BISNIS TRADES & TENDERS DECEMBER 10, 1999 WEB SUPPLEMENT

BISNIS TRADES & TENDERS DECEMBER 10, 1999 WEB SUPPLEMENT

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Table of Contents for Web Supplement:

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Lead #1: Procurement and Consulting Opportunities/Asia Development Bank- Kyrgyzstan

02 DECEMBER 1999

SOURCE: US EMBASSY MANILA

SUBJECT: KYRGYZSTAN

ASIAN DEVELOPMENT BANK

- - EARLY PROJECT NOTIFICATION (ALERT 2)

- - FINANCIAL INTERMEDIATION AND RESOURCE

- - MOBILIZATION PROGRAM

1. THE PROPOSED LOAN GRANT FOR THE PROPOSED FINANCIAL INTERMEDIATION AND RESOURCE MOBILIZATION PROGRAM IS EXPECTED TO COME TO THE ADB BOARD IN TWO WEEKS. THIS CABLE IS INTENDED TO:

-- PROVIDE U.S. BUSINESSES WITH AS MUCH LEAD TIME AS POSSIBLE CONCERNING PROCUREMENT AND CONSULTING OPPORTUNITIES. FOR MORE INFORMATION ON THIS PROJECT OR ADB LENDING OPPORTUNITIES, FIRMS SHOULD CONTACT MS. N. CINNAMON DORNSIFE, US ALTERNATE EXECUTIVE DIRECTOR AT TELEPHONE NOS. (63 2) 632-6051 OR (63 2) 632-4444 AND FAX NOS.: (63 2) 632-4003 AND 632-2084 AND/OR MR. DENNY BARNES, U.S. COMMERCIAL LIAISON TO THE ADB; PHONE: (632) 804-04-60, 804-03-53; FAX: (632) 804-03-57.FOR IN-COUNTRY INQUIRY, PLEASE CONTACT PATRICK SMELLER C/O AMEMBASSY ALMATY AT TELEPHONE NOS.: (7 3272) 633905, 631375, 632426 AND FAX NO. 633883.

A. BACKGROUND: THOUGH SMALL, THE FINANCIAL SECTOR OF THE KYRGYZ REPUBLIC HAS UNDERGOING SIGNIFICANT CHANGES BOTH IN TERMS OF STRUCTURE AND REGULATIONS. THE COUNTRY INHERITED A BANKING SYSTEM FROM THE FORMER SOVIET UNION WHICH INCLUDED A FEW LARGE STATE BANKS THAT PROVIDED DIRECTED CREDIT TO STATE-OWNED ENTERPRISES (SOES) IN PRIORITY SECTORS. IN THE FIRST PHASE OF REFORMS, THE GOVERNMENT ENACTED THE CENTRAL BANK LAW AND THE COMMERCIAL BANKING LAW, WHICH ESTABLISHED A TWO-TIER BANKING SYSTEM TO LAY THE FOUNDATION FOR A MORE MODERN SYSTEM AND ENCOURAGE THE ENTRY OF PRIVATE BANKS. IN 196, FINANCIAL SECTOR REFORMS WERE LAUNCHED TO INITIATE A FUNDAMENTAL RESTRUCTURING OF BANS, FOCUSING ON LIQUIDATION/RESTRUCTURING OF THE FOUR LARGEST STATE-OWNED BANKS, AND THE CREATION OF AN IMPROVED POLICY AND REGULATORY ENVIRONMENT. IN ADDITION, STEPS WERE TAKEN TO DEVELOP THE REGULATORY FRAMEWORK FOR STOCK MARKET AND NONBANK FINANCIAL INSTITUTIONS SUCH A PENSION FUNDS AND INSURANCE COMPANIES. THESE REFORMS HAVE FACILITATED THE DEVELOPMENT OF THE FINANCIAL SECTOR FOR THE KYRGYZ REPUBLIC ALONG MARKET-BASED PRINCIPLES.

