The Caribbean Region A Review on World Bank Assistance

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Report No The Caribbean Region A Review on World Bank Assistance November 14, 1994 Operations Evaluation Department Document of the World Bank

2 ACRONYMS AND ABBREVIATIONS CARICOM - Caribbean Community and Common Market CARIFTA - Caribbean Free Trade Area CAS - Country Assistance Strategy CBI - Caribbean Basin Initiative CDB - Caribbean Development Bank CET - Common External Tariff CGCED - Caribbean Group for Cooperation in Economic Development ECCB - Eastern Caribbean Central Bank EDI - Economic Development Institute ESW - Economic and Sector work EC - European Community FSTA - Free-Standing Technical Assistance GAIT - General Agreement on Tariffs and Trade GDP - Gross Domestic Product IARM - Inter-Agency Resident Mission IBRD - International Bank for Reconstruction and Development IDA - International Development Association IDB - Inter-American Development Bank IMF - International Monetary Fund JAC - Joint Audit Committee LAC - Latin America and the Caribbean LDCs - Less Developed Countries MDCs - Most Developed Countries MPFPs - Medium-term Policy Framework Papers NAFTA - North American Free Trade Association OECS - Organization of Eastern Caribbean States OED - Operations Evaluation Department OPR - Operational Policy Review PAR - Performance Audit Report PCR - Project Completion Report PSIPs - Public Sector Investment Programs RPPs - Regional Program Papers SALs - Structural Adjustment Loans SECALs - Sectoral Adjustment Loans USAID - US Agency for International Development WINBAN - Windward Islands Banana Association

3 THE WORLD BANK Washington, D.C U.S.A. Olfice of Director-General Operations Evaluatlon November 14, 1994 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: The Caribbean Region: A Review of World Bank Assistance Attached is the report The Caribbean Region: A Review of World Bank Assistance prepared by the Operations Evaluation Department. The Caribbean countries have had in common a number of structural problems including limited economic diversification away from primary commodities, poor macroeconomic policies in the 1970s and 1980s (especially in the three largest countries, Guyana, Jamaica, and Trinidad and Tobago), high levels of unemployment, and inadequate educational systems. However, there are considerable differences in institutional endowments across countries so that a country-focussed approach is essential. The attached report evaluates the impact of Bank assistance strategies and the instruments employed. Overall, the Bank's assistance strategy has adapted well to the development needs of the region, especially in the case of Organization of Eastern Caribbean States (OECS) countries, but it entailed, in partictular for the most developed countries (MDCs), a lengthy learning process, especially when moving from traditional investment lending to program and adjustment loans. As a result, project outcomes have compared unfavorably with those of the Bank's overall portfolio. Over time, the strategy moved from a regional approach to a country by country focus. High average transaction costs related to the small size of countries induced growing reliance on regional institutions. In its relations with OECS the Bank appropriately relied on the Caribbean Development Bank (CDB), an efficient intermediary. Through the creation of the Caribbean Group for Cooperation in Economic Development (CGCED) the Bank acquired an additional venue for its advisory services. Further efforts in utilizing regional institutions appear to be warranted. The report reaches the following conclusions: (a) assistance programs should give priority to human resource development and employment, private sector development and environmental activities; (b) the Bank should consider the characteristics of the countries in the design of its operations; (c) a more realistic assessment of absorptive capacity is recommended in determining the level and composition of the lending program, especially adjustment and technical assistance loans; and (d) there is room to improve the effectiveness of CGCED by making it a true locus of regional aid coordination rather than a venue for Bank-individual country dialogue. Attachment

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5 THE CARIBBEAN REGION A REVIEW OF WORLD BANK ASSISTANCE TABLE OF CONTENTS PAGE NO. PREFACE... i EXECUTIVE SUMMARY... iii CHAPTER I: INTRODUCTION... 1 Scope of the Review... I Geographic Coverage... I Time Coverage... 2 Objectives... 2 Methodology Evaluation Criteria... 3 CHAP'TER II: ECONOMIC DEVELOPMENTS OUTSIDE AND INSIDE THE REGION, Structure and Economic Performance of the Caribbean Economies Development in the 1970s... 7 Development in the 1980s... 8 Development Challenges: The Region's Perspective... 9 Development Challenges: The Bank's Perspective CHAPTER III: THE BANK'S ASSISTANCE STRATEGY AND OPERATIONS, Overview Toward a Regional Assistance Strategy Bank's Regional Strategy: Limited Success and Need for Reorientation CHAPTER IV: THE EFFECTIVENESS OF THE BANK'S ASSISTANCE PROGRAM AND ITS OUTCOME Introduction The Role of CDB and CGCED Country Economic and Sector Work (ESW) Free-Standing Technical Assistance (FSTA) Inter-Agency Resident Mission (IARM) Aid Coordination Policy Dialogue Lending Financial and Human Resources This report was prepared by Gabricl Sciolli (Task Manager), Sidney Chernick, Sulaiman Wasty and Sanliang Yuc (Consultants). Jasminc Mason-Anderson provided word processing assistance.

6 TABLE OF CONTENTS (CONT'D) PAGE NO. OED Evaluation Experience Performance Trends Country and Sectoral Performance Portfolio Composition Performance Factors External Shocks/Exogenous Factors Country Conditions Project Processing Factors The Status of the Current Portfolio CHAPTER V: LESSONS OF EXPERIENCE AND AGENDA FOR THE FUTURE Lessons of Experience New Challenges for the Bank and the Region Agenda for the Future The Caribbean and the Pacific Islands: Lessons from Comparisons (i) Regional vs. Country Focus: Need for Balance (ii) Economic Diversification and Comparative Advantage (iii) Institutional Development and Human Resources: Further Constraints to Growth and Employment (iv) The Role of the Bank: Defining an "Appropriate" Role (v) CGCED: Increasing its Relevance for the MDCs (vi) Relying on Other "Local" Expertise: CARICOM, OECS and the University of the West Indies (vii) Aid Coordination: Improving the Quality of Declining Aid FIGURES IN TEXT 11.1 Real GDP Growth ( ) Real GDP Growth ( ) Net Capital Inflows ( ) TABLES IN TEXT 1. I Selected Caribbean Countries... I 11.1 Selected Indicators of Economic Performance Per Capita Net Capita Inflows: Terms of Trade Index Real Effective Exchange Rate IV. 1 Adjustment and Investment Lending, Caribbean Countries IV.2 Country Performance by Time Periods, by Approval Years IV.3 Sectoral Performance by Time Periods, by Approval Years IV.4 Distribution of Commitments to the Caribbean Region IV.5 Commitment by Sector... 48

7 TABLE OF CONTENTS (CONT'D) PAGE NO. ANNEXES I. Commitments Detail Report - EBRD and IDA Lending II. Details of Evaluated Projects/Programs and their Ratings m. Caribbean Region Normalized Performance by Pre-1974 Time Period APPENDIX The Caribbean Development Bank (CDB)

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9 - i - THE CARIBBEAN REGION A REVIEW OF WORLD BANK ASSISTANCE PREFACE 1. In 1992, OED prepared a study of the Bank's relations with its small island members in the Pacific. Like in the Pacific, the small island economies in the Caribbean pose conceptual and operational questions for the Bank to provide these members with cost-effective development banking services. In response to a request from the Latin America and the Caribbean (LAC) Region, and with the support of the Joint Audit Committee (JAC), OED undertook this review of the effectiveness of Bank assistance strategies for a group of member countries in the Caribbean region. 2. The review has drawn heavily on: (a) OED's completed performance audit reports (PARs) and the LAC Regions project/program completion reports (PCRs); and (b) the extensive documentation in the region's files, including intra-bank communications, country studies, sector reports and project appraisals, country and regional program papers of the 1970s and the early 1980s, and the more recent country and regional strategy papers. Recent supervision reports have provided a measure of the current performance of the Bank's portfolio in these countries. The large stock of analytical materials produced by Caribbean and other university scholars and by practitioners was also canvassed. An update of the Country Economic Memorandum (1992), "Long-Term Economic Prospects of the OECS Countries" (Report No CRG), undertaken jointly by the CDB and the Bank, provided valuable source material for this review. Within the regional perspective, special attention was given to a few countries selected for their contrasting size and performance, so as to permit a detailed tracing of the impact of Bank assistance strategies. 3. The first phase also entailed interviews in Washington with Bank staff who were engaged in designing and implementing regional assistance strategies and with agencies and individuals outside the Bank such as the International Monetary Fund (IMF), the Inter-American Development Bank (IDB), the US Agency for International Development (USAID) and other representatives of bilateral donors located in Washington. For the major donors, the Approach Paper of the review was submitted to their head offices and this was supplemented by visits to their field offices in the Caribbean. At a second phase, a small mission visited a sample of countries to assemble information not available in Washington and elicit the views of assistance recipients and the Caribbean regional development agencies. Their views have been incorporated in the report.

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11 - iii - THE CARIBBEAN REGION A REVIEW OF WORLD BANK ASSISTANCE EXECUTIVE SUMMARY Introduction i. The small island economies in the Caribbean, pose conceptual and operational questions for the Bank to provide these members with cost-effective development banking services. In response to a request from the Latin America and the Caribbean (LAC) Region, and with the support of the Joint Audit Committee (JAC), OED undertook this review of the effectiveness of Bank assistance strategies for a group of member countries in the Caribbean region over the last fifteen years." ii. The objectives of the review have been to: (a) identify the thrust and assess the effectiveness of Bank assistance strategies designed to overcome the region's development constraints; (b) evaluate the cost-effectiveness of the instruments-lending, free-standing technical assistance, economic and sector work (ESW), aid coordination, and policy dialogue-and the main regional institutions employed in implementing them: the CDB and the Caribbean Group for Cooperation in Economic Development (CGCED); and (c) draw lessons of experience as to how the Bank can effectively help the region address some of the major emerging new obstacles to attaining sustainable economic and social development. iii. Caribbean countries have had in common a number of stubborn structural problems including uneven economic diversification away from agriculture and preferential markets, poor macroeconomic management in the three largest MDCs, high levels of unemployment and an inadequate educational system. The average annual GDP growth for the CARICOM countries ranged between 6.3 percent and -0.8 percent over the period. Over the 1980s, the average annual growth rates widened to between 6.3 percent and -2.2 percent. The MDCs recorded negative or low growth rates for output, especially during the 1980s, whereas growth in all the other Caribbean countries was comparatively robust. Trinidad and Tobago, Guyana and, to a lesser extent, Jamaica, were the worst performers. Such economic growth as was achieved in the Caribbean was propelled by the expansion of exports, tourism, and the high volume of inflows such as aid and remittances from abroad. The smaller countries also managed to weather the terms of trade and natural shocks of the 1970s and early 1980s without acquiring large external debt burdens. I/ For purposes of this review, the Caribbean region is derined to comprise the 12 countries that are members of the Bank and the Caribbean Community and Common Market (CARICOM). Specifically, the countries include the four most developed countries (MDCs), i.e., Barbados, Guyana, Jamaica, and Trinidad and Tobago, the six countries forming the Organization of Eastern Caribbean States, i.e., Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines, along with The Bahamas and Belize. In addition, the review includes the Caribbean Development Bank (CDB).

12 - iv - The Bank's Assistance Strategy, Relevance, and Timeliness iv. In dealing with the challenges facing the Caribbean economies, the Bank adopted the following approach: (a) initial formulation of a strategy for the region as a whole; (b) continuation of traditional as well as policy-based lending to the MDCs, notably Guyana and Jamaica, throughout the 80s, and Trinidad and Tobago in the early 90s; and (c) reliance, after 1977, on the Caribbean Development Bank (CDB) for lending to the LDCs while maintaining them under the umbrella of a sub-regional development strategy. The regional assistance strategy for the Caribbean led to gradual disenchantment with the initial approach of regional lending and to a shift in focus to the sub-regional context of the LDCs. Between 1975 and 1984, the Region produced three Regional Program papers. The regional approach, based on the assumption that economic interrelationships existed between the various Caribbean countries, did not really succeed. Its abandonment was formalized in the last 1984 RPP, which recognized that progress at the regional level had been much slower than anticipated (mainly due to different country interests) while the Bank had become less influential in regional matters. The failure of the regional approach, in the sense of a unit of economically interrelated countries, should not come as a surprise, considering that the makings of economic integration based on relative comparative advantage were not there to start with. v. For the MDCs, the initial approach can be characterized as "traditional". Beginning in the 1960s, investment lending with modest conditionalities was the main instrument employed. Agriculture, transport and, later in the 1970s, education, were the main sectors targeted. For the least developed country among the MDCs, Guyana, the Bank targeted its assistance strategy initially to building up the necessary infrastructure especially for sea defenses, highways development, and power-together with projects to promote agricultural and livestock development with particular attention to farm mechanization. Similar sectors were the focus of attention both in Jamaica and Trinidad and Tobago. After the second oil price shock in 1979, the rise in international interest rates, and the severe recession that gripped the industrial countries in , the Bank's strategy shifted sharply towards adjustment lending and the associated policy dialogue. Adjustment lending was characterized by very modest success until the late 80s, especially in the cases of Guyana and Jamaica. Since then, there has been a progressive shift in Bank strategy back towards investment lending while continuing to rely, for selected countries, on adjustment lending, with greater success than in the earlier period. One area in which the Bank's regional strategy does not seem to have been sufficiently developed is unemployment for which no real in-depth study was carried out. vi. For the small island economies, the basic assumption underlying the Bank's strategy is that these countries are especially vulnerable to the vagaries of international markets, to changes in donor policies (levels and composition of assistance, provision of preferential trading arrangements, and immigration policy) and to natural disasters. In this context, the Bank addressed the main constraints through sectoral loans for power, agricultural rehabilitation, transport and education. However, the Bank's assistance in banana and sugar-related projects did not take into account that these two main products had lost their comparative advantage and were being artificially supported by preferential markets in the EC and the USA. The Bank could have been more forceful in exploring, together with the countries, the venue of economic diversification. vii. The Bank's assistance strategy until the early 90s adapted reasonably well to the development needs of the region, in particular of the OECS, but it entailed a lengthy learning process especially when the strategy moved away from the traditional investment lending to the program and adjustment loans. A close look at current Bank strategy, as reflected in the Business Plans for the

13 - v - Caribbean and other program documents, shows first of all a remarkable awareness of the problems facing the Caribbean countries. These range from the decline in aid flows to the region, the erosion of preferential arrangements, especially for bananas and sugar, and the decline of the Caribbean Basin Initiative in relation to NAFTA, on the external side, to the fragility of the macroeconomic framework in most countries, the need to move from stabilization to sustainable growth, the poor quality of public sectors and government services, the weakness in the human resources basis, the high level of unemployment and the vulnerability of the eco-system, on the domestic front. The action programs reflect these concerns, both at the country specific level and at the regional one. With respect to the individual countries, the ESW includes an appropriate balance of macro and sector specific issues, including cost-effective farming out of relevant components to CDB for the smaller countries. The lending program shows an increasing role of investment projects with respect to adjustment lending, and the sector focus on basic infrastructure, health and education and private sector development, appears to be the right one. At the same time, there is a renewed regional focus on unemployment, trade and environment. The Instruments of the Bank's Intervention CDB and CGCED viii. In implementing its regional strategies, the Bank relied on two institutions in addition to its own lending and ESW. One is the CDB, established in 1970, and the other is the Caribbean Group for Cooperation in Economic Development (CGCED), established in 1977 under the chair of the Bank, with the first meeting held in June The creation of the CDB satisfied the Bank's goal to channel additional development funds to the IBRD/IDA member countries at a lesser cost for the Bank. Over the years the Bank has put considerable effort in strengthening the CDB's organization to make it a more effective regional development institution and in improving CDB's ability to appraise and supervise projects. Significant progress has been made in the achievement of these objectives and, although certain manpower shortcomings still remain to be overcome, the Bank's future lending activity should continue to rely heavily on CDB. The CGCED's purpose was to pursue three objectives: (a) to mobilize external resources in support of economic development in the Caribbean, especially for the smaller islands; (b) to coordinate aid flows so as to avoid duplication of effort; and (c) to improve the quality of the policy dialogue between donor and recipient countries. Since its establishment in 1977, the CGCED has met i i times. Judging from capital flows to the Caribbean countries, the CGCED, at least initially, appears to have been successful in mobilizing a large volume of external financial resources, including a large volume of concessionary financial aid. In addition, it has provided a forum for policy dialogue on issues affecting the whole region. From the recipient's perspective, especially the OECS countries, the resources mobilized were highly effective as shown by their overall good economic performance. Country Economic and Sector Work (ESW) ix. ESW expanded during periods of economic stress and contracted as the situation improved. A review of a sample of economic and sector reports from the mid- 1970s and from the latter half of the 1980s showed the latter, generally, to have covered a wider scope of issues such as the impact of external shocks, to have employed more sophisticated analytical analysis, and displayed a better understanding of the special development problems of small (island) countries.

14 - vi - Free-Standing Technical Assistance (FSTA) x. The main issue with the FSTA projects, and especially those on public sector management has been the very slow pace of implementation and the longer term sustainability. The Bank did not employ this instrument extensively, partly because of numerous other multilateral and bilateral agencies engaged in overlapping or duplicating technical assistance, and partly because Bank experience has shown it to be a difficult and costly instrument to employ effectively. Of the eight free-standing operations approved by the Board during the period, the MDCs accounted for all the projects. Four were approved for Jamaica, two for Guyana, and one each for Trinidad and Tobago and Barbados. Inter-Agency Resident Mission (IARM) xi. The resident mission is a good example of the kind of technical assistance the UNDP can mount. IARM was in operation for about four years. Its main objective was to help enhance the benefits that the OECS countries could derive from the CGCED. The immediate objectives were to assist OECS countries to formulate and implement appropriate development policies, and improve the management of public sector resource, specifically the programming and monitoring of public sector investments. The main lessons yielded by the project were: the IARM's operational life was much too short to accomplish all its objectives, and the preparation of Public Sector Investment Program (PSIP) was a critical step in formulating a sound development program. Policy Dialogue xii. The policy dialogue, advice and, sometimes, direct inputs into the design and formulation of policy reforms, have become a key instrument of Bank assistance to Caribbean countries. Toward this end, the Bank has increasingly resorted to its ESW as input in the preparation of PSIPs, Medium-term Policy Framework Papers (MPFPs), and Country Assistance Strategy (CAS) papers-specific materials which facilitate the policy dialogue. The original expectations were that the CGCED would facilitate this dialogue. In the event, however, the CGCED has proven to be an imperfect forum for the Bank's policy dialogue with its borrowers. In fact, one-on-one discussions between Bank staff and government officials have been essential ingredients for an effective dialogue and the Caribbean governments have become increasingly responsive to this assistance instrument and are usually ready to participate actively. Lending: OED Evaluation Experence xiii. As of end-august 1993, Bank lending to the 12 CARICOM countries and to the Caribbean Development Bank (CDB), reached US$2 billion, comprising 147 investment projects and policy-based programs. Of the 147 loans/credits, PCR-PAR performance ratings are available for 76 completed operations (representing commitments of US$ 1.1 billion) to eight countries in the region (and the CDB). Among these completed projects, 66 percent have been judged as satisfactory against a Bankwide satisfactory average of 75 percent and the LAC Region's satisfactory average of 71 percent. Notably, the percentage of adjustment programs judged satisfactory, 45 percent, is considerably lower than the Bank-wide average of 73 percent. However, following a deterioration in portfolio performance with the percentage of projects rated satisfactory declining to the mid-50s range, for projects approved in the second half of the 1980s, performance trends show the satisfactory ratios oscillating around the 70 percent level. There are large differences in performance among countries in the Region. Among the MDCs, average performance levels range from the highest of 100 percent satisfactory in Barbados to the lowest of 54 percent both in Guyana and Jamaica. All the smaller borrowers: Bahamas,

15 - vii - Belize, the CDB, Dominica, and Grenada-with a low number of projects evaluated-have achieved a 100 percent satisfactory performance rating. The main factors behind the poor performance of projects include, in the case of SALs, the Bank's insufficient attention to the country's ownership and absorptive capacity vis-a-vis the reform packages proposed (Guyana, Jamaica), and to local conditions (conflicts among agencies and levels of government) and inadequate reliance on local expertise, including CARICOM, the OECS and the University of the West Indies. xiv. Currently, 47 ongoing projects and programs in the 10 countries (more than half in the MDCs) and the CDB have received supervision ratings as reported by the Bank's Operational Policy Review (OPR) Department. Only one of these projects and programs (Jamaica's Population and Health Project) is considered as "problem" project with severe implementation problems indicating a possible improvement in the Region's aggregate portfolio performance in the years ahead. Lessons of Experience xv. The review of the Bank's assistance effort in the Caribbean yields many lessons for the Bank, other donors and aid recipients. Among the more instructive are the following: * In the earlier days of Bank involvement in the Caribbean, a region comprising mostly small-island countries, the Bank came with pre-determined views in terms of the countries' ability to respond to the prescriptions derived from the larger non-caribbean countries with which Bank staff worked. This was especially true for policy based lending in countries such as Jamaica and Guyana and for investment lending in Trinidad and Tobago. There is evidence that the Bank has became more flexible in its approach to country needs, including the involvement of local staff in projects and other assistance activities. * The pace of economic reforms has been an especially irksome issue in the Caribbean. Most of the times, the Bank tried to persuade the country to implement the reforms at a quick pace, which was the common orthodoxy in the rest of the Bank. Recipient governments (Jamaica, Guyana, Trinidad and Tobago) have argued that too fast a pace of reform is unrealistic in the Caribbean, given the cumbersome decision-making process and consensus building requirements. The Bank should have realized that whenever the desired rapid reform pace was not achievable it would have been preferable to adjust the size of the lending program accordingly, including moving away from policy-based quickdisbursing lending towards investment lending with adequate sector policy conditionality. * While the Bank could not project the fate of banana and sugar exports in the late 1980s and the early 1990s, it was inconsistent in its approach to the development of the agriculture sector in the region. Although the comparative advantage of both products had long since been lost, production was sustained because of preferential markets offered by the EC and the USA and because of the monetary rewards obtained by traditional interest groups with strong links to the two crops. The Bank should have researched more intensively and much earlier alternative diversification strategies, especially considering the very long lead time that a diversification process requires. * In some aspects of the assistance program, the Bank identified the issues properly but failed to follow up. The critical problem of unemployment in the region was identified early in the 1970s, and mentioned in various documents since then. However, no in-depth study of this regional "time bomb", or the strategies to tackle it, took place. Further outmigration is a function of the state of the global economy and more specifically of the countries around the region where the potential for

