MICROFICHE COPY

.;1 Report No. :12044 EAP Type: (PCR)RIF Title: WESTERN SOMOA, TONGA AND FIJI

o~. Author: MASON-ANDERSON, J.Ext. :31676 Room:T 9111 Dept. :OEDD2

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FOR OMC[AL USE ONLYTHE WORLD BANK

Washntont D.C. 20433U.S.A.

Om"dof DatarmwrailOp0erons Evluatn

June 22, 1993

AdEMORANDM TO DlRECrORS AND 7MEE PRRSI

SUBJECT: Project Conpletion Reports on Development Bank of Westerm Samoa,Tonga Developmt Bak and FUI Development Bank(Credmt 1582-WSO. 18131-ON and Loan 2tS-FLfl

Attacbied is the Project Comnpletion Reports on Wester Samoa, Tonga Development Bank and FijiDevelopm Bank (Credits 1582-WSO, 1813-TON andln 2598-PU) pt ed by East Aa and PaficRegional Offie, with Part coibuted by the Borrowers.

ITb three projects were all crded out witin the World Ban/Asian Development Bankcofinmncing agement The Asian Deveopment Bank had the lead responsibility for supervising theprojects and preparing the PCRs. The Bank added an *Evaluation Summary* which reflect the sandardformat of Bankes PCRs.

Mie objecdves of te tree projects were broadly similar, i.e., trnsr capital and tec alesitnce for agricultue and agro-based indusries, strengthen the mnp ment of the respctivedevelopment ntudons and attin an intre rate sructure consstet with financi sustainabilityreuiementa,y

The outcome of the FII operadon Is rated as unasfatory, Its sustanblty as uMky and theinttuoa Impact as negligible. FPji obtained loans at sigificantly ow ost from the EurpeanInvesmentBank. Furthrmore, the finnca sytm In FIJi had bcme relatvely iquid tu enablingFDB to borrow at lower costs. As a resut, Fiji decided to canc e undisbursed balance of US$5.3millio out of the origil total of US$6.5 milon. As the PCR recogizes, a trough assessment by theBank ofFDB's likely ace to cosona findings would have led to a reas of£tejudficadonOf the oan.

The outcome of the two credits in Tonga and Wesn Samoa is rated as sats6ctory, musanabilityas uncertan and instidtonal Impact as pardal. With respect to the Tonga project, while the taf offoreig exchap resources for Investment was successuy implemented meeting bot comtmet anddisbu et scleduls, the sustainability of th project, as nicad In te PCR, remains depende onTDB's abUity to develop no a selfsustaining and viable financia Insdtudon. Ibis I turn inges onTDis's capacity to develop a lending rate strucue allowing for fi!l recovery of coss and adequate profitmargins. TDB has made prog In strengtening Its mangme staffing and organizadonl sm e.A follow-W project has addtessed a number of TDB's outst deficiencies.

As to the Westem Samoa Development Bank (DBWS) opeation, the peforman of the project,with 90 out of the 117 larger projec subproects opeatilg sadsfatorily and conidern th adverseImpact of the 1990 and 1991 cyclones on some subprojects, can be conidered acceptable. Hwever, as

* The interst rate for Bank loans to DPIs has been a general issue in the Pafic Islands. See the WorldBank and Pacdf Ilan Counties: An OED Review, Report No. 10693, dated May 5, 1992.

noted in the PCR, the sustalanbility of to poet, as in -Ole Topp poject, Is viy much dependent on aswbsantial Wm met In the coectn pefom and oe adequte Intrest rate speeds in pardcularfor smaU agricultral m. Also, 1hese I ovms reuire furter pro inr m DBWS'

Mh PCR for Wesrn Smoa p ct is moteworhy for Its broader* dis di of ke-y aspet ofthis type of projec in its Lasons of E ence sectio Fst, it sus tat DBWS performance goalshave 11t been adequately Sdiclated in oheret Leditonal development plan acceptable to the Samoanpolidcal community as a whole. Second, with re_ec to dhe OD study mentoned above, the PCRconcudes hat the aangeme under which rqobty for project Re'rvlso is eaused with ADBhas not worked well. Third, reater anio in formt o prject dsould have been given to itsdevelopment iact, rning the cutiual wttn, with rtepct to the situonal devopment aspects.

No audit of these projects I planed.

Attachmnt

rA~yam cawinbe dadoesd wjiam Wodd flun mlushsdxmi

FOR OMCIAL US ONLY

DNU SCAMOA

DYDEVLPSn DAM [OF MnDPnESAMOA(CREDIT 1582-WSO)

M NA DEEOSYBANK(CREDIT 1813-TON

EU

(LOAN 2598-)

PAGENO

PREFACE i.................I

MA's EVALUATION SUMMARY ......................... .. HiSTA'FS1ICA INFORMLATION ..... .............................. ix

Atachment 1 DBWSs'Comments ................................. 1

Attachment2 ADB'sComments .... .. .............. 4

Atcbme 3 ADs Projea Completon Report .. ....................... 5

BASIC DATASSHEET .. .... ............... 7

1. BACGON ............ a .............. it

A. Brief Hbty ...... .... ...... . .. . ... . * ....... itB. SeoweofOpetions. ................. .................. 11C. RDelonhp withtke Bank and other Ldeun ................. . 1ID. Rationda fo th Bank 1.o.u . . ............................ 12

iL DMFLFENDNTATION ............................................... 13

A. lg .Pol .s .. ........................................ 13B. ctst of Subloans ............... ... ....... . . 14

ThIdocu menthas aauksw4db;tin od my eud by meibatu on hap.fdfmma of dokir aftW duie its tts my no otwi eds W wihut Wol Bk athdko

IABL of CElTED(coned)

PAENO.C. bmlemenadon and itad Operation

ofSub-projects ............................... 1SD. lTe Teclbical Assistance ............................... 18E. Opeatond Performdnne ofDBWS ......................... 19F. Fincial Perbrmance ofDBWS ........................... 220. Covenans ................ ....................... 23H. Te as Perorance .......................... 24

m. EVALUAION ..................... 25

A. Apprai ..................... 25B. .leme ion...................... 25

IV. CONCLUSIONSAND RECOMBMNDATIONS ........ 25

.APENMDICES

1. Staemnt of Opaing and Gerl Business Policies(DBVS) .... 27

2. lnteresRateStructe in Westem Samoa ......................... 323.ImplemanStatusofSubprojects ..... 334. DaIIsofProcureent .................................... 37S. Financial PemhmanceofSubprojects ............................. 386. Eoonomic Pefbnane of Subprojet .....s.......... 427. O nanal Str and Stffing . . . .45............... 4SS. AnalysI of Loan Operations ......... . . 469. Anass of Arrears, 1985-1991 ............ ......... 4710. ColectionPerforIanceofLoanPorfdolio ... . 4811. Projected nd Acuadl ome Staemes ............................. 4912. Actud Projected Cash Flow Staements .......................... 5013. Pmojecd and Actu Balance Shee ........................ 1.... S14. LoanCovenantsunder theFifthBankLoan ........ ............... 52

PRIFACE ....... ............................... 59IDAs EVALUATION SUMMARY ................................. 61STATI CALINFORMATION ................................... 69

Atacnhmnet A ADB'sComnuns ................................... 77

Attadclg BetB sConunes .............. ...................... 78

IAMrQESCNThM (Cotd)

PAGENO

ADB's Project Complaion Report ................................... 83

BASICDATASHEBET .......................................... 88

1. BACKGROUND ....................................... 91

A. Brief History ........... ............................ 91B. Scopof Operations ................................... 9tC. Rt WnshbpwiththeBankandother Leders ................... 91D. Raionalse for the Bank Loan .............................. 92

II. IPLEL EN'ATION .................................... 93

A. Lenin and terst Rate P oli es .......................... 93B. C of Subloans ............................... 93C. J mplenin of Subprojec ............................. 95D. Operation of Subprojects ............................ 95B. Opeaional Perbrmance of TDB .... ....................... 96F. Finanidal Perfonianc of TDB ... ........................... 980. covD5DtB .... .......... H. BasPerformnnce ................................... 99

M. EVALUATION OF APPRAISAL AND MPLEMENTATION .... ....... 100

A. LoanAppraWs . ................... 00B. lention .................... 101

IV. CONCLUSIONS AND RECOMMENDATIONS ................. .. 102

1. Staemea ofOpaingPolicis . .............................. 1052. bImpl ntiHonStas sofSubprojects ......................... 1103. Detdi ofProcurement byCowutryofOr.gin. . . . .... 1114.F iancal andEconomicPerformace ofSubprojects ............. ..... 112S. Cutrrt Stats of Subprojet s. .............................. 1136. OrgnidzatonChart ..................................... 1147. Analysis of Loa and Equity Inestnt Approvals ................... 1158. Analysis of A as, 198&1991 ....... .. .. ........... 1169. ColleconPePformance onLoanPortfolio, 1986-1991 ................. 11710. Projected and Actd Balne She, 1986-1991 .................... 11811. Projectedand Actuadbwom Stawamns,1986-191 ................. . 119

TABILE QE SQIiT (Cont'd)

12. Proj.cdeda dA Cubi CaFlow St_ mentase u ls9l .....a... ......... 12013. Compline withLounCoveabw underLou 782-TON ............... 121

FMl

PREFACE ........................................... 125mRD's EVALUATION SUA0MA Y ................................. 127ST2MSTI1CAL JORMATION ................................... 133

AttachmenDtA FDsCommnents †................................... 138

AttachmentB ADB'sConmments ..... ............. 139

ADBs Projea Completon Rqeo ....... ............ .. 141

BASIC DATAASHEET ... ........... 143

L. BACKGROUN.D ............. 147

A. BrI@Hitry ..................-. .. 147B. Scope of Operadons . . .... 147C. Relaionbwltwitht eBan and other Ledods .......... *........... 148D. Ratione fr the BankJLoan ............ .... .. . ..... 148

H. DIdPIJ94ENTATlON ................................. ..... 149

A. LendlUgPolices ....................................... 149B. Charteistdcs of Slous. ................................. 150C. bmple I -aonand i OperatonofSubprojec ................. 151D. TheL ineofEquity ..................................... 153E. Opeatona Pedormance of PDB ......... * * * ....... 153F. Financl Perfcmanc of FDB ..... .. ... 1550. Covenants ........................................ 156H. TheBank'sP fomnance ....... .......................... 156

m. EVALUATION ......................................... 157

A. Appris ........................................ 157B. npanan .................................. 157

IV. CONCLUSIONSANDRECONSMNDATIONS ..... 8............... I8

TABLi.QE OF c1 (coned)

PA.GE NO,

1. Staemet of Opeating Stt ad G rad BUS_bsPoiy ................... . . ..... . .. 161

2. hners aw Structumr in FI ......... . ......... .. .1683. Imp1 nod4 Stwa of Sprj Fhunadunder

4. FijiDevdelqutt Bank ...... * .... .............. 1705. Financial Peomac of Subpoje Financd under

LTA 739-PU ..... ......... .............. 1716. Economic Pformance of SupjecsPinanced u

Loa 739-PU . .. 1727. Curn Stus of Subprojec FinancWd und

LA 739FJJ ...... .. ............. . ... 173S. Analysis ofLoon and EquiybesafO ons ..................esmentOer. 1749. 2StScnitue ............... . 17510. Analysis of Anrear, 1986-1991 ............................. ...... i7611. Projected and Actual Sconme _ ........................ 17712. FPojectdandAuA Cash Flow Stas#rb ........... ............. 17813. Pojectd and Acu Bal Shoes . .......................... . 17914. Comp118ncwlthkBank'aLoCw CovenantundeL= M738 . .............. 180

PROJECT COMPLETION REPORT

WESTERN SAMOA

DEVELOPNT BANK OF WESTERN SAMOA PROJECT

(CREDIT 1582-WSO)

March 30, t.993

budusty d rEny Operations D!visionConty Dqwtmet MEa Asia and Pacific Region

CURRENCY EQUIVALENTh

Cunrency Unit = Tala (WS1)

At ppraisal:

US$1.00 = WST 2.1179 = SDR 1.0500WST 1.00 = US$0.4722 = SDR 0.4958

At credt closing:

US$1.00 = WST 2.4050 = SDR 0.6956WST 1.00 US$0.4158 = SDR 0.2892

FISCAL YEARS

Government: January 1 - December 31 (until 1990)January 1 - June 30, 1991July 1 - June 30 (subsequently)

DBWS: October 1 - September 30 (undl 1990)

ABBREVIATIONS

ADD - Asian Developmnt BankDBWS - Development Bank of West SamoaGOWS - Governme of Westen SamoaIDA - Iational Development AssociaionQED - Operation Evaluation Department (of the World Bank Group)PCR - Project Compledon ReportSDR - Specia Drawing Righs (of the Inrnational Monetary Fund)

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PROJECT COMPLETION REPORT

WESTERN SAMOA

DEVELOPNMT BANK OF WESTERN SAMOA PROJECT(CREDIT 1582-WSO)

PREFACE

This is the Project Completion Report (PCR) for the Development Bank of West SamoaProject, for which Credit 1582-WSO in the amount of SDR 2.1 million (at the time equivalent toUS$2.0 mllion) was approved on April 28, 1985. The project was cofinanced by the AsianDevelopment Baink (ADB). The credit was closed on September 30, 1990, in accordance with theorgin schedule. The final disbursemeat was made on November 16, 1990 and the undisbursedblce of SDR 254,906 canceled. With the increase in the value of the SDR relative to the USdollar, the disbursed sum of SDR 1,845,094 represented the equivalent of US$2,386,984.

Under an agreement between the International Development Association and the AsianDevelopment Bank (the project's principal financier), ADB was responsible for the overall projectfmuation and appraisal, and for subsequent supervision of lmplementation. The ADB Loan for theProject closed on June 21, 1991, two years later than plamned. The ADB PCR was issued inDecember 1992, following a project completion mission in March 1992. The PCR is accompanied byan evaluation summary prepared by IDA staff.

The GOWS, DBWS and ADB were invited to comment on the IDA Evaluation Summary.Comments were received from DBWS and ADB (Attachments 1 and 2 respectively). DBWS'scomments are reflected in footnotes 1-7, and ADB's comments are incorporatd in para. 5.1.

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PROJECT COMPLETON REPORT

WESTERN SAMOA

DEVELOADPMENT BANK OF WES1ERN SAMOA PROJECT(CRED1T 1582-WSO)

IDA EVALUATION SUMMARY

Project Ident

Project Nme: Development Bank of Western Samoa ProjectCredit Number: 1582-WSOCredt Amount: SDR 2.1 millionRVP Unit: East Aa and PacificCounry: Western SamoaSector. Financial lntermediationSubsictor: Developmn Bankng

1. Bagound

1.1 'he IDA Crdt for the Dovelopment Bank of Westen Samoa (DBWS) Project ws thefourth IDA Credit approved for Westem Samoa, following three earlier credt which bad suppotedagricultr and upgradig te basic road infrastructure. The project was the second in a series of murdavdelot bank projects, cofinanced wihi the Asian Development Bank (ADB), In Pacfic sladCountries.. The Associatko lending strategy for Weste Sama was focused on increasing theproductive bas of the economy through diversifying agdcult, raising productiviy, strengthekey economic institutions, and, in th longer term, prmoting the developmnt of viable agobaedIndustries. Overal perfrmance of the agricultur sector-which accound for 60 percent of (DP,had bee mied; the industrl secor, accounting for 20 percent of GDP, suffered from theconstaits of a limited rource base, small domestic market, remoten from world maret andlow labo skills; and the fincial system was still evolving and mmtg. ADD had a well-established elaonship wh the Development Bank, and the project was ADB's fifth opeaton tosUport DBWS. DBWS, etablised by the Govment In 1974, srved 80 pcent of vies and30 perce of houeholds. ts agricultural lending and procesing w generaUy wek, nd alWughempwered to do so, It did not accept deposits nor make working capital loans. With a gross margn lons of about 5 percent, operons had bee only marginaly profitalo. At the tim of appraisal,

th loans ares situation had deteriorated, and 56 percent of loans in the repayment stae weraffected. The collectio ratio had declined to 50 percent in 1983.

1.2 To provide cot-effective lending to the Pacific island countries, the Bak Group bad,sin 1981, conced on cofinacing Asian Development Bank (ADB) operations, rate taassisdtg seprate projects. Under an umbrella agreement, ADB was reposible for the ovealproject fomulation and appras, and for subsequent supervision of impl on and preparatof the project completion report. However, a "specIal IDA implsion aetion was tt IDA

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staff were expected to participate as necessary with ADB in supervision missions. Ihis IDAevaluativn summary recalls the project objectives as presented in the I)DA President's Report to theBoard, summarizes key findings of the ADB project completion repor and offers an IDA perspectiveon some of the findings.

2. Objectives and Descriptlon

2.1 The project was designed to promote investment in smallholder agriculture and agro-based industries, improve the Government's industrial policy framework and strengthen themanagement of the key development lending institution. Furthermore, the project was seen asproviding the opporunity for timely IDA operational involvement in Western Samoa and furtherdialogue with the Govermment on important policy and institutional issues. Tbe project would financethe foreign exchange costs of relatively small development projects primarily in the industry andagriculture sectors, strengthen DBWS through technical assistance, and improve the policyenvironment for industrial investment through an industrial sector survey.

2.2 The ADB appraisal report noted that the four previous ADB loans had resulted insubstantial economic benefits, and considered that project risks were minimal-the only possible ridskbeing if the DBWS arrears position were to deteriorate. However, arrears had stabilized and acomprehensive arrears reduction plan was being put together. The IDA President's Repot idenifiedtwo major risks, one the arrears problem, which was being addressed, and second, a risk of negativeiterest rates if inflation were to flare up in 1985-86, leading to possible misuse of fiuids borrowed.

3. Inplementation xperience

3.1 Subprojects. 2.963 s1 loans were financed, with the distribution of externa fincbeing 30 percent to agriculture and fishing, 18 percent each to transport, tourist acco on, andmnufiecturing, 5 percent to village education, and 11 percent to other services. The largersubprojects (those receiving ADB/IDA financing of US$15,000 or more) accounted for 70 percent ofthe total ADBIDA financing. Of these 117 larger subprojects, 107 were located on Upolu, mostnear Apia, the capital, with only 10 on the less developed island, Savai'i. The remaining funds wmeprovided to 2,846 smaller subprojects, mainly in the agriculture sector, a much higher nmber thanexpected at appraisal, when only 1,100 subloans were expected in total. Tbe average ADB/IDAfinancing of these smaller subprojects was WST 1,100 (US$500) and, given the low interest marginon small agriculture loans, these transactions would have resulted in a significant operadtg loss toDBWS.

3.2 Technical Assistance. A six person-months Industrla sector swey was prepared, butno changes ensued in Western Samoa's industrial investment environment. Nine person-months ofconsultant services to establish a coherent project promodon program within DBWS was alsounsuccessfil in effecdng any discernible change In practices. A six person-months undettaig onaccounting and management Wormaon systems produced an accounting manua andrecommendations for computerizaion, but DBWS management decided not to adopt the computer

recommendatIons. 1/ Only the fourth technical assistance component, six person-monts to Improvestrategies and procedures relating to lending to the agriculture sector, was considered by the ADBPCR mission to have been successful, and indeed to have markedly improved the efficiency ofDBWS's agricultur operadons. However, eforts under this componen to promote credit unionsfailed, despite support from DBWS management.

