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IDB COUNTRY STRATEGY WITH PERU 2007-2011
This document was prepared by the project team consisting of Susan K. Kolodin (SCL/SPH), David Rogers (CAN/CAN), Kim B. Staking (ICF/CMF), Daniela López (CAN/CAN), Rosario Gaggero (INE/RND), Edna Armendariz (CAN/CAN), Gabriela Sylvia Andrade (CCB/CCB), Francesca Castellani (CAN/CAN), and Fidel Jaramillo (CAN/CAN), who was the Project Team Leader, with contributions from CAN/CPE, INE/ENE, INE/TSP, INE/WSA, INE/RND, SCL/EDU, SCL/SPH, SCL/SCT, SCL/GDI, ICF/ICS, ICF/FMM, ICF/CMF, MIF, SCF and IIC.
EXECUTIVE SUMMARY I. DEVELOPMENT CHALLENGES IN PERU ............................................................................1 A. B. Introduction ...........................................................................................................1 Political, economic, and social outlook ................................................................2 1. The new political landscape in Peru .............................................................2 2. The economic situation .................................................................................2 3. The social setting...........................................................................................6 The government’s development agenda ...............................................................8
RECENT RELATIONS BETWEEN THE BANK AND PERU ....................................................9 A. B. The 2002-2006 strategy ........................................................................................9 Evaluation and lessons learned ...........................................................................11
THE BANK STRATEGY WITH PERU FOR 2007-2011.......................................................12 A. Foothold in the global economy and competitiveness .......................................12 1. Current situation and principal challenges..................................................13 2. Principal areas of Bank support ..................................................................13 Social development and inclusion ......................................................................22 1. Current situation and principal challenges..................................................22 2. Principal areas of Bank support ..................................................................23 Reform of the State and public management......................................................27 1. Current situation and principal challenges..................................................27 2. Main areas of Bank support ........................................................................27
IMPLEMENTATION OF THE STRATEGY ...........................................................................30 A. Lending program.................................................................................................30 1. Public sector ................................................................................................31 2. Private sector...............................................................................................36 The new business model .....................................................................................37 The fiduciary situation ........................................................................................37 Risks and mitigating factors................................................................................38 1. Macroeconomic factors...............................................................................39 2. Social, political, and institutional considerations .......................................39 3. Environmental aspects and natural disasters ..............................................40 Agenda for dialogue............................................................................................40
B. C. D.
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BCRP CAF CCLIP CGR CONSUCODE EAP FIDECOM FTA IIRSA ILO INEI MAPPE MEF MMF MSME NFPS SCF SNIP TC TFFP WEF
Central Reserve Bank of Peru Andean Development Corporation Conditional credit line for investment projects Contraloría General de la República [Comptroller General’s Office] Consejo Superior de Contratación y Adquisiciones del Estado [National Procurement Council] Economically active population Fondo de Investigación y Desarrollo para la Competitividad [Competitiveness Research and Development Fund] Free Trade Agreement Initiative for the Integration of South American Regional Infrastructure International Labour Organisation National Statistics Institute Memorandum of Assistance for Project Preparation and Execution Ministry of Economy and Finance Multiyear Macroeconomic Framework Micro, small and medium-sized enterprises Nonfinancial public sector Structured and Corporate Financing Department National Public Investment System Technical-cooperation operation Trade finance facilitation program World Economic Forum
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Annex A Annex B Annex C Annex D Annex E Annex F Annex G Annex H Annex I Annex J Annex K Annex L Annex M Annex N
Strategy Matrix Financing Scenarios Millennium Development Goal Indicators Public Debt Risks Preliminary Lending Program Energy Sector Operations Matrix Program of Studies Nonfinancial Products Country Financing Parameters Coordination with Other Multilateral Agencies Active Portfolio Balanced Scorecard for COF/CPE, 2006 Recommendations from the Peru 2002-2006 Country Program Evaluation and Management Proposals Bibliography
Box 1 Box 2 Box 3 Box 4 Box 5
IIRSA Northern Amazon Hub Water resources, drinking water, and sanitation Financing and development of the private sector Energy sector operations matrix Strengthening the Country Office
The persistence of underemployment and poverty could significantly weaken the medium and long-term outlook for economic development and impair the country’s governance and economic stability. . with the emphasis on sustainable development of hydrocarbons and other extractive industries. and political exclusion. and economic. In line with these objectives. social. (ii) access to capital. support for low-income sectors. and (iii) strengthen the social welfare system. and (iii) strengthening the judicial system. which would consolidate the Bank’s position as the principal source of multilateral financing. in particular direct financing to the private sector. It contemplates a base-case scenario of US$1. To a large extent. President Alan García’s administration has based its policies on macroeconomic consolidation. To foster competitiveness and productive diversification the Bank will provide support through: (i) greater investment in infrastructure (highways. The Bank’s financial program for the public sector is consistent with the country financing requirements and the public debt management strategy set forth in the 2008 2010 Multiyear Macroeconomic Framework (MMF).7 billion. Although there has been progress on several social indicators. and (iii) deepen reform of the State and improve public management.EXECUTIVE SUMMARY Peru is experiencing its most significant period of economic expansion since the middle of the last century: average growth rates have exceeded 5% in the last five years and are forecasted to reach around 7% in the coming years. ports. The challenge is to diversify the economy so as to escape the adverse impacts of external volatility and thereby achieve economic growth that translates into increased formal employment and enhanced well-being for the majority of Peruvians. and sanitation. and a high scenario of US$2. (ii) promote opportunities for formal employment. This performance is the result of prudent macroeconomic management that has contributed to growth stability and sustainability. the Inter-American Development Bank’s country strategy with Peru for the period 2007-2011 seeks to help the country to: (i) strengthen its foothold in the global economy and enhance its competitiveness. The booming formal economy coexists with high levels of poverty. (ii) higher quality in public expenditure. and nearly 50% of Peruvians still live in poverty. however. and reform of the State and decentralization. not based on structural change or economic diversification. especially in water resources. growth has not trickled down enough to the majority of the population. modernization of the productive structure. In the area of public management. Peru’s objective is to consolidate the recent pace of growth as a way to improve peoples’ lives. drinking water. the Bank’s proposed program will emphasize: (i) decentralization of service delivery. Measures to promote social development and inclusion will be designed to: (i) guarantee greater access to basic services. employment insecurity.5 billion. it has been driven by external factors. In response to these challenges. and (iii) support for productive sectors. (ii) promote social development and inclusion. logistics). particularly in rural areas. Given these circumstances.
and technical cooperation resources. to contribute to the country’s development agenda in terms of knowledge. and this entails modernizing and strengthening the Bank’s Country Office. mortgage securitization. in which it has been a significant player through its financing for the Camisea project and its subsequent phase. water and sanitation. The Bank’s strategy with Peru is being pursued in a context in which country focus is the principal thrust of the Bank’s new organizational structure. This possibility. Bank support for the private sector and non-sovereign public sector would be primarily for infrastructure (transportation. with a mix of programmatic. The proposed program takes a comprehensive approach to each strategic area. and trade finance facilitation program).. given their interest in reducing the country’s exposure to foreign-currency debt. and institutional considerations. the country and the Bank have incorporated a series of mechanisms to identify. and financial markets (capital market. and mitigate these risks. Nevertheless.ii - The following conditions would have to be met for the more ambitious scenario to materialize: (i) a commitment to further policy reforms that would justify an increase in the amount of programmatic financing. and the financing of capital projects in the public and private sectors. The new model stresses the importance of deepening the Bank-country relationship. and institutional stability and thereby jeopardize its development objectives and implementation of the strategy. The Bank also plans to continue its support to the oil and gas sector. in turn. energy. financial institutions. political. These risks could compromise the country’s economic. design and implementation of public policies. Peru LNG. with subnational entities or concessionaires). investment. This latter condition depends on the authorities’ commitment to the reform process and their desire to increase demand for unrestricted funds in local currency. . and (iii) environmental and natural disaster-related aspects. social. The risks facing implementation of the strategy relate to: (i) macroeconomic factors. depends on the capacity of markets to absorb hedging in nuevos soles. This will be key for reinforcing dialogue and focusing on client needs. prevent. (ii) social. and (ii) the capacity on the part of the Bank to improve the financial conditions and the availability of financing in nuevos soles.
despite these favorable developments. Peru is likely to join Chile as one of the two most stable countries. recent growth has been insufficient to create high-quality jobs that would offset the problems of unemployment and employment in the informal economy.5 The Bank’s 2007-2011 country strategy with Peru seeks to support the country’s development agenda as it addresses these challenges. Enhancing competitiveness and diversifying the productive structure. and strengthening the accountability mechanisms needed for a dynamic. and poverty is especially severe in rural areas and among indigenous populations. While growth has been substantial. Peru faces the challenge of deepening economic growth in a sustainable way. Improving government management at the national and subnational levels in the delivery of public goods and services. Under these circumstances. Peru’s productive structure is today nearly as concentrated as it was three decades ago.I. Consolidating macroeconomic gains as the basis for developing economic activities and protection mechanisms for confronting adverse shocks relating to the terms of trade. and natural disasters. and it is just recovering the pace of growth that prevailed in the late 1970s. strengthening Peru’s foothold in the global economy. Moreover. Peru is facing challenges that argue against complacency.3 1. d. Nevertheless. productivity.2 1.1 Introduction DEVELOPMENT CHALLENGES IN PERU Peru’s economic performance has been encouraging and certainly provides grounds for optimism.4 1. financial conditions. and remains heavily dependent on primary activities. it has been due in large part to external factors that could at some point be reversed. and one of the longest periods of sustained growth since the middle of the last century. competitive and equitable economic system. capping 23 consecutive quarters of economic expansion. The Bank is in a privileged position to affirm its commitment as an effective development partner for the country. with the lowest sovereign risk in South America. It is clear that the country’s sound performance in terms of growth and macroeconomic stability in recent years has not trickled down to the majority of the population. gross domestic product (GDP) rose by 8%. Fourteen million Peruvians are still living in poverty. c. 1. 1. and to consolidate its position as the primary source of multilateral finance . In the last year. A. creating more jobs and opportunities that will enhance the well-being of the majority of Peruvians. and job creation. Raising the quantity and quality of investment in human and social capital. b. and guaranteeing effective delivery of basic public goods and services. This dynamic performance has been achieved in a context of rapidly rising exports coupled with macroeconomic stability. Success on this front will require: a. and guaranteeing an investment climate that will foster development of the private sector. innovation.
6 Political.9 1 According to Latinobarómetro. While the administration does not have an explicit majority.10 Peru’s economic outlook is positive. President Alan García took office with a mandate to lock in growth and stability and to achieve greater equity. See Informe Latinobarómetro 2005 and 2006. one of the main challenges facing the current administration is to overcome this negative perception. something not seen since the beginning of the last century. Traditional political parties like APRA received most of their support from higher-income urban voters. The economic situation 1. 77% of Peruvians are unhappy with the results of democracy. and one of the main suppliers of medium and long-term funding for the private sector. rural and low-income people opted for the party of presidential candidate Ollanta Humala. Despite progress in making the country’s governance more democratic. Consequently. The last five years have produced annual average GDP growth exceeding 5%. which took a stance critical of the country’s prevailing economic and political system. it has forged working alliances with the Unidad Nacional and the Alianza por el Futuro.-2- for the government. See the 2008-2010 Multiyear Macroeconomic Framework. In contrast. 2. and opinion surveys show that Peruvians are increasingly discontent with the results of democracy and the market economy.2 Since 2002. 1. and social outlook 1. That party led the polls in 8 of the 10 poorest departamentos of Peru. broaden opportunities for the disadvantaged. APRA (Partido Aprista Peruano).7 1. and the 2008-2011 Multiyear Macroeconomic Framework (MMF) forecasts growth of around 7% for 2007.1 Peru’s fragmented political landscape poses a potential source of political and social instability. favorable terms of trade and ample capital inflows have boosted the country’s economic growth and stability. and the risk that the country’s economic direction could be reversed. President García’s party. and promote access to public goods and services for the majority. Peru has achieved positive rates of per capita growth. transparency and decentralization. the electoral process also revealed a significant degree of political and social fragmentation. On the international front.8 1. Growth in 2006 reached 8%. economic. This dynamic performance is expected to continue for the rest of the decade. holds 37 of the 120 seats in the National Congress. The new political landscape in Peru The national and regional elections of 2006 bolstered the process of democratic participation in Peru. 1. and 88% are dissatisfied with the market economy. B. 2 .
and the currency has tended to appreciate. 3 In 2007. real interest rates have remained low.0%. the Central Bank’s Board of Directors reduced the target range to 1.6% in 2006.3 Table 1 shows trends for the main economic indicators.-3- 1.5%).0-2. inflation was 1. Inflation has been below international levels. . As a result.5%-3. at the lower limit of the established band (1.11 This growth has been accompanied by substantial macroeconomic stability. The Central Reserve Bank has successfully applied an independent monetary policy using a model based on inflation targets.
51% 1.9% 3.12 15.2% 9.2% BB+stable 131 74/125 78/175 2007p 7. ***** “Doing Business” Report.4% 29. (p) Projections.2% 0. %) Financial Markets Exchange rate (average) Interest rate-Dep < 30 days (annual average) Balance of Payments (US$ billions) Exports Imports Trade balance Current account (% GDP) Direct investment (net) International reserves (end of period) Fiscal Accounts (% GDP) Revenues (CG) Capital spending (CG)* Current expenditures (CG)* Overall balance (NFPS)** Primary balance (NFPS)** Public Debt (% GDP) Total public debt External public debt Domestic public debt Sovereign Risk Ratings S&P EMBI+ (***) Competitiveness Indicators Competitiveness Index GEF (****) Ease of Doing Business IBRD (*****) 2005 6.89 20.6% 1. %) Unemployment (average.1% -0.8% 9.90 22.5% 28.38 2.26 1.33 1.-4- Table 1 Main Economic Indicators 2004 Real Sector and Prices Real GDP (growth.50 14.73 15.0% 13.50 17.81 9. Latin Source.81 3.03% 41.08 5.0% 1.3% 2.9% BB+positive 118 n/a 65/175 6.18 5. .0% 3.8% 23.9% 9.8 17.29 4.5% 9.77% 38.8% -1.13 17.68 12.0% 1. MEF. ****Global Competitiveness Index 2005-2006 and 2006-2007.6% BB 170 77/117 71/155 2006 8.80 12. *G: Central Govt ** NFPS: Nonfinancial public-sector ***To 4 May 2007.2% 7.48 2.0% 12.34 12.20 17.00 0.3% 2.0% 9.5% 3. World Economic Forum.5% 2.0% 1. World Bank 2006.22 7.2% 19. %) Inflation (CPI Dec-Dec.4% 2.6% 2. MMF.4% 1.4% 2.4% 9.0% BB 220 n/a n/a Source: BCRP.18% 1.36 3.7% 13.2% 2.21 17.4% 3.79 8.77 26.1% 3.65 15.9% 34.8% 12.6% 9.9% 2.9% 32.2% 3.
and its currency.5% of GDP to a surplus of 2. with this favorable economic and financial performance.16 1. from US$7 billion in 2000 to US$23 billion in 2006.13 1.15 1.9%. Over the same period. and a surplus of 2% was posted in 2006.2 billion in 2006. Fiscal discipline and the high growth rates of recent years have helped reduce the balance of the public debt from 45% of GDP in 2000 to 32. See “Peru and Investment Grade”. Peru is in the final stages of approving a free-trade agreement with the United States. These weaknesses have to do with the high level of financial dollarization in the Peruvian economy. capitalization levels and earnings since 2002. and dependence on primary products. double the level recorded in 2000. with historically low spreads that were only slightly over 100 basis points at the time this paper was prepared. In the past. nonperforming loans as a percentage of the total portfolio declined from 7. Peru could earn a sovereign risk classification that would make it the second country in South America (after Chile) to achieve an investment-grade rating. and there has been steady improvement in the quality of its assets.17 4 The return on financial system assets rose from 0. The impact of that agreement (and of others now in place or in the process of completion) will help to maintain the dynamism of foreign trade and economic growth. low tax revenues.6 The favorable economic scenario could also be affected by Peru’s vulnerability to natural disasters.3% to 23.4 Financial dollarization has declined in recent years. cost and term structure has been improved.-5- 1. Access to international capital markets has improved. in particular the El Niño phenomenon. Together with significant capital inflows. In fact.6% of GDP over the same period.12 At the same time. and the return on equity jumped from 8. the country must address a number of vulnerabilities in order to consolidate achievements to date. 5 6 . The deficit of the nonfinancial public sector (NFPS). Chapter IV examines macroeconomic risks and their mitigating factors in greater detail.8% in 2002 to 2. Peru is just now recovering from a 1. The public finances have shown continuous strengthening.8% of GDP in 2006.5 The external sector’s performance has been very strong.14 1. IDB 2007. although it remains high. which exceeded 3% of GDP in the late 1990s. Colombia and Uruguay enjoyed investment-grade ratings. it must be recognized that.2% in 2006. Andrew Powell. The external current account shifted from a deficit of more than 1. Exports have more than tripled in value over the last seven years. From a medium-term perspective. Despite this favorable picture.6% to 1. its principal trading partner. stronger banking supervision within a stable economic setting has kept the financial system sound. this performance boosted the country’s international reserves to US$17.5%. has gradually been eliminated. despite the solid performance of the last five years.
. generación de nuevas actividades productivas y empleo formal”. the third-highest level in Latin America.-6- severe collapse. Carmen Pagés. As a result. Ricardo Hausmann et al.7 Figure 1 GDP and exports per capita (constant dollars of 2000) 250 0 240 0 230 0 220 0 210 0 200 0 190 0 180 0 170 0 160 0 150 0 1 975 197 6 198 0 198 1 1 983 1 987 198 9 1 991 199 3 1 995 199 7 1 999 2 000 200 1 2 003 200 5 19 79 19 84 19 88 19 92 19 96 20 04 1977 1978 1982 1985 1986 1990 1994 1998 2002 550 500 450 400 350 300 250 200 150 Per capita GDP (left axis) Per capita exports (right axis) Source: World Development Indicators. progress in its social indicators has not been very encouraging. According to ILO indicators. See “Crecimiento. informal employment in 2002 represented nearly 60% of total employment.18 The collapse of the Peruvian economy was closely linked to contraction in the export sector.9 1. less than half the rate of increase in the workforce. 2007. 1.19 7 8 See “Growth Diagnostics”. employment in the formal sector grew by only 6%. The current recovery can be explained to a large extent by the export boom. World Bank 2006. Yet this improvement has not resulted in any major changes in the productive structure: Peru still relies on unsophisticated primary goods with little labor content. See Ñopo et al. 9 . 2006. in a context of severe macroeconomic imbalances. The social setting In contrast to the country’s economic performance. Meanwhile. after Bolivia and Colombia. 3. Between 2001 and 2005. and has barely reached the levels of per capita income that prevailed in the 1970s (see Figure 1). IDB (2007). most of the new jobs created were in the informal sector. particularly when it comes to employment. nearly 58% of the economically active population (EAP) was unemployed or underemployed.8 The degree of “informality” in Peru is in fact among the highest in Latin America and the Caribbean. driven by high international prices. In 2005. unemployment and underemployment indicators have shown no improvement since 2000. particularly in agriculture and in services.
