Peru - Debt and Debt Service Reduction Loan and Related Measures to Support the Debt Reduction Program Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-7030-PE REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEBT AND DEBT SERVICE REDUCTION LOAN IN AN AMOUNT OF US$183 MILLION TO THE REPUBLIC OF PERU AND ON RELATED MEASURES TO SUPPORT THE DEBT REDUCTION PROGRAM OF THE REPUBLIC OF PERU November 25, 1996 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 - Nuevo Sol (SI.) EXCHANGE RATE (as of October 11, 1996) US$1.00 = S./ 2.54 FISCAL YEAR Januarv 1 to December 31 ABBREVIATIONS AND ACRONYMS BAC Bank Advisory Committee BEP Buyback Equivalent Price CAS Country Assistance Strategy DB Discount Bond DDSR Debt and Debt Service Reduction DOD Debt Outstanding and Disbursed DRE Debt Reduction Equivalent DS Debt Service FLIRB Front-Loaded Interest Reduction Bond GDP Gross Domestic Product IDB Inter-American Development Bank IFI International Financial Institution IMF International Monetary Fund lRR Internal Rate of Return JEXIM Export-Import Bank of Japan LIBOR London Interbank Offer Rate MLT Medium- and Long-Term MNI Market Value of New Instruments MOP Memorandum of the President MYRA Multi-Year Rescheduling Agreement PB Par Bond PD Pre-Deal Price PDI Past-Due Interest PDP Post-Deal Price PPG Public and Publicly Guaranteed PRAL Pension Reform Adjustment Loan SAL Structural Adjustment Loan SDR Special Drawing Right XGS Exports of Goods and Services Vice President Mr. Shahid Javed Burki Director Mr. Paul Isenman Division Chief Mr. Dan Morrow Staff Mr. Edgardo Favaro  FOR OFFICIAL USE ONLY PERU DEBT AND DEBT SERVICE REDUCTION LOAN TABLE OF CONTENTS Page LOAN AND PROGRAM SUMMARY..Ii I. BACKGROUND..1 II. THE DDSR AGREEMENT ..2 A. Main Provisions. 2 Eligible Debt ............................................................2 Treatment of Principal ............................................................3 Treatment of Past Due Interest (PDI) ...........................................................5 B. Responses .............................................. ........ 6 C. Costs and Sources of Support ...................................................... 6 III. EVALUATION OF THE DEBT AGREEMENT ...............7 A. The Extent of Debt Reduction ......................................................8 B. The Cost-Efficiency of the DDSR Agreement ......................... .............................. 10 Comparison with a Market-Based Debt Buyback ..................... ...................................... 10 Comparison with a Counterfactual MYRA ........................................................... 12 C. Indirect Economic Benefits ....................................................... 13 D. Creditworthiness and Debt Management ....................................................... 16 Reduced Overall Burden ........................................................... 16 Debt to Official Creditors ........................................................... 16 Reduced Flexibility ........................................................... 16 IV RATIONALE FOR BANK SUPPORT ................................................... 17 A. Eligibilityfor DDSR Support ....................................................... 17 B. The Proposed Debt and Debt Service Reduction Loan ...................................................... 18 C. Conditions for Loan Effectiveness ...................................................... 18 D. Disbursement and Other Arrangements ....................................................... 18 E. Prepayment Provisions ...................................................... 19 F Waiver of Negative Pledge Clauses ...................................................... 19 G. Benefits ....................................................... 19 H. Risks ...................................................... . 20 V. RECOMMENDATIONS ............................................. 20 Annex: Table IL Key Economic Indicators Table II: External Debt Indicators Table III: Structure of External Debt SCHEDULES SCHEDULE A: DISBURSEMENT AND RETROACTIVE FINANCING .................................................... 24 SCHEDULE B: TIMETABLE OF KEY PROJECT PROCESSING EVENTS .................................................... 25 SCHEDULE C: STATUS OF BANK GROUP OPERATIONS IN PERU (BANK AND IFC) ................................. 26 SCHEDULE D: PERU AT A GLANCE .................................................... 28 Map -- IBRD No. 26572R This docurent has a restricted distribution and may be used by recipients only in the perfornance of their ofricial duties. Its contents may not othernise be disclosed wiihout World Bankk authorization.   