Private sector support program

The project is the centerpiece of A.I.D."s private sector development strategy for Zaire. To ameliorate foreign exchange shortages, $35 million in project funds (along with $13.5 million in local currency) will be made available for short- and medium-term loans to SME"s for imports of essential raw materials, spare parts, and equipment. Funds will be channeled in a Commodity Import Program-type process through commercial banks, which will establish terms for, and collect, loan repayments (in local currency) by SME"s; the banks themselves, however, will bear the credit risk. Long- and short-term TA will be provided to monitor the commercial banks" lending to the private sector and to identify further obstacles to private sector credit provision. A total of $5 million in project funds and $1.5 million in local currency will be provided for TA, studies, etc. to help the GOZ implement a financial sector reform program promoting commercial banking lending to the private sector. The program, which will be developed in close collaboration with the Bank of Zaire within the framework of the World Bank"s Financial Sector Adjustment Credit Program, will consist of: (1) basic covenants concerning GOZ continuation of stabilization and liberalization measures, especially regarding control of the deficit and liberalization of prices, interest rates, and exchange rates; (2) conditions precedent to the initial release of funds stipulating GOZ commitments to long-term financial sector development and to U.S. participation in the reform program; and (3) conditions precedent to subsequent releases of funds stipulating specific measures promoting domestic resource mobilization and allocation to the private sector by commercial banks. Two key measures are: (a) helping establish market-determined interest rates by promoting a more active money market among banks and other financial institutions; and (b) improving the incentives for banks to expand credit provision to private enterprise by mobilizing a larger share of national liquidity.