVELOPMNT OBJECTIVES AND POLICIES

2. Cote d'Ivoire is one of the principal countries in the CFA zone, with a population of about 13million and a GDP of US$9.3 billion in 1993. The country has been in recession since 1986 andfaces a severe external debt problem. High population growth coupled with economic decline hasresulted in a steady fall of living standards. GNP per capita in 1993 was about US$630 and isestiated to fal to about US$515 in 1994 compared to well over US$1,000 in the early 1980s.Social indicators have also been deteriorating, reflecting the effects of the economic crisis as well asthe neglect of basic social services.

3. During the last nine months, the country has gone through two key events, namely, the firstpresidetial succession since hindpendence, and, second, the first devaluation of the CFA franc in 45years. President Houphouet-Boigny died in December 1993, after having served as head of state for33 years. He was succeeded by the President of the National Assembly, Mr. Konan Bedie, who willfinish the five-year presidential term which will expire in the fall of 1995. The new Goverment ofCote d'Ivoire has responded decisively to the lingering economic crisis in the country itself as well asin the CPA zone. As the internal adjustment strategy pursued under the Ban: supported medium-termeconomic framework (MMF) fell short of expectations, the Government decided, together with theother CPA zone member countries, to devalue the CFA franc vis-a-vis the French franc in Jamuary1994.

4. This parity change has triggered a quick and strong response from the Bank. Since January ofthis year, the Executive Directors have approved four IDA credits in support of structural reforms,totalling US$335 million, 11 and three investment credits in the agriculture and human resourcessectors, totalling US$41 million. In addition, the Executive Directors discussed a Policy Framework

1L/ These represented the pending tranches of previously approved IBRD SECALs, which wereconverted into IDA credits, plus an IDA credit under the Fifth Dimension.

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Paper (PFP) for the 1994-96 period in March and a new Country Assistance Strategy (CAS) in June1994.

A. Economic Developments and Soal Perfonnce

Economic Developments in the 1980s

5. C6te d'lvoire is emerging from 13 years of unsuccessful internal adjustment which failed toreverse the economic decline and reduce the growing social and poverty problems. The economicand social crisis started at the beginning of the 1980s when the country faced a number of seriouseconomic problems. First, the macroeconomic imbalances had grown to unsustainable levels, with abudget deficit of about 10 percent of GDP and a current account deficit of about 17 percent of GDP.Second, Cdte d'Ivoire started to encounter serious debt servicing probl.,as as a result of the rapidbuild-up of external debt during the second half of th. i970s. Finally, there was a senousdeterioration in public sector management, especially among public enterprises. These problems werein essence an outgrowth of the surge in spending which followed the cocoa and coffee price booms of1975-77. In addition, extensive Govermnent regulation of domestic markets and prices discouragedefficient resource allocation.

Table 1: Macroeconomic Indicators, 1980-1993

R. Growth Rates (% D.a.GDP 1.0 2.1 -2.0 -1.0 -2.1 -0.8 0.0 -1.1Per Capita GDP -2.7 -1.6 -5.7 4.7 -5.8 -4.5 -3.8 -4.9

Central Govemment (% of GDP)Revenue 28.7 29.2 25.8 22.8 23.4 21.9 22.3 19.8Expendir 37.6 32.1 40.3 40.1 36.5 36.4 35.1 36.4

of which hterest 4.8 6.8 8.5 9.8 10.7 12.1 11.4 13.2

Prkamiy Balance -4.1 4.0 -6.0 -7.5 -2.4 -2.3 -1.4 -3.4Ovemr Balance -8.9 -2.8 -14.5 -17.3 -13.1 -14.4 -12.8 -16.6

Balance of Payments (% of GDP)Trade Balance (POB) 7.8 15.7 9.4 9.5 13.1 11.8 10.2 10.8CurrentAccount -13.3 -3.5 -11.4 -10.2 -11.6 -11.9 -12.0 -11.0

Eeral Debt (% of GDP)Debt Stock 1/ 79.7 96.9 99.4 123.6 142.0 157.4 151.2 172.6Arrears 0.0 0.0 9.3 17.2 27.5 36.5 45.3 60.0

PrieAual Change ofCPI (%) 10.9 5.6 6.9 1.0 -0.7 1.6 4.3 0.8RER Index (198S-100) 112.0 118.0 138.0 130.5 133.0 129.2 135.6 132.8

1/ Excludes prdva non-guaranteed debt.

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6. Prior to 1987, adjustment policies were partially successful in reducing the main intral andexternal imbalances. The Government pursued prudent fiscal and monetary policies, thereby sharplyreducing the budget deficit and inflation. Moreover, the adjustment effort benefitted from thedepreciation of the French franc and, hence, the CFA franc, vis-a-vis the dollar, and fom a short-lived recovery of cocoa and coffee prices in the mid-1980s. However, despite the renewed decline ofthose prices on international commodity markets, the Goverunent delayed a commensurate reductionin producer prices. As a result, the fiscal deficit again increased to unsustainable levels, reaching 17percent of GDP in 1989 (Table 1). This also reflected more fundamental problems, including thedownward rigidity of expenditure, especially of salaries and wages, high debt service obligations, andthe real appreciation of the CFA franc.

7. The country's renewed fiscal and balance of payments crisis at the end of the 1980s revealednot only inadequate macroeconomic policies but also persisting distortions in the economy. The latterinclude: (i) a trade regime that was still charactrized by relatively high tariff and dispersion levelsand a plethora of non-tariff barriers; (ii) massive government and public enterprise arrears leading tothe insolvency and liquidity problems of the domestic banking system; (iii) continued public controlsin the agricultural sector, especially with regard to price and marketing policies; and (iv) aninefficient and bloated public sector, with limited capacity to provide basic services to the population.Structuraly, the Ivorian economy remains heavily dependent on a few primary commodities.

Recent Economic Developments

8. Faced with an unsustainable economic situation, the Government adopted a new stabilizationand adjustment program in mid-1989. As one of its principal measures, the Government cutguaranteed producer prices for cocoa and coffee in half, which helped eliminate the deficit of theCoffee/Cocoa Marketing Board (CAISTAB) and, hence, reduce the overall fiscal deficit. In additionto the fiscal adjustment, the prograun aimed at eliminating domestic and external arrears andimplementing structural reforms in the agricultural, water supply and sanitation, and energy sectors.These reforms were supported by three Bank sector adjustment operations.

9. While progress was achieved under this program during 1989-90, additional structural reformswere deemed necessary to more effectively remedy some of the distortions still hampering therecovery of the economy. In response to the Government's request, the Bank collaborated in thedesign of the medium-term economic framework (MTF) for 1991-95, spelling out an internMaladjustment strategy for restoring international competitiveness and growth. The MTF, which wassupported by the Bank and IDA with three adjustment operations i: the areas of finance,competitiveness and regulatory reform, and human resources deveiopment, and by a stand-byarrangement of the IMF, failed, however, to produce the expected results.

10. Although the Government initially made progress in CUtting the primary deficit in the early1990s, the high outlays for public salaries, averaging 12.5 percent of GDP (or 60 percent of primaryexpenditure) during 1990-93, remained a problem. With the deepening of the recession in 1993, theprimary deficit again increased, reaching 3.4 percent of GDP (Table 1). As the Government did notsucceed in generathng the programmed primary surpluses, its efforts to settle all domestic and extenalarrears also faltered. A settlement on domestic arrears was reached in 1991, but its effect was pardyeroded in 1992-93 when the difficult financial situation of the Government again triggered the resortto arrears financing as a means of coverng the deficit. External arrears accumulated rapidly andreached the equivalent of 60 percent of GDP by end-1993. The continuing fiscal and balance of

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payments problems reflected the economic decline and revealed, in part, the limitations posed by theinternal adjustment strategy.

11. The economic decline observed since 1986 was not halted and total investment levels remainedat around 10 percent during the early 1990s. Real GDP contracted by a cumulative 4 percent and, ona per capita basis, by a cumulative 18 percent during 1990-93. Confronted with a deterioratingeconomic situation, the Govermnent decided, together with its partner countries in the CFA zone, tocomplement the on-going internal adjustment efforts with a realigmnent of the parity of the CPA francfrom 50 CFAF to 100 CFAF per French franc, with effect from January 12, 1994. The Governmeexpects that with this parity change and the implementation of the accompanying fiscal, monetary, andstructra adjustment policies (see paras 16-23), the Ivorian economy will be able to maintain andstrengthen its restored international competitiveness and return to a sustainable growth path.

PreHminary Economic Reslits after the Devaluation

12. Preliminary figures for the first half of 1994 are encouraging. The Government is strictlyimplementing its fiscal policy. While export tax revenues fell short of projections as of end-June,direct and import taxes generated more revenues than progranmed and otal revenues wete above thePFP target. On the expenditure side, the Government tightly controlled current outlays, especially ofwages, in line with the end-June PFP targets. Investment expenditure was below target at the end ofJune as execution started only after approval of the revised budget in April, but is expected toincrease substantially during the second half of 1994. As a result of the higher fiscal revenues andlower expenditures, the prinary fiscal surplus was about CFAF 80 billion above the end-June PFPtarget and reached the equivalent of 2.7 percent of GDP.

Table 2: Preliminary Rest for January - June 1994(in B*i,us of CPA Franc)

FEiMMr fix4d bahuce -883 27'.6 l07.l 79-S

Revenxes 522.7 380.4 405.7 17.3

Tax revenues 433.1 31S.1 324.6 9QSDiret 98.7 50.6 63.9 13.3Indirectdornumdc 116.3 68.9 64.8 -4.1LTpax 212.4 103.9 124.9 21.0EXport 5.7 91.7 71.0 -20.7

Non-tax revenue 89.6 73.3 81.1 7.8of wbbch CTAUAB supWu 18.1 47.0 4S.7 -1.3

Experdile 611.0 360.8 298.6 6Z.2

Trade balance l 17$.5

Expius 297.5 515.3of whch coffee 8 cocoa 130.0 224.0

Imports 225.9 385.9

I/ Export an5.7i b t m for 1993 91.r 71.0o & r -20..

Jaaj- Juz 199Chwt1 otly nfaio _ae

105

65

45-

2%

05 I

Jai Feb. M Ar al A

13. Apart from its beneficial effect on the budget, the Government's restrictive wage policy wasalso followed by the private sector which increased wages by an average of 10 percent. Thedevaluation effect on prices has quickly subsided after the initial surge in January (see chart 1). Thecumulative increase in the composite consumer price index for the January - August period was 31percent, and the annualized rate of monthly inflation had fallen to about 7 percent by August.

14. Preliminary trade data indicate that export volumes in the first six months of 1994 contractedby about 6 percent relative to the same period in 1993. This was due to lower export volumes ofcocoa and coffee. Excluding these two commodities, export volumes increased by about 2 percent.Import volumes shrank by 13 percent compared to the same period in 1993. As a result, the tradebalance surplus was about CFAF 130 billion, or US$225 million. The recent boom in internationalprices for coffee and cocoa is expected to increase the trade surplus in 1994 above initial estimates.While data are still too sketchy to make a full assessment, preliminary industrial and agriculturalproduction figures for the first semester of 1994 indicate an early supply response in the productivesectors. Total industrial production for the first six montis increased by 4 percent as compared to thesame penod in 1993 but masks still larger increases in various sub-sectors, including wood andtexles. Moreover, preliminary data suggest that production of cotton, bananas, and pineapples isincreasing.

BI C8e d'Ivoire's Develonmeg t Objecves and Policles

15. Following the CFA franc devaluation, the Goverment has reformulated its economic programand spelled out its new stabilization and structural adjustrnm-t program for t994-96 in a PFP whichwas diussed by the Committee of the Whole in March 1994. The PFP aims at: (i) increasing realGDP growth to an annual rate of approximately o percent beginning in 1995-96, (ii) generatingsustained and increasing primary budget surpluses, (iii) firther strengthening external competitivenessthrough trade, price, and reguatory reforms, (iv) intensifying human resource development andincreasing efforts to alleviate poverty, and (v) protecting the country's naural resource base.

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16. MaintaIning mac ouoenolc stability will be key to attaining these objectives. TheGovernment is exerting strict budgetary discipline so as to generate sustained primary surplusesneeded to increase domestic savings and investment, as well as to reduce exceptional financingrequirments. To this end, the Government introduced a series of tax measures in January 1994 andcomplemented them with other fiscal measures incorporated in the revised 1994 Budget Law approvedin April. They included a VAT reform, which eliminated the top rate of 35 percent and reduced thestandard VAT rate from 25 to 20 percent, a reduction of petroleum taxation, and the reduction ofimport tariffs. Moreover, the Government has limited the civil service base wage increase in 1994 toa nominal 10 percent, which translates into a substantial decline in the real wage bill. Afteracvommodating the initil price adjustments consistent with the devaluation, monetary policy will aimat bolding inflation to traditionally low levels. Financial sector liquidity will be strengthened not onlyby the flexible interest rate policy but also by the Government's efforts to clear its internal arrears tothe banking as well as non-banking sector.

