Audit of private sector support program and PL-480 local currency generations USAID/El Salvador

Audit covers the period 1/83-12/84 and is based on review of project documents and a random sample of import transactions and on interviews with USAID/E, Government of El Salvador (GOES), and importer personnel. The program has helped to stabilize the Salvadoran economy - a decline in real gross domestic product which began in 1979 was arrested in 1983, and an estimated growth rate of 1.5% was achieved in 1984. However, USAID/E has failed to establish a centralized monitoring procedure to document and verify GOES compliance with program agreements regarding local currency. As a result, in 11/84 the Mission reported to AID/W only one area of noncompliance, when in fact there were five areas in which the GOES had not fully complied. (In most cases, the GOES had been unable to comply because of unrealistic assumptions or insufficient resources.) There were also six other areas, not subject to statutory reporting, in which the GOES had not achieved compliance (prior to issuance of the audit report the GOES had complied with five and action had begun on the sixth). Many ineligible import transactions were attributed to A.I.D. disbursements in 1982 because of inadequate selection procedures. The Central Bank is now improving its procedures in this regard. USAID/E has been helping the Bank improve its price-checking system, aimed at preventing capital flight through overpriced imports and underpriced exports, through a contract with Arthur Young and Co., and does not believe that capital flight is currently a problem. There have been a few deficiencies in the management of ESF and P.L. 480 currencies, including the practice by bank agents of delaying the deposit of P.L. 480 proceeds into GOES special accounts and retaining interest income earned during the interim; use by the Central Election Council of some ESF counterpart funds for ineligible purposes; and unreconciled local currency bank accounts. Overall, GOES internal controls have been adequate, and, in fact, have improved significantly since 1980. All 11 audit recommendations were closed upon issuance of the report because of corrective action by USAID/E.