Statement by Sun Vithespongse at the Board meeting of July 22, 1997

International Bank for Reconstruction and Development International Development Association 87270 International Finance Corportation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS97-293 July 22, 1997 Board Meeting of July 22, 1997 Statement by Sun Vithespongse Peru: Country Assistance Strategy Peru has made impressive progress in both macroeconomic, as well as, structural fronts within a short period of time. This is most commendable. The results have been apparent as growth has rebound, inflation contained, current account deficit narrowed as export performance improved. It also achieved remarkable progress in privatization program. As a result, private sector participation increased and FDI went up. All these lay solid foundation to tackle the most important problem- poverty. Like others, we share the CAS focus on poverty reduction program, especially on education and health service, rural development and property rights; institutional reform with emphasis on financial sector, and reform of state. The falling requirement ofborrowing from the Bank indicated by the Peruvian authorities seem to signal careful strategy to debt management and reduction in the role of public sector. We welcome this trend. Having said that, we have a few comments: I) One of the very aspects to poverty reduction in the case of Peru seems to be public sector reform especially decentralization since majority of the poor are still in rural areas. We hope the Bank can provide analytical input to help the government to overcome bureaucratic resistance to this reform. 2) Despite success in broad macro front, Peru remains a highly indebted country. With capital inflow expected to go up in the future, we urge the government and staff to remain vigilant over the debt situation, and especially the nature of the inflowing to private sector. In this respect, the increased emphasis on financial sector is particularly welcome. 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.  2 3) We note the CAS envisaged an increase in non-lending services as a strategy for Peru. How does this work in reality? This is because non-lending services is driven by volume of loans. The experience of countries in our constituency which did have declining demand for lending services from the Bank has been that they also suffered a decline in non-lending services. Staff in explanation is that it is not justified to increase non-lending services when they do not lead to lending. I would appreciate the response on this. Thank you.