Housing:

AID's Management of the Housing Guaranty Program

NSIAD-84-75: Published: Apr 25, 1984. Publicly Released: Apr 25, 1984.

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GAO reviewed the Agency for International Development's (AID) Housing Guaranty (HG) program to assess the use of the program in an environment of high external debt, balance-of-payment difficulties, and other economic problems in recipient countries. The HG program is the U.S. Government's principal means of providing shelter assistance to developing countries and offers full repayment guaranty of principal and interest to private U.S. lenders for commercial rate loans.

Worldwide economic conditions have adversely affected the HG program. Some countries' loan repayments have consistently been in arrears, and some countries have stopped participating in the program because of high interest rates and economic problems. GAO found that: (1) AID has had difficulty validating host-country income statistics; (2) shelter programs in the countries reviewed depend heavily on subsidies making self-sufficiency elusive; and (3) local currency devaluations in relation to the U.S. dollar and inflation have made cost recovery difficult. Current AID efforts to promote new lending include offering loans for their foreign exchange value, developing creative financial packages, and modifying the requirement for a country to obtain a government guaranteed loan. GAO also found that debt rescheduling is threatening the liquidity of the program's reserve fund and the U.S. Government's contingent liability for program loans has increased to over $1 billion. However, GAO believes that exempting the HG program from reschedulings is not the solution, stating that exemption would undermine the overall effectiveness of the process, establish an undesirable precedent, and would shift costs to the Department of the Treasury.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Administrator of AID should direct the Office of Housing and Urban Programs to prepare a thorough country risk analysis for each proposed HG loan.

    Agency Affected: United States Agency for International Development

  2. Status: Closed - Not Implemented

    Comments: AID said it will continue to follow government policy on debt rescheduling and that, if circumstances indicate the need for HG program exemption from reschedulings, it would "act within the ambit of official policy." Government policy does not permit special treatment for particular agencies or programs in a debt rescheduling.

    Recommendation: The Administrator of AID should not seek exemption of HG loans within the internal U.S. Government decisionmaking process from any country's debt rescheduling which includes AID loans.

    Agency Affected: United States Agency for International Development

  3. Status: Closed - Implemented

    Comments: AID said it had an action plan and that it can only minimize contingent liability exposure which precludes limiting loans. AID said it was attempting to replenish the reserve fund through budget requests. The recommendation to replenish the reserve fund was for reprogramming existing AID monies and not for new AID appropriations.

    Recommendation: The Administrator of AID should prepare an action plan to stem further deterioration in the level of the reserve fund and to minimize the contingent liability exposure of the U.S. Government. The plan should include assurance that no HG loans be extended to any country where U.S. Government contingent liability for such loans exceeds reserve fund assets. It should determine where the HG program ranks as a development assistance mechanism and consider replenishment of the HG reserve fund from AID budget resources.

    Agency Affected: United States Agency for International Development

  4. Status: Closed - Implemented

    Comments: AID said that it agreed that institution building and cost recovery are important goals, that it has emphasized them, and that it will continue to do so. GAO does not believe that AID has given institution building and cost recovery the priority emphasis that they should receive.

    Recommendation: The Administrator of AID should direct the Office of Housing to emphasize institution building and cost recovery as the shelter programming goals which offer the most promise for future progress.

    Agency Affected: United States Agency for International Development

  5. Status: Closed - Implemented

    Comments: AID disagreed that surveys should be required for each project but said that it would use surveys when appropriate. GAO believes that preproject surveys are necessary to ensure that HG projects are designed for and provided to below median income groups.

    Recommendation: The Administrator of AID should direct the Office of Housing to make preproject surveys in host countries to ensure that income levels of intended beneficiaries in each project are actually below the median income.

    Agency Affected: United States Agency for International Development

  6. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Administrator of AID should direct the Office of Housing and Urban Programs to define "equivalent" guaranty and establish criteria under which such a guaranty may be substituted for a host-country government guaranty, and exercise caution in extending HG loans which do not have host-country government guarantees.

    Agency Affected: United States Agency for International Development

 

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