17. Deepening public sector reform is a central element of the fiscal reform agenda, involving thereduction and streamlining of the civil service, public enterprise sector restructuring, and institutionalcapacity building. In particular, the Government is seeking to increase its public sector efficiency andpromote private sector development through its privatization program. It has identified 42 enterprisesfor privatization during the 1994-97 period, of which 17 are scheduled for privatization in 1994alone. Privatization operations were largely stalled in the first half of 1994 while awaitingparliamentary approval of the new privatization law, as a result only one enterprise was privatizedduring the first five months of the year. The privatization law was adopted on June 7, 1994, andimplementation of the privatization program has subsequently accelerated. Since May, twoenterprises have been privatized and an additional seven have been brought to the point of sale. Inaddition, the Government is implementing various programs designed to strengthen the institutionalcapacities of the finance, health, and education ministries. In this context, the Bank is activelysupporting the Government's endeavors through technical assistance. Finally, public efficiency gainsare expected to be made by greater decentrlization to municipalities of procurement and disbursementfunctions.

18. Trade liberalization will build on the progress achieved during the last four years. Theaverage weighted tariff on taxable imports declined fromn 32 percent in 1989 to about 24 percent in1993. Concomitantly with the devaluation, the Government announced a new tariff reform which cutimport tariffs to a weighted average of about 19 percent, and created a structure in the range of 0 to35 percent. The Govermnent will examine the possibility of further reduction in tariffs and theirdispersion levels, while broadening the base through elinination of exonerations. With a fewexceptions, non-tariff barriers will be phased out by end-1995. In addition, the nunber of productssubject to price regulation will be reduced.

19. 9bnng private sector development COte d'Ivoire's strained budgetaty circumstncescreate both the need and the opportunity for placing greater reliance on the private sector for resourcemobilization and investment. Two sets of policies are seen as supporting a private sector-led growthstrategy. First, supportive macroeconomic policies would ensure the stability and credibility neededfor increasing private ivestment and provide adequate incentives for exports. Second, structuralreforms in agriculture, industry, transport, and labor markets are geared towards the dismantling ofremaining regulatory barriers and market interventions that continue to hamper competition andprivate initiative. Privatization of public enterprises assumes special importance in this context.

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20. The agricultural policy of the Government aims at expansion and diversification of productionthrough the creation of an enabling environment which involves the pursuit of a flexible producerprice policy, improvements in the incentive system, and a retrenchment of public intervention. Toremove the restricdve regulatory practices in the transport sector. the Govenmment plans to deregulatedomestic and maritime transport, privatize the management of the rail system, and increase privatesector participation in road maintenance. In addition, the Government is taking steps to inmplementthe regulatory and legal framework needed for a dynamic private sector. The ongoing labor marketreforms are advancing with the approval of the new Labor Code by the Council of Ministers in June1994. Labor market flexibility will be enhanced with the envisaged revision of the collectivebargaining agreement. In addition, a reform of the Investment Code is to be impleinented by end-December 1994. The reduction of the tax burden and the relaxation of economic regulations areexpected to stimulate economic activity in the formal sector and the recovery of private investment.

21. Developing the human resource base and intensfying poverty alleviation efforts are a keypart of the Government's agenda. A more effective health, education, and population policy isenvisaged. The Government intends to place increased attention on preventive and primary healthcare, cost recovery, increased maternal and health care, and intensifying the battle against AIDS. Inan effort to reduce the natural growth rate of the population which is among the highest in Africa, theGovernment is in the process ot reorganizing and strengthening its family planning services programnWith regard to its education strategy, the Government aims to raise literacy levels through increasingthe gross enrollment rate in basic education. Although the Government has to operate within thecones of a tight budget, it intends to increase expenditures for these priority programs mainlythrough the reallocation of resources. Furthermore, the Government is being supported by donorswith technical assistance projects to strengthen the currently weak management and institutionalcapacity of the public health and education sectors. The Government has, however, sometimesexperienced difficulty in translating its social sector objectives into action. It has found it difficult,for example, to effectively transfer limited resources from tertiary to primary education.

22. Reducing poverty will remain a severe challenge for the Government. In the short-term, thedevaluation is expected to have a more favorable effect on the rural than the urban poor. Farmerssuffered greatly from declining incomes prior to January 1994 and the devaluation will provide themwith a much needed boost in their incomes through increased producer prices which constitute themost efficient and direct means to alleviate poverty in rural areas in the short term. To counter thereal wage declines and rising unemploymen in urban areas, the Government plans to increase theallocation of resources to municipalities to finance labor-intensive public works and rehabilitationprograms that will stimulate employment generation. Concerning the longer-term, the Governmentrecognizes that rural as well as urban poverty can only be effectively addressed by an acceleration ofbroad-based growth, supplemented by continuing structural reforms in the provision of health,education, and agricultural services.

23. Protetng the enviromnent and managing fhe resource base has become a major objectivefor sustainable development in C8te d'Ivoire. The country is confronted with serious enviromnentalproblems such as deforestation, loss of biodiversity, soil degradation, water pollution, andmanagement of industrial and domestic waste. The Govermnent is drafting a National EnvironmentAction Plan (NEAP) which is expected to be adopted by December 1994. Following therecommendations of the U.N. Conference on Environment and Development in 1992, this plan willbe among the first in Africa to address the fill range of global as well as national enviromentalissues. To increase the focus on enviromnental policies, the Government intends to draw up an

environmental code and a general forestry plan. It will also install and manage an enviromental database to monitor trends in environmental quality in both urban and rural areas.

C. Medium-Term Prosaecn

24. With the decision to complement the internal adjustment measures with a devaluation of theCFA franc, the Government is effectively addressing the main obstacles for renewed growth,including the lack of ineational competitveness and unsustainable fiscal and balance of paymentsdeficits. This historic change in policy direction appears indeed to have improved chances forsuccessfilly implementing the reform program in which trade and price policies as well asderegulation and divestiture rank prominently.

25. The implementaton of sound macroeconomic policies and structural reforms should lead to abetter utilization of the country's exisdng resources and productivity gains. The impact of thesereforms would be mamfested in increases of value added and income in agriculue andmanufactuing, especially agro-industries. The ensuing recovery of the economy is expected tosdmulate the demand for labor and, in this way, help reduce poverty, especially in rural areas. Whilevolumes of traditional exports would grow at rates consistent with their international demand, rapidlyexpanding non-traditional exports would provide a source of dynamism over the medm to long run.It is, therefore, assumed under the PFP scenario that the successful stabilization effort, coupled withthe envisaged structural measures, would be translated into improved efficiency and performance ofthe tradables sector and a marked increase in public and private investment levels. This should resutin sustained growth rates of as nmuch as 5 to 6 percent per annum, begiming in 1995-96.

Table 3: Key Economic Idicaors, 1993-1996

Red Growth Re (% v.a.)GDP -1.1 13 5.7 6.4Per Capta GDP 49 -2.5 1.9 2.6

Naiona Aocout (% of GDP)C0n_umption 83.8 75.1 73.6 73.7I_eummt 93 IIA 12.2 13.2

Exptor &NS 34.3 47.2 46.9 45.6hnpont G&NF4 27.4 33.7 32.8 32.4Resource Baance 6.9 13.5 14.1 132

cQta Governn f% Of GDP)Revuxe 19.8 23.0 22.4 21.1

ofwhich 16.4 17.8 17.7 17.4Expen 364 35.6 28.4 26.5

of which primary 23.2 21.2 19.8 18.6

Pdmay Blance -3A 1.8 2.6 2.5Oerl Balance -16.6 -12.6 *6.0 -5A

Balsae of Paymts f% uD=.)Export volum GMh -5.2 1.0 3.5 5.6Import Volm Growdh -13.3 -11.7 6.6 6.6

Curres Account (% of GD) -11.0 -10.1 -3.5 -3.7

ExnD Debt (% of GDP)Debt Stock 1/ 172.6 242A 148.1 132.5

I/ zxc __a_d bi*a iiisat eKad swes a _mneiiamc_hbak f dd ogeado md

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26. To achieve a sustained cea in gross national saving, fiscal reform is critical. Under theprogrm, total Govermment revenue would be on the order of 22 percent of GDP while pimaryepaendt would fa from23 percent of GDP in 1993 to about 19 percent inl 1996. As a result, theGovemment is expected to genate primary swphues of over 2.5 percent of GDP from 1995onward.

27. Cote d'lvoire's large current account deficit is expected to be reduced through thecomprehensive restructuring of its bilateral debt in 1994 and of its commercial bank debt in 1995, aswell as by prudent fiscal and monetauy policies. In addition, the country wil benefit from the sharprecovery of cocoa and coffee prices, thereby significaly boostng export reveues. Moreover, thedevaluation, coupled with a deepening of the on-going trade reforms, wil stimuate the expansion ofnon-traditional exports which are expected to account in the futre for a steadily increasing share ofthe country's exports. The current account deficit is, therefore, projected to decline from about 11percent of GDP in 1993 to an average of 3.6 percent in 1995-96.

Table 4: Financing Reqiremet mad Sources, 1993-1996

(in MOMs of USDOuM)

Currentacount -1023 .7 -262 -314Of which iterest due -1270 -1129 407 423

Amorizatlon on MLT debt due -1012 -1081 -1258 -1175Chage n rearves( -= inse) 33 -529 -14 -108

-Soua2es 200~a m2 166 2MLT didmrse_onts 679 13 1172 1018of which balce of payments ot 0 900 657 573

DO and IDA ... 600 407 373Bilaers ... 300 250 200

Oher capia fow 11 75 10 40 100Reachedullngs 390 534 479Accumula of arrears 2/ 1250 S07 ...

Stock of Avam 31 5360 4818of wbich b&ltel and mulatr 1049 0

11 khades net short trm capitaL, net pdvat non-guarteed detan foreig die iwesmen, and ers and omnisou.

2/ Includes debt sotvice du o Londaa Club crdio for wbicb Cole doime

- 10-

28. C8te d'Ivoire's financing requements and likely sources of financing for the 1994-96 periodare detailed in Table 4. Gross fnacing requirements for the program period amount to aboutUS$5.5 billion, of which US$2.3 billion in 1994 alone. Debt service wilH be reduced by 50 percentthrough the granting of enhanced Toronto terms on Paris Club debt service. The Government hascleared the reniing multilateral arrears and regularized all debt service to multilateral and bilateralcreditors. In recognition of the Government's efforts to establish a viable economic framework,additional debt relief has been granted in the form of debt forgiveness by France, Canada,Switzerland, and Germany. Moreover, it is expected that the Government will seek an agreemwith its commercial bank creditors, whose debt has not been serviced since May 1987, so as toreduce fture debt service to levels consistent with the country's debt servicing capacity. On the basisof actual and anticipated debt relief, Cote d'Ivoire's debt profile is expected to improve over the nextfew years. The debt to GDP ratio, expected to reach about 242 percent in 1994, would graduallydecline as would the debt service ratio as a result of debt restructurings and limiting new borrowingto that provided on concessional terms.

29. Bilateral and multilateral financing programmed for 1994-96 amounts to US$2.8 billion, ofwhich US$1.2 billion in 1994 alone. It is envisaged that multilateral financial assistance would be theprincipal source of new external finance. In this context, IDA would play the leading role,accounting for about 38 percent of all multilateral and bilateral disbursements during 1994-96.Exceptional balance of payments support will reach US$900 million in 1994 and decline to aboutUS$600 million in 1995-96.

D. Bank Group's Country Assisace Sratefa

30. The Bank's main objective is to support the Govermment's efforts to implement the PFP duringthe 1994-96 period and the IDA Country Assistance Strategy (CAS) was discussed by the ExecutiveDirectors in Jun( 1994. Major priorities in the FY95-97 CAS are to help the Govermment: (i)maintain macroeconomic stability and strengthen public sector finances through reforms in bothrevenue and expenditure execution, (ii) promote private sector development through contiedliberalization of trade, financial, and labor markets, and through investments in agriculture, industry,and transport, (iii) increase the effectiveness of the human resources development program throughincreased focus on primary health care, AIDS, basic education, and population policy; (iv) strengtheninstitutional capacity through exisfting IDA-supported technical assistance programs, and (v) intensifyenvironmental work through projects and the NEAP process.

31. The assistance strategy would be implemented by pursuing (i) active portfolio management,involving enhanced project supervision, (ii) an intensified policy dialogue on macroeconomic, sector-specific, social, and environmental issues through economic and sector work, providing the analyticalunderpinnings for the IDA assistance program, (uii) adjustment lending in support of policy reformsthat enhance the country's competitiveness and growth prospect, and (iv) project lending inagriculture, infascture, energy, and human resources development.

32. The Executive Directors concurred with the CAS emphasis on resolving the country's externaldebt overhang as a key element for the long-term sustainability of the program. The ExecutiveDirectors also emphasized that a vigorous and sustained implementation of structural reforms will berequired to qualify for the substantial IDA support proposed under the sustined adjustment lendingscenario. While the need for contnued adjustment lendmg was supported, the Executive Directors

- 11 -

welcomed the emphasis in tie CAS on significanldy stegteing the investm pipeline, particuarlyin the areas of human resources development and infrastructne. The presentation of three investmentcredits in FY94 (see para. 4) already reflects this effort to reactivate the investment pipeline.

