ASIAN DEVELOPMENT BANK

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ASIAN DEVELOPMENT BANKPROGRAM COMPLETION REPORTON THEAGRICULTURE SECTOR PROGRAM(Loan 1409-MON[SF])INMONGOLIAMay 2000PCR:MON 27536

CURRENCY EQUIVALENTSCurrency Unit – Tugrik (Tug)Tug1.00 1.00 1.00SDR1.00 At Appraisal(15 October 1995) 0.00217Tug460SDR0.6691 1.4945At Program Completion(31 December 1998) 0.001158Tug863.24SDR0.710215Tug1,215.47The tugrik was devalued from Tug150 to Tug394 per dollar on 28 May 1993 and is nowdetermined using a unified floating exchange rate. The calculations in this report are based onan exchange rate of Tug1,059 to 1.00 except when calculating the local currency value ofdollar disbursements, when the average monthly exchange rate for the relevant disbursementvalue date has been �–––Asian Development BankAgriculture Extension CenterAgriculture Sector Program loanBank of MongoliaEnglish auctionGovernment resolutioninitial environmental examinationMinistry of Agriculture and Industryminimum living levelMinistry of Nature and EnvironmentMinistry of FinanceMinistry of Food and Agriculture (later MAI)Mongolian Stock ExchangeNational Poverty Alleviation ProgramNational Statistical Officeprogram completion reportsealed bid auctionspecial drawing rightsState Emergency Fodder Fundstate-owned enterpriseState Property CommitteeState Reserves Agencytechnical assistanceNOTES(i)(ii)In this report, “ ” refers to US dollars.The fiscal year of the Government ends on 31 December.

CONTENTSPageBASIC DATAiiI.PROGRAM DESCRIPTION1II.EVALUATION OF I.IV.THE TECHNICAL ASSISTANCE5A.B.56TA 2457-MON: Institutional Strengthening in the Agriculture SectorTA 2458-MON: Strengthening Land Use PoliciesEVALUATION OF INITIAL PERFORMANCE AND BENEFITSA.B.C.V.Program ComponentsImplementation ArrangementsProgram CostsProgram ScheduleEngagement of Consultants and Procurement of Goods and ServicesPerformance of Consultants, Contractors, and SuppliersConditions and CovenantsDisbursementsEnvironmental and Social ImpactPerformance of the Borrower and the Executing AgencyPerformance of the Asian Development BankPromoting Competitive MarketsFocusing Institutional Support to Facilitate Competitive MarketsMitigating Social and Environmental Concerns661011CONCLUSIONS AND mmendations16

BASIC DATAA.Loan Identification1.2.3.4.5.6.7.8.B.CountryLoan NumberProgram TitleBorrowerExecuting AgencyOriginal Amount of LoanAmount of Loan UtilizedPCR Number::::::::Mongolia1409-MON(SF)Agriculture Sector ProgramGovernment of MongoliaBank of MongoliaSDR 23,419,000 ( 33,000,000)SDR 23,419,000 ( 33,252,872)PCR:MON 572Fact-Finding- Date Started- Date Completed::11 May 199530 May 1995Appraisal- Date Started- Date Completed::31 July 199522 August 1995Loan Negotiations- Date Started- Date Completed::27 October 199528 October 19954.Date of Board Approval:25 November 19955.Date of Loan Agreement:5 December 19956.Date of Loan Effectiveness- In Loan Agreement- Actual- Number of Extensions:::5 March 199614 December 1995NoneClosing Date- In Loan Agreement- Actual- Number of Extensions:::31 March 199831 March 1998NoneTerms of Loan- Service Charge- Maturity- Grace Period:::1 percent per annum40 years10 years::December 199514 December 1995Date of Second Tranche Release- Appraisal:- Actual:June 199719 December 1997Loan Data1.2.37.8.9.TranchingDate of First Tranche Release- Appraisal- Actual

iii10.Disbursements/Liquidation (all liquidations were made under statement ofexpenditure procedures)a.b.DatesInitial Disbursement20 Dec 1995Final Disbursement23 Dec 1997Time Interval24 monthsEffective Date14 Dec 1995Original Closing Date31 Mar 1998Time Interval27.5 monthsLiquidationAmountItemSDR Value DateFirst Tranche11,709,50017,368,11620 Dec 1995Second Tranche11,709,50015,884,75623 Dec 199723,419,00033,252,872First Tranche11,709,50017,368,11620 Dec 1995Second Tranche11,709,50015,884,75623 Dec 1997Disbursed by the AsianDevelopment BankTotalLiquidated by the Governmentc.Reimbursed Imports by CategoryEligible ImportsAgricultural, Livestock, and Food ProductsMineral and Chemical ProductsPlastic, Leather, and Wood Products extile, Clothing and FootwearMetals, Metal Products, pment and Machinery7,061,33121.2Computer, Electronic, and ConsumerGoods1,389,7974.233,252,872100.0Total

