World Bank Document · 2016. 7. 13. · OPSA - Oficina de Planemiento del Sector Agropecuario (Agricultural Sector Planning Office) PRODESARROLLO - Program for the Development and

Document of

The World Bank

FOR OFFICIAL USE ONLY

Retprt No. 6571-CO

STAFF APPRAISAL REPORT

COLOMBIA

CAJA AGRARIA INSTITUTIONAL DEVELOPMENT PROJECT

January 21, 1988

Country Department IIILatin America and the Caribbean Regional Office

This document has a restricted distribution and may be used by recipients only in the performance oftheir official dutles. Its contents may not otberwise be disclosed without World Bank aothoriztion.

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CURRENCY BQUIVALENT

Currency Unit - Colombian Peso (Col$)

US$ 1.00 - Col$ 223.00 (01/01/87)

WEIC-IITS AND MEASURES

Metric System

GLOSSARY OF ABBREVIATIONS

BAH - Banco HipotecarioBOR - Banco de la Republics

(Bank of the Republic (Central Bank))Caja - Caja de Credito Agrario, Industrial y Minero (Caja Agraria)

(Agricultural, Industrial and Miring Credit Bank)CDT - Certificado de Deposito a Termino (Certificate of Deposit)CPI - Consumer Price IndexDNP - DeparLamento de Planeacion Nacional

(National Planning Department)DRI - Programa de Desarrollo Rural Integrado

(Inte6rated Rural Development Program)FEDERACAFE - National Coffee FederationFFAP - Fondo Financiero Agropecuario

(Agricultural Financing Fund)HIMAT - Instituto Colombiano de Hidrologia, Meteorologia y

Adecuacion de Tierras(Colombian Institute for Hydrology, Meteorology and Land

Improvement)ICA - Instituto Colombiano Agropecuario

(Colombian Agricultural Institute)!DB - Inter-American Development BankIDZMA - Instituto de Mercadeo Agropecuario

(Agricultural Marketing Institute)INCORA - Instituto Colombiano de la Reforma Agraria

(Agrarian Reform Institute)INDERENA - Institutc Nacional de Recursos Naturales Renovables

(National Institute for henewable Natural Resources)ISE - Inversion Sustitutiva del Encaje

(Reserve Replacement Investment)OPSA - Oficina de Planemiento del Sector Agropecuario

(Agricultural Sector Planning Office)PRODESARROLLO - Program for the Development and Diversification of Coffee

Growing AreasRFMSS - Rural Financial Markets Sector StudyTAP - T:ade and Agricultural Policy Loan

GOVERNMENT OF COLOMBIAFISCAL YEAR

January 1 - December 31

PROJECT YEAR

January 1 - December 31

Ka WVUL US ONLY

COLOMBIA

CAJA AGRARIA INSTITIlTIONAL DEVELOKtRNT PROJECT

Table of Contents

Page No.

L. LOAN AND PROJECT SUM...... ..................................... 1

II. THE AGRICULTURAL SECTOR ......................................... 3

The Role of Agriculture in the National Economy................. 3Agricultural 4................................................6.. 4Caja Agraria ............. 6 5Government Strategy for the Agricultural Sector................. 8Bank Role in the Sector ........................................ 8Experience with Past Projects .................................. 8

III. THE PROJECT ................... ................................. 9

Project Oii ..... 9Project 9............................................ 6666666666 9Project Description*. .............................................o....... 9Longer-Term Strategy for Caja's Development.*****....**. ...... 6 11Project Css....,11......................... 66666 6666666666 666 66666 66666666 666 66666 12

P r o c u r e m e n t ~~~~~~~~~~~~~~12Disbursements. 66666666666 66 666666666 66666 6666 66 66 66 6666 12Accounts and Audit 13Project Implemen-:ation,,,eooo,,oos.eeseeeees 13Monitoring and Evaluation....a l u a ti................on. 6.6...... 13Benefits, Justification and Risks .............................. 14

IV. AGREEMENTS REACHED AND RECOMMENDATION ......................... 14

This report is based on the findings of an appraisal mission which visitedColombia in July 1986. The mission comprised Messrs./Mmes. W. B. Johnson(Mission Leader), A. Herlihy (Financial Analyst), F.M. Schorosch (LoanOfficer), M. Grossman (Consultant, Banking Specialist) and E. Diaz-Bonilla(Consultant, Economist).

This document ha a restricted distribution and may be used by recipients only in the performance Lof their offcial duties. Its contents may rot otherwise be dischose without World Bankt authorization.|

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SCHEDULES AND ANNfEXES

Schedule A - Terms of Reference - Lead Consultant

Schedule B - Statement n Caja Agraria's Objectives and Strategies

ANNEX 1 - Agricultural Credit in Colombia

Table I - Total, Rural and Agricultural Portfolio and Loans, 1974-852 - Outstanding Agricultural Portfolio by Financial Intermediary,

1974-853 - Resources Mobilized by Agricultural Baniks and Total Agricultural

Portfolio, 1974-834 - Compositioa of Deposits, 1974-855 - Statistics on Forced Investments, FFAP and Caja Agraria6 - FFAP 1 inancing Sources, 1974-857 - Major Aural Credit Lines - Effective Interest Rates, 1974-868 - Loan Interest Rates - Caja Agraria9 - Loan Interest Rates - FFAP

Graph I - Movement of CDT Rate and CPI, 1974-86

ANNEX 2 - Caja Agraria

Table 1 - Financial Statements - Balance Sheet, 1982-19852 - - Income Statement, 1982-19853 - Projected Financiai Statements - Balance Sheet, 1986-19924- - Income Statement, 1986-19925 - Ratio of Savings to New Credit6 - Rural Lending by Use7 Overdue Portfolio Statistics8 - Growth Statistics9 - Key Indicators

Chart 1 - Organization Chart

ANNEX 3 - Project Tables

Table 1 - Project Costs - Branch Office Improvements2 - Project Costs - Office Equipment3 - Technical Assistance Program4 - Training Program5 Implementation Schedule6 Disbursement Schedule7 - Price Contingencies and Devaluation

Chart 1 - Project Organization

ANNEX 4 - Documents Available in the Project File

MAP: IBRD 20315 - Caja Agraria's Operations

COLONBIA

CAJA AGRARIA INS 2ITUTIONAL DFVEL PMENT PROJECT

I. LOAN AND PROJECT SUMMARY

Borrower: Caja de Credito Agrario, Industrial y Minero (Caja).

Guarantor: Republic of Colombia.

Loan Amount: US$15 million equivalent.

Terms: 17 years, including four years of grace, at the standardvariable interest rate.

Project The project is part of Colombia's strategy toDescription: stimulate the growth of the agricultural sector, through,

inter alia, institutional reforms to upgrade and improve theoperational capacity of key public sector agencies. Theproject aims at strengthening Caja, the main financial.intermediary for agricultural credit in Colombia, therebyhelping to meet the rural sector's needs for financialservices in a more efficient manner. The project wouldcomprise consultant services, training, office equipment andcivil works to assist Caja in defining and implementingmeasures to improve operational efficiency, reduce its loanportfolio arrears, improve credit procedures, enhance itscapacity to mobilize resources using market mechanisms,improve its accounting and management information systems,and rationalize and improve its branch network. The mainproject benefic is that Caja would become a more efficient,competitive and self-sustaining financial intermediary.

Project Risks: The major risk is that the institutional improvements soughtfor Caja wV.hin the project might not be achieved in a time-ly manner. To mitigate this risk, technical assistance andtraLuing are key features of the project to facilitateimplementation of the proposed improvements. Caja'smanagement is committed to the reforms being pursued throughthe proposed project. Finally, Bank staff would carefullymonitor project implementation through close supervision anda mid-term review.

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Propect Cost:Local Forelgn Total

-(US$ million)---

Technical Assistance 1.6 1.7 3.3Training 0.8 0.2 1.0Offite Equipment 3.4 7.9 11.3Branch Improvements 11.7 1.9 13.6

Base Coat 17.5 11.7 29.2

Contingencies:Physical 1.5 1.0 2.5Price 1.0 2.3 3.3

Total Project Cost 20.0 15.0 35.0

Financing Plan:

Caj a 20.0 - 20.0Bank Loan - 15.0 15.0

Total 20.0 15.0 35.0

Estimated Disbursement:

Bank FiscaW Year1988 1989 1990 1991 1992

----- (US$ million) --- --- -

Annual 2.4 1.2 5.5 5.5 0.4Cumulative 2.4 3.6 9.1 14.6 15.0

Economic Rateof Return: N.A.

MAP: IDRD No. 20315.

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II. THE AGRICULTURAL SECTOR

The Role of _qriculture in the National Econow

2.01 Agriculture is the most Important sector in the Colombian economy,accounting for about 22X of GDP. Within the sector, crop and livestockproducts contribute about 52% and 432, respectively, to the gross value ofproduction, with the remainder coming from forestry, fishing and other ruralactivities. Agriculture provides employment for t.vo million people, or a,'uarter of the national labor force. The country is a net agriculturalexporter. Agriculture's share in total registered merchandise exportsfluctuated between 67X and 75X in recent years. Of tne total value ofexports of US$3.8 billion in 1985, coffee accounted for 471, followed by fueloil (11%), bananas (5X) and coal (41). Agricultural imports, iainly wheat,soybeans and fish products, represent 7X of Colombia's total registeredimports (US$4.7 billion), for 1985.

2.02 The recent performance of the sector has been heavily affected bymacroeconomic policy shortcomings and by external events. During the 1970s,agriculture expanded at more than 4% p.a., due to the dynamism of non-coffeeagricultural exports in the first half of the decade and to the coffee boomduring the second. By contrast, during 1981-83 coffee exports were greatlyaffected by depressed international markets, while non-coffee exports showeda negative growth rate, resulting in sector growth of only 1.3X p.a. in1980-84. In 1984 and 1985, coffee exports increased to close to the pre-1981level to cover a large drop in world production due to an unusual frost inBrazil. Factors contributing to the decline in agricultural exports andsector performance in the early 1980s include: (a) unfavorable internationalconditions for agricultural commodities exported by Colombia (coffee, sugar,cotton, beef); (b) macroeconomic and sector-specific policies that imposedexport restrictions for some commodities and import restrictions for agricul-tural inputs; (c) reduction of government investments in agriculture sincethe mid-1970s; (d) a rapid increase of the real agricultural minimum wagerate, which contributed to a rise in production costs; and (e) a shortage ofagricultural credit, particularly for small, and medium scale farming.

2.03 Agricultural Base. Of the country's total area (112 million ha),83% (93 million ha) has no or limited crop potential and is used mainly forgrazing and forestry. Of the remainder, 13 million ha are only suitable fornon-mechanized agriculture; 3.8 million ha could be used for modern agricul-ture after providing some type of land reclamation works; and only 1.7 mil-lion ha are suitable for modern mechanized agriculture without restrictions.Structural problems in agriculture are the uneven land distribution and poorland use (some good crop land is used for extensive grazing and marginal landfor cultivation). Countryside violence is widespread in newly colonizedareas. The lack of clear land title in these areas acts as a disincentive toprivate investment, as does the decline in agricultural profitability causedby a decrease in commodity prices relative to the cost of agriculturalinputs.

2.04 Sector Institutions. The Ministry of Agriculture has primary res-ponsibility for the formulation and execution of public sector agricultural

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policy and programs, and within it the Agricultural Sector Planning Office(OPSA) has the responsibility for programming and coordinating sector activi-ties. OPSA maintains a close relationship with the National PlanningDepartment (DNP). Other lnstitutlans under the Ministry of Agriculture areconcerned with research and extension (Colombian Agricultural Institute,ICA), marketing of crops (Agricultural Markcting Institute, IDEMA), landdistribution (Agrarian Reform Institute, INCORA), environmental protection(National Institute for Renewable Natural Resources, INDERENA) and irrigationand drainage works, hydrology and meteorology (Colombian Institute forHydrology, Meteorology and Land Improvement, HIMAT). In addition to thesepublic sector Institutions, producer associations provide a wide range ofservices to their members and are a dynamic force in agricultural develop-ment. Agricultural credit institutions are discussed below.

Agricultural Credit

2.05 The flow of institutional rural credit--comprising lending foragriculture, marketing and processing activities--grew annually by about 3Xin real terms from 1974 to 1985. 1/ Over the same period, the flow of agri-cultural credit alone grew by about 5% p.a. in real terms, but declined inthe early 1980s and in general has not kept pace with the growth of cradit toother sectors.

2.06 In terms of the total agricultural portfolio (US$1.4 billion in1984), the Agricultural, Industrial and Mining Credit Bank (Caja) is the mostimportant financial intermediary, accounting for 562 of the portfolio in1984; the other agricultural banks (Banco Ganadero and Banco Cafetero, bothpublic sector banks) provide 282, and the private commercial banks and fin"n-cial corporations, 16Z. In recent years, Caja's share in total lending hasbeen increasing; and it continues to be the major source of credit to smallfarmers. Banco Cafetero and Banco Ganadero are also channeling an increasingshare of institutional credit to the sector, because of legal requirementsthat they maintain a high percentage of their portfolio in agriculture (502and 702, respectively). The importance of the commercial banks and financialcorporations in the financing of the agricultural sector has declined some-what, due to relatively low profitability. Based on data from a recentsurvey of four rural municipalities. credit from non-institutional sources(friends, moneyleaders, etc.) may provide about a quarter of the value ofamounts lent.

2.07 Successive governments have intervened in financial markets to sup-ply institutional credit to the agricultural sector at below-market rates,through forced investments, subsidized interest rates, and directed creditallocations. The system of forced investments is administered by the JuntaMonetaria within parameters mandated by the Congress. The system of forcedinvestments requires banking institutions to invest in certain types of low-yielding bonds in proportion to their portfolio and/or deposits. In 1985,56% of the funds generated through forced investment were allocated toagricultural credit--47X went directly to the Agricultural Financing Fund(FFAP), which is the primary source of funding for agricultural credit inColombia. The balance, 9%, went directly to Caja. All institutions lending

1/ See Annex 1 for a more complete discussion of agricultural credit.

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for agriculture have access to FFAP and in 1985, Caja received 38% of FFAPfunds.

2.08 While the system of forced investments has allowed large amounts offunds to be made available for directed lending, it has substantially loweredincentives to mobilize rural financial savings, and increased depend,nce onnon-market mechanisms to obtain financial resources. I. has placed seriouspressure on the profitability and liquidity of the banking system and doesnot foster optimal allocation of the financial resources it mobilizes.Progress has been achieved in the critical area of Interest rates, which havebeen increased, in some cases, to levels close to market rates. This hasimproved the profitability of the banking system and the allocation offinancial resources. Optious for further 'Liberalization of the financialsystem, including the use of more market-oriented mechanisms for financingFFAP, continue to be an integral part of the Bank's macroeconomic dialoguewith the Colombian Government.

Caja Agraria

2.09 Caja is the leading agricultural credit institution in Colombia(para. 2.06). Its role is to provide farmers, particularly smaller farmers,with agricultural credit, agricultural itputs, insurance, and bankingservices. 2/ However, its growing commercial business, primarily in theurban centers, now constitutes 18X of its loan portfolio. As of December 31,1985, Caja had outstanding loans to some 500,000, mostly small-scale, farmers(almost half of all farmers) and to 90,000 other clients.

2.10 Until the early 1970s, Caja was considered a relatively efficientinstitution, but since then it has developed administrative and staffingproblems. Because of Caja's wide geographic coverage through Its 878branches, it is used by the Government to provide access to credit for smallfarmers and to provide concessionary credits after natural disasters and, inremote areas, for political stabilization purposes; the latter kinds ofcredit usually have poor repayment records. While Caja has an able GeneralManager, some of its senior managers, who were political appointees, lackedbanking expertise. Other staff in general are qualified but suffer from lackof training in modern banking and business techniques. The Government isalso involved in CaJa's wage negotiations and in financing the losses thathave resulted from the negotiated staff benefits package.

2.11 Caja has problems in the following areas:

(a) Efficiency. Caja's inefficiencies as reflected by a 13 percentagepoint spread, arise from its cumbersome procedures and high staf-fing costs. Caja's procedures are determined by its need to complywith a complex set of regulations laid down by Government. Ihenumber of reports and approvals for all types of transactions isexcessive, ana farmers experience high transaction costs, as wellas uneven credit practices, such as delays in disbursements, and

2/ More information on Caja's operations and financial performance iscontained in Annex 2.

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unexpected cancellation of loans to small farm!rs. Branches areorganized by service, which limits cross selling opportunities.The main organizational issue is the insufficient delegation ofdecision-making to the field offices. Caja's high staffing costsare largely the result of its present procedures, lack of automa-tion, and a benefits package that is high compared to those offeredby the private banking sector. Caja has 13,000 employees, andstaffino is especially excessive at headquarters (2,110 employees,or 16% of staff) and in the large regional branch offices, whichare the major factors in Caja's high operating costs. Generally,Caja's staff is not customer-service oriented and makes littleeffort to compete (particularly for savings). FLirmal training intechnical areas has only been available for a few mid-managementpositions. On the other hand, senior managers' remuneration isrelatively low, which h'as increased turnover and hamperedadministrative continuity.

(b) Quality of Portfolio and Credit Procedures. Caja's portfolio ischaracterized by high loan arrears, which have increased from 12%to 17% of total portfolio between 1974 and 1985. There is noasset/liability management, no loan review function and no separa-tion between the functions of loan promotion, administration andanalysis. Credit procedures are complex: they suffer from exces-sive regimentation in the administration of some 75 credit pro-grams, each with its own eligibility criteria, terms and monitoringsystems, and the present credit manual emphasizes compliance withregiulations.

(c) Mobilization of Financial Savings. Although Caja's total depositshave grown at 6.5% p.a. in real terms since i980 and savings at0.7% p.a., the growth in total deposits of other financial inter-mediaries, including official banks, has averaged over 10% p.a. inthe same period. On the other hand, the stock of FFAP fundsrediscounted through Caja has grown by 14% p.a. in teal terms overthe same period. Caja's relatively weak performance in mobilizingdeposits results primarily from its inability to offer savingsinstruments that are competitive with those available in the marketdue to the high administrative costs it incurs in its operations.

(d) Support Systems. Most work is done manually. Data processingequipment is used at the head office but not in the branch offices.Because of cumbersome manual procedures, branch personnel spend toomuch time on administrative functions (over 50%) and not enough onproviding services to customers and securing new business. As aresult, loan processing is lengthy and not responsive to theborrower's needs. Planning concentrates on the allocation ofcredit resources, extends for only six months or a year, and is notlinked in a systematic way to budgeting. The management informa-tion system does not provide proper information in an efficient andtimely manner. Major problems with Caja's accounting are theresult of inadequate systems for aggregating and transmitting basicaccounting information from the branch network to headquarters. Asa consequence, Caja's management cannot obtain timely reports onits liquidity position, collection ratios, or reliable profitabi-lity figures for its branches, product lines or customers.