HOWEVER, THE RECENT RUSSIAN FINANCIAL CRISIS AND THE COLLAPSE OF A MAJOR SOE (KYRGYZGAZMUNAIZAT) HAVE BROUGHT TO THE FOREFRONT SOME INHERENT STRUCTURAL WEAKNESSES OF THE FINANCIAL SYSTEM AND ITS EXCESSIVE DEPENDENCE ON THE BANKING SECTOR. THE COUNTRY'S PRIVATE FINANCIAL INSTITUTIONS CONTINUE TO BE SMALL AND VULNERABLE TO EXTERNAL SHOCKS. THE CAPITAL MARKETS DO NOT OFFER A

VIABLE ALTERNATIVE FOR MEETING THE LONG-TERM FUNDING REQUIREMENTS OF THE ECONOMY AND THE IMMEDIATE STRUCTURAL ADJUSTMENT COSTS EMERGING FROM THE RUSSIAN CRISIS. THE STOCK MARKETS LACKS BREADTH AND DEPTH, WITH MANY OF THE

LARGEST ENTERPRISES STILL IN THE STATE SECTOR BECAUSE IMPLEMENTATION OF THE PRIVATIZATION PROGRAM HAS BEEN SLOW. THE GOVERNMENT IS KEEN TO EXPAND AND STRENGTHEN THE FINANCIAL SECTOR WITH DIVERSIFIED INSTITUTIONS AND MARKETS THAT COULD INDUCE GREATER EFFICIENCY IN THE FINANCIAL INTERMEDIATION PROCESS, WHILE INTRODUCING AND ENFORCING INTERNATIONAL PRUDENTIAL NORMS AND REGULATORY STANDARDS TO IMPROVE RESILIENCE OF THE SECTOR.

B. PROJECT OBJECTIVES: THE MAIN OBJECTIVE OF THE PROPOSED PROGRAM WILL BE TO IMPROVE EFFICIENCY OF FINANCIAL INTERMEDIATION BY PROMOTING A SOUND, WELL- FUNCTIONING, AND RESILIENT BANKING SYSTEM, AND BROADENING AND DEEPENING CAPITAL MARKETS AS AN EFFECTIVE ALTERNATIVE MEANS OF LINKING SAVERS AND INVESTORS. TO REALIZE THIS OBJECTIVE, THE PROGRAM WILL FOCUS ON (I) RESTRUCTURING AND CONSOLIDATING THE BANKING SECTOR, (II) DEVELOPING THE GOVERNMENT SECURITIES MARKET, (III) FACILITATING THE DEVELOPMENT OF THE EQUITY MARKET, AND (IV) PROMOTING THE INSTITUTIONAL INVESTOR SECTOR.

C. EXECUTING AGENCY: THE MINISTRY OF FINANCE WILL BE THE EXECUTING AGENCY AND WILL BE RESPONSIBLE FOR DISBURSEMENT OF LOAN PROCEEDS AND THE PROPER MAINTENANCE OF RECORDS. THE NATIONAL BANK OF THE KYRGYZ REPUBLIC WILL BE THE IMPLEMENTING AGENCY AND WILL COORDINATE AND MONITOR THE IMPLEMENTATION OF THE PROGRAM. IA WILL CHAIR A STEERING COMMITTEE TO OVERSEE THE IMPLEMENTATION OF THE PROGRAM COMPRISING (I) THE MINISTRY OF FINANCE, (II) THE NATIONAL SECURITIES COMMISSION, AND (III) THE STATE INSURANCE SUPERVISION AUTHORITY.

D. PROPOSED BANK ASSISTANCE: PROPOSED BANK SUPPORT FOR THE GOVERNMENT'S FINANCIAL INTERMEDIATION AND RESOURCE MOBILIZATION PROGRAM COMPRISES (I) A PROGRAM LOAN OF $35 MILLION EQUIVALENT SUPPORTING POLICY REFORMS ENVISAGED UNDER THE PROGRAM; A (II) A TECHNICAL ASSISTANCE (TA) LOAN OF $1 MILLION EQUIVALENT FOR COMMERCIAL BANK AUDITS. THE PROGRAM LOAN, WHICH WILL BE PROVIDED FROM THE BANK'S SPECIAL FUNDS RESOURCES, WILL HAVE AN AMORTIZATION PERIOD OF 24 YEARS INCLUDING AN 8-YEAR GRACE PERIOD. IT WILL CARRY AN ANNUAL INTEREST CHARGE OF 1 PERCENT DURING THE GRACE PERIOD, AND 1.5 PERCENT THEREAFTER. THE TA LOAN, WHICH WILL BE PROVIDED FROM THE BANK'S SPECIAL FUNDS RESOURCES, WILL HAVE A 32-YEAR MATURITY INCLUDING AN 8-YEAR GRACE PERIOD. IT WILL CARRY AN ANNUAL INTEREST CHARGE OF 1 PERCENT DURING THE GRACE PERIOD AND 1.5

PERCENT THEREAFTER.

