The Lebanese government signed a $71 million grant agreement with the World Bank on Friday to support the reconstruction effort following this summer's war with Israel.

Nov. 04, 2006- The trust fund, approved by the World Bank's board of governors in September at the annual IMF/World Bank financial summit, has been allocated from the Bank's surplus so it does not exacerbate the public debt burden.

A large portion of the funds were earmarked for a $30 million municipal grant, which acting Interior Minister Ahmad Fat Fat formally received on Friday. The director of the World Bank MENA branch insisted that no conditions are attached to the grant and that the government will retain full discretion over the disbursement of funds.

"There are no restrictions whatsoever with respect to government policies and all conditions, contracts and management teams have already been appointed for past World Bank projects," Joseph Saba told reporters at the Finance Ministry.

He added the latest municipal grant will be administered by the same team responsible for an earlier World Bank municipal initiative, valued at some $80 million.  

Saba also emphasized the World Bank's faith in existing institutions in Lebanon.

"The municipal grant is going to a team that's already moved $80 million and we're quite satisfied with them," he said. "We are trying to build capacity in existing institutions not create new ones."

A separate $1 million grant from the Bank's post-conflict fund will be used to help agencies that do need assistance, such as the Council for Development and Reconstruction, to adopt better procurement techniques and streamline their administrative procedures to accurately trace reconstruction pledges, said Saba.

At the request of the Lebanese government, the Bank has compiled an Economic and Social Impact Assessment, the results of which will be released in two weeks.

The survey evaluates the overall socioeconomic toll of the war by estimating damages throughout more than a dozen 12 sectors. It also offers recommendations to the government on how to move forward with the economic reform plan it presented to the IMF in July, before the war.

Part of the remaining $40 million will be given to the private sector branch of the Bank, the International Finance Corporation (IFC), to rehabilitate small and medium enterprises and create a program to boost private sector performance through the elimination of administrative barriers. A portion of the money will cover the government's co-financing obligations - averaging 25 percent of total costs -for the six World Bank projects that are already under way in Lebanon. The remaining funds will go for government projects in the municipal, electricity and water sectors in the most heavily damaged regions of Southern Lebanon.

A World Bank official attending the news conference said Lebanon is the only middle-income country to receive a grant of this magnitude from the Bank's surplus. "The bank doesn't give grants like this, after the Tsunami Indonesia only got $25 million. Its going to be a litmus test of reforms in the region," the official said.