(e) Branch Network. Caja maintains a branch network to allow it toreach large numbers of small farmers in remote areas and to providethe geographic coverage required by Government. This overextendednetwork contributes to the institution's high operating costs.Moreover, many branches are operating at a loss based on correntpractices in allocating costs between the main office and thebranches. In addition, many of the branches are old and in poorphysical condition due to lack of adequate maintenance. Often thephysiLal layout of branches is inefficient and allows customersinto the employees' work areas to transact business. Much of therequired basic equipmeat such as fans, air conditioning and officeequipn,ent, and in some cases electric generation equipment forlighting, is non-existent or not functional. Many employees haveto provide their own calculators for their work.

2.12 Financial Perfonnance. As of December 31, 1985, Caja's balancesheet had assets oft US$1.4 billion, which comprised loans to customers (58%);funds to be received from Government (21%); and land, buildings and equipment(7%). The mati liahilities on the balance sheet were customers' savings andchecking accounts (50%); funds owed to FFAP and Benco de la Republica (BOR),the central hank (2b%); and the amount of funds ti-at need to be set aside foremployee pensionis (18%). Total income in 1985 was US$273 million with themajor expenses of interest oni deposits (US$109 million), personnel expenses(US$101 milLion) arid other exrenses (US$62 million); a small profit ofUS$1.1 million was reported, the first in over 10 years.

2.13 Since 1974, Caja's growth in lending, in terms of agricultural loanportfolio, has averaged 5.9% p.a. in real terms, substantially abovethe rate of growth of the country's total abricultural portfolio (3.2% p.a.),reflecting its access to FFAP's funds. Income has grown at 8.1% p.a. since1975 in real terms, bi,t has been more than offset by the growth in interestexpense (9.65 p.a.) and personnel expenses (6.8% p.a.).

2.14 Looking at more recent trends, Caja's total portfolio growth hasaccelerated to 10% p.a. since 1980, with commercial lending doubling its 9%share of total portfolio. The increased portfolio growth has been supportedby growth in use of FFAP funds (16.9% p.a.) and in deposits (6.5% p.a.).Total income growth increased to 10% p.a. while the growth in personnelexpenses has fallen Lo 3.3% p.a. The high growth rate in Caja's interestexpense (15.7% p.a.) reflects the growing proportion of customer savings incertificates of deposit.

2.15 In spite of a 13 percentage point spread, Caja fails to cover itscosts mainly due to its high personnel and administrative costs. It hadaccumulated losses ot about US$300 million by 1983; the small profit in 1985is projected to change to losses in 1986 and 1987. If present trends con-tinue, it is expected that staff costs will continue to grow, at least atabout 3% p.a. in real terms, and overdue loans will remain at the currenth'gh level of 171. Moreover, in the absence of a major effort to mobilizefinancial resource- using maiket mechanisms, agricultural lending can onlycontinue to grow at the historic rate of 5.9% p.a. in real terms if fundsfrom forced inve'-tments continue to grow and Caja continues not to fund itsemployee pension funid, for which its accrued liability was US$230 million atthe end of 1985.

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Government Strategy for the Agricultural £ector

2.16 Direct government involvement in agricultural production has beenpractically non-existent, and in support activities it has been lessened dueto the well-rganized private sector producers associations, which provide awide range of services to their members. However, given its importance interms of foreign exchange earnings, overall economic growth and employment,agriculture is a focus of the Government's satategy to stimulate the growthof productive sectors. Agricultural productivity and production are beingencouraged through sectoral policy changes that: (a) rationalize trade andprice intervention policies in agriculture; (b) improve the functioning ofrural credit markets; and (c) strengthen the institutional capacity of keypublic sector agencies. The Government's agricultural sector investmentprogram, which places heavy emphasis on agricultural technology generationand diffusion, and on irrigation development, is expected to lead toincreased on-farm investments and highet agricultural input use. Caja wouldhave to increase its importart role in rural credit markets, particularlywith regard to small farmers.

Bank Role in the Sector

2.17 Since 1966, the Bank has made 16 agricultural loans to Colombiatotalling US$577.0 million equivalent. Three of these loans have been foragricultural credit; two for livestock developmenc; two for colonization;four for irrigation/drainage; two to support the Government's rural develop-ment program; and one each for a pilot watershed management project, an agri-cultural research project, and an agricultural diversification project incoffee areas. Most of the projects have focused on increasing the producti-vity, incomes and welfare of small farmers; all except the last one wereexecuted by public sector institutions. In addition, the US$250 million TAPLoan was approved in March 1986 which seeks broad agricultu.al credit policyreforms.

2.18 The Bank's strategy is to maintain the focus on the needed reformof the rural credit system and on the institutions which operate it. Thisproject would concentrate on rebuilding Caja's institu-ional capacity to alevel commensurate with its importance to Colombia's agricultural sector.

eencewithPastrocts

2.19 Project Performance Audit Reports have been issued for six of theprojects (Loans 502-CO, Atlantico Irrigation; 624-CO, Agricultural Credit;651-CO, Second Livestock Development; 739-CO, Caqueta Land Colonization;849-CO, SecorJ Atlantico Development; and 1118-CO, Caqueta Rural Settle-ment II). An Impact Evaluation Report on the Atlantico Irrigation Projectwas issued in 1982. These projects were by and large successful. The mainlesson learned from implementt,ion of the Second Agricultural Credit Projectwas that policy changes affecting the whole agricultural credit system areunlikely to be adopted on the basis of an agricultural credit project alone.This lesson has been reflected in subsequent Bank lending strategy, which ispursuing broad reforms through policy lending (the TAP loan) and comple-mentary project lending (the proposed project) pursuing institutionalstrengthening.

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III. THE PROJECT

Project Origin

3.01 In March 1980, Caja requested Bank support for an agriculturalcredit project for production and small-scale agroindustries, but chose rPtto proceed with the project because of the reforms such a project would havepursued. In early 1985, Caja proposed an institutional development operationto improve its internal efficiency. The proposed project was prepared by theBank and Caja with assistance from FAO/CP. It was appraised by the Bank inJuly lq86, and negotiations took place in Washington, from Decemberl6-18,1987. The Colombian delegation was led by Dr. Carlos Villamil Chaux.

Project Objectives

3.02 The main objective of the project would be to strengthen Caja, themain financial intermediary for agricultural credit in Colombia, therebyhelping to meet the agricultural sector's credit needs in a more efficientmanner. The project would help Caja to become a more modern, self-sustainingfinancial intermediary, enhance its capacity to mcbilize resources, and lowerits costs of financial intermediation. Caja would implement the projectthrough components comprising branch improvements, office equipment, trainingand technical assistance.

Project Description

3.03 Branch Improvements. The prolect would include US$16.0 million tocover the cost of a program to begin the task of renovating and modernizingCaja's many branches, including civil works and basic building equipment andfurniture. The entire cost of this component, which would involve mainlylocal cost financing, would be borne by Caja.

3.04 Office Equipment. The project would provide US$14.3 million tocover the cost of equipment; the loan would provide US$11.9 million (79% ofthe loan amount) for this purpose. The equipment would be of two type3:(a) data processing equipment, including personal com ters and calculators,communications and other office equipment needed to introduce improvedaccounting, management and credit processing systems; and (b) overheadprojectors and video equipment needed to implement the training program.

3.05 Training. The project would provide US$1.0 million to finance atraining program which would help improve the management, technical skills,and customer service orientation of Caja's personnel (Annex 3). The loanwould provide US$0.7 million (5% of the loan amount) for this purpose. Thetraining program for the first year of the project was agreed at negotiationsDuring negotiations, Caja provided assurances that the detailed annualtraining programs would be submitted to the Bank for approval at least twomonths prior to the start of each subsequent year of the project(para. 4.01 (a)).

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3.Ob Technical Assistance. The project would provide US$3.7 million tofinance an estimated 370 staff-months of local and foreign consultants(Annex 3); the loan would finance US$2.4 million (16% of the loan amount).Terms of reference for a lead consultant (see Schedule A for TOR) were agreedet negotiations. As a condition of effectiveness, Caja would select the leadconsultant to assist the Project Director (paras. 3.23 and 4.02 (a)). Theconsultants would assist Caja with work in branch improvements, creditprocedures, portfolio management, especially arrears reduction, resourcemobilization, organization, personnel budget and management information andaccounting systems (Annex 3). The various activities to be included in theToRs of consultants were agreed at negotiations. During n?gotiations, Cajaprovided assurances that all consultants would be employe,1 in accordance withBank Guidelines, and with qualifications, experience, and terms andconditions of employment satisfactory to the Bank (para. 4.01 (b)).

3.07 The above inputs would be directed at strengthening Caja andaddressing its key problems (para. 2.11) by defining and implementingmeasures to: (a) improve efficien-y; (b) improve the quality of the portfolioby reducing arrears and improving credit procedures; (c) enhance its capacityto mobilize financial savings using market mechanisms; (d) improve supportsystems; (e) rationalize its branch netwuri; and (f) prepare a longer-termstrategy for developing Caja into a self-sustaining financial intermediary,as discussed in paras. 3.08-13 below.

3.08 Efficiency. In order to improve efficiency, Ca-a providedassurances during negotiations that the following efficiency targets would bemet (para. 4.01(c)):

(a) throughout the life of the project, total administrative costswould be held below the 1986 level in real terms, unless otherwiseagreed with the Bank;

(b) annual administrative costs as a percentage of loan portfolio woulddecrease from 18.3% at end 1986 to 17.6% at end 19£), 16.3% at end1988, 14.9% at end 1989 and 13.7% at end 1990; and

(c) branch office staff as a percentage of total staff would increaseat a rate of 2 percentage points p.a., starting in 1988, from thepresent 84% of total staff to 90% by the end of 1990.

In order to help meet the above targets, Caja introduced in January 1987 andagreed at negotiations to: (i) maintain a remuneration package for employeessatisfactory to the Bank (para. 4.01 (d)). This remuneration package shouldenable Caja to attract and retain qualified senior staff and to align theterms of employment for all of Caja's employees with those in the hankingindustry; and (ii) by Jui.e 30, 1988, design, and thereafterimplement,improved systems satisfactory to the Bank for simriplifying Caja'sinternal procedures and decision-making processes (para. 4.01(c)).

3.09 Quality of Portfolio and Credit Procedures. Caja would provideassurances during negotiations that loan arrears, expressed as a percentageof loan portfoll , would be reduced to meet the following targets: 16% by end

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1987, 152 by end 1988, 142 by end 1989 and 12% by end 1990. In order to helpCaja meet these targets Caja provided further asaurances during negotiationsthat: by June 30, 1988, It would review the loan portfolio, and thereafterImplement improved portfolio management satisfactory to the Bank (para. 4.01(c)).

3.10 Mobilization of Financial Savings. In order to increase the amountof financial savings mobilized by Caja using market mechanisms, Caja providedassurances during negotiations that it would meet the following targets inthe real annual growth rates of its deposits (excluding interbank deposits):7.02 in 1988, 7.52 in 1989 and 8.02 in 1990 (para. 4.01. (c)). Caja wouldachieve this through introduction of more attractive savings instruments andimproved customer service.

3.11 Support Systems. In order to improve support systems Caja providedassurances during negotiations that, by June 30, 1988, it would design, andimplement thereafter, improved systems, acceptable to the Bank, inaccounting, management information, and data processing (para. 4.01 (c)).

3.12 Branch Rationalization. In order to reduce the fin3ncial burden toCaja of maintaining unprofitable branches, Caja provided assurances duringnegotiations that, by December 31, 1988, Caja would prepare, and thereafterimplement, a plan of action, satisfactory to the Bank, to rationalize itsbranch network, including a program to reduce the number of, or increase theefficiency of, branches showing continuous losses (para. 4.01 (e)).

Longer-Term Strategy for Caja's Development

3.13 While there is a general concensus between Government and Caja onCaja's prime role of supplying banking services, including credit to thesmall farmer, there are some areas where there is not full agreement: forexample, the extent of Caja's non-banking activities and the level of urbanbanking business in Caja's overall portfolio. To help direct the longer-termdevelopment of Caja under the project, Caja would, as a condition ofeffectiveness, prepare a statement, satisfactory to the Government and theBank, on Caja's objectives and strategies for achieving them(para. 4.02 (b)). A draft statement is attached as Schedule B. In addition,as a means of building on the institutional strengthening supported under theproject, assurances were obtained during negotiations that, by December 31,1988: (a) Caja would also prepare, and implement thereafter, a plan,satisfactory to the Bank, for it to become a financially self-sustaininginstitution (para. 4.01 (f)); and (b) Government would take all necessaryactions to enable Caja to prepare such a plan and to subsequently carry itout (para. 4.01 (m)).

Project Costs

3.14 Total project costs are estimated at US$35 million, with a foreignexchange component of US$15 million, or 43Z. The project cost was calculatedusing 1987 prices. Physical contingencies of 10% were included on office

- 12 -

office equipment and branch improvements. Price contingercies for allcomponents were based on the Bank's projections for international and localinflation and for the changes in local currency exchange rates (Annex 3).Physical and price contingencies total US$5.8 million.

Financing

3.15 The Bank loan of US$15 million would finance 43% of the totalproject cost, equivalent to IGO% of foreign costs. The balance of financing(US$20 million or 57% of the total project cost) would be provided byCaja. 3/

3.16 The Bank loan would be made to Caja with the Government acting asguarantor of the loan. Caja would bear the foreign exchange risk.

Procurement

3.17 For orders for office equipment of over US$300,000 (estimated tototal US$9.2 million), internationial competitive bidding in accordance withBank Guidelines would be followe6; and it was agreel at negotiations thatcontracts under US$300,000 (estimated to total US$5.1 million) would beawarded based on local procurement procedures acceptable to the Bank.Without limitation upon the provisions of the Guidelines, in respect ofprocurement of goods and services: no requirement of local agents for foreignbidders shall be made; no prior registration of foreign bidders shall berequired; no provision regarding minimum number of bidders shall be applied;bids for goods shall be evaluated on a C.I.F. basis; freight costs quotedfreely by each bidder shall be used for purposes of bid evaluation; andawards shall be made to the lowest evaluated bidders. During negotiations,Caja provided assurances that: (a) it would follow procurement proceduresacceptable to the Bank; and (b) for all contracts for goods of US$300,000 ormore, the Bank's prior approval would be required before invitations to bidare issued and before contracts are awarded (para. 4.01 (g)).

Disbursements

3.18 Disbursements would take place over a five year period (Annex 3,Table 6). Since there is no relevant standard disbursement profile for thistype of project the disbursement schedule is based on the esti'nated timing ofexpenditures plus a lag for completion of disbursements and adj -ed for theinitial deposit in the Special Account. Contracts valued at US$300,000 orless would be submitted under Statement of Expenditure. Disbursement offunds would be made against supporting documentation, acceptable to the Bank,and cover 100% of the foreign cost and 65% of the local cost of officeequipment (US$11.9 million), training (US$0.7 million) and consultants(US$2.4 million).

3.19 To facilitate the availability of funds, Caja would establish aSpecial Account with an initial deposit by the Bank, payable on receipt andapproval of a withdrawal application from the Borrower, in an amountsufficient to cover the maximum estimated expenditure over a four-month

3/ Financing by Caja Agraria would be reduced to US$19.4 million in theeventuality the Japanese Government approves a cofinancing grant ofUS$0.6 million for technical assistance which was requested onDecember 28, 1987.

- 13 -

period. During negotiations, Caja provided assurances that it wouldestablish avd maintain such a Special Account in BOR, in U.S. dollars, underterms and conditions satisfactory to the Bank, and with an initial allocationof US$2.0 million to cover the Bank's share of eligible expenditures underthe project (para. 4.01 (h)). Replenishment of the Special Account would bemade upon receipt and appFoval of the Borrower's withdrawal applications.

3.20 The Bank will allow retroactive financing of up to US$1 million forexpenditures made after January 1, 1988 to cover technical assistance forproject activities and office ec"iipment necessary to allow implementation tobegin immediately after loan effectiveness.

Accounts and Audit

3.21 At negotiations, Caja presented reports on steps taken to resolvethe auditor's qualifications on Caja's financial statements for FY85. As acondition of effectiveness, Caja would present its financial statements forFY86 audited by an independent auditor acceptable to the Bank(para. 4.02 (c)).

3.22 Caja would establish and maintain project accounts in accordancewith consistently applied, sound accounting principles and methods. Duringnegotiations, Caja provided assurances that: (a) project accounts, SOEs andCaja's financial statements would be audited annually by independent auditorsacceptable to the Bank; (b) audit reports would be submitted to the Bankwithin six months of the close of each fiscal year; and (c) Caja wouldinclude, not later than December 31, 1988 and every year thereafter as partof its annual financial statements, a report on the profit and loss situationof each of its branches, including an analysis of the reasons for any lossesand a reasoned assessment on whether such losses are of a temporary orco.atinuous nature (para. 4.01(i)).

Project Implementation

3.23 Caja would be responsible for implementing the project. Theproject would be managed by a Project Director, assisted by a consultant,reporting directly to Caja's General Manager and supported by a DeputyProject Director and senior level managers as required (Organization Chart,Annex 3). Project implementation would cover branch and credit procedures,including reduction of portfolio arrears, human resources, including trainingand organization, accounting system and management information systemimprovements, and data processing. There would be a manager responsible fora project Monitoring and Evaluation Unit (para. 3.24). Caja appointed aProject Director, acceptable to the Bank, prior to negotiations. Appointmentof the Deputy Project Director, acceptable to the Bank, would be a conditionof effectiveness (para. 4.02 (d)). During negotiations, Caja providedassurances that it would maintain a project implementing unit with staff,functions and organizational structure satisfactory to the Bank(para. 4.01 (j)).

Monitoring and Evaluation

3.24 A Monitoring and Evaluation Unit would maintain records on projectimplementation. Within one month after the end of each Caja fiscal year, a

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project progress report would be sent to the Bank for comment. A mid-termreview by the Government, the Bank and Caja would be undertaken by June 30,1989, to evaluate all aspects of the project, including progress withinstitutional strengthening and achievement of the agreed targets, and toagree on any necessary mid-course corrections. During negotiations, Cajaprovidedassurances that such a mid-term review would be held(para. 4.01 (k)). During negotiations, Caja also provided assurances that itwould, by June 30, 1989 and June 30, 1991 furnish to the Bank the conclusionsof a public opinion survey carried out under terms of reference satisfactoryto the Bank, on the quality of Caja's services rendered to rural clients(para. 4.01 (1)).