33. During the CAS discussion, concern was expressed about the deterioration of social indicatorsand the rise in poverty levels in recent years. The Executive Directors, therefore, concurred with theCAS on the importance of s the hunan resources development program and meures toalleviate poverty as well as the need for long-term efforts to lower the rate of population growth

MFC and MIGA

34. IPC has maintained a long-standing relationship with C6te d'Ivoire, and has been involved inthe tetiles, food processing and agribusiness sectors. In the past, IFC's investments in C6te d'Ivoirehave been geared toward the developent of export-oriented and import substitution projects and theexpansion of small and medium-sized companies. The only capital market opeion to date has beenthe establishment of the country's first venture capital company. IFC also made an investment in theoil and gas sector in 1993. To date, operations in areas such as mining and peumcbemicals haveremained modest largely due to the absence of a suitable regulatory and incentive framework toencourage private investment in these areas. Total commitments held by IPC as of June 30, 1994,were about US$39 million.

35. In keeping with the economic changes brought about by the recent devalaion, IPC expects topursue increasing opportunities in traditional areas such as in the export-based macturi andsmall business sectors. IPC also intends to develop participation in other areas, including agro-industry and the financial sector. Possible projects are envisaged in the infastruc and naturalresource areas.

36. Coordination of activities between the Bank and IFC has been close. Given the commoninterest to deepen the Bank Group's ustdin of the constraints to dynamic private sectordevelopment in Cote d'Ivoire, IFC and the Bank have jointly prepared a Private Sector Asessment.In June 1994, this report was presented at a seminar in Abidjan with widespread private sectorparticipation.

37. CBte d'Ivoire has been a member of MIGA since 1988. MIGA has not yet completed anoperation but has received nine preliminary applications for investments in the areas of naturalresources, m facturing and financial services.

Readons with Other Donors

38. Other major donors in C6te d'Ivoire are France, the African Development Bank (ADB), andthe European Union, with smaller programs from several European countries, US, Canada, Japan,and U.N. agencies. Aid coordination has been reflected in coflnancing activities, reglar exchanges,and joint missions, and the Resident Mission is playing an active role in this area. The Bank isplanning to organize a Consultative Group meeting in PY95 to coordinate the provision of financialassistance and reduce the potential for duplication and inconsistencies.

39. The process of designing and implementing the adjustnt programs as well as dealing with thecountry's debt sevicing difficulties have involved close coordination with the French Government,IMP, ADB, and Paris Club. In partular, Bank staff have worked closely with the IMP in pring

- 12 -

the PFP and in carrying out a policy dialogue with the Government during joint missions. The IMPapproved an arrangement under the three-year ehanced structural adjustment facility (ESAP),totalling about SDR 333 million in March 1994. The Fund completed a mid-term review inSeptember 1994 and favorably assessed the progress made by the Govermnent in inplementing theESAF program. It is expected that the second disbursement under the first annual ESAF arrangementof SDR 60 million will be made shortly.

PART II: THE ECONOMIC RECOVERY CREDIT

A. Reforms in Support of an Economic Recovery

40. In line with the PFP, the Government has identified measures that are critical to a sustainedeconomic recovery. They include (i) reforms in central government finances, especially with regardto tax-base broadening and improved investment programming, (ii) deepenng trade reform throughelimination of most non-tariff barriers, (iii) further price liberalization, (iv) improving rice import anddistribution policies, and (v) increasing competitiveness in maritime transport. These reforms andtheir timetables for implementation are detailed in the Letter of Development Policy in Annex B.

Central Government Finance Reform

41. Fiscal policy is the cornerstone of the Government's medium-term program which envisagesthe generation of sustained prmary surpluses needed to increase domestic savings and investment, aswell as to reduce the need for exceptional financing. These surpluses are programmed to increasefrom 1.8 percent of GDP in 1994 to about 2.6 percent in 1996.

42. Tax Revenue. The Government introduced a comprehensive tax reform package in Januaryand March 1994, the main elements of which are to (i) eliminate the top VAT rate of 35 percent andreduce the standard VAT rate from 25 to 20 percent, (ii) reduce import tariffs on average by20 percent, and (iii) adjust petroleum taxation to limit price increases to 15 percent for gasoline and10 percent for diesel fuel. With reprd to direct taxes, the 2.5 percent payroll tax paid by employerswas eiminated. Although these tax measures will help dampen price increases, they reduce revenueas a share of GDP. It is expected that the incidence of taxes, excluding export taxes, will fall from16.3 percent of GDP in 1993 to 13.8 percent in 1994 Crable 5) and remain below 14 percent of GDPduring the PFP program penod.

43. Although total revemnes as a percent of GDP will remain at around 22 percent of GDP duing1994-96, the composition of tax revemnes will undergo major changes, with new export taxes oncocoa and coffee compeating for the expected shortfalls associated with the recent tax reform.Export tax revemnes are projected to amount to 23 percent of total tax revenues in 1994. If thesubstantil CAISTAB surplus, in effect an export tax, generated from cocoa and coffee exports isadded, total explicit and implicit export taxes would amount to a third of total govermment revenueand 7.3 percent of GDP in 1994. While export taxes are temporarily needed for fiscal reasons, thesetaxes (i) could slow down the supply response, (ii) hmder poverty alleviation in rural areas, and (iii)risk becoming a percma feature of the country's tax structure. The Government has, therefore,comittod itself in the PFP to review cocoa and coffee export taxes on an annual basis with a view toreducing their importance within the overall tax structure as growth generates increasing revenue fromother taxes and to replacing them with less distortionary tax instruments.

- 13 -

Table 5: Central Government Revemne(In Percent of GDP)

Total government revenue 23.4 21.9 22.3 19.8 23.0

Tax revenue 19.2 18.6 18.6 16.4 17.8Direct taxes 5.3 4.5 4.5 3.7 3.1Indirect, excl. petroleum 4.4 4.8 4.9 4.4 3.8Petrolewm taxes 3.3 2.6 3.6 3.1 2.1Import taxes 5.8 6.4 5.4 5.0 4.8Expor taxes 0.3 0.3 0.2 0.2 4.0

Non-ax revenue 4.3 3.3 3.6 3.4 5.2of which CAISTAD surplus 0.0 0.0 0.7 0.7 3.3

44. In order to further reduce the distortions created by the export taxes and to seek theirreplacement with a more efficient form of taxation during the PFP program period, the Govenmmenthas committed itself to broaden the import tax base through reduction of exemptions on import taxesand of non-tariff barriers (para. 49).

45. Central Government Expenditures. The Government plans to restructure expendituresthrough constraint on current outlays and selective increases in capital expenditures. For 1994, it haslimited average increases of the base salary to 10 percent. This policy will result in a decline of thewage bill from 75 percent of tax revenue in 1993 to less than 50 percent in 1994. Other currentexpenditure will be kept constant in real terms and reoriented toward the education and health sectors.The tight policy stance toward current expenditures should also permit the Govemment to increase itspublic investment program which should stimulate the economic recovery.

46. The 1994 budget provides for an increase in public investment spending, on a cash basis, from2.8 percent of GDP in 1993 to 4.4 percent in 1994. The Government intends to significandy increaseoutlays for basic education, primary and preventive health care, and basic inftuur. In order to(i) help the Government reallocate investment expenditures to priority areas, (ii) assess the externalfinancing needs for the investment program, and (iii) prepare for a possible Consultative Groupmeeting in FY95, the Bank prepared a public investment review, analyzing the 1994 investmentbudget and making specific recommendations on how to improve investment budget planing andexecution. The report identified the need for increased outlays in the social sectors and for basicinfrastructure and will serve as a basis for consultations between the Government and IDA onimplemention issues and preparation of a 1995-97 public investment program consistent with thePFP macro framework, including an expected increase in social spending in 1995.

- 14 -

Trade and Price Reform

47. The Goverunent initiated a trade liberalization process in 1989 whose main features have beenimport tariff reform and reduction of non-tariff barriers. Consistent with the reforms supported underthe Competitiveness and Regulatory Reform SECAL (PASCO), the Government began phasing outNTBs in 1992. During the PFP period, it is committed to (i) examine the possibility of furthersimplifying import tariffs, (ii) eliminate most NTBs except those on a restrictive list pertaining mainlyto national secunty, environmental and public health concerns, (iii) liberalize most prices, and (iv)reform rice policy,

48. Nominal tariff protection has already been falling steadily since 1989. The average weightedtariff on taxable imnports declined from 27 percent in 1990 to about 23 percent in 1993.Concomitanly with the devaluation, the Government implemented a new tariff reform, creating astructure in the range of 0-35 percent. Based on an evaluation of customs data for the first half of1994, the Bank estimates that the 1994 trade reform has cut import tariffs by another 17 percent,resulting in an average tariff on taxable imports of about 19 percent.

49. The Government is also reducing the high incidence of NTBs in its trade regime which affectedabout 40 percent of total imports and about 30 percent of non-oil imports in 1992 (see chart 2). Inearly 1992, the Government announced its intention to eliminate most NTBs by January 1, 1996.While several NTBs were removed during 1992, progress stalled in 1993. The 1996 deadline wasreaffirmed in the PFP. Given the importance of broadening the import tax base as well as ofincreasing economic efficiency and competitiveness, the Government removed NTBs on 51 percent ofimports subject to such restrictions (excluding petroleum) in May 1994 and publicly announced that itwill remove NTBs on an additional 6 percent of restricted imports on January 1, 1995, and those onan additional 5 percent on January 1, 1996. Thus, as of January 1996, approximately 90 percent ofnon-oil imports will be free of NTBs.

Chart 2: Noi-Tariff Barriers, 1992(a Percen of pon Van)

0%

40%

- 15 -

50. In parallel with the trade liberalization effots, the Goverment lifted most price controls inearly 1992. Controls remained on the prices of 22 goods and services, including products of massconsumption, public services, and goods that are subject to NTBs. Following the devaluation, theGovermment annwunced a price freeze on 34 goods and services for a three months period, whichexpired in April 1994.

51. In the wake of the devaluation, the Government will evaluate the possibility of further reducingprice controls. In this context, the Govemment has decided that prices of those products which aresubject to NTBs and price controls would be liberalized once their NTBs have been eliminated. Nineof the 22 products whose prices are controlled are subject to NTBs. The first application of thisprinciple concerns cement. The NTB on cement was lifted in May 1994 which was followed by thepublication of a decree liberalizing the price of cement in September 1994.

52. The Govemment adjusted public utility prices in May to take account of the impact of thedevaluation. Special attention has been directed to the electricity sector. Electricity rates wereincreased in May 1994 by an average of 20 percent, which is consistent with the financial viability ofthe sector. This increase has brought Ivorian electricity rates in line with an international average ofabout US$0.9 per Kwh. In addition, the Govemment is establishing, in conjunction with the privatemanageen of the electricity company (CIE), a mechanism for periodic tariff reviews. Thenecessary reguatory steps are to be taken during November 1994 and the new review mhanismapplied for the first time before end-1994.

53. Following the devaluation, the Governent increased the producer price for cocoa and coffeein Januy 1994, and that for coffee again in March 1994. Given, buoyant international prices forcoffee and cocoa, producer prices for cocoa and coffee were increased further to CFAF 315 per kgand CFAF 530 per kg, respectively, with the opening of the 1994/95 cr season in September 1994.Relative to December 1993, the producer price for cocoa has thus been increased by 58 percent andthat for coffee by 212 perent (see chart 3). With the recent _mures, the Goverment has steppedup its efforts to effectively pass through the positive effects of the devaluation while =m ning fiscalstability.

Chart 3: Cocoa and Coffee PricesPrwdwer Prkes in CPA f)wlkg

600

S __ .......--

300 __

200 -_ _._. . .

Dec.93 Jan.94 Mar 94 Sqt.9 :AcAffaUe

- 16-

Rim Poiey

54. The Government's rice policy aims at increasing domestic production with a view to attainingself-sufficiency. Currently, domesdc production covers 55 percent of an annual consumption of about700,000 tons, with the remainder being imported. Production has been stimulated by the fullliberalization of domestic marketng of rice while strictly controlling and taxing imports, as theinternational rice price was substantially below the domestic price before the devaluation. Thedifference between the wholesale price and the imported rice price was collected by the PriceEqualization Fund (CGPP) which enjoys exclusive rights in granting import quotas to importers ofrice. The CGPP also manages a security stock and administers a trasport equalization payment so asto mainain a fixed official wholesale and retail price on imported rice throughout the country.Before the devaluation, the CGPP generated substantial surpluses, averaging almost 1 percent of GDPin the early 1990s. However, shortcomings in its management and administrative performancesuggest that producers and consumers would be better served by a liberalization of rice imports andthe application of regular iport taxes on rice.

