Document of The World Bank FOR OFFICLAL USIE ONLY Report No.13884 PROGRAM COMPLETION REPORT REPUBLIC OF HONDURAS STRUCTURAL ADJUSTMENT LOAN II AND STRUCTURAL ADJUSTMENT CREDIT (LOAN 3257-HO) AND (CREDIT 2208-HO) JANUARY 20, 1995 Country Department II Country Operations Division 2 Latin America and the Caribbean Region 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. CURRENCY EQUIVALENTS Currency Unit = Lempira (L) US$1.0 = L 7.26 (December 1993) c 1.0 = US$0.1377 FISCAL YEAR January 1 to December 31 GLOSSARY OF ACRONYMS AND ABBREVIATIONS AML Agricultural Modernization Law BANADESA Agricultural Development Bank BANASUPRO State Corporation for Distribution of basic goods BCH Central Bank of Honduras CONADI National Industrial Development Corporation ESAF IMF: Extended Structural Adjustment Facility ESF AID: Economic Adjustment Program FRIS Honduran Social Investment Fund HONDUTEL National Telephone Company IDB Inter-American Development Bank IMF International Monetary Fund LHMA National Agricultural Marketing Board NFPS Non-Financial Public Sector OECF Japan's Overseas Economic Cooperation Fund PCR Program Completion Report PFP Policy Framework Paper PRAF Family Assistance Program RIT Temporary Imports Program SAC Structural Adjustment Credit SAL Structural Adjustment Loan SANAA State Water Company SDR Special Drawing Right UDAPE Technical Support Unit USAID U.S. Agency for International Development FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-Gneral Operations Evaluatlon January 20, 1995 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Program Completion Report on Republic of Honduras - Structural Adjustment Loan II and Structural Adjustment Credit (Loan 3257-HO and Credit 2208-HO) Attached is the Program Completion Report on Republic of Honduras - Structural Adjustment Loan H and Structural Adjustment Credit (Loan 3257-HO and Credit 2208-HO). Parts I and III were prepared by the Latin America and the Caribbean Regional Office. Part II was contributed by the Borrower. The main objectives of the program were to initiate longer-term structural changes in the economy in several areas, including fiscal, monetary, trade and exchange rate policy and production incentives, and to clear arrears with major multilateral and bilateral creditors. While progress was made in advancing structural change in some areas, notably the exchange rate and trade policy regimes, incomplete ownership and weak institutional capacity combined with an overly ambitious program led not only to long delays in enacting reforms but also to important failures, especially in the fiscal area. The PCR gives a candid and comprehensive account of the objectives, preparation and implementation of these two operations. In substance, the Credit was a supplement to the loan: both operations supported the same adjustment program and the objectives were identical. However, prompt Board approval of SAL II was dictated by Honduras' debt arrears. The country became IDA-eligible only subsequently, the upshot being two legally separate operations. Coordination with the IMF was close throughout. The overall outcome is rated as marginally satisfactory: a reform process has been initiated, but weak Government commitment and deficient institutional arrangements have impeded steady progress. Because of these factors sustainability is rated as uncertain. The institutional impact is rated as modest: the Bank's assistance strategy should have focussed much more on providing needed technical assistance. An audit is planned as part of a cluster audit including SAL I, whose PCR was sent to the Executive Directors in FY94. Attachment by sot otherwise be disclosed wtbout World Bak autbonsiao. FOR OFFICIAL USE ONLY HONDURAS PROGRAM COMPLETION REPORT STRUCTURAL ADJUSTMENT LOAN II and STRUCTURAL ADJUSTMENT CREDIT Table of Contents PREFACE ................................................. i EVALUATION SUMMARY ..................................... iii PART I: PROGRAM REVIEW FROM THE BANK'S PERSPECTIVE ... ....... 1 A. Program Identity..1 B. Background ...................... 1 C. Loan Processing .................................... 3 D. The Adjustment Program: Objectives and Description . . 7 Overall Objectives.. 7 Description of the Program.. 7 a. Trade Policy and Foreign Exchange Management. 7 b. Fiscal Policy. 8 c. Agricultural Sector Policies. 8 d. Foreign Exchange Management, Monetary, and Financial System Policies. 9 e. Social Sector Reforms. 9 The Structural Adjustment Credit .. 9 E. Program Design and Organization .. 10 F. Program Implementation and Monitoring .. 13 a. Board Presentation and Effectiveness Conditionality ... ....... 13 b. Second Tranche Conditionality ....................... 14 c. Third Tranche Conditionality ........................ 19 G. Relationship with the Government's Stabilization Policies and IMF Stand-By Arrangements .. 23 H. Sustainability of the Program .. 23 I. Program Results, Government Ownership, and Overall Evaluation ... 24 J. Bank and Borrower Performance .. 28 a. Bank Performance .............................. 28 b. Borrower Performance ............................ 29 K. Lessons Learned .................................... 29 PART II: PROGRAM REVIEW FROM THE GOVERNMENT'S PERSPECTIVE ... 30 A. Evaluation Summary ................................ 30 B. Program Implementation and Results ........ .. ............ 30 a. Trade and Foreign Exchange ....................... 30 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. b. Agriculture ................................. 31 c. Financial Monetary Sector ........................ 31 d. Fiscal Policy ................................. 32 e. Social Sector Reforms .......... .. ............... 32 C. Overal Results and Prospects ............................ 33 D. Conclusions ................................. 33 PART El[: STATISTICAL INFORMATION ........................... 35 i PROGRAM COMPLETION REPORT HONDURAS STRUCTURAL ADJUSTMENT LOAN II (LOAN 3257-HO) and STRUCTURAL ADJUSTMENT CREDIT (CREDIT 2208-HO) PREFACE This is the Program Completion Report (PCR) for the Structural Adjustment Loan (SAL) II (Loan 3257-HO). SAL II in the amount equivalent to US$90 million was approved by the Board in September 13, 1990. The loan account for SAL II was closed on December 31, 1993 and the loan was fully disbursed. The PCR (Parts I and D) was prepared by the Country Operations Division 2, Country Department II, of the Latin America and the Caribbean Regional Office. Part II is a summary based on the Borrower's comprehensive PCR and approved by the Borrower. The PCR was discussed with the Borrower and there were no significant differences in views on the information and analysis presented in the PCR. Preparation of this PCR was based, inter alia, on the President's Reports, Loan Agreement, relevant economic and sector documents, information in project files, and discussions with Bank staff and Honduran officials. iii PROGRAM COMPLETION REPORT HONDURAS STRUCTURAL ADJUSTMENT LOAN H (LOAN 3257 - HO) and STRUCTURAL ADJUSTMENT CREDIT (CREDIT 2208-HO) EVALUATION SUMMARY 1. Project Objectives. The Structural Adjustment Loan (SAL I) and the Structural Adjustment Credit (SAC) were designed to support the Government's 1990-1994 Plan (see paragraphs 7 - 8). The main areas covered by the Government's medium-term program included measures to: (i) improve incentives to stimulate private savings and investment in export-oriented activities; (ii) increase savings and the efficiency of the public sector; (iii) improve the commercial banks' mobilization and allocation of resources; and (iv) improve the productivity of the private agricultural sector. The adjustment program was to accelerate export growth and to increase domestic savings while creating the pre-conditions for a recovery of economic growth and employment. The program was expected to support the country's economic recovery and creditworthiness facilitating the country's access to external financial flows needed to attain long-term sustainable growth. SAL II addressed the most critical medium-term structural issues affecting the domestic competitive environment, the management of the public sector, issues of the agricultural and the financial sector, and the overall macro framework for the adjustment program. The Government's program was also supported by the IMF and IDB through a Stand-by and the co-financing of the agricultural portion of the SAL respectively. The IMF program was to focus primarily on aggregate macro-economic performance issues and targets, notably the exchange rate regime, levels of fiscal deficits and overall monetary policies. 2. Design and Implementation Experience. Conceptually the program's conditionality was well focused; however, it may have been too ambitious. While the critical areas for structural reforms were appropriately covered, they contained too many conditions which subsequently became one of the reasons for the delays encountered during loan iv implementation. This program was appropriately timed to coincide with the initiation of President Callejas' administration. The new Government's interest in market-oriented economic reforms was perhaps one of the principal considerations in favor of the loan's approval, in view of SAL I's disappointing results. 3. The following limitations in design and implementation of the program were noted: * While the SAL was appropriately timed in consideration of the new Government, the pressures to eliminate Honduras' arrears should have argued in terms of a more cautious approach in setting Board and Second Tranche conditions (Part I, par.35). * While key policy decision makers were involved in the design of the program, perhaps greater participation by their respective deputies or other experienced Government officials during loan preparation would have provided valuable input in terms of loan design (Part I, par. 39). * Loan design should have limited the financial sector component to the reform of banking legislation. A more efficient strategy would have been to have pressed for comprehensive financial system reforms through new legislation to update the organic law of the BCH, to consolidate all financial intermediaries, and to reinforce the powers of the Superintendency (Part I, par. 43). * The Superintendency lacked proper regulatory authority to supervise the implementation of the condition on classification of risk assets. Staff should have been more sensitive to these institutional constraints and raised the issue early on during the loan design stage. Perhaps a more productive approach would have been to provide technical assistance in the form of external auditors to work with the Superintendency in the evaluation and classification of the banking system's loan portfolio including incorporation of the new procedures in the examiners' handbook. * The loan contained too many conditions. In view of the difficulties encountered during SAL I, the loan's conditionality should have been narrowed to focus on the principal weaknesses in economic management such as: (i) stabilizing public sector finances; (ii) reforming agricultural and trade policies; (iii) liberalizing interest rates; and (iv) formulating a new banking legislation. In retrospect, it may have been preferable to have reduced the number of conditions in the program (see par. 36). 4. Program Results. The results of SAL II were encouraging in terms of exchange rate management, domestic interest rates and growth of non-traditional exports. The impetus to private savings came from higher interest rates relative to inflation. Investment in export- oriented industries contributed to the strong growth of non-traditional exports. However, progress towards greater public savings and efficiency of the public sector was disappointing. For instance, the NFPS deficit for 1993 was about 10 percent of GDP, which is higher than in 1989, the year before the SAL became effective. V 5. The principal accomplishments of SAL II include the following: * Introduction of greater flexibility in the exchange rate regime. * Liberalization of domestic interest rates contributed to increased savings. The application of a market based interest rate formula to the BCH's rediscount facilities eliminated an important element of subsidies in public sector lending. * Establishment of a uniform tariff band of 5 - 20 percent opened up the economy to increased competition while providing an incentive to investment in export oriented activities based on the country's comparative advantage. * Progress in the divestiture of IHMA assets, the closure of BANASUPRO distribution centers, and the restructuring of BANADESA marked a significant first step toward increasing public sector efficiency. * Increased flexibility in exchange rate management combined with reforms of interest rate and trade policies stimulated growth of non-traditional exports. * The implementation of the social support program through the distribution of food coupons to targeted families (PRAF) and through the social investment projects (FHIS) were instrumental in alleviating social conditions and in identifying the neediest sectors of the population. 6. Sustainability. The lack of continuity in fiscal policy combined with weak institutional capabilities to implement reforms compromised the sustainability of the program. While the scope of the program was overly ambitious, it was undermined principally because of disappointing results in the critical areas of fiscal policy, and weaknesses in the financial and agricultural sectors. 7. In retrospect, slippage was prevalent throughout the loan's experience. As explained in the section on implementation, the relative size of the fiscal deficit in 1993 exceeded the 1989 figure. A few days after the November 1993 Presidential elections, the Government instituted across the board price controls, which threatened to undermine the reform program's credibility. Insufficient legislative action to support the government's main reform initiatives, especially in the areas of tax reform, export promotion, and financial sector reforms, put in question the sustainability of current reform initiatives. 8. Despite the shortcomings, the loan made important progress in several areas that should facilitate future attempts to get back on a stabilization/structural reforms track. Foreign exchange management has improved considerably with the introduction of the interbank market. Nevertheless, it is somewhat unusual that the Constitution still recognizes the rate of L2/$ as the official exchange rate. Interest rate liberalization has been conducive to increased savings and reduced capital outflows. Government action to reform the system vi of exchange rate management could bolster investor confidence in the management of economic policy. The reorganization of the BCH's rediscounting mechanism has paved the way for future monetary policy reforms that could ensure the autonomy of the Central Bank in the management of monetary policy. Institutional weakness in the use of open market operations should be dealt with through more technical assistance. The likelihood of serious liquidity problems in the financial system should prompt the passage of new banking legislation that would diminish the potential for a future financial crisis. 9. Lessons Learned. The principal lessons learned from the experience of SAL II include the following: * When faced with the need to eliminate arrears, or to normalize the status of non- performing loans as in the case of Honduras, the Bank should consider structuring a SAL, with a narrower scope, and then to follow-up with a more comprehensive program. The Bank might also consider a multi-year SAL but with greater conditionality in the second and third tranches. The pressures to eliminate Honduras' arrears should have argued in terms of a more cautious approach in setting Board and Second Tranche conditions. * Government commitment is essential to the success of the program. The lack of continuity in Govemment stabilization policies combined with weak institutional capabilities to implement reforms put in question the sustainability of the program. With the hindsight of SAL I's disappointments, the lack of a good track record in policy reforms should have alerted the Bank to take a more cautious approach with this operation. The approach of the November 1993 presidential elections detracted the Government's attention from structural adjustment efforts, and policy reversals casted some doubt on the Government's commitment. * The design of structural adjustment programs should put greater emphasis on the stabilization component even if it means incorporating only a limited number of structural reform conditions. Honduras' predominant political cycle, which is typified during the first two years by positive economic actions, followed by policy slippage during the latter two years as a new electoral process takes hold, appears to have been one of the main obstacles to program sustainability. * Broader participation of the Government officials, who would eventually implement the program, in program design is essential. While key policy decision makers were involved in the design of the program, perhaps greater participation by their respective deputies or other experienced Government officials during loan preparation would have provided valuable input in terms of loan design. The individuals involved in the SAL's preparation and negotiations clearly understood and supported the Government's views regarding the need for structural reforms, and shared its willingness to implement a successful program; nevertheless discussions might have been expanded to incorporate the views of Government officials who had a better vii understanding of the bureaucratic machinery, and who could thus have contributed to the design of specific conditions. * When weakness in institutional reform capabilities is identified, particularly after problems are encountered in a previous operation, such as SAL I, greater emphasis needs to be placed on technical assistance. SAL II covered a lot of ground for policy reforms, but, in contrast, contained little in the way of technical assistance. Some of the areas that could have benefitted from technical assistance include: (i) fiscal policy, TA program for tax administration and enforcement; (ii) monetary policy, TA program to strengthen the Central Bank's capacity to manage monetary policy with emphasis on open market operations; (iii) banking system, TA program to assist banking supervisors in the evaluation and classification of the banking system's loan portfolio, as well as a more comprehensive program to reinforce the Superintendency's institutional capabilities. * The design of the loan should be more specific with respect to conditionality. Some of the conditions were left unspecific such as, the rationalization of BANASUPRO's and IHMA's operations. It was decided to define them before the tranche releases. Government officials interviewed for this report mentioned that they were not clear on the meaning of the term rationalization. If further analysis of the problem was required, as in the case of IHMA and BANASUPRO, then the condition in the policy matrix should have been stated as: preparation of a strategic plan outlining possible options to restructure and downsize operations of IHMA and BANASUPRO, instead of rationalization. If the Bank was already convinced of the need to sell off IHMA's assets, then this should have been stated explicitly. As stated in the section on loan design, in view of the large number of conditions, another option would have been simply to postpone these conditions to a follow-up operation. Wording of loan conditionality should be more precise in order to avoid future misunderstandings and thus implementation delays. However, during negotiations, it was also the Borrower's responsibility to point out any conditions that seemed unspecific or unclear. * Careful examination of evidence is essential for proper supervision of loan implementation. The Superintendency's supervision of bank loan re-classifications may not have been sufficient to meet the proposed objectives. To the extent possible the Bank should rely on specialized auditors, or more field visits to ascertain the validity of borrower compliance; and when necessary, recommend technical assistance to support the Government's capacity to implement as well as enforce policy reforms. * The loan contained too many conditions. In retrospect, it may have been preferable to have reduced the number of conditions in the program. Within the trade policy component, the condition dealing with a new export incentive system might have been postponed to a follow up operation. At the time of loan appraisal the most important obstacle to export development was the exchange rate and tariff restrictions. Fiscal policy conditions dealing with public sector deficit and current savings could have viii been coordinated with the IMF, and thus reduce the number of conditions subject to Bank scrutiny. While sale of IHMA assets was necessary in view of agricultural price liberalization, the rationalization of BANASUPRO could have been postponed to a follow up SAL or sectoral operation. Conditions dealing with the Central Bank's rediscount operations could have been simplified to one condition on adjusting interest rates to levels compatible with market rates. The condition on the reorganization of the BCH's administration of rediscount facilities could have been postponed to a follow up operation. At the same time, the commercial bank's conditionality should have been limited to the implementation of new regulations on asset classification; and another condition dealing with the passage of new banking legislation should have been considered. PART I: PROGRAM REVIEW FROM THE BANK'S PERSPECTIVE A. Program Identity: Name Structural Adjustment Loan U and Structural Adjustment Credit. Loan Number 3257 - HO Credit Number : 2208-HO RVP Unit Latin America and the Caribbean (LAC) Country Honduras Sector Non-Project Lending B. Background 1. Honduras is one of the poorest countries in the Westem Hemisphere with a population, at the time of loan approval in 1990, of 5.0 million growing at an annual rate of 2.8 percent. Following a series of currency devaluations in that year, Honduras' per capita income was estimated at US$481 , higher only than that of Bolivia, Haiti and Nicaragua in Latin America. Extreme poverty affects over 50 percent of the population nationally, and nearly 80 percent in rural areas. Infant mortality is over 60 per 1000 live births. Malnutrition is severe, particularly among children, and nearly two thirds of the population lack adequate housing and sanitation facilities. More than 30 percent of the adult population is illiterate. 