Haiti - Industrial Credit Project

Document of The World Bank FOR OFFICIAL USE ONLY Report %;o. 8061 PROJECT COMPLETION REPORT HAITI INDUSTkIAL CREDIT PROJECT (CREDIT 1131-HA) SEPTEMBER 22, 1989 Trade, Finance and Industry Operations Country Department III Latin America and the Caribbean This document has a restricted distribution and may be used by recipients onlv in the performance of their offlcial duties. Its contents may not otherwise be dislosed without World Bank authorization.  LIST OF ABBREVIATIONS BNDAI - Banque Nationale de Developpement Agricol2 et Industriel (Agricultural and Industrial Development Bank) BRH - Banque de la Republique de Haiti (Central Bank) FDI - Fonds de Developpement Industriel (Industrial Development Fund) FHD - Fondation Haitienne de Developpement (Haitian Development Foundation) ONAPI - Office National pour la Promotion des Investissements (National Office for Investment Promotion) PAC - Project Advisory Committee PCR - Project Completion Report SOFIHDES - Societe Financiere Haitienne de Developpement (Haitian Development Finance Corporation) CURRENCY EQUIVALENTS Currency (Abbreviation): Gourde (G) Since 1919, the Gourde has been pegged to the U.S. dollar at the rate of G5 to US$1.00. US$1.00 = G5 Gi US$0.20 Gi million = US$200,000 FISCAL YEAR October 1 - September 30  FOR O"XCIAL USZ ONLY THE WORLD SANK Washinton. D.C J.0433 U.S.A. 0te Ad OmmtcvGeowi September 22, 1989 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECTS Project Completion Report on Haiti Industrial Credit Protect (Credit 1131-HA) Attached, for information, is a copy of a report entitled *Project Completion Report on Haiti - Industrial Credit Project (Credit 1131-HA)' prepared by the Latin America and Caribbean Regional Office with Part II oi the report contributed by the Borrower. No audit of this project has been made by the Operations Evaluation Department at this time. Attacbment This document has a metricted distribution and may be used, bY fecpients onlY in the perrhnn nee of their offcial duties Its contents may not otherwise be disclosed! with,out WorM Bank autbori2Ftioo.  FOR OMCL41 USF, ONLY PROJECT COMPLETION REPORT HAITI INDUSTRIAL CREDIT PROJECT (CREDI1' 1131-HA) TABLE OF CONTENTS Page No. PREFACE ......................................... i EVALUATION SUMMARY ................................................ iii PART I: DESCRIPTION AND ISSUES ................................... 1 1. PROJECT IDENTITY ..... 1 2. BACKGROUND ......1 3. PROJECT OBJECTIVES AND DESCRIPTION ... 2 Project Objectives and Components ..... 2 4. PROJECT DESIGN AND ORGANIZATION .............................. 2 Organization ..... 3 Resources and Project Costs . . . ............................. 4 5. IMPLEMENTATION ..... 5 6. PROJECT RESULTS ..... 6 Participating Financial Intermediaries.... 8 Guarantee Operations ..... 8 Portfolio Quality ..... 9 Post-Evaluation of Some Investments ................... ..... 9 Organization and Staffing ...... ............................ 9 Weakness of Review and Supervision .................... ..... 10 Operating Results ....... ................................... 10 Technical Assistance ....... ................................ 10 Reporting Requirements ........... .......................... 11 7. IDA'S PERFORMANCE ............................................ 11 8. BORROWER'S PERFORMANCE ....... ................................ 12 9. PROJECT SUSTAINABILITY ....... ......................... I ...... 13 10. CONSULTING SERVICES ....... ................................... 13 11. PROJECT DOCUMENTATION AND DATA ...... ......................... 14 PART II: BORROWER'S PERSPECTIVE .................................. 14 1. ACCURACY OF PART III ....... ...................... ............ 14 2. COMMENTS AND ANALYSIS OF PART I .............................. 14 Specific Institutional Issues .............................. 15 Insights from the Field .................................... 16 3. WORLD BANK PERFORMANCE ....................................... 17 4. BORROWER PERFORMANCE ..................... .................... 17 5. EFFECTIVENESS BETWEEN WORLD BANK AND BORROWER ............... . 18 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.  TABLE OF CONTENTS (contd) Page No. PART IIIs PROJECT COMPLETION PROFILE ................... 18 Table 1 - Related IDA Credits ..8.............................. i Table 2 - Project Timetable .......................... ................ 19 Table 3 - Credit Disbursements and Related Information ............ 20 Table 4 - Project Implementation ...... ............................ 21 Table S - Use of Bank Resources ...... ................... 0 . .. 22 Table 6 - Status of Covenants ................................... .. 23 Table 7 - Staff Inputs ............................ ............... 24 ANNEXES Annex 1: Table 1 - Analysis of FDI Rediscounting Operations, 1982 to 1987 25 Table 2 - FDI - Characteristics of Loane Rediscounted under Credit 1131-HA ......................................... 26 Table 3 - FDI - Detailed List of Approved Projects by Financial Intermediaries .. ............................ 29 Table 4 - FDI - Detailed List of Approved Projects by Sector ...... 33 Table 5 - FDI - Detailed List of Approved Projects by Purpose ..... 37 Annex 2s FDI's Financial Results ................................. 41 Table 1 - Projected and Actual Income Statements, 1982-1987 ....... 43 Table 2 - Projected and Actual Balance Sheets, FY 1982 to 1987 .... 44 Table 3 - Projected and Actual Financial Ratios, 1982/83-1986/87 .. 45 Annex 3s Table 1 - The Commercial Banking System - Statement of Condition at December 31, 1987 ...... ............................ 46 Table 2 - Participation of Banks in FDI Rediscounting operations and Lending Terms .......................... 47 Annex 4: Review of Four Operations Rediscounted by FDI ............ 49  PROJECT COMPLETION REPORT HAITI INDUSTRIAL CREDIT PROJECT (CREDIT 1131-HA) PREFACE 1. This report reviews the performance of the First Industrial Credit (Credit 1131-HA) to Haiti, channelled through the Industrial Development Fund (FDI) for onlending to final beneficiaries, through financial inter- mediaries. The Credit in an amount of SDRs 5.7 million was intended to establish sn effective mechanism to finance the Haitian private industrial sector, particularly small and medium industrial enterprises, and also help to deve:J,p a technical assistance program for small and medium enterprises. It was appraised in July/August 1980, approved on April 14, 1980, declared effec-ive on December 8, 1981, and closed with disbursements at US$4.8 million on March 31, 1987, 21 months after the original Closing Date. 2. Parts I and III of the Project Completion Report (PCR) were pre- pared by Trade, Finance and Industry Operations Division, Country Depart- ment III, Latin America and the Caribbean Region. They are based upon data obtained during an August 1988 Bank mission to Haiti. The preparatory data work was carried out by FDI staff, which also prepared Part II of the PCR based on drafts of Parts I and III. 3. Parts I and III were subsequently changed, and a revised draft report was sent to the Borrower for any additional comments; one relatively minor change was suggested and has been made.  - iii - PROJECT COMPLETION REPORT HAITI INDUSTRIAL CREDIT PROJECT (CREDIT 1131-HA) EVALUATION SUMMARY Introduction 1. Starting in September 1978, IDA explored the prospects for a private development bank in Haiti. However, in order to permit a wider access to term financing, it was found more appropriate that the Government establish a special fund in the Central Bank to rediscount medium- and long-term operations for small and medium industrial enterprises, through eligible financial intermediaries. As a result, the Industrial Development Fund (FDI) was established by a Decree Law dated March 26, 1981. IDA sup- ported FDI through the Industrial Credit Project (Credit 1131-HA), approved on April 14, 1981. Objectives 2. The main objectives of the project supported by Credit 1131-HA were to: (a) Establish an effective mechanism to finance the private Haitian industrial sector, particularly small and medium indastrial enter- prises, through the provision of medium- and long-term loans; (b) Assist the Central Bank in strengthening its capabilities to supervise and evaluate the performance of financial institutions; and (c) Help to develop a technical assistance program for small and medium enterprises and to strengthen the institutional capabili- ties of the National Office of Investment Promotion (ONAPI) to provide such assistance (para. 3.1, Part I of PCR). Implementation Experience 3. The last disbursement took place 20 months after the original Closing Date of June 30, 1985. An undisbursed balance of SDRs 206,286, from the credit component, was cancelled on March 31, 1987. By the time the project became effective on December 8, 1981, the economic environment had seriously deteriorated, due mainly to the recession in Haiti's main trading partner, the U.S. As a matter of fact, 1981--the Credit's first year--saw a 32 drop in Haiti's GDP, followed by a similar performance in 1982. Consequently, FDI did not begin its operations until the end of 1982 (paras. 