55. In line with the PFP, the Government has decided to implement a comprehensive liberalizationprogram for the rice sector. Toward this end, the Government published an official decision inSeptember 1994 detailing its fiare rice policy as well as the timetable for the implementation ofspecific meures. The principal measures pertain to liberalization of trade and prices for ordinary,hlxury, and cargo rice, as wel as increasing the private sector role and reducing govermmentintervention in the rice sector.

56. Ordiny rice. The most important decision on rice has been the Govermment's commitment tocomplete the liberalization process for ordinary rice (35 percent broken) within a two-and-half yearperiod. This process is to commene as of Jamury 1, 1995 when imports of ordinary rice will beexclusively manaed by the private sector and the CGPP wil stop its import activities. TheGovernm t will set import quotas for ordinary rice during the 1995-96 transition perod. Riceimport quotas are to be eliminated by Janmury 1, 1997.

57. following the devaluation, domestic rice has become competitive with imported rice.Motivated by social considerations, the Government only partly passed through the parity change ondomestic sales prices by announcing a 10 percent increase of imported rice prices in January 1994.However, as outlined in the PFP, it intends to free the price of imported rice as soon as possible.This liberaliation is deemed neessary as the current prce level of imported rice would (i) imply asubsitntia subsidy from the Govermment as soon as existing rice stocks are depleted, (ii) stimulateillegal outflows to neighboring countries, wbo:e the rice price is higher, and (iii) act as a disincentiveto local production.

58. Within the new rice policy framework, the Govermment has decided to liberalize the price ofordinary rice as of Jamnuay 1, 1996, and simultaneously eliminate transport equalization payments. Inthe interim, the Goverment will stll control the price of imponed ardinary rice which it intends toadjust in Febnruay 1995 from CFAF 175 to about CFAF 210 per kg. With regard to other types ofrice, lu rice import prices were liberalized as of August 1, 1994, and imports of Mm rdi willbe liberalized as of January 1, 1995.

59. Security stok. During the last several years, the Government has reduced its considerablesecurity stock from the equivalent of six to three months' consumption. Given the cost associatedwith maintaining a large security stock and the ability to assure adequate food security with a smaller

- 17 -

stock, the Government reduced its stock to the equivalent of two months' consumption, or about50,000 tons, during August 1994, and intends to maintain stocks at or below that level. In addition,the Government intends to transfer management of the security stock to the private sector byJuly 1, 1995.

60. Privatization of silos and rice mills. Within the framework of its privatization program, theGovenmment intends to privatize its silos and rice mills by July 1, 1995, with the exception of thosethat it intends to transfer to the newly created Rice Promotion Company (SOPRORIZ). To underlineits role as a SOPRORIZ minority shareholder, the Government will restrict its transfer in kind toinstallations whose combined value does not exceed FCFA 350 million (about US$630,000),corresponding to the 35 percent capital participation of the Government. The installations to betransferred to SOPRORIZ, will go through a standard valuation procedure in conformity with Ivorianaccounting practices. Moreover, the Government has agreed that SOPRORIZ will receive neitherfinancial nor in-ldnd subsidies, nor exceptional financing to rehabilitate existing rice mills.

61. Future role of the CGPP. In light of the above-mentioned policy actions, a study on the futurerole of the CGPP will be undertaken during the second half of 1994 and completed before the end ofthe year. This study will serve as a basis for defining an action plan aimed at reducing the role ofCGPP in the economy to be implemented during 1995.

Maritime Transport

62. Cote d'Ivoire has pursued a maritime policy that seeks to secure control over its maritimetransport ostensibly to protect its import and export interests. To this end, the Government hasimplemented the 1974 UNCTAD Code of Conduct in conjunction with other bilateral andunternational agreements. This Code was intended to developing countries participate fully in theshipping conferences regarding their own maritime transport, with traffic rights being shared asfollows: 40 percent for the developing country, 40 percent for the country of origin, and 20 percentfor third parties. Although this Code was meant to cover only regular line traffic - which excludesbulk, chartering, and fruit transportation and amounts to about 27 percent of total traffic - Coted'Ivoire applied the Code to most tpes of maritime traffic.

63. In order to monitor the strict compliance with the 40-40-20 rule as well as to negotiate freightrates and allocate freight, the Ivorian Office of Shippers (OIC) was created in 1975. However, in itsapplication of the Code, OIC has protected the traffic rights of two Ivorian shipping companies,SITRAM, a public entity, and SIVOMAR, a private company. Due to OIC's discretionary powers,its ex-ante controls of freight allocation ensure that freight is allocated to S1TRAM or SIVOMAR,regardless of their capacity to provide the most efficient service at competitive rates. The lack oftransparency of the present system and the virtual monopoly of SITRAM and SIVOMAR havecontributed to the high costs of maritime trnsportation and harmed the country's competitiveness.

64. In the PFP, the Government announced a deregulation program for maritime transport with aview to enhance its international competitiveness through cutting shipping costs to bring them more inline with the African average. This should stimulate trade and, particularly, non-traditional exports.As SITRAM is scheduled to be privatized in 1995, the regulatory framework needs to be modifiedprior to divestiture. In conformity with its deregulation program in this sector, the Government isimplementing measures to (i) broaden market access for all Ivorian shipping companies to conferencetraffic, (ii) fully iiberalize non-conference traffic, and (iii) partially liberalize refrigerated and bulktraffic, as summarized below.

- 18-

65. onf raffic. The Goverment has annouced that any Ivorian shipping company iseligible to access the 40 percen reserved under the UNCrAD Code of Conduct for Ivoriancompanes. The Govemment has committed itself to undertae the necessary regulatory changesbefore October 1, 1994, especially with regard to SffRAM.

66. NKonconference traffic. Currenty, non-confence companies ("inependents") are alreadycovering about half of all liner maritime traffic. Since the companies are not subject to teUNCTAD Code of Conduct, the Goverment itends to fully liberalize liner traffic of idepnecompaies before March 1, 1995. From that date onward, these companies will no longer need toobtain the authorization of the OIC to load their cargo. This measure will intensify competition andconstitute an effective remedy to minimize the monopoly rents accruing to SIVOMAR. AGovernment decision, anouicing this full liberaliation, will be published in the Official Journalprior to credit effectiveness.

67. Refrerated and bulk traffic has been completely controlled by SITRAM, the public shippingcompany. The Government has decided that as of October 1, 1994, 50 percent of all such traffic willbe liberalized. Publication of the relevant legal measures constiutes an effectiveness condition for theproposed operation.

68. Ivoria Office of ShiMpers. In addition, the Government wi1l undertak an operational andfinancial audit of OIC as well as an audit of the cargo allocation system. Both audits are meant toincrease the efficiency and the ranparncy of OIC and are scheduled to be completed by end-1994.

B The Proposd Eo011c; Now Cm

Size of ERC and Proposed C

69. A credit of SDR 70.7 million, or the equivalent US$100 miUion, is proposed. The ERC wouldbe disbursed in one tranche upon credit effectiveness. The credit is based on the reform prormoudined in the Letter of Development Policy, including an appropriate macrotecon famework inline with the IMP ESAF.

The folloin olic actions have been taken before Bard p a:

(i) MhBs: adoption of a tme-bund action plan for the elimination of most NTBs (para. 49);

(ii) Pie: repeal of all decrees affecting the price fieeze of 34 goods and services (para. 50) anddecree eliminating the price corol on cement (pam. 51);

(iii) .eq i cit tarff: adjustment of electricity tariffs in line with the sector's financial objectives(para. 52);

(iv) Ric: hbealation of Iuxuy rice imnports (para. 58); publication of Govement decision onrice policy reforms and the dmetable for their implementation, icluding hlelization ofordinary and cargo rice, liffting of price controls on ordinay rice, privatization of most silosand rice mills, and execution of a study on the futre role of the CGPP (paras. 55-61).

- 19 -

The followinr policv ac,tions ill be taken before credit effeCveness;

(i) Maritime trarwport. publication of a Government decision authorizing independent maritimecomanies, no later than March 1, 1995, to load cagos without prior authorization from theOIC (para. 66), and publication of a decree opeing 50 percent of the Ivorian maritime trafficrights pertaining to refrigerated and bulk traffic to maritime companies other tban SITRAM(para. 67).

Procurement, Disbur d Auditing

70. Credit proceeds would be used to finanme the foreign exchange cost of general imports,excluding luxury goods, military equipment and other goods specifically prohibited in a negadve listdefined under the Standard International Trade Classification (SITC) or equivalent classification.Retoacve financing for up to 100 percent of the credit amount is recommended for eligibleexpenditures made not more than six months prior to the date of credit signature. Although thisincrease would exceed the standard 20 percent guideline for general imports under adjustmentopeations, the exemption is justified to help the Goverment in meeting its substantial foreignexchange requirmts.

71. A simplified international competitive bidding (ICB) procedure will be required for purchasesexceeding US$5 million. Procmen valued below the ICB threshold would follow the standardprocedures in the case of public sector purchases and established commercil practice in the case ofprivate sector purhases. No disbum will be made against contracts valued at less than theequivalent of US$10,000.

72. Disbum of the credit would be made agaimst import documnation received from theCaisse Autonome d'Amortissee (CAA) which would be responsible for the collection of therelevant do ion and submission of credit withdrawal applications. The minimum size of eachapplication submitted to IDA will be US$500,000. IDA will follow the simplified docuntationprocedures for adjustment operations. For contracts each valued at less than US$5 million equivalent,IDA would reimburse the CAA on the basis of Statements of Ependitures (SOEs) prepared from theustoms certificates. The SOEs will show that eligible goods at least equal in value to the amount

requsted from IDA have been imported into the country during the perod under considertion andprovide information on the nature of goods imported, country of origin, amount and currency usedfor payment and date of import. The custom certificates and other supporting information used forestablishing the SOEs will be retained by the CAA for review by IDA supervision missions and forsubsequent audit by external auditors. In addition to standard auditig covenans, an audit reportwould be submitted to IDA no later than 90 days after the full disbursement of the credit.

Benefit and Risks

73. Implem on of the economic reform program supported by the proposed credit will becritical in creating the conditions for renewed economic growth and increased employmentopportunities. At the same time, the proposed credit will contribute to the closure of the financinggap for 1994. Overall, the reforms supported by the ERC should contribute to a return to positiveper capita income growth and improved incomes for the poor. The further pass-through of thebenefits of the devaluation to farmers through producer price increass in September 1994 willcontbute directly to poverty alleviation in the rumal areas and higher exports. The rtmoval of non-tarff barriers would help establish a more neutral system of incentives and stmulate efficient

=20 -

production. The rice policy reforms would help increase transparency in marketing of imported rice,stimulate domestic production, as well as eliminate a potentially expensive subsidy. The maritimetransport reforms will lower shipping costs which, in turn, should help increase the internationalcompetitiveness of exporters and benefit consumers by a reduction in the cost of imports. Thesereforms will also help create the regulatory envirownent that would allow for a timely privatization ofSITRAM. Finally, the regular review of the public investment program agreed with the Governmentwill contribute to sharpenng the poverty alleviation focus of the Government's program. This isexpected to be translated into increased social investment expenditure in the 1995 investment budget.

74. The proposed operation faces the risk that the agreed measures will not be implemented onschedule, in part because the presidential and parliamentary elections in late 1995 could divert theGovernment's attention away from prudent economic management, and also because strong vestedeconomnic interests oppose many of the reforms designed to increase competition and reduce rents.On the other hand, many in Government are strongly committed to these deep reforns, and there aremany gainers from the proposed reforms, even though they may not be as powerfully organized assome vested business interests. The proposed credit will strengthen the position of reformers.Moreover, the Govermnent knows that the sustained and timely implemention of the ERC reformsare in themselves the trigger mechanisms for the proposed future adjustment operations in agncultureand transport. As set out in the CAS, policy reversals or implementation delays of the reformprogram would automatically slow down the further preparation of new adjustment credits.

PART m: RECOMMNDATION

75. 1 am satisfied that the proposed credit would comply with the Articles of Agreement of theInternational Development Association and recommend that the Executive Directors approve it.