16 - viii - workers immigration lies. All the demographics point to a situation which will worsen over the next 10 years; an early start on analyzing the problem is highly desirable. * The Bank, in devising its projects, has often neglected (Jamaica, Guyana) the limited indigenous capacity for implementation, including insufficient interministerial coordination, while at the same time failing to tap local expertise when available. Furthermore, the mechanisms for beneficiary involvement were either not in place or the process was very time-consuming (Guyana). Finally, in some cases, the socio-political aspects of projects were not adequately taken into account (Jamaica, Sites and Services Project). In such situations, the Bank should have scaled down its lending program. Agenda for the Future (i) Regional vs. Country Focus: Need for Balance As with the Pacific Islands, the Caribbean countries constitute a region more in logistic than in substantive terms. More specifically, the benefits of integration are limited by the fact that their factor endowments are very similar. Furthermore, the Caribbean countries have quite different features between the MDCs and the LDCs and even among the countries within each group. This explains the importance of maintaining a specific country focus (as the LAC Region has done so far), and to design a regional or subregional strategy for specific issues. While substantial benefits are associated with common services and coherent policies, the design and implementation of regional arrangements is demanding. Therefore, the main prospects for the regional approach is in the analysis of some common development issues such as trade, human resources, environment and the role of the private sector. (ii) Economic Diversification and Comparative Advantage As indicated above, the Caribbean countries, because of the poor perspective of the primary products, from bananas and sugar to bauxite and oil, are facing serious constraints to their development prospects. Maintaining their current productive basis is already a major achievement and it would imply turning around the negative economic trends of the more recent years, especially for the MDCs. Looking at individual countries, likely areas of concentration would seem to be financial services for Barbados; food-processing activities for Guyana; for Trinidad and Tobago, while maintaining their fairly significant agricultural basis, and possibly converting it from primary products to more marketable crops, continued reliance on its oil related activities in association with Venezuela; and finally for Jamaica, further expansion of its relatively more developed industrial basis, once proper market signals are provided and the institutional fabric of the country drastically overhauled. For the smaller Caribbean countries, tourism should remain a key sector, while additional growth prospects could come from a "division of labor" in a number of areas which are of common interest such as health and education facilities, financial services, coast guard services, etc. Unemployment remains a key problem in the Caribbean and the diversification and specialization efforts indicated above are imperative to prevent unemployment from becoming a worsening feature. (iii) Institutional Development and Human Resources: Further Constraints to Growth and Employment Growth of output and employment are constrained not only by a limited productive basis but by weaknesses in the institutional setup and in human resources. These two problems are present in different degree among the countries. They are most acute in Guyana and Jamaica, less serious in

17 - ix - Barbados and the smaller islands, and significant in Trinidad and Tobago. With respect to institutional development, the negligible results of the administrative reform programs launched in some of these countries (e.g. Jamaica), confirms that, as OED has observed in its evaluation work, without a serious overhaul of the civil service system the prospects for serious institutional development are dim. The Bank may have contributed to the problem by focusing on the formulation of sophisticated blue prints for reforms, leaving their implementation to domestic unskilled staff and "passing through' foreign consultants. The human resources issue is related to the institutional aspect and to the issue of unemployment. An inadequately skilled labor force has very little chance to find gainful employment whether domestically or abroad. In those countries where the human resource basis, also as a result of migration of the more talented people, is especially weak, i.e., Guyana, Jamaica and Trinidad and Tobago, the Bank as well as the other donors should make special efforts. This is an area in which a regional approach could be taken including the Bank and all the other institutions such as IDB, OECS, and the private donors. In particular, the University of the West Indies should be the central focus of the higher and technical education for the Caribbean with particular attention devoted to the training of teachers at the lower levels of learning. (iv) The Role of the Bank: Defining an "Appropriate" Role The appropriate role of the Bank in the Caribbean is influenced by the obligations of the institution towards its member countries and by the "transaction" costs linked to Bank assistance for small countries. Clearly, small countries are entitled to the Bank's attention in terms of policy dialogue within the framework of a well defined development strategy based in turn on a well focussed ESW. Ongoing ESW in the LAC Region for the Caribbean countries indicates that by and large, especially with the increasing reliance on Medium-Term Policy Framework papers, the Bank is well placed to capture the development issues facing the Caribbean and to develop the consequent policy recommendations. The reaction of some of the Caribbean countries, expressed in the course of the visits of the OED study team, is that greater effort should be made by the Bank to understand the sociological and political aspects when analyzing their economic problems and formulating development strategies. More important, however, is the Bank's need to reflect a greater perception of the countries' varied cultural background into its lending program especially in terms of beneficiaries and their participation in the design of the projects. The reality of ethnic composition in some of the Caribbean countries is often neglected in this phase of the Bank's assistance strategy. With respect to the Bank's operations, the following aspects appear of particular relevance. First, given the poor experience of the past, further reliance on SAL type operation should remain limited. The last SAL to Trinidad and Tobago, albeit a successful one, should give way to assistance at the sectoral (e.g., agriculture) investment level. SALs should not be considered priority instruments in Jamaica and Guyana where the reform pace is severely hampered by outstanding development constraints which make the countries less equipped for effective use of broad resource transfer operations. SECALs and Sector Investment loans would seem a more appropriate venue for Bank lending at this stage. Finally, special attention should be given to self-standing technical assistance projects. While their number has been limited, their poor outcome represents a wasted opportunity to make progress in the critical institutional areas which technical assistance projects normally address.

18 -x - (v) CGCED: The Need for Increasing its Relevance for the Ml)Cs It would seem that the LDCs find the CGCED an interesting forum for the discussion of their individual interests. At the same time, the MDCs rely more for their "business" on the direct relationship between them and the Bank. An interesting innovation introduced by the LAC Region, implemented at this year's meeting, has been to extend the participation to private financial institutions. This novelty appears to have been well received by the larger Caribbean countries as it offers them an opportunity for direct discussions with potential lenders in the broader context of the regional development framework. (vi) Relying on Other "Local" Expertise: CARICOM, OECS and the University of the West Indies A greater use by the Bank of the institutions such as CARICOM and the OECS should be made when it comes to formulating the strategy for the Caribbean. We have already discussed above the role of the University of the West Indies. A lot more could be achieved if the partnership with CARICOM and OECS were to be strengthened. The Bank has traditionally been reluctant to interact with such institutions. This attitude is often at the basis of the criticism levelled by non-government organizations and governments alike, of the Bank's lack of understanding of the local conditions. (vii) Aid Coordination: Improving the Quality of Declining Aid Aid flows to the Caribbean from all parts of the international financial community have been declining steadily over the last ten years. The Caribbean is moving from an age of high aid, often dictated by geopolitical consideration, to an age of aid retrenchment, also in part dictated by new geopolitical considerations. In this context, aid coordination between the Bank and IDB, and with bilateral donors, becomes imperative. The quality of the assistance in terms of its relevance for the recipient countries, is under continuous discussion. Occasions such as the CGCED meetings, and the donors meeting before that, should be used to coordinate the quality of the flows more than their level. The danger of aid dispersion among many areas of intervention answering to the parochial considerations of individual donors and of multilateral organizations remains very high. If the priority intervention areas in the Caribbean are those of human resources, institutional development, environment and privately led economic diversification-cum-employment, then the role of the Bank is to make sure that the bulk of the dwindling aid flows into these areas. From the view point of the development process, concentrating the efforts in this area should be more important than "assigning" areas of interventions to one or the other among the donors.

19 CHAPTER I INTRODUCTION 1. In 1992, OED prepared a study of the Bank's relations with its small island members in the Pacific.Y' Like in the Pacific, the small island economies in the Caribbean pose conceptual and operational questions for the Bank about providing these members with cost-effective development banking services. In response to a request from the Latin America and the Caribbean (LAC) Region, and with the support of the Joint Audit Committee (JAC), OED undertook this review of the effectiveness of Bank assistance strategies for a group of member countries in the Caribbean region. Scope of the Review 2. Geographic Coverage. The Caribbean region comprises numerous small island economies; most of them are listed in Table I-l. For purposes of this review, the Caribbean region is defined to comprise the 12 countries listed in column I of the table. All are members of the Bank and the Caribbean Community and Common Market (CARICOM). The three countries shown in Column 2 are members of the Bank, but not of CARICOM; they form a part of the wider Caribbean.Y Column 3 lists a number of other small island economies which are dependencies of either the U.K. or the Netherlands.' The one anomaly is the tiny island of Montserrat; it is a member of CARICOM, but not of the Bank. Table 1.1: Selected Caribbean Countries Members of the Bank Members of the Bank Non-Bank members and CARICOM but not of CARICOM non-caricom Antigua and Barbuda Dominican Republic Anguila Bahamas Haiti Aruba Barbados Suriname British Virgin Islands Belize Cayman Islands Dominica Montserrat* Grenada Netherlands Antilles Guyana Turks and Caicos Islands Jamaica St. Christopher (St. Kitts) and Nevis St. Lucia St. Vincent and the Grenadines Trinidad and Tobago * Member of CARICOM, but not of the Bank.!' The World Bank and Pacific Island Countries: An OED Review (Report No , May 5, 1992). Y These three countries have applied for membership in CARICOM, but a decision has been slow in coming. Where the cxperiences of these countries provide insights into the Bank's assistance strategies vis-a-vis small island economies, the review will take them into account. l' These island economies participate in the Caribbean Group for Cooperation in Economic Development (CGCED).

20 The 1973 Treaty of Chaguaramus, which established the Caribbean Community, designated the four larger CARICOM countries-barbados, Guyana, Jamaica and Trinidad and Tobago-as 'most developed countries" (MDCs) as opposed to the Eastern Caribbean states (plus Belize), which have been designated "less developed countries" (LDCs). This status enables the smaller countries to benefit from certain preferential arrangements within the Community. The Bahamas has remained a member of the Caribbean Community, but has opted out of the Common Market. It has also "graduated" as a borrower from the Bank as of The review focusses on the development impact of Bank assistance to the region covering the twelve Commonwealth Caribbean countries shown in Column 1 of Table I.1. As former British colonies, they have much in common. The West Indian Commission Report, Time for Action notes that the group is subject to "... a natural regional bonding arising out of common historical roots."y Besides these countries being all English speaking, they have retained broadly similar administrative, educational, and cultural practices and traditions implanted by the colonial power. Although there was considerable agitation for local independence, once India and Ghana attained this status in the early post-war years, the common heritage in the Caribbean fostered parallel efforts in favor of federation or integration. The West Indian Federation ( ), the subsequent efforts to create a Federation of the Eastern Caribbean, the establishment of the Caribbean Free Trade Area (CARIFTA) in 1968 and then CARICOM in 1973, all reflect the widening and deepening of integration in the English speaking Caribbean region. It is essentially this country group that the Bank has regarded as the "Caribbean Region" and the subject of its "regional assistance strategy". 5. Time Coverage. The CARICOM countries began to obtain independent status in the 1960s; Jamaica and Trinidad and Tobago in 1962, and Barbados and Guyana in Thus the Bank's assistance strategy for these countries (and the smaller islands with U.K. guarantees), dates from the mid- 1960s. The small island economies of the Eastern Caribbean attained their independence in various years towards the end of the 1970s and the early 1980s, while Belize became independent in Six of the smaller countries belong to the Organization of Eastern Caribbean States (OECS). Since a region-wide and consistent economic and social database adequate to assess country and regional economic performance is only available since about 1977, that year was taken as one terminal date for the review, with 1993 the other. This did not precluded references to earlier events where that proved appropriate. Objectives 6. The review, in its attempt to ascertain the development impact of Bank's assistance strategy to the region, has tried to: * trace the main external factors and internal development constraints affecting regional economic performance since the mid- to late 1970s, without losing sight of individual country performance; * identify the thrust of and assess the relevance and effectiveness of Bank assistance strategies designed to overcome the region's development constraints; Time for Action. "Overview of the Report of the West Indian Commission", Bridgetown, Barbados, 1992, p. 15.

21 Methodology * evaluate the efficiency of the instruments-lending, free-standing technical assistance, economic and sector work (ESW), aid coordination and policy dialogue-and the main regional institutions used in implementing these instruments: the Caribbean Development Bank (CDB) and the Caribbean Group for Cooperation in Economic Development (CGCED); * draw lessons of experience as to how the Bank can effectively help the region address some of the major emerging new obstacles to attaining sustainable economic and social development. 7. Evaluation Criteria. The review has evaluated the impact of the Bank's assistance strategies, the instruments employed, and regional institutions used in addressing the region's major development problems against the following criteria: * was the intervention relevant-i.e., did it address a development problem which analysis showed could be solved through the application of Bank instruments and appropriate country policy conditionality? * was the intervention anpropriate and adequate for the task-i.e., were the instruments applied appropriate for small island economies, and were enough financial and staff resources applied towards accomplishing the objective? - was the intervention timely and flexible i.e., was the intervention made when needed and were allowances made for mid-course corrections and adjustments as needed? and - was the outcome cost-effective i.e., was the specific objective or objectives of the intervention attained at least cost? Where the objectives of the assistance program were set out with quantifiable targets and progress markers along the way, the outcomes can be readily evaluated. But more often than not, assistance objectives are stated in general terms so that only a qualitative assessment can be made. 8. The review has drawn heavily on: (a) OED's completed performance audit reports (PARs) and the LAC Regions project/program completion reports (PCRs); and (b) the extensive documentation in the region's files, including intra-bank communications, country studies, sector reports and project appraisals, country and regional program papers of the 1970s and the early 1980s, and the more recent country and regional strategy papers. Recent supervision reports have provided a measure of the current performance status of the Bank's ongoing portfolio in these countries. The large stock of analytical materials produced by Caribbean and other university scholars and by practitioners was also canvassed. An update of the Country Economic Memorandum (1992), "Long-Term Economic Prospects of the OECS Countries" (Report No CRG), undertaken jointly by the CDB and the Bank, provided valuable source material for this review. Within the regional perspective, special attention was given to a few countries selected for their contrasting size and performance, so as to permit a detailed tracing of the impact of Bank assistance strategies.

22 The first phase also entailed interviews in Washington with Bank staff who were engaged in designing and implementing regional assistance strategies and with agencies and individuals outside the Bank such as the International Monetary Fund (IMF), the Inter-American Development Bank (IDB), the US Agency for International Development (USAID) and other representatives of bilateral donors located in Washington. For the major donors, the Approach Paper of the review was submitted to their head offices and this was supplemented by visits to their field offices in the Caribbean. At a second phase, a small mission visited a sample of countries to assemble information not available in Washington and elicit the views of assistance recipients and the Caribbean regional development agencies. Their views have been incorporated in the report.

23 - 5 - CHAPTER II ECONOMIC DEVELOPMENTS OUTSIDE AND INSIDE THE REGION, Structure and Economic Performance of the Caribbean Economies 1. The 12 CARICOM countries are highly open economies with trade to GDP ratios exceeding 50 percent. This openness also exposes these economies to shocks emanating from abrupt changes in the external environment. The main traditional exports to markets outside CARICOM have included sugar, bananas, coffee, bauxite, and petroleum and products-most of which have enjoyed preferential access to a number of import markets. However, in recent years, there has been an increasing tendency toward globalization of trade, services, and capital flows as global markets have been liberalized and have become more competitive. 2. The smaller Eastern Caribbean countries, with comparatively limited natural resources, are heavily dependent upon agricultural exports, tourism and, more recently, business and financial services for foreign exchange earnings. Below-scale domestic markets have militated against the development of industrial activities although some countries have managed to attract foreign firms to sponsor light assembly operations which are then eligible to ship their products duty-free to the United States under the U.S. Caribbean Basin Initiative (CBI) inaugurated in 1982 and other U.S. tariff modifying protocols (806, 807, and "super' 807).Y 3. The three larger CARICOM countries-guyana, Jamaica, and Trinidad and Tobago-produce and export raw or processed minerals-bauxite, alumina, natural gas, and petroleum; the latter two countries also have modest industrial sectors, with their output going largely into intra- CARICOM trade. 4. Apart from preferential access to the U.S., CARICOM has been given similar access to the European Community (EU)-bananas, sugar and rum-and to Canadian markets (CARIBCAN) for a number of commodities. Table II.1 provides some key performance indicators for the 12 Caribbean countries. 5. Average annual GDP growth for the CARICOM countries ranged between 6.3 percent and percent over the period. (Figure 11.1). In the 1980s, the average annual growth rates widened to between 6.7 percent and -2.2 percent. (Figure 11.2). Over both periods, there was a wide disparity in the performance of individual countries. The MDCs recorded either negative or low growth rates for output, especially during the 1980s, whereas growth in the smaller countries was comparatively robust. In the latter period, Trinidad and Tobago, Guyana and, to a lesser extent, Jamaica, were the worst performers. I/ The objective of the CBI is to attract foreign and domestic investment to the Caribbean and Central American countries (including all CARICOM members), to encourage diversification and to expand export earnings and cmployment. The legislation provides duty-free entry for a broad range of products from qualifying CBI beneficiaries (28 countries and territories as of July 1991), including most textiles and apparel, canned tuna, petroleum, most footwear, certain leather, rubber or plastic gloves, luggage, handbags and flat goods, and certain watches and watch parts. In August, 1990, the Initiative was converted into a permanent program. Surveys in 1988 and 1990 identify 218 new firms that were established in CARICOM countries that could be attributed to the CBI.

24 These disparities are even more evident in terms of the real per capita GNP growth rates. During the period , the region attained an overall annual growth rate of 2.1 percent. But this aggregate figure is attributable mainly to the remarkably sound performance of the LDCs, which achieved an average annual growth of 7.9 percent as opposed to the negative annual growth rate of 1.8 percent by the MDCs during the same period. 7. The economic growth was propelled by the expansion of exports, tourism, and the high volume of aid inflows, remittances from abroad, and subsidies on sugar and banana exports. For example, in Barbados, per capita net capital inflows between from all sources averaged US$141; the average for the region in the same period was US$68. However, since then, these flows have been experiencing a declining trend, and have been even negative for some of the MDCs. (Table II.2 and Figure 11.3). 8. The economic trends over the 1970s and the 1980s are contrary to the expectations expressed in 1973 when the CARICOM was established. At that time it was expected that the MDCs would provide the economic growth dynamic for the region and pull the LDCs along with them; it was this expectation that provided the rationale for the preferential treatment of the LDCs. As it turned out, the LDCs have performed robustly while the MDCs have floundered. Part of the explanation for the robust economic performance of the LDCs lies in their strict adherence to monetary arrangements (with the creation of the Eastern Caribbean Central Bank) and maintaining fiscal stability in their economies. 9. In the better performing countries, exports of goods and non-factor services expanded rapidly because they: (a) benefitted from preferential trade agreements on bananas, sugar, and manufactures; (b) located niche markets for their goods and services, notably tourism; (c) maintained sound macroeconomic frameworks; and (iv) invested in human and physical capital. In the poor performing countries, the macroeconomic fundamentals were weak. However, policy reforms in Guyana, Jamaica, and Trinidad and Tobago, beginning in the late 1980s, have laid the foundations for their improved economic performance. 10. Sectoral growth has been uneven in the region during the past decade. Growth in the services sector has been the most rapid, while agriculture has declined moderately and manufacturing consistently declined. The shift in agricultural output growth is not uniform across countries. In Guyana, the resurgence in agricultural output reflected favorable responses to policies introduced in the late 1980s, particularly the liberalization of the exchange rate and of domestic prices, while in St. Lucia, and St. Vincent and the Grenadines, the upward trend reflected the output response to banana price increases following the US dollar appreciation in The manufacturing sector's performance was volatile, and its share in GDP contracted in several countries, notably Trinidad and Tobago. 11. The services sector emerged as the most dynamic growth sector in most countries. Increases in this sector reflected the growth in exports of non-factor services (which originated mostly from tourism receipts). Again, these growth patterns were uneven across countries, with the OECS countries, Belize, and Jamaica performing particularly well. Tourism has become very important in the Bahamas, Barbados, Jamaica, and over the past decade the most dynamic economic activity in virtually all the high performing OECS countries. 12. Over the years, the Caribbean economies have been exposed to a variety of external shocks, relating principally to the adverse movements in their terms of trade due to the two oil shocks of the 1970s and one in the late 1980s. On average, each shock generated an adverse movement in the balance

25 of payments. Though some of the countries adjusted rapidly to these external developments, the policy response in a number of other countries was to rely excessively on external financing-with major negative effects: (a) it delayed the introduction of needed structural changes; and (b) it set in motion an external debt spiral that recently has set the stage for a precarious debt situation in a number of countries. 13. As a general pattern in the Caribbean countries, the private sector saved more than it invested and the public sector invested more than it saved. Public sector savings have been weak, albeit showing some improvement in the late 1980s. Traditionally, government expenditures have played a key role in the economic performance of the Caribbean countries and constitute a large percentage of each country's GDP. Government consumption increased in order to maintain aggregate demand in countries faced with adverse external shocks. At the same time, government revenues remain susceptible to commodity price movements given the open nature of the economies and the dependence of revenues on a narrow export base. With policy reforms introduced in several countries beginning in the late 1980s, more prudent fiscal and monetary policies are now in place, with payments on external and internal arrears being made, and exchange rates being allowed to better reflect market fundamentals. 14. Foreign direct investment has generally been low relative to total investment and has focused mostly on tourism-related activities. Among the high performing countries, Antigua and Barbuda, St. Kitts and Nevis, and St. Lucia attracted foreign investment averaging over 10 percent of GDP per annum. It has been low or negative in the remaining Caribbean countries. Yet, given the Caribbean's proximity to major markets and language similarity, the region enjoys enormous prospects for servicerelated developments. Developments in the 1970s 15. The 1970s decade was marked by traumatic events which adversely affected world output growth and trade patterns in general, and the performance of the Caribbean region in particular. Throughout the period, countries in the Caribbean had to adjust not only to external shocks and natural disasters, but also to internal organizational challenges posed by newly-acquired independence. Until 1973, most of the countries faced a strong demand for their exports, relatively stable prices for a wide range of imported consumer and capital goods, and an increasing flow of tourists from the U.S., Canada, and Europe, along with substantial flows of foreign direct investment in the mineral and tourism sectors. Subsequent to 1973, the massive increases in petroleum prices, the weakened demand for some of the region's key exports and, toward the end of the decade, two devastating hurricanes-david and Allan-all contributed to a reversal of the favorable growth experience of the earlier years. In brief, the impact of the events in the 1970s are reflected in: a) A sharp decline in the terms of trade (see Table 11.3) resulting from increased prices of petroleum and intermediate and manufactured imports; at the same time, export prices of agricultural products, the region's main source of foreign exchange (later to be supplanted by tourism) declined. b) A drop in economic growth rates during the 1970s below those recorded a decade earlier -excluding Trinidad and Tobago, which benefitted from the petroleum price increases during this period. c) Volatile intra-regional trade patterns, due to devaluation and overvaluation of currencies and because of drops in foreign exchange earnings. d) The increased resort to deficit financing to sustain public expenditure levels.

