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Moldova is a small country, a little bit bigger than Armenia. It is located between Romania and Ukraine and it has a population of approximately 4.5 million. The main part of the population are ethnically Romanians, we also call them Moldavians. The state language is Romanian and other people are usually Russian speaking. Russian, Ukrainian and others create some additional difficulties because in a small country we have education in two languages. This reduces the number of textbooks printed in one language.
First a little bit about the background situation in Moldova under which we have implemented the rental scheme. There is a chronically under-developed banking sector. We have a large number of banks in the capital but in the country side there are only two banks which are developed to the necessary standard. It was quite a difficult problem to select a bank for our rental scheme and it was agreed the money should be kept in Chisanau (the capital) in one account.
The next restraint is high currency risks. The Moldovan lev was quite stable during the first five to seven years of independence but after the Russian crisis in August 1998, the lev depreciated almost as much as the ruble and this created huge difficulties for the rental scheme. The money collected in September 1998 depreciated twice. Therefore the money which was meant to reprint a certain number of books will not be enough. Funds available from the rental scheme will cover only half of these textbooks.
Another issue is the restrictive currency regulation of the national bank. We are not allowed to exchange our accumulated national funds into hard currency. This is understandable from the point of view of the national bank as they are trying to protect the national currency and to keep it stable but this also caused many problems for the rental scheme.
Another issue is low income. Research from the World Bank shows that 80% of the population earns less than $2 per day.
Short print runs are another issue of concern. Due to the fact that it is a bilingual country even this small amount is divided into two, about 60% Romanian schools and 40% other schools. There are also other minorities who require additional textbooks in their language, for instance Bulgarians want to have Bulgarian language textbooks; Ukrainians want theirs and so forth. These print runs are very small which results in very high unit costs.
The Armenian rental scheme model was implemented in Moldova. The structure is similar - we have a bank account that is separated into sub-accounts for each individual school. These schools are collecting money and transferring it into the main bank account and it arrives into the sub-account of each individual school. We managed to create an NGO as an affiliate to the Ministry of Education. This required extra budgetary fund which creates a tremendous problem. Due to the fact that this is an affiliated fund to the Ministry, this textbook fund account was integrated to the treasury system of Moldova, and thus into the Ministry of Finance.
We made some efforts to solve this problem and we managed to convince the Ministries of Finance and the Treasury to keep this money separated from all other funds. We have a physically separate bank account and the Ministry of Finance does not have access to it so the Treasury is just supervising this account and I think this is a more or less satisfactory solution.
With regard to the money collection system, it is similar to Armenia except that each individual school does not have real access to its sub-accounts so payments cannot be made from these accounts. There is one bank account for all schools but the fund manager keeps records of each sub-account and at the end of the year if there is any accumulated interest, it is allocated to each school account based on the amount collected in this sub-account and the time this money has resided in this account.
This textbook fund was created by a governmental decree affiliated to the Ministry of Education so the same government decree established how this rental scheme should operate. It recommended that books are used for 4-5 years. Projections are made without any idea of what the actual macroeconomic situation might be.
Nonetheless we first tried to analyse the existing situation and created a cash flow model linking up reprints with revenues. A small number of textbooks were introduced into the scheme initially and it is increasing gradually. In the last year, a large number of textbooks were introduced into the rental scheme. About 60 titles were meant to be printed last year.
We have a huge amount of money exposed to currency risk which is the major disadvantage of this set-up.
It was decided that money would be invested in Treasury bills to make sure that by taking it out of the Treasury bank account nobody can put their hands on this money. Treasury bills in Moldova often earn good interest. In the first half a year, however, the scheme they did not earn interest because no fund manager could put a signature on the bank order to transfer money to buy Treasury bills.
Even to invest in treasury bills was still quite risky after the Russian crisis. The Moldovan government promises that nothing will happen to Treasury bills but we still had some doubts. We therefore recommended that this money be reinvested in textbooks right away. Of course this meant producing textbooks before they actually were needed; one or two years early. This required revision of the production plan of textbooks. One benefit is that this actually gives us a smooth production plan over the year.