Lewis T. PrestonPresident

Attachnents

Washington, D.C.Septemnber 27, 1994

ANNEX A

KEY ECONOMIC INDICATORS

Page I of 2Cote d'Ivoire - National Accounts

Per Capita GNP (US$) 630Midiear Po juIation (MU) 13

j Ei |I -0 "N IGross Domestic Product 2,150 2,695 2,681 2,681 2,633 3,745 4,212 4,723Net direct Taxes 347 381 391 379 343 559 612 671GDP at Factor Cost 1,803 2,314 2,290 2,302 2,290 3,186 3,599 4,052

Resource Balance (133) - -144 94 148 183 506 595 623Imports (GNFS) 885 790 790 751 722 1,263 1,382 1,529Exports (GNFS) 753 934 884 899 904 1,769 1,976 2,152

Total Expenditure 2,283 2,551 2,587 2,533 2,451 3,239 3,617 4,100

Total Consumption 1,712 2,301 2,319 2,242 2,205 2,812 3,102 3,479Government 362 488 478 476 538 629 655 673Private 1,350 1,813 1,841 1,766 1,667 2,183 2,446 2,806

Gross Domestic Investment 570 250 267 291 246 427 515 621Govenmuent 292 143 175 130 46 147 160 182Private 279 106 93 205 172 280 355 439

Memorandum Items:Domestic Savings 438 394 361 439 429 933 1,110 1,244Net Factor Income (104) (385) (401) (398) (410) (733) (557) (568)Net Current Transfers (227) (137) (114) (100) (63) (151) (181) (224)

National Savings 107 (128) (153) (59) (44) 49 373 452

Gross Domestic Product 2,995 2,976 2,965 2,956 2,911 2,949 3,117 3,317

Resource Balance 85 542 525 591 603 619 620 642Imports (GNFS) 1,071 723 715 708 658 605 644 687Exports (GNFS) 1,155 1,265 1,240 1,299 1,261 1,224 1,265 1,329

Total Expenditure 2,910 2,435 2,439 2,364 2,326 2,312 2,469 2,639

Total Consumption 2,257 2,228 2,187 2,176 2,133 2,098 2,216 2,341Govermment 478 482 479 491 485 435 431 413Private 1,779 1,746 1,708 1,685 1,647 1,664 1,785 1,928

Total Investment Expenditure 654 207 252 188 194 210 245 284

Terms of Trade (Tr) Effect (245) (410) (440) (468) (527) (377) (343) (363)Gross Domestic Income 2,750 2,567 2,525 2,488 2,385 2,573 2,774 2,954Domestic Savings (T Adjusted) 493 339 338 312 252 475 559 613

Memorandum ItemGDP Deflator 72 91 90 91 91 127 135 142

(conf91)9/28/94

Annex AIPage 2 of2

Cote d'Ivoire - National Accounts

Z .~~~~~~~N *. 5.

mry 29 35 34 33 34 37 38 37Agriculture 26 34 33 32 33 35 36 35Other 3 2 1 1 2 2 2 2

Industry 20 22 20 20 21 21 22 22Services 51 43 46 47 45 41 40 41Total 100 100 100 100 100 100 100 100

Note. Historical shares are calculatedfrom current price data. Projected shares arefrom current prices ifavailable,otherwfsefrom constant price data

_ _ _ E___l_____

f~~~ ~

Grow Dome Product (M.P.) 8.6 68 0.0 4.6Agricultur 4.9 3.3 -1.0 3.9Industry ofwhich 12.5 11.8 4.1 7.1Services 11.2 8.1 -1.5 2.5

Imports of GNFS 7.6 11.3 -3.0 1.1Exports of GNFS 62 6.5 0.2 1.9

Total Expenditures 8.8 7.9 -1.4 4.5

Total Consumption 9.0 7.1 -0.3 3.4Government 14.6 8.7 0.1 -4.9Private 8.0 6.6 -0.4 5.6

Gross Domestic Investment 8.1 10.8 -8.2 13.8

Memorandum Items:Capacity to Import .. 7.4 -1.3 4.9Gross National Income .. 6.7 -1.9 6.9Gross National Product .. 6.6 -1.1 5.1Gross Domestic Income .. 6.7 -0.9 6.0Gross Domestic Savings .. 5.2 -4.5 16.7Popuation 4.0 4.0 3.8 3.8Labor Force .. 2.5 2.6GDP per capita 4.1 2.7 -4.0 0.7

9/28/94

AnnexA2Page I of 2

Cote d'Ivoire -External Trade

.g~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~i.

Merchandise Exports: Volume Indices 1987-100

Cocoa 56 133 140 132 123 130 130 139Coffee 123 146 128 136 109 84 86 95Timber 282 98 77 75 70 73 75 77Petroleum Products 38 108 112 152 159 159 165 171Total Merchandise Exports (FOB) 75 124 121 123 117 118 122 129

Merchandise Exports: Current Prices (USS millions)

Cocoa 924 824 895 838 831 1,002 1,082 1,199Coffee 685 286 239 203 206 250 412 431Timber 586 378 279 331 273 253 270 287Petroleum Products 212 416 427 532 387 318 351 401Manufactues 280 749 661 618 573 571 631 688Other Exports 325 350 310 341 335 347 366 400Total Merchandise Exports (FOB) 3,013 3,003 2,811 2,864 2,605 2,741 3,113 3,406

Merchandise Imports: Volume Indices 1987=100

Food 84 85 58 77 60 62 64Other Consumer Goods 68 65 84 78 61 65 67Petroleum and OtherEnergy 134 139 177 164 160 171 185Capital Goods 62 61 76 65 64 72 80

Total Merchandise Imports (CIF) 68 67 66 57 50 54 57

Merchandise bmports: Current Prices (USS miflions)

Food 435 469 490 377 431 299 326 356Other Consumer Goods 629 385 425 499 501 393 423 453Petroleum and Other Energy 557 569 530 511 430 419 469 539Manufactured Goods 328 256 349 333 254 246 266 286Capital Goods 1,041 419 309 552 332 327 373 425

Total Merchandise Imports (CIF) 2,614 1,705 1,691 1,826 1,948 1,684 1,856 2,059

(continue)

9/28/94

Annex A2Page 2 of 2

Cote d'Ivoire -- External Trade

-Shares Growth Rate

Merchandise Exports (% (In Current Prices) (From Constant Prices)

Cocoa 30.7 31.9 36.6 35.2 3.9Coffee 22.7 7.9 9.1 12.6 -3.7Timber 19.4 10.5 9.2 8.4 3.1Petroleum Products 7.0 14.9 11.6 1 1.8 2.6Manufactures 9.3 22.0 20.8 20.2Other Exports 10.8 12.9 12.6 11.8

Total Merch. Exports FOB 100.0 100.0 100.0 100.0 3.4

Merchandise Imports ( )

Food 16.6 22.1 17.8 17.3 -5.2Other Consumer Goods 24.1 25.7 23.4 22.0 -3.7Petroleum and Other Energy 21.3 22.1 24.9 26.2 4.4Manufactured Goods 12.5 13.0 14.6 13.9Capital Goods 39.8 17.1 19.4 20.7 7.5Total Merchandise Imports (CIF) 100.0 100.0 100.0 100.0 0.8

9/28/94

Ame=A$

Cote d'Ivoire - W ance of Paymentsn Miu ioftr fUSDoUa)

Trade bdadxne 3990 1,297.7 1,120.4 1,038.0 1,006.7 1,373.9 1,606.4 1,733.9Expaft b, Lb 3,012.6 3,0026 2,8112 2,163.7 2,604.9 2,740.7 3,113.2 3,405.bpoeta Lob. 2,613.6 1,705.0 1,690.8 1825.7 1,59.2 1,366 1, 1,56.9 1,671.6

Net Sayec (1,518.4) (2,0384) (1,997.5) (1.99.9) (1.809.3) (1.781.6) (1,543.6) (1,644.2)Receipt 635.2 S95.8 534.9 576.5 60S.9 433.3 450.8 473.6Payment 2,153.5 2,634.2 2,532.4 2,5s7. 2,415.2 2,214.9 1,994.4 2,117.8FacerPametan 5339 1,125.8 1,230.4 1,217.3 1,465.0 1,316.0 1,010.1 1,033.6

0fw: Intera 327.5 928.5 1,037.9 1,01S.5 1,270.2 1,129.0 807.2 8227Otr Sewims 1,619.7 1,508.4 1,302.0 1,3582 950.2 899 984.3 1,084.3

NdTranfeb (7062) (409.5) (2543) (2S6.3) (220.7) (271.7) (325.7) (404.1)Frivale (705.7) (S01.4) (403.0) (416.7) (319.6) (322.4) (344.7) (377.0)Public (0.5) 91.8 148.7 160.4 98.9 50.7 19.0 (27.1)

52ID]d ilAceD&]BifSsS (1,825.5) (1,150.3) (1,131.4) (1,217.3) (1,023.3) (679.4) 2ag29) (314.4)

lIAgT.aua Capitd Inllkn 1,099.1 145.7 76.1 (46.9) (243.9) 251.0 (92.9) (163.5)1. Dicecnesvnam 83.3 47.7 46.1 46.1 40.3 40.0 80.0 80.02.NetLTL.cn;(DRSdaa) 1,015.8 98.0 30.0 (93.0) (284.2) 211.0 (172.9) (243.5)

a. Diabmanen 1,738.0 1,030.0 900.0 789.0 - 678.9 1,217.5 1,006.9 885.9b. Amatizion due (722.2) (932.0) (870.0) (820) (963.1) (1,006.5) (1.179.8) (1,129.4)

taherau(Net)2J 688.4 (572.1) (2682) (240.0) 327 (30.0) (120.0) 20.0

Ovua DBalan (38.0) (1,576.6) (1,323.S) (1,504.2) (1.45) (458.4) (475.8) (457.9)

Jtnadng 38.0 1,576.6 1,323.S 1,504.2 1,234.6 458.4 475.8 457.9Net IMF credi 380 30.0 (60.0) (92.0) (49.3) 90.6 8S5 86.8Opeutio Aountd Chngs 0.0 257.1 10.6 324.9 33.9 (529.2) (144.2) (108.1)Aoeannatiac ofAres 0.0 841.5 835.8 9063 1,250.0 507.0 0.0 0.0

smacbeduliag 0.0 4481 537.0 365.0 0.0 390.0 533.6 479.2

*- Trde Balnoe 3.9% 13.1% 11.8% 10.2% 10.8% 20.4% 21.2% 20.4%2. MLTler PAy 3.2% 9.4% 10.9% 10.0% 13.7% 16.8% 7.2% 6.4%3. Carrot Accoun Bale -17.9% -11.6% -11.9% -12.0% -11.0% -10.1% -3.5% .3.7%

Memerndun iaGDP 10,175.6 9,899.0 9,503.1 10,158.3 9,3039 6,723.7 7,589.0 8,510.6E_chang5Rate (CFAF/USA)

Am1 Avere 211.3 272.3 282.1 264.7 283.2 5S7.0 555.0 555.0EndofYear 225.8 256.5 2S9.0 27., 294.8 540.0 555.0 555.0