26 e) Rising unemployment, since regional labor forces were growing faster than the total population and the decline of agricultural employment and the slow growth of industrial employment failed to generate sufficient employment growth. f) The increased propensity of countries to expand public sector interventions "to recapture the commanding heights of decision making in the economy" by establishing state economic enterprises in certain commodity and service sectors and erecting a pervasive regulatory framework. Guyana, Jamaica, and Trinidad and Tobago went further in state interventions than the OECS countries. Guyana was the extreme case, ultimately becoming a populist cooperative republic. Developments in the 1980s 16. The problems facing the Caribbean countries worsened during the first half of the 1980s. Before the Eastern Caribbean could recover from one of the worst storms of the century, the 1979 Hurricane David, they were hit by another devastating hurricane (Allan). At the same time, the rapid rise in oil prices and the unprecedented rise in world inflation adversely affected the availability and the cost of intermediate inputs. The shortage of agricultural inputs for example, contributed to diseased sugar and banana crops. The recession in the industrial countries caused sharp declines in tourism, while the 1982 debt crisis and soaring interest rates raised the cost of servicing external debt. At its peak in 1987, Jamaica, for example, recorded a ratio of foreign debt to GDP of 1.61-a ratio exceeded only by Nicaragua among all Latin American and Caribbean countries. 17. Toward the second half of the 1980s, the OECS countries began to exploit new trade opportunities within and outside CARICOM, especially in terms of developing business and financial services. Also, with the restoration of the trend rates of growth in the U.S. and Europe, tourism flourished, and provided the major growth impulse. The improved international competitiveness of the region is evident in Table 11.4, which shows the movement of the real effective exchange rates of the CARICOM countries between 1979 and A large part of the robust economic performance of the smaller countries is explained also by high investment and saving ratios accompanied by sound regulatory policies introduced in a relatively stable political environment. 18. The record of economic growth of the OECS countries was impressive by world standards, and among the best in the LAC Region over this period. Several factors were important to this achievement, including expanding export markets for traditional export products and success in a highly competitive tourist industry. Among the institutional factors engendering a successful economic performance were sound economic management by governments and relatively high levels of official aid from multilateral and bilateral donors. A well-articulated public sector investment program (PSIP) and increased attention to human resource development also contributed to this successful experience. A replication of the latter would be necessary to maintain rapid growth rates in the decades ahead. 19. Poverty indicators for the OECS countries suggest that poverty was not a serious problem compared with the lower-middle-income group of countries. However, pockets of poverty existed in all countries especially in Jamaica and Guyana. Health and education are important in themselves, and to sustain tourism and other service sector activities. Women in the OECS countries were becoming better educated relative to men, and progress was continually made in integrating women into positions of authority and responsibility in both public and private sectors. Maintenance and upgrading of the social infrastructure required continued donor support.

27 The environment situation in the OECS countries also remained pristine, but the rapid growth of banana production, tourism, and other activities began placing an increasing burden on the environment. Potential environmental concerns included inadequate waste management, land use practices, and coastal zone management. The governments of these small islands recognized the importance of pursuing sound environmental policies; by end-1980s, each government began finalizing their national environmental action plans. 21. To conclude, the economic adversities of the 1980s-especially in the first half of the decade-exposed the vulnerability of the region to movements in the external environment. The MDCs were unable to, or at least were slow to, adjust their economies. The OECS countries fared much better, in part because they succeeded in attracting private investment for light industries and for tourism, and in part because they had access to a large volume of external official assistance. More important, OECS countries had more open economies, good fiscal management, and a sound monetary arrangement. 22. On balance, the successful economies were those that adopted viable exchange rate, fiscal, monetary, trade and wage policies, and supported private sector development. Social indicators-life expectancy, infant mortality, daily calorie intake, literacy rates, and school enrollment rates-showed encouraging trends in many countries, but poverty, insufficient human resource development, and lack of employment opportunities remained too common throughout the region. Equally important, sufficient attention to the environmental consequences of economic development has been forthcoming only recently. 23. Outside the Caribbean region, substantial changes occurred in the period under review. Trade barriers have fallen in both developed and developing economies, and large regional trade blocs have been formed, in particular NAFTA and EU. Latin American countries have moved to reduce tariff and non-tariff barriers to trade, following the export-led growth strategies of many countries in Southeast Asia. Caribbean countries have, through the CARICOM, moved to reduce tariff barriers on phased schedule to 1988, but the pace of change is slow and many other impediments to trade exist in the region. Development Challenges: The Region's Perspective 24. In 1980, the CARICOM Council of Ministers invited a group of Caribbean experts to recommend ways and means of strengthening the Caribbean Community in the 1980s. The expert group was chaired by William G. Demas, former head of the CARICOM Secretariat and, at the time, President of the CDBY Reviewing the 1970s experience, the report concluded: "Despite the different experiences, all of the CARICOM countries emerged from the 1970s more vulnerable in many respects than when the decade began." (p. 30). The report went on to suggest that the 1980s were not likely to be more hospitable to development than the 1970s, and that "... the countries of the region must redouble their efforts at self-reliance both at the national and at the regional levels." (p. 30.) It identified the following development challenges for the 1980s. a) adopting a general economic framework for making the economy more competitive; b) achieving better balance in the balance of payments; 2' The expert group prepared a report entitled, "The Caribbean Community in the 1980s", Wildey, St. Michael, Barbados, January 1981.

28 c) promoting more diversification and linkages in production; d) upgrading the level of economic management; and e) dealing with reconstruction after natural disasters; and alleviating the unemployment situation." (pp ). 25. The regional integration strategies being forged in the 1970s were now no longer being pursued with the initial vigor. The events that unfolded in the 1980s forced some of the MDCs to adapt to external shocks and in the event they adopted inward-looking strategies. One of the negative fallouts of this inward-looking strategy was the abrogation of some of the basic CARICOM trading rules, and for a time the integration movement came under threat of dissolution. 26. Only in 1993, with the Report of the West Indian Commission: Time for Action, and the introduction of the new Common External Tariff (CET) structure there are some renewed prospects for the integration movement. Nonetheless, the anticipated progress is doubtful given the reluctance of most governments to accept the recommendations of the Report. 27. The Heads of State studied the recommendations of the report at their 1992 meeting in Port of Spain, and so far, there has not been any apparent follow up other than the appointment of a small oversight group to advise the CARICOM Secretariat. The failure to act on the report's recommendations-even on a selective basis-has been the typical problem of the Caribbean region's policymaking and policy implementation. "The sense that the regional movement is coming up short derives largely from the feeling that CARICOM leaders are good at rhetoric as an end in itself but not meant to be taken seriously, well versed in making decisions which stay on paper. Given the record it is hard to maintain that such a perception is misguided. There is too little action. There is splendid rhetoric. Failing to follow through is, and is seen to be, a chronic Caribbean deficiency."3' A major impediment to follow through is that strategy making in the Caribbean focusses on the broad issues; it tends not to be accompanied by specific action-oriented policies and programs to guide implementors. Conversely, it may very well be that policymakers in the countries themselves have not been entirely convinced of the economic gains from integration. 28. It is not surprising that the integration efforts by the Caribbean countries have not been successful. One reason for this is that the scope for economic integration among countries with very similar factor endowments is modest. All the Caribbean countries rely heavily on primary commodities, and tourism as the centerpieces of their productive basis, and they all have a limited industrial basis, mostly related to the transformation of their primary products. In more recent years, some of them have developed sophisticated financial services, but these are not a source of integration among the Caribbean countries but of increased activities with countries outside of the region. While integration remains a mute aspect of the countries' development strategies, the OECS countries have begun to recognize that policy coordination and the provision of common services can provide substantial benefits. The Eastern Caribbean Central Bank (ECCB), the OECS Secretariat, and the Windward Islands Banana Association (WINBAN) are but three of the successes in these areas. However, much remains to be accomplished to achieve maximum benefits from joint efforts; in addition to the need for coordination in administrative 31 Report of the West Indian Commission, "Time for Action", 1992, Christ Church, Barbados, p. 54.

29 areas, there is an ongoing need for harmonization of policies relating to fiscal incentives, the common external tariff (CET) and consumption taxes, income and property taxes, and similar areas. 29. At the same time, out of the turmoil of the 1980s, a new paradigm in the development philosophy began to emerge. A growing number of Caribbean politicians and policymakers became increasingly convinced that self-reliance and inward-looking strategies were inappropriate in the face of the increased globalization of the world economy and the liberalization of trade and payments. There has been a growing inclination especially in the MDCs toward "opening up" their economies so as to contribute to sustainable growth. There was also a somewhat belated recognition of the need for introducing structural reforms aimed at reducing the level of protection and regulation of both international and domestic trade, privatizing public sector enterprises that do not fulfill social purposes, providing an enabling environment that promotes a vigorous private sector, and reorienting public social expenditures toward benefitting the poorest segments of their populations. Development Challenges: The Bank's Perspective 30. The mixed economic performance of the Caribbean region over the last two decades, reflects a number of stubborn structural problems that have defied solution. While the severity of the problems varies among the countries, the following generalizations apply: * economic diversification and endeavors to establish inter-sectoral linkages have been an uneven process in the Caribbean; * macroeconomic management in the three largest MDCs-Barbados, Jamaica, and Trinidad and Tobago-has been uneven during the past 20 years, whether it concerns responding to adverse external shocks (terms of trade deterioration, natural disasters, high interest rates, or economic recession in trading partners) or maintaining a stable macroeconomic framework in the absence of external shocks; * with the exception of monetary policy in the OECS countries, which is subject to the discipline of a monetary authority, fiscal imbalances, inordinate rates of inflation, and foreign exchange market distortions have constrained sustainable economic growth at least in the larger countries and in some of the smaller ones as well. Part of the problem in some of these countries is an excessively large public sector and its insufficient absorptive capacity-public administrations are not well geared up to design and effectively implement investment projects; * inordinately high levels of unemployment and stubborn poverty in Guyana and Jamaica-double-digit unemployment rates throughout the region-are a chronic feature of the Caribbean countries, with an especially high proportion of the unemployed comprising school leavers; were it not for the slow natural growth of the Caribbean population and labor force and a high rate of outmigration (estimated at 7 percent of the population during the 1980s) the unemployment level would be even higher; with few exceptions (Jamaica being one) growth over the last two decades has been "jobless growth"; the high unemployment levels have their origin in complex interactions of economic, cultural, and social phenomena; and

30 the teaching and training institutions have undergone a continuous deterioration for a variety of reasons (failure to attract talented staff and outmigration) and have not kept pace with the demands of rapidly advancing technology; for these societies to effectively compete in a competitive global environment will ultimately depend on their success in developing critical human resources. 31. When CGCED was established 1977, it was envisaged that this consultative group would focus on: (a) the mobilization of multilateral and bilateral technical and financial assistance for the region on reasonable terms and conditions; (b) mobilization and development of indigenous resources; (c) better coordination among donors and recipients to ensure the most effective use of external resources; and (d) the development of greater cooperation among Caribbean countries. 32. These objectives remain as valid today as then, but they need to be supplemented by: (a) the establishment of an economic framework within each country that provides appropriate incentives for private sector activity, supported by adequate levels of public investment in social infrastructure and human resource development; and (b) mobilization of private foreign investment for the region on reasonable terms and conditions including, but not restricted to, direct foreign investment.

31 Trnd.d d&tobap an A -1.9.IA 26A 23A 16J 31J A A 4.1 UA A A W33 T.bk ILI: S.I-td Indkt ot kc rertnnttu HDI P., Cpi. tnto Grotb of R..l GDP Grot Dot-tik I.tot Grot N.dio.f SooAtp COrrt Accooot B0.2.- t.oor-. Bal. Tot.I E.lmnl Db. To.l D.t S.,- ($US) (%of GDP) (S (S of GDP) (68 of GDP) (S of GDO) (68 of GDP) (S of.*rbl) I9I s I I9 7S S I M.d D..pod C.ii. 6ll.. G J * S J -2.1 * 5A ISA 6.6 S as me* B.b.dot as * Ja D S A A 37.2 IA 6J 22 lom.d an S 41 3* 24A A S A -S * 263 Auag. A Ba6da 9 SO S.4tAc 6.7 4J 30 tt 6.7u -9A I *30A Mu.1i ALa am I n L2A *U13k\ L.7r7,d UA 48a 39A 3-V Dl.&W6 an A 3.9 S *b 7JIC 16.2 Ol\ * LA 4. 4*.\b Gt.ad a S%.6xt 4.9 5i 3 2.9\ Af W\d J H4.W A 220w 41A 51J 4A2, GUYan Om ts A A U U3A A 298* UJ SL KIMt&N.* all. as * S a S\b p t u I28 SLL eita Va Mu A2\c U 95' J.323\W -15J -10* I A SLVu-tS * *AV al" 1.1 4S0 21\b S 62 '9 28* 28* J -4J A A L IoIL _ two. I. aa68.,a I. tt&d I_ mt, 8.

32 Table 11.2: Per Capita Net Capita Inflows: in USS Average St. Lucia St. Vincent Trinidad Belize Guyana Jamaica Grenada St. Kitts Dominica Barbados Average Source: World Debt Tables.

33 T.-b. M.2 T.r no Tn.d Iod. ( I US$-b&-d) U S U B.rb.d A4 I U J.m.r. 12D.6 12J 1IS l A J U.7 Triidd d ud Tobqo * S4 7S IOL9 96K3 9.I J S So-: World T.bl.

34 Table 11.4: Real Effective Exchange Rate Most Developed Countries Barbados Bahamas Guyana Jamaica Trinidad & Tobago Average Organization of Eastern Caribbean States & Belize Antigua & Barbuda Belize Dominica a Grenada St. Kitts & Nevis St. Lucia St. Vincent Average Sources: IMF and Caribbean Regional Report.

35 Figure 11.1 Real GDP Growth Belize 6.3 Trinidad 5.2 St. Kitts,_8 St. Vincent 3.7 Barbados 3.5 Bahamas 2.3 Guyana 1*7 Jamaica 0.9 Dominica Average annual %

36 Figure 11.2 Real GDP Growth Dominica 6.7 St. Vincent MM6.3 Antigua 5.8 Belize 5.8 St. Lucia 5.7 Grenada 5.4 St. Kitts 5.3 Bahamas 2.4 Barbados 1.3 Jamaica 1.2 Guyana -1.7 ///// Trinidad Average annual %

37 Figure 11.3: Net Capital Inflows Barbados Dominica St. Kitts Jamaica Guyana_ Belize /////////// Trinidad St. Vincent SAt. Luciav Region ////X///X////i/X., Per Capita U.S. Dollars Note: Net capital inflows include loans and credit from official and private creditors less debt service payments. Source: World Debt Tables.

38 CHAPTER III TIIE BANK'S ASSISTANCE STRATEGY AND OPERATIONS, Overview 1. In dealing with the challenges facing the Caribbean economies, the Bank adopted the following approach: (a) initial formulation of a strategy for the region as a whole; and (b) continuation of traditional as well as policy-based lending to the MDCs, notably Guyana and Jamaica, throughout the 80s, and Trinidad and Tobago in the early 90s; (c) reliance, after 1977, on CDB for lending to the LDCs while maintaining them under the umbrella of a sub-regional development strategy. 2. The history of the regional assistance strategy for the Caribbean is one of gradual disenchantment with the regional approach and shift in focus on the sub-regional context of the LDCs. Between 1975 and 1984, the region produced three Regional Program Papers. The regional approach was based on the assumption that economic interrelationships existed between the various Caribbean countries, such to justify the perception of the region as a unit. Towards this purpose the first regional program envisaged two regional projects in industry and transport which, however, were never implemented. The 1980 Regional Program Paper had as a main objective to help the countries cope with their immediate balance of payments difficulties and to assist them in creating a stronger long run external position. Already, the original regional approach based on economic integration seems to have faded away. The abandonment of the regional approach was formalized in the last 1984 RPP, which recognized that progress at the regional level had been much slower than anticipated mainly due to different country interests while the Bank had become less influential in regional matters. As indicated in the previous chapter, the failure of the regional approach, in the sense of a unit of economically interrelated countries, should not come as a surprise, considering that the prospects for economic integration based on relative comparative advantage were limited. At the same time, a regional approach based on common development issues among the countries and therefore leading to regional projects dealing with such problems across countries, proved to be impracticable due to the difficulties of obtaining the agreement for each project from each one of the countries involved. In the latter case the Bank's assistance strategy could be defined as having been relevant and timely albeit not practicable. It would be wrong, however, to conclude that the thinking process devoted to this task was for nought. Pressing for ideas and stimulating debate within the countries is after all a significant component of any assistance strategy. 3. For the MDCs, the initial approach can be characterized as "traditional". Beginning in the 1960s, investment lending with modest conditionalities was the main instrument employed. Agriculture, transport and, later in the 1970s, education, were the main sectors targeted. For the least developed country among the MDCs, Guyana, the Bank targeted its assistance strategy initially to building up the necessary infrastructure especially for sea defenses, highways development, and power-together with projects to promote agricultural and livestock development with particular attention to farm mechanization. Similar sectors were the focus of attention both in Jamaica and Trinidad and Tobago. The sector that received relatively little attention was technical assistance for overcoming weaknesses in the indigenous institutional capacity both for the identification of and the successful implementation of

39 the Bank-financed projects.y Barbados fell in a somewhat different category with a highly-skilled population and strong institutions to deliver essential services; and the Bank assistance appropriately focussed on developing financial services and the tourism sector. 4. After the second oil price shock in 1979, the rise in international interest rates, destabilizing socio-political factors and the severe recession that gripped the industrial countries in , the Bank's strategy shifted sharply towards adjustment lending and the associated policy dialogue. The latter was based, in part, on a much expanded program of economic and sector work (ESW) for assisting these countries in their efforts for structural reforms. Bank strategy in this context was marked with limited success until the late 80s. In the cases of Guyana and Jamaica, it is questionable whether the initial structural adjustment programs were appropriately designed for addressing the fundamental distortions then prevalent in those countries and adequate to the willingness and the capacity of the respective governments to undertake reforms at the prescribed pace. Especially in Guyana, there was subsequently a hiatus in Bank-country dialogue for nearly half a decade.y Trinidad and Tobago, on the other hand, crossed the IBRD lending-eligibility threshold during the same period because of its booming oil revenues. Since then, there has been considerable progress toward Bank-government congruence on the nature of the proposed macroeconomic and sectoral policy reforms, together with cognizance of redressing past neglect of social sectors and the needs of equitable growth. In this respect, there has been a progressive shift in Bank strategy towards investment lending while continuing to rely, for selected countries, on adjustment lending. One area in which the Bank should have been more forceful in formulating its regional strategy is unemployment for which no real in-depth study was carried out. Current Bank assistance strategy in the MDCs continues to emphasize the policy dialogue, given the persistence of structural impediments to growth, macroeconomic distortions, unemployment, lack of adequate human capital, and institutional weaknesses, especially in the three largest borrowers-guyana, Jamaica, and Trinidad and Tobago. 5. For the small island economies, the basic assumption underlying the Bank's strategy is that these countries are especially vulnerable to the vagaries of international markets, to changes in donor policies (levels and composition of assistance, provision of preferential trading arrangements, and immigration policy) and to natural disasters. For example, the 1984 Regional Program Paper noted, "... the small size, geographic dispersion, and limited natural resources, constrain their development potential substantially and make it difficult and, in some cases, perhaps impossible for them to attain an acceptable degree of economic viability." (p. 8). In this context, the Bank addressed the main constraints through sectoral loans for power, agricultural rehabilitation, transport and education. However, the Bank's assistance in banana and sugar-related projects did not take into account that these two main products had lost their comparative advantage and were being more artificially supported by preferential markets in the EC and the USA. Finally, it should be noted that the Bank has relied, for its activities in the region, on two institutions, the Caribbean Development Bank (CDB) and the Caribbean Group for Cooperation in Economic Development (CGCED). A detailed discussion of the impact of these instruments is presented in Chapter IV, dealing with the effectiveness of Bank's assistance.!' In part this reflects strong resistance by countries to TA projects considering the wealth of well qualified people in the Caribbean. v See, for a discussion of the outcome of these SALs, the section on Portfolio Performance Analysis in Chapter IV.

40 In broad terms, the Bank's assistance strategy responded reasonably well to the development needs of the region, in particular of the OECS, but it entailed a lengthy learning process especially when the strategy moved away from the traditional investment lending to the program and adjustment loans. More specifically, the Bank should have been more stringent in extending large amounts of adjustment lending to the MDCs, and in particular to Jamaica, at a time when the countries did not have the necessary absorptive capacity to carry out the reform programs that were to be associated to such resource transfers. Toward a Regional Assistance Strategy 7. The first manifestation of a regional focus by the Bank, was its involvement, as executing agency for the UNDP, in the design of the structure and operational modalities of the Caribbean Development Bank (CDB) which was formally established in The Bank's initial interest in supporting the creation of the CDB was to mobilize increased aid flows to the Commonwealth Caribbean. By 1973, the Bank began to view CDB as an intermediary which could on-lend Bank funds for projects that did not warrant the Bank's direct participation. This latter role has expanded significantly in recent years. In addition to contributing to the establishment of the CDB, the Bank launched a major study of the Commonwealth Caribbean in ' The study covered the macroeconomic situation in the region, and all the activity sectors in depth, including projections of likely developments to By this time the Bank was ready to formulate a regional strategy for the Caribbean and to this purpose, during the period , the LAC Region produced a series of regional program papers (RPPs) outlining an integrated strategy for the Caribbean region. The 1975 RPP, while admitting that the process of integration was not sufficiently advanced indicated that the effectiveness of individual country lending programs would be greatly enhanced by strategic support for development goals and projects conceived at a regional level. In the event, the RPP outlined a regional lending program for the FY76-80 period, amounting to US$90 million. Three operations were intended to strengthen the CDB, two were for regional projects in industry, one in transport, and one unidentified. However, apart from lending to the CDB, none of the projects got off the ground during this period. At the same time, the Bank lent approximately US$260 million as country-based project operations, mainly to Jamaica as Trinidad and Tobago had graduated. This 1975 RPP, while indicating the need for regional policies aimed at revitalizing the agricultural sector and solving the unemployment problem, did not attempt to devise any coherent framework as a progression toward regional integration; for example, there was no discussion of the trade creation versus trade diversion aspects of the integration efforts. In the end, even the envisaged objectives were not backed by commensurate region-wide economic sector work or lending for regional projects. 8. In contrast to the previous RPP, the 1980 RPP focussed much less on regional integration and region-wide projects than on country programs. Nowhere in the RPP is a regional strategy articulated and the discussion is country- and sector- oriented; unemployment is singled out as a major structural problem to be tackled. A development strategy stressing export performance-including tourism-efficient import substitution-particularly concerning agriculture and energy-and regional cooperation and 2' The World Bank, "Caribbean Regional Study", Report No. 566 (in Two Volumes), June 9, The study fell into the category of a "Basic Report", which was one of the classifications of economic reports at that time.

