Statement by Mioara Ionescu at the Board meeting of July 22, 1997

International Bank for Reconstruction and Development 87265 International Development Association International Finance Corportation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS97-287 July 21, 1997 Board Meeting of July 22, 1997 Statement by Mioara Ionescu Peru - Country Assistance Strategy I would like to start by commending the staff for preparing an informative CAS for Peru. Compliments, however, should go in the fust place to Peruvian authorities for "supplying" the Bank with the success story it tells in the document. Consistent implementation of bold policy and structural reforms over the past seven years have started to pay off in terms of gradually decreasing social disparities and quick re-integration of the country in the global economy. The poverty reduction agenda, however, remains daunting. The institutional reform is also a high priority and usually more time-intensive. I am pleased with Mr. Cariaga's confirmation that the thrust ofthe Bank's CAS is shared by the authorities and they remain interested in the Bank's support to address the priority issues of poverty reduction and institutional building. Therefore I support the CAS wholeheartedly. I would appreciate, however, some additional information from the staff on the following issues: Decentralization of governmental responsibilities Streamlining the administration and achieving higher effectiveness and efficiency in social service providing seems to me central in better integrating the disadvantage groups in the society. In this regard para 63, stating that the role of decentralization is not clear in the Government's program, sounds worrisome. Given the extended periods of time needed for this type of reforms to be implemented and pay off, I would like to inquire what are the Bank's plans in this regard. It will also be interesting to know whether Management sees a potential role for a Social Investment Fund • type of operation for Peru, given the strong institutional component of these operations and their effectiveness in reaching remote communities and fostering local participation. IFC involvement 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 It seems that there is a lot of room for IFC playing a catalytic role in Peru in the wake of massive privatization and success in attracting private capital flows. This is also what the authorities expect form IFC. I appreciate the infom1ation provided on current plans in para 70. Notwithstanding the opportunistic approach, normally taken by IFC, I am under the impression that IFC spreads too much across many sectors. I wonder whether a more focused country strategy would not be more appropriate? Portfolio performance I noted both the problems and the recent progress achieved in tackling these problems in the implementation of the relatively young Peruvian portfolio. My question is about the standard explanation offered by the staff- "lack of familiarity with Bank procedures'' (paragraphs 48 and 66, although para 66 seems to be more candid in adding complex project design as one of the explanations for less than optimal project implementation). I see this as euphemism for the relatively high non-monetary cost with which Bank project lending is associated, and which dampens the interest of our clients to borrow from the Bank, even though the interest cost of Bank loans may be lower and maturities longer. Finally, I have a comment on two of the issues offered for discussion: I assume that "the emphasis given to poverty reduction" is responsive to Peru's needs, otherwise it would not have made sense to discuss this strategy. In any event, the staff is in much better position to judge on that than the Board is. On the Bank's relationship with other multilateral and bilateral donors/lenders, I think the CAS could have been more explicit. I note that Annex A8 contains a heading "Complementary activities of IDB/IMF", although it may well turn out that the IBRD lending will be complementary. I do not necessarily think that this is a problem. I think, however, that the Board would have only benefited from more detailed information on who is supposed to do what in Peru and how the Bank strategy fits into the overall picture.