World Bank. Costa Rica Higher Education - P123146

 The Project Development Objective (PDO) is to improve access and quality, to increase investments in innovation and scientific and technologic development, as well as to upgrade institutional management in Costa Rica’s public higher education system.

The Project will achieve its development objective through the implementation of the following two components. Component 1. Institutional Improvement Agreements (AMIs) (Total: US$236.3 million; Bank: US$200 million; Universities: US$36.3 million). The objective of this Component would be: (a) to help public universities increase access by investing in infrastructure for teaching, learning and research; (b) to increase the quality of higher education by, among others, upgrading faculty qualifications toward accreditation; (c) to increase relevance in higher education by focusing resources on key priority disciplines that are critical to respond to the challenge of increasing country competitiveness; and (d) to strengthen public universities’ management capacity and accountability, by enabling them to develop a culture: (i) of strategic long-term planning, including the formulation of an institutional mission, vision and strategy; and (ii) of measurement, target setting, accountability, monitoring and evaluation that could lead to further performance-based financing innovations.

Component 2. Strengthening institutional capacity for quality enhancement (Total: US$17 million; Bank: US$0 million; Government and CONARE: US$17 million). The objective of this Component would be to promote the development of strategic activities with a system-wide scope in order to support the objectives of Component 1. By strengthening some key elements of the overall higher education system in Costa Rica, this Component would play an important role in achieving the PDO.(1990) “Plato and Archytas in the Seventh Letter,” Phronesis 35.2: 159–74

World Bank. Costa Rica Higher Education - P123146 

Latin America and the Caribbean: Five Million Will Benefit From Early Childhood Initiative: An Investment For Life

Press Release No:2012/294/LAC.Washington: February 28, 2012 – Five million mothers, and children ages 0 to 6, are benefiting from World Bank (WB) programs developed throughout the Latin American region, under the Early Childhood Initiative: An investment for Life, the multilateral bank announced today.

After two years of operation, the initiative has approved US$400 million worth of projects, doubling the initial projected funding, and surpassing the original total commitment of US$300 million for the period 2010-2013. It has also expanded the number of targeted children who were able to benefit in the first year of operation.  

The initiative seeks to implement comprehensive, well articulated and efficient Early Child Development (ECD) policies and programs in order to ensure all children a full opportunity to succeed later in life. Currently the initiative supports ECD programs in most countries in Latin America, either through lending programs, grants or technical assistance.

“Doubling down” on early childhood development shows countries in LAC recognize that investing early is investing smartly.  ECD is not only good for children, it also provides a high payoff for societies and the economy. Those first five years of life decide the future of a child and its ability to interact in society as an adult,”  said Hasan Tuluy, the newly appointed World Bank Vice President for Latin America and the Caribbean. “

The Early Childhood Initiative: An Investment for Life was launched two years ago at World Bank headquarters by WB President Robert B. Zoellick and Shakira Mebarak’s ALAS Foundation.
The initiative is designed to help reduce inequality among children.  It supports efforts that help ensure children get the attention, nutrition and stimulation they need, from ante-natal care through to entering school.

Roadmap to success 
The Bank is working with governments to ensure that ECD programs are well coordinated across the relevant entities so each puts in place an integrated package of services (health, nutrition, education, etc).

According to Keith Hansen, Human Development Director in LAC “each project has a unique formula for how best to invest in children.   Projects form partnerships with various levels of government and civil society, across all social sectors, and are aligned with national circumstances.”

Country highlights: 
Argentina: The World Bank has been supporting Plan Nacer, Argentina's results-based approach to reducing infant and maternal mortality.  A package of basic interventions is provided to provincial pregnant women and children under six.  Today, there are more than 1.7 million beneficiaries of the program.

Brazil: Services in 28 Brazilian municipalities across 10 states have been mapped in a user-friendly web format www.bemtevibrasil.com, and two interstate exchange workshops organized.

Belize: Belize’s District of Toledo has the highest rates of poverty and nutritional deficiencies among all districts in the country, affecting mostly the indigenous Mayan population.   To address this challenge, the World Bank through a Japanese Social Development Fund (JSDF) Grant is helping the Government use an ECD approach to address the continuum of childhood development at the community level.

Bolivia: The Bank and Japanese government-funded program supports a series of interventions in the poorest and most vulnerable urban districts, particularly linking employment for young mothers and quality childcare.  The program also helps the Government of Bolivia to improve the quality of existing childcare services, strengthen the capacity of government officials to monitor and evaluate projects.  Project implementation is scheduled for 2012.

El Salvador: The Salvadoran program aims to protect and enhance the human capital of very young children residing in violence–prone urban areas, particularly protecting urban children from the food crisis.  An estimated 35,000 poor and vulnerable mothers and young children will benefit from continuous support from the grant for a period of three years.

Honduras: The Nutrition and Social Protection Project in Honduras is a community-based initiative that helps to combat malnutrition in the country's poorest communities.  The program employs NGOs to train community volunteers who in turn work with local mothers to teach them about proper hygiene, advantages of exclusive breastfeeding, and the importance of growth monitoring. The volunteers also weigh and measure children 0-2 years old to ensure they are growing properly.