4 Percentage 100.7 5. for example.000 in 1990 to 28 per 1. output per worker grew very little and real wages fell. 1.000 in 2003. “Nota Técnica Sector Agua y Saneamiento”. as measured by the Gini coefficient.5 63.43. In rural areas the poverty rate is nearly double that in the cities. It is estimated that 25% of the total population has no access to water.1 35. but to adopt a social development policy that includes greater investment in human capital.10 the country still faces challenges in the coverage and quality of basic public services.4 9. particularly in the countryside. it is not surprising that poverty levels remain high. 1. In some areas coverage remains very low. indicating that there is a high incidence of poverty and exclusion among indigenous populations. 11 .11 Slow progress on the labor and social front underscores the difficulty in ensuring that economic growth translates into greater formal employment and well-being for the majority of Peruvians.007. Table 2.20 During this time. as has the number of those working without a labor contract and the proportion of employees who have no social security coverage. was estimated at 0. and more than half lack adequate sanitation. and more than 40% suffer chronic malnutrition.3 8. In 2005. 2006.6 By hours 10.894 Source: National Statistics Institute (INEI) – National Household Survey on Living Conditions and Poverty. particularly in the informal sector.800. IDB.22 1. effective social welfare provisions. Prepared by: Ministry of Labor and Job Promotion – Labor Statistics and Research Program (PEEL).696 13. Despite progress in social indicators and in meeting the Millennium Development Goals.5 52. Employment levels: 2005 (as a percentage of EAP) Geographic spread Urban Rural Total Unemployed 7.0 100. has declined from 75 per 1. “Nota Técnica Sector Educación”. Inequality.21 Given the labor situation. where one child in two lives in extreme poverty. See Annex B for a status report on achievement of the Millennium Development Goals. What is needed is not only to accelerate growth and broaden its basis. 50% of the Peruvian population was living in poverty.0 Adequately employed 46.2 55.9 42. and creation of opportunities for people who have been excluded from the benefits of growth. labor market conditions have deteriorated: the number of people working more than 48 hours a week has risen.6 By earnings 36.5 0.-7- 1. and 18% in extreme poverty. “Notas Técnicas Sector Salud”. Generally speaking.0 Underemployed 46.23 10 Maternal-infant mortality. Education coverage has already achieved the goal of universal primary schooling. ongoing 2005.1 43.197 5.0 100. The quality of education is among the lowest in the hemisphere.0 Total EAP 8.807.
Tax reform is also planned.28 12 Based on documents and presentations from the ministries of labor. and to promote job creation and efficiency in the delivery of public goods and services. This involves expanding access to the major external markets through the negotiation of free-trade and integration agreements with several other countries.26 1. At the same time. The MMF calls for reinforcing the institutional framework for fiscal policy in ways that will promote public investment and will punish noncompliance with tax rules. A central point of this strategy is its emphasis on the quality of education. To coordinate its social interventions more effectively. March 2007.13 Management by results in budget allocations and geographic targeting are key components of the planned reform.12 To this end. The Bank shares this vision and the objectives of the development program and in this document it sets forth a strategy for the period 2007-2011 to assist the country in implementing this program and achieving its objectives. Peru is pursuing an active strategy to enhance the quality and diversity of its participation in the global economy.24 The government’s development agenda The Peruvian government has said that its principal challenge is to address the fact that economic growth has not produced significant benefits for the majority of the population. On the international front. economy and trade during the Policy Dialogue meeting in February 2007. Labor reforms are planned to reduce informality and to foster formal employment. 13 . to accelerate economic growth. and budgeting-by-results will be introduced to improve the quality of expenditure. to improve collection and to make the economy more competitive.-8- C.25 1. in particular drinking water. The government’s social program relies on two pillars: encouraging job creation in the formal sector and guaranteeing greater access to basic services. 1. Decree 029-2007-PCM. and health. and to move forward in terms of opportunities and social welfare. housing.27 1. including policies and initiatives to foster competitiveness and to promote private investment. the government has approved the Social Program Reform Plan. which takes a comprehensive long-term approach and includes the reorganization and reorientation of social programs. this strategy is promoting a domestic agenda to create capacities for production and trade. to strengthen the country’s foothold in the international economy and foster private initiative. in particular the United States. 1. It has proposed a series of initiatives to reduce macroeconomic vulnerabilities and enhance the efficiency of the public sector. it is pursuing an ambitious development program that seeks to consolidate achievements to date.
it can be said that the Bank provided timely support for the development of policies to promote trade and competitiveness.1 The 2002-2006 strategy The IDB has had a close and very active relationship with Peru. investment operations 28%.5 2. on average. which represented a significant increase over the average of US$346 million from 1990-2000. The emphasis on competitiveness was reinforced by technical-cooperation operations (TCs). After Brazil.3 2. policy-based loans represented roughly 57% of approvals. or 3. financed for the most part by the MIF.6 2. the country has moved forward toward its development objectives. and (iii) creating a modern. During this period the Bank approved loan operations with the public and private sectors totaling US$2. Technical-cooperation operations amounted to US$27 million. the IDB accounted for 16. The lending program focused primarily on competitiveness (41% of approved operations).4 2. becoming the country’s primary source of multilateral financing.7% of Peru’s total external debt in 2006.284 billion. (ii) improving the efficiency of social policy. In terms of instruments. Unrestricted funds covered. and Peru had the second-highest number of operations. and efficient State. Operations with the private sector totaled US$333 million. decentralized. Mexico and Colombia.-9- II. Despite problems of attribution. with the long-term objective of increasing the potential for economic growth and sustainable social development.15 The Bank’s country strategy with Peru approved for 2002-2006 identified three priority areas for support: (i) raising the economy’s productivity and competitiveness. Argentina.6% of the Bank’s total. the Peruvian portfolio was the Bank’s fifth-largest. In the first quarter of 2007. using innovative financial instruments and involving key sectors for the Peruvian economy. With respect to the public sector.14 accounting for 4% of the total. 40% of the needs for such financing.7 14 15 After Brazil.3% of total Bank loan approvals. or 7. thereby substantially increasing the nonsovereign portfolio in the country. 2. with 47% of its total multilateral debt. followed by modernization of the State (36%) and the social sector (25%). at an annual average of US$457 million. and private sector operations 15%. RECENT RELATIONS BETWEEN THE BANK AND PERU A. . in support of the strategy for optimizing the public debt structure and terms. 2. With the solid economic trend and the performance of the external sector achieved during implementation of the strategy.2 2. versus 14.6% in 2002.
The new infrastructure will encourage trade and the establishment of new inter. The IIRSA Northern Amazon Hub project. . Yet this progress has not been enough to bring about significant changes in the indicators of 16 See Box 4 for a description of the Camisea project and its second phase.11 In February 2006. The concessioned works relate to the improvement and rehabilitation of 960 kilometers of roads. The innovative financing structure is based on annual payments for construction issued against certificates of completion. as the first guarantee project approved by the Bank and the first project financed under a public-private partnership in Peru (Box 1).9 2. thereby improving its risk ratings and lowering the country’s borrowing costs in capital markets. and promoting greater development.12 In the social sector. the facilitation of business creation. The Bank’s involvement generated confidence.8 With the stepped-up pace of trade negotiations. The project was recognized by Project Finance International as “Latin American project bond deal of the year” in 2006. Given the private sector’s limited access to long-term financing. including lowering transportation costs. greater agricultural productivity. marks a milestone in the Bank’s support for the country’s energy strategy and private sector development in the energy sector. Also of great importance was the Bank’s support for development and investment in the private sector. IIRSA Northern Amazon Hub Innovative Financing in Support of Regional Integration. the country has made progress in its indicators for social welfare and social expenditure equity and for rural access to education. achieved through the direct financing of projects as well as through innovative instruments that facilitate private participation. and Competitiveness 2.10 2. under the Peru LNG project. 2. Box 1. the IDB approved a partial credit guarantee of US$60 million to support the Government of Peru in concessioning infrastructure projects through a financing arrangement that would attract private sector participation. rather than as debt. Moreover. whereby the government undertakes to pay for the works in a series of annual payments defined upon completion of each phase of construction. for example. encouraging new private investments. The Camisea project. and environmental risks (including natural disasters and El Niño). represents a double milestone. and reducing financing costs. It has opened up new opportunities for using guarantees to help governments in the region expand their financing options. particularly those in remote areas. traffic shortfall risks.. in particular. Bank support was critical for gains in areas that are key to competitiveness. linking areas of great geographic complexity. the supply of natural gas. thereby significantly reducing transport costs. It is also creating jobs in construction and maintenance of the works. It will facilitate ecotourism and the production and marketing of tropical fruits and other products from the area. and execution of bank guarantees. and is providing greater access to social services for local people.10 - 2.and intraregional production centers. making this one of the largest concessions in the region. the financing arrangement allows the government to account for the costs in the budget. including the construction and maintenance risks. the Bank’s catalytic role has been crucial in attracting commercial financing and new investment to the country. increasing the number of firms interested in participating.16 The transportation sector is a central focus of the current portfolio. fostering competition. Private Sector Development. The concession contract distributes the principal risks among the parties.
19 17 Montenegro (2006) highlights Peru’s achievements in this area and ranks it among the leading countries of the region in terms of the availability and transparency of public information. and the quality of basic education. particularly in the areas of competitiveness and growth. and (iv) the design of operations. As to the impact on development objectives. direct support to the private sector expanded in key sectors of the Peruvian economy. The analysis of the Bank’s work with the country and the OVE evaluation point to the following key recommendations for the design and implementation of the current strategy.17 2.. The country now has a modern administration system and the public accounts are more transparent.16 2. See Melo (2006).18 Optimizing the generation and use of nonfinancial products. “Country Program Evaluation (CPE): Peru: 2002-2006.43 billion (see Annex K). This suggests the need to bolster Bank support and to adopt an approach that combines strengthening the social welfare system for the most vulnerable and excluded groups with support for creating opportunities for the majority of the population.18 2.15 2. the quality of public expenditure. Annex M describes the recommendations presented by the OVE and the actions taken or planned by Management to address them. 2. and a greater effort is needed in various areas of government at the national and subnational levels. the most significant outcomes were recorded in the support granted by the Bank for managing fiscal policy. 2. technical and vocational training. The quality and the transparency of the public information system are particularly noteworthy. A programmatic approach.14 B. the current portfolio consists of 27 loan operations totaling US$1. At the same time. the evaluation of the previous strategy was favorable. Evaluation and lessons learned In general. (ii) priority setting for areas of intervention. the Bank strategy supported the country’s agenda. emphasizing investment in early childhood. Yet the State reform process has been spotty. and managing the public debt. (iii) development of the strategy.13 When it comes to public management and reform of the State.11 - inequality and poverty.17 Bank support has been fundamental in moves to strengthen medium-term economic planning and to achieve orderly and progressive decentralization consistent with fiscal discipline. Analytic work is an essential element for sharpening the country focus and strengthening: (i) policy dialogue with the country. The Office of Evaluation and Oversight (OVE) conducted an independent evaluation of the strategy and concluded that the Bank was a relevant partner for Peru in addressing the country’s development problems. In financial terms. 18 . the IDB’s share in the multilateral financing market rose significantly. As a result of this strategy. The relationship between the country’s achievements and the Bank’s initiatives indicates that support is most effective when it focuses on 2.
THE BANK STRATEGY WITH PERU FOR 2007-2011 3. While each area constitutes an objective in its own right.20 Emphasizing the production-based approach to social development and inclusion. Particularly important in this context is the Bank’s role in providing project management training. Bank support is grouped into three strategic pillars: (i) strengthening Peru’s foothold in the global economy and enhancing competitiveness. 3. The strategy reflects wide-ranging discussions of policies with the government and with Peruvian society to identify the constraints the country faces in achieving its development objectives. Supporting the consultation process. and modernization of the State. and is designed to support Peru’s development agenda by deepening the country’s sustainable economic growth and generating greater opportunities for the majority of Peruvians..12 - a limited number of areas and takes an integral approach which. (ii) promoting social development and inclusion.e. and (iii) deepening the reform of the State and improving public management. Foothold in the global economy and competitiveness The central objective of this strategic area is to strengthen Peru’s foothold in the global economy and increase competitiveness as the primary engines of sustained growth and job creation in the Peruvian economy. and promoting investment and productivity in the private sector. Strengthening project preparation and execution. microfinance.1 The new 2007-2011 strategy continues the thrust of the Bank’s work with the country in areas relating to competitiveness. diversifying the economic structure.3 . Improving coordination within the Bank. Coordination of public and private sector operations is essential for strengthening the Bank’s strategic vision of support. This will require expanding access to international markets. production chains) and combating poverty (the social agenda) in order to achieve sustainable structural change. III.22 2.23 3. 2. taking account of lessons learned and the OVE recommendations set out in the previous chapter. A smooth-flowing dialogue and a consultation policy that includes all stakeholders are key to maximizing the impact of Bank support. the programmatic approach adopted ensures that the pillars and their objectives are closely linked. by strategically combining available instruments (policy-based loans.2 A. consulting and technical assistance services for executing units.21 2. The slow progress that has been made in combating poverty and creating jobs demonstrates the need to encourage greater articulation between policies for economic inclusion (i. investments and credit to the private sector) can strengthen results-based orientation. social development. Strengthened analytic work and institutional analysis and effective risk management are important elements for the design and effectiveness of programs. 2.
6 3. In 1960 this indicator was 42%. and in 2006 it was 43%. has not changed substantially in the last 40 years.13 - 1. have also shown significant growth. The degree of openness. Ricardo Hausmann et al. Mexico. Principal areas of Bank support a.8 billion in 2006. including the United States.4 billion. the Peruvian economy remains relatively closed. 2007. See “Growth Diagnostics”. this concentration in capital-intensive goods helps to explain why recent growth has not translated into greater employment gains in the formal sector of the economy.. of innovation and the emergence of new businesses that would bring greater productive diversification. Thailand and Singapore as part of a strategy to 3. Primary products and raw materialintensive manufacturing account for more than 80% of the country’s external sales. Its relative international standing has not changed significantly in recent years.. Other agreements are being negotiated with the European Union.4 The recent performance of Peru’s external sector has been extraordinary.19 Nontraditional exports. Current situation and principal challenges 3. new exports. in particular agricultural and textile products. Nominal annual growth is estimated at 20% over the period 2003-2007. which is the world’s largest market and the main destination of Peruvian exports. The figure for 2007 is estimated at US$26. despite its improved performance in terms of growth and exports. Peru ranks 74th among the 125 countries surveyed.8 billion in 1998 to US$23.21 and per capita exports remain among the lowest in the hemisphere. Moreover.7 19 External sales rose from US$5. a strategy for deepening Peru’s participation in the global economy must go hand-in-hand with efforts to reinforce the country’s competitiveness and productive diversification. representing a nearly fivefold increase over the last nine years. Chile. 2. measured as the sum of exports and imports as a percentage of GDP.5 3. The following sections describe the main areas of Bank support for achieving the objectives of this first strategic pillar.22 The competitive climate in Peru has not favored diversification and private sector development. led by mining exports. 20 21 22 . Market access 3.8 The government has adopted an active strategy for expanding access to external markets through integration and free-trade agreements with various countries. Growth in the value of goods exports. The key problem is that Peru has not gone through a process of discovery of new sectors. Consequently. and more jobs. The share of manufactures in exports is among the lowest in the region. Empirical evidence suggests that the scant diversification of Peru’s exports and the country’s dependence on unsophisticated exports of a limited number of natural resources could hold back the country’s long-term growth potential. According to the World Economic Forum.20 Despite this performance. has been the highest recorded in the last six decades of Peru’s history.
is implemented. metal products. transportation and logistics. (vii) the poor quality of public education (basic. the industries that should experience the greatest growth will be textiles and clothing. and food products. new regulations. and little cooperation. Such linkages are essential if all sectors of the population are to participate in the opportunities that greater linkages with the international economy will bring.12 While the different scenarios are all favorable. INT/ITD. which is now being implemented. According to an IDB study. (iv) limited access to credit and financial services. “Nota Técnica Desarrollo del Sector Privado.13 3.14 23 Inter-American Development Bank.. (vi) shortcomings in basic public infrastructure.” 24 . and would not help position the country in high value-added market niches. “Documento de Discusión sobre Comercio e Integración”. 3. 2006. The domestic agenda includes promotion of investment and development of the private sector in ways that will reinforce the links between trade and growth and that will also create jobs and promote well-being. the Peruvian government is at the same time pursuing a domestic competitiveness agenda complementary to its trade initiatives. According to IDB studies. high levels of corruption. resulting in unstable rules of the game. That outlook highlights the need to accompany trade liberalization with competitiveness policies that will strengthen the dynamic impact of integration. (iii) a structurally deficient tax system with high levels of evasion.9 3. (viii) poor management of natural resources and the environment.23 Yet.10 The U. standards. administrative procedures and institutional changes. b. and Peruvian governments reached an agreement on the terms of a freetrade agreement. and achieve sectoral and geographic diversification. in the absence of parallel policies to open the economy. trade integration with United States will tend to accentuate the concentration of exports. trade agreements by themselves are not a panacea for achieving greater growth and export diversification.11 3. The Bank has been playing an effective role in articulating public-private dialogue for identifying priority initiatives and policy reforms to address the barriers to competitiveness. seek out new markets. (ii) the lack of modern business legislation and a judicial system that is slow. Domestic agenda 3. and (ix) a low level of innovation.14 - boost competition. with weak protection of property rights. (v) labor rigidities and an inadequate flow of information in labor markets. technical and university) and weak linkages between technical and vocational training programs and the demands of the productive sector. The conclusion of the free-trade agreement (FTA) with the U. IDB 2006. To ensure that increased international economic dealings can be an instrument for achieving development objectives. once the FTA with the U. uncertain and nontransparent.S.S. especially ports. one that will demand great effort in terms of legal reforms. the main barriers have to do with: (i) a weak institutional framework and weak institutions in both public and private sectors.24 It is important to deepen the Bank’s catalytic role by supporting 3. designed to increase opportunities and minimize risks. and other trade agreements is only the first step in a long process.S.