3.3 DBWS. DBWS Inerest rates were increased to 10 percent for agriculture loans and to16 percent for industrial and service sector loans in March 1985, fulfilling an effectiveness conditionof the ADB Loan. However in October 1986, following consultations with ADB, DBWS reducedIntefest ras by 2 percentage points. And following Cyclone Oft In February 1990, the GovernmentImposed a ceiing of 12 percent on all Interest rates. A DBWS rehabilitation study in 1991, financedby ADD, recommended interest rates be increased to a minimum of 13 percent, but this was notaccepted. However the rate on some agriculture loans was increased to 10 percent and on some otherloans to 13 or 14 percent 2/

3.4 Dudng project implementation, the composition of the DBWS Board changedsignificantly three times-in 1985, 1987, and 1990. ADB pointed out to the Government In 1990 thatDBWS directors had received subloans, in breach of a covent is problem extended to loans toentaprlses inwhich directors had an interesL The ADB PCR also notes tat for a period somedirectors were over-involved in day-to-day management. Indeed, the DBWS board reveredmanagement dedsions, based on sound analysis, to decline some loan. Ike Government tookcorrective action, and the problem no longer exists. XI

4. Results

4.1 Subprojects. ITe ADB PCR repot tht ninety of the 117 larger subprojects areoperting satiaoly and do not have any hard-core aars with DBWS; 22 hav enconredsignificant difficulties and are not properly servicing their loans, and five subprojects have failed.The sparse data availale Indicates projects geneated WST 2.7 mlion of value added. However,only 17 prcent of the larger subloans are reported as finncing nw subprojects, and the ete towhich the remaining 83 pert Iduced iemena economic befits to the economy is not clear.The faied and in-difficulty subprojects account for 24 percent of the larger subloam by value.Cyclones Ofa and Val in 1990 and 1991 were major contributg factors to the faiure or difficultiesof some subprojects, together with Board directives to finance subprojects no rcommeded bymanagement. Data on performance of the 2,846 small subprojects is not available, and it is not clear

i o DEWS, whle it did onside dopping th TA recommedeA d*oo, it b. sinc devlope ad sd an appropriate compue prMm uso PCA. for its aseonst ad awnae1 1, 11 -:- - sysum FurOm eubmuwmt In ts connection is und_a *onsido

ZJ Accint to DBWS, .ints rate hwe been 8-13% fr "gtoll pje and 214% for f , witand tuport srvics pt sine J y 1992. The managea iten to eview this IWtes ato uor withtho Boad before ed of ts fiseel yoa.

y Acordn to DBWS, its caut Board of Difecton was appointd in mid 1991 and incu ao two fowrmembo.Mm manaseme is qut satisfd wth the decision msking and gnr spport of th vane Boad.

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whether poor subloan recovery rates reflect poor subproject performance or poor credit collectionperformane by DBWS.

4.2 DBWS. Under the project, DBWS agreed to implement a plan to reduce arrears to amaximum of 10 percent of loans by December 31, 198S. However arrears have remained close to20 percent !I/ lhe annual collection ratio (that Is, collections as a proportion of amouns due In ayear) increed from 42 percent In 1985 to 50 percent in 1986, but then fell to 43 percent, but hassince Increased to 57 percent in 1991. The ADB PCR notes that reasons for poor coUection include adegree of politicization of the Board, and *poor credit discipline that may reflect cultura factors".1SWestern Samoa retains its tradidonal culture, with strong obligations of support between individualsand wihin vilage commuaties. Corporate entities are not part of the traditional culture.

4.3 With debt write-offs and unprofitable agriculture loans, DBWS has recorded a netoperating loss before tax in five of the eight years to 1991, including 1989, 1990, and 1991. Overthe six years 198S-91, DBWS operating losses totaled WST 4.1 million (JS$1.8 million) due toprovisions for doubtfid debts totaling WST 13.7 million (US$6.1 million) over the period. fi/DBWS Is able to service the loans it has received, as they have long grace periods, but the ADB PCRexpresses conern about liquidity in future years, stressing the importance of achieving significanyimprved profitability and loan collections. The ADB PCR also notes that the covenat requiringannual reviews of interest rates, and consultation with ADB before changing the rate strucue, hadbeen largely disregaded, and the prmary itention of the covenants ihat DBWS manain interestrates that would allow for profltable operation, was not satisfied.

S. IDA, ADB and Borrower Relationships and terformance

5.1 IDA, ADB, and the Borrower initally had different pepectives on the problems ofDBWS and the Government's policies towards the Bank. IDA's only mission was in mid-1988, inrespnse to mounting concerns about DBWS's performance. IDA subseqnty ranked the project asa problem project. DBWS was seen as having unaisbfactory fiancial condition, poor porflquality, high arrears and low collection rates. Systemic problems were descibed as: 0) a lack ofappropria action on the part of DBWS and the Glovernment to develop DBWS as a comameallyviable financidal insution, () a lack of apprpriate DBWS accounting and operating policies; and(ii) a lack of adequate ADB/IDA supervion in identing and following-up appropriatecorrective/remedial actions. ADB's South Pacific Regional Office had expressed concem that thestanrds of perfomance applied to DBWS by MDA's mission were of a caliber which may be verydifficult to achieve among Pacific island development finace insutions and ADB's headqut had

I Aocodin to DBW5. it i cury umplemetng anohr amrn dcto pvogmm to reduce amaa by 10% tn taw fical yar. Prny, th lvel of asara Is at 14% of toX poiolio In repant tq The impovemnt ofis aema sIation I linkd to Oh saff peorfman.

Acordint W DBWS, is col toadio dlimnd to 51% in 1M. Th low collection a, Wa maily du to Xtfi fac by manW bprojects foin to Cylon VaL rthe thn 'politiciza of the Soard.

6/ Aocordn to Dlw, vwle it did rord loom in the pedS yer duthuo 1991, its financial pefrmance IM 12a _eatImrvwmnt with a pofit befo tax of us$0.7 miin. This wa aced hSoug rmducion inop_eronalcow (the significant of which wa the provision for dobtA det) and cat of borroL I s eqpeted tstead wi be mWtined ifnot Impe In t u amt fia yewr.

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noted that "DBWS, like other South Pacific development finance institutions, is generally working inextremely difficult economic environents ..... and that there are no quick-fixes for a remedy." IDAsubsequently refused to enend the Closing Date of its Credit (September 1990), and canceled theundisbursed balance. ADB, in concurring with IDA's assessment of DBWS's problems providedTechnical Assistance to encourage a drastic change in the operation of the Bank. Wbile ADBextended its loan closing date to June 1991, It did not support a request for a sixth Project.

5.2 A DBWS position paper in 1990 noted that DBWS had to take risks which no otherfinancial institution would take "where we sometimes have to make loans not necessarily because theyare viable according to the set norms and rules of banking, but where social and other criteria areconsidered as more important, and where fimding from inational financing institutions comestagged with provisions to lend to certain sectors of the economy and the intenational fincinginstittions themselves do not make provision for the risks Involved in lending to such sectors. Withthe above as generally our bag of goods, it is regrettable to note that traditional criteria likeprofitability, debt servicing capability, collections and arrears as a percentage of loan portfoliocontinue to be used to judge the viability of a Development Bank." 2/

6. Project SustainablUty

6.1 Over half of the subloans by value are rated as satictory, and prima faWe representfinnmially sustinable subprojects. However, the June 1988 IDA review mission expressed concernabout the amount of rescheduling which had taken place to upgrade poorly performing accounts tosaisfactory status. By the end of the project, Westm Samoa, with its small population of 165,000,had borrowed from ADBJIDA se proportionately massive total of US$19.2 million for DBWS in fiveloami.; nd DBWS ha- bee acc._red USS$3.0 mi11Ion of tdhncalass1st-- te Dvelopment Bank,which is obligated to repay the on-lent ADB/IIDA funds to the Govenment, appears not to besusWanable unless its collection performance substantially inproves, and unless it establishes adequateinterest rate spreads for vario classes of business, and in particuar markedly increased spreads forsmall agricultre loans.

7. Conclusions and Lesons Learned

7.1 The project met It goal to promote investment in smailholder agriculture and agro-based industries, but failed to improve the Government's industrial policy framework, stre n themanaement of the key development lending institution, and further the dialogue with the Governmenton important policy and instiutional issues. DBWS is not sustainable without a radical change ofpolicy by Governmt.

7.2 The main findings and lessons derived in this IDA evaluation summary are threefold:

(a) DBWSperfomam:. goals have not been adequately alcldated In a caohludtulonal development plan acceptable to the Samoan polical community as awhol.

7/ AcodinS to DBWS, thdo mablsheAt of aBank businew pln for tho pod of 1992 to l99S, anon oat=, ha abowedOn =Wf W_a_M to ift WA*M

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The failure of DBWS to emerge as a viable Intitution is In accordance wlth the world-wide experience of development finance projects. Lessons relevant to the WesternSamoan include the need for adequate opeting margins and the desirability of marketinterest rates to encourage the most economically viable projects, and mobilizedomestic savings; and the benefit of social objectives being pursued through explicitGovernment subsidies, rather th thrugh unsound credit. At the small saver andborrower level, Western Samoa might consider whether 'grassroots' revolving savingsand credit associations popular In many countries, might be atrctive to Samoanculture, as well as the experience of the Gameen Bank in Bangladesh, and the villageunit banking system of Bank Rakyat lodonesia, both of which have been designed torespond to village level constraints and demand.

(b) IDA's roe was not adequately anlyzed at the ouset of the prject, and resourceswere not allocated to achi the stated goals ofparticipation In sperison missions,and dialogue with e Govnent on Important policy and tuonal issues.

With the Bank's increased country focus in recent years, and the support of theAustian International Development Assistance Buieau, the macro-economic dWoguein general has been resourced and implemented. In contast, the stats of IlDA'ssupervision and subsector dialogue Is Indicated by the less ta one staff-week per yearused to review progress of the project. OED, in a study of the World Bankinvolvement in Pacific island countries (Report No. 10693, May 1992) concluded thatthe Bank can potently play an importaent role in helping the Pacific Island Cowtriesto prepare and Implement appropriat development strategies; tht the 1980scooperative arrangement with ADB is no longer relevant; and that the Bank will needto allocate dedicated staff resorces to an expanded program. As the Bank defines itsfuiure strategies, the experience of this project indicates that goals and resources mustbe more carefully matched tham in the past

(c) Deelopment impa. recogning te cltura seing, and not merey hutonaldevlpment, should be te mainfactor when considering any possile,fitwe IDAactlvly nwilvng DBWS.

With Western Samoaes growth poteal lyng pripally in te tourism, smal andmedium-scale industria, and agiulturla sectors, an imont focus of any future IDAefforts should be to assist the country develop a suitable economic environment forprivate sector-led economic activity in all sectors to flourish. Ihe availability of termfinance will support such actvity. However, if the expertise built up in DBWS is tobe mobilized, the broad-based political acceptance of a coherent DBWS opratingmandate mentioned above wil be necesary.

ix -

PROJECT COMPLETION REPORT

WSTERN SAMOA

DEVELOPMENT BANK OF WESTERN SAMOA PROJECr(CREDIT 1582-WSO)

STATWICAL INOIDRM1TON

1. Related Bank Loans and/or IIDA Credits

None

2. Project Tmetable

Item Actual Date

Appraisal July/August 1984

Negotiations March 1985

Board Approval AprI 28, 1985

Credit Signature July 1s, 1985

Efectiveness December 17, 1985

Credit Closing Sptember 30, 199C

3. Credit Dibursements

Cwuale Disbursemnt - US '000

FY86 FY87 FY88 FY89 FYT" FY91

Apasal t 220 960 1,580 1,880 2,000Actual 108 380 1,009 1,639 2,279 2,38SActa % of estlate 49% 40% 64% 87% 114% 119%Date of final disbuement: November 16, 1990

x -

4. Project Implemaitatln

indicator Appraisal Actual

No. of subloans approved ,i100 2,963

S. Project Unaning - US$ 000

Sowuce Appraisal Actual

IIDA 2,000 2,400ADB Loan and Grant 4,300 4,800UN Development Program SO 50GovernmentDBWS 8,550 n.a.

Total 14,990

6. Project ResutsA. Direct Benfits

IndIcators Appraa Actual

Annual forei exchange savn US$2.5mJobs created 1,000Jiwestmeniets US$13.5mVahladded WST 2.7m

B. Studies

Study/purpose Status Impact

Industi Sector Survey Completed Not implemented byGOWSIDBWS

Project Promodon (by DBWS) Completed None

Improvement in DBWS's Completed Not implemented byAccountg and MIS DBWS mangement due to

perceved high cost

Agricultual Credit Completed Effective In Impwrovig DBWSagricultural credit opeatons.Measures to prmote cedit unionsnot ef*ctiv.

-xi.

7. Stal of cove ts

At dosing dat, all covenvasunder the IDA credt were met, except tha audited financistaements of DBWS were overdue. During Implementation, the covenant requiring a minimdebt:equity ratio of 3:1 was breached for a time, but remedied by a large inection of additonalequity by the Govement.

8. Use of Bank Group Resourcs

A. Staff Inputs

Staffweeks

trgh Appras 2.6Appraisal trough Board Approval 4.7Supervision 4.9

Total 11.2

AR Inputs were at headquartes, apart from a four-day mission to Westerm Samoa in Jun1988.

B. Misons

Mm only IDA mission undertaken was a four day visit to Westem Samoa by a fnanca analystin June 1988, which ranked the project and/or DBWS as a having serious problems with deveopmentobjectives, managemet prftmae, financia performance, and availability of f& nds.

Attcment IPage 1 of 3

DERLOk T QF WEST1 8RN AMO DBWS8CRDIT 18^ - W80 s

UOICT CMPLN BI

The following are D8WS coents On the above Report. The comments are made wherenecessary in the order of issues raised In tho Evaluation Susmary of the Report.

IHPLHETATIoll EXEINCEC

6. Technical Assistance

DBWS generally agrees with the results of the TAL under the above project.There have however been some significant improvements in the areas looked intoby the above TA since then. There has been a strong shift in the governmentecouomic strategies in the past couple of years, towards promoting/encouragingforeign investment in the country. This has called for strengthening projectinvestment promotion within the newly created Ministry of Trade, Commerce andIndustry formerly the Department of Economic Development.

This project promotion is now appropriately carried out on a national basisby the relevant Government Ministry, an objective which was promoted by the TAon project promotion.

While DBWS did consider dropping the Th recommended computerization programbecause of the high costs, the Bank has since developed and used an appropriatecomputer program using PCs, for its accounting and management infoumation.Further improvements on this project are being implemented to enhance the Banksinformation system.

7. DBWS

The current DBWS interest rates are 8S to 13S for agriculture projects, and121 to 142 for manufacturing, tourist and transport services projects. The aboverates were effective from January 1992. While there are no immediate plans toreview these rates, Management intends to discuss a review with the Board beforethe end of this financial year.

8. The current Board of Directors was appointed In mid 1991 and includes onlytwo from the last Board. Management to quite satisfied with the decision makingand genral support of tbh current Board. Management does not envisage anydifficulties in its working relationship with this Board.

REBULTS

9. Rosults

The devastations caused by the two cyclones in 1990 and 1991 were the majorcontributing factors to the failure and difficulties of many of the sub-projects.This has been reflected on the decline in the annual collection ratio to 512 In

-2

Attachment 1Page 2 of 3

1992.

10. Arrears has been a *erious problem with DBWS in the past years. DBWS iscurrontly implementing another arrears reduction plan to reduc- arrears by 10lthis current financial year. Presently, the level of arrears is at 141 of totalportfolio in repayment stage. The above arrear6 plan will now be the basis foraseessing staff performance and salary reviewe at the end of the assessmentperiod.

The annual collection ratio declined to 51 in 1992 mainly due to theditficulties faced by many sub-projects following Cyclone Val, rather than"politicization of the Board" as claimed in the PCR. The export of local produce(e.g. taro) was suspended for most of 1992 by order of Government to retainenough food for the country after the cyclone devastations.

This affected the Income of many farmers and hence servicing of theirloans.

11. While DBWS did record losses in the past 5 years to 1991, its financialperformance in 1992 was a great improvement, recording a profit before tax of$736,966. This achievement was possible through the general reduction inoperational costs, the significant of which were the provision for doubtful debts(by 57Z compared to 1991), and cost of borrowings (reduction of 91). It isexpected this trend will be maintained if not improved upon this finanzial year.

IDs ADB, BOD RE URLATIONSHIP AND PEORMANCE

12. While DBWs is still trying to resolve some of its traditional problems asnoted in the report, It is now doing this with a degree of confidence, comparedto the previous years. This is attributed to

(i) a more supportive and dedicated Board towards the objective of improvingthe financial performance and quality of the loan portfolio of the Bank

(ii) a new Management team with a more serious and realistic approach towardsimproving loan collections, linked to staff performance

(iiI) a more improved accounting and computer system, which has allowed more upto date information on loans arrears collectives and general business operation

(iv) the expressed directive by the Covernment that the DBWS Board will now befully accountable to the financial performance of the Bank

(v) the establishment of a Bank business plAn for the period 1992 to 1995,which among other things, has allowed greater delegation of authority to theManagement In operational matters within the Bank.

DBWS endorses ADB's assessment of the general difficulties faced by smallDPT like DBWS and that the "quick fix remedy" approach of IDA does not help theefforts of DBWS to improve its financial performance.

3

n ,tachsst IlPag 3 of 3

13. VIWS certainly takes a lot of risks in its lending activities. Tbhre areproject. with very high social and human valu, attached to the., which DIM1considers worth asistin because they contribute to the advancement of soealand conomic liveo of other people. These inlud, school buildings, wator supplyand si*ilar projects, which are iaplemented on a c¢ommal bais by villae*.While these projects are not commerci project., they are neverthele assessedon their ability to generate funds (usually from the village other devslopmentprojects and fund raising activities) to repay the DBW8 loan. Theso social andhuman valued projects are only financed by the Bsnk when it is established thatthe required loan can be serviced.

PR.OJCT SUSAIUA3ILI??

14. It ws inevitable following the Cyclone, n 1990 and 1991, that the DBM8had to provide some form of rehabilitation to allow damaged projects to be re-establisbhd. Because the cash flow of most projects were affected and honcetheir abilitie to repay, the Bank considered appropriate to re-schedule theseloan repaymeuts for realistic periods, to allow adequate recovery te. Wherea rescheduling would only postpone the problems, tho DMB8 would proceod withforeclosure.

CONCLUSIONS AND LUSSONS LERNED

DAWS Management generally supports th recommendations of the Report on thelessons derived from the IDA Credit. DBMS agrees with the desirability to applymarket interest rates in its landing. Wo wil raise this issue with the localauthoritios before the end of this financial year. Other lesson, will certainlybe explored by the Blak and may be acted upon if viable.

~4.

AS"AN DEELOPNT BAN1SUt Pacific RehiDIf U2Bm

Fort Vl93 flR 29 A?i 9:25

TO : The World Bank, USA F No. (1) 202 477 131305 . ' ltudei Ui sbwcj

Attn : Mr. Peter R. Scherer, No. FMN.028/93Chief Date : 29 March, 1993

From : M.R. Davey, Approved : L.A. Hayashi, lSenior FnancialAnalyst m Director, SPRO

Subject: A A B1582-SO) *Prefect Comuletion Rpogt

Thank you for your fax message of March 16, 1993 and the attached draft Project CompletionReport for the Developmnt Bank of Western Samoa Project (Credit No. 1582-WSO). We havereviewed the draft report and have found it gmnerafly acceptable and in accordance with tieviews expressed in our PCR for Loan No. 770-SAM.

We would however prefer to see a more curmrt verion of ADB's perpective on DBWS'sproblems redected ia the report. In particula, para 12 of the document epresses the view taIDA and ADB 'hadad hb different perspecAves.'.'. We feel that the situation as outlinedin our PCR whereby a 1990 Review Mision fom this office strongly supporctd what was in

ffect IDA's position on DBWS should be more fully reflected. Purthermore, as a rsult of theMission's anysis and the position that Mion took, further Technical Asstce wasprovided to DBWS. As a result of this TA and of subsequent poicy dialogue with theGovernment, we consder that we have alady encouragd a radical changC in theGovernment's policies toward DBWS. This posdtion is oudined in some detal in our PCR, adraft copy of which was provided to you lt December.

Kind Regards,

Yours sincerely,

<.0

L.A. Eayashl,Director SPRO.

'A CM di iAd, I=mul Phwa7, P ' V'a

* PCR:SAM

ASIAN DEVELOPMENT BANK This Report has been prepared forthe exclusive use of the Banlc

PROJECT COMPLETION REPORT

OF THE

FIFTl-I DEVELOPMENT BANK OF WESTERN SAMOA PROJECT

(LOAN NO. 707-SAM[SF])

IN THE

INDEPENDENT STATE OF WESTERN SAMOA

DECEMBER 1992

CUWRENi;Y EQUIVALENTS

CURRENCY WESABM E SAMOA TALZ (WS$)

At Loan Appraisal in July 1984 - WS$1.00 - UtM.4722US$1.00 WS$2.179

At the closing date for Loan - WS$1.00 5 US$0.4L5Disbursement in June 1991 - US$1.00 G WS$2.405

The exchange rate of the Western Samoa Tala is determined dailythrough a fixed relationship to a weighted basket of currenciesof Western Samoa's major trading partners.

