Colombia - Second Irrigation Rehabilitation Project

Dommt of The World Bank FOR OMCIAL USE ONLY 042. 2GC& G- CO Report No. P-4210-CO REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO USt1l4.0 MILLION TO THE COLOMBIAN INSTITUTE FOR HYDROLOGY, METEOROLOGY AND LAND IMPROVEMENT (HIMAT) WITH THE GUARANTEE OF THE REPUBLIC OF COLOMBIA FOR THE IRRIGATION REHABILITATION II PROJECT February 27, 1986 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURREC EQVET Currency Unit = Colombian Peso (Col$) ColS172.37 = US$1.00 (December 31, 1985) WEIGHS AND MEASURES Metric System FISCAL YEAR January 1 - December 31 GLOSSARY OF ABBREVIATIONS BOR - Banco de la Republica (Bank of the Republic (Central Bank)) CAJA - Caja de Credito Agrario, Industrial y Minero (Caja Agraria) (Agricultural, Industrial and Mining Credit Bank) DNP - Departamento de Planeacion Nacional (National Planning Department) FEDEARROZ - Federacion Nacional de Arroceros (National Federation of Rice Groiyers) FFA2 - Fondo Financiero Agropecuario (Agricultural Financing Fund) RIMAT - Instituto Colombiano de Hidrologia, Meteorologia y Adecuacion de Tierras (Colombian Institute for Hydrology, Meteorology and Land Improvement) ICA - Instituto Colombiano Agropecuario (Colombian Agricultural Institute) IDEMA - Instituto de Hercadeo Agropecuario (Institute for Agricultural Marketing) INCORA - Instituto Colombiano de la Reforma Agraria (Colombian Institute for Agrarian Reform) INDERENA - Instituto Nacional de Recursos Naturales Renovables (National Institute for Renewable Natural Resources) OPSA - Oficina de Planemiento del Sector Agropecuario (Planning Office for the Agricultural Sector) SENA - Servicio Nacional de Aprendizaje (National Apprenticeship Service)  FOR OFFICAL USE ONLY COLOMBIA IRRIGATION REHABILITATION II PROJECT LOAN AND PROJECT SUMMARY Borrower: The Colombian Institute for Hydrology, Meteorology and Land Improvement (HIYAT) Guarantor: Republic of Colombia Amount: US$114.0 million equivalent Terms: 17 years, including four years of grace at the standard variable interest rate. Project Description: The project is part of the Government's efforts to revitalize the agricultural sector and to improve the economic efficiency of public sector institutions. At the subsectoral level, it is part of the strategy to rehabil- itate existing irrigation facilities and to construct small-scale irrigation schemes before investing in large new irrigation districts. It aims to maximize returns on past investments and to improve the generation of funds for future operation and maintenance of the irrigation network. The project is a follow-up to the Irrigation Rehabilitation I Project (Loan 1996-CO). The main project objectives are to: (a) increase crop production on 108,000 ha in six districts, through rehabilitation and improved technical and extension services leading to more intensive land use; (b) improve the incomes of some 3,900 poor farmers located on about 7,800 ha in the foothills of the Andes and in the savannah country of Northern Colombia through small-scale irrigation development; (c) partially restore the agricultural production base in the area affected by the recent volcanic disaster through recon- struction and addition of irrigation facilities; and (d) improve the sustainability and replicability of public irrigation investments through full recovery of operation and maintenance costs and the building up of water users' associations. Project beneficiaries would be some 10,800 farmers, of which over 50Z have incomes belor the poverty level. The average beneficiary per capita income of about US$1,060 before the project is expected to rise to about US$1,940 at full development. Project Risks: The major risk is that beneficiaries would be slow to adopt technological changes including land levelling, thus delaying or reducing project benefits. Based on the experience under the first rehabilitation project, how- ever, this risk can be overcome through technical assist- ance, training and access to credit, all of which are features of the proposed project. This document has * restrcted distribution and may be used by recipients only in the performance I of their official dutios Its contents may not otherwise be disclbsed without World Bank authorizaion.  - ii - 'Estimated Project Costs: Local Foreign Total -US$ million o Civil Works 39.7 33.9 73.6 Equipment 0.8 8.8 9.6 Medium-Term Credit 28.2 16.4 44.6 Incremental Working Capital'/ 11.9 6.0 17.9 Small-Scale Irrigation 5.8 5.0 10.8 Armero Development Program 10.4 8.8 19.2 Other 18.7 4.1 22.8 Base Cost 115.5 83.0 198.5 Physical Contingencies 6.6 5.6 12.2 Price Contingencies 21.4 25.4 46.8 Total Project Cost 143.52/ 114.0 257.5 Financing Plan: Bank Loan - 114.0 114.0 Government 59.9 - 59.9 Banking System 54.1 - 54.1 Beneficiaries 29.5 - 29.5 Total Project Cost 143.5 114.0 257.5 Estimated Disbursements: Bank FY 1987 1988 1989 1990 1991 1992 1993 1994 -US$ million Annual 5.7 8.0 18.2 21.7 21.6 17.1 11.4 10.3 Cumulative 5.7 13.7 31.9 53.6 75.2 92.3 103.7 114.0 Economic Rate of Return: 28%. Staff Appraisal Report: Report No. 5954-CO, dated February 28, 1986. Ma: IBRD No. 19223 - Project Location. 1/ Short-term agricultural credit on the basis of farm models. 2/ Includes US$1.1 million in taxes.  