lJOcubsi L g n u2.1 hhde abeortetn captand mimmuao

Soue: .C.EA.. and Banksaffeslima

Amw=A4

Cote d'Ivoire - Fi_a Operato of the Cetal Govermut(BiThons ofCFAFatcnwm prica)

~~~~~_ _ _ _ _ _ _ _ _ _ _ _ _ _

TOAL REVENES.7 630.8 39.4 5726 S223 m 94.0 91

Tax Reenues 459.6 516.1 499.8 499.9 432.7 S66.8 744.7 821J

Direct Taxes 112.7 142.2 120.6 120.8 98.7 IS.5 1405 158.7Dom. Taxes on O&S 130.4 118.7 130.3 131.5 115.9 141.2 161.0 186.6Taxes on Imports 163.2 247.2 240.9 242.0 212.4 2s8o 267.5 292.6Taxes on Expo 53.3 8.0 8.0 S.6 5.7 151.1 175.7 183.6

Non-Tax Revues 162.2 114.7 89. 97.7 80.6 1947 1983 177.4

COPP Surplus I/ - 21.6 26.8 20.5 11.2 6.4 0.0 0.0CSSPPA Splus 2/ 86.2 - - 19.2 181 123.7 11S.0 79.1Social Security Contrions 30.3 43.2 38.3 37.8 41.0 40.6 41.2 41.6Other Non-Tax Revenue 45.7 49.9 24.5 20.2 19.3 24.0 42.1 56.7

CURRENT EXPENDrTR 496.7 9s8.3 887.3 j 1S. It61L0 2 t9j 104.9

Wages and Salaries 215.2 339.9 33S.0 334.2 330.8 352.9 358.5 362.1

Scia Seity Benefits 14.3 36.7 35.6 36.4 39.8 47.7 48.4 48.8

O*ier Curent Expenditues 221.6 208.3 191.6 174.4 166.6 228.6 248.5 262.2

Curren Budget (BOGF) 102.7 91.9 111.9 108.3 110.1 50.0 169.9 186.4Amend Budgets 8.8 6.1 3.2 0.8 0.0 0.0 0.0 0.0Special Accounts 66.6 63.2 45.7 27.4 22.8 30.0 29.5 30.7Other Treasury Operatins ... 4.2 0.0 5.6 3.5 6.4 7.0 7.3CO Autonomous Entities 43.5 42.9 30.8 32.3 30.2 42.2 42.1 37.8

CSSPPA Deficit - 35.0 2.0 0.0 0.0 0.0 0.0 0.0

Iarest Due 45.5 288.4 323.1 306.3 348.8 538.8 358.7 371.8

Domesdc Debt 2.8 35.6 293 36.4 47.6 46.6 35.9 34.1External Debt 42.7 252.8 293.8 269.9 301.2 492.2 322.8 337.7

CURRINT ACCOUNT BALANCE 12.0 -277 -297.9 -27 -. 7 -37.5 -7.1 -46.0

CAPITAL EXPENDrMIE 01 747 81 73.8 1 18D 0 2 1

Fixed Capital Invesment 201.0 60.7 68.0 72.0 60.0 146.7 160.0 182.3Other 3/ 107.1 14.0 19.1 175 13.8 183 20.0 22.8

OVERALL ANCE3 : -35.0 -345.2 :0h .4372 .251. .2t

Mtemor_lnd:

Primaly ala -137.6 -63.8 -61.9 -36.9 .88.7 66.3 107.6 120.7

Renuees I GDP (%) 28.9 23.4 22.0 223 19.8 23.0 22.4 21.1

Ptimay Expenditure / GDP (%) 35.3 25.8 24.3 23.7 23.2 21.2 19.8 18.6

lniary Balane / GDP (%) 44 -24 -23 -IA -3.4 1.8 2.6 2.6

Interest / GDP (%) 2.1 10.7 12.1 11.4 13.2 14A 8.5 7.9

Oveall Balae / GDP (74 *85 -13.1 -14.4 -12.8 -16.6 -12.6 -6.0 -5.3

1/ Caise Geneale de Prequation des Prix (Price Equdaizaton Fun2/ Caids de Stabilisation (Caffe/Coc Maketng Baud)3/ Includes rans to public entepries.

Soue: Ministry of Econoy, Fmace. and Pbnning, and staff esmaes.

Annex AS

Cote d'Ivoire - Monetary Surveyan BiUions of CFAF)

... ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~........ ...................... .

End of YQar Stocks:

Net Foeign Assets -208.7 495.2 -473.6 -511.3 -515.0

Domestcl Credit 844.9 1307.1 1303.3 1334.6 1289.3

of which:Cklmsan centralgov.(net) -54.7 203.8 216.3 367.7 376.1Clams on pritae senIor 876.3 1072.7 1065.9 946.4 896.3Cbims on othr fln.lnstltutlons 23.2 30.6 21.0 20.5 16.9

mowey 438.7 526.4 510.1 489.4 494.0

Quas"-loney 143.1 319.0 336.3 346.9 331.0

LonKFTerm Foeign Uabitles 26.6 64.6 62.4 45.7 47.6

Ot-Rhemrems (Net) 27.8 -98.1 -79.1 -58.7 -98.3

AnnuaWhanRe

Net Forign Asset -171.5 -9.6 21.6 -37.7 -3.7

comeshc Credit 155.3 -67.2 -3.8 31.3 -45.3

of which:Claims on central ot.(net) 59.3 -26.1 12.5 151.4 8.4Clims on prvate sector 90.4 -33.8 -6.8 -119.5 -50.1Cims on other fin.1nsotutons 5.5 -7.4 -9.6 -0.5 -3.6

Money 4.9 15.2 -16.3 -20.7 4.6

QuasI-Money 10.7 -37.5 17.3 10.6 -15.9

Long-Term Foreign LUaiItOeS 0.6 -5.7 -2.2 -16.7 1.9

Ofer llemS (Net) -32.5 .48.9 19.0 20.4 -39.6

MwWy/GDP (%) 20.4 19.5 19.0 18.2 18.8QuaSW-MonyIGDP (%) 6.7 11.8 12.5 12.9 12.6Brmad MneGDP (%) 27.1 31.4 31.6 31.1 31.3

Velocity of Money 3.7 3.2 3.2 3.2 3.2

Souroe: IMF, nbmraIonal FhuncalC StatIstics.

ANNEX B

LETrER OF DEVELOPM POLICY

Letter of vevelopment Polfy

Mr. Lewis T. Preston Abidjan, September 26, 1994President, World Bank1818 H Street, N.W.Washington, D.C. 20433

De Mr. Presiden:

The decision taken in January of this year to change the parity of the CPA franc has had acatalyzing effect, enabling CMte d'Ivoire to launch an ambitious economic and social program. Thisprogram centers on the economic and social development objectives and the adjustment policiesdscribed in the Policy Framwork Paper for 1994-1996 sent to you in lanary 1994.

The Govement is firmly committed to implement the policies described in the PolicyFramework Paper. To this end, the Govermen of C8te d'Ivoire requests from the InternationalDeveopment Association an Economic Recovery Credit in the amount of US$100 million equivalentto support lmplementation of the Govermuent's adjustment program.

I - MACIROECONOMIC CNE

Since the beining of the 1980s, C6te d'Ivoire has been experiencing an acute economic andfinancial crisis due mainly to a pronounced deterioration of its terms of trade, a fall in the extenalcometiiveness of its exports, and considerable net resource transfers out of the country.

In 1981, COte d'Ivoire embarled on a vigorous policy of finacial and economic stabilizaion.he couty's adjustment efforts, with the support of the Bretton Woods institutions, led to an

iable improvement in the country's public finance position which led to a return of positiveeonomic growth in 1985-86.

However, a marked fal in cocoa and coffee prices caused a further deterioration in terms oftrade. At the same time, the appreciation of the real efective exchange rate led to a decline incompettiveness of the Ivorian economy. Consequenty, economic activity contracted, and in theabsence of a downward adjustment in producer prices, a considerable incse in the public financedeficit was generated. The outcome was a sizable acculation of domestic payments arrears and acrisi in the baking system. This crisis aggravated the contraction of domestic savings, complicatedmobilization of the financing needed for productive activities, and led to an accumuation of extenalpayments arrears, thus causing a very nmrked slowdown in both public and private investnent, and acontion of real per capita income.

1. Reen developments. 1989-1993

Since 1989, the authorities have been implementing a comprehensive economic stabilizationand recovery program to cope with the serious deterioration of the economic and financial situation.As part of this program, the Govemment has adopted structural measres designed to reduce intemaldistordons and strngth the country's extmeal competitiveness, including the reduction of the coffee

-2-

and cocoa producer prices, restoradon of the banking sector's liquidt, consolidadon of tte domstcpublic debt, and restrucuring of public sector operadons. The Government has also institutedstucturl measures designed to stimulate the agriculture, energy, water suWly and sanition sectors.

In 1991, the authorities defined a medium-tern framework of more far-reacing suculreforms essentialy aimed at: (i) reestablishing the competitiveness of the industril sector; (ii)restructuring the financial sector; and (iii) developing health services and human resources. A seriesof public sector reforms have also been undertaken, in particular a major public enterpriseprivatiaon program. Some of the reforms envisaged were completed before the end of 1993,although certain conponent, such as tax reform, overhaul of the customs tariff, and the privatalonprogramn, were delayed, mainly because of the persistence of the economic and fnancia crisis.

Despite cost reductions and the restructuing of the main agricultr subsecors, the intstructural adjustment measr were insufficient to prevent a firther deteroration COte d'Ivoiresterms of trade throughout the 198993 period, while the real effective exchange rate barely improved.The trends in the main economic aggregates reflected these two factors, together with the pnuncdfinnca diequhibria. Whereas inflation remaned low throughout the penod, real per capita GDPcontracted by 23 percent. Production of export crops stagnated due to the fall in producer prices.The secondary and terdary sectors were affected by the contraction of domestic demand resultingfrom a general decline in personal incomes and the financial sector's difficulties. Gross do_micinvestme stagnated at 9 percent of GDP throughout 1989-93, while domestic SaVings dropped to 10percent of GDP over the same period, compared with 28 percent of GDP in 1985 before the recessionstarted.

The main factors that contributed to the conolidation of public finances during the poW1989-92 were the following: (a) gradual elimination of the Agricutural Stabilization Fmud's(CSSPPA) deficit through a reduction in the official producer prices for cocoa and coffee, and reformof the marketing system; (b) a reduction of non-wage curt expenditur and of capital expenditurbetween 1989 and 1992; and (c) a series of tax measures designed to increase goverment revusby broadening the tax base and improving the customs and tax administration. The outcome was asignificant reduction in the prnmay budget deficit from 7.8 percent of GDP in 1989 to about 1percent of GDP in 1992.

Notwithstanig these efforts, the Ivorian economy cones to suffer from severe economicand financial imbalance, combined with considerable structural rigidities and distordons. Budgetyconstraints, which intensified in 1993, prevented further rationalizion of the tax system and of fteincentve structure. The efforts made to promote the diversification of productive activities andincrease the relative importance of the tradable goods sector were countred by the economy's lack ofcompetitiveness. Insufficient savings and investment rates did not permit a swift return to sustainedgrowth, increased employment, or to increased per capita income. The accumulation of paymesarrears prevented a return of investor confidence. Finally, a considerable public enal debtunemined the country's external relations.

As a result, the Goverment of Cote d'lvoire, in close consultation with its African partnersin the CFA frwc zone, decided to intensify its adjustment efforts by devaluing the CPA fran toCPAF 100 to FP 1 as of January 12, 1994. The Government considers that the one-timerealignment, supported by appropriate fiscal, monetary, wage and struc policies, will contribuetoward the restoration of intemational economic competitiveness and creatg an enviroment for

-3-

sustainable growthL This new adjustment strategy is also intended to enable a rapid restoration ofpublic finance equilibria and, at the same timne, a reorienitation of public expenditure in favor ofproductive invesunent and development of the country's human resources.

Following the parity change, the Government, in collaboration with the World Bank and theIMF, prepared a Policy Framework Paper for the period 1994-1996. In this context, the IMFsupports the Government's program through its Enhanced Structural Adjustmen Facility. TheGovermnent has expedited implementation of the Sectoral Adjustment Program to improvecompetitiveness and regulatory reform (PASCO), the Financial Sector Development Program(PASFI), and the Human Resource Development Program (PASHR), mobilizing US$345 million fromthe World Bank between January and end July 1994. Moreover, the international community hasagreed to reschedule C6te d'lvoire's external public debt to the Paris Club at enhanced Toronto terms,a move that enables us to look forward to a final solution to the external debt problem.

2. Obiectives and strategies for 1994-96

The structural adjustment program for 1994-96 aims to restore the conditions for a high levelof growth, to expedite a return to internal and external financial viability, and to improve thepopulation's living standards while reducing social disparities. To this end, the Government intendsto accelerate the reforms undertaken since 1989 with a view to effectively reduce structural rigidities,etiminate distortions that interfere with the structure of incentives, and stimulate the tradable goodssector.

In accordance with these objectives, the medium-term structural adjustment program aims to:(a) raise the growth rate to about 6 percent beginning in 1995-96; (b) increase externalcompetitiveness; (c) generate a primary budget surplus of 3 percent of GDP in 1996; (d) develop thecounty's human resources; and (e) strengthen measures to protect the population's most vulnerablegroups during the adjustment period.

The Economic Recovery Credit (ERC) is part of this new strategy to fiuter strengthen thecompetitiveness of the Ivorian economy, enhance its efficiency, and thereby attain the objectives ofthe economic program. The ERC is consistent with the major reforms already undertaken, especiallyunder the PASCO, the PASFI, and the PVRH.

Under the PASFI, the Government under took a number of measures designed to restrcturethe financial sector. All of the public sector arrears to the financial sector were eliminated throughpayments, securitization, or consolidation. The principal Ivorian banks were restructured, primarilythrough internal reorganization, loss absorption by shareholders, and limitation of the Governm t'sshareholdings to a maximum of 20 percent. The National Agricultural Development Bank wasliquidated following several unsuccessful ampts at reorganization, and the Abidjan Stock Exchangeas well as insurance companies were also restructured.

-4-

Under the PASHR, the Government also implemented measures desned to ensue anadequate level of public expenditure in human resource developmen. This objective was achievedprincipally through contolling the wage bill in the primary and secondary education sector, adoptionand execution of budgets reflecting sectoral priorities, implementation of measures designed torecover the costs of public health and education services, and actions aimed at reducing privatedspesuy costs of pharmaceutical products.

Under the PASCO, the Govemment has just completed a series of measures designed toimprove the competitiveness of the Ivorian economy, strengthen the market mechanisms, andstreamline the tax system. These measures have included steps to:

(a) simplify the VAT ad increase its neutrality by reducing the number of rates from 4to 3 (elimination of the maximum rate), extending the VAT to several sectors, such aselectricity, telephone, water, and several agricultural expors, aud reducing thestandard VAT rate frm 25 percent to 20 percent;

(b) restructure and streamline the customs tariff, narrowing tariff dispersion and reducingrate levels, which currently range from 5 percent to 35 percent;.

(c) eliminate the export premium, which became redundant once the Ivorian economyregained its competitiveness;

(d) eliminate the payroll tax paid by employers, which used to penalize nationals in thehiing process, and reduce the employer tax for expatates;