Benefits, Justification and Risks

3.25 Benefits and Justification. Under the project, Caja would become amore efficient, self-sustaining financial intermediary, providing betterbanking services and with lower transaction costs and more able to mobilizefinancial resources. By the end of the project, Caja's deposits are expectedto have grown by 32% in real terms over the 1986 level, and loan arrears tohave been reduced by 29%, from 17% of portfolio in 1986 to 12% in 1990. Withno growth in annual administrative costs, productivity, in terms of annualadministrative costs as a percentage of total loan portfolio, is expected toimprove by 25%. In addition, annual administrative costs as a percentage oftotal operating revenue would fall from 70% in 1985 to 47% by 1990. As aresult of the above, with the project, net profits would be reported in 1991(US$15.4 million) and 1992 (US$26.2 million). Without the project, losseswould continue, accumulating to US$262 million by 1992. The incremental netincome to Caja, which should total US$290 million by 1992, would have a NPVof US$160 million when discounted at the Opportunity Cost of Capital (seeAnnex 2).

3.26 Risks. The major risk is that the institutional reforms sought forCaja might not be achieved in a timely manner due to the size of Ca-A 'nd itslong established institutional structure. Technical assistance and trainingare key features of the project which have been included to facilitate imple-mentation of the proposed improvements. Caja's management is committed tothe reforms being pursued under the project. Finally, Bank staff wouldcarefully monitor project implementation through close supervision and amid-term review.

IV. AGREEMENTS REACHED AND RECOMMENDATION

4.01 During negotiations, agreements were reached with Caja (LoanAgreement) and ti.e Government (Guarantee Agreement) on the following:

Loan Agreement:

(a) Caja would submit the detailed annual training programs to the Bankfor apprcval at least two months prior to the start of eachsubsequent year of the project (para. 3.05);

(b) Caja would employ all consultants in accordance with BankGuidelines, and with qualifications, experience and terms andconditions of employment satisfactory to the Bank (para. 3.06);

- 1S -

(c) Caja would take all actions necessary to comply with theperformance and operational targets agreed upon between the Bankand the Borrower in paras. 3.08 to 3.12.

(d) Caja would maintain a remuneration package for employeessatisfactory to the Bank (para. 3.08);

(e) by December 31, 1988, Caja would prepare, and thereafter implement,a plan of action, satisfactory to the Bank, to rationalize itsbranch network (para. 3.12);

(f) by December 31, 1988, Caja would prepare, and thereafter implement,a plan, satisfactory to the Bank, for it to become a financiallyself-sustaining institution (para. 3.13);

(g) Caja wsuld follow procurement procedures acceptable to the Bank;and for all contracts for goods of US$300,000 or more, the Bank'sprior approval would be required before invitations to bid areissued and before contracts are awarded (para. 3.17);

(h) Caja would establish and maintain a Special Account in Banco de laRepublica, in U.S. dollars, under terms and conditions satisfactoryto the Bank, and with an initial allocation of US$2.0 million tocover the Bank's share of eligible expenditures under the project(para. 3.19);

(i) Caja would: (i) have its project accounts, SQEs and financialstatements audited annually by independent auditors acceptable tothe Bank; (ii) submit audit reports to the Bank within six monthsof the close of each fiscal year; and (iii) include not later thanDecember 31, 1988 and every year thereafter, a report on the profitand loss situation of each of its branches (para. 3.22);

(j) Caja would maintain a project implemaenting unit with staff, func-tions, and organizational structure satisfactory to the Bank(para. 3.23);

(k) by June 30, 1989, a mid-term review would be undertaken by theGovernment, the Bank anJ Caja to evaluate progress of the institu-tional strengthening eLd achievement of the agreed targets, and toagree on any necessary mid-course corrections (para. 3.24); and

(1`) by June 30, 1989 and June 30, 1991, furnish to the Bank theconclusions of a public opinion survey carried out under terms ofreference satisfactory to the Bank on the quality of Caja'sservices rendered to rural clients (para. 3.24).

Guarantee Agreement

(m) the Government would take all necessary actions to enable Caja, byDecember 31, 1988, to prepare, and implement thereafter, a plan,satisfactory to the Bank,for Caja to become a financiallyself-sustaining institution (pa a. 3.13).

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4.02 The following would be conditions of effectiveness:

(a) selection of the Lead Consultant (para. 3.06);

(b) preparation by Caja of a statement, satisfactory to the Governmentand the Bank, on its objectives and strategies for achieving them(para. 3.13);

(c) presentation by Caja of its financial statements for FY86 auditedby an independent auditor acceptable to the Bank (para. 3.21); and

(d) appointment of the Deputy Project Director acceptable to the Bank(para. 3.23).

4.03 Subject to the above, the project provides a suitable basis for aBank loan to Caja of US$15 million equivalent; the terms would be 17 years,including a 4 year grace period, at the standard variable interest rate.

- 17 -

Schedule A

COLOMBIA


Terms of Reference - Lead Consultant

Position Description

The lead consultant would report directly to the Project Directorand would assist and guide him with pre-effectiveness activities as well asproject implementation as follows:

Prior to Loan Effectiveness

- preparation of terms of reference for the consultants who willwork on branch development and credit procedures, organizationand management information, personnel development and training,and data processing.

- preparation of a detailed work program for project implementationwhich would include, inter alia, staffing, scheduling andtraining.

- preparation of terms of reference for studies to be undertakenduring implementation.

During Project Implementation

- assist with preparation of studies on loan portfolio, branchrationalization and credit procedures, and staff remunerationpackage;

- coordination of overall program of project activities;- evaluation and selection of consultants;- assessment of performance of consultants; and- assessment of proposals for institutional strengthening.

Qualifications

The lead consultant would have an MBA or equivalent, with at least10 years experience at a senior level in the field and a proven record inmanaging similar restructuring schemes in financial intermediaries. Heshould have up-to-date knowledge of bank dynamics and information systems, aswell as proven ability to transfer methodologies and technologies and tomanage people of diverse backgrounds in large organizations.

The lead consultant should have the ability to work and communicatein Spanish, especially in a Latin American environment. He should also befluent in English. Knowledge of Colombian labor law is desirable.

Duration of Assignment: 40 months maximum.

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Schedule BPage I of 2

COLOMBIA


Statement on Caja Agraria's Objectives and Strategies

Proposed Objectives for CaJa

1. Over the medium term, Caja's objectives are to:

(a) provide a full range of banking and financial services, especiallyto the rural population; and

(b) become a financially self-sustaining, efficient, autonomous insti-tution following sound development banking practices.

Proposed Strategies

2. To achieve the first objective of providing a full range of bankingand financial services, the following strategies will be implemented:

(a) Caja will expand its services with the aim of meeting the bankingand credit needs of the rural population it serves. These willinclude, inter alia, rural credit, commercial lending and otherbanking services, and mobilization of savings; and

(b) Caja will handle services contracted by Government--such asdisaster relief--provided they are carried out on a fullyreimbursed basis.

3. To achieve the second objective of financial self-sufficiency, thefollowing strategies will be implemented:

(a) Caja will increase resource mobilization through improved financialservices and more attractive savings instruments, which will allowit to phase out its dependence on subsidized funds generated fromforced investments, without constraining growth of credit;

(b) Caja will improve internal efficiency, which when combined withgrowth and better customer service, will improve both net incomeand resource mobilization;

(c) Caja will make significant improvements in staff utilization, auto-mated systems and procedures;

(d) interest rates on both ±ending and deposits will increasingly beestablished by the market;

(e) Caja will improve its credit procedures and collections with a viewto upgrade the quality of its lending and reduce the portfolioarrears;

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Schedule BPage 2 of 2

(f) Caja will recruit or train professionals whose background andtraining emphasize both banking and rural credit. Caja willdevelop Its personnel through improved staff selection, expandedstaff training and promotion based on merit; and

(g) Caja will have full responsibility for staff recruitment, promotionand dismissal.

-20 - Page of 14

COLOMBIA


Agricultural Credit in Colombia

1. This annex provides a broad picture of agri ultural credit inColombia, including the forced investment mechanism. / It is divided intofive sections, as follows: credit institutions and policy, volume of credit,resources for institutional credit, interest rates, and a summary of the mainissues and recent policy improvements.

A. Credit Institutions and Polilcy

2. The Colombian banking system, as of the end of 1984, comprised 21private banks, 5 official (public) banks and 15 finance corporations, whichbetween them had about 3,000 branches and agencies throij-hout the country.Of the five public banks, three are of special relevance to the agriculturalsector: Caja, Banco Cafetero (Coffee Bank) and Banco Ganadero (LivestockBank).

3. The bankiag system is governed by the Junta Monetaria (MonetaryBoard). The Junta Monetaria is chaired by the Minister of Finance and PublicCredit, and its members include the M:nister of Agriculture and the GeneralManager of the Banco de la Republica (BOR). It establishes policies regula-ting loans and deposits, forced investmeuits and rediscounting. Thesepolicies are then implemented by BOR, which acts as the central bank. BORalso administers several special funds which channel credit to specificsectors in accordance with government priorities. The agricultural fund,FFAP, 2/ was created through Law 5 in March 1973, with the specific objectiveof capitalizing the agricultural sector by rediscounting lcans made tofarmers by other financial intermediaries.

4. There are three major types of formal financial intermediaries thatdisburse credit to the rural and agricultural sectors. The first and mostimportant is CaIa, which accounted for 56% of the total agricultural port-folio in 1984. / Caja was established in 1931 specifically to financefarmers' subsistence, by granting credit for working capital until theircrops were harvested. Today it provides a large share of the financing forcrop and livestock farming, particularly that for small and medium-sizedfarmers. The second type of institution comprises the banks, both public andprivate, which together accounted for 38% of the total agricultural portfolioin 1984. The third type of institution is the finance corporations. These

1/ This annex is based on the Rural Financial Markets Sector Study (RFMSS),Bank Report No. 5860-CO, dated February 13, 1986.

2/ The Fondo FinanLiero Agropecuario (Agricultural Financing Fund).

3/ See Annex 2 for more information on Caja.

-21 - ANNEX IPage 2 of 14

provide a much smaller share of credit to the rural sector than either Cajaor the banks and accounted for 6% of the total agricultural portfolio in1984. Credit needs are not being adequately met, as evidenced by Caja havingto close offices during the year due to lack of funds, PFAP often running outof budget by September/October, and the estimate tnat non-institutionalcredit--provided by moneylenders and friends who lend exclusively short-term,primarily for family consumption--makes up an estimated 25% of rural creditneeds.

Rural Credit Policy

5. In Colombia, the Government has thought that the agriculturalsector should be assigned priority access to credit resources under specialconditions and terms. This priority is based on agriculture's importance toproduction, exports, income and employment; the risks inherent in agricul-tural production; and the need to compensate for macroeconomic, crade andexchange rate policies, which have often had a negative impact on the agri-cultural sector. These policies have contributed to deteriorating internaland external terms of trade and to high costs of agricultural production. Inaddition, the Government has viewed directed credit as an instrument forpromoting production of certain crops and adoption of new technology, forprotecting or increasing the incomes of specific sectors of the farm popula-tion, and for improving income distribution,

6. The resulting agricultural credit policy has pursued three mainobjectives: (a) to supply institutional credit to the agiicultural sector atbelow market rates; (b) to improve the sector's income level, especially thatof small farmers; and (c) to stimulate agricultural production and producti-vity. The main policy instruments used to pursue these objectives--forcedinvestment, subsidized interest rates, and directed credit allocations--arediscussed below.

7. Forced Investment. Forced investment pursues the objective ofensuring a supply of credit to selected sectors at below market interestrates. The forced investment mechanism operates by requiring financialinstitutions to invest in certain types of bonds ("A" bonds) and other finan-cial instruments with interest rates substantially below market. In 1985,these investments totalled Col$ 70 billion. The required level of suchinvestment is expressed as a percentage of the institutions' portfolio and/ordeposits. Final credit beneficiaries with access to funds mobilized throughforced investment also pay interest at rates substantially below market.

8. Another type of investment--reserve replacement investment (ISE),--involves authorizing commercial banks and financial corporations to earmarka percentage of their reserve requirements for the purchase of certain typesof bonds. In 1985 ISE investments totalled Col$ 82 billion. ISE is a formof forced inv;stment in the sense that the only alternative is to leava fundswith the BOR as reserve requirements at zero interest rate. The bionds (mostimportantly for agriculture, Resolution 39/78 bonds) pay higher &nterest than"A" bonds but still less than marke rates. The revenue raiset through thesebonds is allocated to a variety of specific uses by the monet'-y authoritiesand BOR.


9. Forced investment (including ISE) totalled Col$ 152 billion in 1985and was allocated to FFAP (472), housing for the poor (282), Caja (9%),Central Mortgage Bank (8%) and direct to Government (82). To transfer thefunds obtained through forced investment Into credlt flows to the ruralsector, FFAP functions as a traditional refinancing mechanism for BOR. FFAPrediscounting permits the expansion of credit: by rediscounting their loansthrough FFAP, financial intermediaries (Caja Agraria, banks and financialcorporations) can leverage their own fundaby four or five times, depending onthe rediscount margin (presently ranging between 702 and 952). FFAPrediscounts mainly loans made to medium- and large-scale farmers, but alsoloans to small farmers (normally made by Caja) that meet FFAP's lendingcriteria. These funds are available to all banks on a first come, firstierved basis.

10. Subsidized Interest Rates. Until recently, interest rates foralmost all credit lines in the rural sector were below market and fixed. ThAsub .dy created through provision of credit at below market rates accrues tothose farmers (and they are the majority of Colombia's farm population) whohave access to credit either through FFAP's rediscounting lines or throughCaja's ordinary credit resources.

11. Directed Credit Allocation. FFAP's funds are administrativelyallocated to specific rural activities. The amount of credit provided is inproportion to the costs of production involved in a particular activity. Thetrend is increasingly for FFAP to finance all agricult'ral products and acti-vities, including the purchase of land and livestock, ak.a agriculturalmarketing and processing activities, although this credit line has not yetbegun to operate.

12. The three agricultural banks essentially grant credit for anyfinancially viable agricultural investment, contingent on the availability offunds. However, Caja's credit is to some extent directed to target groups ofbeneficiaries (based on the level of their assets), to specific areas (afternatural disasters), or to specific crops.

B. Growth of Rural and Agricultural Credit

Growth Pattern

13. The flow of rural credit has grown at 3.0Z p.a. in real termsduring 1974-85 (Table 1), with the faster growth concentrated in the earlieryears (1974-80). In the same period, agricultural credit, the largestcomponent of rural credit, grew somewhat faster (at 4.72 p.a.), indicatingthe greater dynamism of agriculture vis-a-vis marketing and agro-industrialcredit. While impressive, these growth rates have not kept pace with thegrowth rate of total credit in the economy (about 11% p.a.), despite changeqin the composition of agricultural output towards relatively more creditintensive activities.

14. the outstanding rural and agricultural portfolios grew, respective-ly, by only 2.3X and 3.2% annually during 1974-85, compared to 8.62 p.a. fortotal portfolio (Table 1). As a result, the agricultural sector's portfoliodeclined from about 24% of total outstanding portfolio in 1974 to about 142in 1985.


Table 1: Totl, Rural ad Mioultural Portfolio and trnat Coutunt 1975 Prim. 1974-65

Portfolio ___ onTotal &awl a/ Agricultal Total Rrl a/ -a1-Ut

Year Portfolio Portfolio Portfolio (3)/(1) Loam Ioens Lcur(1) (2) (3) (4) (5) (6) (7)

1974 70,623 20,548 16,778 23.8 51,392 17,971 12,1481975 75,345 19,756 16,629 22.1 42,757 14,965 11,6721976 89,725 19,745 17,129 19.1 88,937 22,673 17,0691977 98,136 23,509 21,048 21.5 113,994 24,623 19,9361978 111,277 23,580 20,184 18.1 131,747 27,262 21,1551979 103,762 22,197 19,313 18.6 133,614 27,349 22,0481980 123,963 23,749 21,163 17.1 192,053 27,009 22,1671981 141,371 23,860 21,015 14.9 134,213 22,693 17,4571982 141,121 25,060 21,860 15.5 126,282 24,872 18,6841983 159,404 26,166 23,143 14.5 128,883 25,702 20,3751984 170,001 26,743 24,053 14.2 123,673 24,166 19,2501985 175,138 26,401 23,862 13.6 160,332 24,757 20,028Groweth Rates1974-85 8.6 2.3 3.2 10.9 3.0 4.71974-80 9.8 2.4 4.0 24.6 7.0 10.51980-85 7.2 2.2 2.4 -3.5 -2.5 -2.0

a/ Incliue agricultural, nUrketirg and agro-indstrial loG.

Source: RRES and mLssion estim.tes.

Table 2: Outstanding Agricultural Portfolio byFinancial Intermediary, 1974-85

(Col$ million)

Caja FinancialYear Total % Agraria Z Banks X Corporations %

1974 13,782 100 6,208 45 6,705 49 869 61975 16,629 100 7,586 46 7,768 47 1,275 71976 21,180 100 9,837 46 9,652 46 1,691 81977 33,385 100 16,668 50 14,197 43 2,521 71978 38,112 100 17,660 46 17,205 45 3,247 91979 46,000 100 20,962 46 21,804 47 3,234 71980 63,685 100 30,920 49 27,881 44 4,885 71981 78,561 100 36,365 46 33,304 42 8,892 121982 102,202 100 49,676 49 43,192 42 9,334 91983 130,411 100 68,630 53 52,981 41 8,800 61984 164,361 100 92,500 56 62,129 38 9,732 61985E 198,849 100 118,000 59 71,054 36 9,795 5

Source: Revista del Banco de la Republica and Caja.

E - Estimate.


Role of Financial Intermediaries and FFAP

15. In terms of total resources lent, Caja is the financialintermediary providing the largest share of credit to the agricultural sector(Table 2). It has increased its portfolio share from 45% in 1974 to 59% in1985, mainly due to increased access to FFAP rediscounts. The share of thefinancial corporations, which has remained fairly constant, and that of thebanks, which has slowly but steadily declined, are still significant,together accour.ting for 41% of total agricultural credit.

16. Since 1979/80, lending by financial intermediaries has been increa-singly through the use of FFAP rediscounts, with FFAP now the main source offunds for institutional credit to the agricultural sector. Of total newagricultural lending in 1983, 4j% was accounted for by FFAP rediscounts, upfrom 33% in 1979. However, the participation of the various financial inter-mediaries in FFAP rediscounts has changed dramatically since 1974, reflectingth3 reduced profitability to the financial intermediaries of the non-redis-counted portion of the loans. Private commercial banks and financial corpo-rations accounted for 61% and 4%, respectively, of FFAP's outstanding port-folio in 1974; in the same year, Caja accounted for 10% and Banco Ganaderoand Banco Cafetero, 12% each. By 1983, the share participetion of commercialbanks and financial corporations had been halved--to 28% and 2% respective-ly. Participation by Caja in particular (at 33%) and Banco Ganadero (22%)had increased substantially. Banco Cafetero's share had increased to 15% by1983.