A B B R E V I A T I O N S

AGM - Assistant General Manager

AIDAB - Australian InternationalDevelopment Assistance Bureau

DBWS - Development Bank of Western Samoa

EIB - European Investment Bank

IDA - International Development Agency

TA - Technical Assistance

SPRO - South Pacific Regional Office

NOTES

(i) In this Report, "1$" refers to US dollars.(ii) The Fiscal Year(FY) of the Government coincides with the

calendar year, while that of Development Bank of WesternSamoa ends on 30 September.

TABE OF COMTENTS

-7

LART Z BSIC DATA

A. Loan Identification

1. Country Western Samoa

2. Loan Number 707-SAM(SF)

3. Loan Title Fifth Development Bank ofWestern Samoa

4. Borrower Independent State of WesternSamoa

5. Executing Agency Development Bank of WesternSamoa (DEWS)

6. Amount of Loan - ADB $4.8 million- IDA S2.o miJlJn

B. Loan DAta

1. Appraisal- Date Started 23 July 1984- lDate Completed 10 August 1984

2. Loan Negotiations- Date Started 08 October 1984-- vDate Completed 12 October 1984

3. Date of Board Approval 15 November 1984

4. Date of Loan Agreement 07 November 1984

5. Date of Loan Effectiveness- In Loan Agreement 07 May 1985- Actual 13 May 1985

6. Terminal Date of Commitments- In Loan Agreement 13 May 1989- Actual 13 November 1989- Number of Extensions Four

7. Closing Date for Disbursements- In Loan Agreement 13 May 1989- Actual 21 June 1991- Number of Extensions TWo

8. Terms to the Borrower- Interest Rate 1.0 per cent per annum- Maturity 40 years- Grace Period 10 years- Free Limit $50,000 eqqivalent- Repayment Terms 40 years including 10 years

grace period (fixed-typeamortization)

*8-)

9. Terms to DBWS- Interest Rate 6.0 per cent per annum- Maturity 15 years- Grace Period 8 years- Free Limit US$50,000- Repayment Terms Equal semi-annual repayments

of principal over a period of15 years including 8 yearsgrace period.

10. Interest Rate for Subloans Between 10 and 16 per cent

11. Disbursements ADB- Amount Disbursed $4,832,616.85 $2,382,310.78- Amount cancelled $ 339,888.76 $ 368,777.92

C. Implementation Data

1. Number of Subloans Made 2,963

2. Sectoral Distribution of Subloans

No.L Amount ($000)

Agriculture & Fishing 2,637 1,432 29.6Transport A 82 893 18.5Hotels etc. 10 869 18.0Other Manufacture 37 665 13.8

" Others 92 302 6.2Education Services 35 263 5.4Business Services 18 207 4.3Food Manufacturing 17 173 3.6Retail Trade 35 29 0.6

-- ------

2,963 4,833 100

3. Size of Subloans

a) Below $5,000 2,680 638

b) $5,001 to $20,000 236 1,660

c) $20,001 to $50,000 23 630

d) $50,001 to $80,000 16 443

e) Over $80,000 8 1,462

2,963 4,833

4. Subloans Above Free Limit

- Number 24- Aggregate Amount $1,791,645.38

.9.D. Data on Aank Missions

No. of No. of MissionDate Mees MandLya gimposition

Review l9Aug-SSeptss 1 18 DevelopmentMission Bank

Specialist

16-19Jan87 2 6 Sr. FinancialAnalyst &TechnicalAssistant

11-26Jun87 2 32 DevelopmentBankSpecialist,TechnicalAssistant

13-27Apr89 1 13 Sr. FinancialAnalyst

18Mar-7Apr9O 3 19 Sr.. FinancialAnalyst

2-llSept9o 1 9 Sr. FinancialAnalyst

4-9Mar91 1 6 Sr. FinancialAnalyst

Special 8-18Nov86 1 10 TechnicalLoan AssistantAdministration

PCR Mar92 2 26 S e n i o rFinancialAnalyst &TechnicalAssistant

E. Related Technical Assistance and Loans

Loan/ Date AmountlS NO, Angroved Apgroved

Technical Assistance

Development FinancingInstitution 80 11Jan73 217

DBWS 137 18Mar75 90

DBWS II 18S 16Dec76 40

Review of Role andFunction of DBWS 590 30Mar84 100

10-

DBWS V 637 15Nov84 300

Rehabilitation DBWS 1399 250ct90 203

DBWS I 218-SAM(SF) 18Mar75 1,000

DBWS II 287-SAM(SF) 16Dec76 3,000

DBWS III 366-SAM(SF) 21Nov78 4,000

DBWS IV 527-SAM(SF) 9Sept81 4,000

;4

1.. DACRGRotThI

A. Brief History

1. -The Development Bank of Western Samoa (DBWS) wasestablished under the Development Bank Act of 1974 following theprovision of Bank technical assistancel/ to the DevelopmentDepartment of the Bank of Western Samoa. OBWS's authorizedcapital was initially fixed at WSS5.0 million and this wasincreased to WS510.0 million in January 1985. The Governmentholds all of DBWS's shares. The Government has assisted DBWS invarious ways including granting an initial ten-year taxexemption, guaranteeing foreign borrowing and provision of localcurrency resources. The Government appoints DBWS's Board ofDirector with the Financial Secretary to the Governmentcurrently appointed as Chairman.

2. The Statement of Operating and General BusinessPolicies adopted by DBWS (see Appendix One) provides foroperations that are generally in line with the economicdevelopment objectives and priorities of the Government. Withinthis framework, DBWS enjoys a reasonable degree of autonomy inits day-to-day activities.

3. The Bank has paid a crucial role in DBWS'sestablishment and ongoing development. Six technical assistancegrants for a total amount of $950,000 and five loans for a totalamount of $16 million have been provided to date.

B. Scone of Operations

4. The Development Bank Act and DSWS's Statement ofGeneral Business Policies provide for DBWS's operation as amultipurpose Institution able to assist most sectors of theeconomy through lending, equity investment and guaranteeoperations. Most of OBWS's operations however have beenrestricted to provision of medium term loans.

C. Relationship with the Bank and Other Lenders

5. Since DDWS was established in 1974, the Bank hasprovided DBWS five loans out of ADS resources totalling $16.0million. The Bank has also provided six technical assistancegrants for a total of $915,000, primarily for the institutionaldevelopment and rehabilitation of DBWS. All of the Bank's loansso DBWS were made to the Government, with maturities ot- 40years, including a grace period of ten years at an interest rate(service charge) of 1 per cent per annum. These loans were re-lent by the Government to DBWS at an interest rate of 6 per centper annum for a term of 15 years including a grace period ofeight years (except the first loan for which the grace periodwas three years).

XI TA No. 80-SAM for $217,000, approved in January 1973

- 12 -

6. In February 1990, the Government requested a sixthline of credit for DBWS from the Bank. However, a Review Missionfielded from the Bank's South Pacific Regional office (SPRO) inMarch 1990 found that, in terms of portfolio condition andfinancial performance, pBWS would not meet the Bank's criteriafor a repeat line of credit. Furthermore, some key covenantsunder Loan No. 707-SAM had been breached, particularly covenantsthat had been introduced to ensure that DBWS operated withappropriate managerial autonomy and under reasonable commercialdiscipline (see paras 58 to 60).

7. To address this situation, the Government requestfurther technical assistance from the Ban.c for the preparationof Operational Strategies and a Corporate Plan that wouldprovide a format for DBWS's rehabilitation as a stronger andmore effective Institution. This technical assistance wasprovided during the first quaarter of 1991 (TA No. 1399-SAM).Based on implementation of the findings and recommendations fromthat TA, DBWS has gradually improved its operational performanceto a degree that there appear to be reasonable prospects for theBank's criteria being met for processing of a further line ofcredit during. 1993.

8. In addition to Bank assistance, DBWS has obtainedthrough the Government a credit line of ECUs89O,000 ($1.2million equivalent) from the European Investment Bank (EIB), aloan from the Australian International Development AssistanceBureau (ADAB) for WS$260,O00 equivalent and a credit from theInternational Development Agency (IDA) for SDR 1.2 million ($2-0million;equivalent). The IDA credit co-financed the Bank'sfifth loan to DBWS.

9. With regard to its local currency resources, DBWScontinues to receive equity injections as required from theGovernment. DBWS also has access to medium-term funds fromNational Provident Fund and to overdraft facilities from the twocommercial banks in Western Samoa.

D. Rationale for the Bank Loan

10. The Bank's fifth loan to DBWS of $4.0 million wasintended as a general credit line which would be used asadditional resources to DBWS to support implementation of theGovernment's Fifth Five-Year Development Plan (1985-1989). Inutilizing the credit line, DBWS would provide medium and long-term loans to support private sector investment in theagriculture, industrial, tourism and key service sectors. Theloan proceeds were to be utilised to finance foreign exchangeexpenditures. The Government bore the foreign exchange risk onthe Loan.

11. Technical assistance provided as part of the Projecthad the particular objectives of reviewing the prospects forgrowth within the industrial sector, upgrading DBWS'scapabilities in project promotion and agricultural lending and

-13 -

to enhance DBWS's accounting and management information systems.The rationale for providino this assistance was that DBWS hadexhibited some weaknesses in those aspects of its operations andstrengthening was required t o ensure the ongoing health of theInstitution as well as to protect the manner in which the loanproceeds were utilized.

12. The Bank Loan was co-financed ty IDA in an amount of$2.0 million with the IDA Credit utilized on a 67;33 pro-ratiodisbursement basis for sub.-oans financed under the project.UNDP contributed $50,000 toward the cost of the technicalassistance with the UNOP portion being utilized for anindustrial sector survey cf Western Samoa. The principalobjective of this survey was to identify project opportunitieswhich DBWS could promote.

13. The Appraisal Mission estimated that sub-projectsfinanced under the Loan would result in the cr',ation of about1,000 job opportunities and would earn or save foreign exchangeof about $2.5 million per annum. The expected sectoraldistribution of the Loan proceeds was 40 per cent toagriculture, 40 per cent to industries, 10 per cent to servicesand 10 per cent to the transport sector.

II. IMPLEMENTATION

A. Lending Policiesa

14. DBWS's lending policies are governed by its PolicyStatement (see Appendix 1), formulated in 1974 in consultationwith the Bank. This st%tement has remained substantiallyunchanged and continues to provide appropriate guidance to DBWSin its operations. The Statement provides for the prudentialmanagement of DBWS's financial assets through diversification ofportfolio and imposition of ceilings on DBWS's exposure toindividual enterprises. "'he Statement also specifies that DBWSwill not assume any exchange risk on foreign exchange relatedtransactions and borrowings, that it will maintain a maximum 3:1debt/equity ratio and that it will establish a reserve for badand doubtful debts equal to 10 per cent of total portfoliovalue. While the statement requires DBWS to assist primarilyprivate sector investment in line with the Government's economicdevelopment policies, lending to public sector enterprises isnot precluded.

15. At the time of loan appraisal, DBWS's lending interestrates were 8 per cent for agriculture loans and 14 per cent forloans to the industrial and service sectors. These rates werebetween four and 6 per cent lower than those charged by thecommercial banks in Western Samoa at the time and had beenreduced at thle Government's behest in August 1983 by around twoper cent from previous levels. Appendix 2 provides details ofWestern Samoa's interest rates during the period 1985 to 1991.Government had required DBWS at the time to lower interest rates

- 14-

to provide an additional incentive for private-sectorinvestment, particularly in the agriculture sector. however,the appraisal mission for Loan No. 707-SAM found that theresultant interest rate structure would have a stronglydetrimental effect on DBWS's profitability. Accordingly, acondition of loan effectiveness required that DBWS's interestrates be increased to 10 per cent for agriculture loans and to16 per cent for industrial and service sector loans. Thiscondition was fulfilled during March 1985. However in October1986, following Government's action to encourage a generallowering of interest rates and following consultations with theBank, DBWS reduced interest rates by 2 per cent. FollowingCyclone Ofa in February 1990, the Government imposed a ceilingof 12 per cent on all interest rates including DBWS's, againreducing the maximum DBWS could charge on industrial and servicesector loans.

16. A key recommendation from TA 1399-SAM was thatinterest rates charged on all DBWS's existing and future loansshould be increased to a minimum of 13 per cent. TheConsultants implementing the TA had found that increased ratesof this magnitude would be required if DBWS were to becomeprofitable and, eventually, self-sustaining. However therecommendation was not accepted although the interest rates forsome classes of agriculture loans were increased to 10 per centand individual and service sector interest rates were increasedto 13.0 and 14.0 per cerlt depending on the type of enterprisebeing supported.

17. ; Provision of relatively low cost term loans hastherefore been a central element of DBWS's lending policies withtthe agriculture sector being provided particular priority.

B. Characteristics of Subloans

18. The fifth Bank Loan to DBWS and the co-financed IDACredit were utilized to finance a total of 2963 subloansd/.Of these, 24 subloan utilizing a total amount of $1.8 millionwere above the free limit of $50,000. The main characteristicsof subloans and the pattern of their distribution by sector andsize are shown in the Basic Data Sheet.

19. The sectoral utilization of the Loan was not fullyconsistent with expectations at the time of appraisal (see para13) with 29.6 per cent of disbursements financing agricultureand fishing projects, 18.5 per cent financing transportprojects, 18.0 per cent financing tourist accommodation, 17.4per cent financing manufacturing projects, 5.4 per centfinancing village education facilities and the balance of 11.1

1J Each subloan was financed on a 67 percent, 33 percentbasis from the Bank and IDA Loans. Subloan data inthis Report refers to the disbursement from the BankProject unless indicated otherwise.

- 15 -

per cent financing other service sector projects.

20. The above-free-limit sub-projects, which accounted for37.5 per cent of Loan utilization, were distributed fairlyevenlY between tourist accommodation and food processingprojects and included upgrading of a brewery, establishment ofa soft-drink factory, and establishment of small-food andcoconut-cream manufacturing plants.

21. of the 117 sub-projects receiving subloans of morethan $10Sr000 only 10 were located on the second island ofSavai'i. The balance were located on the main island of Upoluwith most being located in or close to Apia. Twenty sub-projects were for the establishment of new facilities while 28were classified as balancing, modernization or rehabilitationprojects. The majority of these larger sub-projects (69% percent) were for the expansion of existing businesses.

22. The Project Completion Review (PCR) Mission found thatthe Loan proceeds had been utilized in an appropriate manner interms of supporting investment in a diverse range of economicsectors that are important for Western Samoa's economicdevelopment. The relatively low proportion of larger subloans(17 per cent) financing new projects was principally areflection of the relatively difficult investment climate inWestern Samoa. As with other small Pacific Island nations,Western Samoa's small population base, remoteness from largermarkets and limited natural resources are factors which make theidentification of profitable new investment opportunitiesdifficult. A disappointingly low proportion of the larger sub-projects (8.5 per cent) were located on the les developedisland of Savai'i.

23. The larger sub-projects (ie. receiving subloans of$10,000 equivalent or more) accounted for about 70 per cent oftotal funds utilized under the Project. The remaining fundswere provided to 2846 small sub-projects, mainly in theagriculture sector. The average size of subloan provided tothese smaller sub-projects was around WS$110O and, given the lowinterest yield on small agriculture loans, this portion of theloan's utilization would have resulted in a significantoperating loss to DBWS.

C. ImDlementation and Initial Ooeratign of Sub-orciects

1. Implementation Status

24. At the date of the PCR Mission in March 1992, all sub-projects financed under the Bank Loan had been fullyimplemented. Of the 117 larger sub-projects, 15 incurredsignificant cost overruns during the implementation stagetotalling WS$1.35 million. of this amount, WS$835,264 wasaccounted for by one sub-project, which involved theconstruction of two factory buildings on Upolu. This sub-

- 16-

project incurred the cost overruns as a result of a significantchange in the scope of the undertaking. However, the costoverruns were appropriately financed and the Company hassubsequently operated with reasoniable profits. A relativelylarge cost overrun of WS$250,000 was incurred in themodernization of Western Samoa Breweries Ltd's plant. However,this cost overrun represented only 5.9 per cent of the sub-project's original cost estimates and did not significantlyaffect the subsequent financial performance of the company.

25. Of the total expenditure of WS$13.0 million incurredin implementing the 117 sub-projects, OBWS financed WS$14.0million (42.4 per cent) from the Bank Loan (WS$7.8 million), theIDA Credit (WS$3.8 million) and from internal sources (WS$2.4million). Sponsors provided .S$9.0 million (27.3 per cent) oftotal financing and WSS10.0 million (30.3 per cent) was providedfrom other sources, principally commercial banks. Appendix 3provides details of the implementation of the sub-prc;ects.

26. Procurement under the Bank Loan was mainly undertakenon a local basis reflecting the relatively small size of sub-projects. Of the larger sub-projects, competitive bids weresought for construction contracts and international shoppingprocedures were followed for purchase of larger plant items.With three larger sub-projects, second-hand plant was procuredfrom international sources. At the Bank's insistence,engineers' certificates Os to suitability, condition and price-reasonableness were obtained. Appendix 4 provides a summary ofthe pattern of procurement under the Project. The major sourcecountry"for procurement was Japan with 38.0 per cent followed byNew Zealand with 37.7 per cent. The PCR Mission found that theprocurement procedures utilized by DBWS were in accordance withthe Bank's Guidelines and Practices for South Pacific countries.

2. Financial Performance and Current Status of Sub-proiects

27. Appendix 5 provides a summary of data on the initialfinancial performance of the larger sub-projects financed underthe Loan. The PCR Mission noted that, while review of thefinancial performance of sub-projects financed under earlierBank loans to DBWS had been difficult because of a paucity ofperformance information on file, in this case relatively goodrecords had been maintained within DBWS, Of the 117 larger sub-projects, five had failed and were inoperative at the time ofthe PCR Mission. A further 22 had encountered significantdifficulties and were not able to properly service their loansfrom DBWS. The remaining 90 sub-projects were operatingsatisfactorily and did not have any hard-core arrears with DBWS.

28. The two cyclones that struck Western Samoa during 1990and 1991 (Cyclone Ofa in February 1990 and Cyclone Val inDecember 1991) were major contributing factors to the failureand/or difficulties of some sub-projects. one sub-project(Maurice Thompson) had been for the establishment of a poultry

-17-

farm. The project had encountered difficulties from delayedstart up, cost overruns and husbandry problems. While theseproblems were receiving appropriate attention, the farm wascompletely destroyecl by Cyclone Ofa. Likewise the prospects forrellabilitating Samoa bee and lioney Co Ltd, which had alreadyencountered significant production and marketing problems werevirtually nullified as a result of damage from Cyclone Ofa.

29. The PCR Mission found that poor evaluation of marketpotential and inadequate understanding of the managementrequirements for particular industries were the most prevalentcauses of difficulties with the larger sub-projects.Inadequate appraisal skills within DBWS was an important factorin lending decisions to sub-projects that encountered suchdifficulties, particularly with sub-projects in the food-pro assing and tourism sectors. It was also apparent from areview of sub-project files that inappropriate action by somemembers of DBWS's Board had resulted in the reversal ofdecisions based on sound analysis by DBWS's Management todecline some loans.

30. Despite these factors, the data presented in Appendix5 indicates that around 70 per cent of the larger sub-projectsachieved acceptable financial performance, performed reasonablyclose to expectations or exceeded expectations. Becausemeaningful data is not available for most of the smaller sub-projects, an assessment of their financial performance cannot bemade. One indication of that performance may be DBWS's poorportfolio collection performance (see paras 50 to 53). It isalso poisible however that poor portfolio collection has been asmuch a function of inadequate portfolio control and poor creditdiscipline as it has been a function of poor sub-projectperformance.

3. Economic Performance of Sub-Droiects

31. Data on the economic performance of sub-projects werelargely unavailable. Appendix 6 summarizes the available dataon incremental value added, incremental foreign exchangesavings, incremental employment and investment cost per job ofthe 117 larger sub-projects. From the available data, 48 sub-projects generated WS$2.7 million of value added from theirfirst full year of operations. This figure was significantlyless than the WS$4.9 million projected at sub-project appraisal.Seventeen sub-projects generated total incremental foreignexchange earnings or savings of WS$3.9 million during theirfirst full year of operation. DBWS had estimated that thosesub-projects would generate foreign exchange savings or earningsof WS$5.7 million per annum. 495 new jobs were created from the117 sub-projects at an average investment cost per job ofWS$47,391.

