103711 An Assessment of World Bank Support in Three Middle-Income Countries IEG INDEPENDENT EVALUATION GROUP Acronyms and Abbreviations AAA Analytical and Advisory Activities ALMP Active Labor Market Policies CAE Country Assistance Evaluation CAS Country Assistance Strategy CEDE Centro de Estudios Sobre Desarrollo Economico CCT Conditional Cash Transfer CPI Consumer Price Index CEDPL Competiveness and Employment Development Policy Loans CEM Country Economic Memorandum DANE Departamento Administrativo Nacional de Estadistica (Colombia) DNP Departamento Nacional de P l a n e a c i h DPL Development Policy Lending ECA Europe and Central Asia ECAL Economic Competitiveness Adjustment Loans ERL Economic Reform Loan ESW Economic and Sector Work ETP Employment-to-Population ratio FDI Foreign Direct Investment FIAL Programmatic Fiscal and Institutional Adjustment Loan FSAP Financial Sector Assessment Program GDP Gross Domestic Product GNI Gross National Income HD H u m a n Development IEG Independent Evaluation Group IMF International Monetary F u n d LCU Local Currency Units LPR Labor Participation Rate MENA M i d d l e East and N o r t h Africa MICs Middle Income Countries MILES Macroeconomic Conditions, Investment Climate and infrastructure, Labor market regulations and institutions, Education and skill development; and Social safety n e t OECD Organization for Economic Co-operation and Development PAAA Programmatic Analytical and Advisory Assistance PC Per Capita PLaSSAL Programmatic Loans Supporting Labor Reform and Social Development Policy PPP Purchasing Power Parity SENA Servicio Nacional de Aprendizaje TA Technical Assistance TFP Total Factor Productivity UI Unemployment Insurance WDI World Development Indicators The World Bank Washington, D.C. 20433 USA. Vinod Thomas Director-General Evaluation June 15,2009 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT Earnings Growth and Employment Creation: An Assessment of World Bank SUBJECT: Support in Three Middle4ncome Countries T h l s IEG r e p o r t reviews World B a n k support for earnings growth a n d e m p l o y m e n t creation during 1998-2007 in three m i d d l e i n c o m e countries (Colombia, T u r k e y a n d Tunisia). I t blends features o f a thematic evaluation with those o f a c o u n t r y evaluation. These countries faced m a j o r employment challenges during the decade, received significant B a n k support, a n d together p r o v i d e a comparative a n d cross-regional perspective on B a n k engagement. T h e fmdings suggest ways in w h i c h the Bank‘s response to the current global crisis with respect to employment a n d earnings can b e stronger. E f f e c t s o f the crisis on e m p l o y m e n t are already evident. T h e projected i m p a c t (IMF, L O ) i s that a decline in world output growth from 5.2 percent in 2007 to -1.3 percent in 2009 will increase u n e m p l o y m e n t from 5.7 percent to 6.8 percent. A f i r s t fmding o f the r e p o r t i s t h a t t h e employment-related outcomes in the three countries were mixed, with notable progress in economic growth, earnings a n d poverty reduction but clearly not in the employment-to-populationratio and the unemployment rate. T h l s findmg underscores the desirability o f focusing on the full set o f employment-related variables, a n d not on growth alone, as the Bank’s support responds to the current crisis, especially in MICs. A stronger focus on earnings i s needed to address the impact o f the crisis on poverty. Such engagement drequire a n understanding o f how policies can enhance both e m p l o y m e n t a n d earnings, presumably through increased d e m a n d for l a b o r a n d s k i l l s a n d higher l a b o r productivity. I t dalso require support from the B a n k a n d other institutions in helping countries produce up-to-date data on earnings. Second, the assessment h g h h g h t s the cross-sectoral nature of employment related work a n d t h u s the integrative role that Country Partnership Strategies need to play. U p c o m i n g CPSs will o f f e r an opportunity to exercise t h i s r o l e as they h e l p clients develop employment strategies that factor in macroeconomic, investment climate, labor market, education and social protection dimensions in countries affected by the crisis. T h e effectiveness of these strategies can b e further leveraged if cross- sector work, w h i c h straddles several networks in the Bank, i s strengthened. Examples o f cross-sector issues include structural unemployment, w h c h drise as m a n y who lose jobs fail to fmd n e w employment; policy coordination, as various policy initiatives aimed at employment outcomes need to b e k e p t mutually consistent; and migration, as emigration from those countries with strongly adverse employment outcomes speeds up. Thtrd, t h e assessment finds that Bank support achieved differential progress in the individualpolicies with a bearing on employment, with the m o s t progress on macro stabilization, f o l l o w e d in approximate order by progress on the investment dunate, education, social protection, a n d l a b o r taxation a n d regulations. Some areas s t i l l require considerable work, a n d the employment crisis may o f f e r a window of opportunity for reform. Issues that prevaded prior to the crisis, such as artificially high minimum wages in some countries or weak l a b o r mobllity in others, m a y call for a fresh look as countries struggle to reduce stubbornly high unemployment rates. Conversely, the B a n k can also h e l p countries maintain progress even through t h e crisis period, as was the case with macroeconomic stability in the three countries reviewed. ~ s ~ ~ ~ ~~ ~l ~ ~a ~a e r Contents . :. Vinod Thomas Director.Genera1. Evaluation PREFACE ................................................................................................................. VI1 +: Cheryl Gray Director. Independent EVALUATION SUMMARY ......................................................................................... IX Evaluation G r o ~ ~ - W o r ~ d Bank COLOMBIA. TUNISIA. AND TURKEY: BANK PROGRAM OUTCOME RATINGS XV : * * A'i M* Khadr Senior Manager. Independent Evaluation 1 . INTRODUCTION........................................................................................... 1 Group-World Bank Objective................................................................................................................... 2 : e* Mauricio Carrizosa Task Manager. Questions and Methods.......................................................................................... 2 Independent Evaluation Gro~p~W~ rld Bank 2 . COLOMBIA ................................................................................................... 7 Introduction .............................................................................................................. 7 Growth, Employment, and Earnings Outcomes ................................................... 9 Factors Underlying the Outcomes....................................................................... 10 Link of Performance to Exogenous Factors and Policies ................................. 12 The Bank's Strategy and Contribution ................................................................ 13 3 . TUNISIA ...................................................................................................... 23 Introduction ............................................................................................................ 23 Growth. Employment, and Earnings Outcomes ................................................. 25 Factors Underlying the Outcomes....................................................................... 26 Link of Performance to Exogenous Factors and Policies ................................. 27 The Bank's Strategy and Contribution ............................. .................................. 29 4 . TURKEY ...................................................................................................... 37 Introduction ............................................................................................................ 37 Growth, Employment, and Earnings Outcomes ................................................. 39 Factors Underlying the Outcomes....................................................................... 40 Link of Outcomes to Exogenous Factors and Policies...................................... 41 The Bank's Strategy and Contribution ................................................................ 43 5 . KEY FINDINGS ........................................................................................... 51 Comparison of Outcomes across the Three Countries ..................................... 51 iii Comparisons of Bank Support across the Three Countries that Cuts across Policy Areas ....................................................................... ; 56 .................................... Similarities and Differences across the Three Countries in Bank Support on the Specific MILES Areas...................................................................................... 58 The Current Global Employment Crisis ............................................................... 65 Appendices Appendix A . CAS Objectives ..................................................................................... 71 Appendix B. Colombia: Baseline and Latest Outcome Indicators by Miles Component ................................................................................................................................... 72 Appendix C. Colombia: World Bank Program by MILES Component........................ 74 Appendix D. Colombia: Annex Tables and References ............................................. 79 Appendix E. Colombia: List of People Met................................................................. 85 Appendix F. Tunisia: Baseline and Latest Outcome Indicators by Miles Components ................................................................................................................................... 87 Appendix G. Tunisia: World Bank Program by MILES Component ........................... 89 Appendix H. Tunisia: Annex Tables and References................................................ -96 Appendix I. Tunisia: List of People Met.................................................................... 102 Appendix J. Turkey: Baseline and Latest Outcome Indicators by MILES Component ................................................................................................................................. 104 Appendix K. Turkey: World Bank Program by MILES Component .......................... 105 Appendix L. Turkey: Annex Tables and References............................................... 110 Appendix M. Turkey: List of People Met .................................................................. 117 Appendix N. Cross-country Comparisons ............................................................... 119 Appendix 0 . Colombia, Tunisia, and Turkey: External Assistance .......................... 149 Appendix P. Colombia, Tunisia, and Turkey: At a Glance Tables ............................ 150 Appendix Q. Colombia, Tunisia, and Turkey: Millennium Development Goals ........156 Appendix R. Colombia, Tunisia, and Turkey: Total Cost of Bank Programs............159 Appendix S. Colombia, Tunisia, and Turkey: Average Cost of Tasks, Total and by MILES ...................................................................................................................... 160 Appendix T . Colombia, Tunisia, and Turkey: IEG Project and QAG AAA Ratings...161 Appendix U. Colombia, Tunisia, and Turkey: Bank Senior Management ................164 Appendix V . References .......................................................................................... 167 Boxes Box 1, Areas of Support Under the Employment PAAA ............................................. 33 Table 1. The MILES Framework: Summary................................................................. 3 Table 2 . Colombia: Ratings Summary ......................................................................... 8 Table 3. Colombia: Key Economic Trends, 1970-2007............................................... 9 iv Table 4 . Tunisia: Ratings Summary........................................................................... 24 Table 5 . Tunisia: Key Economic Trends, 1970-2007................................................. 28 Table 6 . Tunisia: Targets Established in the Fourth Economic Competitiveness Adjustment Loan (ECAL) ........................................................................................... 31 Table 7 . Turkey: Ratings Summary .......................................................................... 38 Table 8 . Turkey, Key Economic Trends, 1970-2007.................................................. 42 Table 9 . Colombia, Tunisia, and Turkey: Outcome lndicators ................................... 52 Table 10. Colombia: Growth, Poverty, and Income Distribution Indicators................79 Table 11. Colombia: Population and Labor Force Participation (LFP) Rates ...........80 Table 12. Colombia: Employment-to-PopulationRatio (percent) and Number of Hours Worked per Week....................................................................................................... 81 Table 13. Colombia: Per Capita Gross National Income (GNI), Earnings by Education, Gender, and Sector, and Manufacturing Wage Index.............................. 82 Table 14. Colombia: Unemployment Rate and Duration.............................................. 83 Table 15. Colombia: MILES Indicators ...................................................................... 84 Table 16. Tunisia: Growth, Poverty, and Income Distribution Indicators ................... 96 Table 17. Tunisia: Population and Labor Participation (LFP) Rate ............................ 97 Table 18. Tunisia: Employment-to-PopulationRatio (ETP) ....................................... 98 Table 19. Tunisia: Earnings and Private Sector Wage Index .................................... 99 Table 20. Tunisia: Unemployment Rate (percent) ................................................... 100 Table 21. Tunisia: MILES Indicators........................................................................ 101 Table 22. Turkey: Growth, Poverty, and Income Distribution Indicators..................110 Table 23. Turkey: Population and Labor Force Participation (LFP) Rates...............111 Table 24 . Turkey: Employment-to-Population(ETP) Ratio (percent) and Number of Hours Worked per Week ........................................................................................ 112 Table 25 . Turkey: Gross National Income per Worker, Earnings by Education and Gender, and Manufacturing and Agriculture Wage Indices..................................... 113 Table 26. Turkey: Unemployment Rates ................................................................. 114 Table 27. Turkey: MILES Indicators Table............................................................... 115 Table 28. WEF Global Competitiveness Index Rankings, Selected Countries, 2007 ................................................................................................................................. 116 Table 29. Colombia, Tunisia, and Turkey: Outcome Indicators............................... 120 Table 30. Colombia, Tunisia, and Turkey: Sources of Growth ................................ 121 Table 31. Colombia, Tunisia, and Turkey: Poverty and Wages ............................... 122 Table 32. Colombia, Tunisia, Turkey, France, and Singapore: Labor Market Rigidity ................................................................................................................................. 137 Table 33. Colombia, Tunisia, and Turkey: Education Outcomes............................. 140 Figures Figure 1. Colombia-Number of Colombian Nationals Living Outside Colombia (Percent of Colombia's Population) and Workers' Remittances to Colombia (Percent of GNI) ..................................................................................................................... 124 Figure 2. Tunisia-Number of Tunisian Nationals Living Outside Tunisia (Percent of Tunisia's Population) and Workers' Remittances to Tunisia (Percent of GNI) ......... 125 V Figure 3 . Turkey-Number of Turkish Nationals Living Outside Turkey ((Percent of Turkey's Population) and Workers' Remittances to Turkey (Percent of GNI)...........125 Figure 4 . Colombia. Tunisia. and Turkey: Private Investment and Foreign Direct Investment ............................................................................................................... 134 vi Preface This evaluation was prepared by Mauricio Carrizosa (task manager, adviser, Country Eval- uation and Regional Relations, IEG). Background papers were prepared by D a v i d Goldsbrough and Carolina M a r y Rojas Hayes (consultants, Colombia), Robert Lacey (con- sultant, Tunisia), and William Tyler (consultant, Turkey). Ms. Rojas Hayes also provided technical support o n Tunisia and Turkey. Gary Fields (Professor of Labor Economics, Cor- ne11University) and Steven Benjamin Webb (Adviser, Public Sector, Latin America and t h e Caribbean Regional Office) were peer reviewers. Pursuant to IEG policy, Mr. Carrizosa was recused f r o m the analysis and findings of the Colombia assessment, o w i n g to his former role as Sector Manager for. economic policy in the Latin America and Caribbean regional office during the period covered by the evaluation. To formalize the recusal arrangements, Helena Tang provided oversight of the Colombia assessment independently of t h e broader prepara- tion w o r k o n the report. Mr. William Hurlbutprovided editorial support. Mr. Roderick L. D e Asis provided administrative support. vii Evaluation Summary Earnings Growth and Employment Creation: An Assessment of World Bank Support in Three Middle-Income Countries b E m p l o y m e n t creation a n d earnings growth are critical to poverty reduction, the mission o f the World Bank. In i t s work, the B a n k has identified five policy areas that affect employment: macroeconomic conditions, in- vestment climate, labor regulations, education, a n d social protection. This M I L E S framework, as it i s known, i s useful for evaluating employment creation a n d earnings growth performance, a n d t h i s study uses it to assess the Bank's assistance to three middle-income countries (MICs)-Colombia, Tunisia, and Turkey-during 1998-2007. T h e three countries faced m a j o r employment challenges during the past decade, received s i g n i f i - cant overall B a n k support, h a d sufficient data available, a n d p r o v i d e d cross-regional representation. T h e as- sessment considers the effect o f the B a n k on policies a n d o f policies on employment and earnings. T h e c o m - parative analysis o f a set o f country programs i s a n approach to drawing lessons that m a y b e useful in other situations, such as the current global crisis, where numerous MICs face slrmlar employment creation a n d eam- ings growth challenges. .The three countries assessed h a d very different experiences during the evaluation period. Colombia w e n t through a deep recession during 1998-99 that increased i t s unemployment rate to unprecedented levels, while i t s employment-to-population ratio ceased to grow after m a n y years o f increasing female labor participation. Despite i t s satisfactory rate o f economic growth, Tunisia experienced a hgh unemployment rate that resisted efforts to reduce it for decades, although the employment ratio increased modestly. Turkey also saw a sharp rise in unemployment as it implemented structural reforms to s t a b h e after m a n y years o f double-digit infla- tion, a n d i t s employment ratio continued i t s long-term decline. ,Three sets o f findings are worth highhghting. First, employment-related outcomes in the three countries were mixed, with notable progress in economic growth, earnings, a n d poverty reduction, but not in the em- ployment-to-population ratio or the unemployment rate. Ths finding underscores the desirabihty o f focusing on the full set o f employment-related variables (GDP, poverty, employment, unemployment, a n d earnings) in a n integrative fashion rather t h a n j u s t on employment w h e n setting the objectives o f B a n k support. A related point i s that m a n y countries need to i m p r o v e the delivery o f employment-related statistics to allow timely monitoring a n d analysis o f those variables, a n area where the B a n k has helped a n d can help further. bSecond, B a n k p r o g r a m objectives in the three countries focused m o r e on M I L E S components t h a n on em- p l o y m e n t itself. T h e focus on MILES components suggests that employment-related issues, w h c h straddle three B a n k N e t w o r k s (PREM, HD, and PSD), m a y fall by the wayside unless the Country Partnershp Strategy serves as a vehicle for diagnosis, priority setting, a n d p r o g r a m m i n g cross-sector work.. Employment-related AAA, for example, i s largely cross-sectoral in nature, covering such issues as structural unemployment, labor market rigidities and taxes, gender differences in labor participation, migration a n d remittances, a n d the impact o f education o n the extent o f s k i u s mismatch in the job market. From t h s perspective the B a n k c o u l d usefully strengthen i t s role as knowledge provider, broker, and/or facilitator o f knowledge creation. b T h d , B a n k support in the three countries achieved dfferential progress in the individual M I L E S compo- nents, with the most progress on macro stabhation, followed in approximate order by progress on the invest- m e n t climate;education, social protection, a n d labor taxation and regulations. T h e experience o f the three coun- tries illustrates how AAA can b e the m a i n instrument of support in those areas (for example, labor regulations a n d taxes) where progress in r e f o r m i s difficult and the,need for building engagement a n d consensus i s critical. ix SUMMARY EVALUATION D uring 1098-2007, Colombia, Turkey, a n d a n d T u r k e y during 1998-2007. I t aims at drawing Tunisia faced difficult employment chal- fmdings that m a y h e l p guide the Bank's w o r k in t h i s lenges, as shown in the figure below. O v e r area, i n c l u d m g i t s response during the current global the fwst h a l f o f the review period, Colombia a n d crisis. T h e review looks at B a n k support for the five T u r k e y experienced sharp increases in unemploy- areas e m b o l e d in the MILES framework developed m e n t rate as deep recessions reduced employment by the H u m a n Development (HD) and Poverty Re- demand, with Colombia's unemployment declining d u c t i o n a n d E c o n o m i c Management ( P RE Y net- a n d Turkey's remaining higher as these economies works: macroeconomic, investment clunate, labor recovered. Despite Tunisia's economic stability, it market, education, a n d social protection policies. h a d the highest unemployment rate o f the three These areas cover the key factors that affect the de- countries, although unemployment declined mod- m a n d for labor, the workings o f the labor market, erately during the review p e r i o d (Panel A). F u r - a n d the supply o f s k i l l s . W h i l e the demand for labor thermore, the employment-to-population ratio i s expected to respond positively t o economic ceased growing in Colombia during the review pe- growth, the two need not m o v e i n tandem, as the r i o d after m a n y years o f increases in female partici- sources of economic growth include g r o w t h in SMS, pation, a n d continued d e c h g in Turkey. Tunisia's in physical capital, a n d i n n total factor productivity, i employment-to-population ratio increased by a few addition to g r o w t h in employment. percentage points (Panel B) because female partici- p a t i o n increased from a very low level. Earnings de- Although the MILES framework was n o t explicitly clined a n d p o v e r t y increased during the recessions i n used i n formulating the objectives o f the country pro- Colombia a n d Turkey, but these i m p r o v e d toward grams reviewed i n t h i s report, the framework can b e the e n d o f the review period. Earnings i n Tunisia used to identify bindmg constraints to employment increased a n d p o v e r t y declined. creation and earnings growth. I t thus offers an orga- nizing device for the evaluation, into w h i c h the three Employment Performance in Colombia, Tunisia, country programs can b e retrofitted and assessed. Ths approach thus differs in some (though not all) and Turkey respects f r o m the standard approach in many IEG A. Unemployment Rate: 1997-2007 evaluations o f "evaluating against objectives," where the outcome o f the B a n k program i s assessed relative t o objectives stated at the outset. In t h i s case;al- though t h e programs i n the three countries sought t o help increase employment, the employment-related objectives were n o t always formulated and unbundled Year i n t o m o r e proximate objectives. c- T h e table below shows that the largest amounts o f lendmg support i n the three countries were f o r ma- croeconomic policies (including h a n c i a l sector poli- cies) followed by investment climate. B. Employment-to-Population Ratio: 1997-2007 Country Colombia Tunisia Turkey MlLES Area Macroconditions Loans AAA 1235 9 562 ' Loans AAA 11 ' Loans AAA 4 988 6 Investmentclimate 4 436 I 17 1961 I 0 1 11 500 7 385 ~ 10 704 2 0 3 1,715 1 1383 52 9,868 23 Sources: The World Bank (World DevelopmentIndicators); Colombia Statistical Office (DANE): Turkey Statistical Office (Turkstat). T h e following paragraphs briefly present the Bank's support a n d i t s outcome. This report evaluates World B a n k support for em- ployment a n d earnings growth ~n Colombia, Tunisia, X EVALUATION SUMMARY Colombia IEG rates the outcome o f the B a n k program in Co- l o m b i a with respect to progress in employment a n d Throughout the period, the B a n k was engaged in the earnings growth as moderate& satifacto y. K e y five areas o f the MILES framework in varying de- achievements can b e summarized as follows: grees. Following the 1998-99 crisis, the B a n k sup- p o r t e d the government’s efforts to strengthen fiscal Higher-order outcomes: increased earnings performance (revenue collection, efficiency in the growth and lower poverty with stable em- provision o f health services, contingent liabilities, ployment growth and mitigation of cyclical public administration, and public expenditure and unemployment, particularly during the debt management) and the financial system. These second p a r t o f the review period. improvements were critical in redressing growth and earnings a n d indampening a surge in cyclical unem- Intermediate outcomes: the restoration o f fiscal ployment. They did not, however, achieve a reduction stability, substantial progress in the invest- in structural unemployment, w h i c h remained high m e n t climate, gains in the coverage a n d fi- due, inter aka, t o an excessive minimumwage and high nancing o f education, a n d broader coverage payroll taxes. o f the safety net. Beginning in 2002, reflecting the government’s prior- Bank interventions: significant B a n k contribu- ities and concerns that the economic recovery was tions in tax administration, b a n k restructur- slow to yield better employment and social out- ing, business climate improvements, labor comes, especially for the poor, there was increased market diagnostics, coverage and financing emphasis by the B a n k o n i m p r o v i n g competitiveness o f education, a n d design o f the conditional (through investment chmate strengthening and labor cash transfer (CCT) system. There were market reforms) a n d on improving the social risk shortfalls in resolving Colombia’s revenue management system. a n d expenditure rigidities, as w e l l as in lo- w e r i n g the minimum wage and the b u r d e n Bank-supported objectives in the MILES areas were o f non-wage costs, relative t o objectives. largely acheved, although the B a n k over-promised There was also lower growth and higher o n the elunination o f fiscal structural r i g i l t i e s given structural unemployment. the political economy constraints, and did n o t ade- Tunisia quately factor in the fiscal implications o f the condi- tional cash transfer program. Nonetheless, Colom- In Tunisia, the B a n k was also engaged in the five pil- b i a n counterparts acknowledged the contribution o f lars o f the MILES framework, though there were the B a n k in several areas, such as tax administration. i m p o r t a n t differences o f emphasis. In macroeco- In some areas the B a n k missed certain opportunities n o m i c policy, where performance was the best to use i t s convening power. A number o f consulta- a m o n g the three countries, the Bank‘s role was posi- tions suggested, for example, that the B a n k (as w e l l tive, albeit marginal on the fiscal front. I t was most as the IMF‘) h a d been t o o timid in pressing the poli- i m p o r t a n t on trade liberalization a n d facilitation a n d cy implications o f i t s labor market diagnostics b a r - fulancial sector reform, both o f w h i c h benefited ticularly o n the minimumwage a n d labor taxes), from AAA a n d lending, including high-quality diag- w h i c h were o f good quality. In general, the Bank‘s nostic financial sector work undertaken jointly with interventions were relevant and AAA, technical as- the IMF. Regarding the investment climate, B a n k sistance, a n d lending operations adapted to the gov- support addressed important reforms, including a ernment’s changing priorities. reduction in the regulatory gap that favored the off- shore over the onshore economy, i m p r o v i n g compe- Bank-supported policies i m p r o v e d employment per- tition law, opening the i n f o r m a t i o n and communica- formance. T h e improvements in macroeconomic tions technology sector, and developing the policy a n d in the investment chmate helped increase regulatory framework in infrastructure. average yearly GDP g r o w t h f r o m 0.5 percent during 1997-02 t o 5.6 percent during 2002-07, primarily T h e B a n k h a d little impact on policies governing the through an increase in total factor productivity labor market. T h e B a n k conducted AAA o f g o o d (TFP) growth. This allowed the unemployment rate quality, but the government did not adopt any o f the t o d e c h e a n d earnings to grow despite a slowdown Bank’s key recommendations. In education, a great in employment growth. deal was achieved at the primary and secondary le- vels, and the B a n k played a major role in t h i s . T h e xi SUMMARY EVALUATION results o f B a n k support were m o r e m u t e d at the ter- forms to strengthen fiscal performance and the finan- tiary level, where there was less-than-full agreement cial system. This set of reforms was critical in redress- o n some key policy issues (such as fmancing a n d ing economic g r o w t h a n d earnings growth in Turkey. cost recovery reforms) and it i s believed that aggres- But they did not help reduce unemployment, w h i c h in sive expansion in coverage has been responsible for fact increased. In later years, greater attention was a deterioration o f quality. devoted t o employment and competitiveness issues. Within the scope o f the MILES framework, the re- T h e key policies that improved GDP, employment, and maining p r o b l e m areas are labor market regulations, earnings growth inTunisla were macroeconomic stabi- education, and the investment climate. lization and trade integration with the EU, the latter largely established before the review period. Improve- Bank-supported objectives were largely achleved. ments in the investment climate may have M e r con- S t a b h a t i o n a n d related structural reforms were tributed t o the growth in earnings suggested by rising achieved, although the support was initially unsuc- formal sector wages through improvements in produc- cessful because weak macroeconomic s t a b h a t i o n tivity growth. These improvements have not yet h a d a undermined financial sector reforms. On invest- , discernible effect on investment levels. While education m e n t climate matters, active Foreign Investment has contributed to risingproductivity and earnings, it Advisory Service ( F U S ) participation supported im- has also l e d t o increased unemployment among the p o r t a n t changes in foreign d m c t investment legisla- educated due to both slulls mismatches and l o w in- tion. T h e m o r e recent Investment Clunate Assess- vestment levels. Unemployment has been persistently m e n t (ICA) has, however, been less successful thus hlgh, but d e c h e d moderately during the review period. far a n d w o u l d benefit from stronger client engage- Inadequate s k i l l s appear to b e behind the high level o f m e n t a n d dissemination. On labor policy issues, the unemployment. T h e latter may also reflect the effect o f B a n k p r o v i d e d high-quality advice, although t h i s did minimumwages. not translate i n t o policies to ease the rigid regula- tions a n d high labor taxes that h a d been diagnosed. T h e outcome o f the B a n k program in Tunisia relating On education, the f i r s t operation was unfocused a n d t o employment and earnings g r o w t h i s rated satisfacto- suffered from procurement problems, but f o l l o w - o n ty . K e y achlevements can b e summarized as follows: l e n d m g fared better. Despite these operations a n d several pieces o f AAA, the Bank's engagement in the Higher-order outcomes: lncreased earnings education sector was less successful than that in the growth and l o w e r poverty with stable em- other areas relating to employment. ployment growth, l o w e r structural u n e m - ployment, a n d increased GDP growth. Bank-supported policies, particularly those in the macroeconomic area, helped reignite growth a n d the Intermediate outcomes: sustained macroeco- demand for employment, with the employment ratio n trade n o m c stabdity, significant progress i stabilizing somewhat after a long-term d e c h e . facilitation a n d the business environment, H i g h e r productivity triggered by some o f the sup- substantial progress in the investment cli- p o r t e d reforms helped increase earnings o f the p o o r . mate, and gains in coverage o f education. On the other hand, structural adjustment, particular- ly migration away f r o m agriculture, continued to de- Bank interventions: significant B a n k contribu- crease labor participation, while increasing produc- tion t o trade, the investment climate, a n d tivity. On balance, average earnings declined untd coverage in education. However, there were about 2003 and then recovered. shortfalls in malung labor markets m o r e flexible, in improving education quality, a n d T h e outcome o f the B a n k program in T u r k e y with in strengthening public sector governance. respect to employment a n d earnings i s rated moderate- Turkey Iy satisfactory. K e y achievements can b e summarized as follows: In Turkey, the B a n k was heavily engaged in the five areas o f the MILES framework to varying degrees. In Higher-order outcomes: increased earnings, the earher years, the B a n k concentrated o n macroeco- l o w e r poverty, a n d h g h e r GDP growth. n o m i c s t a b b a t i o n and accompanying structural re- forms. B a n k support was delivered primarily through Intermediate outcomes: the restoration o f fiscal policy advice and development policy lending. F o l - stability a n d gains in the coverage o f l o w i n g the 2001-02 crises, the B a n k supported re- education. xii SUMMARY EVALUATION Bank interventions: significant B a n k contribu- t h o u g h the impact that it h a d i s unclear, the Bank's tions towards macroeconomic stabiltty a n d AAA was generally o f g o o d quality, addressing the the CCT program. There were shortfalls in right employment issues competently, a n d it was w e l l the effectiveness o f support on the business appreciated by the three clients. This experience sug- climate, in lowering non-wage costs, and in gests that where i t i s judged that employment-related relaxing labor regulations (though some outcomes are central to country strategies, it would progress was acheved the year after the e n d b e advisable to deploy AAA in the critical areas, in- o f the review period). Effectiveness in con- cluding: understanding a n d addressing the roots o f tributing t o education gains was also M t e d . unemployment, 'including i t s cyclical, classical, fric- E m p l o y m e n t growth declined a n d unem- tional, and structural components; and assessing la- ployment increased. b o r market regulations a n d institutions and their ef- fects. In particular, the B a n k can help i m p r o v e and Findings extend the coverage o f estimates a n d cross-country Three sets of findings are worth highhghting. T h e comparisons of labor rigidities a n d labor taxes. f i r s t set concerns outcomes. In the three countries, progress in economic growth and earnings was nota- In some cases the B a n k was not sufficiently engaged ble but not in the employment-to-population ratio or o n labor market issues. T h e expenence o f the three the unemployment rate. This findmg underscores countries shows varylng degrees o f engagement, that &her economic growth does not always lead to w h i c h in tum are U e l y to b e driven by differences in lower unemployment. I t also underscores the need to the political economy of labor r e f o r m and in B a n k consider the full set o f employment-related outcomes, proactivity regarding engagement o n such issues. n o t just employment, wherever employment objec- Where labor r e f o r m issues are deemed important t o tives feature prominently in B a n k strategies and pro- i t s country strategy, the B a n k w o u l d b e w e l l advised to grams. T h e full set w o u l d cover employment growth, conduct the required AAA a n d find the nght windows the employment-to-population-ratio, the unemploy- o f opportunity t o support the government (as was the m e n t rate and earnings growth, as w e l l as the impact case in Turkey). o f these o n poverty and the uncertainties o f that im- pact. This means that policies and programs need to All in all, sustained macroeconomic a n d financial sta- b e understood in terms of their possible joint effects bdity in Tunisia and stabilizaaon i n Colombia and on those variables. As m o n i t o r i n g employment- Turkey as w e l l as higher education levels explain in- related outcomes requires adequate data, the B a n k can creased or recovered economic g r o w t h a n d earnings provide a valuable service by continuing to help client in the three countries, with some additional role attri- countries to reduce the long lags with w h c h critical buted to improvement in the investment climate. data on employment performance (for example, eam- However, progress in these three areas did not reduce ings) are produced and disseminated. unemployment rates in Colombia and Turkey and re- duced t h e m only moderately in Tunisia. High remain- A second set o f findings refer to B a n k country strat- ing unemployment i s k e l y to reflect skill mismatches, egies a n d programs. In the three countries covered rigidwages, or other structural conditions. in t h s evaluation, the B a n k primarily targeted mul- tiple objectives with a bearing on employment (for A third set o f findings concerns the spec& areas of example, objectives relating to MILES components) support. B a n k support for macroeconomic policies rather than explicit employment outcomes. Ths contributed effectively to country efforts o n macro- points to the usefulness o f situating B a n k support financial crisis resolution in Colombia and Turkey and for employment a n d earnings growth within an inte- t o trade and h n a n d a l development in Tunisia. These grative framework. For client countries where em- efforts were the main factor that helped restore GDP ployment-related objectives underlie B a n k support, g r o w t h in the f i r s t two countries and also contributed the Country Partnershp Strategy takes o n added im- to sustaining hgher growth in the third. Restored portance as a vehicle for diagnosis, priority-setting, GDP growth increased the demand for labor, result- a n d cross-sector work o n employment issues, w h i c h ing primarily in the higher earnings growth docu- straddle three networks ( P R EC M , HD, a n d PSD) a n d mented earlier. B a n k support for investment climate m a y not otherwise get the requisite attention. reforms covered the three countries and contributed to unprovements in specific policy areas that helped AAA has been an important component o f the raise investment or total factor p r o d u c t i d y to varying Bank's assistance on employment a n d earnings. Al- degrees. xiii SUMMARY EVALUATION Support for labor market regulations and institutions which determine poverty outcomes. Country D i - occurred primarily through AAA that was relevant and rectors are w e l l positioned t o deploy the Bank‘s mul- technically competent, but that h a d unclear impact. La- tisector capacity to engage with client countries on bor rigidity and labor taxes remained a constraint to h o w policies a n d adjustments to B a n k programs can employment, particularly formal employment, in the help i m p r o v e the full set o f employment-related out- three countries. Support for education contributed p i - comes, not j u s t employment. Such engagement will marily to extensions i n access and to an increased require an understanding o f h o w policies i n different supply of the SMS needed to raise output and earnings areas (including macro, labor market) can redress growth, but the impact on quality was m o r e limtted. b o t h employment a n d earnings in specific countries, And finally, support f o r socialpmtection arrangements presumably through increased demand for labor and contributed successfully t o conditional cash transfer s k d l s a n d t h r o u g h higher labor productivity. M a n y (CCT programs in Colombia and Turkey and less so to governments have made adjustments to their pohcies the unemployment insurance (Ur) programs that are in response t o the financial crisis and/or may need needed to m o v e from job protection to worker protec- well-tailored advice in these areas. Diagnoses a n d tion. T h e three countries’ experiences attest to the dif- recommendations are likely to differ according to ficulties of setting up UI systems. specific country circumstances, such as the degree o f openness o f the economy. From a m o r e general cross-cutting perspective, the B a n k c o u l d usefully strengthen i t s role as knowledge T h e Bank’s effectiveness will be stronger as i t provider, broker, and fachtator o f knowledge crea- integrates across networks to focus on those is- tion. T h e B a n k i s in a g o o d position to exercise lea- sues that are likely to be relevant during crises. dership on employment issues as it has demonstrat- Examples include i m p r o v i n g employment and earn- e d capacity to use research for developing ings monitoring; assessing the impact o f global re- operationally relevant policy. I n t h i s regard, AAA, cession on structwal unemployment; developing n o t lending, i s o f t e n the best instrument to deal with strategies to p r o m o t e j o b flexibility and worker p r o - the m o r e sensitive policy issues that affect employ- tection; fmding the right balance between macroe- m e n t outcomes. As with the three countries re- conomic stability a n d the fiscal cost o f other em- viewed in t h i s report, the B a n k can contribute to u n - ployment-related policies; strengthening the derstanding employment issues where those issues interaction between macroeconomic a n d microeco- are a central concern. This w o u l d include advising n o m i c conditions affecting growth and employment countries how t o use available resources judiciously demand; understanding the interface between quality t o address various employment challenges (such as of education a n d absorption o f labor services; and unemployment insurance) while ensuring macroeco- assessing the possible effect o f d f f e r e n t i a l changes n o m i c stability. I t would also include l o o h g at edu- in employment and earnings on migration. cation quality, possibly with greater emphasis o n ad- dressing s l u l l s mismatches, w h i c h may b e b e h i n d Country programs will be more effective as they m u c h o f the structural unemployment observed in focus on areas where progress in the enabling countries like the three reviewed i n t h i s report. conditions has been slow but where windows of opportunity for reform surface. T h e area where The Current Global Jobs Crisis progress has typically been slow i s o n making labor regulations m o r e flexible and lowering labor taxes. T h e findings presented in t h i s r e p o r t suggest ways in Conversely, the B a n k can also help countries maintain w h i c h the B a n k can strengthen i t s response to the progress where it has been achieved, as was the case current global economic crisis. T h e crisis has re- with macroeconomic stability in the three countries duced output growth f r o m 5.2 percent in 2007 to - reviewed. In t h i s regard, the B a n k can deploy i t s mul- 1.3 percent in 2009 a n d increased the world unem- tisector capacity to help countries avoid conflicts ployment rate f r o m 5.7 percent i n 2007 to 6.8 per- among employment policies (for example, ensuring cent i n 20Q9,with the higher increases in developed that s t i m u l u s packages or extended social protection economies, Central a n d South Eastern E u r o p e (non- are affordable). EU) a n d CIS, a n d L a t i n America a n d the Caribbean. T h e fmdings suggest the following three directions: Country programs can respond by focusing on both employment and earnings outcomes, xiv Colombia, Tunisia, and Turkey: Bank Program Outcome Ratings I 1 I j Bank Program Policies Bank objectives I instruments i Outcome and Bank contribution j Outcome i ! I Rating COLOMBIA Lending: Improve tax, public expenditure 1 investment loan; 4 Outcome: Considerablegains in restoring fiscal and financial sector Moderately and debt management,public fiscal and 2 financial stability, to which the Bank contributed significantly. Key revenue satisfactory administration, procurement, adjustment loans: es remain and are an obstacleto reforming intergovernmental transfers, and capacity US$1.24billion nsuranceand high payroll taxes. Macro to managelmitigate financial system Bank Contribution: Lending operations in the fiscal area Conditions weaknesses; reduce cont ngent liab lites ................................................................. overestimatedwhat could be delivered,given politicaleconomy AAA: Procurement, corporate 9 AAA reports constraints, but did support a major reversal in adversefbcal trends, governance, financial management, albeitthroughpartial,"second b e sr reforms. The Bankcontibuted fiscal performance, and financial sector significanUy in improvingtax administationand resbucturingthe develoDment finanaal sector. ........................................................................................................ Lending: Reduce transaction costs, 3 Business product Outcome: Private investment recovered after 2000, Satisfactory facilitate trade and foreign investment; and efficiency loans Streamlining of administrative procedures. Frameworks for improve competitiveness, quality (FY05-08): private participation in infrastructure and quality standards were Investment standards and technological innovation US$1100 million strengthened, albeit less than expected, as were frameworks for Climate framework expansion of credit to underservedgroups. AAA: Infrastructure, competitiveness, 4AAA reports Bank Contribution Operationssupported what was a strong counby trade, logistics and innovation priority. Bank AAA and lending operations helped to catalyze a policy debate on how to push forward the competitivenessagenda. Lending: Increase employment, 1 social sector loan Outcome: l n m s e d flexibility of labor market contacts and Moderately particularly of the poor and the young. (training), 3 Labor moderategains in public baining regime, but no progress in unsabsfactory Improve labor regulations. Strengthen Reform and Social addressing key obstacles of high non-wagecosts and high minimum Labor the ability of the Planning Departmentto Development Policy wages. Regulations carry out the PLaRSSAL reform Loans (PLaRSSAL), Bank Contribution: Bank AAA consistently and competently and and one diagnosed the key issues but did not use its convening power Institutions ............................................................................................................................... TAL.US$857 million. .............................................................. assertively enough to advance its policy proposals. AAA: Labor market flexibility policies, 6 AAA reports payroll taxes, training, informality and ..................... active labor market Dolicies Lending: Improve access, retention rates, 7 projects. Outcome: Substantialgains in coverage, including in rural areas, Satisfactory and learning in primary and secondary US$662 million with the Bank making significant contibufionsto innovative education, and quality and equity in approachesto rural education and financing a m of the poor to tertiary education ........................................................................................................................... ................................................................. terliary education. Conversely,while test s c o in ~ international Education assessments improved modestly between 2003 and 2006, these Policies AAA: Contracting education services and 2 AAA reDorts on priorities for tertiary education m re s remain below-average. Bank Confributon: Significant contributions to innovative approaches to rural education and financing access of the poor to tertiary education. ............................................................................................................................................................................................... Lending: Better schooling, nutrition, and 3 projects. Outcome: Significant gains in coverage of soda1safety nets. Satisfactory health outcomes for poor children US$341 million However, longer-termfinancing of social prot&on (induding health insurance) in a manner that does not impose an undue burden on formal sector Social Bank Contribution: Importantcontributions to improvingthe design Protection AAA: Access to social protection, 4 AAA reports and implementation of CCTs and to broadeningthe scope of health including expansion of pension coverage insurance for informalsector workers. However, more attention and of informal sector workers should have been paid to longer-termfinancing and sustainability ........................................................................................................................ ........ the outset horn ............................................................................................................................... Most relevant CAS Objectives: Develop Outcomes during the decade ending in: Ii.........1997 ........................................................................................................................... ... ..i. .................... 2007 Moderately human capital (1997 and 1999), Slower PC GDP growth (avra.) I 2.0 I 1.4 satisfactory: Combined Bank-supported achieving fast and sustainable growth rating of (2002 and 2004). Lower Povertv feod 1 52.7 45.0 policies MILES outcomes Stable Employment Growth (avrg.) .............................................................................................. 1 2.3 2.3 increased ~ earnings growth and of high H'/aher Unemdovment (eo D) ! 9.8 I 10.7 and lowered order outcomes i Higher Ad] PC GNI Growth (avrg ) 1 1.3 2.8 poverty, even I I though right. I unemployment I I I increased. xv AND TURKEY: COLOMBIA, TUNISIA, OBJECTIVES, OUTCOMES, AND RATINGS , 'Bank Program I Policies i Bank objectives Instruments j Outcome and Bank confribution I Outcome I I 1 Rating TUNISIA & Outcome: Fscai stability achieved before 1998 and sustained Satisfactory i sustainability, debt management, Competitiveness ~ I throughoutthe review period. Basically sound macroeconomic banking reforms and Adjustment ~ framework with less than 3 percent deficit sustained. Loans (FY99-05). ~ ! Considerable achievements in opening economy to international US$562 million / competition. Shortfalls in reducing Macro Conditions i .................................................................................................................... .........,................................................ AAA: Growth; debt management; ~ AAA reports 1 banking system. - non-performing . loans of I Bank Contribution: marginal albeit positive on fiscal front but financial management; financial system I strengths, vulnerabilities and risks, and I significantprogress in supporting trade liberalization/ facilitation corporate accounting and auditing i i and on financial sector. Medium-term challenges include j reducing subsidies and addressing expenditure r Lending: Foster investment, including 7 investment loans Outcome: Private investment remains low despite a wide range Satisfactory private participation; improve export US$436 million, of policies and actions with substantial Bank and AAA support, promotion, including access to markets excluding ECALs, partly due to weaknesses in the public sector accountability and finance; facilitate trade logistics; which addressed component of economic governance. Reduced discrimination improve agricultural, municipal and ICT some of the key against onshore economy. Opened ITC sector. Impetus of Investment infrastructure and municipal investment climate infrastructure privatization waned. Climate management and finance; achieve issues Bank Contribution: Substantial Bank lending and AAA support sustainable growth of public transport; Interventions are of high technical quality and in most cases ICT and municipal infrastructure .............................................................................................................................. ..................................................................... well-appreciated by the authorities. Significant breakthroughs in AAA: Exports, trade, investment, 17 A M reports trade facilitation and improvementsto business climate. Main infrastructure, ICT, and agricultural outstanding issues relate to governance, a very difficult area to cometitiveness tackle. No lending Outcome: Little progress in addressing high minimum wages Moderately and labor market rigidities impeding formal sector job creation satisfactory especially for highly educated young. Most active labor market Labor policies of limited effectiveness and fiscally expensive. Regulations AAA: Constraints to job creation, skills 4 AAA reports Bank Contribution:AAA consistently diagnosed key issues, but development, active labor market efforts to formulate agreed employment strategy lost policies, and development of analytical momentum. Persistent gender issues in labor market capacity performance require analysis. 1 1 ~~~~~~ Lending: increase coverage and quality 4 projects: US$385 Outcome: Increases in coverage at the secondary and tertiary Satisfactory at all levels I million I levels and improvement in test scores. Near-universal primary i I coverage and literacy for both genders. Improvements in I 1 vocational training and rapid expansion in tertiary education. Education Policies ................................................................. ' i 2 AAA reports i Primary and secondary quality issues being addressed. Key 1 challenges remain in tertiary sub-sector. I Bank Contribution: Long-term support has been critical in achieving near-universal primary and high secondary coverage ~ ! i for both genders. The focus on quality improvement at primary ~ I and secondary levels is appropriate. Useful diagnostic AAA on I tertiary. No lending Outcome: Substantial coverage of pensions, health care, and Satisfactory I........................................................ 1 ~ ............................................................................................ AAA: Strategy to increase coverageand reports 1 , direct subsidies for low-income households. Significantgains in coverage of smial safety nets. However, longer-termfinandng of Social quality i ~ sccial not i m p an undue burden on f o m l sector I protection (induding health insurance) in a mannerthatdoes 1 Protection 1 j Bank Contribution:Analytical contribution to social security Combined rating of MILES outcomes Most relevant CAS Obiectives: Human capital development (i996), support economic reforms to enhance competitivenessand increase I I 1 reform. Lack of unemployment insurance contributes to labor market rigidities. I ~ Ii....Outcomes ' Faster PC GDP growth (avrg.) Lower Povertv . during the decade ending in: I ....................... ..................................................... I . (cod ij ......................................................................... I , . ................... ! 1997 ! 2007 ................ .j................ "...................................................... I I A ................. 2.3 6.2 ' i............... jatisfactory 3ank supported 3.9 iolicies 3.8 ncreased GDP employment (2000), enhance skills and Stable Employment Growth (avrg.) 2.7 1/. .............2.7 and earnings and of higher } .......................................................................................................................................................... .. employability of graduates and labor 1 jrowth, lowering ~ order I,........................................................................................................................................................... Lower Unemployment(eop) 15.9 I 14.1 force in a knowledge economy (2004 and .......... )overty outcomes at right. 2007). 1 Higher Adj. PC GNI Growth (avrg.) 1 2.8 3.8 Jnemployment leclined. xvi COLOMBIA, TUNISIA, AND TURKEY: OBJECTIVES, OUTCOMES, AND RATINGS Policies i I I Bank objectives i ~ i I j Instruments TURKEY I Outcome and Bank contribution ' i I Bank Program Outcome Rating Lending: Increase macroeconomic 6 public Outcome: Inflation was reduced from 85 percent in 1998 to 9 Satisfactory stability through support in key structural sectorlfiscallfinancia percent in 2007. Under the FYOI FSAL, the absence of a stable areas (fiscal, financial, and public sector) i adjustment loans; macroeconomic environment contributed to a banking crisis two US$5 billion months afler loan approval. Later, major improvements AAA: Structural policies to generate fiscal 6 AM reports occurred in the fiscal accounts and in strengthening the financial surpluses, including financial reform, system. A major challenge remains in reducing the continuing Macro banking sector, agriculture, social external vulnerability, as evidenced by high current account Conditions security, and budget institutions and deficits (6 percent in 2007). management Bank Contribution: High-quality A M prepared the Bank to provide support on government finances, agricultural subsidies and personnel outlays, taxes, social security, and SOEs, all critical structural areas in need of reform, Support initially failed to duly account for macroeconomic risks to the success of financial sector reforms. Lending: Improve financial 3 credit line loans: 1 Outcome: Plivate investment increased largely due to stabilization. Moderately intermediation: develop export credit adjustment loan, 1 Improved legal and regulatorytreatment of FDI conbibuted to satisfactory finance severance payments by Agricultural Reform inweasing FDI net inflow from 0.4 percent of GDP in 1998 to over3 agricultural parastatais Investment project percent by 2007). There were improvements in some business (for severance transactions costs (e.g., starting a new business) but little or no Davments) and 1 progress in others. Bank Contribution: FiAS was especially DPL: ' effective in supporting improvements in FDi policy HighqualityA M US$1.96billion. (ICA report)generated plivate sector interest, but was followed by excluding Economic somewhatdisappointing engagement apart from some lending Investment Reform Loan, which support, of h e Bank wit9 the government Climate also covered investment climate ........................................................................................................................ issues .................................................................. AAA: Foreign investment and institutional 7 AM reDorts arrangement for pubiiclprivate collaboration on investment climate improvements (FIAS reports), Caspian oil and gas management,water, energy, infrastructure, investment climate (iCA) and deregulation _ _ _ _ ~ - Lending: Set foundations for reform of Competitiveness Outcomxbor regulations were made more rigid and labor Moderately labor market regulations and employment taxes increased. satisfactory DPL: US$500 Bank Contribution: AM consistently and competently Labor million diagnosed the key issues, and the Banks convening power was Regulations AAA: Labor reform, severance payments, 8 AM reports used to advance its policy proposals. labor dispute resolution mechanisms, active labor market policies, and labor taxes Lending: Expand capacity of primary 2 APLs and 1 Outcome: Important improvementswere made in enrollments, Moderately education in low-income areas: improve project; US$704 coverage and gender equality in the educational system. Major unsatisfactory conditions for student learning ............................................................................................................................. million ................................................................. challenges remain in improving quality and in strengthening AAA: Preschool through secondary secondary education to better adapt it to changing labor force education policies, on higher education requirements. Education Bank Contribution: Even though its AAA was of good quality, Policies policies to make them more attuned with EU standards, on reducing regressivity of the Banks role was marginal in relation to the recorded sector education expenditures (PER), and on gains. measures to get the school population into and through the basic education system !ending: Reform of social protection 2 lending operations Outcome: Establishment of an unemployment insurance (Ui) Satisfactory system, including social security, (+assistance system and initiation of a conditional cash transfer (CCT) Social Jnemployment insurance, health and under4 ERL) system in 2001, which now reaches over 2.8 million children in Protection social assistance reform ...................................................................................................... poor households. Increased coverage of social protection. 