C. Resources for Institutional Credit

17. Resources for rural institutional credit come mainly from twosources: (a) savings mobilized by the banking system, which provided abouthalf of all resources in 1983, and (b) forced investments from the commercialbanking system (paras. 7-8), which are channelled through FFAP's rediscoun-ting credit lines together with a small proportion of market-raised funds(mobilized, for instance, through agro-industrial bonds). These sources asthey relate to agricultural credit are discussed below. In addition, smallamounts come from fiscal and monetary sources (surcharges on Lustom duties,special rediscount lines in BOR, etc) and separate credit lines 4/ withfinancial intermediaries finance particular groups of farmers, mainly smallfarmers, using funds from both domestic and foreign sources.

Savings Mobilization by the Agricultural Banks

18. From 1974 to 1983, total financial savings mobilized by the threemajor agricultural banks have grown on average by about 8% p.a. in real terms(Table 3). However, growth rates of the individual institutions have dif-fered, with average annual rates in real terms of 4.4% (Caja), 8.3% (BancoCafetero) and 15.4% (Banco Ganadero). Caja's poor resource mobilization isdue partly to its increased access to FFAP funds and partly to its preferen-tial position of holding current accounts of some government departments andagencies.

4/ Run principally by INCOR.A (Colombian Institute for Agrarian Reform), DRI(Integrated Rural Development Program) and PRODESARROLLO (Program forthe Development and Diversification of Coffee Growing Areas).

- 25 - ANNEX IPage 6 of 14

Table 3: Resources Mobilized by Agricultural Banks and TotalAgricultural Portfolio, 1974-83(Constant 1975 - Col$ million)

DepositsCaja Banco Banco Agricultural Deposits/Agraria Ganadero Cafetero Total Portfolio a/ Portfolio

1974 7,036 2,006 4,520 13,562 12,596 108%1980 8,509 4,942 6,522 19,973 13,546 147%1983 10,341 7,391 9,243 26,975 13,990 193%

GrowthRates: 1974-80 3.2% 16.3% 6.3% 6.7% 10.5%

1980-83 6.7% 14.2% 12.2% 10.5% 2.6%1974-83 4.4% 15.4% 8.3% 7.9% 5.9%

a/ Net of FFAP rediscounts.

Source: RFMSS.

Table 4: Composition of Deposits, 1974-85

1974 1983 1985Curr. Sav. Curr. Sav. Curr. Sav.Accts Accts CDTs Total Accts Accts CDTs Total Accts Aects CDT Total

Caja Agraria 30 70 - 100 35 55 10 100 36 50 14 100Banco Cafetero 78 13 9 100 49 14 36 100 n.a. n.a. rL.a. n.a.Banco Ganadero 79 6 3 88a/ 47 4 33 84a/ n.a. n.a. n.a. n.a.Comm. Banks n.a . n.ea n.a. n.a. 43 19 38 100- 41 19 40 100

a/ Banco Ganadero also has some trust funds and other types of deposits.

Source: RFMSS and mission.

- 26 - ANNEX 1Page 7 of 14

19. All three banks have shown rapid growth (averaging 35% per year) inthe volume of certificates of deposit (CDT.). Caja, however, did not beginpromoting CDT. until 1979. While the growth rate over 1980-85 has averaged81% per year in real terms and the trend is clearly upwards, CDTs in absoluteterms accounted for only 142 of Caja's deposits in 1985 (Table 4). Data for1983 reveal that the structure of deposits of Banco Ganadero and BancoCafetero is more similar to that of the banking system at large than Caja's,especially with regard to the volume of deposits held in current accounts andCDTs.

20. Mobilized financial savings are being increasingly diverted awayfrom the agricultural sector to other sectors of the economy: in 1974, theratio of deposits to the agricultural portfolio of the three agriculturalbanks was 108%; by 1983, it had increased to 193% (Table 3). This trendresulted at least in part from the banks' increased access to FFAP redis-counts, which in effect freed their own reources for lending to other, moreprofitable sectors.

FFAP and the Forced Investment Mechanism

21. FFAP has had significant success in providing substantial resourcesto the agricultural sector, with rapid expansion of its lending program,especially since 1978. The most important factor in this increased flow ofresources was the expansion of forced investment (including ISE), whichprovides about 80% of total FFAP funds.

22. In 1985, the stock of forced investments, including ISE, totalledabout US$900 million (Table 5), and amounted to a substantial percentage(about 18%) of deposits (current accounts, saving accounts and CDTs), oftotal assets (about 13%), and of the loan portfolio (about 29%) of the com-mercial banks. Forced investments, including ISE, have grown in real termsby about 4% p.a. from 1974 to 1985 and 92 p.a. since 1981. Since its incep-tion in 1978, ISE has shown a faster growth rate than "A" bonds; from 1981 to1985, ISE increased its share of total forced investment from about 38% toabout 54%.

23. The share of forced investment, including ISE, financed by theprivate banks has ranged from 84% in 1974 to about 74% in 1984. However,private bank participation is concentrated in forced investment, which yieldslower interest rates than ISE (private banks accounted for 78% of totalforced investment and 68% of ISE in 1984). The magnitude of the resourcescaptured through forced investment has imposed a serious burden on thebanking system's liquidity and profitability. Forced investment constrainsthe banks' liquidity by forcing them to earmark part of the funds attractedthrough customer deposits for purposes implying a freezing of funds and lowreturns. The opportunity cost of funds in the banking system is apparentfrom the divergence between its rverage lending interest rate--29% p.a. in1984--and the rate then payable on "A" bonds and ISE--which averaged 16.5%.Moreover, forced investments have longer terms than other bank loans andfunds, creating a situation where demand deposit funds must often be used forlong-term loans and investments. Bank profitability is reduced as largerpercentages of revenue-producing assets are earmarked for low-yielding forcedinvestments.


Table 5: Statistics on Forced Invest ents, F"AP and Caja Agraria

1981 1982 1983 1984 1985

(Billions of Current Pesos)Coomercial BanksTotal Deposits 345.7 413.0 520.7 645.9 846.9Total Assets 491.6 594.2 758.0 926.4 1182.2Loan Portfolio 211.7 257.6 346.8 416.1 521.6

Forced Investmnts alaw 5 20.1 23.3 34.6 37.2 43.8Caja Ponds 7.3 8.2 9.5 11.0 13.3Other 4.2 5.3 9.0 10.4 12.5Total 31.6 MT 53.1 58.6 69.6ISE 19.2 23.2 35.2 62.1 82.3

Total Forced Investinnts 50.8 60.0 88.3 120.7 151.9

-(US$ million equivalent) 900 900 1,000 1,100 900

Total Forced Inv. as a % of Comercial Banks'- Total Deposits 15 15 17 19 18- Total Assets 10 10 12 13 13- Loan Portfolio 24 23 25 29 29

"aAP Fundi °/Naw 5 i 20.1 23.3 34.6 37.2 43.8ISE 8.7 6.5 12.6 19.2 28.3Other 3.1 10.0 6.4 9.9 12.3Total 31.9 MU.8 53.6 66.3 84.4

---

"FAP Forced Inv. as a % of Total Forced Inv. 57 50 53 47 47FFAP Forced Inv. as a Z of Total FAP 90 75 88 85 85

Funding to Caja from Forced Investmuents a/Bonds 7.3 8.2 9.5 11.0 13.3"FAP 8.4 12.6 19.0 30.0 32.2Total 15.7 20.8 28.5 41.0 45.5

FAP to Caja as Z of total FAP 30 34 37 45 38Total to Caja as % of Total Forced Inv. 31 35 32 34 30

Forced Inv. to Agriculture as a Z ofTotal Forced Investments 71 63 64 56 56

a/ Stock at year end.

Source: Revista del Banco de la Republica and FFAP.

-28 - ANNEX 1Page 9 of 14

24. Funding VFAP. The share of forced investment, including ISE, thatthe agricultural sector receives through FFAP has increased rapidly, fromabout 23% of total forced investments in 1974 to about 48% in 1985, with alarge increase in the early 1980s. The agricultural sector receives most ofthe cheaper funds arising from the system, with forced investment %"A" bonds)providing almost 60X of such financing during 1981-85 (Table 5).

25. The composition of sources of FFAP funding differs in two distinctperiods. Up to 1978, FFAP depended exclusively on forced investments ("A"bonds). Since then, the sources of funds for FFAP have been diversified andinclude Resolution 39 bonds financed through ISE (which doubled their 14%share of total funds between 1978 and 1984), external financing (6% in 1980but only 1% in 1985), and in 1978-82, "B" bonds, which are similar to "A"bonds but are purchased by public sector entities. Since 1979, marketresources have also been captured by FFAP through agroindustrial bonds. Therelative importance of 'A' bonds as a source of funds for FFAP has thussteadily declined. However, they still account for more than 50% of all FFAPresources and together with funds raised through ISE constitute over 80%.Moreover, IFAP's fast growth rate of available funds (over 10% per year inreal terms during 1974-85) was due primarily to the expansion of "A" bonds(Table 6).

Table 6: FYAP Finxwirg Souzcs at Cbstant (1975) Prices, 1974-85(O,l$ million)

Bonds X Bonds X o- 2 XRsolution % IED X Barw 2Class Class Industrial 39/1978 In.1357 de la

Year A B Bonds Bonds epublica Total

1974 3,483 100 - - - - - - - - - 3,4801980 5,340 67 10 - - 2,181 27 380 6 - - 7,9401983 6,167 65 - 1,527 10 2,234 23 201 2 - - 9,5501984 5,716 55 - 1,378 13 2,929 28 156 2 174 2 10,3501985 5,372 52 - 1,397 14 3,460 33 110 1 - - 10,340

Growth Rates

1974-80 7.4% - - - - - 14.8%1980-85 0. 1% - 9.7% -22.0% - 5.4%1974-85 4.0% - - - - 10.-%

Source: FFAP.


D. Interest Rates

26. Since 1974, and with few exceptions, the interest rates applied tomost credit lines in the rural sector have been negative in real terms andwell below effective CDT rates, the best indicator of market-determinedinterest rates. However, since 1980 there has been a trend towards a slightincrease in most rates. In 1983 and 1984, when the inflation rate dropped to17-18%, many of the rates became positive, and the differential vis-a-vismarket rates decreased slightly (Table 7).

Table 7: Maior Rural Credit Lines - (Effective) NominalInterest Rates, 1974-86

FFAP InflationCaja Rediscounting CDTs a/ Rates

1974 n.a. n.a. 26.2 24.91975 15.3-20.2 15-16.5 26.8 23.21976 15.3-20.2 15-16.5 26.8 20.11977 15.3-20.2 15-16.5 26.8 33.91978 15.3-20.2 12-16.5 26.8 17.41979 15.3-25.4 18-21.5 25.6 24.61980 17.7-35.1 21-24 37.8 26.51981 20.2-35.1 21-24 39.2 26.31982 20.2-35.1 21-24 36.8 24.01983 20.2-35.1 21-24 34.2 16.61984 20.2-35.1 21-24 35.5 18.31985 17.0-32.3 21-24 35.0 22.41986 17.0-32.3 23.9-26.5 32.0 20.9

a/ Market interest rates are about 5 percentage points higher.

Source: RFMSS and Tables 8 and 9.

27. Interest rates on agricultural lending vary widely. Market ratesare rarely utilized due to their high level (effective rates of about 402 innominal terms or about 20% in real terms in 1985) compared to the subsidizedrates available. The subsidized rates are available on Caja lending from itsown resources (Table 8) and on the various credit lines that make resourcesavailable by rediscounting through financial intermediaries (including Caja);the most important such credit line is FFAP (Table 9).

E. Summary of Issues and Recent Policy Improvements

28. The Government's agricultural credit policy has created a systemthat is largely insulated and protected from market signals and probably notsustainable in the long term. The main issues concerning use of the forcedinvestment mechanism and interest rate policy are summarized below.

Issues

29. Forced investments have permitted large transfers of resources tothe agricultural sector, through FFAP's rediscounting credit line, on

- 30 ANNEX IPage 11 of 14

Tabla 3: Loan Interest Rates - CaJa AEraria

Current Rates (1986)Loan Type (Col$ '000) Nominal Effective

1. Development Credit

A. Food CropsAssets up to 300 18.0 19.5

From 300 to 1,800 21.0 22.7Above 1,800 23.0 25.0

B. OthersAssets up to 100 18.0 19.5

From 100 to 1,200 21.0 22.7From 1,200 to 1,800 23.0 25.0Above 1,800 29.0 32.3

Rehabilitation Assets 18.0 19.5Rural Housing 17.0 18.5Integrated Farms 20.0 21.6

C. DRIAssets up to 300 17.0 17.0

Above 300 21.0 21.0

2. Commercial Credit

Second Window 35.0 39.9Commercial Loans 35.0 39.9Loan against Savings 27.0 - 30.0 29.9 - 33.5Inventory Loans 24.0 24.0Resolution 10 35.0 39.9Credit Cards 35.0 39.9

Source: CaJa Agraria and mission.

October 23, 1986.

Table 9: 1,ai Izterust bAt. - WPFA(Z)

1996 Ibt 1967 Noe

moini bi.Rft Vri It.Pe Nomm t Raf Mui i.Rf

Pelmn FXY ! of Caa Ef | dilamr A Of OaX EffxxlivLteraW Ro& dscute Fns 1 1 e/ RM FIndi Pledson P a Q/

Lae Far

9r- Crops a/ 18.5 21.5 75 21.5 24.7 19.5 23.0 70 23.0 26.7Shrt-Tamu 19.2 22.0 75 22.0 25.4 20.0 23.5 70 23.5 27.4MBdiumn-'Tem c 19.7 22.0 75 Variable 26.5 21.5 23.5 85 Variable 27.9Loqg-Th d/- 20.5 22.0 85 Variable 24.6 23.0 24.5 90 Variable 29.4

Sff LU Faznor b/

short-Ten Crops 185 21.5 75 21.5 24.7 14.5 19.0 80 19.0 21.5Short-Term 19.2 22.0 75 22.0 25.4 15.0 19.5 80 19.5 22.1

diu.M-Terl c/ 19.7 22.0 90 Variable 26.5 20.5 22.0 90 Variable 25.9lorg'evon ld 20.5 22.0 85 Variable 24.6 21.5 23.0 95 Variable 27.1

a/ Swrt-'lkm Crops (low thm 6 .oh), Sxrt-'T (lows tim 2 yers), and IrdiAiu mH} (1am tOm 8 yeau).b9/ Aec lem tb (bl$ 3,OOD0,OOD.

/ Varble rate a to re 1of MIl, curently abost 26LVariable rae opal to rate of DM phs 3 poLts, owrealy amt 29L

e/Irest pald in advaome anuur-ter loom an amli1y for thepi t yer for sodium- and 1m.g-tem loam.

Souoe: WUAP.

Jamiary 27, 1987. _


relatively soft terms. As a result, however, the rural financial system andthe financial intermediaries have become increasingly reliant on !undsmobilized through forced investments. This raises four main issues. First,despite the large volume of funds mobilized through forced investments, agri-cultural credit has grown more slowly than credit in other sectors andappears unable to meet demand, at least at the current subsidized interestrates. Second, with such large transfers through forced investments, thereis less incentive to raise adequate levels of market-mobilized financialsavings. Third, forced invastments already impose a severe burden on theliquidity and profitability of the banking system, which effectivelyprecludes indefinite expansion of resource mobilization using this means.Finally, forced investments are dependent on the Government's macrofinancialand monetary policies, which may change in response to economic eventsunrelated to the agricultural sector.

30. Interest rate policies have led to a low, controlled and highlysubsidized level of interest rates. The rate dispersion does not reflectmarket-related resource mobilization costs and risk differentials, but ratheradministrative decisions. These factors have raised issues in severalareas. First, the low interest rates to borrowers translate into generallylow interest paid to depositors, which in turn constrains mobilization offinancial savings and contributes to the agricultural banks becomingincreasingly dependent on FFAP. Second, the low interest rates paid byfarmers reduce the profitability of agricultural lending, especially thatwith longer terms; as a result, financial intermediaries are seeking moreprofitable investments in other sectors, and agricultural credit isconcentrated in short-term lending. Finally, the high subsidy implicit ininterest rates has accrued primarily to medium- and large-scale farmers andthus has not improved income distribution. On the other hand subsidizedcredit to small farmers has masked a high level of inefficiency in financialintermediation by Caja (see Annex 2). This has resulted in less credit beingmade available to small farmers and at a higher relative cost (reducing theeffective subsidy to smaller farmers), while Caja pays low interest rates toits (mainly rural) depositors.

Credit Policy Improvements

31. To ensu.e a sounder basis for financing the rural economy, theRural Financial Markets Sector Study recommended that: (a) forced investmentsbe at least frozen at their present nominal level; (b) the proportion ofindividual loans rediscounted by FFAP (i.e., the rediscount margin) beprogressively reduced, thereby allowing a given amount of FFAP resources toblend with a larger volume of market-mobilized resources; (c) simultaneouslywith (a) and (b), the margin to financial intermediaries and the interestrates charged to farmers be progressively increased to levels that provide anadequate incentive .or the financial intermediaries to fully utilize theresources mobilized through forced investment and made available throughFFAP; and (d) mediurn- and long-term interest rates for FFAP rediscounting bemade partially variable, by making the interest rate on the non-rediscountedportion of the loan equal to CDT rates plus about three percentage points.Effective interest rates for the whole loan should a. least be positivewhenever they are less than CDT rates.


32. Some policy improvements have already been achieved through aUS$250 million Trade and Agricultural Policy (TAP) Loan approved in March1986. As a condition of the first tranche release, FFAP on-lending rates tofarmers were raised between 0.5 and 7.0 percentage points, for an average of1.5 percentage points, to between 21.8% and 25.1% effective. In addition,interest on the portion of medium- and long-term loans not rediscounted byFFAP was made variable and equal to current CDT rates. Further discussionson interest rate policy and the use of FFAP are expecced with the release ofthe second tranche in 1f87.

COLOMBIA


Movement of CDT Rate and CPI, 1974-86

40-

38 -

316

34-

32-

30 z

o ~28-

26 7 7 B

24

22-

20-

18

74 75 76 77 78 79 80 Si 82 83 84 85 88 10 CDT RATE -* CONS. PRaCE INDEX

~ 35 - ANNEX 2Page 1 of 16

COLOMBIA

CA_A A AGRARIA INSTITUTIONAL DEVELOPMENT PROJECT

Caja Agraria - The Implementing Agency

I. INTRODUCTION

1. Caja de Credito Agrario, Industrial y Minero (Caja) is one of thelargest banks in Colombia, with assets of Co1$ 242 billion (US$1.4 billion)and new lending of some Col$ 100 billion (US$580 million) in 1985. Caja is alarge and complex organization whose mandate is to provide financial servicesand inputs to small farmers. By December 1985, Caja had a network of 878branches, 411 warehouses and input stores, and a staff of some 13,000. Ithas become the main outlet for credit to small farmers, as well as a channelfor government assistance programs in rural areas.

