Capacity Building in Economic Policy for Central Asia Training Program 1998-2001 Sponsored by the Eurasia Foundation & Swiss Development Cooperation

Status Report No. 2

(April 1 – September 30, 1999)

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The Netherlands Economic Institute, Moscow Office

The InternationalBusinessSchool of Kazakhstan

WBIEP

WBIES

WBI Evaluation Studies

Number ES00-46

World Bank Institute

The World Bank

Washington, D.C.

Copyright © 2000

The International Bank for Reconstruction

and Development/The World Bank

1818 H Street, N.W.

Washington, D.C.20433, U.S.A.

The World Bank enjoys copyright under protocol 2 of the Universal Copyright Convention. This material may nonetheless be copied for research, educational, or scholarly purposes only in the member countries of The World Bank. Material in this series is subject to revision. The findings, interpretations, and conclusions expressed in this document are entirely those of the author(s) and should not be attributed in any manner to The World Bank, to its affiliated organisations, or the members of its Board of Directors or the countries they represent. If this is reproduced or translated, WBI would appreciate a copy.

Table of Contents

Introduction...... 1

I. Program Objectives and Strategy...... 1

II. Partnerships...... 2

III. First Year Program Activities...... 3

IV. Monitoring Results for This Reporting Period...... 4

IV.I Regional workshops...... 4

IV.II Contest of analytical papers on transition and related issues...... 14

IV.III National seminars...... 15

V. General Monitoring Comments...... 20

VI. What is Next for the Program?...... 22

List of Annexes...... 25

CapacityBuilding in Economic Policy for Central Asia Training Program

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Introduction

This is the second status report on the program, "Capacity Building in Economic Policy for Central Asia", sponsored by the Eurasia Foundation and the Swiss Development Corporation. It analyses the activities held in the period April 1 – September 30, 1999 (the "reporting period"), and summarizes the results of the program’s evaluation.

I. Program Objectives and Strategy

The objective of the program is to reach a critical mass and establish a network of policy makers, local government officials, academia and civil society in CentralAsianRepublics (CARs), in order to create capacity in each CAR to provide economic policy advice to business and government in the field of free market economy. To achieve this objective, the program seeks to strengthen economic education, research capability and analytical skills at both the levels of knowledge institutions and government.

The program's training activities are oriented to expose participants to the various options for reform and international “best practice”. In order to address the particular situation of transition economies in Central Asia, the program combines formal training, social debates and development knowledge types of activity. The program will be implemented over a three year period (1999-2001), each year corresponding to a specific phase. FY1999 was the first phase and aimed at increasing consensus for economic reform in CAR countries through the training of government officials, establishing alumni associations, launching a working paper series, as well as training trainers who can provide knowledge and expertise on macroeconomic policy issues in their region.

II. Partnerships

The program involves several types of partnership. First, the partnerships created by the program within the countries link national leaders with local government administrators, as well as university communities. In addition, established ties cross national boundaries, allowing for comparative dialogue among policy makers, academics and researchers in CARs. In order to promote cross-fertilization and maximize learning among the country teams, international ties are nurtured through regional activities, such as the Regional Meeting of WBI partner institutions held in December 1998, the Regional Policy Workshop entitled “Financial Crises Management and Supervision”, held in June 1999, and the Regional Policy Workshop entitled “Building a Strategic Vision for Economic Growth in Central Asia,” held in September 1999.

The program works with multiple partner institutions in the CARs. One principal partner was selected in each country to coordinate implementation of the country programs. These partner institutions can be categorized as follows: (A) state universities; (B) government training institutions for civil servants; or (C) non-governmental academic institutions.