ports. is among the lowest in the region and indeed in the world (105/125). Access to capital. At the same time. 3. Tourism.25 The lack of investment in the country’s main port. where the Bank at the same time has a particular strength or advantage. CAF. Environmental sustainability. it is proposed that the Bank support the country in other interrelated areas that are key to improving the country’s competitiveness: (i) (ii) (iii) (iv) The business climate.18 25 26 WEF. logistics and water resources management.17 Public investment in physical infrastructure in Peru has amounted to about 1% of GDP in recent years. Callao. public investment at the national and subnational levels must be increased. 2006. in particular. . in particular direct financing for the private sector. and by directly fostering the development of productive clusters. Private investment has also been very limited. 2003. To cover this gap. Bank support will need to focus on the most constraining obstacles that have discouraged private investment and ventures into new sectors and enterprises. Labor markets. drinking water and sanitation. and the private sector must be encouraged to participate through concessions and other types of public-private partnership.16 Infrastructure (roads.³ container is 80% higher than in Valparaíso and dock times are 50% longer than the international average. Three principal areas of concentration have been identified: (i) (ii) (iii) 3. especially in port infrastructure.15 - institutions such as the National Competitiveness Council and private sector organizations. means that container handling costs are high: the average charge for a 20 ft. Consequently. relating especially to water resources. since more than 90% of its exports are shipped by sea. according to WEF indicators. with the emphasis on the sustainable development of hydrocarbons and other extractive industries.. especially transportation.26 This is a critical issue for Peru’s competitiveness. is a sector with great potential. (i) Infrastructure 3. Innovation and the adoption of technology. ports. UNCTAD.15 While all of these factors are relevant. Support for productive sectors. the efficiency of which. logistics). This investment shortfall has left Peru with serious deficiencies in infrastructure and logistics services. stands at US$22 billion. Transport costs constrain the volume and 3. the investment shortfall in physical infrastructure. 2005.
and it is modernizing the institutional framework for decentralized resource management. at US$0. its approach is based on extensive analytic work and ongoing policy dialogue with the country to identify priorities. water resource management in Peru still suffers from problems of scarcity. Water demand to satisfy human consumption needs. If Peru aspires to continue growing at the current pace. and technical assistance. On the other hand. making this the Bank’s biggest sector of concentration in Peru.20 Access to capital The development of financial markets in Peru has helped to improve intermediation. has therefore identified the sector as a priority for a long-term programmatic approach. The first year of this strategy calls for a total of US$450 million in investment loans. 27 Instituto Peruano de Economía. Mining. as indicated in Box 2. Access to this resource has become a strategic issue from various standpoints. programmatic operations in the sector of water resources. Water resources.55 in Colombia and US$0. investment projects. thereby facilitating access to external financing for the financial and business sector. Despite progress in recent years. and financial services to the private sector. . together with the Peruvian authorities. The Bank’s program in the water sector is helping to achieve various objectives of the Bank’s strategy with Peru: it is providing inputs and basic infrastructure for improving the country’s competitiveness. For the remainder of the strategy. Average interest rates have remained stable. with a medium-term vision that combines public policy reforms in the sector. Transport operating costs are relatively high in Peru. in particular as a critical factor of competitiveness. microfinance. agriculture and energy production account for 80% of water consumption. A number of aspects are worth noting. and sanitation A shared vision and a strategic approach The IDB’s activities in the water sector in Peru demonstrate the strategic support that the Bank can offer the country for achieving its development objectives. and private sector participation.16 - diversification of exports. The Bank.62 per kilometer. In addition. it is addressing the needs of conservation and sustainable management of natural resources and is consistent with two priority Bank initiatives: the Water and Sanitation Initiative and Opportunities for the Majority. According to the “Doing Business” report. compared to US$0. this is one of the clearest examples of the strategic focus of the Bank’s activities in the country. it will have to ensure access to and sustainable management of this resource.19 There are significant shortages of water infrastructure. drinking water and sanitation. Box 2. On one hand. drinking water. The Bank will continue to focus its attention and resources on this sector in order to help achieve the objectives of the various programs and ensure that they contribute to Peru’s development. it is enhancing the delivery of an essential good for the poorest population. productive activities and environmental requirements has been growing significantly. additional operations have been preliminarily identified amounting to between US$600 million and US$800 million. In fact. it has a flexible programmatic approach that uses various windows and financial and nonfinancial instruments of the Bank. and programs in this sector are thus priorities for achieving the country’s development objectives. and spreads have dropped to historic lows. (ii) 3.27 3.. inefficiency and poor quality.34 in Spain. there was a significant improvement in the private sector’s perceptions of access to financing from 2002 to 2006. 2003.
small and medium-sized enterprises. build the capacity of the workforce. with a cumulative total of US$14.22 The strategic pillar supporting a foothold in the global economy and competitiveness is closely related to the development of the private sector. Box 3 summarizes the strategy for supporting growth of the private sector. however. based on these resources. R. and direct or catalyzing interventions in capital markets (for example.17 - 3. the Structured and Corporate Financing Department (SCF). Recent investment in extractive industries has been impressive. The share of this sector in GDP in nominal terms rose from 4. Given the wealth and enormous potential of the country’s extractive industries. innovation and the generation of new activities of greater value added. This reflects growth in real output and improved terms of trade for minerals and hydrocarbons. and should indeed support the sustainable use of natural resources. The problem is particularly acute for micro. particularly since 2003. Financing and development of the private sector 3. The MIF can provide nonreimbursable technical assistance to the private sector to improve the business climate. representing 66% of the 28 Espinasa. The Bank’s new vision consolidates the different private sector windows and provides a wide variety of financial instruments including direct loans.23 Energy and extractive industries The central message of the Bank’s strategy with Peru is the need to foster diversification in the Peruvian economy. Through SCF and the IIC. The IDB’s different windows for the private sector have the comparative advantage of facilitating access to financing. Exports in 2005 reached 14% of GDP.. 2007. and expand the economic base for participation by small businesses.. and emphasizes the IDB’s role both as a direct lender and as a catalyst for financing private productive activities. access remains limited for low-income sectors (natural and artificial persons). the Inter-American Investment Corporation (IIC) and the Multilateral Investment Fund (MIF). mortgage securitization). especially hydrocarbons. Box 3. it could position itself as well in new sectors where it could add value. Only 9% of such firms borrowed from the formal financial system (in contrast to 100% of large companies). (iii) 3. A/B operations. guarantees.2% for their lowest-risk clients). and the average interest rate on loans to microenterprises is 38.21 Nevertheless. the MIF is supporting small-scale interventions to carry out experimental pilot projects that could spark new practices and encourage larger scale reforms.3 billion between 1994 and 2005.28 Short-term economic growth prospects will continue to depend on the performance of these sectors. Nevertheless. the Bank can contribute directly to private sector development through financing and other financial products offered by the private sector window.7% (compared to the banks’ prime corporate lending rate of 5.4% in 1998 to 11% in 2005. Beyond promoting reforms to improve the business climate and facilitate access to key factors such as infrastructure. . the Bank should not turn its back on these sectors. the Bank has an extensive network of clients in the traditional sectors (financial and corporate). For its part.
This indicates that mining exploration and operations are hindered by the uncertainty surrounding government policies and the business climate. without taking into account the geological or economic evaluations. to become a net exporter. fishing and forestry) to local governments. Higher levels of production and activity in mining and hydrocarbons has significantly increased their fiscal contribution. reported in its Annual Survey of Mining Companies 2005-2006. in both absolute and relative terms.. and transfers from shareouts of all kinds (on mining. The Bank is supporting development in this sector.25 29 Between 2002 and 2005. as well as its second phase. and in particular gas production through the Camisea project.81% in 2005. in future. Peru has important reserves of natural gas.5% to 1. compared to 2% during 2000-2002. Yet when looked at solely in terms of the policy environment. rising from 0. Peru’s ranking drops to 44 out of 64. Both projects are part of a comprehensive approach in the energy sector. would allow the country to satisfy its domestic demand and.18 - country’s total exports. Peru LNG.7% of GDP. reflected in an operations matrix (see Box 4 and Annex F). through the Camisea and Peru LNG projects. hydropower. . rose from an average of 0. although that contribution is still one of the lowest among countries that export these goods.29 3. Peru ranks first among 64 mining countries and regions around the world in terms of its mining potential. while Chile stands in fourth place. domestic taxes paid by the mining and hydrocarbon sectors increased by 450% in nominal terms. plus royalties. the exploitation of which. gas.28% of GDP during 2000-2003 to 0. oil. 3. Such transfers accounted for 6% of tax burden of the nonfinancial public sector in 2005.24 According to a survey by the Fraser Institute.
In fact. particularly in the Bay of Paracas. other themes have been identified that are complementary to the areas indicated as priorities. (ii) financing of private investment. However. The Bank would provide an “A” loan of US$400 million and a “B” loan of the same amount. In particular.26 As noted above. it has established a legal and regulatory framework to promote various sources of energy. support for the social and economic development of indigenous communities in the Lower Urubamba. The sustainable development of the energy sector in Peru is a very complex process that will require a high degree of coordination between sectors. (iii) environmental and social sustainability. the Bank is assisting in various areas.000 jobs. and environmental sustainability. through integrated and coordinated support in four interrelated areas: (i) energy sustainability policies. plus US$150 million in tax revenues during the first 20 years of operation. and (iv) energy efficiency and the development of renewable sources. innovation. The Bank has begun work on the design of a programmatic loan to identify a new sustainable energy matrix. 3. directly and indirectly. In recent years. In particular. and strengthening the government’s capacity to regulate and supervise energy efficiency.8 billion. The Government of Peru will earn average annual royalties of US$200 million. An environmental and social impact assessment has been prepared for each component of the Peru LNG Project (see www. (iv) The business climate The business climate for private investment in Peru has been affected by expropriation risks and uncertainties over legal stability and property rights. and 2. Through technical-cooperation operations. Energy sector operations matrix Peru has abundant natural resources for producing energy. representing the largest private investment in Peru’s history. and it is important to continue strengthening the government’s capacity to monitor and regulate socioeconomic conditions in this area.com for details on the environmental and social impact report). the country’s energy policy supports efforts to develop the natural gas market in order to derive maximum benefit from an energy alternative that is cleaner and more economical than oil. interventions are being considered to address the business climate. the Bank supported a further project to reinforce the government’s capacity to supervise and control the environmental and social impacts of the Camisea project. including a strategy for hydrocarbons development and management. and more stable than hydropower. it will create around 35. It financed a portion of the downstream component of the Camisea project (the Camisea deposits are located in the Department of Cuzco). This offers new opportunities for the Bank over the short and medium term. The project is expected to generate revenues of US$800 million annually. for purchasing and liquifying gas from Camisea for export to markets in the Pacific Basin. While such risks have now diminished. and this has sparked greater private investment as well as incentives for research and technological development.com.. supported by integrated policies. The private sector window is now performing due diligence work on the Peru LNG Project. Peru LNG has adopted a policy of consultation and participation with the main stakeholders (the public and private sectors and civil society).perulng.750 jobs for the life of the operation. and are fundamental to strengthening the country’s competitiveness. by creating a new investment framework for the energy sector that will maximize economic benefits from hydrocarbon resources and apply comprehensive environmental and social safeguards. In addition. Peru LNG poses institutional challenges as well as environmental ones. A US$75 million loan from the private sector window is financing construction of dry and liquid gas pipelines (see www. The Government of Peru is also seeking Bank support for preparing a medium-term strategy that would establish a policy framework for sustainable development of the hydrocarbons sector. Based on experience with the Camisea Project.pe for project details).27 .19 - Box 4. The cost of the project is US$3. and these affect business 3. transaction costs remain high. labor markets. development of the energy sector faces major environmental and social challenges.camisea. The project involves an extension of the Camisea gas pipeline to a liquifaction plant and a sea terminal. some of the events that contributed to the collapse of exports in the past were sparked by nationalization in the mining and agroindustrial sectors. during the construction phase. The Bank has supported Peru’s efforts to diversify its energy matrix.
recognizing that businesses. it takes 72 days to incorporate a company. Firms attempt to boost their productivity by operating with fewer workers. (vi) 3. a Plan of Action for the Private Sector has been prepared to guide IDB initiatives in this area. which is more costly and takes longer than in comparable countries.08% in 1997 to 0. at 66% of the payroll. Nonetheless.31 30 Peru is continuing to improve its business climate according to the 2008 Doing Business Report. The tax burden and labor regulations appear to be the most complex in Latin America. Following dialogue with the principal government and private-sector stakeholders.30 Labor market Private-sector investment in new economic sectors and businesses will be the basis for broadening growth and creating jobs. there is still (with a few exceptions) a glaring mismatch between training and private-sector demand. compared to 44 days in Colombia or 27 days in Chile. It also highlights difficulties in opening a business or building a warehouse.32 Technological adaptation and innovation Technological innovation is a crucial element for enhancing productivity and boosting competitive development.29 3. 3. but it remains far below the average for Latin America and the Caribbean 3. however.31 The report ranks Peru very poorly in terms of the cost of enforcing contracts. nonwage costs are among the highest in Latin America. and this perception indeed worsened between 2002 and 2006. the availability of training is inadequate to meet demand. which is equal to 35% of the claim.11% in 2001). Even the most productive sectors rely on informal workers to reduce labor costs. do not themselves invest in training. 31 . Given the low productivity of labor. The Bank has been supporting government efforts to improve the investment climate and reduce transaction costs. (v) 3. businesspeople still perceive excessive licensing requirements and regulations as obstacles to investment.20 - productivity and profitability and explain in part why there is such a large informal sector. For example. where incentives to offer quality services should be stronger. and it is often difficult to ascertain the relevance and quality of the training provided. Peru has increased its investment in research and development (R&D) as a proportion of GDP (from 0. To facilitate the latter. especially the smaller ones.28 The International Finance Corporation’s “Doing Business” Report (2007)30 has raised the ranking of Peru’s business climate from 78 to 65 among 175 countries.. with its ranking rising to 58 of 178 countries. especially in the formal sector of the economy. Even in the private sector. The quality of training providers and the instruments adopted varies greatly. See Carmen Pagés. Peru must adapt its labor market institutions to encourage demand for labor. twice the prevailing level in Argentina or Chile. and hiring them without contract. To begin with. 2007.
The economy’s dependence on natural resources such as minerals. Recognizing the interrelationship between economic development. with 100 million soles. This is one of the lowest levels in the region. it is essential to ensure sustainable use of natural resources and sound environmental management.34 Environmental sustainability Given the projected patterns of future growth.35 3. similar to that of Ecuador and far below Brazil (1. in particular the development of mining. has in some cases led to degradation of the environment. and (iii) reducing the growing cost of environmentally-caused health problems. and of human health. The third is the Human Capital Fund.62% of GDP in 2001). and fish. the expansion of mining. The environmental management strategy should address three major challenges: (i) identifying the specific environmental impacts of each sector. energy and agriculture and of infrastructure projects. The absence of a strong and independent environmental regulatory agency undermines the effectiveness of the many environmental regulations that have been adopted in Peru. (ii) strengthening the institutional structure to ensure independent supervision and regulation. specialization and technology transfer as key elements for boosting the country’s competitiveness and its ability to face the challenges of free trade with the United States. and the need to remedy mining liabilities. fuels. These economic activities generate adverse impacts on the state of natural resources.05%) and Chile (0. which has 50 million soles to finance university studies abroad for Peruvians who will return to the country to work in the public sector. From an institutional viewpoint. The present institutional structure in fact makes it all the more urgent to work closely with the productive sectors. ..32 (vii) 3. The second is the Guarantee Fund for agriculture. technology and innovation.21 - (0. there is a lack of articulation between players in the system (government. In this context. of biodiversity. which will become part of the COFIDE trust fund to guarantee bank loans to small and medium-sized producers. which has technical and financial support from the Bank. the Ministry of Economy and Finance (MEF) recently announced the creation of three funds in support of science. research centers. for 200 million soles. universities. and businesses) and resource allocation bears little relationship to sector priorities. FIDECOM will be run by the Science and Technology Program Coordination Unit.36 3. The private sector accounts for only a marginal share of R&D spending in Peru. creates a Competitiveness Research and Development Fund (FIDECOM) to promote research and development for business projects in productive and technological innovation.33 The National Competitiveness Plan includes the goal of developing a culture for adopting new technologies and innovations.57%). 3.37 32 The first. and those impacts must be internalized. Technological innovation has also been identified as one of the key aspects for increasing the share of industry in GDP and in the country’s exports. fostering research. and mechanisms to internalize their costs. as well as to avoid future 3.
and job creation has been insufficient. as the present generation will have to integrate itself into a dynamic economy. Yet that same structure could become a risk if this population remains marginalized. and they are highly vulnerable to external shocks that affect their capacity to work. “Cambios en la estructura poblacional: Una pirámide que exige nuevas miradas”. (ii) social welfare and inclusion.38 Social development and inclusion The objective of this pillar is to develop the conditions. around 60% of the population is under the age of 29. 34 .34 This so-called “demographic dividend” represents a great opportunity for growth. when there will be two people working for every child or elderly person. the first pillar of the strategy will support a broader base for Peru’s economic growth in order to create job opportunities and capitalize on this demographic dividend. discrimination and social exclusion.40 Peru has a long history of poverty. and entails efforts in three interrelated areas: (i) long-term investment in human capital (education. 1.33 This will require an increase in the quantity and quality of social investment and the effective delivery of public goods and services. ECLAC/CELADE. and basic sanitation).41 3. so as to achieve greater inclusion and opportunities for the poorest and most vulnerable population. productive activities. The majority of these people work outside the formal sector in small businesses or microenterprises. 3.22 - environmental damage. The slow growth of labor demand is at odds with the high growth in the workforce and the increasing participation rate of women. the Bank is working with the government on a potential loan for a program of comprehensive remediation of mining liabilities. Concerted government efforts are also needed to ensure greater and better social investment and the delivery of public goods and 3. Recent economic growth represents an undoubted opportunity to address Peru’s social challenges. or in low-productivity subsistence farming. and (iii) opportunities for the majority. Current situation and principal challenges 3. housing. Currently. and education. so as to improve their well-being and reduce poverty and inequality. capacities and opportunities needed so that the majority of the population can participate effectively in economic growth. in light of current demographic patterns. Thus. health.42 33 “Conditions and capacities” refer to minimum elements of human capital development such as housing and basic sanitation. Yet one of the main problems has been that the basis of economic growth has been too narrow. “Opportunities” are those elements needed for access to the labor market.. According to estimates of the National Statistics Institute (INEI). Nearly half of Peruvian society lacks human capital and the essential conditions to subsist in the modern economy. health.39 3. This pillar is complementary to the support for gaining a foothold in the global economy and competitiveness. the dependency ratio in Peru will reach historically low levels by 2030. B. Greater growth and new jobs are essential but not sufficient conditions for improving social welfare in Peru. 2005. and public goods and services. This trend is of concern.