32. While the average estimates of economic benefits forthese sub-projects that had been made by DBWS appear to havebeen overstated, the available data indicate that the Project

-18-

did generate significant benefits from the larger Sub-projects.The smaller subloans were provided to families, individuals andsmall enterprises that would otherwise encounter very realdifficulties in obtaining access to credit from formal sources.Trhe Project would ttierefore have provided significant assistancein promoting involvement of low income groups in non-subsistenceactivities.

D. The Technical AssistAnce

The TA was provided as four separate components as follows:

i) Industrial Sector Survey

33. Six man-months of consulting services were provided toindicate the directions in which the promotion of industrialprojects in Western Samoa should proceed. The PCR Mission foundthat, while a comprehensive report had been prepared with well-reasoned recommendations for both DBWS and the Government,little or any changes were subsequently implemented to WesternSamoa's industrial investment environment. The Mission was notable to identify any significant change to DBWS's operations orpolicies that had arisen directly trom this component of the TA.This was a somewhat disappointing outcome for this component ofthe TA which may have resulted from a relatively low prioritybeing given to industrial development issues within theGovernment. The Bank may have been able to promote a moreproductive response to the TA's findings through more assertivepolicy dialogue.

ii) Proiect Promotion

34. The TA provided nine man-months of consulting servicesto establish a coherent project promotion program within DBWSand to upgrade DBWS's project promotion expertise.

35. The Mission was unable to identify any residualbenefit at all from this component of the TA. It was apparentto the Mission that the availability of experienced staff withinDBWS with sound commercial experience and some sense ofentrepreneurship was, and remains, quite limited. Given theseconstraints, DBWS's Management has tended to provide a higherpriority to utilizing such staff within the lending andinvestment operations. The attempt to develop a projectpromotion capability has therefore been unsuccessful because ofthe difficulties in staffing the function appropriately.

iii) Im2rovement in DBWS's Accountina and ManaaementInformation Systems

36. This component of the TA provided six man months ofconsulting services to upgrade DBWS's accounting and management

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information systems (MiS). Apart from preparation of anaccounting manual, the major task under this component was toidentify and specify the most appropriate hardware and softwarefor computerization of DBWS's accounting and MIS.

37. The Mission found that, while the consultants hadprepared detailed and carefully evaluated recommendationsregarding the computerization component, DBWS's Management hadchosen not to implement those recommendations because ofconcerns regarding the cost of the systems that had beenrecommended&l. Instead, it had been decided to purchaseminimal computer hardware and develop software as an in-houseexercise. By the time of the March 1990 Review Mission to DBWS,this had proven to be largely unsuccessful and DBWS's accountingsystems and MIS had shown little improvement from the time ofLoan appraisal. TA 1399 has however subsequently assisted thesuccessful rebuilding and enhancement of DBWS's computerizedaccounting systems.

iv) Aaricultural Credit

38. The order to improve DBWS's approach to assisting theagriculture sector, six man-months of consulting services wereprovided to improve strategies and procedures.

39. The PCR Mission found that this component of the TAhad resulted in the implementation of approaches to agriculturallending that had markedly improved the efficiency of DBWS'sagriculture operations. However, although efforts initiatedunder the TA to prortote the use of credit unions for channellingagricultural credit received sustained support from D8WS'sManagement, these efforts eventually failed, perhaps because ofcultural factors.

E. Overational Performance of DBWS

1. Organization. ManageMent and Staffing

40. Appendix 7 provides an outline of DBWS's organizationstructure at 30 September 1991. Since the appraisal of Loan No.707-SAM, DBWS has undergone two re-organizations, the mostrecent being undertake during early 1991 in response torecommendations provided under TA 1399-SAM.

41. The major differences between the 1991 and 1984

11 The cost of the recommended system was approximately$25,000 with the benefit of hindsight DBWS'sManagement has realised that this cost was in factreasonable and that through earlier implementation ofthe new system, considerable costs could have beensaved through improved portfolio control.

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organization structures include the addition of a secondassistant General Manager (AGM) position. The responsibilitiesat this level are now divided on functional lines between an AGMLoan operations antd an AGM Finance, Development andAdministration,. Other major differences include the division ofloan operations on geographic lines rather than on a sectoralbass.s, as was the case in 1984; the strengthening of thepersonnel and training functions and; the upgrading of thesenior finance and securities positions to manager level.Within the three loans divisions, functional responsibilitieshave been reorganized to promote significantly enhancedaccountability at all professional staff levels for loandecision-making and portfolio management.

42. The PCR Mission considers that DBWS's Management hasprovided appropriate responses during the period of the Loan'sutilization to DBWS's changing organization requirements. Theorganization changes implemented during early 1991 in particularhave been a key factor in recent improvements to DBWStsportfolio quality (See para 52).

43. DBWS's Board of Directors is appointed by theGovernment and comprises ten members including the FinancialSecretary as Chairman, the General Manager of DBWS, two otherex-officio Directors and six Directors representing the privatesector. At the time of Loan appraisal, the Chairman of theBoard was the Minister oC Finance. This was changed, followingconsultation with the Bank, in December 1984.

44. * During the period of Loan utilization, the compositionof DBWS's Board has been significantly changed three times. Thefirst of these changes occurred in early 1985 followingconsultations with the Bank and with the intent of broadeningthe sectoral representation on the Board. The second changeoccurred in early 1987 following amendments to the DBWS Act thatremoved fixed tenure provisions from the Act and provided forBoard appointment to be at the pleasure of the Government. AMarch 1990 Bank Review Mission pointed out to the Governmentthat the Bank had not been consulted on these changes, as wasrequired under Loan Covenants and expressed concerns that thecurrent composition of the Board may not promote DBWS'sfinancial and operational integrity. The Mission also pointedout that, again in breach of Loan Covenants, DBWS Directors werebeneficiaries of subloans. The Government subsequently re-examined DBWS's Board composition and following implementationof TA 1399-SAM, made appropriate changes.

45. The PCR Mission found that for a period during theLoan's utilization, DBWS's Board had operated in a manner thatmay not have been in DBWS's best interests. In particular, someDirectors had become over-involved in aspects of DBWS's day-to-day operation and had created a difficult environment for DBWS'sManagement. It is noteworthy however that, once the Governmentrealized the detrimental effect this situation was having onDBWS's operational status, appropriate corrective action wastaken. DBWS's Board currently operates in a manner that is

-21-

promoting the rehabilitation of the Institution.

46. Two changes have been made in the appointment ofDBWs's General Manager since Loan Appraisal. In both caseswell-qualified individuals were appointed following publicadvertising of the position and transparent evaluation ofapplications.

47. DBWS has maintained a stable staff throughout theperiod of Loan utilization and a strong cadre of reasonably-wellqualified and seasoned staff has been retained. Total staffstrength increased from 90 at Loan appraisal to 105 at the endof 1991. Although the adequacy of internal staff trainingprograms has fluctuated during the period depending on thequality of staff appointed to the position of Training Officer,this function has received appropriate priority during 1991 andearly 1992.

2. Lending operations

48. An analysis of DBWS's lending operations by sector,location, project size and loan maturity for the period 1985 to1991, is presented in Appendix 8. Following relatively steadybut slow growth in the value of total approvals between 1985 and1968 (during 1986 and 1987, approvals were around 35 per centless than projected by ttie Appraisal Mission), DBWS experienceda rapid growth in approvals from the 1988 figure of WS$7.9million to WS$12.8 million in 1989. Most of this growth wasaccounred for by a few large projects in the industrial andtourism sectors. Subsequently, approval levels fell to WSS9.4million during 1990 and to WS$6.0 million during 1991. By 1990DBWS was encountering liquidity constrains resulting from poorcollection performance and the Bank's reluctance to consider afurther line-of-credit project until DBWS's operationalperformance improved. Consequently, DBWS's Management wasforced to restrict approval levels according to projected cashinflows.

49. Upolu continued to receive the highest proportion ofloans through the period (72 per cent during 1985 and 81 percent during 1991) reflecting the larger population base of thatIsland. Average loan size increased from WS$3914 during 1985 toWS$65G9 during 1991 with a high of WS$11814 during 1989. Apartfrom external factors including inflation, this increase in loansize reflected the response of DBWS's Management to the lossesincurred from provision of small agriculture loans. Asignificant proportion of DBWS's loans (96 per cent by numberduring 1985 and during 1991) were provided with maturity periodsof less than five years, reflecting the nature of agriculturelending but also the expected economic life of the goodsprocured.

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F. Financial Performance of DB_W

1. Size and Quality of Loan Portfolio

50. Appendix 9 peovides an analysis of DBWS's portfolioarrears during the period 1985 to 1991 and AppendiX 10 providea summary of DBWS's portfolio collection performance during thesame period. DBWS's ratio of total arrears to total portfoliovalue has remained at levels close to 20 per cent sinceappraisal of the Loan. This was despite writing off bad debtsto a total of WSs8.7 million during the period and despite anincrease in portfolio value from WS$24.1 million at 30 September1985 to WS$40.0 million at 30 September 1991. Of total arrearsat 30 September 1991 of WS$8.1 million, 13.2 per cent were duefrom the large agriculture loan portfolio and 30.9 per cent weredue from industrial and service sector borrowers. At that date78.2 per cent of total arrears were classified as hard-core(overdue by more than 12 months and/or under legal action).

51. A covenant under Loan No. 707-SAM required that DBWSprepare and implement an arrears reduction plan that wassatisfactory to the Bank. The covenant required that the planhave an objective of reducing arrears to a maximum of 10 percent of total portfolio value by 31 December 1985. The PCRMission found that DBWS's Management had been diligent inundertaking initial actions to satisfy this covenant. As aresult, DBWS's annual collection ratio increased from 42.3 percent for FY1985 to 50.4 per cent for FY1986. However, it isapparent that arrears reduction did not receive appropriateongoing attention and the collection ratio fell to 43.4 per centfor the subsequent year.

52. During March 1990, DBWS requested (through theGovernment) that the Bank consider provision of a further line-of-credit. A Bank Review Mission to DBWS during March 1990reviewed this request and advised DBWS that its poor portfolioperformance was a key consideration for the Bank and that DBWSdid not currently meet the Bank's minimum performance criteriafor a repeat Loan. Subsequently the Bank provided technicalassistance (TA 1399-SAM) to DBWS to address that situation. Asa result of DBWS's subsequent changes in approach to lending andportfolio management, the annual collection ratio increased to57.4 per cent for FY 1991. Indications are that thisperformance has subsequently continued to improve.

53. The PCR Mission found that the reasons for DBWSS's poorcollection performance have included inadequate and out-of-dateaccounting and MIS, lack of assertiveness on the part of DBWS'sManagement and Staff in promoting a public image that DBWS wouldrequire diligent performance by its borrowers, a degree ofpoliticisation of DBWS's Board of Directors that detracted fromthe level of autonomy afforded to DBWS's Management and loweredstaff morale and poor credit discipline that may reflect somecultural factors. The efforts by DBWS's Chairman and Management

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during 1991 and 1992 to address these factors have beennoteworthy and indications are that DBWS's portfolio may performin accordance with the Bank's criteria by early of mid 1993.

2. Financial Position

54. Appendixes 11, 12 and 13 provide comparative incomestatements, cashflow statements and balance sheets for DBWS forthe period FY1985 to FY1991.

55. The income statements show that DBWS has achieved amixed but relatively mediocre profit performance. Net operatingincome before tax and before special contributions fromGovernment over the period totalled a loss of WS$4.1 million.Taking account of all taxation transactions and contributionsfrom Government, the net operating deficit for the period wasws$3.6 million. The major cause of this relatively substantialloss was provisions for doubtful debts which totalled WS$13.7million over the period. The ratio of other operating expensesto total assets at around 5.0 per cent had remained less thanaverage interest spread during each year (interest spreadachieved was a low of 4.4 per cent for FY 1984 and a high.of 8.9per cent for FY1986).

56. Mainly as a result of relatively long grace periods onthe earlier bank Loans,,, DBWS was able to maintain good debtservice coverage throughout the period until FY1991. During FY1991 this ratio was 1.8 times, a significant decline from theFY1989 -figure of 4.6 times despite an increase in client loanrepayments from WSS5.0 million to WS$8.8 million. Total debtservice requirements increased from WS$0.8 million in FY1984 toWS$2.0 million in FY1989 to WS$6.5 million in FY1991. It isapparent that as DBWS's loan service requirements increase infuture years, the importance of achieving significantly improvedprofitability and portfolio collections will be reflected in anotherwise increasingly difficult liquidity situation.

57. DBWS encountered difficulties in meeting the Bankcovenant requiring maintenance of a maximum 3:1 debts:equityratio. This ratio reached a high of 4:1 at 30 September 1985 butwas subsequently reduced through further equity injections fromthe Government. At 30 September, DBWS's total paid up capitalfrom the Government was WS012.4 million an increase of 158 percent from the 30 September 1984 figure of WS$4.8 million andsufficient to give a 1.9:1 debt:equity ratio.

G. CovenAnts

58. Details of the loan covenants and their compliancestatus are given in Appendix 14. Although most covenantsregarding DBWS's financial condition and reporting requirementswere substantially complied, some key covenants were breached.Two important covenants requiring that DBWS Directors should beappointed for two consecutive terms of three years each and

-24-

precluding DBWS Directors from being beneficiaries of subloansunder the Project were not adhered to. Both covenants had beenintroduced because of concerns held by the Bank at the manner inwhich OBWS's Board was operating and their breach occurredduring a period whetn those concerns proved to be valid. A DBwSDirector was the majority shareholder of Natural Foods Ltd, oneof the large sub-projects financed under the Loan. Sincereconcerns held by DBWS Management regarding the viability of thesub-project and the approach taken to its implementation werenot taken account of and quite substantial lending to thecompany was undertaken. Moreover, the government's actions insubstantially changing the composition of DBWS's Board on twooccasions may have been an important factor in DBWS's poorinstitutional performance during the loan utilization period.

59. The Government and DBWS were required under loancovenants to undertake annual reviews of DBWS's interest ratestructure and to consult the Bank prior to any changes beingmade to that structure. This covenant appears to have beenlargely disregarded and the primary intention of the covenant,that DBWS maintain interest rates that would allow forprofitable operation, was not satisfied.

60. Another covenant requiring DBWS to submit an arrearsreduction plan by 31 December 1984 providing for a reduction inDBWS's arrears ratio to 10 per cent by 31 December 1985 was met.However, reductions in ajrears of that magnitude were not madeand the expectation that they could have been may have beenunrealistic.

H. The Bank's Performance

61. The fifth Bank loan to DBWS was declared effective on13 May 1985, only six days later than the original closing datefor loan effectiveness. The Bank's turn around time forprocessing of below free limit subloans averaged 19 days and forabove free limit subloans was between 3 weeks and two monthsincluding the time taken in seeking clarification and additionalinformation. This turn around time was considered acceptable byDBWS's Management.

62. The Bank mounted review missions to DBWS on an annualbasis apart from during 1986 when staff constraints at theBank's South Pacific Regional Office precluded such a mission.The coverage of the Review Mission reports was generallysatisfactory apart from some lack tf attention to breaches ofkey covenants. The PCR Mission considers that, had the Banktaken a firmer stance with DBWS and the Government in 1987following the breaches of covenants related to DBWS's arrearssituation and Board composition, corrective action may have beeninitiated earlier and DBWS's current condition may consequentlyhave been enhanced.

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III. EVALUATION

A. Appraisal

63. The appraisal mission's evaluation of DBWS'sinstitutional capabilities and of Western Samoa's private sectorinvestment environment was sound and appropriate. However, theapproach taken to correct deficiencies in DBWS's operationalcondition and capabilities may have been flawed. In particular,to require thorough covenants that DBWS correct majordeficiencies such as poor portfolio quality within a given timeframe may not have been realistic.

64. This aspect apart, the project design was reasonableand the technical assistance was carefully specified to addressmajor problem areas for DBWS's management and operation. TheMission considers that the formulation of the Project and thequality of appraisal were satisfactory.

B. Implementation

65. Overall implementation of the Project has been onlypartially successful. While implementation of sub-projects hasbeen satisfactory, DBWS1's institutional development has not.The Mission considers that, had the Government and DBWS takenmore accour.: of key covenants and had the Bank been moreforceftl in requiring performance against those covenants, DBWSwould be in a significantly stronger position than at presentand would therefore be a more effective Institution.

IV. CONCLUSIONS AND RECOMMENDATIONS

66. The utilization of the Bank loan has on the whole,been satisfactory and the loan has achieved its purpose ofextending assistance to a wide range of private sectordevelopment projects in Western Samoa. However, DBWS did notmake the progress that was expected of it during the Projectimplementation period in terms of its own institutionaldevelopment. Given the amount of technical assistance providedby the Bank to DBWS prior to, and as part of the loan, this lackof progress was disappointing and, as a result, the Project canonly be considered a partial success.

67. In response to this situation the Bank has alreadyprovided further assistance to DBWS through TA 1399-SAM. TheMission considers that the work undertaken under that TA hasprovided well-argued recommendations that collectively providea sound format for addressing DBWS's underlying problems. Theserecommenidations have been generally well received by DBWS andthe Government and many of them are under implementation.

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68. The Bank has been DBWS's most important supporter todate in terms of providing resources for on-lending andtechnical assistance for institutional development. TheGovernment has again requested the Bank (since March 1990) tocontinue this support.

69. It is recommended that in responding to theGovernment's request for further funding to DBWS, the Bankshould continue to insist on the achievement of minimumperformance standards as a prior condition to final processingof a further project. In this regard, SPRO review missions toDBWS have advised the Government and DBWS's Management that, notonly should DBWS seek to achieve a minimum 70 per cent annualcollection ratio and improved profitability, but that keyrecommendations provided under TA1399 should also beappropriately responded to and that DBWS's financial performanceshould match that budgetted for under the TA. Such an approachwould recognize the substantial assistance provided to DBWS bythe Bank in the past and would underscore the importance theBank attaches to performance standards for a relatively maturedevelopment finance institution. In following this approach,the Bank would need to take care in specifying to the Governmentand to DBWS's Management, what its performance criteria are forthis type of institution.

a.

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Page I of s

STATEMENT OF OPERATING AND GENERL BUSINESS POLICIESDEVELOPMENT BANK 0 WESTER SAMOA

I. The Bank:

The Development Bank of Western Samoa was established under thedevelopment Bank Act, 1974 as an independent statutory body.the -functions of the Bank are to promote the expansion of theeconomy of Western Samoa for the economic and social advancementof its people by making loans and in its discretion givingfinancial, technical and advisory assistance to enterprises inthe agricultural and industrial sectors of the economy inWestern Samoa. In carrying out these functions, the Bank willbe guided by the following general operational, financial andpromotional policies.

UI. Scone of Activities

1. The Bank will conduct its operations within the generalframework of the Government's economic policies, plans andpriorities. p

2. Th* Bank will assist applicants primarily in the privatesector. the existence of Gcvernment or other public interest inan enterprise will not necessarily preclude financing by theBank.

3. The Bank will finance projects aiming at increasingproduction and development in the fields of agricultureincluding horticulture, livestock and fishing; timber extractionand forestation; quarrying; industry, manufacture and processingof all kinds; tourism; transport and communication and otherservice industries that contribute to development in thesefields.

4. The bank will finance both new enterprises, and theexpansion or modernization of existing enterprises. Particularattention will be given to promotion of the entry of newentrepreneurs in the field of productive enterprise.

S. The Bank will provide financial and other forms ofassistance to eligible enterprises in the following ways:

a. extending loans;b. equity participation;c. guaranteeing of finance provided by other sources;d. providing technical and managerial consultancy

services, and financial services including syndicationand joint financing;

e. assisting identif ication, formulation and promotion ofnew projects.

(Reference in text: page 3, para. 14)

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ipipendix IPage 2 of 5

6. The Bank's financial assistance will be primarily for theacquisition of fixed assets. However. the Bank may also financein serving cases, seasonal and short-term credit requirements inthe agricultural sector as well as permanent working capitalrequirements.

III. Develonmental Policies and O!eratina Principles:

7. It will be one of the Bank's important aims to investigateand identity investment opportunities, and to promote and assistin the establishment of enterprises of importance to the economyof Western Samoa.

