Costs and Benefits of Liquidating Peru's Agricultural Bank
This case study discusses the closure of the Banco Agrario del Peru (BAP), an agricultural development bank in Peru. It also assesses the implicit and explicit costs and benefits of liquidating BAP.
BAP faced high administrative costs, fluctuations in donor funding, liquidity management problems and a non-conducive legal environment. It was adversely affected by political interference and inflation. There was a lack of a sound management information system and transparency. Donors and political parties paid scant attention to BAP's financial health.
Costs of liquidating BAP include loss of loan portfolio, slump in employee morale, terminating employees and building new financial infrastructure. Benefits include extracting the Government from subsidized credit, insulating the Central Bank from politics and a philosophical shift in favor of private enterprise. Lessons learned from the study include:
- Private sector will not build all the financial infrastructure necessary to support rural development;
- Government needs to play a role in the process;
- New organizations must deal with clients' banking habits and perceptions;
- Political intrusion and provision of highly subsidized credit play a negative role;
- There is a need for transparency, discipline and better performance.