in Social Inclusion and Economic Development in Latin America.43 In addition to traditional social problems. in terms of years of schooling (Barro and Lee. well below countries at similar levels 3. A woman with four years of schooling. a. has a very high probability of being poor or very poor. through coordinated interventions. and Peru ranks last in this regard. Jaime. The Bank will continue to support the achievement of long-term objectives in these areas. 2007. (i) 3. Access to basic public services 3.35 3. Principal areas of Bank support 3. 2.23 - services to the poorest population. with lower coverage (53%) in rural areas. The lack of social mobility virtually condemns her daughter to the same fate.45 The government’s social platform is three-pronged: (i) guaranteeing greater access to basic services. 2000). and (iii) strengthening the social welfare system. Thus. and 70% for secondary education. reflecting the consensus achieved in the National Accord. educational level. Recent studies have shown that these people are poorer and have less access to education.. (ii) promoting opportunities for formal employment. and housing for the most vulnerable groups. gender and ethnic background of a person will for the most part determine whether that person is poor or not.47 Education The net enrollment rate is 93% for compulsory primary education.37 Key to the strategy is the emphasis on the quality of education. IDB (2004) Mayra Buvinic and Jacqueline Mazza. health and credit than the nonindigenous population. eds. as proposed in this second strategic pillar. 37 . Saavedra. living in the Sierra and speaking a native language.44 35 36 Carranza et al. Ñopo. Measures to reduce informality and promote the creation of formal employment also include reforms to reduce nonwage labor costs. generalized efforts to improve living conditions and enhance opportunities for the majority must include a special focus on the social.46 The government’s plan emphasizes access to education. despite the rising amounts involved. While Peruvians have among the highest mean education levels in Latin America. and Máximo Torero (2004) Ethnicity and Earnings in Urban Peru. political and economic inclusion of these populations. Hugo.36 The geographic location. there are problems with the quality of education. health. drinking water and sanitation. Various studies show that social expenditure in Peru has frequently been inefficient and regressive. Peru faces a serious situation of social exclusion for indigenous and Afro-Peruvian populations..
the government has launched a program.3 million people have no access to hospital care. and sanitation 56%. there are disparities in access to services. and (iii) considering an integrated package of interventions in nutrition. US$18. and 7% use latrines. there is some circularity to this argument.479 for Peru. 60% of Peruvian provinces have no local hospitals.48 The Bank’s proposal is to support the extension of early education with the objective of: (i) universalizing it for children aged 4 and 5..49 Health The same pattern can be seen in health expenditure (3% of GDP). In effect. and their mothers.6% in 1990. 3. 39 .38 Public spending on education fell from an annual average of 3% of GDP in the 1970s to 1. as measured by cumulative outlays (on a PPP39 basis) to 15 years of age. education and health in the program targeted at children under 6. 49% of the population has household sewer connections. reflecting the unequal distribution of available medical infrastructure. compared with US$41. Future efforts will maintain their focus on reducing maternal-infant mortality. sewage treatment coverage was estimated at 16% nationwide. The government’s priority goal is to increase the use of institutional services to reduce maternal-infant mortality. “Water for All”. As a result. the problems observed in the education system could be endogenously derived from the lack of effective demand for improvement. US$17. (iii) 3. Water service coverage averages 74%.820 for Chile.893 for Argentina.189 for Mexico. but still falls short of international standards in education. while 8% rely on public standposts. The IDB and the World Bank are providing joint support to the country in modernizing and reforming its health system. and high-quality health services. and (ii) those who do have such access face high costs in terms of travel and time.24 - of development. (ii) 3. particularly for the poorest people and those in rural areas. efficient. meaning that: (i) approximately 4. 3. It has recovered in recent years to 3%. To reduce the service deficit. Household water connections reach only 66% of the population. This indicator stands at US$3. The Bank’s approach in this area is described in Box 2.627 for Spain. with a view to improving health conditions for low-income mothers and children by expanding access to effective. Despite progress in reducing child mortality and malnutrition. and US$12. combining this with the strategy to promote integral care and service for children under 3. (ii) expanding opportunities for early childhood stimulation and integral service for children up to age 3.51 Water and sanitation There is still a critical lack of drinking water and sanitation services.50 38 Obviously. Purchasing Power Parity. In 1999.
the authorities have adopted a strategy to boost job creation in labor-intensive activities. 2006. (i) Fostering rural exports The program conceived by the government for integral development of the Sierra proposes initiatives to expand its productive potential by developing competitive export activities (in farming. Peru is highly urbanized.40 and difficulties in arranging mortgages. This approach complements and reinforces the objectives of the competitiveness pillar. livestock.53 3. and to support the development of rural businesses through initiatives to provide clear land ownership rights. the Bank is supporting design work on this program. including road access and the establishment of neighborhood councils. and preserve the environment. agroindustry. textiles. page 354.54 3. and is working in accordance with guidelines provided by the authorities on a proposal to strengthen the low-cost housing market. has led the government to launch programs called “My Home” and “My Neighborhood” (Mi Vivienda and Mi Barrio). “Perú: Oportunidad de un país diferente”. to encourage the purchase of basic housing and improve conditions in urban settlements. through: (i) creation of a Family Housing Bond for the purchase and upgrade of basic housing. and thereby to diversify the rural economy and promote the sustainable management of natural resources.52 Housing and neighborhood improvement With 75% of its people living in cities. b. using competitive procedures based on social and economic criteria that will have a clear impact on reducing poverty in rural communities (competition-based funds). To develop and consolidate local and international markets for specific products from the Sierra. The objective is to link small producers in the Sierra with regional and international markets. . (ii) mortgage financing. and (iv) integral neighborhood improvement. and (iii) decentralized planning of regional development. The Bank has long experience with the country in this sector. improve standards of living. handicrafts. 3.25 - (iv) 3. aquaculture.. particularly for low-income families. and to enhance their commercial value. (ii) formulation and implementation of rural business plans for selected production chains. (iii) servicing of lots for low-income housing in high-quality urban developments. It is estimated that 68% of urban dwellers are living in substandard homes without basic services.55 40 World Bank. The lack of funds for building even the simplest dwellings. by financing a study to categorize investmentand and technical cooperation opportunities that combines: (i) promotion and strengthening of production chains. to help generate an appropriate climate for rural businesses to flourish. Promotion of opportunities To achieve a sustainable impact on social development. forestry and tourism). and this means growing demand for housing. jewelry.
Yet poverty has not declined. employing 70% of the economically active population.e. cut service delivery costs. and this points to problems of efficiency. and enhance corporate governance. regularizing landholding. and collateral requirements that are inappropriate for the rural sector. and generating around 42% of GDP. The Bank has already played a role in this process. 3. reduce administrative costs. with particular attention to the cajas rurales (rural banking cooperatives) and EDPYMEs (small business and microenterprise development agencies).. and to strengthen local and regional land survey and registry services. constituting 97.58 3. Lack of title precludes access to financing for rehabilitation or reconstruction and discourages productive investment. and the work already done in the country. Despite the widespread presence of financial institutions serving microenterprises.9% of GDP in 1990 to 7. the instruments available (i. and proposes to pursue cooperation with the government to revitalize the land market. which so far has covered 53% of individual properties. so that they can expand and consolidate their operations and penetrate new markets. the Bank is in a position to help the authorities improve access to high-quality financial services for segments that use bank services very little. Social programs produce limited results because of lack of targeting and institutional weaknesses in the social welfare system. supporting ownership regularization of around a million properties along the coast. and coverage is even lower in rural areas and in smaller cities.7% of all entrepreneurial units.3% in 2005. Rural credit is generally seen as entailing high risks and low returns. All of this depresses incomes and encourages informal activities. (iii) Microfinance There are some 3. The government intends to move forward with the certification of land titles. and registering properties. In this context. It is estimated that the commercial banking system covers fewer than 30% of microenterprises and small businesses.57 3. When it comes to social security. develop new products. and foster accountability.1 million microenterprises and small businesses in Peru. coverage is very limited: in 2000. The government is preparing a plan to rationalize and target social welfare programs so as to enhance their impact. Social welfare Social spending rose from 3. a significant portion of the low-income population has no access to financial services that meet their needs. 72% of salaried workers and 83% of all workers were in the social security system. c.56 Land titling Rural development in Peru has been held back by difficulties in defining land ownership rights. With its experience in this sector. future activities will be designed to strengthen financial institutions in their capacity to manage risks. generate economies of scale. Among the obstacles to increased coverage are the limited range of specific products offered.59 .26 - (ii) 3. MIF).
particularly in terms of macroeconomic management. 2. including fiscal policy. flexible public administration that will contribute to a favorable business climate while achieving social equity and inclusion. where Peru ranks in the 85th and 75th percentiles respectively. The planned reforms call for rationalizing social welfare programs. 2007. and promoting private sector development. and in certain regulatory areas where the State has performed well. particularly for public expenditure. and especially the provision of infrastructure and social services. and (iii) better budgetary management. and foster local competitiveness. This is reflected in the indicators of confidence in public institutions. Reform of the State and public management This strategic area is essential to strengthening democratic governance in Peru. build capacity to enhance access to basic services and public investment. and critical for putting the Bank’s strategy with the country into effect. which stresses reform of the State as a way of improving macroeconomic management. and create opportunities depends on strengthening democratic governance. and more particularly in perceptions of institutional quality and corruption. Yet overall efficiency is still low when it comes to the delivery of goods and services. The central objective is to support Peru’s efforts to enhance government management of public goods and services at the national and subnational levels and to strengthen accountability mechanisms needed to maintain a dynamic.. promote development of the private sector. (ii) a decentralization plan that will align responsibilities. according to the World Economic Forum.41 The government’s capacity to lock in economic growth and strengthen the public finances. including: (i) creating an efficient. “Perú: Evaluación de la gobernabilidad democrática”. C. with emphasis on rationalizing resource use and developing the coordination and supervisory capacities essential to operation of an integrated system. see Alonso et al.62 3. enhancing the quality of social expenditure. Main areas of Bank support The cross-cutting nature of institutional issues emerges clearly from the government’s plan. 1. competitive and equitable economic system.60 The Bank has been supporting the country’s efforts to target and consolidate the allocation of funds to regional social programs.61 3. 3. with emphasis on decentralizing the provision of services to improve the quality of public expenditure and strengthening the judicial system. Current situation and principal challenges Public administration in Peru has made progress. and the design of policies to expand social security coverage. These efforts could be enhanced through support for integrating the programs in the context of the Social Program Reform Plan.27 - 3. .64 41 For a detailed institutional analysis.63 3.
compared to an average of 65% for the region’s medium-sized and large countries. and 54% for developed countries. The legislation explicitly calls for a gradual process of decentralization. for example. with respect to the powers reserved to the national government. In particular. coordinated with the transfer of funds. Since the beginning of the transition government in 2001. to optimize its mechanisms and its regional distributive effects. but it is rather vague with respect to the powers transferred. (iv) an effective and orderly system for transferring human resources to subnational governments. Public spending shows a similar pattern: in 2003. (ii) development of a regional and municipal tax system consistent with the decentralization process. (iv) the gradual transfer of services. and (v) the transparency of the process. 62% of commerce. Moreover.66 3. 46% of the EAP. and incentives for voluntary merger (via referendum) into macro-regions. According to WEF indicators. in order to create a system that will improve the quality of public services and strengthen the public finances. The plan for the distribution of services is consistent with the principles of subsidiarity and externalities. and to equip the country with tools for implementing policy and investment objectives of mutual benefit to all levels of government. (iii) an orderly and comprehensive system for transferring services to subnational governments. it is essential to have a plan for decentralization and the devolution of expenditure responsibilities that is consistent with institutional capacities. the central government accounted for 86% of public revenues after transfers. the decentralization process has been revived.67 3. compared to 35% in Latin America and 43% in developed countries.68 . b. The Bank’s proposed support agenda includes: (i) reform of the system for financial transfers from the central government to the regions and municipalities.65 Peru is one of the most highly centralized countries in Latin America. In 2003.. (ii) a clear definition of powers and responsibilities for the different levels of government. Modernization of the national government 3. and (v) strengthening institutional management capacities and accountability mechanisms at the central as well as the regional and municipal government levels.28 - a. Decentralization and improved management in subnational governments 3.69 Peru’s public administration is not considered very efficient. based on the country’s historical departamentos. The main weaknesses have to do with low fiscal capacity to 3. Peru ranks 96th among 125 countries in terms of efficient public management. the bulk of economic activity is concentrated in Lima: 57% of industry. This situation means that the capital city absorbs 86% of tax revenues. subnational governments were responsible for 12% of total spending. Financial transfers are not congruent with expenditure responsibilities. in accordance with the following principles: (i) the creation of regional governments with elected authorities. with balanced transfers of expenditures and revenues. (iii) fiscal neutrality and responsibility. and 53% of GDP.
70 In terms of transparency and accountability.72 There is a widespread perception that the justice system is not independent of the other branches of government. oversight by other branches of government: the judiciary. The Bank is supporting this effort (IDB 2004).73 42 The Peruvian government has addressed this situation with a new program to modernize the CGR and to consolidate and deconcentrate the National Control System (SNC).e.71 3. Justice and security 3. there are still obstacles to horizontal control (i. and (v) weaknesses in the government procurement system. excessive budgetary rigidity.. confirmation and removal of judges. among 125 countries (WEF. Congress. (iv) reforming the structure and financing of the executive branch. obsolete organization and structures. (iii) consolidating the fiduciary and management systems. and is easily influenced. citizens.29 - support public accounts. Judicial independence and security are perceived as among the lowest in the world: Peru ranks 119th and 109th. 3. the legislature and the Comptroller General’s Office – CGR). and (vi) establishing modules for service to the public. (v) improving intergovernmental coordination mechanisms.42 The Bank can support the government in modernizing the State in the following key aspects among others: (i) strengthening the national government’s capacities for policy and strategy formulation.) in expenditure decisions. and of the judiciary in particular. Despite the efforts of recent years. respectively. for example by broadening public access to information on government affairs and improving information systems generally. 2006). reflecting: (i) inadequate stakeholder involvement (by line ministries. Finally. Peru has improved its oversight systems. (ii) modernizing the civil service to make it more effective and efficient. shortcomings persist. (ii) lack of overall strategic direction for improving public management. particularly the local governments. The legislative and political changes since 2001 have helped reinforce the external independence of the judiciary and the Attorney General’s office (Ministerio Público). However. The system’s ineffectiveness stems from a number of factors including weaknesses in the regulatory framework (these include excessive bureaucracy. . outdated 3. inadequate management of human resources. The internal independence of the judicial system (for example. (iv) budgetary inertia and inadequate results-based performance incentives. There is still however a lack of transparency in the nomination. and the limited capacity for strategic planning. etc. the ability of judges to issue rulings without reference to their superiors) has improved. c. but doubts persist over the transparency of the National Council of Magistrates. (iii) the weakness of the agencies making the expenditures. creates an atmosphere conducive to corruption and tends to undermine the supposed independence of the judge vis-à-vis the parties to a case. the institutional weakness of the bodies responsible for the administration of justice in general.
(iv) human resources. the greatest share of Bank financing for the period 2007-2011 will go to the public sector (sovereign risk). IV. In terms of direct financing to the private sector (non-sovereign). Peru stands 96th among 125 countries.4 43 According to WEF (2006) indicators. this program must be accompanied by nonfinancial products as basic input for generating knowledge about the country.. However. the institutions that prepare and implement public safety policies need to be strengthened to deal with growing problems of violence and insecurity in the country. (v) government and budget. Clearly. The following sections describe the lending program for the Bank’s country strategy with Peru. to make the National Police more professional. In addition. (vii) penal reform.74 The Bank is working with Peru on the initial stages of implementing the judiciary modernization plan developed by CERIAJUS (the justice reform commission). . the plan is to support traditional clients in the areas of infrastructure and financial markets. and its operational features.3 4. The Bank’s lending program for the public sector (sovereign) is consistent with the country financing requirements and its debt management strategy. focused on the following areas: (i) access to justice. and (viii) regulatory adaptation. (ii) anticorruption policies. Lending program The program proposed in this strategy will allow the Bank to consolidate its position as the principal source of multilateral financing and of innovative products for the government. The reliability of the police is rated low.30 - systems for generating and managing information. and one of the main suppliers of medium and long-term funds for the private sector. insufficient infrastructure. (iii) modernization of prosecution and judicial offices. cultural and economic barriers impeding access to justice. geographic. In the area of security. inadequate training in the legal profession). the Bank is well-placed to be an effective partner in financing and implementing Peru’s development programs and public policy reforms. In percentage terms. 4. operations with the private A.43 3. Given the Bank’s track record in Peru and the weight of its portfolio in the country’s total multilateral financing. Bank support seeks to improve the services of the Ministry of the Interior and the National Public Safety System. and to support local prevention initiatives to reduce violence and crime. and to venture into innovative operations with other sectors where the Bank has competitive advantages.1 The lending program is one of the main instruments through which the Bank can support the country in implementing its strategy and achieving its development objectives. IMPLEMENTATION OF THE STRATEGY 4. policy dialogue and project preparation.2 4. (vi) predictability and jurisprudence.
US$7. from 47% to 54% by 2011. or an annual average of US$2. Of this amount. the lending program calls for disbursements of US$1. the country’s financing needs. This would raise the outstanding IDB debt. The Ministry of Economy and Finance has established formal guidelines for coordinating external debt transactions. because of their high impact and their catalytic effect on the country’s development.2 billion over the period 2007-2011. as a proportion of total multilateral debt.45 The following sections describe the financing scenarios that could serve as a framework for the Bank’s relationship with the country in the coming years. Lineamientos para Orientar la Concertación de Operaciones de Endeudamiento Externo para Financiar Proyectos de Inversión Publica [Guidelines for Coordinating External Debt Transactions to Finance Public Investment Projects]. Ministry of Economy and Finance.. According to the MMF targets for the main macroeconomic variables. amounting to 14% of the country’s total financing requirements.8 billion (52% of the total) would come from external sources (multilateral institutions. it is estimated that Peru will face gross financing needs of US$14. Consistent with this strategy. the Bank would cover a significant portion of Peru’s financing needs and would consolidate its position as the principal supplier of multilateral finance. 1. Specifically. Base-case scenario 4. Public sector44 4. . and the resources that could be offered by the IDB have been identified. a.9 billion over the period 2007-2011.7 44 45 This refers to public sector operations with sovereign guarantee. external bonds. 4. bilateral agencies and others) and US$6.8 billion. and the repayment profile of the different fiscal obligations.6 4. August 2006.4 billion (48% of the total) from domestic sources.5 Peru aims to reduce gradually the ratio of external public debt to GDP from its current level of 23.8 In the base-case scenario.6% to around 13% by 2011. it hopes to reduce the proportion of debt in foreign currency and improve the term and cost structure.31 - sector are expected to take on increasing importance. At the same time. possible sources.
