auctions and developed management plans for 200,000 ha. of forest lands, while cutting its staff by 25%; and the Economic Cabinet approved a plan for the gradual divestiture of BANADESA, while its staff was reduced by 10%. 3.29 While the IDB and the World Bank were generally pleased with the country’s compliance with policy conditionality, in Honduras the ASL II became a topic in the 1994 election campaign. At issue was the fact that while the agricultural sector bore the burden of the reforms, the loan went to the Ministry of Finance (which was natural, given that its objective was to provide balance of payments support). The measures meant to benefit the agricultural sector—such as the Cajas Rurales and the Land Credit Fund— never materialized due to lack of funding. The incoming Reina administration intended to cancel the program in 1994. It was dissuaded by the IDB and the World Bank from doing so, but it did balk at the commitment to divest BANADESA and negotiated a streamlining of the institution instead.53 In 1996 the GOH cancelled the third tranche of the IDB loan, ostensibly because it was on non-concessional terms, but also because of differences over the design and handling of conditionality. The World Bank’s (concessional) third tranche was released in 1997. 3.30 The Project Completion Report for ASL II rated project implementation as highly satisfactory and the attainment of development objectives as highly probable. This appears to overstate the case somewhat, though in the body of the report (prepared in July, 1998) it is made clear that the greatest impact and success occurred in the areas of land tenure and forestry, while in the case of rural finance and public administration the gains were much more limited. The PCR also contained some useful “lessons learned.” Regarding project design, it noted the limited capacity to implement conditionality because the reform measures had preceded efforts at institutional strengthening. In terms of project execution and supervision, the key problem was the lack of continuity on the part of IDB and World Bank staff who had been involved in project design, none of whom continued through the implementation phase. Finally, the report noted that while the relationship between the IDB and the World Bank during the design phase was productive, high staff turnover at both ends made inter-agency coordination increasingly difficult over time. b)
Global Multisector Credit Loan
3.31 Though not strictly a sectoral program, this global credit operation ($60 M, 1992) was a policydriven project loan, whose disbursement was conditioned on the approval of the Ley de Intermediarios Financieros. The objective of the program was to support ongoing economic and financial reforms, foster the development of financial and capital markets and provide medium and long term private investment financing. It consisted of three components: (i) the establishment of an auction mechanism to allocate resources; (ii) a loan of $60 M for on-lending purposes; and (iii) an institutional support component to help launch the auction system and strengthen prudential supervision. 3.32 Project design was based on four basic principles, namely: (i) confine public sector lending operations to the wholesale level, using private financial institutions to on-lend to the final borrower, assuming both the market and exchange risks; (ii) assure that participating private financial institutions are adequately regulated and follow prudential banking norms; (iii) support the emergence of marketbased interest rates and the elimination of credit subsidies; and (iv) minimize directed credit. 3.33 Anticipated benefits and risks. The main anticipated benefit of the project was the introduction of an auction system as a mechanism for eliciting a market price for term finance and allocating the resources among financial intermediaries with greater efficiency and transparency. Additional benefits were expected to flow from the injection of $60 M in credit towards the modernization and diversification 53
The World Bank had opposed the idea of divesting BANADESA from the outset.
32