Kazakhstan

  • The Academy of Civil Service Under the President of Kazakhstan (B)[1]
  • The InternationalBusinessSchool at the KazakhstanAcademy of Management (C)
  • The AlmatySchool of Management at the InternationalAcademy of Business (C)
  • The Institute for Development of Kazakhstan (C)

KyrgyzRepublic

  • The KyrgyzStateNationalUniversity[2] (A)
  • The Center for Social and Economic Research (C)

Uzbekistan

  • The TashkentStateEconomicsUniversity[3] (A)
  • The Academy for State and Public Administration (B)

Tajikistan

  • The Strategic ResearchCenter under the President of Tajikistan (B)[4]

III. First Year Program Activities

Prior to this reporting period the following six program activities had been implemented:

  1. Regional Conference on The Central Asian Economies After the Russian Crisis, held in Almaty, Kazakhstan on December 2, 1998;
  2. Regional Meeting of WBI Partner Institutions, held in Almaty, Kazakhstan on December 3, 1998;
  3. Training of Trainers (ToT) Course on Economic Growth and Income Distribution, held in Istanbul, Turkey from January 25 to February 5, 1999;

and the following three national seminars, which were Introductory Courses on Market Economics: Principles and Policy held in:

  1. Bishkek, KyrgyzRepublic, March 9-19, 1999;
  2. Chui Oblast, KyrgyzRepublic, March 23-April 2, 1999; and
  3. Almaty, Kazakhstan, March 15-27, 1999.

During this reporting period a total of 20 programactivities were implemented. They included:

  • one regional workshop on Financial System Reform: Crisis Management and Supervision, held in collaboration with the OECD Center for Private Sector Development in Istanbul, Turkey, from June 15 to 17, 1999; and
  • one regional policy workshop,Building a Strategic Vision for Economic Growth in Central Asia,held in Samarkand, Uzbekistan, from September 8 to 9, 1999;

and the following 18 national seminars:

  • three seminars for Tajik trainees, held in Almaty, from April to June 1999;
  • six seminars for Kazakh trainees, held in Almaty, Taraz, Aktyubinsk, Petropavlovsk, Ust-Kamenogorsk and Karaganda, from March to August 1999;
  • three seminars for Uzbek trainees, held in Tashkent, from May to August 1999; and
  • six seminars for Kyrgyz trainees, held in various Kyrgyz oblasts, from March to July 1999.

In addition, in this reporting period the contest on the best analytical paper was completed.

IV. Monitoring Results for this Reporting Period

The monitoring results are reported with reference to (i) regional workshops; (ii) the contest for analytical papers on transition; and (iii) national seminars.

IV.I. Regional workshops

1. Policy Workshop on Financial System Reform:

Crisis Management and Supervision

June 15-17, 1999

Objectives

As many of the countries in the Europe and Central Asia (ECA) region have been forced to review their reform agendas as a result of external crises and other negative trends, governments in the region have adopted financial sector reforms to strengthen the foundations of their countries’ financial systems. They have been providing close supervision to the process of building sound banking sectors, some with explicit deposit insurance schemes, and facilitating the creation of non-bank financial institutions.

In light of these reforms, the specific purpose of this workshop was to provide senior policy makers from transition countries in the ECA region with an opportunity to discuss the implications of the recent financial crises in Russia and Asia for their respective countries’ financial sector development agenda, to assist them in formulating appropriate banking and financial system policies, to compare lessons learned, and to bring to the table issues that require priority policy implementation.

The policy workshop was organized jointly with the OECDCenter for Private Sector Development in Istanbul, Turkey, on June 15-17, 1999. It brought together representatives from the Central Asian, and Central- and Eastern European countries. The workshop benefited from using the proceedings of the World Bank and Brookings Institute Conference on Financial Crises and Emerging Markets which was held in New York in late March. The program on CapacityBuilding in Economic Policy for Central Asia was responsible for the participation of Central Asian countries. Financing of the CAR participants was provided by the WBI Regional Coordinator.

Contents and design

The workshop was designed around presentations by the participants, Bank staff and technical experts in the field. (Please see the workshop agenda in Annex 16) Presentations were followed by round table discussions, small group work and/or country team strategy sessions intended to define next steps for participants .