8 150 Average 2007-2011 4.9 460.6 202.0% 2002 % Total debt 2006 % External debt 2011 % Multilateral debt 14.32 - Figure 2 IDB share of the financing market for Peru (base-case scenario) 60.9% 54.0 188.0 195.140 300 150 150 348 173 175 286 62 5.0% 30. 2007 4.6% 11.0 57. This means an annual average of US$340 million.7 198.7 billion.7% 12.4% 16.0 -138.079 340 145 195 383 168 215 286 97 5.9 This lending program entails new approvals totaling US$1.166 300 150 150 360 210 150 319 41 5.075 1.4 500 Source: IDB.0% 50.430 487 26.1 220 Total 2007-2011 1.0 -13.887 485 110 375 462 112 350 254 208 5.0 36.0% 42..700 725 975 1.917 842 1.0 5. of which US$145 million (43% of the total) would be in investment projects and US$195 million (57% of the total) in programmatic loans.8% 40. 2007 * Net flow of lending is based on MMF 2008-2010 projections. .4 92.2 -99.0% 10.0% 0.3 178. Table 3 Approvals and net flow of funds (base-case scenario) 2007 2008 4.1% 13.4 197.0% 21.125 300 150 150 292 142 150 307 -15 5.1% Source: IDB.0 150 2010 4.3 184.100 Balance of IDB debt Approvals Investment PBL Disbursements Investment PBL Amortization Net flow of lending* Subscriptions and contributions Net capital flow Interest and fees Net cash flow Private sector Approvals 3.0 -141.078 315 165 150 455 205 250 264 191 6.0% 46.0 -208.0 150 2011 4.3 150 2009 4.4 956.1 191.0 -20.7% 20.0 -496 1.
d. education.14 4. This program takes a comprehensive approach to each strategic area. High scenario A more ambitious scenario for Bank support to the country would depend on two key factors: (i) a commitment to substantial policy reforms that would justify an increase in the amount of programmatic financing. Bank competitiveness in terms of loan costs and funding in local currency.12 4. e.16 .15 4. 4. b. b. The country’s institutional and management capacity. drinking water. competitiveness and local development. the strategic pillars. and energy) and social infrastructure (housing. in turn. 4.11 4. reflecting the interest in reducing the country’s exposure to foreign-currency debt. effective dialogue with principal stakeholders. f. Investment loans would go primarily to developing economic infrastructure (water. and health). and justice. c. quality of public expenditure. in that the authorities have demonstrated their commitment to the reform process and their desire to increased demand for unrestricted resources. and the key areas of Bank intervention. in addition to US$525 million in operations with the private sector (see Table 4). provided they are in local currency.33 - 4. Fulfillment of this lending program will depend on some critical factors: a. Maintenance of the government program and reform agenda. The programmatic operations identified preliminarily would support reforms in the areas of water resources. and sanitation. the Bank has worked out with the government a preliminary lending program of US$488 million. and (ii) the Bank’s capacity to increase significantly the amount of possible conversions to soles.10 Investment and programmatic operations alike would be geared to supporting the development agenda. For 2007.13 Country Financing Parameters consistent with this program have been agreed with the authorities and are shown in Annex I. comprising US$113 million in investment funds and US$375 million in programmatic loans. The latter appears feasible. The Bank’s operational capacity to provide substantive support for the reform agenda. so as to address public policy and investment issues simultaneously. Ongoing. This possibility. depends on the markets’ capacity to absorb hedging in nuevos soles.. combining programmatic and investment funds. It is hoped that the Bank will be able to convert US$200 million to soles each year. transportation. Operational flexibility and agility on the part of the Bank.
0 112.0 50. amounting to 17% of Peru’s total financing requirements.0 375. .7 10.0 1.4 billion over the period 2007-2011. the lending program would see disbursements rise to US$2.0 25. As a result.0 10.0 1. the outstanding IDB debt as a proportion of the total multilateral debt would rise from 47% at present to 60% by 2011.0 1.012.0 75.0 100.5 10.Water Resources Consolidating Democracy and Public Safety MAPEP – Modernization of the Judiciary Sierra Exports .-TFFP (PRI) Peru LNG (PRI) Total Non-Sovereign Sector TOTAL Source: IDB.17 In the high scenario.0 15.7 4.0 100.0 525.A.34 - Table 4 Lending program 2007 Name PBL – Water Resource Policies I PBL – Sanitation Sector Policies I PBL – Public Expenditure Management Quality III Subtotal: PBL approvals Plant & Animal Health – SENASA (CCLIP) Technical assistance .Phase I Land Titling and Registration – Phase III Water for All – SEDAPAL Subtotal: Investment loan approvals Total Sovereign Sector Banco Interamericano de Finanzas-TFFP (PRI) Guarantee for Banco Continental (PRI) BBVA Banco Continental S. US$ millions 200..7 487. October 2007.2 15.0 400.
4 188.3 400 2009 4.2 -5.4% 60.4 400 2010 4. Table 5 Approvals and net flow of funds (high scenario) 2007 2008 4.6 220.0 -33.5 202.3 209.7% 14.7 500 .100 Balance of IDB debt Approvals Investment PBL Disbursements Investment PBL Amortization Net flow of lending Subscriptions and contributions Net capital flow Interest and fees Net cash flow Private sector Approvals Source: IDB 2007.1 26.2 -53.4% 10.500 750 1.649 500 150 350 480 130 350 319 160.0% 24.7 185.0 168. or an annual average of US$500 million.2% 30.0% 60.4 24.5 5.0 6.0 155.0% 2002 % Total debt 2006 % External debt 2011 % Multilateral debt 12.400 650 1.9 943.0% 46.488 500 150 350 480 130 350 307 173.7 420 Total 2007-2011 2.1% 16.0% 0.5 billion.0% 14.315 500 150 350 480 130 350 286 193.430 970.0 5.35 - Figure 3 IDB share of the financing market for Peru (high scenario) 70.6% 20.0 5.4 400 Average 2007-2011 4.0 188.6 193.9% 50.8% 4.9 5.750 1.905 500 150 350 480 130 350 254 226.4 175. of which US$150 million (30% of the total) would be in investment projects and US$350 million (70% of the total) in programmatic loans.296 500 150 350 480 130 350 286 194.121 500 150 350 480 130 350 264 216.0% 40.8 5.750 2.7 44.0% 11.8 194. 3..2 967 -23 2.18 This lending program entails new approvals totaling US$2.5 400 2011 4.3 -4.9 209.5% 42.
thereby confirming their commitment to gradually reduce the amount of debt and to improve its structure. financial institutions.22 4. if Peru were to achieve an “investment grade” rating and obtain market access on terms similar to IDB financing. The Bank already has a network of clients in the traditional sectors. Private sector46 Consistent with the Bank’s expanded mandate to engage in operations with the private sector and without sovereign guarantees.23 4. biofuels. to the extent this contributes to growth and job creation. Clearly. and in this way to tailor financing to the needs of the sectors and projects in which the Bank would be involved. Peru LNG. Authorities have signaled their preference to issue fewer external bonds and to reduce borrowing from multilateral agencies that offer more costly products. and financial markets (capital market.21 4. In the productive sectors. and the trade finance facilitation program). energy. water and sanitation. forestry. The Bank’s new vision consolidates its various private sector windows and includes a wide variety of financial instruments such as direct lending. it will also support the other strategic areas.36 - 4. and direct interventions in capital markets. Other sectors that have been identified in a preliminary manner include agroindustry. The mandate to work with productive sectors includes the flexibility needed to adjust the Bank’s participation to market conditions. with subnational entities or concessionaires). strengthening competitiveness and developing the private sector. the Bank plans to continue its support to the oil and gas sector. 4. Nevertheless. mortgage securitization. and textiles. 2. fisheries. The sectors identified relate to infrastructure (transportation. the Bank’s competitiveness in terms of costs. A/B operations.. guarantees. petrochemicals. the Bank strategy includes projects with traditional clients involving infrastructure and financial markets as well as projects in nontraditional sectors where the Bank could have an impact over the longer term.20 4. but it will take a “learning period” before the Bank can position itself in the new sectors. .19 A critical aspect of this scenario relates to fiscal headroom: more aggressive financing by the Bank would have to be offset by a reduction in financing from other sources.24 46 Includes non-sovereign guaranteed public-sector operations. so as to meet the debt reduction and liabilities management targets. mining and metallurgy. in which it has been a significant player through its financing for the Camisea project and its subsequent phase. In addition. the Bank will continue to support SMEs through IIC and MIF instruments. operating flexibility and possibilities of converting its loans to local currency would become even more critical. Bank activities with the private sector will relate primarily to area 1 of the strategy.
procurement. the first steps toward developing an electronic procurement system. and procurement planning to training for officials working in the executing units in procurement processes and procedures. This includes a process of risk analysis. to management and supervision by results. the Bank’s Country Office will be organized to respond flexibly and provide better service to clients. (iii) originating programs and projects. It is also 47 Country Procurement Assessment Report (CPAR). with planning and management based on that analysis. and it will have a key role in promoting the country agenda. sharpening the client focus. depending on their characteristics. and monitoring and evaluation. which does not add much value. The new model stresses the importance of deepening the Bank-country relationship. resolve them. executing agencies. ranging from multiyear operational.47 In particular. (v) strengthening the country’s systems of financial management. 2005. of solutions. and in reforming those systems. . thereby establishing a shared vision of the problems and.27 The fiduciary situation Government procurement systems. The process calls for: (i) a new supervisory and coaching role for the Bank in the processes agreed with executing agencies.26 Through the realignment process. From the operating viewpoint. through regular tripartite meetings (MEF. which offers new instruments for enhancing service to clients (see Annex L). and (ii) institutional strengthening in fiduciary aspects. and management by results 4. a smooth working relation has been established with the MEF. and ongoing supervision and coaching for achievement of the planned goals. The evaluation of procurement systems conducted jointly by the IDB and the World Bank in 2005 highlighted progress in implementing the recommendations from the 2001 evaluation.. it noted the strengthening of the National Procurement Council (CONSUCODE). (ii) leading the preparation and implementation of the strategy. making comprehensive improvements in aspects relating both to its internal administration and operations and its development effectiveness. and IDB) to review the portfolio. This process will shift the Bank’s emphasis from administrative control. and the country departments define the fundamental parameters for shaping the corporate program. 4. the Bank is seeking to optimize its efficiency so it can respond to borrowing countries’ needs within shorter time frames and in ways that add value. (iv) preparing and executing projects with the active participation of sector specialists. strengthening dialogue. and formulating an adequate response.37 - B. Box 5. and (vi) promoting the Bank’s image in the country (see Box 5). most importantly. This focus complements the New Lending Framework strategy.25 The new business model This strategy is being pursued in a context in which the country focus is the principal thrust of the Bank’s new organizational structure. and focusing on client needs. financial. The Bank’s Country Office in Peru has been in the vanguard of this movement. At the same time. and revisions to the regulatory framework. identifying the country’s needs. C. 4. Strengthening the Country Office Reducing transaction costs. and ensure follow-up where necessary. Its work will focus on: (i) guiding the dialogue and developing relations with the country. identify particular problems and strategic issues.
there are a number of risks that could jeopardize fulfillment of the planned objectives. a reorientation of the budget towards pro-poor spending..32 D. and the taxation system. within the context of decentralization. Given this situation. . social and political outlook for Peru is favorable for successful implementation of the Bank strategy with the country. stressing the standards of accountability and information and financial management (i. and (iii) oversight of the executive branch by the Auditor General. planning. Peru—Restoring Fiscal Discipline for Poverty Reduction: A Public Expenditure Review. which impedes the development of a common vision and the enforcement of uniform standards of administration. a comprehensive review of progress against the recommendations from the 2001 evaluation is crucial. The 2001 assessment48 examined the country’s regulatory framework and fiduciary management instruments. the efficient use of natural resource royalties. and to make procurement management efficient across the board.33 48 49 Country Financial Accountability Assessment (CFAA). Those risks have to do primarily with (i) macroeconomic factors. political. through the online availability of information on all government agencies. 2001. (ii) social. the system still betrays weaknesses due to fragmentation. and institutional considerations. The conclusions highlight the importance of strengthening: (i) Congressional oversight of the budget process. Future reforms will include creation of a workable interface between the financial management system and the new e-procurement system. (ii) enforcement of appropriate accounting standards and more frequent expenditure reports. stressing the restoration of fiscal discipline.30 4. Risks and mitigating factors The economic. and (iii) environmental aspects and natural disasters. and the independence of the Comptroller General’s Office. In this context. Further initiatives are now awaited in politically sensitive areas involving reform of the public administration. 4. and with support from the IDB and the World Bank is taking further steps to bolster national management systems. The Public Expenditure Review49 proposed a plan to reform public expenditure management.31 4. The Bank’s recent support for the country in this sector has involved programmatic loans to improve public-sector expenditure and management. The government has succeeded in strengthening the legal and regulatory framework for public expenditure supervision. a program has been launched to build the capacities of public officials to meet the formal requirements and conditions. 4. The government has made progress in restoring fiscal discipline and improving certain aspects of the public expenditure process.e.38 - important to note the improvements that have been made in terms of transparency. Nevertheless. Financial management.29 4.28 Nevertheless. and greater efficiency in public spending. 2002. control and supervision of financial operations). 4.
37 4. which reflects not so much the tax rate (which is relatively high) but rather the array of tax exemptions. a conservative monetary policy. Macroeconomic factors 4. as it could raise the debt path far above its current level. The high degree of financial dollarization in the Peruvian economy. Annex D presents an analysis of these vulnerabilities. the tax stability pacts in the mining sector. This represents a weakness. a key element in the government’s proposed economic diversification strategy. and reduce vulnerability to external shocks. the possibility of policy reversals has been 4.. and fiscal discipline. one of the weaknesses noted is the low level of tax collection. A downturn in mineral prices. ensure fiscal sustainability. the country remains dependent on a small number of primary products. showing that the historic volatility of Peru’s growth constitutes the major risk. in the sense that shocks to the exchange rate. and the primary balance could jeopardize the sustainability of the debt. also amplifies macroeconomic vulnerability and reduces the effectiveness of monetary policy. and this country strategy seeks precisely to help Peru address some of these structural weaknesses.39 The scant progress that has been made in living conditions in the country and the persistence of sharp social. Social. the present surplus would become a deficit of nearly 4% of GDP. thereby aggravating social divisions. In this context. reforms to improve tax collection and public debt management (which this strategy is supporting) represent the mainstay of efforts to reinforce the public finances. In addition. for example. Lastly. The Bank’s competitiveness could be at risk if Peru is awarded an investment-grade rating and gains access to markets under conditions similar to IDB financing.39 - 1. Indeed. These tensions could spark changes in government policies and could cloud the outlook for growth. and institutional considerations 4. on the fiscal front. political. in particular by strengthening competitiveness and diversifying production. and the persistence of a large informal sector that goes untaxed. 82% of which is denominated in foreign currencies.35 4. could severely alter the external and fiscal balances. 2.38 . if the current account is considered against the terms of trade prevailing in 2002. and is vulnerable to adverse shocks to its terms of trade. This risk could be amplified by problems in ratifying the free trade agreement with the United States. the government is striving to ensure macroeconomic stability primarily by maintaining high external liquidity. economic growth. thereby canceling all the progress achieved to date. while declining. The national government is addressing these vulnerabilities across-the-board.36 4. regional and political fragmentation in Peru could pose a threat to institutional stability and continuity in implementing economic reforms and the growth model based on trade liberalization. Currency mismatches also affect the structure of the public debt. According to IDB calculations.34 Despite improved macroeconomic management.
. with particular stress on issues involved in implementing the trade agreements and the domestic agenda. 4. The national government is developing a strategy to mitigate the impact of natural disasters: it combines planning. but more especially on the poverty situation. The present Bank strategy with Peru seeks to support the country in achieving these objectives as well. prevention and preparedness. still more closely resemble the characteristics of its Andean neighbors”. http://www2. Agenda for dialogue This strategy sets forth the pillars on which the Bank-country relationship would be developed over the period 2007-2011. Through its nonfinancial products. and incorporates mechanisms of insurance against catastrophic risks. ethnic. which could be refined following wrap-up of the negotiations and signature of the treaties. Steps are also being taken to strengthen environmental management capacities. The government program calls for increased public investment to address the needs of the poorest groups and people living farthest from urban centers. Environmental aspects and natural disasters 4.pdf?vregion= us&vlang=en. particularly the El Niño phenomenon that periodically assails the country and has exacted costs in terms of human lives.44 50 “While the consensus on the direction of macroeconomic policies is deepening in Peru. See Standard and Poor’s.42 Peru is vulnerable to natural disasters. as well as a highly discredited political class. In the future.41 E.40 The likelihood of this scenario is mitigated by the current administration’s effort to promote an agenda of social inclusion. the authorities have also reiterated their commitment to continue efforts to improve the presence of government at both the national and subnational levels and its capacity to generate opportunities and meet people’s basic needs. These have been worked out in close collaboration with the government since it took office. inaugurated by the “Economic and Social Policy Dialogue” organized with President Garcia’s transition team in July 2006. with input from the Bank’s analytic work on the country. the existence of polarizing social. through an inclusive process of consultation with all key stakeholders and multiple interactions with the government.com/spf/pdf/products/SRS_Americas_2006_Low_Res_Book. 3. and economic divisions.standardandpoors. To mitigate the problems of fragmentation.50 4. to ensure sustainable use of natural resources. and destruction of infrastructure. the dialogue will serve to specify the forms that support will take in the agreed areas. lost output.43 4. the Bank will also continue to consolidate its position as an interlocutor with the government in the design of policies for the country’s medium-term development 4.40 - noted by risk-rating agencies as one of the factors standing between Peru and an investment-grade rating. It has had adverse impacts not only on economic growth and on the fiscal and external balances..
preparation of the Economic and Social Progress Report for 2008 on the “The Faces of Exclusion” and related studies offer the opportunity to deepen the dialogue on one of the most important issues for Peru. ..41 - agenda. In particular.