Peru: In Peru, the Bank is supporting the Juntos program, to support the demand, supply, and governance of nutrition services provided by the Government.  The program reaches about 60,000 families living in Peru's poorest districts.

Contacts:
In Washington: Marcela Sánchez-Bender, + 1 (202) 473-5863, msanchezbender@worldbank.org
In Mexico:  Fernanda Zavaleta, 52-55-5480-4252, fzavaleta@worldbank.org

World Bank Projects Global Slowdown, with Developing Countries Impacted

Press Release No:2012/236/DEC. Beijing, January 18, 2012. Developing countries should prepare for further downside risks, as Euro Area debt problems and weakening growth in several big emerging economies are dimming global growth prospects, says the World Bank in the newly-released Global Economic Prospects (GEP) 2012.

The Bank has lowered its growth forecast for 2012 to 5.4 percent for developing countries and 1.4 percent for high-income countries (-0.3 percent for the Euro Area), down from its June estimates of 6.2 and 2.7 percent (1.8 percent for the Euro Area), respectively. Global growth is now projected at 2.5 and 3.1[1] percent for 2012 and 2013, respectively.

Slower growth is already visible in weakening global trade and commodity prices. Global exports of goods and services expanded an estimated 6.6 percent in 2011 (down from 12.4 percent in 2010), and are projected to rise by only 4.7 percent in 2012. Meanwhile, global prices of energy, metals and minerals, and agricultural products are down 10, 25 and 19 percent respectively since peaks in early 2011. Declining commodity prices have contributed to an easing of headline inflation in most developing countries. Although international food prices eased in recent months, down 14 percent from their peak in February 2011, food security for the poorest, including in the Horn of Africa, remains a central concern.

“Developing countries need to evaluate their vulnerabilities and prepare for further shocks, while there is still time,” said Justin Yifu Lin, the World Bank’s Chief Economist and Senior Vice President for Development Economics.

Developing countries have less fiscal and monetary space for remedial measures than they did in 2008/09. As a result, their ability to respond may be constrained if international finance dries up and global conditions deteriorate sharply.

To prepare for that possibility, Hans Timmer, Director of Development Prospects at the World Bank, said: “Developing countries should pre-finance budget deficits, prioritize spending on social safety nets and infrastructure, and stress-test domestic banks.”

While prospects in most low-and middle-income countries remain favorable, the ripple effects of the crisis in high-income countries are being felt worldwide. Already, developing country sovereign spreads have increased 45 basis points on average and gross capital flows to developing countries plunged to $170 billion in the second half of 2011, compared with $309 billion received during the same period in 2010.

“An escalation of the crisis would spare no-one. Developed- and developing-country growth rates could fall by as much or more than in 2008/09” said Andrew Burns, Manager of Global Macroeconomics and lead author of the report. “The importance of contingency planning cannot be stressed enough.”

While the East Asia and Pacific region recovered quickly from the March 2011 Tohoku disaster in Japan, flooding in Thailand and the turmoil in Europe, have started to affect regional growth. After expanding by 9.7 percent in 2010, regional GDP grew an estimated 8.2 percent in 2011, but growth is projected to ease to 7.8 percent for both 2012 and 2013. In China, which accounts for about 80 percent of regional GDP, growth eased from 10.4 percent in 2010 to an estimated 9.1 percent in 2011 and is expected to dip to 8.4 percent in 2012 as authorities continue to dampen “overly-fast” growth in particular segments of the economy.

GDP growth in Europe and Central Asia increased marginally from 2010 outturns to 5.3 percent in 2011, despite the global financial turmoil since August 2011 and weakening external demand, especially from the Euro Area. However, the expected slowdown in high-income Europe, still troublesome inflationary pressures in the region, and reduced capital flows due to the Euro Area crisis may slow regional growth to 3.2 percent in 2012, before firming to 4.0 percent by 2013. Close trade and financial ties to high-income Europe will make regional outturns particularly sensitive to developments in the Euro Area.

Latin America and Caribbean grew by an estimated 4.2 percent in 2011, but this is expected to ease to 3.6 percent growth in 2012, before picking up to 4.2 percent in 2013. Weaker global growth, uncertainty arising from the Euro Area debt crisis, slower growth in China, and a policy-induced deceleration in domestic demand are weighing on growth prospects. Brazil’s economic growth came to a halt in the third quarter and growth is forecast to be 3.4 percent in 2012, up slightly on 2011 but well below the 2010 growth of 7.5 percent. Several countries in the region could be hard hit, if international commodity prices were to weaken sharply.

Dramatic political changes in the Middle East and North Africa have disrupted economic activity substantially, but selectively, across the region, while a deteriorating external environment is beginning to amplify adverse effects on trade, commodity prices, tourism and other revenues. Developing oil exporters and the high-income GCC economies benefitted substantially from the rise in oil prices but they remain vulnerable to a sudden fall in these prices. GDP for the developing countries of the region grew by an estimated 1.7 percent in 2011 and is expected to remain subdued in 2012 (2.3 percent), rising to an expected 3.2 percent gain by 2013.