(e) eliminate restrictive practices in the area of external trade by abolishing the"'declaration of intention to import" system as well as the use of standard customsvalues for protectionist purposes;

(t) adopt a new Labor Code that is more flexible and more suited to the changedeconomic context, so as to enhance labor competitiveness and reduce labor marketrigidities;

(g) subtanaly reduce quantitative restrictions on imports in order to encouragecompetiton; and

(h) eliminate price controls for all products, apart from those appeing on a residual list.

3. Pemliminarc Ssults

The reforms and mesur imiplemented by the Goverment have already yielded positiveresuls. For example, inflation, the Govenment's main pnority after devaluation, has dropped toaround 31 percent during the first eight months of the year. The monthly consumer price index forAfrican households decreased gradually from 8 peet in Jamnay 1994 to around 1 percen in Julyand 0.6 per in August 1994. Moreover, economic activity and external trade indicators duringthe first semester of 1994 showed positive trends reflecting the reestablit of veness, agradual return of private sector confidence, political stability, and social peace. Hence, economicactivity is expected to increase gradually during the year, and GDP growth should reach 1.3 pement

in 1994, on the basis of increases in the production of non traditional exports such as woods, rubber,palm oil and banana. The production of the industrial sector has increased by about 5 percent durigthe first semester due to the performance of textile, chemical and agro-industries. In the area ofpublic finance, the reestablishment of competitiveness made it possible to increase tax revewes andimprove the primary balance of the Government's financial operations, which stood at about CFAF125 billion during the first semester, compared to a programmed level of CFAF 25 billion.Accordingly, domestic arrears were reduced by about CFAF 48 billion during the same period.Lastly, there is a marked improvement in the external position and in the liquidity of the bankingsystem, as net foreign assets improved by nearly CFAF 390 billion during the fist semester, anacceleration of the privatization program, and a marked renewal of private investor interest in Coted'lvoire.

The objectives pursued under the ERC will therefore be:

(1) to consolidate the measures already taken in regard to budgetary reforms, especiallywith respect to tax revenues and central government investments;

(2) to pursue the efforts aimed at liberalizing international trade;

(3) to improve resource allocation by strengthening the price deregulation process;

(4) to ensure the viability and development of the electricity sector;

(5) to increase production and improve marketing efficiency in the rice subsector;

(6) to improve the performance of the maritime transport sector.

H. BUDGETARY REFORMS AND POLICIES

i. Consolidation of tax revenmes

The three-year economic program sets as a target the increase of the primary budget surphsfrom 1.4 percent of GDP in 1994 to 3 percent in 1996. To achieve this result, tax revenues will haveto be consolidated, and should average 21.5 percent of GDP throughout the program.

Tax relief measures were enacted simultaneously with the devaluation affecting the VAT,import duties, and taxes on petroleun products as a means of improving the competitiveness of theeconomy and limiting price increases. This reduced the tax burden (excluding export taxes) from 16percent of GDP in 1993 to 13.2 percent in 1994.

The reimposition of export taxes on coffee and cocoa in the context of the program supportedby the IB through the ESAF has made it possible to maintain total tax revenues at the levelrequired, to reduce arrears, and service at least part of the external debt, in particular non-reschedulable debt. The rate of this export tax will be reviewed regularly in light of price trnds onthe interntional markets and the economic situation of these two subsetors. When the budgetarysituation so permits, the Government will examine the possibility of gradually phasing out this exportduty and replacing it with an aQricultural income tax over the period 1994-96. After reviewing thesituation, the Govemment inci, sed producer prices for coffee by 20 percent in March 1994. With

-6-

the ne crop season, producer prices for coffee and cocoa were increased by an additional 93 percentand 31 percent to CFAF 530 per kg and CFAF 315 per kg respectively.

To of et any shortfalls this might produce and to distribute the tax burden better among thedifferen sectors, the Government will reexamine the system of tax exemption and relief measurespertaiing to the new Investment Code scheduled for completion by December 1994.

2. Public nvestment program

In order to spur economic recovery, the Government is giving a big boost to publicinvestment. Ln 1994, the level of investment will be raised to 4.4 percent of GDP, compared to 2.8percent in 1993. Implementaton of the invesme program will result in an anud increase incapital expenditure, which will rise from CFAF 74 billion in 1993 to CFAF 165 billion in 1994, toCFAF 205 billion in 1996.

The sectors that will receive special attention under the the-year public imvestment programwill include agricutue, improvement of health and education, protection of the envonment andwban rehabilitation. These priorities are already reflected in the investment budget for fiscal 1994opted by the Natonal Assembly.

The three-year investment program for 1995-97 currently under preparation will take intoaccount the new macroeconomic framework, the increase in available resources for project financmg,and the sectoral priorities that have been set. Consuitations will be held with the World Bank beforethe end of October 1994 on the three-year investmt program for 1995-97. This program will befinalized in light of the findings of the study of the 1994 budget made jointdy with the World Bank,with a view to enhancing the economic and social efficiency of the investments.

III. STRENGTHENING OF ECONOMIC COMPETITIVENESS

PASCO itduced important reforms geared to the rationalzation and reduction of taxation,mpoving the functioning of the labor market, enhancing competition, and liberaliztion of the

isttutional and regulatory framework for the business sector.

The CPA franc parity adjstme and the new economic environment warrant a generalstrengthening of the measures already taken to increase the competitiveness of the Ivorian economy,while taking into consideration the real operating conditions of the sectors concerned and theminmu time period needed for the res g of certain enterprises.

IV. NON-TARUFF BARRIERS

In 1991 the Government began dismanding non-tariff barriers (NTBs) by elimiating thequantaive restrictions on several products. Under PASCO, it was expected that non-tariff barrierswould be progressively eliminated within three years (except for a residual list of products).Followig the parity adjusment the Govermment has intensified its strategy for liberalizng the

economy by shortning the time limit for the dmntling of NTBs to two years. Acting inaccordance with this str, it was decided to remove these barriers for 48 products, the value ofwbich is put at CFAF 152 billion, i.e. 62 percent of liberalizable products (or 51 percent of allproducts subject to non-tariff barriers). Dimanting of the NTBs for the other products will be

-7-

accelerated and completed within two yeams stag from 1994. The liberaon decree for 1994bas already been issued and the decision on the two-year libealzon timetable has bee taen. Thoadvisablty of eliminatg NTBs on remaining product could be studied on a cae-by-ce basis, withthe case of rice being handled within the framework of the ERC.

V. PRICE POLlCY

The price liberalization program was started in 1991 with the Law on coumetion 91-999 ofDecember 27, 1991, which put an end to the system of adminstred prices. Decree No. 92-50 ofJamnury 29, 1992 impleme_ this law by removing price controls from all products except for a litof 22 products or services classified as essential. Li ion ofprices on tis lis is subject toapproval by the Commision on Competition, whose specific ta is to ensure an appropriaesituation for the different products.

Purun to Artice 2-2 of the above-mentioned law, uthrizing the Govaerm to act toprevet excessive price rises resulting from an exceptional situaton, a temporary price freeze wasInsed after the devaluatim. Decre No. 94-19 of January 13, 1994 frz prices or the retailmargins of 34 products, incuding the 22 that were still controlled, for a maximmm period of threemonths, ending April 13, 1994.

The price freeze was eased by Decree No. 94-42 of February 11, 1994, which has sincelapsed, as has Decree No. 94-19 to which it rered. The provisions rdating to the 22 product arestll govened by the system set in place by Decree 92-50 of Januay 29, 1992. Te resuting priceliberaizato is evidenced by the movements in prices from one period to anodter and by pricingdiffes from place to place, as shown by periodic surveys.

In accordance with te Law, prices of those products or services that are still subject tocontrols, will be freed when conditions for competiton have been establHshed. NTBs protctingcertain products and services will be removed and replaced by import tariffs. Everytime an NTB isremoved, the Government will degulate the prices of the produc cocemed, puant to thelegisaon on competonL In ths regard, the price of cement was libalzed in August 1994.However, in view of the special nature of cerin staples, a case-by-case approach will be necessayfor these products.

VI. PUBUL ILIIxCI TARElPS IE LEC(Crm

The impact of the devauation on public utilities has been studied tdan into consideation thefinanci equilibrium of the sectors concerned, their investent needs, th be (espcailaytheir exnal debt), and the standard of living of diffeent segments of the popuaton or sectors ofe-omic activity.

Accordingly, and in light of the meim-tm com nmmts made in the PFP for thedectriciy sector, examination of these diffent elements has led to the adoption of a _ntariff adjustment, efecdve May 14, 1994. As a reslt, electricity tariff rates were inreased by anaverage of 20 percent, ranging from 0 percn for the social low voltage rate, dty prtet themost vulnerable segmen of the population, to SO percent for the conventiond low voltage and thehigh voltage tariffs.

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Any changes occurring in the factors governing electricity generation costs, will justify areview of those tariffs, taking into consideration the conditions affecting the sector's supplies,production, and financial equilibrium. It is the Government's intention to apply a policy of cost-basedand flexible prices.

The Government, together with the electricity operating company, intends to review and, ifnecessary, implement price adjustments taking into account not only the costs of energy and othersupplies, but also all efforts that could be made to improve productivity and to streamline operatingexpenses. Since there is a monopoly situation, with one private concessionaire, a framework forconsultation needs to be established. Consequently, tariff reviews will be carried out periodically,within the framework of the National Electricity Fund recently set up to manage the sector, to ensurethat tariffs are determined on an adequate basis. The mechanism will be put in place in November1994 and will hold its first review by the end of December 1994. These reviews will be:

half-yearly, priarily to note variations in supply costs within the frmework of theannuls investment program;

yearly, taking into account the investment programs, including the rehabilitationworks; and

every three years, primarily to reexamine the tariff structures and the investment andproduction programs.

VII. RICE POLICY

The Government's rice policy basically aims to promote an increase in local rice production,so as to ensure CMte d'Ivoire's self-sufficiency within economically efficient conditions and toguarntee sufficient security of supply.

The sttegy proposed by the Govemment to achieve the above-mentioned objectives is basedon the gradual liberalization of operations in the rice subsector, with the introduction of morestreamlined incentives and with appropriate investments being made in support of the productivesector. This strategy will ensure the existence of a completely free rice market by January 1, 1997.

To support this medium-term strategy, the Govenument plans to implement a number ofpolicies covering the incentives system, the rice import policy, and security stocks, as well as thegradual process of rice mill privatization.

1. Incentives

The system of incentives to increase rice production is linked to Cote d'Ivoire's price policyfor rice imports. Following the devaluation of the CFA franc in January 1994, domestic rice hasbecome competitive, making it possible to deregulate the price of imported rice. However, dunngimplementation of this policy, account should be uken of the short term risk of domestic rice beingdisplaced by imported rice. The Govemment, therefore, intends to stimlate domestic productionwith an adequate tariff protection, to make rice price policy more consistent with the level ofincentives within the region, and, strting in 1995, to avoid a financial deficit on rice operations thatcould have an adverse effect on the Government's budget. This transition period would be spread

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over one cropping season. Given all these factors, the incentive policies proposed by the Governmntare as follows:

2. Luxury rice

At present, the price of luxury rice (less than 35 percent broken) is not regulated on thedomesdc market. The Government liberalized imports in August 1994. The level of customs dutieswill be kept unchanged at 25 percen.

3. Imp_orted rewlar ice

In line with the above-mentioned objectives, the Government increased the price of regularrice by 10 percent in January 1994, as agreed within the program supported by the I through itsESAF. The price of imported regular rice (35 percent broken) wil be increased a second time in1995 (February) to a level of around CFAF 210 per kg. This level is consistent with the objectivesof stimulating domestic production and assuring financial equilibriu. As of January 1, 1996, theprice of regular rice will be deregulated, with tariff protection of 15 percent. Once the price ofregular rice is liberalized, the transport equalization system will simultaneously be eliminated.

4. ro rice and PL 480 rice

Cargo rice imports will be liberalized as of January 1, 1995, with a tariff protection of 15percent. PL 480 rice will be handled in a manner consistent witthe regular rice import policy andin agreement with the bilateral partner.

S. Import rolicv