2. The provision of specialized rural credit began in 1924 with theestablishment of Banco HIpotecario (BAH) to provide loans for rural housing.In 1925, a section was created (Caja de Ahorros) to mobilize savings and in1927, in an effort to lower the cost of production to farmers, another sec-tion was added for the provision of agricultural supplies such as machinery,fertilizers, seeds and insecticides. In 1931, the BAH was reorganized intotwo separate institutions, Ca4a de Credito Agrario and Caja Colombiana deAhorros. Caja was created when these two institutions subsequently merged.In 1944, Caja's scope of operations was widened to include insurance sales.

3. Caja was originally set up as a mixed entity, with 25% of equityowned by the Government, 10% by commercial banks, 4% by the National CoffeeFederation (FEDERACAFE) and 61% by its borrowers. It was designed to operateas a credit union, with members acquiring shares in direct proportion totheir loans outstanding. This attempt to use private capital from borrowersfailed, and as the Government raised its participation to 93%, CaSa becameeffectively part of the public sector. In 1968, the Government revised thelaws and regulations governing the public sector, and Caja was classified asa State Industrial and Commercial Enterprise subject to the various restric-tions and regulations applicable to government corporations. The currentlegal situation with regard to Caja's equity composition is shown below:

Classes of Shares Subscribed by: Allowed Percengage

A Public enterprises no less than 80%B Banks and corporations Up to 5%C National Federation of

Coffee Growers Up to 10%D Public Up to 5%

4. Caja's role in agriculture has always beeh understood as develop-ment in a general sense, and the entity continues to carry out a variety oftasks not always related to credit. Other activities are important in termsof their size relative to the markets they serve: in fertilizers, for

-36- ANNEX 2Page 2 of 16

instance, Caja has held 25% of the market during 1981-85, and the installedcapacity of its 5 seed production plants is equivalent to 12% of the nationalmarket. These activities are, however, minor compared to Caja's lendingoperations: in 1985, insurance and agricultural sales accounted for theequivalent of 12% of operating revenues from the banking operations. Lendingis not restricted to the rural sector, and in 1985, 20% of Caja's portfoliowas placed in other sectors.

5. Up until the early 1970s, Caja was considered a relatively effi-cient institution. It now has serious administrative problems rooted Li itspolitical value to the Government. As the Government assigned an increasingnumber of functions to Caja, i/ no provision was made to cover the budgetaryeffects of these new programs, nor were they assigned following a clearlong-term strategy. The results are a lack of appropriate lending pioce-dures, no depth nor leadership of middle management, excessively high over-heads and loan arrears, lack of automated equipment, high transaction costs,bad quality of service and low employee morale. In spite of this, Caja isstill considered the only institution able to reach small farmers on a largescale, and the Government has expressed its interest in reforming Caja.

II. ORGANIZATION, STAFFING AND PROCEDURES

Organization

6. Caja is governed by an 11 member board chaired by the Minister ofAgriculture. Other board members are the Vice-Minister for Agriculture,Vice-Minister for Finance, the General Manager of the Instituto Colombiano dela Reforma Agraria (INCORA), four appointees of the President of theRepublic, a representative from the Banco de la Republica (BOR), a represen-tative from FEDERACAFE, and a representative from the Farmers Users'Association. Caja's General Manager is a presidential appointee. Eventhough he reports directly to the board, he has a certain degree of autonomyand considerable political power, making this a visible, highly prestigiousand politically desirable position.

7. The General Manager has seven department heads reporting to him.Three (Finance, Administration and Personnel, and Legal Affairs) are supportunits, and four (Credit, Commercial Banking, Input Supply and Insurance) areservice departments (see Chart 1).

8. Caja's credit activities operate through branches that report tothe Credit Depdrtment through six regional offices. Branches are classifiedinto four categories according to number of staff and functions performed.Caja has achieved a very wide coverage, with the number of branches

1/ Caja was given tasks such as collection of mortgage payments for theInstituto de Credito Territorial, administering the "Subsidio Familiar",(savings accounts of companies for the benefit of employees), etc.


increasing from 680 to 878 between 1970 and 1986 (by comparison, the privatebanking system has about 1,900 branches). This branch network allows Caja Loreach large numbers of small farmers and to provide the geographic coveragerequired by Government. This network contributes to the institution's highadministrative costs. Moreover, many branches are operating at a loss and ina poor condition with little maintenance and modernization undertaken.

9. Caja's organization reflects its haphazard evolution over time andthe need to maintain an excessive infrastructure to cope with unexpectedrequests from Government. The large number of branches makes it feasible forCaja to reach a large number of small farmers but contributes to the institu-tion's inordinately high administrative costs ind closeness with local poli-tical interests. In spite of the layered structure of the branch network andthe regional distribution, there is no effective decentralization: most ofthe large regional and state offices merely transmit information betweenheadquarters and field offices and do not enjoy the necessary level of dele-gation to function effectively. These large offices are heavily staffed andhave high operating costs.

Staffing

10. As of February 1986, Caja had about 13,000 employees, of which2,100 or 16% were at headquarters and 8,640 (66%) worked in branch offices.The remaining staff were employed by the Input Sales Division (9%) or asagricultural inspectors (9%).

11. Staff levels are excessive. From 1971 to 1976, when the number ofbranches increased by 25%, from 678 to 833, the staff grew rapidly,increasing from 9,776 to 13,928, or 43% (an average of 27 new employees fireach new branch versus an average of 14 employees per branch in 1971). Sincethen, there have been some attempts to reduce staff. In the late 1970s, Cajaintroduced account automation, but the political pressures to generateemployment pre-empted any significant gains in productivity throughattrition. In 1976, early rezirement was offered and accepted by severalhundred employees, but since Colombian Labor Law establishes retirement agesof 55 for women and 60 for men, the agreement is now being challenged theformer employees. More recently, the policy has been to reduce numbers byattrition and/or replacing permanent staff with contract staff or "interinos"at a lower cost (e.g., 1,200 agricultural inspectors in early 1986 have nowbeen reduced to around 820).

12. Staff productivity is low as indicated by a comparison between Cajaand Banco Cafetero for 1983. These differences can only be partly explainedby the smaller average size of loans and deposits at Caja.

Caja Agraria Banco Cafetero(millions ColS (millions C-ol$

Deposits/No. branches 55.0 147.1Deposits/No. employees 3.9 5.2Assets/employee 7.7 17.1Portfolio/employee 5.8 13.2

Source: Caja Agraria, Informe de Consultoria, Ley 68 de 1983.


13. Recruitment. Appointments to lower positions are made by eachbranch manager; higher positions are filled by regional managers; andvacancies at the regional offices are appointed by headquartIrs. Recently,in an effort to mitigate the bargaining power of the union, _/ the GeneralManager has reserled the right to appoint senior staff, making them publicemployees rather than Caja's official employees. This step politicized thesepositions (top managers tend to be selected on the basis of politicalaffiliations) and increased turnover at these levels. Reauneration forpublic employees is relatively low, thus the political visibility and powerassociated with these positions are the sole incentives for accepting them.Promotion of Caja's official employees to these positions would entail a lossof stability and remuneration. This situation has contributed to the lack ofcontinuity and managerial leadership.

14. Training and Promotion. Formal training tends to concentrate onareas such 7s sales of farm supplies, and positions such as livestock inspec-tors and bank clerks. Training in more technical areas has only been avail-able for a few mid-Lanagement positions; one reason for this might be that.ew would qualify for it because of age (the average age of Caja's employeesis ove: 40). Higher positions are filled from within rather than throughoutside recruitment.

15. Job descriptions for Caja were written in 19?4. Positions areclassified according to the branch in which they are located, which rapre-sents a serious obstacle in relocating personnel. The tendency is to move topositions in the head office as these wield more power and are better paid.Career paths have also been cut off by the reclassification of senior posi-tions (para. 14).

16. In general, Caja's staff is not public oriented and makes littleeffort to sell. Most -on-credit services, i.e. savings, checking, drafts andinsurance, are only offered in connection with or as requirements for loanapproval. Caja's recent incursions into commercial banking have introducedsome new attitudes, however. In its commercial bank lending, as well as inits Insurance Division, Caja has better trained and more motivated profes-sionals with clearer objectives and a more innovative approach to financialintermediation.

Systems and Procedures

17. Accounts and Audit. Accounting procedures follow guidelinesestablished by the Superintendency of Banks. Caja has adapted these for its

2/ During the biennial contract negotiations, the union has managed to gainabove average benefits, particularly in pensions, retirement, sickleave, housing loans and educational grants for children. Relationsbetween management and the work force have become increasingly confron-tational.

39 - ANNEX 2Page 5 of 16

own internal purposes, but most reports can easily be reorganized into theformat required by the Superintendency of Banks. Hajor problems with Caja'saccounting are the result of inadequate systems for aggregating and transmit-ting basic accounting Information from the branch network to headquarters.As a consequence, Caja's management cannot obtain timely reports on itsliquidity position, collection ratios, or reliable profitability figures forits branches, product lines or customers.

18. As a Bank, Caja is subject '.o the supervision of the Superinten-dency of Banks, but must also abide by regulations issued by the JuntaMonetaria. Its accounts are not audited by an external auditor, nor is Cajasubject to the Contraloria General. Financial statements must, however, beapproved by the Superintendency of Banks before publication. Caja's auditoris a high ranking officer who is appointed by BOR and reports to Caja's Boardof Directors; his staff and budget depend on Caja. The auditor also partici-pates in the approval process of some of Caja's programs.

19. Planning and Budgeting. There is very little effective planningwithin Caja in spite of the number of people involved in making projectionsin two different units in the Finance Department. Planning concentrates onthe allocation of ordinary resources (i.e. funds generated from deposits) andgovernment cornributions; it extends for only six months or a year at themost and is nct linked in a systematic way to budgeting.

20. Budgeting is a fairly lengthy but well structured process, with thebranches sending their estimates of new loans, input sales, etc., to the headoffice where they are reviewed and aggregated. After adjustments to obtainthe desired level of credit, the figures are disaggregated by regional officeand each branch receives a budget for its lending operations. This exerciseis done twice a year and absorbs a vast amount of staff time. Data proces-sing equipment is used at headquarters to add the individual branch budgetsbut not in the branch offices.

21. Operations. Operational problems are evidetit in the branches aswell as head office. The number of reports is excessive, with over 180reports produced monthly by the branches for the head office. The number ofapprovals for all types of transactions is also excessive. Branches areorganized by service, which limits cross selling opportunities and causes adisfunctional physical layout (clients in operational areas). At the headoffice, Caja's management faces interference from the Board of Directors, asthe four main committees (Finance, Credit, Administration and CommercialPolicy) each include two directors among their members. There is also poorcoordination in decision making; problems affecting the whole entity may belooked at by only one functional area, or a problem related to only one areamay be investigated by several departments.

22. Caja is subject to a complex set of regulations by several govern-ment agencies, mainly the Junta Monetaria, the Superintendency of Banks andBOR, each with partial jurisdiction over some operational aspects. Theseregulations not only relate to traditional instruments of monetary control(such as the level of reserves), but also include specific and varyingrequirements in respect of lending conditions applicable to borrowers by


income category, region and other characteristics. As a result, even thoughthe institution enjoys some independence in setting its own work plans, ithas to cope with extensive outside interference.

23. External interference in Caja's management is particularly evidentin financial decisions. For instance, interest rates are set according tonon-commercial criteria (regional development and equity). Perhaps mostdamaging are the emergency programs and the arbitrary manner in which avariety of social tasks are added to Caja's regular activities. Thisincreases the tendency to focus on assigning people to the new task andcontributes to management turnover and lack of work continuity, as managersare frequently rotated to carry out these unexpected requests. The resultover time has beun the creation of an oversized organization whose structureand systems have the flexibility to support a variety of services, but withno sense of continuity and no accountability in management.

24. Credit. Credit procedures suffer from excessive regimentationintended to link funds from different sources to specific ends. There aresome 75 credit programs each with its own eligibility criteria, terms andmonitoring systems. The present credit manual is inadequate because of itsemphasis on compliance with bureaucratic hurdles and regulations.

25, Organization of credit operations is also defective. There is noasset/liability management, no loan review function and no separation betweenthe functions of loan promotion, administration and analysis. Loan fileupdate and documentation are not centralized, nor is it the responsibility ofany particular officer. Loan processing is lengthy and carried out by poorlytrained personnel with little or no automation. Evaluation of loanapplications is based on the current value of collateral and equity of theapplicant, and not on asset conversion.

III. FINANCIAL ANALYSIS /

26. This analysis of Caja focuses on its financial viability and triesto bring out its major problems and vulnerabilities. The first sectionbegins by looking at the growth and structure of Caja's assets, where one ofthe main issues is the distortions caused by use of funds generated throughforced investments. The section includes a look at changes in thecomposition of the loan portfolio and the level of .verdues. The nextsections look at the structure and growth of liabilities and Caja's capitalstructure. The final section looks at different aspects of Caja's overall

3/ The information used for this analysis comes from various sources, butmost was obtained from Caja's financial department and BOR. The1982-85 financial statements from which some data were drawn carry aqualified opinion from Caja's auditor. The main qualifications reflectdefective internal control systems and the absence of adequate automatedequipment. Some problems, such as the non-reconciliation of accounts,have lingered in Caja's financial statements for several years.

- 41 - ANNEX 2

Page 7 of 16

financial performance, including liquidity, operating margins andprofitability, where the most important issue is the size of overhead costs,particularly personnel costs.

Structure and Growth of Assets 4/

27. Caja's assets totalled Col$ 241.6 billion (US$1.4 billion) in1985. The most important asset category is loans and diecounts, accountingfor just under 60% of the total every year since 1975. Government recei-vables are the next most significant category, amounting to aroundCol$ 50 billion, or 21% of Caja's assets in 1985. Receivables include agrant made to Caja by the Government in 1983 to cover its accumulated losses(Col$ 30 billion, or US$300 million equivalent) in the form of a 20 year noteat 2.5% interest. The Input Sales and Insurance Divisions account for 2% ofassets.

28. Assets have grown at an average real rate of 5.2% p.a. over 1974-85and the loan portfolio at 4.2% p.a. Even though these increases are belowthat of credit for the whole econoMy (total portfolio growth of 8.6% p.a.),they are greater than expansion of agricultural GDP (3.6% p.a.). This ispartly explained by the concentration of Caja's lending in agriculturalcredit as opposed to agro-industrial and marketing credit (agriculturalcredit has been the most dynamic component of rural credit, with a 5.9% p.a.real growth in portfolio from 1974-85). Recently, Caja's lending hasexperienced a strong push, with real growth rates of about 10% p.a. in thepurctolio in 1980-85. This performance is good compared to 7.2% p.a. for thewhole of the financial sector. Caja's commercial banking activities havebeen expanding at higher rates than its conventional lending to farmers and,since 1982, the commercial portfolio has increased from 9% to 18% of totalportfolio. The growth in different types of lending in recent years is asfollows:

4/ Caja's financial statements may be overestimating market values ofassets by as much as 20%. The present aging of receivables and loansoutstanding corresponds to requirements of the Superintendency of Banksbut does not fully convey default risks at market values. Theinter-agency float is not shown separately, nor are letters of creditand overdrafts, which have grown substantially in the recent past. Inaddition, Caja's other lines of business are not properly represented inthe balance sheet. The Input Sales Division shows only the inventorycategory with no separation of the warehouses, trucks and receivablesdirectly associated with this line of business from the overallaccounts.

-42- ANMX 2Page 8 of 16

Type of Lending 1982 1983 1984 1985 Increase1982-85

(In real terms)…------- ----- (million Col$) - ---- … ------

Total ruralportfolio 45,891 61,717 76,769 106,523 37

Rediscountedlines (FFAP) 11,399 17,604 22,155 37,702 95

Ordinaryresources 34,487 44,113 54,614 68,821 18

Commerciallending 4,783 7,726 9,463 19,608 142

29. Access to funds from the Fondo Financiero Agropecuario (FFAP)--arediscount window at BOR financed with forced investments from commercialbanks as a means of providing agriculture with subsidized credit (seeAnnex 1)--has allowed Caja to increase its share of agricultural credit atth6 expense of the private sector. By making FFAP funds available foragricultural credit, it has also freed up Caja's ordinary resources to allowthe growth of Caja's commercial business. In 1985, FFAP rediscounted loansfor a total of Col$ 83.0 billion (US$500 million), of which Caja placed about46% through its lending operations. Between 1982 and 1985, Caja's lendingrediscounted through FFAP grew at an average annual rate of 25% compared to6%, in real terms, for lending from its ordinary resources. At year end1985, FFAP accounted for over 35% of Caja's total rural loans outstanding.

30. There are advantages to Caja in using FFAP funds, but also somedrawbacks. Caja uses FFAP funds to remedy its liquidity problems, since theavailability of these resources permits Caja to liberate its own resourcesfor emergency programs, rural housing loans and commercial banking. At theirsubsidized rates, there are no problems of demand for FFAP credit. Use ofFFAP funds has a beneficial effect on Caja's financial results (the grossmargin stands at betweeo 30% and 40%, compared to Caja's own margin of 14%)and involves lower administrative and marketing costs. These loans requireless effort in terms of processing and tend to be for larger amounts thanloans from Caja's ordinary resources. In addition, any technical assistancerequired is paid for by the borrowers. On the other hand, use of FFAP fundsresults in a tendency towards lending to larger farmers rather than Caja'starget group of small farmers (lending to large farmers accounted for 28X ofthe value of the portfolio in 1982, but 33% in 1985) and towards a passiveattitude in savings mobilization.

31. The exransion of Caja's business into non-rural credit activitieshas been the subject of some concern in Government. Caja's management hasseen the expansion of commercial banking as a means of improving its chronicdeficits without recourse to the Government, since lending rates for bankingoperations move freely and can reach differentials of up to 15 percentagepoints above rural lending rates. The concern expressed is partly justifiedbecause the subsidies granted to Caja are based on the assumption that theyare eventually passed along to the rural population. On the other hand, Caja


does not receive compensation from Government for its 'social" functions orproviding government services. If the Government were to limit Caja'slending to the rural sector, It would also have to finance a larger share ofCaja's deficits. Additionally, It would deprive Caja of an infusion oftechnical Innovation, a training ground for better qualified loan officersand the experience of competing in a more dynamic financial market.