S. In additio. to the operating principles mentioned underSection 6 of its Charter, the Bank shall also give preference indetermining whether or not any assistance is to be given to anyenterprise which will :-

a. use local raw materi- in processing and manufacture;b. make use of labor i. itensive technologies to provide

more opportunities for employment and training of.It local people;

c-, contribute effectively to broadening the base of localentrepreneurship;

d. have a good potential for expanding exports ordecreasing imports; and

e. lower cost within the country and improve theefficiency or standards of goods and services withinthe country.

9. The Bank will carry out its operations as a developmentbank in accordance with sound banking and business practices.

10. The Bank will provide financial assistance only to thoseprojects which on the basis of its own analysis, appear to beeconomically justified, technically feasible, financially viableand profitable. Special attention will be given to the qualityof management to he etnterprise and the market prospects of theproject.

11. The Bank will endeavor to secure its loans and guaranteesin accordance with sound banking practices, but in doing so theBank will have due regard to its developmental functions in theeconomy of t.estern Sa.;:oa.

12. Applicants will be required to provide a reasonable equityfor the enterprise financed by the Bank to ensure that they havean appropriate stake in their own venture. They will also haveto ensure that the total financial requirements for thesuccessful implementation of their projects will be available.

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Page 3 of 5

13. The Bank will ensure, in making its financial assistanceavailable to any one borrower, that the financial requirements`or the completion and commissioning of the project areappropriately covered; this will also take into considerationappropriate care for cost overrun that may reasonably need to beaccounted for.

14. Loans will usually be disbursed after the promoters havemade appropriate financial contribution of their own to theproject and after having ensured that such disbursement will bein line with the requirements of the investment schedule o theproject.

1S. The repayment period of the loans to the Bank, including agrace period as appropriate and needed, will be determinedtaking into account;

i the repayment capacity of the enterprise;il an adequate payout to the promoters during the

repayment period; andiii optimum use of Bank's own funds by maximizing the

turnover of its portfolio.

16. ThA Bank wil'l closely supervise the use of its funds, theprogress of the projects financed and the performance of theenterprise to ensure that remedial action is taken promptly,should circumstances so warrant.

17. The Bank will require its borrowers to keep records andaccounts in accordance with sound and generally acceptedaccounting principles, and to furnish whatever information ontheir operations and accounts it deems appropriate. The Bankwill also maintain the right to inspect the enterprises itfinances, as well as their operations, records and books ofaccounts.

18. The Bank will endeavor to assist farmers and entrepreneurswith the provision of managerial, technical and other advisoryservices. It is the aim of the Bank to help its borrowerstowards tlue successful completion of their projects.

19. The Bank will continue to build up an effectiveorganization and develop an adequate and technically qualifiedstaff in order to carry out its functions efficiently and toassist its clients in the formulation and conduct of theirprojects.

20. Business secrets and other information furnished to theBank by applicants or clients will be treated as confidential.

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Page 4 of 5

IV. Diversification of portfolio

21. In order to reduce the concentration of risk the Bank willseek to diversify its portfolio by sectors of operations and byavoiding inappropriately large investment. In view of itsdevelopment function, the Bank will also pursue geographicaldiversification of its portfolio.

22. The Bank's equity investment shall serve mainly as acatalytic agent for the establishment of new enterprises and theBank will endeavor to dispose of such equity investments as soonas this becomes feasible and a reasonable price can be obtainedtherefrom.

23. The Bank will not commit to a single enterprise in the formof equity participation more that five per cent of itsunimpaired paid-up Share Capital and Reserve Fund. Theaggregate equity investment of the Bank at and time shall notexceed twenty per cent of its paid-up Share Capital and ReserveFund.

24. The Bank's total coymitment in the form of loans, equityinvestments and guarantees in a single project or enterpriseshall not exceed:

-i. twenty per cent of the total of the Bank's unimpairedShare Capital and Reserve Fund;

ii. sixty-five per cent of the total fixed assets of suchenterprise in the industrial sector including theBank's own investment; and

iii. eighty per cent of the total assets of such enterpriseincluding the Bank's own investment in agriculturalsector.

25. In exceptional cases meriting special consideration, limitsunder Clause 24(ii) and (iii) may be exceeded provided the loanis covered by adequate additional security over assets notforming part of the project.

26. In financing worthwhile projects requiring more that itsmaximum lending limits under Clause 24, the bank may seeksyndicated co-operation of other financial institutions, bothdomestic and foreign, limiting the Bank's liability.

V. Finacial Guidelines:

27. The Bank will review and determine from time to timethe rates of interest and fees to be applied to its advance inthe light of prevailing government policy and developments inthe capital market, with due consideration to costs of its wonborrowings.

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Page 5 of 5

28. The Bank will not carry the exchange risk on its debtspayable in foreign currency. The Bank will endeavor to havesuch risk assumed by Government or by a Government agency. Inthe event that Government or its asencies are not prepared tobear the foreign exchange risk relating to its repayment ofdebts in foreign currency such a risk will e passed on to theBank's borrowers.

29. The Bank will not take a controlling interest ormanagement of any enterprises in which it has in vested.However, should it become necessary to protect its own interest,the Bank may take such action as it considers appropriate.

30. The Bank will not undertake long-term borrowingobligations, including guarantees, that in the aggregate wouldexceed three, times the total of its unimpaired paid-up ShareCapital and Reserve Fund.

31. The Bank will maintain accounting records adequate toreflect its business operations in accordance with sound andgenerally accepted accounting principles and practices.

VI. Provisions and Reserves:

32. The Bank shall set aside in each year at least threepercent of its approvals of loans, equity investments andguarantees in that year as a provision against bad and doubtfuldebts until such times as the provisions equal ten percent ofits loan, investment and guarantee portfolio, and willthereafter set aside annually such amounts as are sufficient tomaintain this provision at least at that level.

33. The Bank shall also set aside annually at least fiftypercent of its net income to its Reserve Fund until such time asthe Reserve Fund is equal to the Bank's paid-up Share Capital.

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nltcrasit lRic Structure In Wpezt= Samoa19 31991

-Pcr Calnt lMcr AnnuMn

Atl 31) SCpcin9br 1985 I 19" 1987 198S 1989 1990 A/ _91

t. JlnSdL I argA l,j Y. lWy II. Agrtctulluni 8g-4 8.16 8-16 8-16 8.t4 8-12 8-12t. Group V%illap. 10 10 10 10 10 10 10

3. Industry 14-1 14-16 14-16 14-18 14-18 12 12-1411. Ilcu stb Rates aid bv Conmercial flank

1. Savings deposics 7-0 7-5 7.5 7 S 7.5 5.5.7 5.5.7

2. Tcazn daj,wita

a. 3-month 1240 12.51t 10.25 10.25 10.25 7t-.5 74.5h. 6-mnonth 13.0 13.7?12 12.0 12.0 12.0 8-9.5 8.9.5c. 12-monthi 15.0 15.0 Negtiable Negotiable Negotiable 9-tO;S 9.10.5d. 2.4-Monoth 15.0 13.75 Negotble Negotiable Negotiable 9.10.S 9.10.5

ltt. Ldinc ltg cluMai .m bv Commercial tlanks

1. Uusincs loans:a. Plantation and (arming ,15t18 14U17 14-17.5 14-17 14.17 9-12 9-12b. Mantufacturing 15-18 15.19 14-17.5 14-17.5 14-17 9.12 9-12c. Comscte 14-17 14.17

I roduce 15-18 14-17 1417.5 16-17.5 17.0 9.12 9-1:Transtport 15.t8 1417 14.17. 16-17.S 17.0 9-12 9.12

. Gunicrti trtdilg * 15-18 14.17 14.17.5 16-17.5 17.0 9-12 9-12d. Uuiling and construction 15M18 14.17 14.17.5 IGU75 17.0 9-12 9-12e. Oliter busitess advances:

|.Ind subdivisbon 15-t8 14W1 14-17. .17.5 17.0 12.0 1U0* luiling investment 15-18 14.17 14-17.5 16-17.5 17.0 12.0 1:0

I crsnal Advances:a. Housing 15U18 14.17 14517.5 16.17. 17.0 12.0 14 0b. Purcluu¢ot ntorvtce 15.18 14.17 14.17.? 12 17.5 17.0 12.0 12.0c. other

3. Otheradvancusa. Governmenal 1IS8 14.17 14-17.5 1G 7.5 17.0 12.0 12.0('. Csurelts 1518 1417 14-17. 1G 17.5 17.0 12.0 12.0

IV. ILo in 15I-tiNational Provdent Fund INPt'1. Personal 10t17 10.1? 10-17 1017 10-11 10-17 10.172. Agriclture 10.17 101?7 1017 1017 10-17 10.17 10-113. Contncrc 15.0 15.0 15.0 15.0 15.0 15.0 11.0

V. Intera Ilattson GCownaant SccuftA

10-year matudQe 174 17. 17.5 17.5 174 NIA NWA

(a) Afte Cycune Ofa. the Govemmat Imposed a 2.0 pemmt iat ut eullh

(Reeel tm pap3g, pa. )

DE3% lVI.OPMIN T I3AU1 OF WI-M t14 %ANKIOAIMPLI Mt Wt'A1ON STATUJS Of SUBPROJE~CTS LISS 80000 lOUIVAL1UNr

AND0 AIOVV F1INANCED UNDUOR LOIA" MO. lol.SA (S4S) %v

_____rIOiL.:T COST' PUNAMI(1N()SiL HAMU OP LOCATION NATURI Oessa

tNO.iSUIWR tO5ICT _______ ACilUAIL saAWl IDA Dows 'OTltItIS SPONSOR, TOTAL63 ~LeMea.ee 54.oI I _________ ________ 92,920 41h)3)900 3S92 23,968 33.00014.0r S4!TS.Aesasa I Upale U~~~~~~~~~~~~1 4743i31 4.340 31.4O343a 1 _____ 6.4343 47.3*8VA i ,4* uab .1 ua 13334 4.7.3 9.0 22800J I ____ ~4.1S13.G.M S'cbebi* awj1 300 IIO02,0 0 48,150 11 8.0

F ~ ~ ~ ~ ~ ~ ~ ~ ~~~ I~~~~~~~~~~.~~W 61Ab253 6162$ 0 2175. 337________.23 Cu.teaNea

1 4 ____ ,,,______ 6.2MI S.Amo,a

_______ E1 toA "Me 0 n.1 ___ __________________________A____khi!

65.000. ass 14..is 3$20 MS___ New ~~ E 304)33 ....... ~..,,A ____- ____ 4.461. 50000#18.1 04.3131 __ __ _ 2337 it _ _ _ _ __ _ _ _ _ _ _ __ _ _ _ _ _

,V*w Somwa I Ii.'). 343s 00,00 la000 0 i.00 81.000 48.0 ___ 0001 40.0gS a ot *ad e66 I CO I Saail - 54! 49500 ____0"___

__ ________ 0 5MT i

250 ~ 1 510 32,87% 13 3 ,10_____ I 325 56.IV2SapbEIea*1 Iliwle 83434~~sm 56500 m - 300 I

448 1cm Iedeuule, Led Liable 31~~~~~~ 34u'o0 342.00 0 945611 41.318 -- og _____92.000 342.00453 IWIMCO.Ltd Uaole D~~~~ ~~ ~~~~~~mR 65 0 0 _2$,OW 32.300 250___ ____6.0

454 S1Sm~~~~ A8 l.Sm ha~ults 0- 26.661 13.131 ____ ___0.000 60.000

456 Mais.am Ldhud 0343 3 04.0-0 jo'o 0 25.00 32.500 3250____ .. 000 104.000633 SeleacIe T, Atlala 35,00. 31 323300 ,j~~~ 0 j~,333 3~ ______ ______ 41_.__0 62 300

440 ~~Aft atd UgIe3 63.300 63J0 0 22,815 33,438 1.687 ____ - 1061 m alllLeval Vae3 65,99 65.600 0 23.322 __.66 6.1i____ 24.0 65,8048$ Oiatrn Masefactedap Ltd Lipoiw ii ___349-,9.00 110.000 0~ 5650 2i5 5520 ____ i4b3,00

$3) LeSt., 34,.,.,. 13341& ~~~~~ ~ ~~~~65.0 65.000 0 2.J 11.11 3.6 _____2.500 6S.00087 Os Ad Ee13ieeeia Up.C 200.000 282536 32516) 127.033 63.50 ____ 22.000 _ 232.58B 0Sutzamo PrI.aiy3bow

".SWN 6,0 86.500 -0 30.000 Is.IM 1003)U3.50' 86.500326]V.k.l, !! PrmeSt"oi iul 68.965 64965 0 ? 1.n25 30.3 405 _ __ 13.000 68*0651311 Falela fiCop,ri. iot

_______ ______

21.700 62.0000411fi. U.I.. ~SW4aii _____ 38,538 38.588 4 -25.6791 12,83 _______Cqs1M,v*.R!!!L"ahot,. 2MAW0 250.000 0 41.0S2 23.54.2 3-79,316 _________ 50.000£96 P'sa ape remawy 54@3 po 145,8130 145.80 a 35.000 19.40w WOW __4___£91 S.vau) SavMiIIct Led4 lpole _____ 31si.230 399.959 (25.729) 306.02-0 53,030 40993.9S9~C98 SIOCS. Paiskal. Upole B~~~~~~fm Ii{i 2 .llS 52.12 0 35,150 17,51

S~_____ 2.M2____ ____________________________ t.lpole 9343 130.200 1340200 0 20,483 30.44 3 45.616 _______

.F._________________ upo3 F 0.0 0300 __ 3.23 IuO. 2.1 21,01010.0

____"A_ ._or__on r ST.'r coF INNCNCL7nIA SUSPRO*3FCT fi....L Is2ACTUAL sJWavior ~ _ El ~ OUR lO~ OA31M1., U MI. I EFT~~Ur. 783 68 (6 6 a 2.4 ______ __ __ _ _md. 104Nu.10A 5,., - _____ _ ' 1 79.9*8 44501 __0__ _____

V.,. Pa~~~~~~~Sma ... 72.500 ~~~~~~~~~72.500 0 28.403 *~22I 4.520). 25.3751 12.500PM 0foubilIispI ~ 72.500 72.500 MM.- - 32..2 I92__ 7-210jCCIu msI.i. I,j u , 60.0 60.00d, R00 0 23.641 3.21 2.31 ___ 60000'1 43275ev Lam _______E. ~~~~~~~ ~~~~~~~~~79.48) 79.400 0 34A I_ _ _ _ _ _ __ _ _ _ _ 25t ____ 9___

SOS 3. Ew.a I UeD. 13K 42.600. 42.640 0 38.400 4.01____ ___I______43300I 50.0 .* 3 Trage.m Em J . -am o62o076joo1 Isbo 0.0011 ____I .2501, 250Sr A S.aaii pumIvi 74)30! 74.00 0 4.0 2.00_____ .007415003 F.T Tai~ave I 5u El~ 39.375 39.375 0 _26.2150 *332SIG Csa,t Sill En & Residue. tuub 1 tio Ojt 370.34 370960 4.8 0131.012934 7.StiI'cewl mu"attb& CoJ.Ud lj o*a a34 6S3.0001 1.3,6 l3 .264*X 218.04 2i3i____

____ .8._____________ __________

.1" I' 56.673 25.331 _ _ _ _ _ _ _ _ _ _ 33.915 1 3634557* Avi RaifalsoadCo.Lid Upl II.s. 1.363.12 (20.5221) 4t.93S0 2333940 292,001 26s.00 06.36320S72134.088 Dwedkdmw Upol. *. 43.000 42.0100 _____d 25.000 1100 ____T42 T Atsia Upl. ____ 34.032 34.01201 22 r.675 *1.337 ____ ____ ____ 4.012U0F.latusm.M Co*9 Ltd uro I 76.615 76.551 a ________ *3.929 10 _____6 28.2*41 MASS1107 Sao.an!!. P Skhoo UJIMI N 184.030 3*4.030 0J 48.733 21.367 63.430 47.500 ____S__1 8.030U00Ivuifo. Teesg tpid. E 108,800 t080 01 30.267 *5.133 *5.00 48.401 _____ 0100ill) Oe.o he,.*bh & Aissc. Led Upol. _ __E 1*8.05 196.05 0 40.364 20,181 5.505 80.000 _____ 96.0u Ihe.11.Upoau E 57.9*7 57,917 01 23.770 1*385 I SASS _____ 0.37 57.917t120jA w Or1l"etI d Upl.3*4 92*15.000 9.285.000 ol 600.000 300.000 5".92.000 2.463.00 9.285.00t3*I04.DaIraiUqLd

OUR334 213.770 223A10 (0.9104 63.5110 I1.790 ____ 0.120 *1.590 223A61U22I33aassAMo Faasop Upoa f.4301 72.430 0) 23.564 *4.2842 4.234 ____ 2350 72,4301123Ta.aat Up" avEl "frIs 1960 $8.%0 0a 23:3.73 13,987 9.000 ____24.000 6up"6TSaV,pg ttifrqytb3 . Uei. MI "OAM0 WON ___ L_ 37.5541 *8.'77 33.669 9___ ____0.000116 lMa Falpk.*esaua Us* ___P1 900 88.25 1.750] 38.00 19.1x0 3 1.250 ____8.51*33 P.3mb PsimasySehaid U ~~ue Ml M2600 226.0001 0 I, 58.732 29.367 518.733 19.168 _ ___26001133 R~~~JioPoSga.siaLad ~~Upol.