GDP in South Asia slowed to an estimated 6.6 percent in calendar year 2011, from 9.1 percent in 2010, reflecting a sharp slowdown in the second half of the year in India as well as external headwinds. Exports are negatively affected by weaker foreign demand and remittances have grown only modestly. Domestic demand is down sharply due to rising borrowing costs, high input prices, worries over the global slump, and delay in reforms. The region’s GDP growth is projected to ease further to 5.8 percent in 2012, before strengthening to 7.1 percent in 2013. High inflation and fiscal deficits remain concerns going forward.

Growth in Sub-Saharan Africa remained robust in 2011 at 4.9 percent. Excluding South Africa, which accounts for over a third of the region’s GDP, growth in the rest of the region was even stronger at 5.9 percent in 2011, making it one of the fastest growing developing regions. Increased investment flows, rising consumer spending, and the coming on stream of new mineral exports in a number of countries should accelerate Sub-Saharan Africa’s growth to 5.3 percent in 2012 and 5.6 percent in 2013. Nonetheless, merchandise exports, tourism receipts, commodity prices, foreign direct investment and remittances are all susceptible to a Euro Area recession

COMPLETE REPORT  EXECUTIVE SUMMARY English | 中文 | Español | Français | Русский  TOPICAL APPENDICES Industrial Production | Financial Markets | Trade | Commodity Markets | Inflation  REGIONAL APPENDICES East Asia and PacificSummary: (EN, 中文) | Full text (EN) Europe and Central AsiaSummary: EN | Full text (EN) Latin America and the CaribbeanSummary: (EN, Español) | Full Text (EN) Middle East and North AfricaSummary: (EN, العربية, Français) | Full text (EN) South AsiaSummary: EN | Full text (EN) Sub-Saharan AfricaSummary: (EN, Français) | Full text (EN)

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Agencies, donors boost coordination on food safety, animal and plant health aid

WTO.,NEWS. January 2012. Strengthened coordination to improve results in a number of areas feature in a new medium-term strategy for 2012-16 adopted on 10 January 2012 by a five-agency programme to help developing countries meet international standards on food safety and animal and plant health.

The ultimate goal is to assist developing countries tackle pests, animal and plant diseases and contaminants so that they can expand and diversify food and agricultural production and exports, resulting in economic development, poverty reduction, better nutrition, food security and environmental protection.

The Standards and Trade Development Facility (STDF) contributes to this by helping them build up their capacity to implement requirements known as “sanitary and phytosanitary (SPS)” standards through increased awareness and knowledge of good practices and by funding projects that promote compliance with the standards, including grants to help prepare projects.

It was set up by the UN Food and Agriculture Organization (FAO), World Organization for Animal Health (OIE), World Bank, World Health Organization (WHO) and World Trade Organization (WTO), and is run by the five partners together with donor countries and representatives of developing countries.

The 2012–16 strategy aims to:

• boost collaboration and information sharing on technical co-operation
• help recipient countries identify their needs, define their priorities and design project proposals that are likely to receive funding from various donors
• improve the performance of countries benefiting from the limited number of STDF-funded projects

Funding to implement new strategy will remain at the current target of $5m per year, with a mid-term review due in 2013. The STDF will continue to dedicate at least 40% of its project resources to beneficiaries in least developed countries (LDCs) and other low income countries.

Since it was set up in 2002, the STDF has supported 47 projects and 48 project-preparation grants benefiting 54 developing countries. In addition, conferences and other events have been organized on thematic cross-cutting topics of common interest such as SPS-related public-private partnerships, the links between SPS and climate change, and the use of economic analysis in SPS decision-making. It has received a total of $25m from 17 donor countries.

Its current donors are Canada, Denmark, EU, Finland, Germany, Ireland, Japan, Netherlands, Norway, Sweden, Switzerland, Chinese Taipei, US.

Background

The five organizations formally established the STDF in August 2002 as a partnership and trust fund with three years of start-up financing from the World Bank and the WTO. In 2005, membership of the STDF was expanded to include donors and experts from developing countries with knowledge in the areas of human, animal or plant health, or SPS market access issues more generally.

The STDF is funded through voluntary contributions to the trust fund established under the financial regulations and rules of the WTO. The WTO houses and administers the STDF Secretariat and provides the Secretary to the STDF from its regular budget.

The STDF is a global partnership that supports developing countries in building their capacity to implement international sanitary and phytosanitary (SPS) standards, guidelines and recommendations as a means to improve their human, animal and plant health status and ability to gain or maintain access to markets.

SPS measures can pose significant barriers to the expansion and diversification of food and agricultural exports, a key element in many national development plans and poverty reduction strategies. Moreover, the reduction of pest and disease burdens, and improved food safety, has a key role to play in raising agricultural production, reducing the prevalence of food-borne diseases, increasing food availability, and the protection of the environment.

Hence, building the SPS capacity of developing countries has important public and environmental health benefits and can help in contributing to the achievement of the Millennium Development Goals. Efficient and effective SPS control systems are a global public good.

The STDF brings together the collective expertise and skills of its five partners, donors and developing country experts. This includes the participation of the standard-setting organizations designated as reference bodies by the WTO SPS Agreement in their own right, as well as through the involvement of their parent organizations. The STDF also engages regularly with other organizations and initiatives involved in the provision of SPS-related technical cooperation.

