PRIVATE INVESTMENT FUND (LOAN COMPLETION REPORT)

EVALUATION, A LOAN COMPLETION REPORT, COVERS THE PERIOD 4/25/68 TO 4/15/76 AND IS BASED IN PART ON VISITS TO BENEFICIARIES. IN 10/68 A MILITARY GOVERNMENT TOOK CONTROL OF PERU, REVERSED THE FORMER REGIME'S PRIORITIES, AND ACCORDED THE PRIVATE SECTOR THE LOWEST PLACE. THIS, PLUS THE CONTINUAL REORGANIZATION OF THE ORIGINAL IMPLEMENTING AGENCY, THE CENTRAL BANK, RESULTED IN ONLY FIVE SUBPROJECTS BEING FINANCED 1968-71. ONLY ONE COMMERCIAL BANK PARTICIPATED DUE TO THE LOW INTEREST RATES ESTABLISHED UNDER THE LOAN AND THE COMPLEXITY AND RIGIDITY OF LOAN OPERATING PROCEDURES. ALTHOUGH A 1972 USAID-FINANCED STUDY SHOWED THAT AMPLE DEMAND FOR LOAN FUNDS EXISTED, IT WAS NOT UNTIL TRANSFER OF IMPLEMENTATION RESPONSIBILITY TO THE GOP'S DEVELOPMENT FINANCE CORPORATION (COFIDE, ESTABLISHED 1972) THAT SUBLENDING RECOMMENCED. EVEN THEN PROGRESS WAS SLOWED BY PROCESSING BOTTLENECKS, ESPECIALLY REGARDING LOAN ELIGIBILITY CRITERIA AND BY COFIDE'S FAILURE TO COMMIT SUFFICIENT FUNDS TO APPROVED SUBPROJECTS. ONE SUBPROJECT HAD TO BE CANCELLED. AS A RESULT OF ALL THESE FACTORS, 80% OF LOAN FUNDS WERE DEOBLIGATED. ONLY $1.5 MILLION OF ORIGINALLY ALLOCATED $7.5 MILLION WAS ULTIMATELY DISBURSED. GOP DISBURSED $1.8 MILLION OF THE SAME AMOUNT ALLOCATED. NINE SUBPROJECTS WERE FINANCED. OF THE FOUR SUBPROJECTS VISITED, THE TWO FOR PURCHASING AIRCRAFT -- ONE TO TRANSPORT PASSENGERS AND BEEF, THE OTHER FOR A FUMIGATION SERVICE FOR AGRARIAN REFORM FARMERS -- WERE DOING WELL, ESPECIALLY THE FORMER. A THIRD SUBPROJECT, A FEEDER MILL, EXPERIENCED ADMINISTRATIVE PROBLEMS AND HAD TO OBTAIN A LOAN FROM THE INDUSTRIAL BANK TO REPAY THE PIF; WHILE A FOURTH, A PRODUCER OF VETERINARIAN PRODUCTS, HAS FALLEN IN ARREARS WITH PIF PAYMENTS. OF OTHER SUBPROJECTS, TWO ARE ALSO IN ARREARS, BUT PAYMENTS ARE BEING MADE BY INTERMEDIATE CREDIT INSTITUTIONS. USAID WILL CONTINUE TO MONITOR LOAN AGREEMENT COVENANTS REGARDING CONTINUING COOPERATION, TAXATION, DISCLOSURE OF MATERIALS, MAINTENANCE AND AUDIT OF RECORDS, AND INSPECTIONS.