2. Historically, Honduras' development strategy had been inward-looking, based on import substitution behind high protective barriers and extensive govermment intervention involving credit subsidies, price controls and tax incentives. As a result of this strategy, the manufacturing sector had become generally inefficient, much of agricultural production did not reflect the country's comparative advantage, and overall productivity was low. The Bank's objective with SAL It was to support a program of reforms that would remedy the inappropriate policies of the past, and establish a solid foundation for sustained growth through increased competitiveness. 3. Honduras' most important sector is agriculture, with output dominated by two crops: coffee and bananas, which account for 55 percent of total exports. Honduras' dependence on these two commodities, subject to fluctuating commodity prices, has been partly responsible for persistent balance of payments difficulties. When prices of these commodities were higher, booming exports tended to fuel domestic expenditures and imports, which failed to contract when export prices declined. 2 4. Honduras, together with other Central American countries, experienced a severe drop in economic activity during the early 1980's, followed by stagnation in the latter part of the decade. While real GDP growth had averaged 5 percent per annum during the 1960s and 1970s, it averaged only 2.3 percent per annum during the 1980s, below annual population growth. Between 1981 and 1990 gross domestic investment as a share of GDP averaged 17 percent, compared to 22 percent during the 1970s. This decline was primarily due to a sharp drop in the share of private investment which fell from an annual average of about 14 percent in the 1970s, to 9.5 percent during the 1980's. 5. Honduras' erratic economic perfonnance during the 1980s was due to fundamental structural weaknesses, that made long-term growth unsustainable unless major economic reforms were enacted. A large and inefficient public sector was one of the principal impediments to sustainable growth. The overall deficit of the Non-financial Public Sector (NFPS) had averaged 7.5 percent during 1980-88. Successive governments were slow in taking corrective measures to address these structural problems, because Honduras received record inflows of foreign assistance throughout the 1980's, that camouflaged the seriousness of the underlying economic trends. Honduras' external debt grew sharply during the 1980's almost tripling to over US$3.0 billion by 1989. Since much of the assistance was linked to the "contra War" being fought along the Honduras-Nicaragua border and did not address the country's structural constraints, it did little to contribute to an expansion of the country's productive capacity and to economic advancement. Against this backdrop, SAL I supported the Government's efforts to create the conditions and awareness for a more far-reaching adjustment effort. However, these earlier were not successful. 6. On January 20, 1990, President Rafael Leonardo Callejas assumed office with the pledge to renew the adjustment process. The President's campaign platform had clearly identified the principal areas for reform. The so-called Government Plan (Plan de Gobierno) had drawn on the earlier experiences with structural adjustment under SAL I, on the recommendations of external consultants, and on the victorious National Party's vision of the future for Honduras. The main objectives of the economic program were organized around four basic areas: 1. Fiscal policy: Achieve a balanced budget; improve the revenue base and enhance the buoyancy of tax revenues; reduce state intervention in the economy, including the transfer of certain public services to the private sector; downsize the defense budget. 2. Monetary and Exchange Rate policy: Achieve greater transparency in the functioning of the money markets, and implement new mechanisms that would prevent further distortions in the foreign exchange market. 3. Trade Policy: Promote exports through reforms to existing legislation, institutional framework, and operational infrastructure; eliminate protectionist barriers. 3 4. Production Incentives: Enhance productivity and competitiveness with particular emphasis on key sectors of agriculture and agro-industries; establish sectoral programs dealing with the development of forestry resources; self- sufficiency in certain basic products; promotion of non-traditional exports and the tourism industry. 7. In the social area, the Government's program recognized the dire poverty afflicting a large segment of the population. To cope with this the Government announced that it would establish an emergency social fund to provide resources for employment creation, nutritional assistance, job training, and health care which subsequently received IDA support. C. Loan Processing 8. SAL II was proposed by the Government shortly after President Callejas assumed office in January 1990. Several factors made loan preparation a difficult process: first, the country's weak implementation capacity; second, weak performance under SAL I ; and third, the existence of large debt arrears to the Bank, as well as to other multilateral agencies. Weak program performance and large debt arrears had actually led to the Bank's decision to suspend the second and final tranche of SAL I until June 1990. Among the issues highlighted by the PCR for SAL I were that the Bank should not have gone ahead without a fully satisfactory set of stabilization measures; especially with a borrower of doubtful creditworthiness.' SAL II was designed to help the country out of its arrears, while placing greater emphasis on the structural adjustment problems associated with SAL I. The resulting program was technically well designed; however, it contained too many conditions that went beyond the Government's institutional as well as political capabilities. 9. Preparations for SAL II began in February, when parallel Bank, IMF and IDB missions discussed with economic authorities the new government's reform program, outlining in general terms a strong stabilization and adjustment strategy. Preparations moved into high gear in March 1990, after the Government announced a comprehensive economic package which addressed a number of critical areas that had plagued SAL I. The measures were contained in Decree 18-90, which subsequently became the core of the SAL II Board presentation conditions. Decree 18-90 established the framework for subsequent reforms. The decree dealt with three policy areas: exchange rate, trade and fiscal policies. With respect to the exchange rate, the decree established a customs valuation factor for imported goods which was to be based on the inter-bank exchange rate. In effect, the Government did not attempt to alter the official rate of L2/$, which had been fixed since 1918 under the Constitution, but rather introduced a new quasi-official rate whose value was still going to be arbitrarily determined by the BCH. It also affirmed BCH's authority to determine the sources and uses of funds in the inter-bank market. Trade policy reforms consisted of the elimination 'See Project Completion Report for SAL I, June 1993, page iv. 4 of tariff exemptions, and the reduction in the number of goods subject to the 10 percent import tariff surcharge. 10. Fiscal policy changes introduced by Decree 18-90 dealt exclusively with income and sales taxes. Adjustments to the income tax regime were applied to individuals as well as corporations. For individual taxpayers, the minimum deduction was increased and new ones were introduced; although the highly progressive tax rate schedule remained intact. Corporate tax rates were reduced to two, 15 percent and 35 percent, but only for profits under L500,000. Above that amount, corporate profits were subject to an onerous surcharge which would lead to an effective rate of 45 percent. The decree also increased the sales tax rate from 5 percent to 7 percent, even though the Bank's and the IMF's recommendation had been 10 percent. Other modifications included a change in production taxes from specific to ad-valorem, and a temporary exchange rate gains tax associated with the new valuation factor applied to exporters. 11. While Decree 18-90 broke the impasse in the negotiations with the Bank and other multilateral agencies and confirmed the bona fide intentions of the new Government to achieve lasting adjustment, it was only a first step towards more comprehensive reforms. Relative to the weak performnance under SAL I, the March 1990 package was viewed by the Bank as a signal that the new Government would be willing to take on additional reforms. In this regard, the Bank appropriately reciprocated by initiating the loan appraisal. 12. One of the overriding issues during loan preparation was the need to eliminate Honduras' arrears to the multilateral agencies, including the Bank. To some extent, the imperative to normalize debt service payments transformed the preparation phase into a debt restructuring exercise. In essence, Honduras needed SAL II to meet its external debt obligations. As of May 1990, arrears to multilateral agencies were $240 million, of which: $147.1 million was owed to the Bank, $55.6 million to the IDB, and $37.3 million to the IMF. Clearly the Bank's sizeable exposure, which had been placed on non-accrual, explained management's emphasis on completing the loan operation in a timely way. The logistics of the debt restructuring involved arranging a bridge loan, mostly from bilateral sources that included the U.S., Mexico, and Venezuela. Accordingly, Bank management recommended to the Board that the second tranche of SAL I be released upon clearance of arrears.2 Once assembled, the bridge financing package cleared all multilateral arrears in June, thus removing the primary obstacle to release of SAL I's second tranche, and paving the way for Board presentation for SAL II. 13. During loan appraisal, the Bank considered the possibility of IDA financing for Honduras; however, eligibility for IDA funding required that the country be current on debt service payments. In addition, it was necessary for the IMF to certify the parallel exchange rate as the official exchange rate, in order to convert local GDP figures into dollars at a 2See Project Completion Report: SAL I, June 1993. 5 more realistic exchange rate. In view of the urgency to clear up Honduras' debt arrears, the Bank decided to proceed with SAL II, and to follow up with another loan once the Board approved IDA participation. 14. At the time of appraisal, the staff was well aware that SAL II could encounter the same implementation problems as the preceding loan. In the March 1990 Loan Committee meeting to review the SAL II Initiating Memorandum, a number of participants expressed concerns about the capacity of the various institutions to carry out a program of economic reform as far-reaching as outlined in the Initiating Memorandum. It was further noted that the loan as proposed did not include any technical assistance which would be necessary to ensure the success of the program. The staff emphasized the importance of timing to resolve Honduras' arrears. 15. Implementation of SAL II was to be complemented by an IMF Stand-by program which was approved in July 1990. The IMF program was focused primarily on aggregate macro-economic performance issues and targets, notably the exchange rate regime. Co- financing was arranged with IDB in the form of an agricultural sector adjustment loan of $50 million using as a basis SAL I agricultural sector conditionality. 16. Board Presentation of SAL II was made on September 13, 1990. It became effective on November 14, 1990. The first tranche of US$45 million was disbursed upon effectiveness. In October 1990, Honduras became eligible for IDA financing. As per staff recommendations, a Structural Adjustment Credit for SDR 14.3 million was approved by the Board in January 1991. While the SAC was, in effect, an extension of SAL II, the legal separation between Bank and IDA loan operations prevented the attachment of the IDA funding as an amendment to the original loan agreement. Thus a new President's Report and Loan Agreement had to be prepared even though the objectives were the same as in SAL II. D. The Adjustment Program: Objectives and Description Overall Objectives 17. The structural adjustment loan3 was designed to support the Government's 1990-1994 Plan (see paragraphs 7 - 8). The main areas covered by the Government's medium-term program included measures to: (i) improve incentives to stimulate private savings and 3 In this report use of the following terms: Structural Adjustment Loan, SAL II, Loan or Agreement, refers to both SAL II (loan number 3257-HO) and SAC (loan number 2208-HO). As explained in paragraph 16 the SAC was proposed as an amendment to SAL II; but had to be structured as a legally separate operation since it was a IDA funded loan. Nevertheless, the SAC's objectives were identical to those of SAL II. For purposes of this report, both operations are considered as one. 6 investment in export-oriented activities; (ii) increase savings and the efficiency of the public sector; (iii) improve the commercial banks' mobilization and allocation of resources; and (iv) improve the productivity of the private agricultural sector. The adjustment program was to establish the pre-conditions for an export-oriented market economy and to increase domestic savings while creating the pre-conditions for a recovery of economic growth and employment. The program was expected to support the country's creditworthiness, facilitating the country's access to external financial flows needed to attain long-term sustainable growth. SAL II addressed the most critical medium-term structural issues affecting the domestic competitive environment, the management of the public sector, issues of the agricultural and the financial sector, and the overall macro framework for the adjustment program. The Government's program was also supported by the IMF and IDB through a Stan-by and the co-financing of the agricultural portion of the SAL respectively. The Structural Adjustment Credit 18. The SAC in the amount of SDR 14.3 million (US$20 million equivalent) was to supplement the first tranche release under the SAL II. For the purposes of this report, it is considered as part of the SAL II, although legally they are two different agreements. The SAC was to be disbursed fully upon credit effectiveness which was to depend on a favorable evaluation of the Government's economic program. The only other condition was to amend the SAL II Agreement's second and third tranche conditions to include that domestic prices for oil derivatives be adjusted as necessary in line with changes in world market prices or changes in the exchange rate between the US$ and the Lempira. Description of the Program 19. SAL II was disbursed in three tranches upon compliance with specific policy measures. A matrix listing loan conditionality and compliance is found in Annex 1. a. Trade Policy and Foreign Exchange Management 20. As part of its agreement with the IMF, the Government had confirmed its decision to follow macro-economic and exchange rate policies aimed at maintaining, and improving the competitiveness of its exports. 21. As part of the reforns supported under SAL II, the dispersion and level of import tariffs were to be further reduced, eventually reaching a band of 5 - 25 percent. Elimination of all Central Bank import permits were another major element of the trade policy reforms under the SAL operation. In addition, all quantitative restrictions for agricultural product imports were to be eliminated. 7 b. Fiscal Policy 22. Honduras' chronic fiscal deficits were indicative of the need for structural reforms to enhance revenues as well as to reduce non-essential expenditures. Low public savings and large public sector deficits have been financed with increasing levels of external debt as well as increased levels of monetary expansion. In 1990, the Government began to restrain current expenditures by limiting nominal wage increases to a maximum of 10 percent during that year. Limitations on the growth of current expenditures, care in defining and implementing an efficient public investment program, and the strengthening of the cost effectiveness of public enterprises were major objectives of the Government's medium-term adjustment program. In accordance with these objectives, the Govermnent defined annual public savings targets of 0.5 percent of GDP for 1990, and of 1.7 percent for 1991. 23. Reforms in the tax system were key to strengthening medium-term finances of the central government. The main objectives of the Government's fiscal reform were: a) administrative improvements in the management of the customs system and the collection of the sales tax; and b) a tax reform modifying the structure and rates of income, property and value-added taxes. Second and third tranche conditionality called for a satisfactory agreement between the Bank and Government on recommendations of a study on tax reform and the action plan to implement them. 24. The Government was also committed to maintaining a public investment program with an appropriate balance between the limited priority investments needed for strengthening non- traditional exports and necessary basic social infrastructure. The Bank and the Government reached agreement on the 1990 investment program during loan appraisal. Agreement on investment programs for subsequent years as well as monitoring of its implementation were attached to the loan's conditionality. A program for the restructuring and adjustment of the major public enterprises was prepared by the Ministries of Finance, Economy and Planning. A financial program defining: (i) targets for tariff adjustments on public services; (ii) reductions in current expenditures; and (iii) external debt service, was specified for the two largest decentralized institutions (HONDUTEL, SANAA). c. Agricultural Sector Policies 25. Agriculture is the most important sector of the Honduran economy, employing more than 50 percent of the labor force, accounting for over 20 percent of GDP, and generating over two thirds of export earnings. The basic tasks for agriculture required the elimination of the negative effects of the incentive system and the Government's intervention in the agricultural markets. The Government's program included measures to bring agricultural prices gradually in line with international prices by eliminating price controls at the wholesale and retail levels, and by eliminating quantitative controls on imports of basic grains. The guarantee price system and quantitative restrictions on basic grains administered by IHMA were to be eliminated, and in the case of corn, replaced by a flexible tariff system. IHMA and BANASUPRO's purchasing and marketing activities were to be increasingly 8 transferred to the private sector. d. Monetary and Financial System Policies 26. In order for the financial sector to play a role in the development effort envisaged in the adjustment program, it needed to increase its intermediation efficiency and strengthen its long-term viability. To increase the sector's efficiency, the Government contemplated measures to: (i) provide a flexible interest rate policy, and (ii) eliminate directed credit. To strengthen the financial system's long-term viability, the Government's program included actions to: (i) strengthen the quality of the commercial banks' portfolio; (ii) reach adequate provisions against bad debts ratio; (iii) reduce the concentration of credit to individuals; and (iv) strengthen the Superintendency of Banks. 