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE COLOMBIAN INSTITUTE FOR HYDROLOGY, METEOROLOGY AND LAND IMPROVEMENT (HIMAT) FOR THE IRRIGATION REHABILITATION II PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Colombia for the equivalent of US$114.0 million to help finance the Irrigation Rehabilitation II Project. The loan would have a term of 17 years, including four years of grace, with interest at the Bank's standard variable rate. PART I - THE ECONOMY _/ 2. An economic mission visited Colombia in July 1982 aid its report (4444-CO) was distributed to the Executive Directors in August 1983. A mission to review the external sector and agriculture visited Colombia during April/May 1983, and its report (4981-CO) was distributed to the Executive Directors in April 1984. Macroeconomic policies were also reviewed in the President's Report (P4055-CO) for the Trade Policy and Export Diversification Loan of May 2, 1985. Country data sheets are presented in Annex I. A. Background 3. The Colombian economy has made considerable progress since the early 1950s, evolving from a largely agricultural and rural base, integrated and industrialized, into one that is more open. The growing economic activity, rapid rural-urban migration, increased participation of women in the labor force, and expanded public services have contributed to reductions in poverty and improvements in income distribution. Financial and capital markets have evolved pari passu with the growing needs of the economy, and the country has become an active participant in international capital markets. The state enterprises are few, follow adequate pricing policies, and many have some form of private sector participation. The country's energy balance has been changing in recent years and the country is expected to become a net petroleum exporter in 1986 and, increasingly, an exporter of thermal coal. 4. Export promotion has been a concern of the Colombian authorities for some time. Beginning in 1967 authorities adopted an outward-looking development strategy, expanding and diversifying exports. Export promotion policies, including frequent small devaluations of the peso, export tax rebates and other incentives were introduced and the authorities began lower- ing tariffs somewhat and relaxing capital market controls as a means of raising efficiency and increasing the profitability and competitiveness of Colombian goods in external markets. These measures were successful in relieving the foreign exchange constraint and stimulating growth and employment. 1/ Unchanged from Rural Transport Sector Project (No. P-4211-CO), February 27, 1986).  -2- B. Economic Performance During the 1970s 5. In the mid 1970's, the economy was subjected to strong inflationary pressures from a sharp increase in world coffee prices. The increased receipts from coffee exports, together with some official surrender of foreign exchange from illegal exports, caused a turnaround in the balance of payments. Incomes rose rapidly stimulating aggregate demand, and inflation accelerated. Economic growth also rose, and unemployment fell substantially in rural and urban areas. Largely as a consequence of increased coffee tax revenues, the public finances generated overall surpluses averaging about 1% of GDP during 1976-78 and, by the end of 1979, net official international reserves had risen to about US$4.1 billion, equivalent to about 12 months imports of goods and non-factor services. 6. While beneficial in many respects, the foreign exchange boom had some negative effects. The rate of currency devaluation was slowed and the conversion of export receipts into pesos was delayed to moderate the growth of domestic demand, with adverse effects on non-coffee exports. The Government also sought to check inflation by maintaining high reserve requirements and expanding controls over credit thereby reducing, in real terms, the financing available to the private sector through the official capital market. 7. The 1977-79 economic program was partially successful in restrain- ing aggregate demand growth, but relatively high inflation persisted. In response to increasing restraint on aggregate demand, troublesome financial market distortions, and disincentives to non-coffee exports from the exchange rate appreciation the authorities began in late 1979 to adjust the program. The rate of peso devaluation was advanced somewhat, and in early 1980 credit restraints were relaxed. At the same time, interest rates on certificates of deposit--and on lending therefrom--were freed from controls. To offset the inflationary effects of these measures, the authorities further liberalized import payments and adopted the policy of not expanding the subsidized selective credit operations of the Central Bank in excess of the resources captured from private savings for this purpose. Real GDP growth decelerated to 4% in 1980 from an average of almost 6% since 1960, unemployment started to creep up, and inflationary pressures continued. C. Recent Economic Developments 8. During 1981-83 the economic situation took a turn for the worse in part on account of external factors, with real GDP growth slowing down to 2.3% in 1981 and about 1% on average in 1982-83. Agricultural output was hard-hit as a result of low international prices, reduced input use from declining profitability and adverse weather. Industrial activity deteriorated on account of depressed aggregate demand, and unutilized capacity continued to increase, particularly in manufacturing. Unemployment reached almost 14% of the labor force at the end of the year, up from about 7% at the end of 1981. Inflation, however, slowed down in 1983 to a 20% average for the year, down from 28% in 1981 and 25% in 1982. 