4AA;Access to social security (Poverty Bank Contribution: Bank played an effective role through A M 4ssessment) snd lending support. xvii AND TURKEY: COLOMBIA, TUNISIA, OBJECTIVES, OUTCOMES, AND RATINGS 1I 1 1 1 Bank Program Policies Bank objectives 1 Instruments 1 Outcome and Bank contribution i Outcome I j I I Rating ~ Improve competitiveness and ! 1' Outcomes during the decade ending in. 1 ............................. ............................................................ 1997 1 .................... ; 2007 1 ! Moderately Combined i employment (1997), restoring stable and 1 , Faster PC GDP growth (avrg.) i"" 2.2 2,5 satisfactory: I ......................................................................................................................... i""""".............. ~ rating of 1 higher growth (2000,2001,2005)), /.. ............ ' ......I Bank-supported MILES I creating employment (2000,2001), I rLower Poverty ~ ...(eop) ............ ".................. , 34.5 1 27.0 j policies outcomes I reducing inflation (2000, 2001), ! Lower Employment Growth (avrg.) 1 ~ and of higher expanding social services and social ! order 1 protection (2000, 2001), reduce the risk I outcomes at 1 of reemergence of crisis (2005). I Stable Adj. PC GNI Growth (avrg.) right. i I 1 ~ ~ i Sources: WB documents. ........................... ................................................................................................................................................................................................................................................................B xviii The evaluation develops lessons for employment creation and earnings growth from the 1. Introduction experience of Colombia, Tunisia, and Turkey during 1997-2007 1 .1 This evaluation has elements of both a country evaluation a n d It assesses the effect of a thematic evaluation. It focuses on employment creation a n d earn- CASs, lending, and AAA on policies affecting i n g s growth, but i s country-focused i n that it looks in d e p t h a t the nt e ~ ~ l o y m ecreation and outcomes of Bank support in three middle-income countries, Colom- earnings growth bia, Tunisia, and Turkey, during 1997-07. I t s m a i n purpose i s to ex- tract lessons t h a t m a y b e useful for Bank operations, both in the three It uses the MILES M I C s considered here a n d in other Bank client countries w h e r e specif- framework, which is based on the idea that i c focus on e m p l o y m e n t a n d earnings issues are j u d g e d p i v o t a l to the employment problems p o v e r t y r e d u c t i o n and development agenda. It is a pilot IEG p r o d u c t reflect multiple sector for this approach. influences on labor supply and demand 1.2 The evaluation looks a t employment and earnings challenges u s i n g an integrative f r a m e w o r k that covers macroeconomic, invest- m e n t climate, labor market, education, and social protection condi- tions and policies. This MILES framework, developed by the H u m a n Development (HD)a n d Poverty Reduction and Economic Manage- m e n t (PREM) Networks, c a n b e used to i d e n t i f y binding constraints to e m p l o y m e n t creation a n d earnings growth and to cover the rele- v a n t aspects of t h e Bank's programs i n the three selected countries. Although the M I L E S f r a m e w o r k was not explicitly u s e d in develop- ing or f o r m u l a t i n g the objectives o f the country programs r e v i e w e d in this report, the f r a m e w o r k offers a useful organizing device for the evaluation. This i s because those country programs c a n b e easily ac- nthe commodated or " r e t r o f i t t e d into the f r a m e w o r k a n d assessed i light of their s u p p o r t for employment creation a n d earnings growth, w h i c h are critical for the Bank's goal of reducing poverty. The ap- proach u s e d i nthis r e p o r t thus differs in some (thoughnot all) re- spects from the standard approach in many IEG evaluations of "eva- l u a t i n g against objectives" where the outcome of the Bank p r o g r a m i s assessed relative to objectives stated a t the outset. T h e i n d i v i d u a l country assessments in this report focus both o n the intermediate ob- jectives sought by each c o u n t r y in each of the M I L E S areas a n d on the extent t o w h i c h each c o u n t r y achieved employment creation, earnings The evaluation growth, and p o v e r t y reduction. looks at employment and 1.3 This first chapter provides the context for the evaluation, name- earnings ly an account of the Bank's role in supporting employment creation challenges a n d earnings growth, a statement a n d justification of the goal of the using the MILES evaluation, a n d the methodological approach used. Chapters 2 to 4 dis- framework 1 1 CHAPTER INTRODUCTION cuss the three country cases. Each includes a n analysis of the country’s issues relating to employment and an assessment of the relevance, ef- fectiveness, and efficiency of the Bank’s support. Chapter 5 integrates the lessons learned from these cases by comparing employment out- comes and k e y employment policies as w e l l as the role of the Bank i n supporting those policies, across the three country cases. Objective The evaluation 1.4 The primary aim of this evaluation is to develop lessons f r o m the aims to develop Bank‘s experience i nthe three selected countries from the perspective of lessons from the impact of such assistance on employment creation and earnings assistance on growth. The evaluation focuses on employment creation and earnings employment growth because these have a strong bearing on the extent t o w h i c h the creation and central objective of poverty reduction is achieved. earnings growth from three 1.5 n E m p l o y m e n t creation i s a n explicit or i m p l i c i t objective i middle-income m o s t Country Assistance Strategies, as i t w a s i n the cases of Colom- countries during bia, Tunisia, and Turkey. A p p e n d i x A summarizes the explicit C A S 1997.2007 objectives in three countries. It shows e m p l o y m e n t creation or human capital development as p a r t of those objectives i n m o s t of the CASs. In some CASs, employment i s absent from the explicit objectives, as in the Colombia’s 2002,2005, a n d 2008 CASs. However, Colombia’s CASs increasingly contain references to e m p l o y m e n t beginning with t h e 1999 C A S progress report, reflecting the unprecedented rise in un- e m p l o y m e n t that was taking place a t the time. Some of these refer- ences point to country actions that the Bank i n t e n d e d to support in order to address the problem. The focus on e m p l o y m e n t i s further jus- t t f i e d because, as the appendix shows, other C A S objectives closely bear on the employment objectives. This i s the case, for example, with economic growth a n d stabilization objectives. Questions and Methods It assesses the 1.6 The evaluation assesses the i m p a c t of the Bank‘s assistance o n effect of CASs, employment outcomes. T h i s means assessing the effect of the Bank’s lending and CASs, lending, and analytic and advisory activities (AAA) on policies AAA on policies with a bearing on employment and earnings and, in turn, the effect of affecting policies on employment creation and earnings growth, and on econom- employment i c growth and poverty reduction. The evaluation attempts to indicate creation and whether impacts are sigruficant or not, not to arrive a t any quantitative earnings growth estimates of the impacts. 2 CHAPTER1 INTRODUCTION Table 1, The MILES Framework: Summary A predictable and stable macroeconomic environment gives firms the Macroeconomic stability incentive to create jobs, Firms will expand and create formal sector jobs when the costs of Investment climate doing business (for example, from regulation or poor infrastructure) ........... ................ are low and predictable. ................................................................................................................................................................................................... .............................................................................. " When employment regulations are strict and non-wage costs of labor Labor market policies are high, firms may be more reluctant to hire new formal sector workers. Labor market policies also influence decisions to enter the ......................................................................................... labor force. Higher productivity jobs require appropriate skills, so better education Education and skills and training improves the chances of finding the type of job demanded by firms. A strong safety net protects workers from shocks to employment and, Social safety net if linked to human capital improvement and active labor market policies, can stimulate better employment matching. The underlying 1.7 T h e relevant relationships governing the assessment are as fol- idea of the lows: e m p l o y m e n t outcomes result from policies, exogenous va- MILES riables, and economic growth. In turn, policies result from the inter- framework is p l a y of domestic actors, external actors, exogenous forces, and past that e m p l o y m e n t and growth outcomes. Clearly, m a n y policies -not j u s t employment those directly concerning the labor market- affect e m p l o y m e n t a n d problems reflect earnings outcomes. Disentangling these various influences, l e t alone multiple sector i d e n t i f y i n g the particular i m p a c t of the World Bank, i s difficult. Since influences on v i r t u a l l y a l l policies c a n influence labor d e m a n d or supply, this r e p o r t labor supply organizes the discussion of the various p o l i c y influences a r o u n d the and demand M I L E S f r a m e w o r k developed within the Bank. T h e i d e a u n d e r l y i n g the f r a m e w o r k i s t h a t problems of u n e m p l o y m e n t a n d underem- p l o y m e n t or low p a y are not just labor m a r k e t problems but reflect multisector influences on the s u p p l y a n d d e m a n d for labor. The rele- v a n t considerations are summarized in Table 1.1 1.8 In the M I L E S framework, policies are classified as follows: e M a c r o policies fiscal, monetary, f o r e i g n exchange, trade, fi- - nancial sector stability e Investment climate -policies affecting labor a n d capital prod- uctivity, access to finance, i m p a c t of h e a l t h on private sector, cost of doing business, exports e Labor m a r k e t policies -payroll taxes, labor flexibility, w o r k e r protection, active employment policies, such as placement ser- vices, retraining, p u b l i c w o r k s e Education policies -policies affecting coverage or quality of education e Social protection unemployment insurance, pension coverage. - 3 1 CHAPTER INTRODUCTION 1.9 There are of course m u l t i p l e linkages across M I L E S compo- nents that will ideally b e considered in employment strategies. Four k e y linkages across M I L E S elements with a bearing on the cases dis- cussed in this r e p o r t c a n b e highlighted: (a) M a c r o conditions a n d the m i c r o indicators n o r m a l l y covered u n d e r investment climate (e.g., taxes, labor regulations) work to increase investment and growth; (b) education conditions, specifically technical quality a n d alignment to business needs, also shape the investment climate, a n d ideally will b e built upon to accelerate employment and earnings growth; (c) social protection conditions, w h i c h are critical for enabling and designing labor regulations, the latter affecting the relative use of labor vis-a-vis capital a n d / o r the relative size of the f o r m a l sector, largely indepen- d e n t l y of growth; and (d) the financing of enhanced social protection, w h i c h will n e e d to b e aligned to fiscal constraints to h e l p m a i n t a i n macroeconomic stability. Linkages within a M I L E S component m a y also b e of interest, such as the need to include the interaction between the minimumw a g e and labor taxes in policies regarding labor regula- tions and institutions. The evaluation 1.10 The evaluation focuses o n questions on relevance a n d effec- focuses on tiveness as follows: relevance and e Relevance: Were the employment/unemployment objectives effectiveness the Bank sought to support w e l l aligned with government’s program? Did the Bank diagnose the relevant constraints that needed to b e addressed a n d give sensible and needed advice to i t s clients on how to i m p r o v e employment performance? Were the policies f i n a l l y supported by the Bank necessary and sufficient to i m p r o v e employment performance as w e l l as consistent with the country’s overall development p o l i c y program? e Effectiveness: Did employment, earnings, and overall economic outcomes improve? Were the short-term a n d long- t e r m effects different? Did the AAA and research l i n k e d to the Bank’s l e n d i n g or on a free-standing basis support or enhance the adoption and effectiveness of policies with a bearing on The countries employment? To w h a t extent did finance extended by the Bank chosen- h e l p the borrowers’ overall labor market development Colombia, outcomes? Tunisia, and Turkey-cover 11 . 1 The choice of countries was guided first by a classification of a l l conditions of those countries that h a d received B& assistancefor employment into either long-term three groups: transition countries, non-transition countries with long- growing, t e r n declining or stagnant employment, and non-transition countries declining, or with growing employment. The transition countries were excluded from stagnant selection as they faced a very specific set of challenges and consequently employment were not comparable with other countries. The selection from the other 4 CHAPTER 1 INTRODUCTION two groups sought countries that satisfied four criteria: faced major em- ployment challenges during the past decade; received SigTUficant overall Bank support; h a d sufficient data available; and p r o v i d e d cross-regional representation. 1.12 Following a r e v i e w of a l l countries with e m p l o y m e n t and un- e m p l o y m e n t data,2 Colombia, Tunisia, and T u r k e y w e r e selected as u s e f u l examples t h a t h a v e presented p o l i c y makers with challenging a n d contrasting e m p l o y m e n t and earnings performance experiences a n d that have also received attention in recent Bank assistance pro- grams.3 Colombia suffered from a severe u n e m p l o y m e n t shock i nthe late 1990s from w h i c h it recovered slowly. T u r k e y has been chal- lenged by a long-term decline i n i t s employment ratio a n d a m o r e re- cent sharp increase i nthe u n e m p l o y m e n t rate following i t s macroeco- n o m i c crises at the turn of the century. Tunisia has experienced exceptionally high u n e m p l o y m e n t for m a n y years. Within the m i d d l e - income group, the three countries offer a w i d e range of i n c o m e and p o v e r t y levels. In2007, p e r Capita GDP levels a t purchasing p o w e r p a r i t y (PPP) prices w e r e $6,568, $7,758, and $11,293 respectively in Colombia, Tunisia, a n d Turkey. Poverty levels (head c o u n t r a t i o for a $2.50 a d a y p o v e r t y l i n e a t PPP prices for the last year available) w e r e respectively 35 percent (2006), 21 percent (2000), a n d 15 percent (2005) in Colombia, Tunisia, a n d Turkey. 1.13 The c o u n t r y studies d r a w on a w i d e range of evidence, i n c l u d - ing a r e v i e w of World B a n k loan documents, AAA reports, CASs a n d completion reports a n d government documents; academic research papers; previous IEG r e v i e w s of relevant components of the Bank's The country activities; i m p a c t evaluations of specific programs u n d e r t a k e n in each studies draw on country; a client survey conducted as p a r t of the IEG r e v i e w of Bank a wide range of support for middle-income countries4 a n d interviews with a w i d e evidence n Colombia, Tunisia, a n d Turkey as w e l l as in range o f i n d i v i d u a l s i the World Bank ( A p p e n d i x E, A p p e n d i x I,and A p p e n d i x M).The in- terviews in the f i e l d w e r e conducted during visits that took place Oc- tober 23-November 11,2008. NOTES 1.This draws o n a presentation o n the MILES framework by G o r d o n Bet- cherman in 2008 a n d other available documents a n d presentations. 2. The review ranked employment performance indicators for a l l countries with available information i n order t o determine w h i c h of those where the Bank has engaged presented significant recent shifts in such indicators. That review resulted in a pre-selection of 15 cases. This was followed by a discus- sion of the cases a n d a selection, based o n country knowledge, o f countries that w o u l d be likely t o offer the most useful lessons. 3. In 2008, the Bank h a d 19 active projects with undisbursed amounts of $1.6 billion in Colombia; 14 active projects with undisbursed amounts of $0.5 bil- 5 1 CHAPTER INTRODUCTION l i o n in Tunisia; and 14 active projects with undisbursed amounts of $4.0 bil- l i o n in Turkey. Lending and AAA activities in the three countries are listed in Appendices C, G, and K and summarized i n the country ratings tables that follow the Evaluation Summary. 4. See Independent EvaIuation Group, ”Development Results in Middle- Income Countries: An Evaluation of the W o r l d Bank’s Support,’’ The W o r l d Bank, 2007. 6 ent ~ n ~ ~ p l o y moutcomes in Colombia mirrored the recession-recovery cycle in GDP growth 2. Colombia Major progress has been made on policies affecting economic Introduction performance and the labor market 2.1 During the past decade Colombia’s labor m a r k e t performance Labor market outcomes was challenged by (a) the recession of 1998-99 that w a s d r i v e n by re- are attributable to both duced global growth, curtailed access to capital, the adverse security exogenous factors and to situation, poor fiscal performance, and disruptions to t h e financial in the market in~lexib~l~ty sector; (b) an inflexible labor m a r k e t with high p a y r o l l taxes a n d min- and high unemploy~en~ imum wages; a n d (c) a n increased labor s u p p l y d r i v e n by r i s i n g fe- among women male labor participation. Urban u n e m p l o y m e n t m o r e t h a n d o u b l e d The Bank CASs had few from 8.8 percent in 1995 to 20.2 percent i n 2000 a n d declined only em~loyment and earnings s l o w l y as growth recovered after 2002, reflecting better external con- objectives, but the Bank ditions, i m p r o v e d security, a n d policy actions that facilitated the op- engaged heavily in all eration of businesses. Fiscal performance h a d i m p r o v e d by the m i d d l e areas of the MILES of the period, albeit without resolving m a n y of the u n d e r l y i n g fiscal framework rigidities. Once the fiscal a n d financial sector concerns w e r e eased, the The Bank made focus w a s on the s l o w response of employment and u n e m p l o y m e n t t o significant contributions to the output recovery, suggesting that policies influencing the function- financial sector reforms ing of labor markets, i n c l u d i n g the m a t c h i n g of skills to the needs of and improved economic the economy, w e r e the m o s t significant constraints. Rates of informal- performance ity r e m a i n high by cross-country comparisons. Analytic work on labor market issues was of high 2.2 Throughout the period, the Bank has been heavily engaged in a l l quality and identified of the five areas of the MILES framework, but the relative emphasis has clear reform priorities changed over time. Following the 1998-99 crisis, the Bank supported the government‘s macro-stabilization efforts through a series of adjustment loans focused on the fiscal and financial sectors. Since 2002, reflecting the government’s priorities and concerns that the ongoing economic recov- ery was s l o w to yield better employment and social outcomes, especially for poorer groups, there has been greater emphasis on improving com- . petitiveness (through the investment climate and labor market reforms) and o n improvingthe social risk management system. 2.3 The Bank’s strategy and interventions were highly relevant in addressing Colombia’s k e y employment and earnings-related issues. This i s despite strategic planning that failed to anticipate w e l l country priorities or that w a s not w e l l t i m e d to country p l a n n i n g cycles. The Bank‘s support, through i t s AAA, technical assistance, and l e n d i n g op- erations, adapted to the government’s changing priorities and generally addressed (or attempted to address) the m o s t critical p o l i c y constraints 7 2 CHAPTER COLOMBIA Table 2. Colombia: Ratings Summary Outcomes Bank Contribution Bank Program Outcome Rating Considerablegains in restoring fscal and Lending operations in the fiscal area financial sector stability, to which the Bank overestimatedwhat could be delivered, given conbibuted significantly. Key revenue and political economy constraints, but did assist a major reversal in adverse fscal trends, albeit Moderately Macro expenditure rigidifes remain and are an satisfactory' obstacle to reforming the finanang of through partial, "second be-sl' reforms. Bank SOcial insurance and high payroll taxes. conbibutedsgnificantyto improve tax administrationand restructure the financial sector. Private investment recovered after Operations supportedwhat was a strong 2000. domestk priority. Bank AAA and lending Streamlining of administrative operaions helped to catalyze a policy debate on Investment procedures. Improvedframeworks for how to push forward the competitiveness Satisfactory climate private participation in infrastructure agenda. and quality standards, albeit less than expected, and for expansion of credit to underservedgroups. Increasedflexibility for labor market Banlc AAA consistently and competently contracts and moderate gains in public d,agnosed key sues, but the Bank d d not use Labor ks conven,ngpower aggressively to advance its Moderately Regulationsand hining regime, but no progress in addressing key obstacles of high non- policy proposals? satisfactory Institutions wage costs and hhh minimumwages. Substanfal gains in coverage, induding in Bank made significant contributions to rural areas, with the Bank making innovative approaches to rural education and significant contn'butionsto innovative financing access of the poor to tertiary approachesto rural education and education. Education Satisfactory finanang access of b e poor to tertiary Policies educafon. Although test scores in international assessments improved modestty beheen 2003 and 2006. these scores remain belowaverage. Significant gains in coverage of social The Bank conbibuted importantly to improving safety nets However, ionger-term the design and implementatonof CCTs and to Moderately Social financing of social protection (induding broadeningthe scope of heatb insurance for satisfactory protection heab insurance) in a manner that does informal sector workers. More attention should not impose an undue burden on formal have been paid to longer-term finandng and sector. sustainabiiity from the outset? Outcomes during ten years 1 1997 I 2007 ending in: ........................................................................................... .j............. i........... Slower PC GDP growth 2.0 1.4 (avrs.1 Combined rating of MILES outcomes Lower Poverty (eop) 52.7 45.0 ...................................................................................................................................................... Moderately and of higher order Stable Employment Growth 2.3 2.3 satisfactory outcomes at right. (avrs.) Higher Unemployment (eop) 9.8 10.7 Higher Adj. PC GNI Growth 1.3 3.8 (avrg.) (as reflected, for example, in investment surveys and econometric anal- ysis of constraints o n productivity and employment). Interms of effec- tiveness the picture i s m o r e mixed. M u c h has been achieved: fiscal stability and financial sector soundness h a v e been restored; the in- vestment climate sigruficantly improved; some greater flexibility w a s injected into labor contracts a n d t r a i n i n g systems improved, even i f weaknesses remain; a n d social safety nets h a v e been widened. Al- 8 CHAPTER 2 COLOMBIA though attribution i s difficult, the evidence discussed in this chapter suggests t h a t B a n k activities m a d e an important contribution i n a l l of these areas. The m a i n areas where l i t t l e has been achieved concern the interconnected issues of high p a y r o l l costs and the financing of social insurance, w h i c h cannot b e resolved without addressing the consi- derable r e m a i n i n g rigidities in the tax a n d expenditure systems that Bank-supported macroeconomic programs failed to remove. In this area, w h i l e the Bank-supported fiscal adjustment operations contri- b u t e d i m p o r t a n t l y to the restoration of fiscal stability, they p r o m i s e d m o r e than c o u l d b e delivered to eliminate structural rigidities g i v e n p o l i t i c a l economy constraints. A s u m m a r y of the ratings for overall outcomes a n d Bank performance i s s h o w n i n Table 2. 2.4 This chapter summarizes the e m p l o y m e n t and earnings growth outcomes, the exogenous factors a n d policies with a bearing on those outcomes, the i m p a c t of those factors and policies on the outcomes, a n d the Bank’s support for the policies, 4 Growth, Employment, and Earnings Outcomes 2.5 Table 3 provides k e y indicators of Colombia’s performance re- Average growth l a t i n g to growth, employment, and earnings. Colombia’s GDP of 4 percent growth from 1970 to 2007 averaged 4.0 percent but decelerating mar- over 1970-2007 kedly, with major recessions in the early 1980s and late 1990s. The lat- was punctuated ter recession (1998-99) was especially severe, with r e a l GDP contract- by major ing by 4.2 percent i n 1999. Average a n n u a l p e r capita GDP growth recessions in declined from 2.0 percent during the 1988-97 decade to 1.5 percent the early 1980s during 1998-07, the p e r i o d covered by this study. Long-term p o v e r t y and late 1990s trends s h o w a substantial decline that w a s d i s r u p t e d by the 1998-99 recession, but eventually resumed as growth recovered. Inequality also increased through the recession a n d t h e n declined but, u n l i k e poverty, i t does not s h o w a n e t long-term decline. Table 3. Colombia: Key Economic Trends, 1970.2007 Indicator (percent, except wage 1970- 1976- 1980- 1986- 1991. 1996- 2001- 2006- index) 1975 1980 1985 1990 1995 2000 2005 2007 GDP growth 1P 5.7 5.4 2.2 ................................................................................................................................................................................................................................................................¼ 4.9 4.1 0.9 3.4 7.2 Per Capita GDP Growth 3.2 3.0 0.1 ................................................................................................................................................................................................................................................................º 2.9 2.2 -0.8 1.8 5.8 Poverty (Headcount Ratio) ................................................................................................................................................................................................................................................................{ 52.5 49.5 55.0 49.2 37.5 Gini Coefficient 52.8 ............................................................................................................................................................................... 54.5 53.2 49.1 55.9 56.3 55.3 54.1 Labor Participation 21” ................................................................................................................................................................................................................................................................¾ 57.1 56.9 61.8 60.0 57.6 Employment 31” 52.8 51.3 51.5 53.6 52.1 ....................................................................................................................................... ” Unemployment 41” 7.6 8.1 16.7 11.2 10.7 ................................................................................................................ Waae Index (Manufacturina) 51” 89.8 109.6 130.1 133.7 136.5 * Period Average; ** end of period. Sources: See Appendix D. Colombia:Annex Tables andReferences’ Table 10, ;ZTable f1. Table 12. 4Table 14. VTable 14. 9 2 CHAPTER COLOMBIA Unemployment 2.6 U n e m p l o y m e n t outcomes m i r r o r e d the recession-recovery outcomes cycle in GDP growth. The u n e m p l o y m e n t rate rose sharply during the mirrored the 1998-99 recession and w a s only s l o w l y reversed. T h e rise i n the un- growth cycle, e m p l o y m e n t rate occurred p r i m a r i l y through an increase i n the labor with participation rate d r i v e n by r i s i n g female labor participation, al- employment though a short-lived decline i n the employment-to-population ratio growth also contributed. A n n u a l employment growth averaged 2.7 percent averaging 2.7 during the r e v i e w p e r i o d (equal to employment growth during the percent over the prior decade) and the employment-to-population r a t i o declined brief- period ly during the recession t h e n increased during the economic recovery a n d declined t o w a r d the e n d of the r e v i e w p e r i o d to about i t s original Unemployment level in 1997. rates were consistently 2.7 Female u n e m p l o y m e n t rates were consistently h i g h e r t h a n higher for those of men. The female u r b a n u n e m p l o y m e n t rate (7 major cities) women reached a peak of 24.5 percent i n 2000 and was s t i l l 14.5 percent in 2007. The u n e m p l o y m e n t rate declined as growth rebounded, with Earnings were labor participation rates declining s l o w l y and the employment-to- influenced by p o p u l a t i o n ratio recovering. U n e m p l o y m e n t remained high for a increased n u m b e r of years, not regaining i t s pre-recession levels until 2006-07. formal sector wages offset by 2.8 Labor earnings reflect two contrasting trends: an increase in a reduction in f o r m a l sector wages c o m b i n e d with a reduction i n the relative size of the size of the n i n f o r m a l sector wages f o r m a l sector e m p l o y m e n t a n d a decline i formal sector combined with a n increase in i n f o r m a l sector employment.5 GNI a n d and a decline in household survey data suggest that average incomes declined after informal sector 1998 and up to some point of the first h a l f of the 2000 and recovered wages after about 2003. Factors Underlying the Outcomes Non-policy 2.9 Exogenous Fucfors. The performance depicted above w a s influ- factors in the enced by both exogenous factors and policies d e t e r m i n i n g growth as outcomes w e l l as the s u p p l y and d e m a n d for labor, a l l interacting in complex included w a y s to affect both wages a n d employment. Three k e y exogenous deteriorating (non-poZicy) factors influenced Colombia’s economic and employ- security and m e n t performance during the p e r i o d reviewed: declining access to The country’s security situation deteriorated t o w a r d the e n d capital markets of the Pastrana administration (1998-2002) and i m p r o v e d in the late thereafter. 199Os, and A f t e r deteriorating in the late 199Os, Colombia’s terms of trade improving terms i m p r o v e d dramatically -r i s i n g by about 50 percent inthe last of trade and f i v e years as prices for oil, coffee, and other commodities access to b o o m e d because of strong global growth. capital markets Access to capital markets declined i n the late 1990s following in recent years the A s i a n crisis, but increased i nrecent years. 10 2 CHAPTER COLOMBIA 2.10 Policies. At the same time, and p a r t l y inresponse to the above Colombia has developments, Colombia has made major progress over the past 10 made major years in policies that have affected economic performance and the labor progress in market. Some problems have not been resolved, however, and n e w policies challenges have arisen. A p p e n d i x B presents detailed outcome indica- affecting n 1998 and 2007, the two e n d years of this evaluation. tors i economic performance 2.11 Policy progress a n d r e m a i n i n g challenges are summarized as and the labor follows. market P o l i c y Achievements: A f t e r deteriorating a t the e n d of the 1990s, macroeconomic stability was restored, with l o w e r fiscal deficits and p u b l i c debt, as w e l l as a stronger financial sector. Following stabilization, other policies influencing the invest- m e n t climate w e r e greatly i m p r o v e d . Some greater flexibility w a s i n t r o d u c e d into labor m a r k e t contracts. Coverage of p r i m a r y and secondary education was expanded a n d opportunities for access to tertiary education by the less w e l l off were improved, a l t h o u g h improving the quality of education has been m o r e difficult. Social safety nets were expanded, m o s t notably through the in- troduction and r a p i d expansion of conditional cash transfer (CCT) programs, l i n k e d to school attendance and health inter- ventions f o r children. R e m a i n i n g Challenges: But some M a n y fiscal rigidities r e m a i n (for example, the tax system i s closely not sufficiently broad-based a n d widespread earmarking of interlinked expenditures continues). challenges High non-wage (payroll) charges interact with high minimum remain wages to constrain job growth in the f o r m a l sector. An exit strategy for participants i n the r a p i d l y expanding CCT programs, in a manner that maintains their fiscal sustainability and fosters good incentives for employment, has not yet been designed. 2.12 The r e m a i n i n g challenges are closely interlinked, since reduc- ing the h e a v y non-wage charges would require shifting the financing of social insurance and other expenditures a w a y from p a y r o l l taxation t o w a r d the general budget, w h i c h i s not possible without further fis- c a l reform. 11 2 CHAPTER COLOMBIA Link of Performance to Exogenous Factors and Policies 2.13 Colombia’s recession (Table 3) and poor TFP performance i n the late 1990s should b e attributed p a r t l y to deteriorating external con- ditions, i n c l u d i n g reduced global growth and curtailed access to capital in L a t i n America. But Colombia’s recession was’deeper than average, with a larger decline i nGDP growth, i n p a r t d u e to the poorer invest- m e n t climate resulting from adverse security conditions and the poor fiscal performance and disruptions to the financial sector at the time. Conversely, recovering growth after 2002 reflected better external con- ditions and an i m p r o v e d investment climate that w a s d u e to i m p r o v e d security and p o l i c y actions to facilitate the operation of businesses. Po- verty and inequality trends mirror the cycle described above and can ultimately b e largely explained by the same exogenous and policy de- velopments that determined the GDP recession and recovery. Labor market 2.14 T h e p a t h of labor m a r k e t outcomes i s also largely attributable outcomes are to the factors b e h i n d the GDP cycle. In addition, the inflexibility of the attributable to n response to a f a l l in demand, together with a n in- labor m a r k e t i the factors creased s u p p l y because of higher, p r i m a r i l y female labor force partic- affecting the ipation, caused a doubling of urban u n e m p l o y m e n t to about 20 per- GDP cycle, but cent in 2000, with female u n e m p l o y m e n t rates consistently higher also to than those of men, The u n e m p l o y m e n t rate declined as growth re- inflexibility in bounded, but it remained high for a n u m b e r of years, not regaining i t s the labor market pre-recession levels until 2006-07. It has now increased again, possibly and high in response to the current global crisis. unemployment among women 2.15 T h e behavior of labor participation largely reflects changes in female participation, w h i c h h a d increased over a long p e r i o d (since about 1970) as a result of increased education, an increased share of female heads of households, reduced fertility, a n d a n increased aver- age age of c h i l d r e n in households (Arango and Posada 2005). During the p e r i o d reviewed, female participation increased further and t h e n declined again as w o m e n sought to offset changes in the earnings of other household members. The employment-to-population ratio de- clined b r i e f l y because of the recession a n d t h e n increased as the econ- omy recovered. However, the pace of employment growth i n recent years did not m a t c h the acceleration in output growth. Inparticular, w h i l e f o r m a l e m p l o y m e n t has been facilitated by m o r e flexible labor contracts, it w a s h a m p e r e d by high minimumwages a n d p a y r o l l tax- es. Without a n y d o w n w a r d wage flexibility, the f o r m a l m a r k e t ad- justed to the decline i n labor d e m a n d during the recession through job losses; i ncontrast, the self-employed m a r k e t increased i n size - absorbing a b o u t one-third of laid-off wage earners6 - through large reductions i n average earnings. 12 2 CHAPTER COLOMBIA The Bank's Strategy and Contribution 2.16 Overall strategy, objectives, and political constraints. The Bank's The Bank's support for Colombia was aligned with the national development support was strategies of the Pastrana (1998-2002) and Uribe administrations (2002- aligned with present), but t h i s reflected flexibility i n adapting the Bank's p r o g r a m as Colombia's circumstances evolved. Inpractice, the role of the Country Assistance development Strategy as a strategic p l a n n i n g instrument was l i m i t e d for m u c h of the strategies, period. The 1997 C A S w a s soon overtaken by the 1998-99 crisis. The adapting to 2002 C A S w a s prepared based on discussions with the i n c o m i n g U r i b e several administration but w a s finalized six months before the government's administrations own National Development Plan. Differences i n approaches between the two meant the Bank's p r o g r a m h a d t o b e adapted to keep it aligned with the government's strategy. The judgment of the 2008 r e v i e w of the C A S Completion Report was that "the scope of the C A S was v e r y large and (at least inhindsight) overly ambitious. The Bank committed itself to deliver on some reforms w h i c h ended up h a v i n g no government buy-in or not b e i n g i t s priorities or n o t b e i n g realistic g i v e n the coun- try's political economy. A s a result, these reforms a n d related Bank support seen i n the C A S did not materialize.. .."7 These conclusions were supported by the views of a number of interviewees for this eval- The CASs had uation, who said that the Bank h a d adapted w e l l t o the government's few employment strategy and objectives, but the CASs h a d not played a central role in and earnings setting priorities for Bank activities. objectives, but the Bank 2.17 The CASs contained f e w explicit objectives for e m p l o y m e n t engaged heavily a n d earnings against w h i c h the overall effectiveness of Bank s u p p o r t in all areas of in this dimension c a n b e judged. The only employment-related quan- the MILES titative objectives m e n t i o n e d are: i n the 1999 C A S Progress Report, framework t r a i n i n g of 60,000 youths for the job m a r k e t (achieved) and creating 80,000 jobs through labor-intensive public works (not achieved) and, n the 2002 CAS, r e d u c i n g by h a l f the gap between female and m a l e i u n e m p l o y m e n t rates (no r e d u c t i o n achieved). 2.18 Throughout t h e period, the Bank has been heavily engaged i n a l l areas of the MILES framework, although that f r a m e w o r k w a s nev- er used i n the various C A S papers. However, the relative emphasis changed over time. Following the 1998-99 crisis, the Bank supported the government's macro-stabilization efforts through a series of ad- justment loans focused on the fiscal a n d financial sectors. It also pio- neered approaches to u s i n g conditional cash transfers to strengthen the social safety net. Since 2002, reflecting the government's priorities a n d concerns t h a t the ongoing economic recovery w a s s l o w to y i e l d better employment and social outcomes, there has been greater em- phasis o n improving competitiveness (through the investment climate a n d labor m a r k e t reforms) and on improving the social r i s k manage- m e n t system. 13 2 CHAPTER COLOMBIA Relations 2.19 Three general points about the Bank's contribution emerged between the from the interviews. First, almost a l l interviewees characterized the Bank and the relationship between the B a n k and Colombia as excellent. The quality government of the Bank's policy analysis w a s j u d g e d to b e high and the practice were excellent, (followed frequently but not always) of involving Colombia-based re- but many searchers h a d helped to ground the analysis i n country-specific reali- thought that the ties. Second, the custom of p r e p a r i n g a set of "policy notes" on k e y Bank had been issues for each n e w government has h a d a n i m p o r t a n t i m p a c t on the too timid on domestic policy debate. Third, despite this v e r y positive overall view, some politically m a n y (but not all) of those i n t e r v i e w e d in Colombia thought the Bank sensitive h a d been "too timid i nadvancing i t s v i e w s on some critical, but PO- matters litically sensitive, matters -m o s t n o t a b l y the interlinked issues of high p a y r o l l charges, the financing of social safety nets, a n d incentives for f o r m a l sector employment. 2.20 Bank assistance and interventions. Discussion of the Bank's con- tribution i s organized a r o u n d each component of the M I L E S frame- work. A p p e n d i x E gives details of major l o a n operations with sub- stantial MILES components, together with a n y available IEG assessments of outcomes a n d Bank performance. 2.21 Macroeconomic policy. H e l p i n g Colombia restore fiscal and fi- nancial sector stability w a s a central element of the Bank's strategy from 1999 onwards. The k e y vehicles for this purpose were seven Outcomes structural adjustment and development p o l i c y loans approved be- relating to fiscal t w e e n FYOO and FY05. and institutional reform fell short 2.22 The outcomes of the four loans to support fiscal a n d i n s t i t u - of targets t i o n a l reform, negotiated in close collaboration with the IMFB collec- t i v e l y f e l l w e l l short of target, both in the overall magnitude of fiscal adjustment a n d progress in addressing the k e y rigidities (discussed in - A p p e n d i x C). Nevertheless, a l t h o u g h the outcome w a s messy with many "second best" solutions to the institutional challenges (such as the arrangements for transfers to subnational governments) and the eventual fiscal adjustment a i d e d by stronger growth a n d higher oil prices - the result was s t i l l a major reversal in an unsustainable t r e n d for Colombia's fiscal deficit and p u b l i c debt. The Bank contributed to this turnaround, even if the outcome w a s not fully satisfactory. K e y messages are: The loan targets overpromised the a m o u n t o f fiscal adjustment that c o u l d b e delivered, especially in the early years, g i v e n the political constraints on the government. The Bank's response to the Executive's difficulties in moving i t s proposals through Congress w a s often t o set ever finer loan benchmarks on stages of processing the r e f o r m packages. T h i s w a s not effective. 14 CHAPTER 2 COLOMBIA Nevertheless, Bank s u p p o r t did h a v e a sigruficant positive im- pact. For example, i t s technical support for strengthening of tax administration w a s i d e n t i f i e d by m a n y interviewees, in- c l u d i n g IMF staff, as a critical contribution. The m a i n u n m e t challenge i s how to finance social insur- ance/protection i n a manner that will not hamper strong em- p l o y m e n t growth. Bank AAA has clearly identified the prob- lem, but has n o t been successful so far in h e l p i n g the government to address it. 2.23 n supporting Colombia's The Bank has been heavily i n v o l v e d i The Bank made financial sector reforms through an i n i t i a l financial sector adjustment significant operation undertaken at the h e i g h t of the b a n k i n g crisis and two sub- contributions to sequent programmatic loans. It has also p r o v i d e d critical diagnostic financial sector inputs, i n c l u d i n g a 2004 r e p o r t on the supervision of financial con- reforms glomerates. M o r e recent reforms, i n c l u d i n g preparation of a n e w in- solvency law, have been supported u n d e r the series of Business Prod- u c t i v i t y and Efficiency development p o l i c y loans (DPLs). 2.24 Interviews with officials c o n f i r m e d the j u d g m e n t of earlier IEG assessments (IEG 2008) that the Bank h a d m a d e sigruficant con- tributions i n the following areas: completing the clean-up of the b a n k i n g system, i n c l u d i n g through the u p g r a d i n g of mechanisms for b a n k resolution and the disposal of assets; the design and implemen- t a t i o n of strengthened banking regulation; reforms to strengthen the h o u s i n g finance m a r k e t w h i c h h a d been severely weakened by the 1998-99 crisis; and to strengthen the institutional f r a m e w o r k of capital markets. The first two reforms contributed to the i m p r o v e d outcomes for the financial health of the banking system. Interviewees generally agreed that two types of i n p u t s from the Bank h a d been especially useful. First, the Bank's influence on the p o l i c y debate through i t s convening p o w e r h a d been high (for example, it h a d h e l p e d to initiate n the process of f o r m u l a t i n g the financial sector r e f o r m l a w now i Congress, through a series of high-level seminars with p o l i c y makers a n d outside experts). Second, i t h a d contributed specialized technical k n o w l e d g e to h e l p the authorities draft l a w s and regulations follow- ing the b r o a d direction set by t h e government. Operations 2.25 The components o f the Bank's operations a i m e d a t improving aimed at financial soundness have h a d m o r e success, i n terms of identifiable improving outcomes, than those a i m e d a t financial deepening. For the latter, the financial institutional frameworks have been strengthened (for example, for soundness were mortgage finance and a n e w Securities Law), but the outcomes so far more successful h a v e been mixed. For example, h o u s i n g credit s t i l l remains low al- than those m o s t a decade after the crisis. Two i m p o r t a n t constraints that have aimed at h e l d back financial deepening c o u l d not b e addressed comprehensive- financial ly, p r i m a r i l y for political economy reasons, a l t h o u g h the Bank's oper- deepening 15 CHAPTER 2 COLOMBIA ations h a v e contributed to some improvements a t the margin: the fi- nancial transactions tax remains a sigruficant obstacle to efficient fi- nancial intermediation and interest rate caps have c r o w d e d some bor- rowers out of the f o r m a l financial system. 2.26 Investment climate. The Bank’s support for actions to i m p r o v e the business environment increased substantially i nthe past 4-5 years as competitiveness became a greater priority for the government. Analytical work undertaken jointly with the government, m o s t nota- bly the 2005 Country Economic M e m o r a n d u m (CEM) on Competi- tiveness, but also AAA that analyzed impediments in particular sec- tors, p r o v i d e d the basis for a series of three Business P r o d u c t i v i t y and Efficiency DPLs. 2.27 Although it i s too early to assess the outcomes of some of these The Bank activities, the evidence suggests that the Bank s u p p o r t w a s focused on focused on. issues t h a t w e r e m o s t critical to economic performance a n d m a d e sig- investment nificant contributions on a n u m b e r o f these issues: climate issues critical to T h e reforms supported by the loans addressed m a n y of the economic m o s t critical constraints identified i n investment climate sur- performance veys a n d i n econometric analysis o f firm-level productivity. and made T h e only variable with a sizable influence on p r o d u c t i v i t y not significant addressed w a s the degree of labor informality. contributions A major streamlining of administrative procedures affecting business activities and foreign trade w a s implemented during 2005-07. These reforms were high on the government’s agenda, so they cannot b e attributed specifically to the Bank’s opera- tions. Nevertheless, officials said the Bank h a d p l a y e d a catalyt- i c role through i t s lending and the Doing Business rankings and that i t s detailed studies on particular issues (administrative pro- cedures for doing business, intellectual p r o p e r t y regulations, foreign trade procedures) h a d a substantial influence on the changes implemented. M a n y interviewees said that the 2007 Bank r e p o r t on regional competitiveness9 h a d a major effect on the domestic p o l i c y de- bate on how to p u s h f o r w a r d the competitiveness agenda. M a n y officials flagged t h i s as an example of t h e kind of inno- - vative, fast-response analytical w o r k tailored to Colombia’s specific circumstances -that they w a n t e d from the Bank. T h e business p r o d u c t i v i t y DPLs supported regulatory changes to strengthen private participation in the p r o v i s i o n of infra- structure. Interviewees said these i n p u t s h a d h e l p e d to im- p r o v e the framework, but that problems s t i l l existed with the p u b l i c / private concession contracts in some areas, m o s t nota- bly for roads. The Bank h a d p r o v i d e d p o l i c y advice on the is- sues, but some thought i t c o u l d have been m o r e proactive. 16 2 CHAPTER COLOMBIA Some interviewees i n the Bank n o t e d that some of the m o r e ambitious agenda items set out i n the first business productivity DPL in 2005 h a d been scaled back i n the subsequent loans as Analytic work np u s h i n g its reforms through the government lost m o m e n t u m i on labor market Congress. issues was of high quality and 2.28 Labor market policies. The Bank has undertaken a w i d e range of identified a analytical work on Colombia's labor market, m o s t notably a n assess- short list of m e n t of the l i n k s between labor market outcomes and poverty (2002 clear reform Poverty Report); the 2005 report on Labor Market Adjustment, Reform and priorities Productivity, w h i c h analyzed factors u n d e r l y i n g labor m a r k e t segmen- tation; and a 2008 report on Informality. Currently, the Bank i s provid- ing advice on income generation, i n c l u d i n g active labor market poli- cies. L e n d i n g operations with sigruficant direct labor market components included the FY02 C o m m u n i t y Works project, w h i c h sup- p o r t e d the Empleo en Accion program, the FY03 Social Sector SAL, and three programmatic loans supporting labor r e f o r m and social devel- opment policy (PLaSSALs; see Appendix E). 2.29 The r e v i e w of the documentary record and interviews in Co- l o m b i a and with Bank staff suggest the following messages: T h e Bank's analyses of labor m a r k e t issues w e r e of high quali- ty: they p r o v i d e d convincing, evidence-based analysis; w e r e conducted i n close collaboration with C o l o m b i a n researchers; focused on k e y elements of the domestic p o l i c y debate; and i d e n t i f i e d a short l i s t of clear r e f o r m priorities. T h e AAA out- p u t s gave a clear message about the importance of easing the disincentives to f o r m a l sector employment caused by high minimumwages and high non-wage charges, as w e l l as em- phasizing the close l i n k s between the latter a n d r e f o r m of so- c i a l insurance. Although there w a s widespread praise for the q u a l i t y of the Bank's analysis, many of those interviewed i nC o l o m b i a thought the Bank h a d been too timid i n pressing the implica- tions of i t s analysis i nthe broader policy debate. The i m p a c t of the Bank on the 2002 labor reforms i s not clear. I t s m o s t sigruficant, indirect contribution w a s p r o b a b l y through the influence of i t s analysis on the domestic p o l i c y debate, b e g i n n i n g many years before the reforms w e r e even- t u a l l y implemented. The PLaSSALs probably h a d l i t t l e effect on the reform, w h i c h was approved by Congress w e l l before the first of the loans w a s negotiated. Rather, the m a i n contri- butions of these loans in the area of labor m a r k e t policies w a s in i m p l e m e n t i n g some aspects of the law, especially improve- ments in the t r a i n i n g system a n d i n fostering a f e w useful changes a t the m a r g i n to the social insurance system t h a t 17 CHAPTER 2 COLOMBIA h e l p e d reduce disincentives to employment even though they did not address the central obstacles discussed above. Bank support for a range of government pilot schemes to boost employment of vulnerable groups i n the years f o l l o w i n g the recession w e r e unsuccessful: a c o m m u n i t y w o r k s project to p r o v i d e temporary e m p l o y m e n t to poor workers h a d high costs p e r job created and low ratios of income transferred to the poor; a n d tax waivers a n d temporary wage subsidies for hiring hard-to-employ groups h a d v e r y low uptake. Future efforts 2.30 Looking ahead, interviewees said the Bank's main inputs on la- should focus on bor market policies i n the n e x t f e w years should cover two areas (al- high payroll t h o u g h considerable differences of v i e w existed on their relative impor- taxes and the tance). The first was a sustained effort to use the Bank's policy analysis minimum wage and convening p o w e r to influence the policy debate on the central is- and bring fresh sues of high p a y r o l l taxes and the minimumwage. (Many of those in- ideas on terviewed said that, without progress on these issues, other policy ac- promoting tions would y i e l d l i m i t e d gains. Incontrast, a f e w thought the Bank better quality h a d already said a l l it c o u l d on the issue). The second area was to d r a w employment and on its international experience to bring fresh ideas on how to promote wage growth in better quality employment and wage growth i nthe i n f o r m a l sector. the informal This should include further analysis of how to refine social protection sector policies to decrease disincentives to employment and t o strengthen the l i n k s with human capital development to make recipients m o r e pro- ductive and hence employable. 2.31 Education and training. The Bank's assistance i n education in- volved a combination of policy and investment l e n d i n g as w e l l as AAA addressing specific issues. Other policy loans, notably the PLaSSALs, included a sigruficant education component. The Bank also conducted a review of public training r e f o r m issues (the role of SENA) in 2004, - but at the government's request -the report was never finalized or made public. The Bank's strategy was to support the government's agenda of expanding coverage and improving the quality of basic and secondary education. These goals were recognized as k e y to improving competitiveness and growth, although no explicit link was m a d e to employment objectives. It i s difficult to identrfy the specific impact of Bank operations on overall outcomes, but the following points are worth noting: Targets for the expansion of p r i m a r y and secondary enrollment were m e t or exceeded. Total n e t enrollment increased from 7.8 million in2002 to 9.2 million in2007, i nl i n e with the target un- der the PLaSSALs. Bank support for policy reforms helped to generate efficiency gains and i m p r o v e incentives to local au- thorities to enroll students. 18 2 CHAPTER COLOMBIA Bank technical and financial support helped the government in- Targets for troduce a number of initiatives to i m p r o v e quality, i n c l u d i n g expansion of teacher quality testing mechanisms and systematic student test- primary and ing. However, student performance on recent international as- secondary sessments was b e l o w average. enrollment were Many interviewees i n Colombia said the Bank’s R u r a l Educa- met or tion project h a d played a major catalytic role in h e l p i n g the au- exceeded, but thorities r e f o r m i t s approach to delivering education services i n success in the poor, hard-to-reach r u r a l communities. Especially influential area of non. was the Bank’s technical and financial support for innovative formal training c u r r i c u l u m methodologies. was only partial The Bank contribution m o s t frequently mentioned by intervie- wees was the higher education project, ACCES (Acceso con Cali- dad a la Educacion Superior) providingfinancial resources and technical assistance to develop a student loan scheme address- ing the problems of d e m a n d for f o r m a l education. I t i s esti- m a t e d to have increased access to tertiary education by 30 per- cent, especially a m o n g lower-income students. Inthe area of non-formal training, the Bank contributed sigrufi- cantly to w h a t was only a “partial” success. S E N A used to b e a v i r t u a l monopoly, with high unit costs and output not w e l l suited to private sector employment needs. Substantial head- w a y has been made i nsome areas (such as a quadrupling of graduates from S E N A t r a i n i n g courses, l o w e r costs of training, and progress t o w a r d a national framework for defining training standards and needs). However, although private sector train- ing groups have been a l l o w e d entry, there are s t i l l problems i n matching training to private sector needs, and S E N A continues to p l a y the triple role of financier, provider, and regulator of training. Nonetheless, a n u m b e r of officials said less progress would have to b e m a d e without Bank involvement; for exam- ple, the benchmarks in the PLaSSALs h a d catalyzed progress, even if less than originally expected. 2.32 Social protection. Bank AAA work concerning social protection is- The Bank has sues included the 2002 Poverty Report, a 2002 Social Safety Net Assessment, made a major and the 2007 Infirmalify report. K e y lending included the FYOl Human contribution to Capital Protection project, w h i c h supported the introduction of the Fami- efforts to lias en Accion conditional cash transfer (CCT) program, and three subse- expand nad- quent social sector operations that p r o v i d e d additional financing. I coverage and dition, the three PLaSSALs heavily emphasized actions to strengthen improve Colombia’s social risk management system and improve health insur- efficiency of the ance coverage for the poor. safety net 2.33 The evidence suggests that the Bank has made a major contribu- tion to the government’s efforts to expand the coverage and improve the 19 2 CHAPTER COLOMBIA efficiency of i t s social safety net, but needs to do m o r e to h e l p address is- sues of long-term fiscal sustainability.10 2.34 T h e Bank w a s one of the p r i n c i p a l catalysts b e h i n d the intro- d u c t i o n of t h e Farnilias en Accion CCT program i n 2000. T h e Bank and t h e IADB h a v e been the main sources of t h e program's financing since i t s inception.11 Interviewees in C o l o m b i a attributed to the Bank signifi- c a n t improvements in the program's initial design ( i n c l u d i n g targeting and administration) through an effective m i x t u r e of AAA, lending, and close technical collaboration. T h e y also s a i d t h e Bank had pressed for a s t r o n g monitoring and evaluation system. E v a l u a t i o n results s h o w e d a sigruficant i m p a c t on nutritional h e a l t h status as w e l l as school atten- dance in rural areas, with m u c h smaller effects i nurban areas. Never- theless, t h e government took a p o l i t i c a l decision to e x p a n d the p r o g r a m in urban areas. In light o f t h i s r a p i d expansion, many interviewees said t h e Bank s h o u l d h a v e g i v e n m o r e emphasis to h e l p i n g C o l o m b i a man- age t h e challenges of sustaining t h e program efficiently, with suitable e x i t policies for participants. NOTES 1.While the Bank's activities helped Colombia reduce its fiscal deficit and public debt, the Bank was less successful in helping Colombia to address some fiscal rigidities that contribute to the continued reliance o n high payroll charges that in turn make it difficult to reverse the high levels of informality in Colombia's labor markets. 