Peru: World Bank Approves $200 Million For Social Services, Decentralization And Competitiveness In Peru

Contacts:
Alejandra Viveros (202) 473-4306
Aviveros@worldbank.org
LeeMorrison (202) 458-8741
Lmorrison1@wordbank.org

WASHINGTON, December 7, 2004 – The World Bank’s Board of Directors today approved two loans for a total of $200 million for Peru to improve access of the poor to critical social programs, assist with the government decentralization process and enhance competitiveness.  In addition, the Board discussed a progress report on the Country Assistance Strategy for Peru, which was approved by the Bank in September 2002.

“The loans approved today will support the government of Peru’s commitment to the reduction of poverty and inequality by improving the provision of social services and making the government more responsive to citizens,” said Marcelo Giugale, World Bank director for Bolivia, Ecuador, Peru and Venezuela.

Fourth Programmatic Social Reform Loan

The first loan approved today is the US$100 million Fourth Programmatic Social Reform Loan (PSRL IV). It is the fourth and final stage of a four-year program to support reforms aimed at increasing access, transparency, and efficiency in social service provision. The program seeks to improve the antipoverty focus of public expenditures, increase access of the poor to quality health and education services, and enhance the transparency of social programs, while empowering their beneficiaries in their design and implementation.

The loan will support efforts to complete and consolidate reforms in five areas:

·         Improve management of priority social programs expenditures in the context of overall fiscal restrictions.

·         Support redesign, targeting, and administration of social protection programs to develop a more accessible and equitable pension system.

·         Continue expansion in the coverage of basic health care within the framework of a more decentralized system.

·         Improve access and efficiency in education by integrating changes in the administration of human resources to improve assignment of resources and transparency.

·         Promote transparency and accountability in the social sectors by incorporating important changes in the procurement system, and implementing a monitoring and evaluation system with participation of civil society.

  “Better access to quality basic services will foster human capital accumulation and improve the living conditions of the poor by expanding their social and economic opportunities,” said Rafael Rofman, World Bank task manager for the project.

The previous three loans that make up the program total $350 million and were approved by the World Bank between June 2001 and November 2003.

The $100 million fixed-spread loan for PSRL IV has a repayment period of 14 years, including eight years of grace.

Second Programmatic Decentralization and Competitiveness Structural Adjustment Loan

The second loan approved today is the $100 million Second Programmatic Decentralization and Competitiveness Structural Adjustment Loan (DECSAL II). This operation will assist the government of Peru in the decentralization of public functions and resources while supporting its competitive enhancement program. The program seeks to protect fiscal sustainability during Peru’s transition to a more decentralized state, improve budget accounting and reporting at all levels of government, and enhance the efficiency and effectiveness of key government institutions.

The loan will facilitate the following key outcomes:

1.       Improve the quality of products and production practices, and strengthen the overall portfolio and value of Peruvian products capable of competing in export markets.

2.       Reduce currently burdensome logistical cost for firms through an improved policy framework for the provision of infrastructure services that will facilitate increased investments, better management of road and port networks, and enhanced quality of logistics services.

3.       Support increased domestic and foreign private investment by improving the overall investment climate, reducing administrative barriers, and enabling transparent contract enforcement.

4.       Increase exports by improving trade facilitation and export promotion services.

“The program will promote Peru’s economic growth and regional competitiveness and free additional resources for social sector investment,” said Jose Luis Guasch, World Bank task manager for the project. “As a result, the government will have greater capacity to design and deliver public services that effectively target the poor and vulnerable.”

The first DECSAL loan for $150 million, approved by the World Bank Board of Directors in December 2003, stressed fiscal sustainability by establishing a new fiscal decentralization framework and ensuring a hard budget constraint alongside a series of related competitiveness measures.

The $100 million fixed-spread loan for DECSAL II has a repayment period of 14 years, including eight years of grace.

Progress Report on the Country Assistance Strategy for Peru

In addition to the two loans, the World Bank’s Board of Directors discussed today the Progress Report on the Country Assistance Strategy (CAS) for Peru, which was approved by the Bank in September 2002, and provides for $230-$400 million a year in financing through June 2006. The report notes that this is the first time in the last 40 years that Peru has a combination of relatively high growth with a manageable fiscal deficit and favorable external balance, and that these developments set the basis for poverty reduction if the current economic performance continues.