32. Composition of the Loan Portfolio. Evolution of Caja's portfolioover time reflects a clear trend towards medium at the expense of short-termlending, and a greater share of lending for infrastructure, livestock andgeneral purposes relative to crop lending. In 1970, short-term loans were42% of the portfolio, but only about 32Z in 1985. Medium-term lending wentup from alout 41% in 1970 to 49% in 1985. In terms of activities financed,short-term crops have decreased from 25% of total rural lending in 1982 toabout 20% in 1985, while lending f:r infrastructure and rural housing hasgone up from 13% to 29%.

33. This change in portfolio mix could reflect a change in borrowers'preferences and their views of the services offered by Caja compared to thoseof commercial banks. Borrowers may be reluctant to use Caja for short-termlending because of problems with the timeliness ar.d availability of funds(see para. 46). Working capital for crop production was therefore morelikely to be financed out of savings or by private lenders.

34. Overdues. Caja shows a high level of late loans and this situationhas deteriorated over the past 18 months. Until 1984, Caja's overduesituation was comparable to that of other official banks. As a group,official banks tend to have higher arrears than the banking industry as awhole. In 1985, there was a marked increase in Caja's arrears of less than1 year. '/ This has brought total problem loans to Col$ 23.4 billion(US$140 million), or 17% of the portfolio, up from 14% in the previous year(Table 7). This deterioration was caused by the acceleration of lending inrecent years without improvements in the quality of the loan approval andcollection processes, and the undertaking of new lending programs (such asfor rural housing and political amnesty) that have a high risk of default andslow repayment rates.

35. Caja establishes its loan loss provisions in accordance withregulations set by the Superintendency of Banks, i.e., that reserves be nadefor 100% of late loans without a real guarantee, but no reserves be made forloans with collateral. The loan loss provision has fluctuated between 3.?,and 2.2% of total loans in 1975-85. This is normal by banking standards, butseemF iow v'hen compared to Caja's write-off percentages equivalent to 1.5%and 1.6% for 1982 and 1983 (the last years for which this information isavailable). Tnia level of write-offs is 8 times higher than expected in an

5/ Classification of the overdue portfolio at Caja corresponds to thatrequired by the Superintendency of Banks. Arrears are registered as"Cartera Vencida" (less than 1 year) and "Cartera de Dudoso Recaudo"(more than 1 year old). Rescheduling is frequently used as a temporarysolution to late loans, but rescheduled loans are not shown separately.


average OECD bank, and the figures do not even include losses on liquidationof collateral. Caja's loan loss provision is thus inadequate to protectagainst nonrepayment risks. This is partly because rules establishing theprovision do not consider the effect of changes in the age profile of loanswith collateral, or in the market value of the guarantees.

Structure and Growth of Liabilities

36. In 1985, Caja's main liabilities were as follows: dep3sits from thepublic 46%, subsidized funds (FFAP and Caja bonds) 19%, and re6iscounts fromBOR 5%. The remainder comprised capital infusions from Government, assetrevaluations and accrued liabilities, of which the most significant was thestaff's pension fund (16%). Growth of some oc the main liabilities isdiscussed below.

37. Savings Deposits. Savings accounts are the major single categoryin Caja's funding sources at Col$ 46.5 billion (US$270 million), or 19% oftotal sources. Over the past 10 years, total deposits have grown at4.5Z p.a. in real terms, while savings have grown at only 1.3% p.a. However,from 1975 to 1980, savings grew at 1.82 p.a., but growth has been slightlynegative since 1978. (By contrast, the stock of FFAP funds rediscountedthrough Caja have grown at 14% p.a. in real terms over the same 10 yearperiod.) The growth of savings is shown below (expressed in constant 1985Col$ billion).

Year Savings Current TotalAccounts x Accounts 2 CDTs X Deposits

1975 41.0 67 20.0 33 61.01976 43.8 68 20.4 32 0.1 - 64.31977 45.1 68 21.1 32 0.1 - 66.31978 47.7 70 20.3 30 0.1 - 68.11979 46.7 67 23.4 33 0.1 - ;0.21980 44.9 65 23.6 34 0.7 1 69.21981 44.4 65 22.1 32 1.9 3 68.41982 43.7 58 24.7 33 6.8 9 75.21983 46.1 54 29.3 35 9.1 11 84.51984 47.8 53 29.8 33 12.0 14 89.61985 46.5 49 34.8 37 13.7 14 95.0

Growth Rates

1975-80 1.8 3.4 - 2.61975-85 1.3 5.7 - 4.51980-85 0.7 8.1 81.3 6.5

Source: Caja Agraria.

38. Caja's record in attracting savings has been poor, as reflected bythe decreasing share of savings deposits in total resources (down from 28% in

45 - ANNEX 2PageFj of 16

1982 to 19% in 1985), as well as by a declining market share (Caja's savingsaccounts were 30% of the national market in 1981 but 27% in 1985). Theseratios are affected by the growing importance of other sources of fundingsuch as FFAP, certificates of deposits (CDTs) and the pension fund, but theynonetheless show a downward trend in Caja's ability to mobilize savings.Most of Caja's deposits are raised in rural areas, but in spite of its vastbranch network and well-established reputation, Caja has done poorly relativeto the other two agricultural banks (see Annex 1). This difference is partlyexplained by the higher interest paid by the other banks and the higherincome level of their depositors relative to Caja's.

39. Equally important, however, is Caja's greater reliance on FFAP andBOR rediscounts and its passive approach to marketing its savings accountservices. This lack of interest is puzzling considering that Caja's effec-tive cost of savings mobilization is lower than the cost of FFAP funds. Byexcessive reliance on FFAP and BOR rediscounts, Caja is bypassing theopportunity of capitalizing on its institutional name with small savers inrural areas.

40. Demand Deposits. Demand deposits at Caja have been growing at5.7% p.a. in real terms over 1975-85. This rate compares well with those ofthe commercial banks and the rest of the financial system. Caja's success inattracting demand deposits can be traced to its recent incursions intocommercial lending and also to the fact that public entities in Colombia arerequired to hold their liquid assets in official banks. The growth in thistype of deposit is expected to level off as Caja's share in commercial andregular banking credit reaches the limits of what is politically acceptable.

41. Certificates of Deposit. Together with interbank loans, CDTs arepossibly the most expensive source of funds for Caja. Caja is a latecomerinto the CDT market, but has gone aggressively after this type of depositwith the onset of its commercial banking operations, which are financed withthese high cost resources. By December 31, 1985, Caja had US$80 millionequivalent in CDTs, and its share of the CDT market went from 1% of the total-in 1981 to 4% in 1985. CDTs now provide 14% of Caja's total deposits.Preliminary estimates for the first semester of 1986 suggest that Caja hasmaintained this share.

42. Pension Liability. Since 1982, when a special increase in theworkers' pension fund brought it up to its present level of magnitude--Col$ 39.2 billion (US$230 million) in 1985-the retirement fund has beenone of Caja's major liabilities. Given the structure of workers' compensa-tion and benefits, this item will grow more than proportionately to base wagecosts, unless specific actions are undertaken to reduce it. The pensionliability is completely unfunded and is therefore a major coutingency item,as well as a serious constraint to restructuring Caja through the sale of allor part of its business to the private sector.

43. Rediscounts at BOR. BOR has maintained a rediscount facility toCaja, despite statements by BOR officials that Caja's access to this facilitywould be ended. In December 1985, Caja had obligations to BOR amounting toCo'^ 11.4 billion (US$66 million).


Capital Structure

44. Caja's present sources of equity are those established by Law 68,mainly the equivalent to 2% of 40% of cif duties and the payment of theCol$30 billion long-term note receivable.

45. The issue of an appropriate level of capitalizacion for Cajadeserves some comment. Caja will not generate a positive flow of incomeuntil at least 1990, assuming a continuation of present trends. This wouldprevent Caja from complying with the debt equity ratio (9:1) required by theSuperintendency of Banks. To maintain this equity ratio, Caja would requireadditional capital of about US$300 million over 1985-90. The Governmenttherefore faces the dilemma of either enforcing equity requirements anddisbanding Caja at its next financial crisis, or again extending a grant toCaja to cover its losses. Given the importance of Caja and the choices thatthe Government has made in the past, the latter is the most likely outcome.The Government should make its decision with full knowledge of the social andfinancial implications: funding Caja involves a transfer :f resources fromtaxpayers and savers to borrowers at subsidized rates and Caja's employees.The extent to which each group will benefit or lose from this transaction,and the cost effectiveness of using Caja to complete it, should be theguiding criteria.

Financial Performance

46. Liquidity. Liquid assets at Caja reached Col$ 22.6 billion in 1985(US$13 million), or 9X of total assets, an improvement over the 14% in 1981.Caja has reduced average cash holdings in an effort to expand its lendingprogram over the past 3 years and to compensate for the lower level of repay-ments from its loan portfolio. In fact, Caja's liquid assets may be too low,given its inefficiency in cash management. Caja's liquidity management pro-blem is evidenced by the level of fines charged by BOR (over Col$ 6 billionaccumulated at end 1985, or US$3.5 million). Unanticipated shortages offunds are not only expensive (they are usually covered with short-term moneymarket funds), but more seriously, Caja delays disbursements and sometimescancels loans to small farmers.

47. Operating Margins. Caja has a hefty net interest margin broughtabout by its access to low cost funds, eg. from FFAP and its own bonds. Inaddition, in 1977, the Government allowed Caja to reduce its reserve require-ments from 15% to 0.5% (commercial banks are still required to keep reservesequivalent to 30X of savings) and place these liberated funds into high-yielding loans. _/ However, higher interest rates in the Colombian economyhave brought about a squeeze of this margin, as increases in Caja's marginalcosts of funds have outpaced increases in interest revenues. Averageinterest on loans went from 21.6% to 24.2% between 1982 and 1985, due toCaja's increased participation in commercial bank lending. In order tofinance its lending program, however, Caja has recently raised funds throughCDTs and other market-priced instruments whose marginal cost exceeds Caja's

6/ Such as "Credito de Segunda Ventanilla" and "Credito a Ahorradores" atlending rates of 33% and 30%, respectively.


average cost of funds. The average cost of funds has gone up accordingly,from 9,6X in 1982 to 11.22 in 1985. Compared to the rest of the bankingsystem, Caja still enjoys a wide lntermediation margin (defined as interesttacome plus commissions over interest expense plus paid cowuissions): whilethe entire system had an Intermediation margin of 38.52, the figure for Cajawas 552.

48. Total operating revenues (i.e., net interest revenues plus otherincome) have nearly tripled over 1982-85, from Col$ 14.5 billion t7OCol$ 36.7 billion (US$200 million), a 492 increase in real terms. / Inter-est income and interest expense have both grown over 1982-85, but whileinterest income went from 912 to 932 of total operating revenue (TOR), inter-est expense went from 482 to 51% in the same period. Due to an enlargedportfolio base, net interest income for 1985, at Col$ 15.3 billion(US$89 million), nearly doubled the 1984 figure. Commissions and fee incomeare a minor part of Caja's revenues at Col$ 2.7 billion (US$16 million), butcould grow if Caja widens the variety of financial services offered.

49. Reported losses for bad debts have gone down from Col$ 3.3 billionin 1982 to Col$ 2.9 billion In 1985. Their share of TOR went down substan-tially, from 232 in 1982 to 82 In 1985. However, these figures do not takeinto account losses resulting from the difference between liquidation andbook values of collateral.

50. Profitability. Caja has been generating losses since 1975 as aresult of successive increases in the staff benefit package, bad pricingpractices in input sales, and a gradual squeeze of interest margins. Pastand projected losses for 1975-87 are shown below:

Year Net Income Accumulated Loss(Col$ million) (Col$ million)

1975 (263.0) (185.3)1976 (1,016.4) (1,201.7)1977 (592.1) (1,793.8)1978 (671.5) (2,465.3)

-- 1979 (1,036.8) (3,502.1)1980 (1,121.2) (4,623.3)1981 (1,795.2) (6,418.5)1982 (13,994.6) (20,413.1)1983 (9,630.0) (30,043.1)1984 (3,425.0) (3,425.0)1985 192.0 (3,233.0)1985 adj (1,138.0) (4,371.0)1986 est (8,397.0) (12,768.0)1987 eat (12,148.0) (24,916.0)

Source: Caja Agraria.

7/ This figure does not make allowances for the fact that while interest onarrears of less than 1 year accrues at 1002 of the applicable penaltyrate, penalty interest is often condoned whenever late loans aresettled. Adjusting for this, the reduction in revenues would be aroundCol$3.1 billion for 1985 (US$18 million), or about 92 of all interestrevenues for the year.


51. Increases in personnel costs accounted for 80% of the accumulatedlosses between 1980 and 1983. CaJa's labor costs are the major component ofits overhead expenses and are high relative to those of other Colombianfinancial institutions. This is because Caja's pension and other benefitsare abnormally generous, and because Caja is engaged in labor-intensive acti-vities not normally performed by credit entities (eg. sales of agriculturalinputs and maintaining a vast network of small branches to cover everymunicipality in the country). The mechanism by which staffing costs havebeen covered in the past has led the Gcvernment into deficit spending onbehalf of Caja. In this sense, it can be argued that CaJa--and more speci-fically the union--dotermines the allocation of public finances in advance.This issue should be addressed explicitly in the establishment of moreeffective cortrol systems and in defining the relationship betC;een Caja andits regulatory environment.

52. For 1986 and 1987, personnel costs are expected to account for mostof the projected Col$ 13 billion losses (see table above). Annual adminis-trative costs at Caja are high in relation to TOR at 70% for 1985 (30-40%would be more acceptable). The present level would be acceptable for a bankwith an average intermediation margin, as the bank would then be recoveringessentially all of its fixed and variable expenses. Caja's margin (14points) is, however, way above that for comparable official banks (around 6points for Banco Ganadero and Banco Cafetero). Even when the cost of main-taining the branch network is considered, Caja's margin is still substantial,and therefore personnel costs are excessively high.

53. Other negative features of Caja's cost structure are the highlevels of arrears and bad debt collections and the low level of commissionincome. Because of its general inefuiciency, particularly in dealing withthe public, Caja has not been able to develolp significant commissionrevenues. Also, Caja's social objectives have meant that most of its port-folio is placed at fixed, below market rates. Even though the institutionenjoys an abnormally high spread, its borrowing costs have been rising overthe past year, and the marginal cost of funds is now the higher CDT rates.

IV. FUTURE PROSPECTS

Caja's Changing Role

54. Caja's main reason for existence is to assist a low income, dis-perse population of small farmers with otherwise limited or no access to ins-titutional credit and other financial services. With higher incomes, im-provements in transport and communications, more and faster informationbetween producer and end consumer points, the needs of this population willbecome more complex and sophisticated. Financial intermediation should notonly keep pace with these changes but also contribute to it by staying intouch with the market and by developing the ability to innovate and translatethese new demands into appropriate financial instruments. In spite of itsrecent crisis, the Colombian financial industry has proven to be responsiveto market stimuli. This was evidenced recently when following the introduc-tion of liberalizing measures, financial markets witnessed the mushrooming ofa variety of specialized institutions. Caja should prepare itself to competelikewise. For this it will need to improve the quality of its lending, its

ANNEX 2- 49 - Page 15 of 16

ability to raise funds in substitution of official assistance (FFAP andothers) and to develop the financial and managerial skilli necessary for allthe above.

55. Several changes will need to be initiated. The major ones whichdeal with personnel costs and training 6nd raising efficiency levels arebeing addressed by the project. In the long-term, success of thisundertaking will depend on the level of commitment and understanding of theproject by Government and by Caja's management, their willingness to developa supporting culture inside the organization and foster a more cooperativelabor relations dialogue.

Benefits of the Institutional Development Project

56 The project would address Caja's key problems by defining andimplementing measures to improve efficiency, reduce its loan portfolioarrears and improve its credit procedures, enhance its capacity to mobilizefinancial savings using markeL mechanisms, improve support systems, andrationalize its branch network. Caja would meet the following targets:

(a) total administrative costs would be held below the 1986 level inreal terms throughout the life of the project;

(b) current annual administrative costs as a percentage of current loanportfolio would decrease from 18.3% at end 1986 to 13.7% at end1990;

gc) branch office staff as a percentage of total staff would increasefrom the present 84% to 90% by the end of 1990;

Cd) loan arrears, expressed as a percentage of loan portfolio, would bereduced from the current 17% to 12% by end 1990;

(e) the amount of financial savings mobilized by Caja using marketmechanisms would be increased, so that the real compound growthrate of its deposits (excluding interbank deposits) grows from 6.5%in 1987 to 8.0% in 1990; and

57. Achievement of these targets would mean that by the end of theproject, Caja's deposits would grow by 32% in real terms over the 1986 level,and loan arrears be reduced by 29%. Staff costs as a percentage of totaloperating revenue would fall from 70% in 1985 to 47% by 1990, and totaladministrative costs would be held below the 1986 level in real terms, ratherthan continuing to grow at an estimated 3% p.a. (the average growth ratesince 1981). As a result of these cost cuts combined with business growth,productivity--in terms of annual administrative costs as a percentage ofaverage loaiL portfolio--would increase by 34%. Other performance indicatorsare presented in Table 9.

58. Net income has been used to estimate net cash flows created by theproject because of the difficulty in obtaining information necessary toestablish a cash flow table. The benefits of the institutional developmentcomponent would, of course, continue to accrue to Caja for several years

ANNEX 2- 50 - Page 16 of 16

after the end of the project, but for simplicity only the impact during1986-92 has been quantified, as follow:

Without Project With Pro ect Incremental Cash Flown-_… _____________---__ __Col$ million) --------------------

1986 (8,397) (8,397) 01987 (12,148) (12,148) 01988 (10,364) (1,664) 8,7001989 (14,136) (2,129) 12,0071990 (19,248) (34) 19,2141991 (24,724) 6,390 31,1141992 (32,167) 12,119 44,286

Source: Mission.

59. These figures show that with the project, net profits would bereported in 1991 (equivalent to US$15.4 million) and 1992 (US$26.2 million).Without the project, losses would continue, reaching US$70 million p.a. by1992 and accumulating to US$262 million. The net present value for theincremental benefits at the OCC of 11% is Col$ 63.6 billion (US$160 million).

60. By completion of the project, Caja would have become a somewhatmore modern, efficient and self-sustaining financial intermediary, mainlythrough better systems and procedures, improved staff quality, increasedcapacity for savings mobilization and updated premises. Institution-buildingmeasures introduced through the project would simplify Caja's procedures anddecision-making process, and introduce improved support systems, namely anaccounting system and a management information system; a management processthat links Caja's strategic planning and budgeting processes; and widerutilization of electronic date processing equipment. Caja would alsointroduce a new remuneration package for its employees and rationalize thebranch network. Finally, to improve mobilization of savings, Caja wouldintroduce more attractive savings instruments and improve customer service.