The final beneficiaries of the STDF are public and private sector entities in developing countries seeking to improve their capacity to implement international SPS standards, guidelines and recommendations, and subsequently the consumers of those products throughout the world. Partners, donors and other organizations and initiatives also directly benefit from the work of the STDF, notably in terms of information exchange, sharing experiences and the identification, dissemination and replication of good practice.

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The unexpected global financial crisis: researching its root cause

The world is currently still struggling with the aftermath of the worst economic crisis since the Great Depression. Following a description of the eruption, evolution and consequences of the global crisis, this paper reviews alternative hypotheses for the causes of the global financial crisis as well as their empirical evidence. The paper refutes the frequently voiced view that the global crisis was caused by global imbalances that reflected economic policies of East Asian countries. Instead, it argues that global imbalances were the result of excess demand in the United States, resulting from both the public debt in the United States arising from the Afghanistan and Iraqi wars and tax cuts and the overconsumption by households supported by the wealth effect from the housing bubble in the United States. 

The housing bubble itself was the outcome of the Federal Reserve's low interest rate policy in the aftermath of the burst of the "dot-com" bubble in 2001, the lack of appropriate financial regulation, and housing policies aimed at expanding the mortgage market to low-income borrowers. It was possible to maintain the large trade deficits of the United States for such a long period of time because of the dollar's reserve currency status. When the housing bubble in the United States burst, the global crisis ensued. The paper also analyzes why China's trade surplus increased significantly in general and with the United States in particular in recent years, and argues that this increase was caused by both the relocation of the labor-intensive tradable sector of East Asian economies to China and high corporate saving rates in China as a result of its dual-track approach to reform.

The world is currently still struggling with the aftermath of the worst economic crisis since the Great Depression. While a handful of economists predicted the crisis, it was largely unforeseen. As late as April 2007, the IMF in its World Economic Outlook concluded that risks to the global economy had become extremely low, and that, for the moment, there were no great concerns. Despite large and widening global imbalances before the crisis, optimism on the robustness of the world economy emanated from confidence in the United States‘ system of financial regulation, its financial and political system and the fact that it had the world‘s largest capital markets. Global imbalances were viewed as sustainable, given that rapidly growing developing economies needed a secure place to invest their funds for diversification purposes and increased global financial integration was deepening global capital markets and allowing countries to sustain higher debt burdens over the long term. In addition, the U.S. was considered to have superior monetary policy institutions and monetary policy makers. Only a few economists did not share these views and expressed concern about a disorderly unwinding of

rising global imbalances, as well as of the housing bubble.

The concerns of these economists were dramatically validated by the unfolding of the global financial crisis since September 2008. The coordinated policy response by the G-20 nations helped the world avoid a global depression. According to the IMF, these interventions involved cash infusions, debt guarantees, and other assistance to the tune of a staggering $10 trillion.

However, economic growth remains fragile. Recovery is taking place at two different paces: on the one hand, there are the high-income countries that are experiencing a sluggish recovery. On the other hand, there are the developing countries whose economic performance isfar superior to that of the advanced countries. The recovery of the world economy is threatened by high unemployment in the advanced economies, high levels of sovereign debt and the crisis in the Euro-zone. Moreover, the severity of the recent global crisis has highlighted the need to revisit basic policy recommendations, e.g., in the area of capital flows, the supervision of the financial sector, and macroeconomic management. And with emerging and developing economies recovering from the global economic crisis much faster than advanced countries, it also reinforced a trend toward a new multi-polar world economy with several growth poles, a trend that had already become apparent before the crisis.

The precise genesis of the global crisis remains subject to debate. While global imbalances are widely viewed to have played an important role in its evolution, some economists consider them to be the primary cause of the crisis, while others view them as only facilitating its development.8 A correct diagnosis of the genesis and driving forces behind the crisis is, however, important in order to draw appropriate conclusions to prevent its recurrence.

Section II describes the world economy before the crisis, and the eruption, evolution and consequences of the global crisis. Section III reviews alternative hypotheses for the causes of the global economic crisis as well as their empirical evidence. We will refute the frequently voiced view that the global crisis was caused by global imbalances that reflected the export-oriented strategy of East Asian countries, the accumulation of international reserves for self-insurance motives by countries with surpluses, China‘s undervaluation of its exchange rate and the global savings glut. Instead, we will argue that global imbalances were the result of the large excess demand in the U.S. over an extended period—the financing of which was made possible by the reserve currency status of the US dollar. This excess demand resulted from both the public debt in the U.S. arising from the Afghanistan and Iraqi wars, tax cuts and the overconsumption by households supported by the wealth effect from the housing bubble in the U.S. The housing bubble itself was the outcome of the Fed‘s low interest rate policy in the aftermath of the burst of the ―dot-com‖ bubble in 2001, the lack of appropriate financial regulation after the deregulation

in the 1980s and housing policies aimed at expanding the mortgage market to low-income borrowers which was primarily a result of lobbying by the financial sector aimed at increasing profits through further deregulation. When the housing bubble in the U.S. burst, the global crisis ensued. Section IV discusses why China‘s trade surplus increased significantly in general and with the U.S. in particular in recent years. We will argue that this increase was caused by both the high corporate saving rates in China as a result of its dual-track approach to reform and the relocation of the labor-intensive tradable sector of East Asian economies to China, which started in the 1980s but accelerated after China‘s accession to WTO in 2001. Finally, the paper reflects on the lessons for policy prescriptions from the crisis.