ivd.Counterpart Fund Applications, 1996-1997Allocations to Budgetary Support 33,250,000Note: The loan did not include any specific use allocations for counterpart funds. Localfunds generated effectively became part of general Government revenue.C.Program DataThe overall objective of the program was to promote the transition to a competitive,market-based agriculture sector. Major policy and sector reform areas included:(i)(ii)(iii)D.promotion of competitive markets (12 policy measures)institutional support to facilitate competitive markets (9 policy measures)identification and mitigation of adverse social and environmental impacts(9 policy measures)Supporting Technical Assistance ProjectsDurationTA No.2457-MON2458-MONE.TitleFromInstitutional Strengthening in theAgriculture SectorStrengthening Land Use PoliciesTo11 May 199630 Sep 199722 May 199612 April 1998Data on the Asian Development Bank MissionsName of MissionabDateNo. ofPersonsNo. ofPerson-daysSpecialization ofaMembersFact Finding11-30 May 1995480a,b,c,eAppraisal31 July 199521 August 19955110a,c,d,e,fPost-AppraisalConsultation8-12 October 199515aTA Inception27 June-2 July 199616aLoan/TA Review14-25 October 1996112aLoan/TA ReviewbTA Review20 May-3 June 199710-13 March 199821184a,ggProject CompletionReview5-22 October 1999244a, ha-economist/mission leader, b-economist (social sector), c-counsel, d-programs officer, e-projecteconomist, f-mission secretary, g-senior project specialist; h-consultant/agriculture sector policy.Review of TA 2458-MON: Strengthening Land Use Policies (Supplementary), for 244,000, approved on14 August 1997.

I.PROGRAM DESCRIPTION1.The main objective of the Agriculture Sector Program loan1 (ASPL) was to promote thetransition to a competitive, market-based agriculture sector through the implementation of anagreed policy program. This program involved (i) promoting competitive markets, (ii) focusinginstitutional support to facilitate competitive markets, and (iii) identifying and mitigating adversesocial and environmental impacts. The specific package of policy reforms (the Program) underthe ASPL was described in the Government’s development policy letter to the AsianDevelopment Bank (ADB) dated 21 October 1995 (Appendix 1) and the policy matrix(Appendix 2). These policy reforms were to be implemented over the three-year program period,1996-1998. The basic rationale of the ASPL was to support the ongoing program of structuralreform begun two years after independence in 1989.2.The loan of 33.3 million became effective on 14 December 1995 with the first tranche of 17.4 million being available for drawdown at the same time.2 The second tranche of 15.9 million was made available on 19 December 1997, and totally utilized by 23 December1997. The loan closed on 31 March 1998.3II.A.EVALUATION OF IMPLEMENTATIONProgram Components3.The 10 areas of policy reform covered by the Program were (i) formulating andimplementing an agriculture sector strategy, (ii) promoting markets in land-use rights,(iii) removing impediments to the free pricing of agricultural products, (iv) delimiting theGovernment’s role in agricultural markets, (v) ensuring the sustainability of the extensivelivestock subsector, (vi) transferring Government ownership to the private sector,(vii) revitalizing financial institutions servicing the agriculture sector, (viii) streamlining andreorienting public sector institutions, (ix) identifying and mitigating social impacts, and(x) identifying and mitigating environmental impacts.4 In total, the policy matrix (Appendix 2)incorporated 31 specific measures, of which 17 were the subject of ADB Board approval for theloan, and 6 were conditions for second tranche release.54.The reform program was directly supported by inputs financed under two technicalassistance (TA) grants.6 Both TAs assisted the Government in implementing selected reformmeasures, particularly with respect to institutional strengthening and policies for land registrationand cadastre (Section III).123456Loan 1409-MON: Agriculture Sector Program, for 35 million, approved on 5 December 1995.Because the loan was denominated in special drawing rights, the US dollar equivalent of the loan was reducedfrom 35 million at loan negotiations to 33.2 million at the time of disbursement. Also, since the Borrower did notopen an imprest account, all disbursements were handled through reimbursement procedure.There is some contradiction as to the loan closing date, in that the Loan Agreement specifies 31 March 1998(Section 3.06) while the Appraisal Report indicates 31 December 1997.Support for development of the program loan was provided through TA 2127-MON: Agriculture Sector Program, for 300,000 approved on 25 July 1994, with supplementary funding of 175,000, approved on 13 June 1995.One of the policies on budgetary support for targeted assistance to the poor (III.A.2[b]) was a condition for bothBoard approval and second tranche release in that it included agreements relating to provisions in both the 1996and 1997 budgets and hence was considered to be two conditions.TA 2457-MON: Institutional Strengthening in the Agriculture Sector, for 800,000, approved on 5 December 1995,and TA 2458-MON: Strengthening Land Use Policies, for 580,000, approved on 5 December 1995. Two furtherTAs, TA 2602- MON: Study of Extensive Livestock Production Systems, for 600,000, approved on 4 July 1996,and TA 2683-MON: Strengthening the National Poverty Alleviation Program, for 422,000, approved on7 November 1996, were also linked to the program reform agenda. Loan 1290-MON(SF): Employment Generation,for 3 million, approved on 16 December 1993, also linked in with the policy agenda under the Program.