27. The action program agreed under the loan included measures to: (i) eliminate the difference between interest rates applied to all Central Bank rediscount facilities; (ii) quarterly reviews of interest rate ceilings; and (iii) administrative unification of all rediscount and credit lines managed by the BCH. To address the need to strengthen the banking system's financial health, the loan called for the following measures: (i) a reclassification of commercial banks' assets; (ii) provisioning of reserves for loan losses in accordance with the new asset classifications; (iii) maintenance of minimnum capital requirements under risk asset standards; and (iv) design of a program for the reorganization of the agricultural financial system, including restructuring of BANADESA. e. Social Sector Reforms 28. The Bank's appraisal anticipated that the initial effects of the adjustment measures implemented by the Government could partially give rise to unemployment and poverty. It was recognized that the sharp price adjustments required for the stabilization process would fuel inflation in the initial stages of the program. The Government sought to offset the initial negative social impact of the program by setting up an Emergency Social Fund (FHIS) which would provide employment by funding small works in Honduras' municipalities, by financing a targeted program of family subsidies, and temporarily subsidizing fuel prices for public urban transportation. Specific actions were defined in the loan agreement dealing with budget support for the Ministries of Health and Education, and for programs to provide food and employment for the neediest sectors of the population. E. Program Design and Organization 29. The SAL was designed with particular emphasis on improving incentives to stimulate private savings and investment in export-oriented activities; increasing public sector savings and efficiency; improving commercial banks' mobilization and allocation of resources; and improving the productivity of the private agricultural sector. Many of the program conditions involved changing, restructuring and revitalizing public sector institutions and government policies to establish a more hospitable environment for private sector investment. 9 Conceptually the program's conditionality was well focused; however, it may have been too ambitious. While the critical areas for structural reforms were appropriately covered, they contained too many conditions which subsequently became one of the reasons for the delays encountered during loan implementation. The program was appropriately timed to coincide with the initiation of President Callejas' administration. 30. While the SAL was appropriately timed in consideration of the new Government, the pressures to eliminate Honduras' arrears should have argued for a more cautious approach in setting Board and Second Tranche conditions. Undoubtedly the normalization of Honduras' debt service payments was a precondition to any Bank operation in the country. In fact, SAL I's second tranche had been suspended due to arrears, and Honduran exposure had been placed in non-performing status. In effect SAL II had two main objectives: first, help to restructure the external debt; and second, to support the economic program. The logistical and design requirements of these objectives are quite different. Some Government officials interviewed for this report, commented that they were under strong pressures to get loan approval on a fast track, so that they could meet their bridge loan commitments. The preoccupation with the restructuring of Honduras' debt arrears to multilateral creditors should have resulted in less up-front conditionality, or even a less ambitious program that would have allowed for normalization of debt payments while preparing the way for a follow-up operation. 31. The loan contained too many conditions. In view of the difficulties encountered during SAL I, the loan's conditionality should have been narrowed to focus on the principal weaknesses in economic management such as: (i) stabilizing public sector finances; (ii) reforming agricultural and trade policies; (iii) liberalizing interest rates; and (iv) formulating a new banking legislation. In retrospect, it may have been preferable to have reduced the number of conditions in the program. Exchange rate, trade, and interest rate policy reforms were a critical first step to promoting private sector investment and export development. However, the condition for recommendations for a new export incentive system, could have been postponed to a follow up or sectoral operation. A narrower focus on the elimination of the income tax exemption and several other amendments to the existing RIT framework might have been appropriate. In fact a draft law to fix the RIT framework was eventually submitted to Congress in early 1993, yet at the time of this report the legislature had not acted on any of the proposed reforms. Fiscal reforms conditionality should have been applied both at a consolidated and sub-account levels. Perhaps a more efficient approach would have been to establish an overall fiscal deficit target within the context of an IMF program. This would have tied both programs together in terms of Government actions, while keeping the conditionality of each agreement legally separate, thus ensuring that second and third tranche releases would have been dependent on a successful ongoing IMF program. Another advantage of this approach is that the loan's fiscal savings conditionality applied only up to 1991, but third tranche release was delayed until August 1993. At the time of tranche release in 1983, in effect there was no condition on review of fiscal savings for 1992. 10 32. While sale of IHMA assets was necessary in view of agricultural price liberalization, the rationalization of BANASUPRO could have been postponed to a follow up SAL or sectoral operation. Conditions dealing with the Central Bank's rediscount operations could have been simplified to one condition on adjusting interest rates to levels compatible with market rates. The condition on the reorganization of the BCH's administration of rediscount facilities could have been postponed to a follow up operation. At the same time, the commercial bank's conditionality should have been limited to the implementation of new regulations on asset classification; and another condition dealing with the passage of new banking legislation should have been considered. All in all, the staff should have been more sensitive to the Government's limited institutional capacity to implement so many conditions. Although the new Government seemed committed to a program of reforms, it lacked experience. In this regard more emphasis could have been placed on technical assistance in the areas of tax administration and financial sector organization. 33. While key policy decision makers were involved in the design of the program, perhaps greater participation by their respective deputies or other experienced Government officials during loan preparation would have provided valuable input in terms of loan design. Some Government officials, who were subsequently charged with implementation of the program, reported that they had not been involved in the design of the SAL. The Government basically agreed with the Bank on broad objectives under each of the major policy areas, and expected the Bank to work out the explicit conditions. The Government's new economic team was inexperienced with SALs; since SAL I had been negotiated by the previous government. In view of the new economic team's lack of experience in design and implementation of economic policy, perhaps the Bank should have encouraged participation in the program design by other Government officials. 34. Certain conditions required extensive monitoring, especially the development and implementation of quantitative data gathering systems for which the Government did not have the staff or resources. For example, the conditionality dealing with an investment budget for social sectors prescribed the development of quantitative parameters, since existing information was not suitable for the task at hand. Monitoring was made more difficult since the Government had assigned only two people to coordinate the program until April 1993, when the UDAPE office was established. These constraints should have been identified early on during the loan design stage to have allowed appropriate modifications to the conditionality, or to have considered technical assistance reinforcement. 35. Liberalization of interest rates and of the exchange rate regime were critical components of the program which, combined with the trade policy reforms, contributed to the strong growth of non-traditional exports. However, the freeing up of interest rates uncovered some institutional weaknesses in the management of monetary policy. As discussed in the following section on loan implementation, interest rate liberalization reduced the degrees of freedom available to the BCH in conducting monetary policy. In the absence of a well developed money market, the Central Bank had to resort to the reserve requirement rate as the principal instrument of monetary policy. This weakness should not have deterred 11 the freeing up of interest rates; but rather it should have been accompanied by a technical assistance component to strengthen the Central Bank's capacity to manage monetary policy. 36. The design of the commercial banking system reforms was consistent with the objective of strengthening the financial system, but not with existing banking legislation. The commercial banking legislation in effect at the time of loan appraisal, and which remains unchanged, dated back to the 1950's and imposed few constraints on risk exposure. Even though capital adequacy requirements were defined in terms of debt to equity ratios, the loan called for a review of capital adequacy in terms of capital to asset ratios adjusted for risk. The organic law of the BCH was also outdated in view of the sizeable structural changes that had occurred in the financial system since the 1950's. The Superintendency of banks was established as a department within the BCH with minimal regulatory and enforcement powers. In effect the only enforcement power of the Superintendency was to approve dividend payments of banks. Thus the legal basis for requiring that banks adopt a new loan classification standard with appropriate loan loss provisioning was not enforceable. 37. Since the current banking legislation applies only to commercial banks, non-bank financial intermediaries are unregulated. Finance companies, which are non-bank intermediaries, have been one of the fastest growing segments of the financial industry. Some banks own a finance company in order to offer their clients more attractive terms on their deposits or loans. Loan design should have limited the financial sector component to the reform of banking legislation. A more efficient strategy would have been to have pressed for comprehensive financial system reforms through new legislation to update the organic law of the BCH, to consolidate all financial intermediaries, and to reinforce the powers of the Superintendency. 38. Agricultural sector reforms were supposed to prepare the ground for a subsequent Agricultural Sector Adjustment Credit (AGSAC). The AGSAC was eventually approved by the Board on August 5, 1993, and became effective on November 10, 1993. In this regard, some of the conditions such as the restructuring of the agricultural financial sector were expected to be fulfilled in the context of an AGSAC. Nevertheless, the Bank's approach to agricultural financial sector down-played the importance of first dealing with the problem of BANADESA. BANADESA should not have been written off simply because of its losses. The Government subsequently created two more financial institutions, the Rural Credit Banks (Cajas Rurales) and the Land Trust Fund whose potential for resolving the agricultural sector's credit needs is questionable. 39. Submission of draft legislation should not have been considered sufficient to assure progress towards reforms. Export incentives, banking sector, and tax reform legislation were submitted to Congress, and have been stuck there. Perhaps loan conditionality should specify the implementation of such reforms rather than submission of the relevant legislation. 12 F. Program Implementation and Monitoring 40. While most of the conditions were met, significant delays were encountered during the second and third tranche reviews with their compliance. At this end, four conditions were only substantially met, and five waivers were requested. It was evident that the Bank was too optimistic regarding the Government's capacity to implement a detailed program such as SAL II. The principal implementation and monitoring results are summarized below. a. Board Presentation and Effectiveness Conditionality 41. Decree 18-90 issued March 1990, made up the core Board presentation conditionality. As explained in paras. 7 - 8, the principal components were: introduction of a more flexible foreign exchange regime, some modifications to tax policy, and numerous reforms to trade policy. In addition to these, the Bank's conditionality for Board presentation included congressional approval of public sector savings and overall deficit targets for 1990, approval of financial restructuring programs for SANAA and HONDUTEL, increased interest rate ceilings, preparation of an action program for replacing guarantee prices of agricultural commodities, and preparation of a rationalization program for BANASUPRO and IHMA. 42. Just prior to Board presentation, the Bank had expressed strong concern about the widening gap between the interbank and the parallel exchange rates. In March, the interbank rate had been set at L4.0/$ and became L4.2 /$ in May, where it remained until September. Despite repeated efforts by the Bank and the Fund to induce further exchange rate adjustments, the Government resisted claiming that a strong adjustment or unification of exchange rates would inflict severe social costs and could destabilize prices. In essence, the Government was committed to the unification of the exchange rates, but only gradually. In view of the pressures arising from the bridge loan deadline, the Bank decided to proceed with Board presentation, after incorporating the adjustment to the exchange rate as part of the loan effectiveness conditions. This additional effectiveness condition was negotiated and made part of the Loan Agreement just prior to Board approval on September 13, 1990, which required that the Honduras' macroeconomic framework be consistent with the stated objectives and actions of the Government's structural adjustment program. 43. Following Board approval, the Bank's staff raised another warning regarding slippage in the Government's program.4 Since no action had been taken regarding the interbank exchange rate, more transactions were being diverted to the parallel market. Interest rates had become highly negative in inflation adjusted terms, thus aggravating the problem of capital flight. 44. On October 11, the Government introduced new measures regarding the exchange rate and interest rates. The BCH raised the interbank exchange rate to L5.5/$ which was roughly 4See Jack Stein, RE: Progress Under the SAL Program, Memo, September 14, 1990. 13 in line with the parallel market rate, and the Government agreed to maintaining the difference between the interbank and the parallel market exchange rate within a range of 5 percent based on weekly averages. The Government also agreed to impose a freely floating exchange rate regime by the end of the IMF Stand-by. Ceilings on lending rates for commerce, consumer and export loans were abolished. Interest rates for the remaining sectors were increased from 17 percent to 19 percent and were to be reviewed on a monthly basis. With these announcements and with confirmation that the Congress had ratified the SAL II agreement, effectiveness was declared in November 1990. b. Second Tranche Conditionality 45. Progress in carrying out the macroeconomic program during 1990-1991 encountered some weaknesses in the areas of exchange rate and fiscal policy management. Real GDP grew marginally by only about 1 percent in 1990, reflecting the results of stabilization measures, of a banana strike, of flooding in agricultural production areas, and of the increase in oil prices arising from the Persian Gulf crisis. Inflation, as measured by the consumer price index, accelerated from 9.9 percent in 1989 to 23.3 percent in 1990, and peaked at 34 percent in 1991. However, inflationary pressures proved to be short-lived, attributed mostly to the one-time maxi-devaluation and by the additional monetization of the fiscal deficit inherited by the new administration in 1990. The two major policy problems continued to be the fiscal deficit and the foreign exchange allocation regime. The fiscal deficit reached 8.2 percent of GDP in 1990, while public sector savings was reported as -1.6 percent of GDP, compared to a target of +0.5 percent. The worse than expected performance of the fiscal accounts was attributed to delays in implementing customs administration reforms and a decline in import tax revenue. In addition, delays in adjustment of domestic prices of oil products resulted in a decline in oil tax revenue relative to GDP. Recognizing these problems, the authorities introduced some mid-course corrections in 1991 that reduced the fiscal deficit to 3.3 percent of GDP in that year, well within the target stipulated in the IMF Stand-by agreement. 46. Compliance with the IMF program during 1991 was satisfactory. The fiscal deficit and net international reserves targets were surpassed. Also the Govermnent also eliminated all debt service arrears with the IDB and the Paris Club. 47. Compliance with trade policy and foreign exchange management were satisfactory. Decree 18-90 established a schedule for the reduction in import tariffs from a range of 0 - 90 percent before March 1990 to 5 - 20 percent in January 1992. In February 1991, the BCH eliminated import permits and instituted a simple statistical registration system for imports. As of May 4, 1991 all import restrictions on agricultural products were eliminated, and IHMA ceased issuing statistical registration forms for imports of agricultural commodities. Regarding a new export incentive system, agreement was reached with the Government that incentives would cover the following areas: (i) in-bond assembly operations; and (ii) traditional and non-traditional exports. 14 48. Actions taken in compliance of the riscal policy reforms were disappointing, as waivers were required for two of the second tranche conditions: (i) public sector savings; and (ii) administrative reforms to strengthen capacity to collect taxes. Public sector savings were -1.6 percent of GDP in 1990, whereas the target was 0.5 percent. However, as explained above, corrective action was taken to strengthen public sector savings. In addition, the Government agreed with the IMF to make further adjustments in the investment budget in order to bring down the overall deficit which had also exceeded the IMF program targets for 1991. With respect to administrative reforms, the Government had agreed to improve collection of a) domestic taxes through the Ministry of Finance; and b) customs tariffs through the Customs Bureau. Progress on enhancing customs collections was slow in the areas of implementation, standardization of procedures and implementation of adequate merchandise valuation procedures. The Bank agreed to a waiver with the proviso that strict enforcement of this condition would be employed in the review of the third tranche. Performance of SANAA and HONDUTEL significantly exceeded the agreed savings target of a joint surplus of 0.3 percent of GDP in 1990 with an actual surplus of 1.4 percent. This better than expected outcome was due in large part to adjustments to water and telephone tariffs in mid-1990 which exceeded the Bank's original recommendations. The Bank informally provided technical assistance to the water company (SANAA) by preparing a financial computer package to assess alternative water tariffs. 49. Agricultural Sector Policy reforms encountered some weaknesses in the implementation of a rationalization plan for BANASUPRO and LIHMA. A satisfactory program to implement a price band system through a flexible import tariff system for corn was submitted to the Bank in September 1991, and was subsequently included in the draft law of the Agriculture Modernization Law (AML) approved in 1992. In February 1991, the guarantee price system for basic grains (corn, beans, rice, and soybeans) was eliminated, followed by similar actions regarding chicken meat, milk, vegetable oils, margarine, wheat and corn flour. However, price controls were not lifted in the case of low quality ground coffee and sugar. These commodities were subject to complex trade negotiations among the Central American countries. A timetable had already been agreed to for liberalizing their prices; nevertheless, a waiver was technically required although the condition was essentially met. In view of the program implementation delays caused by these two minor items, perhaps a more flexible definition of price liberalization should have been used to allow room for judgement regarding satisfactory compliance. As agreed by the Bank and the Government during the loan negotiations, an action program for the gradual divestiture of BANASUPRO called for the relocation of outlets to areas where the needs of the lowest income groups would be better served. BANASUPRO closed four centers in high income neighborhoods and opened new outlets only in low income neighborhoods. An action plan agreed to with respect to IHMA called for the closure and sale of all fixed assets except for those facilities needed for the maintenance of the strategic reserve. This process began in June 1990, when three storage facilities were closed. Nevertheless, subsequent action was slow. EHMA officials interviewed for this report claimed that they were not familiar with I-IMA's goals under the program. In addition, they claimed that the decision to sell the silos did not arise until the second tranche review process. As stated in the Loan Agreement, the 15 condition to rationalize IHMA's assets was unspecific. A more specific condition that referred to the sale of assets could have been incorporated into the Agreement. 