Author: Lin,Justin Yifu; Treichel, Volker. Document Date: 2012/01/01.Document Type: Policy Research Working Paper. Report Number: WPS5937

The unexpected global financial crisis: researching its root cause

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Albania World Bank offers assistance for expanding support to economic reforms, stability, growth and respond to crisis impact

World Bank.TIRANA,January 6, 2012- Global growth slowed down in 2011 and economic outlook for Europe has deteriorated considerably following the deepening euro area crisis.  The Western Balkans region is very sensitive to overall economic growth in the European Union, its largest trade partner. It is further vulnerable to changes in monetary and financial conditions in European countries whose banks are the dominant asset holders in Western Balkan countries. Remittances flows into Albania and Bosnia and Herzegovina are equivalent to about 10 percent of GDP and these flows have been already affected by a slowdown in euro-zone economic growth.

In this environment of growing external risks and economic uncertainties, the World Bank has increased the availability of its financing to several countries of Central and Eastern Europe, Western Balkans,  the Caucuses, and Turkey.  This means that the World Bank can now offer a higher financing support for these countries in the two coming years (2012 and 2013) than the envelope foreseen in the current Country Partnership Strategies.

The main objective of the increased lending envelope for Western Balkan countries, including Albania,  is to help them prepare for and effectively respond to external shocks, while at the same time preserving focus on structural reforms and social safety nets which are essential for maintaining sustainable growth. In the context of Albania, the World Bank is already engaged with the Government in preparing the development policy loan on governance and competitiveness, which can use additional financial resources to strengthen the program of economic reforms.  The Government of Albania will be also able to use additional World Bank assistance to reduce fiscal vulnerabilities and help safeguard economic and financial stability for continued growth and job creation.

Currently, the World Bank and the Government of Albania are at a preliminary stage of discussions about the use of an increased financing envelope. A group of World Bank experts will visit Albania next week to discuss and identify with government partners specific areas for expanding support to economic reforms, preparedness for external shocks, stability and growth.

Available in: Albanian

For more information about Projects in Albania see SOUTHERN EUROPE Projects x

Macroprudential stress testing of credit risk : a practical approach for policy makers

Drawing on the lessons from the global financial crisis and especially from its impact on the banking systems of Eastern Europe, the paper proposes a new practical approach to macroprudential stress testing. The proposed approach incorporates: (i) macroeconomic stress scenarios generated from both a country specific statistical model and historical cross-country crises experience; (ii) indirect credit risk due to foreign currency exposures of unhedged borrowers; (iii) varying underwriting practices across banks and their asset classes based on their relative aggressiveness of lending; (iv) higher correlations between the probability of default and the loss given default during stress periods; (v) a negative effect of lending concentration and residual loan maturity on unexpected losses; and (vi) the use of an economic risk weighted capital adequacy ratio as the relevant outcome indicator to measure the resilience of banks to materializing credit risk. The authors apply the proposed approach to a set of Eastern European banks and discuss the results.

The financial crisis has revealed the need for better macroprudential oversight and a more appropriate and timely policy response. Regular stress testing of the financial system is the main tool of macroprudential monitoring. Despite the widely recognized importance of conducting stress tests, there appears to be a consensus among macroprudential practitioners that stress tests were not informative enough and did not enforce an adequate policy response prior to the global financial crisis (Galati and Moessner, 2011; Haldane, 2009; Turner, 2009; de Larosiere, 2009; Cihak, 2007; Sorge, 2004). This partial failure of stress tests has lead to the development of a new generation of stress testing models (Foglia, 2009; Breuer et al., 2009; Swinburne, 2007).

Our proposed methodology described in detail in this paper improves on the existing stress tests by integrating into one coherent framework the following attributes:

An explicit and robust link of systemic credit risk to macroeconomic conditions based on cross-country experience that can be further tailored to country specific conditions, and that allows for the credit risk sensitivity to changing macroeconomic conditions to increase during crisis times.

A bank-specific, idiosyncratic component of credit risk based on the different underwriting standards across individual banks and their aggressiveness in lending, including the assumption of indirect credit risk from foreign currency lending to unhedged borrowers.

The correlation between the probability of default and the loss given default is allowed to increase in times of stress following Moody’s (2010).

A bank’s lending concentration within individual asset classes and the extent of the performed maturity transformation are allowed to play an important role in bank specific capital charge calculations, eliminating some of the drawbacks of the capital charge calculation based on Basel II methodology.

The attributes are prudently combined to produce a more relevant outcome indicator measuring bank resilience to macroeconomic as well as bank specific shocks.