5.1-5.2, Part I of the PCR). FDI's implementation performance was satisfactory, particularly considering that it had to take over ONAPI's  - iv - technical assistance functions. It took an active promotional role in sensitizing the commercial banking system to term lending and developed and financed a credible line of 114 projects (paras. 6.3-6.5, Part I of the PCR). Results 4. As of September 30, 1987, FDI had approved 134 projects, amounting to US$8.1 million equivalent and covering 103 enterprises. As of March 1989, tbere are 18 outstanding loans, of which 5 present some problems of repayment. The rest of the subloans have been fully repaid. The invest- ments created 1,590 jobs at US$9,894 each, against the appraisal projec- tions of 2,000 jobs. FDI lent assistance in the creation of new micro- enterprises, which would not have had access to sources of finance otherwise. Every U.S. dollar disbursed by IDA mobilized more than two dollars of local resources (paras. 6.2 and 6.5, Part I of the PCR). 5. Although ONAPI, which was to provide technical assistance, was abolished, FDI took over and did a relatively good job in providing that assistance. it assisted a number of enterprises, through consultant ser- vices, in preparing feasibility studies and provided in-house support to identify major problems and implement corrective measures. This function is considered very important, and would be further strengthened under the follow-up Industrial Restructuring and Development Project (paras. 4.9-4.11 and 6.1 in Part I and Table 1 of Part III of the PCR). 6. The Supervision Department of the Central Bank received technical assistance under this operation, and did a relatively good job in providing information to FDI on the eligibility of institutions to participate in the Credit. However, the follow-up and supervision of banking operations has been poor. Nevertheless, as FDI dealt mainly with private commercial banks, FDI operations have been affected only slightly by the overall in- adequate supervision of the banking sector. FDI undertook to supervise its own operations, and its performance has varied from very good to inade- quate. Performance results were primarily affected by staff changes (paras. 4.9-4.10 and 6.10-6.11 in Part I of the PCR). 7. The Project Advisory Committee (PAC), created under the Decree-Law setting up FDI, met officially only twice. However, FDI management, on several occasions when it needed the support of the Government, took the initiative of ca]ling meetings of the Governor and several relevant Ministries. PAC was also to be the vehicle to facilitate a policy dialogue with IDA, and even though PAC did not facilitate this process, IDA was able to initiate a policy dialogue with the Government, specifically on trade policy issues and on the overall industrial regulatory framework. As a result of this dialogue, sweeping trade policy reforms took place, as well as major initiatives in industrial restructuring, which were subsequently supported by the Economic Recovery Credit (1766-HA) and Technical Assis- tance Credit (1786-HA). Industrial restructuring efforts initiated by FDI under the above Technical Assistance Credit would be supported by a pro- posed Industrial Restructuring Project (paras. 4.6 and 8.1, Part I, &nd Table 1 of Part III, of the PCR).  -v- Sustainability 8. Overall, FDI has performed satisfactorily. Due to several manage- ment changes, there were periods of excellent performance, but also periods cf poor performance. FDI is currently soundly managed. Most of its proj- ects have done well, while a few have suffered seriously especially during the last two years due to trade liberalization, contraband, and the overall uncertain investment climate. FDI should continue, however, to strengthen tts institutional capability by attracting qualified staff and strength- ening its supervision performance (PCR, Part I, para. 9.2, and Table 1, Part III). Findings and Lessons 9. The project is considered a success as it achieved its primary objective, which was to establish FDI as an effective vehicle to provide term financing to small and medium enterprises. ONAPI, which was assigned responsibility to provide technical assistance, was dismantled. Neverthe- less, i.s function was transferred to FDI, and FDI did a relatively good job in carrying out this function. The project has demonstrated the impor- tance of sound institutional management and close project supervision in attaining project objectives. FDI has successfully initiated an industrial restructuring program, and would be further strengthened under the proposed Industrial Restructuring and Development Project, to continue providing technical assistance to industrial enterprises. Staff training provided under the above operation would also strengthen the capabilities of FDI's and the FIs' staff in project preparation and supervision. Extension ser- vices and assistance in preparing bankable projects have demonstrated to be important services, which FDI should continue to provide. FDI's lending could again be affected as its foreign exchange resources get depleted in the future. To this effect, IDA would seek the Government's commitment to replenish FDI's foreign exchange resources by exchanging accumulated gourdes from loan recoveries for foreign exclhange. The PAC would also be revived under the follow-up operation, to oversee FDI's overall policies and operations (para. 9.1, Part I, and Table 1, Part III, of the PCR).  PROJECT COMPLETION REPORT HAITI INDUSTRIAL CREDIT PROJECT (CREDIT 1131-HA) PART I: DESCRIPTION AND ISSUES 1. PROJECT IDENTITY 1.1 The Industrial Credit Project was financed by IDA (Credit 1131-HA for SDRs 5.7 million) and processed by the Industrial Development and Finance Division 1. Projects Department, Latin America and Caribbean Regional Office. 1.2 The Project was instrlmental in setting-up a second-tier financial institution involved in rediscounting loans granted by the banking system to Haitian-owned small- and medium-scale enterprises in the handicraft, manufacturing, mining, agroindustries, fishing, tourism, and service sub- sectors. 2. BACKGROUND 2.1 Haiti's industrial sector is characterized by two separate struc- tures that have emerged under two different trade regimes: (i) import- substitution industries, serv..ng the local maLk;.. and, until recently, highly-protected from external competition; and (ii) the export assembly sector, operating under a free trade regime. Haiti's industrial sector experienced its most dynamic growth in the 1970s -- at a rapid rate of 1O0 per annum in real terms, due primarily to the establishment and expansion uf the export assembly sector. However, growth was not sustained, and, with the exception of a brief surge of activity in 1982/83, industry has been in an overall decline since 1981. 2.2 Until mid-1986, the industrial sector operated in a highly-pro- tected environment, including tariffs as high as 200t and quantitative restrictions on imports. In July 1986, the Government of Haiti, with IDA support (Credit 1766-HA), reduced and simplified import tariffs, replaced specific tariffs with ad valorem tariffs, and removed most quantitative restrictions. 2.3 Haiti's industriil sector has suffered for many years from a scar- city of term financing, lack of technical assistance, inadequate supply of raw materials, and limited managerial capabilities and skilled labor. Moreover, for the past two year, the sector has been affected by trade liberalization, a massive increase a.n contraband, and political uncer- tainty. Credit 1131-HA aimed at removing, term financing constraints, while  - 2 - providing the needed technical assistance, with the follow-up operation (Economic Recovery Program, Credit 1766-HA) directed at the sector policy objectives, including trade policy reforms, market liberalization, and the restructuring and closure of certain inefficient public enterprises. 3. PROJECT OBJECTIVES AND DESCRIPTION Prolect Objectives and Components 3.1 The project's primary objective was to support the Government's policy to promote Haiti's industrial development, by financing industrial operations and providing limited technical assistance. The project was to be the vehicle for initiating a policy dialogue with the Government on the effectiveness of industrial and rinancial policies and regulations, in- cluding possible measu,-es to strengthen the financial system and improve the allocation of resources. More specifically, the project was designed to: a) Establish an effective mechanism (a second-tier institution, the Fonds de Developpement Industriel, FDI") to finance the Haitian private industrial sector, particularly small and medium indus- trial enterprises, through the provision of medium- and long-term loans; b) StrLngthen the capabilities of the Supervision Department of Haiti's Central Bank ("Banque de la Rep6blique d'Haiti, BRHI) to supervise and evaluate the performance of financial institutions; and c) Assist to develop a technical assistance program for small and medium enterprises and to strengthen the institutional capabili- ties of the National Office for Investment Promotion (ONAPI). 