_____0____ 70_ 0 1*1.001 S5.50* 44.000 35.939 295.700134 3... Te.." Ltd UpoA.3 t&R 3.900)38.1041 01 2S533 12.761 600 _ ___3.9~001135 *kauySl*va Upol. ______ 93,3)~~~~~~~~~~.0. "3.03 0) 31.006 * 5503 46.509 ___ 93.038U136 SSIT.. Peaa3. Upobl - 71.767 14.992 (3.22Sj1Z7.143 *3.722 *1.410 22.43 ______ 4.99U344 0.Aeluu Saw". 1 6896N8.6 0 26,107 13.403 4,6*4 248136 ____6,61145 TO.F.b.i u&! 3' 6".96 6.960 0 2.9731 2,967 _____ ___

1** alsI 31ea48 Comme ,yus*. omit 41.7815 43.7115 0 40.302 8.33_ ___ ___ 4.*-- 004*1 aotO*ia8 Ltd tIo. 1 *34* 565ulb 501.000 6* *1* ~ ,.,120.IkWI 568.0

NO. _______ a/j 8FCT ST.1 ACTI L Sa_

_____

8 D86V.sausL 88ueu8 Co. Ud j Ijota4 8188I".! 08IJ 4,0, 0 1 308)41 MA0"! -!2___3*10 17.8[D8IATJnisa T.afe,. I useS. Si 63.).001 63.00 g# q. 0 24.000 3.iowI. r-Tt o 2000 63A10

b3wT % L-m£ Usd a so ........ A . tiLa±.2AsI 9665o___ 60.;W0 131.500F23jl.-I-- On -25--2)1501 335*)

I-----.-A- -S

f.F33.S6 p,imm,'smho tpimel I I.,,,,j o0.A. 0 1 34.535) 974o5 I .280 _____ 0.900109G,(5710w" TiawwonL* I Used.F. 25.5* 25.W0 I 151.9s7 __ _ _ _ _ _ _ _ _ _2.07268GO40L. Vile , r*U IS 67.000 807.0)6 140.0 tg5 ....2A77 .... 27'.'g MA 3.'NIe3 43k8A. "DN.tiole ".#68 .00 S."a0 ,,,, I 42632) 8307 93 I.250 6S.50O

(jUISj~~ ~~VIIE Uwee. g~~j 50.5001 5-9----- WM i883 * ___3.0 s9.*iJ

Savail i~~~e 3 42S 637.50 0 26.2910 (3*805 j, ~ ____6.2 )5*84)IS.?M5& lad. Lad ~~~~~~useS F 27A"0 54.359 -826.859 288452 MM 6.J0 ______ 4598899lA8at.aT.a~~~~~~~~~ UO*8. 482820 48282 0 228.40 I 0.71,5 37255s 813.450 453,82080) IseoTaae56ahgrSgcoadarvSc&on8 *~~~~~., . N 830.740 530.740 0 26.720 1.61 5.3.____3.4 3.8 802 LT.8,.s*.AS.Mi8 Vised. J~~~~~~~~~~~~ ~ ~ 6800 .264035 ...... A' J1 .15 - 47 65*30 N834)8'. kbU00t Va~~~ ~ ~ ~~ult 8 74.560 74w 0 2*67 _______ 74.5001*5 ?a'W~~t Essem C,. L~~d Viuola 1*848 __Pgm 6S,2i 2.9 I8 3 38 ____ 700 6512)I36518d0.. Lose H... Lad Vn~Opoe) p " 0.m 65.0 500. 23.6 ..... 21! 5.8o0 _ ___25.00*) 65,500848*Oodm" a* Sa iFiut 140w8 Ca. Lad U..). 1 10,0 840*00o 0 57.32 28.668 3.967 ______ 5 -16? Eia h6aa8sb Lid 4000 9468 34.0 1?3.920 61,50 _____ 190.80378* Willie?. Vl8iaw. ,j~~~~~~~~~~. N 5~2.651 MAS (6,4 W 33.00 M50____2,5____ ___________________________ ugole 9848 43.950 41.950 0 26.100 11-20 I ____________8731h Ano ite EuHu S.booI SAtai M 35.842 35.842 0 23.894 8-- L94t __________3.4

"O aum Lao.8.38'8Lid usaeS P. 83129 17'-4 1.1503*2 3461 252A8006 126i4800 51. 257.7308.052__________________________ Ii 8. 58488BU 4.280.00 4,6.0 250.000i 434,333 237. 367 6150 .746.000 2.000.000 1400___ _____________________________ Upeoi E1 448.60 445.80$ 0 53967087,31 il _____60.2411 M'm69LI trimalysebow MS. 8 142.60 842000 0 1).313 86,667 92.00 #42.0Ls E~~~~~~~~~~8 11.500 8011.361 (34.036l 53.691 26.84% ________55

LI UsS.H- 1.0 72.00 0 29.563 14.231 6.856 23.00 3.0LI SIaau? aySchool #4pa 34.00 46.00 0 30.84 WAS3 37.000 59.296% ___

22.900 43~~~~~~~~~~~~~~~~~~~~~~~~~~~ 701 ISuS"

_ __Pr)IlCTCOST FINANCItOSJL NAeME O0 LOCATION |AT ;rE (Ow..) _ r NO. SUDIROIFCT

I. *t L T. ACTU AL ADDap Aoa IDA |. WOWS OTlE SrONSO30 TOT .UM1T.h Gabu. Ui __l 70A7 70.t 0 _ 4.8 3I.M14 4.927Ut1 *TP*i Upal. E 1 13_0 s3.000 I 0 2S.9's j 2. I ghu _-2-57 6U7I ap S. n'eimsy Sc.. N OMo 320.00 0 71.2 _ 4.'L _ 13040 120mUl4 TT. El 37.0 33.500 0 2).t 12.506 _0_ __ I _ | 3tIJ f3. MNb" Sava E 76.250 70250 0 25.00 _ 12.700 _'- _.10 7 WMU00 Sapq.a3BP.i.a.pScaaoa U r N 34.20 34.2 0 34.34" iTOTAL M234.142 33.fS.JS (6 0.976 7.812.457 4.063232 2.40t33 9.537.7" 10 8.33 336.1

40L

-3?-

28Appcndix 4

DEVELOPMENT BANK OF WESTERN SAMOADctails of Procurcmcnt

Under Loan 707-SAIM(SF)(USS'OQO)

Country of Erocuremcnt _ Amoup t

1. Australia 131,278 2.7

2. Fcderal Republic or Germany 338,028 7.0

3. Japan 1,834,210 38.0

4. Ncw Zealand 1,821,245 37.7

S. Ulniicd States 392,S68 8.1

6. Others 300,133 65

. .__________ __ _ ~4,817,462 100.0

(Reference in text page 6. para. 26)

I)BVw.or)lEwr IlANK 01. wl*3riatN SAMOAIiMNAHCIAI. ?SWttltMANcli OP SU RIJIIlO(TS lI-NANCIID) UlNDlER I WAN 7w.SAU(SF)

u1UR-raorJ srATUS| rTUTALSAUIS ILITr INCOhiE FAriI3(F)SI. * NAMII OF hit yew 2.4 yew hit ycar 2.4 yw IN FrCUL11 riSD)(NO. stuvamoR cr A le.U Aclusal list.g Actual _ IS1i Actual U.11 Actual% SAriSACrOttY(S)lb Lutuauuusetaal 3tA00. 30831 UAW0 3)31 28131 -913I[ 47 T&ALAe ._ AO1 372300 40111 f!SDI 4yam!0 ON! - 1100 __ F_SJ.-T.S A 17.10 A40 SIM813 62500 12.5'u 8.4502 ulssh 9*721 S140 ?Ia.aiT.aa a _ ; 4I.1406 43.M 511.A0 54.6t 3.7sm 40W*l -. A svoI sWhMOG.NSdmidla I7;st 14.510 20.IS 17.313 . _ ' '3M. _ 5 SS 'LJ 5 --t9S *.aomsudisS Prdtd *80*200 3Z1801) 733Dm) 226. W - S.UMt 6.2W1 ISA315 4.4t S3093 *S.Am'ua _ AS ,,49-3131) __61138 .....43sI31Jl) 15.1409 _ JA _ !: _ s _ 213153 I292 Samoa fraud.. t Pu&itaa 717800 2113.1s) 8138800 1531 53.0) 81 5 3 9St S3295 ~Ga. Flu Iim9.rnl lzi 1' 1.143,529' l.o9.r7oI o9.49 _ 35t l.0utt' u&m ______~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~676 , .0 . S

329 JwSlpdmusjj _ 565J! 365Jb) - i50.30 ,4585D1 _ 00 I00 . l6.0a. st _343!sanA Iem d IievCaz ! ow I ss,0 oo 5lS 7L0xq! .13 ( 580S !00 00L IWlCO _ _3112 Stb Eft i _ i 43.z 1 2 3S0 S S2D0t 31AN 7it 4.AM 9JOW 7i ?Ds3t3 MOAiT Ra mIe _ 40D.0O; 49am00 500.4001 47,wO0 103MUD Sl.OOD S3BS i, Rlt _ _ 7U4tO 62.S41 81.191 54AS652 18259 23IBM 32.755 S446 " lu,u_ is Lid ___.at _ I 3211 i

pi , _4t _ 35031 _ 43 3_ S453 AS A CLANdi 31 t 3U1LM 40.11 410j010 (22M00 4 114it - -S co

454 5isab l.a. , _ 5268100 SSjIOtt l9XOj 26.90tt 1800 3.16 .131)1 18.250 S4SbtT ptJi _81tIOr _ 9M01 !ffi3[ 80s1 m 7x 3 _i _ I5 oS 41 S _S_lori TI.Astute 33$5& 3 56 6$1.25 22-S5 8 24.501 _ 3S5 640 ISa~~~omosaa Ale FUf. J!47,9 38209 54.4301 44.O00 8880 3800 10211) 4.00 II)1 ta_i 24!0 , 26JpODI 60P40*0 Z.000 14Dm _ t_-eI I 8,000 S6390mg..iiMasIacturiag !Lid 531131A 211,0a0: s34001 1138 0o (101 1|1,0051 Ft L 6l 1 31t1 49510 8fOD . St",,5 5.735 12377 4.3W 4,009 2.675 IDmm______i_ _ _ _ -_,___ I 364,060 331N5 418,600 952M00 61J*3 2f20 82410 271300 S__ _ _ _ _ _ _ _ _ _ 1,0od 0 s*0 19DM 17DM 11,000 9,000 IIP)0 1---- S_USS'VaiaesrLm Sdoa6 jt 3130 AM! 3t1A0 33,200 3 0 Is100 15.000 15,K00 S631!Fmewuh Bausn . _ , 4 3.0131) 48.00. 32Z0 4.00tt J30 6.000 300 - IDto9671FIa Mats. 150 12.620 39ID00 >10,05$9 14.149 3.505 21J.2 6.752 11)CYS MwteT . 30DM' 740.1001 2MA.WO 3W.300 95,.4o 7400100 5I800 F_________________________ 30. J00 D 0,D30: 454)61t _ SSAS. 2580 41),e1 25.250 85S00 T

_ _ O-

0ljSva_ ,anda ,t . _ _ _ -_ ._ __

__ ISam" _ille_a ___ I_O. 1 I.4SI 78,I00 6,50) 12800 25,00 16, 0 IIt)al GlS , Ia '*.Mla1 d,aM I 7.1101, 71.Ma 6,"w I W ggal 4C S4

(RCference sn lest: poSe 6, para. 27)* 4.~~~~~~~~~~~~~~~~~~~~~~~

1 -. TOT~~~~~~~~~~~~~~vAl. SM.l.s HI?F Ir:mmmgIIWFSn K~~~~~AUSIOF Ws year 2*dya iy~d yea y r INAILWI1CI(FS(I)suRIRoJIC )t1 Mei1rt Attul. 1-.at1-9 Actual li.st. I/ Acua3l SAMI-ACTORl(~S)

tAd 4~~~835,0115 3.s2D0 Osm .1

- - -

- _ __1

F33iSaEoealatal l'riuiaa~yScbaol - 36.364 -- 25.2501 to..1446 I.3 30W~ 1520 254 S20

G03i A.tMaI r833 2a ) l~I 4i.230; 8:6I S.k 2j133 1-I nO

___ IO __ _ _ _ __ _ _ _ _ __ __ _ ___ _ _ _ __ _ _450 ( 1 ____

_ _ _ _ _ _ _ _ _ _ ___2__ _ _ _ 14_ 521*1

06 F. E"Ue I 1o1138 N.M. Gal., . ~~~~~~~~~~~~~~~~~~~0.0 45*0 8.00 7A0 1000 8. ____ IULPaI& Eat Lid 3,06.130 15*0 .)000) 3.1)022o u,ij 91040 V0111ls - -

1390 AlafwaTrasspog 973 fliSol 0063 ~~~~~~~1.01.000 84.000 ___ 0_ 919400 31.75 11,000 S101 Ito oTane iuaiorSwaaduy School 23.590 35.250 ~26.360 12MG 304 12.M7 4.M8 8._0 %_314 P.Schusm ______!!M

s

_Y _ __ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _MS LTaclic Ezra Co.t LaAX5s50 S21. 61.510 26.50 16.0 7.000 ______ 9000 111__P Scebn -"AN;. ad .500 43.000 550 147.000 6.000 2.400 4$00 (3.40 I

U317 Elit Mm&c Lid 302a0I 73.281! 2)7*00 "5.548 59.00 (2O IS"0 (6 S1110WOll.? VilA.. 00.000 40*001 "AM30 65.00 4,00 27.00 VI" 4.70 sD)Muae.P..Swuaa l03.74i 28*01) ~~~~~~~~ ~~114.118 "M9 70 1fo Si6721 0.2 8,751 5313 IecASm&WgbSChOOI 4ShI 6.750 68) 2.0 26.144 IsdSl AM72 52.750 SJ49 f.T.LeswaI 68*00~~~~~~~SJM 56*00 I' 7 42*00 45*0 3ID) I " ____0 __ _ __

____ rn,oo~~~~~~~~~~~~~~7.! U$000 3a0*00 4200 82 _______ ___________

KU WSamgs&ewiwja Ltd _____________________ _______ p99.418 1.101.53061 L3ISMO S4 0AM

____________________ 32. anOillOl 12AN*06) 11.061.500 1A39P3 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ to r

TtY'At%. SAL.ES t4IrT INC(ME. FAIL!-tSit. I ?4~~~AMIi OF I st year 2nd year lst ye~ar 2d year IN l31I.FICULTI_S(ID))

No. 'SUWWROJPICr .g1 _AcuI -I.s3 Aclual .ii cul ltI cta A1FCTIYS

1.17!STdcaa _rn" cm I9.03W 16) 913-~ S.7630i 4.;I$'!;20 nI 6i*1ua 7.01301 S

I. Is; s.deLbAlu Pri.aw School2.wk I1.T 27-V) M S U5 ')0

119; bane Wendt S3AW 49.00Aoo __ AN0 14.9 0 ) .50 s_____L201.FAiamagalo 99.100~~~~~~too lJ;O 98.0101 59ju I0 2.f 9130): - .14'J 65.0MI S

MSO-Tbc SamAob . 29w.sm ~~l3 320.00 250.000 I 3ug ~ .~. ~ ~ tX

M6io PuIti aSaunas 30358 29.000 34.003 30.050' S..11253 375: _1a.72a _ __ st412!.p &E Masiaa 86.000 91364' 9.0, vj - 1, 8150* 9)¶t WM15 is

P19'PalseooSua . ~~~~~~~~27.000' 11) I30wW .98s) jj ~ aP20i FO mainia 55.401) S,.OaS_ 61.000! 65.383 -I& .6. 840 .6 02 F &c MoovsLtd - 7464300w 54 1.2o 52.0! 6I36 IrVy 2.W 0.X1j

!N M ____ __ __ _ __ __ __ __ _9Y S!L Laml I 1.00 6.00164.000 169.100 xi Om01 V)L561! 4f)00o' 41.250 S -(Zs ed 40A'i IDAM 2SA 19.0 Mlk 3.13W)' 13010 . 10.013 S

usS M. Eset 4500__________141.L1. 97S06b G & ITraapora Ld 2670000244 000j183.000 13i 70.000 53 0130 86,09). 651200S07 A SUSal I 8 6000 "0 1~0 8.410 s 9630 9.715 SS09 F.TTaitawc 18,142 1508 81.990 2.S). .5 .552! 6.2W II)

SIt IPelte Maedkb & CoLad : ijZ j137320 5.10 109000 2300SlO Cram SwI eag& refldrewahl9oa Xafl~ 46.17l6IO .730 _12pGj 41.000 149.000 23.100 S-568 S~enaiaa S 11. 119,600 __ 56 133600O 1000 0.424j to . 77 25001.57 paIauIim%ad CO.I.d 1.067,000 1 394,343 (MAW00 372Y392 63,000 312.437 _____

82M.Osa &aedeulow 34,9) 2).w 4Z 5000 I5,9S0 12.620 38,500 21.UiO ___ S

T4 AsW ~~~~~~96.00 101200 120.00 136.300 -. 10.100j IS,46001 15.320 17250 SLJ03 Sea Itauwetme CopLAd I 44,000 4S.l00O 61.00 5000 7A010 5,7401 9,001 7,380 S

USlssaoblauafarmm School SAM.00 35,00 55.o 400 12.0u j 11.0001 13.30 13.80 5

1109 VaifoesTt 45.000 41,000 34,0 0920 700 3.200 (410 OS

Ulslcharlie lINe J 5~~~~~~~7.00Sf MAI63 60,000 5.0 27W 24,300 22.0120 23.600s

4.201AU Gwy Hotdl tAd 761 63 8,300 Sam 20.013) __(I92A0014 1.030,000 10,.000 ____SU2IjG.bL8*yULd 719)(101 647.1001 765.00 683.500 73.0130 6S.i00 71.000 63.900 _______

U22IMumaomFinap ~63.0001 70.0001 63.000 6xo UAW 4.500 j 11.00 4.000 IDU23ITewskuvle pv 4'*OO f0XO I S.000 65,000 6020 3~60) 8.00 5.0001 S1.125 V fim Scliodl I 35.400! 35,0601 35.9M0 36.0001 3I00 Z).00 30.000 I 3J1) __ _S

U AI&FIiloSeIak- - 41j0 i r0 456s 1 67501j 21A.00 IS.000 26.7501 18*501 S

Falevel ftMtScWc 23s.oo S411 'N '100 3060 330 331300 lRadio_ ___ a_s_tAd_2__________3__,0_0 360,000JI (UM ISJ000 66.000 30.00 S

SUIPROlicr STATUSTOTAL SAU.IS NbT INCOtMI FAILcoD(p)Sit. IHAM Ol tht year 2a1 yca U. year 2 year IN olonculrnIIIs ) iNO. SUBPROJECr 1isI.I MtuaI lisLII Aclh;l 1h1.1S Actual liss.lI Actul SATISFACTOkY(S)_____

_ __ _ __ I . 2~ ___ S_1)31 JAM TOMn Ltd ISO00 SOAPYW)1 169*101 lOA oom 17 13_________________________ _ ~f,9~3) tSoDr30 47W)) 39.sm _ ____ nIJ36 SimiTeo fe_i 69pfi 440 2-_^ | 4"; ^ __.01

__ U4w,ObAWW 4 X30 60." st9ui.#xlo_9 _ 3 5.0011 CM 650 S1W4 TtoFaknt S7024 34.201) A6J 36,0o1) 11,8tO 4.6A0 9.230 5. S:.__ _ _ _ _ _ _ _ _ _ _ __ _ _ _ 3856 _... _ _._ _14Pabh licathCt 121ee0 IS:)l 1-27.50! 1. 31 _____ 2.A 7.52) _._o _ s_

__ ~ -151 _ _.01 9. _ _1 _ _ _ _ ._ _ _ _ US_________U 5G.4 I 1.112*301 L10%7*3 l3.000 127am IOI.SOO 1.1 0M 93.4!1;08 11)___ ____________________ 3jb) 6900 IuCO 7 3.00 MO .0) 0 7.51)0 ID)

_ ._ __. . _ ,- ,- _---- _ __ _ ..- _ _________________________ FT 68.01 3Z3a400 Z19O30~ 233.000 1.5009 (D.0Iv)> _ <"xt 2a230 s ;______se ________ ,S23

120~ 89 N .S20 202011) 15,7125 ____ ___1)4TP.AX"e 64AN 1.0 74A11 69.101) 4."11 M50) - 9.10) - 4AM0 TOTAL 46.S32~IOS 3~906.746 ~ff 3I6 .0 3.4$.1 j200 ___ I)

_.mmahm - -- M . ___ -- - ._ ___Umq APe! uli MftimeScd

I-5;3. __ 711 49_.000! 1W 0.0 6.750 S _ .51J 7.2001 -

S _T O tAL _ ,,O 9S,6S,1SZ43,934,6S 3,}4 .SSS 4"MS iPG1, 52j14,X,s7S!!

4 Ia

OK44.~~~~~~~~~~~~~~~~~~~~~~~~~ P6

- 42 -Amendix 6flop 1 *0

IW1MII.OPEUiNT BANK OPl Wl!S'tl,RN SAMOA

ICONOMIC ICL!RFl:OMANCU Ol1 SURDROJIICTS US$10.000 AND AIIOVII P'INANCLID UNDUR LOAN 707-SAM(S1)

(FOlR FI:RST IUM.1, YIEAR Ol OPPRAT11ION)

INCREMENTAL INCRE. INVESlMEN'T

INCREMENTAL FOREIGNSAVINGS EMPL COSTIPERJOI

N NA O tl' VALUVADiI)D M NO.