41 integration, seems to be the most appropriate course of action for reducing unemployment in these countries." (p. 14). At the same time, reflecting the macroeconomic imbalances in most of the Caribbean countries at that time, the RPP stressed the importance of helping the countries cope with their balance of payments difficulties. In retrospect, this strategy resembled more one falling within the domain of the IMF than of the Bank as a development lending institution; in many ways, short-term financing needs of the region were accorded precedence over dealing with inherent structural weaknesses of these economies. 9. The regional lending program in the 1980 RPP called for a policy whereby the Bank and IDA would lend to the LDCs only through the CDB. The proposed lending program for FY81-85 included two IDA credits for the CDB (US$22 million) which were to be utilized for program credits to the Eastern Caribbean Common Market.' The objectives of the stated policy notwithstanding, in practice, the Bank also approved US$33.1 million as direct loans to the Bahamas, Belize, Dominica, Grenada, and St. Vincent and the Grenadines, covering essentially basic infrastructure sectors. (In contrast to lending to the CDB and the smaller countries, Bank approvals for lending to the MDCs during this period comprised almost US$500 million). 10. In the third and last RPP (1984), the highest priority objectives of the Caribbean countries were: (a) to maintain a level of public expenditures consistent with a sustainable balance of payments; and (b) to restore growth, through export-oriented strategies, with the purpose of reducing substantially the prevailing high unemployment levels. To help meet these objectives, the RPP virtually abandoned the regional concept in favor of a country focus. Bank's Regional Strategy: Limited Success and Need for Reorientation 11. In its pursuit of a region-wide strategy, the Bank identified a number of regional projects (mainly in transport and industry), a range of technical assistance programs, and a number of region-wide studies. These interventions were especially timely and appropriate to the specific conditions prevalent in the LDCs. Nonetheless, in almost all these cases, there was hardly any follow up and thus the projects withered. 12. The Bank was far more successful in helping to establish and strengthen such institutions as the CDB, the CGCED, and the OECS Secretariat. Still, it proved impossible for the Bank to accomplish the regional strategy objective of financing projects affecting the Caribbean countries as a whole, because: * despite the small size of most of the countries, Bank's assistance operations were extremely complex; * the three major regional projects (industry, transport, and an unidentified) that might have constituted a regional strategy all folded before they could even get off the ground because of the difficulties encountered in obtaining the agreement by the interested countries; ' The ECCM is the predecessor of the OECS. It was established in 1968 when the CARIFTA was launched.

42 * the unfavorable external environment and the poor economic management in the largest members adversely affected the integration movement; * there were lots of active assistance agencies operating in the region: multilaterals (IMF, the Bank, IDB and CDB); bilaterals (UK, USA, Canada and EC); with very high levels of aid, the need for coordination was excessively high; * the Bank had to face up to intellectual hostility from within the countries towards the presence of the Bretton Woods institutions. These were viewed as the neo-colonial arm because of their pro-market stance versus the intellectual position of "collective socialism", populism, self-help, integration, and welfare (this intellectual hostilityhas moderated in recent years); * a major obstacle for a regional strategy was the Bank's requirement that any loan must have the guarantees of any and all governments that would benefit from the project. This would affect, for example, the environmental action plan project, now under preparation.

43 Introduction Box Inter-American Development Bank (IDB) and the Caribbean IDB's active involvement in the Caribbean region dates to the late 1960s with the accession to membership of Trinidad and Tobago (1967), Jamaica (1969), and Barbados (1969). In later years, Guyana (1976), Bahamas (1977), and Belize (1992) have become members of the IDB. Also in 1977, the IDB entered into a special relationship with the Commonwealth Caribbean countries belonging to the CDB, by amending its charter to enable loans and technical assistance to be provided to those countries through the CDB f The IDB has become a major source of long-term development capital for the Caribbean, including a significant amount of loans on concessional terms. Guyana, the least developed among the sample countries, is eligible to receive loans from the Fund for Special Operations (FSO), the *oft window of the IDB, which provides loans for 40 years, including 10 years grace period, at an interest rate of 1 percent Loans on concessional terrns to Guyana have accounted for 63 percent of the total lending to the country. Other Caribbean countries benefit from a significant interest subsidy (currently a reduction of 5 percentage points from the prevailing lending rate) on part of their borrowings from the IDB. This subsidy is paid from the Intermediate Financing Facility (IFF) and has been applied to about 20 percent of the loans to these countries. In 1992, the IDB extended three loans to the Unversity of the West Indies (UWI) for an amount of US$56 million, all with the benefit of intercst subsidy. All Caribbean countries and institutions, including those assisted through the CDB, qualify for non-reimbursable technical assistance from the IDB. IDB Lending to the Caribbean As of end-1992, total IDB commitments for investment projects, policy adjustment operations, technical cooperation, and small projects in the Caribbean countries have amounted to US$2.6 billion (compared to the Bank's Iending of US$2 billion). IDB's loans to the region have financed, on average, two-thirds of projoct costs-ranging from a high of 78 percent in the case of Guyana to a low of 57 percent for Barbados, The main sectors of lending activity have been: agriculture (22 percent), energy (21.6 percent), industry (8.8 percent), education (8.4 percent), and health and sanitation (10.3 percent). The relationship between tdb and its Caribbean member countries has intensified and deepened in recent years. Trinidad and Tobago, which did not apply for loans between 1975 and 1984 when world oil prices were high and its economy was booming, has subsequently agreed to a very active pipeline of loans with the IDB. The Bahamas, which had sought only 3 small loans in its first ten years as a member, borrowed US$109 million in 1988 to finance expansion of its electricity generation capacity and transmission system and now has several projects at an advanced stage of development under consideration for IDB financing. IDB's policy dialogue with governments in the region has translated into important policy-based loans in the areas of agriculture (Guyana and Jamaica) and trade, finance, and investment (Jamaica). The latter operation has seen Jamaica become only the second country to qualify for bilateral debt relief from the U.S. under the Enterprise for the Americas Initiative. Generally, in its economic and programming work, IDB has become an important source of advice on social and economic policy to Caribbean governments. f OECS countries are not members of IDB. Continued.

44 Box (continued) Sectoral Emphasis of Lending Agriculture. Guyana accounts for the largest share of agricultural sector lending to the region. IDB has assisted in financing irrigation and drainage, credit, and access roads. It also provided fast-disbursing funds to compensate Guyana for policy changes encompassing liberalization of marketing of rice, elimination of export duties on agricultural products. economie pricing of water in drainage and irrigation districts, and long-term leasing of agriculturalands at market prices. Energy. Projects in the Bahamas (electricity supply capacity) and Trinidad and Tobago (oil export refining center) in addition to rehabilitation of electricity systems in Guyana and Jamaica explain the large IDB presence in the energy sector. IDB is also engaged in the development of unconventional sources of energy in the region. Social Sectors. In addition to substantial education sector loans to Barbados, Guyana, Jamaica, and Trinidad and Tobago, IDB is supporting efforts lo strengthen the UWI through a technical cooperation grant geared to modernize existing facilities and upgrading distance teaching services in non-campus territories. Likewise, several projects have been financed in the health and sanitation sector, with complementary assistance for technical cooperation. Environment. The reliance of Caribbean countries on tourism as a major source of employment and foreign exchange also highlights the need for the protection of their eco-systems. IDB is playing a crucial role in assisting these countries with all aspects of coastal zone management. Policy-based loans. Several initiatives have been launched to protect the poor from adverse impacts of adjustment (e.g., the US$2.8 million technical cooperation grant to Guyana in 1991 for establishing the Social Impact Amelioration Program). Economic Integration. IDB has financed 22 technical cooperation operations amounting to US$11 million to assist regional institutions, with a view to promoting economic integration in the English-speaking Caribbean. Notably, it has supported through grants the activities of the West Indian Commission to seek ways and means for accelerating the pace of integration and to meet challenges posed by both NAFTA and the possible dilution/loss of preferential access to traditional markets. 13. The failure of the regional approach to the Caribbean countries led the Bank to concentrate on designing and implementing individual country assistance programs. In a significant shift in focus, subsequent Bank policy papers were devoted exclusively to the OECS countries which would allow cost-effective operations in that sub-region. To this affect, the Bank tried to introduce a "tight" consultative group approach to providing aid to the OECS countries.5' The Bank's objective was to get reciprocal commitments from donors and recipients to support and implement comprehensive mediumterm adjustment programs. This approach, in turn, meant that donors were expected to direct their aid more towards policy-based operations of the Bank and the IMF and less towards pursuing their aid interests outside the framework of the CGCED. To help mount adjustment programs in the OECS "1 An issue concerning OECS countries in the mid-eighties was IDA eligibility. On IDA eligibility, the documents noted that five of the OECS countries (excluding Antigua and Barbuda, and Montserrat) had per capita incomes above the cut-off point for IDA, but were not fully creditworthy for IBRD loans. To facilitate the transition from IDA eligibility to IBRD borrowing, the Bank's Board of Executive Directors decided to proffer limited access to IDA resources, provided thesc five countries took the needed policy reforms to adjust their economies. The implied expectation was that the OECS countries would undertake Bank/lMF type adjustment programs. In the event, however, only Dominica and St. Vincent adopted such an adjustment program.

45 countries, which entailed designing country-specific programs, the Bank focused on sub-regional issues. One such issue was the presumption that the exchange rate in at least some of the OECS countries was overvalued. But recognizing the difficulty of getting an exchange rate adjustment in the sub-region, and the merit of existing exchange rate and monetary arrangements, let alone a differentiated rate adjustment for each of the countries as necessary, the Bank advised countries to rely on fiscal and incomes policies for adjustment.v This was certainly the correct approach by the Bank and it has so far been successful as the OECS countries have maintained overall good macroeconomic policies. The one exception to the country-specific focus was a proposal to launch a sub-regional study of the employment problem. 14. The 1990 Country Strategy Paper for the OECS countries was more open to sub-regional activities by the Bank. It defines the Bank strategy in the following terms: The proposed strategy aims at assisting the OECS countries to... put in place a dynamic program of diversified production, including supporting investments, which over time can help reduce the high degree of vulnerability inherent in the economies, while enhancing external creditworthiness. The strategy also takes into account the fact that the small size of the economies and of individual investment projects makes direct operations with each country costly 2 ' and, because of limited Bank staff resources, sets a clear limit on the ability of the Bank effectively to respond to their needs and to deliver the level of services they are entitled to as Bank members." (p. 18). 15. The proposed strategy included relying on the CDB (through a memorandum of understanding concluded in 1990 between the two institutions) as a retailer for Bank loans and credits in areas where the CDB had a strong capability, while the Bank would focus its efforts more on economic dialogue and policy advice and providing institutional support for the CDB, and less on direct investment lending except for regional projects on aspects where CDB's capacity is more limited.y It would also continue to rely on the CGCED to facilitate its policy dialogue with the OECS countries. i6. A close look at current Bank strategy, as reflected in the Business Plans for the Caribbean and other program documents, shows first of all a remarkable awareness of the problems facing the Caribbean countries. These range from the decline in aid flows to the region, the erosion of preferential F Exchange rate management in the OECS countries is not a flexible policy option, given the nature of their monetary system. Indeed, the system favors a stable exchange rate, which is pegged to the USS. The source of stability stems from the following factors: (a) the ability of governments to monetize their deficits are strictly limited because the ECCB holdings of treasury bills cannot exceed 10 percent of individual government revenues collected the previous year and 15 percent of its demand liabilities in members' holdings of debentures, which are also allocated on the basis of individual country's revenue outcome the preceding year; (b) the backing of at least 60 percent of the monetary authority by hard currency assets; and (c) the unanimous decision of all the members for any change in this arrangement. 2' From the projections of the proposed FY90-95 lending program, and staff inputs required to carry it out, it is estimated that the cost to the Bank of processing a project in the OECS countries (including the CDB) is US$170,000. This excludes Bank overhead costs. Average staff salary and benefits are assumed to be US$160,000 a year. An equivalent estimate for the average cost of project processing by the CDB amounts to US$88,500 or a little more than one-half that for the Bank. This approach has been adopted for the Pacific Islands where the Bank has left the major lending role to ADB while retaining an advisory function for development strategy.

46 arrangements, especially for bananas and sugar, and the erosion of the Caribbean Basin Initiative in relation to NAFTA, on the external side, to the fragility of the macroeconomic framework in most countries, the need to move from stabilization to sustainable growth, the poor quality of public sectors and government services, the high level of unemployment and the vulnerability of the eco-system, on the domestic front. 17. The action program reflecting these concerns would seem to touch upon all the appropriate chords, both at the country specific level and at the regional one. With respect to the individual countries, the ESW includes an appropriate balance of macro and sector specific issues, including costeffective farming out of relevant components to CDB for the smaller countries. The lending program shows an increasing role of investment projects, and the sectors of interventions, basic infrastructure, health and education and private sector development, are certainly the right ones. At the same time, there is a renewed regional focus both in terms of areas of concentration, i.e., unemployment, trade and environment 2 ' and in terms of the reliance of existing institutions such as CDB and CGCED, the latter to become a more focussed forum for assistance strategy and aid-coordination. 18. The basic issue arising from this well composed assistance strategy is its success probability in the foreseeable future. The regional documents referred to above raise a number of preliminary and relevant questions concerning the Bank's understanding of the changes taking place in the structure of the countries' economy and sources of growth, the structure of their governments and their ability to carry out reforms, the feasibility of the reform programs, the role of the non-government institutions such as the University of the West Indies, Bankers Associations, Labor Unions. Since these questions have already been raised in the past, and the performance of the Caribbean countries has been mixed over the last twenty years, the possibility of failure in many of these areas remains considerable. 2F An environmental action plan for the Caribbean Region was initiated in 1992 with a view to assist regional institutions and countries in the region in preparing and adopting environmental plans to be incorporated in their development programs.

47 CHAPTER IV THE EFFECTIVENESS OF THE BANK'S ASSISTANCE PROGRAM AND ITS OUTCOME Introduction 1. This chapter deals with the effectiveness of the Bank's instruments from economic and sector work to aid coordination, technical assistance, the policy dialogue and lending. The assessment of effectiveness is based on OED's evaluation experience of completed projects and programs. This, in turn, relies on a review of project completion reports (PCRs) and performance audit reports (PARs), and reflecting discussions with government officials in the region, it attempts to delineate the significant factors associated with disparate country portfolio performances. The Role of CDB and CGCED 2. In implementing its regional strategies, the Bank relied on two institutions, in addition to its own lending and ESW: CDB and CGCED. The Bank served as the model for the CDB and also provided technical assistance, financial resources, and ESW support. The initiative to create a regional bank came from a team of experts appointed by Canada, the U.K. and the U.S.A. who viewed a regional development bank as a potentially useful instrument for promoting regional integration. For its part, the Bank saw CDB as an opportunity to help solve its difficult operational problems in servicing the smaller Caribbean islands. For these countries, Bank membership translated into expectations of loans, technical assistance, and policy advice while their small size made normal Bank operation extremely costly. More recently, some of the islands attained income levels which made them ineligible for IDA while their economic vulnerability made them unsuitable for IBRD funds only levy in the immediate future. Accordingly, they have received an IBRD/IDA blend with the hope that the smaller islands will ultimately become creditworthy for IBRD lending or even commercial loans. The CDB's role as a conduit for the Bank's strategy vis-a-vis the smaller islands, if not the Caribbean region, has been important in the past and is likely to take on even more importance in the future. However, the envisaged role for CDB must be linked to its earning ability. If CDB does not expand membership and/or increase intermediation on behalf of other IFIs, CDB will not have the resources and/or the leverage to take on these added responsibilities cost effectively. 3. Five loan operations through CDB totalling US$60 million in IBRD funds, US$17 million from IDA, and US$3 million from the Third Window have been approved. Except for CDB IV, an IDA credit approved in 1987 for a regional education project, all IBRD/IDA funds were made available to CDB as global lines of credit, for relending in sectors in which the Bank would normally lend. All these lending operations addressed the objectives of: (a) channeling additional development funds to the IBRD/IDA member countries; (b) strengthening CDB's organization to make it a more effective regional development institution; and (c) improving CDB's ability to appraise and supervise projects. Considerable progress has been made in the achievement of these objectives, although, certain manpower shortcomings still remain to be overcome. These funds were "retailed" to the Caribbean countries with five OECS countries eligible for a equal blends of IBRD and IDA sources. By and large CDB has been an effective channel for World Bank funds to the LDCs, especially for infrastructure and for the productive sectors. With respect to the latter, however, a separate OED evaluation of CDB has shown that the record of the projects for the small-scale industries is not quite satisfactory. A more selective approach in choosing the projects and a closer supervision of the financed ones are needed. Thus,

48 satisfaction about the effectiveness of CDB should not overshadow the need for continued institutional development. 4. The CGCED's purpose is to pursue three objectives: (a) to mobilize external resources in support of economic development in the Caribbean, especially for the smaller islands; (b) to coordinate aid flows so as to avoid duplication of effort; and (c) to improve the quality of the policy dialogue between donor and recipient countries. Since its establishment in 1977, the CGCED has met 11 times. Judging from the data on capital flows to the Caribbean countries, the CGCED appears to have been successful in mobilizing a large volume of external financial resources, including large concessionary financial aid. From the recipient's perspective, especially the OECS countries, the resources mobilized were highly effective. The CGCED was however less effective in fostering aid coordination. The CGCED also provides a discipline for all the agents concerned. Multilateral donors have to periodically diagnose the economic situation in the region; bilateral donors have to review their aid programs to see how effective they have been and how they fit into the total picture; and the countries are forced to review their public sector investment programs (PSIPs) and these reviews are more likely to contribute to the Bank's formulation of a regional development framework for the smaller countries in the region. Country Economic and Sector Work (ESW) 5. ESW tends to anticipate the pattern of staff resources directed to the lending program. ESW leads lending. It expands during periods of economic stress and contracts as the situation improves. 6. The scope and content of the ESW program in the region is illustrated by a recent analysis of the output for FY88-92 period. Over the five years, about 40 formal economic reports were prepared covering the 12 countries in the region. The same data set covering the period FY78-93 show that of all the formal and informal reports prepared, 90 were economic reports, 38 were sector reports, and 127 were other types of ESW in support of investment and policy-based lending. A comparison of a sample of economic and sector reports in the mid-1970s with reports produced in the latter half of the 1980s shows the latter, generally, to have covered a wider scope of issues such as the impact of external shocks, employed more sophisticated analysis, and displayed a better understanding of the development problems of small island countries. Clearly, it has been a learning process for Bank economists and sector specialists, perhaps stimulated by the analytical challenges of SALs and SECALs. The quality of ESW improved steadily over the two decades under study. With the reorganization in 1987, there was an evident quantum jump in the scope, quality of content, and relevance of ESW. As noted below, policy dialogue also became a key Bank assistance instrument. Free-Standing Technical Assistance (FSTA) 7. The main objective of free-standing technical assistance projects is to support institutional development (ID), i.e., to strengthen borrowers' institutions and agencies capacity to manage projects on a sustained basis. Other objectives are to facilitate project or program design and implementation, and to assist in the development of appropriate macroeconomic and sector policies. 8. The Bank did not employ this instrument extensively, partly because of the numerous other multilateral and bilateral agencies engaged in overlapping or duplicating technical assistance, and partly because Bank experience has shown it to be a difficult and costly instrument to utilize effectively. Of the eight free-standing operations approved by the Board during the review period benefitted the MDCs in the region accounted for all the projects. Four were approved for Jamaica, two for Guyana, and one each

49 for Trinidad and Tobago and Barbados. The operations covered such technical issues as bauxite/alumina production in Jamaica and Guyana and petroleum production in Trinidad and Tobago. In recent years, FSTA projects have covered public administration and management reform and SAL program preparation. The European Community (EC), CIDA, and the UNDP"' have sponsored a wide range of technical assistance projects both at the regional and country level, while the CDB has used technical assistance as a major assistance instrument. An example of FSTA operations is discussed below. Guyana. A second FSTA loan (1949-GUY) for US$1.5 million was approved in 1981 with the objective of supporting few related adjustment operations: SAL (1948-GUA) and SAC (1098-GUA). The objectives of the FSTA were not met, and it turned out that the related structural adjustment program which the loan was intended to support also yielded disappointing results so that there was no follow-up action. Of the seven components of the FSTA, two were judged satisfactory but the others, including some critical studies and institution building, were marked by considerable delays in execution and cost overruns. A basic problem that affected the FSTA and the structural adjustment operations was the weak decision-making capacity within the government; a few government officials had to be relied on for critical policy decisions and these few were so overburdened that their accessibility was limited. This points to the need for the Bank to be more sensitive to the local implementation capacity of FSTA loans and design its scope and pace accordingly; it must also secure stronger government commitmento an agreed reform program, especially were there are strong differences in approach to policy reform between the Bank and the government. Inter-Agency Resident Mission (IARM) 9. The IARM reported to the CGCED. Its initial objectives were to assist the OECS members in formulating and implementing appropriate development policies, improving public sector investment programming (PSIP), setting up debt monitoring systems, enhancing aid coordination by setting up a comprehensive aid database, training of public servants, and providing technical assistance in the areas of statistics and project identification.2' 10. The emphasis of IARM work was on implementing improvements rather than on preparing reports. Team members including consultants were generally deployed to work along with officials at I' It is worth noting here that the UNDP has played a critical catalytic role in the development of the region. It provided the resources for: appraising the CDB and then its staffing; for the organization of the CGCED; and, more generally, has facilitated the delivery of Bank assistance, in supporting technical assistance programs and in sponsoring regional studies. Under the CGCED division of labor among the agencies, the UNDP was to be responsible for mounting.regional technical assistance programs". Many of these studies-on the environment, on educational reform, on export promotion, on the development of indigenous energy resources-have been judged highly relevant by recipient governments in responding to the region's needs. They have all led to projects currently under preparation. Y IARM was staffed by seconded staff experts (one each from the IMF, IBRD, OAS and CDB), long term consultants financed by IDB and UNDP, short-term consultants financed by the Canadian International Development Agency, Overseas Development Agency (British Development Division in the Caribbean) each providing one consultant year of assistance per year, and locally recruited support personnel. The World Bank administered the IARM; the head of mission was a seconded Bank staff member. IARM was established for an initial period of three years beginning in October 1982, but was extended by 15 months to end in December 1986.