9. After experiencing a surplus for six years, a deficit of about US$1.4 billion emerged in the resource balance in 1981 and increased to average about US$1.8 billion in 1982-83. These deficits resulted mainly from a drop in exports in real terms: in addition to domestic factors, major reasons were the slowdown in world demand, major devaluations and import  -3- restrictions in neighboring countries, and the reduction in Colombia's coffee exports from their previous high levels. Net foreign exchange reserves declined by about US$1.8 billion in 1983 to about US$3.1 billion, equivalent to about six months of that year's imports of goods and non-factor services. On the fiscal side, a slowdown in revenue growth, together with increased current expenditures resulting from a system of automatic transfers to departments and municipalities and large infrastructure investments in energy and transport led to growing deficits: the overall Central Government cash deficit grew from 2.1Z of GDP in 1980 to 4.1Z in 1983, while that of the consolidated public sector rose from 3.6% to 7.0%. 10. In 1983 the Government introduced policies to stimulate aggregate demand, and expand non-coffee exports. The rate of peso devaluation was accelerated; the housing construction industry was provided with incentives to mobilize more resources; and selective credit to the productive sectors was expanded. Temporary import restrictions were introduced for balance of payments stabilization in addition to measures to reduce the fiscal deficit and ease distortions in the financial system. These efforts were insufficient to reverse the deteriorating trends particularly in light of the tight international capital market. Colombia, unlike other Latin American countries, has not had a debt problem because of the high share of official debt in total debt outstanding and the term structure of such debt. Nevertheless, the Latin American debt problem produced a reduction in the credit lines available to Colombia and difficulties in obtaining medium-term loans needed to complete ongoing projects, which contributed in turn to further declines in foreign exchange reserves and to strains in the financial system. 11. During 1984-85 Government policy began to focus increasingly on: additional revenue and expenditure measures to contain the fiscal deficit and monetary expansion; acceleration of the exchange rate devaluations, further increased incentives to exports; measures to improve the profitability of the commercial banking and to resolve the external debt problems of the private sector. The policy reforms began to take hold during the second half of 1984. Real GDP growth increased to 3.1%, the unemployment rate fell to 13Z of the labor force at year's end while inflation was brought down to 16.4% on average in 1984. Merchandise exports grew at about 12%; the current account deficit in the balance of payments was reduced by about US$1 billion to over 5% of GDP, and reserves remained at about US$1.8 billion at year end (four months of 1984's imports of goods and n.f.s.). The policies were deepened in 1985 producing a sharp and sustained adjustment thus far. The current account in the balance of payments registered a significant improvement in 1985 declining to a deficit of nearly 4.0% of GDP. Inflation remained under control at less than 23%, while economic growth continued at a modest rate below 3%, although the unemployment rate remains higher than in recent years. In contrast to a US$1.3 billion fall in 1984 and a projected fall of US$50 million in 1985, net reserves increased by US$267 million in 1985. D. Growth and Balance of Payments 12. With further policy improvements during 1986-87, Colombia's growth prospects for the rest of the decade would be good. At this stage, projections are made difficult by the recently emerging international coffee situation which could mean a foreign exchange boom for Colombia in 1986, depending on the severity of production shortfall of coffee in Brazil. Although the following forecasts do not take into account these  -4- possibilities, preliminary calculations suggest that the medium-term scenarios would not be affected substantially: 1986--and possibly 1987---how- ever, would witness a greater reserve accumulation and increased debt repay- ments than envisaged below. The current account deficit of the balance of payments was projected to average about US$1.3 billion per year during 1985-86 (equivalent to less than 4% of GDP). The deficit was projected to be financed by increasing disbursements of existing and new public and private sector loans and by direct foreign investment. By the end of this period, net official international reserves would have been maintained at a level of about four and a half months of 1986 imports of goods and non-factor services. Total investment would have to be maintained at over 18.5% of GDP to complete energy and mining projects; and to avoid too large an increase in foreign indebtedness, gross domestic savings would need to average about 18% of GOP compared to 16.4% during 1981-84, with the public sector generating a significant part of the additional savings. Beyond 1986, real GDP growth should resume at near historical rates, over 4.5% per year on average. The current account deficit should also improve rapidly from 1987 on as a result of increasing export proceeds from new non-traditional exports (particularly crude petroleum and coal), declining to some 1.6% of GDP by 1990. 