their “additionality.” If they crowd out the private sector, then their development contribution is undermined. In the case of Peru, IFC’s activities reflected a relatively high degree of additionality, particularly during the early 2000s. At the time, Peru was emerging from a period of political instability, and there were perceived risks of reversing reforms. The financial sector was emerging from a crisis and demonstrated very limited risk tolerance. It was largely confined to providing short-term finance to upper-tier companies in well-established industries.
IFC’s role in building capacity in municipal governments also exploited a unique IFC position as an investment partner of major mining firms, as well as a public institution and member of the WBG with capacity to engage in and support public sector governance. In this context, IFC’s investments in areas such as agribusiness, microfinance, and tourism filled an important gap. Agribusiness, for example, was still considered a high-risk sector, vulnerable to weather, disease, and market shocks. In the tourism sector, IFC’s investment in ecotourism was made at a time when the market was still untested and the company’s financial outlook was highly uncertain. Regarding microfinance, IFC’s early investments had demonstration effects that helped the microfinance industry (MFI) gain full access to diverse sources of financing. In the mining sector, IFC’s investment in Yanacocha came at a time when there was still a high regulatory risk in the sector. IFC provided comfort in the difficult investment environment, helped strengthen corporate governance, and introduced best practices in environmental and social safeguards.
Consistent implementation of the economic reform program and policy continuity had broad positive impacts. In the capital market, IFC engaged in several “first of kind” transactions, including the first direct bond issues by an international institution in Peru, and support for the first private bond issues by a microfinance institution and a private university. Its role in building capacity in municipal governments also exploited a unique IFC position as an investment partner of major mining firms, as well as a public institution and member of the WBG with capacity to engage in and support public sector governance. In the case of the Lima airport, the exiting sponsor had tried to sell its shares unsuccessfully for over 18 months until IFC made its equity investment. IFC’s overall investments per capita in Peru compare favorably with its investments in countries with a similar level of risk (table 6.4).
External Factors Influencing the Outcome of World Bank Group Support Strong commitment and effective management by key national agencies along with favorable external conditions were major contributing factors in the WBG’s positive impact. Consistent implementation of the economic reform program and policy continuity had broad positive impacts. Despite frequent changes at the ministerial and local levels, Peru consistently implemented a reform agenda to advance its goals of sustaining and broadening economic growth and improving public service delivery. Although progress has been uneven, with strong achievements in some areas, such as macroeconomic management, and less progress in others, such as strengthening capacity in the public sector, the government’s consistent
TABLE 6.4 IFC Investment in Countries with Similar Levels of Risk FY2003–09 Country
Average IICCR 2003–08
Population (millions)
IFC investments (millions)
IFC investment per capita
Algeria
46.4
34
121
4
El Salvador
47.0
6
140
23
Egypt
47.2
82
526
6
Colombia
48.0
45
959
22
Peru
48.7
29
733
25
Costa Rica
50.1
5
40
9
Romania
50.1
22
658
31
Brazil
50.5
192
2,036
11
Morocco
51.1
31
280
9
Sources: Institutional Investor Country Credit Risk (IICCR); IFC data.
World Bank Group Performance Assessment
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