Dacat Of The World Bay* · In early 1990, the pace of political and economic reforms initiated during the second ha]f of the 1980s quickened dramatically, leading, after Mongolia's

-dooo -1~ /17C.

Dacat OfThe World Bay*

FOR OFFICIAL USE ONLY

U.wt NO. P-5680-Mr

MEMORANDUM AND RECONMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

OF SDR 3.7 MILLION (US$5 MILL1,-T EQUIVALENT)

TO THE

MONGOLIAN PEOPLE'S REPUBLIC

FOR A

TECHNICAL ASSISTANCE PROJECT

NOVEMBER 22, 1991

TFI document has a restied dbitrbuti and may be used by repient only lo the perfonnane of.dther offical dute. Its contents may not odtrwise be diiemd widthu Wordd Bank authrization

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRNYUIALET(As of September 30, 1991)

Currency Unit - tugrik (T,)US$1.00 - Tg 40

Tg 1 - US$0.025

FISCS X

January 1 to December 31

WEIGHTS AND MEASURES

Metric Systsm

ACRONYMS AND ABBREVIATIONS

ADB - Asian Development BankBOM - The Bank of Mongolia (the central bank)CMEA - Council for Mutual Economic AssistanceGATT - General Agreement on Tariffs and TradeIDA - International Development AssociationIAMD - Institute of Administration and Management DevelopmentIMF - International Monetary FundJGF - Japanese Grant FacilityMOF - Ministry of FinanceMOJ - Ministry of JusticeMND - Ministry of National DevelopmentMPS - Material Product SystemNTI - Ministry of Trade and IndustryNCC - National Computing CenterOPS - (UNDP) Office of Project ServicesPIP - Public Investment ProgramSNA - (UN) System of National AccountsSSO - State Statistical OfficeUNCTAD - United Nations Conference on Trade and DevelopmentUNDP - United Nations Development ProgramUNIDO - United Nations Industrial Development OrganizationUSSR - Union of Soviet Socialist Republics

FOR OFFICIAL USE ONLY

MONGOLIA

TECICAL ASSISTANCE PROJECT

Credit and Project Summary

Borgoner : ktongolian People's Republic

Amount : SDR 3.7 million (US$5.0 million equivalent)

Terms : Standard, with 40 year maturity

IiUAUcing PlanLocal Foreign Total-US$ million -------

Government .35 - ,35IDA 5.00 5.00Government of Japan - 1.20 1.20UNDP - _2 .25

Total 31 .4 0

Economic Rate of Return: Not applicable

Staff Appraisal Report : Not applicable

IBRD 23405

This document has a restricted distribution and may be used by recipients only in the verforrian;.of their official duties. Its contents may not otherwise be disclosed without World Bank auuhorizi ion.

MEMORANDUM AND RECOMMENDATION OF THE PRESIDENTOF THE INTERNATIONAL DEVELOPMNFTr ASSOCIATION TO THE EXECUTIVE DIRECTORS

ON A PROPOSED CREDIT TO THE MONGOLIAN PEOPLE'S REPUBLICFOR A TECHNICAL ASSISTANCE PROJECT

1.. I 3ubmit for your approval the following memorandum and recommenda-tion on a proposed development credit to Mongolia for SDR 3.7 million,(equivalent of US$5.0 million), on standard IDA terms with a maturity of 40years to help finance a technical assistance project. Additional grantfinancing of 170 million (US$1.2 million equivalent, is being provided by theGovernment of Japan and US$250,000 is being provided by the United NationsDevelopment Program (UNDP). A map (IBRD 23405) is attached.

2. Mongolia joined the Bank Group (IBRD, IDA and IFC) on February 14,1991. An economic mission visited Mongolia in June/July 1991 and its report"Mongolia-Towards a Market Economy" (Report No. 10108-MON) is being circulatedseparately to the Executive Directors.

3. Backgroun. Since the founding of the People's Republic in 1924,Mongolia's political structure and economic development have been shapedlargely by its close relations with the USSR. This resulted in the country'stransition from a peasant feudal agrarian society with strong religious andcultural traditions to a centrally-planned command economy. Owing partly tothese circumstances and partly to its geography, Mongolia remained almostcompletely isolated from th_ international community for most of this period,although it became a member of the United Nations in 1961 and has participatedin the activities of several specialized agencies since then including UNDP,the World Health Organization, the Food and Agriculture Organization, and theUnited Nations Fund for Population Activitios. In early 1990, the pace ofpolitical and economic reforms initiated during the second ha]f of the 1980squickened dramatically, leading, after Mongolia's first multi-party electionsin July 1990, to the formation of a reformist, coalition government thatdecided to "construct a market-oriented economy."

4. At the same time, the adverse impact of external factors on itseconomy is significantly influencing the dynamics of the reform process nowunderway in Mongolia. Per capita income, estimated at around $500 in 1990,may have fallen 20 percent as a result of these external shocks. The abrupttermination of new aid from, and drastically reduced trade with, the USSR andits former CMEA partners have reinforced the new government's intention toproceed with comprehensive economic reforms as quickly as possible. Althoughdetailed plans are still being worked out, the authorities hope to introducethe principal measures over the next three years. These include the return ofstate livestock herds to individual groups, privatization of state-ownedenterprises (SQEs) accounting for 70 percent of state assets with the partialsale or lease and, eventually, the promotion of private sector equity (includ-ing foreign joint ventures) participation in others. Laws to protect enter-prise ownership rights and their transfer are being drafted. More broadly, aphased program of price adjustments was introduced in January 1991; the

- 2 -

governmental bureaucracy is being streamlined; tax reforms are under way; andfinancial sector reforms, including the separation of commercial and centralbanking functions, the introduction of independent bank supervision, and theuse of indirect monetary policy instruments, are being formulated.

5. Stabilization, Adjustment and Reform. There is little doubt aboutthe authorities' commitment to reform. Indeed, they seem determined to moveahead on all fronts at oJnce, although the imrediate actions required to stabi-.ize the economy suggest that a more measured pace would be more appropriate.Recent progress on some key components of the reform program, particuiarly theprivatization of SOEs and other state assets, has been somewhat uneven. Moreattention will need to be paid to the sequencing of different reforms, theircoherence and internal consistency, and measures to evaluate their effective-ness. An early priority is the need for further price reform and the deregu-lation of internal trade and markets to underpin the privatization process andto stimulate small-scale private enterprise and foreign investment. Todevelop the institutional framework for a market-based economy, Mongolia willneed a cohort of administrators trained in the methods of indirect macroeco-nomic management, financial market development and the creation of an enablinglegal framework. At the same time as promoting privatization, the governmentmust also redefine its role and activities to bring them more in line with theneeds of a market-based economy. While all production-oriented SOEs should beprivatized at an early date, the government will need to ensure that remainingSOEs (e.g., public utilities) are managed efficiently under appropriateregulatory and pricing policies. The government's principal responsibilityshould be to maintain a stable macroeconomic environment conducive to growthfor different economic agents, or. in which they can compete on an equalfooting. Restrictions and regulations that distort resource allocation andprivate sector initiatives need to be removed. These include: subsidies,state orders, foreign exchange allocation, and remaining price controls. Freeentry and exit of enterprises, anti-monopoly measures and consumer protection,and appropriate pricing policy for natural monopolies, also need to beconsidered. A social safety net that takes into account not only the short-term effects of adjustment, but also the pension, health and social welfareneeds of a market economy needs to be further developed.