50 the national level, at the subregional level (the OECS Economic Policy Review Committee) and at the regional level IARM participated in work on structural adjustment within CARICOM carried on by the CDB. A mid-project evaluation mission of the UNDP found that the IARM followed a work plan close to its terms of reference but that the weakness in national and sub-regional institutions militated against optimal effectiveness of the project. Thereafter emphasis shifted to the strengthening of the Economic Affairs Secretariat of the OECS in order to prepare it to continue the functions of the IARM after its projected termination date. At the beginning of 1986 the CGCED decided that the functions of IARM should be continued by the EAS, ECCB,CDB and UNDP (Barbados Regional Office) and IARM prepared a number of manuals to ensure a smooth transition. 11. The IARM experience yielded a number of lessons about this form of collaboration. The main lesson is that the operational life of a project as complex as this must be long enough and appropriately staffed to accomplish ambitious institutional objectives. Donors expected IARM staff to devote time to their agenda in the region. Thus, the World Bank, IMF, IDB, OAS and to a lesser extent the CDB and UNDP expected their staff to join missions from their headquarters to the region, while beneficiaries wanted support they could depend on within the context of a work program they had agreed with IARM. A third lesson was that the bilateral donors, finding they had lost the benefit of direct identification with the output of projects supported through an interagency institution, preferred to re-emphasize direct assistance to OECS institutions and member countries. Finally, OECS members of the World Bank and other multilateral institutions, fearing that IARM may become a screen eroding their to direct access to loans and other facilities, insisted on direct approach to the supporting institutions and did not clarnor for the extension of IARM. They were not convinced that IARM represented additional commitment of resources to the region but rather the redeployment of previous levels of support. When OAS, CDB and IDB indicated they lacked the money to continue their support to IARM the World Bank and IMF declined to continue the project by themselves. IARM, set up for an initial period of three years, was closed after four years and three months despite the fact that the EAS was still ill-equipped to continue the IARM functions it inherited. Aid Coordination 12. The promotion of aid coordination was expected to be one of the major functions of the CGCED. Given the large number of meetings and participants, the Bank's role in aid coordination must be limited to broader regional activities, and the Bank is engaged in several regional projectsenvironment, education, and agriculture. However, the details of aid coordination within a country have been left to the country officials and the donors. In any case, since aid coordination is a continuous process, and donor interest and financing are secured at different times depending on such factors as when the investment programs are prepared, feasibility studies completed, economic reports written, and donor budgets passed, coordination is an extremely difficult assistance instrument to implement effectively. Were it not for the required prcparation of the Public Sector Investment Program (PSIP) for each country, the task of aid coordination would have been even more complicated. One of the issues facing the Caribbean countries is an expected decline in the flows of foreign aid, following years of relative abundance. The good years of the past made the task of aid coordination especially difficult, as donors followed their own development ideologies and internal objectives, as well as geopolitical considerations. 13. In the case of the MDCs, Bank's assistance strategy has complemented the lending and sectoral policies of the IDB; however, there are some differences in the relative roles of the two institutions; (a) the IDB has a more conspicuous presence through its regional offices in the larger countries; but (b) the Bank plays a much larger role (both in terms Or ESW, policy dialogue, and ESW)

51 in the smaller (OECS) countries which are not chartered members of the IDB. Also, almost all donor agencies, including the Bank, have utilized the CDB as a channel for implementing some projects with a regional focus, together with assisting in building its institutional capacity. As noted earlier, one of the most prominent role of the Bank has been its collaboration in the UNDP-led Inter-Agency Resident Mission (1ARM), which during its tenure sponsored a series of development studies for the region. Last but not least, the Bank-through its coordination of the CGCED together with preparatory economic reports-provides a valuable forum and an opportunity for other agencies/donors to identify agendas and strategies for the region. In more recent years, Bank's collaboration with other agencies and donors has centered on new challenges, i.e., environmental protection, facing the region; and these joint efforts are likely to assume an even greater importance in the decade ahead. Policy Dialogue 14. The policy dialogue, providing advice into the design and formulation of policy reforms, has become a key instrument of Bank assistance to Caribbean countries. Toward this end, the Bank has increasingly focussed its ESW on helping to prepare PSIPs, Medium-term Policy Framework Papers, and Country Assistance Strategy papers-specific materials which tend to facilitate the policy dialogue. 15. The original expectations were that the CGCED would facilitate these dialogues. In the event, however, the CGCED has proven to be an imperfect forum for the Bank's policy dialogue with its borrowers. While the ESW materials provided the CGCED are discussed in open sub-group meetings, and will ultimately underpin the Bank's dialogue with borrowers, clearly the nature of the policy dialogue abhors a large audience. An in-camera discussion with the right Bank staff and the right government officials are essential ingredients for an effective dialogue. Lending Financial and Human Resources 16. In terms of country programming, Bank lending took its signals from the country strategies formulated in the RPPs, from the CDB, or, to a lesser extent, from the public sector investment programs (PSIPs) prepared for each country in advance of the CGCED meetings. The Bank also relied strongly on CGCED meetings to foster aid coordination between donors and recipients, and regional technical assistance programs financed and monitored by the UNDP. 17. The Bank has transferred a large volume of financial resources to the 12 CARICOM countries, and in per capita terms, the amounts are even more staggering. As of end-august 1993, Bank lending to the 12 CARICOM countries and to the CDB, reached almost US$2 billion, comprising 147 investment projects and policy-based programs. The loan/credit commitments by country and by sector are shown in summary form in Table IV.4 and IV.5 and presented in detail in Annex I. Table IV.4 shows how Jamaica, Guyana and Barbados received the lion's share in terms of per capita lending. It is interesting to note that Trinidad and Tobago while the recipient of a larger number of projects than Barbados, in per capita terms received less than half of Barbados level. Of the total, US$1.68 billion were IBRD funds and US$0.35 million in IDA credits. In terms of country distribution, about threequarters of commitments were made to by Jamaica and Guyana alone, commensurate with their share in the region's population. In terms of sectoral distribution (Table IV.5), roughly a quarter of total commitments comprised non-project operations, almost one fifth supported development finance

52 companies (including the CDB); agriculture, telecommunication and transportation, and education and power and energy each accounted for about one-tenth of the total commitments. 18. The Bank's assistance program entailed heavy input of staff resources. There was more than a doubling of staff input between 1975 and 1987 and a slight reduction since then; there was a comparatively heavier investment of staff during the crisis period of the early 1980s. With some new, but small, members to service, the volume has continued to increase since then. OED Evaluation Experience Performance Trends 19. Of the 147 loans/credits committed to date, PCR-PAR performance ratings are available for 762' completed operations (representing commitments of US$1.1 billion) to eight countries4' in the region. Nearly all of these projects were approved prior to end-1980s (and only one in FY91). This review of operations and their performance trends therefore does not incorporate the relatively recent operations or those in progress. 20. Among the 76 rated projects, 48 (or 66 percent) have been judged as satisfactory by the evaluators.-' Two of the projects (Guyana's Black Bush irrigation and Jamaica's third Export Development Fund) were not implemented. (See Annex II for details of the evaluated projects and programs-including approval and closing dates, loan and credit amounts, and performance ratings). 21. Overall, the region's portfolio performance compares unfavorably with the Bank-wide satisfactory average of 75 percent and the LAC Region's satisfactory average of 71 percent. Notably, the percentage of adjustment programs judged satisfactory, 45 percent (Table IV. 1), is considerably lower than the Bankwide average of 73 percent. 22. The region's portfolio performance has fluctuated over the decades (See Tables IV.2 and IV.3): (a) from the late 1960s until 1974, the share of evaluated projects which received a rating of satisfactory remained around 70 percent; (b) from , portfolio performance deteriorated sharply, with the percentage of projects rated satisfactory declining to the mid-50s range; and (c) for projects approved in the early and mid-1980s, performance trends show the satisfactory ratios oscillating around the 70 percent level. 23. These aggregate trends, however, need to be interpreted with caution: first, the rated projects and programs have been heavily concentrated in the three largest borrowers (Jamaica, Guyana, and Trinidad and Tobago); and second, the majority of projects and programs in the relatively better- 3/ PCR-PAR ratings are not available for operations completed prior to 1974 (that is, before the inception of OED). Projects in the following three countries are of a relatively recent origin and, as such, dre ongoing and yet to be evaluated: St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines. Also, as stated earlier, Antigua and Barbuda has not been a recipient of Bank lending. 3' For OED's evaluation criteria, see Annual Review of Evaluation Results 1992 (Report No , October 13, 1993), Chapter 1, pp. 1-2.

53 performing smaller countries have entered the evaluation cohorts only at the end of the 1970s and in the subsequent period of the early 1980s. Country and Sectoral Performance 24. In relation to the overall performance trends, there are dramatic differences among countries in the region. Among the MDCs, and considering the entire period, average performance levels range from the highest of 100 percent satisfactory in Barbados to 73 percent in Trinidad and Tobago and to the lowest of 54 percent both in Guyana and Jamaica. All the smaller borrowers: Bahamas, Belize, the CDB, Dominica, and Grenada-all with a low number of projects evaluated-have achieved a 100 percent satisfactory performance rating. The complete list is presented in Table IV.2. Bahamas and Barbados achieved a consistently high performance throughout the period under review; Jamaica experienced declining performance during the 1970s, but stable performance in the 1980s; and Guyana witnessed a declining performance until the late 80s.

54 Table IV.1: Adjustment and Investment Lending, Caribbean Countries Number of Overall Adjustment Adjustment Investment Investment Country Projects Ratings Programs Ratinigs Projects Ratinigs Bahamas Barbados Belize Caribbean Region Dominica Grenada Guyana Jamaica Trinidad and Tobago Total Source: OED Database l7'

55 Table IV.2: Country Performance by Tine Periods, by Approval Years Total Number Overall PCR/ Pre and On Country of Projects PAR Rating (No.) (%oftotal) (%Sat) (No.) (%oftota) (%Sat) (No.) (%oftotal) (%Sat) Bahamas BEubados Belize I Canibbean Region Dominia I Grenada I Guyana Jamaica Trinidad and TobaYgo Total Soucc: OED Dat*bae lj

56 Table IV.3: Sectoral Performance by Time Periods, by Approval Years Total Number Overall PCRI Pre and On Sector orprojects PAR Ratinng (No.) (%oftolal) (%Sat) (No) (%oftotal) (%Sol) (No.) (%oftotui) (%SAI) Agriculture Energy Finance llumanresource Power Program & Policy Technical Assist&n Telecommunicatioms I Tourism Transport Urban so 100 Water & Sanitation Total: Somaec: OED Dalubme 00

57 Over time, the inter-country differences in project ratings reflect a combination of: (a) the uneven impact of changes in the external environment, particularly the changes in the terms of trade; (b) the extent to which these countries managed to buffer domestic economic activity from exogenous shocks through appropriate economic management; and (c) portfolio-specifi characteristics. The relative impact of these three types of factors is enumerated in a subsequent section. 26. There are also substantial variations in the percentage of operations judged satisfactory across sectors. The sectors at the upper end of the range have been development finance companies, power, and transport. The sectors with below-average trends include agriculture and program and policy loans. The percentage of satisfactory operations in the remaining sectors have ranged between percent. (Table IV.3). In terms of changes in sectoral performance ratings: (a) the agriculture sector has witnessed a remarkable continuous improvement in its ratings; (b) the ratings of projects in the transport and human resource sectors have undergone sharp fluctuations; and (c) adjustment operations (successors of program and policy loans) have experienced a progressive deterioration in performance ratings. Portfolio Composition 27. The changing country and sectoral composition of the portfolio could conceivably account for changes in the Bank's portfolio performance ratings over time. Are overall performance trends pushed downwards as some poor-performing projects in MDCs are substituted for the comparatively better-performing projects in the smaller borrowers of the region? Could entry of new sectors-such as policy-based loans reflecting Bank's changing emphasis-in the portfolio favorably or adversely influence overall performance trends? 28. To address these queries, overall portfolio performance trends were compared with "normalized" trends. In this exercise, the "fixed" group consists of countries that had received loans prior to 1974, and portrays the trend had the Bank continued to lend to the same countries after 1974 at the same proportionate levels of lending as in the years prior to The same procedure was applied to the sectoral mix of the portfolio. 29. The results indicate that the differences in overall performance ratings over time were due for the most part to shifts in the performance levels across countries and sectors. In other words, the aggregate performance level improved somewhat in the 1980s because of the entry in the portfolio of new borrowers such as Bahamas, Barbados, Dominica, and Grenada and the better-than-average project performance in these countries. Conversely, the aggregate performance would have been worse if lending was confined to traditional borrowers such as Guyana, Jamaica, and Trinidad and Tobago. Likewise, a shift in sectoral composition of the portfolio had a considerable impact on the overall portfolio performance. Specifically, if the Bank had maintained the traditional sectors' share in lending, the aggregate performance level might not have undergone the sharp deterioration that was witnessed during the period. With the introduction of policy-based lending in the region in the 1980s and the subsequent poor performance of this form of lending, the overall performance levels underwent a steep decline. (Annex 111).

58 Performance Factors 30. What factors might then specifically account for the disparate portfolio performance of individual countries in the Caribbean? Potential factors include: (a) the impact of the oil price, interest rate, and recession shocks, and the capacity of the affected countries to contend with sharp fluctuations in relative prices and in aggregate demand that ensued; and (b) increased complexity of objectives incorporated into Bank lending since 1970 with commensurate implications for both the Bank and the borrower. In this context, OED's evaluation experiences has specifically emphasized three closelyrelated sets of factors as determinants of project and program performance: * external economic environment and exogenous shocks: e.g., terms of trade, interest rates, and such circumstances as natural disasters; * country conditions: e.g., macroeconomic framework and policies, growth performance, level of human development, trade restrictiveness, borrower ownership, and political stability; and * project processing: e.g., project selection, technical design, and supervision. External Shocks/Exogenous Factors 31. External shocks-particularly those related to the terms of trade, international interest rates, and variations in global demand-can affect countries in widely-differing ways; at the same time, countries can respond through a variety of approaches-such as export promotion, import substitution, economic compression, and additional net external financing. 2 ' Usually, the magnitude of external shocks, is not as critical as the timeliness and form of policy responses. 32. During recent decades, the Caribbean economies have been exposed to a variety of external shocks (including severe natural disasters). First, oil price shocks have been both positive and negative for countries, reflecting the presence of both consumers (notably, Jamaica), and producers (e.g., Trinidad and Tobago). Second, there were also significant swings in commodity prices, both favorable and unfavorable, where volatility posed a further challenge for the policymakers. Third, most small island countries were also severely affected by increases in real international interest rates in the 1980s. 33. Guyana had to contend with unusually severe external shocks. The situation was compounded by erratic policy response that finally led to a crisis in the early 1980s. A significant part of the problem was financing an inefficient public sector, with the result of a heavy debt burden and only limited progress in social reforms. Access to significant levels of external financing probably also aggravated the situation faster as it helped stimulate demand for non-traded goods leading to an overvalued exchange rate. 1 See: Annual Review of Evaluation Results 1992 (Report No , October 13, 1993), Chapter 1, pp ' See Desmond F. McCarthy and Ashok Dhareshwar, "Economic Shocks and the Global Environment' (Policy Research WPS 870, March 1992).

59 Jamaica suffered severe external shocks in the 1970s and early 1980s. An appropriate response would have attempted to compensate for the loss of competitiveness. The actual response relied too much on external financing especially in the early 1980s with little effort to stimulate the required supply-side response. When the global environment turned favorable later in the 1980s, Jamaica was overburdened by high debt and poor investment choices to take advantage of the situation. 35. Trinidad and Tobago was hit by a variety of shocks that, on average, were favorable in the 1970s but unfavorable in the 1980s. These shocks were characterized by a high volatility. The policy response was first to stimulate investment and address some social concerns. However, failure to devise an appropriate cushioning mechanism meant that investment levels were subject to large (and inevitably undesirable) swings. The real exchange rate was allowed to appreciate significantly, thereby diminishing the chances for diversifying the economy and achieving a sustainable growth pattern. The sharp rise in wealth due to the oil largesse resulted in a resource shift toward non-tradeables while non-oil exports experienced a decline. When oil prices decreased, the process was reversed and the non-tradeable sectors declined with commensurate employment shifts. 36. The impact of price volatility for bananas on small island economies was particularly severe. Despite this volatility in terms of trade, Dominica-through prudent macroeconomic policies-managed to increase its share of the global market in the 1980s, with the exception of 1989 (when struck by Hurricane Hugo). 37. Natural disasters (to the extent that these severely hamper the performance of the economy) thus are also classified as external shocks. The performance of several unsatisfactory projects in the review period was strained by such calamities as Hurricanes Gilbert and Hugo in Jamaica and several smaller islands. 38. In terms of the relationship of these external shocks with disparate country portfolio performances, the critical factor, doubtless, has been the asymmetry of the countries' policy responses. Country Conditions 39. The importance of a stable international economic environment notwithstanding, the predominant stimulus for good project performance is to be generated from within. In general, the presence or absence of a sound macroeconomic framework in and of itself does not "explain" project performance. 40. Nevertheless, successful structural/sectoral adjustment improves public sector performance and private sector investments by reducing distortions, improving the response to changes in relative prices, and promoting integration of developing countries in international markets. Statistical analysis conducted for the recent OED's Annual Review confirmed these findings by showing a significant positive correlation between the performance of investment projects and adjustment operations. OED's previous findings are reinforced by the similarity in experiences of Guyana and Jamaica-the only recipients of Bank lending for both investment lending and adjustment programs. 41. Likewise, steady output growth accompanied by fiscal stability is vital for maintaining the requisite enabling environment for successful implementation of investment projects. Prior OED work validated the positive association between economic growth and project performance across sectors at the

60 country level. For the purposes of analyzing this relationship further, OED's ratings of investment projects were cross-checked with a series of country factors serving as possible explanatory variables. The aggregate analysis confirms that higher GDP growth rate and lower inflation were highly-significant factors associated with a country's above-average portfolio performance. Notable examples include Bahamas, Barbados, Belize, Dominica, and Grenada. 42. OED's evaluation experience also highlights the importance of a country's level of human development!' for project success (as exemplified by the experience of Bahamas and Barbados). Conversely, in several unsatisfactory projects (e.g., Guyana), weak management was occasioned by difficulties in obtaining skilled personnel and lack of project support training. 43. Borrower commitment/ownership of projects and programs is often cited as vital for credibility of policies, safeguarding against policy reversals, and ensuring sustainability of benefits. Virtually all highly-successful cases among the 76 projects and programs in the Caribbean countries were marked by a strong commitment to project objectives including their policy and institutional goals. 44. Finally, a relatively stable political environment (irrespective of the nature of the political regime) provides long-range planning horizons for core ministries, thereby ensuring the continuity of project and program objectives. Uncertainties generated by frequent electoral changes, coupled with a limited span of attention of the political parties, in many countries (e.g., Guyana and Jamaica) proved to be a major impediment in project implementation. 45. Barbados's highly-successful portfolio performance in the 1980s owes largely to the government's prudent economic management, a well-educated labor force, effective project processing, and well-developed institutional arrangements for project management. Despite Barbados's small size and a narrow resource base, it has recorded real GDP growth of 3 percent per annum since independence in 1966 until the latter half of the 1980s. Its economic base has diversified from monoculture production and export of sugar to tourism and business services. Associated with this income growth has been a steady improvement in the distribution of income and social welfare-in education, housing and health and nutritional standards, and a well-developed safety net for the poor and the unemployed. 46. Barbadian authorities were successful, in most years, in containing fiscal deficits at manageable levels, pursuing prudent monetary policies, and improving the country's foreign exchange position in most years. By mid-1980s, the external competitiveness came under strain-domestic cost factors, stemming from expansionary demand management policies and wage pressures, contributed to a real exchange rate appreciation. In the search for remedial actions, the Bank and the government were often on the same wave length during most of this period. However, Barbados's macroeconomic management deteriorated sharply in recent years, evident from a decline in GDP growth and an unprecedented rise in unemployment. Consequently, the government successfully implemented a stabilization program, but since then there has been limited progress in restoring international competitiveness, reducing unemployment, and promoting growth. F' The yardstick of human progress used here is the UNDP's human development index (HDI) which-by combining indicators of real purchasing power, education, and health-offers a measure of development much more comprehensive than GNP alone. Source: UNDP, Human Development Report 1993 (New York: Oxford University Press, 1993).

61 Among the large borrowers in the region, Guyana has witnessed a sharp decline in portfolio performance over the years-from 67 percent in pre-1974 period, to 50 percent in , and to a very low of 33 percent in the 1980s. A major part of the explanation lies in a combination of poor macroeconomic policies and inadequate institutional arrangements. While Guyana's economic performance showed positive growth in the early 1970s, the collapse of sugar and bauxite prices after the boom of led to a decline in output, large government deficits, accelerating inflation, and increased reliance on external borrowing. New industrial investments were made by the public sector, but infrastructure was neglected and gradually deteriorated. Further, the decline in real wages and living standards led to a major emigration of talented Guyanese to jobs overseas. Until 1988, Guyana followed economic policies characterized as "cooperative socialism"-leading to the domination of the public sector and severely-distorted incentives for the private sector. In the mid-1980s, industrial output had fallen to 68 percent of its 1976 level. And, by 1986, the government was forced to suspend payments on external debts to official and private lenders. In recent years, the government has launched a far-reaching economic recovery program, representing a major change toward a private sector-led, market-oriented economy; the program has received strong support from the international community and donors. 48. Jamaica-the largest borrower in the region-has experienced wide fluctuations in its portfolio performance: from stable levels of 70 percent satisfactory projects in the pre-74 period, to 36 percent in , and a slight turnaround in the later years. These fluctuations (in a portfolio size of 36 projects and programs) reflect the vulnerability of the Jamaican economy to external shocks, inadequate policy responses by the government, structural weaknesses in the economy, and wavering political commitment to policy reforms. 49. From independence in 1962 until 1973, Jamaica enjoyed steady growth, with GDP expanding at 5 percent a year. After 1973 and through 1980, the economy experienced a period of sustained contraction resulting from external shocks and poor domestic policies. Increases in petroleum import costs, the impact of the mid-1970s recession in the industrial countries on sugar and alumina receipts, and the increase in international interest rates all affected Jamaica negatively. Government policies to tackle unemployment and enhance the role of the state in the economy led to an overextended public sector and a disruption of production. Simultaneously, an increasingly populist approach by the government eroded private sector confidence, contributing to reduced investment and an outflow of capital and skilled manpower. 50. In recent years, Jamaica has embarked on a series of reforms aimed at liberalizing the economy, developing exports, and raising domestic savings. After a considerable lag, the economy began to turn around in the late 1980s, aided by favorable terms of trade, and improved economic management. Since 1989, the government has made increased efforts toward reducing the size of the public sector by cutting subsidies, streamlining government expenditures, and privatization. Nonetheless, the contemplated medium-term measures have yet to bear results, especially in contending with a heavy external debt burden through moderation in foreign borrowing combined with efficiency in resource use. 51. Thus, the successful economies were those that adopted viable exchange rate, fiscal, monetary, trade and wage policies, and supported private sector development. The importance of macroeconomic factors notwithstanding, the foregoing discussion highlights the mutually-reinforcing nexus among macroeconomic performance, policies, human resource development, borrower ownership, political stability, and project performance.

