Review of USAID/Guatemala"s exchange rate practices

Limited scope audit covers the period 11/84-9/85. Methodology is not given. In FY85, USAID/G spent $4.1 million more than necessary by exchanging dollars for quetzals at the official rate (1: 1) rather than at the parallel rate instituted by the Government of Guatemala (GOG) in 11/84 (initially 1: 3.39, but 1: 3.75 by the end of FY85). USAID/G disbursed about $7.5 million (95% in loan, 5% in grant) to the GOG at the official rate, when $3.4 million at the parallel rate would have been adequate. In addition to having serious adverse fiscal impact on the U.S. Government, USAID/G"s currency exchange practices contravened A.I.D."s rights under a bilateral agreement which gives favorable trade treatment (including access to the more favorable currency exchange rate) to government-to-government loan and grant projects. USAID/G acceded to the GOG position that USAID must use the official rate without documenting its decision, calculating its potential fiscal impact, referring to the bilateral agreement, or consulting cognizant A.I.D. sources. USAID/G also modified standard project agreement language concerning currency exchange to accommodate the GOG; as a result, 16 A.I.D. projects having a total commitment of $68 million could cost substantially more to implement than would otherwise have been the case. It is recommended that USAID/G officially notify the GOG that it will no longer exchange dollars supplied by A.I.D. under project agreements at less than the the parallel rate.