NO,1 ' SUISIPOJLi(T PM.I/ Actual Ust.A/ Actual Actual Est.l/ Actual

46 i .1uttuanuu Schrol NIL NIL NIL NIL 4 3 1000 40W00

47 T& A lA.O1IC NIL NIL NIL NIL 1 2.s001 NIL

54 lTS.Amosa 4,780 2.400 NIL NIL I 53.000 ,s3.000|lA Nannsllni,,-el;__. Nilt NIL Nil. Nil. 1 41.800 Nil.19t NI u.N S chN dt ______Nit, I Nil. IU.824 NIL 4 2377 NIL

i 195, ConacroaliCtS ___, 529___ 2!42.0M(1 2.500 NIL 2 118.000 9.80

iJS.Am0.1 S.ZStt . ! 627 T NIL 34.300 NIL NIL 5.875 NIL

| 0 SaltttltohIting & Ilublishing 229,0001 NIL 957.738 840.400 2 s 4,000 ! 9.000

2j5 M;.III Jiu NIL NIL NIL NIL 4 23.900 l NIL

299 i NcvwSamxoa industrics 17.000 23,400 90000 64.120 33 90901 8,400

Zj qJ 1 ~ lIcel a llec Jnd I Itincy Ci.l td I | 80o.0(1 20.000 120.000 20000 6 60.000 80.000

I .2 1 I Sa-i I tcu a Ii NIL NIL NIL NIL I :83t751 n/a

383 1 Oti rraiport LIAd IS46 13A "in/ a 1 68.600 | 70.5

386. XI.. ARcizli4 21,374 n/a 20.250 t7h 1 93.000 n/a

446 I'cpan Indistries Lid 200W 1500 300,000 400000 8 30, 50.000

453 cIrizc Cu.l.td 100,000 60.0 150.000 n/a s 40,000 50.000454 Siint A_Iin __ NIL NIL NIL NIL I 4.000 nha

436 Alatua Translort Lut 23.000 7,150 NIL NIL 2 41000 60,00

638 ISclcsclc T. Asiata NIL NIL NIL NIL 3 000 10.000

640 1 Soloniona Ale rVaAoi 3,460 Ws Ws nba 2 31A.650 n/a

687 11.o,nalatai Ituvai NIL NIL NIL NIL 2 7200 30.00

j NS: Dragon Manuftucuriig Ltd 140,000 353.00 NIL NIL 12 42.150 304.000

871 Leilua Manuao 3.00 a n n/a I 6I..00 | We

I D, I3uc Ilird t Egiiccring 220.000 45.625 NIL NIL 4 63300| Wi

.IU1 SC,IItfrfa I rimary.S.&hol NIL NIL NIL NIL 10 4.889 NIL

1126 1 Vahinca l'rinmary School NIL NIL NIL NIL 5 350 NIL1131 ! raicumlnlis CoICrationt NIL NIL NIL NIL 1 63.000 68,00

U671 I'ia Malu NIL NIL NIL NIL I 61.000 0W|

C95 Maurice nl1unpon 500.000 nh 200CO0 n/a 20 12.t0O na(C6 I'alclupo Primary School NIL NIL NIL NIL 4 50.000 nhAC97 Sav.tii Sawmillen Lid 30,000 Pa 1000 a 6 60.000 tiM

Cgs Sa0fal sikaI 9,000 n/ | 31000 /a 1 32M00 snh

DCG cr.. Nelson Ld NIL NIL NIL NIL 10 6.000 7.00D07 CliaIcs lewlit 123,000 170.000 130M000 150,400 10 7,720 8 0

D12 I S.M. Talatala ML I NIL NIL NIL 1 71.000 WA| 15 W.S'amoallotcIltd 19300 175=000 2.000000 1.020.920 NIL NIL NIL

V116 ValSala Iloti Co. Ld 193,000 100,00 3200 25,000 6 2W,000 VAR

| 17 U t|aita aucsc 2.700 NIL NIL NIL 1 2.400 | amDIf LP. Andersen 104,000 NIL NIL NIL 2 3..100 n/a

MDV0 Th L Neosr Ld 42500 100. I NIL NIL 4 32,0 501

(Retenca in ta pp t. pwu 31)

-43-

INCI11MflNTAL iNcuI. iNvI1s'IimNr

INCR.hIWrAL I'O17UIGN SAVINCS IUMPt cos~rIiuIiouI ~~~~NAMUQI? VALU1.:AIDI)W NO.

SURPROiUCr' list.11 Actual WVtd Actual Actual ESUt/ Actual

1 _____I_L,_Ott s0o 5.00 IL NI 3 33J333 30,01)MI24 Lw$cigetr 3.1 2.600 NIL jNIL I 62300 55,00F'i7 Iff-1111daui Ptima;ry SeIu'.l Nti. NIL Nil, NIL 4 $0.000 40.001

Isaia F:ain NIL NIL NIL NIL - 2 6.000 u1/almrt Ud 143__ 000_ II7.0 %6,00

IW71 Oil Traits 94M NIL NIL 5~ 75.00 0.0

1MI A 061 ln s 4.115 NI NIL I 44200 tileI (161 5 NIL NIL Nil. I 68.000 68.000

_______________________ 20.600 3..150 470.0WIW 9 1.600 whf

11___7__S._F _______________1__1___NIL_NIL I 5800 nl~I 1.:vNM.Ci NIL NIL N I NIL 1 30,000 tIVA1141 s.ai1ii j io 2 I NIL 15 26.600 26.60I_"_A__u__T________7_000_69_00_NIL NIL 2 NIL NIL

_____________________SeondarySchoo NIL NIL NtL 'NIL 4 3.0, 4

_______________________32.00 n/a nah nIt I . 0 /ii ~~~~~~~~~~~~~NIL INIL NIL NIL I 6000 38.01

1 .5 PaciricDrmC. A 32.100 15,00 NIL NIL 2 1U

165 loano Lupe NutL f djNILNIL NIL 1 58000o 58.011+167 Eliso Nlotcls Ltd q9.00 72,000 141,00 120.00 4 2373500 195.00170 Willie 1.E Viliamu 3b27.00 Rha aa nRh £ 32.000 30.001

171 Mwup'u It. Sunosu 2.00 wit $.700 Wsa 1 590.00 "A

11.l IItu ASanJr t tigh SChool NIL 1,IIL NIL NIL 2 30.00 50.00J3491 PT'r IAuvai NIL NIL NI1L NIL I 40.00 68,000

____________ __________ /a 16,700 60.000 5 21200 Un/n

K07 Natural Vo,Nxb Iull LtAd 180.00 123,000 197.450 1514,00 is #1.903 74J50

KOO W.Samoai Ilrwicries LUd 2.04 204031 800M0O 525.150 NIL NIL NILKOSrapaloa Ah, Kam 2.00 6.20 NIL NIL 2 3.000 18.000

I 13 Sili rtiwuAry Sch-It I NIL NI L NIL 4 30.000 40,OW0

144 OSA Saul; Vwuta2. .32.130 NIL NIL I 53.400 70300

147 Telo Tauia 4363 6.2-0 NIL NIL 1 56,1401 n/aL18 fSaIdravalo Prinmny School NIL NIL NIL NIL 4 40.00 30.011

Il-ntnc Wcn'e%edt 1.31? 2,460 NIL NIL 1 63,00 64,000L120 I.FAvantgrdlo 18236 - -- I 301.10 32.0

rzo romai Ntsa 3JOC 4ZO NIL NIL 1 62,3 63,00

0 F& ut n anas UdIL= 4N21 NIL NIL 1 NIL00 NIL

P19 Palego Sue 6.100~~~NI NIL NI1L NIL 3 20 20S07I.A S,sai is 3.242] 4.110 NIL NIL -1 62.500 3.0

_________________ __________________ ~Pal! 3 of 3

. _ INCREMENTAL INC:i. INVM ES 3rN

INCRI:NIUNWAL FORI3IGN SAVINGS EMPL COST riR iJOU

S SL NAM ISOP VALUUADDED NO.

NO SUI'lI'0Il <WI' 12a1.A/ Actual st-vI/ Actual Actual Itt.l/ Actual

TTS(Jg _ 11:va___c | 26.914 | 8.142 1.5.094 8, 900j 8.'22 6.260t

SlU ( rnSlfl lug &O Rcfld:cgcratiot, , 308.0011 89.000 t/a n/a 12 18.000 lo.000

'i:q,t,rcfiubiA C -k -- - It,4 t ZOAK n/a 10 50nw.xi0 _ /a

; os.6> aLculagi S l7pip 68.e80 a/a 79.000 ns I 2.000 n/a

S71. Ap I0lottlin; and Co.Ltd | 200.00 80s0 0 00.000 60.000_ 12 00.0 000D0

S72N M Osa Uiroederlow t4.900 nta 42.900 WSa I nh/a na n

TJ4 I rAsini NIL I NIL NIL NIL I 4.1.000 nJa

l3 Su;t lnv stact Corp. Ud NIL NIL NIL NIL I 46.0001 4.00(X

L:tO Sa;nitmata Primtav Schooi NIL NIL NIL NIL 4 20l.UOO IIA/

* U09 Vm(.;m1 n j 35.OW I '9.100 t3.000 29S400 1 33400 83.400

li. ( G .:.rp Mstcrcuahl' & A-c1c. I-d j .'S000 nta Wsa n/a I Ot/a uiia

Il;( Ch3rlie Ulia _| 3.000 t.000 32.904 290Q0 1 57,917 49,917

: U Q A*.c Grcyo I dl td | 7.600j Ws 90Q0 nh 10 92.900 n/a

Ut I' CI. It. kcry Ltd :46.000 205.000 600.00 n/a 12 9.1 n/a

1''' , n I ' 630 ia 630 /a 1 47.1 I /a

U 1ladivale Ugavatt NILt NIL NIL NIL 1 48.000 48.O0

U:! Vai;.it Prinatry School NIL | NIL NIL NIL 4 54.0O0 I 40.0W

I 26 AMli & VI:ipulco Salcia NIL | IL NIL NIL 1 69x000 tiLa

_ U31 1:arilu Priliary Schiool NIL NIL NIL NIL 38 384 tW'

3 Ut't'Radio rolyitesia ltd* NIL NIL NIL NIL 9 33.000 50.000U3 RaIo P,l., I NI

U.34 anic lTurs Ltd NILd NIL 30.000 NIL 1 75.000 75.0001 35Ii Itetiry Sil%a 46.7001 S0.400 NIL NIL 1 76.300 7.900

i U6i Sitni ltc Pctinaa 5.0 NIL NIL NIL I 72.OW 72.OO

U44 Otk Aulua. 13J0 NIL NIL NIL 1 43X000 43.0W

UJ4 rLito malcni 638S NIL NIL NIL 1 68.000j 68.00

U48. PIalatuli I Icaltli C(cgatc NIL I NIL NIL NIL 4 49.20 73.000

L5 :5: orccnlcar Processing Ltd 127.0001 56,710 NIL NIL 17 33.400 13600

-0'! 1unala Galovalc NIL |NIL NIL NIL 1 70.000 70.000

*L lI!Tfti 1500 1-4I40 NIL NIL II 7.100 4.700

U72 rapaS. I'timary School NIL NIL NIL NIL 4 0.w000 6O.0A0

us54 rr.m.Taepa .m0 20,000 ab na 2 600 Was

iUF lUla HMallau 2439 115.900 ox tA S 5.700 u/a

i U°: t S.apapnii I'ritnlar Seliasl NIL NIL NIL NIL 3 0o.00 60.0W0

z i O'l- A I.- .1.2,054 2.6647,63 ?.0,30 3,J=380 42 l

~~~~~~~~~~~~~~- .

,_~~~~~~~~~~~~~~~~~~uv . o

__~V W-Vlamd MIf3JdOWSa

398$ I 3986 396 L Its 1 19_9 t 0 t _ 3^

Ag.hulhu,e 8.612 3*2 8.327 3.36)6 1.363 4SW 70 1.16 33S 17 940 .7 8.394 4.u1 1 410 ' .552Tali Sb3 tjs 879 ".I22 9nt 8.14 1m7 S9) S19 710 64) S13 42s 4l3last1_m 2'41 2.536 249 2.0S4 411 3.6)6 441 lOt t 421 lSt47 617 3.12S 939 lO03C _ pIbpm a 6 2t I 3 10I I 8I 49t 9 2 3tS 16 56 27 1.9tD 16 436I _4ua~ 124 l .797 889 1.099 97 2I.01 81 I .7 U 125 7.946 69 l371 82 1.003Tod. 3.162 6t 3.447 6.4 1.4t4 7,2t7 89 7.9t9 1.086 12.771 L9 9.45) 95 611

3*6 5. 07 9 DS4.6114 069 5.178 e.g 6.516 101 097DI 1t)9 6.36 3S60 A0;Sawafl 51 urn O TMS 2306 435 .36 3 L442 651 292 405 1.1I1

1.72 689 3447 U1*2 3.4 1.36 Ss29 7.93 8.08 8127 3304 9On5 95 I.t"

TOW 602 7 t.447 .46 2.474 7,M, 1.29 -7.919 3.061 1217l1 .9 9.4S 935 .01

.~~~~~~~~~~~~~~~~~Rho is w. VW It pu.

tJlFlWIF. t J11 978 1,2S 45J 119 88 7I 40 71m 8,UI 957 31 93 3841-3~a 3.t1 2632 I478 1.6 204 kU0 836 7,UI1 73I.7 83 235613 1516 ,10b g0~~~~~~ 1 .92 22 2I.329 37 L .7tl 217 260 ) 2.53 7116 2.1) 3J79 17U)0Ta., - 4A 3. ,a44? 6.426 1,4i4 t,27S8t 8395 7,919 I,0SI 312) 3.390 9,1) 951 ns03 XD(a l uetpFY 9 d.a 4a na ups ItSIS 3'IS

6t 69D m.8a INiOe n, IUm np

W52

I. (R.f,ee - 1 ~ 8. F. -48)

-47-

plvaELOPMGN' IlANK OF WIRN SAMOA

Alai-is of Arrar- 1985- 1I198.- J9.ll.

(WSSJW)

As at 30 Scptnmber 198 1 | 198 | 19S9 ' 1 O .f1991

t. a. Uy linustial Sactor

AgrCulturc 3,179 4.061 4,017 4AQa 5.133 S-'30 5,461

SnalJIIt lns a/ 893 12.09 1.142 1.170 I.052 1,96 1072

Lup L^mns 2.26 32 2.873 3,438 4,101 4.434 4,389

Group Vilbgo 203 247 253 290 120 214 t49

Industry 1.05S 1.239 1AS1 2382 2.34 3.527 2,509

Total Aran (A) 4.439 5,567 6.121 7.230 7.807 9.271 S.119

b. 117 gao ofArrarUpA o3 montlS 299 342 473 526 291 448 3S0

over 3 to 6 months 27? 303 437 S71 372 3S3 526

Over 6 to12n"ooths 553 309 1.101 1,07 804 991 892

Over 12 nmoths 1.170 2.038 19 2.743 4.200 4,081 3,740

Arra undert Leal Action 2.142 2.373 2.142 2368 2L141 3,398 2I611

l olal 4,441 SI6 6,121 7280 7.808 9.271 8.119

Total Lton Portfoli (11) 24,140 26,209 30.542 35,220 41,329 45.518 39.9

II. a. pfosion for ha and Doubttul DcbW

- (C); 2,831 36 3.068 2,938 3411 585 7.4S3

Ratios

AID0.18 0.21 0.20 0.21 0.19 0.20 020

as 0.12 0.12 0.10 .08 0.08 0.12 Q19

(VA 064O 0-I 0S.0 0.40 0.45 0.60 0.92

(a) i}eftue 1Y 1984 delated as loans up to WSS frOo Fy 98 oWdo000.

(R _am Islt pe PO 2. _ 50)

-48-

* VEiLOPMEN BANK OF WLSTER SAMOA

COLLCF'ION I',7 RPORMNAN-C OF LOAN PORT1OLIO

'WSSooo

ItT ENdiOig 30Scpicwlic 19IS 1 1986 1987 1988 989 1990 1991

Arrcirs as of I October , .1765 4.104 4,385 5,206 5,619 6,372 6,543

Curretit dues during die year 8,672 7,102 10,189 10,550 11,451 13,406 17,339

TItlal dJue or collection 124.371 11.406 14,574 15,756 17.070J 19,7781 2.3,882

Ca.sh collecion S266 5,758 6,327 7.562 8,043 8,797 13,707

sc:(c. dulcd 1,627 1,161 '1,127 978 991 1,.303 2,0S6

4 dcl ls w1iiten-of f 1,240 102 924 1,597 1,664 3,1S5

Arcars as of .30 Scpcnber 4.04 4,38S 5206 $,619 6,372 6,543 8,119

Casih colleclioi/total duefor collectiotn 423 504 434 480 471 444 574

(Retr in. lo pae 12. pam SO)

ts.~~~~~

INCOmfE a t 4 y Actul ti. A I' Actual Acti.

Actu |auluS*huItaudw + Fe"

I.321 1.81U 3.0d7X L 2,65 3.5 J__ 3.1% 4.1th. ].~ 4.31 _,5 ,_s __SJU1 4.I. to h ".o.. " 72 7 4 2t! 42 12 1 It ! 1 III 3! ¢-!*.7 1-2oc . - ~~~~~~~~~~~~~16 14 21 23 _ 2s S __ 31. 01 _ .-W ' 24t, _ t , 3SXMQT_L sCOME , !909 1.99 2X 124 2_.70_ 3.99! imas 4.74 -ir.s F 4.643 SS 5S 2.

lat"", A Obr hm i4 - 7A . S . 921 93t 1.149 9YG _ L4SS lS _ 1.114 t I71.'J .2'. 1 .A_iEg eJ_a ~~~ ~~~~~~~9?4 936 1.1511 1A 0,60 1,3l8 1.04*, 2.149 1.6122 I.6991 2.WJ4 2,161iTOTJWL LwESltS _ _ => IJ!4 _ ZSl~~~~~~09 276 3.101 3! 7 _.9 78 __ 65 0jSuotpU80o Iffem XERN 226 2S 045 162 132 1 .07 1.6S4 .,ll .h1 2 1.616tA torDofcw ob Debts 492 6110 _634 1,8S% 572 328 715 30 _ .403 2.262L . 5.L;t I.8680

perat e!M m opctox, 1W-(42S 41! 710 ___4b=6 9.3 55-_3.! s_?2-.{.oe b t ~~~~ - (S6} I72 . , 298 25 y).* ~~~02214l 5IS4 49-- 1.311| {

CDn Cdb tsdt Go OWS 266_ _. 4501 1_ 1 294I

Tax Pa EdLeo6s) NIL (369) 2i9 (10Y)4) 412 93?7 54 t 301, t.661 1163) (+(4 (t.)F}

Retwman!!mgcq'it - (S.7) (0) 4.|1 (26.2) 5. S 1.8E90 i§ 6.L 4.7 (2.3 ) (2¢92) 1jAbdinbirstai EtMnws¢fTo:ad Aswe 52| .2 t 7 46 C7 7 . 4 -l 5.5 4, _.7._27 4-_8 4 .31- 4.3; 5.4-1ftattt Smtad 4.St 44 -2.. I7 F3 9 __- sI 86__ 7 _ _6.j__ .Egaints !p4ead to l tl.1 J1t0.3 l0- 5| 11t.2 _ 11- l lu}.L!3 98!CO" t Of. 631 6.41-7aO 6.5 .97 51 5x_ l 62l 6t 6l f

(Rcliretwe ki text: pags 1, I.pafa. Sit)

01;vl-4.0PMI-4jT ft.%t 1)1- WIthl'1104 SAfAg)A

Ali'MAI.S. rKMIX-ThDA 47,6311. 1'14)w *TATEMPAIN

IM

A.48A 4*A 40, AktoAl Acke A0831S!"lcps

43began

1.367'

& 43 62. 7q --s; i 307"O D"b" cotft . m 410? 10% 634 1761 0; 1.401 2.?A,- 1.0-4 I or

s;l 2.013.1151, 2.1% 3.1110) .1.16. 11)? 4.0 a $.I" S.0si: 4..UA: S.$Wamft

17 19. w 3Available W " strykim&(A) 4.3921 3.123 6.3$2 9.491! 8.9031 6.079 11.4.q

tooone is capiw $52 S49 213 1.1sa Lode $56 1.012 05Ws" 4.749 5.127 1.26s 7.621 1.4lu 8.00 1.110 ?All 3.211, 4.4111 4.3bZ'- 26906

310 soham Gows

2041 1-191 1.232is wed"agl" 206 1.767 209 tu!SOURCES 19591 fA" go

M 210 III 2#4 03 373 919 4.329A94 1.579709 git "S 1.10

isll 1.169 "I 1.4711 1.1" -- 137 1.3711 1.9u 1.9s2 -2.610 6.467

!.211S 7.755 S.959 SJW 6.012 WA23 I.S23 14.311 IM71 10.4% 4520 6.sq,do 5 14 65 4" 163 24s 2r. 401

40 132 94b wakily cq*al 62$ 2.279 2.1% I'M 1.165

APIPUCATIONS Ios9l OA" Atn li-St to 4 Is.513 L6, 3-5 =2 its 11- 1 �3

4.6 13 13. 6.2 1.2 1.7 3 9 4.3$"Wks Covefte (AN) 4

(RA:ferc= in im: par- t3, para. S4)

Anal S0scplembet 8984 ~~~~~~~~~~~1985 j. 196 9 A9-m39g I899 T "I1_____ 3~~~~7T AcIwil Proj Aci~~~~~MOW rj I.*ue8 - Mn A&U- 4Actini IAc WuA I C '

~~~~~~~~~91, tEJ.t: .wl!i51u U

I i_____ __ __ . 1_ ! 1

._ _ __ _ _ _ _ _ __ _ , __ _ _ _ 5 _ .__ResewFmadlggapJ pai' 369 __ j'! SOSJ J.3.3 918 _~ 8.63_..0 .93 333 L483 15 -36_! -M <} (GO*S

w L ~~~- .--. -.- ---. |-_ _ .S .l

______ ______ _ I 1. ___ _ I . - .-- _ i_____ , __ ,___

GOwsL 31tElODES gtuG 5a2 -,1 |~ ~ .1 1 _

I.2 I.5

2.43--S4.- - ~ ' ____ ___ ____ ___ ____ ___ I, _ _ _. _ .L..............L.