2. There are limits to what an external agency such as the Bank can do to ad- dress politically sensitive policy issues and that the Bank's policy w o r k cor- rectly diagnosed the underlying issues. However, many stakeholders inter- viewed i n Colombia said that a bolder use of its convening power w o u l d be useful--especially to help lay the groundwork for future policy reforms. 3. The m a i n concern expressed by those interviewed i n Colombia was not about the current costs of the CCT but about the implications of the pro- gram's continuing rapid growth and the lack of a clear exit strategy. The var- ious Bank documents discussing the CCT d o n o t contain any overall analysis of these medium-term costs, despite the r a p i d expansion of the program. 4. The background paper providing a detailed discussion of these topics will be available in IEG's website. 5. Low-quality self-employment and other forms of informality of employ- ment are high by international standards, accounting for about 55-75 percent of total employment depending o n h o w informality i s measured. Bernal (Bernal, 2007) discusses 27 possible definitions of worker informality in Co- lombia. The Bank's 2008 report o n Informality in Colombia, which classified workers as informal if they did not contribute to both contributory health and pension schemes, estimates that, taking account of per capita income le- vels, informality in Colombia i s about 20 percentage points higher than w o u l d be expected based o n cross-country comparisons (World Bank, 2008a). 20 2 CHAPTER COLOMBIA 6. As estimated by the Bank (World Bank, 2002). 7. (World Bank, 2008~). 8. Colombia also negotiated a series of arrangements with the IMF during this period, a l l of which were treated as precautionary (that is, the govern- ment announced it did not intend to draw o n the resources). 9. The W o r l d Bank (2008b). 10. Some areas of social protection where the Bank has made sigruficant con- tributions (such as child nutrition) are not discussed because they do not have a direct link to labor market issues. 11.The United States also provided some initial financing. 21 .:. Though growth averaged 5 percent during the 1997-2007 period, en~ u n e m ~ l o ~ m was 3. Tunisia persistently high, pa~icu~a ~ly among women and highly educated young people Introduction *:. Growth and stability have 3.1 Tunisia’s economic performance during the r e v i e w p e r i o d was helped a modest rise in impressive. Of the three countries r e v i e w e d in this report, Tunisia h a d incomes at the low end of the highest GDP growth rate, w h i c h contributed to i t s sustained the d j s t ~ ~ ~ ~ ~ i o n , r e c o r d of p o v e r t y reduction. Yet, despite this impressive perfor- contributin~ to poverty reduction mance, Tunisia’s high rate of u n e m p l o y m e n t of just over 14 percent w a s a major continuing challenge. A particular cause for concern i s the .;. The Banks strategies fact that m o r e than 20 percent of highly educated young people are un- have reflected mounting employed. The economy i s creating between 75,000 and 80,000 jobs p e r e~~ g o ~ e r n m concern year and p r o d u c i n g about 70,000 university graduates. This means that, about emplo~ment unless the demand for skilled labor can b e dramatically increased, or a n .:+Analytic work contributed outlet found for this skilled labor in other countries, unemployment to financial sector reforms c o u l d grow further. and helped narrow the gap between onshore 3.2 The u n d e r l y i n g causes of persistent high u n e m p l o y m e n t are and offshore economies complex: Tunisia’s rate o f growth i s insufficient to absorb the surplus +?. Unfinished reforms have s u p p l y of labor; achieving higher growth i s i m p e d e d by w e a k nation- resulted in d~sappoin~ing al private investment performance; investment i s u n d e r m i n e d by de- private investment ficiencies i n the business environment; labor m a r k e t institutions a n d response regulations i m p e d e j o b creation i n the f o r m a l sector; there i s an in- : * Labor market policies c o n g r u i t y between the skills supplied by the tertiary education system have been addressed in a n d the demands o f the labor market; a n d current social protection programmatic AAA, but it policies do not sufficiently encourage labor mobility a n d enterprise has had very little restructuring. There is, as yet, no coherent strategy for increasing em- influence so far p l o y m e n t that simultaneously embraces all of the k e y factors b e h i n d e m p l o y m e n t creation. 3.3 The B a n k is, in general, w e l l regarded in Tunisia. U s i n g a w i d e range of instruments, both l e n d i n g and analytical, i t has demonstrat- e d itself to b e a u s e f u l and relevant partner to the country in meeting i t s development aspirations. N a t i o n a l priorities, expressed i n a series of five-year development plans, have found both a n echo a n d support in the Bank’s strategy for the c o u n t r y a n d in i t s operations. 3.4 Throughout the period, the Bank engaged i n a l l five pillars o f the MILES framework, though there h a v e been i m p o r t a n t differences of emphasis. By far the m o s t sigruficant intervention has been in the 23 CHAPTER 3 TUNISIA Table 4. Tunisia: Ratings Summary Outcomes Bank Contribution Rating Fiscalstability achieved before Bank contribution marginal but positive on fiscal front but 1998 and sustained throughout significant supporting trade liberalization and facilitation. the review pericd. Basicallysound Medium-termchallenges include reducing subsidies and macroeconomicframework with addressing expenditure rigidities. less than 3 percent defict Macro sustained. Considerable Satisfactory achievements in opening economy to international competition.Shortfalls in reducing non-performing loans of banking system. ............................................................................................ ...................................................................................................................................................................................... Private investment remains low Substantial Bank lending and AAA support. Interventions are despite a wide range of policies of high technical quality and in most cases well appreciated and actions with substantial by the authorities. Significant breakthroughs in trade facilita- Bank and AAA support, partly tion and improvements to business climate. Main outstand- due to weaknesses in the public ing issues relate to governance, a very difficult area to sector accountability tackle. component of governance.. Investmentclimate Reform agenda in most areas Satisfactory unfinished. Key governance issues in onshore economy stili to be tackled. Reduced discrimination against onshore economy. Opened ITC sector. Impetus of infrastructure .................................................................... pivatization waned. ............................................................................................. ....................................................................................................................................................................................... Little progress in addressing Bank AAA consistently diagnosed key issues but efforts to high minimum wages and labor formulate agreed employment strategy lost momentum. market rigidities impeding Persistentgender issues in labor market performance re- formal sector job creation quire analysis. Moderately Labor market especially for highly educated satisfactory young. Most active labor market policies of limited effectiveness and fiscally expensive. Near universal primary coverage and literacy for both genders. Improvements in vocational training and rapid expansion in tertiary education. Primary and secondary quality issues being addressed. Key Education challenges remain in tertiary Satisfactory sub-sector,which is falling to meet requirements of rapidly increasing graduate population and labor market. Potentialfor outward migration of educated labor and policy implications require analysis. ....................................................................... .................................................................................................... ............. .................................................................................................................................. " substantial coverage of pensions, health care and direct subsidies for low income households. Bank analytical contri- Satisfactory Social protection iution to social security reform, Lack of unemployment in- Combined rating of MILES outcomes and of higher order Moderately satisfactory Satisfactory outcomes at right. 24 CHAPTER3 TUNISIA investment climate pillar. Lending, u n d e r p i n n e d by a substantial cor- p u s of analytical work, has been nearly three times as m u c h as that in t h e other four pillars combined. W h i l e the Bank’s programs were largely successful, i t s efforts failed in a n u m b e r of areas, i n c l u d i n g the development of m o r e effective dialogue on p u b l i c governance issues t h a t affect investment, a stronger i m p a c t of i t s good diagnostic work on labor m a r k e t policies, a n d a better i m p a c t of education expendi- tures on education quality, particularly of higher education. 3.5 Table 4 summarizes the m a i n factors considered i n t h i s assess- m e n t of Bank support for employment creation and earnings growth as w e l l as the corresponding ratings. All i n all, the Bank‘s strategy and in- terventions were highly relevant in addressing Tunisia’s k e y em- p l o y m e n t and earnings-related issues. Results, however, have been mixed. Inmacroeconomic policy, the Bank‘s role has been positive but m a r g i n a l on the fiscal front. Trade liberalization and facilitation have benefited from b o t h AAA and lending. Regarding the investment cli- mate, although considerable progress has been achieved in specific p o l i c y areas, the r e f o r m agenda i s far from complete, a n d private in- vestment has not yet convincingly responded. The Bank untilnow has h a d l i t t l e i m p a c t on policies g o v e r n i n g the institutions and operations of the labor market. Despite six years o f programmatic analytical work a n d technical assistance, the government has not adopted any of the Bank’s k e y policy recommendations. In education, a great deal has been achieved a t the p r i m a r y a n d secondary levels, a n d the Bank has p l a y e d a major role in this. The i m p a c t on p o l i c y has been m o r e m u t e d at the tertiary level where, once again, there i s less than full agreement on some k e y p o l i c y issues. 3.6 This chapter summarizes the e m p l o y m e n t and earnings growth outcomes, the exogenous factors a n d policies with a bearing on those outcomes, the i m p a c t of those factors and policies on the outcomes, a n d the role of the Bank’s s u p p o r t for the policies.1 Growth, Employment, and Earnings Outcomes 3.7 V i e w e d from a long-term perspective, Tunisia’s r e a l p e r capita GDP growth incomes have nearly q u a d r u p l e d since independence in 1954 to reach averaged 5 a n estimated $3,878 i n 2008. Tunisia’s GDP growth averaged 5.1 from percent during 1970 to 2007, decelerating through the late 1980s a n d accelerating dur- 1997.2007, ing the first h a l f of the 1990s. T h e average GDP growth rate increased ahead of the f r o m 4.1 percent during 1987-97 to 5.0 percent during 1997-2007, with pace for the the acceleration of growth t a k i n g place in 1996, j u s t before the begin- preceding two ning of the p e r i o d u n d e r review. The 1997-2007 g r o w t h w a s faster decades than growth in the previous two decades (4.6 percent and 4.1 percent) but less r a p i d than during 1967-77. Average annual p e r capita GDP growth increased from 2.3 percent during the 1988-97 decade to 3.9 25 CHAPTER 3 TUNISIA percent during 1998-2007. The headcount p o v e r t y ratio, w h i c h h a d al- ready fallen to about 6.2 percent by 1995, declined further to 3.8 by n the late 1990s a n d increased the- 2005.2 I n c o m e inequality declined i reafter through 2005, the last year for w h i c h data are available. Employment 3.8 A n n u a l employment growth i nTunisia averaged 2.7 percent growth during the r e v i e w p e r i o d (equal to e m p l o y m e n t growth during the averaged 2.7 prior decade) and the employment-to-population ratio increased by percent, but about 2.1 percentage points, the result of a 1.5 percentage point in- participation crease i n participation and a 1.9 percentage point decline in unem- and employment ployment. These changes do not reflect any strong long-term trends; have been both the labor participation rate and the employment-to-population almost trendless r a t i o appear to have been almost trendless since 1984, the first year for since 1984 w h i c h statistics are available. There is little 3.9 There i s v e r y l i t t l e data regarding earnings. F o r m a l sector data on wages increased during the period, as w e l l as income i n general, as earnings indicated by GNI data. There i s no i n f o r m a t i o n on i n f o r m a l sector wages. Factors Underlying the Outcomes 3.10 Tunisia’s performance since 1999 has been influenced by b o t h exogenous (non-policy) factors a n d by policies. These h a v e interacted in complex w a y s to affect outcomes, i n c l u d i n g growth, poverty, em- ployment, and wages. Exogenous Factors Exogenous 3.11 The m a i n exogenous phenomena h a v e been: factors include economic Strong external economic growth in the m a i n destination growth in export countries for Tunisian exports. destination Increasing international c o m p e t i t i o n for Tunisia’s m a i n ex- countries, port products, especially textiles, following the e n d i n g of competition for the Multi-Fiber Arrangement and the enlargement of the exports, and EU. demographic Avoidance of direct participation in M i d d l e East conflicts. transition Vulnerability to political turbulence i n the region, particu- leading to l a r l y after the events of September 11,2001. higher growth of Susceptibility of the agricultural sector to periodic drough- the labor force ts (four consecutive droughts during 1999-02) Demographic transition, l e a d i n g to high growth of the la- bor force and especially of the expected n u m b e r of gra- duates from the secondary schools a n d the universities. 26 CHAPTER3 TUNISIA Policies 3.12 At the same time, the authorities have carried out a w i d e range of policies affecting economic and e m p l o y m e n t performance. Policy progress a n d remaining challenges are summarized as follows: Policy Achievements Policy achievements 0 C o n t i n u e d macroeconomic stability. include 0 C o n t i n u e d trade openness, particularly u n d e r the EU-Tunisia macroeconomic Association Agreement, signed in 1995. stability, 0 C o n t i n u e d foreign investment openness, particularly with the openness to establishment of the offshore economy from 1972 a n d the trade and m o d i f i e d investment code in 1992. foreign 0 A strong defense and promotion of women’s rights. investment, and 0 Implementation of active labor market policies, i n c l u d i n g wage promotion of subsidies, training schemes and other forms of assistance. women’s rights 0 Substantial investment i n education. since the 1970s w h i c h has l e d to greatly increased enrollment rates Some improvements in the business climate. Challenges that Remain Challenges remain in all of Tunisia currently faces increased fiscal pressures. the MILES Private investment performance remains weak. framework areas M a n y of the w a y s inw h i c h the labor m a r k e t i s governed, and the n a t u r e of labor l a w s a n d institutions, i m p e d e or f a i l to en- courage job creation in the f o r m a l sector. Tunisia’s higher education system i s currently f a i l i n g to cater to the needs either of i t s clients (that is, the graduates) or of the economy as a whole, a factor that m a y h a v e an adverse i m p a c t on investment. C u r r e n t social protection policies d o not p r o v i d e adequate i n c o m e protection to workers, w h i l e a t the same t i m e contain labor costs, a n d stimulate labor mobility and enterprise restructuring. Link of Performance to Exogenous Factors and Policies 3.13 Acceleration of Tunisia’s GDP growth rate, from 3.4 percent Acceleration of during 1986-95 to 5.1 during 1990-99, coincides with the structural the growth rate adjustment program started in 1987 that covered increased competi- from 1986-1995 tion, financial sector liberalization, integration with the EU, p u b l i c en- coincides with terprise reform, a n d privatization of certain sectors. T h e increased the structural stability of the growth rate has been another factor b e h i n d increased adjustment growth levels after 1995. This increased stability has b e e n attributed program to i t s export diversification3 a n d declining inflation, the latter also achieved before 1998. Despite i t s satisfactory level, Tunisia’s GDP growth rate may w e l l b e b e l o w i t s potential d u e to p r i v a t e investment 27 CHAPTER 3 TUNISIA levels, w h i c h have been considerably b e l o w those attained by other successful emerging countries, possibly d u e to shortfalls i n the in- vestment climate. Table 5. Tunisia: Key Economic Trends, 1970.2007 Indicator (percent, except , p.a.= Per Year average, ey=end year Source: Vunisia, National lnstitute of Statistics W o r l d Bank World Development Indicators; 3' Ministry of Employment: "Evolution du faux de chdmage par niveau d'instruction". Growth and its 3.14 Still, growth and i t s stability have been the major drivers of stability have p o v e r t y reduction, as measured by growth-incidence curves t h a t have helped a modest been pro-poor (with the exception of the 1990-95 period). T h e modest rise in incomes rise i n employment and increased p r o d u c t i v i t y and wages, supported at the low end of by investment i nh u m a n a n d physical capital, m a y explain r i s i n g in- the distribution, comes a t the low e n d of the income distribution. Increases i n em- contributing to p l o y m e n t resulted from increased d e m a n d d r i v e n by GDP growth i n poverty a rather predictable way, for the employment elasticity of growth has reduction been a r o u n d 0.4 for m a n y years, a level consistent with positive labor n a n ILO p r o d u c t i v i t y a n d e m p l o y m e n t growth and above average i international comparison for 1999-2003. Although female employ- m e n t has increase i n recent years, i t s level remains constrained by the diverse set of factors discussed i nA p p e n d i x G. But employment 3.15 However, unemployment, a t 1 4 percent, remains high by in- remains high by ternational standards, despite Tunisia's satisfactory rates of economic international growth. Indeed, the u n e m p l o y m e n t rate has been persistently high standards a n d f a i r l y constant over a long period. This persistency appears to b e the n e t result of positive investment-driven p r o d u c t i v i t y shocks that appear to l o w e r u n e m p l o y m e n t and raise real wages, a n d r e a l wage shocks (for example, minimumwages) that l e a d to increases i nun- employment. In addition, a demographic b u n c h i n g of labor force growth and high growth of university graduates d u e to a sigruficant expansion of universities has also put pressure on the u n e m p l o y m e n t rate, particularly a t high s k i l l levels. 3.16 Disaggregation helps understand the performance of u n e m - ployment: u n e m p l o y m e n t rates v a r y by level of schooling, from 5.9 percent for the illiterate level to 19 percent for those with p o s t second- 28 3 CHAPTER TUNISIA a r y a n d by gender, with w i d e n i n g differences over time. The unem- Unemployment p l o y m e n t rate for university graduates almost t r i p l e d from 7.9 percent rates vary by in 1999 to 20 percent i n 2007. There are now over 100,000 unem- levels of p l o y e d people with tertiary education qualifications. D u e to the sig- schooling and nificant expansion of universities, a n d r a p i d increase in the n u m b e r of by gender secondary students obtaining a Baccalaureate: a growing share of n e w entrants to the labor force will b e university graduates. Already, some 70,000 students are graduating each year from the universities. W h e n this i s compared with the 80,000 total jobs generated by the economy each year i t i s easy to see why graduate u n e m p l o y m e n t i s r i s i n g rapidly. Evidence from a tracer s t u d y carried out by the M i n i s - try of Education a n d supported by the Bank suggests that inadequate skills are another reason for the high u n e m p l o y m e n t rate a m o n g those with tertiary education.5 3.17 The gender dimension of Participation, employment and un- Overall women’s employment presents something of a puzzle. Despite Tunisia’s un- labor s w e r v i n g defense a n d s u p p o r t of women’s rights, the overall female participation labor participation rate has r i s e n only slightly since 1999, and a t about rate has risen 26 percent today remains far b e l o w that of men. Although it i s only slightly somewhat higher than the average for the MENA r e g i o n (though since 1999, l o w e r than, for instance, Morocco’s) i t i s low by middle-income coun- though it try standards. The survey of 2004 graduates also found sigruficant remains low by gender differences: 40 m o n t h s after graduation, 71 percent of the m e n middle-income h a d found work, but only 55 percent of the women. E v e n in the in- country f o r m a l sector, female participation is low compared with other coun- standards tries.6 Five factors m a y e x p l a i n this low participation. First, registered labor participation rates are considerably l o w e r a m o n g r u r a l t h a n ur- b a n women, w h i l e the l e v e l of education i s l o w e r a n d both the abso- l u t e a n d relative illiteracy rates are higher, hence there i s a strong ru- ral-urban divide. Second, the relatively w e a k maternity leave regulations a n d the l i m i t e d coverage p r o v i d e d by the c h i l d care sys- t e m m a y i m p e d e labor force participation by women. Third, restric- t i v e employment termination regulations, w h i c h protect p r i m a r y workers (usually m a l e and experienced) and those in employment a t the expense of those seeking it, m a y also limit the d e m a n d for female workers. Fourth, w o m e n s h o w a strong preference for p u b l i c sector as opposed to private sector employment, and the expansion o f the pub- l i c sector has slowed m a r k e d l y in recent years. Fifth, n o t w i t h s t a n d i n g Tunisia’s progressive record, c u l t u r a l factors m a y s t i l l p l a y a role. The Bank’s Strategy and Contribution 3.18 Overall stratem, objectives, and political constraints. At least since the early 1990s, there has b e e n a close correlation between Tunisia’s overall development objectives a n d the Bank’s country strategy. T h e Bank‘s strategic documents h a v e often been used by the Tunisian au- 29 CHAPTER 3 TUNISIA thorities in the preparation of their plans, d r a w i n g on an extensive a n d in-depth policy dialogue. 3.19 The government’s mounting concern regarding the employ- Since the mid- m e n t issue, d a t i n g roughly from the mid-l990s, has been reflected in 1990s the the increasing attention g i v e n to the topic in the Bank’s strategic doc- Bank’s strategic uments. W h i l e the 1996 C A S m a d e l i t t l e reference to employment per documents have se, the focus sharpened considerably in the 2000 CAS, and even m o r e reflected the in the 2004 CAS. The latter document stated that the ”the first and government’s m o s t pressing challenge” facing Tunisia w a s to reduce unemploy- mounting ment. A d d e d urgency stemmed from the evidence t h a t a n increasing concern about proportion of the u n e m p l o y e d w e r e highly educated. In order to meet employment this challenge, the C A S emphasized t h e second and fourth pillars of issues the M I L E S f r a m e w o r k -improving the investment climate a n d re- forming the education system, especially the tertiary subsector. Sig- nificantly, the C A S also explicitly recognized the importance of the governance dimension-for the first t i m e i n a p u b l i c l y available Bank document on Tunisia. 3.20 N o n e of the CASs contains any quantitative performance o r output indicators specifically related to the e m p l o y m e n t issue. Equal- ly, there are no qualitative indicators related to the r e f o r m of labor m a r k e t institutions. Except for a n u m b e r of quantitative a n d policy targets in the education sector, the detailed Results Framework, w h i c h , i s u s e d to assess advances in the 2007 C A S Progress Report, i s equally bereft of employment-related indicators against w h i c h the effective- ness of Bank interventions c o u l d b e measured. 3.21 Bank Group Assistance and Intewentions. Inthe following para- graphs, discussion of the Bank’s contribution i s organized around each component of the M I L E S framework. A p p e n d i x G gives details of ma- jor loan operations with substantial M I L E S components, together with available IEG assessments of outcomes and Bank performance. The Bank’s 3.22 ’ Macroeconomic Policy. Tunisia’s principal external partner on the focus on fiscal front i s the IMF. The Bank’s focus has been on trade liberalization macroeconomic and facilitation, though i t has supported i m p r o v e d fiscal management policy has at the margin. There has been extensive analytical work on the chal- mainly been on lenges posed by the evolving external environment, and both AAA and trade n trade promotion and facilitation. Two Export De- l e n d i n g operations i liberalization velopment Loans totaling $72 million were m o r e successful in further- and facilitation ing facilitation t h a n promotion. Among the important achievements have been the modernization of the customs service, dramatic reduc- tions i n clearance delays for exports and imports, a n d simplification of trade documentation. On the other hand, there i s no convincing evi- dence that instruments chosen to p r o m o t e exports were appropriate or n manufac- that they h a d the desired effect. The v e r y r a p i d expansion i t u r e d exports is difficult to attribute to Bank intervention. 30 CHAPTER3 TUNISIA 3.23 Inr e f o r m i n g the financial sector, Bank interventions were based on high-quality diagnostic work, n o t a b l y a 2002 FSAP, u p d a t e d High-quality in 2006, a n d undertaken jointly with the IMF. Although there have diagnostic work b e e n a n u m b e r of i m p o r t a n t reforms -two p u b l i c l y o w n e d banks contributed to h a v e been privatized, regulation and supervision have been streng- financial sector thened, the Civil Code has been revised to facilitate l o a n recovery, reforms a n d vulnerability indicators have i m p r o v e d results were less satis- - factory t h a n the Bank h a d anticipated, a n d the dialogue w a s some- times challenging. E v e n w h e n acknowledging the need for reform, the government preferred a considerably m o r e g r a d u a l approach than t h a t advocated by the Bank and the IMF. Moreover, not a l l the gov- ernment's policies or actions h a d the s u p p o r t of the Bank. The prolife- r a t i o n of p u b l i c credit institutions, with their overlapping responsibil- ities, less t h a n fully transparent criteria, and potential for c r o w d i n g out the private sector, was not i n accordance with Bank advice. .................................................................................................................. ................................ 1 Thelending 3.24 Investment Climate. Table 6. Tunisia: Targets Established in the I program had a T h e B a n k has been v e r y ac- tive i n s u p p o r t i n g invest- Fourth Economic Competitiveness Adjustment Loan (ECAL) verystrong focuson 1 m e n t climate i m p r o v e - I ments. It i n c l u d e d three Investmentgrowth Onshore Offshore improving the 1 2004-2007 investment investment 1 investment policy-based loans (EC- ALs), a n d has been under- Target value +9.7% t37.90,0 climate I p i n n e d by a substantial : Actual value achieved +6.1% 17.7% I corpus of analytical work. ; Source: ECAL IV ICR and ICR Review I Results, however, have been mixed. Although considerable progress has been achieved i n specific p o l i c y areas, the r e f o r m agenda i s far from complete, and pri- vate investment has lagged b e l o w target (Table 6). Investors, especial- ly Tunisian nationals, have not y e t convincingly responded. 3.25 B a n k support has been focused in the following p o l i c y areas: T h e g a p between the onshore a n d offshore economies has Analytic work been n a r r o w e d by reductions i n the regulatory and adminis- focused on trative obstacles to starting and running a business in the for- narrowing the mer; r e f o r m i n g and s i m p l i f y i n g the taxation regime to reduce gap between the the relative advantages of offshore businesses; extending the onshore and simplification of Customs procedures to onshore transactions; offshore p e r m i t t i n g offshore enterprises to sell up to 30 percent of their economies output i nthe local market; w i d e n i n g the availability of export promotion facilities to onshore firms; establishment of a one- stop window, publication of a l l administrative procedures, a n d c o m m i t m e n t to a t i m e frame with the user h a v i n g the right to c l a i m damages i n the event of delay; reductions i n prior authorizations for FDI i n onshore activities; a n d substan- t i a l reductions i n the legal capital requirements to start a busi- 31 CHAPTER 3 TUNISIA ness. Moreover, i n December 2007, a n e w Economic Initiative L a w aims to s i m p l i f y procedures further, facilitate access t o fi- n a n c i n g for SMEs, a n d reduce the tax b u r d e n for onshore businesses. These accomplishments are the result of a produc- t i v e p o l i c y dialogue i n w h i c h the Bank has successfully brought to bear i t s international k n o w l e d g e a n d experience. a Addressing u n f a i r competition through amendments to the C o m p e t i t i o n L a w promulgated i n 2006. It i s too early to judge the effects of the n e w legislation, since businesses have not b e e n surveyed since it came into effect. It also helped a The B a n k has p l a y e d an i m p o r t a n t role i ntransforming Tuni- transform the sia’s I n f o r m a t i o n a n d Communications Technology (ICT) sec- country’s tor. Reforms w e r e based on a sector strategy n o t e f o r m a l l y de- information and livered i n 2002 following m o r e than two years of intense and communications p r o d u c t i v e dialogue. This was f o l l o w e d by a l e n d i n g opera- technology tion. A c c o r d i n g to i n t e r v i e w sources, the authorities were par- sector ticularly impressed by the technical excellence of the Bank team. T h e result w a s a decision to o p e n the sector to private investment a n d to international competition. Issues s t i l l t o b e addressed i n c l u d e the predominance of the s t i l l 65 percent state-owned Tunisia Telecom, l i m i t e d collaboration between enterprises and universities, a w e a k and fragmented regulato- ry framework, and poor connectivity a m o n g s m a l l firms w h i c h are the tissue of Tunisia’s industry. And it e T h e B a n k has also p l a y e d a n important r o l e i n addressing in- addressed frastructure bottlenecks. As w e l l as l e n d i n g to finance im- infrastructure provements, the Bank helped to develop a legal and regulato- bottlenecks ry f r a m e w o r k p e r m i t t i n g private sector participation in large- scale infrastructure investments (PPI), The AAA w a s of good quality. However, early government enthusiasm w a n e d in the face of departmental rivalries. Although the government agreed to a d o p t a strategy to encourage PPI, subsequent progress has been limited. But an 3.26 T h e disappointing private investment response to business unfinished environment reforms i s due, first, to the unfinished r e f o r m agenda reform agenda and, second, to p r e v a i l i n g weaknesses in economic governance. Al- has resulted in t h o u g h Tunisia i s g i v e n relatively favorable ratings i n m a n y of the in- disappointing ternational investment climate indices, i t does less w e l l w h e n indica- private tors isolate the governance factor m o r e precisely. Such indicators have investment been published every year since 2005 i n the Bank’s ”Economic Devel- response opments and Prospects for the MENA Region.’’ W h i l e Tunisia i s placed i n the top h a l f of countries w o r l d w i d e for Trade Policy, Busi- ness Climate, and Quality of Public Administration, it i s r a n k e d i n the bottom quartile w o r l d w i d e for current status a n d i n the bottom h a l f for progress m a d e since 2000 regarding Public Sector Accountability. The Bank has approached this difficult issue through, first, i n f o r m a l 32 CHAPTER3 TUNISIA dialogue, w h e r e senior country a n d regional management engaged the Authorities; second, constructive criticism of some policies; third, sharpened analytical tools for measuring perceived comparative per- formance i n the governance area; and, fourth, firm action w h e r e i t perceives governance issues in areas where i t i s directly affected.7 It i s hoped, that by such measures, the Bank’s reputation in a d i f f i c u l t sit- u a t i o n would b e protected. 3.27 Labor Market Policies. The Bank has no l e n d i n g p r o g r a m in Tu- Programmatic nisia in the area of labor m a r k e t institutions and regulation. Rather, it analytical and advisory has relied on programmatic analytical a n d advisory assistance (PAAA), a multiyear p r o g r a m of studies, technical assistance,* a n d assistance has been the capacity build- principal tool for ing. During the addressing first stage, labor market w h i c h ended in 2004, a major policies piece of diag- 2. Survey the business environment, including ques- nostic analyti- tions o n employment. c a l work was 3. Diagnosing the constraints felt by SMEs in employ- completed cov- ment creation. e r i n g a l l as- pects o f the 4. Improve labor market information and dissemination for both enterprises and households. d e m a n d for a n d s u p p l y of 5. Evaluation of employment programs (ALMPs, in- labor, as w e l l as cluding training), and a review of policy options, based the functioning o n international experience, to improve the social pro- of the labor tection system. market. From this, f i v e areas w e r e i d e n t i f i e d for Bank assistance over the c o m i n g three years (Box 1). Work on these topics commenced following the signing of a M e m o r a n d u m of Understanding with the government. Based on this work, a n integrated strategy for employment creation covering a l l dimensions of the M I L E S f r a m e w o r k w a s to b e devel- oped. A Policy N o t e containing the outlines of such a strategy w a s completed in mid-2008. 3.28 Although the exercise started w e l l and at the right strategic But the program moment, the Bank’s PAAA has h a d almost no influence on labor mar- has had very k e t policies. The early m o m e n t u m of the diagnostic phase has not been little influence sustained. The 2008 Policy N o t e i s of a high technical quality and con- so far tains detailed recommendations on a l l aspects of labor m a r k e t policy, including the d e m a n d for and supply of labor. However, it i s clear from the interviews with Tunisian officials that the recommendations, and even the analysis, do not reflect a consensus within the govem- ment. The PAAA task team has changed composition and leadership a number of times since the outset of the program. The Tunisians perce- 33 CHAPTER 3 TUNISIA i v e that the degree of engagement of the Bank -frequency and length - of missions, depth of discussions i s insufficient given the complexities and sensitivities o f the task. The question was raised as to whether the budgetary resources m a d e available were still adequate. Inthese cir- cumstances, it i s unsurprising that the set of active labor market poli- cies (ALMPs) put i n place by the authorities have not, for the most part, evolved from the PAAA (indeed, they are contrary to the thrust of i t s recommendations), and do not have the support of the Bank. Substantial 3.29 Education and Training. T h e Bank has h a d a substantial in- involvement in volvement i n Tunisia's education system. Two Education Quality Im- education p r o v e m e n t Loans ($99 million and $135 million) supported, respec- focused on tively, the universal completion of p r i m a r y education and i m p r o v e d improving q u a l i t y a n d school management a t both p r i m a r y a n d secondary le- coverage and vels. The second loan also aims to enhance vocational training, w h i c h quality at all i s now the responsibility of the Education M i n i s t r y . Two further loans levels, including (of $80 million a n d $76 million) s u p p o r t reforms i nthe higher educa- vocational tion subsector, including: increased access to, and enhanced quality training of, higher education; greater a u t o n o m y i n university management; greater market relevance of university s t u d y programs; development of a system o f quality assurance; and a sustainable financial strategy with cost-sharing mechanisms a n d grants and loans for needy stu- dents. The projects d r a w upon a H i g h e r Education Strategy Paper completed in 2004. 3.30 The H i g h e r Education projects proceeded without full consen- sus between the Bank and the authorities concerning reform. Notably, there was no agreement on financing and cost recovery reforms. It is, therefore, u n s u r p r i s i n g t h a t the extent of r e f o r m achieved i s some- w h a t tentative. This has affected the Bank's credibility i n the Tunisian higher education subsector. Several independent interviewees (nota- bly from the academic c o m m u n i t y ) perceive the Bank's interventions Future as b e i n g restricted to areas i n w h i c h the government feels comforta- engagement ble. The decision to proceed with the projects was i n order to keep the may want to Bank's "seat a t the table" a n d to p u s h f o r w a r d the r e f o r m agenda, al- look into b e i t m o r e s l o w l y than h a d been hoped. outward 3.31 Outward Migration. O n e p o l i c y option that has received l i t t l e migration as a attention so far, but that would m e r i t s t u d y i n depth, i s encouraging source, of o u t w a r d m i g r a t i o n as a source of e m p l o y m e n t for educated Tuni- employment for sians. This would b e especially relevant g i v e n the l i k e l i h o o d that the educated Tunisians s u p p l y o f skilled labor i nthe domestic m a r k e t will exceed the de- m a n d for some years t o come. Historically, o u t w a r d m i g r a t i o n from the Maghreb countries, i n c l u d i n g Tunisia, has been predominantly Iow-skilled. However, there m a y b e an important potential for highly educated emigration to the Gulf States and, to a Iesser extent, t o Eu- rope. Previously, the Tunisian authorities considered skilled labor on- 34 CHAPTER3 TUNISIA ly in terms of domestic needs. Recently, there has been a change in fo- cus. The Bank i s preparing a p r e l i m i n a r y r e p o r t on the subject. A stra- tegic approach would include: coherent and coordinated analysis of the migration; the implications for the education sector -w h i c h skills are l i k e l y to b e needed, w h a t t y p e of certificate would b e required, etc.; and the possibilities of financial assistance and contributions from receiving countries, especially the Gulf States. 3.32 Social Protection. N o action has been taken on the Bank’s rec- o m m e n d a t i o n to s t u d y the i n t r o d u c t i o n of e m p l o y m e n t insurance with a v i e w to encouraging greater labor mobility. 1.The background paper providing a detailed discussion of these topics will NOTES n IEG’s website. be available i 2. Official estimates show a poverty reduction path that conflicts with Bank w o r k that raised controversy. While there is n o question that there has been a major decline i n poverty since 1980, the period 1990-95 included three con- secutive years of severe drought and of a drop i n production of almost 25 percent during the years 1993-95 affecting the r u r a l sector, where most of the poor are. Accordingly, i n a n unpublished Poverty Update of 2003, the Bank estimated an increase i n poverty between 1990 and 1995, when a lower po- verty line was used, albeit with a decline in poverty when a higher poverty line was used. See Ayadi et al. (2005). Recent research by Muller (2007) sug- gests that poverty remained stable for a l o w poverty line and increased for a higher poverty line the direction of change depends o n the level of the po- verty line selected. 3. Jansen (2004). 4. In Tunisia, a holder of the Baccalaureate has a virtually automatic right of entry into a university. 5. According to the tracer study, which covered graduates for 2004, only 43 percent of all 2004 graduates had found employment 18 months after gra- duating and 62 percent after 40 months, with 54 percent of the latter engaged by the public sector, 12 percent with regular, indefinite contracts in the pri- vate sector, 19 percent with fixed-term contracts, 5 percent under subsidized arrangements, and 10 percent without a contract. About 15 percent of those employed after 40 months, mostly in the private sector, found themselves in a mismatch between the tasks they perform and the skills they have ac- quired. In nearly all cases, this involves a defacto downgrading. These data suggests the possible effects of gaps in education. The indicated paucity of regular contracts in the private sector is likely to be influenced by Tunisia’s rigid labor regulations, which lead many workers to the informal sector. Al- though available data does not distinguish between formal and informal sec- tor employment, anecdotal information and data o n w o r k status indicates a substantial amount of employment in the informal sector. Workers reporting themselves as self-employed account for just over 25 percent of the labor force inwork. 6. See Alter Chen, Jhabvala, and Lund (2002), Table 3, p. 27. 35 CHAPTER 3 TUNISIA 7. For example, the third and final tranche of ECAL I11was canceled because of serious doubts concerning the bidding process for the second GSM license. This was done in the face of strong Tunisian protest and despite the fact that, apart from the bidding process, the transaction achieved its objectives -the successful bidder i s a reputable firm, and much needed competition was in- troduced into the telecoms sector. 8. Normally financed from the Bank's budget or f r o m resources made availa- ble by other partners but managed by the Bank. 36 E ~ a i ~ a t iEssentials ~ff Growth during the 1997- 2007 period was unstable, but per capita GDP inGtX?aSedand 4. Turkey poverty likely declined, although the ~ n thas u ~ e ~ p l o y mrate Introduction increased The main constraints to 4.1 The beginrung of the p e r i o d 1998-2007 saw a major change in employment generation Turkey’s economic policies and, concomitantly, in the relations be- and earnings growth are t w e e n the World Bank and the T u r k i s h government. S p u r r i n g that in education, fabor market change, and exogenous to t h e Bank, were a persistent macroeconomic regula~ions~and crisis that h a d eroded the p o l i t i c a l resistance to economic r e f o r m a n d investment climate g i v e n rise t o the political will to proceed with such reform; the emer- Bank support for gence of a single p a r t y government that reinforced this political will; macroeconomic and the earthquakes of 1999 t h a t dramatized the T u r k i s h government’s financial sector need for outside assistance, presenting a n opportunity for the Bank stabilization helped a n d p a v i n g the w a y for a m u c h closer a n d m o r e productive Bank- improve the investment government relationship; i m p r o v e d prospects for accession into the climate European Union, strengthening incentives to modernize the economy Analytic work on the labor a n d body politic a n d to i m p l e m e n t reforms to c o m p l y with EU stan- market was followed up dards a n d directives in a l l the MILES categories; a n d a favorable in- with lending operations to ternational economic environment over the 2001-07 period, consisting overhaul labor regulations of expanding w o r l d markets a n d high c o m m o d i t y prices. Though the Bank has supported education for 4.2 The role a n d s u p p o r t of the Bank have undergone a gradual many years in Turkey, its change over the p e r i o d examined. In the beginning years the Bank rote in the sector’s concentrated, appropriately a n d effectively, on macroeconomic stabi- progress has been limited l i z a t i o n and accompanying structural reforms. In m o r e recent years, ~ ~ net l ~ p o safety n ~ greater attention has been devoted to employment a n d competitive- features-pension reform ness issues. Within the scope of the M I L E S framework, the r e m a i n i n g and u ~ e m p l o y ~ ~ ~ t p r o b l e m areas are labor m a r k e t regulations, education, a n d the in- insurance-received vestment climate. The r o l e p l a y e d by the Bank in r e f o r m i n g labor effective Bank support regulations, w h i l e perhaps a bit belated, has been relevant, effective, a n d even decisive. The B a n k Group’s involvement on investment cli- mate matters has also been productive, especially in the early p a r t of the p e r i o d with active F I A S participation. Overall, a n d in relation to employment generation a n d earnings growth, the Bank has p u r s u e d relevant objectives, w h i c h for the m o s t p a r t have been w e l l aligned with the government’s p r o g r a m a n d general development objectives. Moreover, seen as a w h o l e o v e r the f i v e M I L E S categories, the Bank has been effective in p u r s u i n g such employment-generating objec- tives. Table 7, presented below, summarizes the evaluation a n d pro- vides the ratings. 37 CHAPTER4 TURKEY Table 7. Turkey: Ratings Summary ~~~ ~ ~ ~~~ --7~ 1 ~ ~ ......... "............................................. + Outcomes ...................................................................................... Bank Contribution ................................................................................................................................................................................. Rating Macro , Inflation was reduced from 85 percent in 1998 High-quality AAA prepared the Bank to provide support Satisfactory to 9 percent in 2007. Under the FYOI FSAL, on government finances, agriculturalsubsidies and the absence of a stable macroeconomic personnel outlays, taxes, social security, and SOEs, all environment contributed to a banking crisis critical structural areas in need of reform. Support initially two months after loan approval. Later, major failed to duly account for macroeconomic risks to the improvements occurred in the fiscal accounts success of financial sector reforms. and in strengthening the financial system. A major challenge remains in reducing the continuing external vulnerability, as evidenced by the high current account deficits (6 percent in 2007). ........................................................... ................................................................................................. . 1 Private investment increased, but largely due ~ investment FlAS was especially effective in supporting Moderately Climate ~ to stabilization. Improved legal and regulatory improvements in FDI policy. High-quality AAA (ICA satisfactory I treatment of FDI contributed to increase FDI Report) generated private sector interest but was 1 ~ net inflow from 0.4 percent of GDP in 1998 to over 3 percent by 2007). There were accompanied by a somewhat disappointing subsequent engagement, apart from some lending '1 improvements in some business transactions costs (e.g., starting a new business) but little support, of the Bank with the government. Labor Market ....................................... ,' I+................................................................................................................................................................... or no progress in others. Labor regulations were made more rigid and I labor taxes increased. Bank AAA consistently and competently diagnosed the key issues and used ts convening power to advance Satisfactory its pol cy proposals ....................................................... Education 1 Important improvements were made in The Bank's roe was largely .neffective ana even Moderately ~ enrollments, coverage, and gender equality in marg,nal n relation to the recorded sector ga ns satisfactory I the educational system. Major challenges Tne Bank's AAA was of good quality I remain in improving quality and in ....................................................... Bank played an effective role through Satisfactory AAA and Iending support. \ now reaches over 2.8 million children in poor I households. ................................................................................................. . . . . . . . . . . . . . ......I....... ................................................. Combined I ....................................... ...,......... ............... .............................. Outcomes during ten years ending in, .... ,, 1997 2007 ! rating of .................................................................................................................. ./.. ................ ............ MILES 1 Faster PC GDP growth (avrg.) ................................................................................................................... Lower Poverty (eo p) , ~ I 2.2 j ................ ............ 34.5 , 27.0 2.5 ~ outcomes ! Moderately and of higher I ............................................................................................... Lower Employment Growth (avrg.) ~ 1.9 ............ I 0.8 satisfactory order j ..................................................................................................................... I ................. I outcomes at I Higher Unemployment (eo p) I 6.8 I 10.1 ..................................................................................................................... j................. i............ right. i I Stable Adj. PC GNI Growth (avrg.) 1 2.8 2.8 4.3 T h i s chapter summarizes the employment and earnings growth outcomes, the exogenous factors a n d policies with a bearing on those outcomes, the i m p a c t of those factors and policies on the outcomes, a n d the role of the Bank's support for the policies.1 38 CHAPTER 4 TURKEY Growth, Employment, and Earnings Outcomes Growth was 4.4 Turkey’s average annual GDP growth rate f r o m 1970 to 2007 unstable during was 4.5 percent, albeit with considerable instability, including reces- the 1997.2007 sions in 1980,1994,1999, and 2001. G r o w t h became higher and more period, but per stable after 2002 a n d despite the 1999 and 2001 recessions. The aver- capita GDP age rate of growth declined f r o m 4.3 percent during 1987-97 t o 3.9 increased and percent during t h e decade under review (1997-07) but annual per ca- poverty most pita GDP increased f r o m 2.2 percent during the 1988-97 decade t o 2.5 likely declined percent between the t w o decades. 4.5 Poverty most likely declined during this period. Between 1994 and 2002, the years for which comparable survey data are available, the proportion of t h e population with incomes beneath the national poverty line declined f r o m 28.3 percent t o 27 percent.2 Additional in- formation, not fully comparable, suggests that the trend to reduce t h e poverty headcount ratio continued ( d o w n to 18 percent i n2006). This decline was probably uneven, with likely temporary increases during the recession years. A slight increase in inequality i s observed be- t w e e n 1994 and 2002. Although less comparable, GIN1coefficient es- timates show further i ninequality since 2002. 4.6 At the beginning of the period under review, the labor partic- While labor ipation rate and the employment-to-population ratio continued t o participation decline, as they h a d for many years before, with female employment stabilized or rates m u c h lower than men’s. The labor participation rate stabilized increased after and perhaps increased after 2001, but t h e employment-to-population 2001, the ratio continued i t s decline. Accordingly, t h e unemployment rate in- employment-to. creased and has remained high since then, despite the recovery i n population ratio GDP growth. continued to decline; hence, 4.7 In 2007, the Turkish labor force participation rate was 5 1 per- the unemploy. cent of the 15-64 year o l d population. T h i s was t h e lowest of any ment rate OECD country and compared poorly with the OECD average of 70.9 increased percent. For female labor force participation, the comparison was despite GDP more striking-26.6 percent for Turkey versus 61.1 percent for the recovery OECD average, with Turkey having by far the lowest rate.3 4.8 Extensive labor earnings information is limited. An index for Information on real labor compensation for the manufacturing sector indicates high labor earnings real wage volatility and a decline i n real wages over the past five or so is limited years. However, broader household survey and GNI data (Table 25. ). indicate that incomes and earnings declined sharply after 2000 but re- covered after 2003. 39 4 CHAPTER TURKEY Factors Underlying the Outcomes On balance, exogenous 4.9 Exogenous Factors. W h e n attempting to assess the effects of pol- factors have had icies on economic growth, employment, and earnings, it i s i m p o r t a n t positive impact a t the outset to i d e n t i f y the relevant exogenous economic factors that on Turkey’s have h a d a bearing on Turkey’s economic performance. These factors economic have been positive, on balance: performance 0 Robust (3.1 percent) world GDP growth during the p e r i o d 1998-2007, as during the prior decade; a n d increased GDP growth in the Europe a n d Central Asia r e g i o n from about -2.3 percent to 5.0 percent between the two decades. 0 Stronger terms of trade after 2001. 0 The ascendency of Turkey’s candidacy for full European Union. 0 Expansion of international financial markets during the period. A number of 4.10 Policies. During the p e r i o d reviewed, Turkey implemented a policies relevant number of policies that are relevant for economic and employment out- for economic comes. With the exception of labor market regulations and taxes, poli- and employment cies have been on balance positive and can b e summarized as follows: outcomes were implemented Macroeconomic stabilization after 2002 that required fiscal re- during the forms to bring the deficit down, establishment of central bank period independence to ensure monetary stability and b a n k i n g re- forms to stabilize the financial system. Further policies to i m p r o v e the investment climate that cov- ered relaxation of requirements to open n e w businesses, con- d u c t border trade, a n d to a lesser extent to p a y taxes. Establishment of a n e w employment service agency. Increased m a n d a t o r y school attendance, from 5 to 8 years, massive n e w school construction and increased resources. Creation of a n u n e m p l o y m e n t insurance system and a condi- tional cash transfer arrangement. Remaining challenges Challenges include W h i l e the current account balance in the early stages of stabili- increasing zation was reduced (as a percentage of GDP), it emerged re- current account cently once again as a s i g n of macroeconomic imbalance and balance, vulnerability. business A n u m b e r of business climate areas s t i l l rate relatively low. climate issues, These cover m a i n l y the categories of obtaining credit, dealing and coverage with construction permits, registering property, e m p l o y i n g and quality of workers, protecting investors, enforcing contracts, a n d closing education a business. Labor reforms in 2002-03 that m a d e j o b dismissal, subcontract- ing, and temporary e m p l o y m e n t m o r e restrictive.4 T h e mini- mum wage increased as a percentage of average GDP and the 40 4 CHAPTER TURKEY overall tax rate on wages also increased. Both were a m o n g the highest in OECD countries.5 Although m u c h progress has been achieved, the coverage a n d quality of education inT u r k e y s t i l l has considerable room for improvement. Again in comparison with other OECD countries, Turkey lags in terms of social protection afforded to workers “outside the firm.” 4.11 Extracting from the discussion of existing policies a n d their ef- The main fects it would appear that, at present, the m a i n binding constraints to constraints to e m p l o y m e n t generation a n d earnings growth l i e i n the M I L E S catego- employment ries of education, labor m a r k e t regulations, and investment climate, generation and w h i l e the m a i n economic p r o b l e m affecting employment at the begin- earnings growth - ning of the 1998-2007 p e r i o d the adverse macroeconomic p o l i c y en- are in education, - v i r o n m e n t has been largely r e m o v e d through concerted policy ac- labor market tion and reform. regulations, and investment climate Link of Outcomes to Exogenous Factors and Policies 4.12 During the 1990s growth a n d labor p r o d u c t i v i t y growth slowed, largely d u e to macroeconomic instability. Growth and TFP accelerated after 2002 d u e p r i m a r i l y to macroeconomic stabilization, but also d u e to accession prospects a n d privatization, w h i c h also h e l p e d encourage private investment; openness, w h i c h encouraged competitiveness a n d d e m a n d u n d e r a robust world a n d regional Growth and total economy; and availability of international finance. The i m p a c t of sta- factor bilization occurred not only through better fiscal performance, w h i c h productivity w a s needed to contain inflation. Central Bank independence also im- accelerated after p r o v e d confidence on fiscal probity. Stabilization after 2002 w e n t 2002 due h a n d in h a n d with policies to strengthen and thus develop the bank- primarily to ing system after the failed previous stabilization attempt u n d e r m i n e d macroeconomic efforts t o strengthen banking and trigger financial development, stabilization n the short run on w h i c h has been s h o w n to h a v e an effect, a t least i growth in Turkey. Finally, the r e m o v a l of agricultural subsidies that w a s needed to achieve fiscal balance encouraged reallocation of re- sources to the m o r e productive economic activities. 41 CHAPTER4 TURKEY Table 8, Turkey, Key Economic Trends, 1970-2007 Indicator (percent, except formal 1970. 1976 1980. 1986 1991- 1996 2001- 2006 wage index) 1975 1980 1985 1990 1995 2OOO 2005 2007 GDP Growth ! 54 25: 491 571 33 41, 471 57 Gini Coefficient d .............................................................. ................. I 28.3 ................. ( 54.4 1 49.9 I I 41.5 ................. 0.400 ..... . 27.0 .... . ' ................ ............................... ................................ +................ i................ ~ ....i .. 26.3 0.38 ,.......0.310 ............... . 51.3 '1 ~ 18.6 .......... 51.0 , Employment Rated ................................................................................... ! 69.2 ...................................... Unemployment Rate .................................................................................................................... Formal Wage Index 1j............... __ I Notes: end of period; RealLabor Compensation per Labor Unit Manufacturing (Index, 2000=100) J Sources: TURKSTAT, OECD database and World Bank reports and materials, including World Development Indicators. Higher per 4.13 H i g h e r p e r capita GDP growth p l a y e d a strong role i n explain- capita GDP ing, a t least in part, the reduction i np o v e r t y between 1997 and 2007. growth strongly Available research suggests that p o v e r t y r e d u c t i o n i s also attributable influenced the to reductions in income inequality observed between the mid-1990s reduction in a n d mid-2000s, w h i c h i n declines in the income n T u r k e y originate i poverty during shares of the bottom and top quintiles. T h e declines i n poverty m a y the period 1997- w e l l b e l i n k e d to rural-urban migration, as urban wages are higher 2007 than r u r a l wages. 