13. Total gross external medium- and long-term capital requirements (including the private sector) are projected to total about US$5.6 billion for the 1985-86 period. Net foreign investment is expected to account for US$750 million during 1985-86, most of which would be to complete existing energy projects. About US$3.9 billion is expected from multilateral, bilate- ral and other sources, while about US$1 billion will be the new money needed from commercial banks mainly to complete petroleum and coal projects for export. At the end of 1984, Colombia's public and publicly guaranteed medium- and long-term external debt, disbursed and outstanding, amounted to US$8.0 billion (22% of GDP). The Bank/IDA share of this external debt i.e. excluding non-guaranteed private was 22.8% which is expected to reach less than 25% by 1986. The public debt service ratio in 1984 was 23.5% and is expected to peak at about 30% in 1987 and then decline gradually to below 30% in 1990. The World Bank's share in M&LT public debt service (excluding non- guaranteed private) is expected to be less than 24% during 1985-86. With sound economic and financial management and the development of new export activities, Colombia is expected to maintain its creditworthiness through and beyond the 1985-90 period. PART II - BANK GROUP OPERATIONS IN COLOMBIA 14. With the rural transport sector project presented today, the pro- posed loan, the 118th to be made to Colombia, would bring the total amount of Bank loans to Colombia to US$5,205.2 million (net of cancellations). Of this amount the Bank held, as of September 30, 1985, US$3,758.3 million; IDA made one credit of US$19.5 million for highways in 1961. Disbursements have been completed on 72 loans and the IDA credit. Before 1979, disbursements averaged US$86 million equivalent per year, but had increased to US$286 million in FY84 and to US$591 million in FY85, reflecting in part the higher level of commitments in the late 1970s and efforts to build the pipeline. While disbursements in Colombia have been slower than those recorded in the Latin American Region for similar projects, concentrated efforts to overcome  problems to initiate prolect execution have resulted in a significant increase in disbursements during FY84 and FY85. Improving performance of social sector institutions in the execution of Bank-financed projects, the gradual containment of inflationary pressures and the effects of the recently-introduced fiscal reforms, which should imaprove counterpart funding, all point to a higher level of disbursements in the future. IFC has made investments and underwriting commutments of US$144.2 million in 29 enter- prises and as of September 30, 1985, it held US$67.3 million. Annex II con- tains a summary statement of Bank loans, the IDA credit and IFC investments as of September 30, 1985. 15. Since the initial loan was made in 1949, Bank lending to Colombia has become quite diversified. Although through the mid-1960s, 88% of the loans made were for power or transport, since then the Bank has broadened its participation in lending for agriculture and industry, and initiated lending for irrigation and watershed management, education, water supply, telecom- munications, urban development, petroleum development, export diversifica- tion, nutrition and health. By the late 1970s, 53% of the loans made to Colombia were for projects other than transport and power. Of the loans made since 1978, 36% were for power.and transport, 15% for industry, 17% for agri- culture and irrigation, 10% for water supply, 6% for urban, 4% for telecom- munications, 2% each for petroleum development and export diversification and 8Z for education, nutrition and multipurpose projects. The diversification was indeed a desirable aim as it helped provide close contact with a broader range of Colombia's development problems. The experience gained has served to identify areas in which the Bank's role can only be a marginal one and, thus, to enable lending to be focussed upon sectors in which the Bank's presence can have a meaningful impact. 16. The Bank's dialogue with the Government has focused upon the need to mobilize additional domestic resources, to diversify and expand exports, to develop rapidly the country's energy resources, and to free the economy from excessive controls. The discussions involved fiscal, interest rate and pricing policies, as well as incentives for exports and reduction in the level of effective protection. Positive results have been obtained particu- larly in the power bector, where power rates were increased sharply and a least-cost expansion was formulated and launched. Similar results have been achieved in respect of some other public services, including appropriate charges for water for irrigation and domestic use and petroleum prices. 