PROGRAM PERFORMANCE AUDIT REPORT

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• Publié par: Abbu
• Nombre de lectures: 35
• Langue: English

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ASIAN DEVELOPMENT BANK PPA: MON 25359






PROGRAM PERFORMANCE AUDIT REPORT

ON THE

INDUSTRIAL SECTOR PROGRAM
(Loan 1244-MON[SF])
IN
MONGOLIA







December 2000
CURRENCY EQUIVALENTS
Currency Unit – Tugrik (Tug)


At Appraisal At Program Completion At Operations Evaluation
(June 1993) (November 1998) (August 2000)

Tug1.00 =$0.002500 $0.001230 $0.000929
$1.Tug398.00 Tug813.16 Tug1,076.90



ABBREVIATIONS

ADB – Asian Development Bank
CBC – case-by-case method
GDP – gross domestic product
MSE – Mongolian Stock Exchange
MSEC – Mongolian Securities and Exchange Commission
MTI – Ministry of Trade and Industry
OEM – Operations Evaluation Mission
PC – Privatization Commission
PCR program completion report
PPAR – program performance audit report
SDR – special drawing rights
SME – small and medium enterprise
SOE – state-owned enterprise
SPC – State Property Committee
TA – technical assistance
USSR Union of Soviet Socialist Republics



NOTE
In this report, “$” refers to US dollars.

Operations Evaluation Office, PE-563
CONTENTS

Page

BASIC PROGRAM DATA ii

EXECUTIVE SUMMARY iii

I. BACKGROUND 1

A. Rationale 1
B.Formulation
C. Objectives and Scope at Appraisal 1
D. Financing Arrangements 1
E.Program Completion and Self-Evaluation 2
F. Operations Evaluation 2

II. PROGRAM IMPLEMENTATION AND RESULTS 2

A. Effectiveness of Design 2
B.Implementation of Policy Reforms 3
C. Management of Program 5
D. Assessment of Results 7

III. PROGRAM IMPACT 9

A. Economy-Wide Impact 9
B.Social Impact
C. Environmental Impact 9
D.Sustainability 10

IV. KEY ISSUES FOR THE FUTURE 11

A. Overall Environment 11
B.Institutional and Human Capacity 12
C. Post-Privatization Issues 12
D.Unfinished Agenda 13

V. CONCLUSIONS 14

A. Overall Assessment 14
B.Lessons Learned 15
C. Follow-Up Actions 16

APPENDIXES 18
BASIC PROGRAM DATA
Industrial Sector Program (Loan 1244-MON[SF])

Program Preparation/Institution Building
TA No. TA Name Type Person- Amount Approval
Months ($) Date
1586-MON Restructuring and Development of the AOTA 30 635,000 29 Oct 1991
Industrial Sector
1929-MON Strengthening the Industrial Sector AOTA 24 545,000 17 Aug 1993
1930-MON Developing Mongolia’s Legal Framework AOTA 10 500,000

As Per ADB
Key Program Data ($ million) Loan Documents Actual
Total Program Cost 30.0 32.2
Foreign Currency Cost 30.0 32.2
ADB Loan Amount/Utilization 30.0 32.2
SDR 21.7 21.7
ADB Loan Amount/Cancellation 0.0 0.0
Amount of Cofinancing 0.0 0.0

Key Dates Expected Actual
Fact-Finding 28 Sep 92-10 Oct 1992
Appraisal 20 Apr 93-11 May 1993
Loan Negotiations 15-16 Jul 1993
Board Approval 17 Aug 1993
Loan Agreement 26 Aug 1993
Loan Effectiveness 15 Nov 1993 30 Aug 1993
Second Tranche 28 Aug 1995
Loan Closing
Program Completion 1 Aug 1996 31 Dec 1996
Months (effectiveness to completion) 32.25 40.07

Borrower Government of Mongolia

Executing Agencies Ministry of Industry and Trade (formerly Ministry of Agriculture and Industry
and Ministry of Trade and Industry) and Bank of Mongolia
Mission Data
Type of Mission No. of Missions Person-Days
Reconnaissance 1 26
Fact-Finding 1
Appraisal 1 110
Program Administration
Review 4 31
Program Completion 1 24
Operations Evaluation 1 24