Comprehensive water resources management – PBL .MIF: Logistical capacities and ICTs in SMEs in agroindustry .Urban transportation for mid-sized cities .TC: Operation and maintenance of the Olmos irrigation system .TC: National strategic tourism plan.National highway system serviceability improvement .TC: Support for the Andean integration process . Base year (2007p): US$9.Infrastructure .Departmental roads program .Liquified natural gas (LNG) . and loans Country objectives and indicators Areas of support In execution Loans Program Technical cooperation and studies In execution Program Foothold in the global economy and competitiveness Objective To consolidate outcomes to date and accelerate economic growth.198 billion.TC: Port security .TC: Country environmental analysis .TC: Pilot program for information technologies .4 By 2011 Peru will have improved its ranking on the World Economic Forum’s Global Competitiveness Index.Trade promotion Domestic agenda .Extractive industry Complementary support in .MIF: Strengthening risk management in the financial system .TC: Sustainable energy efficiency services . Phase 2 .Guarantee for BBVA Banco Continental .TC: Logistical platform in southern Peru . with improvements each year.TC: Rural global microcredit program .MIF: Sustainable production chains in protected natural areas .International negotiations . Market access .Sanitation sector development program .MIF: Index-based agricultural insurance .TC: Prioritizing investments in the Peruvian Sierra .Environmental sustainability .TC: IIRSA border crossing . studies.Road rehabilitation and improvement . reducing macroeconomic vulnerabilities. Indicators Growth in total exports will be 10% on average for the period 2007-2010 3 Trade deficit will fall approximately US$1.Decentralized rural transportation . breaking into the top 30 countries. enhancing the country's place in the global economy.Border crossings .National highway system serviceability improvement II .Banco Interamericano de Finanzas .Access to capital .MIF: Competitiveness of ecological producers .Phase II .TC: Sustainable development of agroforestry resources .Business climate .TC: Arequipa public transportation .Guarantee Program for the IIRSA Northern Amazon Hub .TC: Youth employment and corporate social responsibility .Competitiveness– PBL .Rural transportation infrastructure II . and strengthening private initiative.MIF: Corporate governance in familyowned companies .15 billion per year through import substitution and increased exports of Camisea gas.Annex A Page 1 of 5 IDB COUNTRY STRATEGY WITH PERU: 2007-2011 STRATEGY MATRIX Fundamental Targets Annual growth rate of GDP of 7% on average for the period 2008-20101 Reduction of poverty from 50% in 2005 to 30% in 20112 Principal programs.Water resources policy – PBL .Labor market .Implementation of agreements .TFFP .TC: Knowledge and development of exports under the FTA .Lima Urban Transportation .Technological adaptation and innovation .
Youth job training program Loans Program Technical cooperation and studies In execution . 6 Baseline: 0 Year 5: 4 5 Areas of support In execution .MIF: Assistance for small and mediumsized enterprises on technical requirements for market access under the FTA .MIF: Training in small business management .MIF: Development of business networks in tourism clusters .Financing for BBVA Banco Continental .TC: Labor and environmental standards under the FTA .MIF: Promoting youth entrepreneurship .Annex A Page 2 of 5 Principal programs.MIF: Support for the competitiveness of the software industry .MIF: Support for the development of capital markets in Peru.MIF: Promoting youth start-ups .TC: Technological innovation in SMEs .TC: Sustainable energy strategy . Number of basins with watershed management agencies and integrated water management plans in place.TC: Public-private partnerships . studies.TC: Investment in regional infrastructure and financial capacity . with emphasis on promoting venture capital .TC: Rules of origin and customs procedures .MIF: Consolidation of private microfinance institutions .S: Quality of employment and work productivity in Peru .TC: Electric power sector .TC: Energy matrix and development of the hydrocarbon sector .TC: Opportunities to open up trade for the poor .National water resources plan . and loans Country objectives and indicators Base year (2005): 77/117.TC: Mapping clusters in regions .MIF: Cluster promotion program .TC: Technological platform for patent information .TC: Trade integration .S: Assessment of economic growth and new exports in Peru Program .MIF: Support for microfinance in credit unions outside of Lima .TC: Lima-Callao logistics .
Annex A Page 3 of 5 Principal programs.MIF: Promoting entrepreneurship at the base of the pyramid .MIF: Consolidation of private microfinance institutions . Base year (2003): 66% of boys and girls ages 4 and 5 were served by early education. promoting job creation and efficiency of the provision of public goods and services. and loans Country objectives and indicators Areas of support In execution Loans Program Technical cooperation and studies In execution Program .Land titling and registration program III .S: Assessment of the private sector .Sanitation sector (PBL) .Water and sanitation .Housing Promotion of opportunities .TC: Integral child development: Nutrition – Education – Health .Microfinance Social welfare .Sierra exports .S: Labor legislation legal framework .Support for the Housing Sector.Microfinance .Environmental institutional strengthening .Improving the quality of secondary education .TC: Social and labor reintegration of the youth population .S: Creating steady jobs and overcoming poverty: Review of successful experiences in Peru .S: IPES 2008: Social inclusion Social development and inclusion Objective Improve social opportunities and well-being.Water for All SEDAPAL I-II .TC: Reducing child labor in gold mines .Fruit fly control and eradication .TC: Empowerment of vulnerable youth .MIF: Support for developing the capital market in Peru.Childhood education and development . 85% of rural youth will have completed secondary school or be enrolled in the final cycle.Land titling .Job quality and work productivity in Peru .Sierra exports . Base year (2003): 24% of persons ages 16 to 18 and 37% of persons ages 19 to 21 completed secondary school in rural areas.Sustainable development of the Lower Urubamba .TC: Expanding social welfare coverage in Peru . with emphasis on promoting venture capital .TC: Creating work opportunities for the disabled . Phase I .8 By 2010 coverage of institutional childbirth will reach 90% of pregnant women and in no Access to public services .S: Assessment of growth and new export activities .Basic education . Indicators By 2011.Health sector reform (PARSALUD) Phase II .A Panorama of the Peruvian Labor Markets in 2006 .TC: Institutionalizing the gender perspective in the rural transportation program .Fast-impact water expansion program .National Social Compensation and Development Fund (FONCODES) III . studies.Support services for rural markets . early education for children ages 4 and 5 will reach 80% of boys and girls in that age bracket in the poorest provinces.Health .Reform of poverty alleviation and development programs .Support for social sector reform .TC: Contingent family transfers .Education .S: IPES 2008: Social inclusion .Quality of education in Latin America and the Caribbean: the case of Peru .7 By 2011.TC: Youth employment and corporate social responsibility .Agricultural health and food safety .TC: Financing best practices in child labor prevention .
to strengthen public management and administration of justice. Base year (2006): 36. Base year (2001): the maternal mortality rate is 185 per 100.Sanitation sector PBL .Institutional support for the Peruvian congress .TC: Fiscal equity in Andean Development Community countries .000 live births.TC: Design and implementation of labor policies in Latin America and the Caribbean .Modernization of the State and decentralization .PBL .TC: Support for civil society to fight corruption .Modernization and strengthening of tax administration . studies.Efficiency of public administration (current ranking 96/125) Modernization of national and local government Justice and security Decentralization .9 By 2010 the maternal mortality rate will be reduced to no more than 80 per 100.TC: Justice administration . Indicators Improvement in the following WEF indicators (2006): .TC: Citizen services .TC: Local government fiduciary policies .TC: Support for sanitation sector reform .Modernizing the judicial sector .TC: Climate change (early warning) . and loans Country objectives and indicators province in each excluded area will it fall below 50%.10 By 2011.Annex A Page 4 of 5 Principal programs.TC: Support for the Andean integration process .Modernization of the Comptroller General’s Office and deconcentration of .8% have access to water supply in rural areas.TC: Strengthening subnational management .TC: Conditional cash transfer program .Contingent family transfers Technical cooperation and studies In execution Program Reform of the State and public management (crosscutting theme) Objectives To pursue further decentralization to achieve greater efficiency in the provision of public goods and services.Water resources policy .000 live births and the infant mortality rate is 33 per 1.000 live births.TC: Support for aligning common standards in the Andean countries .Improving public expenditure and management III PBL .Comprehensive water resources management .11 Areas of support In execution Loans Program . there will be a rise of 20 percentage points in rural water supply coverage. and infant mortality will be reduced to no more than 20 per 1.000 live births. Base year (2001): coverage of institutional childbirth is 58%.TC: Evaluation tool for financial institutions .
Annex A Page 5 of 5
Principal programs, studies, and loans Country objectives and indicators - Independence of the judiciary (current ranking 119/125) - Perception of security (current ranking 109/125) Areas of support In execution the national control system - Sector facility to improve expenditure quality - Decentralized rural transportation - Modernization and strengthening of tax administration Loans Program PROPEF - Modernizing the justice sector – PBL - Modernizing justice administration - Consolidating public safety - Decentralization – PBL Technical cooperation and studies In execution - TC: Design and implementation of the social and fiscal reform program - TC: Development of a water services rate framework - TC: Strategy and plan of action for development effectiveness - TC: Code of Ethics for the Ministry of Health - TC: Support for PARSALUD, Phase II - S: IPES 2006. The politics of policies - S: The political economy of the budget process in Peru - S: Changes in the ground rules and information problems in two economies experiencing natural resources booms. The case of Peru - S: IPES 2007. Living with debt Program - TC: Mining liabilities - TC: Financial rating of subnational entities - S: Debt sustainability study - S: Evaluation of democratic governance
TC: Technical-cooperation operation; S: Study; MIF: Multilateral Investment Fund.
Multiyear Macroeconomic Framework (2008-2010). Means of verification. MEF, BCRP. National address by President Alan García (July 2007). Means of verification, INEI. 3 Multiyear Macroeconomic Framework (2008-2010). Means of verification. BCRP. 4 Loan 1472/OC-PE for the Camisea project. Means of verification; BCRP. 5 National competitiveness plan. Means of verification: World Economic Forum. 6 INRENA. Means of verification. INRENA. 7 Proposed National Education Project through 2021, Ministry of Education. Means of verification: Ministry of Education, INEI. 8 Proposed National Education Project through 2021, Ministry of Education. Means of verification: Ministry of Education, INEI. 9 National plan of action for children and adolescents 2002-2010. Means of verification: Ministry of Health, INEI. 10 National plan of action for children and adolescents 2002-2010. Means of verification: Ministry of Health, INEI. 11 Multiyear Macroeconomic Framework (2008-2010). Means of verification. Ministry of Housing, Construction, and Sanitation.
Annex B Page 1 of 2
FINANCING SCENARIOS Base-case scenario Nonfinancial public sector (NFPS): financing requirements and sources (US$ millions)
2007 Requirements Amortizations - Domestic - External IDB share Fiscal deficit Total gross requirements Sources - Domestic - External IDB share Total financing sources Financing flows Domestic - Disbursements - Amortizations - Net flows External - Disbursements - Amortizations ** - Net flows 2008 2009 2010 2011* Average 2007-2011 2,664 629 2,035 286 169 2,833 1,272 1,561 383 2,833 Total 2007-2011 13,321 3,147 10,173 1,430 845 14,165 6,362 7,803 1,917 14,165
6,510 1,173 5,337 254 (271) 6,239 2,420 3,819 462 6,239
2,005 520 1,485 264 324 2,329 1,149 1,180 455 2,329
1,311 310 1,001 286 653 1,964 853 1,111 348 1,964
1,492 339 1,152 307 371 1,863 759 1,104 292 1,863
2,003 805 1,198 319 (232) 1,771 1,181 590 360 1,771
3,207 1,173 2,034 3,730 5,337 (1,607)
900 520 380 1,140 1,485 (345)
800 310 490 1,084 1,001 83
900 339 561 1,100 1,152 (52)
1,381 805 576 590 1,198 (608)
1,438 629 808 1,529 2,035 (506)
7,188 3,147 4,041 7,644 10,173 (2,529)
Source: Updated Multiyear Macroeconomic Framework 2008-2010, IDB. * IDB projection for some items. ** For 2007, amortizations include prepayment to the Paris Club, financed through domestic and external bond issues.
Total public debt of the NFPS (US$ millions)
Domestic (% total debt) External (% total debt) Multilateral IDB share Bonds Others Total debt Total debt (% GDP) External debt (% GDP) 2007 10,487 34% 20,318 66% 7,938 3,887 8,476 3,904 30,805 29% 19% 2008 10,907 35% 19,948 65% 8,137 4,078 7,932 3,879 30,855 27% 17% 2009 11,558 37% 19,948 63% 8,093 4,140 7,884 3,971 13,506 26% 16% 2010 12,252 38% 19,850 62% 7,870 4,125 7,831 4,149 32,102 24% 15% 2011* 12,828 40% 19,242 60% 7,700 4,166 7,760 3,782 32,070 22% 13%
Source: Updated Multiyear Macroeconomic Framework 2008-2010, IDB. *IDB projection for some items.
Annex B Page 2 of 2
High scenario Nonfinancial public sector: financing requirements and sources (US$ millions)
2007 Requirements Amortizations - Domestic - External IDB share Fiscal deficit Total gross requirements Sources - Domestic - External IDB share Total financing sources Financing flows Domestic - Disbursements - Amortizations - Net flows External - Disbursements - Amortizations ** - Net flows 2008 2009 2010 2011* Average 2007-2011 2,664 629 2,035 286 169 2,833 1,272 1,561 480 2,833 Total 2007-2011 13,321 3,147 10,173 1,430 845 14,165 6,362 7,803 2,400 14,165
6,510 1,173 5,337 254 (271) 6,239 2,420 3,819 480 6,239
2,005 520 1,485 264 324 2,329 1,149 1,180 480 2,329
1,311 310 1,001 286 653 1,964 853 1,111 480 1,964
1,492 339 1,152 307 371 1,862 759 1,104 480 1,863
2,003 805 1,198 319 (232) 1,771 1,181 590 480 1,771
3,207 1,173 2,034 3,730 5,337 (1,607)
900 520 380 1,140 1,485 (345)
800 310 490 1,084 1,001 83
900 339 561 1,100 1,152 (52)
1,381 805 576 590 1,198 (608)
1,438 629 808 1,529 2,035 (506)
7,188 3,147 4,041 7,644 10,173 (2,529)
Source: Updated Multiyear Macroeconomic Framework 2008-2010, IDB. * IDB projection for some items. ** For 2007, amortizations include prepayment to the Paris Club, financed through domestic and external bond issues.
Total public debt of the NFPS (US$ millions)
Domestic (% total debt) External (% total debt) Multilateral IDB share Bonds Others Total debt Total debt (% GDP) External debt (% GDP) 2007 10,487 34% 20,318 66% 7,938 3,098 8,476 3,904 30,805 29% 19% 2008 10,907 35% 19,948 65% 8,137 4,125 7,932 3,879 30,855 27% 17% 2009 11,558 37% 19,948 63% 8,093 4,319 7,884 3,971 13,506 26% 16% 2010 12,252 38% 19,850 62% 7,870 4,492 7,831 4,149 32,102 24% 15% 2011* 12,828 40% 19,242 60% 7,700 4,653 7,760 3,782 32,070 22% 13%
Source: Updated Multiyear Macroeconomic Framework 2008-2010, IDB. *IDB projection for some items.
Annex C Page 1 of 2
MILLENNIUM DEVELOPMENT GOAL INDICATORS
Peru's Progress against the Millennium Development Goals Goals 1. Eradicate extreme poverty and hunger a. Halve, between 1990 and 2015, the proportion of people whose income is less than US$1 a day b. Halve, between 1990 and 2015, the proportion of people who suffer from hunger. In 2003, 24.4% of the population had incomes of less than one dollar a day. In 2004, the proportion was 21.6%. Extreme poverty has declined in recent years, but it will be difficult to achieve this goal (7.8%). Peru is on track to achieving this goal. Country performance Evaluation
In 1990, the prevalence of malnutrition among children under 5 years was 10.7%. In 1995 this figure had fallen to 7.8%.
2. Achieve universal primary education Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling. The net enrollment ratio in primary school rose from 90.8% in 1995 to 103.1% in 1999. Peru has already achieved the goal.
3. Promote gender equality and empower women Eliminate gender disparity in primary and secondary education, preferably by 2005, and in all levels of education no later than 2015. a. The ratio of girls to boys in primary and secondary education rose from 93.4% in 1990 to 94.3% in 1999. b. The ratio of literate women to men, 15-24 years old, rose from 95.1% in 1990 to 97% in 2000. c. The share of women employed in the non-agricultural sector rose from 38.8% in 1990 to 46% in 1999. d. The proportion of parliamentary seats held by women rose from 6.7% in 1990 to 10.8% in 1995. 4. Reduce child mortality Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate. 5. Improve maternal health Reduce by three-quarters, between 1990 and 2015, the maternal mortality rate. In 1995, the maternal mortality rate was 240 per 100,000 live births. In 2003 it had declined to 180. Peru has made progress, but there is a long way to go. The under-five mortality rate was 75 per 1,000 in 1990 and declined to 28 per 1,000 in 2003. Peru is on track to achieving the goal. Peru is on track to achieving the goal.
6. Combat HIV/AIDS, malaria, and other diseases a. Have halted by 2015 and begun to reverse the spread of HIV/AIDS. b. Have halted by 2015 and begun to reverse the incidence of malaria and other major diseases. HIV prevalence among women ages 15-24 was 0.2% in 1999. There are no more recent data. In 2000 there were 68,321 cases of malaria reported. The incidence of tuberculosis per 100,000 inhabitants was 95 in 1999. There are no more recent data for either malaria or tuberculosis. There is not enough information to evaluate There is not enough information to evaluate
Halve. b.9 in 1995 to 40. 8.1 metric tons in 1999.Annex C Page 2 of 2 Goals 7. The country is not making progress toward the goal. The number of personal computers per 1. b. Integrate the principles of sustainable development into country policies and programs and reverse the loss of environmental resources Country performance Evaluation a.0 metric tons in 1990 to 1. The country is on track to achieving the goal.4% in 1995 to 15. The number of fixed and mobile telephone lines per 1. d. The proportion of population with access to improved sanitation services rose from 64% in 1990 to 76% in 2000. The proportion of the national territory protected to maintain biological diversity was 2. Peru is backsliding b. GDP per energy unit used rose from US$6. a. the proportion of people without sustainable access to safe drinking water. The proportion of the national land area covered by forest declined from 53.3 per kg oil equivalent in 1990 to US$8.7% in 1995. The proportion of population with access to drinking water rose from 72% in 1990 to 77% in 2003.2 in 1990 to 111. Ensure environmental sustainability a. a.9 in 1999.0% in 1990 to 50. b. The country is on track to achieving the goals. b.9 in 2000.000 inhabitants rose from 14. and was the same in 1999. Youth employment The unemployment rate for young people ages 14-24 rose from 11. make available the benefits of new technologies.3 in 2000. especially information and communication technologies. c.4% in December 2002. Access to new technologies . a.9% in 2000. by 2015.000 inhabitants rose from 26. Carbon dioxide emissions per capita rose from 1. Within the overall goal of developing a global partnership for development: (i) implement strategies to assure decent and productive work for youth and (ii) in cooperation with the private sector.