4.14 Despite increased economic growth, the declining t r e n d i n the employment-to-population ratio w a s not reversed. Four p r i m a r y ex- planations exist. First a n d m o s t dramatic i s the structural change a w a y from agriculture especially relevant i n explaining declining - female labor force participation, as w o m e n who have been c o m m o n l y active in the agricultural labor force as u n p a i d f a m i l y labor are m o r e a p t to find their skills unsuited to the u r b a n labor markets, particular- ly i n the f o r m a l sector. Second, p r o d u c t i v i t y in agriculture i s low a n d s l o w l y growing and p r o d u c t i v i t y i ni n d u s t r y and services are seen to b e growing fast. Third, there i s a m i s m a t c h of labor d e m a n d and skills in the growing sectors, with employers c o m p l a i n i n g that they are un- able to locate qualified employees for t h e positions that they seek to fill. Finally, rigid labor m a r k e t regulations a n d institutions have also restrained employment growth. 4.15 The question of the falling labor participation rate for w o m e n has been a special concern of the government and the topic of some empirical analyses.6 The sector shift of employment out of agriculture and the accompanying rural-to-urban migration, as indicated above, explains m u c h of the falling female labor participation ratio. The agri- cultural sector still employs the greatest share of women, and m o s t of these w o m e n are u n p a i d f a m i l y workers, that is, unregistered, i n f o r m a l sector workers. With continuing structural transformation and urbani- zation these jobs disappear. Beyond this sector shift, there are other im- 42 CHAPTER 4 TURKEY portant dimensions and determinants as well. M o s t importantly, edu- cational attainment directly affects female labor market participation, with the m o s t m a r k e d increases c o m i n g from university-level educa- tion. There are also considerable regional variations i nfemale labor market participation, with Turkey’s poorest regions, such as the south- east, h a v i n g the lowest rates. O n e study, based u p o n econometric anal- ysis of t i m e series and regional data, presents evidence supporting the U-shaped curve hypothesis (for female labor force participation rates) and contends that it i s l i k e l y that ”there will b e a secular upturn i nfe- male participation rates during the c o m i n g decades.”7 This conclusion i s based upon: the eventual decline of the workforce shift out of agri- culture; increased female enrollments and educational attainment; and the reduction of regional income disparities and the eventual economic catch up of the poorer regions to those i n the m o r e prosperous western areas (the Aegean and Mediterranean regions). 4.16 U n e m p l o y m e n t rates have not decreased appreciably, with Unemployment h i g h e r growth since 2002. The accelerated structural transformation rates have not occurring over the past six years, w h i c h has been a n important expla- decreased n a t i o n for the n o t e d s l o w overall employment generation, unquestion- appreciably ably has h a d a bearing on the inertia i n the u n e m p l o y m e n t rate, with even with higher female u n e m p l o y m e n t rates for u r b a n areas substantially h i g h e r t h a n growth those for males (but l o w e r t h a n those for males i n the r u r a l sector). With the shift of resources out of agriculture, females have faced in- creased employment difficulties in urban labor markets. The Bank’s Strategy and Contribution 4.17 Overall strategy and objectives. Inthe periodic economic plans Employment a n d pronouncements of the T u r k i s h government, e m p l o y m e n t gener- generation has a t i o n has constituted a consistently present objective and priority for been less p o l i c y action. This w a s the case for the Seventh Five Year Develop- common in m e n t Plan (for 1996-2000) a n d for the Eighth Development Plan as Bank strategy well. In the Ninth Development Plan (for 2007-13), increasing em- documents than p l o y m e n t was the second l i s t e d out of f i v e m a i n economic objectives. in government U n d e r the general e m p l o y m e n t generation objective, m o r e specific ob- strategies and jectives include: improving the functioning of the labor market; in- plans creasing the sensitivity of education to labor demand; and developing active labor m a r k e t policies. 4.18 The e m p l o y m e n t generation theme and objective i n Bank strategy documents has been less explicitly articulated t h a n i n Tur- k i s h government plans and p o l i c y statements. The four C A S t y p e documents examined (dated 1997,2000,2003, and 2008) m e n t i o n em- p l o y m e n t generation and/or earnings, but, if indicated as a n objec- tive, it has been s u b d u e d and, until recently, not actively p u r s u e d as a p a r t of Bank Group strategy. 43 CHAPTER4 TURKEY 4.19 In the 1997 CAS, presented to the Board i n FY98, employment generation was explicitly i d e n t i f i e d as a p a r t of one (enhancing com- petitiveness and employment growth) of three b r o a d development priorities for Turkey, along with: accelerating structural reforms a n d addressing poverty a n d social development. The C A S correctly em- phasized that substantial e m p l o y m e n t c o u l d only come through pri- vate sector expansion. N o specific employment, labor force, or labor m a r k e t progress benchmarks w e r e included. 4.20 In the 2000 CAS, employment generation w a s also set forth as a theme for Bank action a n d support, but no benchmarks were in- cluded. With the economic crisis experienced by T u r k e y in 2001, a Progress Report related to the 2000 C A S was prepared a n d discussed by the B o a r d in June 2001. It dealt p r i m a r i l y with B a n k support to T u r k e y during the crisis a n d focused on various dimensions of ma- croeconomic stabilization such as p u b l i c finances, p u b l i c sector reform, a n d financial sector issues. There w a s little m e n t i o n of em- p l o y m e n t questions. 4.21 The 2003 C A S does not contain an explicit m e n t i o n of em- p l o y m e n t generation as p a r t of one of the pillars for Bank support, al- though the emphasis on macroeconomic stability, growth, and in- creased competitiveness indirectly involves job generation. The most recent 4.22 The m o s t recent CAS-type document, now called a Country strategy Partnership Strategy (CPS) a n d presented to the B o a r d i nJanuary includes 2008, includes a specific a n d explicit m e n t i o n of increased employ- increasing m e n t as one of the four components of the first p i l l a r for Bank strate- employment as gy entitled ” I m p r o v e d Competitiveness and E m p l o y m e n t Opportuni- a component in ties.” It closely reflects the similar objective expressed in the one pillar government’s Ninth Development Plan, as w e l l as a n u m b e r of other government objectives. I nl i n e with expressed government priorities, the CPS also explicitly mentions “enhancing the educational system a n d increasing the sensitivity of education to labor demand.”8 4.23 Throughout the 1998-2007 period, major pillars for Bank strat- egy h a v e entailed: macroeconomic stability; economic growth, compe- titiveness, and productivity; a n d p o v e r t y r e d u c t i o n and social devel- opment. W h i l e these buildingblocks for Bank strategy have evolved, t h e y h a v e been consistently present.9 Indirectly, the p u r s u i t of assis- tance u n d e r these pillars has been consistent with a general objective of employment generation and earnings growth. Only i n , m o r e recent years however, after the urgency of macroeconomic stability abated through policy changes and economic reform, have employment gen- eration objectives become m o r e explicitly pursued. 4.24 Bank Group Assistance and Interventions. The Bank has been ac- tive and heavily i n v o l v e d i n a l l f i v e of the M I L E S areas, with differing 44 4 CHAPTER TURKEY emphases over the 1998-2007 periods. To the extent that the investment Bank climate encompasses the infrastructure sectors, there i s little i nthe involvement has Bank's p r o g r a m that is not included i n the M I L E S areas.10 Appendix P intensified over presents a summary of Bank assistance i n accordance with the five the period and M I L E S categories. L e n d i n g a n d analytical work are listed separately. covers all five MILES areas 4.25 In general terms, Bank involvement i n T u r k e y has intensified dramatically over the 1998-2007 period. L e n d i n g commitments g r e w n FY97 to $1.16 billion i from $18.5 million i n FY07. Analytical a n d advisory assistance (AAA) a n d other non-lending s u p p o r t have in- creased commensurately. The l e n d i n g portfolio i m p r o v e d from a problematic one to one without major problems. 4.26 Macroeconomic Policies. The mid-1990s were characterized by macroeconomic volatility, Bank ESW outlining the means to macroe- conomic stabilization and adjustment,ll a n d low-scale Bank- government relations. For some t i m e preceding 1998, the Bank h a d i d e n t i f i e d macroeconomic instability as the major economic challenge for T u r k e y a n d p u r s u e d AAA on those issues, w h i c h frequently f e l l upon deaf ears within the government. Indeed, Bank persistence on such matters a t times r u f f l e d government sensitivities and served to u n d e r m i n e Bank-government relations. W h e n the government's polit- i c a l will to proceed with stabilization emerged, the B a n k through i t s previous analytical work was i n a good p o s i t i o n to p l a y a useful role to p r o v i d e support.12 Because of the reIevance and timeliness of Bank ESW a n d the government's need for international financial support, the Bank became an i m p o r t a n t actor h a v i n g considerable influence, a l o n g with the IMF, in the design of the government's macroeconomic p o l i c y reforms, especially those related to p u b l i c finances and the fi- nancial sector. In the i n i t i a l stages, from 1999-2000, the Bank p l a y e d a secondary role to the Fund i n the design and p u r s u i t of financial and b a n k i n g sector measures,13 but this r o l e e v o l v e d subsequently with later l e n d i n g operations. Accordingly, the Bank's r i s k y investment i n p u r s u i n g macroeconomic issues i n i t s AAA u l t i m a t e l y p a i d high div- i d e n d s for both the country a n d the Bank. 4.27 Collaboration with the IMF on the first Stand-by Agreement i n The Bank 1999 w a s intense, and this work gave rise to the period's first quick collaborated - disbursing, policy-based adjustment loan the Economic R e f o r m with the IMF on L o a n (ERL) i n FYOO. The milestone ERL operation focused i t s macroe- the first Stand- conomic support on i m p r o v e d fiscal measures, the b e g i n n i n g of a so- by Agreement c i a l security reform, and the i n t r o d u c t i o n of a n u n e m p l o y m e n t insur- ance system. 4.28 The Bank also advised T u r k e y on b a n k failure resolution, de- p o s i t insurance, a n d on restructuring and p r i v a t i z a t i o n of state- o w n e d banks. A f t e r the ERL, a n F S A L s u p p o r t i n g a strengthening of p r u d e n t i a l regulations and b a n k i n g supervision for the financial 45 CHAPTER4 TURKEY It also advised sector w a s m a d e effective. The F S A L h a d one major shortcoming from Turkey on bank the outcomes perspective: the absence of a stable macroeconomic en- failure v i r o n m e n t based on a robust fiscal program. These conditions contri- resolution, b u t e d to a major banking crisis two m o n t h s after l o a n approval. deposit insurance, and 4.29 Learning from difficulties experienced i n the ERL, the Bank restructuring m o d i f i e d l e n d i n g instrument design with the introduction of pro- and privatization grammatic adjustment loans. Fairly quickly, a series of three program- of state-owned matic financial and public sector adjustment loans (the PFPSALs, ap- banks provedi nFY02 and FY04) was initiated. It w a s f o l l o w e d by the two programmatic development policy loans (PPDPLs approved i n 2007 and 2008). These supported the structural r e f o r m p r o g r a m to maintain a macroeconomic stability framework, financial controls and expendi- ture management of public resources, and to i m p r o v e the administra- tion and governance of the public sector. In FY07 a n e w programmatic development policy loan series was initiated -the Competiveness and E m p l o y m e n t Development Policy Loans (CEDPLs); these loans, l i k e their predecessors, are anchored i nthe maintenance of a stable macroe- conomic policy environment. Over the 1998-2007 p e r i o d a total of n i n e such adjustment loans have been made, totaling $6.29 billion. Policies 4.30 There can b e l i t t l e doubt that the policies supported by the supported by Bank and i m p l e m e n t e d by the authorities h a d a beneficial effect i n the Bank had a achieving macroeconomic stabilization. Without t h e i n v o l v e m e n t of beneficial effect the Bank, and the Fund, it i s doubtful that the necessary adjustment in achieving for the T u r k i s h economy c o u l d h a v e been so successfully achieved. macroeconomic The r e s u m p t i o n of robust growth during the 2002-07 p e r i o d i s a n out- stabilization come of those p o l i c y reforms. Indirectly, the d e m a n d for labor a n d e m p l o y m e n t h a v e increased (or, rather, declined less) as a result. 4.31 Investment Climate. Growing out of the m o r e general AAA w a s a n emphasis on growth, competitiveness, the financial sector and pri- vate sector development, a n d the investment climate i n general. Ana- l y t i c a l work on investment climate issues has i n v o l v e d a n u m b e r of infrastructure sector analyses a n d studies (including for electric ener- gy, gas a n d oil, and water); a series of FIAS reports (starting i n FY2000) focusing on the treatment and role of f o r e i g n direct invest- ment, the p r i v a t e sector regulatory environment, tax issues for private sector development and investment promotion; and the recently di- v u l g e d Investment Climate Assessment (2007). 4.32 On l e n d i n g support, the Economic R e f o r m Loan (ERL, FYOO) contained, apart from i t s strictly macroeconomic (and financial sector) areas, elements related to privatization, the r e d u c t i o n of agricultural subsidies, and deregulation of the energy sector. Subsequent l e n d i n g for agriculture (the A g r i c u l t u r a l R e f o r m Investment Project, or ARIP) p r o v i d e d resources for severance payments i n agricultural state- o w n e d enterprises as p a r t of their privatization or closure a n d the fur- 46 CHAPTER 4 TURKEY ther reduction of agricultural subsidies. A n u m b e r of credit l i n e projects (the EFIL series) were also pursued, as were several projects in the electric energy sector. In 2007 the first CEDPL (Competitiveness a n d E m p l o y m e n t Development Policy Loan) was approved; in a d d i l tion to m a i n t a i n i n g the macroeconomic policy framework, i t sup- p o r t e d various measures to i m p r o v e the investment climate. 4.33 The Bank's support for macroeconomic and financial sector sta- Perhaps support bilization w a s perhaps i t s m o s t important for improving the invest- for m e n t climate, as i t was macroeconomic stabilization that really m a d e macroeconomic the difference for investment and growth. After the macroeconomic and financial and financial sector reforms, the area where the Bank Group has h a d sector the greatest i m p a c t i n improving the investment climate has been with stabilization was various features of the business legal and regulatory environment. The most important FIAS reports and engagement i n the early p a r t of the 1998-2007 p e r i o d for the were o f high quality and h a d a major impact. The successful FIAS en- improvement in gagement with the government resulted i n close working collaboration the investment and in the drafting and passage of the Foreign Investment L a w of 2003 climate that eliminated the legal discrimination against foreign-owned firms operating i nTurkey; the reduction of the top corporate income tax rate from 30 percent to 20 percent, and the establishment of governmental institutions- to m o r e effectively pursue private sector investment pro- m o t i o n and to i m p r o v e the business enabling environment. These regu- latory and policy changes, attributed in large p a r t to F I A S initiatives and subsequent engagement, have been partly responsible for the ex- pansion of private sector investment i n general and that of foreign di- rect investment in particular. The FIAS engagement also resulted in a number of institutional changes designed to facilitate private and gov- ernment collaboration on investment climate impediments. 4.34 Another AAA effort of potential usefulness a n d importance i s the recently d i v u l g e d Investment Climate Assessment (2007). It w a s car- n great p a r t upon a n i n s i g h t f u l survey of manufactur- r i e d out, based i ing firms,*in conjunction with a leading T u r k i s h research and academ- i c organization (TEPAV). So far the report's dissemination and engagement of T u r k i s h stakeholders on these matters h a v e not ad- vanced v e r y far, perhaps d u e to inadequate b u d g e t i n g of Bank re- sources for such important follow-up activities. 4.35 Labor Regulations and Institutions. The Bank's Labor M a r k e t Study i n i t i a t e d m o r e active a n d direct Bank participation on employ- m e n t issues. This effort w a s p l a n n e d in the 2000 CAS, but i t w a s de- l a y e d through s h i f t i n g B a n k priorities related to the 2001 economic crisis and through staffing difficulties, i n c l u d i n g the reassignment of the Task Manager to additional functions in study's f i n a l stages. There was considerable interest on the p a r t of the government, and after some i n i t i a l discussions of results and recommendations t h e r e p o r t 47 CHAPTER4 TURKEY Analytic work w a s finally d i v u l g e d (ingrey cover) i n April 2006. This i s a high- on the labor q u a l i t y report, and it has h a d a considerable i m p a c t within the gov- market led to ernment. A s a result, additional government requests for further work related lending on related topics were extended, and the o r i g i n a l r e p o r t spawned ad- operations to d i t i o n a l AAA, i n c l u d i n g separate reports on estimating the i m p a c t of overhaul labor p a y r o l l taxes and y o u t h employment. regulations 4.36 T h i s analytical work and related government policy actions have p a v e d the w a y for directly related l e n d i n g operations. The first programmatic CEDPL supported i n i t i a l actions to overhaul labor mar- k e t regulations. The second loan, CEDPL2, s t i l l u n d e r preparation, supports measures undertaken i n the 2008 E m p l o y m e n t Package along with various other measures designed to increase competitiveness. 4.37 A s with reforms i n the macroeconomic framework, the financial sector, and some investment climate measures, the Bank exercised a decisive and k e y role i n supporting improvements i n the labor market regulatory environment, but only t o w a r d the e n d of the review period. W h i l e the Bank's Labor Market Study w a s considerably delayed, it has served as a milestone i n the Bank's involvement on such issues. It es- tablished the basis for a productive partnership between the govern- m e n t and Bank on labor m a r k e t questions, spawning additional reports and collaborative work. The measures implemented as p a r t of the Em- p l o y m e n t Package of M a y 2008 were a result of that work and that i s b e i n g supported by the Competitiveness and Employment DPL series. These measures included, i n particular, a general 5 percent reduction i n employer social security contributions as w e l l as a reduction o f social security contributions for the young and w o m e n for firms hiring young people a n d w o m e n who h a v e b e e n out of the f o r m a l sector for a t least six months.14 These are now b e i n g covered by the treasury. Excessive p a y r o l l taxation has been one of the issues that the Bank's advice has focused on for a number of years. This and other employment-related advice was developed i n particular by the 2006 Labor M a r k e t Study, the 2007 ICA, the 2008 CEM, the 2008 your employment report, and the 2008 Labor Tax Report. 4.38 Education. Over a n extended period, education has been a cen- t r a l sphere of the Bank's activity a n d l e n d i n g i n Turkey. In 1997 the Education R e f o r m L a w i m p o s e d sweeping changes i nthe educational system a n d extended m a n d a t o r y education from f i v e years to eight. Among other things, there w a s a large school construction p r o g r a m to try to meet the n e w l y expanded demand. The Bank responded with a Basic Education Loan (APL), totaling $300 million in 1999 -at a criti- cal juncture i n Bank-government relations. W h i l e the project from the b e g i n n i n g w a s beset with problems, i n c l u d i n g thorny procurement issues,15 i t did come at a n i m p o r t a n t t i m e a n d w a s c o m m o n l y seen as a willingness on the p a r t of the Bank to support Turkey. 48 4 CHAPTER TURKEY 4.39 A d d i t i o n a l educational sector lending, w h i l e continuing to b e problematic, has fared better than the first Basic Education project. A second Basic Education L o a n (APL2 i n FY03) h a d m u c h m o r e specific project objectives - increasing coverage and improvingthe quality of basic education for low-income children. A Secondary Education project w a s approved i n FY05. 4.40 To serve as a means to support l e n d i n g a n d conduct a mea- Although the ningful dialogue with the government the Bank undertook a Education Bank has long Sector Report, w h i c h was disseminated (ingrey cover) in December provided 2005. It i s a competently done piece of analysis, d r a w i n g on, as a p a r t support to of the team, considerable T u r k i s h expertise and experience. It i s un- education in clear why this effort has not been m o r e effective i n p u r s u i n g a pro- Turkey, its role ductive engagikment with the government education authorities. A in the sector's m o r e recent Higher Education Assessment (FY07) raises equally relevant progress has issues a n d also warrants m o r e attention. been limited 4.41 In many countries the education sector has p r o v e d a d i f f i c u l t nw h i c h to work for the Bank. T h i s has indeed been the case sector i for Turkey. W h i l e substantial a n d i m p o r t a n t advances have been made i n the T u r k i s h educational system, as witnessed by the in- creased enrollment rates (as n o t e d above a n d i n A p p e n d i x R), the n this progress has been q u i t e l i m i t e d a n d perhaps even Bank's r o l e i marginal. Effective engagement with the M i n i s t r y of Education over recent years has been, a n d continues to be, a challenge. 4.42 Social Protection. The ERL (FYOO) i n c l u d e d provisions and The Bank measures to i n c l u d e i n i t i a l reforms of the pension system and the es- continuously tablishment, i n 2001, of an u n e m p l o y m e n t insurance system. Those pushed for two systems continue at the forefront of Bank-government discus- ongoing sions on social protection. The PPDPL (FY06) supported government pension reforms measures to further r e f o r m the pension system, r e v a m p universal and supported h e a l t h insurance, and revise other social assistance programs. The the pension (social security) system has recently undergone a n e w round establishment of of Bank-supported revisions (inthe 2008 E m p l o y m e n t Package). In unemployment addition, d r a w i n g from the earlier Living Standards Study, the Bank's insurance Social Risk M i t i g a t i o n Project (SRMP) of FY02 p r o v i d e d resources for conditional cash transfers to the poorest six percent of the T u r k i s h families. Monthly stipends w e r e p r o v i d e d to poor families condi- t i o n e d upon school attendance and basic h e a l t h care for their children. By mid-2008 2.8 million children were benefitting from this program. 4.43 The Bank has p l a y e d an effective, important, a n d even deci- sive role i n strengthening social protection. I t has effectively p u s h e d for ongoing reforms in the pension system, supported the nascent un- e m p l o y m e n t insurance system a n d pioneered the conditional cash transfer (CCT) p r o g r a m to poor families. 49 CHAPTER4 TURKEY NOTES 1.The background paper providing a detailed discussion of these topics will n I E G s website. be available i 2. An earlier headcount poverty calculation for 1987 used the 1994 metho- dology but a less complete survey. It was estimated that i n 1987,38.5 percent of the population was living i n poverty, suggesting a significant decline in poverty over the past three decades. Some earlier, but less w e l l documented, estimates show headcount poverty reductions occurring since the early 1970s (Table 2). 3. Table 23 and Table 24 (Appendix L) presents details o n employment and labor force participation rates. 4. An employment reform in 2008 reduced labor taxes. 5. See Fletcher (2007). 6. In addition t o more general analyses, some specific studies include: Tansel (2002); Ince, Meltem and Demir, M. Hulusi, ”The Determinants Of Female Labor Force: Empirical Evidence From Turkey” (2006), Eskisehir Osmangazi Universitesi IIBF Dergisi, Nisan 2006,1(1), 71-90; and Capar et al. (2008). 7. See Tansel (2002), p. 20. A related study by the same author (Tansel, 2004) presents evidence f r o m analysis of the 2002 HBS data that demonstrate a higher rate of return to education for women than for men. 8. W o r l d Bank, Country Partnership Strategy (January 2008), p. 27. A planned second programmatic Competitiveness and Employment Develop- ment Policy Loan (CEDPL2) i s intended to address labor market issues. 9. Environmental protection and natural resource management have also nBank strategy, as evidenced in successive CASs. been consistent pillars i 10. The major exceptions are environment and health. 11.A good example i s the 1996 C E M (Challenges for Adjustment). 12. This w o r k included 1993,1996, and 1997 reports that h a d developed a sol- id knowledge of Turkey’s macroeconomic challenges during the years pre- ceding the structural reforms. 13. In the Bank-Fund discussions o n the initial stabilization measures, and the accompanying SBA and ERL, the Bank team wanted banking sector is- sues frontally addressed in the first SBA; however, the Fund decided to leave these related measures for later. The failure to address such problems up front ultimately contributed to the 2001 crisis. n more detail in The W o r l d Bank 14. The reform package i s described i (2008f), Box 5, p. 33. 15. See The W o r l d Bank (2006a), pp.45-47. 50 5. Key Findings 5.1 The cases reviewed in the preceding three chapters of this re- port depict a range of experiences relating to Bank support for address- ing employment challenges. This chapter discusses a set of findings that can b e d r a w n from Bank experiences assisting Colombia, Tunisia, and Turkey. The discussion focuses on the country’s achievement of outcomes (GDP, poverty, employment, and earnings growth) and the contribution of Bank inputs, first from a cross-cutting perspective and t h e n with reference to each of the five M I L E S areas of support. The chapter concludes with implications for Bank support during the cur- r e n t jobs crisis. Comparison of Outcomes across the Three Countries 5.2 Two findings in connection with outcomes across the three countries are highlighted. First, progress in economic growth and earnings was better than progress in employment a n d unemploy- ment. Second, w h i l e the availability of statistics o n employment and outcomes has improved, there are s t i l l sigruficant deficiencies. 5.3 W h e n comparing the decade reviewed (1997-2007) with the previous decade, the broad outcomes (Table 9) are asfollows: Tuni- sia did best. With stable e m p l o y m e n t growth, Tunisia increased i t s employment-to-population r a t i o and reduced the u n e m p l o y m e n t rate. Per capita GDP, GNI, a n d earnings growth rates also increased and p o v e r t y declined at an increased rate. Colombia also registered stable employment growth a n d a n increase in the employment-to- p o p u l a t i o n ratio, but the u n e m p l o y m e n t rate increased. The per- capita GNI and GDP growth rates declined, but earnings growth m a y have increased t o w a r d the e n d of the r e v i e w p e r i o d d u e to a decline in inequality, Poverty declined after h a v i n g increased during the pre- vious decade. Turkey experienced declines in employment growth a n d in the employment-to-population ratio, and an increase in the u n e m p l o y m e n t rate. The per-capita GNI a n d GDP growth rates in- creased a n d earnings growth possibly remained stable. Poverty de- clined at an increasing rate, particularly after 2002. The last c o l u m n of Table 9 shows p e r w o r k e r output growth a n d TFP. Although Turkey, l i k e Tunisia, increased TFP growth markedly, Turkey’s growth, un- l i k e Tunisia’s, was ”jobless.” Based o n this data, this assessment rates 51 CHAPTER 5 KEYFINDINGS the Tunisia outcomes "satisfactory" a n d the Colombia and T u r k e y outcomes "moderately satisfactory." Although 5.4 Although employment growth is positively correlated with employment GDP growth, as indicated by ILO (2005) estimates of the GDP elastici- growth is ty of employment, changes in average GDP growth rates b e t w e e n positively 1987-97 and 1997-2007 w e r e reflected primarily in changes in earn- correlated with i n g s growth, not on e m p l o y m e n t growth. A positive relationship be- GDP growth, t w e e n GDP a n d employment growth i s to b e expected because changes in growth triggers d e m a n d for labor and because e m p l o y m e n t i s one of average growth the sources of growth. However, the simple correlation between em- over two p l o y m e n t and GDP growth i s weakened by the relationship that has decades were also been found between changes i n GDP growth a n d changes in TFP reflected growth (another source of GDP growth), particularly w h e n funda- primarily in m e n t a l changes in relevant policies have taken place. Infact, world- changes in w i d e acceleration of GDP growth during the r e v i e w p e r i o d w a s earnings growth l i n k e d to w o r l d w i d e acceleration of TFP g r o w t h a n d the three coun- tries were no exception. Changes i n factor p r o d u c t i v i t y growth al- l o w e d earnings growth to increase in Tunisia and Turkey, a n d possi- bly in C o l o m b i a w h e r e the change i n average TFP growth between the two periods w a s small but income inequality declined. Table 9. Colombia, Tunisia, and Turkey: Outcome Indicators Employment Unemploy. Income Poverty Income distribution OutputlTFP ment Headcount ratio Gini coefficient Average Employment-to- Unemploy- Real (not comparable (not comparable across Per-worker GDP capita annual population ratio ment across countries) countries) growthlof which: change GNI (%) rate growth Data at or closest to Data closest to (as TFP (%) (as indicated): indicated) ~~ ~~~ ~~ ~ ~~~~ ~~~~~ ~~ ~ ~~ 1997 2007 1997 2007 1987-971997-07 1987 1997 2007 1987 1997 2007 198995 199805 .......................................................................... ............... ombia 2.3 2.3 51.0 51.4 9.8 10.7 2.2 1.9 52.5'' 52.7 45.02 53.13 57.6 54.W 1.5W 1.161 ................... ............... 4.01 4.18 2.7 38.1 40.2 15.9 14.1 2.2 7.74 6.25 3.85' 43.2' 38.P 40.W 2.371 3.041 ...................................................................................... .......................................................................... ............... 0.75 1.42 Turkey 1.9 0.8 49.0 45.8 6.8 10.1 2.3 2.5 38.57' 3.55' 27.P 44.4 41.6 39.8 2.831 3.611 28.3" 9.5 41.5u 42.7w 43.P 4.05 1.50 ...................................................................................... .......................................................................... 30.3w 56,6 ....... 6 1 9 1 ~~ , 2 1 63,4,,/ ~ WOM 1.7 1.6 63.0 61.8 6.1 6.0 1.4 1.9 71.8 0.831 2.991 67.2 ..... ! ? !?%e .............................................................................. ........... ................. 4.44 1.32 /oyme 11/ Sources and Notes: GNl, Population and working age populatio Bank lnstitute of Statistics (Tunisia), OECD (Turkey), The World Bank (WDl) and /LO, "Global Employment Trends",2009 (World). Poveffy Headcount Ratio: DNP (Colombia); Tunisia lnstitute of Statistics (Tunisia); The World Bank (2005) and (WDl) (Turkey); The World Bank (WDl) (World). Gini Coeflcient: DNP (Colombia); (World Bank updated (2008) poverty estimates (cwww..worldbank.org>) (Tunisia); Dumlu and Aydin (2008) (Turkey). OutputjTFP: staff estimates from Dale W Jorgenson; Khuong Vu, "Information Technology and the World Growth Resurgence",hdl: 1902.1/10702 U N F : ~ : V E ~ B ~ ~ ~ ~ M4DA==; R~K~ZZ~~/P ?/Average of 122 Economies. lM991; 2/2006; 3/1987 4/ 1985; 5/ 1995; 6/2005; 7/1987 8/1994; 8/ 1994; 9/2002/ IO/ 1988 and 1998, Milanovic (2005); 1I 1 2000 and 2005, Hillebrand (2008). 5.5 Differences i n outcomes across the three countries w e r e l i n k e d p r i m a r i l y to differences in local exogenous forces a n d policies. Exter- n a l forces w e r e favorable. Improvements in the world a n d regional 52 5 CHAPTER KEYFINDINGS economic environment increased local demand for labor i nthe three countries. Per capita world GDP growth increased from 1.4 percent during 1987-97 to 1.8 percent during 1997-2007, with even larger in- n L a t i n America, ECA, and MENA. Access to international creases i finance i m p r o v e d notably a n d the cost of this finance declined. 5.6 Improvements i n macroeconomic policies and other invest- Improved ment climate policies were also a factor h e l p i n g increase investment policies were a a n d the d e m a n d for labor i nthe three countries, but good macroeco- factor in n o m i c policies w e r e already in place a t the outset of the r e v i e w p e r i o d increasing in Tunisia, w h i l e these policies i n i t i a l l y deteriorated i nC o l o m b i a a n d investment and Turkey. Labor market rigidity, non-wage costs, and minimumwages labor demand in increased throughout the p e r i o d i nTurkey and remained unchanged all three inTunisia. Rigidity w a s somewhat relaxed i n Colombia but non-wage countries costs and the minimum wage also increased. I neducation, the three countries achieved increases i n enrollment, particularly i nsecondary a n d tertiary, t h a t is, t o w a r d the working-age range. These increases as w e l l as demographic transition that reduced working-age p o p u l a t i o n Increases in growth contributed to tame aggregate labor s u p p l y growth. Past edu- education cation efforts also generated the s u p p l y of skills that a l l o w e d earnings enrollment and to increase. Rural-urban m i g r a t i o n spurred by economic sector ad- demographic justment i nT u r k e y a n d r u r a l violence i n Colombia shocked urban la- transition bor supply. Furthermore, i nColombia, deteriorated security during helped tame the first h a l f of the r e v i e w p e r i o d discouraged economic activity. All labor supply in all, the environment c o m i n g from local exogenous forces and poli- growth cies was m o s t favorable in Tunisia, less so i n Turkey a n d least so i n Colombia. 5.7 I n the three countries, poverty declined a t an accelerating pace during the review period (Table 31., A p p e n d i x N.). This acceleration inp o v e r t y reduction comes as a surprise, for economic growth accele- rated i n Tunisia a n d T u r k e y a n d inequality declined i n Colombia. Furthermore, the experiences of the three countries suggest t h a t pe- r i o d s of economic distress, with low p r o d u c t i v i t y growth, f a l l with m o r e w e i g h t on the poor. T h i s i s s h o w n by growth incidence curves in Tunisia and Colombia, w h i c h depict the incidence of growth by percentile of the income distribution. These curves indicated a pro- r i c h pattern during distress years. Increased inequality b e t w e e n 1994 a n d 2002 suggests t h a t t h i s m a y also have been the case i n Turkey. 5.8 Employment abroad has been an important source of in- comdtransfers for nationals of the three countries, both for those liv- ing and employed abroad and for those living in their c o u n t y and re- ceiving remittances. InColombia, the economic and security crisis a t the turn of the century triggered a substantial rise i n the stock of emi- grants (up to 4 percent of population) a n d i n remittances (up to 7 per- cent of GNI), the latter declining as the economy i m p r o v e d (See Fig- u r e 1.,A p p e n d i x N. ). InTunisia, there w a s a gradual rise i n t h e stock 53 CHAPTER5 KEYFINDINGS of emigrants after the year 2000 (up to 1 0 percent of p o p u l a t i o n i n 2007) and a rise i n the level of remittances a t the turn of the century Labor (up to a l i t t l e over 1 0 percent of GNI; (See Figure 2. ,A p p e n d i x N). participation T u r k e y shows a sharp decline i n remittances as the economy im- rates varied p r o v e d as w e l l as a decline in t h e stock of emigrants (See Figure 3. , widely, as did A p p e n d i x N). the reasons for 5.9 The dynamics of participation rates varied significantly particular across the three countries. Turkey’s long-term decline i n participation patterns continued and i s p r i m a r i l y correlated with the decline i n the share of the agricultural sector: a decline t h a t w a s g i v e n additional impetus by the r e m o v a l of agricultural subsidies as p a r t of the structural ad- justment measures u n d e r p i n n i n g stabilization. Colombia’s long-term increase in participation, p r i m a r i l y explained by increased i n educa- tion levels that raised female participation rates, ceased during the pe- riod u n d e r review, reflecting the d i m i n i s h e d capacity of the economy to generate employment d u e to l o w e r growth and possibly minimum wages. Participation rates i n Tunisia increased, reflecting higher eco- n o m i c growth. 5.10 Similarly, the experience of unemployment i n the three coun- tries also varied considerably. It suggests that changes i n unemploy- m e n t (Table 31. ,A p p e n d i x N) in C o l o m b i a during the decade w e r e p r i m a r i l y cyclical; that changes in Turkey’s u n e m p l o y m e n t reflected changes i n the cyclical component prior to 2002, w h e n indeed there were w i d e swings o f economic activity, with a rise i n structural and/ or frictional u n e m p l o y m e n t during stabilization, possibly as structural policies accelerated the rural-urban h u m a n resource reallo- cation; a n d that changes in u n e m p l o y m e n t i n Tunisia were minor, re- flecting the absence of cycles or major structural changes. Unemployment 5.11 I n the three countries, unemployment rates remained very rates remained high. In2007, these rates w e r e 10.7 percent in Colombia, 14.1 percent high in all three in Tunisia, a n d 10.1 in Turkey, high even by regional standards in Co- countries, l o m b i a and Tunisia. These rates are not l i k e l y to reflect sigruficant cyc- regardless of l i c a l unemployment, for i n 2007 output w a s close to potential in the growth three economies. They are m o r e l i k e l y to reflect classical unemploy- m e n t d u e to high minimum wages or structural u n e m p l o y m e n t due, for example, to skills mismatches, both issues of considerable impor- tance in the three countries. Some frictional u n e m p l o y m e n t d u e to imperfect information m a y also b e a t work. 5.12 All this suggests that the Bank might usefully consider putting m o r e resources i n t o elucidating the hysteresis and structural roots of unemployment, i n c l u d i n g i t s cyclical, classical, frictional and struc- t u r a l components, as there appears to have been little success in re- d u c i n g the long-term level of unemployment. The 10-year experience of the three countries r e v i e w e d in this r e p o r t i s s t r i k i n g in terms of the 54 CHAPTER5 KEYFINDINGS i m p a c t (or lack thereof) of policies on structural unemployment. Un- derstanding better the ”classical unemployment” implications of min- imumwages and the other sources of long-term u n e m p l o y m e n t m a y h e l p sharpen engagement a n d dialogue on this critical issue.* 5.13 There are also considerable diflerences i n performance i n em- ployment indicators by gender. Inboth Tunisia and Turkey, female Employment participation rates are m u c h l o w e r than m a l e participation a t e s for a indicators by variety of reasons discussed in the c o u n t r y chapters, i n c l u d i n g struc- gender differed t u r a l (for example, rural-urban m i g r a t i o n i n Turkey) a n d c u l t u r a l fac- significantly tors (strong views of female roles a t home). InColombia, female par- across the three ticipation rates, the highest of the three countries, declined after 2000, countries after several years of increasing, a n d m a l e participation declined after m a n y years o f constancy. As with e m p l o y m e n t trends, the decline i s l i n k e d p r i m a r i l y to slower economic growth, with some attribution d u e to minimumwage and labor taxes. InTurkey, female participa- tion continued declining slowly, with no n e t changes i n male partici- pation. InTunisia, female participation continued increasing a n d m a l e participation continued declining. In a l l three countries, the authori- ties have been proactive i n s u p p o r t i n g women’s rights to work. N e v - ertheless, female u n e m p l o y m e n t rates are h i g h e r t h a n m a l e unem- p l o y m e n t rates in Tunisia a n d m o r e so in Colombia, with the gap between the two increasing in Tunisia largely as a result of s k i l l mis- matches. Turkey’s u n e m p l o y m e n t rates do not vary by gender. A dis- tinguishing feature in Tunisia i s that u n e m p l o y m e n t i s higher a m o n g the educated, again d u e to a skills (quality) mismatch. 5.14 The experience on e m p l o y m e n t outcomes depicted i n the pa- ragraphs above suggests t h a t Bank programs with employment objec- tives would benefit by considering the full set of employment-related outcomes w h e n designing c o u n t r y programs. The full set would cover employment growth, the employment-to-population-ratio, the unem- p l o y m e n t rate a n d earnings growth, and the i m p a c t of these on pover- ty’ as w e l l as the uncertainties of that impact. This i s not to say that programs necessarily need to h a v e quantitative targets for these va- riables, but that policies a n d programs need to b e understood i n terms of their possible effects on those variables. 5.15 A review of the data that was available for this report con- Data collection cludes that while much progress has been achieved in collecting in- has improved, formation, there are still important shortcomings. For example, in but more Colombia, data i s now b e i n g p r o d u c e d on a monthly basis and at the improvements national level since 2001, but l i m i t e d comparability with previous are needed years l i m i t s the analyses a n d delays in p r o d u c t i o n o f the data pre- vents timely monitoring. Furthermore, sources (official, ILO, Bank) sometimes conflict with one another. W h i l e Colombian national data indicate that the participation rate ceased growing during the r e v i e w period, both ILO a n d World B a n k (WDI) estimates indicate that the 55 CHAPTER 5 KEYFINDINGS participation rate continued growing. The Bank will better fulfill its objectives if i t steps up i t s support, in coordination with other institu- tions, for better i n f o r m a t i o n gathering a n d availability on employ- m e n t and earnings. The Bank has already been active i n assisting countries in strengthening their household survey data. But m o r e c o u l d b e done. A good area to target i s on the timeliness of dissemina- tion. For example, the last available household survey data on earn- i n g s for Colombia, w h i c h allows analysis of f o r m a l / i n f o r m a l sector differences, i s for 2006. The i m p l i e d delays are too long for the needs of analysts, observers, and policy makers. InTunisia and Turkey, the situation i s not any better. Comparisons of Bank Support across the Three Countries that Cuts across Policy Areas 5.16 Three findings are highlighted in connection with country p r o g r a m strategies. First, Bank objectives targeted p r i m a r i l y areas with a bearing on employment (e.g., MILES areas) rather than expli- c i t l y e m p l o y m e n t outcomes. Second, a l t h o u g h i t s i m p a c t i s unclear, the Bank’s AAA was generally of good q u a l i t y in terms of addressing the right employment issues competently; and i t w a s w e l l appreciated by the three clients. Third, the Bank‘s p r o a c t i v i t y a n d engagement on e m p l o y m e n t issues m a y not always have been well-matched to coun- try circumstances. Most policies 5.17 Although employment objectives have not been vey explicit sup ported by in Bank programs, most policies supported by the Bank in the three the Bank in the countries had some bearing on employment. Bank strategies by a n d three countries large focus on growth and poverty r e d u c t i o n as “grand objectives.” had implications Their references to employment or u n e m p l o y m e n t objectives are for employment common, albeit often i n c l u d e d only in passing. However, in the three countries covered by this report, references to e m p l o y m e n t in Bank p r o g r a m s increased during the r e v i e w period, reflecting the increas- ing importance assigned to employment growth by authorities. Fur- thermore, the m o r e concrete objectives generally i n c l u d e d the policy areas with a bearing on employment, that is, the MILES areas. 5.18 This experience suggests that Bank strategies c o u l d m o v e from just m e n t i o n i n g employment as a n objective to better articulating how i t s s u p p o r t in different areas will affect the full set e m p l o y m e n t out- comes a n d poverty. Where employment issues are pivotal, country programs c o u l d articulate their impacts on e m p l o y m e n t outcomes by i n d i c a t i n g the l i n k s between their concrete intermediate outcome in- dicators and employment outcomes, as defined above. This will make e m p l o y m e n t objectives m o r e tractable a n d credible, and employment impacts m o r e explicit or transparent, The rationale for this suggestion i s t h a t e m p l o y m e n t outcomes are the k e y channel through w h i c h 56 CHAPTER5 KEYFINDINGS c o u n t r y p r o g r a m s affect p o v e r t y a n d p o v e r t y r e d u c t i o n i s the Bank's o v e r r i d i n g Bank objective. 5.19 The Bank's strategy and interventions were highly relevant in addressing key employment and earnings-related issues in the three countries. The Bank's support, through its AAA, TA, and l e n d i n g oper- ations, adapted to governments' changing priorities and generally ad- dressed (or attempted to address) the m o s t critical policy constraints. The Bank's ideas and its international perspective and experience mat- tered considerably, High-quality AAA was important in establishing and maintaining the extent and depth of the Bank's access to senior policy makers. This suggests that the Bank c o u l d usefully strengthen its role as knowledge provider and engage m o r e strongly with i t s clients on employment policy. The Bank is i n a strong position to strengthen i t s leadership on employment issues for a n u m b e r of reasons. It has de- veloped an integrative framework to idenbfy constraints to employ- ment. This framework allows the Bank to develop balanced v i e w s on policies affecting employment outcomes. I t has demonstrated a capaci- Although there ty, as i n other areas, to bring research into operationally relevant policy were many implications. AAA i s the k e y instrument to deal with some of the m o r e important sensitive p o l i c y issues with a bearing on employment outcomes. And, achievements, all again, i t s mandate of poverty reduction claims strong attention to em- three countries p l o y m e n t outcomes. The Bank contributed to understanding employ- continue to m e n t issues i nthis report. It can do so n the three countries reviewed i experience macro in many other countries that w o u l d benefit from this knowledge, even vulnerabilities i f the benefit takes t i m e to materialize. 5.20 I n terns o f the eflectiveness o f Bank inputs, the picture is mixed. Much has been achieved in Colombia a n d Turkey, macroeco- n o m i c stability and financial sector soundness were restored a n d the investment climate i m p r o v e d . InTunisia, macroeconomic a n d finan- cial sector stability w a s sustained during the decade reviewed, despite a challenging combination of shocks i n the early 2000s. Labor contract n Colombia, even if sigrufi- flexibility and t r a i n i n g systems i m p r o v e d i cant weaknesses r e m a i n i nboth areas. The three countries m a d e fur- ther progress i n coverage of secondary tertiary education, although i n Tunisia progress i n higher education w a s compromised by low quali- ty. In Colombia, social safety nets were widened, albeit generating discernible fiscal pressures w h i c h cannot b e resolved without ad- n t h e tax and expendi- dressing the considerable r e m a i n i n g rigidities i t u r e systems. 5.21 But othergoals remain elusive. The three countries did not re- solve a n u m b e r of macro vulnerabilities. For example, considerable n the tax a n d expenditure systems r e m a i n i r e m a i n i n g rigidities i n Co- lombia. Strengthening private investment on a sustained basis, rather than d u e to a cyclical rebound, remains a challenge because k e y un- d e r l y i n g causes of low investment, such as governance problems i n 57 CHAPTER5 KEYFINDINGS Tunisia, did not received e n o u g h attention. L i t t l e or no improvements in labor flexibility or i nr e d u c i n g the taxation of labor w h i l e financing social insurance w e r e achieved i nTunisia or Turkey, a n d progress i n Colombia w a s modest. Moreover, minimumwages possibly explain p a r t of the i n f o r m a l i t y and high u n e m p l o y m e n t rates i n the three countries. Education q u a l i t y did n o t m a k e m u c h progress in any of the three countries. A broad-based financing of social insurance that eases p a y r o l l taxes a n d contributions w a s not put i n place. 5.22 While rigorous “attribution” o f results to Bank support is vir- tually impossible, the evidence discussed in the country chapters sug- gests that most Bank activities made important contributions. Bank AAA i s generally appreciated for its quality i n the three countries. It appeared m o s t critical i n Tunisia, where the Bank i s possibly the foremost p r o v i d e r of development knowledge products. T h e Bank’s AAA covered a l l of the M I L E S areas. In lending, Bank-supported fis- c a l adjustment operations contributed importantly to the restoration of fiscal stability i nColombia and Turkey, although i n C o l o m b i a these operations p r o m i s e d m o r e than c o u l d b e delivered to eliminate struc- t u r a l rigidities g i v e n political economy constraints. 5,23 However, some of the Bank‘s lending operations supported messy, “second-best” reforms; i t was right to do so, but overpromised Some of the what could be achieved. Specific examples i n c l u d e d the Bank’s sup- Bank’s lending port for fiscal adjustment m e n t i o n e d above, for the r e f o r m of the pub- operations were l i c t r a i n i n g system, and for the Investment Stability L a w inColombia; L1second-bestll a n d support for secondary education in Turkey. The Bank’s involve- reforms m e n t contributed to better outcomes i n these areas even though the results were far from ideal. Similarities and Differences across the Three Countries in Bank Support on the Specific MILES Areas 5.24 K e y f i n d i n g s are summarized as follows: a) B a n k s u p p o r t for macroeconomic policies contributed effectively to country efforts on sta- bilization a n d financial crisis resolution i n Colombia and T u r k e y a n d on trade and financial development i nTunisia. These efforts w e r e the m a i n force that h e l p e d restore GDP growth i n the first two countries a n d also contributed to sustaining higher growth i n the third. Res- tored GDP growth increased the d e m a n d for labor resulting p r i m a r i l y in the higher earnings growth documented before; b) Bank s u p p o r t for investment climate policies covered the three countries and contri- b u t e d t o improvements i n specific p o l i c y areas that h e l p e d raise in- vestment or t o t a l factor p r o d u c t i v i t y to v a r y i n g degrees; c) s u p p o r t for labor market regulations and institutions occurred p r i m a r i l y through AAA of good q u a l i t y i n terms of relevance a n d competence but with somewhat uncertain a n d perhaps l i m i t e d impact; d) s u p p o r t for edu- 58 CHAPTER5 KEYFINDINGS cation contributed p r i m a r i l y to coverage and supported the increased s u p p l y of skills needed to raise output a n d earnings growth; e) sup- port for socia2 protection arrangements contributed successfully to CCT programs i n Colombia, albeit with an unsustainable fiscal cost, and less so to u n e m p l o y m e n t insurance programs. 5.25 Macroeconomic Policies. Growth i n Colombia and T u r k e y Bank support would have been less w e r e i t not for the stabilization that brought for both countries out of recession during the first h a l f of the r e v i e w pe- macroeconomic riod. B a n k support for macroeconomic policies was m o s t important policies for employment growth in T u r k e y a n d Colombia. In Turkey, macroe- contributed to conomic policies that on balance enhanced growth i n c l u d e d r e d u c t i o n country efforts of fiscal deficits through both tax and expenditure measures t h a t in- on crisis v o l v e d i m p o r t a n t structural reforms i n the financial system, pensions, resolution in privatization and agriculture. Although i n i t i a l stabilization efforts Colombia and failed, the IMF and Bank p r o v i d e d considerable support to the m a - Turkey and on croeconomic stabilization efforts that were ultimately successful, with trade and exception of pension reforms. Similarly, the Bank assisted C o l o m b i a financial n i t s macroeconomic stabilization efforts with success in h e l p i n g tax i development in administration but f a i l i n g i n i t s support to lessen fiscal rigidities. But Tunisia clearly the structural r e f o r m challenges to stabilize were far m o r e challenging i n T u r k e y t h a n in Colombia and, accordingly, the Bank's engagement i n this area w a s correspondingly stronger i n Turkey. In trade, the Bank successfully h e l p e d Tunisia i n the area of facilitation a n d this m a y have contributed to employment outcomes. 5.26 This experience suggests t h a t the Bank work with the IMF i n advising countries to ensure fiscal prudence w h i l e u s i n g available policies a n d resources judiciously i nterms of addressing v a r y i n g em- p l o y m e n t challenges. This means r e l y i n g largely on automatic stabi- lizers (allowing moderate deficits as revenue growth falters i nreces- sion and building treasury reserves during booms) rather than on discretionary policies t h a t h a v e often been biased t o w a r d increased p u b l i c expenditure a n d t h a t r i s k remission into fiscal distress. Discre- n expenditure allocation, with t i o n i s l i k e l y to m a k e m o r e sense i epochs of employment distress deserving m o r e resources into UI and CCT programs a n d periods of employment booms a l l o w i n g m o r e re- sources to be spent on p u b l i c investment. The Bank can h e l p i n this area through i t s PERs, w h i c h are typically multi-sector tasks. The ra- tionale for the suggestion to a v o i d expenditure expansions to any sig- nificant degree i s illustrated by the experience of Colombia and Tur- k e y referred to above, w h e r e the first h a l f of the r e v i e w p e r i o d w a s one o f recession and deteriorating employment outcomes o r i g i n a t i n g in declining confidence from a n unsustainable fiscal stance (and dete- r i o r a t i n g security i n Colombia). 59 CHAPTER 5 KEYFINDINGS Bank support 5.27 Investment Climate. InTunisia, p r i v a t e investment w a s relative- for investment ly stable w h e n compared with C o l o m b i a and Turkey, where the crises climate policies of the turn of the century l e d to a m a j o r decline i nthe ratio of invest- contributed to m e n t to GDP (Figure 4 A p p e n d i x N).The latter declined until after improvements the t i m e w h e n the recessions b o t t o m e d out i n Colombia and Turkey. in specific a n d t h e n recovered sigruficantly, even surpassing the prior m a x i m u m policy areas that ratio i n Colombia. The cyclical behavior of private investment i n Co- helped raise l o m b i a and T u r k e y a n d the relative macroeconomic stability i n Tuni- investment or sia reflect the major role of m a c r o conditions i n determining private total factor decisions to invest, although a deterioration of security m a y also have productivity n d i m i n i s h i n g investment a r o u n d the turn p l a y e d a n i m p o r t a n t role i of the century i n Colombia.3 N o progress w a s achieved i n raising Tu- nisia’s low private investment ratio, possibly d u e t o concerns with p u b l i c governance that w e r e covered i n the country chapter. Foreign direct investment behaved m o r e erratically but displayed a clear up- w a r d t r e n d towards the e n d of t h e p e r i o d u n d e r r e v i e w i n the three countries, reflecting both b u o y a n t international capital markets as w e l l as strong domestic recovery. 5.28 Stabilization i n Colombia a n d Turkey, i m p r o v e d security i n Colombia, and the prospect of accession i nT u r k e y h e l p e d recover their investment performance. Policies i nthe areas n o r m a l l y covered by investment climate analyses also improved, with legislation pro- viding for insurance against changes i nm o s t l a w s a n d regulations in Colombia and legislation r e m o v i n g discrimination against foreign in- vestment i nT u r k e y b e i n g some of the successful reforms supported by the Bank. These improvements m a y have contributed m o r e to total factor p r o d u c t i v i t y growth t h a n to the investment-to-GDP ratios. 5.29 G i v e n the close relationship between investment a n d growth, it would b e w o r t h w h i l e that PREM and PSD work m o r e closely to bet- ter integrate macroeconomic with microeconomic approaches to Support for growth. W h i l e macroeconomic changes p r o b a b l y explain increases i n labor market investment i n Colombia a n d Turkey, improvements i n investment i n regulations and the restricted business climate variables (that is, excluding macro a n d institutions- n increased productivity, trade) m a y have been p r i m a r i l y reflected i primarily rather t h a n captured by aggregate p r i v a t e investment. Some of the in- through AAA of creases i n TFP observed i n the three countries t o w a r d the second h a l f good quality, of the p e r i o d reviewed m a y b e d u e to better p r o d u c t m a r k e t regula- but with tions. Furthermore, the Bank can strengthen i t s diagnostic work by somewhat following IEG recommendations on the Doing Business indicators, uncertain and particularly with regard to tracing the i m p a c t of reforms a n d u s i n g perhaps limited m o r e of the available analyses to choose indicators. impact 5.30 Labov Regulations and Institutions. The Bank’s analytical work on labor market issues i n the three countries has been of high quality. It has p r o v i d e d convincing, evidence-based analysis; was conducted i n 60 CHAPTER5 KEYFINDINGS close collaboration with local researchers and/or stakeholders; focused on k e y elements of the domestic policy debate; and identified r e f o r m priorities. The analysis also took clear account of the interaction be- t w e e n policies i n different areas (i.e., it often effectively applied to a va- rying extent a b r o a d framework similar to MILES). It addressed the two k e y components of the gap between the d e m a n d price and the s u p p l y price for labor that discourage employment: the rigidity of labor contract regulations, w h i c h creates a cost expectation to businesses, and p a y r o l l taxes and contributions. The Bank's work on contributions has been closely l i n k e d to its work on the social services that these contri- butions finance. Not surprisingly g i v e n the sensitivity of labor policy issues, this AAA work was delinked from lending. 