Evaluation of El Salvador 519-HG-006 A and B

Flawed assumptions and inadequate institutional analysis in the Project Paper (co-authored by the evaluator) led to unrealistic targets which were in fact not met. The HG built and financed shelter products for only 6,023 low-income people (25% below target), disbursement took 6 years and not 18 months as planned, and sites and services projects replaced the planned home improvements. Still, the HG met two of its three institutional goals - it redirected resources to the poor and expanded low-cost housing services in secondary cities. Interest rates, however, were not rationalized. The parastatal Fondo Social Para La Vivienda (FSV), which lends to the poor at 4-6%, was allowed to enter the HG in 4/86 to speed disbursement of remaining funds, even though its rates undercut those of other institutions (and even though the GOES originally borrowed HG funds at 14%). Overall, interest rates have ranged from 4-6% to 12%. The project's main problem was the technical inability of its implementing agencies. The Urban Housing Institute (IVU) takes 2-3 years to design and implement reasonable housing projects and is unable to prepare the budgets, work plans, etc., required by A.I.D. (a coordinating unit had to be formed within IVU to do its HG work). Totally dependent on the GOES for funds, IVU is disorganized, wholly lacking in management stability, rife with corruption. It remained in the HG only because it is the one housing institution with an interest rate (12%) approaching commercial levels. CASA, a savings and loan association and another major implementor, borrowed HG funds for two projects. In one, CASA could marshal eligible mortgages for only two-thirds of the funds it had borrowed (other buyers apparently obtained loans from FSV). The other project was not completed due to guerilla activity, the proximity of illegal communities offering cheaper land, and unexpectedly high sewerage costs. Disbursement was also delayed by the lengthy GOES budgetary process and the frequency with which the GOES went into arrears, automatically freezing the transfer of HG funds. The HG program should continue in El Salvador - if only to remind the GOES of the cost associated with foreign aid. It is recommended, however, that Economic Support Funds be used to provide the advances needed by implementing agencies in this institutionally unstable country; this would also help lower interest rates. Also recommended is the formation of project units (to be managed by expatriate advisors) in each implementing agency.