2B.Implementation Arrangements5.The Bank of Mongolia (BOM) was the Executing Agency for the Program, and wasresponsible for overall implementation. In addition, the Ministry of Food and Agriculture (MOFA)was to play a key role on coordinating the implementation of policy measures under theProgram, in collaboration with the Ministry of Nature and Environment (MNE) and the Ministry ofPopulation Policy and Labor. In September 1996, as part of a major reorganization of the civilservice under the new Government, the number of ministries was reduced from 15 to 9. Allproduction oriented ministries were merged into the Ministry of Agriculture and Industry (MAI),and the poverty monitoring and policy functions, previously under the Ministry of PopulationPolicy and Labor, were coordinated under the new Ministry of Health and Social Welfare.C.Program Costs6.The Program involved a loan denominated in special drawing rights (SDR) totaling 23.42million, equivalent to 35 million at the time of loan negotiations. Actual disbursements totaled 33.25 million and were released in two tranches of 17.37 million (SDR11.71 million) and 15.89 million (SDR11.71 million), respectively.7D.Program Schedule7.Loan effectiveness was envisaged to be 5 March 1996 (three months after the LoanAgreement was signed), but was advanced to 14 December 1995 (9 days after the signing ofthe Loan Agreement) to expedite release of the first tranche and so assist the Government’sfiscal position in 1995.8 The first tranche funds were totally utilized in one disbursement six dayslater. Whereas it had been expected that the second tranche would become available in June1997, approval for second tranche release was delayed by some five months to 19 December1997, awaiting fulfillment of three of the six second tranche conditionalities.9 Disbursement ofthe second tranche occurred on 23 December 1997. With this delay in release of the secondtranche, total disbursement of the loan proceeds involved an elapsed time of 24 months, 6months longer than envisaged at appraisal.8.The overall policy reform program was to be implemented over the three-year period,1996-1998. At the time this program completion report was prepared in October 1999, 22 of thepolicy reform measures had been accomplished or substantially accomplished, and 9 partiallyaccomplished.10E.Engagement of Consultants and Procurement of Goods and Services9.No problems were encountered with the procurement of goods in any category andconsultants were recruited in full compliance with ADB procedures.F.Performance of Consultants, Contractors, and Suppliers10.Generally, the consultants recruited under the two TAs approved with the loanperformed successfully.78910The SDR was gradually appreciating against the US dollar over that period.Particularly so it could meet International Monetary Fund’s Enhanced Structural Adjustment Facility commitments.Policy nos. II.A.2, II.C.3 and III.A.3.One of the policy agenda items (III.A.2[b]) had two target achievement dates in sequential fiscal years, whichmeant that there were, in fact, a total of 31 policy targets in the Program.