61. These improvements would, however, represent only the first steptowards Caja becoming a fully independent, self-sustaining financialintermediary. Therefore, Caja would prepare a draft plan for becoming aself-sustaining institution by the mid-1990s9 The plan would cover suchareas as capital structure, recapitalization, ownership, strategic and policyplans, interest rates, savings mobilization and staff compensation.

- 51 -

J*.Cn 2

Pag I of 2C5IN33

CAJ G" W rJn L OBM4rTPW

. . 1982-"

MblliM CoM$

ULMAN SUM

AS8TS 31-DeC482 S 31-DeC4r3 S 31-Dc-4104 S 31-Dec-85 S

Cah s *d eand 10,624 11 8,526 7 11,855 6 15,831 7

Deposits at Catral &a* N N NA mA

Govermt Securites PA MA NA

DA from Isi/Oe/ d PA N M N

Other Miml Risk Assets 2,566 3 3,251 3 5,562 3 6,830 3

Total Minimu Risk Assets 13,189 14 11,779 10 17,416 9 22,662 9

Loans, Advance, Discomats 58,046 62 76,821 64 9,222 54 132,065 55

Past-DUe Loa 3,060 3 5,999 5 7,181 4 8,476 4

Other late baivablas 1,447 2 1,987 2 2,717 1 4,061 2

Loa 1oe berva 1,689 2 2,676 2 3,325 2 3,786 2

Not laws 60,864 65 82,132 68 105,795 57 140,856 58

Due fromlenk/Tim NA mA MA mA

Amto in Collectlon PA mA MA MA

Govnernmt aceivable 3,637 4 5,416 5 37,444 20 50,423 21

Other Mrutabl Securities MA MA mA

Oiatmr Acception/lUAbiUtie IA MA NA MA

Other laceivables 2,837 3 5,311 4 6,573 4 8,771 4

iquipant lmsed A NA MA NA

Total Norml Usk Amts 67,356 72 92,858 77 149,813 81 200,050 83

Total Blandg uAts 60,548 86 104,637 87 167,229 90 222,711 92

Promsa (Not) 1,695 2 1,640 2 1,819 1 1,922 1

Accunlated Depreiation 867 1 999 1 1,164 1 1,333 1

Asst Uevaluetioo 7,780 6 9,528 8 9,595 5 9,789 4

Insurance Division 492 1 747 1 731 0 1,413 :

Agricultural Inputs 1,887 2 2,177 4 4,567 2 3,094 1

Total Fixed Assets 11,853 13 14,292 12 16,733 9 16,217 7

Deforred Experse 0 MA 0 MA 0 MA 0 MA

Sundry Asseo 904 1 988 1 1,201 1 2,669 1

Total Other Assets 904 1 988 1 1,201 1 2,669 1

TOTAL ASSETS 93,305 100 119,917 100 185,162 100 241,597 100

- 52 - 1 2

fhp 2 at 2

S^LOMC I8S (eo 'd)

LZA&nIDJU & QIMTT 31-1Oc-t2 X 31-De-43 2 31-Dec-84 2 31-D0c-85 2

Dko Opost1/Ot rw 14,558 16 20,197 17 24,416 13 34,757 14

SAwig 25,$24 28 31,515 27 39,221 21 46,451 19

Tin DspoditsOthsr (CDT) 3,94 4 6,260 5 9,559 5 13,695 6

Othsr 3,433 4 4,950 4 5,516 5 15,200 6

Other Deposits PA NA NA N

Nhptabla CV NA EA N

Du teo relph *enb NA NA NA

Totl Deposit 47,809 51 63,225 53 52,012 44 110,162 46

state buer4" (1. erme y) PA N PA PA

"r, m, M te. 12,124 13 16,110 13 24,305 13 33,280 14

9Ie deo la bpAblica Dise. 4,436 5 5,467 5 7,519 4 11,425 5

AiD Lfoio (a0m) 78 0 55 0 16 0 7 0

kraiNc 6 As* sed 2,740 3 3,490 3 4,768 3 4,931 2

boed Payable 7,612 a 9,054 8 10,526 6 12,443 5

Appro. ltir mt Frq. 19,633 21 27,961 23 32,156 17 39,234 16

Inurwace Liabilities 43 0 63 0 96 0 S6 0

bAs. for L unrafe 421 0 631 1 582 0 9'0 0

Other Ltabllitil 3,584 4 6,115 5 6,046 3 8,489 4

Accrued Liabilities NA NA N N

Total Senior Liabilitia 9$,480 106 132,190 110 168,029 91 220,966 91

Subordited Debt E LA Nm m

DivwA yable ELA NA NA NA

Deferred Incoem Ut El l En

Minoriy Int ert NA EL EL N

Total 1labuitI 95,480 106 132,190 110 166,029 91 220,966 91

Capital kock (Subecribed) 7,417 S 8,176 7 10,899 6 13,579 6

Acc"laete Loses (20,413) (22) (30,043) (25) (3,425) (2) (3,102) (1)

Capital surplus EL NA ELA M

Ave llm crves A NA NA NA

LgAlbasrve 4 0 4 0 4 0 4 0

Ast vewaluatico t rao 7,790 S 9,537 S 9,604 5 9,797 4

Acc.a Lrn1in Lnarmne 27 0 52 0 52 0 52 0

Other basere I EL EL NA

IJDIDSD NP8T5 NA NA NA MA

NET ORMI (5,175) (6) (12,274) (10) 17,133 9 20,631 9

TL LLUA 6 NIT WO 93,305 100 119,917 100 185,163 100 241,597 100

.53-

CGJA AIdAMZA PRO=lU~ ~ ~

?iaTacAll Statmata 1962-1965(billlon CotS)

31-Dec-62 S 31-D0ec83 S 31-Dec464 Z .31-De"-5 S

Interest Incecs 13,196 91 17,787 92 22,804 92 34,073 93

Interest Rxpme 6,932 46 9,511 49 12,874 52 16,750 51

Hot Interest Inof n 6,265 43 8,276 43 9,930 40 15,322 42

Cbossion & fe nco 6f9 6 1,217 6 1,407 6 1,738 5

Lnet TInce & ID Debt hacv. 447 3 414 2 632 3 950 3

Total Operating Rvemou 14,542 100 19,417 100 24,843 100 36,761 100Net Int. Incn, Cbun. & Other 7,611 52 9,906 51 11,969 48 18,011 49

Ls:

Cgo tsaioas 14 0 16 0 19 0 19 0Other Admin. Expenses 4,182 29 6,181 32 6,370 26 7,537 21Depreclation 200 1 207 1 200 1 249 1IJcollected Accoumts 3,355 23 2,789 14 1,973 8 2,914 8

Net Operating Inco (141) -1 713 4 3,407 14 7,292 20

Other 2,268 16 2,352 12 2,298 9 3,462 9

Provisions Loan Loss m Nk PA MA

Insurance 0 NA 691 4 1,648 7 2,451 7

Sale of Agricultural Goods 616 4 689 4 1,357 5 1,915 5

Overaccrual of Expenses 1,299 9 5,728 30 3,040 12 2,419 7

Not Inc. before Personnl Esp. 4,042 28 10,173 52 11,749 47 17,539 48

Personnel Expenses 18,042 124 19,802.5 32 15,174 61 17,347 47

Nst Profit after Other Ad 1 (13,999) -96 (9,630) -50 (3,425) -14 192 1

CWB1A

C&UA ACwiA DLurm DIDCU3mfI-I mXumCAA *AIST1IM wnm 190131Pro1.wte VimociAl stetemata 1961-i99

1blance an" (hiUfLL cani) Wick Project

_ato 12/31/15 Z 12/31/8A X U2/31/57 Z 12/31/US S 12131/U I 12/31/* 1 12/31/91 x 2/31/ x

h Md di__ IS.131 7 22,016 7 27,36 8 33,950 * 42,014 a 51,77 5 63.223 I 7S.231 a06pe1ta at Cmatral o 0 Oa 0 oh 0 NA 0 la 0 la 0 NA 0 ML 0 a1oe Securtles 0 0 a1 0 E1 0 oh 0 oh 0 a EL ELltereat tr a 0 0 762 0 7" 0 707 0 Go.9 0 GU 0 475 S 44S 0Q_alqOCY 1Me_t_ 61.630 3 6.792 3 11. 3 13.0 3 17.312 3 21.519 3 2V.5 3 22.97 3

Total I6ni_m risk _rne 22."2 9 31,590 11 39,117 11 46.54 11 60.065 12 74.o6 12 91.223 11 112,633 11

Hot Lam. Mwnc, 0rncut 132,228 55 16.,193 S7 212,016 9 266.162 62 332.752 64 414.277 61 SIS.4 62 .412139 62Pet-_00 LAN 6,476 4 5,410 3 10.601 3 10,6U 2 9,913 2 4,143 1 41,420 I 5.793 1Other Lote tc(Covern xc) 4,0S1 2 5,617 2 6,361 2 5,323 1 3.32S 1 2,071 0 2S.719 3 32I.0 3La Lose ae 4,039 2 5.046 2 6,361 2 7.965 2 9,933 2 8.201 1 1S.473 2 19.2A4 2

Total Ldas 140,56 5s 177,444 60 222.619 62 274,147 64 336,0W0 65 412,205 6. 572.510 76 712.774 69

Current yawr omrde 13,123 5 16,119 I 21,202 6 26.616 6 33.27S 41.428 7 S,577 6 64.214 IAmin" La coUection PA PA PA NA ML oh a laGCoverngmt Noc 32,024 13 30.522 10 29.020 I 27.516 I 21.016 5 24,514 4 23,012 6 21.S10 2Intwreat oeslLvabln 8.45( 4 10.092 3 12.72k 4 13.306 3 16.636 3 20,714 3 25,769 3 32.107 3Leae to for.1qm currael a 9,943 4 12,421 4 IS.513 4 10,190 4 23,521 5 26,651 5 40,071 S 49.694 5Otint rreeiveblas 8.771 4 11.179 4 14,025 4 17,211 4 21,173 4 2S,969 4 36.046 4 44".9D 4_quiomt 1esaoi 01 0 Ha 0 mi Ml 01 AL '

Total MDroal rink *asot 200.050 63 211.657 62 2,948 12 351,434 _2 423,432 82 512.251 U2 M17.454 81 411.190 96

Total Bnkiq Meats 222,711 92 273,247 93 222,9I6 93 399,998 93 483.477 93 56,355 94 761,6.77 94 973,024 9f- - - - - -2-35 - - - - - -

Pr lea (mat) 1.922 1 2,354 1 2,660 1 3,461 1 4,171 1 5.005 1 1,006 1 7.207 Acc_. depsrcletie 1.333 1 1.760 1 1,935 1 2,131 0 1.342 0 2.570 0 2.81 0 3.43 0_Aet Byaluatie 9.739 4 10.706 4 11,614 3 12,SU 3 13,500 3 14.464 2 15,497 2 16.604 2In ur -e divtalca 1.413 1 1,731 1 2,103 1 2,544 1 3,061 1 3,679 1 4,415 1 5.29d 1gr" inpat 3.094 1 3,094 1 01 1.69 1 7.557 1 9.361 1 11.54S I 14.20 1

Total Flned Mts 16,217 7 lb6,5 6 21,463 6 24,642 * 2W.294 5 32.409 5 37,413 4 43.379 4

Dalerrpd 5pew 0 oh 0 0k MA IA 01 o hSmidry Aeets 2,669 1 3,302 1 4.052 1 4,952 1 i027 1 7,301 1 SAM53 1 10,730 1

Total Other _est e 2.669 1 3,302 1 1 40952 1 6.927 1 7.301 1 6.O53 1 10.730 1

Total Assets 241,5 100 295,244 100 358,710 !00 429,592 OD 517,797 100 621,146 IOD 3."3 100 1,027,932 100- - - - - -B _

0Nwmmber 10. IN6~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~h

1AMSIA

CAJA AGRARIA INrTITUtIONAL DWEIL413W POWJECr

Projected Fliancial Statemete 1986-1992i (billlfon CbolS)

Balance Shiet Witb Project

Uibilitles *nd Equdty 12/31/85 X 12/31186 X 12/31/87 2 12/31/88 X 12/31/19 2 12/31/90 S 12/31/91 2 12/31/92 Z

De.nd Deposita/other 34,767 14 44,319 15 56,4b6 16 71,346 17 89,781 17 112,514 18 140.418 17 175,241 17

Savinags 46,481 19 56,939 19 70,564 20 67,090 20 107,043 21 131,021 21 160.369 19 1.f292 19

Tl e depefits/other 13,695 6 17,316 6 16,424 5 20,964 5 27,311 5 35,753 6 71,426 9 80,621 a

Other 15.20 6 16,819 6 21,202 6 26,616 6 33,275 6 41,428 7 51,577 6 64,214 6

Other deposlts NA 0 NA NA NA NA Nh NA NA

Nelotiable CD's NA 0 NA NA hA NA NA NA NA

Mm to forR 8nks PA 0 NA NA NA _A 0 Na A Na

Total deposit. 110,162 46 135,393 46 164.653 46 205.936 48 257.411 S0 320.716 51 423.791 51 S16.569 S0

NMm world bmk loon 0 MA 0 NA 2,360 1 8,280 2 9,630 2 11,220 2 0 NA 0 NA

FFAP, WI, ETC 33.280 14 37,952 13 52,518 15 56,672 13 66,822 13 76.862 12 79.814 10 70.596 7

Banco de la Republics DIS 11,425 5 16,819 6 21,202 6 27,627 6 36.030 7 46,791 7 66.178 10 87.377 9

AID Lownc (bor) 7 0 7 0 a 0 a 0 a 0 6 0 a 0 9 0

Branches and agecede 4,931 2 5.887 2 6,481 2 10,646 2 13.310 3 16.571 3 20,631 2 25,4ft 2

bonds payable 12,443 5 12,956 4 13,380 4 13,762 3 14,09S 3 14,377 2 14,665 2 14,.56 1

Approp Detir mnt PLan 39,234 16 49,504 17 56,343 16 68,477 16 60,039 15 93.166 15 tOe,445 13 126.230 12

Insurance Lab 86 0 toe 0 127 0 149 0 175 0 216 0 267 0 330 0

Mea. for Insurance 910 0 1,149 0 1,354 0 1,569 0 1,857 0 2.162 0 2.516 0 2.929 0

Other Liabitties 8.489 4 10.399 4 12,635 4 15,288 4 18,422 4 22,107 4 26.53 3 31.834 3

Other Credits 0 NA 0 NA 0 NA 1.011 NA 3.972 1 10.131 2 46.757 0 79.2J2 6

Total Senior Liabilities 220,966 91 270,175 92 334,659 93 409.445 95 501,771 97 614.327 98 609.600 97 955,738 93

Subordinated Debt 0 NA 0 NA 0 NA 0 N 0 NA 0 NA 0 NA 0 NA

Dividende Payable 0 NA 0 NA 0 NA 0 N 0 NA 0 NA 0 NA 0 NA

Deferred lnc 0 NA 0 NA 0 NA 0 N 0 NA 0 NA 0 NA 0 NA

Maority Interest 0 NA 0 NA 0 NA 0 N 0 NA 0 NA 0 NA 0 N

Total Liabillitie 220,966 91 27,175 92 334,659 93 409,445 95 501,171 97 614,327 98 609.600 97 955,73 3W

Capital Stnck(Subscrbd) 13,679 6 13.679 5 13,879 A 13,679 3 13,6,679 13,679 2 13,879 2 13,579 1

Accis. Gian(Lo_ees) (3,102) (1) (2,910) (1) (7,604) (2) (15,366) (4) (23,539) (5) (31,996) (S) (39,442) (5) 36,704) (4)

Law 68 Cj. 0 NA 3,500 1 7,175 2 11.034 3 15.065 3 19.340 3 39,6 5 62,697 a

L_ 68londs 0 NIA 751 0 751 0 751 0 751 0 751 0 751 0 751 0

LeaUl leseerw 4 0 NA NA NA NA NA NA N

_mt leluattio "nsrvee 9,797 4 9.797 3 9,797 3 9,797 2 9.797 2 9.797 2 10,497 1 11.247 1

Acc. Eanel Inwarce 52 0 52 0 52 0 52 0 52 0 52 0 62 0 74 0

law 68 Sonbouds 0 A 0 NA 0 NA 0 NA 0 NA 0 NA 0 NA 0 NA

Undividsd Protita N NA NA NA N NA NA NA

Net Nerth 20,631 9 25.070 6 24,050 7 20.147 5 16.026 3 11.621 2 25.393 3 72,144 7

Total Ltiab. & not Ibrth 241.597 100 295.24 100 356,710 100 429,592 100 517.797 100 626,146 100 634,93 100 1.027,932 105 i iIa a -a - - a - a - a~~~~~~~~~~~~~~~~~e

4XWOSIACAJA AGRARIA INSIUNMEwminlouwr PoiJCr

Frojected Finmela Stata"ta 1986-1992(billios Coln).