At the end of 2006. The proportion of total debt in nuevos soles was 18%. this fiscal consolidation has allowed the public debt to be cut from 45% of GDP in 2000 to 32. costs. The methodology used is simplified version of the "Fan Charts" proposed by Celasun. the Bank recently conducted a study to consider the impact of adverse shocks on the public debt. 2 3 4 . calibrated in light of their historic volatility. the external debt still represented 77% of the total. Efforts to re-profile the debt have also improved its structure in terms of currency composition.Annex D Page 1 of 3 PUBLIC DEBT RISKS1 The public finances of Peru have been steadily consolidated over recent years. to growth. In evaluating these risks. as a portion of the domestic debt is in dollars. Rather than projecting a single scenario. Stochastic shocks are based on historic volatility (i.1% in 2006. however. variance) of the relative series.3 Exchange risks Figure 1 shows that. The performance of the nonfinancial public-sector improved from a deficit of 3% of GDP in 1999 to a surplus of 2. and Ostry (2006). to obtain a complete distribution of probability of the debt/GDP ratio that can be used to verify (with a confidence interval of 90%) the impact and the risk to sustainability associated with each event. 57% of the debt carried fixed rates. Debrun. in preparation. This exercise assumes that the entire debt is denominated in foreign currency.4 years. the study considered the behavior of the debt in the face of various configurations of shocks to the exchange rate.4 1 Andrade. “ Sostenibildad de la deuda en Perú”. G. and to the primary balance.2 In 2006. Together with sustained economic growth and an active government strategy for managing the public debt. with an average life to maturity of 8. and 82% of the total debt was denominated in foreign currency. Given the characteristics of the Peruvian economy and its vulnerability to deteriorating conditions abroad. The government's principal objective is to improve the currency composition further so as to limit the country's high vulnerability to exchange risks. the study subjected these variables to probabilistic shocks. in 90% of cases. with a devaluation of the nuevo sol/dollar exchange rate. and maturities. the debt-GDP ratio would remain above 30% over the medium-term.e.6% in 2006.
1 0.6 As Figure 2 shows. suggests that a significant devaluation could have a considerable impact on the public debt and its sustainability. Peru's growth in recent decades has betrayed great volatility. B*= tradable debt.3 0. Y= tradable output.2 0. this would represent a more significant risk than would a devaluation. and Y*= nontradable output. When MI=0. 6 .4 in 2009. Total Public Debt/GDP Shock a la tasa de cambio Choqueto the exchange rate 0.17 in 2006. Shock to growth While future forecasts are favorable.6 Figure 1. real depreciation would fully affect sustainability of the debt. The matching indicators estimated at 0. an alternative measure of the debt's vulnerability to devaluation. 5 This indicator is defined as MI= (B/eB*)/(Y/eY*) where B= non-tradable debt. estimated at 0. as the debt would be much higher than its current level.Annex D Page 2 of 3 0.4 0.0 20 00 200 1 200 2 2 003 2 004 20 05 20 06 200 7 200 8 2 009 2 010 20 11 20 12 201 3 201 4 2 01 5 The currency matching indicator.5 Implementation of the government's planned strategy for managing the public debt. highlighting the importance of analyzing the consequences of a growth shock. Between 1980 and 2006. could raise the matching indicator to 0. the objective of which is to have 34% of the debt in local currency.5 0. the standard deviation of real growth in Peru was approximately 6%.05 in 1998.
1 0.4 0. Total Public Debt/GDP Shocks al resultado primario Choque to the primary balance 0. 6 0. 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Vulnerability in primary fiscal balances Given the low level of public revenues and the uncertainties in the level of expenditures that have characterized Peru. calls for primary balances of around 1% of GDP over the medium term. Figure 3 analyzes the impact of a potential shock to the primary balance.Annex D Page 3 of 3 Figure 2. This result is corroborated by fiscal projections in the annual macroeconomic plan which.1 0. Figure 3.3 0. 4 0. The comparison with the shocks analyzed above suggests that this would have a lesser impact and would not pose a risk to debt sustainability.0 2 00 0 2 001 2 002 2 003 2 004 20 05 20 06 20 07 20 08 20 09 201 0 201 1 201 2 2 01 3 2 014 2 015 . under the fiscal responsibility law.2 0. Total Public Debt/GDP Shock to the real growth rate Choque a la tasa real de crecimiento 0. 5 0. 2 0. 3 0.5 0.6 0.
0 50.0 165.0 50.0 50.0 50.0 25.0 112.0 50.0 375.0 35. Project Name Amount US$ millions 200.0 100.2 15.0 75.0 50.0 30.0 50.0 10.0 50.Annex E Page 1 of 1 PRELIMINARY LENDING PROGRAM No.0 50.0 50.0 150.0 50.5 10.0 1.0 150.0 25.0 10.0 150.7 75.0 100.0 75.0 15.0 150.0 150.0 25.0 Operations Program 2007 L-1024 PBL – Water resource policies I L-1025 PBL – Sanitation sector policies I L-1027 PBL – Public expenditure management quality III Subtotal policy-based loans approved in 2007 L-1023 Plant and animal health – SENASA (CCLIP) L-1030 Water resources: technical assistance PE-0240 Consolidation of democracy and public safety PE-1028 MAPPE – Modernization of the judiciary L-1035 Sierra Exports – Phase I L-1026 Land titling and registration – Phase III L-1020 Water for All – SEDAPAL Subtotal investment loans approved in 2007 Operations Program 2008 L-1040 PBL – Water resource policies II PBL – New sustainable energy matrix Subtotal sector loans approved 2008 Early childhood development and education L-1021 Sustainable development of the Lower Urubamba L-1005 Health sector reform – Phase II Housing sector–neighborhood development Olmos irrigation infrastructure Olmos irrigation infrastructure (contingent loan/concession) Subtotal investment loans 2008 Operations Program 2009 Water resources III Sanitation sector II New sustainable energy matrix II Subtotal sector loans 2009 L-1031 Modernization of justice administration Quick impact and expansion of drinking water Sanitation sector development – Phase II Subtotal investment loans 2009 Operations Program 2010 Sanitation sector III New sustainable energy matrix III To be determined Subtotal sector loans 2010 Sierra Exports – Phase II National Highway System – II To be determined Subtotal investment loans 2010 .0 25.0 1.
Hydrocarbons management and development strategy To develop a national energy matrix from the hydrocarbons viewpoint. and (iii) US$1. (iii) a breakwater on the open coast.45 million tons annually of gas from Camisea and sell all the resulting LNG to Repsol. Chile and the United States. Ministry of Energy and Mines (MEM) InfraFund. Repsol-YPF of Spain (30%) Financing plan: (i) IDB “A” loan of US$400 million and commercial “B” loan of US$400 million. It includes (i) construction of the natural gas liquefaction plant at Pampa Melchorita.5% annually to Peru's GDP. Hunt Oil Co.000 Objective Sponsor Structure 3 Title Objective Counterpart Resources 4 Title Objective Sponsor Loans Title Objective Counterpart OC loans 5 6 Title Objective Budget 7 Title Objective Counterpart TC . To lay the basis for broader dialogue with the government on many facets of energy development. SK of South Korea (30%). Total project cost is US$3.000 JSF and OC loan of US$10 million Camisea project (loan 1472/OC-PE) Partial financing of the downstream component of the gas and LNG pipeline. Ministry of Economy and Finance (MEF). (iv) analysis of the environmental. and cultural risks as well as the opportunities offered by the southern pipeline. This will add 0.000 is still available in the telecommunications budget. Presidencia del Consejo de Ministros (PCM) Technical cooperation of US$750. (ii) the marine loading terminal. Ministry of Energy and Mines (MEM) To be determined Peru LNG (PE-L1016) The Peru LNG project will liquefy 4.8 billion including financing.5 billion in sponsor’s equity. (iii) feasibility of a new gas pipeline in southern Peru. and (iv) extension of the 34 inch gas pipeline beginning at km 211 of the existing Camisea pipeline. for export to Mexico. Hunt Oil Co. (ii) other debt of US$1. Ministry of Energy and Mines (MEM) US$5 million Communications strategy for Camisea and Peru LNG Special attention to communication requirements during due diligence and beyond in support of the Bank's two principal operations in the sector.Annex F Page 1 of 2 ENERGY SECTOR OPERATIONS MATRIX 1 Title Objective Counterpart OC loans 2 Title Energy Policy Programmatic Loan To help the government formulate a policy framework for energy development that is economically efficient and ecologically and socially sustainable. Components:: (i) economic advantages of hydro versus thermal power generation. (ii) prepare a hydrocarbons management strategy. Transportadora de Gas de Camisea US$75 million to the TGP consortium Environmental and social institutional strengthening of the Camisea project (loan 1441/OC-PE) To consolidate the Peruvian government's capacity to supervise and control the social and environmental impacts of the Camisea project. US$490. Sustainable development of the Lower Urubamba (PE-T1053 and PE-L1021) The TC and a possible "innovation" loan will support the economic and social development of native communities and consolidate the capacity of local governments to improve access to basic services and to make use of Camisea Fund/royalty resources.5 billion. IDB internal Approximately US$80. (50%). social.
The focus will be on the concessioned lots and the overlap between protected communities and biological reserves. The Bank will have a catalytic role only. Ministry of Energy and Mines (MEM) To be determined Power Generation Initially. associated with a broader energy matrix and policy. To promote clean energy and energy efficiency to facilitate SME access to economic incentives that support competitiveness and the use of clean technology. Sustainable Energy and Strategic Plan for Biofuels Assist the Ministry of Energy and Mines in defining a Strategic Plan for Sustainable Energy and Biofuels Development.Annex F Page 2 of 2 8 Title Objective Counterpart Resources Social and environmental initiative for sustainable hydrocarbons development in Peru– S&EI To harmonize current and future investment in the hydrocarbons sector in the Amazon basin. a TC to finance pre-investment studies for the rural electrification program (potentially 30 projects valued at US$80 billion). 9 Title Objective Counterpart TC 10 Title Objective Counterpart TC 11 Title Objective Counterpart TC Title Objective Counterpart TC 12 13 Title Objective Counterpart TC .000 Promotion of clean energy market opportunities and energy efficiency (PE-M1038) To increase market opportunities for small and medium-sized enterprises by improving their competitiveness through the development of clean energy. To identify policies and standards that will contribute to the efficient energy market. within a framework of environmental and social safeguards negotiated with the public and private sectors and related stakeholders. Ministry of Energy and Mines (MEM) US$750. This is an important local development initiative. To be determined The first US$50. Ministry of Energy and Mines (MEM) To be determined Regional TC – Communities living in voluntary isolation Ministry of Women’s Affairs and Social Development (MIMDES) To be determined Sustainable Energy Efficiency Services (ATN/JF-7040-PE) To consolidate the government's regulatory and oversight functions relating to energy efficiency. Fondo Nacional del Ambiente (FONAM) To be determined.000 of the Hydrocarbons Management and Development Strategy TC would be used.
] A Panorama of the Peruvian Labor Markets in 2006 Generación de empleo no precario y superación de la pobreza: Revisión de experiencias exitosas en el Perú [Generating stable employment and overcoming poverty: review of successful experiments in Peru] IPES 2007.Annex G Page 1 of 1 PROGRAM OF STUDIES Name IPES 2006. Living with Debt Calidad del Empleo y productividad del trabajo en Perú [Job quality and the productivity of labor in Peru] The Educational Gender Gap in Latin America and the Caribbean One Size Does Not Fit All Returns to Private Education in Peru Does the Quality of Training Programs Matter? Evidence from Bidding Processes Data Diagnostico del crecimiento económico y nuevas exportaciones en Perú [Analysis of economic growth and new exports in Peru] Estudios de sostenibilidad fiscal [Fiscal sustainability studies] Final Report 2006 2006 2006 2006 2006 2006 2006 2007 2007 2007 2007 2007 2007 2007 . El caso de Perú [Shifting rules of the game and information problems in two economies experiencing natural resource booms. The case of Peru. The Politics of Policies The economic policy underlying the budget process in Peru Perú: Evaluación de la gobernabilidad democrática [Evaluation of democratic governance in Peru] Cambio en las reglas de juego y problemas de información en dos economías con bonanzas de recursos naturales.
SP: Small project.Annex H Page 1 of 3 NONFINANCIAL PRODUCTS1 A. Competitiveness TC: Country Environmental Analysis TC: Port Security-Phase II TC: Pilot program on "orientation by demand" in Cerro Azul TC: Logistics platform in the south of Peru TC: Navigability of the Amazon waterway system TC: Technical platform for patent information TC: Experimental economy for water resource management TC: Technological innovation in SMEs TC: Sustainable development of the Lower Urubamba TC: Water resources management plan for the Mashcon and Chonta basins MIF: Logistical and ICT capacities in agroindustrial SMEs MIF: Strengthening risk management in the financial system MIF: Promoting clean energy market opportunities and energy efficiency MIF: Sustainable production chains in protected natural areas MIF: Competitiveness of ecological producers MIF: Index-based farm insurance MIF: Corporate governance in family enterprises B. Program A. Social development and inclusion TC: Empowering vulnerable youth TC: Expanding the coverage of Peru's social welfare system C. . Competitiveness TC: Knowledge and export development under the free trade agreement TC: Information technologies pilot program TC: Support for monitoring the Andean integration process TC: Qhapac Ñan Development Action Plan TC: Integration and cross-border development: project bank TC: Support for the Andean integration process TC: Sustainable development of agroforestry resources TC: Youth employment and corporate social responsibility TC: Sustainable energy use services TC: Olmos Irrigation Project: water conveyance and distribution works TC: Global rural microcredit program TC: Biodiversity Strategy in Andean Countries: Project Formulation TC: Emergency assistance following eruption of the Ubinas volcano 1 TC: Technical-cooperation operation. In execution A. MIF: Multilateral Investment Fund. Modernization of the State TC: Support for the Sanitation Sector Reform B.
Annex H Page 2 of 3 TC: Strengthening the industrial processing of cacao TC: Responsible production and marketing for small coffee growers TC: National Strategic Plan for Tourism. Social development and inclusion TC: Financing best practices to prevent child labor TC: Social and occupational integration for youth TC: Youth employment and corporate social responsibility TC: Reducing child labor in gold mines TC: Creating work opportunities for the disabled TC: Mainstreaming the gender perspective in rural transport TC: Rural Telemedicine . Phase 2 TC: Setting investment priorities in the Peruvian Sierra TC: Support for preparation of the Sierra Exports program TC: Conversion to natural gas and air-quality effects in urban areas TC: Preparation of the Science and Technology Program MIF: INDECOPI: SME quality control MIF: Strengthening airport security MIF: Small business management training MIF: MSB: Municipal System for improving productivity and working conditions MIF: Promotion of youth entrepreneurship MIF: Promotion of youth startups MIF: Business linkages and competitiveness in the alpaca textile sector MIF: Enhancing the competitiveness of small and medium-scale producers of artichokes MIF: Expanded support for cleaner production in the South Region MIF: Competitiveness support for the software industry MIF: Developing business networks in tourism clusters MIF: Support for returning entrepreneurs MIF: Consolidating development in the Northeastern Tourist Circuit to enhance MSME competitiveness MIF: Competitiveness of rice growing in Alto Mayo MIF: Enhancing the impact of Peruvian workers' remittances from Japan MIF: Government e-Procurement Support for SMEs MIF: Support for microfinance at credit unions outside Lima MIF: Conversion to organic cultivation of mangoes MIF: Good farming practices for mangoes MIF: Conversion to the organic cultivation of cacao MIF: Promoting entrepreneurship at the base of the pyramid MIF: Environmental adaptation for SMEs in the tanning industry MIF: Cluster Promotion Program MIF: Crear Arequipa: small business and microenterprise development MIF: Support for SMEs in meeting technical requirements for market access under the FTA MIF: Competitiveness of hearts of palm growing and marketing MIF: Consolidation of private microfinance companies MIF: Institutional strengthening of Banco Internacional MIF: Support for the exchange of knowledge among development banks in Latin America and the Caribbean MIF: Support for capital market development in Peru. emphasizing venture capital MIF: Economic development of Jaén MIF: MiCasita -the first full-service mortgage company in Peru MIF: Mobilizing capital market financing for SMEs through factoring SP: Expanding microcredit and savings facilities for women SP: Outsourcing and marketing for microenterprises and small businesses SP: Product expansion and diversification for small coffee growers B.
Phase II TC: National Strategic Plan for Tourism. Modernization of the State TC: Fiscal equity in Andean Community countries TC: Support for monitoring the Andean integration process TC: Design and implementation of labor policies in Latin America and the Caribbean TC: Conditional Cash Transfers Program TC: Instrument for evaluating financial institutions TC: Support for the adaptation of common standards in Andean countries TC: Integration and cross-border development: project bank TC: Support for the Andean integration process TC: Introducing framework contracts in government procurement TC: Design and implementation of the Social and Fiscal Reform Program TC: Development of a water service rates framework TC: Strategy and Plan of Action for Development Effectiveness TC: Code of Ethics for the Health Ministry TC: Support for PARSALUD. Phase 2 TC: Public bus transit system in Arequipa .Annex H Page 3 of 3 MIF: Promoting youth entrepreneurship MIF: Support for returning entrepreneurs MIF: Promoting entrepreneurship at the base of the pyramid C.
The Peruvian Constitutions limits the financing of recurrent costs that are considered permanent. Limits on the proportion of the total cost and local costs of a project that the Bank may finance. As of July 2005. Bank financed projects/activities are taxed at the same rate as the country’s normal tax rates. since the new policy does not provide additional fiscal space.Annex I Page 1 of 1 COUNTRY FINANCING PARAMETERS Item Cost sharing and local cost financing. Any limits that would apply to the overall amount of recurrent expenditures that the Bank may finance. The actual cost-sharing percentage would be determined during the preparation of each new project. The use of the increased flexibility on eligible expenditures will be managed in such a way as to lessen the impact on the amount assigned to new operations. None . Parameter Up to 100% Remarks/Explanation The Bank may finance up to 100 percent of project costs. Peru has a moderate level of taxation. Are there any taxes and duties that the Bank would not finance? Not applicable Not applicable None The Bank may finance the costs of taxes and duties associated with project expenditures. Expected World Bank Parameter Up to 100% Recurrent cost financing. Taxes and duties. there are no taxes or duties that are identified as unreasonable or discriminatory.
The 2007 lending program consists of five operations. The IMF. and includes two sector loans for a total of US$300 million. The active loan portfolio has 19 operations. They also take joint part in seminars and “encerronas”. c. of which 21% has been disbursed to date. totaling US$325 million.1 The largest bilateral donors are Germany and Japan. the IDB in the World Bank are cofinancing transportation programs (e. The IDB is working with the CAF on an institutional strengthening program for public management in local governments. Rural Transport Infrastructure). Lima Urban Transit. international agencies and NGOs. Cofinancing. the International Monetary Fund (IMF). public expenditure and government procurement systems. In the case of investment loans.Annex J Page 1 of 3 COORDINATION WITH OTHER MULTILATERAL AGENCIES The Bank has close working relations with the World Bank. the following also takes place: a. Collaboration on policy and reform programs. Its project portfolio is concentrated in infrastructure. the Andean Development Corporation (CAF). poverty reduction and social inclusion. totaling US$749 million. Collaboration in the program of studies. The CAF approved sovereign loans totaling US$425 million in 2006. through collaboration on their evaluations of fiduciary management. the World Bank approved four loans. There is very active dialogue between the IMF. which are supporting the country in the areas of economic growth and competitiveness. SME competitiveness. In addition to smooth and ongoing dialogue among the institutions. the World Bank and the IDB on policy issues for the country. and other donors. In 2006. World Bank. International donors. 1 There are 617 NGOs registered with the Peruvian International Cooperation Agency that are working in the country.g. . and structural and macroeconomic reforms. and governance. social development. and are coordinating activities in education and in reform of the State. Andean Development Corporation. b. Peru receives support from a great many countries. amounting to US$385 million. the World Bank and the IDB have made an effort to coordinate their sector policies and macroeconomic reforms.