6. Rationale for IDA Involvement. During the Bank's first reconnais-sance mission to Mongolia in late 1990, the authorities requested technicaladvice and assistance from the World Bank Group. Easier and systematic accessto the advice available in the international community at large, and develop-ment of staff capacity to use this information and experience would facilitatethe formulation and implementation of its comprehensive reform plans.However, international concessional resources avai'able are limited. ExistingUNDP funds are already largely committed for the next two years on activitiesagreed before 1990; the IMF will not be able to sustain its high initial levelof staff effort in the medium-term; and, while ADB is planning to assist ininvestment planning and specific feasibility studies, IDA expects to play animportant role in broader economic management support. In short, this wouldbe the principal rationale for IDA involvement.

- 3 -

7. Second, Mongolia's absorptive capacity for, and interest in,external borrowing will depend on early and rap1c. steps to stabilize theeconomy and mobilize donor support for this effort and the subsequent medium-term adjustment procass. Mongolia must then develop investment projects thatcan be the focus of operational dialogue with IDA and other donors. Accord-ingly, the authorities indicated at a very early stage their interest intechnical assistance for sector studies to support pre-investment projectpreparation. Given the limited total volume of concessional financialassistance that can be expected for a country with a population of two millionpeople, and the many competing claims on the budget, prioritization of futureinvestment projects is a necessity. A flexible source of funds for sectorstudies and project preparation activities would facilitate this prioritiza-tion process and meet an immediate mutual need of both Mongolia and itspotential development partners.

8. Project Oblectives. The project would help Mongolia develop itsinstitutional capacity for macroeconomic management In a market economy. Itwould also help define strategies for sectors/subsectors key to Mongolia'seconomic development and, as appropriate, demonstrate or confirm the feasibil-ity of selected public investments.

9. Project Descrigtion. The project has two components. The first, aprogram of advisory assistance, in-country and overseas training, and materialsupport with an estimated cost of US$4,820,000, would concentrate on develog-ing Mongolia's institutional cARacity for macroeconomic, manasEgeme-nd reform.Assistance would be directed at the institutions with key roles to play in thetransition: Ministry of Finance, including the Customs General Addinistra-tion; the Bank of Mongolia (the central bank); Ministry of National Develop-ment; Ministry of Trade and Industry; and Ministry of Justice. A smallcomponent would help the State Statistical Office provide basic statistics tothese agencies. The second component, with a total cost of US$1,980,000,would finance strategic studies in selected sectors/subsectors key to thelong-term development uf Mongolia's economy, and feasibility studies of keyprojects identified in light of these sector strateg.es. Preparation is welladvanced on the first sector study whose priority requires that it be startedin early 1992: mining and mineral development. Other sector studies have beenidentified, and would be agreed between the Government and IDA on a case bycase basis. Major sector studies under consideration include: education,electric power, health and transport. IDA intends to follow closely theprogress of a sector study on livestock to be carried out under a grant fromDenmark. Every effort would be made to advance the work on these studies as

* far as possible during the next 12-18 months for consideration at future donormeetings in Ulaanbaatar. The attached Technical Annex (and Schedule 1, KeyProject Activities) describes the project's institutional context, detailedfeatures and procurement, disbursement and management arrangements. Theproject cost and financing plan, procurement and disbursement arrangements andtimetable for key project processing events are given in Schedules A, B and C.

10. Proiect Implementation. MOF would be the focal point in theGovernment to coordinate project activities. The Government has appointed aProject Coordinator and Assistant Coordinator both of whom are MOF staff.Five advisors would be provided to the main participating agencies, supported

- 4 -

by appropriate and properly-timed short-term experts. The advisor to NOF-ould serve as lead advisor for the Project and coordinate the inputs of theot'ner internationally-recruited staff. Because of the Government'sinexperience with the ivplementation of technical assistance activities,considerable outside assistance would be required. Accordingly, theGovernment plans to contract with the IMF to organize the expert services forthe NOF and BOM components. The Government plans to contract with UNDP'sOffice of Projer.t Services (OPS) to provide the other advisors and short-termexperts on specialized topics. Specialized consulting firms, or asappropriate, individual internationally-recruits.d experts, would carry out thesector and feasibility studies. All consultants would be engaged according toIDA Guidelines. OPS would help the participating agencies with procurement ofequipment in accordance witti IDA Procurement Guidelines, and organize localand overseas training on their behalf. The project is expected to be complet-ed by June 30, 1995, with a closing date of June 30, 1996.

11. Agreed Actions. A condition of effectiveness is the signing of theagreements with the IMF and UNDP/OPS. Preparation of these agreements isunderway. The terms of reference for the advisors have been agreed and areavailable in the project file. The authorities would carry out the trainingfor staff of the participating agencies and the studies according to an annualwork plan agreed with IDA. The Government would maintain key project staff,including the Project Coordinator until the closing date. There would be aformal review of project progress and ths work program each year.

12. Benefits. The project would help the Government's efforts to reformthe public sector and promote private sector development. The project hasfive major benefits. First, strengthening individual and agency capacitywould develop mechanisms for management of the market economy and well-articulated procedures for economic coordination. Second, a core group ofMongolian staff would receive training in skills and work methods appropriateto the shift from a command economy. Third, new procedures would beintroduced for public expenditure control, sector analysis and projectappraisal, macroeconomic forecasting and analysis, monetary and credit policyand implementation, banking supervision, foreign investment, trade promotion,privatization and private sector development. This would help meet immediateneeds for Mongolia's transition as well as start the longer-term institutionalstrengthening process and, through the sector and feasibility studies,establish the framework for Mongolia's development as a market-orientedeconomy. Fourth, this increase in local capacity would help build internaland international confidence in Mongolia's ability to manage the transition toa market economy. This should facilitate the mobilization and judicious useof further technical assistance and financial aid. Lastly, specific laws,regulations and procedures would be prepared, approved and implemented.

13. Risks. As one of the first Bank Group operaticns in a countryundergoing substantial and rapid economic and political zransition, theproject presents more risks than are usual in an IDA-assisted technicalassistance project in Asia. First, the institutional context remains fluid.This risk would be mitigated by a formal review of the project's underlyingdesign each year when the work program is discussed as part of the IDAsupervision process. A second risk is the problems Mongolia's isolation and

- 5 -

difficult living conditions may cause in finding, at a reasonable cost,international staff with the experience and outlook to be effectivetrainers/advisors. The plan to supplement a small core of long-term advisors,by short-term visitinig specialists in particular topics, is designed tomitigate this potential difficulty to some extent. A third risk is that theProject m'ght incur delays in implementation because of the G)vernment'sinexperience with the management and administration of technical assistance.This risk would be mltigated through the assistance to be provided by the IMFand UNDP/OPS referred to in para. 13 above. Furthermore, intensiveL"pervision of this Project by IDA is planned, especially during the firstyear of project implementaLion.

14. Recommendatio. I am satisfied that the proposed credit wouldcomply with the Articles of Agreement of the Association and recommend thatthe Executive Directors approve it.

Lewis T. PrestonPresident

Attachments

Washington, D.C.November 22, 1991

-6-

MONGOLIA

TECRHITa ASS1ST1ANCE PROJEaT

Estimated Costs and Financing Elan

Estimated Costs Local Foreign Total.......... (US$'000) -----

Ministry of Finance 40 961 1,001Customs Department - 250 250 iA

Ministry of National Development 33 796 829Bank of Mongcolia 38 876 914Ministry of Trade and Industry 33 710 743Ministry of Justice 13 305 318State Statistical Office 100 200 300Training 13 318 331Equipment _ 134

Institutional Development 270 4,550 4,820

Studies 80 1.900 1.980

Total Project Costs / 350 6,450 6,800

rinancing Plan

Government of Mongolia 350 - 350IDA 5,000 5,000Government of Japan 1,200 1,200UNDP 250 250

Total 35 4.450 6.800

a In addition to amount provided for the Ministry of Finance above.b Project is exempt from taxes and duties.