50. Monetary and financial sector reforms were satisfactory, although greater supervision should have been applied to the implementation of financial system reforms. Liberalization of interest rate policy was effective. BCH's rediscount rates for agricultural credits were adjusted in line with other rediscount facilities except for corn and beans, which were slated to increase by year-end 1991, when the new crop season would get started. A program to eliminate BCH's directed credit lines was instituted after interpreting the original conditionality to mean an elimination of credit subsidies by instituting a formula to fix rediscount rates at non-subsidy levels. The capital adequacy requirement of the banking system met the loan's criteria; although as explained in paragraph 36, the Superintendent of Banks did not have the legal authority to enforce this condition. Discussion of the agricultural financial system's restructuring needs concluded that the first phase should involve the restructuring and recapitalization of BANADESA, followed by a strategic plan on BANADESA's role as the government's agricultural lending institution, and in a broad context, the presentation of a draft law to congress for the reform of the financial sector. 51. The Government liberalized right away most of the lending rates except on loans for low-income housing and basic grains, which were liberalized by the end of 1991. Since deposit rates were already supposed to be freely negotiated by commercial banks, the elimination of lending rate ceilings paved the way for market determined interest rates. Nevertheless rates lagged behind inflation rates during 1990-1991. Rates on certificates of deposits averaged 11.5 percent during 1990, compared to an inflation rate of 23.3 percent; similarly, interest and inflation rates averaged 16.3 percent and 34.0 percent respectively during 1991. Finally, interest rates turned positive in inflation adjusted terms in 1992. The relatively low rates on deposits during 1990-1991 can be explained by two factors: first, a sudden acceleration in the inflation rate, caused by devaluation cum domestic price liberalization, that was expected to cool off in a short period of time; and second, by BCH's high reserve requirements which were compensated at very low interest rates, and thus significantly increased banks' effective cost of funds, which in turn tried to pass on to their customers part of the cost of reserve requirements in the form of lower rates on deposits. 52. The condition to eliminate BCH's directed credit lines (which included rediscounts and any other type of credit funded with domestic resources) was not viable as written in the Loan Agreement. Literally, this condition would have caused the Central Bank to seek repayment of all existing credit lines financed through its own resources. It was subsequently reinterpreted to mean the elimination of the interest rate subsidy on directed credit lines through the unification and consolidation of interest rates. An interest rate formula was agreed upon, with adjustments made on a quarterly basis. Repricing of existing rediscount facilities involved the signing a waiver for each loan. All rediscount lines were unified except for the following three special funds: basic grains; social housing construction; and cooperatives, commercial sector and banks. In addition, subsidized credit lines funded with external resources had to be frozen at their December 31, 1990 levels. Even though the 16 definition of what constituted a subsidized credit line was not clarified, the Bank was satisfied with the Government's monetary program for 1991, which showed that the amount of subsidized credit lines funded with external resources would not exceed the levels of December 31, 1990. 53. Progress was made on the administrative reorganization of the rediscount units as specified in the Loan Agreement. According to BCH officials, the process took about two years to complete. While the objective of centralized administration was eventually achieved, the Bank's staff should have been aware of the complex nature of the rediscount units' reorganization. Delays in disbursement could have been prevented if this condition had been postponed to the third tranche, or perhaps it should not have been included so that more attention could be focused on the critical issue of interest rate liberalization. 54. The loan's conditionality regarding the reorganization of the Government's agricultural financial system was not sufficiently specific. By placing a limit on the amount of Government transfers to BANADESA, the program did not directly address the critical issues of a restructuring of that organization. Because of BANADESA's importance as a provider of credit to the agricultural sector, perhaps greater attention should have been given to the development of a reorganization plan as part of the SAL's conditionality. It was not until the second tranche release review mission that agreement was reached on a plan for BANADESA. The new strategy consisted of several steps: first, a financial evaluation of the bank; second, a restructuring of the bank including the cleanup of its largely non-performing portfolio; and third, recapitalization in the context of a much smaller but better focused institution. Unfortunately, one of the initial announcements by the Government concerning BANADESA's reorganization was a policy of debt forgiveness. This dealt a serious blow to BANADESA's credibility in negotiating with its borrowers. In another disappointing outcome, the AML had authorized the government to issue up to L250 million in bonds to finance the bank's restructuring and recapitalization needs; however, these bonds have yet to be issued. In addition, the AML established the legal framework for the creation of yet another two financial intermediaries: a Land Trust Fund, and Rural Credit Banks. At a time when the Government was preoccupied with the financial workout of existing problem institutions such as BANADESA, the development of more agricultural financial institutions could result in more of the same problems. 55. Once the Central Bank ceased extending credit to BANADESA, the flow of credit to the small agricultural producer was severely impaired. Historically, BANADESA had functioned as the principal source in the formal sector of financing to small producers. Commercial banks had lost interest in lending to small producers as a result of the land reform program which cancelled the right to property ownership, and thus prevented the use of mortgages, and of controls on interest rates. In the design of the social support measures, more emphasis could have been placed on some alternative mechanism for providing financing to small producers in the agricultural regions, perhaps through the commercial banking system. 17 56. The capital adequacy condition of the banking system was found to be in conformance with the minimum of 5 percent of net assets. Net assets were defined as total assets less cash and due from banks. Since the re-classification of risk assets was specified as a third tranche condition, the results of the capital adequacy test may not have reflected the full extent of loan portfolio risk. The fact that a number of commercial banks have an affiliate finance company, which is not subject to supervision, should have been noted in the staff's analysis as additional source of risk to the banks via their holding company, which was not being properly measured by the specified capital adequacy ratio. 57. Government compliance with social sector reforms was satisfactory. The Government submitted a satisfactory program to the Bank which was presented to the Consultative Group Meeting held in Paris in December 1990. Agreement was reached with the Government on broad indicators for evaluating social sector programs. This established the basis for IDA support for FHIS. c. Third Tranche Conditionalitv 58. The approach of the November 1993 presidential elections detracted the Government's attention from structural adjustment efforts. A predominant political cycle, which is typified during the first two years by positive economic actions which tend to derail during the latter two years as a new electoral process takes hold, appears to have been one of the main obstacles to program sustainability. The combined conditionality from SAL II, SAC, ESAC, and AGSAC possibly contributed to adjustment fatigue. This problem was compounded by the already weak performance noted in some areas during the second tranche review, for which more stringent conditionality, was expected to be applied for the third tranche. 59. In terms of the macroeconomic framework, the Bank and the IMF worked closely on the proposed stabilization measures and medium-term reforms to ensure consistency as well as proper sequencing of policy refonns. A Stand-by arrangement for SDR 30.5 million, which was approved in July 1990, was completed satisfactorily in February 1992, and all planned purchases were made under the program. In February 1992, the IMF approved a Compensatory Financing Facility of SDR 44 million for export shortfalls experienced in 1990-1991. Following agreement on a Policy Framework Paper (PFP) and a detailed first year program in early June, an Extended Structural Adjustment Facility (ESAF) of SDR 40 million was approved in July 1992. The first year review of the ESAF program was satisfactorily completed in July 1993, but only after the fiscal deficit targets had been revised due to insufficient adjustment efforts by the Government. 60. Compliance with trade policy and foreign exchange management was satisfactory. Beginning January 1, 1992, as stipulated by Decree No. 18-90 dated March 8, 1990, a new import tariff structure was put in place for which the maximum tariff is not to exceed 20 percent and the minimum tariff is not to be less than 5 percent of the dutiable value of the imported item. All import surcharges for agricultural products were also eliminated, regardless of the product's origin. The phasing out of temporary export taxes on traditional 18 exports was completed by December 1991, as stipulated by the same decree. 61. With respect to the implementation of a new export incentive system, this condition was substantially met. The Government introduced substantial improvements in the export incentive system through the liberalization of the foreign exchange market, elimination of export licenses, passage of a modem Investment Code, authorization of Industrial Production Zones, and approval of the Agricultural Modernization Law. These initiatives contributed to removing the anti-export bias of past economic polices, facilitated administrative procedures, and provided property security for new export oriented investments. As required in the action plan for the introduction of a new export incentive system, furnished prior to second tranche release, the Government submitted a draft legislation to Congress. However, this legislation had still not been acted upon at the time of the third tranche release review, which would imply that a new incentive system had still not been put into effect as specified in the Loan Agreement. Nevertheless, once Congress approves the legislation, the new mechanism would become effective immediately. 62. The draft export incentive legislation addressed the major distortions and loopholes in the current system, most notably, costly fiscal subsidies and operation of multiple admission regimes. Under the proposed legislation, income tax exemptions as well as sales tax rebates for exporters would be eliminated, a single system for exempting import duties on inputs and capital goods would be implemented, although the draw-back regime could still be used by companies that did not want to participate in the Temporary Import Regime (RIT). Once the Law is approved, its implementation will call for the reinforcement of monitoring and enforcement procedures by both Customs and the Ministry of the Economy. Customs bears the responsibility for managing the collection of duties, yet modernization efforts have not produced the desired results in terms of enforcement and timely processing of transactions. Deficiencies in customs administrative reforms had required the issuance of a waiver for second tranche release. The administration of the RIT also brings together the Ministries of Economy and Finance in terms of implementation, enforcement and supervision. In particular, the application of import duty exemptions to producers that sell both in the domestic and in the export markets involved the maintenance of separate financial statements for export related activities. It was reported that the Tax Administration Department of the Ministry of Finance did not have adequate auditing and examination procedures of importers' financial statements to assure the integrity of the export incentive scheme. The proposed legislation has been held back in part due to strong opposition from exporters who do not want to lose the income tax benefits of the present RIT program. 63. Actions taken in compliance with tax reforms were met, although fiscal performance deteriorated significantly during 1993. As agreed, the Government submitted a draft tax reform law in January 1993 which included a zero sales tax rate for exports and the granting of full credit to purchases of capital goods from the sales tax chain. On the positive side, non-financial public sector savings in 1991 exceeded the agreed 1.7 percent of GDP target by a comfortable margin. Expenditures for the 1991 Public Investment Program were also found to be within the agreed parameters. Nevertheless, the Government's finances 19 worsened considerably during 1992 as a result of much greater than anticipated increases in investment expenditures, and less than expected improvement in the finances of government enterprises. Discussions with the IMF resulted in corrective action to put the program back on track. However, fiscal performance deteriorated sharply during the first half of 1993 due to lower public sector savings and higher capital expenditures. As explained in the prior section on Loan Design, the Bank should have structured the condition on Government savings as an ongoing target, and not limiting it to 1991. 64. The program of administrative reforms to strengthen the capacity of the Ministry of Finance to collect taxes was acceptable. In particular, measures to strengthen domestic tax collection, customs tax collection, and control over the functioning of the RIT were deemed successful. However, customs operations had been found to be deficient in the prior tranche release, and the third tranche evaluation reported continued delays in the computerization of customs. Government officials interviewed for this report acknowledged that the Ministry of Finance did not yet have the ability to reduce tax evasion or to improve collections. Improvements in tax collections were modest. 65. With respect to Agricultural sector policy reforms, significant delays were encountered in the rationalization programs for BANASUPRO and IHMA. A flexible tariff system applicable to corn and rice was put into effect by the Government in January 1992. The other major policy action in the agricultural sector dealt with the rationalization programs for BANASUPRO and IRMA. After considerable delays, the Government initiated the closure of all BANASUPRO outlets in middle- and upper-income neighborhoods. The remaining outlets were to be located in poor neighborhoods, and to be managed by private entrepreneurs under lease arrangements with the Government. Progress in implementing IHMA's rationalization plan was delayed by legal difficulties, management weakness, and a lack of clear explanation from the Bank regarding the divestiture of IHMA's fixed assets. 66. IHMA's officials interviewed for this report noted that the Bank's condition of rationalizing IHMA's operations was unspecific, and that these objectives became clear only after several Bank missions. Nevertheless, prior support programs under U.S. PL-480 had already brought up the issue of privatizing IHMA. With AID financing, the valuation process began in 1992. Also, IHMA was empowered to sell directly to small producers. Producers could organize into cooperatives and the assets would be offered to them at 2/3 of valuation. Once this stage was completed, they moved on to public auction. If no offers were made after two consecutive calls for bids, then IHMA could negotiate directly with potential buyers. At the time of this report, 46.6 percent of the storage facilities (based on capacity) had been transferred to the private sector, and all of them through direct negotiations. Perhaps the method of direct negotiations may not have been the appropriate procedure, without some pre-established procedures on how to adjust prices during negotiations, buyers may have succeeded in taLking down the price below what could be obtained under normal market conditions. The largest facility, the San Pedro Sula grain warehouse which alone accounts for about 40 percent of total storage capacity, has yet to be privatized. However, even though the Bank's intentions of privatizing IRMA's assets were not clearly expressed 20 from the start, and recognizing delays encountered through IHMA's own resistance to the reorganization efforts, progress has been encouraging. 67. Monetary, and financial system reforms were satisfactory, with performance exceeding targets in the areas of interest rate policy and BCH reforrn of rediscount credit policies. Some weakness was encountered in the review of the commercial banking asset classification and loan loss provisioning. Interest rate liberalization, as per the agreement, was complied with ahead of schedule. In August 1991, interest rate ceilings on commercial bank lending operations were abolished; and in April 1992, restrictions on the frequency with which commercial banks could adjust interest rates were also abolished. The third tranche condition had called for a quarterly revision of interest rate ceilings. In this regard, Government actions clearly went beyond the loan's requirements. Accordingly in September 1992, the rediscount interest rate applied to credits for corn and bean production, which are extended overwhelmingly to small farmers, was increased to the level of the Central Bank's rediscount interest rates for other credits. 68. As agreed for second tranche release, the program for eliminating directed credit lines took the form of adjusting the rediscount rate on all credit lines to be consistent with a specified formula based on commercial banks' CD rate. The BCH continued to adjust the rediscount interest rate according to this formula. The Government also submitted legislation to Congress that would permit the operation of an auction system for setting the rediscount interest rate on credit lines channelled through the Central Bank. Subsidized credit granted through the BCH and funded with external resources was effectively limited to the low- income housing sector and was considerably less than the amount existing on December 31, 1990. 69. Strengthening of the commercial banking system was to ensue from a new loan portfolio classification supported by commensurate increases in the provisioning for losses, while meeting the minimum capital adequacy standards of 5.5 percent of net assets. In November 1990, the Superintendency of Banks issued new instructions on asset classification and provisioning, in accordance with criteria agreed between the Government and the Bank. The Superintendency was to supervise the loan classification and loan loss provisioning workout by commercial banks. However, the extent of supervision was not adequately specified. In fact, the Superintendency lacked proper regulatory authority to supervise the implementation of this condition. Staff should have been more sensitive to these institutional constraints and raised the issue early on during the loan design stage. Perhaps a more productive approach would have been to provide technical assistance in the form of external auditors to work with the Superintendency in the evaluation and classification of the banking system's loan portfolio including incorporation of the new procedures in the examiners' handbook. 