3.2 The project's components included: (i) US$6.0 million for indus- trial credit to finance small- and medium-scale enterprises; and (ii) US$1.0 million for technical assistance activities, including US$375,000 advanced under a Project Preparation Facility (PPF). The latter would strengthen ONAPI and BRH's Supervision Department and provide training to FDI staff. 4. PROJECT DESIGN AND ORGANIZATION 4.1 The FDI was established under BRH, but with separate resources and staff, to act as implementing agency and provide term financing to indus- trial operations. Under this two-tier credit system, FDI would act as a second-tier institution, with a network of participating financial inter- mediaries approved by BRH. All financial institutions accredited by BRH and whose arrears were below 25Z of their loan portfolios were eligible to  - 3 - participate in the FDI scheme. The intermediaries were to be responsible for administering all subloans to industrial beneficiaries approved by FDI. FDI, in cooperation with BRH's Supervision Department, would follow up on the intermediaries' operations and would monitor the performance of firms financed under the scheme. Technical assistance to the beneficiaries was to be the task of ONAPI, which was established in 1979 and was still being organized at the time of appraisal. 4.2 FDI lending activi-ies were to be conducted pursuant to a State- ment of Policies, which, after IDA approval, was adopted by BRH's Board of Directors. The operating criteria, stipulated in this Statement of Policies, are summarized below. 4.3 FDI would finance investment projects and operations of new or existing Haitian-ownedl private enterprises engaged in handicrafts, manu- facturing, agroindustries, fishing, mining, tourism, transport, and indus- trial construction, as well as ancillary service enterprises, including the purchase, construction, or renovation of equipment, machinery ana cargo vehicles, civil works, and industrial buildings, as well as working capi- tal, preinvestment studies, and technical assistance services. 4.4 To make FDI term resources availablc to a large number of firms, the maximum FDI financing per beneficiary was initially limited to US$250,000, including repeater operations (po8... .ble only if 50Z of previous subloans had been repaid). To induce particip.ting banks to handle esaller loans, a higher spread (6Z, as compared to 5Z for loans above US$50,000) was to be provided for operations under US$50,000. To encourage financial intermediaries to provide medium- and long-term lending to small and medium enterprises, FDI was authorized to provide guarantees at the request of financial intermediaries simultaneously with the specific FDI subloans, but limited to a portion of the principal discounted. To keep the portfolio risk assumed by FDI to an acceptable level, the maximum amount of guaran- tees provided by FDI was limited to 40Z of FDI's total financial assets (cash and rediscount portfolio). Furthermore, provi on for losses on guarantee operations would have first call on operating -ofits, until the provision reached (and remained at) 25Z of the total an-junt of guarantees still in force. Organization 4.5 FDI's personnel structure consisted of a Director and two profes- sionals, supported by a consultant with an economic and financial back- ground and experience in industrial sector technical assistance programs and a small number of administrative and clerical staff. 4.6 A Project Advisory Committee was established, chaired by the Governor of BRH, and comprising FDI's Director and representatives of the Ministry of Finance and Economic Affairs, the Ministry of Iniustry and Commerce, the Ministry of Planning, ONAPI, the participating financial 1/ This was defined as any enterprise in which Haitian interests had at least 51Z of the equity.  - 4 - intermediaries, and the Association of Industrialists. The Committee was to be instrumental in obtaining the cooperation of Government agencies to implement the project and in monitoring overall industrial and credit policies. Resources and Project Costs 4.7 FDI was to be established on a sound financial basis, with sepa- rate accounting, auditing, and financial reporting. Its initial resources, allocated by the Government, would include: a) US$6.0 million, from the credit component of the IDA credit; and b) US$1.0 million equivalent, pro- vided by the Government as counterpart funds. The total project cLst was estimated at US$11.0 million; total investments to be financed were fore- cast at US$10.0 million (financed by the Government, US$1.0 million; IDA, US$6.0 million; and financial intermediaries and enterprises, US$3.0 mil- lion); and technical assistance was estimated at US$1.0 million. 4.8 Early approval, in March 1980, of the PPF made possible the timely preparation of FDI's basic documents, including the General Statement of Policies and Procedures, Operations Manuals, and Guidelines for Financial Intermediaries and Beneficiaries. 4.9 The project's concept was sound, based on clear-cut criteria and guidelines for implementation. Borrower representatives understood and agreed to the contribution that all agencies involved in the Project had to bring to its success. However, two entities that were expected to play an integral role in this endeavor failed to do so: a) BRH's Supervision Department was entrusted with two duties. First, it was responsible for conducting an evaluation of the creditworthiness of financial intermediaries which were to enter into a participation agreement with FDI, a task which was carried out satisfactorily. Second, it was to provide FDI with periodic evaluation reports on the performance of these financial inter- mediaries, with particular attention given to those operations financed by FDI. This second task was never performed; and b) ONAPI was expected to develop a technical assistance program for small and medium enterprises, to complement FDI's financial assis- tance. Despite the use of a consultant financed under the proj- ect, ONAPI was unable to overcome its institutional deficiencies, It was eventually disbanded early in 1984. 4.10 The Staff Appraisal Report (SAR) stated that development of the supervision capabilities of BRH's Supervision Department would be slow, thereby risking project implementation delays. In this regard, the Depart- ment in question never achieved the proficiency needed for this task. ONAPI's failure is attributed to the limited expertise of its staff and FDI's failure to spell out the services expected from ONAPI. i  S. WPLEMENTATION 5.1 Appraisal was completed by August 1980, and negotiations were held in Washington, D.C., during February 11-20, 1981. Two conditions of Board presentation were quickly met, including the signing of an Official Decree establishing FDI as an independent institution and specifying operating criteria, ownership, and financing. The Board approved this Credit on April 14, 1981, signing followed on June 8, 1981, and the Project became effective on December 8, 1981. 5.2 By this time, however, the economic environment had deteriorated, due mainly to the recession in Haiti's main trading partner, the U.S. As a matter of fact, 1981 -- which should have been the Credit's first year -- s&w a 3? drop in Heiti's GDP, followed by a similar performance in 1982. Consequently, FDI did not begin its operations until FY 1983 (October 1, 1982 to September 30, 1983). 5.3 Based on experience in the start-up operations, FDI's redis- counting was gradually simplified, as follows: (i) the rediscount per- centage moved up to 90? of the loan granted, from an original limit of US$250,000 -- for an average of 802 -- with an upper limit of US$500,000; (ii) guarantees went up to 75? of rediscount amount, from 60?, with a limit of US$200,000; (iii) a spread to financial intermediaries of 6? for redis- counts up to US$100,000, and 5? for all rediscounts of over US$100,000; and (iv) guarantee fees of 2?, payable by the intermediary. 5.4 The project was carried out over a six-year period, from FY 1982 (October 1, 1981 to September 30, 1982) to FY 1987, although activity during the first year was negligible. The Staff Appraisal Report (SAR), in its financial tables, showed a five-year span, and estimated that FDI would need additional resources in its fourth and fifth years, if projected operations were to naterialize. FDI has not received any additional re- sources thus far. 5.5 For the purpose of comparing actual results with appraisal esti- mates, this report will look at the six-year period during which FDI dis- bursed Credit funds. The Tables comprising Annex 1 present FDI's redis- counting operations. A summary of these operations is presented below.  -6- FDI Operations. 1982 to 1987 (In USM Thousands) FY 1982 1983 1984 1985 1986 1987 TotIal Amount of Actual Approvals 18 1,688 2,822 1,979 781 1,026 7,994 Appraisal Estimte. 