7 . SCHEDULE b

TEHNICAL ASSISTANCE PROJECT

Procurement Methods and Disbursements

Procurement Nethod TotalProject Elemnt Other N.B.F. cost

~~~~~(US$ '000)--.. _ . .. _ ................. . (u$.o o .. .. .. . . . . . .

Advisory Services 1,575 1,450 /a 3,025(1,50O)Ak (1,500)

Training 1,085 1,085(1,030)1k (1,000)

Equipment 710 710(600)j£ (600)

Studies 1,980 1,980(1,900)/b (1,900)

Total 5X350 1,450 6,800(5,000) (5,000)

La Cofinanced in parallel by Japan and by UNDP. Cofinancing from Japanprocured in accordance with Bank Guidelines. UNDP cofinancing procured inaccordance with UNDP guidelines which are acceptable.

A Services to be procured in accordance with Bank Guidelines for the use ofConsultants.

-c International shopping.

Note: Figures in parenthesis are the -;espective amounts financed by the IDAcredit. N.B.F. - Not Bank-Financed.

IDA Disbursements

Categories Amount of Categorxy of elDenditures to be rinaned(US$ '000)

Advisory Services $1,500 100lOverseas Training 680 100lLocal Training 320 100lEquipment 600 100l of foreign expenditures

100l of local expenditures(ex-factory) and 751 oflocal expenditures for otheritems procured locally

Studies 1.900 1001Total 5,000

Estimated IDA Disbursements

IDA FY FY92 FY93 FY94 FY95 FY96--------- (US$ million)--------------

Annual 0.2 0.5 1.7 1.8 0.8Cumulative 0.2 0.7 2.4 4.2 5.0

-6-


Timetable of K,y Project Processing Events

(a) Time taken to prepare: 5 months

(b) Project prepared by: Governrent with IDA, IMF and con-sultant assistance

(c) First presentation to IDA missiot.: April 1991

(d) Appraisal mission departure: October 1991

(e) Negotiations: November 1991

(f) Planned date of effectiveness: February 1992

(g) Relevant PCRs and PPARs: None

SCHEMEI R

-9-

MONGOLIA


STATUS QF BANK GROUP QPERATIONS IN MONGOLIA(At September 30, 1991)

A. STATEMENT OF BANK LOANS AND IDA cgEplTS

No loans or credits have been made.

B. STATEMET OF IFC INVESTMENTS

No IFC investments have been made.

- 10 .

MONGOLIA

TENiGALL ASSIST-ANCE PROJECT

Technical Annex 1/

1. Project Objectives and Descrigtio. The project consists of aninstitutional develoment component (US$4,820,000, of which US$4,550,000foreign and US$270,000 local), which would concentrate on devgloipngMongolia's institutional caRacity for macroeconomic management and reform,through a program of technical assistance, training and material support tocore agencies. It also includes a studies component (US$1,980,000, of whichUS$1,900,000 foreign and US$80,000 local), which would finance studies to helpdefine strategies for sectors/subsectors key to Mongolia's long-term economicdevelopment and, as appropriate, prepare priority investment projects.

Support for the Agencies of Economic Managmnt

2. Overview. In the 1970s, there were more than 50 ministries andstate committees, organizing and commanding all aspects of Mongolia's economy.By 1988 only 20 ministries and eight state committees remained. Furtherchanges in 1989 and 1990 reduced the number of ministries to 11 and abolishedthe central planning agency and the State Committee for Social and Economicevelopment. The Ministry of National Development (MND) was created and theBank of Mongolia (BOM), the central bank reporting to Parliament wasestablished with the separation of the former State Bank into central andcommercial banking functions. The Ministry of Trade and Industry (MTI) wasgiven substantial new responsibilities. With the MiV.istry of Finance (MOF),these bodies make up the Government's key agencies for economic management.

3. For all Government agencies, identification of appropriateoperational systems and staff will take time and considerable care. While thecore staff of these agencies is relatively small, their level of education ishigh. However, their unfamiliarity with the concepts and practice ofmacroeconomic management in a market economy calls for early and intensiveinput from seasoned foreign experts, experienced in advising on these topicsand skilled in coaching and skill transfer. Apart from providing policyadvice, long-term advisors can be expected to be involved with both systemsdevelopment and personnel training. Some of this will bj its nature bespecialist and require short-term expert input. For a few civil servants,specialist training overseas in carefully selected courses and throughpractical attachments to counterpart inswitutions will be appropriate. But

1/ Based on a preparation mission in July 1991 comprising Paul M. Cadario(Principal Country Officer), Elizabeth Trask (Technical AssistanceOfficer), Salman Salman (Senior Counsel) and Garth Armstrong(Consultant), and an appraisal mission comprising Albert Howlett (SeniorTechnical Assistance Officer, Task Manager) and Elizabeth Trask inOctober 1991. Ramesh Chander (Statistical Advisor) contributed to thedesign of the project. Peer Reviewers were Tom Hoopengarduser, NimrodRaphaeli and Roger Sullivan. The Country Director is Shahid Javed Burkiand the Division Chief is D..vid Pearce.

- Ii -

for many, cost-effectiveness will dictate in-country, on-the-Job training,supported by local courses. After briefly assessing the current situation inthe participating agencies, specific requirements for advice, training andequipment are set out below for each.

4. Ministry of Finance (MOF). MOF's central headquarters inUlaanbaatar has a small staff of 86, of whom 58 are professional. A networkof district offices in Mongolia's three towns, 18 aimaks (districts) and 351somons (rural communities) employs approximately 1,000 people. MOF has theessential functions of a typical finance ministry: collection of taxes fromenterprises and individuals; preparation of an annual budget for central andlocal govenment, which includes transfers to SOEs; administration of thebudget; audit of state expenditures; definition of government accountingstandards; administration of central government debt; and maintenance ofrelations with international financial institutions. Local boards administerregional government budgets in conjunction with MOF staff. In the past, thebudgetary process was closely linked to the annual planning process of theState Planning Committee.

5. Following the demise of the old central planning system structures,MOF is redefining its role in a market-based economy. Specific concerns aretax reform, audget formulation and control, and management of public debt, andthe need to develop coordination between MOF and other agencies. With theabrupt halt of external financing from traditional sources and the shortfallof budget revenue obtained under command economy mechanisms, the risingrecurrent budget deficit and pressures to reduce expenditure have placed aburden on the budgetary process that it was not designed to handle. Thecapital budget was formerly determined by the central planning machinery, withMOF acting as the administrator for some components; most enterprise capitalspending went through the budget, without differentiation from public works.A high proportion of the capital investment budget was covered by loans fromthe USSR, administered by the state monobanking system. With the recentreforms, the process of preparation and administration of the capitalinvestment program is being redefined, and the respective responsibilities ofthe various concerned agencies, including MOF, in budget formulation andexecution, clarified. Along with ad hoc measures to deal with these immediateproblems, a new budget law and procedures for preparing recurrent expenditure,including the administration and audit of this expenditure, are urge-itpriorities. Accordingly, both fiscal policy and administrative machinery areevolving. New tax and customs laws have been introduced and revised. The IMFhas taken the lead in assisting MOF staff in this process, and has helpeddefine the MOF component of the Project.

6. The MOF component (US$1,001,000 of which US$961,000 foreign andUS$40,000 local) consists of the following elements. One advisor/trainerwould be attached to MOF over a three-year period. Although expected to havea broad overview of fiscal policy and the operations of a finance ministry,the advisor/trainer would be specialized in budget policy and expenditurecontrol and would help HOF introduce a modern budget system, supported by acomputer (PC-based) system. This advisor/trainer would also serve as the leadadvisor for the project, and would coordinate the inputs of the otherinternationally-recruited staff. To support the training and advice provided

- 12 -

by the advisor/trainer, the Project would also provide about six staff-monthseach year, for three years, of short-term advisors/trainers. They would giveon-the-job training, coaching and advice in: tax reform, includingimplementation and administration; budget procedures (supporting MOF's seniortrainer/advisor); management of public debt; accounting and audit standards;and support for computerization, systems and saftware development. During thefirst year of project implementation, in-country courses would be offered ineconomics, finance and related topics on the basis of a training needsassessment already undertaken with financing from the Japanese Grant Facility(JGF), and during the entire Project there would be continuous provision forlearning English. Selected MOF staff with language ability would attendsuitable overseas courses offered by training institutions and counterpartagencies. Funds would also be provided for books, personal computers andsoftware, fax and copying machines, etc.