5.31 Unfortunately, moving t o w a r d less rigid regulations or l o w e r contributions i s rarely a n objective t h a t countries pursue on a n y sus- tained basis. The i d e a of m a k i n g contracts m o r e flexible i s controver- sial and politically sensitive and r e d u c i n g taxes faces either fiscal con- straints or reductions in government services on w h i c h i t can b e d i f f i c u l t to reach consensus. D a t a on Colombia, Tunisia, a n d T u r k e y suggests l i t t l e or no movement in those directions, although measur- ing rigidity o f labor markets i s not easy and available indices are sometimes contradictory.4 5.32 Continuing and extending AAA on labor markets can help im- prove labor market peuformance. U s i n g AAA capitalizes on the Bank's capacity for labor market analysis a n d lowers the risks of un- d e r m i n i n g r e f o r m that often come with the d i f f i c u l t political economy of labor reform. Inparticular, the Bank c a n h e l p i m p r o v e a n d extend (perhaps i npartnership with the OECD a n d the Bank's Doing Business report) estimates a n d cross-country comparisons of labor rigidities a n d labor taxes. It c a n also further the understanding of low female participation and employment rate in countries l i k e Tunisia a n d Tur- key. The dialogue, dissemination, a n d advice p a r t of AAA, w h i l e Support for challenging, can m a k e t h i s instrument m o r e effective, although there education are always risks l i k e the weakened dialogue o n the matter in Tunisia. contributed primarily to 5.33 Education. K e y standard aims of education policies in m o s t if coverage and not a l l countries h a v e been to increase coverage, technical quality, and the increased fit to the labor market. This has been the case as w e l l in the three supply of skills countries reviewed. To achieve those aims, a n d in a d d i t i o n to higher needed to raise expenditures, policies in Colombia c o m b i n e d decentralization of ex- output and penditures, programs to target hard-to-reach populations, changes i n earnings growth curricula a i m i n g to i m p r o v e below-average quality of education, and expansion of non-formal t r a i n i n g i n an effort to i m p r o v e the relevance of courses. Policies in Tunisia w e r e a i m e d a t increasing coverage and r e d u c i n g gender gaps. InTurkey, the k e y p o l i c y w a s to expanded 61 CHAPTER5 KEYFINDINGS coverage by extending mandatory schooling from f i v e to eight years. Progress i s summarized as follows (Table 33. ,Appendix N): e All in all, based on increases in average years of schooling for the p o p u l a t i o n 15 years and older, progress during the past decade has been fastest in Tunisia, f o l l o w e d by Turkey. e N e t enrollment in p r i m a r y education did not change in Co- l o m b i a during the evaluation p e r i o d a n d declined in Tunisia a n d m o r e so in Turkey; it h a d increased considerably in Co- l o m b i a and Tunisia during the previous decade. e N e t enrollment in secondary education increased m o s t in Tur- k e y f o l l o w e d by Colombia. e Gross enrollment in tertiary education increased m o s t in Tur- key, f o l l o w e d by Tunisia. e Average years of education continued increasing during the decade reviewed, at a rate of about 0.1 p e r year in Colombia a n d Tunisia and 0.04 p e r year in Turkey. During the previous decade, years of education h a d increased faster in Turkey, a t a b o u t the same rate i n Tunisia, a n d m o r e s l o w l y in Colombia. e Expected years of schooling today are somewhat higher in Tunisia, f o l l o w e d by Turkey. e Improvements i n test scores between 2003 and 2006 suggest an increase in the quality of education during the p e r i o d covered. e However, the increase in the percentage of businesses that v i e w the workforce as inadequately educated, particularly large in Turkey, suggests that increases in q u a l i t y through education a n d training are not k e e p i n g pace with the changes in m a r k e t requirements. 5.34 T h e B a n k supported policies and expenditures to achieve the progress reflected in the results outlined above. Of B a n k support in the three countries, support in Colombia, w h i c h i n c l u d e d both AAA a n d project lending, was appreciated the most. This s u p p o r t helped i m p r o v e quality, delivery of education services in poor, hard-to-reach r u r a l communities, develop a student loan scheme for f o r m a l higher education, set up i n f o r m a t i o n systems within the M i n i s t r y of Educa- tion, and i m p r o v e the effectiveness of non-formal training. Neverthe- less, from an evaluation perspective, some of these projects were not entirely satisfactory either because they did not fully m e e t the objec- tives they set out to accomplish or because objectives w e r e not clearly articulated. 5.35 T h e Bank's support in Turkey during the r e v i e w p e r i o d a i m e d to i m p r o v e vocational training, h e l p T u r k e y m e e t the O E C D s educa- t i o n a l standards, and expand coverage a n d q u a l i t y of basis education. IEG ICR reviews r a t e d these projects less than fully satisfactory in va- rying degrees in that they did not entirely m e e t the objectives they set 62 CHAPTER5 KEYFINDINGS forth to accomplish, where the objectives were not clearly articulated, or w h e r e implementation, particularly of procurement, w a s difficult. AAA contributions have been of good quality and h i g h l i g h t e d impor- tant p o l i c y issues directed to improving education of the poor. Among the three countries r e v i e w e d i n this report, however, the edu- cation sector in T u r k e y has p r o v e d the m o s t d i f f i c u l t sector for the Bank's work and w h e r e the Bank's i m p a c t has p r o b a b l y been m o r e limited. 5.36 n Tunisia during the r e v i e w p e r i o d fo- T h e Bank's s u p p o r t i cused on t r a i n i n g to i m p r o v e the fit of the labor force to labor oppor- tunities, restructuring of higher education to i m p r o v e i t s responsive- ness to the country's needs, coverage i n anticipation of expected increases i n enrollment, a n d quality to address the concern that large n u m b e r s of students f a i l to master basic skills. The projects have been r a t e d satisfactory but the perceptions of stakeholders are t h a t the Bank's s u p p o r t of higher education has not been sufficiently far- reaching, particularly i n addressing issues of quality. A s n o t e d in Chapter 3, exceptionally high u n e m p l o y m e n t of university graduates m u s t b e a t least i n p a r t attributable to the poor q u a l i t y and/or fit of u n i v e r s i t y education. 5.37 In the h i g h e r education sub-sector i n Tunisia, the Bank's cre- dibility has been damaged in the eyes of some observers because i t has supported a r a p i d and quality compromising expansion i n physi- cal university facilities without first insisting on critical p o l i c y changes to increase university autonomy and accountability. 5.38 The B a n k m a y find it appropriate to continue focusing on ad- vice and projects to i m p r o v e coverage and quality. In looking a t qual- ity, greater emphasis might usefully b e ascribed to addressing skills mismatches, w h i c h appear to b e b e h i n d m u c h of the structural unem- p l o y m e n t observed i n countries l i k e the three r e v i e w e d in this report. Mismatches of skills between s u p p l y a n d d e m a n d are thought to b e a n important source of structural unemployment, triggered for exam- p l e by sector restructuring in T u r k e y a n d poor technical quality and Support for inadequate skills in Tunisia. A s discussed i n the section on results, social structural u n e m p l o y m e n t i s a n area where l i t t l e or no progress w a s protection m a d e in a n y of the three countries. And the data presented above in- arrangements dicate t h a t s k i l l mismatches m a y b e increasing. Inthese regards, the contributed education n e t w o r k c o u l d work m o r e closely with the E D network. successfully to The Bank s h o u l d also continue i t s p u r s u i t of gender equality i neduca- CCT programs tion, as the m a i n lever that i t has in supporting progress t o w a r d in Colombia, gender balance in labor participation. and less so to unemployment 5.39 Social Protection. Social protection policies m a y h a v e a n i m p a c t insurance on e m p l o y m e n t w h e n they achieve w o r k e r protection that c a n substi- programs tute for job protection a n d thus facilitate labor flexibility a n d mobility. 63 CHAPTER 5 KEY FINDINGS And indeed there i s some evidence of this trade off i n international comparisons,s albeit separating countries i nthe Anglo-American tra- dition, where social protection "buys" m o r e labor flexibility, from those i n the European tradition. T h e k e y social protection i n s t r u m e n t to substitute for job protection i s u n e m p l o y m e n t insurance, but old age a n d health insurance, a n d cash transfer systems will also b e rele- vant. There was l i t t l e m o v e m e n t in this direction during the p e r i o d u n d e r review. In Turkey, job protection w a s strengthened a n d a n un- employment insurance system w a s i n t r o d u c e d i n A u g u s t 1999 (it started p a y i n g benefits in2002) as w e l l as a CCT arrangement, togeth- er with pension reform. InTunisia, there was no change i n either. Co- l o m b i a provides the richer experience as some relaxation of w o r k e r protection and a strengthening of a CCT system took place during the p e r i o d reviewed. The i m p a c t of m o r e flexible labor regulations w a s discussed above. 5.40 Bank support in the three countries addressed different issues. InTurkey, w h i c h has a three-tier social insurance system comprised of pension, health, a n d u n e m p l o y m e n t insurance (including both f o r m a l u n e m p l o y m e n t insurance and mandatory severance p a y - ments), the Bank recommended measures to i m p r o v e the financial v i a b i l i t y of the pension system, to develop a system t h a t finances and purchases a basic system from a pluralistic provider market, a n d to eliminate m a n d a t o r y severance i nv i e w of the presence of u n e m - p l o y m e n t insurance and introduce u n e m p l o y m e n t benefit rates t h a t decline with u n e m p l o y m e n t d u r a t i o n to encourage job search.6 In Co- lombia, the Bank p l a y e d a strong role, together with the IADB, as a catalyst of the conditional cash transfer program. In Tunisia, t h e Bank recommended i n t r o d u c t i o n of employment insurance with a v i e w to encouraging greater labor mobility. 5.41 Strategies for d e a l i n g with the long-term fiscal costs of ex- p a n d i n g social protection n e t w o r k s need to b e built into the p r o g r a m design from the outset. The B a n k (and IADB) helped to i m p r o v e the design and finance the implementation of the m a i n CCT program, Familias en Action, w h i c h has h a d a positive i m p a c t on a range of so- cial outcomes. However, the p r o g r a m i s growing rapidly, w e l l b e y o n d its o r i g i n a l r o l e as a temporary response to alleviate the social consequences of the 1999 crisis. The Bank s h o u l d have g i v e n m o r e at- tention earlier to the longer-term fiscal implications of the program, i n c l u d i n g how i t would b e financed w h e n external financing w a s no longer available. 5.42 The apparently insurmountable problems have l e d to establish- ing partial and imperfect systems that are unlikely t o fit the bill from the perspective of d e l i n k i n g worker protection from job protection. The Bank needs to continue working on implementing worker protection in- 64 CHAPTER 5 KEYFINDINGS stead of job protection. This has not been easy, as the Colombian and Turkish experiences demonstrate. The key constraints, affordability on the one hand and a correct incentive structure need to compatible. Efforts nthis area should also factor i i nthe informal sector, as an affordable and efficient UIsystem may help encourage formality. The Current Global Employment Crisis 5.43 With w o r l d GDP g r o w t h declining sharply as a result of the Countries are solvency and credit crises i nworld financial markets, unemployment introducing a rates are increasing and employment and earnings g r o w t h are declin- variety of ing. I nits 2009 Global Employment Trends Report, the International policies to help Labor Office (ILO) estimates that w o r l d unemployment will increase contain the f r o m 5.7 percent i n 2008 to within 6.1 percent n 2007 and 6.0 percent i deepening of a n d 7.1 percent by the end of in 2009.7 In its "Scenario 2" projection, global where the "negative impact on unemploymenti s taken i n each coun- unemployment try at the time of the largest year-on-year drop i n GDP" and IMF No- vember 2008 GDP growth projections are used (2.9 percent i n 2009), the unemployment rate would reach 6.5 percent by the end of 2009, resulting i n an increase of 3 1 million unemployed compared to 2007. Increases i n w o r l d unemployment will be even higher (to 6.8 percent) under current ( A p r i l 2009) IMF growth projections for 2009 of mi- nusl.3 percent.8 The largest increases i n the unemployment are prob- ably occurring i n developed economies, Central and South Eastern Europe (non-EU) and CIS, and L a t i n America and the Caribbean. The employment-to-population ratio, which h a d been recovering since 2004, already declined by 0.2 percentage points i n 2008 and likely to f a l l further in 2009. With declining output growth, declining earnings g r o w t h is projected to raise $2-a-day poverty rates by up t o 5 percen- tage points between 2007 a n d 2009.9 All of these projections are of course quite fluid and likely to change sigruficantly. 5.44 The major economies are responding to t h e crisis primarily by increasing public expenditure (bailouts, infrastructure, education, health) and lowering interest rates, with the expectation that these measures will rekindle g r o w t h inlate 2009 or 2010. The United States is also raising its l o w unemployment benefits. Many European coun- tries are subsidizing part-time employment; and the United Kingdom i s subsidizing hiring a n d training. Middle-income economies are reacting in various ways. 5.45 Performance and policy response i n t h e three economies cov- ered by this report provide a sample of the challenges being faced: 0 In Colombia, t h e government estimates that growth de- n2008 and expects will decline fur- clined to 3.2 percent i ther to within l n 2009, f r o m 6.9 per- percent to 3 percent i 65 CHAPTER5 KEYFINDINGS cent and 7.5 percent respectively i n2006 and 2007. W h i l e u r b a n u n e m p l o y m e n t increased only marginally i n 2008 (from 11.4 percent i n2007 to 11.5 percent i n 2008), i t i s like- l y to rise m o r e sigruficantly in 2009 as a result of declining growth. Colombia’s response to the crisis includes coun- tercyclical fiscal policies with some tax reduction, a n d ex- penditures on infrastructure a n d business subsidies; access to international financing, expanded business finance, training and employment services, a n d conditional cash transfers. The Bank i s s u p p o r t i n g the CCT p r o g r a m a n d private sector efficiency a n d competitiveness programs. 0 In Tunisia, the u n e m p l o y m e n t rate h a d remained stable at just over 1 4 percent i n 2008. As i nColombia a n d Turkey, both fiscal and monetary policies are expansionary a t this point. Macroeconomic/Investment climate policies are de- signed i n p a r t to combat the possible adverse i m p a c t of re- cession in Europe a n d target enhancements in global inte- gration, business climate, a n d financial sector. The Bank is supporting these policies. In Turkey, growth i s estimated to decline to 3.1 percent in 2008 and expected to decline further to -1.0 percent i n 2009 in 2009, from 6.9 percent a n d 7.5 percent respectively i n 2006 and 2007. U n e m p l o y m e n t increased from 9.9 in 2007 to 10.7 i n 2008 a n d m a y increase further to above 12 per- cent i n2009 as a result of declining growth. The Bank i s supporting programs i neducation, competitiveness, em- p l o y m e n t and finance. 5.46 The following paragraphs summarize a n u m b e r of implica- tions concerning Bank support during the current global jobs crisis: 5.47 The Bank may adjust its programs to emphasize more strong- ly its support for employment-related objectives. Country Directors are the logical focal points to engage with c o u n t r y authorities on w a y s to increase Bank programs’ i m p a c t on e m p l o y m e n t outcomes. Many governments have m a d e adjustments to their policies i n reaction t o the financial crisis a n d the Bank can follow s u i t by emphasizing those areas i t can support that best address constraints to employment crea- tion and earnings growth. O n e obvious adjustment i s to emphasize m o r e AAA t o diagnose constraints to e m p l o y m e n t i n many of the countries (as the p r o g r a m in T u r k e y i s doing at present). 5.48 The Bank’s integrative capability can be put to good use in providing support in the different areas affecting employment out- comes. The current exogenous are l i k e l y to raise challenges i n the ma- cro, investment climate, labor regulation, education, and social protec- tion areas. As current exogenous shocks to output i n developing 66 CHAPTER5 KEYFINDINGS countries raise unemployment, the Bank i s well-positioned to h e l p develop p o l i c y options i n the various areas that have a bearing on the full set of employment outcomes, i n c l u d i n g u n e m p l o y m e n t and eam- ings. U n d e r recession, slow employment growth, cyclical unem- ployment, and declining earnings or declining earnings growth be- come major issues. The Bank has a good integrative f r a m e w o r k to h e l p countries address these issues with a good balance between countercyclical policies and fiscal prudence; measures to speed up improvements in the business climate; measures to encourage em- ployers to hire; t r a i n i n g arrangements for those u n e m p l o y e d to speed up their rehiring; a n d safety nets. These are of course u n l i k e l y to ap- ply uniformly. For example, the macro p o l i c y component will l i k e l y n a country l i k e T u r k e y than in one l i k e Tunisia. b e m o r e critical i 5.49 Monitoring and analyzing e m p l o y m e n t a n d earnings condi- tions as they evolve has now become m o r e of a priority. Yet there are i m p o r t a n t gaps in developing country e m p l o y m e n t and particularly earnings statistics. The Bank can work i nconcert with other partners, i n c l u d i n g the ILO, the OECD, the IMF, and the regional Banks to h e l p countries speed up the delivery and i m p r o v e the q u a l i t y of employ- m e n t and employment-related data (such as earnings, taxation of wages, minimumwages, a n d others). 5.50 Given that employment policy issues straddle across net- works, particularly PREM, HD and PSD, integrative work across these networks is likely to strengthen the Bank’s effectiveness. Exam- ples of k e y employment policy issues of interest with r e g a r d t o the current crisis include: Improving monitoring of how the employment and earnings situa- tions evolve and diagnosing evolving constraints to employment in many of the countries. To assist i n this endeavor, the Bank can consider work in concert with other partners, i n c l u d i n g the ILO, the OECD, the IMF a n d the regional Banks to h e l p rele- v a n t countries speed up the delivery and i m p r o v e the q u a l i t y of data on employment-related variables. This data i s sorely needed to assess the jobs a n d earnings situation as it unfolds. The impact of global recession on structural unemployment. As economies restructure i n the face of recession, m u c h of the n e w cyclical u n e m p l o y m e n t i s l i k e l y to become structural. This strengthens the case for the Bank to consider h e l p i n g to design policies to reduce skills mismatches. Bank engagement might also usefully spotlight minimumwages and their inte- raction with non-wage costs, w h i c h i n the three countries re- v i e w e d m a y have caused u n e m p l o y m e n t and informality. These effects are l i k e l y t o deepen during recession. Strategies to promote job flexibility and worker protection. Develop- ing job flexibility today is l i k e l y to h e l p bolster employment 67 CHAPTER 5 KEY FINDINGS a n d earnings growth, particularly as economies recover. Strengthening w o r k e r protection will h e l p the unemployed, particularly as unemployment rates increase u n d e r the present crisis. e Finding the right balance between macroeconomic stability and the fiscal cost of other employment-related policies. The experience re- viewed i n this r e p o r t (Colombia) calls attention to ensuring the financing sustainability o f expansions i n social protection sys- tems., e Strengthening the interaction between macroeconomic and micro- economic conditions aficting growth and employment demand. As the r e p o r t argues, a n i m p r o v e d investment climate, w h i c h good m a c r o policies will h e l p achieve, m a y increase total fac- tor p r o d u c t i v i t y growth a n d investment a n d thereby encour- age e m p l o y m e n t a n d earnings growth. e Understanding the interface between quality o f education and ab- sorption of labor services. Skills mismatches r e m a i n a n important source of structural u n e m p l o y m e n t that education policies m a y h e l p address. e Assessing the possible efect of difirential changes in employment and earnings on migratoryflows. Some countries are l i k e l y to b e m o r e adversely affected than others. This m a y trigger migra- tory f l o w s with m u l t i p l e effects on e m p l o y m e n t related and other k e y macroeconomic variables. 5.51 County programs w i l l be more effective as they focus on areas where progress in the enabling conditions has been slow but where windows of opportunity for reform may surface as a result of the crisis, as has happened in Colombia and Turkey. T h e area where progress has been typically slow i s on m a k i n g labor regulations m o r e flexible a n d labor taxes lower. E m p l o y m e n t crises in C o l o m b i a a n d n this area and T u r k e y created w i n d o w s of opportunity for r e f o r m i the current global crisis m a y also create further opportunities i n this a n d other areas. Conversely, the Bank can also h e l p countries main- t a i n progress w h e r e i t has been achieved, as w a s the case with ma- croeconomic stability in the three countries reviewed. In this regard, the Bank can d e p l o y i t s multi-sector capacity to h e l p countries a v o i d conflicts between employment policies (e.g., m a k i n g s u r e that stimu- l u s packages or extended social protection are affordable). NOTES 1.See Pamuk, Sevket (2007), p. 269. 2. See, for example, Betcherman, Gordon (2000). 3. Private investment is sensitive to economic and political risk. See Le, Quan V. (2004), a paper that analyzes private investment in a set of 19 countries that include Colombia, Tunisia and Turkey. Increased macroeconomic and political instability will raise risk. investment because i t raises risk 68 CHAPTER5 KEYFINDINGS 4. For example, an OECD study for the late 1990s ranked Turkey near the top of labor rigidity: see The W o r l d Bank (2003a),Volume 11: M a i n Report, Table 5.2, p 92. More recent indicators actually suggest that in the late 1990s Tur- key’s labor regime was relatively less rigid, although i t hardened during the decade. 5. See Favro-Paris (2003). Fig. 1, p. 32. In this paper, Turkey ranks at the top on the strictness of employment protection legislation in a sample of 27 pri- marily developed economies. 6. See W o r l d Bank (2000a), “Turkey: Country economic memorandum- Structural Reforms for Sustainable Growth”: M a i n report, Report No. 20657- TR. 7. See ILO (2009) p. 34. 8. See I M F (2009) 9. See ILO (2009) p. 38. 69 Appendix A. CAS Objectives Colombia, Tunisia and Turkey Country CAS Date CAS Objectives: 1997-2008 Colombia Support Colombia's quest for peace in three essential areas: (1) achieving fast and sustainable growth; (2) sharing 2002112/24 the fruits of growth; and, (3) building efficient, accountable, and transparent governance. (p.22). ................................................................................................................................................................................................................................................................– (1) Consolidating long-term development through activities in sectors of traditional Bank involvement; (2) Supporting economic reforms to enhance competitiveness and increase employment; (3) New initiatives of catalytic 2000103128 nature to strengthen local institutions, launch new development niches (e.g., information technology), and mobilize external finance. (p. 21) .................................................................................................................................................................................................................. Tunisia he development of a more competitive, internationally integrated private sector and improve competitiveness of the Tunisian economy; (2) Enhance skills and 2004106103 employability of graduates and labor force in a knowledge economy; (3) Improve the quality of social services through enhanced efficiency of public expenditures. (p. i-ii) ......................................................................... ........................................................... ................................................................................................................................................................... ............................................................................. 1) Strengthen investment climate and competitiveness, (2) improve education quality and graduate employability 2007108113 for an increasingly knowledge-based economy, and (2) improve social services through more efficient public (Progress Report) expenditure, (p.3) ~ 1997108106 I ' 1) Improve economic management (privatization, social security, agricultural subsidies, public financial management, banking); 2) Reduce poverty and increase social development (agricultural productivity, universal I schooling through 8" grade; health indicators; health insurance, pensions); 3) Improve competitiveness and I employment (government's policy and regulatory role). (p.14-17) .................. i................................................................................................................................................................................................................................................................‘ \ Reduce vulnerability through: 1) restoring stable and higher growlh; 2) creating employment; 3) reducing inflation; 200011 1128 1 4) improving public management and accountability; and 5) expanding social services and social protecti .............................................................................. ~" ................................................................................................................................................................................................................................................................C 2001107/10 I Reduce vulnerability through: 1) restoring stable and higher growth; 2) creating employment; 3) reducing (Progress ~ ~ ~ ~ i 4)rimproving t ) public management and accountability; and 5) expanding social services and social protection. (p 14) Turkey ........................................................................................................... ................................................................................................................................................................................................ .................................................................. 2003110102 I 1) Mitigate.the impact of financial and tectonic crises on people, ............................................................................ ./.....s!rens!hen!,?Y ... o f . . ! ? s t ! ! ~ ~ ! ~ ~ ~ , , f ~ ~ ,............................................................................................................................................................................................................................................. , , . !~e..f~~~~e~..~~.!~~ 200511 1108 I 1) Reduce economic vulnerability; 2) achieve high and stable growth; 3) reduce the risk of reemergence of crisis; (Progress Report) and 4) address the many challenges of preparing for EU membership. (p.3) I' .................................................................................................................................................................................................... .............................................................................................................................................................................................................................. " Unlock Turkey's potential for fast and sustained growth while establishing equal opportunity and allowing more citizens to share in the benefits of growth, through reforms that also facilitate Turkey's EU accession. Three pillars: 2008101125 1) improved competitiveness and employment; 2) equitable human and social development, and efficient provision , of high quality public services; 3) with emphasis on the reduction of regional differences. (p.23) Gender, Youth, Ethnic Groups and Intercultural Relations, Culture Demography and Development, Science and Technology, Migration Policy, Foundations and Cooperatives, Promotion of Economic Solidarity, International and Regional Dimensions of Development. (CAS, p.10) 71 Appendix B. Colombia: Baseline and Latest Outcome Indicators by Miles Component Colombia: Indicators of Outcomes Organized Alona the MILES Framework Baseline Latest Indicator Comments 1998 200718 Macroeconomic Inflation (12-month, %) Major improvements in inflation and external debt sewice 16.7 5.7 indictors. ...................................................................................................................................................................................................................... External debt service ratio (%) 48.7 27.9 [2006] ................................................................................................................................................................................................................................................................4 ........................................................................................................................................... ......._ Central govt. deficit (YOof GDP) 5.4 3.3 ................................................................................................................................................................................................................................................................Ñ Non-financial public sector (% of GDP) 4.6 1,O Deficit peaked at 6.4% in 1999; sustained reduction beaan in 2003. Tax revenue (% of GDP) 17.6 24.1 Most of the gains in tax revenuelGDP have occurred in the last three years. Public capital expenditure (% of GDP) 8.0 7.2 Public debt (% of GDP) 34.1 38.3 Public debt reached a peak of 60% of GDP in 2002 and has fallen sharply since. Capital adequacy of banks: capital to 9.4 [2000] 13.6 [Aug Dramatic improvements in all financial soundness risk-weighted assets (%) 20081 indicators. .................................................................................................................. Non-performing loans (% of total) , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.7 4 [Aug 20081 Provisions to non-performing loans 37.9 120 [Aug 20081 Investment Climate Ranking in WEF Global Competitiveness 13 45 . survey (% of countries ranked lower) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ICRG score for corruption' .................................................................................................................................................................... 1.5 25 Time required to start a business (days) 60 [2003] ................................................................................................................................................................................................................................................................Ð 36 Average time to enforce a contract 1,510 [2004] 1,346 Average time to file all business tax 456 [2004] 256 returns ( h r ~ ) ~ Time required to complete foreign trade procedures (days)5 ................................................................................................................................................................................................................................................................Í 34 [2006] 14 ................................................................................................................................................................................................................................................................¶ 48 [2006] 15 Domestic credit to private sector (% of 36.7 39.6 Credit to private sector slumped to 25% of GDP in 2003 GDP) (check) before rebounding. ...................................................... 72 Colombia: Indicators of Outcomes Organized Along the MILES Framework Baseline Latest Indicator Comments 1998 200718 ~~ ~ ~~ ~ ~~ ~ ~~ Foreign ............ direct investment, ............. net ($ billion) 2,03 8.66 Large increases in FDI inflows in last few years. ................................................................................ Private investment (YOof GDP) 14.3 17,6 Labor Market Non-wage payroll costs (% of wage) 55 55 The non-wage costs of employing labor in the formal sector rose from under 40% to about 55% in the mid- 1990s and have remained broadly unchanged since then. Numbers of apprenticeship contracts 33,000 75,000 Substantial expansion in apprenticeship contracts, with (annually) [2000] [2005] growing share for non-SENA courses. of which: from non-SENA training institutions 0 .16,000 .................................................................................................................................................................................... Average dismissal costs (months of 13.4 10.1 [2004] Dismissal costs reduced moderately as a result of the wanes) 2002 reform. Riaiditv of emdovment index6 27 120041 24 Number of graduates from SENA training 0 9 million 4.1 million courses (annually) [2003] Education ~~ ~~ - ~ ~ -~ ~~ School enrollment (% net) Significant increases in primary and secondary enrollment Primarv 87.3 88.5 120061 Secondarv 64.9 Tertiary (% gross) ............ .................. 22.0........... 31.O [2006] .............. ................ ........................................................................................................ Primary completion rate (% of relevant 90.1 105.2 [2006] Increased primary completion rates. age group) Male 87.9 103.4 [2006] Female 92.3 107.1 [2006] Social Protection ~~~ ~ ~ ~~ Number of beneficiaries of 0 110,000 unemployment subsidies; of which: [2005] Share'of informal sector workers (%) (0) (46) Number of beneficiaries of conditional 0 13 cash transfer schemes (million) Number of beneficiaries of subsidized 10.7 18.6 health insurance (million) [2002] [2006] 1 O=worst; 6=best. 2 From World Bank "Doing Business" reports. 3 Ibid. Ibid. 5 Ibid. 6 From World Bank "Doing Business" reports. The rigidity of employment index is the average of three sub-indices: difficulty of hiring, rigidity of hours, and difficulty of firing. Index range is 0-100, with higher values indicating greater rigidity. 73 Appendix C. Colombia: World Bank Program by MILES Component Colombia Amount j IEG Comment Bank Program ~ (US$mn) i Outcome Rating (Including conclusions of IEG reviews) Lending ...................................................................................................... .......................................................................................................................................................................................... Public Financial Management 35 Satisfactory Objective was to strengthen the institutional capacity of tax II [FYOI]-PO40109 agency (DIAN) and public expenditure management. Improvements in tax administration targeted were judged as very likely to be sustained, but the project did not significantly improve the discretionary tax policies. .......................................................................................................................................................................................... Structural Fiscal Adjustment 400 Moderately Satisfactory Rationalizing the system of transfers to local governments; Loan [FYO2]-PO73572 improve efficiency in the provision of public health services: pension-related contingent liabilities; reorganization of public agencies and their current expenditures: managing public debt. Structural improvements achieved across a number of areas but failure to reduce actual fiscal deficit in 2002 and unsatisfactory Social Service Institute (ISS) reform detracted from the benefits achieved in other areas, Fiscal and Institutional The project's objective was to support fiscal sustainability in Adjustment Loans: the long term through a series of reforms to the tax system, FlAL I [FY03]-PO80831 300 Moderately Satisfactory expenditure, procurement, and rationalization of public FIAL II [FY04]-PO83905 administration. Results were mixed: fiscal adjustment was 150 Moderately Satisfactory achieved but envisaged improvements in the legal and FlAL 111 [FYO5]-PO84762 100 Moderately Unsatisfactory institutional frameworks in many areas were not achieved. Financial Sector Adjustment Strengthen capacity to manage and mitigate weaknesses in Loans: the financial system; reduce outstanding fiscal contingent FSAL I [FYO3]-PO78869 150 Satisfactory liabilities; also focuses on housing mortgage market, and FSAL II [FYO5]-PO82597 securities regulatory framework. The overall objective was 100 Moderately Satisfactory judged highly relevant and most immediate objectives achieved, but design of FSAL II judged deficient in some respects because of i) lack of a clear link between project components and outcomes; limited interval for implementation between FSALI and II; and failure to address the financial transactions tax. Analytical Work ........................................................................................................................................................................................................................... ....................................................................................................................................................................... CPAR [FYOI]-PO76038 ............................................................................ ....i,., ............................. r f ................................................. Analysis of public procurement and contract management, .j....................................................................................................................................................................................... Corporate Governance ROSC I 1 Corporate governance ROSC assessment in Colombia [FYO3]-PO82535 74 Amount j IEG Comment Bank Program (US$mn) Outcome Rating (Including conclusions of IEG reviews) Auditing and Accounting - ROSC [FYO4]-PO85186 1 3 I i Within the ROSC Initiative, to review and identify the strengths and weaknesses of accounting and auditing standards in Colombia. Analyzes Colombia's current system of public sector financial CFFA [FYO4]-PO78889 I ...................................................................................................... i t I manaaement. Improved Public Expenditure j Reviewed Colombia's fiscal performance, including fiscal Efficiency [FY04]-PO66038 sustainability, tax policy, allocation of expenditures, and financial ....................................................................................................................... ................................................................. .................. I management. ................................................................................................................................................................................ .................. CEM [FYO5]-PO89795 Country economic memoramdum that investigates competitiveness, fiscal efficiency, and the impact of the US FTA on agriculture and .............................................................................. SMEs. ........................................................................................................................................................................................................... CPAR [FY05]-PO90009 I Updates progress on Country Procurement Assessment Report I since 2001 and concludes that the process of modernization and , , procurement reform is evolving slowly in spite of government .......................................................................................................................... I .............................................. ~ i....... commitment. .................. ....................... ........................................................................................................................... FSAP Update [FY05]-P090046 I Assists authorities in assessing the development needs of the financial sector and identifying potential vulnerabilities of financial institutions and markets to macroeconomic shocks. Policy Notes [FYO6]-PO94861 1 Notes for incoming govt. Discusses macro stability and fiscal performance. Lending ........................................................................................................ ........................................................................................ ~.~ --......................................................................................... ' Enhances business environment by reducing transaction costs for entrepreneurial activities, facilitates foreign trade, legal framework ........ for secure foreign direct investment. .............. :... .............................................................................................. Enhances foreign trade competitiveness, improves quality standards and technological innovation framework. ........................................................................................... i....................................... i .................................................................................. i .............................. .................................................................. " .................................................... 3rd Business Product and ......................... 550 / ! Improves the quality standards and technological innovation framework; and strengthens infrastructure and logistics. ...................................................................................................................................................................................................................................... Analvtical Work ............................................................................................ ( ... ..................................... ......- .............. ........... ............................................................................................................................................................................... I Recent Econ. Dev in ~ ~ Provides an integral evaluation of recent economic developments I Infrastructure in Colombia's infrastructure sectors: electricity, natural gas, 1 I telecommunications, water, and transport sectors. [FY04]-FO86806 ............. ........................... ........*... ....................................................................................................................................................... CEM [FYO5]-PO89795 i Country economic memorandum that will investigate, j competitiveness, fiscal efficiency, and the impact of the US FTA on ....................... ................................................ ! agriculture and SMEs. Discusses private sector participation. ................................................................................................................................................................... Competitiveness Study 1 Reviews the logistics chain and quality assurance for Colombian [FY06]-PO90870 ............................................................................................................................. 1i., foreign trade products. .................................................................................. ................................................................ Regional Competitiveness & I Explores overall investment climate: (b) infrastructure and logistics; Infrastructure I and (c) human capital and innovation at the regional level to IFYO71-PI01348 1 increase competitiveness. . ... A -ccI.* . . . . ._.^ , _ I _ _ I . . . . . ,$(,, . . ,~. ........ ~ .... ) I Lwbor Market Policies ....... -..... . . . . ...................... . . . . . ........ . . . . . . Lending 75 IEG Comment Outcome Rating (Including conclusions of IEG reviews) Community Works 100 Moderately Financed small, labor-intensive public workers to provide [FYOOI-PO68762 Unsatisfactory temporary employment to poor workers. Also known as Empleo en Accion. Project design inefficiencies led to substantial delays in implementation. Cost per job generated was significantly higher than that of similar programs and share of income transferred to program participants was low. ........................................................................................................................................................... Social Sector SAL 155 Satisfactory In terms of labor market policy supports Joven [FYO3]-PO69861 grants to choose on the job training), implement legislation to encourage incentive on-the-job training. Impact evaluation of ....................................................................................................................... Labor Reform and Social Development Policy Loans PLaRSSAL I Supported the following objectives: (a) increase employment; (b) [FY04]-PO79060 200 Satisfactory raise human capital formation; and (c) strengthen social protection. PLaRSSAL II In terms of LMP supports reform of labor regulations to reduce non-wage costs and wages, reducing structural inefficiencies, [FYO5]-PO82865 200 Satisfactory employer incentives, and training infrastructure. The program as a PLaRSSAL 111 [ 200 Highly Satisfactory whole and 3rd loan in particular achieved most of the planned FYO71-PO94097 outcomes, in several cases surpassing targets. The Bank was also judged......................... to have provided high-quality technical assistance. ..... ............................................................................................................................................................. " _" TAL to support the PLaRSSAL 2 Assists the Department of National Planning (DNP) and the [FY05]-PO94097 Ministries of Social Protection (MSP) and Education (MEN) to improve their knowledge, develop effective instruments, and strengthen their ability to carry out reforms supported by the PLaRSSALs. ............................................................................................................................................................. ........ Analvtical Work ...... .............................................. .......................................................................................................................................................................................................................................... ............ I Colombia Poverty Analyzes impact of economic development, or lack thereof, on the Report welfare of the Colombian population. Analyses labor market [FY02]-PO66036 outcomes and proposes more flexibility in the labor market. ............................................. ./ ................................... _ ....... .......... / ......................................... .............................................................................................................................. Public Training j Analyzes th veness, efficiency and equity of SENA's Reform Issues [FYO4]- ~ programs and lays out reform options to optimize its contribution to PO74786 ......................................... .,+ .......................... ..... .............. ...... ........................................................................................................................................ Labor Reform Agenda or market and gauges impact of 2002 reform. 51-PO74781 ..................................................... : .............................................................. < ........ ..... ............................................ Ii ...................................................................................................................... " Informality lSoc Background papers analyzing informal ~ market. I ................................................................ i ............ ...................................... .o ........................................................................................................................................... ..................... ............ ~ Phase II uses the surveys from Phase I and collect qualitative data from firms and workers to better understand the dynamics of the iI . ............................................. [FY08]-P100322 ................................................................................... informal sector. ............................................................................................ ....................................................................................................... Poverty & Jobs Expands on poverty work don 2006. Provides advice on income [FY08]-P110542 ~ generation, including active labor market policies (ALMP) Lending ............................................................................................................................................................................... ................ ......................................................................................................... ................................................................................. I 40 Moderately i Objective was to improve access and retention rates and Antioquia Education I improve effectiveness of delivery of educational services. I Satisfactory ~ ! ~ [FY98]-POO6891 I Objectives only partly achieved (more in urban than rural 76 Bank Program Amount 1 IEG Comment (US$mn) Outcome Rating (including conclusions of IEG reviews) areas, possibly because of armed conflict). 'Targets for dropout, repetition and student math achievements were not met. Communities were not able to assume management responsibilities as expected. Many of the activities under the ....................................................................................................... project were plans, and their sustainability was not known. ......................................................................................................................................................................................... Pasto Education 72 Satisfactory Objective was to improve access, retention, and learning in [FY98]-PO46112 Pasto. Objectives partly achieved. Vouchers to low-income students greatly exceeded targets and the poorest students effectively reached. The quality enhancement objective was ...................................................................................................... ............................................ ......................................................................................... j not met. ............................................................................................................................................................................................................. Cundinamarca Education 15 i Highly Unsatisfactory Most activities under the project not implemented because of Quality Improvement changes in municipal political leadership [FYO4]-PO77757 Antioquia Basic Education 40 , Increases equitable access and retention in primary education. [FY08]-PO82908 I Antioquia Secondary Increases equitable access and retention in upper-secondary Education [FY08]-PO52608 education. Increases the proportion of public school secondary-education graduates who continue on to tertiary education. Rural Education APL I 20 1 t Satisfactory Objectives and program design judged highly relevant, [FYOO]-PO50578 including focus on "access to quality and recognition that problem of urban-rural disparities could be solved only with long-term support. Project served many more municipalities and students than originally targeted, but gaps in the definition of outcomes indicators, including quality measures, complicated measurement. Efficacy of project rated as substantial. Higher Education - Improvin! 200 i Improve quality and equity in tertiary education through Access [FYO3]-PO74138 I targeted and merit based student loans and a quality enhancement framework. Second Student Loan Suppo 300 , Provides student loans to talented but needy students and Proj. improves management practices to allow ICETEX to operate [FY08]-P105164 more efficiently and increase sustainability. ...................................................................................................................................................... ....... "............................. " " Analvtical Work ................................................................................................... .................................................................................. ................... ...............I : ......................................................................................... "................................................... "~ ...................................................... Higher Education Strategy Highlighted the priorities for the tertiary education sector. i IFYO21-PO77435 , Delivered in close collaboration with local counterparts. Contracting Education Services [FYO5]-PO85591 I I 1 I Technical assistance on the practice of contracting education services Education Quality Prog I ! In progress I (FYO81-PlO6710 I Lending .............................................................................................. ..j................................................................ ...................................... ................................................................................. ..........,....... ~ ................................... .........._.................... Human Capital Prot. - Cash ' 150 ' Satisfactory Supports Colombia's conditional cash transfer program, Transfers [FYOl]-PO69964 , Farnilias en Accion. Considered a social protection ~ 1 ] intervention. Project objectives and design judged highly 1 / relevant, drawing on similar programs tested elsewhere in ( 1 Latin America. Objectives of better schooling, nutrition, and 77 Amount IEG Comment Bank Program (Including conclusions of IEG reviews) , ' health outcomes for poor children substantially achieved , i Social Safety Net Project 86 Satisfactory Consolidates and expands the successful Familia5 en Accion [FYO6]-PO89443 Conditional Cash Transfer program. Considered a social protection intervention. ........................................................................................................................................................................................................................................... Social Safety Add'l Financing 105 Consolidates and expands the successful Familia5 en Accion [FY07]-P104507 Conditional Cash Transfer program. Considered a social protection intervention. ......................................................................................................................... ,........................ .......................................................................................................................................................................................................................................... Social Sector Review j I Analysis of Colombia's social safety net system. i j [FYO2]-PO64857 j 78 c * m cu 3 N s- W * 0 3 N 3 N 3 d 8 N m 8 N N 8 N 7 8 N 0 8 N m P 7 3 F I- m F (D m z In QI F d a a r U U T P7 QI U F U hl U c U U U m r F 2 Q : r a r : 1 C g 0 00 W W tr: 8 N 2 w w *I UJ 0 0 N B N 0 e3 0 N cy 0 N 0 6 0 N 0 0 0 N U r m m Q) m r 00 m m r h m z W m z UJ m z f e e3 r N m m r f r a a cv W al - D .w 2 . a c Appendix E. Colombia: List of People Met Central Bank Former governor of the Central Bank governor, current researcher at Economics Miguel Urrutia Department Universidad de 10s Andes Jose Dario Uribe Governor of Central Bank Carlos Esteban Posada Senior researcher in Labor markets National Planning Department Andres Escobar Deputy Director Jose Fernando Arias Director of Social Development Unit Natalia Ariza Deputy Director of Employment and Social Security Omar Rodriguez Director of Private Sector Development Bertha BriceAo Director Public Policy Evaluation Natalia Bargans Director of Credit Carolina Gonzales Advisor to Director of Credit Ingrid Abaunza Advisor to Director of Credit Former Deputy Director DNP, currently professor at Universidad de 10s Andes and Juan Carlos Echeverri independent consultant Ministry of Education Maria Victoria Angulo Directora de Foment0 Educacion Superior Jose Ricardo Puyana Advisor for International Cooperation Ministry of Finance Former Coordinator of Multilateral Institutions, currently advisor to Colombian Alejandro Gamboa representative World Bank Dora Lucia Solana Advisor to Coordinator of Multilateral Institutions Ministry of Social Protection Jairo Nuiiez Former Technical Vice Minister SENA Juan Bayona Director of Employment OTHER INSTITUTIONS 85 NGOsl Think tanks Sergio Clavijo Director of National Association of Financial Institutions, ANlF Imelda Restrepo Director of Center of Economic Studies, ANDI, National Association of Industries Ximena Fajardo Specialist in Sector Studies, AND1 Mauricio Santamaria Adjunt Director, Fedesarrollo Multilateralsl Bilaterals Robert Rennhack Advisor, Western Hemisphere Department Ivan Duque Advisor to Colombian representative IADB Marcelo Castro S. Representative in Colombia, 110 Margaret Enis Director of Economic Unit, USAlD Colombia Francisco Gonzalez Economic Specialist, USAlD Colombia Universidad de 10s Andes, Economics Department Ana Maria lbafiez Director Centro de Estudios sobre Desarrollo Economico-CEDE Ximena Pefia Assistant Professor WORLD BANK Diana Cardenas Member of Colombia social and labor team Wendy Cunningham TTL Labor & Social Reform PSALs David Gould Former Country Economist Martha Laverde TTL several education projects Gladys Lopez-Acevedo TTL Labor Market Policy AAA and the Poverty and Jobs TA Jose Guillerme Reis . TTL AAA on Regional Competitiveness and logistics Andrew Mason TTL Informality AAA Juan Carlos Mendoza Former TTL Financial FSAL projects Harry Patrinos TTL Concessions Schools AAA Alberto Rodriguez TTL Higher Education Loans David Rosenblatt Current Country Economist Eduardo Somesatto Country Manager 86 Appendix F. Tunisia: Baseline and Latest Outcome Indicators by Miles Components Tunisia: Indicators of Outcomes Organized Along the MILES Framework Baseline Latest Indicator Comments 1999 200718 Macroeconomic Inflation (?2-month, %) 2.7 5.1 Higher inflation reflects rising food and fuel prices. External debt service ratio (%) 18.5 9.9 Central govt. deficit (% of GDP) 3.5 2.6 Non-financial public sector (YOof GDP) 3.7 3.0 Tax revenue (% of GDP) 21.1 21,2 Public capital expenditure (% of GDP) 6.9 6.2 Public debt (% of GDP) 62.7 55.0 Capital adequacy of banks: capital to risk-weighted 10.6(2001) 11,o assets (%) ............................................................................................................... ...................................................................................................................... Non-performing loans (% of total) 19.2 (2001) 17.0 NPLs worsened to 24% in 2003 before improving again. .................................................................................................... Provisions to non-performing loans 49.2 ................................................................................................................................................................................................................................................................Ú 53.8 Investment Climate Ranking in WEF Global Competitiveness survey (% 36 of countries ranked lower) .................................................................................................................................................. TI CPI score for corruption' 5.3 4.4 ..................................................................................................................................................................................................... 93 ................................................ ............................................................................................................................................................................................................................................. ......................................... 250 ............................................................................................................................................................................................ ........................................... Export ............................................................................................................................................................................................................................................... 19 7 .............................................................................................................................................................................................................. " Import ............................................................................................................................................................................ 15 5 Domestic credit to private sector (% of GDP) 42.7 63.2 ....................................................................................................................................................... Foreign direct investment, net ($ million) 420 (2001) 1,100 (2007) ......................................................................................................................................... Private investment (% of GDPl 14,6 14.2 Labor Market Non-wage payroll costs (% of wage) ............................................................................... ........................................ n.a. 28 .................................................................................................................................................................................................. Numbers of VET araduates findinn iobs n.a. 43,000 Averape dismissal costs (months of wacles) 87 Tunisia: Indicators of Outcomes Organized Along the MILES Framework Baseline Latest Indicator Comments 1999 200718 ~~~~ ~ Rigidity of employment index .......................................................................................................................................................................................................... ................................................................................................................................................................................................................... Hiring .................................................................................................................................................................................................................................... .29 ...................................................................................................................................................................................... Rigidity of hours 40 ......................................................................................................................................... Dismissal 80 ................................................................................................... Number of graduates from VET training courses n.a. 110,000 (2007) (annually) ............................................................................................................................................................................. ....................................................................................................................................................................................................................................... tion .................................................................................. enrollment (% net) Significant primary and ................................................................................................................................................................. secondary enrollment ........................................................................................................................................................................................................................................... Primary ........................................................................................................................................................................................... 98.8 ........................................................................................................................................................................................................................... Secondary ................................................................................................................................................................................................................. 68.4 75.2 ....................................................................................................................................................................................................... Tertiary (YOgross) ......................................................................................................................................................................................................................................... 33.0 ................................................................................................................................................................................................ Primary completion rate (YOof relevant age group) ............................................................................................................................................................................................................................................ 98.0 Increased primary completion rates. ............................................................................................................................................................................................... Male ............................................................................................................................................................................................................................................ 97.4 ................................................................................................................................................................................................ Female 92.3 99 ............................................................................................................................................. Social Protection .............................................................................................................................................. ......................................................................................................................................................................................................................................................... ......... Number of beneficiaries of unemploym ............................................................................................................................................. 0 39,800 (2007) ................................................................................................................................................................................................................................................................ Share of informal sector workers (%) ........................................................................................................................................................................... 28 41 ................................................................................................................................................ " ................................................................................................... Number of beneficiaries of conditional cash transfer 1.2 1.5 illion) ........................................................................................................................ Number of beneficiaries of subsidized health insurance (million) Notes 1 O=worst; 6=best. 2 From World Bank "Doing Business" reports. 3 Ibid. Ibid. 88 Appendix G. Tunisia: World Bank Program by MILES Component Bank Program ' Amount IEG Outcome Ratins I I Comment Lending ........................................................................................................................................ .................................................... .............................................................................................................................................................................................. ECAL I 1 [FY99]-P053255 159 1 Satisfactory The project aimed to support macroeconomic stability (debt, balance of payments) and reforms in the banking I sector (prudential requirements, privatization). The project performance was satisfactory in helping (i) to accelerate , implementation of the Free Trade Agreement with the EU, I (ii) to increase the private sector role in economic activity, I and (iii) to improve the regulatory framework for private ................................. ~ ................ ............................................................................... .............. ............................... / business, and (iv) to increase labor flexibility. .......................................................................................................................................................................................... ECAL 111 [FYO2]-PO55815 253 Satisfactory The project aimed to support reinforcement of the I regulatory and supervisory framework in the financial sector, in particular in insurance, stable macro framework, and strengthen debt management and fiscal sustainability. The project contributed in sustaining a stable macroeconomic environment, in substantially improving the investment climate, and in facilitating Government divestiture from the banking, insurance and telecommunications sectors. ............................................................................................................................................................................ ECAL IV [FYO5]-PO75893 150 Moderately Intended to support reforms in the business climate and Satisfactory financial sector, including improving bank vulnerability indicators. Main development objective - a stronger national private investment performance - not yet materialized. Macroeconomic performance during project implementation was overall good, Contribution to private investment climate was positive and noticeable, and led to increase in investments opportunities. Support to the financial sector helped to reduce the levels of non- .......... Analvtical Work .................................................................................. .......................................................... I , I ................................................ ,......................................................... ~ ........................................................................................................................................ performing loans and to strengthen the regulatory framework of the financial sector ...................................................................................................................................................................................... ................................................................................................................................................. I. -........................... ..... Social and Structural Review (CEM) [FYOOl- i ~ The report reviews the growth performance, 1 ' macroeconomic management including debt, and public PO57056 ...................................................................................................................................................... 1 ....................... j r sector's contributions to growth. ....................................................................................................................................................... External Sustainability j Assessment of Tunisia's external sustainability in terms [FYOI]-P067220 i of integration and vulnerability of the economy towards I 1 external shocks. 89 ......................................................................................................................................... ............... ~ .................................................... ; i ......................................................... *.,. ........................................................................................................... Debt Management Study ~ Assessment and design of an ac [FY03]-PO75087 ~ implementation of the public debt management strategy. .......................................................................................................................................................................... i ..................................................................................... ............................................................................................................................................................................................................... ........... Accounting and Auditing Assessment 1 Strengths and weaknesses of the accounting and (ROSC) [FY04]-PO82200 1 auditing environment that influence the quality of ...................................................................................................................................................................................................................... + ........................................................... I+............................................................................................................................................................................................................. corporate financial reporting. Analyzes Tunisia's current system of public sector financial management and finds it requires strengthening and improvement. i Addresses sources of growth and future challenges ~ including: internal and external imbalances, promoting 1 an efficient financial sector, strengthening management I I ...................................................................... ' ............... of the public financial +............. sector Encouraged the creation of a new procurement system ! in the country. ................................................. I Discusses the banking sector, financial conditions and : stress testing, non-bank financial institutions, pension i ~ funds, capital markets and the financial infrastructure of ................................................................................................................................................ *............................................. I & Tunisia. ..................................................................................................................................................................................................................................... Performance-Based Budgeting Reform j Analyses the deficiencies of the present budget system, [FYO6]-PO94359 j and describes a clear path of budget reform, based the f progressive introduction of programlperformance budgeting. Lending ............................................................................................................................................................ ...................................................... .................................................... ' ~ Transport Sector Investment I j 50 Moderately The project aimed to finance ports and railway [FY98]-P043700 i 38 Satisfactory infrastructure improvements and supported regulatory Transport Sector Investment II reform to promote private sector investment in this field. Project implementation permitted significant implication of [FYOI]-PO64082 the private sector (local and foreign) in transport investments; however, privatizations of ports services, promoting private investments in ports, and commercializingthe railway parastatal were partly achieved. 36 Export Development II (additional Finance) 6 international standards. Survey of exporting firms confirmed [FY08]-P106274 good prospects for sustained export development. 90 i Amount IEG ! Bank Program Comment (US$ mn) Outcome Rating - I I Second Agricultural Sector Investment Loan 42 Moderately The project intended to improve agricultural infrastructure (ASIL 2) [FY98]-P050418 Satisfactory (irrigation and drainage systems) as well as research and training in agricultural issues. The project had positive impact on policy and institutions related to small-scale irrigation; net income for all farm models increased ten times; targeted irrigated perimeters were achieved, cropping intensities increased, and research outcomes were satisfactory. Project shortcomings were (i) irrigation infrastructurewas not fully used, because of inadequate quantity and quality of water, and (ii) average cropping intensity was lower than estimated. Agricultural Support Services 21 Supports creation of networks and institutions to [FYOl]-PO50418 improve market access of rural products. 1 [FY99]-PO53255 ECAL I 159 Satisfactory The project helped (i) to accelerate implementationof the ECAL 111 [FYO2]-PO55815 253 Satisfactory Free Trade Agreement with the EU, (ii) to increase the ECAL IV [FYO5]-PO75893 150 Moderately private sector role in economic activity, and (iii) to improve Satisfactory the regulatory framework for private business, and (iv) to increase labor flexibility. The project contributed in sustaining a stable macroeconomic environment, in substantially improving the investment climate, and in facilitating Government divestiture from the banking, insurance and telecommunications sectors. Contribution in private investment climate was positive and noticeable, and led to increase in investments opportunities, Support to the financial sector helped to reduce the levels of non-performing loans and to strengthen the regulatory framework of the financial sector. However the project ICR was poor, as it didn't indicate whether the intended actions to strengthen the institutional capacity or the expected economic impacts were achieved Municipal Development 111 78 Strengthens the institutional environment for the delivery [FYO3]-PO74398 of municipal basic services and infrastructure. ........................................................................................................................................................................ ICT Sector Development Project 13 Support ICT sector through institutional and sector [FY05]-P088929 reforms, improving ICT infrastructure and promote participation in the private sector. Urban Water Supply 38 Improves water supply in Tunis. [FYO6]-PO64836 Sustainable Municipal Solid Waste Mgt 22 Strengthens key elements of sustainability of municipal [FY07]-PO95012 solid waste management. Tunis West Sewerage 67 Improve the quality of sanitation services in Greater [FY07]-P099811 Tunis. Analytical Work .......................................................................................................................................................................... ~ .................. ........................................................................................................................................... ........................................................................................................................... . /) . 1 Export Promotion IFY981-PO54615 j I No information available. Trade Sector Note [FY99]-P058506 I I ! No information available. 91 1 Social and Structural Review (CEM) Bank Program Amount (US$ mn) IEG Outcome Rating 1 The report reviews the growth performance, and Comment [FYOO]-P057056 macroeconomic management in Tunisia. In Investment Policy proposes improving infrastructure for private ............. ........... 1 sector development. ................. ................................................................................... Private Sector Assessment Update ts the need of improved competitiveness for [FYOOI-PO57771 1 external markets. Includes suggested reforms to improve infrastructure and better financial resources for ! exporting companies. Trade Strategy Note Analyzes Tunisia's trade sector. Identifies challenges lFYO21-PO71926 and suggests strategies. ................................................ .................... ............ , ~ Sector strategy note to the Government of Tunisia to IT Strategy Note [FY02]-PO72034 1 i1 assist them in formulating a plan for the development of i the country's ICT sector. Agric. Competitiveness Policy Note i Assessment of agricultural sector with the objective of [FYO2]-PO73169 I increasing competitiveness in lieu of upcoming trade ....................................................................................................................................................................... 1 negotiations. ................................................................................................................................................................................................................................................................ Tourism Strategy Note [FYO3]-PO75227 ........................................................................................................................................................................ 1 Report on the perspectives of a tourism strategy study for Tunisia. Private Participation in Infrastructure [FYO3]- 1 Approach to stimulate the development of capital PO75551 ~ markets and private industries within the infrastructure sector nationwide. Employment Strategy I General employment assessments. In terms of [FY03]-PO75087 1 Investment Climate discusses constraints to SME I development to create iobs. WTO Commitments on Telecommunications I 1 Compliance with Tunisia's WTO commitments of IFYO31-PO78944 i ~ proposed telecommunications liberalization. Development Policy Review ! Suggests strategies to foster private investment like [FYO4]-083860 I lowering transaction costs for business entry and operations, improving regulations and conditions for i competition. Agriculture Policy Review 1 Addresses status and challenges of the agricultural [FY06]-PO89047 I sector, including increasing competitiveness to support ............... ..................... I trade openess. ....... 1 ~ SME Study [FYO7]-PO76448 I Study focused on Technical centers of Ministry of ! I Industry and Access to and management of industrial I 1 zones fro SME development. Cost Assessment of Water Degradation [FY07]-PO99094 ............................................... i 6 ............................................ ~ Assesses water degradation and it's implications over I agriculture. ........... ........... Water & Wastewater Strategy [FYO8]-PO89416 .......................................................................................................................................................................... Global Integration Study I ........................................................................................................... ! . . .I . . .. . . Assessment of the water sector and proposed regulatory framework. . . .. . .. . .. . .. I Take's stock of Tunisia's recent integration policies and [FY08l-PO89681 i i i !/ discuss opportunities and challenges associated with greater international integration. In Investment Climate discusses strategies to improve competitiveness of ~ I export sector. 92 Bank Program '1 Amount (US$mn) ~ IEG Outcome Rating i Comment Analvtical Work ..................................................................................................................................................................................................................................................... ................................................................................................................................... ........................................................... Social and Structural Review (CEM) [FYOOI- The report reviews the growth performance, and PO57056 i macroeconomic management in Tunisia. In Labor Markets proposed labor reform to improve employability. ............ ................................................................................................................................................................................. " Social Conditions Update Assesses poverty issues including labor markets and job [FYOOI-PO65187 creation. (Unpublished). .......................................................................................................................................................................................... Employment Strategy General employment assessments. In terms of Labor [FYO3]-PO75993 Markets provides a general overview, discusses labor market regulations and ALMPs. ......................................................................... ......................................................................................................... General poverty profile of the country including labor as the main source of income. ......................................................................................................................................................................................................... Analyzes alternatives for job creations, analyzes of existing [FY04]-PO83860 ALMPs i ..................................................................................................................................................................................................................... 1!........................................ ..................................................................................................................................................................................................................... Concept note indicates study of higher education system and relationship with labor market. (no documents available) ............................................................................................................................................................................................................. Employment Strategy Technical Assistance Programmatic ESW. TA to relevant government agencies [FY05]-PO86046 to develop a quantitative framework of the Tunisian labor market, calibrate a Computer Generalized Equilibrium ........................................................................................................................................................ model, and build technical capacities ....................................................................................................................................................................... Employment Strategy [FYO6]-PO95723 grammatic Economic Sector Work (PESW) is to help the Government of Tunisia address the labor market challenges and priorities; and to strengthen the design and implementation of reform options that will improve employment policies over the medium term. Integrated to ................................................................................................................................ ................................................ " : ................................... "Skills Development, ......................................... Social Insurance and Employment". .................................................................................................................................... Agriculture Policy Review Provides analysis of rural sector employment and labor. [FY06]-PO89047 .............................................................................................................................................................................................................................................................. ............................................................... " ......................................................................................................................................... Skills Development, Social Insurance and TA for the analysis of macroeconomic policies and Employment [FY07]-P103309 I employment creation, skills development, social insurance, and active labor market programs. ................................................................................................................................................................................................... Global Integration Study Take's stock of Tunisia's recent integration policies and [FYO8]-PO89681 discuss opportunities and challenges associated with greater international integration. Regarding labor market policies discusses impact of integration on employment creation. Skills Development, Social Insurance and , Phase II of Skills Development, Social Insurance and Employment II [FY08]-P107684 Employment, seeking to provide more concrete policy options on the issue of employment. In terms of labor i I markets suggests more specific ALMPs. 93 Education Quality Improvement Program I 99 Moderately The projects aimed to promote excellence in teaching and (PAQSET I) [FYOOI-PO50945 ; i Satisfactory learning and achieve near universal primary and expanded secondary coverage. The project performance for the first Education Quality Improvement Program j 130.3 j .......................................................................................................................................................................................................... Education [FY99]-PO59268 ............................................................................................................................................................................................ Social Conditions Update Assesses poverty issues including education levels of the i [FYOO] PO65187 population. (unpublished). ......................................................................................................................................................... " ............................................. .......................................... i ........................................................................................................................................................................................... Employment Strategy , General Employment Assessments. In terms of Education [FYO3]-PO75993 I provides assessment of skills mismatch. ..................................................................................................... Poverty Note [FYO4]-PO79469 General poverty profile of the country including education levels analysis. Development Policy Review Analyzes challenges of the education system for [FY04]-PO83860 knowledge economy. I Higher Education Strategy Concept note indicates study of higher education system. [FY05]-PO80203 ~ (no documents available) I ................................................................................................................................................................................... Skills Development, Social Insurance and TA for the analysis of macroeconomic policies and Employment [FY07]-P103309 employment creation, skills development, social insurance, and active labor market programs. Skills Development, Social Insurance and I Phase II of Skills Development, Social Insurance and Employment II [FYO8] PI07684 Employment, seeking to provide more concrete policy options on the issue of employment. In education suggests more specific reforms to match education with demand for skills Global Integration Study Take's stock of Tunisia's recent integration policies and [FYO8]-PO89681 discuss opportunities and challenges associated with greater international integration. In education discusses human resource base to address integration challenges. Analytical ...... Work ................. ."..................................................................... ........................................................................ ............................................................................................................................................................................................................. i i i General Employment Assessments. In terms of Social Employment Strategy ! [FYO3]-PO75993 ; Protection: Discusses unemployment insurance. 94 IEG i Bank Program Comment Outcome Rating 1 and active labor market programs. insurance............................................................................................................................................................ ......................................................................... I..... ................. , Skills Development, Social Insurance and ,I ~ Phase II of Skills Development, Social Insurance and Employment I 1 [FY08]-P107684 i I Employment, seeking to provide more concrete policy options on the issue of employment. In Social Protection I I i it will discuss Pension reform. 95 L[: c 0 U a r * 6 + E E r ? f i 0 2 - d N m N k Zi 7 '? 7 m 7 2 m m m 0 i - a, E 0 U m 0 6 2 In k Ql d b 2 d b a d cc % rc a d d a d c: 9 c: a d c1 9 E N n a s d L ,o % i m 3 %c -0 0 c n 8 2 B c Y m 9 m 2 -c D a 5 - P a, 4 E 8 * 9 2- 2 % . . . . . m cv f r 2 a h . . . . . 0 . . . . . 2 . . . . . .. . . 2 . . . . . . . . . . a t . . . . . 0 . . . . . . .. .. s . . . . . . . . . . 2 . - 0 . . . . . . . . . . T 0 .. Appendix I. Tunisia: List of People Met Government Vice Minister (Secretaire d'Etat) Ministry of Development and International Abelhamid Triki Cooperation. Director General of International Cooperation Ministry of Development and Kame1 Ben Rejeb International Cooperation. Brahim Toumi Ministry of Education and Vocational Training Mohamed Tonn Ministry of Education and Vocational Training Mohsen Ketari Ministry of Education and Vocational Training Slim Chaker Executive Director FAMEX Moncef Youzbachi Director Ministry of Development and International Cooperation. Ali Sana Director General Ministry of Employment Meftah Amara Director "Mise a Niveau" Program Ministry of Industry and Energy Director Institute of Quantitative Economics Ministry of Development and Saloua Ben Zaghou International Cooperation. Abdelmalek Saadoui Director General of Resources Ministry of Finance Said Faouzia Budget Director Ministry of Finance Habib Lahouij Budget Administration Ministry of Finance Raouf Sfar Director General Fiscal Incentives Ministry of Finance Mohamed Ali Ben Malik Ministry of Finance Jamel Bel Haj Ministry of Finance Borchol Moudhu Ministry of Finance Ben Abrahim Mondprer Ministry of Finance Abdalla Riahi Ministry of Higher Education and Scientific Research Habib Fourati National Statistical Institute Director General Foreign Investment Ministry of Development and International Noureddine Zekri Cooperation Private Sector and Other Non-Government Chekib Nouira Managing Director CNI Group (textile manufacturer) Maher Kallel Managing Director Group Poulino Hassen Zargouni Managing Director Sigma Consulting Riadh Bey Marketing Consultant Sigma Consulting Essma Ben Hamida Director Enda Inter-Arabe Michael Philip Cracknell Co-Director Enda Inter-Arabe Zoube'ir Daly Public Services Consultant Berhouma UTICA (Employers' Organization) 102 Sami Sallini UTICA Professor Zouari Abrazak academic Professor A u a m Mahjoub. academic Odoardo Como First Secretary Delegation of the European Commission Vocational Training and Employment Officer Delegation of the European Nabil Ben Nacef Commission Abdourahomene Charaf-Eddine Principal Program Officer African Development Bank Natsuko Obayashi Country Economist African Development Bank Bank Staff Linda English TTL higher education projects August Kouame Lead Economist Fareed Hassan TTL CAE Hamid Alavi TTL PSD projects and activities Ndiame Diop Country Economist (based in Tunis) Rebekka Grun TTL Employment Strategy Setareh Razmara Former TTL Employment Strategy David Robalino Former TTL Employment Strategy Cecile Fruman TTL CAS Mats Karlsson Country Director Theodore Ahlers Former Country Director Mourad Ezzine Sector Manager Human Development Carmen Niethammer Gender and Employment Issues Nadereh Chamlou Gender and Employment Issues Adriana Jaramillo TTL Skills Development and Vocational Training Gordon Betcherman Labor Economist 103 Appendix J. Turkey: Baseline and Latest Outcome Indicators by MILES Component Baseline Latest Indicator Comment 1998 ........................................................................................................................................................................................................................... 200718 ,..................................................................................................................................................................................................................................... croeconomic Policies ..9.roMh..rat )!al.,! ................................................................................................................................................. 4,5 Average growth for 2002-07 was 6.8% annually. 3.1................................................................................................................................................................................................................................................ .............................................. s.............. .............. ................................................................................... 9........................................................................................... Current account balance ( O h of GDP) ............................................................................................................................. 1.0 ' - 5.7 Gross external debt (% of GDP) 57.7 (2001) . I 33.7 National income accounts were revised in 2008, but back to 2001. only........................................................................................................................................................................ Iic . . . sector . . . . . . .primary . . . . . . . . .(% . . . . . . . . balance . . . of . . .GDP) . . . . . . . . . . . . . . . . .3.5 . . . . . . . . . . . . . . . . . . . . . . . . . 4.6 ........................................................... Net public sector debt (% of GDP) 66.4 (2001) 38.8 National income accounts were revised in 2008, but only back to 2001 ........................................................................................................................................................................ I .................... ................. 2' 24.9 .............................................. ......................................................................................................................................................................... 5 3 ............................................... 76.7 75.5 Female 79.5 92.0 (2006) ................................................................................................................................................................................................................................................................Ì Secondary 77.6 (2001) 78.6 (2006) ................................................................................................................................................................................................................................................................Î ............................................................................................................................................................................................. ................................................................................................................................................................................................. "............................................. ........................................................................................................................................................................................... Coverage of unemployed still limited. ...................................................................................................................................................................................... ................................................................................................................................................................................................ Source: World Bank reports, database and materials, IMF, OECD, TURKSTAT, World Economic Forum (WEF). I 104 Appendix K. Turkey: World Bank Program by MILES Component I Amount IEG Bank Program Comment ~ I (US$ mn) Outcome Rating* Lending .................................................................................................................................................................. ............................................... .......................................................................................................................................................................................................... ERL [FYOOI-PO68792 760 Satisfactory In order to underpin country economic stabilization effort, the project supported reforms in key structural areas including fiscal and real sector reforms and provided back up to IMF programs. Most macroeconomic indicators improved as GDP grew by 7.9 in 2002 and 5.9 in 2003, Inflation dropped and fiscal performance improved as significant reform .................................................................................................................................................... ............................................. achievements were completed in the fiscal area. .................................................................................................................................................................................................... FSAL [FYOl]-PO66511 770 Moderately The project aimed to strengthen regulation and supervision of Satisfactory the banking sector. A banking regulatory and supervisory framework was created and strengthened and an action plan to deal with failing banks and the privatization of state-owned banks was adopted. Major shortcomings included: (i) a weak macroeconomic environment that provoked a major banking crisis, and (ii) lack of time-bound privatization plan for state ................................................................................................................................................................. ........................................... banks, ........................................................................................................................................................................................................ PFPSAL [FY02]-PO70560 1,100 Satisfactory The programmatic projects aimed to support key public and PFPSAL I1 [FY02]-PO70561 1,350 Moderately financial sector reforms in the aftermath of the 2000 crisis. Satisfactory Achievements were as follows: (i) Regulatory and supervisory Satisfactory framework for the banking activity was further strengthened PFPSAL 111 [FYO4]-PO82996 1,000 and upgraded; some progress in public finance management and governance reforms; (ii) Legal and regulatory framework for banking activity was strengthened; importance of state- owned banks diminished; public sector financial structure, management, and accountability strengthened and improved; public procurement enhanced, (iii) Financial sector stabilized and strengthened; substantial progress towards sustained fiscal adjustment and effective and transparent government, and noticeable improvements in financial transparency; fiscal and debt outcomes improved, On the flip side, social expenditures fell short of targets, privatization of one bank was not completed, and Savings Deposits Insurance Funds were not totally resolved. ......................................................................................................................................................................... PPDPL [FY06]-PO71052 500 Structural reform program to maintain an macroeconomic framework, financial controls and expenditure management of public resources, and improving the administration and governance of the public sector. 105 Amount IEG Comment CEDPL [FY07]-PO71052 1 500 Includes maintaining currently enabling macroeconomic 1 framework and privatization of state owned enterprises Analytical Work .............................................................................................................................. Living Standards [FY99]-P074181 1 Economic reforms, living standards and social welfare 1 study- Stressed links between growth, employment and I poverty reduction. Suggested policies to make agricultural .................................................................................................................................................. ~ ......................................... L ...................................................... : sector more productive to absorb jobs. i.......................................................................................................................................................................................................... GEM [FYOOI-PO57226 CEM: Structural Reform for Sustainable Growth. Included analysis of Turkey's macroeconomic framework. I Recommends structural policies to generate fiscal surpluses, financial reform, banking sector, agriculture and social security. ........................................................................................................................ .......................................................... j / .............................................. ................................................................................................................................................................................................... CEM [FYO3]-P59617 i CEM: Towards Macroeconomic Stability and Sustainable j Growth. Analyzed the context after de 2001 crisis, i ~ including issues of macroeconomic stability. CEM [FYO6]-PO77776 CEM: Promoting Sustained Growth and Convergence with the European Union. Analysis determinants of growth and public financial management. PER [FYOI]-PO88836 1i Public Expenditure Review. Analyses the budget, i institutions of public expenditure management, and ............................................................................................................................................................ ii........................................... / i ..................................................... I accountability. * ................................................................................................................................... ................................................................. PER [FYO7]-PO93169 I Public Expenditure Review. Includes discussion on the -1 I effects of Social security reform over expenditure, Lendinq ........................................................................................................................................................................................................... EFlL [FYOOI-PO65188 1 253 Satisfactory The first project intended to provide a credit line to banks EFlL II [FY04]-PO82801 1 303 Highly supplying medium term credit to exporting firms and to EFlL 3 [FYO5]-PO93568 i 305 Satisfactory SMEs at a time of tight credit and crisis in 2001. Private Banks were evaluated against prudential ratios and most of their ratios improved; strategic dialogue between the Bank and Turkish banking sector was established, and set the stage for Bank programmatic support to the financial sector. The second project aimed to provide adequate finance to facilitate export growth, and improve financial intermediation. There was a pick up in export growth resulting from increased financial intermediation targeting the export sector; Credit line to export sector facilitated export growth (number of exporters, volume and value of exports); Increased competition in the financial sector. ............................................................................................................................................................................................................ ERL [FYOOI-PO65188 760 Satisfactory The project aimed to reform key structural areas and contained elements related to privatization, reduction of agricultural subsidies and deregulation of the energy sector. Significant reform achievements in the'fiscal and social security systems; reform progress in the agricultural, 106 Bank Program ' Amount IEG I Comment ' (US$ mn) 1 Outcome Rating* ' I energy and telecommunication sectors and in the I privatization of SOEs. I ARlP [FY02]-PO70286 CEDPL [FYO7]-PO741181 500 ! Structural reform program. In terms of Investment Climate includes improving investment climate generally, access i to investment capital, and promoting knowledge and ............................................................................................................................................ Analytical Work ............................................................................................................................................................... .......................................... ............................................................................................................................................................................. -.......................................................................................... Caspian Oil & Gas 1 Explored options for moving away from the Turkish [FYOOI-PO66699 National Gas Company (BOTAS) as a sole-source gas Caspian Oil & Gas 2 buyer. [FYOl]-PO71503 Caspian Oil & Gas 3 [FYO2]-PO75254 Caspian Oil & Gas 4 [FY03]-PO80288 Water Sector Review Review of the present situation of water sector in Turkey [FY03]-PO79023 and private sector participation. ........... ..................................................................................... ....................................................................... ................................................. ........................................................................................................................................................................................... Energy Strategy Energy strategy note reviewing main issues and policy options in power and gas sectors. ........................................................................................................................... i,....................... [FY03]-PO81072 .................................................................................................................................... Gas Sector Note Assists the Government of Turkey in developing a strategy IFYO41-PO83619 i to expand gas distribution and utilization in Turkey. , Infrastructure Note i Infrastructure financing study. The results were [FY06]-PO89034 j incorporated into the full PER. ~ i ..._ ................................................................................................................................................. I r ................................................................................................. i ............................................................................................................................................. CEM [FYO6]-PO88836 ~ CEM: Promoting Sustained Growth and Convergence with j the European Union. Includes analysis of issues regarding i ' deregulation and investment climate. ................................................................................................................................................................................................... ................. 1.. Investment Climate Assessment ' Analyzes Investment Climate based on a survey to 1,300 [FYO7]-PO84255 , Turkish firms on issues such as industrial restructuring, i administrative barriers for business operation, entry and I exit dynamics. Lending ...................................................................................................................................................... _. ................................................................................................................................................................................................................................................................! ...... I Satisfactory 1 The project intended to support the Government's : PSSP 1 [FYOl]-PO69894 i 250 PSSP 2 [FYO5]-PO94167 [ 465 , : program to privatize state-owned enterprises (SOE), and 1 : to serve as a cushion to social impact of the economic reform program, including compensation for deployed 1 8 workers. The privatization of state enterprises was successful; job compensation was provided to 18,267 laid ' off workers, and surveys to monitor the social impact of ~ the reform program were conducted, albeit with some 1 delay. 107 Amount IEG Bank Program Comment i (US$ mn) Outcome Rating* policies includes setting the foundations for overhauling I labor market requlations. Analytical Work ............... ........................................................................... " ..................................................................................................................... CEM [FYO6]-PO88836 CEM: Promoting Sustained Growth and Convergence with the European Union. Includes issues regarding ~ labor market reform agenda. ........................................................................................................................................................................ ..................................................................... .................. Poverty Assessment Joint with the Turkish Statistical Agency: General [FY05]-PO84809 j 1 poverty profile of the country including labor market analysis. "" ........................... .......................... " Labor Market Study Labor Market Study. Comprehensive study of labor [FYO5]-PO79189 market including suggested reforms to Labor codes, severance payments, labor dispute resolution mechanisms and active labor market programs. ........................................................................................................................................................................................ Education Sector Assessment Sustainable Pathways to an Effective, Equitable, and [FYO5]-PO84761 Efficient Education System for Preschool through Secondaiy School Education. Includes background papers of the relationship between education policies and labor market. .............................................................................................................................................. Investment Climate Assessment Analyzes Investment Climate based on a survey to [FYO7]-PO84255 1,300 Turkish firms on issues such as industrial restructuring, administrative barriers for business operation, entry and exit dynamics. ......................................................................................................................................................................................... Estimating the Impact of Labor Taxes Estimating the lmpact of Labor Taxes on Employment [FYO8]-P111557 and the Balances of the Social lnsurance Funds in Turkey. Studies more detailed effects of the proposed reforms to labor taxes and regulations. ........................................................................................................................................................................................... Youth Labor Markets lnvesting in Turkey's Next Generation Study. Analyzes [FYO8]-102193 youth labor market issues including education systems, government programs for worker placement, and regulations. / children of low-income families and children with 1 i j special needs. Weak project performance was due to (i) 108 Amount IEG Bank Program Comment (US$ mn) Outcome Rating* , Basic Education (APLP) 300 Moderately The project aimed to expand basic education coverage [FYO3]-PO59872 Unsatisfactory in low income families and children with special needs. School infrastructure was expanded and renovated, and package of learning material reached an additional 3 million schoolchildren. However, project design was inappropriate, leading to inability to provide evidence on how funded outputs link to the stated project objective, and making project evaluation ............................................................................................. difficult. ............................................................................................. " Secondary Education 104 Supported reform of general secondary and vocational [FYO5]-PO66149 education by improving conditions for student learning, establishing a career guidance system and enhancing foreign language teaching. .............................................................................................................................................................................................. ........................................................................................................................................................................................................ "....................................................................... ...................................................................................................................... Education Sector Assessment I 1 to an Effective, Equitable, and i Efficient Education System for Preschoolthrough [FYO5]-PO84761 Secondary School Education. Comprehensive analysis ~ : ... lllcl.81,- .._. .. ..... " P 'I I .., I . l . I v I .......... _._ ....... ............. .. . . . . ...... . ................. Lending ERL [FYOOI-PO68792 760 Satisfactory Reform of key structural areas. In Social Protection they include: initial reforms of pensions and start of unemployment insurance. ................. ................................................................................................................................................................ .^ Social Risk Mitigation Project (SRMP) 500 Funded conditional cash transfers to poorest 6%. [FY02]-PO74408 Grants for employability (skills) training, social service sub-projects, rehabilitation of schools, and temporary employment. PPDPL [FY06]-PO71052 500 Structural reform program. In terms of Social Protection includes reforming substantially the country's social protection system, which covers social security, universal health insurance (UHI), and social assistance. .......... ................................................................................................................................... Analvtical Work ................................................................................................................................................................................................ Poverty Assessment Joint with the Turkish Statistical Agency: General [FY05]-PO84809 poverty profile of the country includes analysis of access to social security. 109 ? ? f ? ? ? I I I 5 r I a i I I i i ! 2 E I 3 i E i i 3 J i i 3 i - ri 3 ri 7 u f u U d c n - 0 9 9 - E 1 l ! i 1 I i ! 1 I 1 ! I i , , P ? a: I 6 a , 3 , =! s k n r! 2 ; I- s P- s P- cc U U IC. I- Q U U U U CC a P- a a a a a a IC a a IC l n m 8 m m co m 0 t d X I . ! L N c n N Appendix M. Turkey: List of People Met WORLD BANK Aristomene Varoudakis Country Manager for Armenia h a Ruthenberg Country Program Coordinator Jeanine Braithwaite Senior Social Protection Economist Basil Kavalsky Consultant, IEGCR Arup Banerji Sr Adviser, IEGWB James Parks Adviser, MDW . Fernando Montes Sector Director, ECSPF Paulo Guilerme Correa Senior Economist, ECSPF Jesko Hentchel Country Sector Coordinator, ECSHD Raif Can Consultant Carlos Pinerua Country Sector Coordinator, ECSPF Mark Thomas Lead Economist, ESCPE Mediha Agar Economist, ECSPE Maureen Anne McLaughlin Lead Education Specialist, ECSHD Kamer Karakurum-Ozdemir Economist, ECSPE Keiko Sat0 Lead Operations Officer, ECCUG Ulrich Zachau Country Director, ECCUG lsmail Arslan Sr Evaluation Officer, IEGCR James Hanson Consultant, MNSED Gordon Betcherman Sector Manager, ECSHD International Monetary Fund Hossein Samiei Davide Lombard0 Turkish Government Officials, Private Sector Representatives and Other Turkey-based Individuals Ferudun Giresun Department Head, ISKUR Turkish Employment Organization Asim Keskin Advisor to Minister of Labor, Ministry of Labor Mehmet Akkul Department Head, State Owned Enterprises, Treas-ury Ozgur Pehlivan Deputy General Director, Foreign Economic Relations, Treasury Elvan Ongun Department Head, Foreign Economic Relations, Treasury Murat Alici Deputy General Director, Foreign Investment, Treas-ury 117 Fatma Uluc Education Project Officer, UNICEF Mustafa Balci Education Sector Manager, Economic Commission, European Union Halil lbrahim Alca SPO State Planning Organization Kemal Madenoglu SPO Guven Sak Executive Director, TEPAV Economic Policy Research Foundation of Turkey Emim Dedeoglu Director, Governance Studies, TEPAV Ozan Acar Research Associate, TEPAV Enver Tasti Director of Social Statistics, TURKSTAT State Insti-tute of Statistics Didem Sozer TURKSTAT Gulay Aslantepe Director, ILO Ertan Tanriyakul Deputy General Manager, TURK EXlM BANK Neslihan Topbas Funding Manger, TURK EXlM BANK Ahmet Aksu Vice President, Privatization Administration Gunden Peker Cinar Head of Project Group, Privatization Organization Ozge Alpay Coordinator, Project Coordination Unit, Privatization Organization lrem Guner Project Consultant, Privatization Organization Zafer Ali Yavan TUSIAD Turkish Industrialists' and Businessmen's Association Orhan Beskok Executive Vice President, Industrial Development Bank of Turkey TSKB Gunduz Findikcioglu Chief Economist, TSKB Refik Akinci Department Head, Economics and Engineering, TSKB Hakan Altinay Executive Director, Open Society Institute Assistance Foundation Neyyir Berktay Coordinator, Education Reform Initiative ERG Batuhan Aydagul Deputy Coordinator, ERG Ayla Goksel Gocer Vice President and CEO, Mother Child Education Foundation ACEV Necdel Kenar Director General, MESS Training Foundation 118 Appendix N, Cross-Country Comparisons 1. T h e cases reviewed i n chapters 2,3, and 4 of this report depict a range of experiences relating to Bank support for addressing e m p l o y m e n t challenges. This appendix discusses a set of f i n d i n g s that can b e d r a w n from Bank experiences assisting Colombia, Tunisia and Colombia. The discussion focuses on f i n d i n g s relating to the country’s achievement of out- comes (GDP, poverty, employment, and earnings growth) and the contribution of Bank in- puts, first from a cross-cutting perspective and t h e n with reference to each of the f i v e M I L E S areas support. The appendix concludes with implications for Bank support during the cur- r e n t jobs crisis. Comparison of Outcomes across the Three Countries 2. Two findings in connection with outcomes across the three countries are highlighted: n economic growth and earnings was better t h a n progress i a) progress i ne m p l o y m e n t and unemployment; b) w h i l e the availability of statistics on employment a n d outcomes has im- proved, there are s t i l l significant pitfalls. 