2,000 2,200 2,800 3,900 4,200 - 16,000 Number *t Projects 1 69 26 11 8 5 114 Disbursements 17 1,306 2,381 1,646 1,095 694 7,019 Appraisal Estimte. 1,600 2,090 2,680 8,230 8,910 - 18,460 Portfol?o 17 9" 2,29S 2,481 2,916 3,167 8,167 Appraisal EvtAates 1,440 2,920 4,790 7,220 9,980 - 9,980 5.6 Performance fell below appraisal targets for a number of reasons. First, as mentioned in para. 5.4 above, the SAR (p. 15, para. 3.15) indi- cated that, by the fourth project year, FDI was expected to secure addi- tional resources under conditions similar to those of the IDA Credit. This did not materialize. On the contrary, by FY 1984 it was obvious to the supervision missions that all available FDI resources would be fully com- mitted by 1985 and that new funding, possibly from IDA, would be needed early in 1986. For reasons discussed in para. 7.2, IDA was unable to process a follow-up project in time. 5.7 Second, the amount of resources which the appraisal report stated would be made available to FDI did not fully materialize, in spite of the Government's contribution, as planned, of US$1.0 million at FDI's incep- tion. This shortfall was due to the fluctuations of the SDR against the U.S. dollar during the years when most disbursements were made. The Credit was denominated in SDRs (5.7 million), which at the time of negotiations was equivalent to US$7.0 million. Of this amount, SDRs 4.8 million were for rediscounting operations, and about SDRs 0.9 million, for technical assistance. The SDRs 4.8 million were expected to generate about US$6.0 million, but the aforementioned fluctuations reduced the U.S. dollar amount actually disbursed by IDA for FDI rediscounting operations to US$4,766,000. 6. PROJECT RESULTS 6.1 FDI's lending performance was satisfactory, particularly con- sidering that it assumed supervision of operations with the financial intermediaries from BRHI's Supervision Department and totally replaced ONAPI as the responsible agency for the technical assistance component. The latter undertaking was essential in developing a credible pipeline of proj- ects to be financed, and FDI's best years were those in which it made a strong promotional effort.  6.2 In its six years of operation, FDI redisc'unted 114 loans made by commercial banks to small- and medium-scale industrial enterprises. Table 1 of Annex 1 shows the sectoral distribution of these operations. An analysis of the financing and jobs created is s9umarized below. Analysis of FD! Operations. 1962 to 1987 (In USS Thousands) Tota I No. of Average No. of Project FDI IDA Job Cost per Operations Cost Rediseountina Disbursements Created Job in MSI 114 15,732 7,94 4,766 1,690 9,894 Average per Operation 188 70 42 14 - X of Financing 60.8X 80.3X These 114 operations amounted to US$15.7 million, to which FDI contributed US$8.0 million, or 50.8Z, with enterprises and the banking sector making up the balance. IDA disbursed funds, US$4.8 million, represented 59.6Z of FDI rediscounts2 and 30.3Z of total project costs. Every U.S. dollar disbursed by IDA mobilized more than two dollars of local resources. The investments created approximately 1,590 jobs, at an average cost per job of US$9,894. However, FDI's ad hoc supervision made it very difficult to confirm the actual number of jobs created. It should be recognized that collecting data from local enterprises is a most difficult exercise, as some (if not most) enterprises keep two or, sometimes, three sets of accounts; some enterprises still have no proper accounts at all. 6.3 As of September 30, 1987, FDI had approved 114 subloans, amounting to US$8.1 million equivalent and covering 103 enterprises. Distribution of Credit proceeds through financial intermediaries is shown in Annex 3, Table 2. Nearly 75? of the approved amount covered medium- and long-term operations (2 to 7 years), with the remainder covering operations from 6 months to 2 years. Seventy-nine percent (79Z) of FDI's rediscounts sup- ported the manufacturing and agroindustrial sectors (462 and 33?, respec- tively). Construction, fisheries, and other subsectors comprised the balance (see Annex 1, Table 1). 6.4 Through this operation, FDI achieved the following objectives: (i) lent assistance in the creation of new microenterprises (which normally 21 The Loan Agreement provided for disbursements of 86Z on subloans discounted by FDI. When FDI started accumulating local currency from loan repayments, it provided rediscounting from its own funds.  - 8 - do not have access to traditional sources of finance) and the expansion of existing ones; (ii) assisted small- and medium-sized enterprises with working capital for importing raw materials; (iii) met term financing needs of small- and medium-sized enterprises; and (iv) provided extension ser- vices to a number of small and medium enterprises. 6.5 Forty-five microenterprises (22 new and 23 existing) were assisted through the 'Fondation Haitienne de Developpement (FHD),* a development bank geared to small-scale industry promotion, creating 333 new jobs at around US$2,000 per job. FDI resources allocated to this sector totalled US$300,000. Thirty-nine subloans, amounting to US$1.9 million, addressed the working capital needs of around 30 small- and medium-sized enterprises. Thirty rediscount operations covered medium- and long-term financing for 28 small- and medium-sized enterprises for a period of 1-7 years, amounting to US$5.9 million. Seventeen operations covered expansion and modernization needs, and 13, the creation of new enterprises. Subloan size varied from US$14,000 to US$0.5 million equivalent. Participating Financial Intermediaries 6.6 There are nine institutions operating in the commercial banking system in Haiti. Their classification according to assets held at 31 December 1987 is detailed in Annex 3, Table 1. Eight banks were declared eligible by the Central Bank to access FDI funds. FDI rediscounted loans granted by six of these banks, three of which are local (BNC, SOGEBANK and BUH) and tAree, foreign (BNP, FNBB and Citibank). In addition to these six, FDI extended its operations, although on a very limited scale, to two local development banks (BNDAI and SOFHIDES) and to FHD, which caters to very small enterprises. FDI rediscounted with local banks 73S of its operations and 68.4S of the loan amount. Twenty-five percent (25Z) of the loans rediscounted by FDI were for short-term lending, and 75S for long- term. Table 2 of Annex 3 shows the various banks' participation in FDI rediscounting and the amounts of term lending. Guarantee Operations 6.7 FDI, upon request by a commercial bank and after scrutiny of the credit file, can issue guarantees on loans it has rediscounted, with a ceiling of 75Z of the amount discounted and a limit of US$200,000 per guarantee. FDI is further limited to issue guarantees up to 252 of its available resources. Up to 30 September 1987, this limit was about US$1.5 million (25? of FDI's resources of about US$6.0 million), and during its five years of operation, FDI had issued 14 guarantees, totalling US$1.1 million. Of these, nine were still outstanding at 30 September 1987, totalling US$407,925. Five of the enterprises for which FDI guaranteed loans have experienced problems, and two of these have ceased repayment. All five investments had been processed and approved by commercial banks, with FDI assuming only a rediscounting role. While some of these enter- prises rallied after debt rescheduling, payments made by FDI as a result of these guarantees totalled US$127,000. FDI has created a reserve fund for such risks, which is now being reconstituted, so as to maintain it at 25S of the guarantee exposure. The four cases evaluated by FDI and analyzed in Annex 4 of this report have not received FDI guarantees.  -9- Portfolio Quality 6.8 Debt service on amounts outstanding on rediscounting operations is debited monthly, through the Central Bank, to the accounts of the commer- cial banks. This is done automatically and, therefore, FDI does not exper- ience defaults, unless a commercial bank asks FDI to delay collecting its debt service because of such default. Only two such cases have been regis- tered in all, one for a company that went bankrupt and the other for an enterprise that went through severe financial difficulties. At 30 September 1987, FDI reported that 18 loans were still outstanding, totalling US$3,167,009, five of which presented some problems (including the two above). In three cases, debt service had to be rescheduled, pro- viding temporary relief; the total outstanding on these five loans was US$293,249, which represented less than 42 of total FDI disbursements up to 30 September 1987. Post-Evaluation of Some Investments 6.9 In preparation for this report, FDI provided IDA with an extensive review of four specific projects financed under the Credit. These reviews are on file in the LAC Information Center, and IDA's comments are attached as Annex 4. Of the four enterprises, two (a printing company and a phar- maceutical manufacturer) used the funds efficiently, managing to achieve their initial targets. This confirms that FDI was able to sensitize some small concerns on the need to improve and expand their operations an4 to borrow for these purposes. Two enterprises (a fishing company and a chicken-feed producer) did not perform well. In the first case, lack of proper maintenance frequently immobilized its fleet. In the second, rising production costs were not contained, thereby causing the profit margin to disappear. The latter highlights the need for renewed technical assistance to small-scale enterprises. Under the proposed Industrial Restructuring and Development Project, FDI's technical assistance functions would be broadened and strengthened to provide the needed assistance. Organization and Staffing 6.10 Through September 1987, FDI's organizational structure was as follows: one General Manager, one Deputy General Manager, and one Opera- tions Manager (all three senior executives), assisted by an expatriate Technical Assistant who acted as Adviser to the General Manager (financed during the first three years from Credit proceeds and for the last two years under the Technical Assistance Credit -- Credit 1786-HA); one Admin- istrative and Financial Manager, assisted by one Personnel Officer; and 10 support staff. This was the core staff. From time to time, FDI made use of local consultants to complement its staff. The experience with consul- tancy services has not been very satisfactory. Although FDI has been suc- cessful in its efforts to recruit and train operations officers to help in the supervision of ongoing operations, more attractive offers from the private banking sector have caused a high turnover.  - 10 - 6.11 In the six years under examination, FDI experienced a high turn- overt three General Managers; two Operations Managers; and threo Admin- istrative and Financial Managers. This is the main reason why the expatri- ate Technical Assistant, originally scheduled for the two-year project start-up period only, is still in poet. He was instrumental in holding the institution together (especially during the last two years of greatest turmoil), and starting some of the technical assistance schemes and training efforts. But, to some extent, his role as an Adviser has limited his contribution and influence on the decision-making process. Weakness of Review and Supervision 6.12 As a result of the high turnover and particularly because of the absence of experienced operations officers, FDI's supervision of borrowers' performance, its ability to collect comprehensive data on the use of loaned funds, and, more importantly, its ability to evaluate actual results have been limited. Even upstream, FDI's evaluation of projects submitted by potential borrowers seems inadequate, as can be seen from para. 6.8 above. Although required to do so by its Operations Manual, computer printouts provided by FDI show that financial rates of return were calculated for only 10 projects of the 114 operations financed during the project life (see Annex 1, Tables 3 to 5). 6.13 In summing up, it can be said that FDI, while not becoming as efficient a financial institution as expected, did some pioneering work in sensitizing the industrial sector to the need for restructuring and the commercial banking sector to the need for term lending, and helped to pro- vide badly-needed financial assistance that would not have been available otherwise. The Government's failure, and IDA's inability, to make the other institutional partners play their role fully in this project were partly the cause of FDI's limited success in supervision and in providing technical assistance to enterprises. Operating Results 6.14 Annex 2, Table 1, shows the projected and actual income statements for FDI, from project start through 30 September 1987. Overall, it can be said that FDI had a balanced operation, covering its expenditure from its income, but not being able to generate a surplus large enough to create an adequate provision for losses on its guarantees. Table 2, Annex 2, shows comparisons between the SAR projections and actual Balance Sheet figures; Table 3 gives financial ratios. Technical Assistance 6.15 The technical assistance component, amounting to US$958,618 (including US$374,800 of the PPF), was allocated as follows: US$61,882 provided support to the Supervision Department of the Central Bank; US$151,412, supported ONAPI; and the remaining US$745,324 was allocated to FDI, to support consultant services, training seminars, extension P'rvices, and project studies.  - 11 - Reportina Requirements 6.16 Since its establishment in 1981, FDI's accounts have been regu- larly audited by external auditors -- Peat, Marwick, Mitchell & Co. The short-form auditors' reports have had no negative comments on FDI's accounts. Detailed supporting documentation, however, has sometimes raised issues on specific shortcomings in internal auditing and control and, par- ticularly, on the unsatisfactory level of supervision carried out by FDI on its investments. 7, IDA'S PERFORMANCE 7.1 IDA was diligent in facilitating project preparation, including the granting of a Project Preparation Facility (PPF) and active participa- tion of several pre-appraisal missions. Supervision missions visited FD, regularly twice a year, and, in the early stages were very helpful in iden- tifying problems impeding project implementation. These missions were also very quick in recommending, or accepting FDI's requests for, changes in the original project design, particularly with regard to procedures, levels, and conditions for rediscounting and guarantees, amend4ig these to adapt FDI's operations to Haiti's environment. 7.2 However, most of the institutional inputs that had to be provided by different Government agencies did not materialize (see Section 4). IDA had to continually engage the Government in a dialogue to try to remove the constraints facing FDI. The actions of the supervision missions were crucial in resolving some of the problems, but two issues remained un- resolved. First, despite their repeated interventions, the supervision missions were unable to obtain action on ONAPI's failure to fulfill its important technical assistance role in the project. Second, although IDA, through its supervision missions and by special communications to the Minister of Finance, alerted the Haitian authorities on the critical impor- tance of converting some of FDI's reserves in local currencies into foreign exchange, it was unable to convince them to do so. The series of events which led to, and followed, Duvalier's departure can partly explain the Government's inability to follow through, even though IDA received promises to that effect. Because of the depletion of its foreign exchange resources and its inability to mobilize Government help, FDI's management started looking at other aid agencies (Canadian International Development Agency and Caisse Centrale de Cooperation Economique of France), without success, Events in Haiti since 1986 had their impact on the design and timing of a follow-up IDA operation, which was not scheduled in the lending program until FY 1989. Although preparation took place in May 1988, subsequent periodic political and social upheavals further delayed appraisal to May 1989.  - 12 - 8. BORROWER'S PERFORMANCE 8.1 The Borrover was very efficient in completing the legal and pro- cedural actions needed to bring FDI into being: conditions of effective- ness were met quickly, enabling FDI to start operations as scheduled. Subsequently, FDI was unsuccessful in obtaining the cooperation of BRH or ONAPI, which were to bring sit essential contribution to project development (see Section 4), while the Government failed to act on these matters. IDA and its supervision missions raised this issue repeatedly, with no results. Even the Project Advisory Committee (PAC) (para. 4.6), set up according to the stipulations in t',e Credit's Legal Documents, met formally only twice, and did not bring to FDI the assistance and guidance which were expected, neither in the relationship between FDI and other Government agencies, nor in the analysis of existing and contemplated industrial and credit poli- cies. However, FDI management, in trying to resolve some issues, took the initiative at various times in calling meetings with the Governor of the Central Bank and several relevant Ministries. Even though the PAC did not facilitate a policy dialogue with IDA, as was expected, IDA was able to establish this dialogue with the Government through the follow-up operation (the Economic Recovery Credit, Credit 1766-HA). which supported sweeping trade policy reforms. During project implementation, and in the absence of inputs from other institutions, IDA, directly or through the supervision missions, played an increasing role iu managing the project. FDI always looked to IDA to solve the problems it faced, while this responsibility should have been placed in the hands of the Haitian authorities, particu- larly the BRH. 8.2 By 1986, FDI, through its promotion activities, had managed to bring about an active cooperation between the banking and industrial com- munities. The industrial sector was made aware of the need to restructure and improve its performance, and the banking system finally became willing to venture into term lending. It was the first time that such a structure had emerged, devoted entirely to promoting the industrial sector. Unfor- tunately, the limited, but essential, momentum thus created for FDI to become an efficient financial institution was slowed down by the lack of foreign exchange resources, which limited its lending operations. Access to those resources should have been provided by the Government. On the whole, however, FDI was able to accomplish most projezt objectives, including lending assistance in the creation of new enterprises, financial assistance to new and existing enterprises, and technical assistance, but only for a limited time. In addition, through this project, FDI mobilized additional resources that would not have been made available in the absence of this operation. 