70. Progress in implementing Social sector reforms was satisfactory. The Government expanded its employment and nutrition assistance programs targeted to the neediest sectors of the population through the Honduran Social Investment Fund (FHIS) and Family Assistance 21 Program (PRAF), both with IDA financial support. Progress achieved during 1992 and planned activities for the period 1993-95 were deemed satisfactory. G. Relationship with the Government's Stabilization Policies and the IMF Programs 71. As indicated in para. 59, IMF has strongly supported the Government's efforts in stabilizing the economy. In reality, the Government's structural adjustment program hinged on a successful short-term economic stabilization strategy. A number of the loan's conditions, such as the public sector savings target, were aimed at establishing a stable economic environment that would trigger greater savings and investment by the private sector. The Government's efforts in this area were supported by ongoing IMF programs. Nevertheless, one of the weaknesses of the Government's stabilization policies was the lack of continuity in the management of fiscal policy. This problem had already been encountered during implementation of SAL I, when the previous Government failed to agree with the IMF on a stabilization program. Election year politics had in that case also contributed to policy backtracking and unacceptable increases in public spending during 1989. This political cycle was responsible for a substantial increase in the fiscal deficit in 1993. As long as election year politics continues to dominate fiscal policy, the ability to achieve sustainable structural reforms will be compromised. 72. One of the notable achievements of the SAL in the context of stabilization measures was the introduction of an interbank currency market, followed by the liberalization of domestic interest rates. The inflationary impact of the devaluation of the Lempira in the interbank market was contained in the short-term. During 1990-1991 inflation averaged 28.4 percent mostly resulting from the currency devaluation, but dropped to only 8.8 percent in 1992. After stabilizing inflation, the Government was able to liberalize interest rates with minimal disruption to the financial markets. H. Sustainability of the Program 73. The lack of continuity in fiscal policy combined with weak institutional capabilities to implement reforms compromised the sustainability of the program. While the scope of the program was overly ambitious, it was undermined principally because of disappointing results in the critical areas of fiscal policy, and weaknesses in the financial and agricultural sectors. 74. As per the President's report, there were three main risks associated with the loan. First, Government implementation of the adjustment program could fall short of what was necessary to lay the basis for sustainable growth. Second, the level or timeliness of external capital flows could fall short of what was required to restore financial balance. And third, the Government could need technical assistance to define and implement many actions or otherwise risk delaying implementation of the loan. As the implementation experience and consequent results amply demonstrated, the principal obstruction to the loan's sustainability was the laxity in pursuing an effective stabilization program. At the same time, the pressure 22 to approve the operation in order to meet the debt rescheduling deadline may have compromised the Bank's objectivity in deciding on the loan's feasibility as structured. 75. In retrospect, fiscal policy slippage was prevalent throughout the loan's experience. As explained in the section on implementation, the relative size of the fiscal deficit in 1993 exceeded the 1989 figure. A few days after the November 1993 Presidential elections, the Government instituted across the board price controls, which threatened to undermine the reform program's credibility. Insufficient legislative action to support the government's main reform initiatives, especially in the areas of tax reform, export promotion, and financial sector reforms, put in question the sustainability of current reform initiatives. 76. Despite the shortcomings, the loan made important progress in several areas that should facilitate future attempts to get back on a stabilization/structural reforms track. Foreign exchange management has improved considerably with the introduction of the interbank market. Nevertheless, it is somewhat unusual that the Constitution still recognizes the rate of L2/$ as the official exchange rate. Interest rate liberalization has been conducive to increased savings and reduced capital outflows. Government action to reform the official exchange rate could bolster investor confidence in the management of economic policy. The reorganization of the BCH's rediscounting mechanism has paved the way for future monetary policy reforms that could ensure the autonomy of the Central Bank in the management of monetary policy. Institutional weakness in the use of open market operations should be dealt with through more technical assistance. The likelihood of serious liquidity problems in the financial system should prompt the passage of new banking legislation that would diminish the potential for a future financial crisis. I. Program Results, Government Ownership, and Overall Evaluation 77. Program Results. The results of SAL II were encouraging in terms of exchange rate management, domestic interest rates and growth of non-traditional exports. The impetus to private savings came from higher interest rates relative to inflation, and from stable exchange rate expectations. Investment in export-oriented industries was evident from the strong growth of non-traditional exports. However, progress towards greater public savings and efficiency of the public sector was disappointing. For instance, the NFPS deficit for 1993 was about 8.5 percent of GDP, which is almost the same as in 1989, the year before the SAL became effective. 78. Measures to improve commercial banks' mobilization and allocation of resources through interest rate liberalization were effective. The liberalization of interest rates produced a favorable impact on banks' net income. Nevertheless, without fundamental reforms to modernize the financial system, the banks' reported earnings hide a significant systematic risk, arising from a lack of regulatory controls, which was not adequately addressed by the SAL. The policy dialogue maintained throughout the program was instrumental in eventually influencing the Government to submit a new banking reform legislation to Congress, although it has not yet been approved. The proposed Law contains a number of reforms that 23 are essential for the proper implementation of the conditions contained in SAL I and, more importantly, for the modernization of the banking system with the proper elements of safety and soundness. 79. Finally, agricultural sector reforms exhibited some weaknesses although significant progress was achieved towards the latter part of the program. Measures to improve productivity were limited basically to pricing policies which are likely to have a delayed impact on productivity. Most of the products affected by the elimination of price guarantees were basic grains. Production of these commodities has increased significantly during 1990- 1993. BANADESA had been one of the principal sources of credit to the small and medium- sized producer. The near collapse of BANADESA's activities left a vacuum in the financial system which was not compensated by other financial intermediaries. As explained in paragraph 63, some consideration should have been given to a special line of credit to agriculture to be administered by commercial banks but with Government guarantees. 80. This analysis focuses on the short- and medium-term results of the loan based on the period 1990-1993. The full benefits of structural changes may take some time to materialize; and even then, it may not be possible to separate the structural adjustment effects of SAL II from other structural adjustment operations, or from other factors which may in the future induce structural changes if they have not already done so. As expected, the measures taken prior to Board presentation in March 1990, had a dampening effect on economic activity in the short-term. High inflation induced by the devaluation of the Lempira in the interbank market and the downturn in traditional exports sapped the real purchasing power of consumers. Real GDP growth was a marginal 0.1 percent in 1990. Once inflationary pressures subsided, the liberalization of both domestic prices and the international trade regime produced a healthy recovery in 1991. During 1992-1993, the private sector-led economic expansion received additional impetus from the Government's aggressive expenditures policy. Real GDP growth averaged 5 percent per annum during those two years. 81. The program's favorable results were concentrated in the areas of trade and interest rate policy, and the exchange rate regime. The opening up of the international trade sector improved domestic activity by enhancing the availability of imported inputs and capital goods and in reducing the anti-export trade bias. Non-traditional exports have responded quite favorably to these initiatives. The strongest growing export areas have been fruits and vegetables and assembly of textile products. Non-traditional merchandize exports averaged 9.5 percent growth per annum during 1990-1992. Assembly industries (maquiladoras) have attracted significant amounts of foreign investment, although there is little information on the actual results in terms of their export volume. 82. Interest rates and monetary policy management have improved noticeably as a result of the program. The Government's actions to eliminate ceilings on lending rates contributed to greater resource mobilization by the financial system, although weakness in the regulatory and supervisory environment could result in financial system liquidity problems. Interest 24 rates on certificates of deposits (CD's) were significantly negative real rates, in inflation adjusted terms, through the first half of 1991. As inflation dropped during the second half of the year, CD rates increased moderately, thus resulting in significantly high real rates through 1992 and the first half of 1993. With the upturn in inflation during the second half of last year, real rates have once again fallen. As mentioned earlier, the liberalization of interest rates has revealed an institutional weakness in the management of monetary policy. The BCH has become increasingly reliant on the reserve requirement rate to control liquidity in the financial system. This creates a problem for banks' asset/liability management. The consolidation of the BCH's rediscount operations under a uniform market related interest rate marked an important step in refocusing the Central Bank's role as manager of monetary policy, and away from its prior lending activities through the use of the rediscount facilities. 83. One of the most disappointing results of the program, and yet one of the critical elements for sustainability, was the fiscal reform package. When the loan was signed in 1990, the Govemment had inherited a fiscal deficit of 8.5 percent of GDP from its predecessor. By the expiration of its term in January 1990, the Government had left behind a fiscal deficit of more than 10 percent of GDP. While significant progress was experienced during 1991-1992 in reducing the fiscal deficit, the approach of the 1993 elections, combined with a loss of Government support for the program, once again unleashed massive public works programs. Tax reforms were only moderately successful in strengthening the Government's revenue base. 84. Government Ownership of Conditionality. Borrower ownership of structural reforms, which is a pre-requisite for successful adjustment lending, was somewhat weak in several areas. Upon taking office in 1990, the Government had stressed the importance of renewing the adjustment process for the country's political and social stability. The Government's Plan had clearly identified the principal areas for reform. The structural adjustment loan was thus appropriately designed to support the Government's structural adjustment program. Nevertheless, Government staff involvement with the Bank during loan appraisal appear to have been limited to an inner nucleus of Government representatives which were relatively new to their positions. Staff at the technical level that were later assigned to implement the program were not included in the initial phase of program design. While the individuals involved in the preparation and negotiations clearly understood and supported the Government's views regarding the need for structural reforms, and shared its willingness to implement a successful program, perhaps discussions should have been expanded to incorporate the views of Government officials who had a better understanding of the bureaucratic machinery, and who could thus have provided useful input in the design of specific conditions. 85. Since the Government was dealing with structural as well as sectoral adjustment programs with several multilateral agencies simultaneously, they may have been overburdened by extensive policy conditionality which, while mostly complementary, may have overwhelmed the Government's capacity to implement them. In addition to the SAL, Honduras was in the process of implementing an ESAF with the IMF, an agricultural sector 25 loan with the IDB, and an ESF with USAID. Each of these programs contained a list of reforms, which in some cases could have resulted in potential conflict in terms of economic policy management. For example, SAL II called for the liberalization of interest rates, while the ESF specified a reduction of the reserve requirement rate, yet when taken together both measures could have placed the BCH in a difficult position regarding management of monetary policy: if the monetary authority's goal was to support higher interest rates, in the absence of a working open market operation, the Central Bank would have to raise the reserve requirement rate. Undoubtedly, the multi-faceted multi-agency adjustment workout helped to cover much more ground than a single reform program; however, greater coordination between the agencies should be encouraged, specially with respect to the details of program conditionality. 86. Some of the weaker areas of the SAL were indicative of a lack of support from Congress. Several key legislative proposals were never acted upon. The Government's unwillingness to make unpopular decisions was also indicative of insufficient commitment to the overall objectives of the program. 87. Overall Evaluation. Numerous accomplishments of SAL H in the areas of foreign exchange, monetary and trade policy management have set the stage for increased savings and investment in export-related activities. However, significant weaknesses in fiscal policy and financial system organization and supervision could adversely affect the sustainability of the program (see paragraphs 51 - 78). Some weakness was also noted in the implementation of administrative reforms of the public sector. At the time of loan appraisal, Government assurances of their commitment to reforms may have triggered an understandably optimistic assessment by the Bank of the Government's ability to implement a comprehensive program. The Government in turn was not forthcoming in implementing certain fiscal policy reforms, and was slow in responding to some of the agricultural and financial sector reforms. 88. Sustainability of the program is dependent on Government efforts to get stabilization policies back on track. The Government's commitment to reforms has been questioned by recent developments which appear to undermine the program objectives. The relative size of the fiscal deficit in 1993 was greater than in 1989, the year prior to the initiation of the program. Immediately after the November Presidential elections, the Government imposed price controls on basic consumer goods. Both of these actions partially reversed earlier positive steps toward structural reforms. However, if Government stabilization policies are resumed, the successful reforms already implemented in SAL II would no doubt facilitate the establishment of a supportive environment for private sector development. 89. The principal accomplishments of SAL II include the following: * Introduction of greater flexibility in the exchange rate regime. * The implementation of the social support program through the distribution of food coupons to targeted families (PRAF) and through the social investment projects 26 (FfIS) which was instrumental in alleviating social conditions and in identifying the neediest sectors of the population. * Liberalization of domestic interest rates contributing to increased savings. The application of a market based interest rate formula to the BCH's rediscount facilities eliminated an important element of subsidies in public sector lending. * Establishment of a uniform tariff band of 5 - 20 percent opening up the economy to increased competition while providing an incentive to investment in export oriented activities based on the country's comparative advantage. * Progress in the divestiture of IHMA assets, the closure of BANASUPRO distribution centers, and the restructuring of BANADESA marking a significant first step toward increasing public sector efficiency. * Increased flexibility in exchange rate management combined with reforms of interest rate and trade policies stimulating growth of non-traditional exports. J. Bank and Borrower Performance a. Bank Performance 90. Bank persistence in resolving the arrears problem expeditiously was instrumental in normalizing Honduras' access to multilateral financing. Initially, more attention seemed to be paid to the goal of normalizing Honduras' debtor relations than to their ability to implement the reforrns contained in the program. The Bank appropriately identified the structural weaknesses in economic policies. However, the staff should have been more attentive to the Government's limited institutional capabilities to carry out reforms during the loan appraisal process by designing a less comprehensive program with a smaller set of conditionality. The identification mission should have sought out more participation by Government officials in at technical levels in order to get more input on the implementation of program conditionality. 91. Prior to Board presentation, the staff was articulate in expressing concerns over Government backtracking on the March 1990 package of reformns. Specifically, the exchange rate policy was flagged as being out of line with the agreed upon objectives. Quick staff response to the resolution of this problem led to the introduction, just prior to Board presentation, of exchange rate adjustments as part of loan effectiveness conditions. 92. Loan supervision was satisfactory in terms of staff time and frequency of supervision missions. However, Government officials interviewed for this report were somewhat critical that they were being asked different things by successive Bank missions regarding the same conditions. As discussed in the section on loan design, some of the conditions were couched in vague language i.e. rationalization of IHMA. The Bank should have been more proactive 27 during the initial stage of loan implementation to communicate concrete steps that the Government was expected to take. If further analysis of the problem was required, as in the case of IHMA and BANASUPRO, then the condition in the policy matrix should have been stated as: preparation of a strategic plan outlining possible options to restructure and downsize operations of IHMA and BANASUPRO, instead of rationalization. If the Bank was already convinced of the need to sell off IHMA's assets, then this should have been stated explicitly. As stated in the section on loan design, in view of the large number of conditions, another option would have been simply to postpone these conditions to a follow-up operation. 93. One of the strengths of Bank performance was the close working relationship with the IMF and the IDB. The SAL was co-financed with an agricultural sector loan from the IDB. Simultaneous missions from each of the agencies collaborated on many aspects of loan implementation. b. Borrower Performance 94. Some of the problems encountered during loan implementation were due in part to the Government's weakness in the area of stabilization policies, combined with institutional constraints in the ability to implement reforms. President Callejas' Government convinced the Bank that it was willing to adjust the fiscal imbalance and to lay the groundwork for structural reforms. The March 1990 package of reforms demonstrated the Government's willingness to pursue comprehensive reforms. However, the resurgence of the fiscal deficit starting during the second half of 1992 and into 1993 wiped away a number of the positive steps that had been taken in terms of tax increases and control over expenditures. Lack of legislative support for tax reform, export incentives and financial system liberalization dealt a blow to the sustainability of the program. 