In a nutshell, while retaining tractability, the methodology attempts to improve on existing approaches by linking the financial sector explicitly to the macroeconomy and accounting for both systemic risk factors due to changing macroeconomic conditions as well as for idiosyncratic risk factors due to the diverse lending practices and risk profiles of individual banks. It was developed to provide policy makers and practitioners with an integrated, flexible and policy relevant tool that can be readily implemented.

The paper starts with a broad motivation on the need to develop a new methodology for macroprudential stress tests concerning Eastern European countries. It proceeds with a presentation of the overall concept of the proposed new methodology. This concept outline is followed by a detail description of the methodology in a manner equivalent to a user-manual with references to supporting sources and literature. An empirical application of the methodology is then presented using data on a set of Eastern European banks, and followed by example policy recommendations based on the acquired stress test results.

Macroprudential stress testing of credit risk : a practical approach for policy makers

World Bank.Author: Buncic, Daniel ; Melecky, Martin. Document Date: 2012/01/01.Document Type: Policy Research Working Paper.Report Number: WPS5936

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Aid tying and donor fragmentation

This study tests two opposing hypotheses about the impact of aid fragmentation on the practice of aid tying. In one, when a small number of donors dominate the aid market in a country, they may exploit their monopoly power by tying more aid to purchases from contractors based in their own countries. Alternatively, when donors have a larger share of the aid market, they may have stronger incentives to maximize the development impact of their aid by tying less of it. Empirical tests strongly and consistently support the latter hypothesis. The key finding -- that higher donor aid shares are associated with less aid tying -- is robust to recipient controls, donor fixed effects and instrumental variables estimation. When recipient countries are grouped by their scores on corruption perception indexes, higher shares of aid are significantly related to lower aid tying only in the less-corrupt sub-sample. This finding is consistent with the argument that aid tying can be an efficient response by donors when losses from corruption may rival or exceed losses from tying aid. When aid tying is more costly, as proxied by donor country size and income, it is less prevalent. Aid tying is lower in the Least Developed Countries, consistent with the OECD Development Assistance Committee's recommendation to its members.

A consensus in the international aid community holds that tying aid to purchases from the donor country reduces its e ectiveness. More recently a consensus has also emerged on the importance of reducing aid fragmentation and the transactions costs it imposes on recipient countries. This study explores possible trade-o s and complementarities between these two objectives. We test two opposing hypotheses about the relationship between aid fragmentation and aid tying. Some observers caution that reducing aid fragmentation can reduce the bargaining power of a recipient country government relative to that of its remaining donors. If reducing the number of donors implies they have more monopoly power, donors may exploit this increased power by tying more of their aid to purchases from contractors based in their own countries.1 An opposing view stresses the bene ts from concentrating aid among fewer donors: responsibility for development outcomes is less di used, and donors are less likely to indulge in practices that undermine aid's e ectiveness.

A donor with a larger share of the aid market in a country has a stronger incentive to maximize the development impact of its aid instead of pursuing commercial or other non-development objectives. Thus, more concentrated aid should be associated with less tying of aid.

Our empirical tests strongly and consistently support the second of these two arguments. Untying aid and reducing fragmentation turn out to be complementary rather than conicting objectives. Higher donor aid shares, and lower values on fragmentation indexes, are associated with lower rates of aid tying. These ndings are robust to recipient controls, donor xed e ects, and to instrumental variables estimation.

When recipient countries are grouped by their scores on corruption perception indexes, donors with higher aid shares are found to tie signi cantly less aid only in the less-corrupt sub-sample. This nding is consistent with the argument that aid tying can be an e cient response by donors where losses from corruption may rival or exceed losses from tying aid.

Where aid tying is more costly, as proxied by donor country size and income, it isless prevalent. Furthermore, we nd aid tying is lower in the Least Developed Countries,consistent with the OECD-DAC's recommendation to its members on aid tying.

The remainder of the paper is organized as follows. Section 2 reviews the relevant literature on aid tying and on donor fragmentation, from aid scholars and aid organizations (most notably the OECD-DAC). In section 3 we present a simple model of donor behavior, similar to common pool resource models of voluntary collective action, that predicts larger aid shares (and lower fragmentation index values) will be associated with less aid tying.

The model also generates the trivial but testable prediction that aid tying will be inversely related to its costs. A straightforward extension of the model generate the prediction that donor aid shares will be more weakly (or even positively) related to aid tying if corruption is a su ciently severe problem in recipient governments. The data are described and empirical ndings presented in section 4, including results from both OLS and IV estimation and various robustness tests. Section 5 concludes.

Author:Knack, Stephen ; Smets, Lodewijk; Document Date: 2012/01/01. Document Type: Policy Research Working Paper.Report Number: WPS5934. 

Aid tying and donor fragmentation x

Nicaragua Segundo Proyecto de Tecnología Agropecuaria. Informe de Misión de Apoyo

Una misión del Banco Mundial visitó Nicaragua entre el 26 y el 30 de septiembre de 2011 para apoyar la ejecución del Segundo Proyecto de Tecnologia Agropecuaria (PTA-II). La misi6n estuvo compuesta por Augusto Garcia (LCSAR, Lider de la misión), Enrique Roman (Especialista de Manejo Financiero,

LCSFM), Francisco Rodriguez (Especialista de Adquisiciones, LCSPT), Leonel Estrada (Analista de Adquisiciones, LCSPT), Carlos Si6zar (Especialista del Sector Privado, LCCNI), Linda Castillo (Asistente de Programa, LCCNI), Patricia Parera (Salvaguardas Sociales y Extensi6n Agricola, FAO-CP), Hans Thiel

(Especialista Forestal, FAO-CP).