The broad program outline included the following themes:

  • Macro Economic, Political and Regulatory Environment Scanning
  • Recent Crises: Causes, Consequences, and Lessons for Countries in Transition
  • Governance, Bankruptcy and Receivership Aspects and Effective Implementation
  • Determination of an action plan to create a new financial systems reform agenda: priorities and other considerations
  • Assistance to the participants by means of networking and sharing the experiences and knowledge

Audience

A total of 50 participants attended the workshop from 20 countries in the ECA region, consisting of senior level policy makers and managers from the Central Banks, Ministries of Finance, and Securities Exchange Commissions. (please see the participant list in Annex 17)

Evaluation

The workshop was evaluated using a 5-point Likert type scale, (1=minimum, 5=maximum) Below is an abstract from the evaluation report based on results of participant feedback questionnaires processed by WBIES.

Of the 44 respondents who answered the questionnaire, 16 (36 percent) represented Central Banks, 14 (32 percent) were from the Ministry of Finance or other government agencies, and 13 (30 percent) were from Securities Exchange Commissions percent.

  • The overall usefulness of the workshop received a mean score of 4.26.
  • Respondents’ ratings on the achievement of each of the three specific objectives – providing useful information, increasing the understanding of the necessary steps to take for improving their own financial sector reformplans and ability to develop useful personal contacts and networks all exceeded 4.0, with the overall achievement of announced objectives receiving a mean score of 4.14.
  • The degree to which respondents felt the workshop was relevant to their current work or functions received a mean score of 4.19.
  • The usefulness of the reading materials… received the highest mean rating of 4.29.
  • Such items as the extent to which respondents felt the information obtained during the workshop was new (mean=3.37) and the extent to which respondents used information obtained from the presentations when participating in the breakout sessions (mean=3.74) received relatively lower ratings. Respondents reported that the workshop improved their understanding of the necessary next steps for their countries. However, they may have felt the policies presented were less appropriate for their countries, or they may have felt less optimistic about the possibility of fully incorporating the presented policies in the existing financial systems of their countries.
  • Written comments indicated that the respondents were highly satisfied with the quality of the instructors’ presentations and their answers to questions from participants. Participants requested more country-specific examples and more engagement with participants, such as encouraging questions.
  • A majority of the respondents expressed a clear intention of applying the experience and knowledge obtained from the workshop to their work.

The evaluation also used a pre/post self-assessment tests, which revealed a positive gain of 22 percent to 41 percent across all 10 thematic sessions (for more data see Annex 12).

Summary of the interviews with the participants

By the end of the workshop, 12 short interviews with representatives from CAR had been conducted (See interview questions in Annex 1). The interview results reveal that:

  • All interviewees are invited, at least once a year, to seminars organized by various international organizations.
  • Interviewees believe that they have problems in common with other CAR and Central and Eastern European countries, such as development of stock exchange; attracting investments; pension reform; insurance of resources of pension funds; sustainability of pension funds; and government and corporate securities markets.
  • Some interviewees believe that their problems are shared more with CAR than with Eastern Europe.
  • Most of the Bank employees interviewed have permanent business contacts with their colleagues from CAR; one of them also maintains working contacts with international financial organizations.
  • Government officials are much less active in this respect (e.g. there is no information sharing between Ministries of Finance) and use their contacts mostly for personal communications.
  • Interviewees would like to use contacts for sharing opinions on practical issues.

2. Regional Policy Workshop

“Building a Strategic Vision for Economic Growth in Central Asia”

Samarkand, Uzbekistan, September 8-9, 1999

Background

This Regional Workshop marked the culmination of the first year of activities of the program, “CapacityBuilding in Economic Policy for Central Asia”. The workshop was designed to enable participants to provide sound analysis and policy advice for achieving sustainable growth and social inclusion. It also aimed to encourage participatory debate and policy research and to provide participants with a greater understanding of issues such as the determinants of economic growth; the importance of sound macroeconomic and institutional frameworks for economic and social development; globalisation; regional integration; and financial sector development. The workshop was structured around a series of key presentations by client country government officials, academics, Bank staff and external experts in the field. The event also provided a dialogue forum to exchange information and build networks among participants and presenters.

