US$227-million loan approved to support fiscal strengthening and infrastructure in Peru

The Andean Development Corporation (CAF) approved loans for US$227 million in favor of Peru to finance a project aimed at strengthening fiscal institutions, and an infrastructure project in the framework of the Olmos Integrated Hydroelectric and Irrigation Project.

CAF Executive President Enrique García said that the loans confirmed the permanent support of the multilateral institution for Peru which has benefited over the last five year period from approvals totaling US$2.86 billion.

The first of the loans approved for US$100 million with a maximum term of 12 1/2 years with two years of grace supports the Program to Strengthen Fiscal Institutions and Improve the Business Climate. The executing agency is the Ministry of Economy and Finance.

The Program supported by the CAF is aimed at strengthening the macro- and microeconomic interrelation in favor of the competitiveness of the country. In the macroeconomic area, actions are being taken to strengthen fiscal discipline through the introduction of hierarchical decision procedures, budgetary transparency and fiscal rules.

In the microeconomic area, the Peruvian government’s initiative requires reducing administrative barriers to business in a context of efficiency and transparency. For new businesses, policies will be adopted to simplify procedures; and for existing businesses, mechanisms will be streamlined to improve the efficiency of the use of public resources, and promote a climate of competition and transparency in the public procurement system for small volumes with a view to strengthening incentives for private investment.

In the infrastructure area, García emphasized the approval of two interrelated finance operations for the public and private sectors for a total of US$127 million, to partially finance the building of the diversion works of the Olmos Integrated Project. The first is a US$77-million long-term loan to finance the Peruvian government’s contribution to the project. The second operation consists of a borrowing quota of US$50 million in favor of the Concesionaria Trasvase Olmos SA. Both operations have a 15-year term with a five-year grace period.

The Olmos Integrated Project is a joint effort by the public and private sectors backed by financial support from the government, the CAF, private Latin American institutions and Peruvian pension funds. The Project will be a decisive stimulus for the development of energy and irrigation infrastructure, and for the economic densification of the IIRSA multimodal Amazon hub (which unites the Pacific Ocean with Brazil). The project will develop Lambayeque, an important region of northern Peru, and have an impact on improving its competitiveness.

The diversion works, which have an approximate cost of US$242 million, require completion of the Trans-Andean tunnel; and the construction of the El Limón reservoir to guarantee the regulation and derivation of an annual water mass of 406 Hm3. The water will be used for irrigation projects covering over 100,000 hectares and for electricity generation with an estimated capacity of 624 MW.