La misi6n sostuvo reuniones de trabajo con las siguientes autoridades y sus respectivos equipos tdcnicos: el Sr. Ariel Bucardo, Ministro del Ministerio Agropecuario y Forestal (MAGFOR), el Sr. William Schwartz, Director Ejecutivo del Instituto Nacional Forestal (INAFOR), el Sr. Miguel Obando, Sub-Director Ejecutivo del Instituto Nicaragiiense de Tecnologia Agropecuaria (INTA), el Sr. Jairo Espinoza, Sub-Director Ejecutivo del Instituto Nacional Tecnológico (INATEC), asi como con el Sr. IvAn Acosta, ViceMinistro de Hacienda y Crédito Piblico. Además, la misión coordinó con la Representante de Pais, Camille Nuamah.

En conjunto con autoridades y especialistas de las instituciones ejecutoras del proyecto, la misión sostuvo discusiones tdcnicas respecto a: (i) el avance en los objetivos e indicadores del proyecto, incluyendo las acciones para completar la ejecución del Crddito 4127; (ii) proveer apoyo a la implementaci6n de las actividades iniciales bajo el financiamiento adicional (Donaci6n H-537) para apoyar el Sistema Nacional de Semillas; (iii) evaluar el cumplimiento de las salvaguardas ambientales y sociales aplicables; y (iv) el seguimiento a los aspectos fiduciarios del proyecto, incluyendo una revisión de los planes de adquisiciones del crédito y la donación, asi como el seguimiento a los resultados de la reciente Auditoria 2010.

Adicionalmente, la misión realizó dos visitas de campo con el INTA y el INAFOR a Le6n-Chinandega y a Nueva Guinea, Regi6n Aut6noma del Atldntico Sur (RAAS).

La misión agradece al Sr. Ariel Bucardo Rocha, Ministro de Agricultura, y demás autoridades, la atenci6n y amplia colaboraci6n brindadas durante las sesiones de trabajo en Managua y las visitas de campo a actividades del Proyecto.

(P087046/CR.4127/DONACI6N H-537). MISION DE APOYO A LA IMPLEMENTACION SEPTIEMBRE 26-30, 2011. AYUDA MEMORIA

NICARAGUA - SEGUNDO PROYECTO DE TECNOLOGIA AGROPECUARIA

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Romania The challenges to long run fiscal sustainability

Romania, along with many other countries in the European Union, faces daunting fiscal challenges. Fiscal balances deteriorated sharply following the global economic crisis, forcing Romania to implement a fiscal consolidation that was one of the largest in the European Union, but which may not be sustainable without a recovery of economic growth. Although the ratio of public debt to gross domestic product is still relatively modest, at around 35 percent, long-term fiscal solvency is threatened by the costs of funding the public pension system in the face of adverse demographic shifts over the next 50 years. Because of widespread tax evasion, the tax system in Romania is one of the least efficient in the European Union. Tax reforms that can reduce the amount of tax lost to evasion and fraud could make a major contribution to enhancing fiscal sustainability.

Fiscal sustainability has emerged as a key policy issue throughout Europe in recent years, in part because the fiscal positions of many countries on the continent were badly affected by the global financial and economic crisis and also because of an increasing public recognition of the magnitude of the long-term fiscal costs of demographic change, notably aging populations. Several of the new member states of the European Union, including Romania, face major challenges to ensure fiscal sustainability. The sustainability of Romania’s public finances deteriorated sharply in the years leading up to the global economic crisis. The global economic crisis triggered a severe recession in Romania, exposing the fragility of public finances. To bring the fiscal deficit back into line with the targets in the EU’s Stability and Growth Pact, the government implemented a draconian fiscal consolidation in 2010, but it still faces huge long-term fiscal costs as a result of population aging. Long-term fiscal sustainability, along with meeting the fiscal criteria required for membership of the Eurozone monetary union, is also threatened by the poor management of public expenditures.

Maintaining fiscal sustainability should be a priority for policy makers. An unsustainable fiscal position threatens both macroeconomic stability and the financial capacity of the state to deliver essential goods and services to citizens. Moreover, if fiscal positions are perceived to be unsustainable over the long term, the reaction of the markets on which governments finance their borrowing requirements could trigger a fiscal crisis much sooner than might be expected by fiscal planners.

Fiscal sustainability is essentially a forward looking macroeconomic concept which is related to the solvency of government. It is closely linked to the future course of the fiscal deficit and the evolution of public debt and to the government’s capacity to mobilize finance for the deficit and/or to refinance its debt. Alvarado et al. (2004) define a sustainable fiscal policy as a set of fiscal policies which will not lead to the government having, at some point in the future, to default on its debt or to monetize its debt, or be forced to undertake a major fiscal retrenchment to avoid default or monetization.