3G.Conditions and Covenants1.Program Conditions11.A total of 31 policy measures were included in the policy matrix attached to thedevelopment policy letter under the Program. The current implementation status of each ofthese policy measures is provided in Appendix 2. Eighteen of the measures were complied withprior to Board approval. Thirteen policy measures were to be implemented during the programperiod, but progress was not as fast as anticipated at appraisal, with three of the six secondtranche conditions not being fulfilled in a timely manner. This led to a six-month delay in therelease of the second tranche (from June 1997 to December 1997). In aggregate, 22 of thepolicy measures have been accomplished or substantially accomplished, and 9 only partiallyaccomplished.12.That the Program was significantly front-end loaded, with 18 of the 31 policy measuresto be complied with prior to Board approval, contributed significantly to meeting the conditionsset out in the overall Program. Particularly significant were the policy measures removing theprices of meat, wheat, and flour products from central and local government control. This was amajor step toward the main objective. The delay in meeting the second tranche conditionsrelated to the fact that the privatization process had been put in abeyance until the newGovernment reaffirmed its direction in mid-1996, and the momentum of this part of the Programreemerged.2.Covenants of the Loan Agreement13.Appendix 3 summarizes the status of compliance with the 15 major administrative andprocedural loan covenants. Nine have been complied with, five have been partly complied with,and one relating to the impact assessment is not yet applicable. The partial complianceassessments mainly reflect the lack of institutional capacity in the implementing agencies tomeet the agreed reporting requirements established for the Program.14.Since no imprest account was established for disbursements, the Loan Agreementconditions pertaining to this facility did not apply.H.Disbursements15.The total proceeds of the loan were disbursed through reimbursement procedure basedon a statement of expenditure, with the two claims being processed expeditiously. This meantthat the first claim was reimbursed within six days of loan effectiveness being declared, and thesecond claim within four days of the second tranche release being approved. No claimsinvolving individual imports above 5 million in value were submitted for reimbursement.11 TheLoan Agreement allowed for retroactive financing of eligible imports up to 180 days prior to loaneffectiveness, and this facilitated the immediate drawdown of the first tranche.16.One third of loan proceeds were used to finance the import of agricultural commoditiesand food, with a further 21 percent for machinery and equipment imports. Over one half of thereimbursed imports were from the People’s Republic of China (a summary of procurement bycountry of origin is provided in Appendix 4). The loan financed about 3-4 percent of total importsin each of the two years, 1995 and 1997.11Such procurements would have needed to follow international competitive bidding procedures acceptable to ADB.

4I.Environmental and Social Impacts17.An initial environmental examination (IEE) of the Program was undertaken at appraisal,with the conclusion that the overall environmental impact of the Program was beneficial. Inparticular, the intensification of agricultural production that was likely to result from the Programwas not anticipated to have any negative environmental impact because the intensity of fertilizerand pesticide use was expected to remain low. The IEE made particular recommendations withrespect to the crop sector that the Government agreed to implement during the program period.It also agreed to act on environment-related recommendations that were likely to emanate fromthe Study on Extensive Livestock Production Systems (footnote 6). A total of three policymeasures were included in the Program to specifically address environmental issues butprogress was limited.18.A poverty impact assessment was conducted at appraisal for each of the programmeasures, with impacts assessed on (i) labor market, (ii) prices, (iii) access of the poor toservices, and (iv) net public transfers to the poor.12 The Program was envisaged to have somenegative impacts in the short term, primarily through the expected price increases for wheat andflour products, and to a lesser extent for meat, with negative impacts on all consumers butparticularly the poor and absolute poor. It was estimated that without intervention, the expectedincrease in the price of flour products would increase the numbers of poor by about 84,000 andof the ultra-poor by 25,000 if no mitigation measures were introduced. However, the socialimpacts of the Program over the medium-to-long term were assessed as positive because of theincreased growth and production in the agriculture sector.19.The Program included five measures to directly address these issues, includingimplementing a national poverty alleviation program, providing minimum levels of budgetsupport to targeted assistance programs, strengthening the social safety net, and monitoringpoverty indicators. While these measures were largely accomplished, it is too early to assesswhether the medium-to-longer term positive impacts that were envisaged will, in fact, emerge.J.Performance of the Borrower and the Executing Agency20.Overall, the general performance of the Borrower in implementing the policy reformmeasures and in coordinating the Program has been satisfactory. While the specific policyreform agenda described in the Program was not fully achieved, general progress inmacroeconomic reform has been impressive. In particular, the privatization process has madesignificant progress, despite a slow start, and price liberalization of the major agricultural andfood products has been largely accomplished.21.Withdrawal documentation prepared by BOM as the Executing Agency wascomprehensive, raising very few questions as to eligibility. This meant that loan proceeds wereexpeditiously processed.22.Staff of MAI, MOFA, and MNE worked closely with ADB review missions, and respondedto requests for information or elaboration. While the Government did not comply with the detailsof all the particular measures included in the policy framework during the program period, it diddemonstrate strong ongoing commitment to the continued implementation of macroeconomic12A recent review of ADB practices for assessing the impact of program loans on poverty (Development Alternati

MNE – Ministry of Nature and Environment MOF – Ministry of Finance MOFA – Ministry of Food and Agriculture (later MAI) . TA Inception 27 June-2 July 1996 1 6 a Loan/TA Review 14-25 October 1996 1 12 a . reorienting public sector institutions, (ix) identifying and mitigating social impacts, and (x) .

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