Colombia - Agricultural Sector Credit Project

 Agricultural sector credit project Report No: ; Type: Report/Evaluation Memorandum ; Country: Colombia; Region: Latin America And Caribbean; Sector: Agricultural Credit; Major Sector: Agriculture; ProjectID: P006875 Colombia: Agricultural Sector Credit Project (Loan 3575-CO) The Colombia Agricultural Sector Credit project, supported by Loan 3575-CO for US$250 million, was approved in FY93. At the borrower's request, the loan, having had no disbursements, was canceled on January 1, 1995. The Project Completion Note (PCN) was prepared by the Latin America and the Caribbean Regional Office. The project's objective was to encourage the private financial sector to extend loans, especially longer- term loans, to agriculture. To achieve this, several financial reforms were to be introduced, including the removal of controls on interest rates and abandonment of the subsidy on farm credit. The loan was to support a second-tier rediscount facility for commercial banks, and encourage increased efficiency in the parastatal Caja Agraria, Colombia's largest bank and dominant agricultural lender. The loan became effective, but the conditions for release of funds were not met and no disbursements were made. The Central Bank had issued regulations, prior to the deadline established by the loan covenant, fully satisfying the primary condition on liberalization of final interest rates to medium and large farmers. Congress nullified this measure by passing an Article of Law postponing any action on liberalization, with a caveat that future interest rates would remain below commercial rates. The outgoing Administration was prepared to abandon the program. The Article was subsequently declared unconstitutional, but with rising commercial rates and mounting producer opposition, the new Administration was no more willing to implement the liberalization program than its predecessor. Two other key conditions on institutional reforms, including the one pertaining to the restructuring of Caja Agraria, were also unmet. On July 7, 1995, government formally requested cancellation, which was made retroactive to the first of the year. Under these circumstances, the project has not been rated by the Operations Evaluation Department. Clearly it would not have met key policy objectives, owing to poor borrower commitment. The PCN is satisfactory and provides the information needed to evaluate the events leading to the termination of the loan. No audit is planned.