17. The Bank has been supporting the Government's efforts to increase economic growth and exports with financial stability, raise utilization of domestic energy sources, provide key infrastructure, and improve the living conditions of the poor. More recently, in response to Colombia's adjustment process the thrust of the Bank's support has shifted towards loans to finance directly productive activities, such as agriculture and industry, support efforts to raise productivity, income and employment, increase and diversify exports and help develop renewable sources of energy through lending for hydropower and arranging associated cofinancing. Loans recently approved by the Board and in advanced stage of preparation reflect the emphasis on: (i)  -6- increasing output rapidly; (ii) reorienting production towards exports and efficient import-competing goods; (iii) supporting quick-yielding infrastruc- ture investments, particularly those that enable the use existing facilities more intensively; and (iv) increasing resource mobilization. 18. The Bank's lending in FY85 consisted of loans for agricultural diversification, small-scale industry, petroleum, development banking, water supply and sewerage and trade policy and export diversification totalling US$707.5 million.. The trade policy project is designed to support the first phase of trade policy adjustments in Colombia. In addition to the loan pre- sented in this report, the current program includes the already approved loans for public health, port rehabilitation, electricity distribution and water supply along with the loan for rural transport, also presented today, and the soon to be presented trade and agriculture policy loan. Work is underway on projects for agricultural technology transfer, power and energy sector development, and financial and public sector management. In infra- structure, the Bank is stressing rehabilitation, modernization and a more intensive use of the existing facilities in port improvement, water supply and highway maintenance. Finally, several projects in preparation will also support the Government's efforts to help the poorer segments of the popula- tion. Along with the project described in this report, proposed lending for further rural development, agricultural credit, and water supply and waste, will help improve the standard of living of the poor, while being designed to make better use of existing capacity and reduce losses. 19. The operations of external lenders in Colombia are shown in Annex I. While IBRD, IDB and bilateral sources provided about 75% of total external financing to Colombia in the 1961-72 period, their share has decreased since then to some 49% for the 1975-82 period and is expected to decline further to about 40% of external capital requirements during the eighties. IDB has given increased emphasis to energy-related projects, in addition to those for low-cost housing, urban and rural development, agrarian reform, university education, water supply, rural electrification and land erosion control, which are aimed at improving living standards of the lower-income population. In the future, it proposes to assist Colombia in developing sources of domestic energy and in expanding productive sector activities to help generate increased employment. USAID has supported programs in education, rural development and small farm development, but is phasing out its program in Colombia. The Government of Canada, the Federal Republic of Germany and the Netherlands have also provided concessional financing for basic needs and regional integration projects.  -7- PART III - THE AGEICULTURhL SECTOR Agriculture's Importance to the National Economy 20. Agriculture is the most important sector in the Colombian economy, accounting for about 22Z of GDP. Within the sector, crop and livestock products contribute about 52% and 43%, respectively, to the gross value of production; the remaining coming from other rural activities. Agriculture provides employment for two million people, or a quarter of the national labor force. The sector's share in the country's total registered merchan- dise exports fluctuated between 67% and 75% in recent years. Of the total value of agricultural exports of US$2 billion in 1983, coffee accounted for 73%, followed by bananas (7Z) and flowers (6%). Agricultural imports repre- sent 7.5% of Colombia's total registered imports for 1983. The main agricul- tural imports are wheat, soybeans and fish products. Yields of rice, sugarcane, coffee, cotton and bananas are comparable with international levels, but for many other commodities, they are low and the scope for improvement is substantial. The performance of the livestock subsector has been sluggish over the last decade, and only small productivity increases were achieved. 