Balance S9"et VIlth Prject

InAM Sat mt t 12/31/85 Z 12/31/86 Z 12/31/87 X 12/31/IS Z 12/31/89 X 12/31/90 2 12/31/91 2 12/31/92 z

Interest Lnc 34,073 93 40,336 93 50,597 93 62,210 93 76,206 93 93,412 93 130,276 94 162,193 94Interest Expense 18,750 51 24,220 56 33,276 61 41,047 61 50.909 62 63.109 63 77,219 56 87.865 51

Net Intereat Income 15,322 42 16,116 37 17,321 32 21,163 32 25,297 31 30,303 30 53,0S7 36 74,328 43

Cboimulon & Foe Income 1,738 5 2,129 5 2,587 5 3,130 5 3.72 5 4,526 5 5,432 4 6,518 4Invat Income+0 Debt R 950 3 1 055 2 1.331 2 1 669 2 2 063 3 2 591 3 3 303 2 4,075 2Total Operating Eevenum 36761 i 43452i 1O0 54.515 1O0 ioo 1ih I I oo 13I I U I l i7?7M looNot Int.nc.. Come 0th 18,011 49 19,300 44 21,239 39 25,962 39 31,153 38 37.420 37 61,791 S4.921 49

-:-

Cb4 & Wrld Bank to (bt 19 0 23 0 29 0 36 0 45 0 55 0 66 0 79 0Other d. Expenses 7,537 21 9,695 22 12,250 22 15,i19 23 18.216 22 21,862 22 26.759 19 32.753 19

Depreciation 249 1 306 1 371 1 49 1 541 1 649 1 779 1 935 1Uniollect Acounts 2a914 8 3,364 a 4,240 8 4,791 7 5324 6 4,971 5 12.121 9 15.0 9

Net Operating Income 7,292 20 5,913 14 4,348 8 5,567 a 7,024 9 9,862 10 22,066 16 36.063 21

Other 3,462 9 4,241 10 5,152 9 6,234 9 7.512 9 9,015 9 10,618 8 12,961 21Provisicon Loan La.. NA hA NA PA IA IIA MA MAInsurmnce 2,451 7 2,769 6 3,364 6 4,071 6 4,905 6 5,866 6 7,063 5 6,476 5Sale Agric. Goods 1.915 5 1,366 3 1,710 3 2,131 3 2.645 3 3,269 3 4,041 3 4,994 3Overacrual of Expenoes 2.419 7 2,904 7 3,548 6 4,101 6 4,843 6 5,695 6 6,697 5 7 876 5Net Inc Before Personnel 17539 48 17,193 40 18,033 33 22,104 33 26,929 33 33,747 34 50.686 36 70,391 41

Peraonnel Expenses 17,347 47 21,887 50 2 ,795 47 30.276 45 35,388 43 41,192 41 47,947 34 55,811 32Net Profit After other Ad 192 1 (4.694) -11 (7,762) -14 (8,172) -12 (8,459) -10 (7,445) -7 2,736 2 14,560 8

No_mer 12, 1986

57- MANNEX 2Table 5

COLOMBIA


RATIO OF SAVINGS TO NEW CREDITCAJA AGRARIA

073-

0.72-

0 71

07-

069 -

vw 0 S83 -

067

065 064 -

(~063

o 062-

75 767I7 0 8 a 5 8

o 06 -z

U0 058

0 57-

056

0 55

054

053

052

75 76 77 7s 79 so SI 821 s3 84

'IEAPS

- 58 -AEX 2rabl 6

COLOMBIA


RURAL LENDING BY USECA.% AGMNA 1352

RURAL LE[INCN BY 11SECA. MAMrAA 1985

OTHER (4 BC)

RUPAL IWW#_ (10 7X) 9.aRt TCIM 'prVFS (1o 7%)

INFWASTC (183')

It-"Plt 'PVff. (22 4 '

COLOMBIA


Overdue Portfolio Statistics

Overdue Portfolio Statistics

Less than DoubtfulTotal 1year Recovery TOTAL B/A CIA D/A C/D

Years Portfolio(A) (B) (C) (D) ()()(G)()

…-------(Col$ million)…---------- ------- z-(Dec.)1975 10,945 872 389- 1,261 8.0 3.5 11.5 30.81976 12,891 952 397 1,349 7.4 3.1 10.5 29.41977 11,821), 1,005 439 1,444 5.6 2.5 8.1 30.41978 22,649 1,591 739 2,330 7.0 3.3 10.3 31.11979 29,071 2,0)18 1,560 3,578 6.9 5.4 12.3 43.61980 35,172 2,652 1,897- 4,549 7.5 5.4 12.9 34.21981 44,930 2,818 2,471 5,289 6.3 5.5 11.8 46.6 1982 63,963 5,026 3,019 8,105 7.9 4.8 12.7 38-01983 88,131 6,927 5,999 12,926 7.9 6.8 14.7 46.43984 112,915 7,991 7,034 15,025 7.1 6.2 13.3 46.81985 142,312 14,850- 8,636- 23,485 10.4 6.0 16.5 316.8

Source: Caja Agraria. Published Statements and updated Information from Caja's financial unit.

-60 -

AM 2cSa mLm Mible 8

Ca,M *vh Std_

Ruib DidsLiCauulwAr Ibtal UrIoa10h1 lel TbWTul Interst Pnrsxuoml FM Qxwuse

Ya ?oetfoJo 1ftfoUo Amust & M pes_ FlAP Pr1t s1M

1974 8,786 6,2086 na n.ea n.e. n.ae 874 10

1975 10,556 7,5%6 17,437 2,563 896 1,051 1,950 12

1976 12,500 9,837 21,731 2,948 1,103 1,803 3,017 15

1977 17,381 16,668 27,325 4,249 1,475 2,126 2,975 20

1978 21,910 17,660 32,646 5,568 2,111 2,677 4,201 23

1979 27,511 20,962 40,656 7,820 2,738 3,819 5,145 29

1980 33,275 30,920 52,596 11,093 3,437 5,612 5,865 38

1961 42,459 36,365 64,162 13,848 4,887 7,291 8,375 48

1982 60,884 49,676 93,305 18,725 6,931 18,036 12,570 59

1983 82,132 68,630 119,917 28,877 9,510 19,803 18,958 69

1964 105,796 92,500 185,163 33,184 12,874 15,174 29,944 82

1985 140,856 118,000 241,597 47,008 18,750 17,347 33,667 100

Gh'th Rst

1974-65 4.2 5.9 5.2 L8 9.6 6.8 13.0

1974-80 - 0.1 4.5 - 0.1 6.3 3.8 10.5 iu.0

1986435 10.0 7.7 11.8 10.0 15.7 3.3 16.9

a/ IWre 1974 dat are anaf evaLiable, gpruth rate have bon tsli ltetd from 1975.

- 61 -

AMU 2Table9

COLOMIA

CAJA ARIA INSTIUONAL DEVELOFIN P.OJEC2

Kay Indicators

1986 1987 1988 1989 1990

l~~~~~~~~~~~~~~~~

EFFICIENCY

jut. Exp./Dep. & Borrowed Funds 14.62 15.75 16.30 16.59 17.22Interest Inc./Interost Expenses 1.48 1.53 1.62 1.57 1.52Net Interest Margin 29.89 24.55 34.39 32.24 30.54Operating Margin 5.38 2.27 16.30 15.07 15.24Personnel Exp./Fin. Exp. 69.02 64.75 58.36 54.84 49.51Personnel Exp./Nst Int. Inc. 174.85 192.47 114.08 117.46 113.69Personnel Expenses/Avg. Assets 11.74 12.05 11.86 11.42 10.89Total Adm. Exp./Tot. Oper. Rev. 69.68 63.44 53.16 51.27 47.11Total Adm. Exp./Deposits 28.71 27.50 25.34 22.99 20.78Personnel Exp./Loans 13.20 12.69 11.73 10.73 9.81Total Admin./Loans 18.29 17.61 16.30 14.93 13.68

RELIANCE

TNW/Risk Assets 9.28 6.27 1.16 1.37 0.13TNW/Loans 13.99 9.01 1.60 1.83 0.16Retirement Liabilities/Total Liabilities 18.46 18.64 17.29 16.58 15.63Govt. Funds/Total Liabilities 20.24 18.23 17.54 15.75 14.55

ASSET QUALITY

Loan Loss Res/NonPerf. Loans 0.58 0.74 0.92 1.17 1.47Loan Loss Res/Total Loans 2.88 4.89 5.01 5.06 5.14Charge Off/Loan Loss Res. 0.67 0.40 0.31 0.28 0.24Overdues/Total Loans 16.62 16.89 14.85 13.95 12.68

LIQUIDITY

MRA/Dep. & Borr. 22.75 22.18 21.51 21.16 20.54Loans/Deposits 128.92 127.59 124.58 123.16 119.22

XHES~~~~~~~~~Ii 6-4 1

if A U |

- 63 -

ANR 3Table 1

WAA AMARIA DMfNlQ TM Wra

Project Costs - Bracth Offoes ic exroinits

-rojeat Year-Wkit 1 2 3 Tbtal

Branch lTprovemwt (US$000) 3,530 4,520 5,570 13,620

Total Base Costs (US$000) 3,530 4,520 5,570 13,620of which:

Local ieee Cost (85X) (US$000) 3,060 3,900 4,720 11,680Physical Mtingtmcy (US0) 306 390 472 1,1683flation Factor a/ (Adj.for Dev.) 1.04 1.05 1.06

Total Local Cbsta (US$000) 3,500 4,500 5,500 13,500

Fbreign Bue Costs (15) (US$000) 470 620 850 1,940Ptysical Cmtingency (US$0C0) 47 62 85 194Tnflation Pactor a/ 1.16 1.17 1.18

Total Foreign COsta (US$000) 600 800 1,100 2,500

Total COpment Costs (US$00) 4,100 5,300 6,600 16,000

I a Ebse Costs d/ C0b$ m 590 753 911 2,254Physical Contingency Col$ m 59 75 91 225Inflation Factor a/ Col$ m 1.55 1.82 2.15

Total local Costs Col$ m 1,006 1,508 2,155 4,669

Forein ase Costs d/ Cbl$ m 91 120 164 375Physical cmtingnicy COl$ m 9 12 16 37Inflation Factor a/ (Adj.for Dev.) c/ 1.72 2.03 2.39

Total Foreign Costs 0Cl$ m 172 268 431 871

Total tpcernts Costs Col$ m 1,178 1,776 2,586 5,540

a/ Mid-year rate local and forein (hmex 3, Table 7).b/ Local inflation index divided by exchange rate index.c/ Foreign inflation index ultiplied by exchenge rate index.dJ Conmerted at the rate of Cbl$ 193 - US$1.00.

1986.

- 64 -ARM51 3

0OLOBIA

s CJA AGRARIA INSTIT9tUONAL DQVEWPM? PROJECT

Prolect Costs - Office Equipment

-PLoject YO&-

Unit 0 1 2 3 Total

Project UnitPersonal Computers)Calculator ) US$000 45 45Offi'e Equipment )

Heed OfficePersonal computers US$000 250 250 50

TrainingOver-Head ProjectorreVideo Equipment US$000 65 75 140

Data FrocesaingComputersEquipment US$000 10,650 10,650

Total ease Costs US$000 45 65 325 10,900 11,335

of which:

Local Base Costs (302) US$000 13 19 98 3,270 3,400Physical Contingency US$000 2 2 9 327 340Inflation Factor a/ (AdJ for Dev) bt 1.02 1.04 1.05 1.06

Total Local Costs US$000 15 22 112 3,813 3,962

Foreign Ease Costs (70%) US$000 32 46 227 7,630 7,935Physical Contingency USS000 3 4 24 763 794Inflation Factor a/ 1.14 1.16 1.17 1.18

Total Foreign Costs US$000 40 58 294 9,904 10,296

Total Component Costs US$000 55 80 406 13,717 14,258

Local Baes Costs d/ Col$ m 2.5 3.7 18.9 631.1 656.2Physical Contingency Col$ m 0.4 0.4 1.7 63.1 65.6Inflation Factor 8/ 1.31 1.55 1.82 2.15

Total Local Costs Col$ a 3.8 6.4 37.5 1,492.5 1,540.2

Foreign Base Costs d/ Col$ m 6.2 8.9 43.8 1,472.6 1,531.5Physical Contlngency Col$ m 0.6 0.8 4.6 147.3 153.3Inflation Factor a/ (Adj for Dev) c/ 1.46 1.72 2.03 2.39

Total Forelgn Costs Col$ m 9.9 16.7 98.3 3,871.6 3,996.5

Total Component Costs Col$ a 13.7 23.1 135.8 5,364.1 5,536.7

a/ Mid-year rate local and foreign (Annex 3, Table 7).b/ Local inflation index divided by exchange rate index.cl Foreign inflation index multiplied by exchange rate index.t/ Converted at the rate of Col$ 193 - US$1.00.

December 1986.

- 65 -

ANNEX 3Table 3

COLOMBIA


Technical Assistance Program

------Project Year -----Unit 0 1 2 3 Total

Consultants

Lead Consultant M/M 4 12 12 12 40Branch Developmentand Credit Procedures M/M 24 48 48 120

Organization and MIS M/M 20 36 18 74Personnel Development M/M 24 24 12 60Data Processing M/M 12 36 30 78

Total M/M 4 92 156 120 372US$000 36 828 1,404 1,080 3,348

of which:Local Base Costs (50%) US$000 18 414 702 540 1,674Inflation Factor a! (AdJ for Dev) b/ 1.02 1.04 1.05 1.06

Total Local Costs US$000 18 430 737 572 1,757

Foreign Base Costs US$000 18 414 702 540 1,674Inflation Factor a/ 1.14 1.16 1.17 1.18

Total Foreign Costs US$000 21 480 821 637 1,959

Total Component Costs US$000 39 910 1,558 1,209 3,716

Local Base Costs d/ Col$ m 3.5 79.9 135.5 104.2 323.1Inflation Factor a/ 1.31 1.55 1.82 2.15

Total Local Costs Col$ m 4.6 123.8 246.6 224.0 599.0

Foreign Base Costs d/ Col$ m 3.5 79.9 135.5 104.2 323.1Inflation Factor a/ (Adj for Dev) c/ 1.46 1.72 2.03 2.39

Total Foreign Costs Col$ m 5.1 137.4 '175.1 249.0 666.6

Total Component Costs Col$ m 9.7 261.2 321.7 473.0 1,265.6

a/ Mid-year rate local and foreign (Annex 3, Table 7).b/ Local infletion index divided by exchange rate index.c/ Foreign inflation index multiplied by exchange rate index.d/ Converted at the rate of Col$ 193 - US$1.00.

December 1986.

AM 3

COLOSIA

CAJA A-L11 VSTW fl vgMwN PWC

Trainios Proarm

Cours Totallength N.. of Nl. of Ojurse

Course Days Courses Prticipents Days

Management Davelopnt 3 8 100 25Basic Mougent 5 50 800 250Finaal Analysis 5 50 800 250Advanced Financial Awalysi 5 5 100 25Custosr Service Attitudes 5 200 4,000 1,000Basic Accounting Concepts 5 50 800 250Productivity M a_asent 5 50 S0 250Colombian tanking 5 50 700 250Introduction to Syste m 5 50 600 250Introduction to Personal Computers 5 50 600 250

Total 560 9,300 2,800

Training Costs Unit Yr. I Yr. 2 Yr. 3 Total

Pfrticipants Expenwes US$13/day 160 220 220 600Counselors and Assistants US$100/day 80 100 100 280Material US$25/day 20 20 30 70

Total Bas Costs 260 340 3S0 950Of Which:Local Base Costs (60S) US$000 208 272 280 760Inflation Factor a/ (Adi for Dav) / 1.04 1.05 1.06Total Local Costs uS000 216 286 297 799

Foreign Base Costs (202) US$000 52 68 70 19(Inflation Factor 5 1.16 1.17 1.18Total Forelgn Costs US$000 60 80 83 221

Total Component Costs US$000 276 366 380 1,027

Local Base Costs d/ Col$M 40.1 52.5 54.0 146.6Inflation Factor I 1.55 1.82 2.15Total local Costs Col$t 62.2.. 95.5 116.2 273.9

Forelgn Bas Costs COI$M 10.0 13.1 13.5 36.6Inflation Factor V/ (Adj for Dav) C/ 1.72 2.03 2.39Total Foreign Costs C01w$ 17.2 26.6 32.3 76.1

Total Compoewnt Costs Col$M 79.4 122.1 148.5 35d.n

a/ Mid-year local and foreign (Annex 3, Table 7).b/ local inflation index dLvided by exchange rate index (mid-year).c/ Foreign inflation index *ultlplied by exchange rate index (mid-year).d/ Convrted at cth rate of Col$193 a US$1.00.

- 67 -ANNEX 3Table 5

COLOMBIACAJA AGRARIA INSTITUTIONAL DEVELOPMENT PROJECT

Implement0lon Schedule

PvO Yewr 0 I 2 3Activity . -

Semestmw 2nd 1st 2nd li 2nd 1st 2nd

Rationalize banche and _Improve Crodh Procedures

Pilot Develpnt

Raionolize Organizatwon

Manaogement Information System

D.stgn

Implementatlon

Personnel Development

Personnel Incentives

Traiinng -

Data Processing Development

Determirne Needs-Personal Computer

-Large SystN

Equipment Procurement-Smnal

And Installdato -Large - - -

World Bank-30726:2

- 68 -

ANNEX 3Table 6

COLOMBIA


Disbursement Schedule a/

DisbursementIBRD During Semester Cumulative

Fiscal Year Semester us$ Million US$ million Percent

1988 2 2.4 2.4 13

1989 1 0.6 3.0 202 0.6 3.6 24

1990 1 2.7 6.3 422 2.8 9.1 61

1991 1 2.8 11.9 792 2.7 14.6 97

1992 1) 0.4 15.0 1002)

a/ No standard profile for LAC projects of this type. Schedule has beenadjusted for initial deposit in the Special Account.

April 1, 1987.

69 -

ANNEX 3Talle 7

COLOMBIA


Price Coa'iingencies and Devaluation

Inflation Index a/ ExchangeCalendar Local Foreign Rate C/ Rate of DevaluationYear Cost Cost b/ IndexX d/

1984 .82 .993 .66 28.3

1985 1.00 1.000 1.00 51.2

1986 1.20 1.120 1.23 20.0

1987 1.42 1.154 1.37 14.4

1988 1.67 1.165 1.60 16.5

1989 1.97 1.177 1.87 16.5

1990 2.33 1.189 2.17 16.5

1991 2.68 1.230 2.42 11.1

a/ All indices are end-of-year.

b/ MUV Index 9/12/86.

c/ As of 12/31/85 US$1.00 - Col$ 172.2.

d/ 1987-91 figures based on current understanding of Government policy.

January 19, 1987

ANNEX 3-70- Chart 1

COLOMIACAJA AGRARIA INSTITUTIONAL DEVELOPiIENT PROJECT

Proljct Organization

I .ard Ifretoro

[Gerwrai Ma-

E PD"ct rtor I

| | ~~~~Mond & Evauaio

==~~~~~~~ ~~~~~ - -- - Cosltat

kandChO PDosdulaM entl HU manogement wjpmati Dota Procesuing 0ov.lopm:ntadrd rsnand Ogwkanizanon and EUnW Computing

World Bank-30726:1

- 71 -

ANNEX 4

COLOMBIA

CAJA AGRARLA INSTITUTIONAL DEVELOPMENT PROJECT

Selected Documents and Data Available in the Project File

A. Sector Background

Al Rural Financial Markets Sector Study - Report No. 5860-CO

B. Project Background

B3 Preparation Report by FAO/CajaProject BriefResumen GeneralComponentes Agricola, Ganadero, Commercializacion y Asistencia Tecnica

and Institutional DevelopmentEatudio Sobre Mercado de Productos Agricolas Perecederos (4 volumes)El Credito de la Caja Agraria Durante 1983-1985

B2 Caja Agraria - Informe Estados Financieros al 31 Dic., 1985 (2 volumes)- Inforne de Labores, Semestre A, 1985- Plan Estrategico 1986-1990- Presupuesto Semestre B, 1986- Evaluacion Financiera 1982-1985- Costos Agricolas de Produccion- Costoo Pecuarios de Produccion- Credit Manual (3 volumes)

B3 Financial Data and Simulation Model by IID, May 1986

C. Working Papers

Cl The National Economy and the Agricultural SectorC2 Institutional Strengthening Component

NOTES

MAP SECTION

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CAJA AGRARIA INSTITUTIONAL \%

DEVELOPMENT PROJECT < ^M^zoNAS* '

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