62 Project Processing Factors 52. According to OED's evaluation experience, all the satisfactory projects in the Caribbean countries were mostly well identified, prepared, appraised, and supervised. Notable cases from the recent evaluation cohorts include: (a) Barbados's industrial credit project; (b) CDB II; (c) Grenada's agricultural rehabilitation and crop diversification project; and (d) Jamaica's emergency reconstruction import loan, the export crops project, the third power project, and trade and financial sector adjustment loan. 53. As specific examples, timely and appropriate intervention by the Bank in Grenada's agricultural rehabilitation efforts were fully consistent with the government's macroeconomic targets and political objectives of moving economic activity from the public to the private sector. Bank's lending to the CDB was generally characterized by appropriate scope and timing of the projects, together with considerable assistance to strengthen CDB's staff capabilities. Lastly, the successful project experiences in Barbados are instructive, among other things, of the Bank's collaboration in fostering institutional development. 54. In other instances, however, (notably, Guyana and Jamaica), Bank lending was generally seen by the governments as excessively guided by preconceived notions of a country's development needs. In the case of Guyana's initial (1980) adjustment program, there was an apparent lack of government commitment to the central thrust of the program, which made it unlikely that the program would have followed through even under the best of circumstances. This was also one of the very first SAL operations undertaken by the Bank. A late decision to convert the operation from a program loan to a SAL detracted from the quality of preparation and appraisal. The experience of this operation questions the appropriateness for the Bank to undertake a SAL in the circumstances facing Guyana in In devising Bank projects, the limited indigenous capacity for implementation, weak administrative arrangements, and insufficient inter-ministerial coordination were often overlooked (e.g., Guyana and Jamaica) or the local expertise was not properly tapped. In Guyana's first SAL, the limited capacity of Guyanese institutions added to the delays in implementation and meant that actions taken were generally insufficient to deal with the problems facing the economy. 56. The mechanisms for beneficiary involvement were either not in place or the process was very time consuming (e.g., projects approved for Guyana until the late 1970s). Insufficient attention was given to institutional development and information-sharing between the Bank and various implementing agencies in the country. Often overlooked was the role of state-owned enterprises in serving a patronage function in countries such as Jamaica. Similarly, there was more emphasis on reducing distortions in the economy than on an analysis of the proposed project's likely impact on traditional beneficiaries. Also, there was insufficient consideration of socio-political aspects of a project. In Jamaica's sites and services project, for example, conflicts between the national and local levels of government and rivalries between various factions at the local level contributed to tensions at work sites and prolonged administrative delays. 57. Policy dialogue with the Bank (especially pertaining to policy-based lending) was often marked by an absence of consensus (e.g., Guyana and Jamaica), partly because of the Bank's urgency to meet deadlines for presentation of the loan/credit to its Board and because of the high turnover of Bank staff. Accordingly, loan conditions were often seen as "imposed" by the Bank. Guyana's first SAL

63 (1980) did not have any lasting impact on the structural adjustment process, and given the disappointing results, no follow-up SAL operations were considered for a considerable time. 58. According to OED's evaluation experience, Bank's stipulations for adjustment lending were often standard and orthodox, but without sufficient adaptation to country-specific conditions. Usually, disagreements were not on policies but on the pace of such policies. Though the general thrust of the three SALs supporting Jamaica's structural adjustment program was realistic and in line with the development needs of a small open economy, these SALs were overloaded with detailed requirements in a wide spectrum of areas-some of which were of relatively minor importance. In some cases, there was explicit cross-conditionality between a SAL and a project loan. This may have reflected a desire to use SALs as a vehicle for solving particular problems affecting the execution of project loans; however, the price was to clutter the SALs at the expense of attention to critical areas that only the SALs could have addressed. 59. Last but not least, several unnecessary difficulties emanated from shortcomings in the project conception stage: procurement procedures, agreement on technical appraisals, hiring of consultants, and availability of counterpart funding (as exemplified by the case of Jamaica). The highway maintenance project was classified from the beginning as a "problem" project and its implementation proved to be substantially at variance with the plan agreed at appraisal. The project's implementation was affected by numerous factors: (a) delay in declaring the project effective; (b) delays in procuring technical assistance consultants and hiring local counterpart staff; (c) poor maintenance of existing equipment and delays in purchasing new equipment; and (d) a critical shortage of counterpart financing. The Status of the Current Portfolio 60. Currently, 47 ongoing projects and programs with commitments of $690 million in the 10 countries and the CDB have received supervision ratings (for overall status as well as progress toward attaining development objectives), reported by the Bank's Operational Policy Review (OPR) Department. 2 ' Again, more than half of these operations are in the MDCs. A vast majority of these projects and programs were approved in the mid- and the latter half of the 1980s. 61. Only one of these projects and programs Jamaica's population and health Project) is considered overall as "problem" project with severe implementation problems. The Jamaica population and health project needed restructuring: it was affected by both a lack of counterpart funds and low implementation capacity of the Ministry of Health. Also, cost overruns affected the civil works component of the project. More recently, the implementation of Jamaica's bauxite/alumina rehabilitation project (under review) has been hampered by unfavorable alumina prices and weak marketing arrangements leading to persistent losses of the project. 62. The remainder of the ongoing projects and programs are rated as either on track or undergoing minor difficulties in implementation. Nonetheless, these supervision ratings may obscure the inherent optimism of the task managers regarding the ultimate development impact of these operations. Indeed, a comparison of the past supervision ratings of 22 projects and programs with those evaluated 29 For details and ratings criteria, see Annual Review of Portfolio Perfornance (ARPP). FY92.

64 ex-post by OED confirms a "disconnect"2' of approximately 14 percent between the two sets of ratings. This "disconnect" pertained mostly to the projects in Jamaica (10) and Guyana (2). Still, a continuation of a promising trend (especially in the MDCs) would improve the region's overall portfolio performance in the years ahead. 63. In the context of portfolio management, the Bank is now increasingly coordinating its evaluation activities with the CDB and the IDB especially for the OECS countries. Further steps are being initiated by the LAC Region for incorporating OED's lessons of evaluation experience in designing new projects and improving their quality at entry in the portfolio. And, where necessary, projects in several Caribbean countries (notably, Jamaica) are being restructured to address systemic and/or sociopolitical problems that had adversely affected the Bank's past portfolio performance in the region. 12 The gross 'disconnect" is the percentage of projects reflecting the discrepancy between ARPP's final year's rating of the projects and PCR-PAR rating of the same projects-thereby indicating the extent of optimism or pessimism regarding the final outcomes of the projects.

65 Table IV.4: Distribution of commitments to the Caribbean (as of Augu. 1993, by calendar year) Region Couutry No. of Projects Peeceat Commitmeals Perceat Pr Capita \ of Total (SUS, million) of Total (SUS) Direct lending Bahamas Babados Belize Doinni Grenada Guyana Jamaica St. Kitts & Nevis SL Lucia SL Vincent Triidat Tobago Subtotal Lending through CDB Cunbbean Development Bank Total Note: a: 1992 population. Source: World Bank.

66 Table IV.5: Commitment by Sector (as of December, 1993) Sector Commitment Percent ($US M) of Total Agriculture & Rural Dev Development Finance Companies Education Industry NonproJect Pop., Health & Nutrition Power & Energy Public Sector Management Technical Assistance Tourism Telecommunication & Transportation Urban dev., water supply & sewerage Total Source: World Bank

67 CHAPTER V LESSONS OF EXPERIENCE AND AGENDA FOR THE FUTURE 1. The past two decades of Bank involvement in the Caribbean region have been marked by a learning process of variable effectiveness. The Bank was less than successful in its interventions in the MDCs, with the exception of Barbados and, more recently, Trinidad and Tobago, and much more successful in implementing its assistance programs in the other sample group of CARICOM countries. On the positive side the Bank quickly came to realize that it was costly to lend directly to some of the smaller islands, and hence began to use the CDB as a lending retailer, especially for the Eastern Caribbean; it later helped establish the CGCED as a vehicle for external resource mobilization, aid coordination and policy agenda setting. Second, the Bank gradually found that it could not readily apply pre-determined standards to investment projects in the Caribbean-they required adaptation to local, in some cases unique, conditions. Third, the Bank showed over-reliance on comparatively weak public administrations to implement complex and demanding investment and policy-based lending. This was a major factor underlying the high proportion of "unsatisfactory" ratings of project performance. Lack of consensus building effort also contributed. In particular, SAL/SECAL lending-and Jamaica and Guyana were among the early country recipients of such assistance, did not achieve the envisaged structural and sectoral reforms in a majority of cases. Lessons of Experience 2. The review of the Bank's assistance effort in the Caribbean yields many lessons for the Bank, other donors and aid recipients. Among the more instructive are the following: * In the earlier days of Bank involvement in the Caribbean, a region comprising mostly small-island countries, the Bank came with pre-determined views in terms of the countries' ability to respond to the prescriptions derived from the larger non-caribbean countries with which Bank staff worked. This was especially true for policy based lending in countries such as Jamaica and Guyana and for investment lending in Trinidad and Tobago. The Bank's attitude changed over the latter-half of the 1980s. There is some evidence that the Bank became more flexible in its approach to country needs, including the involvement of local staff in projects and other assistance activities. * Sequencing of economic reforms has been an especially irksome issue. At times the pace of reform has been excessively slow, but most of the times, the Bank tried to persuade the country to implement the reforms at a quick pace and predicted its lending on unrealistic assumptions. Recipient governments (Jamaica, Guyana, Trinidad and Tobago) have argued that too fast a pace of reform is unrealistic in the Caribbean, given consensus building requirements and the need to marshal supportive public opinion. One interlocutor put it aptly in the context of Jamaican experience: "we need both 'adjustment with a human face' and 'adjustment with a human pace"'. The Bank should have realized that whenever the desired rapid reform pace was not achievable it would have been preferable to adjust the lending program accordingly, including moving away from policy-based quick-disbursing lending towards investment lending with adequate sector policy conditionality. * While the Bank could not project the fate of banana and sugar exports in the late 1980s and the early 1990s, it was inconsistent in its approach to the development of agriculture sector

68 in the region. Although the comparative advantage of both products had long been lost, production was sustained only because of preferential markets offered by the EC and the USA and because of the monetary rewards obtained by traditional interest groups with strong links to the two crops. The Bank should have researched more intensively and at an earlier stage alternative diversification strategies, especially considering the very long lead time that a diversification process requires. 11 * In some aspects of the assistance program, the Bank identified the issues properly but failed to follow up. The critical problem of employment in the region was identified early in the 1970s, and mentioned in various documents since then. However, other than the regional education study which does touch on employment issues, no in-depth study of this regional 'time bomb", or the strategies to tackle it, took place. Further outmigration is a function of the state of the global economy and more specifically of the countries around the region where the potential for workers immigration lies. All the demographics point to a situation which will worsen over the next 10 years; an early start on analyzing the problem is highly desirable. * The Bank, in collaboration with its Economic Development Institute (EDI), the Latin American Institute for Economic and Social Development (ILPES), and CDB used to be heavily engaged in training of middle-level managers and analysts in the economic ministries. Any new plans for Bank training in the Caribbean should target the highest level of decision making. For reforms to be successfully implemented, it is imperative to ensure first of all the ownership of the reforms by those who are placed in key decision-making positions. To this effect, the focus of the above-mentioned institutions should shift from training to policy reform seminars and their staff should act much less as teachers and much more as catalysts and moderators. * The Bank, in devising its projects, has often neglected (Jamaica, Guyana) the limited indigenous capacity for implementation, including insufficient interministerial coordination, while at the same time failing to tap local expertise when available. Furthermore, the mechanisms for beneficiary involvement were either not in place or the process was very time-consuming (Guyana). Finally, in some cases, the socio-political aspects of projects were not adequately taken into account (Jamaica, Sites and Services Project). * A final lesson of experience is the need to avoid shortcomings in the project conception stage, especially with respect to aspects such as procurement procedures, agreement on technical appraisals, hiring of consultants and availability of counterpart funds (Jamaica, Highway Maintenance Project). New Challenges for the Bank and the Region 3. Today, after a robust growth experience in most of the CARICOM countries between 1985 and 1993, the prospects for the region have turned bleak. The sobering medium-term development outlook for the region rests on the following considerations: "I' The OECS countries, with CDB and other donor assistance, have been pursuing not only agricultural diversification buit also overall economic diversification. The establishment about three to four years ago of a fully funded agricultural diversification unit, based in Dominica and serving the OECS, together with the initiatives taken by the governments of the heavily banana based economies, such as Dominica, St. Vincent and the Grenadines and St. Lucia to actively promote tourism investment attests to governments' responsiveness to such concerns.

69 * The economic fortunes of the Caribbean have always been closely linked to those of the industrial countries of North America and the U.K. This is due largely to the traditional trade and assistance ties from colonial times and, in more recent years, the geopolitical importance of the Caribbean in the cold war. These factors led to the provision of preferential treatment for Caribbean exports. Given the widespread moves towards trading blocs such as the North American Free Trade Association (NAFTA), and the revived completion of the General Agreement on Tariffs and Trade (GATT) "Uruguay Round", there is the threat that the Caribbean region's traditional markets will be disrupted. What is almost a certainty is that the EC subsidies for Caribbean bananas and sugar will be eroded over time; this loss will be sizable for the group in the Windward Islands and, to lesser degree, for St. Kitts, Belize, Guyana, and Jamaica, if implemented too rapidly. * In proportion to their population, CARICOM countries have been receiving large amounts of official aid from bilateral and multilateral sources. It is unlikely that the high levels of per capita aid will continue to be available on the same scale because: (a) the economic difficulties faced by many bilateral donors are forcing a reduction in overall development assistance; (b) countries in Eastern Europe and Central Asia are making claims on a stagnant development aid pool; (c) per capita incomes in many Caribbean countries have risen to levels at which bilateral and multilateral donors find it difficult to justify high levels of assistance, the "small, fragile country" argument notwithstanding; and (d) the end of the cold war has removed the "regional security" argument for providing bilateral financial support to the CARICOM. * A policy of trade liberalization has spread quickly and widely throughout Latin America, but the Caribbean countries have been slow to follow suit. In 1992, a new Common External Tariff (CET) was adopted by the CARICOM countries which will yield a tariff band of 5-20 percent by 1999, but if these countries are to maintain their competitive edge on exports to North America and Europe, they will also have to address non-tariff impediments to liberalized trade. * The region has to face up to a declining trend in external capital inflows. Net transfers from all sources to the region averaged about US$750 million a year between 1978 and 1981 and peaked at close to US$1.2 billion in In 1986, 1987, and 1990, however, these flows were negative, amounting in the latter year to minus US$227 million. This declining trend in capital flows to the Caribbean is not likely to be reversed soon. This poses a major challenge for many of the Caribbean countries. Further, although the provision of grants from bilateral and multilateral sources rose over the period from US$190 million in 1978 to almost US$500 million in 1990, reflecting largely the evolution of US aid policy, it is a virtual certainty that the capital flows for 1991 and 1992 will show a further drop in transfers and in grants. * The Caribbean countries share in the increasing global concerns about the environment and the need to modify the growth objective to include the concept of "sustainability". For those islands which have come to rely on sea, sun, and sand tourism as the major growth-propelling sector, the environmental issue is a matter of economic life or death. Many of these countries face an advanced degradation of

70 Agenda for the Future their marine ecosystems, which in turn leads to beach erosion and water pollution. Environmental assessments are underway for all the countries and, for the OECS, efforts have already been planned on a regional level to deal with the dumping of waste by cruise ships and others plying their waters. The Caribbean and the Pacific Islands: Lessons from Comparisons 4. There are several common features but also some main differences between the Caribbean and the Pacific Islands which were the subject of an earlier OED study.!-' Ei, the geographical location of the Caribbean is much closer to IBRD Headquarters than that of the Pacific Islands and this has obvious implications in terms of the cost of the Bank assistance. Second, for a historical perspective, the Pacific Islands have had less interaction with the rest of the World than the Caribbean and this has implications in terms of the socio-economic dynamics of the two groups of countries when it comes to formulating development strategy and implementing projects. Third, the role of the Bank, and of the other multilateral institutions in terms of lending is far greater in the Caribbean than in the Pacific Islands where bilateral aid is the absolute dominant source of foreign resources. Fourth, the level of aid has been and will be much larger in the Pacific Islands than in the Caribbean, so much that for the Pacific Islands the main issue for the future is the utilization rather than the level of foreign assistance. Fifth, while the future role of the Bank in the Pacific Islands will be much more than that of a provider of development strategy solutions than of resources in the Caribbean, the Bank's presence will be significant both as a lending institution and as source of advice through its ESW, whether directly for the MDCs or indirectly for the LDCs. (i) Regional vs. Country Focus: Need for Balance As with the Pacific Islands, the Caribbean countries constitute a region more in logistical than in substantive terms. More specifically, the benefits of integration are limited by the fact that their factor endowment is very similar. It is true that the Caribbean countries have common problems, i.e., unemployment, limited growth prospects, weak institutional setup, etc., but different features prevail among the MDCs and the LDCs and even among the countries within each group. This explains the importance of maintaining a specific country focus in line with what the LAC Region has done so far and plans to do. While substantial benefits are associated with common services and coherent practices, the design and implementation of regional arrangements is demanding. Therefore, the only possibility for the Bank to take a regional approach to the Caribbean is in the analysis of some of the more common development issues facing the countries such as human resources, environment and the role of the private sector. However, as in the case of the Pacific Islands, where these issues have been studied in-depth following the OED study, the country-specific aspects have to be kept in mind if those investigations and the ensuing policy recommendations are to have any impact. (ii) Economic Diversification and Comparative Advantage The Caribbean countries, because of the poor perspective of the primary products, from bananas and sugar to bauxite and oil, are facing serious constraints to their development prospects. 12/ The World Bank and Pacific Island Countries: An OED Review, Report No , May 5, 1992.

71 Maintaining their current productive basis would already be an achievement as it would imply turning around the negative economic trends of the more recent years, especially for the MDCs. Looking at individual countries, Barbados would seem to have a comparative advantage in becoming a center for financial services, including off-shore banking and software related activities based on its fairly highly skilled human capital; Guyana could develop its food-processing activities with the support of foreign direct investment; Trinidad and Tobago, while maintaining their fairly significant agricultural basis, and possibly converting it from primary products to more marketable crops, should expand its oil related activities in association with Venezuela, a natural partner for Trinidad and Tobago; finally Jamaica, which can count on a relatively more developed industrial basis, could benefit from its further expansion once proper market signals are provided and the institutional fabric of the country drastically overhauled. The smaller Caribbean countries are now dependent largely on a tourist sector which cannot expand significantly. Already maintaining their share would be an important achievement especially considering that tourism for the region as a whole is unlikely to grow significantly. For the smaller Caribbean countries, however, some growth prospects could come from a "division of labor" in a number of areas which are of common interest such as health and education facilities, financial services, coast guard services, etc. Unemployment remains a key problem in the Caribbean and there is no magic cure for it. All the diversification and specialization efforts indicated above are imperative measures to prevent unemployment from worsening. (iii) Institutional Development and Human Resources: Further Constraints to Growth and Employment Growth of output and employment are constrained not only by a limited productive basis but by weaknesses in the institutional setup and the human resources. These two problems are present in different degree among the countries. They are most acute in Guyana and Jamaica, less serious in Barbados and the smaller islands, and significant in Trinidad and Tobago. With respect to institutional development, the negligible results of the administrative reform programs launched in some of these countries (e.g. Jamaica), confirms that, as OED has observed in its evaluation work, without a serious overhaul of the civil service system, the prospects for serious institutional development are dim. This is one aspect of similarity with the Pacific Islands. The fact that civil service reforms are politically difficult to introduce and sustain does not detract from this conclusion. The institutional weaknesses are at the basis of the poor performance of many of the investment projects by multilateral and bilateral sources. The Bank may have contributed to the problem by focusing on the formulation of sophisticated blue prints for reforms, leaving their implementation of the blue print to domestic unskilled staff and "passing through" foreign consultants. An inadequately skilled labor force has little chance to find gainful employment whether domestically or abroad. In those countries where the human resource basis, also as a result of migration of the more talented people, is especially weak, i.e., Guyana, Jamaica and Trinidad and Tobago, the Bank as well as the other donors should make special efforts. This is an area in which a regional approach could be taken including the Bank and all the other institutions such as IDB, OECS, and the private donors. In particular, the University of the West Indies could be the central focus of the higher and technical education for the Caribbean with particular attention devoted to the training of teachers at the lower levels of learning. The University of the West Indies, with its very competitive salaries attracts high quality teachers. There is however the feeling that the University remains an elitist center of education with modest propensity for involvement in the development process of the Caribbean.

72 (iv) The Role of the Bank: Defining an "Appropriate" Role The appropriate role of the Bank in the Caribbean is influenced by the obligations of the institution towards its member countries and by the "transaction" costs linked to Bank assistance for small countries. Clearly, small countries are entitled to the Bank's attention in terms of policy dialogue within the framework of a well defined development strategy based in turn on a well focussed ESW. A look at the ongoing ESW in the LAC Region for the Caribbean countries indicates that by and large, especially with the increasing reliance on Medium-Term Policy Framework papers, the Bank is well placed to capture the development issues facing the Caribbean and to develop the consequent policy recommendations. The reaction of some of the Caribbean countries, expressed in the course of the visits of the OED study team, is that greater effort should be made by the Bank to understand the sociological and political aspects when analyzing their economic problems and formulating development strategies. This raises the general issue of the skill-mix of the Bank staff working on these countries, an issue which had arisen already in the context of the Pacific Islands Study. More important, however, is the Bank's need to reflect a greater perception of the countries' varied cultural background in its lending program especially in terms of beneficiaries and their participation in the design of the projects. The reality of ethnic composition in some of the Caribbean countries is often neglected in this phase of the Bank's assistance strategy. With respect to the Bank's lending program, the following aspects appear of particular relevance. First, given the poor experience of the past, further reliance on SAL type operation should remain limited. The last SAL to Trinidad and Tobago, albeit a successful one, should give way to assistance at the sectoral (e.g., agriculture) investment level. SALs should not be considered priority instruments in Jamaica and Guyana where the reform pace is severely hampered by outstanding development constraints which make the countries less equipped for effective use of broad resource transfer operations. SECALs and Sector Investment loans would seem a more appropriate venue for Bank lending at this stage. Special attention should be given to self-standing technical assistance projects. While their number has been limited, their poor outcome represents a wasted opportunity given the critical importance of the institutional weakness which such technical projects normally address. In Jamaica, for example, an administrative reform program, financed by the Bank had, in the words of a Jamaican high official responsible for the project, practically zero achievement, as a result of poor design and gross underestimation of the resistance by government agencies to carry out the reforms. (v) CGCED: Increasing its Relevance for the MDCs It would seem that the LDCs find the CGCED an interesting forum for the discussion of their individual interests. At the same time, the MDCs rely more for their "business" on the direct relationship between them and the Bank. An interesting innovation introduced by the LAC Region at this year's meeting, has been to extend the participation to private financial institutions. This novelty appears to have been well received by the larger Caribbean countries as it offers them an opportunity for direct discussions with potential lenders in the broader context of the regional development framework.

73 (vi) Relying on Other "Local" Expertise: CARICOM, OECS and the University of the West Indies A greater use by the Bank of the institutions such as CARICOM and the OECS should be made when it comes to formulating the strategy for the Caribbean. We have already discussed above the role of the University of the West Indies. A lot more could be achieved if the partnership with CARICOM and OECS were to be strengthened. Compared to the Pacific Islands the wealth of regional expertise in the Caribbean is much greater. The Bank has traditionally been reluctant to interact with such institutions. This attitude is often at the basis of the criticism levelled by non-government organizations and governments alike, of the Bank's lack of understanding of the local conditions. (vii) Aid Coordination: Improving the Quality of Declining Aid Unlike with the Pacific Islands, aid flows to the Caribbean from all parts of the international financial community have been declining steadily over the last 10 years. The Caribbean is moving from an age of aid bombardment, often dictated by geopolitical consideration, to an age of aid retrenchment, also in part dictated by new geopolitical considerations. In this context, aid coordination between the Bank and IDB, and with bilateral donors, becomes imperative. As with the Pacific Islands, the quality of the assistance in terms of its relevance for the recipient countries, is under continuous discussion. Occasions such as the CGCED meetings, and the donors meeting before that, should be used to coordinate the quality of the flows more than this level. The danger of aid dispersion among many areas of intervention answering to the parochial considerations of individual donors and of multilateral organizations remains very high. If the priority intervention areas in the Caribbean are those of human resources, institutional development, environment and privately led economic diversification-cumemployment, then the role of the Bank is to make sure that the bulk of the dwindling aid flows into these areas. From the view point of the development process, concentrating the efforts in this area should be more important than "assigning" areas of interventions to one or the other among the donors.