7. Customs General Administration. An important element of theGovernment's program to modernize the tax system is the development of amnodern customs administration. The Customs Law took effect from March 1991.A comprehensive set of regulations and procedures and a harmonized customssystem is being drafted for consideration by parliament for implementation in1992. To handle its increased responsibilities, the former Customs Departmentwas reorganized and named the Customs General Administration (CGA) in October1991. Under the new Customs Law, the CGA is responsible for import and exportclearance and control procedures, and the collection of customs duties. Incollaboration with the IMF, the functions of the CGA would be strengthenedunder a program whose main objectives are: (a) to introduLe a computerizedimport and export control system; (b) to revise the valuation provision of theCustoms Law; and (c) to introduce a harmonized system. In order to coordinatebetter the Government's tax collection functions and improve budgetaryimplementation, CGA would also report directly to MOF. To carry out thesereforms the technical assistance described below will be required.

8. The CGA subcomponent of the MOF component (US$250,000) provides foron-the-job training and assistance in improving procedures and practices incustoms valuation and harmonized system clessification and the introduction ofthe ASYCUDA, a computerized system for processing customs documentationdeveloped by UNCTAD. UNCTAD will donate the ASYCUDA software package to theGovernment. Direct technical assistance would be provided for implementationof the package by both customs and computer specialists financed under theproject. The Government of Japan has agreed to provide additional support tocomplete the implementation of the full ASYCUDA system.

9. The Bank of Mongolia (BOM). Before 1991, a single state-ownedinstitution handled all banking activity. The State Bank operated as thecentral bank and the government's treasury, and carried out all commercialbanking activities. In May 1991 a new central bank was formed along withseven commercial banking institutions. BOM is responsible for: issuance ofcurrency; management of the exchange rate and foreign exchange reserves;design and implementation of monetary policy; provision of banking services tothe Government and to the commercial banks; capital market development;

- 13 -

financial system supervision; financial and economic advice to the government;and research and public information. The President of BOM is directlyresponsible to the lower house of parliament.

10. BOM has 600 staff, 100 of them in Ulaanbaatar, 100 in a computerbureau that services the banking system, and 400 in 21 branches throughout thecountry. The branches assist in the collection and distribution of domesticcurrency and assist in interbank settlement. Virtually all the commercialbanking activities of the old State Bank have been transferred to the seven,newly-formed commercial banks. BOM's Monetary Policy and Security IssuesDepartment conducts economic analysis as a basis for its advice to Government,and assesses commercial bank reserve requirements. A significant volume ofadvice and training will be required for some years. The Issue and TreasuryDepartment arranges for the printing, distribution and collection ofbanknotes, and serves as the Government's treasury. The operations of theBanking Settlement and Accounting Department, which services the entirebanking system, suffer from unreliable telex links to outlying BOM branches,and the commercial banks' equipment is also limited. The Banking SupervisionDepartment issues bank licenses and reviews the banks' performance andobservance of capitalization, liquidity and reserve requirements. Itscapability to undertake these new analysis and inspection functions is limitedand specific technical training is required. The Foreign Relations Departmentoversees exchange rate policy and foreign reserve management, theadministration of foreign credits, and relations with the IMF. The economicand technical aspects of foreign currency management are difficult areas withwhich the Mongolian banking system has little experience.

11. BOM's central functions and structure are relatively conventionaland straightforward, and as the commercial banking sector develops, BOM'snationwide branch network and some system-wide services such as computing andclearing can be expected to fall away. Almost as important as its internalstructure is the effectiveness of BOM's external relations with thelegislature, the banking system, the MOF, and the international financialcommunity. Even before Mongolia joined the IMF in early 1991, Fund staffprovided considerable technical support and advice to the BOX for developingits functions and close relations can be expected for some years. The projectdesign takes into account the need for IMF involvement in the design,selection and, as appropriate fine-tuning of the technical assistance to beprovided to BOM. BOX's most urgent need is assistance in developing itsmonetary policy and banking supervision functions. Having helped design thecomponent, IMF staff will continue to provide guidance in these areas andsupport the execution of this component.

12. The BOX component (US$914,000, of which US$876,000 foreign andUS$38,000 local) consists of the following elements. One advisor wouldprovide training and advice in monetary research and analysis and one advisorwould train and support bank supervision. Short-term advisors/trainers wouldhelp BON develop bank accounting standards and systems, develop capacity inanalysis and exe_ution of monetary and credit policy, including development ofnew monetary policy instruments, design and implement a new payments clearingand settlement system, and assist in developing the legal and regulatoryframework for introducing new financial instruments. Local training would be

- 14 -

provided in topics related to central bank operations and developing Englishlanguage capacity. Overseas training would be provided for selected staff.Funds would also be provided to BOM to finance modest supplementary equipment(including computers and software, and a fax) as well as a basic researchlibrary.

13. Ministry ofgNational Develooment (1ND). MND was established inOctober 1990 from parts of the now defunct State Committees for Social andEconomic Development and for Science, Technology and Higher Oducation. TheGovernment has indicated that MND should henceforth conduct analysis todetermine long-term economic and social policy; provide short- and medium-termmacroeconomic forecasting and analysis, and prepare a public investmentprogram (PIP) within the context of a market economy. MND has a minister,three deputy ministers and 116 staff, of whom 80 are professional. Relativelyfew MND personnel, around 30, are currently involved in the long-term policyand priority-setting, macroeconomic analysis and PIP functions normallyassociated with planning agencies in developing market economies. TheMinistry also supervises six, semi-independent state institutions including apatent office, a bureau of standards, an institute of science and technology,and a science and technology information center, which together employ 775people. These institutions deal with MND's fourth current function, promotionof technical change. Like other ministries, virtually all the professionalstaff in MND were trained in the Soviet Union or by Soviet advisors. Whiletheir standard of edue_tion is high their knowledge of market economics andappropriate planning techniques is currently very limited. A consultantfinanced under the JGF helped MND's senior staff develop a reorganization andstaffing plan to develop these new functions.

