Announcement of Peru Modernizes its Trade Regime with World Bank Support on February 4, 1992

FOR IMMEDIATE RELEASE World Bank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A.* Telephone: (202) 477-1234 BANK NEWS RELEASE NO. 92/44LAC Contact? Antonio Pimenta-Neves (202) 473-8722 PERV MODtRNIZES ITS TRADE REg WITH WORLD BANK SUPPORT WASHINGTON, D.C., February 4, 1992 -- The World Bank today approved a S300 million loan to Peru in support of the Pujimori administration's far- reaching reforms in trade policies and regulations. The reforms are part of a broader effort to improve the condition of the poor and reverse years of economic stagnation. With speed even greater than Chile's or Mexico's, Peru moved with determination to modernize its trade regime. During a period of only eight months, from August 1990 to March 199., the government sharply reduced tariffs, eliminated most non-tariff barriers, removed export subsidies, and aboliched its trade control agency. Before the reforms started in August 1990, tariff protection in Peru ranged from zero to 84 percent, averaging 45 percent. Instead of the 38 different rates that prevailed, there are now only three: 5, 15, and 25 percent. By September 1990, the Fujimori administration had eliminated all import prohibitions. In March 1991, new rules suspended all forms of discriminatory non-tariff barriers to imports and exports. Imports are no longer subject to a test of whether local substitutes are available. Local-content regulations for assembly industries, notably vehicles and consumer durables, do not exist anymore. The government eliminated several state monopolies, including import monopolies in rice, wheat, flour, and sugar. Peru's state-owned oil company, PETROPERU, no longer has the internal and external trade monopoly of oil products. Imports of second-hand items, completely banned until November 1990, are now allowed, except for clothing and shoes. The trade reforms will help Peru move to a more efficient use of its resources through specialization in productive areas where its comparative advantage is greatest. The country will also benefit from the competitive pressures that freely available imports will exert on domestic producers. The World Bank loan will contribute to Peru's debt workout program and to the country's reintegration into the international financial community. The World Bank loan is for 20 years, including five years of grace, with a variable interest rate, currently at 7.73 percent, linked to to the cost of the Bank's borrowings. It also carries an annual commitment charge of 0.25 percent on the undisbursed balances. NOTE: Money figures are expressed in U.S. dollar equivalents.- FOR IMMEDIATE RELEASE "Vorld Bank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A.* Telephone: (202) 477-1234 BANK NEWS RELEASE NO. 92/LAC Contact: Ciro Gamarra (202) 473-8721 WORLD BANK LENDS $120 MILLION FOR PANAMA'S ECONOMIC RECOVERY WASHINGTON, D.C., February 20, 1992 -- The World Bank has approved today a $120 million loan to Panama to support the government's economic recovery program. This is the World Bank's first loan to Panama since December 1986, and was approved 15 days after the country paid its arrears to the Bank. The recovery program aims to achieve economic stabilization and renewed sustainable growth. It is expected to increase employment opportunities in the private sector, help alleviate poverty, and facilitate the flow of external financing and foreign investment. Implementation of the program is expected to change the structure of the Panamanian economy significantly in the remainder of the 1990s. Trade liberalization and improved productivity should increase the country's international competitiveness. The planned changes should also shift the balance of incentives in favor of tradeable goods and should encourage private sector specialization in accordance with Panama's comparative advantages. Public sector reforms aim at ensuring the stabilization of public sector finances, ieducing the size of the state, decreasing public utility prices consistent with financial viability of public enterprises, and increasing efficiency of the public sector. The loan, which is the largest ever made by the World Bank to Panama since 1953, will be disbursed over a period of 18 months in three tranches of $60 million, $25 million and $33.2 million, respectively. In addition, $1.8 million for technical assistance will be provided. All tranche releases will be contingent upon Panama's maintaining a supportive enabling macroeconomic framework, satisfactory performance in the implementation of the program, and the government's progress in carrying out specific actions required under the program. NOTE: Money figures are expressed in U.S. dollar equivalents. 2- toan proceeds will be used to finance general imports and relevant foreign services, excluding goods financed by other multilateral and bilateral agencies, luxury goods, military equipment, and other goods specifically prohibited in a negative list. The government's economic recovery program for 1991-93 comprises reform of the public sector, including privatization of the National Telecommunications Institute (INTEL) and the National Water and Sewerage Institute (IDAAN), as well as Air Panama, Citricos de Chiriqui, Cemento Bayano, Victoria Sugar Mills, Agricultural Crop Insurance Institute (ISA), Pacific Banana Corporation (COBAPA), and National Banana Corporation (COBANA). Additionally, some services of the Hydroelectric and Electric Energy Resources Institute (IRHE) will also be privatized. It also includes trade reform, agricultural liberalization, domestic deregulation measures, social security reform, tax reform, reduction and rationalization of current public expenditures, recovery of public investment and financial sector measures. As part of the reform program, public wage bill will be decreased. Social sector measures are planned to alleviate the social costs of adjustment for Panama's poorest groups. The loan includes a nutrition program that will incorporate food delivery for lactating mothers and young children in the poorest areas of the country. Over time, the planned reform program should have a positive impact on the poorest groups in Panama through the recovery of sustained economic growth. As employment and incomes grow, the number of poor should decline. On February 6, 1992, the World Bank announced that Panama had fully paid its arrears on Bank loans of $220.3 million accumulated during November 1987 and March 1990. With this clearance of arrears, the Bank ended its suspension of new lending to Panama and restored Panama's accrual status. The World Bank loan to the Republic of Panama is for 17 years, including five years of grace, with a variable interest rate, currently 7.73 percent, linked to the cost of the Bank's borrowings. It also carries an annual commitment charge of 0.25 percent on the undisbursed balances. -0-