8.3 At the beginning of project implementation, the unfavorable in- vestment climate caused by the economic recession of the early 1960s re- duced investment demand. Furthermore, in the project's early stages, com- mercial banks showed, in addition to their lack of experience in second- tier type of lending, a lack of interest in making long-term loans for  - 13 - industrial investments, preferring to continue to concentrate their opera- tions on short-term lending activities -- mostly foreign-trade operations -- which are less risky and more profitable. Even when the banking system started processing loans and mobilizing FDI funds, their contribution in following up the investments and supervising the borrowers' performance was, and still is, very limited. 9. PROJECT SUSTAINABILITY 9.1 Haiti's industrial development was promoted by the establishment of FDI as a second-tier rediscounting facility and the latter's encourage- ment of the banking sector to provide term financing to small and medium industrial enterprises. FDI has an important role to play in the future since the indust.ial sector is still at an early stage of development, and FDI iu the only term lending institution in Haiti. The main constraint at this time is the shortage of foreign exchange resources. A follow-up IDA operation (an Industrial Restructuring and Development Project) would ensure that the Government commit itself to regularly convert a portion of FDI's income (from loan repayments, which are in local currency) into foreign exchange. 9.2 Under the proposed operation, FDI would continue to strengthen its institutional capability, particularly by attracting qualified professional staff and by incorporating mechanisms to improve its supervision perfor- mance. Furthermore, the scope of FDI activities in identifying and pre- paring bankable projects and providing extension services would be broadened. FDI's role in assisting industrial enterprises to restructure, so as to adjust to the new environment created by trade liberalizat!.on, will be crucial in ensuring that the trade reforms' potential benefits materialize in a more dynamic and competitive industrial sector and that backsliding does not occur. 10. CONSULTING SERVICES 10.1 The objectives of the technical assistance component of the credit vere only partly achieved. In particular, the programs that ONAPI was expected to implement never materialized, since the institution was even- tually abolished. FDI managed to hire consultants to implement an indus- trial extension service, vhich helped a number of enterprises identify their problems and reach some practical solutions. But the funds available for this purpose under the project were socin exhausted, and these activities were considerably slowed down. 10.2 The provision of an expatriate Advisor to FDI's management was a positive step, since he was instrumental in organizing the institution -- particularly since senior staff turnover (including the General Manager, as mentioned before) was detrimental to strong institutional leadership.  - 14 - 11. PROJECT DOCUMENTATION AND DATA 11.1 The main constraint to FDI operations is the growing scarcity of foreign exchange and the Government's inability to replenish these re- sources. This aspect was not covered In the Credit's Legal Documents, prob&bly because during project processing it was assumed that FDI would be able to mobilize such funds from other sources, which did not materialize. 11.2 But even when adequate stipulations were introduced in the Legal Documents, as in the case of ONAPI's responsibility to deliver technical assistance to small-scale enterprises and the BRH Supervision Department's co mitment to properly supervise the financial intermediaries, IDA was unable to obtain compliance. Similarly, although the Credit Agreement stipulated the establishment of the PAC and its operation in a form and substance acceptable to IDA, it did not elaborate how it would be enforced to perform as agreed. In future, covenants whose enforcement could be problematic should be fully treated in the risks sections of the projec:'s Staff Appraisal Report. 11.3 FDI has a computerized data system, and most required information. is readily available. Only proper and timely data analysis is lacking, which could clarify where problems lie and help in devising and carrying out remedial measures as soon as they are needed. PART II: BORROWER'S PERSPECTIVE 1. ACCURACY OF PART III 1.1 The information contained in Part III of this report is adequate and accurate. 2. COMMENTS AND ANALYSIS OF PART I 2.1 The .talysis contained in Part I of this report reflected roughly FDI's situation during the six-year period, from FYs 1981182 to 1986/87. Only a few important facts mentioned must be rectified, ard some insights, which only field people can supply, must be added to help the reviewers of this PCR better comprehend FDI's experience. Moreover, these facts have to be placed in their own context. 2.2 Arrival of the Preparatory Mission of the PCR (Qa, and August 1988). The period being considered in this report covers 1981 to 1987. The Mission came in May and August 1988, at which time FDI was having the most serious internal crisis of its history. Its survival was at stake. The Operations Manager was on leave for four months. The Administration and Finance Manager was resigning. The General Manager was about to be replaced. The Mission came at this critical time to gather information for  - 15 - the PCR. Had the Mission come in 1987, with the same information, the same facts, and the same figures, its interpretation would have been quite different, because the Mission could have met a management with a strong working team spirit. In the absence of a strong FDI working team, the two Bank missions in 1988 were not provided with the appropriate context to discuss important issues with FDI's management, clarify certain facts, and rectify some figures. 2.3 Had FDI, in 1987, given the Bank and the Government the impression contained in the present PCR, they would not have mandated FDI as the Executing Agency for one of their most ambitious projects ever realized in Haiti, called the Industrial Restructuring program. Specific Institutional Issues 2.4 "High turnover of senior staff and unsuccessful efforts to recruit and train operations officers." This reference in Part I of the report is very subjective. Three General Managers, two Operations Managers, and two Administration and Finance Managers in six years is a relatively low turnover by Haitian standards, and nothing dramatic if the underlying reasons were known. Besides, during the same period of six years, the Bank changed its Task Managers for this Credit three times. Was this turnover high also? As far as FDI was concerned, two General Managers and one Operations Manager lad left for promotions in the Government and the private sector, and cwo Administration and Finance Managers were promoted internally. The ssue here is not numbers. It is a problem of context and quality. Do we htave the right to ask someone not to move up just because we want to keep our staff turnover low? The other statement concerning FDI's failure in its efforts to recruit and train Operations Officers is not quite accurate. Until 1988, FDI had never felt the need for staffing its Operations Department with more than its 'one and only" Manager. 2.5 "Weak Supervision and Inadequate Evaluation of Projects." Lackhig experience and a competent staff, the commercial banks failed to supervise their loans as the project design required. In order to fill this gap, FDI designed its own supervision scheme and performed quite well, to everyone's satisfaction. But, when the Mission came in 1988, FDI's worst year in its history and with the Operations Manager on leave for four months, it was normal in this "behind schedule context" for the Mission to find FDI's supervision of the Borrower's performance poor. 2.6 For the Mission, FDI's project evaluation was also inadequate, because, of the 114 operations, only 10 projects had the financial rates of return calculated. Had the Mission discussed this with FDI, it would have been pleased to learn that, of the 114 operations financed by FDI, 103 did not need to have this kind of calculation, because of their size or their maturity, and only 11 operations required to do so. FDI computer printouts show that financial rates of return were calculated for 12 projects, of which 11 needed to be done (Annex 1).  - 16 - Insights from the Field 2.7 One of the objectives of Credit 1131-HA was to strengthen FDI's institutional capacity. It is thrjugh this perspective that FDI offers its own independent review as follows: a) Three wears of languidness (1981-83). For three long years, PDI did not make any progress, for the following reasonst (i) What the Credit's Staff Appraisel Report (SAR) expected would be achieved with regard to supervision though BRH's Supervision Department and ONAPI, was not, and (ii) what the SAR did not take into consideration, occurred in forces the banking sector's excess liquidity, the commercial banks' indifference to the rediscount system, and the almost total lack of qualified personnel in commercial bankj for the preparation and evaluation of industrial projects. It is the latter, rather than the former, that accounts for the slowdown of FDI's operations. As a matter of fact, even if BRH's Supervision Department and ONAPI had done their job, FDI's progress woule still have stalled inevitably, because, up until June 1983, FDI had no medium- nor long-term projects in its portfolio. (FDI financed only one project of US$18,000 in 1982 and one of US$2,000,000 in 1983, representing just 90-day loans for the purchase of raw materials -- really wasted foreign exchanget) b) Take-off and Momentum (1984-85). With the recruiting by end-1983 of a new expatriate Consultant, to replace the first one -- who had left before the end of his contract, after just 15 months of service -- in an attempt to pull FDI out of its lethargic state, a strategic approach was taken to fit the realities ("Since the mountain won't come to Mohammed, Mohammed will go to the mountain.'). This approach consisted of the followings (i) a team composed of existing staff was fashioned with a well-defined 'who-does-what' plan; (ii) a Project Preparation Fund was created, to assist entrepreneurs in preparing bankable projects; (iii) a Project Preparation Guide was placed at the disposal of enterprises and banks; (iv) an Industrial Extension Program was planned, to provide the necessury technical assistance to future customer-enterprises; and (v) a wide-spectrum Promotion Campaign Plan was set up and launched, to sensitize public opinion and the industrial and banking sectors cw the presence and usefulness of FDI services. All of this was carried out effectively, allowing FDI to become dynamic: it came out of its infancy in 1984 with US$2,300,000 worth of long-term projects (highest level ever obtained in its history), and in 1985 reached a momentum with all its resources approved (cumulative approval at end-1985 of US$6,200,000 against resources of US$5,700,000).  - 17 - c) Maturity and New Mandate (1986-87). By 1986, FDI had earned its place in the financial sector. Its image was good, its name, respected, and its credibility, established. In short, FDI had reached its maturity. Thanks to this institutional maturity, the Government and the Bank jointly decided, at the beginning of 1987, to entrust FDI with one of the most ambitious projects of economic reform ever attempted in Haiti: the Industrial Restructuring Program. d) Incomplete Growth. The main source of strength of every development finance corporation is the importance of its resources. It is this dimension that first enables it to obtain a certain credit mass in its portfolio, so as to become profitable and. subsequently, sustain its growth. It is, unfortunately, this type of strength that FDI has been lacking to this day. Despite the prevision of the SAR that FDI would need new resources by the fourth and fifth years and FDI's alarm signals that its resources were drying up (by end-1985, they had*, the regrettable result still remains: the Second Industrial Credit, so much talked about, discussed, and promised, is still a dead letter. Because of that failure, FDI's growth came to a halt. 2.8 To sum up, in spite of great difficulties, unfavorable circumstances, and with a small team of four people (one General Manager, two Department Managers, and one Adviser), FDI succeeded in overcoming all obstacles, growing out of its infancy, and becoming one of the most credible public institutions in the country. In terms of objectives, FDI particularly succeeded in convincing the powerful Haitian banking sector to shake its indifference towards long-term industrial credit and to understand the necessity of dealing with FDI, because of the many technical and financial advantages FDI offers to it and to its customer-enterprises. However, FDI's resources were never sufficient enough to match the level of its ambition or to maintain its cruising speed -- to become a catalyst institution of industrial development in the country. 3. WORLD BANK PERFORMANCE 3.1 During this project's iaplementation period, FDI worked with three Task Managers. All three showed great professionalism and were very businesslike. The second Task Manager was especially helpful, thanks to his keen, practical sense of operations, during FDI's critical take-off period. 4. BORROWER PERFORMANCE 4.1 Assessment of the Borrower's performance and FDI's comments on this analysis, both in Part I of this report, contain a rather complete idea of FDI'a performance.  - 18 - 5. EFFECTIVENESS BETWEEN WORLD BANK AND BORROWER 5.1 The relationship between the Bank and the Borrower was excellent. Its effectiveness was goo6, and various problems were solved (multiple changes in the original project design). But, it could have been much better and much more impressive had the Government and the Bank not permitted a slowdown in FDI's momentum in 1935, by a lack of foreign exchange resources, thus making it difficult for FDL to become a leading development finance institution. PART III: PROJECT COMPLETION PROFILE Table 1: RELATED IDA CREDITS Project Name, Number and Year Amount Purpose Approved Status Economic To assist Haiti In 1987 Credit closed, and *econd Recovery Credit lmplmeo ting the now tranche (US820.0 million) (Cr. 1766-HA) trade liberalization cancelled since reloeas YSJU40.0 million policy and other conditions were not met. stabilization measures Technical To provide assistance 1987 Closing date extended by 9 Asscitance In the lmplementation months from March 51, 1989, Credit of tho above to December 81, 1989, to (Cr. '.786-HA) enable completion of US92.0 millon environmental studies component. Project being Processed Industrial Follow-up on the To be Negotiatlons tentatively Restructuring First Industrial submitted scheduled for September and Development Credit Project to the 1989. Project (Cr- 1181-HA) Board In US811.3 ml lion (includes US21.3 FY90 million In Tech- nical Assistance)  - 19 - An Industrial Restructuring and Development Project, to be implemented by FDI, was appraised in May 1989, and is scheduled for negotiations in September 1989. Following the trade liberalization reform of July 1986, it was felt that enterprises affected by the reduction in the levels of protection should be assisted to adjust to the new environment. To support this process, IDA included in its Techrical Assistance Credit (Credit 1786-HA), approved in April 1987, an inidustrial restructuring component aimed at advising private industrial enterprises on restructuring options. FDI was given the mandate and resources to promote the process of restructuring within the private manufacturing sector. To this effect, with the assistance of consultants, it carried out effectively the design of industrial restructuring plans for eeveral private enterprises. Restructuring proposals include financial restructuring and investment needs, changes in products and/or activities, changes in production scale, product quality improvements, technical rehabilitation, or upgrading of the production process, changes in accounting systems and management structure, and formulation of new marketing strategies. The proposed credit of US$11.3 million (SDRs 9.2 million) would provide US$4.8 million equivalent to private industrial enterprises to implement the restructuring plans and US$5.2 million equivalent to finance FDI regular DFC lending. The technical assistance component of US$1.3 million would: (i) strengthen FDI's institutional capability, particularly in the area of project preparation, evaluation, and supervision, and broaden its project preparation fund facility and extension services; (ii) further strengthen the Central Bank's Supervision Department; and (iii) improve Customs Administration. The Project Advisory Committee would be revived under its previous composition and would provide for at least semiannual meetings, overseeing FDI's