14. The Ministry of National Development component (US$829,000, of whichUS$796,000 foreign and US$33,000 local) consists of the following elements.One advisor/trainer would be attached to MND to develop capacity inmacroeconomic and sector analysis and investment programming. Thisadvisor/trainer would be financed by UNDP. This advisor/trainer would trainMND's staff of 15-20 economists, engineers and financial analysts inanalytical techniques suitable for planning and economic management in amarket economy. Initially, the advisor would also help identify key, highlyqualified staff from line ministries to learn these techniques. This advisorwould also coach MND staff in developing working relationships with lineagency staff in investment programming and the preparation of a PIP, as wellas in collating sector inputs for a medium-term development strategy, a draftof which would be prepared by December 1993. Particular emphasis would beplaced on how MND staff should elicit and coordinate inputs from otherministries and agencies, and analyze and present these data in a responsive,consistent, overall long-range macro-economic framework that would guiderather than "direct." The trainer would be a macro-economist with extensiveexperience in policy formulation and advice. Specialists would visit Mongoliafor about three weeks at a time over three years to advise and coach onmacroeconomic theory, modelling and economic management. The Project wouldprovide short-term trainers/advisers skilled in project analysis and appraisaland in public investment in general. They would help NND develop skills inproject appraisal to determine priorities for a multi-year PIP and annualcapital budget. These experts would organize and conduct in-country training

- 15 -

courses as well as provide on-the-job training and coaching. Local trainingto be provided for MND and, through it, to line ministries would be greaterthan for other core ministries because of the need to develop commontechniques for investment programming, and because of the authorities'intention to encourage efforts by line ministries to identify, and prepareinvestment projects. Significant formal in-country training is thereforeappropriate. The project would also provide overseas training. Modestlibrary, computer hardware and software, and fax/telex equipment would also beprovided.

15. Ministry of Trade and Industry (MTI). MTI was formed in 1990 bycombining the former Ministry of Foreign Trade, Ministry of Trade andProcurement, Committee of Technical Supply, and the State Committee --orExternal Economic Relations. In July 1991, MTI was again restructured,reducing it from 15 to 10 departments. Broadly, it seeks to stimulate foreigntrade, foreign investment, and domestic industry and commerce in the nascentprivate sector. NTI is headed by a minister assisted by three deputyministers who are responsible for foreign trade, industry and foreigninvestment, and domestic trade. MTI's central Foreign Trade PolicyDepartment is organized geographically. Its objective is to facilitate therapid expansion of private sector involvement and to reorganize the stateforeign trading organizations. Advice is required to help make policy and toimprove performance in specific areas such as export promotion, transportationlogistics, trade statistics and trade regimes. The Department of InternalTrade Policy is charged with promotion and regulation of domestic commerce.To assist the shift to a market-based economy and the promotion of acompetitive and efficient domestic market, the department needs advice todefine suitable policy and regulatory mechanisms. The Industry and TradeDepartment deals with MTI's mandate to supervise new foreign investment inMongolia; however, its role regarding industry is less clear. The currentsituation specifically includes export-oriented industries (except the majorone, mining) and some responsibility for general industrial policy.

16. The authorities realize the role that new foreign investment canplay in the transformation of Mongolia's economy. The project would financeexperts to help MTI develop a foreign investment policy, clarify its role inthe privatization process and establish enabling mechanisms for private sectoractivity. A consensus about the new role of the government in decidingindustrial policy is still evolving. MTI also has general support departmentsthat cover international organizations (GATT, UNCTAD, UNIDO), law and trade,finance and statistics and inspection of trade practices. Each of theserequire short-term advice on specific technical matters along with specializedtraining, although they have a lower priority than those relating to MTI'scentral policy departments.

17. The MTI component (US$743,000 of which US$710,000 foreign andUS$33,000 locel) consists of the following elements. One advisor/trainerwould be attached to MTI for extended periods over two years. This advisorwould focus on foreign investment policy, providing advice not only on legaland institutional sup,port to facilitate foreign investment but also onexternal trade policies and measures to promote competitive domestic marketconditions, approaches that will further encourage direct foreign investment.

- 16 -

Short-term experts would advise on specific issues related to price reform,consumer protection and competition, the legal and institutional framework forforeign trade, and policies to promote small business. Local training wouldbe provided in topics related to the experts' advice and in English. Overseastraining would also be provided. Funds would be provided for books andresearch materials, PCs and software, and office equipment.

18. Satistics. As in other centrally planned economies, Mongolia'sstatistical system follows the Soviet Material Product System (MPS). Sincemarket-determined prices played no part in transactions, MPS did not compileprice indices. The need for statistical reporting was met through regularreports prepared at the enterprise level, providing information on inputsused, outputs generated, investment, employment, etc. On the basis of returnsaggregated by statistical units in the almaks and transmitted to Ulaanbaat-r,the State Statistical Office (SSO) prepared nationwide statistical estimates.As most professional staff were trained in the Soviet Union and other CMEAcountries, they lack knowledge of and experience in data compilation andanalysis techniques used in market economies. This factor also determinedSSO's choice of computer hardware and software from former CMEA countries.

19. Mongolia's economic reforms have major implications for thestatistical system. The demand for information has significantly changed,while the growth of services and changes in the structure of the economyrequire monitoring, particularly in the transition. National accounts, basedon the framework laid out in the System of National Accounts (SNA) and itsassociated aggregates of GDP, are needed to satisfy demands by user agenciesand by donors for information that is normally available in developing marketeconomies. A comprehensive review of SSO's functions and its organization isplanned for the second quarter of 1992 in which IDA and other donors, probablyincluding the IMF, ESCAP, and the ADB would participate. Accordingly, themodest technical assistance inputs described in the following paragraph areprovisional, and may be modified depending on the outcome of the review, andthe plans of other donors.

20. The State Statistical Office component (US$300,000 of whichUS$200,000 foreign and US$100,000 local) consists of the following elements(subject to the organizational review referred to above). Short-termconsultants would provide advice on: national accounts; sampling and surveys;business and economic statistics; SSO organization; and preparation of aninformation system plan including whether the National Computing Center (NCC)should provide computing services for other users and advice on hardwareselection and equipment acquisition. Supplementing on-the-job training to beprovided to SSO and NCC by the short-term advisors, a combination of initialcourses in Ulaanbaatar of three-four weeks duration, when appropriate followeda year later with a somewhat more advanced workshop of a shorter duration,would address SSO's most urgent in-country training needs. These are:estimation of GDP-based national accounts; compilation of price indices;sampling and survey methods for household and enterprise enquiries; market-oriented economic statistics and international classifications (modificationsof collection procedures, applications to the industrial and service sectorsurveys, and compilation of trade statistics); training in use of PCs and themost common software packages. Provision would also be made for attendance at

- 17 -

overseas courses and practical attachments at institutions with functionssimilar to SSO in other countries. Computers and software identified forfinancing under the information plan would be financed by another donor. TheGovernment would finance local costs of Tg 4 million for survey and datacollection.

21. Ministry of Justice (MOJ). The Ministry of Justice (MOJ), whichemploys about 80 lawyers, is divided into six departments, namely (a) Draftingand Legislation (18 lawyers); (b) International Legal Cooperation (5 lawyers);(c) Legislation Registration, Publication and Information (12 lawyers);(d) Administration and Personnel (8 lawyers); (e) Courts Department (10lawyers); and (f) Economic Crimes Expertise Departmer.t (5 lawyers). Inaddition, the Legal Research Center has 12 lawyers. MOJ also supervises theArchives and Prison Administration Bureau. The activities under the Projectare confined to lawyers working in the civil law (as opposed to criminal law)area within MOJ. Some Ministries have employed their own in-house stafflawyers who work closely with the lawyers in MOJ, but MOJ is moving to absorball Government attorneys and would assign them according to need: currentlythere are about 20 lawyers in this group. Given the shortage of trained legalstaff in Mongolia, this concentration of civil service positions in MOJ ismore efficient than trying to spread the legal staff around to all publicagencies, provided effort is made to provide specialized skills throughcontinued training and appropriate assignment.