ii PERU DEBT AND DEBT SERVICE REDUCTION LOAN LOAN AND PROGRAM SUMMARY Borrower: The Republic of Peru Beneficiary: Not applicable. Poverty: Not applicable. Amount: US$183 million Terms: Repayable in 17 years, on level repayments, including five years of grace, at standard interest rate for LIBOR-based US dollars single currency loans. Commitment Fee: 0.75% on undisbursed loan balances, beginning 60 days after signing, less any waiver. Financiny Plan: See Schedule A. Rate of Return: The internal rate of return (IRR) on the financial resources allocated to the DDSR operation, based on the savings in payments to commercial banks, would be 27 percent.1 The IRR is calculated with respect to a counterfactual Multi-Year Rescheduling Agreement assuming eight years of grace period, 24 years of maturity, and a LIBOR+13/16 interest rate. The IRR is well above both the cost at which Peru could borrow the enhancement funds and the critical level employed in the Bank's project lending. Staff Aporaisal Report: Not applicable. Proiect Identification Number: PE-PA-40123 1 The resulting IRR is largely driven by the considerable amount of the debt-buyback option (US$2,472 million or 31 percent of Eligible Debt) and by its high average price discount (62 percent).  I  REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEBT AND DEBT SERVICE REDUCTION LOAN OF US$183 MILLION TO THE REPUBLIC OF PERU 1 I submit for your approval the following report and recommendation on a proposed Debt and Debt Service Reduction (DDSR) loan for US$183 million to support implementation of 'The 1996 Financing Plan' between the Republic of Peru and its commercial creditors to restructure about US$7,988 million of commercial bank and private suppliers debt. The loan would be repayable in 17 years, on level repayments, including five years of grace, at standard interest rate for LIBOR-based US dollars single currency loans. A briefing note on this operation (SecM95-1163) was distributed to the Executive Directors on November 14, 1995. The DDSR agreement involves: (i) a debt buyback; (ii) the exchange of eligible principal for par, discount and front-loaded interest reduction (FLIRB) bonds; and (iii) a regularization of past due interest (PDI) through partial forgiveness, a down payment, and a PDI bond. Proposed World Bank measures in support of the DDSR operation encompass: * A DDSR loan to the Republic of Peru for US$183 million to help finance the debt- buyback and the principal and interest collateral for the par, discount, and FLIRB bonds; and * A limited waiver of the negative pledge clauses in loan and guarantee agreements between the Republic of Peru and the Bank to permit a pledge of collateral of about US$20G million for the DDSR instruments. * A set-aside of US$50 million from the proposed Pension Reform Adjustment Loan (PRAL) for US$100 million presented to the Executive Directors concurrently with this report. 2. This report analyzes the effects of the proposed DDSR operation on Peru's medium-term growth prospects and creditworthiness, and discusses the rationale for Bank involvement. Section I outlines the domestic origins of Peru's debt crisis. Section II describes the DDSR agreement provisions, estimates the up-front cost and financial implications, and describes sources of official support. Section III evaluates debt and debt service reduction implications, cost-efficiency, indirect economic benefits, and effects on creditworthiness and debt management. Section IV discusses the rationale for Bank support. Section V presents the recommendation. l. BACKGROUND 3. During the 1970s, Peru accumulated external debt at a rate faster than the rate of growth of the economy. After the debt crisis of 1982, the Government initiated negotiations with the international commercial banks to refinance its external debt and, in early 1983, suspended debt-service payments until a rescheduling agreement could be reached. In February 1984, an  -2- agreement in principle was reached, however, non-compliance with the IMF program targets made implementation of the agreement impossible. 4. Peru's arrears grew rapidly after 1983, when Peru adopted a best-effort-to-pay practice on its foreign debt. Then, in July 1985, the Government announced that total foreign debt payments would be capped at 10 percent of exports. Not until 1988, however, did actual debt service fall to the 10 percent limit. Initially only payments from public creditors to private foreign banks were targeted, but in 1987 Peru extended the moratorium to the IFIs and also banned external debt-service payments by private debtors. In August 1986, Peru was declared ineligible for IMF lending, in 1987 it was placed in 'non-accrual' status by the World Bank and in 1989 by the IDB. Threatened with expulsion, the Government resumed current debt- servicing to the IMF at the end of August 1989. 