Improved Management of Productive Credit Guaranty Program Can Minimize U.S. Risk Exposure and Costs

NSIAD-84-3: Published: Nov 28, 1983. Publicly Released: Nov 28, 1983.

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GAO reviewed the Productive Credit Guaranty Program (PCGP) through which the Agency for International Development (AID) provides partial guarantees to private credit institutions in recipient countries to encourage lending to organized groups and individuals in carrying out credit and self-help community development projects.

Since 1981, PCGP has been at a virtual standstill in Paraguay, Bolivia, and Costa Rica due to economic recessions and problems with in-country banks and AID management. PCGP was terminated in Paraguay in 1983 and in Nicaragua in 1982, and the Costa Rica PCGP is being incorporated into a new program. Severe economic recessions contributed to declines in loan activity, high interest rates, greater arrearages, and restrictions on the money supply. Because the primary function of the central banks is currency regulation, they had little time or interest in PCGP's which contributed to poor program monitoring, control, evaluations, recordkeeping, and reporting. Because of poor reports management, AID financial liability is unclear. In 1982, all new program authority shifted from the Bureau of Latin America and the Caribbean (LAC) to the Bureau for Private Enterprise (PRE) and, in 1983, PRE signed its first project agreement with Jamaica. In addition, PRE eliminated participation by central banks and technical assistants and will deal directly with the lender.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: The only ongoing program was suspended in mid-1984, and AID is uncertain as to whether it will be reactivated.

    Recommendation: The AID Administrator should direct that PRE establish quantifiable indicators to measure success.

    Agency Affected: United States Agency for International Development

  2. 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 AID Administrator should seek to amend the Jamaica agreement to: (1) limit the percentage of loans that can be discounted through public institutions; (2) increase that portion of the reserve fund reserved to pay the AID share of the guaranty; (3) collect a fee on each guaranty, to be deposited in a revolving fund of the U.S. Treasury as specified in sections 223(a) and (b) of the Foreign Assistance Act; (4) require that PRE, in conjunction with the Royal Bank Jamaica Limited, prepare a detailed reporting format to include an accounting of the reserve fund, technical assistance provided, collateral held, interest earned, recoupments, and other data deemed necessary to fully monitor the program; and (5) specify a more active role for the mission in program monitoring. PRE should consider these points in drawing up any future agreements with the recipient countries.

    Agency Affected: United States Agency for International Development

  3. 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 AID Administrator should consolidate PCGP in one bureau by transferring all existing program authority to PRE.

    Agency Affected: United States Agency for International Development

  4. 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 AID Administrator should improve coordination between LAC and PRE so that PRE can benefit from LAC experience and determine the authority it has remaining under the program.

    Agency Affected: United States Agency for International Development

  5. 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 AID Administrator should determine whether a financial audit is needed to determine AID liability in the recipient countries, examine the recoupments made, assess whether the guaranty funds have been adequately protected, and ensure that any future claims are valid.

    Agency Affected: United States Agency for International Development

  6. Status: Closed - Not Implemented

    Comments: The Jamaica program was suspended in mid-1984 due to economic recession and banking restrictions imposed by the IMF agreement. AID believes an evaluation is unnecessary since the total loan portfolio is less than $150,000.

    Recommendation: The AID Administrator should direct that the Jamaica project be evaluated after 1 year of issuing guarantees to determine whether AID should continue the program or terminate it.

    Agency Affected: United States Agency for International Development

 

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