A starting point for analyzing fiscal sustainability is the current levels and medium-term projections of general government fiscal balances and public debt. It is relatively straightforward to determine the impact of such fiscal balances, if extrapolated forward into the future and combined with some basic macroeconomic projections, on the evolution of public debt levels, with debt sustainability being defined as a situation where public debt as a ratio of GDP is stable or falling and/or does not exceed some critical threshold. Section 2 of this paper examines the general government fiscal balances and public debt levels in Romania and the medium-term projections of these variables. The general government fiscal data include the local governments.

The data captured in the general government budget, however, often provide an incomplete and hence misleading picture of the sustainability of public finances over the long term. This is starkly illustrated by a comparison of current public debt levels with calculations of the long-term net worth of the government in Romania, taking into account the long-term costs of aging. Romania’s outstanding public debt amounted to 32 percent of GDP in 2010, a relatively moderate level. In contrast, Velculescu (2010) estimates the inter-temporal net worth of the Romanian government at negative 252 percent of GDP, based on a finite horizon approach and negative 1,097 percent of GDP based on an infinite horizon approach.

Risks to fiscal sustainability may emanate from activities of the public sector, which are not currently part of the general government budget, but which might eventually impose fiscal liabilities on the budget. These could include contingent liabilities of government, such as loan guarantees, or the quasi fiscal deficits (QFDs) of state owned enterprises. The QFDs of the state owned enterprises are discussed in Section 3.

World Bank. Author: Canagarajah, Sudharshan; Brownbridge, Martin ; Paliu, Anca ; Dumitru, Ionut. Document Date: 2012/01/01. Document Type: Policy Research Working Paper.Report Number: WPS5927.

The challenges to long run fiscal sustainability in Romania

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Pamela Cox Appointed as New World Bank Vice President for East Asia and the Pacific

Press Release No:2012/233/EAP. Washington, D.C. January 3, 2012 – Pamela Cox, a development professional with more than 30 years experience, has been appointed the World Bank’s Vice President for East Asia and the Pacific, effective this week.

The appointment, by World Bank Group President Robert B. Zoellick, will see Ms. Cox lead the Bank’s advisory and lending operations in the region and oversee strategic engagement with middle income country partners.

Ms. Cox previously worked as Vice President for the Latin America and Caribbean Region of the Bank, playing a leading role in supporting inclusive growth in emerging economies and providing innovative and practical financial and knowledge services to meet developing country needs. In the past, she has also worked as Chief of Country Operations in Vietnam, Laos, Cambodia, Myanmar, the Philippines, Malaysia, Thailand, and Korea.

“I am very excited to be back working in the East Asia region,” said Pamela Cox. “After making the fastest progress in growth and poverty reduction of any region around the world in the last fifteen years, the global economic weight and influence of East Asia and the Pacific has increased significantly. We are focused on supporting countries in the region as they work to achieve higher income status and promote growth and opportunity for those in need.”  

Ms. Cox brings with her considerable expertise in disaster risk management, in which Latin America and the Caribbean has been particularly successful, and which is extremely relevant for East Asia, a region that faces very high risks from natural disasters.

“Rapid growth and urbanization in vulnerable areas are creating a need for countries in East Asia to build innovative and disaster-resilient cities and to ensure environmental sustainability, and adaptation to the effects of climate change.  Primarily investments in disaster risk management can save lives, but they also make good economic sense,” said Ms. Cox.

In her new role, Ms. Cox will continue to deliver Bank support to Pacific Island countries, which face some of the most serious challenges related to disaster risk and climate change. 

As Vice President for East Asia and the Pacific, Pamela Cox will manage staff working across 22 countries and a US$ 29.7 billion lending portfolio. Projected IBRD (International Bank for Reconstruction) and IDA (International Development Association) lending for the region in the 2012 financial year is US$ 6.7 billion. Ms. Cox is replacing former East Asia Pacific Vice President, James W. Adams, who is retiring from the Bank after more than 3 decades of distinguished service.

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Coordinating tax reforms in the poorest countries: can lost tariffs be recouped?

A revenue-neutral switch from trade taxes to domestic consumption taxes is fraught with implementation challenges in countries with a large informal sector. It is shown for a sample of low-income countries over 25 years that they have had a mixed record of offsetting reductions in trade tax revenue.

The paper then analyzes the specific case of Nepal, using a unique data set compiled from unpublished customs records of imports, tariffs and all other taxes levied at the border. It estimates changes to revenue and domestic production associated with two sets of reforms: i) proportional tariff cuts coordinated with a strictly enforced value-added tax; and ii) proposed tariff cuts under a regional free trade agreement.

It is shown that a revenue-neutral tax reform is conditional on the effectiveness with which domestic taxes are enforced. Furthermore, loss of revenue as a result of intra-regional free trade can be minimized through judicious use of Sensitive Lists that still cover substantially all the trade as required by Article XXIV of the GATT.

World Bank.Author: Wagle, Swarnim.Document Date: 2011/12/01.Document Type: Policy Research Working Paper.Report Number: WPS5919

Coordinating tax reforms in the poorest countries: can lost tariffs be recouped?

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