22. An important task for MOJ during the transition to a market-orientedeconomy is the drafting of economic, financial and business laws, to put inplace a basic legal framework for the protection of property, contracts andmarket functions. To do this effectively, it should analyze laws of othercountries, understand their legal content, convince line ministries of theappropriate legal principles that their policies and regulations shouldcontain, and defend their views before the lower house of parliament.However, MOJ's lawyers are trained in the Soviet, centrally-planned economicmodel of a legal system; hence, they know little of basic market economyconcepts and protections such as property rights and enforceability ofcontract. Although most lawyers are trained in the Mongolia State University,some were trained in the Soviet Union, and few speak English.

23. The Ministry of Justice componient (US$318,000 of which US$305,000foreign and US$13,000 local) is a first step toward remedying this situation.A firm specializing in international legal training in developing countrieswould conduct two in-country workshops on such topics as financial sectorreform, and drafting and negotiation of contracts. A consultant would helpMOJ revise and streamline financial, economic and business laws; and helpdraft, as necessary, implementation regulations for such laws. Funds would beprovided to help MOJ publish in English key economic laws and regulations.The Project would provide overseas legal training in various topics relevantto the functioning of a market economy, including financial sector law andregulation. The Project would help MOJ strengthen the Legal Research Centerthrough provision of law books and legal periodicals, materials and someoffice equipment.

- 18 -

24. Training and LogisticalASUpport for Institutional Development. Atraining fund of US$331,000 (of which US$318,000 foreign and US$13,000 local)would finance trainers for local training courses that are needed during theProject to help implement the new policies and procedures the Project wouldhelp develop. The fund would be used to supplement the training fundsavailable to the participating agencies in their respective projectcomponents. Priorities would be determined arnnually and incorporated in theannual work program. Care would be taken to ensure that female candidatesare given every opportunity to participate in all training activities. Thisfund could also be used to support any modest equipment or material costs ofadditional volunteer English teachers that may be recruited and financed byother donors (e.g. UNDP, Peace Corps).

25. luiument Fund (US$134,000). Projects in other Asian countries haveconfirmed the usefulness of portable simultaneous interpretation equipment forseminars, conferences and other training exercises held in seminar rooms inthe workplace or other appropriate conference facilities. Mongolia has onlyone venue in Ulaanbaatar equipped with such equipment. To improve theeffectiveness and efficiency of lectures and seminars by advisors engagedunder the project and by other international experts visiting Mongolia toconsult and to transmit international experience, the project would financesuch equipment and training in its use and maintenance. The Project wouldalso finance five vehicles and their operation and maintenance. All agenciessuffer from a dearth of basic computing and commumications equipment, and someeven lack a basic technical library; accordingly, each component includes anequipment and library budget. The equipment fund could also be used tofinance moLest amounts of additional equipment as required by theparticipating agencies.

Sector and FEasibility Studies ComRonent

26. The project's second component (US$1,980,000, of which US$1,900,000foreign and US$80,000 local) would finance strategic studies in sectors/subsectors key to the long-term development of Mongolia's economy, as well asfeasibility studies for public investments consistent with these sectorstrategies. It would help the Government define public sector involvement (ofboth an investment and a policy or regulatory nature) to serve Mongolia'seconomic and social development goals and foster the development of itsprivate sector. The line ministry responsible would assemble a team of staffdrawn from its ranks, other related agencies, and MND to work with a team ofinternational experts. The responsible line agencies and MND are collectingrelevant data and background material so that appropriate TOR can be draftedin collaboration with IDA technical staff and consulting proposals invited,following agreement with IDA. Five sectors/topics have been tentativelyidentified: mining and minerals, education, electric power, transport, andhealth. Formal agreement has been reached on the mineral and mining policystudy, selected because of its priority in Mongolia's transition to a marketeconomy.

27. Minerals and Mining Policy (USS500.000). The Bureau of Mines,supported by MND, the State Geological Service and the State EnvironmentalCommission will review Mongolia's mining development prospects, recommending

- 19 -

policies and actions to: promote direct foreign investment in miningdevelopment and mineral processing; define an exploration promotion strategyand appropriate local institutions, both public and private; review theGovernment's participation in existing joint venture mining companies (copper,tin/molybdenum and gold) develope&i in the pre-reform period with SOEs from theSoviet Union, Czechoslovakia and (former) German Democratic Republic; examineenvironmental protection regulations as they pertain to mining development;and review institutional relations among the various state and parapublicbodies involved in the mining sector.

28. Four other major studies have been identified. An expenditure studyof education and science would review education and training by the public andprivate sector, evaluating the effectiveness and cost of current curriculumand classroom methods, and the share of expenditures between primary,secondary and post-secondary levels. A power sector master plan review wouldreview an eight-volume investment program for the power sector completed withSoviet assistance in late 1990. Introducing market concepts of tariffs anddemand forecasting, it would verify cost estimates and engineeringassumptions, and assess institutional, management, operating and regulatoryissues with the power public utility. A transport study is underconsideration that would review the technological, economic and treatyrequirements to support Mongolia's reorientation of ics trade from the SovietUnion to other markets through China. A livestock sector review, originallyforeseen for financing under the Project, would develop a plan for thelivestock sector during the next decade. The Government of Denmark hasannounced its intention to provide a grant to finance the cost of this study.IDA intends to follow closely the progress of the study including assistingwith the TOR. A Bank consultant may participate in the work.

29. The Project studies component also provides financing for five,small reform oriented studies relating to: (a) energy policy; (b) coalpricing; (c) petroleum demand and supply; (d) agricultural supply anddistribution; and (e) export promotion and development. The objectives of theenergy policy study would be: (i) to investigate the pricing, energyefficiency and environmental issues that should define the power system'slonger-term investment priorities; and (ii) to outline pricing, organizationaland regulatory principles that should guide the restructuring of the electricpower sector. Given the importance of coal, and its cost to the country'selectric power sector, a small coal pricing study would be undertaken early in1992 to formulate pricing reforms. The objective of the petroleum demand andsupply study would be to develop a strategy to meet the country's increasingdemand for petroleum products, once economic growth has resumed. Theobjective of the agricultural supply and distribution study would be toprepare an action program for the privatization of agricultural input supplyand distribution, and agricultural product (including food) marketing. Theexport promotion and development study would examine access to foreignexchange and trade finance, and customs inspection, valuation and dutycollection procedures on the import side, and market reconnaissance, qualitycontrol and marketing arrangements for export promotion.

