MANAGEMENT APPRAISAL OF SECTOR LOANS TO COLOMBIA

AUDIT REPORT IS BASED ON EXAMINATION OF PROJECT FILES, DISCUSSIONS WITH MISSION PERSONNEL, AND A 10-DAY FIELD TRIP TO SELECTED SITES. THE COLOMBIAN ECONOMY HAS REACHED A STAGE OF DEVELOPMENT WHICH OFFERS FULL SCOPE TO THE USAID POLICY OF A COLLABORATIVE AND NONDIRECTIVE TYPE OF ASSISTANCE AS EMBODIED IN THE COLOMBIAN SECTOR LOANS. ON THE RECEIPT SIDE OF SECTOR PROGRAM FUNDING, THE MISSION APPEARS TO OPERATE DEEP WITHIN THE GOC BUREAUCRACY. BUT ON THE EXPENDITURE SIDE, AT THE ACTIVITY LEVEL, THE MISSION ROLE IS LARGELY ONE OF NONINTERFERENCE. THE IMMEDIATE CHALLENGE IN COLOMBIA IS HOW BEST TO DEVELOP MORE MEANINGFUL MONITORING PROCEDURES THAN CURRENTLY PREVAIL. THERE IS A LACK OF HARD INFORMATION AT THIS TIME FOR MEASURING ACTUAL PERFORMANCE AGAINST TARGETS. IN ADDITION, AID"S SECTOR LOAN POLICY IS TOO IMPRECISE FOR MEASURING MISSION COMPLIANCE AND NEEDS REVISION. AUDITORS SUGGEST THAT A LESS COMPLICATED SECTOR LOAN APPROACH MIGHT FOCUS EXCLUSIVELY ON THOSE ACTIVITIES WITH WHICH AID CHOOSES TO BE ASSOCIATED. SECTOR LOAN FUNDS WOULD BE RELEASED THROUGH A REIMBURSEMENT PROCEDURE AGAINST AN AGREED PERCENTAGE OF ACTUAL GOC EXPENDITURES, OR EVEN THROUGH A PRO RATA BUT SIMULTANEOUS ADVANCE OF AID/GOC FUNDS TO DESIGNATED ENTITIES. SUCH AN APPROACH WOULD REDUCE THE NEED FOR MISSION TRACHNING OF AID FUNDS, AND FOR MISSION INVOLVEMENT IN GOC AFFAIRS. AS A CONSEQUENCE, THERE MIGHT ALSO BE A REDUCED NEED FOR MISSION STAFFING. MISSION WORKLOAD COULD ALSO BE REDUCED IF A LESSER NUMBER OF AUTONOMOUS AGENCIES WERE ELIGIBLE FOR SECTOR LOAN FUNDS, AND IF FEWER ACTIVITIES WERE IDENTIFIED TO RECEIVE COMMINGLED FUNDS. THE APPRAISAL RAISES SEVERAL OTHER ISSUES REGARDING SECTOR LOAN IMPLEMENTATION WHICH REQUIRE AGENCY ATTENTION. THESE INCLUDE THE QUESTION OF A PERMISSIBLE LEVEL OF LOCAL COST FINANCING, OBTAINING LOCAL CURRENCY BY DIRECT PURCHASE, AND THE VALIDITY OF THE "DOMESTIC SAVING GAP" CONCEPT AS JUSTIFICATION FOR LOCAL COST FINANCING.