policies and operations. Table 2: PROJECT TIMETABLE Actual/Revised Original Date Date First Mention in Files - Sept. 1978 Pre-appraisal Mission - Nov. 1979 Appraisal Mission - Aug. 1980 Negotiations - Feb. 1981 Board Presentation - Apr. 14, 1981 Credit Signing - June 8, 1981 Effectiveness Date Sept. 8, 1981 Dec. 8, 1981 Deadline for Subproject Submission Jan. 31, 1985 Jan. 31, 1985 Closing Date June 30, 1985 Mar. 31, 1987 Date of Last Disbursement - Feb. 17, 1987 Borrower: Republic of Haiti Executing Agencys Fonds de Developpement Industriel (FDI)  - 20 - Table 3: CREDIT DISBURSEMENTS AND RELATED INFORMATION (In Thousands of SDRs) Original Disbursed Cancelled Credit Amount 5,700 5,494 206 Cumulative Disbursements FY 1982 1983 1984 1985 1986 1987 (i) Appraisal forecast 1,000 2,932 4,560 5,700 5,700 5,700 (ii) Actual 166 591 2,225 4,745 5,176 5,494 (iii) (ii) as I of (iM 17 20 49 83 91 96 Fluctuations of the SDR in Relation to the U.S. Dollar US Dollar/SDR Rate At the time of SAR preparation 1.16 At Credit Agreement stage 1.23 1982 1.103 - 1.104 1983 1.05 - 1.07 1984 0.98 - 1.02 1985 1.10 - 1.01 1986 1.22 - 1.17 1987 1.42 - 1.29 Table 4: PROJECT IMPLEMENTATION FDI Operations, 1982 to 1987 (In US$ Thousands) FY 1982 1983 1984 1985 1986 1987 Total Amount of Actual Approvals 18 1,968 2,322 1,879 781 1,026 7,994 Appraisal Estimates 2,000 2,200 2,800 3,800 4,200 15,000 Subprojects Approved 1 69 25 11 3 5 114 Disbursements 17 1,306 2.361 1,546 1,095 694 7,019 Appraisal Estimates 1,600 2,090 2,630 3,230 3.910 - 13,460 Portfolio 17 966 2,295 2,481 2,916 3,167 3,167 Appraisal Estimates 1,440 2,920 4,790 7,220 9,980 - 9,980  - 21 - 1. Performance fell below appraisal targets for a number of reasons. First, the SAR (p. 15, para. 3.15) indicated that, by the fourth project year, FDI was expected to secure additional resources under conditions similar to those of the IDA Credit. This did not materialize. 2. Second, the amount of resources which the appraisal report stated would be made available to FDI did not fully materialize, in spite of the GOH contribution, as planned, of US$1.0 million at FDI's inception. The shortfall was due to fluctuations of the SDR against the U.S. dollar during the years when most disbursements were made. The Credit was denominated in SDRs (5.7 million), which at the time of negotiations was equivalent to US$7.0 million. Of this amount, SDRs 4.8 million were for rediscounting operations, and about SDRs 0.9 million, for technical assistance. The SDRs 4.8 million were expected to generate about US$6.0 million, but the aforementioned fluctuations reduced the U.S. dollar amount actually disbursed by IDA for FDI rediscounting operations to US$4,766,000, or 202 lower.  Table 5: USE OF BANK RESOURCES Month/ No. of No. of Specialization Staff Date of Performance Type of Missions Year Weeks Persons Represented /a Weeks Reports RatinR Problems lb Preappraisal FY 79/80 - - 58.2 Appraisal 8/80 - 2 SOO,SO 33.8 24/03/81 Supervision I 9/81 1 3 DC + 2 SO 3 07/10/81 2/2 M,P.O,T II 3/82 1.4 2 DC + 00 2.8 05/03/82 2/3 M,P,O III 11/82 1.2 3 SOO,OO,EC 3.6 29/11/82 3/3 T,P.O IV 3/83 0.8 1 00 0.8 06/04/83 212 M,T,F V 8/83 1 2 SOO,SO 2 29/08/83 2/2 M.T VI 4/84 1 2 2 12/04/84 21 F,O VII 10/84 1 2 OO,EC 2 05/12184 2/1 F VIII 3185 2 2 SOO,EC 4 22/03/85 212 F,M IX 11/85 2 1 00 2 18/03186 212 la DC - Division Chief SOO - Senior Operations Officer 00 - Operations Officer EC = Economist lb M - Managerial P - Political T - Technical 0 - Others  - 23 - Table 6: STATUS OF COVENANTS Deadllno for Covenant SubJect Compliance Status A. Credit Asreement J.04 Advisory Sep. 80, 1981 Compilled with. Comittee 3. Protoct Agrewment 2.02 Submission of No date The project had a very slow 2.02(s) Pr@je start-up, and no Fl had submitted (The first 4 project. during the first two projects for yers. Lending was moetly for each one of working capital, under the free the FIo had limit set by IDA, and procedures to be submitted were very simple. Most cases to IDA for were the object of tlexe o end approval.) approval was quasi-automatic. Starting In 1904, ill projocto submitted by FIo were transmitted to IDA and examined before final approval. 2.04 Submisiolon of At regular Complied with. Report. Intervals 2.05 Modificatlon All modifications were discussed of FDI'o with IDA, and approval of such Policee were always formal. 2.06 Managment The quality of the different and Staffing General Managers was mixed. 2.09 Employmnt of Always In compliance with IDA's Consultant. Guidelines 8.02 Annual Audit. At regular Complied with. Intervals 8.08 Avoidance of - No exchange risk was Involved. Exchange Risk 8.04 Maintenance of - Complied with. Approprlate Interest Rates 8.05 Exchange of - Compiled with. Views 4.01 Reports from - Compiled wIth. FDI  - 24 - Table 7: STAFF INPUTS (staff weeks) FY79 FY60 FY81 FY82 FY68 FY64 FY6C FY66 FY67 FY66 TOTAL Preepprelel 17.6 42.0 8.4 - 06.2 Apprai"l - - 88.6 - - - - - - - a8.8 Negotiations - - 9.0 - - - - - - - 9.0 Supervision - - 1.2 14.5 16.6 20.8 26.5 7.4 2.4 4.6 97.5 Other - 4.4 2.8 0.1 0.1 - - _ - 0.7 7.6 Total 17.6 W.44 54.7 14.6 16.7 20.8 26.6 7.4 2.4 s.8 216.1  PROJECT COMPLETION REPORT HAITI INDUSTRIAL CREDIT PROJECT (CREDIT 1131-HA) ANALYSIS OF FDI REDISCOUNTING OPERATIONS, 1982 TO 1987 (in US$O000) Average Total FDI IDA Cost No. of Project Redis- Disburse- No. of Jobs per Job Sector Operations Costs counting ments Created (US*) Food 26 2,493 1,424 1,028 248 10,052 Agro-Industries 8 2,302 1,331 625 207 11,021 Cottage Industries 9 415 310 35 193 2,150 Assembly 3 216 209 179 202 1,069 Plastics and Chemicals 15 4,185 1,764 859 104 40,240 Civil Works 6 1,929 789 563 73 26,425 Textiles and Leather 13 471 293 252 155 3,039 Metal 10 544 520 447 14 38,857 Fishing 3 1,354 462 10 156 8,680 Tourism and Services 11 593 491 423 30 19,767 Miscellaneous 10 1,230 401 345 208 5,913 Total 114 15,732 7,994 4,766 1,590 9,894I Average per Operation 138 70 42 1A 9,894 2 of Financing 50.82 30.32  - 26 - ANNEX 1 Table 2 Page 1 of 3 PROJECT COMPLETION REPORT HAITI INDUSTRIAL CRUDIT PROJECT (CURDIT 1131-HA) FDI - CHARACTERISTICS OF LOANS REDISCOUNTED UNDER CREDIT 1131-HA (in Us$'o -o) Number _ Amount z A. By Size of Approval Up to 50 70 61.4 1,067 13.3 51 to 100 26 22.8 1,841 23.1 101 to 250 9 7.9 1,522 19.0 251 to 500 9 7.9 3,564 44.6 114 100.0 7,994 100.0 ---mi __u u--_ *-_... B. By Size of Enterprise (Employee 0 53 46.5 3,316 41.5 Up to 10 10 8.7 238 3.0 11 to 20 1 0.9 46 0.5 21 to 50 14 12.3 1,420 17.8 51 to 100 15 13.2 975 12.2 Above 101 21 18.4 1,999 25.0 114 100.0 7,994 100.0 C. By Nature of Enterprise New Enterprises 35 30.7 2,648 33.1 Existing Enterprises 79 69.3 5,346 66.9 114 100.0 7,994 100.0 _ii u_ *m inim  -27- ANNEX 1 Table 2 Page 2 of 3 Number 2 Amount X D. By End Use Working Capital 39 34.2 1,929 24.1 Fixed Assets 75 65.8 6,065 75.9 114 100.0 7,994 100.0 E. By Maturity Up to 2 years 49 43.0 2,857 35.7 2 to 3 years 11 9.6 1,302 16.3 3 to 4 years 48 42.1 2,403 30.1 Over 4 years 6 5.3 1,432 17.9 114 100.0 7,994 100.0 am inuuuin . i.... F. By Type of Sector Food 26 22.8 1,424 17.8 Agro-Industries 8 7.0 1,331 16.6 Cottage Industries 9 7.9 310 3.9 Assembly 3 2.6 209 2.6 Plastics and Chemicals 15 13.2 1,764 22.1 Civil Works 6 5.3 789 9.9 Textiles and Leather 13 11.4 293 3.7 Meta iFurniture 10 8.8 520 6.5 Fishin- 3 2.6 462 5.8 Tourisu and Services 11 9.6 491 6.1 Miscellaneous 10 8.8 401 5.0 114 100.0 7,994 100.0 muw_mi magma 0= i  - 28 - ANNEX 1 Table 2 Page 3 of 3 Number Z Amount X G. By Purpose Creation 35 30.7 2,648 33.1 Expansion 34 29.8 2,507 31.4 Modernization 6 5.3 910 11.4 Working Capital 39 34.2 1,929 24.1 114. 100.0 7,994 100.0 in ini mmmmin s  PROJECT COILETION REICRT HAM INDUSTRIAL CREDIT PROJECT (tCREDIT 11S1-A DFI - DETAILED LIST OF APRY PR-CTS BY PIOCM DhIRU IES PnM tium m. n"I WUfOLii PM 113?. P353g3 mnsutstt lW nrmu tnn cmst as miu. nuc. ni rg.tu wantis an aico mm ul5s otis mm tRi Sn n an? Ann NMI$ "M. "is haecin a hlqnt Urwticll tDels Dims setb apfwt flU 1.n nsn1.n1 3:1.11 I.01 1 J ISO ISO! I nt I-N It 1 ack kta1 lstil tztls t br b#OeXtg fit $.411 911.1 f Sf." I." I I n s 1S .| n 5ett Is | 1 . 11 11M 4113.12 .11 I I@ 18 IH I2 I .11 tElt 1 tri.~~~~~ ~~~~an tWell"Itndst bpcslz WDI.11 Ilslol dil 11 1I ISt is is .u 3636 S lst e ki3 Ptices ut bowe Iu kt#la il bit t Cap/kutr il 44 6.63 413 16. S.fl 3.6 I 31 11 t I 0.0 I|t 01 iiti mtsl Articles lFU%% t IW. btalliqu Valk rqwitrft fl I.11 41611.11 41111.11 1.11 I I M| H11 I I.* 1-6U hit5 l othtmitl tttts ttilt tt Col htkt aSeIutl 14f 1.1 SSS11S.33 113. 611 1.3 I 1 11 111 1 3.0 "S to taol 4.6?1.11 5111631.62 6122631 6.6 1 1 Il3 111 Is 6." 3466llllti 3653cs fWKiro G S Oave S Oholqw 1 tt lUtipet Supsaim t (3di3.33 3136.33 311316.11 3.3 I 1 1 3 71 11 .3 1-11 51i13ttmaul tetwins feldm t kstuiti a ls ululs i .et fintlwe bit Cap/SUe l lii 6. 61 1 3 . 6 11131.16 6.3 6 1 It 3I 1 .10 t-t01 iltinttulPO ettwits lamste- l tle, tldfi *tllesatilt ht ttoipkttU M l111 1411.11 tl 314 1.i t 11 t 3 1 0 s 11 t 11 *-l 6 ulttiU let"l lt- l#iU malay u6 6#Uli4qo rip/la I11i3.3 4193.11 43111. 11.3 I 6 3 I 6 n.n $-M t. fttlqlF Fe# lIn