- 20 -

30. As appropriate, aid subject to the availability of funds, thiscomponent would also finance feasibility studies for priority publicinvestments identified from the sector studies, or for the review of on-goinginvestments whose priority--or viability--in a market-oriented system needs tobe reviewed. The timing and scope of sector studies beyond the minerals andmining policy study, whether drawn from this provisional list or others thatappear more useful and necessary and appropriate for IDA support as the reformprogram proceeds, would be agreed on a case by case basis. The extent offunds available for feasibility studies for the preparation of specificprojects would depend in part on the extent to which other dt :s financesector studies.

Project Ad&inistration snd Implementation

31. Project Cost and Disbursement Profile. Total project cost isestimated at US$6.8 million. The foreign cost is US$6.45 million. The localcost is Tg 14 million (US$350,000), not including taxes and duties, from whichthe project, related imports and overseas consultants' fees, remuneration andexpenses are exempt. The project cost is based on recent experience fromother projects in the Asia region. Disbursement estimates (MOP Schedule B)are based on standard IDA profiles for technical assistance projects, adjustedto take account of the readiness for project launch, the fact that allactivities under the Project's institutional development component have beenfully prepared and appraised, and one major sector study and five reformoriented studies have been fully agreed.

32. Financing Plan. The project wculd be financed by a DevelopmentCredit of SDR 3.7 million (US$5.0 million equivalent) on standard IDA termswith 40 years maturity, a grant of US$1.2 million equivalent from Japan, and agrant of US$250,000 from UNDP. The IDA Credit would finance overseas and in-country training, equipment and materials cor all agencies, resident andshort-term technical assistance to MND, MTI, MOJ, SSO, and the sector andfeasibility studies. The grant from Japan would finance the expert servicesfor BON and MOP. To assist in project preparation, a V33.7 million(US$250,000 equivalent) grant under the Japanese Grant Facility (JGF) has beenused to assist with project preparation. JGF-financed consultants assistedwith various aspects of project preparation including training needs, thestructure of MND, the livestock sector survey and procurement. The UKGovernment has agreed to finance a trainer in English. The Government wouldprovide local financing of Tg 14 million, amounting to 5X of the project costsequivalent to about US$350,000.

33. ImDlementation and Administrative Arrangements. The Government willrequire assistance to facilitate the identification and recruitment of expertsfor the wide range of services needed over a three-year period, and toadminister the training program, and to procure equipment. The Government hasselected UNDP/OPS to provide the services to all participating agencies,except for MOF and BOM. The IMF would be contracted by the Government torecruit advisers and short-term experts for MOF and BOM. Consulting firmswould be hired for the sector and feasibility studies, or, if appropriate, asteams of individual experts organized by UNDP/OPS. IDA Guidelines would befollowed in all cases. UNDP/OPS would, on behalf of the government,

- 21 -

administer overseas training and, in the implementation of in-country train-ing, would cooperate with local training agencies such as the Institute forAdministration and Management Development (IAMD) and the College of Economics.UNDP/OPS would also be responsible for procuring equipment on behalf of theGovernment. The office of UNDP in Ulaanbaatar would provide local logisticalsupport as part of the arrangement with UNDP/OPS including one staff memberwho would work full-time to support the project.

34. The advisor assigned to MOF would be designated lead advisor. Thelead advisor would coordinate the inputs of the other internationally-recruited staff, provide support, ensure timeliness and distribution ofreports from the contracted staff, and coordinate with the TechnicalAssistance Coordinator in MOF to ensure responsiveness to the Government'srequirements. Experienced in economics, planning and finance, the leadadvisor would also provide advice to the recently established EconomicCoordinating Commission responsible for coordinating macroeconomic policy, aswell as offer counsel to members of the Government and senior staff on issuesof economic reform as requested.

35. MOF would serve as the coordinating agency for the Project. I(OF isbest staffed for the accounting and logistical arrangements that smoothproject implementation would require. MOF has designated its First DeputyMinister to act as Project Coordinator. The Project Coordinator would serveas the Government's principal contact with IDA, and would ensure liaison withkey staff in other participating agencies. NOF has also appointed anAssistant Project Coordinator to assist with day-to-day logistical arrange-ments. The Project Coordinator would collect periodic progress reports fromthe participating agencies, oversee the keeping of timely and accurate projectaccounts, arrange programs for visiting IDA supervision missions, andsupervise the processing of IDA withdrawal applications.

36. Training Capability and Training Arrangements. A training programhas been developed that integrates on-the-job training and coaching by theadvisors and visiting specialists, local classroom training, and overseastraining. The program was designed to ensure that there is integration amongcore agencies to take advantage of common training needs. In-country trainingwould be carried out in collaboration with local agencies such as the IAMD andthe College of Economics. IAMD is being strengthened through a technicalassistance project financed by UNDP, which aims to bu'ld up institutionalsupport for the policy of economic restructuring. It focuses on the research,training, and consultancy capabilities of IAMD in economic management,international business management, enterprise management and public adminis-tration. The UNDP-assisted project provides English language training andtraining of trainers to develop IAMD's capacity to deliver courses, domanagement consulting and conduct research. IAMD staff participated in thepre-project training needs assessment. The facilities of IAMD, the College ofEconomics and other local training institutions would be used for selectedseminars and workshops, and effort3 would be made to involve their staff inthe short courses either as instructors, observers, or participants asappropriate.

- 22 -

37. Procurement Arrangements. Consultants would be engaged inaccordance with World Bank Guidelines for the Use of Consultants. Consultantsfor the sector and feasibility studies would be obtained generally from asingle firm, though in some cases (such as sector studies) it might be cost-effective and technically appropriate to hire individuals. Contracts forequipment valued at less than US$100,000 equivalent would be obtained throughinternational shopping, i.e. obtaining quotations from at least threereputable suppliers, preferably from different countries, after providing abrief description of the equipment needed.

38. Disbursegents. The proposed IDA Credit would be disbursed over fourand one-half years, closing on June 30, 1996, as follows: for consultantser-ices, overseas and local training, 100X; for equipment and supplies, 100Xof foreign expenditures, 100X of local expenditures (ex-factory cost) and 75Xof local expenditures for other items procured locally. All disbursementswould be made against full documentation. Most payments would be made throughUNDP/OPS and IMF. To help facilitate disbursements in Mongolia, a SpecialAccount in US dollars with an authorized allocation of $10,000, would beestablished in a commercial bank satisfactory to IDA. The account would bereplenished monthly or whenever it was drawn down by about 50 percent of theinitial deposit.

39. Account and Audit Arrangements. The IDA Special Account would beoperated by MOF and kept in a commercial bank satisfactory to IDA. Since mostpayments would be handled through UNDP/OPS and IMF, auditing arrangementswould be relatively simple. Payment and disbursement requests of theparticipating agencies not handled through UNDP/OPS or IMF would be processedthrough the Proiect Coordinator (MOF). HOF would obtain the annual audit ofthe project accounts and Special Account from an independent auditor andforward them to IDA within six months of the end of the fiscal year.