21. The national territory totals 112 million ha. This apparent abundance belies the fact that 93 million ha, or 83% of the total land, have no or limited crop potential and are used mainly for grazing and forestry. Of the remainder, 13 million ha is on sloped land in the interandean valleys only suitable for non-mechanized agriculture consisting of inter-cropping with permanent crops; 3.8 million ha could be used for modern agriculture after providing some type of land reclamation works (flood control, drainage and irrigation); and only 1.7 million ha is suitable for modern mechanized agriculture without restrictions. Structural problems in agriculture are the uneven land distribution and poor land use: in some parts of the country good crop land is used for extensive grazing and marginal land for cultiva- tion. Ccuntryside violence is limited in areas with high population density, but widespread in newly colonized areas where no clear title to the land exists. This situation acts as a disincentive to private sector investment, as does the decline in agricultural profitability caused by a decrease in commodity prices relative to the cost of agricultural inputs. Sectoral Performance 22. The recent performance of the sector has been heavily affected by macroeconomic policies and by external events. After expanding at rates of above 4% during the seventies, the growth rate in agriculture fell to 1.3% during 1980-84. During the first half of the seventies, agricultural growth was based on the dynamism of non-coffee agricultural exports, which expanded at an average annual rate of nearly 10% in real terms. In the second half of the 1970s, the coffee boom became the driving force, while growth of non- coffee agricultural exports decreased to less than 7Z per annum. In contrast, during 1981-84 coffee exports were greatly affected by depressed international markets while non-coffee exports showed a negative growth rate. The decline (in volume and in terms of prices) of coffee and non- coffee exports explains almost 80% of the fall in agricultural GDP growth during the 1981-84 period.  23. Five factors explain the decline in the export and overall perform- ance: (a) unfavorable international conditions for agricultural commodities exported by Colombia (coffee, sugar, cotton, beef); (b) macro- economic policies in the late seventies leading to appreciation of the exchange rate and a reduction in export promotion. As the balance of payments deteriorated in the early 1980s, protection levels were raised first by increasing import duties and later by imposing import quotas; (c) sector-specific policies, consisting of export restrictions for a number of commodities and import restrictions for agricultural inputs due to foreign exchange constraints; (d) reduction of government investments in agriculture since the mid-1970s and inadequate institutional capacity of the Ministry of Agriculture to ensure appropriate design and execution and therefore maximum benefit from these limited investments; and (e) a rapid increase of the real agricultural minimum wage rate in 1979 (32%) and again between 1982 and 1984, contributing to a rise in production costs. (Labor costs amounted to some 32% of the gross value of agricultural output in 1982.) Sectoral Institutional Framework 24. The formulation and execution of public sector agricultural policy and programs involve a sizeable number of institutions. The Ministry of Agriculture has primary responsibility, and within it the Agricultural Sector Planning Office (OPSA) has the responsibility for planning and coordinating sector activities. OPSA maintains a close relationship with the agriculture and global investment divisions of the National Planning Department (DNP), since they have to approve the sector's development plan and investment program. The Colombian Agricultural Institute (ICA) is responsible for agri- cultural research and extension. The Agricultural Marketing Institute (IDEMA) promotes the national marketing of crops and intervenes by procuring agricultural commodities to influence prices to the consumer and the producer. The Agrarian Reform Institute (INCORA) carries out programs of land distribution and farm support. The Natural Resources Institute (INDERENA) is mainly responsible for protecting the environment. The Colombian Institute for Hydrology, Meteorology and Land Improvement (HIMAT) is in charge of irrigation and drainage works and associated land improve- ments, in addition to hydrology and meteorology. In addition to these public sector institutions, well-organized private commodity-based agricultural producer organizations exist. These organizations are a dynamic force in agricultural development and provide a wide range of services to their members. 25. The bulk of agricultural credit comes from two principal sources: the Agricultural Financing Fund (FFAP) and the Agricultural, Industrial and Mining Credit Bank (CAJA). FFAP is a rediscount window of the Bank of the Republic (BOR) from which funds are onlent by banking institutions, mostly to commercial farmers. Total credit to the agricultural sector from all sources amounted to Col$ 85 billion (US$840 million) in 1984. In that year, FFAP provided 68% of the resources onlent to agriculture. CAJA is the principal source of credit to the small farm sector. In addition, there are other sources of agricultural credit, such as the Livestock Bank, the Coffee Bank and the Financial Corporation for Agriculture and Export Promotion. Agricul- tural interest rates are generally lower than for other productive sectors. For FFAP resources, effectiv'