Peru - Second Agricultural Machinery Project

~M- Ltg-zla P-65 RESTRICTED FLE COPY This report is restricted to use within the Bank. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON THE PROPOSED SECOND LOAN TO THE REPUBLIC OF PERU FOR THE IMPORTATION OF AGRICULTURAL MACHINERY March 29, 1954  INTERIATIOATAL BANK FOR REGO1iSTRUCTION AND DEVELOMIET REPORT AID RSO1i20ENFAT IONS OF THE PRESIDENT TO THE ESUTIVE DRECTORS ON A PROPOSE SECOM LOAN' TO THE REPTBLIC OF P1SU FOR THE IhIPORTATION OF AGRICULTURAL IIACHINERY. 1. I submit herewith a report and recommendations on a proposed loan of $1.7 million for the importation of agricultural machinery to enlarge the agricultural equipment pools operated by the Servicio Cooperativo Interamericano de Produccion de Alimentos (SCIPA), an agency of the Mllinistry of Agriculture of the Republic of Peru. PART I - HISTCRICAL 2. On July 8, 1952, the Bank made a lcan of 61.3 million to the Government of Peru (No. 67 PE) to finance L,iorts of agricultural machinery and equipment for operation by SCIPA. SCIPA-had initially discussed the possibility of obtaining a larger loan to finance equipment to be purchased over a three-year neriod, but, at the Bank's suggestion, agreed that it would be preferable first to finance the equipment kiich could be absorbed in about a year and to request a second loan wlhen the machinery financed by the first loan had been purchased and put intQ operatiQn. The bulk of the first loan was disbursed by the end of 1953, at which time the Government requested a second loan for further expanding SCIPAts operations. 3. In December, 1953, the Government of Peru reached an agreement vith the Council of Foreign Bondholders (London) on the terms of settlement to be offered to holders of defaulted sterling bonds. These terms wrere approved by the Peruvian Congress in February, 1954. Furthermore, a Supreme Decree, dated February 24, 1954, declared that holders of "E" bonds (dollar bonds given in exchange for sterling bonds to holders iho accepted the 1947 unilateral offer of the Government) wrere eligible to receive the terms given to holders of other series of dollar bonds under the settlement negotiated with the Foreign Bondholders Protective Council inc. (New York) and ratified by the Peruvian Congress ini January 1953. The Pepublic of Peru has thus negotiated settlements and made offers based on these settlements for resuming service on all government or government-guaranteed debt which has been in default. 4. A Bank mission visited Peru in January and February of this year .to bring up to date reports on the country's economic situation and on several projects previously presented to the Bank, including this project. PART II - DESCRIPTION OF THE PROPOSED LOAN Borrower 5. The Borrower would be the Republic of Peru, a member of the Bank. As in the case of the previous loan to Per-u for agricultural machinery (No. 67 PE) the project will be administered by SCIPA, a semi-autonomous  -2- agency of the ,Ministry of Agriculture, established in 1943 by the Peruvian Government and the Instittte of Inter American affairs of the United States Government to assist in the development of Peruvian agri- culture. The basic agreement establishing SCIPA -was renevred in 1