Peru - Debt and Debt Service Reduction Loan (DDSR)

 ICRR 10131 Report Number : ICRR10131 ICR Review Operations Evaluation Department 1. Project Data : OEDID: OEDID : L4133 Project ID : P040123 Project Name : Debt and Debt Service Reduction Loan (DDSR) Country : Peru Sector : Other Non-sector Specific L/C Number : L4133 Partners involved : Export-Import Bank of Japan Prepared by : David Greene (Consultant), OEDCR Reviewed by : Robert Buckley Group Manager : Ruben Lamdany Date Posted : 07/17/1998 2. Project Objectives, Financing, Costs and Components : This operation provided US$ 183 million, which combined with US$ 50 million set aside from the Pension Reform Adjustment Loan (L4134-PE), US$ 100 million co-financed by the Export-Import Bank of Japan, and parallel financing by the IMF and IDB, helped Peru purchase the collateral required to implement a DDSR agreement with commercial banks. The objectives of the Loan were to reduce the burden of future debt service and thus help realize the benefits of Peru's economic reforms . 3. Achievement of Relevant Objectives : The DDSR agreement made possible by this loan resulted in a reduction of debt service equivalent to 11% of total public and publicly guaranteed debt (plus interest forgiveness). The present value of cash flow savings was estimated at US$ 2 billion, given an internal rate of return of 27%. The interest risk was reduced by conversion of 85% of eligible debt after buyback into fixed rate instruments for the next 10 years. 4. Significant Achievements : Conclusion of the DDSR program improved Peru's standing in the international financial market, contributing to an increase in foreign direct investment and improved terms on new external borrowing . 5. Significant Shortcomings : none. 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Highly Satisfactory Highly Satisfactory Institutional Dev .: Substantial Substantial Sustainability : Likely Likely Bank Performance : Highly Satisfactory Highly Satisfactory Borrower Perf .: Highly Satisfactory Highly Satisfactory Quality of ICR : Exemplary 7. Lessons of Broad Applicability : DDSR operations can provide valuable assistance in reducing future debt obligations, but the quality of the country's reform program and the government's commitment to sustained implementation are critical . 8. Audit Recommended? Yes No 9. Comments on Quality of ICR : The ICR is highly satisfactory .