74

75 Cint,e,to Detail L,port - LAD 7vA DA Londin - (&a of 31-ADG-93) heu I from July 1944 te aust by Couctry, by Frical Year. by Aprval Date Country nt Sector LJC Project _s Date CiN±t. Ainou BARAK". rt' 1977 wayn SUIT AID SIYLUa L13200 WATZ SUPPL & StW11 27-JUL-76 10, TEX ES, 1951 EDCAfl recuical ThIAUII , LAYAus&I TM 19OS tuum nzamodt UOSg90 D111 If-Um-42 5.S &AR Y. 1U 1957 U *TU SOFT Af SWlIAGI L27S60 WM L SW 11-A 14-OCT4$ 10.00,000 SAlAKS TER 19S9 IDUCATDC0 L30040 D II OS-DZC-S Subtotal 42.S AD LDUCSK N L16420 DUCAnOM 19-DMC-7S 9, marzados 1979 TOMUM SECTOR L1S30 TOUU 10-M-79 5, SAUBADOS 1960 DmIMPINT,xu*mZ c mtru7 LISI00 IUDUTSL.h DRVT Y A-40 0l A23A POER I 04O JA BARBADOS 1952 TECICAL ASSISTAC L21150 TIOICAL ASSIJSTACZ 25-4AR SAR0ADOS 193S DLVRYinT PIRAU COANIZS IIDUSTSAL CRU?T 12-AU e000 AL0LADOS 1984 DUCATIUN L16421 DUC*nX 30-ADO-s 3.,000,000 BARBADOS 1984 TrISJORTATIi no24320 NIGUIA NAIITUAIC 31-MAY UASJADOS it6" DOCMON L26580 coc*n It 06-MAY BJARBDOS 167 J UCITIU Lk RURAWL DIv?. U27S20 ACt DEW RUSS-A 24-VU47 4, BARBADOS 1992 TL6soT0ATI nc IUD 1AZM & REUS I1 23-JUN-92 21, LARIADOS 1994 DOCArION L3340 MIW SnSOURC 01-JL Subtotal O LIZZ 1963 TLRASPOLTAInO L LAD HAMM= & Y ,000 BELIZZ 1957 UW.L27490 FPIUD I 05-AUG-88 7, I*LIZU 195S ACICULTIRZ & RUtAL Dli?. U AC CID L. DZ Y 15-4UX-SS 7, U.IZR 16 TRAISF?A XIN L29450 RAD T65 31-Y tcluz 1992 DOCATIUN L34220 PIY MM DUT 05-DEC subtotal 3s.30m.009 CAR. DmY?. LAZE 1976 DKTn.0? 1 CRAM CCWALU S L12330 DFC-CARXRRSU Dm 30-Ma* CAR. Dm. 3A DRYUAUT 11A8C CPANIES L11340 DIC-CALLIRA DmY? I 30-M&R-76 3,.000,000 CAJR. DMY?. LUIR 0 D1VIOP?T *TIA4Ct CCAfIZS Cutt00 CARIU DM SAM 11-mDC-79 7, CAR. DmYT. law 1950 DEDLOW 1114JTCR C IAIIZS L17750 CARXRIA Dm MM 11-DEC CAR. DmE. ULA 1953 DRVCIDIT FINANCE C 1NAInS C13640 CDS 171 (SDI-8.3) 17-MATY-3 7, CAR. DRmT. UK 1957 DUCAnD CL7sso CDB ITIREM TM 254A1-87 6, CAR. DRY?. BANK 1990 DmIYLOH? 116C CDGAUIRI C21350 CD * 22-MAY CAR. DMT. LAZE 1990 DMONUMET F11ACR CDARI U U32000 CDS * 21-MA SubtotaL ".00oo.eo D4U DIA 1952 TABSPORTA?In C12210 ROAD MAINTENACE & ol r ,000 DEINICA 197 MOU-POJIC C1I170 SAC I 09-S=-87 3, DMIUICA 19U7 POWE C17710 FPOWi 314-AR ,000 Subtotal 11, CGUADA 1965 SCUCU.TWR & 101 SDML. C155S0 AUILIAIU & DV&S-& 1441AR-4 5,000,000 Subtotal 5, G1UYN 1961 AGUCILYIr S RURAL DRY. L.02S50 JUII Kn ouax 15-JUN GUYANA 1969 *ClICTILT & URAL DRY?. LU0590 SA =D11SA (AGRIC) 24-4R GUYACl 1969 UIC?XO C01390 DUCAIX 2U_ GUTYAN 1969 RDUICA N L038S0 KDOICATN 2 A-JA ,000 GUCIIT 1971 AGUI ICULTUR & RURAL DIV?. C02210 LIVISTOX 24..CY-70 2,200,000 GUSAA 1971 URLAN DRT=LON L07U50 SEA ODoUS GUIANA 1972 TRASOTZA?I COSOI 0 KIGUAlS I , GUYANA 1973 PCUAR L.0730 PIWIA I 09 J

76 Comit,o.to Detail Loport - 5L1D and L1A L.n- (as of 31 -G93) e fro July to by Cmotry, by Fiscal TYer. by 4proal. Date Country nf Sector LIC Projeet Name Date Comit. AEG=& CAXA AGUCIULTUU & RU* AL Dlv. L1OltO ACL.TAPAZUN P.RN. 13-JUN-74 12,900,000 GUYAA 1975 DUCATION C00440 DUCATION It CUYANA 1975 DUCADC0N LllOS0 EDCAIOlII 15An ,000 GUYANA 1978 AG.ICULTUIZL * UlElL DRY. CO0IO0 BLACK DOM ZutIrAflO 08-J7. l0,ooo*ooo CUYANA 1979 AGRICULTURE * louvl DETI AGJUC. VO5TRT 10-OCT-78 10,00,000 GUtAN 1977 N-PRDJS T co5s30 PLOGA L"AR 10-OCT-75 5,000,000 GUYANA najrct L15220 PROAM LAN 10-OCT-75 5, GUYANA faJZCT ClUSso STRUCTURL ADJUI! 03-M-Cl GUYANA 1951 "-ZJXCS L19450 STRUCTUAL ADjSTY o0-r1n-1 14,000,000 GUYAVA 1951 POIU L19060 PVWn T A 07-OCT-80 6, GUYANA 1951 TMnICAL ASSISTANCC L19490 TCICAL AUISTANCZ 03-r-ti 1, GUANA 19S2 C0T C120SO 0Tt om 14-rn.42 2, GUYANA 1935 AGRICLTUR & RUDAL Dmv. C15350 AGNC. FORnO GUtAA 1987 UDUSTRI C AUXITZ TA 03-AG-84 7,000,000 GUYAN 1990 NKN-PROJSCT C21680 SAC 25-JUN.90 74, GUIANA 1990 NU1-PROECT C AC 28-J 0 3,400,000 GUYAA 1990 TECOICAL ASSISTANCE C21690 T. A. CLUDI 25-JU ,000 G nyan 1991 as-pajct C2142 SAC 0-NOV-o 4.30s,e00 GUYAXA 1991 S1N-PROJECT C02163 SAC II-JUN-81 18,000,000 GUYAnA i992 -PROJECT C21454 SC 24-OV GUYANA 1992 POP., * ALTS & WNUTnITI C2J350 SALTN. NUT. L USNITATIU 30-A GUANA L99S 1-PRaJCT C21s45 SAC 23-DEC ,000 GUYANA 1993 PLIC SECTOR IANAGDgT C24500 PUSLIC AmAMSTnATI 30-KAR ,000 GUYANA 1993 TUIASPO!TArIUN C24770 NFRASTRUCTOUN RUIIU 235-U-93 24,000,000 Subtotal I2,."0.000 JAACA 1945 TRANSPORTATION LOO40 ISGIOG 304MAR^ JAUICA 1944 P7U L =-N- 22,000,000 JAMAICA 1947 EDUCATION E.0460 ZDCAnSI ,50000e JAMAICA 1947 TEsECOM nnicaticis 1,04410 JAMAuCA TinaI CO 19-JAO JAMAICA 1949 i 5 s5n01. AD NSE L0590 1r1NOSY Vim Sum 29*L -9 5,000,000 JAMAICA 1970 P0P., ALTSD N.oTrITU L06900 FrAMILY nm.an is-j-70 2, JAMAICA 1971 AGICULTURE R URAL DmVT. L07190 AGRICULTURAL CQ541? 22-DEC JAMAICA 1971 ZDOCATIUN L07270 FDUCATXl TX 023-5A-71 L JAMAICA 1973 TRANSPORTATION IMGISM it 29-4MA JAMAICA 1974 AGRICULTURE & IMRAL DmK?. L10040 AGRICULTURL CREDIT 2$54MA-74 5, JAMAICA 1974 URBAN DVEYLA.O1T L10030 URBA DXTT.EINST= 074MAT ,00 JAMAICA 1975 TRANSPOrTATION L10320 IIGBY III 05-JU ,000 JAMAICA 1975 TRANSPORTATION L10430 AIOUO ,000 JAMICA 1973 WATEN SUTLI AND SVAUAG L.1O S0 ADE I AMD 9A JUN-75 15,000,000 JAMACA 1976 PoP.. WALTS A NUTRITIUn L POIATUNM IZDNUTST 0o-S-74 *.oe.000 JAMACA 1977 AGICULTURUE A RURAL DCT. L14440 SUSL D mysiout I 23J JA..ICA 1978 AG&IC.TURZ & RURAL DT SUGA BUBAILInTATIN L6e e JAMAICA 1976 OW-PNOJECT L13000 PROcAM L I3-M JAMACA 1978 ra r I 07-rn-76 20,0000,06 JAMCA 1979 AGCULTUELS A AfL om. L17160 rnesty I 31-MY-7s ,000 JAMAICA 1979 DhLOS r9unr FINANCZ OSO5 L1L090 SMUU SCALE OSL 04-J JAMAICA P1Ea 1s L PNOOM LOU MA ,000 JAMAICA 1979 TnANSPORTATU L17400 KIOXWA IT 21-J JAKAICA 15SI DEYULtOS INANC CPAN IS L19750 Wm DOm r(nd ti 3041-t ,000 JAMAICA 1981 GCT U20170 XVWoe WLGNAY'11 14-J-S1 7,300,000 JAMAICA 1IS2 DEV=OHT FACE C AIPAES L21070 KINOTU rlr ZE 2343-R ,000 JAMAICA 19S2 DUCAT'UN L20700 sdcainl 1III 15-DEC-I1 4.S o.0oo JAMACA 17S2 nu11-prsojc L21030 STRUCTURAL AoJSS 23541R-8.2 7J.200,000

77 Co_itmata Detail Report - LAID and LIawl - (a. of 31-ADG-#3) &nmua I fro July to August. 1993, by Cuntry. by Fisca- Year. by Apprwas Date Country nt Sector LIC Projet 9.. Date C±t. Amount JAMICA 19S PmIR L21Ut0 PKUU IIS 24uu=-82 30,500,000 JAKAICA 1982 TZC1CAL ASSISTANCI L21060 TECUICAL SSISTANC 23-MA-82 6, JAUICA 1963 DKYUORW FAMCI CQAPANLU L22940 TD CRlDIT 26-MT-S ,000 JAMICA 19S3 DV LDIT YumC CC(PAfiIR L23200 E'ORT DRY' rund ILL IS6U-S 30,100,gO JAMICA 193 1e0-flUJ L23150 STRUCTURL ADJUSTIN 14-JU-3 60,200,00e JAMCA 197 TRAnPORTATION u20o I30 sgmwa MANrUACN 26-0uT JAMAICA 17U AUjICDLrZ & RURADL DR!. L24140 ErPORT CROPS I 174 -M ,000 JAMAICA 1t84 TICUICAL ASSISTANCR U2130 PULIC ADMIM 5fOU 224MY-54 4,500,009 JAMAICA l"4 aim DcYUOSMZ L23S90 UOA TRANSPOtT L34-AR ,000 JAMAICA 195 WmTU SOrP AND SwdUAUz L24220 WATER & SDWf TA & X 224.A-84 9,000,000 JAMAICA 12U 1_011-PRJCT L2470 SAL SII.A ,000,000 JAICA 1963 TSCUICAL AUSISTANICS LU070 T A LI 19 -MA-35 I e JAKAICA 1987 A.ICU.tVRL IRURAL DR. L2U500 S0GAR REM 11-A 17-S JAMICA 1987 DRVgOT FIRICSA CtPANIR L2U 40 TRADE & FIN SCT ADl-A 17-JN-57 40o JAMICA 1987 ND-ROJ 1.2C490 PUB Dn7ylsR SIC AOl-A 17-JUN-87 20,000,000 JAMAICA 1U87 PO., ZALnT S IITTIO L2851O POPULATI h 6TLS I-A s ,000 JAMAICA 19" DUCATIDN L2S090 ED IT 12-JAN-88 S, JAKAICA 198 PWm L2U5690 POWIR IT 04-ADG-87 [8,000,000 JAMAICA 199 DCVmoCS 71R1CR CCPASIES LJ0120 DrGCs INCUN 0510'T 22-DEC-US 30,000,000 JAMAICA lis INDTnr L30620 BAUIITI/ALRUA RD 16-MAY-9 L5.000,000 JAKAICA 1990 AORICMTUR tual DmY'T AU tcn ADJ 0-MAR-90 2U.000,000 JAMAICA 190 IPOP., ZALTb L wutitio SWC It= Xv LA 11-JUL-89 30,000,000 JA* CA 1991 D meyu.0t FIRAN CQtPAn I TRADEA1IN SAD IS 21-MR-91 30,000,000 JAMCA I19I TSCmICAL ASSISTANCE L.3380 FIN & PROcI MGT RVWY 27-JUN-1 11, JAMAICA 1991 TrAnORTATION L12750 LD PLANIINQ MAI1T 04-DEC ,000 JAMICA 1993 IDUCATIU L cs"'01 SNCAY DOCCATI 25-9MAX-03.M ,006 JAMAICA 1993 I(U-PROJECT PRIVATE SU DRY 15-J-93 75,000,000 JAMAICA 1993 POWL URSET STn DELAT t PRIVAT 02-JUL-92 U Sutotal 1, ST. uitts AMD fy 1991 AURICULTURN & RSRAL. DRm'. C22480 AG DRY SUPORT 21-MAY-91 1,500,000 ST. KITT AND emvs 1991 AGLICTRN &.URAL DRm'. L33320 AU DRY SUPPtT 294MAT-91 1,500,000 Subtotal 3, ST. LDCLA 1990 WATU ER PLY AND SEWUSAC C21200 WM SUPL 29-MAR-90 5,200,000 ST. LUCIA 1990 v6tu SUPL AND SEWUAC L3140 WM SUPPLY 29-MAR-90 2,300,000 subtotal 7, ST. SINT I T1lS IUAD= 1i99 Pw C14790 bydtd PoWn I (SDR-4 22-MAY ST. VICUT * Tbl AD 198 PCDU WC CI o210 NtDRD POWr 1 (SDL-4 22-MAY ,000 ST. VlUCT b TM UAD C 19D9 AGICULSCMU I LUAL DRT. C19000 AU IU & DIVIS.7 26-JAN-99 1, ST. VSIUCT I Tbl fds 1989 AURSCIITSD I RURAL DR' AG in A DIVRIT1 26-JAN Subtotal TRUMDAD AN TUAOD 1962 POWS L02930 UUCT.CIr! 13-AUG T5INIDAD AND TORACO 1917 UCUCID I RURL DR'. L04U60 CRO..ANDS DNYULCP3 09-MU-67 5, TRINIDAD AD TORAUO 1967 TRASPO OAZIUN LU0470 NIGUSA 08-JUN e000 TRINDAD AnD TYUAOO 1989 DOCAYIm 3640 SICOD5Rt DZXUCkTI 05-OCT-69 9,400,009 TlDRIDAD AND TSAO U 1989 P.60oi0 UPOwnr Dlis A TRnN 27-MATY-9 t.000,000 TRINIDAD AND TORAGO 1971 POP., UALTN & NUTRITIn L07430 FAMILT YLANING 23-MAYT TLINDD AND TORAGO 1972 DmULcrET FUI C CCKPANIS L08l90 D7C I 09-MAY-72 2, TRINIDD U An TORAG 1973 AGDRC RPRAL DRW. LUO18 CAZON SUAR Rm. 10-AP ,000 TRIIDD AnD TSRAUO 1973 DCAIOS L08620 DCATICX OCT-72 9,300,000 TRILIDAD AD TOBAGO 1974 TLDECMICAZIUnS L10130 TLU.SCOURICATIS I 16-MAY-74 19,000,000

78 - 60-1_CmmUts D.tsj Zoperot. LUIL U LA LDL nl - (as of 341-_-03) A_11 I from July, 14( to A.-guat. 1913, by CountrT. by Fisca. Year. by 4pprovs. Date cos..otrv FT Sector LIC Proj.ct ome Date Cmit. Aait TIU1DAD AD TOUCO 1975 DKVULL0DT FIJICI CQAZLZS L10560 DFC DEC-74 5, TIID&D AMD TOLA;O 1976 TRANSPORTTnIo L12350 HIGHWAYS MAAL TLZtDAD AnD TOBAGO 1P7P ZDIC10 L17220 DIXAf J ,006 TINDAD LD TOSADO IPPO l13ect 1020 AOL 04.JAI-t TRINIDAD AJD TOlADO 19P0 T1&ICAL ASSISTAMC L31530 T.A. LU 04-JA-_ TIThAD AD TOIAO loot Dl10f L33280 YOUTT TIC&L frw 21-MlAT9 20, TRINIDAD LND TOSLAO 1592 DI113ML T rimlcz CQAI1AZS L US0 1S mah A LU.IUTSD n Subtotal " CUD TOTAL 1.397,60, ,60.00 Seorces Wrd lbank

79 Co_ir ct. Detail LUport - IJD a" IDA Leoding - (as of 31-ADG-93) 4mm I fro July, 1346 to August, 1933, by Sector, by fiscal Year, by approval Date (cot.) Cauntr y n L/C Project ama Date Commit. Aount AGRICULTRE U 10ZUL DEW?. GUYANA 1961 L02S0 FARM UIANIZATIOI 154DU-Al 1.250,000 r111idad AND TV5Aro 1967 L04840 C3O.AIMS DEVEWPt 09-MA ,000 GUYANA 196P L05530 SEA DENSES (AGCIC) 24-SD-AS 5.000,000 GUYANA 1P71 C02210 LIVESTOC 244-OV-70 2,200,000 JAMAICA 1971 L07190 AGICULTURAL CREDIT 22-DIC TnIDD AND TOIAcO 1173 L050 CAI.1 SDCA SEAS. 10- AIO 72 12, GUA L10160 ACG.TAIALDMA LIDAI. 13_-74 12,P JAMAICA 1974 L10040 AGLICULTULAL CEDIT 25-MAY-74 5,500,000 JAMACA A. DEVELoNT I 23-J ,000 GUYANA 197S C0O200 SLAD SUN LIGArtO 0-JDM JAMICA 1977 L15170 SUGAR SEDAILITATIC0 07-m_ ,000 GUYANl 1979 L16230 AGRIC. FORESTRY 10-OCT-75 10, JAMAICA 1373 L17160 FORESTRY I 31-MAY ,000 JAMAICA 1984 L24140 xort CROPS I 17-MAY-14 15, CZEDADA 1955 C15580 AC1 RtDA & DVU-A 14-M&R-85 5, GUYANA 1955 C15550 AGLIC. ros.stzy 07-NAA-4S 8,800,000 DAIJADOS 1957 L27u20 AGI DEl 1_DAE-A 24-mn-.7 ',000,000 JAMCA 1937 LU 2500 SUGAR lzea IU-A 17-JM-7 34,000,000 ULIZU 138s L29590 AC CRLD m DnV 15-J-M 7.800,000 ST. VIUCr & TIM G RADUU 1989 C19SOO Ac La & DIVPIF 26-JAN ST. TIUCEFr & TM GIENADIIZS AG LD & DIVLSIP 26-JAN JUAMACA AC &CTR ADJ 06-MAR ,000 ST. RITum AND EMS 1991 L33320 AG DEW SIUPYOT 28-MAY ,000 ST. KITTS AND VIS 1991 C22450 AC DRY SU0OILT 2S-MAY ,000 Subtotal DEVELOPMET FINANCE CQAlIn TRINIDAD AND TDRACO 1972 L02130 DFC I 094MY ,000 TRIIDAD AND TOSACO 1975 L10550 DFC I1 03-D r ,000 CAI. DoVT L12330 DFC-CAUIUILAM DEVT I 30-MAN-7S ,000 CAR. DOT. LA5M 1975 L12340 DPC CARTItZa DXV A 30-MAR-7S JAMICA U(ALL SCALE TELP1 06-JUL-75 7,000,000 SARRADOS 195O L1130 NDUSTlIAL Dm? A ElI 20I-AL40 10,000,000 CAR. DEV?. lak 19Ogo L17750 CARIINAN DRY? SAM 11-C CAI. DElT. LAM 1350 C09600 CARIURAN DM SANK 114-D:-79 7,000,000 JAAICA 19I L197S0 XPItT DM TM II 30-AL JAMICA 1932 L21070 KINGSYT FMU z1 23-MA ,00,000 LAXSADOS 1938 L22600 DIDSTRLAL CRDIT 11-All-43 10,500,000 CAR. DXV?. SiNK 1983 C13640 CDb ItI (SDI-6.5) 17-MAT-45 7,000,000 JAAIC 1953 L22940 D CRDIT 26-MAY ,000 JAMAIC 19S5 L CORT DMT FWND III 16JW-TA ,000 JAMICA 19S TRAD & Fin SC ADS-A 17-J , JAMICA kb DIRcT ZIEDWFORT 22-DTC-46 30,000,000 CaL DEVT. RN 1990 L32000 CDb V 124-M CA. DEW?. am 1990 C21130 CDb Y 22-MAY-90 12, JAMICA TRDEIN SAD II 21-MANS1 30,000,000 TRIlIDAD AND TOACO 1992 L USrtP MANI & M.RESTRDC. 20-DCC Subtotal ,000

