Contacts: In Lima: Sandra Arzubiaga (511) 615 0660 sarzubiaga@worldbank.org In Washington: Patricia da Camara (202) 473 4019 pdacamara@worldbank.org WASHINGTON, August 5, 2008 — The World Bank’s Board of Executive Directors today approved a US$370 million loan to Peru. This is the second loan in a series of four that make up the Programmatic Fiscal Management and Competitiveness Development Policy Loan. Peruvian officials chose the Deferred Drawdown Option (DDO), which makes a line of contingency financing available to the country whenever needed, as long as general program implementation continues. DDO is a new financial instrument made available by the World Bank for middle-income countries. In Latin America and the Caribbean, it has already been used by Colombia and Mexico. The Programmatic Fiscal Management and Competitiveness Development Policy Loan is a core part of the World Bank’s partnership strategy with Peru. The program is designed to support the country’s efforts to increase economic growth and make headway in the fight against poverty, and backs the government reform plan that seeks to strengthen fiscal management and ensure a favorable environment for the development of Peru’s private sector. It focuses on two main areas: efficiency and quality of public spending, as well as improved competitiveness. “The trajectory of sound economic management has translated into a virtuous cycle of growth and poverty reduction in Peru. The reforms supported by this loan aim to improve the effectiveness and efficiency of public spending, which is very important if this virtuous cycle is to continue. More efficient spending generates significant budgetary savings that can be allocated to poverty relief programs that promote the development of human capital and act as social safety nets for the most vulnerable groups,” said Rossana Polastri, World Bank Manager in charge of the operation. Over the short term, the program will strengthen the Peruvian government’s financial position, while backing the government’s public sector and competitiveness reform program. Over the medium to long term, the reforms, which are supported by the series of programmatic loans, will result in a sounder general financial framework, improved efficiency and quality of public sector spending and more sustainable economic growth. Based on the results of the first phase, this second loan supports reforms that allow the consolidation of sustained growth through healthy, results-oriented financial accounts, with a State at the service of citizens that encourages the development of productive activities. Among the reforms supported by this program are the streamlining of requirements and procedures for fulfilling tax obligations, budgetary allocation based on tangible result-oriented goals; facilitating greater capital stocks through public-private partnerships; trade liberalization; and advances in the electronic government system. The US$370 million, fixed-spread loan is repayable in 21.5 years, and includes a 13.5-year grace period.
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