Peru - Second Industrial Credit Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 9 2 3 7 PROJECT COMPLETION REPORT PERU SECOND INDUSTRIAL CREDIT PROJECT (LOAN 1968-PE) DECEMBER 28, 1990 Trade, Finance and Industry Division Country Department IV Latin America and the Caribbean Regional Office 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.  CURRENCY EQUIVALENTS Currency unit - Inti (I/.)* Average Market Rates for Period End of 1981 US$1 = 0.42 Intis End of 1982 US$1 - 0.70 Intis End of 1983 US$1 = 1.63 Intis End of 1984 US$1 = 3.47 Intis End of 1985 US$1 = 10.98 Intis End of 1986 US$1 = 13.95 Intis End of 1987 US$1 = 16.70 Intis ABBREVIATIONS AND ACRONYMS BCR - Banco Central de Reserva del Peru (Central Bank) BIP - Banco Industria del Peru (Industrial Bank of Peru) COFIDE - Corporacion Financiera de Desarroll., (Development Finance Corporation) CONADE - Corporacion Nacional de Desarrollo ICSA - Inversiones COFIDE S.A. IDB - Inter-American Development Bank PCR - Project Completion Report PPS - Public Sector Enterprises with Public Attributes GOVERNMENT OF PERU FISCAL YEAR January 1 - December 31 *Note: The new Government that took office in 1985 changed the currency unit from the Sol (S/.) to the Inti (I/.). One Inti is equivalent to 1,000 Soles.  FOR OMCIAL Use ONLY THE WORLD BANK Wnshmqton. O.C 20433 ISA oinice no 0,ectm-c~Cnr op.t.tKm ivdIt.i nM December 28. 1990 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Peru - Second Industrial Credit Project (Loan 1968-PE) Attached, for information, is a copy of a report entitled 'Project Completion Report on Peru - Second Industrial Credit Project (Loan 1968-PE)' prepared by the Latin America and the Caribbean Regional Office. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment This document has a retnclted distnbuuon and may be usod by mtpmets aniy in the perfomeTee of their officil dutia Its contenus may not otherwe be disco without Ww Bnk aud onz tN  FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT PERU SECOND INDUSTRIAL CREDIT PROJECT (LOAN 1968-PE) TABLE OF CONTENTS Page No. PREFACE .......... ................... i EVALUATION SUMMARY . ............. *.............. - . ...o ......... i PART I. PROJECT REVIEW FROM THE BANK'S PERSPECTIVE .............. A. Project Identity ................................................ 1 B. Background ..................................................... 0. ...1 C. Project Objectives and Description .... ............... 2 D. Project Design and Organization ................... 3 E. Project Implementation ........ . . . ............................. . 4 F. Project Results ....... ... o. ................. ....... 5 G. Project Sustainability ... ............................... 6 H. Bank Performance . ........ . . ................ ........... 6 I. Borrower's Performance ............................... .8 J. Project Relationship ... ............... .............. . 10 K. Project Documentation and Data .................. 10 PA.RT III*. STATISTICAL INFORMATION ................. . ..... ..... 12 I. Related Bank Loans . ..... ..... .. . . .......... ......... 12 2. Project Timetable *....... *...0................ . .... 13 3. Loan Disbursements .............. ............. *.. ..... 14 4. Status of Covenants ............. ......... 15 5. Use of Bank Resources .. .......... ....... ..... 18 ANNEXES 1. COFIDE: Subproject Profile ................................... 20 2. COFIDE: Subborrowers Financed by More than One Subloan ....... 23 3. COFIDE: Subprojects Financed Under Loan 1968-PE .............. 24 4. COFIDE: Comparative Balance Sheets, 1981-1988 . .......... 26 5. COFIDE: Income Statements, 1981-1988 ......... G..o ............ 27 6. COFIDE: Financial Ratios, 1981-1988 ......... ............. 28 7. Subprojects by Financial Intermediaries se ....................... 29 This document hot a restricted distribution and may be uwed by recipients only in the perfforince | of their official duties. Its contents may not otherwie be disckosed without World Bank authorintion.  PROJECT COMPLETION REPORT PERU SECOND INDUSTRIAL CREDIT PROJECT (LOAN 1968-PE) PREFACE This is t.e Project Completion Report (PCR) of the Second Industrial Credit Project in Pezu, for which Loan 1968-PE, in the amount of US$60.0 million equivalent was approved on April 7, 1981. This is a follow-up opera- tion to the First Industrial Credit Project (Loan 1358-PE), for US$35.0 mil- lion equivalent, approved in 1976. This project, as was its predecessor, was implemented during a period of recession and macroeconomic instability in Peru, in which various Governments implemented very different development strategies. The Bank suspended disbursements to Peru in May 1987, based on Peru's accrued non-payment of obligations. An undisbursed balance of US$20.0 million equivalent was cancelled effective October 18, 1989. The PCR was prepared by the Trade, Finance and Industry Division, Country Department IV of the Latin America and Caribbean Regional Office. Preparation of Part II was requested from the Borrower. But, given the time elapsed since suspension of disbursements and the fact that many of the Borrower's staff involved in managing the project have retired or moved to new assignments, Part II was not completed. Preparation of this PCR has not involved a mission to Peru. It is based, inter alia, on the Staff Appraisal Report, the Loan and Guarantee Agreements, supervision reports, correspondence between the Bank and the Borrower, and internal Bank memoranda. This PCR was read by the Operations Evaluation Department. The draft PCR was sent to the Borrower for comments, but none were received.  - iii - PROJECT COMPLETION REPORT PERU SECOND INDUSTRIAL CREDIT PROJECT (LOAN 1968-PE) EVALUATION SUMMARY Obiectives 1. This US$60.0 million equivalent loan to Corporacion Financiera de Desarrollo (COFIDE), had as its main objectives to support: (i) the reorganization of COFIDE, a public sector financial institution channelling term resources, and (ii) the establishment of a more open and competitive financial system by channeling part of the loan to other financial intermediaries through COFIDE. The loan would help make operational COFIDE's new organizational structure in which its lending function had been- separated from its ownership of public enterprises function. The loan would also help improve COFIDE's capability for economic analysis of projects, which would be passed on to other participating financial institutions. Implementation and Results 2. The loan was approved on April 7, 1981 and declared effective on February 25, 1982 due to delays in the signature of an Exchange-Loss provision betveen COFIDE and the Government and in the registration of the new COFIDE by-laws. In the early stages of the project, subloan approvals increased rapidly, so that by the end of 1982 half of the loan had been committed. The pace of commitments slowed down considerably in 1983 for several reasons: (i) the effects of a deepening recession that dampened investment plans; (ii) perception on the parn of the borrowers that Bank dollar denominated loans carried great exchange risks; (iii) the much higher cost of Bank dollar denominated loans than local currency loans. The combined effect of frequent currency devaluations and negative interest rates on local currency loans, resulted in the cost of dollar denominated loans to be nearly twice the cost of local currency loans; and (iv) increasing attention of COFIDE's management to state enterprises at the expense of private sector enterprises. In 1986 and 1987, the expansionary policies of the new Government helped improve temporarily COFIDE's loan pipeline. Many of the new investments did not materialize, however, as the economy began to deteriorate. When the Bank suspended disbursements in May 1987, due to overdue service payments of Peru, about one third of the loan was still uncommitted. 3. COFIDE used US$39.7 million in loan funds to f