40. Progress Reporting. Each agency participating in the project woulddesignate a staff member as its lead contact with IDA and the ProjectCoordinator in MOF. This person would provide substantive oversight of theagency's work program of advisory/training services provided to his/heragency, and of the uses to which the project reports and other outputs areput, and see that local counterpart personnel are in place as needed for fullinvolvement in project-related activities. This person would also be respon-sible for submitting progress reports to MOF, for meeting with supervisionmissions visiting each agency, and for supplying information to MOF and IDA asmay be requested on the substantive and administrative progress of thecomponent (particularly on training). Six-monthly progress reports would beprepared by the Project Coordinator. A draft annual work program and budgetwould be submitted to IDA each year for review and agreement. The ProjectCoordinator would coordinate the participating agencies' inputs into theannual work program and into the Project Completion Report.

SCHEDUL 1Page 1 of 7

MONGOLIATECHNICAL ASSISTANCE PROJECT

KEY PROJECT ACTIVITIES

Expected ResponsibleGovernment Objectives Project Component Activities Results/Impact Timing Agency

A. Budgetary ReformsAssist with design and implementa-

Establish modern tax tion of tax procedures andsystem and broaden administration including:revenue base

(a) introduction of sales tax; Increased revenues 7/92 IOF(b) establishment of new system of Increased revenues 1993 MOF

individual taxpayers' numbers;(c) improvements in practices and Increased revenues 1992-93 4OF

procedures for administeringnewly introduced income taxes land custom duties;

(d) preparation of harmonized Increased revenues; 6/92 CGAcustoms system; smoother functioning

customs system.

(e) establishment of comprehensive Increased revenues; 12/92 CGAcustoms regulations and smoother functioningprocedures. customs system.

(f) provide on-the-job training More effective taxfor tax and customs officials. and customs

administration.

Strengthen mechanism for Advise and assist in thecontrol of fiscal deficit improvement of budgetary

procedures including:

(a) Review and redesign of Improved expenditure Ongoing MOFexpenditure control control.procedures;

SCHEDUIE1

Page 2 of 7

MONGOLITECHNICAL ASSISTANCE PROJECT



MOF(b) Design and initial Improved budgetary 1992

implementation of a cash control and use ofmanagement system for the budget as a tool ofbudget; macroeconomic

management.

(c) Establishment, in cooperation Improved debt 1992 MOFwith the BOM, ot an annual management andbudget financing plan restraint of infla-consistent with an appropriate tion.monetary program;

(d) Design and initial implementa- Improved use of 1992-93 MOFtion of procedures for budget as a tool ofimproved forecasting of macroeconomicrevenue and non-discretionary management.expenditures, extending budgetcoverage, and improving coor-dination of the budget withthe public investment program.

B. Banking and Monetary Assist officials in:Reforms (a) developing a monetary research Improved formulation Ongoing BON

and analysis function; of monetary policy.Establish institutionalframework for formula- (b) providing training in Improved formulation Ongoing BONting monetary policy techniques of compilation and of monetary policy.

analysis of monetary andeconomic data;

(c) utilizing data and analysis Improved formulation Ongoing BONfor formulation of monetary of monetary policy.policy.

SCHEDULE 1Page 3 of 7




Develop a modern banking Design and implementation of new More efficient 6/92 BOMsystem payments and clearing settlement banking system.

system.

Development of legal and More efficient 6/92 BOMregulatory framework for banking system.introducing new financialinstruments and securities.

Establish system of Advise on the formulation of bank Strengthened Ongoing BOXprudential oversight of supervisory policy. financial stabilitybanking system. of banking system.

Assist with implementation of Strengthened Ongoing BOMsystem of licensing and continual financial stabilitysupervision of banks including a of banking system.reporting system and on-siteaudits.

Assist with development of Strengthened 6/92 BOMlegislation and regulations financial stabilitycovering inter alia: civil of banking system.penalties, debt recovery, consumerprotection, bills of exchange.

SCHEDULE IPage 4 of 7




C. Investment Program Assist with establishment of Refocus budgetary 12/92 MND/MOFImprove process of priorities for public investments. capital outlays fromestablishing public productive sectorsinvestment priorities to sound andand limit and economic infra-restructure capital structure and limitoutlays. investment to high

priority projects.

Assist with establishment of Improved project 6/92 MNDinvestment monitoring groups to management andimplement a system of investment Governmentprocedures to improve project oversight.management, control and execution.

Strengthen capacity in appraisal Government able to 12/94 MNDof public investment projects. make more informed

decisions onproposed investmentprojects.

Assist with preparation of three- Improved decision- 6/92 MNDyear public sector investment making on priorityprogram. investment programs

within budgetconstraints.





External Reforms

Liberalize and promote Assist with development ofinternational trade policies to liberalize and promote

international trade including:

(a) issuing foreign trade licenses Increased exports Ongoing MTIon a non-discriminatory basis; and more efficient

procurement of 12/92 MTIimports.

(b) eliminating mandatory state More efficient 1992-94 MTIorders for exports; productive

structure.

(c) simplifying and improving the Reduced resource 1991-94 MTIexisting exchange rate system; distortion.

(d) allowing private sector Increased exports. 6/92 MTIexporters to retain foreignexchange earnings;

(e) permitting licensed commercial More efficient tradebanks to conduct selected and payments system.foreign exchange operations;

-J~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SCHEDUlLE IPage 6 of 7




(f) permitting the development of More efficient trade 12/92 MTIa foreign exchange market and payments system.through the banking system.

Promote Foreign Investment Assist with development of Increased foreign 12/92 MTIregulations and institutional investment.framework for implementing theforeign investment law andexpediting procedures forprospective investors. X

Private Sector Development Assist with action program to Establishment of new 6/92remove barriers to private sector private sector MTIactivity and to develop further initiatives.appropriate incentives.Help 14TI clarify its role in the Improved Government 12/92 NTIprivatization process. policy on

privatization





Assist with development of New small businesses 12/92 MTIGovernment policies to promote established.small business.

Statistics Improved system of 12/92 SSOImprove system of central Assist with the development of a national accounts.statistics. system of national accounts on SNA

basis.Increased capacity 12/92 SSO

Training program in statistics - of SSO staff tovarious topics. carry out new

functions.Leg-aLDevelop legal framework Assist with drafting of economic, Clear instruc- 12/92 mOJ %a

financial and business laws. tions/'Slidance to aentrepreneurs about

Training in financial sector rules within whichreform and drafting and to operate.negotiation of contracts.

Improved capacity of 12/92 MOJMOJ staff to developrules andregulations suitableto a market economy.

Sector Studies Mining Study

Determine future strategy Other sector studies to be agreed Strategy for future 6/93 Bureau ofin priority sectors. on case by case basis. development of Ministry of

mining sector and Energyidentification ofpriority investmentprojects.

Strategy for future 1992-95 Variousaction in sectors

_ ______________________ _ _________________________________ studied.

IBRD 23405

U.S.S.R.z Hen _) ~~~~~~~~~~~~~~~~~U.S.S.R.

LIO r LMNOOM®3 0 4An °ylw u V ~~~~~~~UVS @ HOVSGO-. T'/

ZAYBYAN-OLGIY ELENGE

DZAVHAN J$Tdm0n ' ( suI.OAN@ -V OVD~1

\ \- bdewnO Telow _i_ _ 1 t * J} >-nwsR weel- 0 1

UUASTAY ARHANGAY 'N

\ ' )"@K' j o ,,,. '8' ' ~~ > < °° "-;SETSERLEG; - -O< o> Boo Oo.0n1

. HOdogN -HOVETE ,MDZU MOD 1

5v RAAN 0-"0

Moodolw st Tonbl - ALTAY3 < -t=S>° o,..A,, O -* ;D-= %a../tooos * ® $UKHSAARUUNURT|dooo CHINA _ , OBIALTAY -= 'T' r ' o __ w_TA

0_ 0 hT jao o / ' -' -A. D SAYNSHANDSUKH8AATAR~~~ ~~ARVAYHEER j 0

CHINA gkAo .EY~NOGRO~~~O 0.H~g ~ 0~

Ga oB ,ALTY c . T - 6VORHANGAY - t- @MANDALiGOGOBI-ALTAY ~~~~~~~1- 0.g.$oooDUNDGOBI

BAYANHONGOR 0>\ J 3AYANHONGOR t *} 1 -T;' o' ~~~~~DORNOGOBI %fhMONGOLIA

\ _ + i DAIANDZADGAD oHb901 SELECTED TOWNS / VILLAGESt S f 8p iv / bvvbv 191 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~AtMAK CAPITALS

IS1LOhlETERS 0 50 100 1SQ 200 0 CIg i o MNOGOBI°lg 9NAIALPTLuJOETR '¶0101020 M(GB FAIR-WEATHER ROADS, TRACKS OR TEIWLS

F T I -- O-- r , - ALL-WEAThER HARD OR LOOSE SURFACE ROADSMILES 0 50 100 150 200 E - RAILROADS

+ AIRFIELDS+ INTERNATIONAL AJRPORT

AIMAKC BOUNDARIES

-INTERNATIONAL BOUNDARIES

NOVEMBER 1991

Documents

Dacat Of The World Bay* · In early 1990, the pace of political and economic reforms initiated during the second ha]f of the 1980s quickened dramatically, leading, after Mongolia's