3. Outcomes, Exogenous Forces and Policies. W h e n comparing the decade under review (1997-07) with the previous decade, the broad outcomes (Table 29. ) are as follows: Tunisia did best. With stable employment growth, Tunisia increased i t s employment-to-population ratio a n d reduced the u n e m p l o y m e n t rate. Per capita GDP, GNI a n d earnings growth rates also increased and poverty declined a t a n increased rate. Colombia also registered stable e m p l o y m e n t growth a n d a n increase in the employment-to-population ratio, but the unem- p l o y m e n t rate increased. The per-capita GNI and GDP growth rates declined but earnings n inequa- growth m a y have increased towards the e n d of the r e v i e w p e r i o d d u e to a decline i lity. Poverty declined after h a v i n g increased during the previous decade. Turkey expe- rienced declines in employment growth and i n the employment-to-population ratio, a n d a n increase i n the u n e m p l o y m e n t rate. The per-capita GNI a n d GDP growth rates increased a n d earnings growth possibly remained stable. Poverty declined at a n increasing rate, par- ticularly after 2002. The last c o l u m n of Table 29. shows p e r w o r k e r output growth and TFP. Although Turkey, as Tunisia, increased TFP growth markedly, Turkey’s growth, u n l i k e Tu- nisia’s, w a s ”jobless”. 119 Table 29. Colombia, Tunisia, and Turkey: Outcome Indicators Employment Unemployment Income Poverty Income Distrinution OutpuVTFP Headcount Ratio Gini Coefficient Average Employment-tc- Unemployment Real Per (Not Comparable across (Not Comparable across Per-WorkerGDP Annual Population Capita GNI countries) countries) GrowthlOf Rate which:TFP Change (%) Ratio (%) Growth Data at or closest to (as , Data Closest to (as indicated): indicated0 Year1 1987 1997 1997 2007 1997 2007 1987 1997 1987 1997 2007 1987 1997 2007 1989- 1995- Period -97 -07 .................................................................................................... -97 -07 .......................................................................................... .................. 95 05 Colombia 2.3 2.3 51.0 51,4 9.8 10.7 2.2 1.9 52.51’ 52.7 45.02 53.13’ 57.6 54.02/ 1.581 1.161 .................................................................................................... .......... ................. -0.01 -0.18 Tunisia 2,7 2,7 38.1 40.2 15.9 14.1 2.2 4.0 7.74 6.25‘ 3.86’ 43.2“ 38.95‘ 40.06‘ 2.371 3.041 ..................................................................................................... ........................................................................................... ................. 0.75 1.42 Turkey 1.9 0.8 49.0 45.8 6,8 10.1 2.3 2.5 38.5” 34.56’ 27.09’ 44.4 41.6 39.9’ 2,831 3.611 28.38’ 9.5 41.58’ 42.79’ 43.26’ -0.05 1.50 ................................................................................................... ........................................................................................... 30,39‘ ................. World 1.7 1.6 63.0 61.8 6.1 6.0 1.4 1,9 71.8 67,2 56.6 61.91°’ 64.2lO’ 0,831 2.991 ............ .......... 65.1 ................ Unemp DANE , Tun OECD (Turkey), The World Bank (WDl) and /LO, “Global Employment Trends”, 2009 (World). Poverty Headcount Ratio: DNP (Colombia); Tunisia lnsfitute of Statistics (Tunisia); The World Bank (2005) and (WDI) (Turkey); The World Bank (WDI) (World). Gini Coefficient; DNP (Colombia); (World Bank updated (2008) poverty estimates (cw..woridbank.org>) (Tunisia); Dumlu and Aydin (2008) (Turkey). OutpuVlFP: staff estimates from Dale W. Jorgenson; Khuong Vu, 'information Technology and the World Growth Resurgence”, hdl:1902.1/10702 U N F : ~ ; V E ~ B ~ ~ ~ ~ M R ~ K ~ ZVAverage D 122 Z ~ ~ / P ~of A = Economies. =; V1991; U2006; 3/1987 4/ 1985; 5/ 1995; 6/2005; 7/1987 8/1994; 8/ 1994; 9/2002/ IO/ 1988 and 1998, Milanovic (2005); 111 2000 and 2005, Hillebrand (2008). 4. Although employment g r o w t h has been positively correlated with GDP growth, as indicated by t h e fact that ILO (2005) estimates of the GDP elasticity o f employment, changes in average GDP g r o w t h rates between 1987-97 and 1997-07 were reflected p r i m a r i l y in changes in earnings growth, n o t o n employment growth. A positive relationship between GDP and employment g r o w t h is t o be expected because g r o w t h triggers demand for labor a n d because employment i s one of the sources of growth. However, the simple correlation between employment and GDP growth is weakened by the relationship that has also been f o u n d between changes in GDP g r o w t h a n d changes in TFP g r o w t h (another source of GDP growth), particularly w h e n fundamental changes in relevant policies have taken place. In fact, worldwide acceleration of GDP g r o w t h during the review period was l i n k e d to world- w i d e acceleration of TFP g r o w t h and the three countries were n o exception. Increases in to- tal factor productivity g r o w t h allowed earnings growth t o increase i n Tunisia and Turkey, a n d possibly in Colombia where the change in average TFP g r o w t h between the two periods was small but income inequality declined. 120 Table 30. Colombia, Tunisia, and Turkey: Sources of Growth .................................................................................................. .............................................................................. ....................... World I / 0.83 1.66 ..................................................................................................................................................................... 0.83 0.87 0.41 -0.44 ................................................................................................................. World I / .................................................................................. 2.63 3.75 1,33 1.11 0.36 0.95 ............................................................................................................................................................................................................ ...................................................................................................................................................................... Source: Dele W, Jorgenson; Khuong Vu, '/Information Technology and the World Growth Resurgence', hdl: 19O2.1/10702 UNF:3:vE7B5m3aMRtKGZZi4lP4DA==; I / Average of 122 Economies 5. Differences in outcomes across the three countries w e r e l i n k e d p r i m a r i l y to differ- ences in local exogenous forces and policies. External forces w e r e favorable. Improvements in the world a n d regional economic environment increased local d e m a n d for labor in the three countries. Per capita world GDP growth increased from 1.4 percent during 1987-97 to 1.8 percent during 1997-07, with even larger increases i n L a t i n America, ECA, and MENA. Access to international finance i m p r o v e d notably a n d the cost of this finance declined. 6. Improvements i nmacroeconomic policies and other investment climate policies w e r e also a factor h e l p i n g increase investment and the d e m a n d for labor i n the three coun- tries, but good macroeconomic policies were already in place a t the outset of the r e v i e w pe- riod i n Tunisia, w h i l e these policies i n i t i a l l y deteriorated i n Colombia a n d Turkey. Labor market rigidity, non-wage costs, and minimumwages increased throughout the p e r i o d i n T u r k e y a n d remained unchanged i n Tunisia. Rigidity w a s somewhat relaxed in Colombia but non-wage costs a n d the minimum wage also increased. In education, the three countries achieved increases i n enrollment, particularly i n secondary and tertiary, i.e., towards the working-age range. These increases as w e l l as demographic transition that reduced work- ing-age p o p u l a t i o n g r o w t h contributed t o tame aggregate labor s u p p l y growth. Past educa- tion efforts also generated the s u p p l y of skills that a l l o w e d earnings t o increase. Rural-urban m i g r a t i o n s p u r r e d by economic sector adjustment i n T u r k e y and r u r a l violence in Colombia shocked urban labor supply. Furthermore, i nColombia, deteriorated security during the first h a l f of the r e v i e w p e r i o d discouraged economic activity. All i n all, the environment c o m i n g from local exogenous forces a n d policies w a s m o s t favorable i n Tunisia, less so in T u r k e y a n d least so i nColombia. 7. I n the three countries, poverty declined at a n accelerating pace during the review pe- riod. (Table 31. ), This acceleration i n p o v e r t y r e d u c t i o n does not surprise, for economic 121 growth accelerated in Tunisia a n d T u r k e y a n d inequality declined in Colombia. The expe- rience of Tunisia and Colombia suggest that periods of economic distress, with low produc- tivity growth, f a l l with m o r e w e i g h t on the poor. In Tunisia, growth incidence curves, w h i c h depict the incidence of growth by percentile of the income distribution, s h o w that growth has been pro-poor for several years, with the exception of the drought years during the early p a r t of the century.1 There were particularly sharp reductions in p o v e r t y towards the e n d in both Colombia and Turkey. Research by Cardozo a n d Grosse (20072 use growth incidence curves to s h o w that growth in Colombia w a s pro-poor for the overall 1996-05 period, par- ticularly i n the r u r a l sector. Growth (or rather recession), however, w a s pro-rich during 1996-99 a n d pro-poor during the rest of the period, w h e n the economy recovered. There are no available incidence curves for Turkey, but the data suggests that during the crisis of the early 2000s, p o v e r t y increased a n d growth m a y w e l l have been pro-rich. Comparison of w a g e growth across the three countries shows the contrast between Colombia, w h e r e mini- mum w a g e regulations have pushed f o r m a l sector wages up (and i n f o r m a l wages down), a n d Turkey, w h e r e i n f l a t i o n was a l l o w e d to bring r e a l f o r m a l sector wages down during the p e r i o d of structural adjustment. Table 31, Colombia, Tunisia, and Turkey: Poverty and Wages Total Change in Average Change of f'hannn in tha V I 1511 I Y G /I I LI lG YearlPeriod Poverty Headcount Real Wages in Unemployr--A n IIWLmate Ratio Change Manufacturing \rcit,ciitade Points) IC)fi,rnnl.W (Percentage Points) (Percent per Annum) Colombia 1' ............................................................................................... .............................................................................................................. 2.2 ,....................................................................................................................................... 4.5 2.0 5.3 2002-07 -9.5 1.3 ................................................................................................................................................................................................................................................................] -6.6 Tunisia 21 ..................................... 1985-1995 .......................................................................................................... -0.6 4' 1995-2005 ......................................................... ..................................................................................................... ................................................................................................................................................................................................................................................................= ..................................................................................... 2.7 2.2 0.9 1994-02 -1.3 -2.3 1.8 2002-06 -20.8 -2.6 -0.5 Source: Sources: Change in Poverty: Staff estimates from DNP data; Average Change in Real Wages: Central Bank; Change in Poyerty; Data from Statistical lnstitufe; Average Change in Real Wages: 1995-05: Data from Tunisia's Sfatistical Institute; 1985-95: Data from Tunisia's Statistical lnstitute and from World Bank 1995; 31 Data from Turkey's Sfatistical Institute. 4/ 1984-94; 5/7994-04 8. E m p l o y m e n t abroad has been an important source of income/transfers for nationals of t h e three countries, both for those living and e m p l o y e d abroad as f o r those living in their c o u n t r y a n d receiving remittances. In Colombia, the economic a n d security crisis a t the turn of the century triggered a substantial rise i n the stock of emigrants (up to 4 percent of popu- lation) and in remittances (up to 7 percent of GNI), the latter declining as the economy im- p r o v e d (See Figure 1.). InTunisia, there w a s a gradual rise in the stock of emigrants after n2007) and a rise in the level of remittances a t the year 2000 (up to 10 percent of p o p u l a t i o n i the turn of the century (up to a little over 10 percent of GNI; (See Figure 2. ). T u r k e y shows a sharp decline in remittances as the economy i m p r o v e d as w e l l as a decline in the stock of emigrants (See Figure 3. ). 9. The dynamics of participation rates varied significantly across the three countries. Turkey's long t e r m decline in participation continued a n d i s primarily correlated with the 122 decline in the share of the agricultural sector3, a decline that w a s g i v e n additional impetus by the r e m o v a l of agricultural subsidies as p a r t o f the structural adjustment measures un- d e r p i n n i n g stabilization. Colombia's long t e r m increase in participation, p r i m a r i l y ex- p l a i n e d by increased in education levels that raised female participation rates, ceased during the p e r i o d u n d e r review, reflecting the diminished capacity of the economy to generate em- p l o y m e n t d u e to l o w e r growth and possibly minimumwages. Participation rates in Tunisia increased, reflecting higher economic growth. 10. Similarly, the experience of unemployment in the three countries also varied consi- derably. It suggests that changes in u n e m p l o y m e n t (Table 31. ) in Colombia during the dec- ade w e r e p r i m a r i l y cyclical; that changes in Turkey's u n e m p l o y m e n t reflected changes in the cyclical component prior to 2002, w h e n indeed there were w i d e swings of economic ac- tivity, with a rise in structural or frictional unemployment during Stabilization, possibly as structural policies accelerated the rural-urban h u m a n resource reallocation; and that changes i nu n e m p l o y m e n t i n Tunisia were minor, reflecting the absence of cycles or major structural changes. 11. I n the three countries, unemployment rates remained very high. In 2007, these rates were 1 0.7 percent in Colombia, 14.1 percent in Tunisia, a n d 10.1 in Turkey, high even by re- gional standards in Colombia and Tunisia. These rates are not l i k e l y to reflect sigruficant cyclical unemployment, for in 2007 output w a s close to potential i n the three economies. They are m o r e l i k e l y to reflect classical u n e m p l o y m e n t d u e to high minimumwages or structural u n e m p l o y m e n t due, for example, to skills mismatches, both issues of considerable importance in the three countries. Some frictional u n e m p l o y m e n t d u e to imperfect informa- tion m a y also b e a t work. 12. All this suggests t h a t the B a n k m a y usefully h e l p elucidatee the hysteresis a n d struc- t u r a l roots o f unemployment, i n c l u d i n g i t s cyclical, classical, frictional a n d structural com- ponents, as there has been l i t t l e success in reducing the long-term l e v e l of unemployment. During the 10-years r e v i e w e d i n this report, the three countries m a d e l i t t l e or no progress in reducing u n e m p l o y m e n t on a sustained basis. Understanding better the "classical unem- ployment" implications of minimumwages and the other sources of long-term u n e m p l o y - m e n t m a y h e l p sharpen engagement and dialogue on this critical issue.4 13. There are also considerable diflerences in performance in employment indicators by gender. Inboth Tunisia and Turkey, female participation rates are m u c h l o w e r than male participation rates for a variety of reasons discussed in the c o u n t r y chapters, i n c l u d i n g structural (e.g., rural-urban m i g r a t i o n in Turkey) a n d cultural factors (strong v i e w s of fe- m a l e roles a t home). I nColombia, female participation rates, the highest of the three coun- tries, declined after 2000, after several years of increasing, and m a l e participation declined after many years of constancy. A s with employment trends, the decline i s l i n k e d p r i m a r i l y to slower economic growth, with some attribution d u e to minimum w a g e and labor taxes. In Turkey, female participation continued declining slowly, with no n e t changes in m a l e par- ticipation. In Tunisia, female participation continued increasing a n d m a l e participation con- t i n u e d declining. I na l l three countries, the authorities have been proactive in s u p p o r t i n g women's rights to work. Nevertheless, female u n e m p l o y m e n t rates are higher t h a n male nTunisia and m o r e so in Colombia, with the g a p between the two in- u n e m p l o y m e n t rates i creasing in Tunisia largely as a result of s k i l l mismatches. Turkey's u n e m p l o y m e n t rates do 123 not v a r y by gender. A distinguishing feature in Tunisia i s that u n e m p l o y m e n t i s higher a m o n g the educated, again d u e to a skills (quality) mismatch. 14. The experience on e m p l o y m e n t outcomes depicted in the paragraphs above suggests t h a t Bank programs with e m p l o y m e n t objectives would benefit by considering the full set of employment-related outcomes w h e n designing country programs, T h e full set would cover e m p l o y m e n t growth, the employment-to-population-ratio, the u n e m p l o y m e n t rate and earnings growth, and the i m p a c t of these on poverty, as w e l l as the uncertainties of that im- pact. This i s not t o say that programs necessarily need to have quantitative targets for these variables, but that policies a n d programs n e e d to b e understood in terms of their possible effects on those variables. Figure 1. Colombia-Number of Colombian Nationals Living Outside Colombia (Percent of Colombia's Population) and Workers' Remittances to Colombia (Percent of GNI) Sources: The World Bank (WDI): Population and Remittances. Organizacion In- ternacional para las Migraciones: Stock of Colombian Nationals Abroad. 124 Figure 2. Tunisia-Number of Tunisian Nationals Living Outside Tunisia (Percent of Tunisia's Population) and Workers' Remittances to Tunisia (Percent of GNI) Sources: The W o r l d Bank (WDI): Population and Remittances. Ministry of Foreign Af- fairs: Stock of Tunisians Living Abroad. Figure 3. Turkey-Number of Turkish Nationals Living Outside Turkey ((Percent of Turkey's Population) and Workers' Remittances to Turkey (Percent of GNI) 40 3.5 - 30 - L 25 C E 20- k 151' 101 05 i 00- , , Sources: The W o r l d Bank (WDI) Population and Remittances. The World Bank; Icduygu, Ahmet, "Turkey and International Migration, 2004 - Sopemi Report For Turkey. Dept. of International Relations, Koc University, Gokdere, Ahmet, "An Evaluation Of Turkish Mi- gration Towards End-1995" 15. Employment abroad has been an important source of income/transfers for nation- als of the three countries, both for those living and employed abroad as for those living in their country and receiving remittances. In Colombia, the economic a n d security crisis at the turn of the century triggered a substantial rise in the stock of emigrants (up to 4 percent 125 of population) and i n remittances (up to 7 percent of GNI), the latter declining as the econ- omy i m p r o v e d (See Figure 1.) InTunisia, there was a g r a d u a l rise in the stock of emigrants n 2007) and a rise in the level of remit- after the year 2000 (up to 10 percent of p o p u l a t i o n i tances a t the turn of the century (up to a little over 1 0 percent of GNI; (See Figure 2. ). Tur- k e y shows a sharp decline in remittances as the economy i m p r o v e d as w e l l as a decline in the stock of emigrants (See Figure 3. ). 16. Adequacy of Employment Data. A review of the data that was available for this report concludes that while much progress has been achieved in collecting information, there are still important pitfalls. For example, in Colombia, data i s now b e i n g p r o d u c e d on a monthly basis a n d a t the national level since 2001, but l i m i t e d comparability with previous n p r o d u c t i o n of the data prevents t i m e l y monitoring. years l i m i t s the analyses a n d delays i Furthermore, sources (official, ILO, Bank) sometimes conflict with one another. W h i l e Co- lombian national data indicate that the participation rate ceased growing during the review period, both ILO a n d World Bank (WDI) estimates indicate t h a t the participation rate con- t i n u e d growing. The Bank will better fulfill i t s objectives if i t steps up i t s support, in coordi- n a t i o n with other institutions, for better i n f o r m a t i o n gathering a n d availability on employ- m e n t and earnings. T h e B a n k has already been active i n assisting countries in strengthening their household survey data. But m o r e c o u l d b e done. A good area to target i s on the timeli- ness of dissemination. For example, the last available household survey data on earnings for Colombia, w h i c h allows analysis of formal/informal sector differences, i s for 2006. The im- p l i e d delays are too long for the needs of analysts, observers, and p o l i c y makers. InTunisia a n d Turkey, the situation i s not any better, Comparisons of Bank Support across the Three Countries that Cuts Across Policy Areas 17. Three findings are h i g h l i g h t e d in connection with c o u n t r y p r o g r a m strategies. First, Bank objectives targeted p r i m a r i l y areas with a bearing on e m p l o y m e n t (e.g., M I L E S areas) rather t h a n explicitly e m p l o y m e n t outcomes. Second, a l t h o u g h i t s i m p a c t i s uncertain, the Bank's AAA w a s generally of good quality i nterms of addressing the right employment is- sues competently; i t w a s w e l l appreciated by the three clients. Third, the Bank's proactivity a n d engagement on e m p l o y m e n t issues m a y n o t always h a v e been w e l l matched to country circumstances. 18. Bank Objectives.Although employment objectives have not been vey explicit in Bank programs, most policies supported by the Bank in the three countries had some bearing on employment. Bank strategies by and large focus on growth and p o v e r t y reduction as "grand objectives". Their references to employment or u n e m p l o y m e n t objectives are common, al- n the three countries covered by this report, b e i t often i n c l u d e d only in passing. However, i references to e m p l o y m e n t in Bank programs increased during the r e v i e w period, reflecting the increasing importance assigned to employment growth by authorities. Furthermore, the m o r e concrete objectives generally i n c l u d e d the p o l i c y areas with a bearing on employment, i.e., the M I L E S areas. 19. This experience suggests that where employment issues are important Bank strate- gies c o u l d m o v e from j u s t m e n t i o n i n g employment as an objective to better articulating h o w 126 i t s s u p p o r t in different areas will affect the full set employment outcomes and poverty. W h e r e employment issues are pivotal, c o u n t r y programs c o u l d articulate their impacts on e m p l o y m e n t outcomes by indicating the l i n k s between their concrete intermediate outcome indicators and employment outcomes, as defined above. This will m a k e employment objec- tives m o r e tractable and credible, a n d e m p l o y m e n t impacts m o r e explicit or transparent. T h e rationale for this suggestion i s that e m p l o y m e n t outcomes are the k e y channel through w h i c h c o u n t r y programs affect p o v e r t y and p o v e r t y reduction i s the Bank's o v e r r i d i n g Bank objective. 20. C o u n t y programs should be more concerned with the consistency o f the policies supported with shared employment objectives, than with any precise targets regarding those objectives. Bank strategy o n e m p l o y m e n t and earnings growth i s constrained by un- certainties in outcomes, country priorities, a n d political economy considerations. Bank pro- grams typically a i m a t b r o a d a n d general growth objectives and even broader e m p l o y m e n t objectives, p r i m a r i l y reflecting the similar generality observed i n Government programs. This i s p r o b a b l y inevitable g i v e n the considerable uncertainties in outcomes. Moreover, the timing of support to policies to address the different M I L E S issues i n a country's strategy i s u n l i k e l y to b e d r i v e n solely by employment/earnings considerations but will consider polit- i c a l economy constraints the country faces i n a l l areas, parficularly with regard to labor regu- lations and institutions. 21. The Bank's strategy and interventions were highly relevant in addressing key em- ployment and earnings-related issues in the three countries. The Bank's support, through i t s AAA, TA, and l e n d i n g operations, adapted to governments' changing priorities and gener- a l l y addressed (or attempted t o address) the m o s t critical p o l i c y constraints. The Bank's ideas and i t s international perspective a n d experience mattered considerably. High q u a l i t y AAA p l a y e d a k e y role in establishing and m a i n t a i n i n g the extent and d e p t h of the Bank's access to senior p o l i c y makers. 22. I n terms o f the effectiveness of Bank inputs, the picture is mixed. Much has been achieved in Colombia and Turkey, macroeconomic stability a n d financial sector soundness w e r e restored a n d the investment climate i m p r o v e d . InTunisia, macroeconomic a n d finan- c i a l sector stability w a s sustained during the decade u n d e r review, despite a challenging combination of shocks in the early 2000s. Labor contract flexibility a n d t r a i n i n g systems im- p r o v e d in Colombia, even if sigruficant weaknesses r e m a i n in both areas. The three coun- tries m a d e further progress i n coverage of secondary tertiary education, although i n Tunisia progress in higher education was compromised by low quality. In Colombia, social safety nets w e r e widened, albeit generating discernible fiscal pressures w h i c h cannot b e resolved without addressing the considerable r e m a i n i n g rigidities in the tax a n d expenditure sys- tems. 23. But othergoals remain elusive. T h e three countries did n o t resolve a n u m b e r of m a - c r o vulnerabilities. For example, considerable r e m a i n i n g rigidities in the tax a n d expendi- t u r e systems r e m a i n in Colombia. Strengthening p r i v a t e investment on a sustained basis, ra- ther t h a n d u e to a cyclical rebound, remains a challenge because k e y u n d e r l y i n g causes of low investment, such as governance problems i nTunisia, did not received e n o u g h attention. L i t t l e or no improvements i n labor flexibility or in r e d u c i n g the taxation of labor w h i l e fi- n a n c i n g social insurance w e r e achieved in Tunisia or Turkey, a n d progress in C o l o m b i a w a s 127 modest. Moreover, minimum wages possibly explain p a r t o f the i n f o r m a l i t y and high un- n the three countries. Education quality did not make m u c h progress in e m p l o y m e n t rates i a n y of the three countries. A broad-based financing of social insurance that eases p a y r o l l taxes a n d contributions was not put b~ place. 24. Impact of Bank Support. Although attribution is diflicult, the evidence discussed in the country chapters and their corresponding appendices suggests that most Bank activities made important contributions. Bank AAA i s generally appreciated for i t s q u a l i t y i n the three countries. It appeared m o s t critical i n Tunisia, where the Bank i s possibly the foremost p r o v i d e r of development k n o w l e d g e products. The Bank's AAA covered a l l of the M I L E S areas. In lending, Bank-supported fiscal adjustment operations contributed i m p o r t a n t l y to the restoration of fiscal stability i n Colombia and Turkey, although i n Colombia these opera- tions p r o m i s e d m o r e than c o u l d b e delivered to eliminate structural rigidities g i v e n political economy constraints. 25. However, some of the Bank's lending operations supported messy, 'second-best' re- forms; i t was right to do so, but overpromised what could be achieved. Specific examples i n c l u d e d the Bank's support for fiscal adjustment mentioned above, for the r e f o r m of the p u b l i c t r a i n i n g system, and for the Investment Stability L a w i n Colombia; a n d s u p p o r t for secondary education in Turkey. W h i l e the Bank's involvement contributed to better out- comes i n these areas even though the results were far from ideal. 26. To improve eflectiveness, the Bank could usefully strengthen its role as knowledge provider and engage more strongly w i t h its clients on employment policy. For example, as discussed below, use AAA i n a n anticipatory fashion can position the Bank to b e ready with support, i n c l u d i n g policy-based lending, w h e n circumstances change. This m a y b e particu- l a r l y relevant for work on labor regulations a n d institutions, as i n Turkey. The Bank i s i na strong p o s i t i o n to strengthen i t s leadership on understanding employment issues for a n u m b e r of reasons. It has developed an integrative f r a m e w o r k t o i d e n t i f y constraints to em- ployment. This f r a m e w o r k allows the Bank to develop balanced views on policies affecting e m p l o y m e n t outcomes. It has demonstrated a capacity, as i nother areas, to bring research into operationally relevant p o l i c y implications. AAA i s the k e y instrument to deal with some of the m o r e sensitive p o l i c y issues with a bearing on employment outcomes. And, again, i t s mandate o f p o v e r t y r e d u c t i o n claims strong attention t o e m p l o y m e n t outcomes. T h e B a n k contributed to understanding employment issues i n the three countries r e v i e w e d in this report. It can do so i nmany other countries that would benefit from this knowledge, even if the benefit takes t i m e to materialize. 27. Using AAA in an anticipatoy fashion can position the Bank to be ready w i t h sup- port, including policy-based lending, when circumstances change. Inthe case of Turkey, B a n k staff a n d management h a d a clear understanding i n the late 1990s that the major con- straint to the country's economic growth (and indirectly employment generation) w a s the existing macroeconomic instability. Despite some reluctance on the p a r t of the Government, the Bank continued to pursue macroeconomic a n d related structural r e f o r m issues as a n im- p o r t a n t p a r t of i t s AAA. W h e n circumstances f i n a l l y changed with the emergence of the po- l i t i c a l will to pursue stabilization a n d related objectives, the Bank w a s ready. Through hav- ing invested patiently, and rather expensively, in AAA, the Bank w a s in a n excellent p o s i t i o n to respond q u i c k l y to G o v e r n m e n t requests for s u p p o r t i n g such economic reform, 128 n the design of the Government’s macroeconomic and related i n c l u d i n g with assistance i structural r e f o r m program. In another case, dialogue a t the technical l e v e l has been facili- tated by staff working on labor markets has that has liased effectively with former staff working i n the country 28. The conduct of AAA with substantive local involvement in the form of consultants and counterparts, while more time-consuming and administratively difficult, can be more n Turkey where such i n v o l v e m e n t has been in- efective in the longer term. In those efforts i tensive, institution-building has occurred, individuals i n v o l v e d go on and assume impor- tant policy-making roles, a n d promoting r e f o r m has y i e l d e d positive, a n d sometimes unfo- reseen, externalities. 29. Dissemination and engagement after AAA report preparation needs to be adequately budgeted and anticipated. The inability of the Bank to effectively follow through can result in missed opportunities for supporting reform. A case i n point for T u r k e y m a y have been with the Bank’s excellent Investment Climate Assessment. A similar example m a y also b e the recently completed Financial Sector Assessment. Along similar lines, facilitating the ”Revolving Door Effect’’ for Bank staff a n d Government officials (e.g., facilitating second- ments i n the form of u n p a i d external leave for Bank staff to accept temporary, time-bound assignments i n their national Governments) can y i e l d important dividends for economic r e f o r m a n d p o l i c y change. In the case of Turkey, the appointment of a Bank staff member as Minister o f the Treasury i n M a r c h 2001, just as the 2001 crisis w a s unfolding, h a d a major impact. The Bank-Government relationship, already quite s o l i d and productive since 1999, w a s further strengthened. The n e w Minister, who i n the e n d exercised a major influence over the country’s economic reforms, had, from h i s own professional experience, considera- b l e confidence i n the Bank’s work, and there an ease i nprofessional communication w a s q u i c k l y established, H e r e l i e d upon Bank advice and technical assistance i nthe design of the ongoing reforms. This arrangement p r o v e d beneficial to the Bank, the Government a n d ul- timately the country. 30. Technical excellence needs to be accompanied by a fuller appreciation of political economy considerations if consensus building for reform is to be attained. In labor market regulations a n d institutions, there m a y b e a need to b r o a d e n dialogue w e l l b e y o n d the circle of the Bank’s n o r m a l interlocutors in the Government. Sometimes agreement with these in- terlocutors i s achieved, but policies are s t i l l not implemented because of impediments from interest groups elsewhere. Experience with the series of development p o l i c y loans support- ing business climate improvements i n Tunisia suggests t h a t the reason r e f o r m measures were taken w a s not that they w e r e DPL conditions; rather, prior agreement through dialo- gue w a s a necessary requirement for i n c l u d i n g the measures as loan conditions. 31. Proactivity and Engagement. The patient and resource-consuming consensus- building on policy issues require strong engagement, implying adequate Bank permanent presence in the country, which the three countries have. R e l y i n g on periodic missions often i s not ade- quate, as demonstrated, for example by dialogue on education Tunisia. In a n u m b e r of poli- c y areas and i n economic dialogue generally, the beneficial presence of the Senior Country Economist resident in T u n i s has already been felt. The T u r k e y a n d Tunisia cases s h o w how local Bank presence h e l p e d develop the relationships with these countries. It also shows in- 129 stances w h e r e support that was occasional a n d scattered in t i m e did not h e l p develop the relationship. 32. Cooperation between the Bank and other international organizations can provide greater benefits to the recipient country than the sum o f their individual contributions. In the case of Turkey, the World Bank Group, the IMF, the European Union, the OECD, the ILO, UNICEF and other UN agencies have a l l contributed positively to Turkey's moderniza- tion, economic growth, a n d employment generation through different, but frequently re- lated, dimensions of the M I L E S framework. Inm o s t instances cooperation has been fruitful, and the messages p r o v i d e d have been similar and consistent. The combined effect has been to reinforce t h e resolve of the T u r k i s h Government to proceed with a r e f o r m agenda. Similarities and Differences Across the Three Countries in Bank Support on the Specific MILES areas. 33. K e y f i n d i n g s are summarized as follows: a) Bank support for macroeconomic Policies contributed effectively to country efforts o n stabilization a n d financial crisis resolution in Colombia and T u r k e y a n d on trade and financial development in Tunisia. These efforts w e r e the m a i n force that h e l p e d restore GDP growth in the first two countries a n d also con- t r i b u t e d to sustaining higher growth i n the third. Restored GDP growth increased the de- m a n d for labor resulting p r i m a r i l y i n the higher earnings growth documented before; b) B a n k s u p p o r t for investment climate policies covered the three countries and contributed to improvements in specific p o l i c y areas that h e l p e d raise &tvestment or total factor productiv- ity to v a r y i n g degrees; c) support for labor market regulations and institutions has occurred p r i m a r i l y through AAA of good quality in terms of relevance and competence but with somewhat uncertain a n d perhaps l i m i t e d impact; d) support for education contributed pri- m a r i l y to coverage a n d supported the increased s u p p l y of skills needed to raise output a n d earnings growth; e) s u p p o r t for social protection arrangements contributed successfully to CCT p r o g r a m s in Colombia and less so to u n e m p l o y m e n t insurance programs. 34. Macroeconomic Policies and Growth. The three countries attests to the close connection between macroeconomicpolicy and cyclical unemployment, with Colombia and Turkey ex- periencing simultaneous cyclical movements in both GDP growth and unemployment and Tunisia experiencing stability in both. Growth in C o l o m b i a and T u r k e y during the r e v i e w p e r i o d would have been less w e r e i t n o t for the stabilization that brought both countries out of recession during the first h a l f of the r e v i e w period. B a n k support for macroeconomic pol- icies w a s m o s t i m p o r t a n t for employment growth in T u r k e y a n d Colombia. In Turkey, m a - croeconomic policies that on balance enhanced growth i n c l u d e d reduction of fiscal deficits through both tax and expenditure measures that i n v o l v e d important structural reforms in the financial system, pensions, privatization a n d agriculture. Although i n i t i a l stabilization efforts failed, the IMF and Bank p r o v i d e d considerable support to the macroeconomic stabi- l i z a t i o n efforts t h a t w e r e ultimately successful with exception of pension reforms. Similarly, the Bank assisted Colombia in i t s macroeconomic stabilization efforts with success in help- ing tax administration but f a i l i n g in i t s support to lessen fiscal rigidities. But clearly the structural r e f o r m challenges to stabilize were far m o r e challenging i n Co- n T u r k e y than i l o m b i a and, accordingly, the Bank's engagement in this area w a s correspondingly stronger 130 nTurkey. InTunisia, the Bank successfully h e l p e d in the area of trade facilitation a n d this i m a y have contributed to economic and employment outcomes. 35. An important finding in Turkey is that the impact of policies on economic growth was probably larger than the impact on employment growth. In Turkey, w h e r e the p a r t i a l elasticity of employment with respect to growth has been estimated a t a r o u n d 0.55, macroe- conomic policies that on balance enhanced growth i n c l u d e d reduction of fiscal deficits through both tax and expenditure measures that i n v o l v e d important structural reforms in the financial system, pensions, privatization a n d agriculture). A m o s t visible manifestation of these policies was the reduction i ninflation, w h i c h h a d been s h o w n to h a v e a positive i m p a c t on economic growth through the ”Phillips Curve” mechanism, l o w e r uncertainty, or the r e a l exchange rate6. Moreover, the structural reforms that were required for stabilization m a y also have encouraged growth: privatization, through i m p r o v e d investment and TFP; reduced agricultural subsidies, through improvements in resource allocation; strengthening of the financial system, through i m p r o v e d access t o finance; and monetary independence, through reduced macroeconomic uncertainty. However, w h i l e these policies m a y w e l l have raised the rate of economic growth, not a l l n e e d have increased employment growth. M o s t specifically, the reduction i n agricultural subsidies probably accelerated the rural-urban mi- gration that has reduced labor participation a n d employment, particularly of women. In Co- lombia, the i m p a c t of policies on economic growth was also probably larger than the i m p a c t on employment growth as the latter m a y have been contained by the adverse effect higher minimum wages and labor taxes. 36. The experiences in Colombia and Turkey suggest that the Bank can usefully work with the I M F in advising countries on how to ensurefiscal prudence while using available policies and resources judiciously in terms o f addressing v ay i n g employment challenges. This i s l i k e l y to mean, on the one hand, r e l y i n g largely on automatic stabilizers ( a l l o w i n g moderate deficits as revenue growth falters i n recession a n d buildingtreasury reserves dur- ing booms) rather t h a n on discretionary changes i n aggregate expenditure t h a t have often been biased t o w a r d increased p u b l i c expenditure a n d that r i s k remission into fiscal distress. On the other hand, discretion i s l i k e l y to m a k e m o r e sense in expenditure allocation, with epochs of employment distress deserving m o r e resources into UI and CCT programs a n d periods of employment booms a l l o w i n g m o r e resources to b e spent on p u b l i c investment. The B a n k can h e l p i n this area through i t s PERs, w h i c h are typically multi-sector tasks. The rationale for the suggestion to a v o i d expenditure expansions to any sigruficant degree i s i l- lustrated by the experience of C o l o m b i a and T u r k e y referred to above, w h e r e the first h a l f of the r e v i e w p e r i o d was one of recession and deteriorating employment outcomes originating in declining confidence from a n unsustainable fiscal stance (further u n d e r m i n e d by deteri- o r a t i n g security in Colombia). 37. I n Turkey, the IMF and Bank provided considerable and mostly successful support to the macroeconomic stabilization efforts. The reason for the success o f the Bank’s assis- tance in supporting Turkey’s macroeconomic stabilization efsrts was its readiness to help, including its preparedness to tackle the digerent issues and its building of confidence, di- alogue, and partnership with the authorities. The Bank has a long-standing h i s t o r y of moni- toring and analyzing macroeconomic conditions i n T u r k e y in considerable depth. The sub- stance of the Bank’s AAA work t h a t w a s particularly relevant for its s u p p o r t during the n i t s several reports, particularly in Bank (1993,1996,2000, and r e v i e w p e r i o d i s reflected i 131 2003), and covers fiscal and debt sustainability, privatization, financial sector strengthening, pensions, and agricultural subsidies, the major issues s u r r o u n d i n g macroeconomic stability. These are reports that m o n i t o r e d e v o l v i n g p o l i c y analyzed the k e y fiscal balance and related structural r e f o r m issues and p r o v i d e d policy recommendations. With this knowledge, the p o l i c y dialogue that w e n t with it a n d the partnership that h a d continued during the 1990s particularly i n the education sector, the Bank w a s ready to h e l p w h e n the t i m e w a s right for macroeconomic adjustment. I t i s only n a t u r a l that as growth collapsed in the late 1990s a n d early 2000s, the Government h a d a strong incentive to r e f o r m and to seek the support of the Bank and the IMF in identifying, designing and i m p l e m e n t i n g the required reforms. 38. On l e n d i n g support, the Economic R e f o r m Loan (ERL, FYOO) contained, apart from i t s strictly macroeconomic (and financial sector) areas, elements related to privatization, the reduction of agricultural subsidies and deregulation of the energy sector. Subsequent lend- ing for agriculture (the A g r i c u l t u r a l R e f o r m Investment Project (ARIP)) p r o v i d e d resources for severance payments i n agricultural state o w n e d enterprises as p a r t of their privatization or closure a n d the further r e d u c t i o n of agricultural subsidies. An early (FY2000) credit l i n e project (EFIL) concentrated on the p r o v i s i o n of m e d i u m t e r m credit to exporting firms at a t i m e of tight credit and crisis in 2001. Successor credit l i n e l e n d i n g operations, also eva- l u a t e d positively i n ICRs, extended this f r a m e w o r k in an attempt to reach SMEs. At the same t i m e several projects w e r e p u r s u e d i n the electric energy sector. In 2007 the first CEDPL (Competitiveness a n d E m p l o y m e n t Development Policy Loan) w a s approved; in a d d i t i o n to m a i n t a i n i n g the macroeconomic policy framework, it supported various meas- ures to i m p r o v e the investment climate. 39. Injustifying i t s r a t i n g of outcomes from Country Assistance i n the area of Macroe- conomic Stability ("moderately satisfactory"), IEG 's 1993-04 CAE assessed the outcomes as follows: "Substantial growth with declining i n f l a t i o n a n d r i s i n g primary surplus after 2001, following years of volatility a n d three financial crises. M o s t ex- tra budgetary f u n d s eliminated a n d fiscal controls streamlined.,,,,, Large SOE losses converted to modest surpluses; agricultural subsidies substan- tially reduced a n d m a d e less distorting; and scope for financing of off- b u d g e t subsidies by state-owned banks sharply curtailed, a l l c o n t r i b u t i n g . to sustainable fiscal improvement." but,. .pension system deficits h a v e risen rapidly, offsetting m u c h of this gain.. .7 . 40. But even i n the case of pensions, the T u r k e y CAE attributed to the Bank a positive contribution, i n d i c a t i n g i t s s u p p o r t for measures that "if not enacted would h a v e meant a s t i l l larger deficit today"8. 41. Similarly, the Bank assisted Colombia i ni t s macroeconomic stabilization efforts with success in improving tax administration. But clearly the structural r e f o r m challenges t o sta- n Colombia and, accordingly, the Bank's nT u r k e y t h a n i bilize were far m o r e challenging i engagement in this area w a s correspondingly stronger. 42. Trade i s a n area w h e r e the Bank was i n v o l v e d p r i m a r i l y through AAA i n the three countries. The Bank has of course recommended trade o p e n i n g n o r m a l l y on a n e u t r a l basis, 132 but i n effect trade opening in the three countries as in m o s t of the world has been on a prefe- r e n t i a l basis. Increased trade i s important for e m p l o y m e n t as it m a y have raised the relative d e m a n d for skilled labor as h a d happened during the 1 9 8 0 ~ 9 a n d accounted for some of the u n e m p l o y m e n t that happened w h i l e the economies restructured. 43. As the experience with Colombia shows, outcomes w i l l depend on how supportive political economy and institutional conditions. These n e e d to b e factored in w h e n assess- ing the macroeconomic reforms to b e supported. InColombia, the considerable a m o u n t of expenditure mandates and earmarking of p u b l i c revenues contributed to i m p e d e the stronger fiscal adjustment that the Bank w a s expecting. 44. In the s p i r i t of the M I L E S framework, the experience of the three countries suggests t h a t Bank work on e m p l o y m e n t issues needs b e m o r e closely integrated with macroeconom- i c work and social safety n e t policies. An important area covers the implications o f trade for employment. During the recessions of the turn of the century, the d e m a n d for i m p o r t s de- clined i n C o l o m b i a but continued increasing in Turkey, as trade liberalization proceeded there. Sluggish world d e m a n d for exports w a s one source of declining growth. Some attribute a t least p a r t of the u n e m p l o y m e n t increases t h a t these economies suffered to trade a n d i n d e e d some of those increases m a y have responded to l o w e r exports or higher imports. These economies remained open, l e t t i n g resource reallocation across sectors work itself out instead of reacting with higher protection. This i s i n d e e d a reasonable approach i n that i t avoids h i g h e r import tariffs and controls that m a y b e d i f f i c u l t to reverse and that hurt con- sumers. W h a t w a s (and is) missing a t the t i m e w a s a social safety system that c o u l d p r o v i d e relief to the unemployed. In this regard, the three countries do not y e t have satisfactory un- e m p l o y m e n t insurance systems in place, The current crisis m a y p r o v i d e and o p p o r t u n i t y for r e f o r m in this area a i m e d a t a sharper targeting of social assistance that takes i n t o account the m o r e l i m i t e d resources that will become available. 45. Investment Climate. The Bank's support for macroeconomic a n d financial sector stabi- l i z a t i o n w a s perhaps i t s m o s t i m p o r t a n t for improvingthe investment climate, as i t w a s ma- croeconomic stabilization that really m a d e the difference for investment and growth. After the macroeconomic and financial sector reforms, the area w h e r e the Bank Group has h a d the greatest i m p a c t i n improvingthe investment climate, has been with various features of the business l e g a l a n d regulatory environment. InTurkey, the F I A S reports and engagement in the early p a r t of the 1998-2007 p e r i o d were of high q u a l i t y and h a d a major impact. The successful engagement on the p a r t of F I A S with the Government resulted in close working collaboration a n d in the d r a f t i n g a n d passage of the Foreign Investment L a w of 2003 that eliminated the legal discrimination against foreign-owned f i r m s operating in Turkey; the r e d u c t i o n of the top corporate income tax rate from 30 percent to 20 percent, and the estab- lishment of governmental institutions to m o r e effectively pursue private sector investment promotion and to i m p r o v e the business enabling environment. These regulatory a n d p o l i c y changes, attributed in large p a r t to F I A S initiatives a n d subsequent engagement, have been p a r t l y responsible for the expansion of private sector investment in general a n d that of for- e i g n direct investment i n particular. The F I A S engagement also resulted i n a n u m b e r of in- stitutional changes i n c l u d i n g the establishment of a c o o r d i n a t i o n C o u n c i l for the Improve- m e n t of the Investment Environment (YOIKK), w h i c h involves active private a n d government collaboration on investment climate issues. 133 46. In Tunisia, private investment was relatively stable w h e n compared with Colombia a n d Turkey, w h e r e the crises of the turn of the century l e d to a major decline in the ratio of investment to GDP (Figure 4. ). The latter declined until after the t i m e w h e n the recessions b o t t o m e d out in Colombia a n d T u r k e y and t h e n recovered sigruficantly, even surpassing the prior m a x i m u m r a t i o in Colombia. The cyclical behavior of private investment in Colombia a n d T u r k e y a n d the relative macroeconomic stability i n Tunisia reflect the major role of ma- c r o conditions i n determining private decisions to invest, a l t h o u g h a deterioration of securi- ty m a y also h a v e p l a y e d a n important r o l e in d i m i n i s h i n g investment a r o u n d the turn of the century in Colombia.10 N o progress was achieved i n raising Tunisia's low private invest- m e n t r a t i o n w a s achieved, possibly d u e to concerns with p u b l i c governance that were cov- ered in the c o u n t r y chapter. Foreign direct investment behaved m o r e erratically but dis- nthe three p l a y e d a clear u p w a r d t r e n d towards the e n d of the p e r i o d u n d e r r e v i e w i countries, reflecting both b u o y a n t international capital markets as w e l l as strong domestic recovery. igure 4. Colombia, Tunisia, and Turkey: Private Investment and Foreign irect Investment Panel A: Colombia, Tunisia and Turkey: Private Investment (Percent of GDP) Panel 6:Colombia, Tunisia and Turkey: Foreimn Direct Investment fPercent of Gi3P) - terna, InversionY Crecimiento En Colombia, 1970 2002", Bancode la Republica, 2003,. Por: U.i, 3 de Di- mbre de 2003, Grafico 2, p.6, 8. 199747: IMF Article IV Consultation Reports: Tunisia: 199041: Staff estimate: m Anos Casero, Paloma and Varoudakis, Aristome, "Private Investment and the Cost of Doing Business in Tuni I", The World Bank, Middle East and North Africa Working Paper No. 34,2004, Figure I O ; 2002-2006: Country sistance Strategy Progress Report FY05-08", The World Bank, 2005, Table 1, p. 2. ; 2007: The World Bank, misia's Global Integration: Second Generation of Reforms to Boost Growth and Employment, Social and Eco- mic Development Sector Unit Middle East and North Africa Region, The World Bank, Draft Report No. 40129- I, May 2008;, p, 45. Turkey: Turkish Statistical Institute, Statistical Indicators, < p://www.turkstat.gov.tr/Start.do> ? ~ ~ ~ . . T h ~ . . . w o r!!!K!G?eve!?P?E!. ~d~ank~~.. 134 47. n Colombia a n d Turkey, i m p r o v e d security i Stabilization i n Colombia, and the pros- pect of accession i n T u r k e y h e l p e d recover their investment performance. Bank support for macroeconomic stability i s a k e y factor of i t s support for the investment climate. The expe- rience of the three countries suggests that macroeconomic stabilization i s the “low hanging fruit” i n accelerating private investment and w a s probably m o r e important t h a n simplifica- tion of business regulations. I t w a s critical in Colombia and T u r k e y i norder to redress in- vestment a n d growth. Ina d d i t i o n prospects of joining the EU m a y also explain the rise i n private investment i n T u r k e y after 2003. The Tunisia case exemplifies how macroeconomic stability, not surprisingly, also helps stabilize investment. The Colombia case captures the effect of both stabilization and enhanced security. It confirms t h a t support to adjustment l e n d i n g to Colombia a t the time, despite i t s failings, h a d a measure of success in h e l p i n g the country recover. 48. Policies i n the areas n o r m a l l y covered by investment climate analyses also im- proved, with legislation providing for insurance against changes i n m o s t l a w s and regula- tions i n Colombia a n d legislation r e m o v i n g discrimination against foreign investment i n T u r k e y b e i n g some of the successful reforms supported by the Bank. These improvements m a y have contributed m o r e to total factor p r o d u c t i v i t y growth than t o the investment-to- GDP ratios. 49. G i v e n the close relationship between investment a n d growth, it would b e worth- w h i l e that PREM and P SD work m o r e closely to better integrate macroeconomic with mi- croeconomic approaches to growth. W h i l e macroeconomic changes probably explain in- creases i n investment i n Colombia and Turkey, improvements i n investment i n the restricted business climate variables (that is, excluding macro and trade) m a y have been p r i m a r i l y reflected i nincreased productivity, rather than captured by aggregate private in- vestment. Some of the increases i n TFP observed i n the three countries t o w a r d the second h a l f of the p e r i o d r e v i e w e d m a y b e d u e to better p r o d u c t m a r k e t regulations. Furthermore, the Bank c a n strengthen i t s diagnostic w o r k by following IEG recommendations on the Doing Business indicators, particularly with r e g a r d to tracing the i m p a c t of reforms a n d us- ing m o r e of the available analyses to choose indicators. 50. The topics covered by investment climate analyses are captured i nthe Bank’s Doing Business surveysll. Some of these - e.g., e m p l o y i n g w o r k e r s - overlap with other M I L E S categories u n d e r w h i c h w e discuss elsewhere i nthis report. These variables have been s h o w n to h a v e a n i m p a c t on productivity12 T a k i n g a l l of the conditions together, T u r k e y (43) r a n k e d above Tunisia (68) a n d Tunisia above C o l o m b i a (91) i nthe 2008 survey, w h i c h reflects conditions a t the e n d of the r e v i e w period. Ranks are not available for earlier years but a look a t the bulk of the i n d i v i d u a l components of the survey suggests that this order was preserved since the first year of the survey (2003). C o m p a r i n g the 2008 with the 2009 survey, the three countries seem to b e m a k i n g some progress i n the i n d e x of ease of doing business, with m o s t progress i nColombia, f o l l o w e d by Tunisia and t h e n Turkey, suggesting a p a t t e r n of convergence. In the survey, this progress appears to b e i na f e w categories: start- ing a business, p a y i n g taxes, a n d trade i n Colombia; starting a business, registering proper- ty, getting credit, a n d trade i n Tunisia; starting a business, getting credit, p a y i n g taxes a n d closing a business i nTurkey. The m o r e detailed r e v i e w i nChapters 2-4 and their back- ground papers (accessible in I E G s website) identifies progress as follows: 135 51. Colombia: reduction i n the t i m e a n d cost of administrative procedures faced by businesses, enactment o f legislation t h a t provides for insurance against changes i nm o s t l a w s and regulations; unification of b a n k i n g supervision; i m p r o v e m e n t i n the f r a m e w o r k n infrastructure. Bank support i n c l u d e d AAA on competi- for p r i v a t e sector participation i tiveness and impediments i n particular sectors a n d three DPLs covering f i v e p o l i c y areas (business environment, foreign trade competitiveness, financial system and capital markets, q u a l i t y standards a n d technological innovation, and infrastructure and logistics). Chapter 2 concludes t h a t this support addressed m o s t of the critical investment climate issues identi- f i e d as critical, with the exception of labor informality. Feedback from stakeholders w a s that the Bank’s work was positive, albeit not proactive enough. 52. Tunisia: a reduction of the g a p between the treatments of the onshore and offshore economies, a reduction of u n f a i r competition from the i n f o r m a l sector a n d discriminatory application of regulation, a strengthening of the soundness of the financial system, and de- v e l o p m e n t of the ICT sector. However, p r i v a t e investment (Figure 4. ) appears to h a v e been i m p e r v i o u s to these changes, a result that m a y reflect the lack of predictability a n d transpa- rency of the regulatory framework, l i m i t e d m a r k e t contestability, u n d u e discretion by the government, and w e a k voice and participation. Bank support i n c l u d e d AAA (a p r i v a t e sec- tor assessment, an investment climate assessment, a n FSAP, a Private Sector in Infrastruc- t u r e (PPI) strategy paper, a n d a recent r e p o r t addressing the on-shore offshore gaps) a n d three adjustment loans. The feedback from stakeholders i s that the AAA, m o r e than the ninfrastructure, loans, has been the critical Bank s u p p o r t t h a t h e l p e d with reforms, except i w h e r e internal rivalries m a y or n a r r o w discussion of the issues m a y have progress. 