359 8.500 1.Annex J Page 2 of 3 Stock of medium and long-term external public debt (US$ millions) 2003 7.650 2.629 8.139 24.630 1.000 1.049 190 1.466 2005 7.000 2003 2004 2005 Paris Club Other 2006 International agencies Bonds Disbursements of medium and long-term external public debt (US$ millions) 2003 699 210 1.000 8.159 2004 1.768 2004 7.000 4.538 2005 788 186 1.875 8.972 International agencies Paris Club Bonds Other Total 10.624 2006 484 125 609 International agencies Paris Club Bonds Other Total 2.508 6.658 5.843 5.000 6.250 2.121 22.944 1.696 8.000 500 2003 2004 2005 Paris Club Other 2006 International agencies Bonds .279 2006 7.393 207 22.983 5.299 2.392 108 21.000 2.
000 1.Annex J Page 3 of 3 Creditors: Disbursements of external public debt (US$ millions) 2003 112 345 29 238 2004 434 234 18 378 2005 454 191 26 138 2006 417 36 50 81 IDB World Bank JBIC CAF 500 400 300 200 100 2003 IDB 2004 World Bank 2005 JBIC 2006 CAF IDB active portfolio versus other multilateral agencies (US$ millions) 2003 1.144 838 424 187 2005 1.500 2.904 599 476 308 IDB World Bank JBIC CAF 2.999 823 424 567 2006 1.500 1.960 885 574 517 2004 2.000 500 2003 IDB 2004 World Bank 2005 JBIC 2006 CAF .
0 7.6 12-Sep-08 15-Aug-07 22-Nov-07 23-Sep-08 28-Feb-10 Unsatisfactory Satisfactory Unsatisfactory Unsatisfactory Satisfactory Probable Probable Unlikely Probable Probable High High High High High Alert Normal Problem Alert Normal 1696/OC-PE 3.0 17.1 4.0 8-Jun-08 Satisfactory Probable High Normal Strategic area III: Building opportunities through social investment 9 operations totaling US$788.Annex K Active Portfolio * Fulfillment of basic assumptions Execution progress (PPMR)) Loan number Project name Strategic area I: Competitiveness through a foothold in the global economy and public and private investment 12 operations totaling US$583 million (40.0 0.1 84.9 8.9 1.1 31.0 31-Aug-07 30-Sep-07 25-Aug-08 26-Mar-08 15-Mar-09 21-Dec-09 2-Apr-11 19-Jul-13 19-Jul-26 16-Apr-12 0-Jan-00 0-Jan-00 Satisfactory Satisfactory Unsatisfactory Unsatisfactory Unsatisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Probable Probable Probable Probable Probable Probable Probable Probable Probable Probable Probable Probable High High High High High High High High High High High High Normal Normal Alert Alert Alert Normal Normal Normal Normal Normal Normal Normal Strategic area II: Reform of the State and delivery of decentralized public services 6 operations totaling US$59.0 555.6 0.9 2.2 7.2 67.3 9. Performance rating (PAIS) Fulfillment of development objectives (PPMR) Current contract amount Project Number Cumulative disbursements Date of final disbursement % disbursed .0 0.2 4.5 0.3 4.0 82.3 19.0 0.0 60.0 150.0 3.0 18.2% of the portfolio value) 1437/OC-PE 1442/OC-PE 1458/OC-PE 1482/OC-PE 1591/OC-PE 217 State Modernization and Decentralization Program 219 Foreign Trade Policy Development Program 220 Institutional Strengthening Program for the Peruvian Congress 223 Program for the Modernization and Strengthening of Tax Administration 1002 Program for Modernization of the Office of the Comptroller General of the Republic and Deconcentration of the National Control System 1013 Institutional Sector Facility to Improve the Quality of Public Expenditure and Management 28.0 0.0 80.1 18.0 52.0 5.0 45.9 0.0 50.0 15.0 100.6 12.8 0.7 2.5 17.6 49.0 200.8 300.0 15.0 60.3 50.0 0.0 5.0 0.0 5.9 1.0 99. Stage Two 187 Lima's Urban Transportation Program 241 Youth Training Program 234 Program of Support Services to Gain Access to Rural Markets 1007 Fruit Fly (Ceratitis Capitata) Control and Eradication Project in Coastal Areas of Peru 236 Departmental Roads Program 203 Science and Technology Program 1010 Guarantee Program for the IIRSA Northern Amazon Hub 1011 Decentralized Rural Transportation Program 1006 National Highway System Serviceability Improvement Program 1003 Peru Border Crossings 150.1 0.0 0.0 0.1 11.430.0 50.1 1.0 149.2 17.0 38.0 50.5 10.9 15.5 86.4 million (4.8% of the portfolio value) 1150/OC-PE 1328/OC-PE 1501/OC-PE 1534/OC-PE 1586/OC-PE 1647/OC-PE 1657/OC-PE 1663/OC-PE 1717/OC-PE 1810/OC-PE 1827/OC-PE 1836/OC-PE 197 Highway Rehabilitation and Improvement Program 140 National Rural Transportation Infrastructure Program.1% of the portfolio's value) 1237/OC-PE 1421/OC-PE 1441/OC-PE 1461/OC-PE 1539/OC-PE 1600/OC-PE 1601/OC-PE 1697/OC-PE 1878/OC-PE 170 Program to Improve the Quality of Secondary Education 193 Foncodes III 233 Program for Institutional Strengthening and Environmental and Social Management Support for the Camisea Gas Project 218 Program to Support the Housing Sector – First Phase 1001 PROPEF: PE0142 Program to Support Development of the Sanitation Sector 247 Reform of Poverty Alleviation and Human Capital Development Programs 1009 Support for Reform of Poverty Alleviation and Human Capital Development Programs 142 Program to Support Development of the Sanitation Sector 1024 Water Resources Reform Program I TOTALS 87.2 0.0 0.8 98.0 0.0 3.0 0.6 99.0 98.6 0.8 14-May-07 11-Dec-07 27-Dec-07 21-Jan-08 28-Feb-08 15-Dec-07 20-Jul-08 0-Jan-00 0-Jan-00 Satisfactory Satisfactory Satisfactory Unsatisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Probable Probable Probable Probable Probable Probable Probable Probable Probable High High High High High High High High High Alert Normal Normal Alert Normal Normal Normal Alert Normal * Updated as of 11 July 2007.1 0.0 25.0 5.0 0.0 1.0 50.8 0.1 million (55.
3 <8%=0.000 <50.00 Total value of approved operations (US$ million) (Loan pipeline) US$ 140.000.27 Total amount of loans approved under the New Lending Framework (NLF) US$ 200.0 0 6.9 0. 2006 RANGE WEIGHT ASSIGNED TO PARAMETERS BSC DECEMBER 2005 BSC SEPTEMBER 2006 BSC DECEMBER 2006 PARAMETERS Fi Cl Pr Kn Substantive 44 23.000 <150=0.6 3. >12%=100 2.1 Percentage of the number of operations in the portfolio above the satisfactory level (in # of TCs) % 87 78 77 <70%=0.4 <8%=0.0 2.TCs % 84 72 67 <70%=0. >12%=100 5 4. >85%=100 .Annex L Page 1 of 1 Balanced Scorecard INDICATOR BALANCED SCORECARD (BSC) FOR COF/CPE.000=100 2 0. <3=100 3 0. 2005 Sept.98 20.00 Average extension of disbursement period compared to original contract months 13.000 20. yes=100 3 3.6 8.000=100 6 6.4 5 5 2.1 Percentage of loans approved (# loans) % 67 40 100 Average time between signature of contract and months eligibility for disbursements 9. >85%=100 1 0.6 0.46 13.000.0 6.99 16.1 Percentage of the number of operations in the portfolio above the satisfactory level (in # of loans) 9.8 <10%=0. >20%=100 10 1. 2006 Dec.0 Percentage of the portfolio amount above the satisfactory level . >150.0 5 5.3 >6=0.0 0 3.0 48. >12%=100 Market share compared to the other multilaterals (approvals) % 38 41. >85%=100 % 82 74 71 <70%=0.50 13.Loans % 95 91 91 <70%=0.13 20.47 19.5 4.2 5.0 3 3.000 90.82 Annual % of portfolio disbursements (loans) % 11.4 2.8 Annual % of portfolio disbursements (TCs and MIF) % 11.>40%=100.8 3.1 Annual % of portfolio disbursements (only MIF) % 13. <8=100 6 1.7 <8%=0. >250.13 0 9.2 Annual % of portfolio disbursements (only TCs) % 3.51 15.6 10.75 Approval of critical projects # 1 0 1 no=0.000 415.0 >15=0.0 Percentage of the portfolio amount above the satisfactory level .55 9. >85%=100 3 3.000. 5 4.84 25.000=0.85 37.0 0 2.8 <30%=0. 2006 Dec.0 6.00 300.
The government has reviewed and simplified the SNIP to reduce the bureaucratic burden and to adapt the system for use by regional and local governments. The assessment takes account of the Country Studies Initiative. Management agrees on the importance and relevance of the SNIP for enhancing the quality of investment projects financed with public funds. (ii) increase tax revenue and streamline the collection process. This process of reflection. In addition. which should help the Bank and the country to agree upon a strategy that is consistent with current challenges. (v) lower poverty levels. This has sparked an iterative and interactive process with the MEF and other key ministries and stakeholders. including regulatory agencies and the SNIP. (ix) help the government strengthen its public institutions. Moreover. It should therefore encourage the process of expanding the SNIP to reach the regions rapidly and thus ensure higher-quality investments. • There is general agreement on the importance of the development themes recommended. through short. it should reflect on the system of incentives and the decision-making process that give rise to public policies in Peru. The Bank should help the country in its effort to increase investments at both the national and the regional levels while maintaining fiscal discipline and making efficient use of its resources. (iii) increase infrastructure spending. and poses a significant challenge for the near future. • • • • • . Successful experiences currently unfolding in some sectors (particularly highway infrastructure) could be extended to the other areas. takes a different approach than that pursued previously on the basis of sector notes reflecting the Bank's structure rather than the country's fundamental development issues.Annex M Page 1 of 4 RECOMMENDATIONS FROM THE PERU 2002-2006 COUNTRY PROGRAM EVALUATION AND MANAGEMENT PROPOSALS Recommendations Management comments/actions Recommendation 1: The process of reflection on the country's development problems • The Bank should help the country reflect on how to: (i) expand its production and export base. (vii) expand and improve healthcare. The project for Modernization of the State and Decentralization (loan 1437/OC-PE) will provide further support for strengthening the executing and fiduciary capacity of subnational institutions. the Bank needs to support the SNIP's work by collaborating in the designs and feasibility studies for Bank-financed projects. (x) ensure an orderly. The possibility of programming with regional governments and the larger municipal governments is an element of the ongoing dialogue with the authorities. (viii) improve natural resource management. including the multilateral banks. with a view to ensuring continuity. The Bank will step up its dialogue with the country through regular exercises for assessing and analyzing options for action in different areas. when the Bank raises these questions. Above all. (iv) enhance the quality of education. this process can also help the Bank identify its own knowledge needs and thus feed into its training and human resources policy. medium and long-term approaches and comparison with international experience. and (xi) strengthen the management of public funds and the proceeds of international cooperation loans by substantially reducing the administrative burden. (vi) reduce inequity. including that relating to the energy sector. efficient decentralization process. The strategy has used the country studies and sector notes as key inputs for thinking about and informing the process of balancing the country's needs with the Bank's strengths. Recent experience with the Country Studies Initiative can offer guidance on how to structure the analysis of problems with an eye to the future.
along with problems of institutional capacity. Conduct an adequate risk analysis that factors the weaknesses of executing agencies into the programming process. in order to capitalize on the synergies of work in certain specific areas. • • • • • • • • • • .Annex M Page 2 of 4 Recommendations Recommendation 2: The programming process • Specify the composition of the program. Expand the identification of lessons learned that could be useful for determining action areas and modalities. such as performance-driven loans (PDLs). Accompany risk analysis with mitigation measures. on a smaller group of areas of intervention based on the Bank’s comparative advantages. which consolidates economic policy and sector strategies and forms the basis for programming with all multilateral agencies. For example. and (iii) reduce transaction costs for the country with the Bank. based on the risks faced and the importance of the weaknesses to be addressed. as well as other. insofar as possible. which have proven a good predictor of future success. The strategy calls for establishing a new business model with the country in order to: (i) maintain a smooth and high-quality dialogue on selected issues. but only on the basis of clearly defined lending scenarios determined by the most relevant triggers according to the risks identified and execution capacity. prioritizing actions according to their expected benefits. both with other donors and within the Bank. the Bank's competitiveness in terms of costs. it must be noted that the Bank does not operate in the country independently. Future programming will respond to the pillars on which the Bank-country relationship will be developed over the period 2007-2011. The size of the program with the public sector and its thematic focus will depend on the needs expressed by the government. (ii) identify and move promptly to seize windows of opportunity as they open. coordination. consistent with the country financing requirements and the public debt management strategy. Focus activity. and the country departments define the fundamental parameters for shaping the corporate program. Ensure better coordination. innovative sectors. and in multiple opportunities for interaction. Expand the Bank's activity beyond the sectors identified in the foregoing point. and also for utilizing and designing Bank tools. it is essential to make an in-depth analysis of the causes of existing weaknesses in the area—not merely list the problems—and provide a complete. One of the criteria for this could be given by past results. identified in close cooperation with the government through an inclusive process of consultation with all stakeholders. the Bank plans to support traditional clients in infrastructure and financial markets. meaningful risk analysis. The government prepares a periodic Multiyear Macroeconomic Framework. operating flexibility and other financial services will become more critical. and the incentives for actors to move the program forward. For that purpose. When it comes to financing the private sector. While the thrust of the recommendations on risk analysis and program targeting are relevant. • Management comments/actions The strategy will be implemented in a context in which the country focus is the principal thrust of the Bank's new organizational structure. With the prospect that Peru may receive an "investment grade" rating and obtain access to international financial markets under conditions comparable with those of IDB financing. the Country Office should draw lessons learned from the use of disbursement triggers—a mechanism included in a number of technical-cooperation programs—as they could serve as an input for the Bank at times when it intends to increase the use of tools that incorporate this mechanism. The expansion of business lines therefore needs to be preceded by an increase in the Bank's knowledge and in the country's capacities. but above all with risk management that makes it possible to head off problems with specific actions and adapt the programming process efficiently.
• Generally speaking. Diagnostic studies should properly analyze the particular characteristics of each executing agency so as to determine the best way of working in the respective sector. • Management comments/actions • The strategy contains a limited number of indicators reflecting the programmatic pillars. Recommendation 4: Project design. There is total agreement on the need to deepen the assessments and improve the project design and approval process. and evaluation systems that allow for continuous tracking of the effectiveness of the Bank's work in the country. bearing in mind the details of cases involving successful executing units and the lessons learned from implementation of action plans to strengthen other such units. using evaluation matrices to allow for preventive measures to be adopted at an early stage.Annex M Page 3 of 4 Recommendations Recommendation 3: The strategy document • It is recommended that the next country strategy include an adequate system of outcome indicators. The potential for identifying indicators is not independent of programming. these recommendations are relevant. their relevance and their attribution will have to be addressed in the individual projects. include adequate baselines. Many have already been incorporated. the greater the chances of finding suitable indicators. complete with targets and baselines. the issue of indicators. focused on the desired outcomes. Correlating indicators with lending scenarios and triggers could be an additional virtue. With the approach in the strategy. monitoring and evaluation systems. Project design should take into account the incentives facing the actors involved. along with their capacity and the viability and long-term sustainability of the actions. of the Bank's work in the country. This system of indicators should be accompanied by the implementation of information. with targets. The design and approval process should take into account SNIP requirements for declaring project viability. Risk management should be improved. and (iii) include multiyear planning of project activities. and create monitoring systems. and. The better the diagnostic study and the stronger the targeting. • • • • • . and using mechanisms to ensure that those preventive measures are channeled through the right agencies. during the design phase. while others pose implementation problems. as well as the need to work jointly with the executing agencies to improve their implementation. with baselines. account should be taken of any necessary measures to strengthen the executing agency. and information. its practical applicability will depend on the priority accorded this kind of focus in the realignment context. baselines. This entails establishing operating policies to: (i) identify the principal indicators during the design phase. (ii) establish a management practice of analyzing risk in the executing agencies and the MEF. As to the recommendation that the strategy should contain a system of outcome indicators. During the design process. Bank specialists should work together with the government officials responsible for declaring viability. approval and execution • • Diagnostic studies should clearly identify the causes of the reality to be addressed. to make it possible to assess whether the strategy's development objectives have been met. monitoring.
takes on particular importance for improving support to the executing agencies. this being one of the key examples of value added by the Bank recognized by the country. service provider management. It is essential that it maintain support for executing agencies in planning the execution of their projects and for the work of the SNIP in its internal portfolio review process. the administration of bidding processes. Headquarters should also act accordingly. • • • . and thus one of the mechanisms for ensuring that Peru will continue to request Bank financing. and technical-assistance services. In this context. For example. both at headquarters and in the Country Office. consulting. Management comments/actions Recommendation 5: The Bank/Country relationship • The Country Office should continue to move forward with its reengineering process. and expansion of the services menu. the Bank's technical capacity. but also during execution. the reengineering achieved by the Country Office reflects the growing sophistication and accountability of the government. the Bank will continue to support institutional strengthening. paying special attention to early identification of weaknesses among executing agencies. not only in terms of the changes needed during the design phase. • To a large extent. The Country Office should design a systematic support plan for the General Administration Offices (both those executing Bank projects and those that have yet to do so). In the new business model. providing training and adequate support for project management by the country. Information and monitoring systems should be generated for Bank projects and adopted by the beneficiary institutions once execution has concluded. the improvement of internal systems.Annex M Page 4 of 4 Recommendations • • Indicators need to be better designed and baselines more effectively compiled (in due time and form). etc. given State weaknesses in terms of regulation. the Bank could play a crucial role in providing training.
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