Municipal development bank II

PES summarizes a special evaluation (not attached) covering the period 5/80-9/82, and describes improvements that occurred through 3/83 as a result of that evaluation. By 8/82, BANMA had essentially complied with covenants regarding financial resources and subproject (SP) implementation, but had defaulted on other issues. By 3/15/83 interest rates had been revised to permit higher rates on loans to better-off municipalities; an SP evaluation program had been set up; and a personnel policy was prepared to assure retention of qualified professionals. A credit manual setting standards for SP eligibility was developed. Financing is now being provided to municipalities with only one-third of the revenue of those previously benefited, although other measures to benefit poorer cities, such as reduced interest rates and extended payment periods, have not yet been taken. Implementation is far behind schedule; as of 9/30/82, funds were earmarked or committed for only 13 (of 100 planned) construction SP"s and only 8 (of 24) administrative reform SP"s. No specific labor-intensive projects were designed and a BANMA unit for training municipal employees was not established. SP delays are due largely to political uncertainties and officials" reluctance to make commitments before impending elections, and to the inability of poorer municipalities to produce acceptable designs for infrastructure SP"s; BANMA now plans to include design costs in approved SP"s. BANMA is somewhat reluctant to fund SP"s in areas other than administrative reform, and it should be motivated to finance more health and nutrition SP"s. High delinquency rates in both this project and its forerunner may result from prematurely allowing BANMA to operate on its own. Lessons learned are: institution building is a long process; careful monitoring and extended expert support are essential for infrastructure SP"s, and skeletal or modular designs for these SP"s should be considered; and financial institutions must take immediate actions on delinquent payments and analyze the causes thereof.