5. The administration that took office in July 1990 implemented the most comprehensive reform program in the history of Peru. Among other sweeping measures, the government took decisive steps to resume links with the international financial community. Arrears were cleared with the IDB in September 1991 and with the IMF and the Bank in March 1993. Rescheduling agreements of official bilateral debt with Paris Club creditors were approved in September 1991, May 1993, and July 1996. In October 1995 the Government of Peru (GOP) and the Bank Advisory Committee (BAC) announced an agreement in principle to repackage Peru's medium- term debt with commercial bank and private supplier creditors. The agreement was a major step towards reintegrating Peru into the international financial community after more than a decade of virtual isolation. II. THE DDSR AGREEMENT 6. The DDSR agreement encompasses about US$7,988 million (US$10,812 million if PDI forgiveness is considered) of public and publicly-guaranteed medium-term debt with commercial banks and private suppliers. The agreement includes a menu of options to exchange eligible debt for new instruments, a debt buyback, and substantial PDI forgiveness. The up-front cost of the operation is estimated at about US$1,435 million, and about 44 percent of the cost would be financed using part of the country's own reserves. This section describes the main provisions of the agreement, reports the response of creditors, estimates the up-front cost, and identifies the financing sources for the operation. A. Main Provisions Eligible Debt 7. The DDSR operation encompasses all medium- and long-term, public and publicly- guaranteed debt, currently in arrears, with commercial banks and private supplier creditors. The agreement is comprehensive, reducing the debt and debt service obligations through a menu of options for buying back or exchanging eligible principal--US$4,183 million, including principal  -3- arrears--, and past-due interest (PDI)--US$3,805 million.4 The total amount covered, US$7,988 mnillion, corresponds to about 25 percent of the total external debt of Peru and about 40 percent of the public and publicly-guaranteed debt. Treatment of Principal 8. The agreement offers creditors a menu of three types of new exchange instruments, a debt-buyback for the exchange of principal claims, and a separate treatment of PDI5 (see Table 1). Holders of eligible debt would exchange their claims to principal for one of the following options: * Par Bonds (registered) at below market interest rates, commencing at 3 percent in year one, rising to 4 percent in years sixteen through twenty-five, and 5 percent in years twenty-sixth through thirty, with a bullet payment upon maturity (30 years); * Discount Bonds (registered) with face value 45 percent below that of the eligible debt, at interest rate of LIBOR plus 13/16 percent, with a bullet payment upon maturity (30 years); * Front-Loaded Interest Reduction Bonds (registered), at below market interest rates during years one through ten, commencing at 3.25 percent in year one and gradually rising to 5 percent in year ten, and to the six-month LIBOR plus 13/16 percent thereafter, with a maturity of 20 years and a grace period of 8 years; and * A tender offer for a debt-buyback conducted through a 'Dutch' auction with separate bids for principal and past due interest (PDI). (See para. 12 below). 9. The principal of the Discount Bond (DB) and Par Bond (PB) will be collateralized in full by the pledge of US Treasury zero-coupon bonds delivered on the closing date and held in an escrow account. Payment of six months of interest would be secured on a rolling basis by the pledge of cash or permitted investments delivered on the closing date and held by the collateral agent (a correspondent bank) in a separate account. Collateral of interest would be based on a reference rate of: (i) 7 percent per annum (for the DB), and (ii) 3 percent in year one to fifteen, rising to 4 percent in years sixteen through twenty-five, and 5 percent in years twenty-sixth through thirty (for the PB). The principal of the FL1RB is not collateralized. Until the tenth anniversary after closing, payment of six months of interest would be secured on a rolling basis by the pledge of cash or permitted investments delivered on the closing date. Collateral of interest on the FLIRB would be based on a reference rate of 3.25 percent per annum. Earnings on all of the collateral accounts would accrue to Peru once the collateral requirements are satisfied. The agreement allows the repurchase of bonds at any price and time provided certain 4 This agreed PDI is the result of substantial forgiveness, estimated by the Government at about US$2,823 million. This Govermnent estimate will not be included in the following sections in the evaluation of the quality of the DDSR agreement. 