Audience

The workshop was attended by 54 participants from Kazakhstan, Uzbekistan, Tajikistan and the KyrgyzRepublic, comprising (i) academics and researchers from major universities and researchinstitutes from CAR countries; (ii) officials from the Ministries of Finance, National and Central Banks, and Agencies for Economic Planning; as well as (iii) Bank CAR Resident Missions’ staff. Presentations were delivered by a strong team of experts, which included World Bank staff, government officials, and local trainers. Representatives from the Eurasia Foundation (the program sponsor), the IMF, USAID, and the Asian Development Bank, were present as observers.

Presentations

The conference was delivered in panel sessions and allowed for interaction among speakers, panellists and conference attendees. Sessions strongly emphasised recurring issues, such as the relevance and applicability of international experiences for the transition processes carried out by CAR countries; the state of the development of local institutional capacity to promote development and integration with the world economy; and how to foster poverty reduction. Each session had a main speaker and four panellists, one from each participating country, who responded to main presentations.

The workshop covered the following topics:

  • The Stylised Facts of Long-Term Economic Growth and Poverty Reduction

Main topic: Determinants of Economic Growth: International Evidence

Mr. Jorge Araujo, WBI Economist, elaborated on the stylized facts of economic growth, stressing the large, persistent and growing disparities in world income distribution, as well as the large volatility of growth rates in many developing countries, an indicator of higher vulnerability to external and internal shocks. He referenced research pointing out the importance of socio-political stability and strong institutions of conflict management in strengthening a country’s ability to withstand shocks and prevent collapses in growth.

  • From Plan to Market: Current Issues and Challenges for Transition

Main topic: Policy Performance and Output Growth in the Transition Economies

Mr. Marcelo Selowsky, the Bank’s Chief Economist for the ECA region, outlined the diversity of results achieved so far in the transition to market economies in the ECA region: (i) current GDP ranges from 130 percent of 1990 GDP level in Poland to 30 percent of 1990 GDP level in Georgia; (ii) average inflation is lower than 10 percent in the region, while some countries like Russia and Ukraine are still near 100 percent; and (iii) FDI in 1998 was concentrated primarily in three countries (Poland, Czech Republic, and Hungary). An analysis of major factors affecting growth performance (economic, political, and institutional initial conditions; macro and micro policies; and external shocks) was also performed. Finally, a policy agenda for the ECA region was discussed. The agenda calls – in the case of Kazakhstan and KyrgyzRepublic – for improving revenue collection and rationalising expenditures as well as for developing rural land markets, key issues for growth.

  • Taking Advantage of Globalisation

Main topic: Economic Growth in a Globalising World: Risks & Opportunities

Mr. Ishac Diwan, WBI Division Chief, addressed economic growth issues from a global perspective and elaborated on the thesis that globalisation brings new opportunities for workers but also new risks – mainly caused by volatile outflows of capital. Mr. Diwan also elaborated on policies and factors that attract private capital, such as conservative macro policies, efficient banking systems and capital markets, and skilled labor forces and infrastructure. Emphasis was placed on the need to attract long-term foreign direct investment rather than short-term volatile flows of capital. Issues regarding international trade and a new international division of labor were also covered. Mr. Diwan stressed the role of sound domestic policies (labor flexibility, investment in education and productive assets, and social cohesion and safety nets) in compounding the beneficial effects of globalisation on growth.

  • Financial Sector Development and Economic Growth

Main topic: Experiences from Eastern European Countries’ Financial Policies: Lessons for Central Asia

Mr. Lajos Bokros, WB, Director, Financial Advisory Services, discussed the experiences of Eastern European Countries in implementing financial sector reform policies, and the relevance of the above listed topics for Central Asia. His Presentation stressed the three pillars of effective banking sector reform, namely corporate governance, competition, and prudential regulations and supervision. Mr. Bokros also elaborated on the dimensions of banking sector restructuring, such as a two-tier system model of commercial banking; liberalization; development of new private banking; privatization; international liberalization; and the links between bank and non-bank financial institutions. A presentation of individual cases of successful reforms (Hungary and Poland); and of the strengths and weaknesses of intermediate reforms (Czech Republic, SlovakRepublic, Slovenia, Bulgaria, Armenia, Estonia, Latvia, and Lithuania) followed. The general characteristics of weak reforms were also addressed – lack of competition, poor asset quality, lack of transparency, and so forth.