95. One of the strengths of the Government's performance was the implementation of trade policy, exchange rate regime, and monetary policy reforms. BCH was diligent in implementing interest rate liberalization policies, as well as the reorganization of the rediscount facilities. These reforms effectively downsized the Central Bank's role as a direct lender to the economy. Significant progress was made in the restructuring of BANADESA, although at a much slower pace than anticipated. However, the Government has not yet formulated a clear strategy on BANADESA's future. K. Lessons Learned 96. Based on the loan's summary evaluation, several lessons can be learned from the results of this operation. * When faced with the need to eliminate arrears, or to normalize the status of non- performing loans as in the case of Honduras, the Bank should consider structuring a SAL, with a narrower scope, and then to follow-up with a more comprehensive program. The Bank might also consider a multi-year SAL but with greater 28 conditionality in the second and third tranches. The pressures to eliminate Honduras' arrears should have argued in terms of a more cautious approach in setting Board and Second Tranche conditions. * Government commitment is essential to the success of the program. The lack of continuity in Government stabilization policies combined with weak institutional capabilities to implement reforms put in question the sustainability of the program. With the hindsight of SAL I's disappointments, the lack of a good track record in policy reforms should have alerted the Bank to take a more cautious approach with this operation. The approach of the November 1993 presidential elections detracted the Government's attention from structural adjustment efforts, and policy reversals casted some doubt on the Government's commitment. * The design of structural adjustment programs should put greater emphasis on the stabilization component even if it means incorporating only a limited number of structural reform conditions. Honduras' predominant political cycle, which is typified during the first two years by positive economic actions, followed by policy slippage during the latter two years as a new electoral process takes hold, appears to have been one of the main obstacles to program sustainability. * Broader participation of the Government officials, who would eventually implement the program, in program design is essential. While key policy decision makers were involved in the design of the program, perhaps greater participation by their respective deputies or other experienced Government officials during loan preparation would have provided valuable input in terms of loan design. The individuals involved in the SAL's preparation and negotiations clearly understood and supported the Government's views regarding the need for structural reforms, and shared its willingness to implement a successful program; nevertheless discussions might have been expanded to incorporate the views of Government officials who had a better understanding of the bureaucratic machinery, and who could thus have contributed to the design of specific conditions. * When weakness in institutional reform capabilities is identified, particularly after problems are encountered in a previous operation, such as SAL I, greater emphasis needs to be placed on technical assistance. SAL II covered a lot of ground for policy reforms, but, in contrast, contained little in the way of technical assistance. Some of the areas that could have benefitted from technical assistance include: (i) fiscal policy, TA program for tax administration and enforcement; (ii) monetary policy, TA program to strengthen the Central Bank's capacity to manage monetary policy with emphasis on open market operations; (iii) banking system, TA program to assist banking supervisors in the evaluation and classification of the banking system's loan portfolio, as well as a more comprehensive program to reinforce the Superintendency's institutional capabilities. 29 0 The design of the loan should be more specific with respect to conditionality than was the case for Honduras. For example, regarding the rationalization of BANASUPRO's and IHMA's operations, government officials interviewed for this report mentioned that they were not clear on the meaning of the term rationalization. Furthermore, if the Bank was already convinced of the need to sell off IHMA's assets, then this should have been stated explicitly. As stated in the section on loan design, in view of the large number of conditions, another option would have been simply to postpone these conditions to a follow-up operation. Wording of loan conditionality should be more precise in order to avoid future misunderstandings and thus implementation delays. * Careful examination of evidence is essential for proper supervision of loan implementation. The Superintendency's supervision of bank loan re-classifications may not have been sufficient to meet the proposed objectives. To the extent possible the Bank should rely on specialized auditors, or more field visits to ascertain the validity of borrower compliance; and when necessary, recommend technical assistance to support the Government's capacity to implement as well as enforce policy reforms. 3 The loan contained too many conditions. In retrospect, it may have been preferable to have reduced the number of conditions in the program. Within the trade policy component, the condition dealing with a new export incentive system might have been postponed to a follow up operation. At the time of loan appraisal the most important obstacle to export development was the exchange rate and tariff restrictions. Fiscal policy conditions dealing with public sector deficit and current savings could have been coordinated with the IMF, and thus reduce the number of conditions subject to Bank scrutiny. While sale of IHMA assets was necessary in view of agricultural price liberalization, the rationalization of BANASUPRO could have been postponed to a follow up SAL or sectoral operation. Conditions dealing with the Central Bank's rediscount operations could have been simplified to one condition on adjusting interest rates to levels compatible with market rates. The condition on the reorganization of the BCH's administration of rediscount facilities could have been postponed to a follow up operation. At the same time, the commercial bank's conditionality should have been limited to the implementation of new regulations on asset classification; and another condition dealing with the passage of new banking legislation should have been considered. 30 PART II: PROGRAM REVIEW FROM THE GOVERNMENT'S PERSPECTIVE A. Evaluation Summary 97. Structural Adjustment Loan II (SAL II) was designed to support the structural adjustment program introduced by the Government of Honduras in 1990 to rectify the problems associated with SAL I and to gain access to fresh resources with which to attend to the country's external debt obligations. Even though it has to be recognized that there were design weaknesses in the fiscal, financial, foreign exchange, and trade measures incorporated in the program, the general results of the operation can be considered satisfactory - firstly because the majority of the measures proposed were largely carried out, and secondly because of their positive contribution to the establishment of conditions conducive to private investment, the restructuring of production, economic integration, and elimination of the previously prevailing anti-agriculture and anti-export biases. 98. Among the factors that militated against full-scale achievement of program objectives were: (i) too many sectors were targeted and as a result too many conditions were imposed, making efficient and timely monitoring and evaluation difficult; (ii) limited participation by key implementing institutions in the initial stages of the program cycle; and (iii) failure to provide for the kind of technical assistance during implementation that would have ensured program success. In addition, other difficulties, inherent in the country's particular social, economic and political circumstances, presented themselves. 99. The experience gained from the whole SAL II design and implementation process, as regards both its achievements and its limitations, should be taken into careful consideration when similar future programs are being formulated and executed. B. Program Implementation and Results a. Trade and Foreig!n ExchanLge 100. Implementation: The measures making up this program component were carried out satisfactorily, except for introduction of the new system of export incentives. The Government formulated a preliminary draft of the legislation required and remitted it to the Congress in March 1993. Although debate of the bill was not completed by the end of that year, the new Government continues to regard it as a high-priority matter. 101. The most controversial element in the component was the accelerated process of tariff reform established by Decree 18-90. Import duties were reduced from the maximum of 90% under the pre-program protectionist policy to a rate of 20% under the new free market policy. The reduced relief in tariff levels was offset by the depreciation of the local currency and by surcharges which are now being gradually eliminated. 31 102. The new exchange rate management system kept pace with the country's changing monetary circumstances. Liberalization of the exchange rate in June 1992 required a strict regulatory frame-work that would not contribute to the appearance of speculative bubbles or widening of buyer and seller spreads. Its only beneficial effect was expansion in such non- traditional export categories as shrimp and melons and in assembly activities. 103. Result: The package of measures which the program called for helped eliminate the former anti-export bias by introducing a new foreign exchange management system, simplifying the bureaucratic procedures associated with the import and export of goods, providing a legal framework for the market attractive enough to draw both foreign and national investors on equal conditions, and establishing industrial processing zones very successfully. In addition, it enabled Honduras to lead the Central American integration process, by negotiating a common external tariff of 20%. b. Agriculture 104. Implementation: Execution of the series of reforms proposed for the agriculture sector is considered satisfactory. The results obtained paved the way for negotiation of a new agriculture sector adjustment operation, which is currently being implemented and consists of comprehensive reform measures. 105. As far as the BANASUPRO and IHMA rationalization programs are concerned, despite initial delays ascribable to the vagueness of the term "rationalization" and to the fact that the two institutions did not participate in the early stages of program design and implementation, significant advances have been achieved so far toward this end. For instance, all silos began the privatization process, with the result that half of all grain storage capacity passed into private hands. The largest silo, located in San Pedro Sula, is currently the subject of direct negotiations. BANASUPRO closed down some of its facilities located in middle- and higher-income areas, opening others in previously unattended low-income districts. 106. In the case of BANADESA, it was necessary to formulate an action plan that would allow the agricultural production sector as a whole access to formal financing arrangements. The Government recognizes that even when this was incorporated in the agriculture sector adjustment program the conditions associated with it were not clear. 107. Result: Achievements were limited. c. Financial and Monetary Sector 108. Implementation: The conditions associated with this component of the program were satisfactorily met. 32 109. Results: Given the lack of a sufficiently well developed market for open operations, the liberalization of interest rates and the new foreign exchange management system left the Central Bank of Honduras in a weak position where administration of its monetary policy is concerned, since the only instrument it can rely on to control the money supply is the legal reserve requirement. 110. In addition to the measures introduced, the Government, with the aim of modernizing the country's financial system and regulating the many finance companies that have sprung up in recent years, sent to Congress the draft of its proposed Private Financial Institutions Act, debate and final passage of which is expected to take place in 1994. d. Fiscal Policy 111. Implementation: All tax-system reforms grew out of those provided for in Decree 18-90, although public-sector savings goals were added. The public savings goal was not reached, however, despite the fact that the HONDUTEL and SANAA goal was exceeded as a result of increases in the rate schedules of these two service agencies. 112. Progress was made in introducing the program of reforns in tax administration. 113. Results: Although the public sector succeeded in maintaining an acceptable financial position throughout 1991 and much of 1992, fiscal discipline deteriorated badly in 1993. The government deficit in 1993 wiped out all the taxation and spending-containment efforts of the previous years. A fundamental cause of the deficit was the over-ambitious nature of the investment program carried out. 114. Primary current savings rose, creating a budget surplus equivalent to 6.6% of GDP, an indicator which suggests that the Government exercised a certain fiscal discipline in the use of current revenues and that the election-year deficit was mainly the result of abandonment of that discipline in investment and capital transfer programs, since public consumption dropped from 13% of GDP in 1989 to 9% in 1993. The primary net deficit rose to a manageable level of 0.7% of GDP. e. Social Sector Reforms 115. Implementation: The Honduran Social Investment Fund (FHIS) and the Family Assistance Program (PRAF) were satisfactorily set up, and were also amply supported by other Bank-financed operations, namely FIfS I and FHIS II. 116. Results: The Government's social support programs, chiefly PRAF and FHIS, were instrumental in offsetting the adverse social effects of the economic adjustment program on the neediest population groups, by generating temporary employment opportunities and providing direct subsidies for households in these groups. 33 C. Overall Results and Prospects 117. In general, most of the measures called for under SAL II were carried out as planned. 118. Even though accurate evaluation of the results of SAL II will be possible only in the medium and longer terms, there are already certain factors which allow a preliminary analysis of the present and anticipated results of its execution. 119. The main positive effects of the reforms introduced were: (i) a recovery in overall production, which grew from a state of stagnation in 1990 at an annual rate close to 4% between 1991 and 1993; (ii) an increase in overall investment, mainly because of activity in the public sector, which expanded at an annual real rate of 25 %; (iii) a reduction in the size of the public sector because of privatizations; (iv) an improvement in delivery of essential direct services to various segments of the national community (FHIS, PRAF); and (v) in the arena of trade and foreign exchange management, elimination of a previous anti-export bias, a change which, in conjunction with liberalization measures, has led not only to a rechanneling of production resources toward such higher-yielding activities as non-traditional exports and the expansion of industrial processing zones, but also to laying of the foundations for more effective participation by Honduras in the process of regional integration and for the country's incorporation into the world economy. 120. The main adverse effects of SAL II were: (i) the value of agricultural and manufacturing output grew less in proportional terms than that of construction, financial services, and trade - in agriculture there was a decline in real terms in the production of bananas, coffee, and sugar, while in manufacturing producers of footwear, beverages, foodstuffs, chemicals, and textiles suffered from both their limited competitive ability and the consequences of trade liberalization; (ii) the anticipated impact of private investment was not as significant, at barely 2% expansion a year, as expected, despite the new atmosphere of liberalization; (iii) the trade gap and the budget deficit continue to upset the balance of the economy seriously; (iv) inflationary forces are at work because of fluctuations in the exchange rate, the limited reserves available to fund the import of goods, and significant shortfalls in basic grain supplies, with attendant price speculation; and (v) the labor market has become more complex, as apparent unemployment and under-employment rates have worsened, especially since 1992. D. Conclusions 121. Among the difficulties associated with both the design and execution of SAL II were what are considered the major ones of the over-ambitious nature of the whole program, which targeted too wide a range of concerns, and the initially unforeseen implementation problems ascribable in retrospect to the too limited role which some key institutions played in the early stages of the process. Furthermore, SAL II was carried out at the same time as a series of other operations which, because they also involved economic reform measures, 34 made it difficult at certain points to coordinate the implementation of program components. 122. A conclusive evaluation of the impact of SAL II will be possible only in the medium term, when the effects of the measures introduced will be clearer and more easily quantified. This is particularly true of such overall program objectives as increased productivity in private sector agriculture, for instance. 123. The introduction of price controls in the period immediately following the presidential election of November 1993 arose out of a very particular and time-specific situation, strictly the result of political and electoral circumstances. The goods subjected to such controls have already been released from them. Currently, the prices of the goods making up the basic basket are determined by a process of consultation, in which all the sectors involved participate. 124. When future operations similar to SAL II are being planned, everything possible should be done to make certain that: (i) the negotiating parties ensure that the new program is designed to take greater account of the economic and political circumstances prevailing at the time so that the measures agreed upon can be kept consistent in scale and scope with the country's real capacity to implement them; and (ii) the operating institutions involved are fully aware of the nature of the measures agreed upon and of the extent to which they themselves will be directly affected, so that implementation of the measures can be facilitated and their sustainability assured. 35 PART III: STATISTICAL INFORMATION STRUCTURAL ADJUSTMENT LOAN II BASIC DATA SHEET A. LOAN POSITION Ori Bs~ainDisbursed Canceled Repaad Oi As Of 12/S1193 Loan 3257410 90 90 0 0 90 B. KEY PROGRAM DATA Oriainal Loan Dates Actual or Re-estimated Initiating Memorandum 03/29/90 03/29/90 Letter of Development Policy 06/02/90 06/02/90 Negotiations 08/07/90 08/07/90 Board Approval 09/13/90 09/13/90 LoanJCredKt Agreement 09/17/90 09/17/90 Effectiveness 11/14/90 11/14/90 Loan Closing 06/30/92 12/31/93 CUMULATIVE LOAN DISBURSEMENT FY94 Planned 90 Actual 90 Actual as % of Planned 100% Date of Final Disbursement: 08/18/93 STAFF INPUT (Manweeks) FY 89 FY 90 FY 91 FY 92 FY 93 FY 94 Preparation 01.3 78.4 00.0 00.0 00.0 oo.o Appraisal 00.0 16.1 00.0 00.0 00.0 00.0 Negotiations 00.0 00.0 29.0 00.0 00.0 00.0 Supervision 00.0 00.0 75.8 50.1 13.7 00.0 Sub-Total 01.3 94.5 104.8 50.1 13.7 00.0 36 MISSION DATA fowbTYer No. of Wdb No. of Puo Sf1 W"bb Das of Rapo Prqwarua 05/90-06/90 2 9 13 06/04/90 A4ppr, 05/90 2 12 24 06/30/90 Siapsrvi 1 02/91 2 8 12 02/26/91 mper,idg u 04/91-05/91 2 6 15.6 05/15/91 sqpmnb 'am 05/92 2 6 12 05/19/92 SqimwTh IV 08/92-09/92 1 5 5 09/16/92 supricbo V 01/93 0.45 2 1.2 01/15/93 SWTpibM VI 06/93 1 4 4.2 37 STANDARD ANNEES HONDURAS -KEY ECONOMIC INDICATORS Actual . Projecded :1930,:.. 1989 1990 1991 1992 1993: 199 -.1995- 1996 1999 2002 REAL GROWIt RAT1S: Grosm Domestic Product (GDP) 0.7% 4.3% 0.1% 3.0% 4.9% 4.0% 3.5% 4.0% 4.0% 4.0% 4.0% Gross Domestic Income (GDY) 0.6% 17% 0.3% 2.1% 3.8% 9.7Y. 4.4% 4.7% 4.3% 4.4% 4.0% REAL PER CAPITA GROWTH RATE& GrossDomestic Product(GDP) -2.6% 1.4% -2.9% 0.1% 2.0% 1.1% 0.5% 1.1% 1.2% 1.2% 1.2% Total Consmwption 5.1% 1.% 4.9% -0.6% 1.3% 5.5% -2.5% 0.5% 0.2% 1.6% 1.0% Private consumption 4.5% 2.3% -2.6% 1.6% 0.S% 5.3% 0.0/ 0.1% 40.4% 1.6% 1.0% DEBT INDICATORS: Total DOD (Million USS) /I 1.471.4 3,385.1 3,697.1 3,360.1 3,572.5 3,703.0 4,000.7 4,154.9 4,248.S 4.454.0 4,395.5 TotalDODlEMcocG&S/a. 152.1% 311.9% 351.1% 317.5% 321.2% 321.6% 316.3% 299.3% 282.2% 236.2% 190.5% TotalDOD/CurTrntGDP (%)/A. 59.3% 31.4% 106.2. 