E. PROGRAM PERIOD AND TRANCHING: THE PROGRAM PERIOD WILL BE THREE YEARS. THE LOAN WILL BE RELEASED IN TWO EQUAL TRANCHES WITH THE FIRST TRANCHE AVAILABLE UPON LOAN EFFECTIVENESS. THE SECOND TRANCHE IS EXPECTED TO BE RELEASED BY MARCH 2001, SUBJECT TO SATISFACTORY IMPLEMENTATION OF THE AGREED CONDITIONS.

F. PROCUREMENT: PROCEEDS OF THE LOAN WILL BE UTILIZED TO FINANCE THE FULL FOREIGN EXCHANGE COSTS (EXCLUDING LOCAL DUTIES AND TAXES) OF ELIGIBLE ITEMS PRODUCED IN AND PROCURED FROM THE BANK'S MEMBER COUNTRIES, OTHER THAN THOSE SPECIFIED IN THE LIST OF INELIGIBLE ITEMS. EACH SUPPLY CONTRACT FOR ELIGIBLE IMPORTS THAT EXCEEDS THE EQUIVALENT OF $5 MILLION WILL BE AWARDED BY INTERNATIONAL COMPETITIVE BIDDING IN ACCORDANCE WITH THE BANK'S GUIDELINES FOR PROCUREMENT. EACH SUPPLY CONTRACT FOR ELIGIBLE IMPORTS EQUIVALENT TO $5 MILLION OR LESS MAY BE AWARDED THROUGH NORMAL COMMERCIAL PROCUREMENT PRACTICES FOR THE PRIVATE SECTOR OR GOVERNMENT'S PRESCRIBED PROCUREMENT PROCEDURES ACCEPTABLE TO THE BANK. PROCEEDS FROM THE LOAN WILL BE WITHDRAWN IN ACCORDANCE WITH THE BANK'S STANDARD DISBURSEMENT PROCEDURES.

G. CONSULTING SERVICES: THE TA LOAN WILL FINANCE THE PROVISION OF INTERNATIONAL CONSULTING SERVICES FOR AUDITS OF COMMERCIAL BANKS. THE SELECTION OF CONSULTANTS WILL BE IN ACCORDANCE WITH THE BANK'S GUIDELINES ON THE USE OF

CONSULTANTS.

3. FOR U.S. BUSINESSES AND CONSULTANTS: THE LOAN IS NOW AT A POINT WHERE, SHORTLY AFTER ADB BOARD APPROVAL, SHORTLISTED CONSULTANTS WILL RECEIVE A REQUEST FOR PROPOSALS, SELECTION OF AND CONTRACT NEGOTIATION WITH THE FIRM SUBMITTING THE BEST TECHNICAL PROPOSAL WILL BE COMPLETED, AND PREPARATION OF BID SPECIFICATIONS AND CONTRACT DOCUMENTS WILL BEGIN.

POTENTIAL EQUIPMENT SUPPLIERS AND CONTRACTORS SHOULD MAINTAIN REGULAR CONTACT WITH THE EXECUTING AGENCY AND ITS CONSULTANT SO THAT THEY MAY ACT QUICKLY WHEN TENDERS OR PREQUALIFICATION NOTICES ARE ISSUED. PROCUREMENT NOTICES AND PREQUALIFICATION ANNOUNCEMENTS ARE ALSO RELEASED BY THE U.S. COMMERCIAL ADB LIAISON OFFICE AND MADE AVAILABLE ON THE NATIONAL TRADE DATA BANK (NTDB) AND THE COMMERCE BUSINESS DAILY. THESE ARE ALSO PUBLISHED ON

THE ASIAN DEVELOPMENT BANK'S HOMEPAGE, http://WWW.ADB.ORG.