80 Comitmeute Detail lport - LILE ad ID0 Lading - (as of 31-AUG-93) AIMe I frm Julsy, 196 to Au,uat. 1993, ay Sector, by Fiscal Year, by 4proyal Date (could.) Contry nt L/C Project sa Date Cinit. Amount 9DCATION JAIAICA 1967 L46680 DUCA7IX: 20-JIJ-d 9, GUYANA 17J9 L,03U0 EDCAI 28-JAN-69 2,900,000 GUTANA 1969 COiJSO IDOCATIDE 28-JAN-69 2,00,000 TiDAD AnD TOAUO 1969 L05360 JEAMY DIDUCAnf 0 0-O -6 9,400,000 JAMICA 1971 L DOCATI UMI71 13,500,000 TDINDAD AND TOSAOC 1973 E05420 CDOCA7fl It 17-OCT-72 9,300,000 C luana DOCAI' It 135A ,000 GUYAB 1973 C03440 DOCACl It 15411L75 *.000,000 3S136ADO li7l LI.620 DrCA1I 19is-D 7S 9,000,000 TKINAD AND TC1AGO 1979 L17220 EDICASIl III 07-M ,000 ",am. To 196 LS1920 T1CU.L TIAINI C 2J41,W ,000 JAMICA 192 L DICATIa0 III 13-DEC IJADOS it"6 L16421 DDUCAXIC ,000,000 BAADOJS 1994 L26480 DUCATI ,000,000 CAR. Dli?. &MA 1907 C17J50 CDB I/LUCGEL VC ,000,000 JAMAICA l1s9 L.2J990 LD IT 12-JAN-88 8, SAtAMLS. TEL 19s9 L30040 ED It 08-DC-8C 10,000,000 TRIaIDAD AD TOCAO 1991 L33290 YOtU TIG&D(PL FO. 214MAY-91 20,700,000 W.L12X 1992 L34220 PRIMARY Dn DIv 03-DEC-91 7,100,000 JAMAICA 193 L YO= O SZCONAR DOCAT ,000,000 56AIL L34340 BUMl 31.0DICIG 01-JU ,000 Subtotal 2072 *200,000 JAMUCA 198I L20170 m g ulolatin 16-J1-61 7,300,000 tyana 19U2 C120Wo 0ay Dzi? 16-m-42 2,000,000 subtotal 9,500,000 "MNUSTILY GUYAA 1997 C17290 BAUXlT! TA 03-40J4 7,000,000 JAMAICA 1SJ AUnThIALUNA RU 18-MAY-89 15, Subtotal 22,000,000 1O11-F&TJCT JAAICA 197J L15000 ndt;11 LAM 13-DLC-77 30, COAN 1979 L1220 FROMM LA" 10-OCT-71 J, GUANA 1979 C O361 LOAU 10-OCT-78 3,000,000 JAMICA 1979 L RO31 LAN It 31-MA-79 31,300,000 GUYANA 19JI L19460 ST3DCTUAL ADJUM 03-m-91 16,000,000 UANA 191 C10980 STIUCTUZL AnJSTI ,000,000 JAMAICA 1992 L21030 STRMCTUL ADJ I9T ,200,000 JAMICA 193 L STIUCTIL ADJUtST 14-i-4 60,200,000 JAAICA 1533 L24750 SL ,000,000 DO9ICA 197 CIJ170 SAC I , JAMICA F Em S8C ADJ..A 17-JW.47 20,000,000 CUAIAA 1990 C1S0 SAC ,600,000 GUYANA 1i99 C21681 SaC 28-O11S10 3,o TRINIDAD AND TORADO 1990 L31320 SL 06JAN-90 60,000,000 GUTANA 1991 C21651 SC 11 JU-1 18,000,000

81 Cimmt_eDto Detal. Raport. UI2D an LDA Lending - (as of 31-AUG-93l I frc Juy to -AMs at by Stoter, by Ftical Tear, by Approvel Date (coutd.) Country n L/C Proj*ct Same Data Carnt. A4_unt GUYA 1991 C21682 SAC 06-4OV-90 U.3O0.OOO GUYAA 1992 C21US SAC 264-0V ,000 GUCIAl 1993 C2dSS SAC 23-DIC ,000 JAMICA 1993 L3220 PYATI SCTY DII 15-JM Subtotal 529,10,000 Pop.. ealtr &* n TT JAMICA 1970 LO0OO 90 1AMILY FLAMIG 16-= ,000 TLIXDD AD TOIBADO 1971 L07430 FAMILY PtAWI 234MAT JAMAICL 1974 L12U40 POPULATIO II&NUVUT 06-JUN ,000 JAMAICA 1987 L28310 POPMLATO & RLT I-A 17-J JAMAICA 1990 U31110 SWC SCSt ur LA 11JIL-SO 30, GUYANA 1992 C235Z 0 WALTZ. fvr. & SANITAlO 3041n Subtotal S2, TIIDAD AND TOIAGO 1942 L02930 ctaci?! 13-AO-61 23, JAMICA 1966 L04540 POWER 09-J-86 22,000,000 TRINIDAD AND ToAOo 1989 L06010 POM DIStIll T AN 274-MY GUIAN 1973 LOS7JO POWE I 09-JAN JAMAICA 197S L15140 POJ It 07-M-7S 20, BARADOS 1981 L1IA00 POWE I 06-JAN--1 6, GUIAN 1981 L19060 PSU T A 07OCT JAAICA 1982 L POE III 24-JUN-4l ST. InCUT & TM GRt ADD 1t" C14790 EDtOO tu I (SD-4 224IMY ,000 ST. VINCET & TM lzcadd 1994 CQ0210 NYDRO Pam I ( MY LLIZZ 1977 L U I 05-AO-,46 7,O D-ICA 1987 C A JAMICA 18" L28690 Po1U IT 04-AD"7 1S JAMAICA 1093 L35020 msgc SIR DILCULAT & PUITAT 02-JSL Subtotal 211, PtLIC SCTOR NAOLIICT GUTIA 1993 C24S00 PWLIC AUNIISTRATIU 30-OIA-U ,000 Subtotal 12, TECSNICAL ASSISTANCE GUYANA 1J81 L19490 TIICAL ASSISTANCS 03-J IAJJADOS 1982 L21150 TSCtCAL ASSISTAUC 2J4MR JANAIC 1JSs L210S0 TSICAL ASSISTANC 234&U-I2 S JAMAICA 1i4 L24230 PUMLIC AUaN RVOK 21-MAY JAMICA 1983 L23070 T A It 19-MU-IS 9.000,000 GUTANA 199O C21SOO T. A. CD7IT 28-J-o TRINIDAD AND TOAO 19O LJ T.A. LN 04-JA-90 4, JAMAICA 1991 LJ3360 FI & PROOM MTS 7XPL1 U 27-JUN-91 11,300,000 Subtotal

82 CoJituota Detail Leport - LIJD and IDA Laing - (as oi 31-AGJ-93) Aux I frm July to August. 1993, by Sector, by Fiscal Year. by Approval Date (coutd.i Co.try FT LIC Project 1ame Date Co±t. Amoult IZLEC2(KUUICATICNS JAMAICA 1997 LU4810 JAmAICA SCEP3 CO 19-JAN ,000 TRINIDAD AD TOBAGO TE=QKU3ICAflO= 1 14-MAY-74 16S Subtotal 29, TULISK StCTOR SIAADOS 1979 L.660 TOULS 10-APK-7C Subtotal 6.000,000 TRANSPORT&si. JAMAICA 1993 LO4060 NIGUO& 3041AR-65 5,500,000 TIIJIDAD AND TOBAOO 1967 L04970 HIG7A 06-JU-47 8,600,000 GUYANA 1972 C03010 HIGHWAYS I 23-A-72 4,400,000 JAKAICA 1973 L06990 aigmlat MAY-73 9,300,000 JAMAICA 1975 L10320 HIGIAT III 05-J-M-74 13,500,000 JAMICA 1973 L10430 *ILPOIS 05-SI-74 12,500,000 TIlIDAD AND TOBAGO 197S L12330 NIGHATS LI 30-HAR-74 7,000,000 JAKAICA 1979 L17400 EIGCAY IT 21-J-79 19,000,000 DQMICA 1982 C12210 LOAD MAINT'ANCI & 1 01-An-62 5,000,000 6ELIZ 1963 L22730 LD KAINrEA1 L 1 R03-MY-63 5,300,000 JAKAICA HIGHWAY M&INTRANCZ 26-MAY-3 15,000,000 ALAD 1964" L24320 IIIG WAINTEANCZ 31-MY-44 11,000,000.LIZZ 1966 L29450 LoD AIN 31-MA-U6 5,400,000 JAMAICA 1991 L D PtAOMC & KI 04-DND-90 35,000,000 IAJIADOS 1992 L34930 LOAD 1AN & UA II 23-JN-62 21,200,000 GUYANA 1993 C24770 IlNASTIDCrUZZ IUIAS 25-MAI-.3 26,000,000 Subtotal ,000 UV1A DIVELUOP9t GUYANA 1971 E SIA DUDUS It 17-JUN-71 5,400,000 JAMAICA 1974 L10030 UAl DIVT.K.IGCST11 07-MY-74 15,000,000 ABAHMAS. TIE 1962 L20690 UL 16-M-02 5,600,000 JAMAICA 194 L13290 UtLAN TIANPOIT 13tUA-4 16,000,000 Subtotal 42,200,000 WATU SUPPLY AND SZWACE JAMlICA 1949 L05960 IIGSI WATD SUML 29-A4-G 5,000,000 JAMAICA SWAU I AND VATZ 29-JU-73 15,000,000 RABAMAS. tn 1977 L13200 IT WUPLY A SC= 27-J ,000,000 JAMAICA 1it4 U *ATU A UMM TA A I 22-MA ,000 UAAMAS, M IM 6 SW 11-A 14-C 6 10,000,000 ST. LUCIA 1990 L /1 SUL 29-4LL-90 2,500,000 ST. LUCIA 1990 C21200 VWM SULY 12-m-90 5,200,000 Subtotal 59,700,000 GLAND TOTAL 1,997,60,000 1,997,66D0000 Sources World lank

83 Details of Evaluated ProjectslPrograms and their Ratings AX.w.I11 [Loan Report Country Project Description OED ID Approval Closing amount No. Rating USS nlil I Bahamas Water supply and sewerage project L Jul Dec S 2 Bahamas Vocational and technical education project L[ Mar Jun S 3 Bahamas Urban project L Feb Dec S 4 Barbados Education project L Dec Sep S Barbados Tourism project L Apr Dec S 6 Barbados Industrial development and export promotion project L Mar Sep S 7 Barbados Power project L Jan Jun S B Barbados Technical assistance project L Mar Mar S 9 Barbados Industrial Credit L Apr Jul S 10 Belize Road maintenance and rehabilitation project L May Dec S 11 Caribbean Region Caribbean Development Bank project L Mar Jun S 12 Caribbean Region Second Caribbean Development Bank project C Dec Dec S 13 Dominica Road maintenance and rehabilitation project C Apr Jun S 14 Grenada Agric Rehab & Crop C Mar Dec S 15 Guyana Sea defense project L Sep Jan S 16 Guyana Education project L Jan Jun S 17 Guyana Uvestock project C Nov Jun U 18 Guyana Second sea defense project L Jun Dec S 19 Guyana Highway project C Apr Jun S 20 Guyana Power project L Jan Jun U 21 Guyana Tapakuima irrigation project L[ Jun Dec S 22 Guyana Second education project L[ Apr Dec U 23 Guyana Black Bush irrigation project C Jun Dec NIMP 24 Guyana Upper Demerara forestry project C Oct Aug U 25 Guyana Program loan and credit project L Oct Jun S 26 Guyana Technical assistance for power development project L Oct Jun S 27 Guyana Structural adjustment loan and credit L Feb Jun U 28 Guyana Second technical assistance project L Feb Dec U 29 Jamaica Highway project L Mar Mar S 30 Jamaica Education project L Sep Oct U 31 Ja ica Kingston water supply project L Apr Sep S 32 Jamaica Population project L Jun Mar U 33 Jamaica Agricultural credit project [ Dec Jun S

84 -2 - Loan Report Country Project Description OED ID Approval Closing amount No. Rating USs 34 Jamaica Second education project L Mar Mar S 35 Jamaica Second highway (road improvement and maintenance) project L May Oct S 36 Jamaica Sites and services project L May Jun U 37 Jarnaica Second agricultural credit project L May Dec U 38 Jamaica Third highway project L Jul Sep U 39 Jamaica Airport development projert L Sep Dec U 40 Jamaica Kingston sewerage and water supply project L Jun Dec S 41 Jamaica Second population project L Jun Dec U 42 Jamaica First rural development project L Jun Dec U 43 Jamaica Program loan L1SO0 13-Dec Sep S 44 Jamaica Second power project L Feb Dec S 45 Jamaica Sugar rehabilitation project L Feb Dec U 46 Jamaica Small-scale enterprise development project L Jul Jun U 47 Jamnaica Second program loan L May Dec U 48 Jamaica Forestry project L May Jun S 49 Jamaica Fourth highway project L Jun Dec S 50 Jamaica Second export development fund project L Apr Dec U SI Jamaica Petroleum exploration project L Jun Jun S 52 Jamaica Third education (technical and vocational) project L Dec Jun S 53 Jamnaica Structural adjustment loan L Mar Mar U 54 Jamaica Technical Assistance L Mar Sep S 55 Jamaica Power 3 L Jun Dec S 56 Jamaica Highway Maintenance L May Jun U 57 Jamaica Second structural adjustment loan L Jun May U 58 Jamaica Third export development fund project L Jun Dec NIMP 59 Jamaica Export Crops L May Sep S 60 Jamaica Third structural adjustment loan L Nov Jun U 61 Jamaica Trade and financial sector adjustmet loan L Jun Dec S 62 Jamaica Public Enterprises Sector Adjustment Jun Dec S 63 J icaeergecy recontrtion import loan L Dec Dec S 64 Jamnaica Agriculturl Sector Adjustment L Mar Mar S 65 Trinidad and Tobago Trinidad and Tobago electricity commission project L Aug Mar S

85 -3 - I ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Report Il Country Project Description OED ID Approval Closing amount No. Rating ~~~~~~~~~~~~~~~~~~~~~~~~~~US$ I IlUt 66 Trnidad and Tobago Crown lands development project L Mar Feb U 67 Trinidad and Tobago Highway project L Jun Sep S B = c-lla_-11! Trindad and Tobago Population project Lo May Dec S 70 Triiudad and Tobago Development finance company project L May Mar S 71 Trinidad and Tobago Second education project L Oct Mar S 72 Trinidad and Tobago Caroni sugar project L Apr Jun U 73 Trinidad and Tobago Telecommunications project L May Dec U 74 Trinidad and Tobago Second development finance company project L Dec Oct S 75 Trinidad and Tobago Second highway project L Mar Jun S 76 Trinidad and Tobago Third education project L Jun Dec NAVL Source: OED _Imm.:~,= 1,1041.9

86 Annex III: Caribbean Region Normalized Performiance by Pre-1974 Time Period Total Numbet Overall PCRi Pre and On Country of Projects PAR Rating (No (% of TotAl) (% Sit) (Nof) (No%f Total) (% Sat) (No) % oftotal) (% Sat) Bahamas 3 10( Barbados Belize It0 Caribbean Region Dominica 1 10( Grenada I Guyana o Jamaica Tnnidad and Tobago Total Nonnalized l t erfoniiaice Total NumberOverall PCR' Pre _ 1980 and On Countn of Projects PAR Rating (No) (% oftotul) (% Sa) (No) ( of ototal) (00Sat) (No) (% of Iotl) (o Sat) Agriculture Encrgy Fiuance Human Resource Is 100 x Power Program & Policy Teclumcal Assistance Telecommunications Tourism Transport Urban Water & Sanitation Total: Nornalized Performance

87 Appendix THE CARIBBEAN DEVELOPMENT BANK (CDB) Background 1. The CDB was established in 1970 by 16 founding Commonwealth Caribbean governments as regional members, Canada and the United Kingdom as non-regional members, and with the financial assistance of the USA, a non-member. Venezuela joined the CDB in 1973, Colombia in 1974, Mexico and Anguilla in 1982, France in 1984, Italy in 1988, and the Federal Republic of Germany in The CDB's charter provides that the regional members must hold not less than 60 percent of its shares. The CDB's task is to promote economic development and integration in the Commonwealth Caribbean with special emphasis on the needs of the less developed countries (LDCs) in the region. To fulfill its task, the CDB assists its regional members in formulating their development programs, provides technical assistance, and finances their projects and programs. CDB is required by its charter to be guided by sound development banking principles, and to finance only economically sound, technically feasible and properly appraised projects. 2. Since its inception, CDB, with substantial assistance from bilateral and multilateral aid agencies (including the Bank), has developed into an important regional development finance institution. The CARICOM governments, particularly OECS governments, regard the CDB as their own development agency, familiar with local conditions and want it to play an increasingly important role in the region. The CDB's cumulative loan approvals through end reached US$1 billion, covering national and regional projects in such sectors as transport, public utilities, housing, industry and tourism, agriculture, and lending through financial intermediaries. The CDB's financial condition is judged by the Bank to be sound and that its financial performance is satisfactory. With the clearing in 1990 of debt service arrears by Guyana, one of its major borrowers, the CDB obtained a 'triple A' credit rating status and raised US$30 million in international capital markets in The CDB has a strong, well-knit management team and generally competent professional staff, supplemented by donor-financed special experts and consultants. As of September 1993, the CDB had a total of 192 staff comprising 7 executives (the President, two Vice-Presidents, and four others), 85 professionals (including 8 secured under technical assistance programs or financed by the CDB's special funds), and 100 support staff. A 1990 corporate management and productivity study, in addition to pointing out ways to improve staff productivity, concluded that, with expected productivity increases, the CDB staff in 1990 was at a level which could handle existing functions, but that the CDB would need additional specialized mranpower if its mission were broadened. With the CDB's new emphasis on poverty reduction, environmental protection and human resource development, and the need to supervise adequately an increasing portfolio of projects, the CDB will need to add six new professional staff positions to deal with these new areas of emphasis. The CDB mranagement is exploring various measures (including the possibility of rationalizing the organization structure, upgrading office technology, and enhancing the quality of existing staff) for ensuring the optimum utilization of existing manpower. The CDB's operating policies and procedures, by and large, are similar to the Bank's. 4. The bulk of the CDB's conventionalending resources comes from other multilateral lending agencies and its own funds. However, in June 1992, the CDB issued US$30 million of ten year notes with an interest rate of 8.18 percent. The notes, which were placed privately, received a 'triple A" rating. Other lending by the CDB on softer terms is provided principally through the CDB's Special Development Fund and Other Special Funds. From these soft resources, the CDB extends to its Caribbean member states a relatively large volume and variety of technical assistance, which sometimes has no direct link to the CDB's lending program. In that sense, the CDB performs an important advisory role for its member states. It has also begun to assume a greater role of coordination and economic cooperation within the Commonwealth Caribbean. 5. The CDB has established itself as an important supplier of long-term credit to the public sector in the borrowing member countries (BMCs). Overall, the CDB's share of the external debt of BMCs is small, about 5 percent. However, it represents some 30 percent of the outstanding public and publicly guaranteed debt of the

88 MDCs, and about 52 percent of that of the OECS countries, excluding Antigua and Barbuda. The CDB is concemed that other multilateral lending institutions' financing of public sector investments may decline in the near future, as a result of financial constraints, and due to IBRD and IDA graduation policies. Bank Involvement with the CDB 6. The Bank's operational involvement in the region goes back to the 1960s. Initially, the Bank's activity in the area was confined to the MDCs, including Trinidad and Tobago, Jamaica and Guyana, and subsequently, Barbados and the Bahanas. Soon after its creation in 1970, the CDB also became a beneficiary of Bank lending and technical assistance. Five loans/credits have been committed. The first three operations were of the line-ofcredit type, designed to finance projects which were too small to warrant direct Bank/IDA involvement. In the fourth operation (the OECS regional technical education project), the CDB acted as financial conduit for IDA, the executing agency and a co-financier. The fifth operation (ongoing line-of-credit) was designed to enhance the amount and scope of financial services offered to common BanklCDB member states in the CARICOM by an appropriate division of labor between the Bank and the CDB. A sixth operation (CDB VI) is under consideration. 7. Until 1990, basic Bank objectives for the CDB were to channel, at a lower cost than the Bank could do directly, IiBRD/IDA loan funds to eligible Bank/CDB member countries and strengthen the CDB to become a more effective regional development bank. In 1990, a Memorandum of Understanding (MOU) for closer cooperation between the Bank and the CDB was signed by the two institutions providing for Bank/CDB collaboration in the areas of economic and sector work, aid coordination, adjustment/program lending, investment project lending and technical assistance. The view was that closer collaboration between the two institutions, under which the CDB would supplement and gradually take over certain Bank roles in the Commonwealth Caribbean, would offer a good opportunity for both institutions to improve the efficiency of their operations. It provides the framework under which each institution's comparative advantage (i.e., the Bank's broader experience and greater operational stature, and the CDB's Caribbean experience and greater ease in operating in mini-states) could be fully utilized for the benefit of their common Caribbean member states. The results of this collaboration were reviewed during two meetings between the Bank and the CDB in September 1992 and March Both institutions agreed that the results had been positive and that with some modifications, to reflect a closer collaboration in some areas, and a broader and more clearly defined role for the CDB, the cooperative program should be formally extended. 8. The administrative costs of the Bank's direct lending operations in the CARICOM-perhaps twice as much per investment project as that incurred by the CDB-has been relatively high, mainly due to: (a) the large number of small loans required to operate in a large number of small countries; and (b) the extensive economic work required of the Bank in its role as chairman of the Consultative Group for Cooperation in Economic Development (CGCED). The CDB has now taken over some of these functions, including preparing all country economic work in the UK dependent territories and some of the OECS countries, and the public sector investment programs in the OECS countries, Belize, and the UK territories. It has also taken over the preparation of documents for the CGCED meetings for the UK dependent territories and chairs the subgroup meetings on these territories. Through this process, the CDB has increased its role and strengthened its standing in the region. This has allowed the Bank to allocate manpower resources for other (more cost-effective) endeavors elsewhere in the CARICOM. Under this approach, the Bank-CDB relationship is expected to evolve progressively into a partnership based on shared interests, in addition to a lender/creditor relationship as in the past. 9. In addition to lending to the OECS through the CDB, IDA became engaged in direct lending operations in the OECS countries, beginning in Between FY82 and FY92, IBRD/IDA committed about US$1 billion, including US$189 million in IDA credits to the CARICOM. Of the latter, US$30.1 million was lent directly to the OECS countries (seven credits), US$124.5 million was lent directly to Guyana, and US$25 million was lent through the CDB. Parallel with its lending activity, the Banik has undertaken periodical reviews of the Commonwealth Caribbean economies, dealing with both country economic performance questions and broader regional development issues. Issues concerning major economic sectors have also received the Bank's attention. 10. A review of the collaborative program between the Bank and the CDB was carried out in September 1992 (project work) and March 1993 (economic and sector work) and the two institutions expressed general satisfaction