103.7% 109.9% 111.8% 126.0% 122.3% 116.7% 100.6% 12.1% Debtsvice(LT+RAF+STintrest)(&fllionUSS)lb. 207.6 203.3 411.9 344.6 374.4 376.0 421.2 431.6 451.7 413.3 396.2 Debtservice/ExposO&S(%) 21.5% 19.2% 39.1% 32.6% 33.7% 32.7% 33.3% 31.1% 30.0% 21.9% 17.2% Dcbtsrvice/CurrcntGDP(%) 3.4% 5.0% 11.8% 10.6% 11.5% 11.4% 13.3% 12.7% 12.4% 9.3% 7.4% Inwrest(LT+IDF+ST)(Million USS)/b. 120.2 111.1 177.7 165.3 170.3 164.7 177.3 186.2 190.3 175.0 157.6 Intercst(LT+DAF+STYExpcusG&S(%) 12.4% 10.2% 16.9% 15.6% 15.3% 14.3% 14.0V. 13.4% 12.6% 9.3% 6.t% Interest (LT+RAF+STYCurr=t GDP (%) 4.8% 27% 5.1% 5.1% 5.2% 5.0% 5.6% . 5.5% 5.2% 4D0% 2.9% NATIONAL ACCOLTNTS (as. *shr eorCDP) Total Investment 24.3% 19.1% 23.0% 24.6% 25.6% 25.9% 24.3% 24.S% 25.4% 24.9% 24.9% Public faxed 9.3% 5.7% 6.6% 7.1% 9.6% 9.6% 3.1% 8.1% 3.1% 7.5% 7.5% PrivateuLxcd/c. 15.5% 13.4% 16.4% 17.5% 16.1% 16.3% 16.2% 167% 17.3% 17.4% 17.4% Nstional Savinp 11.9% 9.6% 12.9% 13.6% 14.2% 128% 15.8% 174% 19.0% 21.4% 23.0% Public 2.7% -0.6% 2.3% 4.6% 6.7% 2.9% 6.0%/. 6.1% 5.9% 61% 6.3% Private 9.2% 30.2% 10.6% 3.9% 7.4% 9.9% 9.8% 11.3% 13.0% 15.3% 16.t% ForcignSavinp 12.9% 9.5% 30.1% 11.1% 11.4% 13.1% 3.5% 7.4% 6.4% 3.5% 1.9% ICOR 9.0 7.1 43.1 39.7 39.9 41.6 42.1 5.3 5.2 5.4 5.4 NON FINANCIAL PUBUC SECTOR (u * sarl ofCDP) TotulCuTentReceipts 20.1% 220% 24.6% 2V.4% 27.3% 22.3% 220% 21.9% 21.6% 21.5% 21.5% TotalCurrentExpendituses 17.4% 22.6% 22.3% 22.8% 20.6% 19.4% 16.0% 15.8% 15.7% 15.4% 15.2% Public Savings 2.7% .06% 2.3% 4.6% 6.7% 2.9% 6.0% 61% 5.9% 6.1% 6.3% CapitalE3qpn & Net Lnzding 12.1% 7.0% 7.5% 8.3% 9.5% 9.6% 8.1% t.1% 3.1% 7.5% 7.5% Overall Balance -9.3% -7.5% -5.0% .3.5% .2.0% -6.7% *2.1% -2.0% -2 2% -1.4% -1.2% Central Bank Losses Consolidated Public Balance /d. .. .. .. .. .. .. .. .. .. BALANCE OF PAYMENTS: Exports GNFS (real gowth mre) -5.5% 1.9% 0.2% .3.0% 16.3% -0.5% 4.4% 4.7% 4.6% 4.0% 4.3% Export GNFSlCVrentGDP /a. 36.9% 24.3% 23.4% 31.0% 32.8% 34.5% 39 5% 40.4% 40.8% 42.0% 42.5% ImportsGNFS(reall owth rue) 7.4% 2.1% -9.7% 4.4% 6.0V. 14.1% -72% 4.6% 3.7% 3.8% 4.0% Imports GNFS/CwTcntGDP /e. 45.4% 23.6% 32.3% 35.2% 37.7Y% 41.6% 41.3% 41.4% 41.1% 40.9% 40.% Import Elaucity 11.0 0.5 -99.7 3.5 1.2 3.5 -2.0 1.2 0.9 1.0 1.0 Resource Balance/Current GDP /e. 4.6% -3.8% -3.8% -4.2% -4.9% -7.1% -1.9% -1.0% 4.3% 1.1% 1.6% Cum.AccountBalancetCuerentGDP le.f -14.5% -9.2% -10.4% -12.5% -13. 7% .13.1% .*.5% *7.4% -6.4% -3.5% .1.9% TcrrnsofTradelndex(1989-100) 96.4 100.0 90.5 90.8 78.1 80.0 82.9 85.3 86.2 89.3 90.0 PRICES AND EXCHANCG RATL ConsumerPriceIndex(AnnualAverage) 53.3 100.0 123.3 165.2 179.7 201.2 214.5 224.1 233.1 2521 270.9 Nominal Exchange Rae (C/USS) 200 2.97 4.26 5.44 5.64 6.52 7.50 7.62 7.69 7.69 7.69 Real ExchungRateIndex(I989100) 87.3 100.0 122.9 119.3 119.1 123.5 137.9 137.9 137.9 137.9 137.9 GDP (millionUSS): 2,4t2 4.157 3.4S1 3,240 3.252 3.311 3,176 3,398 3.640 4,429 5,354 la. Hstoncal date through 1992 ae from World Bank DRS. Projection yean bued on DRS pipeline plus new lending /b In accrual basis. "Lr-long term debt, *Sr lt tamn debL /c. Includes chages in Inventoy. /d Overall NFPS Balance plus Centnl Bank Loeaes. /c. GDP converted to SUS using Atlas mettodolog. / t The discrepancy between the curn aeceVGDP A ftiali seavingistosica years, is due to the f6ct tat the BOP is bued on the Adas ER whereas the NU Accb u thae ofcal ER. Table 1: HONDURAS: NATIONAL ACCOUN4TS BY EXPENDITURE (Milliao of 1978 lampirm) 1l 977 197S 1979 1960 t: :1981 i;i:- i701962 i 1963 1964 :- :196;0--T350 1966 1967 19 1969 1990: it 7 71 9 1 19 92 Grnu Donuetic Expenditure 3756.0 4041.2 4043.0 4191.0 4066.0 3125.0 3303.0 4166.0 4244.0 4323.0 4516.0 4924.0 5072.0 5031.0 5241.0 5543.0 Co_ptioo 2929.0 3023.2 2923.0 3233.0 3259.0 3296.0 3246.0 3469.0 3504.0 3T72.0 3S09.0 3930.0 4121.0 4043.0 4141.0 4303.0 Private 2506.0 2606.2 2543.0 2742.0 2762.0 2216.0 2774.0 2920.0 29M9.0 3164.0 3212.0 3279.0 3452.0 3464.0 3621.0 3756.0 Public 423.0 417.0 440.0 491.0 497.0 420.0 472.0 429.0 515.0 563.0 S97.0 651.0 669.0 579.0 520.0 547.0 Gos Domnetic Inve-tma 327.0 1025.0 1060.0 952.0 307.0 529.0 557.0 697.0 740.0 596.0 777.0 994.0 957.0 9t2.0 1100.0 1240.0 Fixed bwveat 765.0 932.0 902.0 942.0 733.0 649.0 660.0 750.0 726.0 591.0 630.0 764.0 920.0 t77.0 279.0 1075.0 Private 471.0 577.0 575.0 572.0 423.0 292.0 272.0 285.0 322.0 326.0 379.0 503.0 622.0 570.0 553.0 604.0 Public 294.0 355.0 333.0 370.0 315.0 351.0 33t.0 465.0 392.0 265.0 251.0 261.0 292.0 307.0 326.0 471.0 Change in Stocka 62.0 93.0 152.0 10.0 69.0 -120.0 -103.0 -53.0 14.0 5.0 147.0 230.0 37.0 111.0 221.0 165.0 Rerource Baance -242.0 -.19.2 -4.0 -125.0 103.0 226.0 270.0 t4.0 124.0 137.0 143.0 23.0 23.0 135.0 20.0 39.0 ExporttofGoods ANFS 1133.0 1366.0 1591.0 1506.0 1549.0 1391.0 1401.0 1395.0 1500.0 1527.0 1564.0 1550.0 1629.0 1637.0 1630.0 1744.0 IrnportofGoodsANFS 1321.0 1555.2 1595.0 1631.0 1446.0 1105.0 1131.0 1311.0 1316.0 1390.0 1421.0 1527.0 1546.0 1502.0 1550.0 1705.0 Capacitytolmport 1225.5 1366.0 1411.2 1341.7 1179.4 1020.9 972.2 1011.9 1070.2 1274.6 1207.4 1306.6 1303.0 131S.1 1271.3 1310.1 GDPatMarketPriccs 3502.0 3259.0 4039.0 4066.0 4169.0 4111.0 4073.0 4250.0 4422.0 4460.0 4729.0 4947.0 5161.0 5166.0 5321.0 5522.0 Tenna of Trade Adjustment 92.5 0.0 -179.2 -164.3 -369.6 -370.1 -422.2 -333.1 -429.2 -252.4 -356.6 -243.4 -326.0 -31S.9 -353.7 -433.9 GDY 3600.5 3859.0 3359.3 3901.7 3799.4 3740.9 3650.2 3266.9 3992.2 4207.6 4372.4 4703.6 4235.0 4247.1 4962.3 5143.1 GNY 3466.5 3702.0 3649.3 3709.7 3631.4 3494.9 3492.2 3696.9 3221.2 3977.6 4135.4 4472.6 4633.0 4610.1 4763.3 5012.1 GDS 579.0 835.3 1056.0 233.0 910.0 315.0 227.0 721.0 924.0 733.0 920.0 1017.0 1040.0 1123.0 110.0 1279.0 Net Factor Services -134.0 -157.0 -210.0 -192.0 -162.0 -246.0 -15S.0 -170.0 -177.0 -230.0 -237.0 -225.0 -202.0 .237.0 -199.0 -136.0 NctCuwrcntTranafen/l 2.3 11.0 12.0 11.4 12.0 11.6 11.5 11.7 13.7 14.4 17.0 33.6 47.7 83.4 26.0 94.3 GNS 453.3 639.2 252.0 652.4 754.0 530.6 630.5 622.7 760.7 517.4 700.0 325.6 225.7 969.4 1067.0 1237.3 GNP 3374.0 3702.0 3829.0 3274.0 4001.0 3265.0 3915.0 4030.0 4251.0 4230.0 4492.0 4722.0 4959.0 4929.0 5122.0 5446.0 00 (Ratios) ICOR (5-yr mov. avg) 0.2 0.3 4.2 9.0 10.4 7.5 3.6 3.4 -2.5 0.2 3.1 7.1 7.1 43.1 39.7 39.9 Import Elasticity 1.7 1.3 0.5 3.4 -4.5 17.0 -2.5 3.7 0.1 7.2 0.4 1.6 0.3 -29.4 1.1 2.0 MDSR(GDS,GDY) 0.0 1.0 220.6 -5.3 -0.2 1.6 -0.1 40.2 1.1 -0.9 1.1 0.3 0.2 6.9 0.5 0.5 MNSR (GNS,GNY) 0.0 1.0 -3.2 -3.4 -1.3 1.3 -37.6 -0.3 1.1 -1.6 1.2 0.4 0.4 -3.7 0.6 0.7 (Ra Aual Gruwth Rates) GDP 10.4% 10.0% 4.7% 0.7% 2.5% -1.4% -0.9% 4.3% 4.2% 0.7% 6.0% 4.6% 4.3% 0.1% 3.0% 4.9% Cauauption 12.7% 3.2% -13% 8.4% 0.2% 1.1% -1.5% 6.9% 1.0% 6.4% 2.2% 3.2% 4.9% -1.9% 2.4% 3.9% Private 14.0% 4.0% -2.4% 7.2% 0.7% 2.0% -1.5% 7.4% 0.3% 5.9% 1.5% 2.1% 5.3% 0.3% 4.5% 3.7% Public 6.0% -1.4% 5.5% 11.6% 1.2% -3.4% -1.7% 3.6% 5.3% 9.3% 6.0% 9.0% 2.2% -13.5% -10.2% 5.2% GCss Domnetic ricestmnt 34.7% 23.9% 3.4% -9.6% -15.2% -34.4% 5.3% 25.1% 6.2% -19.5% 30.4% 27.% -3.7% 3.2% 11.3% 12.7% Fixed Investment 17.3% 21.2% -2.6% 4.4% -22.2% -12.1% 1.7% 13.6% -3.2% -12.6% 6.6% 213% 20.4% -4.7% 0.2% 22.3% Private 10.3% 22.5% .0.3% 0.5% -26.8% -29.6% -2.7% 4.2% 15.1% -0.6% 163% 32.7% 23.7% -S.4% -3.0% 9.2% Public 30.7% 20.7% -6.2% 11.1% -14.9% 11.4% 10.5% 19.3% -14.4% -33.4% -5.3% 4.0% 14.2% 3.0% 6.2% U.5% EXportofGoods&NFS -0.3% 20.6% 16.5% -5.3% 2.9% -10.2% 0.7% 4.4% 7.5% 1.f% 2.4% -0.9% 5.1% 0.5% -0.4% 7.0% InporttofGoods& NFS 12.0% 12.6% 2.6% 2.3% -11.3% -23.6% 2.4% 15.9% 0.4% 5.6% 2.2% 7.5% 1.2% -2.2% 3.2% 10.0% Memo: Population(rnillions)/2 3.132 3.235 3.342 3.452 3.566 3.684 3.S05 3.931 4.060 4.194 4.333 4.476 4.602 4.744 4.224 5.022 Population Grwth Rate 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 33% 3.3% 3.3% 3.3% 3.3% 3.0% 3.0% 3.0% 3.0% RealGDPpercapita 1120.2 1192.9 1208.7 1177.9 1169.2 1116.1 1070.4 1021.3 1090.5 1063.3 1091.5 1105.3 1120.1 1029.0 1029.6 1110.2 Real GDP per capib grtiL rate 6.9% 6.5% 1.3% -2.5% 4.7% -4.5% -4.1% 1.0% 0.9% -2.5% 2.6% 1.3% 1.3% -2.2% 0.0% 1.9% Consumption per capit 935.3 934.6 292.7 936.6 914.0 894.2 853.1 22Z6 263.0 222.6 279.1 S72.1 294.4 352.3 247.9 255.9 GCwihofpercapita conaumptio 9.1% -0.1'%' -4.5% 4.9% -2.4% -2.1% -4.7% 3.5% -2.2% 3.0% -1.1% 40.1% 1.9% -4.7% -0.5% 0.9% Domesticexpendituresdeflator 92.2 100.0 116.7 132.0 142.3 155.1 16S.2 171.0 1I1.1 180.3 12S.1 195.7 214.5 261.4 332.9 36ZS 1/ Real Net Currcnt TranmfeF ame taken fran curent lempiras and deflated using the domestic expenditures deflator. 2/ 1923 was a ceuno year, population figurca prior to 1922 whcre esisnated cm a basis of a 3.3% growth rate. Pop. 1929- ars estimnted using a 2.95% rate. Source: Eastudic Econ6micos, BCIL 1972-92 BCH worksheet of Aug. 1993. 39 Table 2: Honduras - Consolidated Non-Financial Public Sector (Summary Balance Sheet) 1980 1981 .1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992/p (Millions Current Lempiras) Total Revenues 1031.2 1073.1 1126.S 1198.5 1400.7 1646.1 1712.7 1890.3 2079.4 2284.4 3103.3 4517.0 5199.8 CurrentRevenues 1030.4 1069.5 1117.2 1186.9 1388.4 1602.6 1675.0 1874.3 2068.7 2269.6 3085.3 4481.6 5063.7 Tax Revenues 721.0 725.1 747.9 839.4 1020.9 1124.7 1127.0 1253.8 1372.8 1515.2 2123.8 2984.2 3392.1 Other Revenues /1 309.4 344.4 369.2 347.5 367.5 478.0 548.0 620.5 695.9 754.4 961.5 1497.4 1671.6 CapiLat Revenuns 0.8 3.6 9.7 11.5 12.3 43.5 37.7 16.0 10.7 14.8 18.0 35.4 136.1 TotAl Expenditurec- 1510.3 1555.7 1797.3 1939.3 2122.3 2220.2 2193.7 2271.0 2509.3 2894.3 3700.5 5067.7 5782.0 Current Expenditure 891.1 977.3 1075.2 1181.4 1287.6 1510.0 1620.3 1765.6 1931.2 2167.2 2760.6 3710.1 4025.9 OpentingExpenditurn 741.7 811.5 868.6 924.2 1010.8 1113.0 1187.3 1298.7 1429.2 1648.0 1933.7 2115.0 2396.8 Intert Payments 111.1 120.2 166.4 185.3 214.2 291.1 332.5 396.8 423.5 428.2 628.1 1310.4 1285.1 Other Current 38.3 45.6 40.2 71.8 62.5 105.8 100.5 70.1 78.5 91.0 198.8 284.7 344.0 Captital Expenditures 619.2 578.4 722.0 758.0 834.8 710.2 573.4 505.4 578.2 727.1 939.9 1357.6 1756.1 Fixed Investment 489.7 453.1 506.9 610.3 725.1 633.9 467.0 400.2 455.6 578.2 883.9 1240.2 1745.3 OtherCapital /2 129.5 125.3 215.2 147.7 109.7 76.3 106.4 105.2 122.5 148.9 56.0 117.4 10.8 Overall Deficit (neg. -surplus) 479.1 482.6 670.4 740.9 721.7 574.0 481.0 3823 427.2 609.9 565.1 536.9 791.0 Primary Deficit (neg. surplus) 368.1 362.4 504.0 555.5 507.5 282.9 148.5 -14.5 3.7 181.7 463.0 -773.5 -494.1 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992/p (As Percent or GDP) Total Revenues 20.09% 19.03% 19.40% 19.47% 21.10% 22.62% 22.49% 22.76% 22.48% 22.11% 24.75% 27.64% 28.07% Current Revenues 20.08% 18.97% 19.24% 19.29% 20.92% 22.02% 21.99% 22.57% 22.36% 21.96% 24.61% 27.42% 27.34% Tax Revenues 14.05% 12.86% 12.88% 13.64% 15.38% 15.45% 14.80% 15.10% 14.84% 14.66% 16.94% 18.26% 18.31% Other Revenues / 6.03% 6.11% 6.36% 5.65% 5.54% 6.57% 7.19% 7.47% 7.52% 7.30% 7.67% 9.16% 9.02% Capital Revenues 0.02% 0.06% 0.17% 0.19% 0.18% 0.60% 0.49% 0.19% 0.12% 0.14% 0.14% 0.22% 0.73% Total Expenditures 29.43% 27.59% 30.95% 31.51% 31.97% 30.50% 28.80% 27.35% 27.12% 28.01% 29.52% 31.01% 31.22% Current Expenditure. 17.36% 17.33% 18.52% 19.20% 19.40% 20.74% 21.27% 21.26% 20.88% 20.97% 22.02% 22.70% 21.73% Operating Expenditures 14.45% 14.39% 14.96% 15.02% 15.23% 15.29% 15.59% 15.64% 15.45% 15.95% 15.42% 12.94% 12.94% Intert Payments 2.16% 2.13% 2S7% 3.01% 3.23% 4.00% 4.37% 4.78% 4.58% 4.14% 5.01% 8.02% 6.94% Other Current 0.75% 0.81% 0.69% 1.17% 0.94% 1.45% 1.32% 0.84% 0.85% 0.88% 1.59% 1.74% 1.86% Captital Expenditurn 1207% 10.26% 12.43% 12.32% 12.58% 9.76% 7.53% 6.09% 6.25% 7.04% 7.50% 8.31% 9.48% Fixed Investment 9.54% 8.03% 8.73% 9.92% 10.92% 8.71% 6.13% 4.82% 4.93% 5.60% 7.05% 7.59% 9.42% Other CapitAl /2 2.52% 2.22% 3.71% 2.40% 1.65% 1.05% 1.40% 1.27% 1.32% 1.44% 0.45% 0.72% 0.06% Ovenll Deficit (neg. - surplus) 9.34% 8.56% 11.55% 1204% 10.87% 7.89% 6.32% 4.60% 4.62% 5.90% 4.51% 3.29% 4.27% PrimaryDeficit (neg.= suplus) 7.17% 6.43% S.68% 9.03% 7.64% 3.89% 1.95% -0.17% 0.04% 1.76% .0.50% -4.73% -2.67% 1980 1981 - 1982 1983 1984 1985 1986 1987 1988 :1989 1990 1991 1992/p (Millions 1988 Lempiras) Total Revenues 1527.8 1483.6 1491.8 1483.3 1677.0 1872.6 1875.3 2012.8 2079.4 2133.5 2391.3 2750.3 2930.3 Current Revenues 1526.6 1478.6 1479.0 1469.0 1662.3 1823.1 1834.1 1995.8 2068.7 2119.6 2377.4 2728.8 2853.6 Tax Rcvenues 1068.2 1002.5 990.2 1038.9 1222.4 1279.4 1234.0 1335.0 1372.8 1415.1 1636.5 1817.0 1911.6 OthCr Revenues /1 458.5 476.1 488.8 430.1 439.9 543.7 600.0 660.7 695.9 704.6 740.9 911.7 942.0 Capital Revenues 1.2 4.9 12.8 14.3 14.7 49.5 41.2 17.0 10.7 13.8 13.9 21.6 76.7 Total Expenditures 2237.7 2150.8 2379.3 2400.3 2541.0 2525.6 2402.0 2418.2 2509.3 2703.1 2851.5 3085.6 3258.4 Current Expenditures 1320.3 1351.2 1423.5 1462.2 1541.6 1717.7 1774.2 1880.0 1931.2 2024.0 2127.2 2259.0 2268.8 Operating Expenditures 1098.9 1121.9 1149.9 1143.9 1210.3 1266.2 1300.0 1382.9 1429.2 1539.1 1490.0 1287.8 1350.7 IntcrestPayments 164.5 166.2 220.3 229.4 256.5 331.2 364.1 422.5 423.5 399.9 484.0 797.9 724.2 OtherCurrent 56.8 63.1 53.2 88.9 74.8 120.4 110.1 74.6 78.5 85.0 153.2 173.3 193.9 Captital Expenditure 917.4 799.6 955.9 938.1 999.5 807.9 627.9 538.2 578.2 679.1 724.3 826.6 989.6 Fixed Investment 725.5 626.4 671.0 755.3 868.1 721.1 511.3 426.2 455.6 540.0 681.1 755.1 983.5 Other Capital /2 191.9 173.2 284.8 182.8 131.4 86.8 116.5 112.0 122.5 139.1 43.2 71.5 6.1 Overall Deficit (neg. surplus) 709.9 667.3 S87.6 917.0 864.1 653.0 526.7 407.1 427.2 569.6 435.5 326.9 445.8 Primary Deficit (neg. 'urplus) 545.3 501.0 667.2 687.6 607.6 321.8 162.6 -15.4 3.7 169.7 -48.5 -471.0 -278.4 No.t Rel dc c- td uang GDP defor. I/ nCld opeurs suphkc of NFPEc. 2. tncludart net lending. Sour= Baico C=ntnl de Hondurus Minuteno de Hcnends. IMF and Wodd Bank Calculations 40 Table 3: Honduras - Consolidated Non-Financial Public Sector Revenues 1980 1981 1982 1983 1984 1985 1986 1987 7 1988 1989 1990 1991 1992/p Revenues by Tvae (millions of Lempiras) Tax Revenues 721.0 723.1 747.9 839.4 1020.9 1124.7 1127.0 1253.3 1372.8 1515.2 2123.8 2984.2 3392.1 Income Tax 229.9 179.3 198.0 190.3 234.2 240.6 250.3 298.3 340.8 367.0 430.7 623.7 863.2 Property Tax 6.1 6.8 7.0 7.0 8.0 8.8 8.5 10.4 IZI 14.4 15.7 20.1 23.7 Sales Tax 182.7 196.4 239.4 234.4 293.0 326.3 334.1 370.2 415.6 458.7 690.2 952.3 1159.4 Export Taxes 128.4 113.6 93.0 77.8 87.3 92.5 102.0 94.3 65.2 65.7 217.2 244.6 150.9 Import Taxes 149.7 198.5 178.0 201.5 258.8 316.6 304.5 348.8 348.3 389.0 497.9 691.1 803.6 Other 24.2 30.5 32.5 128.4 139.6 139.9 127.6 131.8 190.8 220.4 272.1 452.4 391.3 Non-Tax Revenues 216.8 251.8 260.8 171.0 176.1 210.1 305.4 352.3 386.2 409.7 418.5 545.4 530.3 Central Governnment 55.6 51.6 46.8 55.0 51.0 59.4 138.5 155.3 191.5 173.8 147.4 172.3 71.4 Rest of General Govt 161.2 200.2 214.0 116.0 125.1 I50.7 166.9 197.0 194.7 235.9 271.1 373.1 458.9 Operatiun Surplus of NFPEa 87.4 89.5 97.2 167.0 172.0 252.0 242.3 267.8 309.1 334.3 533.4 938.3 1137.6 CurrentT-ansfen 5.2 3.1 11.2 9.5 19.4 15.9 0.3 0.4 0.6 10.4 9.6 13.7 3.7 Total Cutrent Revenues 1030.4 1069.5 1117.2 1186.9 1388.4 1602.6 1675.0 1874.3 2068.7 2269.6 3085.3 4481.6 5063.7 (As Percent ofTotal Current Revenues) Tax Rvenues 69.97% 67.80% 66.95% 70.72% 73.53% 70.18% 67.28% 66.89% 66.36% 66.76% 68.84% 66.59% 66.99% Income Tax 22.31% 16.76% 17.72% 16.03% 16.S7% 15.01% 14.94% 15.92% 16.47% 16.17% 13.96% 13.92% 17.05% PropertyTax 0.59%S 0.64% 0.63% 0.59Y 0.58% 0.55% 0.51% 0.55% 0.58% 0.63% 0.51% 0.45% 0.47% Sales Tax 17.73% 18.36% 21.43% 19.75% 21.10% 20.36% 19.95% 19.75% 20.09% 20.21% 22.37% 21.25% 22.90% Export Taxes 12.46% 10.62% 8.32% 6.55% 6.29% 5.77% 6.09% 5.03% 3.15% 2.89% 7.04% 5.46% 2.98% Import Taxes 14.53% 18.56% 15.93% 16.98% 18.64% 19.75% 18.18% 18.61% 16.84% 17.14% 16.14% 15.42% 15.87% Other 2.34% 2.86% 2.91% 10.82% 10.06% 8.73% 7.62% 7.03% 9.22% 9.71% 8.82% 10.09% 7.73% Non-TaxRevenues 21.04% 23.54% 23.35% 14.41% 12.68% 13.11% 18.23% 18.80% 18.67% 18.05% 13.56% 12.17% 10.47% Central Government 5.40% 4.82% 4.19% 4.63% 3.67% 3.71% 8.27% 8.29% 9.26% 7.66% 4.78% 3.84% 1.41% Rest ofGenerl Govt 15.64% 18.72% 19.16% 9.77% 9.01% 9.40% 9.96% 10.51% 9.41% 10.39% 8.79% 8.33% 9.06% Operating Surplus of NFPEs 8.49% 8.37% 8.70% 14.07% 12.39% 15.72% 14.47% 14.29% 14.94% 14.73% 17.29% 20.94% 22.47% Current Transfers 0.50% 0.29% 1.00% 0.80% 1.39% 0.99% 0.02% 0.02% 0.03% 0.46% 0.31% 0.31% 0.07% (As a Percent or GDP) Tax Revenues 14.05% 12.86% 12.88% 13.64% 15.38% 15.45% 14.80% 15.10% 14.84% 14.66% 16.94% 18.26% 18.31% Income Tax 4.48% 3.18% 3.41% 3.09% 3.53% 3.31% 3.29% 3.59% 3.68% 3.55% 3.44% 3.82% 4.66% PropertyTax 0.12% 0.12% 0.12% 0.11% 0.12% 0.12% 0.11% 0.13% 0.13% 0.14,% 0.13% 0.12% 0.13% Sales Tax 3.56% 3.48% 4.12% 3.81% 4.41% 4.48% 4.39% 4.46% 4.49% 4.44% 5.51% 5.83% 6.26% Export Taxes 2.50% 201% 1.60% 1.26% 1.32% 1.27% 1.34% 1.14% 0.70% 0.64% 1.73% 1.50% 0.81% Irnport Taxes 2.92% 3.52% 3.07% 3.27% 3.90% 4.35% 4.00% 4.20% 3.76% 3.76% 3.97% 4.23% 4.34% Other 0.47% 0.54% 0.56% 2.09% 2.10% 1.92% 1.6S% 1.59% 2.06% 2.13% 2.17% 2.77% 2.11% Non-Tax Revenues 4.22% 4.46% 4.49% 2.78% 2.65% 2.89% 4.01% 4.24% 4.17% 3.96% 3.34% 3.34% 2.86% Central Government 1.08% 0.91% 0.81% 0.89% 0.77% 0.82% 1.S2% 1.87% 2.07% 1.68% 1.18% 1.05% 0.39%. Rest ofGeneral Govt 3.14% 3.55% 3.69% 1.88% 1.88% 2.07% 2.19% 2.37% 2.10% 2.28% 2.16% 2.28% 2.48% Operating Surplus ofNFPE's 1.70% 1.59Y 1.67% 2.71% 2.59% 3.46% 3.18% 3.22% 3.34% 3.23% 4.25% 5.74% 6.14% Currernt Trasfers 0.10% 0.05% 0.19% 0.16% 0.29% 0.22% 0.00% 0.00% 0.01% 0.10% 0.08% 0.08% 0.02% (Real 1988 Lempirus, Index 1988-100) Tax Revenues 77.8 73.0 72.1 75.7 89.0 93.2 89.9 97.3 100.0 103.1 119.2 132.4 139.2 Income Tax 99.9 72.7 76.9 69.1 82.3 80.3 80.4 93.2 100.0 100.6 97.4 111.4 142.7 Property Tax 74.7 77.7 76.6 71.6 79.2 82.7 76.9 91.5 100.0 111.1 100.0 101.1 110.4 Sales Tax 65.1 65.3 76.3 69.8 84.4 89.3 88.0 94.8 100.0 103.1 128.0 139.5 157.2 ExportTaxes 291.8 240.9 188.8 147.7 160.3 161.4 171.3 154.0 100.0 94.1 256.7 228.4 130.4 Import Taxes 63.7 78.8 67.7 71.6 89.0 103.4 95.7 106.6 100.0 104.3 110.2 120.8 130.0 Other 18.8 22.1 22.6 83.3 87.6 83.4 73.2 73.5 100.0 107.9 109.9 144.4 115.6 Non-Tax Revenues 83.2 90.1 89.4 54.8 54.6 61.9 86.6 97.1 100.0 99.1 83.5 86.0 77.4 Central Government 43.0 37.2 32.4 35.5 31.9 35.3 79.2 86.4 100.0 84.8 59.3 54.8 21.0 Rent of General Gov't 122.7 142.2 145.5 73.7 76.9 88.1 93.9 107.7 100.0 113.2 107.3 116.7 132.8 Operating Surplus ofNFPE' 41.9 40.0 41.6 66.9 66.6 92.7 85.8 92.3 100.0 101.0 133.0 184.8 207.4 Current Transfers 1280.6 713.8 2475.6 1968.9 3861.9 3012.1 54.7 71.0 100.0 1618.8 1232.9 1390.3 347.5 Total Revenue 73.8 71.5 71.5 71.0 80.4 88.1 88.7 96.5 100.0 102.5 114.9 131.9 137.9 Note Real a,diu aneted usr GDP delator 41 Table 4: Honduras - Consolidated Non-Financial Public Sector Expenditures 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992/p Exoenditur by TMoe (Millions orCurrent Lempiras) Wages. Salarie & S.S. contrib. /1 510.6 601.4 649.1 607.4 645.9 708.0 S50.7 929.6 1020.1 1153.3 1333.6 1421.4 2005.2 Goods&Serviccs /1 231.1 210.1 219.5 316.9 364.9 405.1 336.5 369.1 409.1 494.7 600.1 693.6 845.9 Intercts 111.1 120.2 166.4 185.3 214.2 291.1 332.5 422.9 478.5 592.2 628.1 1310.4 1285.1 Internal Debt 36.7 41.3 58.6 91.3 101.2 112.9 134.5 275.2 199.4 271.5 325.7 400.9 406.4 Extenal Debt 74.4 79.0 107.9 94.0 113.0 178.3 198.0 147.7 279.1 320.7 302.4 909.5 878.7 OtherExpenditure 0.8 0.0 1.5 1.1 20 4.9 1.9 1.8 1.3 1.5 0.0 0.0 0.0 Currnt Transfen 37.5 45.6 38.7 70.7 60.6 100.9 98.7 68.3 77.2 89.5 198.8 284.7 344.0 Totl CunrentExpendite 891.1 977.3 1075.2 1181.4 1287.6 1510.0 1620.3 1791.7 1986.2 2331.2 2760.6 3710.1 4480.2 Capital Expenditures 530.7 470.1 546.6 656.8 747.5 645.8 504.9 422.6 510.2 589.5 894.5 1312.3 1815.5 otol Expenditwe 1421.8 1447.5 1621.8 1838.2 2035.1 2155.8 2125.3 2214.3 2496.3 2920.7 3655.1 5022.4 6295.7 (As Percent ofTotal Current Expenditures) Wages, Salaries SS. contrib. 57.30% 61.53% 60.37% 51.41% 50.17% 46.89% 52.50% 51.89% 51.36% 49.47% 48.31% 38.31% 44.76% Goods & Sevices 25.93% 21.50% 20.42% 26.82% 28.34% 26.83% 20.77% 20.60% 20.60% 21.22% 21.74% 18.69% 18.88% Interess 12.46% 12.30% 15.48% 15.69% 16.64% 19.28% 20.52% 23.60% 24.09% 25.40% 22.75% 35.32% 28.68% Internal Debt 4.12% 4.22% 5.45% 7.73% 7.86% 7.47% 8.30% 15.36% 10.04% 11.65% 11.80% 10.80% 9.07% External Debt 8.35% 8.08% 10.03% 7.96% 8.77% 11.81% 12.22% 8.24% 14.05% 13.76% 10.95% 24.52% 19.61% OtherExpenditures 0.09% 0.00% 0.14% 0.09% 0.15% 0.32% 0.12% 0.10% 0.07% 0.06% 0.00% 0.00% 0.00% CurrentTrTnsfrs 4.21% 4.67% 3.60% 5.99% 4.70% 6.69% 6.09%1o 3.81% 3.88% 3.84% 7.20% 7.67% 7.68% (As Percent of GDP) Wages,Salaries.S.contrib. 9.95% 10.66% 11.18% 9.87% 9.73% 9.73% 11.17Y 11.19% 11.03% 11.16% 10.64% 8.70% 10.83% Goods & Service 4.50% 3.73% 3.78% 5.15% 5.50% 5.56% 4.42/. 4.44% 4.42% 4.79% 4.79/. 4.24% 4.57% Interets 216% 2.13% 2.87% 3.01% 3.23% 4.00% 4.37% 5.09% 5.17% 5.73% 5.01% 8.02% 6.94% OtherExpenditurcs 0.02% 0.00% 0.03% 0.02% 0.03% 0.07% 0.02% 0.02% 0.01% 0.01% 0.00% 0.00% 0.00% Curnt Transfers 0.73% 0.81% 0.67% 1.15% 0.91% 1.39% 1.30% 0.82% 0.83% 0.87% 1.59% 1.74% 1.86% Total Current Expenditures 17.36% 17.33% 18.52% 19.20% 19.40% 20.74% 21.27% 21.57% 21.47% 22.56% 22.02% 22.70% 24.19% Capial Expenditures 10.34% 8.34% 9.41% 10.67% 11.26% S.S7% 6.63% 5.09% 5.51% 5.70% 7.13% S.03% 9.80% Total Expenditure 27.71% 25.67% 27.93% 29.87% 30.66% 29.62% 27.90% 26.66% 26.98% 28.26% 29.15% 30.73% 33.99% (Real 1988 Lempiras, Index 1988-100) Wages, Salarie & S.S. contrib. 