Rwanda AEPRP : policy reform initiatives in manufacturing and employment

The project consists of a $10 million cash transfer and $2 million for related TA and studies and will be implemented by A.I.D. and a GOR interagency policy committee. Budgetary support for the GOR"s economic and policy reform program will be provided in three roughly equivalent tranches. The first tranche will supplement the Rwandan Development Bank"s (BRD"s) local currency line of credit to SME"s. At the same time, the GOR will revise the Investment Code to lower eligibility requirements and to extend preferential treatment to SME"s for access to the underutilized Guarantee Fund which was established by the BRD to help enterprises meet collateral requirements; changes in the Investment Code will be publicized to increase use of the Guarantee Fund. A second tranche will capitalize an Equity Participation Fund within the BRD which will extend credit to private Rwandan investors interested in purchasing shares in parastatals selected for privatization by the GOR. The third tranche will provide budgetary support to help cover losses in tax and tariff revenues which the GOR will incur (and which could reach $12 million over 2 years) from a proposed program of pricing and tariff reform (such as repeal of 1983 measures calling for prior price approval, relaxation of cost and price reporting procedures, and elimination of some import restrictions) designed to provide SME"s with production incentives. The TA component will finance studies and activities in support of the reform program, specifically: an industrial incentives study; analysis of household budget survey data; policy reform/divestiture studies on the relative merits and prospects of individual parastatals; staff support for the BRD; in-country, U.S., and third-country training for GOR managers; and monitoring and evaluation. Amendment of 4/19/91 changes the conditions precedent for the disbursement of the third and final tranche. The GOR will: (1) devalue the Rwandan franc; (2) revise commercial interest rates to provide for a minimum deposit rate of 12% and a maximum borrowing rate of 19%, and abolish preferential interest rates for various categories of loans; (3) eliminate export taxes, except for coffee; (4) increase import taxes from 5% to 10%, including taxes on previously exempted intermediate goods; and (5) make business taxes more equitable and predictable. An equivalent amount of local currency will be used by the GOR to promote the private sector. (PD-BCA-882)