ADB = Asian Development Bank, AOTA = advisory and operational technical assistance, SDR= special drawing rights, TA =
technical assistance. EXECUTIVE SUMMARY
Until 1990, the Mongolian economy was based on the central planning system and was
covered under preferential trading and financing arrangements of the former Council for Mutual
Economic Assistance. Prior to the collapse of these arrangements in January 1991, the Mongolian
economy was receiving 30 percent of gross domestic product as aid. With the sudden withdrawal of
this aid, the Government of Mongolia initiated a program to move to a market-based system. The
Industrial Sector Program Loan (the Program) was the first attempt to restructure the industrial
sector in Mongolia and was an integral part of the medium-term adjustment program under the
enhanced structural adjustment facility of the International Monetary Fund.
The principal objective of the Program was to bring about efficiency and international
competitiveness in the industrial sector through policy and institutional reforms. It aimed to increase
reliance on market forces and create a policy environment to promote private investment. The
Program included seven major components: (i) abolishing price and supply controls, (ii) liberalizing
the international trade and foreign exchange regimes, (iii) institutionalizing enterprise governance
through privatization, (iv) encouraging commercial operations in the financial sector, (v) developing
an institutional and legal framework, (vi) restructuring sector institutions, and (vii) supporting the
social safety net.
The Program was approved on 17 August 1993 for SDR21.667 million ($30 million
equivalent) from Asian Development Bank’s (ADB’s) Special Funds resources. The funds were
disbursed in two tranches: the first tranche of $15.3 million equivalent upon loan effectiveness in
August 1993 and the second tranche of $16.9 million equivalent upon approval of the program
progress report in August 1995. Two technical assistance (TA) grants totaling $1,045,000
accompanied the Program. The first TA was designed to assist the Government in implementing the
policy measures to manage, monitor, and assess the impacts of the Program. The second TA
helped develop the legal framework.
The program completion report was finished in November 1998 and the Program was rated
generally successful on the basis of positive key indicators that suggested signs of sustainable
recovery. The program completion report highlighted three constraints: policy reversal relating to an
export ban on cashmere, unfamiliarity with ADB procedures, and frequent changes at official level
that disrupted program administration. It emphasized the need to recognize linkages between the
industrial and financial sectors, and highlighted the weaknesses in institutions, especially in terms of
promoting foreign investment. This program performance audit report presents important design and
implementation issues as well as lessons for future operations.
Out of 31 policy actions, the Government fully complied with all except three. One condition
relating to the financial sector was integrated with subsequent programs. However, the broad picture
on manufacturing sector performance in Mongolia is not very encouraging. What seems particularly
disappointing is that the reform program has not resulted in sufficient restructuring of existing units
nor promoted new areas of growth and productivity enhancement in the industrial sector. The overall
share of industrial activities in the economy declined significantly from 35 percent in 1990 to 24
percent in 1999.
The Program was ADB's first attempt at sector restructuring in a transition economy that
adopted the "big bang" approach. ADB's interim operational strategy was designed to facilitate
transition of Mongolia's economy to market principles. The economy had been relatively small,
largely isolated with its landlocked geography, and heavily dependent on the former Union of Soviet
Socialist Republics. In retrospect, it is evident that the transition process was not a simple matter of
reforming policies, redefining the role of the Government, or liberalizing foreign exchange, iv
investment, and price regimes, but effectively dealing with the challenges posed by the sudden
withdrawal of significant volumes of aid and serious disruptions in trading links and vital
infrastructure supplies. Instead of imposition of the orthodox view that establishing market conditions
would automatically generate economic growth, the Mongolian economy needed a strategy for a
smooth transition with investments in infrastructure, energy, and basic needs, and a gradual
approach to reforms. Though a TA preceded the Program, its recommendations were not based on
rigorous sector analysis to see whether any industrial activity could have survived the complete and
sudden opening of the economy.
About 70 percent of domestic investment at present is financed from external aid and this is
not sustainable in the long term. Greater flows of private capital, improved efficiency of financial
sector entities, and better information flows are crucial to attract investments to generate positive
impact of the reforms undertaken so far.
The program period coincided with rapid political reforms in Mongolia and so the design o