it is the Government's intention to liberalize the rice trade. It recognizes that the presentimport system for regular rice (35 percent broken), managed by the Price Equalization Fund, needs tobe improved by bringing the private sector into the mechanism. Consequenty, as of January 1,1995, the Price Equalization Fund will cease its import operations and will be replaced by the privatesector, which will assume direct responsibility for such operations through the Chamber of Commerceand Industry. Introduction of the private sector will allow for much greater flexibility in managementof the import system. However, given the above-mentioned rice policy objectives, the Governmentintends to limit the level of imports authorized each year during a transition period. The limits onimports wil gradualy keep pace with the increase in agricultual production, and will disWpear as ofJanuary 1, 1997.

6. Security stock

Given the importance of rice in Ivorian food consuption, the Government has beenmaintaining a security stock of this staple. However, its aim is to reduce the security stock to anadequate level, taking account of the development of the agricultural sector and of financialconstants. The security stock has already been reduced from 6 months to 3 months consumption.However, given the financial cost, the Govermment plans to gradually reduce the buffer stock evenfurther, and brougt it down to two months of consumption, i.e. aromund 50,000 tons, by September1, 1994. Management of this security stock will be taken over by the private sector starting July 1,

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1995, and a control mechanism operated by the public sector will be put in pace before tuat date toguarantee adequate stock levels and quality.

7. Rice mills and storaee silos

The Government's policy in the area of storage aims to privatize al of the storage failities byJuly 1, 1995, except those retained for the security stock. The rice mills that will represent theGovernment's contribution in kind to the capital of SOPRORIZ, will have a value limited to 35percent of the company's capital (CFAF 350 million). The Govenmment will restrict its particpationin SOPRORIZ to CFAF 350 nmillion and will not give the company any subsidies in kind or in cah,or financing for the rehabilitation of the rice mills. The rice mills slated for SOPRORIZ will bevalued in accordance with standard accounting and financial practices of C6te d'Ivoire. TheGovernment will begin its divestite in 1994 with the sale of the first five rice mills for whichbiddig documents have already been prepared.

8. Price Efuaization Pund

The role of the Price Equalization Fund will be reviewed on the basis of the proposedreforms. A study along these lines will be finalized by the end of 1994. The Government willevaluate the study recommendations and will prepare an action plan, to be implemented in 1995.

VI - MARITIME TRANSPORT POUCY

As stated in the PFP, the Ivorian Government has committed itself to:

- eliminate restrictive practices in the transport sector;

- improve domestic and maritime transport as a major componet of goverment policy, so asto stegtu C&te d'lvoire's competitiveness; and

- pursue simplification of transport procedures and encourage competiton in maritimetwansport.

The Government's policy on maritime transport aims to give C8te d'Ivoire a part in thetsport of products that it imports or exports. C6te d'Ivoire is a signatory to the 1974 UNCTADCode of Conduct and to other bilateral and inteional agreements, applying the principle of trafficrights allocation according to the 4040-20 rle (40 percent for CMte d'Ivoire, 40 percent for thecountry of origin and 20 percent for third parties).

The Office Ivoirien des Chargeurs (OIC) was established in 1975 to manage this distribtionand allocation system for freight and to represent COte d'Ivoire in the maritime confeaes, inaccordance with the provisions of the Code of Conduct.

In accordance with the nrles of the Code of Conduct, two national shipping companis,SITRAM and SIVOMAR, have held the exclusive rights for "Ivorian" traffic, i.e. 40 percent of thetotal. This means that the two companies do not have a monopoly on all the mariime trafcgenerated by the country's foreign trade, but of the Ivorian shate of tbose taffic rights, as provided

- 11 -

in the agreements. Nevenheless, the Govenmn intends, as noted in the PFP, to have martimtransport play a part in restoring the competitiveness of Ivorian producs.

1. maitime Traffic Conferc

With respect to the mantime traffic covered by the Conference, the Government intends tostep up eral compettion within the sector. It will take the necessay steps to enable Ivoriansippers other than SITRAM and SIVOMAR to have access to the 40 percent of traffic reserved forC8te d'Ivoire by the end of September 1994. This intensified competiton will take account of theneed to renegotiate the geographically-based traffic allocations fonmerly established for SITRAM andSIVOMAR. With res-pect to the distribution of traffic not allocated to Ivonan shippers, itsrearrangement to favor competition is subject to the review of bilateril agreements signed with theEuopean countries. The Govemment is thus in favor of the liberalization of this 40 percen oftraffic, now under discssion with MINCOMAR and the Economic Union with a view to resumenegoiations on this aspect.

Within the framework of an audit of the OIC, designed to improve the cargo distributionsystem, a system enabling idependent shippers (i.e. maritime companies providing regular serviceswith being mebers of the maritime conferences) to load cargo without authoriaon from theOIC will be studied and implemented no later than March 1, 1995. As of that date, the cargodiribution system will be applied solely to maitime companies that are members of the conference.This systm should also taken into account the need for OIC to continue to cover the traffic handledby cfrene members, thus allowing traffic to be distributed in accordance with the Code ofConduct.

2. Sgcaized taffic

With respect to traffic not covered by the Code of Conduct and comprising products such aspetroleum products, clinker, wheat and rice, the current national preference has limited competition intes sectors, in particular for pineapple and banana. Specific measur have already been taken tocorrec such anomalies, in the form of special agreemen concluded with exporters.

For example, due to the partial liberation already in progress, the cost of sea shipment ofbanas was first brought down from US$90 to US$75 per paliet, and then to US$72, inchudinghanling charges. It is furter envisaged that, shipping companies wiU be required to declare theirrates for Ivorian imports and exports. These rates do not exclude special deals that shippingcompanies may offer their clins.

The Goverment confirms its willingnes to proceed with a partial liberalizadon of this trafficby opening a part of it up to other spers. The 100 percent of this traffic reserved to Ivorianshippers will thus be reduced to 50 percent by the end of Sepember 1994. This liberliztion shouldmak it possible to increase competition within the sector and enhance its competitiveness.

3. Office Ivoiren des Char

The Government intends to revise the operaing rules of the OIC and to improve itsmanagement, so as to enhance the itveness of Ivorian products and of maritime transportation.The time for completion of formaliies will be reduced to a maximum of one full working day, with

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the possibfity of apped to the maritime admntration if the proce.s takes longer. An operatonalaudit of OIC wfll be completed by end 1994.

An audit of the administered system of national traffic cargo allocation will also be competedby end_1994. A better understanding of the system will also be esnti before new arrangements aredevised. The Government will evaluate the results of the audit and implement the necessarymeasurs. As immdiate steps:

the OIC will be asked to periodically publish the lowest market rates;

shippers will be asked to submit their rate proposals, by major prodct categories,with the OIC; and

the OIC will be required to publish cargo distbution and actual shipping information(quantes, values, unit prices) by shipping company and flag cr paripati inIvorian traffic.

In addition, greater transparency and flexibility of the reguatory framework will be sought.

For this purpose, it is necessary to have more precise data on the rates actually applied andtheir impact on the cost of the targeted products. A study will be performed to design a method foridentying such data and monitoring them over time.

A study to ascertain where competitiveness can be enbanced and to better detenine the costof the entire transport chain for coffee, cocoa, pineapple, bna, coKon, wood and wood productshas already been launched. The first phase focuses on export products and should be completed bythe end of 1994.

Finally, a preliminary report analyzing Ivorian legislation on maritme matters will beavailable by the end of 1994 with proposals for the modification of certain aspects.

clion

We would like to take this opportity to reiterae the cowmitme of the Government of COed'Ivoire to the program described in this letter of Developmet Policy. The Goverment is convincedthat the program will help to improve the economic and social development of Cfte d'lvoire.

Based on reforms sheady launched, and in light of the program meentioned above, theGovermment of CBte d'Ivoire requests your favorable consideration of an Economic Recovery Creditto support our efforts in the area of economic and social development.

Please accept, Mr. President, the asurances of my highest consideratioan.

Minister-Delegate of the Prie Mistin chare of Finamne, Economy and Pl_ang

I

ANNEX C

f 1TATUS OF BANK GROUP OPERATIONS

Annex CCqIM D¶VOIRE -Rkil with d Wo Wd aBnk Group Page 1 of 2

STATUS OF BANK GROUP OPERATIONS IN COTE D'JVOIEStatent ofIDid ) Leans and IDA Credits

(As tiuy. 31 1994)

61 kA% closed 2,153.1

LuL 2619-0 1986 RCI Heath 1 22.2 2.3Lu. 2627-0 1986 RCI Pabnoil V 13.4 1.1lu. 2789.0 1987 RCI hid Urban Pzoject 126.0 10.0Lu. 2874-0 1988 RCI Rubber V 11.5 0.2Lu. 3128-0 1990 RCI Mzfibipsl Dcv, 66.0 27.8Li. 3155-0 1990 RCI Abidjan Env. Potection 21.9 5.2Liu 3186.0 1990 RCI Foresty SeeW 80.0 58.8Li. 3251-0 1991 RCI Pilot WomeninDev. 2.2 0.9

Total_nbrofLoA 8 343.2 106.3

7 credk, closed 392.5

Cr. 2363-0 1992 RCI Puivafizion Support 15.0 14.2Cr. 250340 1993 RCI E _onomic Manag. TA 17.0 15.4Cr. 2505-0 1993 RCI Human Res. Dev. Mg 6.7 6.5

Cr. 2324-1 S 1994 RCI Regtoy Reform 50.0 52.7Cr. 2597-0 1994 RCI Ruml Savings 2.2 2.2Cr. 2637-0 1994 RCI Labor Foree Tanig. Sup. Proj. 17.0 17.6Cr. 26360 1994 RCI Natual Agr. Serv. Sup. Pt4. 21.8 22.85

Tol numberofCCredits- 7 129.7 1314

Toal (BRD and IDA)V 221492.3 $222

Of which has beenrepaid . S

Toal nowbold by IBRD and IDA SL.SII.I S51

Amount sold

Of which repid

Total udisbused2

1/ NolyefefAectew.2/ Toakdl Wrow4 epqwe_n aifd o blg blne>b *pwNbol actJ and

hoebi lw oand credk..XS aae 4AtLku a avdlt.

Annex C

Stat_ementof IFC investent Page 2 of 2(ASOJuS30 1994)

1965/n8 Banque Ivoirenne de Developpment Deeopet Fance .. 0.42 OA2*Industiil. S.A (BIDI)

1977 Ets. R. Gonfieville S.A. Texiles Fibres .. 0.88 0.88

1979 Societ Ivoene dEnrais(SIVENG) Feizrs 5.12 1.27 6,39*

1980 Moulin du Sud-Ouet Food & Food Procesng 2.90 OA1 331 0

1986 Etsa R. RGofeie, SA Tcxtiles & Fibres 9.28 .. 9.28

1987/93 Omnium Chimique et Cosmetque, Food & Food Pocssing 6.69 0.18 6.87S.A. (COSMIVODRE)

1987 Societe des Industries Alimentai Food Food roesin 3.14 053 3.67at Laiies (SIAIM)

1988 Industra Pomotion Srvices Capita Madoms . 0.83 0.83

1989/93 Pechazur (AEF) Food & Food Pocessig 1.07 ,. 1.07

1990 Omnium Ttansfnmasions Arimetnirs Food & Food Procming 0.66 0.17 0.83(OTA) (AEF)

1990 Sociee des Industies Afimantires Food & Food Prooessing 1.83 0.34 2.17et Laiss (SIALIM)

1991 Transftn Industiele de Bos Wood & Wood Proesing 0.39 0.19 0.58(TRIBOIS) (AEF)

1991 Planbvoir (AEF) Food & Agnusiness 1.06 1.06

1991 Intragi(AEF) Food &Agiibusiuss 1.00 .. 1.00

1992 Ivoie -Cad (AEF) commmamxdng 0.10 0.01 0.11

1993 BlkC Mning .. 11.40 11.40

1994 Multipodut (AEF) Gain MiD 0.40 .. 0.40

1994 FgiseoSA Weaving 1.00 1.00

1994 BAaI Capi4t Marbs 5.30 .. 5.30

1994 I/ Fan Mlk (AEF) Food 0.30 .. 0.30

Total gross comminme DM , #6A

Net commitme now held by IFC ,Q Sl

Total undisrse (incluig pacipants porion) Su Da au

V/ Appvwdbutnao*4mmwedC hr,Ime,ldrwan 4f

ANNEX D

SULEIMENTAL CREDIT DATA SHEET

Page 1 of 2REPUBLIC OF COTE D'IVOIRE

ECONOMIC RECOVERY CREDIT

Supplemental Credit Data Sheet

wofnI: TIYetable of KeU 1u EveK t

Time taken to prepare: six months

Project prepared by: Government with the assistne of IDA staff

Loan Committee: March 25, 1994

Appraal: April 11-28,1994

Negotiations: June 8-20, 1994

Board Presentation: October 20, 1994

Effectiveness Date: October 24, 1994

Closing Date: June 30, 1995

Board Conditions:

(i) NMI: adoption of a time bound action plan for the elimination of NTBs;

(ii) EPces repeal of all decrees affecting the price freeze of 34 products and serices anddecree eliminating the price control on cement;

Tis report is based on the findings of the World Bank mission wbich visited C8ted'iLvoire in April 1994 to assist the Govermment in the appraisal of the ERC. Mission membersineluded: Messrs./Mnes van Trotsenburg (Task Manager); Ablers (Principal Economist),Horton (Trade and Maritime Transport), Ferrer (Principal Economist, Rice), de Castro(Consultant, Maritime Transport), Demiraydin (Reseah Aitant), Balcet (Agriculture).Additional contributors include: Messrs./Mmes Morin (Senior Counsel), Mouysset (Counsel),Melkonian (Disbursements), de Chazal (ariime Transport), Bassani (YP), Layec (EnergySector), and Roffe (Sr. Staff Assistant). Ms. Ngozi OkoDjo-Iweala and Mr. Olivier Laforcadeare the Division Chief and Department Director, respecvely, for the opeation.

Page 2 of 2

(iii) ELCRidiv t s: adjustment of electricity tariffs in line with the sector's financialobjectives;

(V) B: liberaliation of huxry rice imports; publication of Government decision on ricepolicy reforms and their time table, including libwelizaton of ordinary and cargo rice,lift of price contols on ordinary rice, privatizaion of silos and rice mills, and studyon the future role of the Caisse de P&6quation.

Cr0ediet iveness.QROMdtin:

(i) -Mantifme tno: publication of Govemment decision authorizing that independentmaritime companies can, no later than March 1, 1995, load cargos without priorauthorization from the OIC, and opening of 50 percent of the Ivorian maritime trafficrights pertaining to refrigerated and bulk ltafc to maritime companies other thaSITRAM.