Many textbooks are replaced in the last year of the cycle so those books that are printed one or two years ahead are actually around for six years. This creates some additional problems for curriculum revision and to making changes to the textbooks. So financially it is prudent but educationally it reduces flexibility. There are also storage facility requirements. We recommend that textbooks not be printed more than two years ahead of usage and that these are re-introduced into the rental scheme.
While a difficult process to implement from a financial point of view there are some distinct advantages. We do not have a big cash balance in the bank which means low currency risk, low investment risk and textbooks never disappear. In case the financial system of Moldova collapses again it would be easy to revive the rental scheme because we still have books in the warehouse that can be rented rent out again. Of course, all the above applies to a country with an unstable currency and exchange restrictions.
This World Bank project is printing about 130% of the demand; 100% going to the schools and about 30% remaining in the warehouse as a reserve. This is required to replace damaged textbooks at the end of the year. Parents have to pay the full cost of replacing the textbook if it is lost or damaged. Parents are paying so as to enable the reprinting of reserve textbooks.
Textbooks are printed in Moldova by local publishers. As in Armenia, this rental scheme gave a strong push to the Moldovan printing industry as well as the publishing industry. Publishers, together with authors, are developing new textbooks and it seems to be working well. A few textbooks are printed outside the country but these are mostly English, French and other foreign language textbooks. However, Romanian and Russian textbooks are printed in Moldova. The government policy is to create Romanian textbooks first and then translated into Russian.
In secondary schools and advanced education there is more freedom for using alternative textbooks; however, poor countries do not have a lot of choice primarily due to lack of alternative materials. In wealthier schools parents pay the teachers’ salaries because the government is unable to pay the monthly salary. Parents pay for books which are not textbooks and not necessarily linked to the curricula of the Ministry of Education in Moldova. All such books are invariably imported from Romania. Few if any are part of the rental scheme.
On the question of partial introduction of a rental scheme, imagine that you are in a country where there are two schools that can introduce it and people are used to buying books for the children so half the parents would say no that they want to buy as they want the best education for their children and the best textbooks and they can afford. So you have half the class buying. Next time it will be 30% then 60% and the finance of the scheme will become very shaky indeed. You would have to set a higher rental fee to allow for this fluctuation so this is a little bit difficult in this respect.
Comparisons of the five case studies show differences in industry context. In Armenia a publishing industry as such did not actually exist and the books are being developed now the same is true in Moldova. You could go out and buy a book from a Romanian publisher but it would not match the Moldovan curriculum. In our two African countries the comparison is very different. In Lesotho the books are being bought from foreign publishers and they are books which already exist. The Gambian books are books that have been specially developed for the Gambia. In Barbados these are books which are available throughout the West Indies and beyond. Are we talking about creating a rental scheme or are we talking about creating first of all the publishing industry on which the rental scheme can live. The bulk of the Eastern European and Central Asian countries which we are thinking about there is no publishing infrastructure so that while we are talking about rental scheme we are talking about building a publishing industry which eventually should provide a choice of books and will enable schools to operate their own individual school rental schemes. But to jump from a single monopoly state publishing house which is producing books that are absolutely rigid and are used throughout the system to book choice from a book trade where the books can be purchased by schools holding their own funds and bringing money in from parental contributions and running their own rental schemes. We are talking about a quantum leap.
Frances Pinter: - Is there any precedent where these fiscal and legal issues have been addressed, that is where a World Bank project comes along and it is very clear that there is a particular law that makes it impossible to safeguard the financial health of the project, for example this issue of not being allowed to hold the funds in hard currency, that would so easily eliminate a large part of the risk at no real cost to the government. There are all sorts of reasons why the government would not wish to make such an exception but is there any precedent of having persuaded the government to break its own laws or change them to make it possible?
Theo George - In the Gambia the bank was able to come to terms with the government and for the textbook reporting fund to have access to hard currency any time we need. All we would need to do is approach the central bank and they would make the currency available, if the commercial bank had it. But it was more or less a condition for the effectiveness of the loan.
Frances Pinter - Yes it was a condition, but did it require a change in the law? I am looking for a precedent where it was possible to actually change the law or create an exception to the law.