5 A debt-equity conversion (debt for privatization program) has already occurred, redeeming US$318 million in principal arrears and US$254 million in interest arrears. This swap, however, is not included in the DDSR financing pool.  -4- conditions are filly met by the GOP. 6 The bonds will be issued in two simultaneous offerings, one in the United States to US persons and the other outside the US to Non-US persons. Table 1: Summary Terms of Debt Agreement Instruments Maturity Interest Collateral Form Menu of ODtions 1. Par Bonds (with 30 yr. bullet Yrs. 1-15: 3.00 % Principal secured by thirty-year Registered below-market interest Yrs. 16-25: 4.00 % zero coupon U.S. Treasury rates) Yrs. 26-30: 5.00 % securities. Six-month rolling interest guarantee at a rate of 3.00 percent per annum, secured by cash or permitted investments. The reference rate increases to 4.00 percent and to 5.00 percent on the 15th and 25th anniversaries of the Closing Date, respectively. 2. Discount Bonds 30 yr. bullet six-month LIBOR + Principal secured by thirty-year Registered (45% on face value) 13/16% zero coupon U.S. Treasury securities. Six-month rolling interest guarantee at a rate of 7.00 percent per annum, secured by cash or permitted investments. 3. Front-Loaded 20 yr. with 8 yrs. grace Yrs. 1-2: 3.25 % Six month rolling interest Registered Interest Reduction and 25 semi-annual Yrs. 3-4: 3.75 % guarantee, until the 10th Bonds (par exchange) installments as Yrs. 5-6: 4.00 % anniversary of the Closing follows: 1-4: 1% of Yrs. 7-8: 4.50 % Date, at a rate of 3.25% per principal; Yrs. 9-10: 5.00 % annum, secured by cash or 5-9: 2%; 10-12: 3%; Yrs. 11-20: six- permitted investments. 13-15: 4%; 16-19: month 5%; 20-21: 6%; LIBOR + 13/16 % 22-23: 7.5%; 24-25: 9% 4. Debt Buy-Back ("Dutch" auction) Past Due Interest 1. US$315 million cash downpayment . ll 2. PDI Bonds 20 yr. with 5 yrs. grace Yrs. 1-2: 4.00% None Registered (par exchange) and 31 semi-annual Yrs. 3-6: 4.50% installments as Yrs. 7-10: 5.00% follows: 1-2: 1% of Yrs. 11-20: six- principal; month 3-4: 2%; 5-18: 3%; LIBOR + 13/16 % 19-31:-4% 3. Forgiveness (US$2,672 million) ___ . 6 For a complete coverage of the conditions governing the repurchase of bonds, refer to page III-10 of the "Republic of Peru - Term Sheet for the 1996 Financing Plan". A description of Security Matters can be found in Annex F of the same document.  -5- Treatment of Past Due Interest (PDI) 10. The agreement restructures PDI by means of: (i) PDI forgiveness; (ii) partial PDI payments prior to closing; (iii) a downpayment on PDI at closing; and (iv) a PDI bond. PDI forgiveness, estimated by the Government to reduce PDI obligations by about US$2.8 billion, results from the recalculation of PDI at lower-than-contractual interest rates.7'8 During 1996 Peru made partial payments on PDI totaling US$90 million. At closing, Peru will make a US$225 million downpayment on PDI. Remaining PDI (US$3.8 billion) would be exchanged for PDI bonds (registered), having twenty year final maturity and a five years grace period, at below market interest rates, commencing at 4 percent in the first two years, rising to 4.5 percent in years three to six, 5 percent in years seven to ten, and LIBOR plus 13/16 percent from year eleven through twenty. 11. Because of the prolonged period with little or no debt service, the share of PDI in Peru's DDSR agreement is unusually high. At 61 percent the share of PDI in total debt exceeds that of Panama (50 percent), Ecuador (42 percent) and is well above the sample average (14 percent)-- see Table 2. Table 2: PDI and Eligible Debt (US$ billion) PDI Eligible PDI Debt Share (%) (a) (b) (c)=(a)/(b) PERU 3.8 8.0 47.6 anama 2.0 3.9 50.0 cuador 3.3 7.8 41.9 Mexico 0.0 48.1 l hilippines 0.0 5.8 osta Rica 0.3 1.0 34.0 Venezuela 0.0 19.6 l ruguay 0.0 1.3 l igeria 0.4 5.4 8.2 Argentina 8.5 27.0 31.5 ordan 0.1 0.9 16.7 razil 6.0 46.6 12.9 ulgaria 1.9 8.1 23.5 ominican Republic 0.4 1.2 35.9 oland 4.3 14.4 29.7 Weighted Average 14.3 7 See footnote 4. The basis for the recalculation of PDI is set forth in Annex D of the Financing Plan. It determines eligible interest by using PDI factors which express amounts of eligible interest as percentage of eligible principal. PDI factors, in turn, depend on two elements, the interest on principal (IOP) and the interest on past-due interest (101). The former assumes that accrual for each item begins at the mid-point of the month of Interest Accrual Date and continues to Closing. It is based on monthly LIBOR plus 13/16 percent p.a. The latter assumes accrual beginning on the first day of calendar quarter after IOP first became due and continues to Closing. The interest basis is the lesser of 2.5 percent p.a. or LIBOR plus 13/16 percent p.a.  -6- B. Responses 12. Creditors responded to the 1996 Financing Plan with commitments for 97 percent of the eligible debt by mid-September 1996: 42.5 percent of these commitments was allocated to the FLIRBs; 22.7 percent to DBs; 4.6 percent to PBs; and 30.2 percent of the eligible principal to the debt-buyback. The buyback reduced US$1,265 million of principal and US$1,180 million of PDI--the average price of the debt-buyback was about 38 cents on the dollar9. While the allocation results in less debt and debt service reduction than a balanced one, it also results in considerably lower up-front costs. The impact of the debt- buyback in total debt and debt service reduction outweighs all other aspects of the final allocation of commitments. C. Costs and Sources of Support 13. The total costs of closing the DDSR agreement is estimated to be about US$1,435 million (see Table 3). Of the total cost US$315 million corresponds to payments on PDI and US$939 million to the debt buyback. The remainder includes the estimated cost of the collateral for the DBs (US$114 million), the PBs (US$38 million), and the FLIRBs (US$29 million). Table 3: Debt Service and Debt Reduction Operation (US$ Millions) Allocation of Elifible Debt Principal Past Due Interest Total Total $4,183 100.0% Total $3,805 100.0% $7,988 Par Bond $191 4.6% Partial Paymnents $90 2.4% Discount Bond $948 22.7% Downpayment $225 5.9% FLIRB $1,779 42.5% PDI Bond $2,310 60.7% Buyback $1,265 30.2% Buyback $1,180 31.0% Summaar of DDSR Old Debt (including PDI and Forgiveness) $10,811 Uses of Funds New Debt $4,801 Total Funds $1,435 100.0% Required Forgiveness (from PDI) $2,823 for cash payments on PDI $315 22.0% for Buyback payments $939 65.4% Face Value of Debt Reduction $3,187 for enhancements $18.1 12.6% o/w Discount Bond $427 Par Bond $38 2.6% o/w cash payments on PDI $315 Discount Bond $114 7.9% olw Principal & Interest Retired in Buyback $2,445 FLIRB $29 2.0% NPV of Interest Payment Reduction $576 Sources of Funds $1,435 100.0% Multilateral $700 48.8% Commercial Bank DRE (% of Eligible Debt) 55.75% World Bank $233 16.3% Secondary Market Price of Debt * $37.90 IDB $233 16.3% Buyback Equivalent Price (BEP)* $31.30 IMF $233 16.3% BEP - IMF Methodology * $30.86 JEXIM $100 7.0, Local Funds $635 44.3% * Cents on the dollar The final prices for the debt-buyback bids were as follows (in cents on the dollar): * Maximum Principal Bid Price: 37.00; . Maximum Interest Bid Price: 42.00; * Weighted Average Principal Bid Price: 35.99;. Weighted Average Interest Bid Price: 40.97. The actual buyback will take place by Closing date.  -7- While the final cost of principal collateral will depend on changes in the yield of the zero-coupon bonds before the final purchase, the cost of interest collateral is predetermined by the agreed reference rates. 10 14. The Government has requested support from the World Bank, the IMF, the IDB and the Export-Import Bank of Japan (JEXIM) to help finance the up-front costs of the DDSR Agreement (see Table 3). Bank support would include the proposed US$183 million DDSR Loan and US$50 million of set-aside funds from the US$100 million Pension Reform Adjustment Loan (PRAL) simultaneously presented for approval to the Executive Directors. IMF support would include set-aside funds from the previous and current Extended Fund Facility (EFF) program in an amount of SDR105.5 million (US$153 million equivalent) and SDR55 million (US$80 million equivalent) from an Augmentation of the EFF. IDB will provide a self-standing DDSR Loan of US$233 million equivalent approved by the Board in November 6, 1996. JEXIM Bank support would include US$100 million equivalent in co-financing of the proposed Bank's PRAL and the IMF's EFF. The Government would finance the remaining up- front costs of the DDSR agreement (about US$635 million) from its own resources. The Government would carry the burden of higher-than-estimated collateral costs to the extent that some additional lending does not materialize. III. EVALUATION OF THE DEBT AGREEMENT 15. This section studies the: (i) extent of debt reduction; (ii) cost-efficiency of the DDSR agreement; (iii) indirect