Announcement of a Five Million Dollar Loan for Agricultural Development in Peru on November 12, 1954

•. FOR IMMEDIATE RELEASE • INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (WORLD BANK) 1818 H STREET, N.W., WASHINGTON 25, D.C. TELEPHONE: EXECUTIVE 3-6360 PRESS RELEASE NO. 378 SUBJECT: $5 Million Loan for Agricultural Friday, November 12, 1954 Development in Peru The World Bank today made a loan of $5 million to the Banco de Fomento Agropecuario del Peru to increase the lending fa.cilities of the Banco and in particular to finance imports of machinery, livestock and materials needed to stimulate agricultural production in Peru. The New York Trust Company is participating in the loan, without the International Bank's guarantee, to the extent of $748,000 which represents the • first two maturities falling due August 1, 1957 and February 1, 1958 • The Banco de Fomento Agropecuario del Peru is an autonomous government institution which provides agricultural credits and perfonns other services in the field of agriculture. The loan is for a tenn of 8 years and bears interest or 4-1/4% per annum, including the 1% statutory commission charged by the Bank. Amortization will begin August 1, 1957. The loan is guaranteed by the Govermnent of Peru. The Banco is practically the only source of medium and long-term credit for agriculture in Peru. It operates through 76 local offices from its headquarters in Lima. To date its main activity has been the provision of short-term credit. The International Bank's loan will enable the Banco to expand its, medium and long-term lending. With the $5 million loan available for imports, the Banco will also be able to devote more of its own resources to loans fo:t lOc~l.f)Xpenditures. Today's loan will complement two loans totaling $3 million which the Bank has already ma.de to Peru to expand the operations of the Serv:i.cio Cooperativo  - 2 • Interamericano de Produccion de Alimentos (SCIPA). SCIPA's agricultural machinery pools have <temonstrated the effectiveness of mechanized farming. As a consequence, demand for agricultural machinery has been stimulated bu.t credit terms are needed to enable fanners to purchase it. As a general rule, it would not be economic for farmers to o~m the kind of heavy equipment which the SCIPA pools use for land rehabilitation, but the farmer requires credit to enable him to rent such equipment from SCIPA. The loan made today should put the Banco in a better position t.o meet these needs for credit. '' About half the loan will be used for the purchase of fa.rm machinery, mostly tractors and tractor-drawn equipment. Machinery of this kind will .help expand the production of cotton, sugar a.nd rice in the coastal regions, will increase the production of wheat, barley and potatoes in the mountain valleys, and will help in the clearing and colonization of land east of the Andes. • About a quarter of the loan will be used for the purchase of irrigation equipment ne.eded especially in the coastal regions where agricultural production is completely dependent on irrigation. The remainder of the loan will be used for the purchase of fencing materials, livestock and for equipment and materials for processing and storage plants. Fencing will improve the use, of pastureland. The import of breeding cattle and sheep will raise both the quality and the quantity of meat and milk production. Storage facilities will promote the orderly marketing of grain and other crops and reduce waste and spoilage. The processing plants will be for milk sterilization and rice and ·wheat milling. They will be located in producing areas and reduce transportation and marketing costs. Except for livestock, the goods financed by the loan will be imported and sold through normal trade channels. The B?nco will extend credit to agriculturalists • for their purchase. The Banco itself will import most of the livestock since it has the facilities for arranging for shipments and for selecting the breeds best  - 3 - suited to Peruvian conditions • • Peru's economic and financial situation has shown marked improvement during the pa.st six months, due largely to the Goverrunent 's measures to curb inflat,1:on and stabilize the currencJr• In 1952-.53 a fall in export earnings., accompanied by an increase in imports, brought pressure upon the balance of payments that seriously weakened the value of the sol. In 1954 the Goverrunent reiterated its ad- herence to a policy of free trade and free exchange., choosing to make the necessary adjustments by means of financial policy rather than by maintaining the exchange rate through the use of direct controls. Stabilization credits totaling U.S. $30 million were obtained from the International Monetary Fund, the United States Treasury and The Chase National Bank of the City of New York to help support the sol a.nd avoid the necessity for restriction on trade and payments. The Government's policies, together with the availability of the stabilization • credits., quickly restored confidence. The sol rate has remained stable., fluctuating in recent months from 19.20 to 19.50 soles per U.S. dollar. None of the 1 stabilization credits has been used. The~e has been a simultaneous recovery in the balance of trade. The trade deficit, which bad amounted to U.S. $53.5 million in the first six months of 1953, was reduced to U.S. $15.3 million during the corresponding period of 1954; the value of exports increased 10% and imports declined 15% in dollar value. Long-run prospects remain sound and Peru should be able to attain a substantial rise in output in the coming years. After having been approved by the Bank's Executive Directors, the loan documents were signed t.oday by His Excellency Don Fernando Berckemeyer, Ambassador of Peru in Washington, on behalf of the Gover~ment of Peru~ by Senor Emilio Foley, General Manager, and Senor Cesar de Cardenas, General Counsel, on behalf of the Banco de Fomento Agropecuario., anrt by Mr. Eugene R. Black., President., or.: behalf • of the World Bank •