In most cases the revolving fund itself does not require a change of the legislation. But certainly issues were raised at appraisal stage and recognized that there was a need for a change in the law which triggered the creation of the NGO to manage the fund. In nearly every country a change in the law effecting import duties or taxes is essential because the difference in imported paper is often up to 40%. Therefore it is a big issue and one would have to go right to the top of the Ministry of Finance with the World Bank people and with their help in order to get the right decision. The success rate is probably about 25%. Certainly other countries have waived taxation and import duties on paper. During the execution of the World Bank project we have made some changes to the law, specifically on value added tax matters.
Now the question of the ‘gold mine’. People want to take money out of the rental scheme. In Moldova this is true even though the money is in the state treasury. As the money is in a separate bank account we are sure that the government will not be able to get its hands on it. The weakness of the system is that it is an affiliated fund to the Ministry of Education and they have a lot of influence. For this reason we have recommended that the administration, supervision and control system of the textbook rental scheme is independent. While money is kept in the central account, the rental scheme itself is decentralized. All the major decisions are made in schools. The school is the body that manages the rental scheme. We also propose that commitment by the school should actively be promoted. It is the school’s business to collect the necessary funds and ensure that the correct number of books is ordered. And later on it will be the school’s business which textbooks to buy although at the initial stage only those textbooks which were printed within the framework of the World Bank project will be used and included in the rental scheme.
A decentralized textbook rental scheme has the following major advantages: more parents are involved in the decision making process which is very likely to increase people’s confidence in the rental scheme which is very important also. Also the textbook rental scheme is more orientated to specific needs of each individual school because the school is taking decisions for itself. And having more confidence in the rental scheme, parents are more likely to actively to contribute to rental fees.
We have proposed that parents decide the amount of rental fees to collect. The fund manager together with the supervisory board of the textbook fund develop and recommend the minimum level of rental fees based on calculations and forecasts and projections. But the school knows that they have to collect a certain amount of money. We look at the school as a small community of people which have common interests, to give their people an education.
The next issue is subsidies. When we started working on this rental scheme there was an assessment of the poverty level in Moldova that said that about 20% of people in Moldova are below the poverty line. The government decided to provide subsidies to 20% of pupils. These were to be paid by regional governments. We recommended that a special committee be created at the regional level who will distribute these subsidies because this poverty analysis has shown that in rural areas people have lower incomes than those in towns or cities.
In the initial stage we did not allow alternative textbooks. Later on alternatives should be allowed by the Ministry of Education. Our major argument with our government was that to select only one textbook by an evaluation committee inevitably introduces a certain amount of subjectivity. It may happen that a very good book may not be accepted into the rental scheme and in that case the publisher can take the risk to print just sell them on the market. This has already happened in Moldova where one publisher considered his book to be much better and they have all been sold. So in the end the government was left with a lot of unwanted textbooks in stock. This formed the basis of our argument in favour of alternative books in the scheme.
Poverty assessment in Moldova has shown that most of the population was really limited in their ability to afford rental fees and therefore we had to stick to core textbooks which means that some major subjects listed here, like mathematics, literature, language, physics, chemistry and so forth, rather than music or arts.
Another issue that arouse was the sharing of textbooks amongst children. We found real opposition from the government on political grounds. The aim of the rental scheme is to provide each individual pupil with a set of textbooks. However, if this is unaffordable then this can be a solution. Nonetheless, it must be remembered that this will generate less funds for future printing.
An interesting issue is the life of the textbook, which we covered in our research. We noticed that some textbooks are very intensively used and others less so. Pupils have lessons in maths and language every day and they take the books home and back to school every day. Other textbooks might be used once or twice a week so this led us to conclude that these textbooks should have a different useful life span in the rental scheme. It was recommended that we reduce the life expectancy of language and maths textbooks. While they might be intended for use over four or five years they normally do not look very good after two or three. In the latter years printers tend to reprint new textbooks which parents can then always buy on the market. This is not good for the rental scheme. So we recommended to reduce the expected life span of these heavily used textbooks.
Regarding technical specification, our aim was to reduce cost or to increase the useful life of the book. All the textbook experts told us that we would never increase the life of the textbook in the specification so we have recommended that in the higher grades we keep the textbook simple by reducing colour textbooks or black and white and using lighter paper.
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