economic benefits; and (iv) impact of the DDSR agreement on debt management and creditworthiness. Implementation of the DDSR operation would: o restructure about 40 percent of Peru's total public and publicly-guaranteed external debt and reduce its the face value by about US$3,187 million (excluding forgiveness of about US$2,823 million); * result in a debt reduction equivalent (DRE) of about US$4,453 million, or 55.8 percent of the eligible debt and 11.4 percent of the total public and publicly- guaranteed debt; * result in cash flow savings in 1996-2026 with net present value of US$2,045 million (3.3 percent of GDP) and an IRR of 27 percent--compared to counter-factual debt service; * reduce interest rate risk, by exchanging 85 percent of the eligible debt (after buyback) into fixed-rate instruments for the next ten years; * augment the relative exposure of the IFIs, from 18 to 23 percent of Peru's public and publicly-guaranteed debt, and 10 The estimated acquisition cost of the collateral is about US$200 million. Because the collateral is in the form of zero-coupon bonds its value will increase over time as the bonds approach maturity.  -8- * reduce Peru's flexibility to adjust future debt service obligations to shocks, inasmuch as 22.9 percent of Peru's public and publicly guaranteed external debt heretofore subject to rescheduling would be transformed into bonds. A. The Extent of Debt Reduction 16. This part studies the debt reduction impact of the DDSR agreement: (i) it estimates the debt reduction equivalent (DRE) and compares the results with those of previous DDSRs, (ii) identifies the importance of the debt-buyback in total debt reduction, and (iii) discusses the sensitivity of the results to changes in market interest rates. 17. The DDSR agreement results in a DRE of US$4,454 million or 55.8 percent of the eligible debt (see Table 4 below)." This DRE is higher than that secured in 10 out of the 14 previous DDSR agreements by other countries and is well above the average (35 percent). Even so, because the restructuring encompasses only 25 percent of Peru's external debt, debt reduction as a percentage of total public and publicly guaranteed debt (11.4 percent), is below the average in previous DDSRs (16 percent). 18. The DRE is the result of: (i) a decrease in the face value of commercial debt of about US$3,187 million, stemming from: (a) the buyback of US$1,265 million of principal and the corresponding US$1,180 million of PDI; (b) the exchange of 22.7 percent of principal at a discount of 45 percent (US$427 million), and (c) the downpayment at closing of PDI (US$315 million); (ii) the net present value of interest savings reduction through PB and FLIRB exchanges and the PDI bond (US$1,086 million); and (iii) the principal prepayment equivalent of collateral placed beyond Peru's reach (US$181 million). Thus, the debt-buyback is responsible for fifty-five percent of the debt reduction and 77 percent of the total reduction in the face value of commercial debt. 19. The DRE estimate is not sensitive to the assumption used to forecast future market interest rates. For instance, estimating the DRE using a fixed LIBOR rate'2 instead of the Treasury bill yield curve, used in Table 4, would result in a DRE 5 percent lower (US$208 million) than in the benchmark case; likewise, lowering the yield curve by 25 basis points would result in a DRE 1.2 percent lower (US$53 million) than in the benchmark case. Had savings from PDI forgiveness been included in the estimate, DRE would have increased to 67 percent of eligible debt. 12 World Bank's projections released in April 1996.  Table 4: Debt Reduction Equivalent (USS Millions) IFacm Valul otiChauges Adkistmen Debt Reduction Fquivalent (DRF) Face Face New Net Facc Face Prescnt Prepy'l Net Comm. Aditional Tol4^ Totl Total DRE DRE Valut Value Moutey Value of Value or Value of Equivalent Adjust. Debt Officidl Debt External " % of a ". of Eligible Debt Comm. New Interest of Reduction Leading Reduclion Deb Total GDP Debt Reducliout Debt Com. Service Collateral Equivalent Equivalant Debt Reduction Debt Reduction (DRE) I1) (2) I2) (4) (5) (6) (7) (8) (9) (10) (I1) (12) (13) (14) (IS) _[(2)-Ml)) 1(1(4)l 1(6)+(7)) 1(4)f(3)l ((9( IM) 1(10)ill)) (t2Y(l3)) * Pert. 7,988 3,187 0 3,1t7 4,S01 1,086 11 1,267 4,453 55.8% *00 3054 321,061 11.4% 6.2% P5Sein at 44.12 1.692 0 1.692 2,491 576 8lt 757 2.449 51.5% D.lcounBulnd 948 427 0 427 521 0 114 114 541 570% P Bllund 191 0 0 0 191 102 38 140 140 71 1% FLIRt3 tlund 1,779 0 0 0 1.779 475 29 504 504 28 3% floyback 1.265 1.265 0 1,265 0 0 0 0 1.265 1000% Past Dnue lultst 3.)05 1.495 0 1,495 2,310 S10 0 510 2.005 52.