74.2 81.5 84.2 73.7 75.8 79.0 91.3 97.0 100.0 105.6 100.7 84.8 110.8 Goods & Servicer 83.7 71.0 71.0 95.9 106.8 112.6 90.1 96.1 100.0 112.9 113.0 103.2 116.5 interests 34.4 34.7 46.0 47.9 53.6 69.2 76.1 94.1 100.0 115.6 101.1 166.7 151.3 Internal Debt 27.3 28.6 38.9 56.7 60.8 64.4 73.9 146.9 100.0 127.2 125.9 122.4 114.8 ExterniI Debt 39.5 39.1 51.2 41.7 48.5 72.7 77.7 56.4 100.0 107.3 83.5 198.4 177.4 Other Expenditurer 92.0 3.2 149.9 102.6 179.7 425.2 157.0 147.4 100.0 107.8 0.0 0.0 0.0 CurentTrmnsfen 72.1 81.7 66.4 113.5 94.0 148.8 140.0 94.2 100.0 108.3 198.6 224.7 251.3 TotslCuwrentExpendits 66.5 68.0 71.7 73.6 77.6 S6.5 89.3 96.1 100.0 109.6 107.1 113.7 127.1 Capitl Expenditbues 154.1 127.4 141.8 159.3 175.4 144.0 108.4 88.2 100.0 107.9 135.1 156.6 200.5 Totl Expenditre 84.4 80.2 86.0 91.1 97.6 98.2 93.2 94.5 100.0 109.3 112.8 122.5 142.1 Noe: ReJ indice created usag GDP deftator. I/ Does not inchide expenditura ofNFPEa 42 Table 5: Honduras - Weighted Average Nominal Exchange Rate: 1988 to 1993 1929 Jan Feb Mar Apr May JLu Jul Aug Sep Oct Nov Dec Official' 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.50 0 50 CETRA 0.07 0.07 Parallel 0.38 0.38 0.38 0.38 0.38 0.38 0.38 0.38 0.38 0.38 0.43 0.43 Exchange Rates Axg. Official 2.00 2.00 2.00 2.00 200 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 CETRA -- -- - -- -- -- 3.15 3.00 Parallel 4.40 3.50 3.50 3.50 3.35 3.35 3.35 3.30 3.20 3.20 3.50 4.00 3.51 WeightedAvee ER 2.91 57 2.SI- 157 2.57 251 5t 1 .51 2.49 24 .:46 2.73 293 2 60 Indx 111.953 91,73 9' 93.78 96.9 9 6. 5 9 79659 95.36 94.40 94.40 104.5 112.53 100.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Isnpor (USS ml) igta1 oirncial 39.10 35.40 54.70 33.40 3000 26.50 24,30 24.50 12.70 16.50 13.50 11.60 322.20 CEIRA 4.80 7.70 6.60 5.10 4.70 1.S0 1.80 16.10 12.40 26.50 13.40 17.80 118.70 PanlIel 26.10 44.40 40.00 32.00 37.00 29.10 26.90 33.10 40.20 36.00 41.20 37.80 423 80 Echae RAs Avw Official 2.00 2 00 z0 zo00 2.00 2 00 2.00 zo0 2.00 2.00 2.00 2.00 2.00 CETRA 3.07 3.08 3.09 3.16 3.17 3.17 3.15 3.17 3.20 3.22 3.32 3.34 3.21 ParaIlel 3.50 350 3.51 3.50 3.48 3.55 3.65 3.70 3.75 3.90 4.05 4.10 3.69 Weighted Averne ER 2.63 :2.86 267 2.76 2.84 2.82 2.81S 3.02 13.3 Lk:: 3.27 3.50 3.54 3.00 hndex IOI.19 t109.71 102:52 106.27 109.18 108.49 110.'5.6 116.04 :17.04 125.86 13456 135.96 . 115.15 1990 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Irport (USSmln.) loLA Offiial 27.10 16.00 37.30 82.70 92.50 92.50 66.60 57.10 42.80 42.10 77.90 68.50 703.10 CETRA 22.20 41.60 13.10 0.20 0.20 .. . .. 77,30 PaIrlel 28.80 40.10 16.20 9.90 12.10 15.10 15.10 2.50 2.90 1.60 440 340 152.10 Exchange Ratsx Avizw Official 2.00 200 4.06 4.10 4.16 4.31 4.31 4.31 4.31 4.31 5.45 5.38 4.34 CETRA 3.34 3.47 3.58 3.58 3.58 3.58 3.58 -- -- -- -- -- 3.45 Parallel 4.35 4.65 4.45 4.40 4.30 4.57 4.70 5.22 5.70 5.90 5.63 5.45 4 61 XWeightedAverage ' 4 0 R . 3.25 j.:. ' . ' 3.71 .; 0-' ;-t'-; 't t 4.06.04.13 4.18 4.1 4.35 43M 43S 44 38 i,dex f :6 9 2416:0 942. 16.0 151. 160.48 3., 16.07 168.43 "'167113 . .0"79 25,6 165.74 Jan Feb Mar Apr MAY Jun Jul Aug Sep Oct NOv Dee Imlpal (USS mih) official 67.70 84.80 65.10 73.70 CETRA , , Pllel 5.00 3.10 3.70 6.60 Exchae Rates . Official 5.30 5.30 5.30 5.30 5.30 5.30 5.30 5.30 5.30 5.30 5.40 5.40 5.32 CETRA Parallel 5.34 5.37 5.40 5.38 5.38 5.44 5.49 5.56 5.57 5.64 5.81 5.75 5.51 WeightedAverageER:. 5.30 .30 5.31: 5.31 5.30 5.31 5.3I' ..1311 5.32 . 5.32 5.4 .42 5.33 lIdex 203.82 203.81 '2392 203.97 203.87 203.98 204.01 204.21 204.23 204.37J 208.35. 208.23 204.74 1992 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Excharge Rates Official 5.40 5.40 5.40 5.40 5.40 5.44 5.49 5.54 5.60 5.74 5.82 5.84 5.54 Paallel 5.67 5.63 5.62 5.54 5.46 5.44 5.48 5.56 5.72 5.79 5.80 5.81 5.63 Averge . - : 5.54 5.52 5.51 5.47 5.43 5.44 55.49 5.55: ' .I . -.77 5.81 . 5.t3 5.58 Index 212.75 211.98V. 21179 210.25 20871 209.10 2183 21332 :.45 22359 2332 223.89 214.59 1993 Jan Feb Mar Apr May Jun Jul Aug Exchnge RaesA Official 5.82 5.85 5.86 5.90 605 6.25 6.81 6.83 6.18 ParaIlel 5.12 5.85 5.87 5.93 6.11 6.39 6.74 7.06 6.22 Avae eE 5.82 5.85 5 .S7I .2: 6.08 6.3 671 6.97 6.20 I - :':223.70 224.86-,;- 225.43 22735 233.70 242.927 260.41F: :267.9.0. 23..8:.2312 Sourme: Banco Centil de Hondunr and IMF. Updated with dat from 5/93 nd 8/93. 1988 daa is utaken from The Exchag Rate System and Macroeconomic Equilibrium in Hondura?; S. Edwards, 1990. For 1988 nnual average irport shares were used to certe weighted average monthly exchange rae. Nov. - Des 1988 weight were taken from the lIt quana a*v 1989. 1989 Cetru rte is from Edwards. 1990. PaIlel rates re BCH and re consistent with dat in Edwarda 1990'. Note: Average monthly exdanger tesfor JaS 198t - May 1991 are weighted by shares of import in total imports. June 1991 - Aug. 93 are sight unweighted averages. The pa llel market premiwn averaged only about 1.2% for that period w - indicates weightied 43 Table 6: TASAS DE INTERES PONDERADAS DEL SISTEMA BANCARIO NACIONAL (En porvenlajas) Tass Taus Pauivas Activa Presamos Deptoc AhoTro DeptoL Plazo Cetificado. 19 85 I Trimnestre 13.5 3.6 10.3 11.0 II Trimeutre 13.4 3.1 10.2 10.9 m Trimestre 13.2 8.2 10.2 11.0 IV Trimestre 13.6 8.2 10.2 10.9 1989 I Trimneste 15.6 6.2 3.6 9.9 H Trinestre 15.5 6.2 1.6 9.9 m Trimetmu 15.4 6.2 8.6 9.9 IV Timcstre 15.2 7.1 S.5 10.5 1990 I Trimestm 15.5 6.9 3.4 10.4 HTzin,cstr 17.0 7.5 9.2 11.1 m Trimeatrm 17.1 8.3 9.9 11.7 rv Trimcre 18.1 8.5 9.9 12.7 19 9 1 I Trinetre 20.3 S.S 10.7 14.0 a Trimestre 22.0 9.4 11.4 15.3 M Trimetr 22.0 9.6 11.8 15.7 IV Trimcntre 23.2 9.1 11.9 16.1 1992 Enero 22.7 9.9 12.3 16.1 Fcbrero 22.5 9.9 12.4 16.1 Marzo 22.4 9.8 12.4 15.9 Abril 22.2 9.9 12.6 15.6 Mayo 21.7 9.8 12.6 15.4 Junio 21.7 9.7 12.3 15.2 Julio 22.2 9.4 12.2 15.2 Aosto 21.2 9.3 12.2 14.6 Septiembre 20.9 9.2 12.1 14.0 Octubre 21.0 9.2 12.1 13.8 Noviembre 21.0 9.3 12.1 13.6 Diciambre 20.7 9.2 12.3 13.6 1 9 9 3 Enero 20.7 9.2 1I.8 13.6 Febrmro 20.7 9.1 11.6 13.4 Marzo 20.7 9.4 11.2 13.5 Abril 20.7 9.1 11.8 13.3 Mayo 21.1 9.2 11.8 13.3 Fuente: Superintendencis de BareoL 44 Table 7 Reserve Requirements 1990 I January August October November December 35% 35% 35% 35% 35% 1991 February March May August December 35% 35% 35% 35% 35% 1992 I March April September November 35% 35% 35% 34% 1993 | May June July July August September 35% 36% 35% 42% 39% 36% Source: UDAPE using figures from Central Bank of Honduras. Ta 0e: BALANCE DEL BANCO CEflRAL DE HODIXYRAS (SdmM - _ ude do _pk 19 1396 190:2 Igo 1964 195 139 ri 1967,1 39Sd 1969d, 1996w 1991 1992 ri RESERVAS DITERNAr (NETAS) U 225.9 .0 2S) (2122) (9.) (2933) (23.9) (148.9) (1243) (1744) (251.7) M1A. 431.s ACIrOS NAOACINALES 151.1 406.4 663.7 604.4 23. 150.4 6s.7 319.5 9473 1,206.0 1,703.4 1.240.0 1,403.9 Ciedite Amu 447.7 664.2 8763 1,094. 1,274.3 I,470.7 1,533.2 I,68.5 1.921.0 222.6 2,133.2 1,627.7 1,767.9 Seem Pa6.4g.) 2L2.2 34.1 515.9 617.4 62.1 72. 623 748.2 974.9 1.169. 3,033.7 4683 525.1 G _bimueCeaI 133.4 309.3 450.3 529.6 5327 616.2 537.1 727.7 948U 1.204.0 1,171.S 60. 607.7 Cmdi. BDf 2/ 231.4 425.4 563.0 525.5 713.5 M7. 757. 969.0 1,405.9 1,535.6 1,837.7 1,300.3 3,443.2 oliswcign 93.0 116.1 310.7 (4.1) 320.3 340.9 170.5 2613 457.1 331.0 66.2 692.0 835.5 Depmihm 41 93.0 136.3 336.7 (4.1) 120.3 360.9 130.8 225.1 414.2 2M3.7 613.0 6337 760.7 FicuimeGubCwL 0.0 0.0 *.0 0.0 0* * 39.7 36.2 42.9 473 48[2 593 74.3 Rom SedwrPdije 73.8 54.8 65A 37.3 79.4 6A6 31.7 20.5 2xi (34.A) (139.3) (134.5) (81.9) CuuddBned 11033 109.9 312. I 33.5 141.1 147.4 133.1 1338. 130.7 125.7 147.7 134.7 179.0 Oaiecimp 36.5 $5.3 47.2 51.7 624 60.3 95.4 317.5 304. 363.3 237.5 269.2 260S Deui- 36.5 55.3 47.2 51.7 62.4 0.3 38.2 132.1 99.9 356.2 2846 267.2 259.4 Phsainyctm 0.0 0.0 0. 0.0 0. 0. 7.2 5.4 4.7 3.9 2.9 2.0 3.5 SiiBam ie 235A 299A 353.9 476.9 611.7 766.4 907. 932.3 928.3 1,0.7 I374 1,1273 1,290.3 BMW= C am- 1403 52.2 131.2 222.3 312.6 424.9 516.7 476.3 430.6 541.7 ssL3 653.4 665.1 -ina Dmu,ells n3.7 329.9 173.2 215.2 260.6 303.1 311.1 334A 319.5 340.5 360.0 320.5 372.3 1-. Ahur.yPtam 13.0 17.5 14.5 39.6 38. 334 73.5 121.4 12.2 147.5 153.6 153.4 162.2 Secer Privae .5 0.5 0.5 0.5 6.5 1.5 3.4 7.2 17.3 26.7 29.1 32.1 42.0 Otm Acivee N" (9.) (257.6) (206.6) (400.) (450.5) (62.3) (667.5) (36.0) (973.7) (1,020.0) (429.3) (381.7) (364.0) Capital y Ruavas (130.6) (350.6) (170.9) (204.0) (238.4) (303.4) (314.7) (293.4) (359.3) (435.8) (493.6) (641.4) (737.3) Fadeuasiaio Eutuu (299.6) (3193) (276.6) (432.3) (500.5) (645.6) (723.) (375.6) (932.9) (3,031.4) (3,150.3) (2,972.3) (3,332.3) Ofdmaio (35.5) (43.7) (61.3) (332.4) (359.5) (321.1) (406.2) (537.1) (6003) (615.4) (1,768.) (,837.7) (1,947.3) c _iapemaio (263.3) (262.0) (20312) (3.9) (312.8) (281.0) (275.9) (2733) (269.5) (293.1) (1,0327) (335.5) (947.1) m Dda. D dEm a (2.3) (3.6) (13.6) (36.0) (23 (43.5) (46.7) (65.2) (63.1) (117.9) (3493) (248.9) (233.4) NCiaicadea3J 137.6 212.3 240.9 235.9 234 3237 376.0 301.0 319.0 447.2 3,214.6 3,225.8 3,486.6 AC1IVOrS = PASVOS 331.0 414.6 442.9 4822 531.8 557.1 578.8 670.6 23.6 1,031.6 1,451.7 1,410.4 3,335.4 E33dSDMOETARIA 30s 332S 343.0 392.1 4243 4S4. 477.0 541.0 621.9 739.6 97s.7 1,1133 1,303.1 DEPoTOS DEBAINCOS Si 67.7 776 92.5 79.5 99.5 95.5 6.1 102.7 173.9 26.4 413.5 240.6 47V.5 llacmCAM.iaIm 60.8 71.6 35.4 56s 3. 34.2 7.2 72.6 133.0 226.9 394.9 337.7 446.2 Ra.cJoeD_ n e 3* 1.9 6.1 15.0 9. 8.3 3 32.9 20.1 2.7 (8.0) (133.1) (25.6) bm AbomyP_mda 5.9 4.1 1. 8.6 3.9 3.* 73 17.2 1L3 32.3 26.6 34.0 49.9 OSUGAOtMCON PRVADOS 6.4 4.5 7A 30.6 8O 7.0 15.7 26.9 27.2 29.6 64.5 51.5 61.3 DqmimMoeawiu 4.7 2.1 6.4 7. 33 3.4 4* 9.7 113 11.2 46. 29.9 36.6 Ob. Dq_iIe 1.7 2.4 IA 3. 4.7 3.6 3.8 6.3 4.6 S.7 5.6 73 *3 v_lum 0. 0.0 6. 0.0 0.0 0.0 79 10.4 11.3 327 129 343 16.9 O am Osiamam 0.0 0.0 6.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 uIPeicim Ns cam FlU (38.2) (37.3) (207.A) (293.1) (2733) (2673) (196.4) (135.9) (63.6) (61.4) (154.3) (170.6) (649.6) 2/ bereDm aDgebi.. 0.0 0.0 104.4 135.4 62.4 376.7 383.0 I326 178.1 373.2 178.1 173.2 173.2 31FdeiLABF31P.Pwvo&o 0.0 0.0 6.0 11.7 , 309 67.4 140.5 144.3 173.2 49.7 194.4 233.0 249.3 4/Fvicic.i PM&SYb0 0. 0 0. 0 9.1 30.6 23.8 42.2 73.2 33.6 7.3 130.5 142.4 1273 5DBm RWI 1mm. 0.0 0.6 0.0 0o 0o *. 0.0 19.7 19.7 27.7 47.1 58.9 50.6 Dqi.mmper_pegma u 0*. 0*. G* 0*3 55.5 553 20.5 363 97.7 125.2 324.1 2003 120.3 6/ L_ iqaie de GaM,. imch aj- d L103.9, p Amci6a de Dud Ad Gebi..., de k Udada UnWae a p.uW dl 26/993. S :m Ba Co &ma de DpL Emdie Eem.. cee TAb PALANc COUOLMIADO DIC IANCW COCIALI (dim m M.ll de L$ m 19" 191 912 193 1N4 IN5 1986 t7 19U1 1989 199 1991;92 ud RESERVAS INIENAC. (NETAS) (420) 0.1 (7-1) (27.0) (36.3) (39.9) (33.3) (74.9) (43.1) (2.0) 324 123.8 319.2 ACTPVOSNACIONALES 1,235.6 1,265.5 1,430.1 1,710.4 1991.2 2,140.2 2,420.5 2,771.5 3,054.0 3,3U4.4 3,915.3 4,642.7 5,3320 Cr.ditohiauo 1,102.2 1,113.5 1,304.3 1.595.0 1,10.6 2,004.0 2,216.5 2,640.7 2,170.3 3,121.5 3,494.2 4,161.2 4,633.3 Scam Public. Ndo 156.9 126.9 210.2 340.2 406.7 336. 491.3 509.7 434.6 517.3 463.1 630.1 346.9 G&enbioCmInl 169.8 149.4 239.4 368.7 445.6 517.2 676.7 633.0 702.7 319.5 t77.1 1,159.1 175.1 DeudaBnia 192.9 131.2 275.4 369.5 447.3 517.6 676.9 613.2 702.9 319.7 139.4 1,160.9 1,011.0 Oblipciam 23.1 31.S 36 0.3 1.7 0.4 0.2 0.2 0.2 0.2 12.3 1.1 135.2 Dqepsits 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 12.1 0.9 10.5 OtrsOblig. 23.1 31.1 36.0 0.1 1.7 0.4 0.2 0.2 0.2 0.2 0.2 0.2 124.7 RcstoSod" Publico (12.9) (22.5) (29.2) (23.5) (31.9) (130.4) (14.9) (17S.3) (21t.1) (301.7) (409.0) (479.7) (528.9) Dicudn Butz 3.4 0.3 0.3 43.1 42.2 14.3 30.0 45.1 67.3 6ZS 503 39.5 4.7 Obligaciona 163 22.3 29.5 72.3 31.1 144.7 214.9 223.4 2S5.4 364.5 459.3 519.2 533.6 DcpOitS 14.3 21.2 21.3 65.7 72.1 123.5 193.6 209.5 270.1 344.S 440.6 460.9 50S.7 Oras Oblig. 2.0 1.6 1.2 6.6 9.0 16.2 16.3 13.9 15.3 19.7 13.7 53.3 24.9 ScctorPrivado 945.3 991.6 1,094.6 1,254.1 1,433.9 1,617.2 1,794.7 2,131.0 2,335.7 2603.7 3,026.1 3,481.1 4,341.4 Prcstamy Dcscucenta S91.4 923.2 1,045.2 1,202.3 1,375.4 1,554.0 1,731.1 2,064.4 2,333.2 2,557.0 2,908.0 3,364.7 4,225.1 OtrxoCrcdiLou 53.9 63.4 49.4 52.0 53.5 63.2 63.6 66.6 52.5 46.7 113.1 116.4 116.3 Disponibilidadcs Mmeurin 169.1 11.1 170.2 136.3 201.0 203.9 206.1 246.5 322.7 427.2 707.3 743.7 1,045.6 Dcpoitm cn BCH 71.4 80.9 83.3 50.3 39.5 85.0 73.3 75.6 144.8 215.6 374.3 322.0 4S5.5 BilictcaNMonedasenCja 32.3 30.3 29.4 30.1 40.9 44.4 51.1 49.4 51.7 63.6 91.3 140.9 162.6 Chcquesoapcnspi/Cobro 65.4 69.9 52.5 56.4 70.6 79.5 76.7 112.8 117.5 134.3 214.3 239.3 363.5 ValorsFOVI 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.7 3.7 13.2 26.9 41.5 34.0 OtroiActivog Ntos (35.7) (34.1) 5.1 (21.4) (50.4) (72.7) (72.1) (115.7) (139.0) (164.3) (215.7) (262.2) (351.9) CGpitlyRcsers (160.6) (172.1) (134.2) (206.9) (239.7) (277.3) (307.0) (335.7) (371.6) (425.9) (531.4) (707.3) (876.0) 1 Endcudrnmicnto Exter.(Ncto) 0 0 0 0 0 0 0 0 0 0 0 0 (2.9) NoCClificadog 124.9 138.0 139.3 135.5 139.3 205.1 234.9 220.0 232.6 261.6 315.7 445.6 527.0 ACTIVOS - PASIVOS 1,193.6 1,266.3 1,472.3 1,683.4 1,954.9 2,100.3 2,336.7 2,696.6 3,005.2 3,332.4 4,063.2 4,766.5 5,701.2 OBLIGACIONESCONPRIVAIDOS 1,013.3 1,100.1 1,29S.3 1,460.6 1,639.0 1,673.4 1,365.0 2,217.9 2,503.5 2,323.6 3,507.6 4,110.5 5,022.5 Depoilos Moncda N cionil g47.1 931.9 1,122.7 1,231.1 1,453.4 1,493.3 1,651.7 1,992.S 2,294.1 2,618.1 3,239.6 3,761.7 4,499.3 EnCuent dcChcqucs 383.6 397.6 432.5 437.6 515.5 503.5 566.6 693.5 742.7 909.0 1,117.5 1,377.0 1,639.0 DcAhono 233.4 253.3 233.9 344.1 4024 426.0 505.6 640.4 723.0 795.1 932.7 1,262.2 1,767.6 A Plazo 207.4 256.4 351.9 393.6 433.0 447.3 493.0 559.2 632.3 733.2 744.5 783.1 393.6 Otn Dcpoxitos 17.7 24.6 54.4 50.3 107.5 116.5 S1.5 99.7 191.1 180.3 444.9 339.4 199.1 Deposium Moneda Extlrnjen 61.2 54.1 56.3 51.4 43.6 46.5 54.4 55.4 37.3 29.2 67.7 12S.1 290.9 BonreCedulasHipotccarias 31.0 23.3 23.3 26.1 31.2 24.2 32.3 40.5 36.0 32.3 27,3 22.3 13.7 AhmofoEspeciuaizado 43.0 51.4 5Z5 53.9 60.3 61.2 63.3 63.4 73.3 74.0 73.4 34.5 86.2 Otrm Obligaciones 26.5 34.4 44.0 43.1 45.5 48.2 62.3 60.3 67.3 75.0 94.1 113.4 127.4 OBUGACIONESCONBCH 179.3 166.2 173.5 222.8 315.9 426.9 521.7 473.7 496.7 553.8 560.6 656.0 678.7 AdclanloeyRedescuentos 146.4 129.6 134.9 132.4 200.7 235.5 327.3 246.3 237.0 291.1 218.2 207.7 198.2 DcpositasFONDEI 0.0 0.0 0.0 13.0 22.1 35.1 40.1 55.6 30.6 32.2 12.2 5.6 9.9 Prestawo FONDEI 0.0 0.0 0.0 33.4 34.5 53.4 67.1 75.5 35.3 113.5 129.4 128.3 111.3 PrcstUnosFIC 5.6 5.2 4.3 5.0 4.3 1.0 4.7 4.3 4.1 3.6 1.3 1.1 1.0 PrUrmes PRI 0.0 0.0 0.0 0.0 5.9 34.3 5.4 3.5 7.7 10.1 43.6 123.7 121.3 PvcstesmwUPCA 17.9 22.0 25.0 23.6 36.7 46.2 56.5 63.7 58.7 64.5 98.9 121.2 153.9 Depcitm UPCA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 S.4 3.9 S.6 15.6 13.6 8.1 Prcatanom FOVI 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.4 3.1 3.0 3.2 PrcaamosTrardportc 9.9 9.4 3.3 3.9 6.1 7.5 7.9 5.1 2.3 7.5 6.9 7.5 7.6 PrutnaPeq. C.mcultor 0 0 0.5 1.5 5.1 3.9 122 16.3 16.6 22.3 31.4 43.3 59.2 DqxouoPcq. Caricultr 0 0 0 0 0 0 0 0 0 0 0 0 5.0 Table 10: Balance of Payments (Mins. of USS) ,1980 1981 1982 ' 1983 1984 1985 1986 1987 1988 1989 1990,, '1991 1992/p CURRENT ACCOUNT -330.8 -321.3 -245.4 -254 -386.5 -353.3 -262.5 -340.3 -323.6 -338.2 -305.8 -359.9 -410.5 Exports of GNFS 943.2 885.3 768.5 802.8 849.3 911.5 1013.8 955.9 1037.7 1074.5 1045.4 1049 1103 Merchandise (FOB) 850.3 783.8 676.5 698.6 737 795.8 894 821.8 881.1 903.2 886.9 837.5 842.6 Non-factorServices 92.9 101.5 92 104.2 112.3 115.7 119.8 134.1 156.6 171.3 158.5 211.5 260.4 ImportsofGNFS 1128.1 1062.3 821.1 914.6 1068 1087 1078.1 1074.6 1140.9 1189.3 1123.4 1139.2 1225 Merchandise (FOB) 954.1 898.6 680.7 756.3 884.8 891.7 879.5 871.4 923.4 955.7 907 912.5 982.6 Non-factor Services 174 163.7 140.4 158.3 183.2 195.3 198.6 203.2 217.5 233.6 216.4 226.7 242.4 Resource Balance -184.9 -177 -52.6 -111.8 -218.7 -175.5 -64.3 -118.7 -103.2 -114.8 -78 -90.2 -122 Net Factor Income -153.4 -153.2 -201.8 -151.9 -177.8 -190.2 -211.2 -237.6 -243.4 -248.1 -253.1 -297.2 -317.8 Factor Receipts 24.3 17.9 15 12.2 13.8 12.8 11 9.5 10.2 10.7 7.8 9.2 9.4 Factor Payments 177.7 171.1 216.8 164.1 191.6 203.0 222.2 247.1 253.6 258.8 260.9 306.4 327.2 Total interest 100 127.5 171.8 131.0 135.1 145.0 154.7 177.1 181.1 184.1 188.9 234.4 253.3 Other 77.7 43.6 45.0 33.1 56.5 58.0 67.5 70.0 72.5 74.7 72.0 72.0 73.9 Current Private Transfers (Net) 7.5 8.9 9.0 9.7 10.0 12.4 13.0 16.0 23.0 24.7 25.3 27.5 29.3 CAPITALACCOUNT 295.6 259.1 118 228.8 391.3 388.1 311.5 358.6 422.8 413.2 454.1 307.5 310.3 Official Transfers 14.0 18.6 21.0 34.8 79.9 133.1 145.4 115.3 203.5 141.3 236.4 163.3 155.0 Of which: US INIA IN/A #NIA #N/A 68.0 111.0 107.5 81.3 156.7 81.8 192.0 102.9 88.0 Direct Investment 5.8 -3.6 13.8 17.5 20.4 27.5 30.0 38.7 48.3 51.0 43.5 44.7 56.5 Net LT Borfowing 245.4 238.0 115.2 129.4 229.2 235.8 40.9 54.9 41.9 -64.7 33.6 -99.8 18.5 NetShortTerm 11.0 13.6 -37.5 41.7 47.4 -0.3 97.8 151 131.3 198.8 116.1 181.6 81.4 Other 19.4 -7.5 5.5 5.4 14.4 -8.0 -2.6 -1.3 -2.2 86.8 24.5 17.7 -1.1 Errors and Omissions -22.9 0.2 9.7 21.7 -45 -39 -39.9 29.6 -73.1 -76.7 -110.6 100.2 128.9 OVERALLBALANCE -58.1 -62 -117.7 -3.5 -40.2 -4.2 9.1 47.9 26.1 -1.7 37.7 47.8 28.7 FINANCING 58.1 62 117.7 3.5 40.2 4.2 -9.1 47.9 -26.1 1.7 -37.7 -47.8 -28.7 Change inNet Ofricial Reserves 58.1 62 117.7 3.5 40.2 4.2 -9.1 47.9 -26.1 1.7 -56.2 -89.5 -76.8 ChangeinArres - - - - - - - - - - 52.7 122.4 113.6 Rcschedulings - - - - - - - - - -34.2 -80.7 -65.5 Offsetting Entry for Debt Relief - - - -- - - - - 448.4 14.9 Debt Relief - - - - - - - - - - - -448.4 -14.9 Source: Estudios Economicos, Banco Central de Honduras 48 Table 11: Value, Volume, and Price of Merchandise Exports (Value In Million USS, Volume In Thousands, and Unit Value In US5) 1980 1981 1982 1983 1984 l985 1986 1987 1988 1989 1990 199 1992pi Traditional Exports,(value) 6472 5982 5358 543.1 594.8 630.8 739.3 675.9 734.8 7340 716.1 6543 642 Bananas 2280 213.3 218.3 203.1 232.2 273.5 2.568 310.S 356.4 351.7 357.9 314.4 2865 Volume (40 lbs. boxes) 47,450 42,234 44,736 35,095 41.250 46,540 42,547 49,426 46,859 45,022 42,321 38,325 40,930 Unit Value 4.81 5.05 4.88 5.79 5.63 5.88 603 6.29 7.61 7.81 8.46 8.20 7.00 Coffee 204.1 172.9 153.1 151.2 169.1 185.2 322.1 199.9 192l 190,9 180.9 145.9 147.6 Volume (60 Kg. Bags) 946 1,133 956 1,238 1,130 1,192 1,325 1.451 1,263 1.420 1,736 1,444 1,959 Unit Value 215.8 152.6 160.1 122.1 149.6 155.4 243.1 1378 152.1 134.4 1042 101.0 75,3 Lunber 36.2 43.2 44.7 40.4 34.9 34.1 323 ... 34.75 29.8 24.1 16.1 15.3 15.8 Volume (rn3) 269 292 301 262 231 213 219 227 180 145 87 72 S0 Unit Value 1345 147.8 148.4 1542 151.0 160.1 147.5 152.9 165.1 166 6 185.0 211.7 198.7 Mealt 0 0 60.7 46.5 33.9 31.3 21.2 18.2 200 f226 20.3 19.S 25.3 31.4 35.7 Volume (Kg) 28,605 23.800 16,195 15,474 9,519 8,643 10,874 9,681 9,919 9.261 11,460 14.150 16,900 Unit Value 2.12 1.95 2.09 2.03 2.23 2.10 1.83 2.33 2.05 2.14 2.21 2.22 2.11 Sugar 29.3 46.5 21.6 27.8 25.7 21.5 12.5 18.6 14.4 8.3 12.4 L 84 5.1 Volumc (Kp.) 81,473 83.083 87,479 106.165 89,632 119,292 63,133 95.577 68,662 20.763 27.111 20,053 13,190 Unit Value 0.36 0.56 0.25 0.26 0.29 0.18 0.20 0.19 0.21 0.40 0.46 0.42 0.44 Shrimp and Lobster 23.4 26.2 28.0 36.0 49.8 41.0 45.4 58.5 70.5 61.2 65.7 92.9 96.8 Volume (Kgs.) 3,273 3,645 3.600 4,266 3,944 3,473 3,456 4,500 6.020 5,310 5,920 8,090 8,670 Unit Value 7.16 7.20 7.77 8.43 12.63 11.79 1314 3.00 11.71 11.53 11.10 11.48 11,16 Tobacco 13.7 13.3 10.8 10.8 8.3 8.7 5.3 4.15 4.2 3.2 .5 2.1 4.8 Volume (Kgs.) 4,566 4,488 3,170 3,125 2,506 2,319 1,498 1,260 1.280 1,170 1,220 1,190 1,900 Unit Value 3.00 2.97 3.40 3.46 3.33 3.73 354 3.29 3 28 2.74 2.05 1.76 2.53 Snver 31.8 157 9.3 17.6 15.5 . 13.0 12.6 7.6 9.9 Sl 4.7 4.3 5.2 Volumc (Troy Ounces) 1,624 1,576 1,211 1.629 2.022 2,108 2,255 1,146 1.599 1.545 1,030 1,120 1,370 Unit Value 19.56 9.98 7.68 1078 7.67 6.17 5.57 6.63 6.19 5.24 4.56 3.84 3.80 Lead . 10.0 8.4 4.2 4.6 63 5.9 &62 3.7 7.4 6 4.2 . 3.3 7.0L Volume (Pounds) 26.803 26,256 19,034 25,531 30,361 34,348 36,372 13,516 24.680 19,435 12,340 12,740 26,240 Unit Value 0.37 0.32 022 018 021 0.17 0.17 0.27 0.30 0.31 0.34 0.26 0.27 Zinc . .;:: 0 itit00;00.jt tlt00 i|.;0 t; ti;000000 0 010.00 i00 i123 10zo 20.2 31.7 29.9 26.3 15.3 29.8 60.7 46.4 36.3 36.9 Volume(Pounds) 32,347 33,177 32,390 51.114 68,902 77,022 81,276 39,967 56,194 85,360 69,230 74,160 73,890 UnitValue 0.31 0.37 0.37 039 0.46 0.39 0.32 0.38 0.53 071 0.67 049 0.50 Nontradltlonal Expor + Otber, 174.9 .155.4 111.8 128.7 130.5 134.4 122.3 105.7 107.1 124.5 114.9 138.1 163.9 (value customs bauis, FOB) Merchandise Exports, I/ 8221 753.6 654.6 671.8 725.3 765.2 861.5 781.6 841.9 s5s.$ 831.0 792.4 d06 (value customs bais, FOB) 841.9 Merchandise Exports (BOP baus) 850.3 783.8 676.5 698.6 737 795.8 894 821.8 881.1 903.2 886.9 837.5 .842.6 Adjuatments 2V 28.2 30.2 21.9 26.8 11.7 30.6 32.5 40.2 39.2 44.7 55.9 45.1 36.6 Memo: Expoiof ONFS 943.2 885.3 768.5 802.8 849.3 911.5 1013.8 955.9 1037.7 1074.s 104.4 1049.0 1103.0 (PercitcOrne) .; 4 1 -13.2 45 58 7.3 1L12 -57 8.6 3.5 .2.7 0.3 5.1 Note: 1/ Mrchuaise Expols are custofns basis (1970-92). 'Nontraditional - 'Merchandise Exports' - *Traditional. Merchandise exports BOP basis includes exports of gold and electincity and other adjustments. Export and import data was revised by GOH for penod of 1985-92. 2/ Includes adjustmant foe unecorded exports, gold and dlecticity. Source: Estudios Econ&nicos, Banco Cenril de Honduras
Группа Всемирного банка · Project Completion Report
Honduras - First and Second Structural Adjustment Credit Projects
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