53. Turkey: elimination of discrimination against foreign investment, w h i c h v e r y l i k e l y helps explain, together with macroeconomic stabilization and the prospect of accession to the EU, that the a m o u n t o f n e t foreign direct investment f l o w i n g into T u r k e y increased from 0.4 in 2003 to 3.6 in 2006. The Bank’s AAA on investment climate issues has i n v o l v e d a n u m b e r of infrastructure sector analyses and studies (including for electric energy, gas and oil, and water); a series of F I A S reports (starting i n FY2000) focusing on the treatment a n d r o l e of foreign direct investment, the private sector regulatory environment, tax issues for p r i v a t e sector development and investment promotion; and the recently d i v u l g e d Investment Climate Assessment (2007). The Bank’s advice i nconnection with the structural reforms un- d e r p i n n i n g macroeconomic stabilization, i n c l u d i n g the strengthening of the financial sector a n d privatization of SOEs, h a d positive effects on the investment climate. Similarly, i t s ad- vice on p r o d u c t m a r k e t regulations h e l p e d T u r k e y relax some of those regulations. 54. Labor Regulations and Institutions. The Bank‘s analytical work on labor m a r k e t issues i n the three countries has been of high quality. It has p r o v i d e d convincing, evidence-based anal- ysis; w a s conducted i n close collaboration with local researchers and/ or stakeholders; focused on k e y elements of the domestic policy debate; and identified r e f o r m priorities. The analysis also took clear account of the interaction between policies i n different areas (i.e., it often effec- t i v e l y applied to a v a r y i n g extent a b r o a d f r a m e w o r k similar to MILES). It addressed the two k e y components of the gap between the d e m a n d price and the supply price for labor that dis- courage employment: the rigidity of labor contract regulations, w h i c h creates a cost expecta- tion to businesses, and p a y r o l l taxes and contributions. The Bank’s work on contributions has been closely l i n k e d to i t s w o r k on the social services that these contributions finance. 136 Table 32. Colombia, Tunisia, Turkey, France, and Singapore: Labor Market Rigidity Percent Change in Labor Flexibility Indicator (+ means more flexible) Average Labor World Doing lnternational Country Flexibility Economic Heritage Business lnstitute for Fraser (percent of Forum Foundation Report Management Institute Development 1995-06 Singapore's) 1996.07 200548 2003-08 1995-07 Colombia 58.5 0.3 1.8 0,l ................................................................................................................................................................................................................................................................r 8.3 14.6 Tunisia ................................................................................... 47.0 0.1 -1.9 0.0 n.d. 9.6 Turkey ........................................................... 62.2 -0.3 -4.4 0.0 -41.4 -28.8 France 25.2 -0.1 -16,4 0.0 -44.6 28.0 SinaaDore 100.0 0.1 -0.1 0.0 -3.2 10,3 Source: Staff estimates with data from the World Economic Forum, the Heritage Foundation, the World Bank's Doing Business Report, lnternational lnsfitute for Management Development and the Fraser Institute. 55. A k e y feature of this AAA work i s that i t has been delinked from lending. This i s not surprising g i v e n the sensitivity of labor policy issues. Inthe one instance of l e n d i n g i n sup- port for labor r e f o r m (Colombia), the labor r e f o r m supported w a s not based on Bank advice. But AAA s h o u l d not necessarily b e l i n k e d to lending. Independent exercises, such as the s t u d y of Tunisia's integration into the global market a n d the first e m p l o y m e n t strategy re- port, were highly appreciated by the Government. Moreover, a v o i d i n g automatic l i n k s with the I e n d i n g p r o g r a m and i t s frequently demanding timetables offers greater opportunity for consensus building. The Bank's AAA work, to the extent that i s expands knowledge, will have an i m p a c t w h e n the t i m e i s right. Such was the case of the AAA that the Bank h a d done on stabilization w e l l before the 2001-02 adjustment programs 56. Government receptivity towards Bank work on labor v a r i e d across the three coun- tries, with less receptivity i n Tunisia than i n Colombia o r Turkey. A n u m b e r of the intervie- wees in Colombia actually suggested that the Bank s h o u l d b e less timid i n advancing i t s v i e w s on some critical, but politically sensitive, issues (especially high p a y r o l l cost). In par- ticular, many (although not all) thought the Bank s h o u l d use i t s 'convening' p o w e r m o r e proactively to influence the p o l i c y debate on these critical issues. 57. Bank work on labor regulations and institutions i n the three countries has addressed the two k e y components of the wedge between the d e m a n d price and the s u p p l y for labor: the rigidity of labor contract regulations w h i c h creates a cost expectation to businesses and p a y r o l l taxes and contributions. The Bank's work on contributions has been closely l i n k e d to i t s work on the social services t h a t these contributions finance, w h i l e the work on p a y r o l l or income taxes that h e l p finance the general b u d g e t has been addressed m o r e i nthe context of fiscal and tax policy. 58. Less rigid regulations and l o w e r taxes and contributions are of course expected to en- courage employment, particularly i n the f o r m a l sector, although the size of the effect i s rather uncertain. But l o w e r contributions m a y also create further imbalances i nthe financing of so- cial protection arrangements that are often too generous i nterms of the resources available 137 and that need to b e covered by the general budget. It i s often thought that to the extent that they are covered by the general budget, their effect on the labor market would b e less. 59. Recent Bank work in Turkey estimated a modest elasticity of employment to taxes, albeit high by international standards, the effect b e i n g larger for low t h a n for high income levels and for conditions of relatively higher unemployment.13. Several studies for Colombia also point to non-negligible impacts of non-wage costs on e m p l o y m e n t and the unemploy- m e n t rate. 60. However, moving towards less rigid regulations or l o w e r contributions i s rarely a n objective that countries pursue on a n y sustained basis. T h e i d e a of m a k i n g contracts m o r e flexible i s controversial and politically sensitive and r e d u c i n g taxes faces either fiscal con- straints or reductions in government services that are not easy to reach consensus upon. Available data (Table 32. ) suggests that regulations m a y h a v e become m o r e rigid i nT u r k e y a n d changed little in Colombia and Tunisia, although measuring rigidity of labor markets i s not easy and available indices are sometimes contradictoryl4. M o s t countries h a v e tended to increase labor taxes, a n d T u r k e y a n d Colombia have been no exceptions15. InColombia, the Bank reported that the tax wedge Colombia increased from 47 percent of the p a y r o l l i n the 1980s to 60 percent i n2004, particularly through reforms i n1993 and 2002. There w a s a n e t decline during the r e v i e w period, as the 2002 r e f o r m a d d e d 1point to cover u n e m p l o y m e n t insurance and 2 points for pensions but reduced by severance payments o n u n j u s t dismis- sals by about seven points.16 For Turkey, the OECD reports a n increase of about 2.6 percent of wages, from 40.4 to 42.8, between 2000 and 2004.17 Tunisia h a d no changes i n labor taxa- tion, reported a t 28 percent by the Bank>* during the r e v i e w period. The 2009 Doing Busi- ness Report estimates of labor taxation, w h i c h are comparable across countries (albeit differ- e n t from those cited above) indicate that Colombia’s labor taxation (33.4 percent) i s considerable h i g h e r t h a n Tunisia’s (24.6 percent) or Turkey’s (24.5 percent). 61. T h e Bank can help improve labor market performance by continuing and extend- ing AAA o n labor markets, as the m a i n modes of support. This will take advantage of the Bank’s capacity for labor m a r k e t analysis a n d l o w e r the risks of u n d e r m i n i n g r e f o r m that of- t e n come with the d i f f i c u l t political economy of labor reform. In particular, the Bank can h e l p i m p r o v e and extend (perhaps in partnership with the OECD a n d the Bank‘s Doing Business report) estimates a n d cross-country comparisons of labor rigidities a n d labor taxes. It can also further the understanding of low female participation and e m p l o y m e n t rate i n countries l i k e Tunisia and Turkey. The dialogue, dissemination, and advice p a r t of AAA, although difficult, c a n m a k e this instrument m o r e effective, a l t h o u g h there are always risks l i k e the weakened dialogue on the matter i n Tunisia. 62. M e a s u r i n g rigidity of labor markets i s not easy and available indices are sometimes contradictorylg. There are today a n u m b e r of indicators (Table 32. ) that p r o v i d e a better idea of cross-country comparisons and t i m e dynamics, one of w h i c h i s the ”Rigidity of Employ- m e n t Index” calculated for the Bank’s Doing Business Report. C o m p a r i n g with other coun- tries, labor rigidities i n Colombia, Tunisia a n d T u r k e y are w e l l within the range defined by France (most rigid) and Singapore (least rigid), with Tunisia’s degree of rigidity higher than Colombia’s and Turkey’s, w h i c h are similar. WEF surveys c o n f i r m this ranking to some ex- tent, in that the share of businesses that regard labor regulations as m o s t problematic i s higher i n Tunisia (13.9 percent) than i n Colombia (8.4 percent). However, it i s also m u c h 138 l o w e r in T u r k e y (2.4 percent), suggesting that the rigidity "inthe books" in T u r k e y m a y overstate the rigidity i n Colombia. Be that as it may, the increased ri- n practice m o r e than i gidity indicated for T u r k e y for the r e v i e w p e r i o d i s even m o r e worrying g i v e n that already in the late 199Os, T u r k e y h a d one o f the m o s t rigid labor legislations in the world. Relaxing regulatory rigidities would h e l p reduce u n e m p l o y m e n t in Tunisia, albeit not resolve the skills mismatch that also contributes to it.20 63. C u r r e n t conditions of r i s i n g u n e m p l o y m e n t p r o v i d e the Bank with a n opportunity to engage with governments on labor reform, as has happened i nColombia and Turkey. Un- employment conditions p r o v i d e a n opportunity for r e f o r m t h a t i m p r o v e flexibility a n d re- duce labor costs. Not only i s the potential employment effect larger u n d e r these conditions than u n d e r conditions of boom; the potential would appear to b e especially strong for the poor, as suggested by the m o r e recent work on e m p l o y m e n t elasticities. Furthermore, the political economy for such r e f o r m i s also supportive, as the experience of Colombia sug- gests. Finally, g i v e n appropriate constraints imposed by fiscal balance, labor tax reductions would appear to b e sensible countercyclical policy. Accordingly, the current financial crisis i s a good t i m e to m a k e labor contracts m o r e flexible a n d to reduce the non-wage component of labor costs. T h e B a n k i s in a good position to p r o v i d e advisory support to these efforts. 64. Education. Education i s of course expected to h a v e a positive i m p a c t on participation a n d earnings, particularly of women. Inthe short run, increased education coverage m a y reduce participation and earnings as m o r e youth leave t h e labor m a r k e t to get schooling. In the long run, increased coverage increases participation and earnings as the educated get access to better e m p l o y m e n t options. 65. K e y standard aims of education policies i n m o s t if not a l l countries have been to in- crease coverage, technical quality, and fit to the labor market. This has been the case as w e l l in the three countries u n d e r review. To achieve those a i m , and in a d d i t i o n to higher ex- penditures, policies in Colombia combined decentralization of expenditures, programs to target hard- to-reach populations, changes in curricula a i m i n g to i m p r o v e below-average quality of education, a n d expansion of non-formal t r a i n i n g i n a n effort to i m p r o v e the relev- ance of courses. Policies in Tunisia were a i m e d at increasing coverage and reducing gender gaps.. In Turkey, the k e y p o l i c y w a s to expanded coverage by extending mandatory school- ing from f i v e to eight years. Progress i s summarized as f o l l o w s (Table 33. ): All in all, based on increases i n average years of schooling for the p o p u l a t i o n 15 years a n d older, progress during the last decade has been fastest in Tunisia, f o l l o w e d by Turkey; N e t enrollment in p r i m a r y education did not change in Colombia during the evalua- tion p e r i o d and declined in Tunisia and m o r e so in Turkey; it h a d increased consi- derably i n C o l o m b i a and Tunisia during the previous decade; N e t enrollment in secondary education increased m o s t in T u r k e y f o l l o w e d by Co- lombia; Gross enrollment in tertiary education increased m o s t in Turkey, f o l l o w e d by Tuni- sia; Average years of education continued increasing during the decade u n d e r review, at a rate of a b o u t 0.1 p e r year in Colombia and Tunisia and 0.04 p e r year in Turkey. 139 During the previous decade, years of education h a d increased faster in Turkey, a t n Colombia; about the same rate in Tunisia, a n d m o r e s l o w l y i Expected years of schooling today are somewhat higher in Tunisia, f o l l o w e d by Tur- key. Improvements in test scores between 2003-06 suggest a n increase i n the quality of education during the p e r i o d covered. However, the increase in the percentage of businesses that v i e w the workforce as in- adequately educated, particularly large in Turkey, suggests that increases i nq u a l i t y through education and t r a i n i n g are not keeping pace with the changes i n m a r k e t re- quirements. Table 33. Colombia, Tunisia, and Turkey: Education Outcomes Year Closest M 1985 Closest to 1997 Closest to 2007 Colombia . 87,87,88 (1997) ....... ... 87,87,87 ..... (2007) ........... 54,50,57 (19971 67,74,61 (2007) ................................................................................................................................................. 22,22,22 (1998) 31,30,32 (2006) ................................................................................................................................................. Average Years of Schooling T,M,F (year) 4.6 (1985) ................................................................................................................................................................................................................................................................_ 5.0 (1995) 5.6 (2007) Expected Schooling T,M,F (year) 11,11,11 (1998) ................................................................................................................................................................................................................................................................_ 12,12,13 (2006) PlSA Test Score - Math: T M F (year) ................................................................................................................................................................................................................................................................i 370,382,370 (2006) Skills Mismatch Tunisia Turkey , nd, (1985) 97,100, 94, (1996) 91,93,89 (2006) ........................................................................................................................................................................................ 36,nd,nd, (1985) 51,59,43 (1996) 69,74,64 (2006) .......................................................................................................................................................................................................... ..................21!.25 . .....I 17 (1998) 35,39,30 (2006) .......................................................................................................... ....Averane..rears.or.schoo!in~.T!.M.IF.syear~ 3.7 (1985) 5.1 (1995) 5.3 (2000) .................................................................................................................................................................................................................................... Expected Schooling T,M,F (year) ................................................................................................................................................................................................................................................. PlSA Test Score - Math: T,M,F (year) .......................................................................................................................................................................................... .....P!.sA._T.est.scp.re.~,,Read,~~~~,.T!M!F..~~ear~ .. PlSA Test Score - Science: T,M,F (year) ......................................................................................................................................................................................................................... Skills Mismatch ................................................................................................................................................................................................ Source: 1’ T,M,F: Total, Males, Females. Net Enrollment: The World Bank, EducationStatistics Average years of Schooling: Barro-LeeData Set 18 See The W o r l d Bank, “Tunisia’s Global Integration: Second Generation of Reforms to Boost, Growth and Employment, Social and Economic Development”, Draft Report No. 40129-TN, The W o r l d Bank, 2008, P.43. See also The W o r l d Bank, Republic of Tunisia Employment Strategy, (In T w o Volumes) Volume I : M a i n Report, Report No. 25456-TUN, 2004, p. 4 4, footnote 45. 19 Forexample, a n OECD study for the late 1990s ranked Turkey near the top of labor rigidity; see The World Bank, “Turkey Country Economic Memorandum: Towards Macroeconomic Stability and Sustained Growth”, (In Three Volumes) Volume 1 1: M a i n Report, Table 5.2, p 92.. M o r e recent indica- tors actually suggest that in the late 1990s Turkey’s labor regime was relatively free, although it har- dened during the decade. 20 See Koranchelian, Taline and Fanizzal, Domenico, ” H o w Does Employment Protection Legislation Affect Unemployment i nTunisia? A Search EquilibriumApproach, I M F W o r k i n g Paper, WP/05/92,2005, May. 21 See Maria Maddalena Favro-Paris, ”Job Protection Schemes And Unemployment Benefits: Are They Functional Equivalents?, processed, Fig 1 , p.32. In this paper, Turkey ranks at the top in terms of the strictness of employment protection legislation ina sample of 27 primarily developed econo- mies. 22See The World Bank (2000), Turkey : Country economic memorandum - structural reforms for sus- tainable growth : M a i n report See,for example, UmaAa, Claudia Marcela, “Child Labour and the Economic Recession of 1999 in 23 Colombia”, Departamento Nacional de Planeacion, Revista de Econornia del Rosario, Vol. 6, No. 2, 2003; 147 and Duryea, Suzanne, L a m , David; and Levison, Deborah, "Effects of Economic Shocks o n Child- ren's Employment and Schooling i nBrazil", J Dev Econ. 2007 September; 84(1): 188-214 24 de Janvry, Alain; Finan, Frederico, Sadoulet, Elisabeth, and Vakis, Renos, "Can conditional cash transfer programs serve as safety nets in keeping children at school and f r o m working when exposed to shocks?, Journal of Develop- ment Economics 25 See ILO, "Global Employment Trends, January 2009", Geneva, 2009, p. 34. 26 See IMF, Global Economic Policies and Prospects, Meeting of the Ministers and Central Bank Gov- ernors, March 13-14,2009, London, U.K., Note by the Staff of the International Monetary Fund. 27 See ILO, ibid., p. 38. 148 Appendix 0. Colombia, Tunisia, and Turkey: External Assistance Total Net Receipts (ODA*, OOF", and Private), 2001=2007 In US$ million 2001 2002 2003 2004 2005 2006 2007 COLOMBIA Total Net Receipts 595.4 -2,390.0 1,961-7 1,370.3 990.4 6,345.5 7,309.0 olw ODA 380.1 439.7 801 -1 518.4 624.6 987.4 730.8 olw OOF 627.4 -226.2 1,927.8 -37.3 -866.1 1,248.4 935.0 olw Private -412.1 -2,603.5 ~~ -767.2 ~~ 889.2 ~~ ~ 1,231.9 ~~ 4,109.7 5,643.2 ODAtOOF, total 1,007.5 213.5 2,728.9 ..................................................................................................................................... ~ 481.1 -241 -5 2,235.8 ...................................................................................................................... 1,665.8 olw Multilateral 792.5 -144.5 ..................................................................................................................................................................................................................................... 2,054.1 148.3 -694.7 1,414.2 1,085.5 olw IBRD (Net) 136.3 248.8 775.5 199.6 486.9 621.5 132.4 TUNISIA Total Net Receipts 1,019.0 612.7 563.0 871.8 514.3 34.2 1,435.9 olw ODA 376.9 264.7 297.7 327.3 364.5 431.9 310.1 olw OOF 313.8 167.3 120.8 174.5 -73.5 -328.5 228.6 olw Private 328.2 180.7 144.5 370.0 223.3 -69.3 897.2 ODA+OOF, total 690.8 432.0 418.5 501.8 291 -0 103.5 538.7 olw Multilateral 378.8 320.9 255.0 282.1 138.4 -139.3 472.9 olw IBRD (Net) 146.9 -36.9 45.8 -88.7 -54.9 -254.8 -8.0 TURKEY Total Net Receipts 1,385.4 -1,191.9 2,818.7 3,545.2 11,617.2 17,354.2 28,197.4 olw ODA 168.7 410.3 164.7 285.7 398.7 569.5 797.2 olw OOF 1,104.6 886.6 359.1 1,853.1 -407.1 1,844.2 3,324.3 olw Private 112.1 -2,488.8 2,294.8 1,406.5 11,625.7 14,940.4 24,075.9 ODAtOOF, total 1,273.3 1,296.9 523.9 2,138.7 -8.4 2,413.8 4,121.5 olw Multilateral 1,401.6 1,007.0 350.2 2,007.7 329.7 2,394.5 3,930.1 olw IBRD (Net) Source: OECD DAC online database, and Client Connection, retrieved January 27,2009. - 1,105.7 594.3 -220.2 919.0 -294.0 989.1 557.1 'ODA - Official DevelopmentAssistance: Grants or loans to countries and territories on Part 1 of the DAC list of Aid Recipients (developing countries) that are: 1) Undertaken by the Official Sector; 2) Have promotion of economic development and welfare as their main objective; and 3) Are granted at concessional terms (the loan has a grant element of at least 25 percent). - 'OOF Other Official Flows: Transactions by the official sector with countries on the List of Aid Recipients that do not meet the conditions of ODA or Official Aid eligibility, either because they are not primarily aimed at development,or because they have a grant element of less than 25 percent. 149 Appendix P. Colombia, Tunisia, and Turkey: At a Glance Tables Turkey at a glance 9/24/08 Europe & Upper- POVERTY and SOCIAL Central mlddle- Development diamond' Turkey Asia Income 2007 Population, mid-year (millions) 73.9 445 823 Life expectancy GNI per capita (Atlas method, US$) 8,020 6,052 6,987 GNI (Atlas method, US$ billions) 592.9 2,694 5,750 Average annual growth, 2001-07 T Population (%) 13 0.0 07 Labor force (%) Gross 2.5 0.5 1.3 Primab Most recent estimate (latest year available, 2001-07) capita enrollmeni Poverty (% of population below national poverty line) 27 Urban population (% of total population) 68 64 75 Life expectancy at birth (yaamj 71 69 71 1 Infant mortality (per f,OOO live bitths) 24 23 22 Child malnutrition (% of children under 5) 4 Access to improved water source Access to an improved water Source (% of pcpulation) 97 95 95 Literacy (% of population aga fJ+) Gross primary enrollment (% of school-age population) 87 94 97 97 93 111 - Turkey Male 96 98 112 -Upper-middle-income group Female 92 96 109 KEY ECONOMIC RATIOS and LONG-TERM TRENDS i987 1997 2006 2007 Econumlc ratios. GDP (US$ billions) 122.3 267.0 529.9 657.1 Gross capital formationiGDP 22.1 22.2 Trade Exports of goods and setvices/GDP 22.7 21.9 Gross domestic savingslGDP 17.1 17.1 Gross national savingsiGDP 16.2 16.3 T Current account balanceiGDP -0.7 -1 .o -6.2 -4.9 Domestic Capital Interest payments/GDP 1.6 1.4 1.4 savings formation Total debffGDP 33.5 31.6 39.2 Total debt service/exports 41.2 22.4 33.5 Present value of debffGDP 40.8 Present value of debffexports 178.6 Indebtedness wa7-97 iw-07 2006 2007 2007-11 (avenge annual growth) - Fl GDP 4.1 4.2 6.9 4.5 Turkey GDP per capita 2.1 2.7 5.6 3.2 -UDoer-middle-incomeanwo Exports of goods and services .. 7.0 6.6 6.7 STRUCTURE of the ECONOMY 2006 2007 (% of GDP) Agriculture 9.5 8.9 Industry 28.7 28.3 Manufacturing 19.8 19.0 Services 61.8 62.8 Household final consumption expenditure 70.5 70.7 -40 General gov't final consumption expenditure 12.3 12.2 imports of goods and services 27.6 27.0 1987.97 1997-07 2006 zoo7 Growth of exports and Imports (%) (average annual growth) 40 Agriculture .. 1.3 1.4 -6.8 Industry .. 4.9 10.2 5.4 Manufacturing .. 4.8 8.4 5.4 Services .. 5.2 6.0 5.9 Householdfinal consumption expenditure .. 5.1 4.6 4.6 General gov't final consumption expenditure .. 3.2 8.4 2.6 40 Gross capital formation Imports of goods and services .. .. 7.3 9,9 13.3 6.9 10.1 11.1 -Exports *Imports ~~ ~ ~ Note 2007 data are preliminaryestimates This table was produced from the Development Economics LDB database * The diamonds show four key indicators in the country (in bold) compared with its income-group average If data are missing, the diamond will be incomplete 150 Turkev PRICES and GOVERNMENT FINANCE 1981 1991 2000 2001 :h Domestic prlces (% change) Consumer prices .. 85.0 9.6 8.1 Implicit GDP deflator 88.1 86.1 9.3 8.1 20 Government finance (% of GDP, includes current grants) Current revenue 16.3 16.9 21.2 21.1 I O' 02 03 04 05 06 d 077l Current budget balance Overall surplusldeficit 4.3 -4.1 0.2 -5.5 -7.7 0.2 -7.3 -0.8 I -GDPdeflator +CPI I TRADE 1907 1997 2000 2001 Export and import levels (US$ mill.) (US$ millions) Total exports (fob) Agriculture and livestock 10,190 3,316 32,110 9,969 91,937 19,438 104,235 200,ow , Mining and quarry products 1,826 4,365 4,521 150 OW Manufactures 9,050 30,648 87,179 99,023 100,000 Total imports (cif) 14,158 50,954 138,973 152,421 Food 830 2,425 2,537 50,000 Fuel and energy 3,275 6,258 29,664 Capital goods 3,956 11,353 23,316 0 01 02 03 M 05 06 07 Export price index (2000-700) 107 117 138 143 Import price index (2000-700) 114 106 149 154 o ~xports imports Terms of trade (2000=700) 94 111 92 93 BALANCE of PAYMENTS 1981 1991 2000 2001 I Current account balance to GDP (Oh) (US$ millions) Exports of goods and services 14,135 51,358 116,427 130,625 4T Imports of goods and services 15,179 55,494 144,304 156,810 2 m Resource balance -1,044 -4,136 -27,877 -26,185 0 Net income -2,085 -3,013 -6,584 -6,940 01 u' 02 03 I 04 ~ 05 Net current transfers 2,323 4,511 1,687 1,820 2 Current account balance -806 -2,638 -32,774 -32,228 -4 T c U I Financing items (net) 1,775 5,954 36,494 37,526 Changes in net reserves -969 -3,316 -3,720 -5,298 I Memo: Reserves including gold (US$ millions) 2,740 19,993 60,705 69,438 Conversion rate (DEC, local/US$) 8.60E-4 0.2 1.4 1.3 EXTERNAL DEBT and RESOURCE FLOWS 1981 1991 2000 2001 (US$ millions) Total debt outstanding and disbursed 40,944 84,785 207,854 Zomposition of 2006 debt (US$ mill.) A: 6,854 I IBRD 6,290 3,587 6,854 7,541 E: 65 IDA 170 118 65 59 C: 10,762 D: 1,820 Total debt service 5,981 11,914 40,511 ' .. IBRD 776 999 1,135 1,055 E: 4,371 IDA 5 7 6 6 Composition of net resource flows Official grants 42 58 415 Official creditors 480 -134 720 Private creditors 1,285 3,755 33,400 Foreign direct investment (net inflows) 115 805 20,070 Portfoiio equity (net inflows) 0 8 1,939 World Bank program I Commitments 957 35 1,909 867 4 . IBRD E - Bilateral Disbursements 787 266 1,796 1,223 B - IDA D. Other multilateral F . Private Principal repayments 320 732 813 672 2-IMF . G Short-term Net flows 467 -466 983 551 Interest payments 461 273 329 389 Net transfers 7 -740 654 162 Note This table was produced from the Development Economics LDB database 9/24/08 151 Colombia at a glance 9/24/00 Latin Lower- POVERTY and SOCtAL Amerlca mlddle- I Development diamond' Colombla & Carlb. Income 2007 Populat!on, mid-year (milllons) 46.1 563 3.437 GNI per capita (Atlas method, US$) 3,250 5,540 1,807 Life expectancy I GNI (Atlas method, US$ billions) 149.9 3,110 6,405 Average annual growth, 2001-07 Population (%) 14 1.3 1.1 Labor force (%) 2.7 2.1 1.5 Most recent estimate (latest year avallable, 2001-07) ;Y e € + capita enrollment Poverty (% of populationbelow nabonal povedy line) Urban population (% of total population) 74 70 42 Life expectancy at birth (years) 73 73 69 Infant mortality (per 1,000 live births) 17 22 41 Child malnutrltion (% of children under 5) 5 5 25 Access to improved water source Access to an improved water source ( X of populatfon) 93 91 08 Literacy (% of population age 75+) 93 90 89 -Colombia Gross pnmary enrollment (% of school-age population) Male Female 116 117 115 118 120 116 111 112 109 -Lower-middle-incomegroup I KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1907 1997 2000 2007 Economic ratios' GDP (US$ billions) 36 4 106.7 135.7 172.0 Gross capltal fonationlGDP 19 1 20.9 23.6 24.4 Exports of goods and serviceslGDP 17 0 14.0 22.5 19.4 Gross domestic savings/GDP 23 1 15.0 21.1 23.3 Gross national savingslGDP 21 2 13.3 20.0 Current account balancelGDP -0 1 -5.4 -2.3 -3 4 Capital Domestic Interest paymentslGDP 37 1.6 1.0 savings formation Total debtlGDP 46 8 29.9 29.3 Total debt servicelexports 30 9 29.4 32.5 Present value of debVGDP 30.3 Present value of debtlexports 125.7 indebtedness 1907-97 1997-07 2000 2007 2007-11 (average annual growth) GDP 40 30 6.0 7.5 4.8 -Colombia GDP per caprta 21 14 5.4 6.2 3.3 -Lower-middle-incomearouo Exports of goods and services 70 45 7.0 1.4 5.2 STRUCTURE of the ECONOMY 1007 1997 (% of GDP) Agriculture 10.7 13.7 12.0 10.5 Industry 36.0 29.4 35.7 29.3 I Manufactunng 21.1 14.9 Services 45.3 56.9 52.3 60.1 Householdfinal consumption expenditure 68.2 64.6 61.1 63.4 02 03 04 05 06 07 General gov't final consumption expenditure 0.7 20.4 17.8 13.3 -GCF --.CcGDP Imports of goods and services 12.9 20.0 1907-97 1997-07 (average annual growth) 2o00 2007 [Growth of exports and imports (Oh) 1 Agriculture -1.1 0.6 2.3 2.4 /30T I Industry 3.2 2.7 9.2 4.3 Manufacturing -0.7 3.0 10.8 3.1 ,Ot Services 4.9 3.4 5.5 9.4 Householdfinal consumption expenditure 3.6 2.5 6.7 -3.2 General gov't final consumption expenditure 9.0 1.5 2.1 6.6 Gross capital formgtion 7.0 0.2 26.0 49.3 -Exports +Imports Imports of goods and services 15.4 6.5 Note: 2007 data are preliminary estimates. . This table was produced from the Development Economics LDB database. The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 152 Colombia PRiCES and GOVERNMENT FINANCE 2006 2007 Inflation (Oh) Domestic prices (% change) Consumer prices 24.0 17.7 4.5 5.1 l5T Implicit GDP deflator 23.4 16.8 51 3.8 Government finance (% of GDP, includes cumnt grants) Current revenue 10.5 12.5 20.1 0.0 0 2 0 3 W 0 5 M Current budget balance Overall sumlusldeficit 2.6 2.0 0.3 -3.7 2.2 -0.6 0.0 0.0 -GDP deflator +CPI TRADE 1987 1997 2008 2007 (US$ millions) Export and import levels (US$ mill.) 1 Total exports (fob) Coffee Petroleum products Manufactures Total imports (cif) 5,409 1,651 1,369 1,071 4,228 11,549 2,259 2,707 7,466 4,083 23,930 1,461 6,328 9,237 23,976 25,049 1,528 6,949 9,048 26,214 : :I Food 215 1,673 2,332 2,236 Fuel and energy 109 439 68 1 563 Capital goods 1,518 5,826 7,154 10,964 Export price index (2000=100j Import price index (2000-100) Terms of trade (2000=100j 12 12 104 58 57 102 47 38 125 1 01 02 0 Exports 03 BALANCE of PAYMENTS (US$ m////onsj 1987 1997 2006 2007 1 Current account balance to GDP (%) Exports of goods and services 6,422 13,690 27,303 30,071 Imports of goods and services 5,751 17,958 26,829 31,733 Resource balance 670 -4,268 474 -1,662 Net income -1,692 -2,312 -5,983 -8,251 Net cumnt transfers 1,001 496 4,450 Current account balance -21 -5,751 -3,057 -5,773 Financing items (net) 43 5,474 3,034 7,632 Changes in net reserves -22 277 23 -1,860 Memo: Reserves including gold (US$ rnilonsj .. 9,908 15,440 Conversion rate (DEC, local/US$) 242.6 1,141.0 2,361.1 2,078.3 EXTERNAL DEBT and RESOURCE FLOWS 1987 1997 2006 2007 :omposition of 2006 debt (US$ mill.) (US$ rnlll/ons) Total debt outstanding and disbursed 17,024 31,937 39,698 iBRD 4,113 1,723 4,563 4,756 G: 4 , m A: 4,563 IDA 17 10 3 2 Total debt service 2,815 4,511 10,640 IBRD 618 573 468 688 IDA 1 1 1 1 Composition of net resource flows Official grants 17 89 245 Official creditors 234 -452 1,114 Private credltors -318 4,194 -147 Foreign direct investment (net inflows) 319 5,562 6,463 Portfolio equity (net inflows) 0 278 -30 F: 23,219 World Bank program Commitments 180 75 683 632 . t - IBRD E . Bilateral Disbursements 364 189 942 564 B . IDA D. Other multilateral F - Private Principal repayments 299 437 259 432 C-IMF G - Short-terr Net flows 65 -249 683 132 Interest payments 319 137 210 256 Net transfers -254 -385 473 -124 Note: This table was produced from the Development Economics LDB database. 9/24/08 153 Tunisia at a glance 9/24/08 M. East Lower. POVERTY and SOCIAL 8 North middle- 3evelopment diamond' Tunlsla Afrlca Income 2007 Population, mid-year (millions) 10.2 313 3,437 Life expectancy GNI per capita (Atlas method, US$) 3,200 2,794 1,887 GNI (ABas method, US$ billions) 32.8 876 6,485 Average annual growth, 200147 Population (%) 1 .o 1.8 1.1 Labor force (%) Gross 2.8 3.6 1.5 primary Most recent estimate (latest year available, 2001-07) capita enrollment Poverty (% ofpopulation below nationalpoverty line) Urban population (% of total population) 66 57 42 Life expectancyat birth (years) 74 70 69 Infant mortality (per 1,000 live births) 19 34 41 Child malnutrition (% of children under 5) 25 Access to improved water source Access to an improved water source (% ofpopulation) 94 89 88 Literacy (% of population age 15t) Gross primary enrollment (% of school-age population) 74 108 73 105 89 111 -Tunisia Male 110 106 112 -Lower-middle-incomegroup Female 107 103 109 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1967 f997 2006 2007 Economic ratios* GDP (US$ billions) 9.7 18.9 31 .O 35.0 Gross capital formationlGDP 23.5 26.4 23.5 23.4 Trade Exports of goods and ServiceslGDP 34.8 43.8 53.2 51.8 Gross domestic savingslGDP 22.5 24.0 23.6 23.0 Gross national savingslGDP 22.5 23.4 25.4 23.9 Cunent account balance/GDP -1.0 -3.1 -1.1 -1.2 Capital Domestic Interest paymentslGDP 3.6 2.5 2.2 savings formation Total debffGDP 70.3 59.4 59.7 Total debt service/exports 28.4 15.7 14.5 Present value of debffGDP 58.4 Present value of debffexports . .. .. 103.7 Indebtedness 1987-97 199747 2006 2007 2007-11 (average annual growth) GDP 4.3 4.0 5.7 6.3 5.9 -Tunisia GDP per capita 2.4 3.7 4.6 5.1 4.5 -Lower-middleincomegroup Exports of goods and services 5.4 3.9 3.9 4.2 5.3 STRUCTURE of the ECONOMY (% of GDP) Agriculture 1907 16.5 1997 13.2 2006 11.1 2007 10.9 Growth of capital and GDP (K) 10 T I Industry Manufacturing SeNlces Household final consumption expenditure General gov't final consumption expenditure Imports of goods and services 29.5 15.1 54.1 60.6 16.9 35.8 28.6 18.5 58.2 60.2 15.8 46.2 27.6 17.0 61.1 63.0 13.4 53.1 27.5 16.9 61.6 63.6 13.4 52.2 GCF --O-GDP II (average annual growth) Gross capital formation 5.9 3.0 5.6 5.5 -Exports +Imports 154 PRICES and GOVERNMENT FINANCE 1907 1997 2006 2007 Inflation (X) Domestic prices -; I5 T (% change) Consumer prices 8.1 3.7 2.3 2.2 Implicit GDP deflator 5.2 4.0 3.8 24 Government finance (X of GDP, indudes cunent grants) 0 Current revenue 28.3 24.0 23.0 22.8 02 03 04 05 06 07 Current budget balance 4.9 2.4 3.5 3.6 I -GDPdeflator +CPI 1 Overall surplusldeficlt -1.4 -4.3 -3.0 -2.9 TRADE (US$ mi//ions) Total exports (fob) Fuel Agriculture 1907 2,137 505 276 1997 5,559 503 616 2006 11,488 1,737 1,228 2007 11,971 1,766 1,234 7 Export and Import levels (US$ mill.) 15,000 1 Manufactures 959 3,680 7,814 8,288 10,WO Total imports (cif) 3,028 7,951 14,299 15,246 Food 312 691 900 924 5,WO Fuel and energy 318 597 2,075 2,113 Capital goods 520 1,724 2,797 2,997 0 Export price index (2000=100) Import price index (2000=100) Terms of trade (2000=100) 44 62 71 82 114 72 150 152 99 151 153 99 I 01 02 0 Exports 03 04 05 0 Imports 06 O7 I BALANCE of PAYMENTS 1987 1997 2006 2007 (US$ mi/hons) Exports of goods and services 3,377 8,174 15,868 18,790 Current account balance to GDP (Oh) 1 Imports of goods and services 3,473 8,695 15,840 16,919 Resource balance -96 -521 27 -129 Net income -486 -863 -2,339 -2,384 Net current transfers 484 79 1 1,974 2,078 Current account balance -99 -593 -338 -435 Financing items (net) 215 917 2,785 959 Changes in net reserves -116 -324 -2,447 -524 Memo: Reserves including gold (US$ rni///ons) 535 1,988 6,824 7,348 Conversion rate (DEC, /oca/NS$) 0.8 1.1 1.3 1.3 EXTERNAL DEBT and RESOURCE FLOWS 1907 1997 2006 2007 :omposition of 2006 debt (US$ mlll.) /US$ m////ons) Total debt ouistanding and disbursed 6,816 11,228 18,480 IBRD 1,052 1,434 1,444 1,571 A: 1,444 IDA 63 45 26 24 Total debt service 1,105 1,413 2,520 IBRD 177 275 438 236 IDA 2 2 2 2 Composition of net resource flows Official grants 85 137 185 Ofkial creditors 131 72 -208 Private creditors -121 583 -265 Foreign direct investment (net inflows) 92 339 3,270 Portfolio equity (net inflows) 17 55 65 World Bank program Commitments 200 167 143 28 - IBRD E . Bilateral Disbursements 166 127 112 161 B . IDA D - Other multilateral F - Private Principal repayments 100 175 368 172 G Short-teri ~ Net flows 66 -48 -257 -10 Interest payments 79 103 72 67 Net transfers -13 -151 -329 -77 Note: This table was produced from the Development Economics LDB database. 9/24/08 155 Appendix Q. Colombia, Tunisia, and Turkey: Millennium Development Goals 0.5 0.3 0.3 1.7 1.5 1.4 55 55 55 68 71 74 78 89 90 91 93 i :e expedar cy a: brm, tctal (r'earsl 68 70 71 73 i 'peapie ages 4 5 ard c;ovei 81 93 34.9 38.3 41.7 46.1 r-iice \Yd c i SOPI 35.4 35.5 40.9 39 9 Source, World Development Indicators database 156 1990 1995 2000 2007 Goal 1: Eradicate extreme poverty and hunger Employment to population ratio, 15+, total (%) 41 42 45 Employment to population ratio, ages 15-24, total (%) 27 27 29 Income share held by lowest 20% 6 6 6 Malnutrition prevalence, weight for age (% of children under 5) 9 Poverty headcount ratio at national poverty line (X of population) 7 8 Prevalence of undernourishment (% of population) Vulnerable employment, total (% of total employment) Goal 2: Achieve universal primary education Literacy rate, youth female (% of females ages 15-24) Literacy rate, youth male ( % o f males ages 15-24) Persistence to last grade of primary, total ( O h of cohort) .. 00 94 Primary completion rate, total (% of relevant age group) 80 91 87 120 Total enrollment, primary (% net) .. 95 98 Goal 3: Promote gender equality and empower women Proportion of seats held by women in national parliament (YO) 4 12 23 Ratio of female to male enrollments in tertiary education 97 142 Ratio of female to male primary enrollment ., 96 97 Ratio of female to male secondary enrollment .. 106 110 Ratio of young literate females to males (%ages 15-24) Share of women employed in the nonagricultural sector (X of total nonagricultural employment) 23.1 24.6 Goal 4: Reduce child mortality Immunization, measles ("0 of children ages 12-23 months) 93 91 95 98 Mortality rate, infant (per 1,000 live births) 41 32 25 19 Mortality rate, under-5 (per 1,000) 52 40 31 23 Goal 5: Improve maternal health Adolescent fertility rate (births per 1,000 women ages 15-19) 8 7 Births attended by skilled health staff (% of total) 69 01 90 Contraceptive prevalence (% of women ages 15-49) 50 60 66 Maternal mortality ratio (modeled estimate. per 100,000 live births) .. I00 Pregnant women receiving prenatal care (%) 58 .. 92 Unmet need for contraception (% of married women ages 15-49) Goal 6: Combat HIVIAIDS, malaria, and other diseases Children with fever receiving antimalarial drugs ( Oh of children under age 5 with fever) Condom use, population ages 15-24, female (?hof females ages 15-24) Condom use. population ages 15-24, male (% of males ages 15-24) Incidence of tuberculosis (per 100,000 people) 31 31 25 25 Prevalence of HIV, female (% ages 15-24) 0.1 Prevalence of HIV, total (YOof population ages 15-49) 0 Tuberculosis cases detected under DOTS (%) .. 101 81 Goal 7: Ensure environmental sustainability Annual freshwater withdrawals, total (YOof internal resources) GO2 emissions (kg per PPP S of GDP) 0.6 0.5 0.4 GO2 emissions (metric tons per capita) 1.6 1.8 2.1 Forest area (% of land area) 4 6 7 Improved sanitation facilities (Oh of population with access) 74 78 81 85 Improved water source (% of population with access) 82 86 90 94 Marine protected areas, (% of surface area) Nationally protected areas (% of total land area) ' Goal 8: Develop a global partnership for development Aid per capita (current US$) 48 8 23 43 Debt setvice (PPG and IMF only, Yo of exports of G&S, excl. workers' remittances) 26 18 21 15 Internet users (per 100 people) 0 0 3 17 Mobile phone subscribers (per 100 people) 0 0 1 77 Telephone mainlines (per 100 people) 4 6 10 12 Other Fertility rate, total (births per woman) 3.5 2.7 2.1 2 GNI per capita, Atlas method (current US$) 1430 1820 2090 3200 GNI, Atlas method (current US$) (billions) 11.6 16.3 20 32.8 Gross capital formation (% of GDP) 27.1 24.7 27.3 23.4 Life expectancy at birth, total (years) 70 71 73 74 Literacy rate, adult total 1% of people ages 15 and above) Population, total (millions) 0.2 9 9.6 10.2 Trade (YOof GDP) 94.2 93.7 92.7 103.9 Source: World DevelopmentIndicators database 157 TURKEY 1990 1995 2000 2007 6 5 9 7 .. 28 97 _ - .. 96 67 52 38 24 ,. 76 81 63 63 64 .I 44 .. 62 68 0.4 0.4 0.4 2.6 2.8 3.3 13 .. 13 13 85 86 87 88 85 89 ' 93 97 3070 3870 3930 8020 , Atlas rnelbod & u m l US$) 172.6 238.8 265.2 592.9 ss capital fcrmai;on (96 of GD .. 20.8 22.2 Life exyectarcy a! b ~ f l llolai ~ , (years] 66 68 70 71 of peopie ages $5and ako;.3t.e) IY 56.2 61,7 67.4 73.9 .. 43.2 48.9 Source: World Development Indicators database 158 Appendix R. Colombia, Tunisia, and Turkey: Total Cost of Bank Programs Cost of Bank Programs, FY98=FYO8 Project Lending ESW Total Supervision US$ Thousands Colombia $ 19,450 $20,326 $ 11,291 $51,067 Tunisia $ 10,036 $ 17,916 $9,608 $37,561 ............................................................................................................................. Turkey $23,447 $28,196 ................................................................................................................................................................................................................................................................¯ $18,325 $69,967 AFR ...................................................................................... ~ $376,284 $470,412 $347,283 ................................................................................................................................................................................................................................................................Z $ 1,193,978 EAP ............... $234,403 $259,563 $214,130 $708,096 SAR $176,295 $ 197,805 ................................................................................................................................................................................................................................................................¬ $ 162,902 $ 537,002 ECA $ 303,703 $ 355,938 ................................................................................................................................................................................................................................................................© $305,198 $964,839 MNA $ 102,562 $ 127,049 $184,532 $414,143 .............................................................................. LCR $ 239,838 $320,779 ................................................................................................................................................................................................................................................................¡ $ 204,183 $764,800 Bank $1.457.452 $1.809.902 $1.463.349 $4.730.702 Proportion of total Colombia 38.1 39.8 22.1 100.0 Tunisia 26.7 47.7 25.6 100.0 .......... Turkey 33.5 40.3 26.2 100.0 AFR 31.5 39.4 29.1 100.0 EAP 33.1 36.7 30.2 100.0 SAR 32.8 36.8 30.3 100.0 EGA ............................................................................................................................... 31.5 36.9 31.6 100.0 MNA ..................................................................................................... 24.8 30.7 44.6 100.0 LCR ............................................................................................................................................. 31.4 41.9 26.7 100.0 Bank 30.8 38.3 30.9 100.0 Source: BW Direct Costs of Programs Reports 4.1 and 4.2 as of January 23, 2009 159 Appendix S. Colombia, Tunisia, and Turkey: Average Cost of Tasks, Total and by MILES Average Cost per task, FYOO=FYO7(thousands of US) Total L- FYOO FY07 - - INV DPL ESW TA Colombia All tasks 260.7 118.8 64.7 69.8 7.4 MILES tasks 310.3 112.0 111.5 86.8 0.0 Tunisia All tasks 118.2 48.2 115.7 5.6 MILES tasks 309.3 106.6 66.6 134.0 2.1 Turkey All tasks 367.0 8.6.4 168.4 90.6 21.6 MILES tasks 633.5 124.5 393.8 115.3 0.0 , LCR 233.5 89.3 41 -3 93.0 9.9 ... MNA 191.0 61.4 15.0 68.8 45.8 AFR 487.4 423.1 30.4 25.5 8.5 .......................................................................................... ECA 168.5 68.9 ................................................................................................................................................................................................................................................................Á 13.2 66.3 20.1 SAR 196.9 67.2 ................................................................................................................................................................................................................................................................Ä 22.2 90.2 17.3 World Note: Total cost of projects opened and closed between FYOO and FY07. MILES tasks refer to World Bank Lending, AAA and - 255.5 142.0 24.4 68.7 20.3 TA that has a bearing on employment creation and earnings as defined by this evaluation. Source: BW Report 4.1 Direct Costs by Service 160 Appendix T. Colombia, Tunisia, and Turkey: IEG Project and QAG AAA Ratings IEG Project Ratings, Projects approved FY98-08 Approval Evaluation IEG IEG Overall Bank Name FY Type Outcome Performance Colombia Moderately Satisfactory ............. 1998 CO ANTIOQUIA EDUCATION ............................................................................................................................................... ICR review Satisfactow ............................................................ 1998 CO PAST0 EDUCATION ICR review Satisfactory Satisfactory ..................................... 2000 CO RURAL EDUCATION APL I ICR review Satisfactory Satisfactory Moderately 2000 CO- COMMUNITY WORKS (MANOS A LA OBRA) ICR review Unsatisfactory Unsatisfactory 2003 CO- Social Sector Adjustment ICR review Satisfactory Satisfactory 2001 CO- Human Capital Prot.- Cash Transfers ICR review Satisfactory Satisfactory Moderately 2002 CO Structural Fiscal Adjustment Loan ' ICR review Satisfactory Satisfactory CO CUNDINAMARCA EDUCATION QUALITY Highly Moderately ICR review 2004 IMPRVM Unsatisfactory Satisfactory 2003 CO Programmatic Fin. Sector Adj Ln I PPAR Satisfactory Satisfactory 2004 CO 1st PSAL Labor & Soc Ref ICR review Satisfactory Satisfactory Moderately 2003 CO Program. Fiscal and Institutional Adj ICR review Satisfactory Satisfactory Moderately 2005 CO 2nd Programmatic FSAL PPAR Satisfactory Satisfactow CO- 2nd Prog. Labor & Social Sector Ref 2005.................................................................................................................................................................................................. ICR review Satisfactory Satisfactory ................................................................................................................................................................................................................................................................ Moderately 2004 CO Prog Fiscal and Institutional Adj II ICR review Satisfactory Satisfactory Moderately 2005 CO Prog Fiscal and Institutional SAL 111 ICR review Unsatisfactory Unsatisfactory Highly 2007 CO- 3rd Prog.Labor and Social Sector ICRreview Satisfactory - - ' Satisfactory Tunisia 1998 TN Higher Education Reform Support I ICR review Satisfactory Satisfactory Moderately 1998 TN-TRANSPORT SECTOR INVESTMENT PROJECT ICR review Satisfactory Satisfactory 1998 .................................. TN-ASIL 2 ICR review Satisfactory Moderately 161 Approval Evaluation IEG IEG Overall Bank Name FY Type Outcome Performance Satisfactory Moderately 2000 Education PAQSET I ICR review Satisfactory ................................................................................................................................................... Satisfactory ................................................................................................................................................................................................................................................................* 1999 TN-ECAL II ................................................................................................................................................ PPAR Satisfactory Satisfactory 1999 TN-EXPORT DEVELO ............................................................................................................................................... ICR review Satisfactory Satisfactory ................................................................................................................................................................................................................................................................( 2002 TN-ECAL 111 ........................................................................................................................................................ ...................................................... PPAR Satisfactory Satisfactory Moderately 2005 TN - ECAL IV ICR review Satisfactory, Satisfactorv Turkey 1998 BASICED ICR review Unsatisfactory Unsatisfactory Moderately Moderately 2003 BASIC ED 2 (APL #2) ICR review Satisfactory Unsatisfactory 2000 EFlL ICR review Satisfactory Satisfactory Moderately 2001 FSAL ICR review Satisfactory Satisfactory 2000 ERL ICR review Satisfactory Satisfactory 2001 PRlV SOC SUPPRT ICR review Satisfactory Satisfactory ..................... Moderately 2002 PFPSAL2 ICR review Satisfactory Satisfactorv 2002 PFPSAL ICR review Satisfactory Satisfactory Highly Highly 2004 EFlL2 ICR review ................................................................................................................................................................................................................................................................T Satisfactory Satisfactory 2004 PFPSAL3 ICR review Satisfactorv Satisfactorv Source: WB Business Warehouse tables 4a.5 as of February 2,2009. 162 QAG Economic and Sector Work Ratings, FY98.08 Evaluation QAC Bank Approval FY Name QAc Overail inputs and Type Rating Processes Colombia 1999 Fiscal Sustainability QAC Review Satisfactory ................................................................................................... Satisfactory ........................................................................ " 2001 CPAR QAC Review Satisfactory Satisfactory 2002 Poverty Assessment Highly Highly 2002 Social Sector Review QAC Review Satisfactow Satisfactow - e Tunisia ....... 1999.....................................Social and Structural Review QAC Review Satisfactory ................................................................................................................................................................................................................................................................_ Satisfactory 2000 Private Sector Assessment Update QAC Review Satisfactory Satisfactory 2000 Social Conditions Update QAC Review Satisfactory Satisfactory 2001 External Sustainability QAC Review Marginal Marginal 2002 IT Sector Note QAC Review Satisfactory Satisfactory 2006 Overall AAA Assessment FY02 - FY06 QAC Review Satisfactow Satisfactow 1999 Living Standards and Welfare QAC Review 2000 CEM QAC Review Satisfactory Satisfactory Highly 2001 Corporate Sector Impact Assessment QAC Review Satisfactory Satisfactory 2001 CPAR QAC Review Satisfactory Marginal ............................................................ ................................................................................................................................................................................................................................................................S - 2002 Poverty and Crisis QAC Review P Satisfactory Satisfactory - - Source: Source: QAC reports as of February 2,2009 163 Appendix U. Colombia, Tunisia, and Turkey: Bank Senior Management Colombia: Bank's Senior Management, FY 2000 2008 Year Vice president Country director Chief I resident representative Lead Economist P David Yuravlivker 2000 David de Ferranti Oivier Lafourcade Albedo Chueca Mora Marcelo Giugale 2001 David de Ferranti Olivier Lafourcade Albedo Chueca Mora Marcelo Giugale 2002 David de Ferranti Olivier Lafourcade Albedo Chueca Mora Marcelo Giugale 2003 David de Ferranti Isabel Guerrero Albedo Chueca Mora Joaquin Cottani Joaquin Cottani 2004 David de Ferranti Isabel Guerrero Albedo Chueca Mora David Gould David Gould 2005 Pamela Cox Isabel Guerrero Alberto Chueca Mora David Rosenblatt 2006 Pamela Cox Isabel Guerrero Miguel Lopez-Bakovic David Rosenblatt Isabel Guerrero 2007 Pamela Cox Miguel Lopez-Bakovic David Rosenblatt Axel van Trotsenburg 2008 Pamela Cox Axel van Trotsenburg M.Lopez-Bakovic David Rosenblatt Eduardo Somensatto Source: World Bank Group Directory 164 Turkey: Bank's Senior Management, 1991 2008 - Year Vice president Country director Chief I resident representative Economist 1991 Willii A, Wapenhaus Michael Wiehen Luis de Azcarate 1992 Wilfried Thalwitz Michael Wiehen Luis de Azcarate R. Coutinho 1993 Wilfried Thalwitz Michael Wiehen Luis de Azcarate R. Coutinho 1994 Wilfried Thalwitz Michael Wiehen Frederick Thomas Temple s. Otoo s. Otoo 1995 Wilfried Thalwitz Rachel Lomax Frederick Thomas Temple Jacob Kolster s. otoo 1996 Johannes Linn Kenneth Lay Frederick Thomas Temple Jacob Kolster 1997 Johannes Linn Kenneth Lay Frederick Thomas Temple s. Otoo 1998 Johannes Linn Ajay Chibber s. Otoo 1999 .Johannes Linn Ajay Chibber s. otoo 2000 Johannes Linn Ajay Chibber * s. Otoo 2001 Johannes Linn Ajay Chibber * James Parks * 2002 Johannes Linn Ajay Chibber * James Parks * 2003 Johannes Linn Ajay Chibber * James Parks * 2004 Shigeo Katsu Andrew N. Vorkink * James Parks * 2005 Shigeo Katsu Andrew N. Vorkink * Rodrigo A. Chaves* 2006 Shigeo Katsu Ulrich Zachau * Rodrigo A. Chaves* Mark Roland 2007 Shigeo Katsu Ulrich Zachau * Thomas* Mark Roland 2008 Shigeo Katsu Ulrich Zachau * Thomas* Source: The World Bank Group Directory 1995 - 2005 Note: *Staff located at the Country Office at Ankara, Turkey Andrew N. Vorkink *was the country director from August 2003 to November 2006. Ulrich Zachau * has been CD for Turkey since January 2007. The title " Chief I resident representative" for Turkey has not existed since 2003. 165 Tunisia: Bank’s Senior Management, 1991=2008 Year Vice president Country director Resident Representative 1991 Willii A. Wapenhaus Kemal Dervis 1992 Caio Koch-Weser Pieter Bottelier 1993 Caio Koch-Weser Harinder S. Kohli 1994 Caio Koch-Weser Daniel Ritchie 1995 Caio Koch-Weser Daniel Ritchie - 1 1996 Kemal Dervis Daniel Ritchie 1997 Kemal Dervis Christian Delvoie 1998 Kemal Dervis Christian Delvoie 1999 Kemal Dervis Christian Delvoie 2000 Jean-Louis Sarbib Christian Delvoie 2001 Jean-Louis Sarbib Christian Delvoie 2002 Jean-Louis Sarbib Theodore 0. Ahlers 2003 Christiaan J. Poortmann Theodore 0. Ahlers 2004 Christiaan J. Poortmann Theodore 0.Ahlers 2005 Christiaan J. Poortmann Theodore 0.Ahlers 2006 Christiaan J. Poortmann (until 9/7/2006) Theodore 0. Ahlers Daniela Gressani (from 9/8/2006) 2007 Daniela Gressani Theodore 0.Ahlers (until 7/31/07) Mats Karlsson (from 11/1/07) 2008 Daniela Gressani Mats Karlsson Source: World Bank Group Directory 166 Appendix V. References Akkemik, K. Ali (2007) "The Response of Employment to GDP Growth i n Turkey; An Econometric Estimation, Applied Econometrics and International Development, Vol. 7-1 (2007), pp. 65-74. Alter Chen, M..Jhabvala, R., and Lund, F. (2002) "Supporting Workers i nt h e Informal Economy: A Policy Framework", Employment Sector 2002/2, ILO, Geneva Table 3, p. 27. Ayache H k d i (2005): T h e Education System and Information Technologies i nTunisia," presentation to the Second World Summit on the Information Society and the Role of Local Authorities, Bilbao. Ayadi, M., Boulila, G. ,Lahouel, M. and Montigny, P. (2005), "Pro-Poor Growth i nTunisia" , Interna-tional Development Strategies, processed, March 2005. Bernal, Raquel(2007). "The Informal Labor Market inColombia: Identification and Characterization." Economics Faculty. University of 10s Andes, Bogota, Colombia. Bernal, Raquel and Cardenas, Mauricio (2003), "Determinants of Labor Demand i n Colombia: 1976-1997" in Law and Employment: Lessons from Latin America anda t h e Caribbean, National Bureau of Economic Research (NBER). Betcherman, Gordon (2000a) "Structural Unemployment: H o w Important areLabour Market Policies and Institutions?, in Special Issue o n Structural Unemployment ,Canadian Public Policy, XXVI Sup-plement, July 2000 Betcherman, Gordon (2000), "Structural Unemployment: H o w Important areLabour Market nSpecial Issue o n Structural Unemployment ,Canadian Policies and Institutions?, i Public Policy, XXVI Sup-plement, July 2000 Bibi, Sami (2005): " W h e n is Economic Growth Pro-Poor? Evidence f r o m Tunisia n, CIRPEE (Centre interuniversitaire sur l e risque, les politiques economiques e t l'emploi), Working Paper 05-22, July. Capar, S. and Husamoglu, M. (2008) "Female Labor Force Participation i n Turkey," Background Paper for the Analytical Work Program on Welfare and Social Policy, State Planning Organization and W o r l d Bank, preliminary version, October 2008. Cardozo, A. and Grosse, M. (2007), "Income And Non-Income Pro-Poor Growth I n Colombia From 1996 To 2005: A Multidimensional Approach, processed, October 167 de Janvry, A., Finan, F., Sadoulet, E., and Vakis, R., (2006) "Can conditional cash transfer programs serve as safety nets i n keeping children at school and from working when exposed to shocks? ,Journal of Development Economics, Vol79 (2), pp. 349-373. Duryea, S., L a m ,and Levison, D. (2007) "Effects of Economic Shocks on Children's Employment and Schooling i n Brazil", J Dev Econ. 2007 September; 84(1): 188-214 See Epifani, P. and Gancia, G.. (2008), "The Skill Bias Of World Trade", The Economic Journal, 118 (July, 2008), 927-960. Escribano, A. and Guasch, J. L. (2005), "Assessing the Impact of the Investment Climate o n Productivity Using Firm-Level Data: Methodology and the Cases of Guatemala, Honduras, and Nicaragua", W o r l d Bank Policy Research Working Paper 3621, June 2005, Erbaykal, E. and Okuyan, H. (2008), "Does Inflation Depress Economic Growth?Evidence f r o m Tur key", International Research Journal of Finance and Economics, Issue 17 (2008) Favro-Paris, Maria Maddalena (2003), "Job Protection Schemes and Unemployment Benefits: Are They Functional Equivalents?, Cuaderni di Ricerca, processed, July. Fletcher, Kevin (2007), "Unlocking Turkey's Labor Potential," IMF, 2007, at ILO (2009), "Global Employment Trends, January 2009," Geneva, 2009. I M F (2009), Global Economic Policies and Prospects, Meeting of the Ministers and Central Bank Gov-ernors, March 13-14,2009, London, U.K., Note by the Staff of the International Monetary Fund Ince, M. and Demir, M. (2006), "The Determinants Of Female Labor Force: Empirical Evidence From Turkey" (2006), Eskisehir Osmangazi Universitesi IIBF Dergisi, N i s a n 2006,1(1), 71-90 Jansen ,Marion (2004): "Income Volatility In Small And Developing Economies: Export Concentration Matters", ERSD, World Trade Organization, Geneva, Switzerland Kapsos, Steven, (2005), "The employment intensity of growth: Trends and macroeconomic determi-nants", ILO, Employment Strategy Department, 2005/ 12. Koranchelian, T. and Fanizzal, D., (2005) " H o w Does Employment Protection Legislation Affect Un-employment i n Tunisia? A Search Equilibrium Approach, I M F Working Paper, WP/ 05/ 92,2005, May. Le, Quan V (2004). "Political and Economic Determinants of Private Investment," Journal of Interna-tional Development. J, Int. Dev. 16,589-604 (2004), 168 Le, Quan V. (2004) "Political And Economic Determinants Of Private Investment, Journal of Interna-tional Development. J. Int. 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