Investment promotion insurance system

The evaluation covered the period 1986-10/91. The program is highly innovative and essentially cost free. At present it provides about C1.2 billion of coverage on agroindustrial and industrial assets, coffee and sugar stocks, and public transport buses. Premiums and interest income on C15 million held in commercial banks have more than offset indemnities since the program"s inception. The leverage can safely be increased from the current 4 to 1 ratio to 6 to 1 without reinsurance and 8 to 1 with reinsurance. A reserve of C287 million is being held by the Central Bank in non-interest bearing accounts, and is being rapidly eroded by inflation. Once the reserve is held at interest, it can be reduced to about C150 million, with the remaining funds used to pursue other development activities. The program is still needed despite the ongoing peace process. Politically motivated attacks continue to occur, especially in the highly exposed coffee and sugar industries. The Mission needs to strengthen its oversight of the Central Bank and the pool of insurers. Already these bodies have made significant modifications in the program to include fire coverage on coffee, sugar, and cotton and a reduction of the deductible to 1% without consulting with or seeking approval from the Mission. This is the first A.I.D. program to work with the insurance industry, despite the fact that insurance companies are one of the largest sources of long-term development capital. There are opportunities to be explored both in El Salvador and other developing countries to involve the industry in innovative financial sector programs. As a result of the evaluation, the Mission moved quickly to curtail the practice of changing the terms and scope of available insurance without first consulting the Mission. The Mission also intends to move quickly to reprogram excess reserve funds for other development activities.