_ 1.|r.S.... _GrisAcA IMs_... !GO._

.. 5.. -R_AL SIg L I EUy 2 18 _ 5 .0 _

.11 1958cag __b_ 91 2__2.10 90 7_ 29! 3 - ! 2.377R.AL CRks 7....{..2! L...{ 1 t7 1 L..... 39'27 old g116s 860 24.88Am 18-0 9137 39.1947 10.W 1 _163 I 10.231 6583

lOl J 9 sI 291 291 1 1 6.L 29!

CmURM " AS. . , t- IA1 9-1Ljn I -- I I -

NOW-CUlLf_NT AS i*1____________C_, Imumera o _ _ _4 7S2 17 71 14 9 l 9! -21273

1_ 7 ______1_74 87.7Froes18a.$NW 449 465 468 393 8S6 404 659 476 704)3 779 699 639Lem OwApaf Leta wav riiI@in 8038 8*2 13332 88.102 31.429 I .M.Q. 247 1..f9j9 20*36!j ~24.414 26M64 24.93Oshes . ~ 60 5d 1.333 lJ301 2I8: 2.63lOYAL ASSIfSI I.4tfi 24Q.M..liL..it 3iliiiA .4IUi t-.-2WL ~ JUCUNIoRIT UABIBnSs I I

_-___-____Csedlm Am _ ,2ero 634 78)84 7.62 1.479 920 2*13 2.9 23'I 3.s1 '

____________________________ ~ J47 728 2.96171

4 4 0 - -1

77tem boamonoIs - wresa,la.I - .4 ____ _____ 4I 4 6 465 410 8M- .41 3.7691 4.7_cbmd i_ _ _ _ _ _

. ._ 1 1 714 so 391 29lNON- NTCUIRILmES I 1 1C ,AIU $ > - 29

NET ASSErrS Zi"§I Tilts T].J{._ ...................... - s11. §.2Y4d .AIII1 _§1 ~ .. .!.43±f........ 1#<t. 2 ......iir .._i.....L. Ia, ,.

"OfCRID M ILM- _! I--g - _19 Al- J-- -F-II _--n AU -111 SA7

Di0i m mAla 1243 3._:1 1 2.2 ! 4 1 2.3:l! 321 233 2ST.1 I 1 19 ____ 3. a9.1

Cl Ibild U I t2 1 0 . I 5 1 11 1 2 lo I 19 2.5 L .11 | 82 3 I

____b L..JjL=i I--' __

_ __A_ _ _ _ _ -- jRpAW _U"IL_ _ _

(Rdekuctebst japl 13p S.3

W_fL. MLR

-52-

efetrence toNatUrg of Covenant t

ACT AND POLICY StATEMENT

The Govt shall nOt permit 0aws L.A. cheulte 4 Copl1cd ulth.to make any substantfal Pua iamenmnent to the pot Cy P.A. Seetioq 3.01(c)statement without prioragreement of the Government andthe sank.

BOARD Of DIRECTORS ANDMANAGEMENT

The Covt shalt before making any L.A. Not coapiod with.changes in the Board of Scheduto 4directors of 0IwS, inform the Pare US)Sank in time to enable it torespond effectively to theproposed changes.

The Govt and OMS shall by 31 L.A. Poertilty comptled with. TheDOeceber 1984 take all necessary Schcdulo 4 tenuro of non eanofficto .maberssteps to ensure that the tenure Par 3(b) of tho Soard of Directors is oneof the moembers of the Board ot tero of three years.Directors is two consecutiveterms of three years each ndthat Directors whose primsryInterests are in the cowmerciator industrial sectors occupy atleast three positions on theBoard at all times.

The Govt and D81W shelt by 31- LA. Co"lled with.December 1984 take all necessary Schedutei 4seeps to enure that nome of tho Paro 3(c)eabers of the Board of

Directors of 08WS, xCept ex-officio members. servessimultaneotwsly as a melnber ofthe eoard of Directors ofanother Sank or corporatfonextending credit in WesternSamsa.

The Govt and oSus shalt ensure L.A. Not co_ fed with.that no subloans *re made for Schedulel 4projects of which Cows staff or Pir 3(d)members of the Board arebeneficiaries.

The Covt shall, prior to miking L.A. CcIF fed Ylth.any appointment to the position SuhUUto 4of Cenerst sanagr or Assistant Pare 4Genral Manae of OM, O cosiltwith the Sank regarding thequatification, experience antenure of office of VWe Persmproposed for appointment. horesuitably qualif fed rtatinalstaff are not available, theGovt shOll cause O114 to eploty aSftn 3.01(d)

suitebty qualiffed expatriatestaff.

(INofes.w fi teat: paoe 13. Poe. N46

- 53 -Page 2 of '.

oRGANIZAtION AND STAFFING

she Govt shall take all L.A. Staff are suitabty qualified.

necessart mecuhts to ensure Idule 4 Staff turnover at junior level

that OBWS continues to be PAr rema a problem.

staffed by suitsbly qualified p.A

profesionatl5 with adequate Schedule

eAperlence and technicst Pars 4

expertise and will also

endeavour to keep stsft turnoverwithin reasonable limits.

oSwS shall continue o give high P.A. portisily cwaplied with. DOWS$

priority to its st.'f training Schedule inhouse training prograsm have

programs and shalt further Pare S not bee consistently maintained.

develop suitable inhousetraining programs which will becarried out on a regular basis.DoWS shall keep the Sankinformed on an annual basis of

the progress of these programs

OSWS s.atl review by 30 June P.A. Ccinplied with.

1985 its organizatfonal Schedule

structure with a view to Pars 6

increasing its responsiveness to

the growth and changes in its

operations. DSwS shall informthe Sank of the results of such

review and shall implement therequired changes in its

organization in consultationwith the lank.

FINANCIAL MATTERS

Except as the Sank and the Covt P.A. Coplifed with.

may otherwise agree, DOW shall Schedule 3.08

maintain:(i) debt/equity ratio nothigher than 3:1(ii) debt service ratio notless than 1.23:1

The Govt shall bear the foreign L.A. comptied with.

exchange risk of the loan. Schedule 6Pare i(e)

Govt in consultation with DOSS P.A. Interet rates changed in 1990

shall annually review the Schedule under emergncy power of

interest rates structure of OuS Paet 3 Go" rnent fter Cyclone Ofe.

to ensure that Sil Interest L.A. The Sank ws not consutted.

rates :nargod ty CSUS are Schodute

appropriate and shatl consult Pars 12

the lank prior to effecting anychanges in the interest ratestructure.

The Govt in consultation with L.A. Cwptied with.

the Sank shall relend the SChedule 4

proceeds of loan to OwS ast an Porn 1 Ca) (b)interest rate of 6X p.o. for a

term of 1S years including agrace period of 8 yenr.

the Govt shsll, during the LA*. Co fied wfth.

fiscal years 19841986, make SceuLe 4good any operatial deficit Par 6

oCut may have eWd, In ddition,ensure that fUnds Ore made

availsbls to DMS to mae P.w. C ir with although p hnt

adeate provisions for bad and Sched rivd wIthin

doubtful debts pursUant to PFare a conW ted period.

-54 -Page 3 es 4

ClaSe 33 e of the PolicyStateOunt. After FP1986, therned for Contiud Support shsllbe eoview@d by tho Covt in

consultation with the lank.

The Govt shall i}) provide DIdS L.A. Coaplid with

by 31 0cc 1984 in tho form of Schedulo 4

paid up capitel or soft-term

ioas the amount of fund< (aboutWS180,000) still remining to bepaid of WSS1.4 million requiredto be provided pursuant to pars.7 of Schedule 4 of LoonAgreent (4th Ocv. lankproject (ii) provido DOW1 inthe form of oaidup capital orsoft-terml loa4 an additionaluSSl.5 million during 198S L

1No.

The Covt shell take all L.A. Ceplied with.

necessary action to make Schedule 4

vailabile to DOW1S local currenoy Parsa6

fund* in sddition to equitycontributions per pare 7, asrequired on terms end condittionsacceptable to the lank.

TeG ovt VnWOiDS Shelt take all .A. COWpfied with.

neceSsary measures to increase Schdle 4

*0SW5's authorized capitat tO Paer 9US$lo million by 30 June 1985.

By 31 Mareh 1985). OSWS shall L.A. while the arrears reduction plan

provide for the approval of the Schedle 4 wa provided, arrears were not

lank a plan for reducing its Par 10 reduced to the coveanted

arrears by 31 Oecerbef 1986 to lls.

ten per cent by ount of loanin repayint. FollodN uank'sapproval the plan will beaupteted by Ol4 on a thinly ore 10basis.

(f) 0SS sholl set aside each P.A. Cepifed with.

year sufficient funds to provide Schodulo

for provision for bank ad Pare a

doubtfut debts of at lecst 10per cent of totat loanportfolio; (ft) beginning withf1194 0M sall rviewannally its outstfnding lofor appropriateness ofprovisions aVd write off baddebts as required.

The Covt Shall Whenver possible L.A. gfforts weo initiated bY 0C

endeavor to foster the Schidle 4 Mgt to prnoto usc of creit

estabilshment of credit unions. PaU 11 unions for channotlinggricultural credit. Nower

thes efforts e tuAlly failed,due perhps to cultural factors.

The tovt an the lank hatl keep LA. Compied with.

each other Inforerd of any Scedle 4

deelopt nt re funds provided Par 13

through co-financini

Te Covit nd the Bank sholl LA* Colpled with.

es that no su loan Ore Schedule 4

plvided to finance the Par 14

contructfon or purchase ofhouin.

-55.-

o $ shall take oll ction to .4. Co pted with.

enure tnat sub-loan are Mad SN"I@

principellY to smetter Para I

enterprises in rumlo areas.

OtSS shall not utilist less than P.A. Caplid with.

60Z ot th proceeds of the loan Schadet 4

for sub*lo"s am mgtiflg to Pe ) 2 (a)

*20,cao or ess.

DowS shall not make ay Sub loan P.A. Co ptied with.

in at, omount a#ee*din9 the Scha dule 4

equivalent of *400000 or in an Pore 2 (b)

amount which wouid exceed suchlimit one" added to the

outstatding principal amount of

all other sub loans.

ACCOVNTINC PROCEDURES

None

REPOTS (ANNUAL. GUARTERLY, ETC)

OlUdS shall have its accounts and P.A. s,mit with but unable to

financial statements audited Section 3.05t() s#lit within tho covw tod

aum4uily by independent private 11 period.

auditors in a lov9 form audit Para r

rcgort acceptable to the Sankand shalt within four monthsafter the ctosing of the fiscalyear to which they related,furnish the sank Mi) certifiedcopies of such audited financialstatement and: (ii) the reportof the auaitors CFY ends 30

Ot5,s externat auditors shall P.4. COWtfied with.

IncludO in Its avsual report Section 3.05(b)

eoments on Cf) the cualitfy nd Pars 8

cottctibillity of W U5's loan

prtftolio: (if) the adequayw ofthe provision for bad debts;

(fii) the adequcY of D8MS'saccounting aVd internal controlproceares and, (iv) status ofcoaptionce by OSNS withfinancial cavenants under theLoan.

OWS shatt furnish to tho 8So*t t.A. Coeptied with but sme times

quanterty reo_ts on the Setioi 3.04(b) unbto to ledt . ithin th

esecution of the project an an eonented Wend.

the operation and mangepment ofvUWS within three mnth$ of theend ef the quarter *i review.

orwi COVENANTS

except as thei an vW otheise PA C wptied with.

age SIM shstl not estabish sectien LOU.0e)or squire ay sa*sidiay.

'S7-

PROJECT COMPLEIION REPORT

TONGA

TONGA DEVELOPMENT BANK PROJECT(CREDIT 1813-TON)

Januy- 28, 193

ho- Md EyV Op& Dm hion

EWAs od PaSlc Region

CtURENCY EQIVALENM

Cumncy Unit - Ton&a Paanga )

At Loan Appra In January 1986 - TSl.00 = US$0.7194US$1.00 = TS1.3900

Annual Average 1986 - TS1.00 = US$0.6684US$1.00 = TS1.4960

Annual Averae 1987 - TS1.00 = US$0.7000US$1.00 = T11.4282

Annal Average 1988 - T1l.00 = US$0.7810US$1.00 = T11.2799

Annal Averag 1989 - ¶11.00 = US$0.7910US$1.00 - T¶1.2637

Anual Averag 1990 - TS1.00 = US$0.7800US$1.00 = T11.2809

At the closing date (December 31, 1990) - ¶11.00 = US$o.m3US$1.00 = 1$1.2932

Unti Febrry 11, 1991, the exchange rate of he curncy was detmined in relation toth Austrlan dollar. Since hen, the exchange rate is detemied in relaon to a weWgtedbakt of curencies of the counry' mor tran parners.

ABDREVIATIONS

ADB - Asian Development BankCEM - Country Econoc Memor]DA - Intn l Developmen AsoiationIMP - ntnatonl Monetary FundNRB - Natonal Reserve BankSOB - Statment ofTA - Technical Ass TDB - Tongp Developmem Bank

Noe: Ibo fincial year of TDB ends on December 31; the fis year of the Govermetof Tongs ends on June 30.

-59-

PROJECT COMPLETION REPORT

TONGA

TONGA DEVELOPMENT BANK PROJECT(Credit 1813-TON)

PRWACE

TMs Is a Project Compledon Report (PCM) for the Tonga Developament Bank(1DB) Project, for which Credit 1813-TON in the amount equivalent to SDR 1.6 million(approimately US$2.0 million) was approved by the Board on June 2, 1987. The creditwas sied on July 15, 1987, and becme effectve on Septmber 28, 1987. The CreditClosing Date was December 31, 1990. The account was closed on April 8, 1991, and anundsbrsed balance of SDR 20,826.56 was canceled. The first repayment under the Credits due October 15, 1997.

The PCR was prepared by staff of the Asian Development Bank (ADB), withwhom the Intrnational Development Association (IDA) cofinaced the ProJect, followingan ADB mision to Tonga in June 1989. Under an agreement between the Assocaton adthe ADB, ADB had prmary responsibilty for overall project fomultion and appraisal, andfor subsequent superviion of project iplementaon, including prepaation of tbe PCR.The PCR is accompanied by an evWluation sumay (including stascal data on subprojectsfinanced with IIA proceeds that are not covered In the PCR) prepared by IDA staff. 1/

The IDA's evaluation sunmary draws on the IDA's President's Memoranand Recommendation; the Cedt and Project Agreements; supervision reports;correspondence between the Association, ADB and TDB; internal Associaton n anda;TDB's periodic progress and audit reports; and subproject data provided by TDB.

his PCR was sent to the Borwer, the TDB and the cofinanler forcomments. Comments received from the MDB and ADB have been aken into account Infinalizing the report and are reproduced as Attachments A and B to the "EvaluaionSummary'.

sI Becas the PCR was prepw by ADD before impltion of the MDA Credit was comtd,q_fy idon onl wbsquWpolicy deveopmns and data reled t the IDA edit line we

com ddIncorpraed_h in to aached IDA's Evaluation Summaq". Inadvt dys d pby DB IDA icop i dda and finldzin tis report, respecivelry, rul thlolat mbmidica of this d .

- 61

PROJECT COMPLETION REPORT

TOINGA

TONGA DEVELOPMENT BANK PROJECT(CREDIT 1813-TON)

IDA'S EVALUATION SUMMARY

1. Project Identity

Project Name: Tonga Development Bank ProjectCredit Number. 1813-TONRegional Unit: Asia and Pacific Region-Country Department mCountry: TongaSector: Financial IntermediationSubsector: Development Banking

2. Background

2.1 Ihe Tonga Development Bank (IDB) Project was approwved as thenternational Development Association's (IDA's) first credit to the Kigdom of Tonga.

Tonga had joined the World Bank Group In September 1985, after which a CountryEconomic Memorandum (CEM) was prepared and dscussed with the Governmeat Inresponse to an emerging resource gap for term-finncing identified in the TDB, IDA wasformally requested by the Government in December 1986 to coflnance ADB's third ldingoperation to the IDB, which had been processed s sly with an ADB mukiprojectThis loan [Loan No. 782-TON(SF)J had become effective in October 1986. The projectconformed with IDA's country lending stregy of supporting the development of ky secton(agricultre, industry, and tourism) in the country. The TDB, the primary source of termfinacing for these sectors, was considered an appropriate financa nmediary forimplementng this sateg. Te TDB had been established in 1977, with ADD astae,to provide capital in support of national economic develpment Up to May 1987, the ADBhad made dtree loans to the TDB totling US$3.5 million equival and four technicalassistance (TA) grants totalling USS623,000.

2.2 TDB's overall profitability during its first seven years of operatons wasattributable to income received on eaning assets other ta loans. The Kingdom's legislatedinterest rate ceiling of 10 percent (as per the Contracts Act of 1921) and high aministrativecosts associated with the TDB's large number of small loans (accounting for approxImately20 percent of its loan portfolio) resulted in an acual negative spread on its overall lending

.62 -

operatlons.l In addition, because of Tonga's high rate of inflation, tis ant thatdeposit and lending rates were generally negative in real terms. This issue was dbcussedwith the Govermen during review of the CEM and was taken up under the prject'sinterest rate policy objective.

3. ProJect ObJectives and Description

3.1 The objective of this cofmanced project was to provide long-erm resources(USS1.0 million equivalent from ADB and US$1.8 million equivalent from IDA) to helpfhnmce investment demand in the agriculture, industry, and tourism sectors during a three-year commitent period ending end-1989, and to reform interest rate policy so as to achievpositive real deposit and lending rates. In addition, an institutional strengting programwa expected to improve TDB's operational efficiency and profitability (including IDA fundsof US$140,000 equivalent for hardware and software necessary to complete TDB'scomputeriion program, and US$60,000 equivalet for a consultat review of TDB'sprospect for diversification, focusing on the feasibility of diversifying TDB's domesticresource base and copond financing operations).

4. Project Design and Oganization

4.1 The TDB Project, like most of the Bank Group's DFC-pe lending operatoup to that time, focused on a single financial inermediary and comprised a credit linecomponent along wPi a technical assistance (TA) component aimed essentially atinstitutnal iroVement (computerizing TDB's accounting system, developing permselmanagement policies, identifying diversificadon prospects, improving portfolio quait). Toths extent, project design was very similar to the two previous ADB opeao. Inaddion, the project explicily addressed the need for interet rate policy refom Both ADB(in its Jany 1986 apr ) and IDA (in its Wupdadng" mssion in Febuary 1987) badcormed that TDB's overall opeaional performance was s; at the sme time,they had noted that the Kingdom's interest rate ceiling of 10 percent prevented TDB notondy from adopting an appropriate onlending interest rate strucure but also from resourcfunds other than Govement equity and concessionary borrowings. Recognizing the need

-for interest rate policy reform in order to remedy lDB's poor profitability on is ledingactivities, both ADB and IDA legal documents incorporated covenanted deadlines forreaching agreement on an acdon program, including an implementaion schedule, that wolallow the development of a market-based interest rate strucure in the Kigdom towmpostive real deposit and knding rates over the medium to long-term. hntr rapolicy initave crporatd In this project proved very important, as it laid the groundworkfor a foliow-up project under which the reform was subsequently completed (see para. 6.1below).

V As discsd inpaps. 6 of h Memorandum nd of th esd (Repopt No. P.4W57-TON) dted May 13, 1987. ADB has on_ t however, that TDB has always ahived a posiinst spead on its leding opeaons (refer AtahwAa B).

-63-

S. Implementaion

5.1 The TDB Project was executed In accordance with the "Letter of CredtAdmnIstration between ADB and IDA (dated February 22, 1988), wherein alladministratve arrngem s of the IDA Credit were outlined. As pat of s gener aegyof cost-effective lending to fth Pacific hland counties, the Bank Group in 1980 had decidedto lnd through cofiacing opeions with the ADB. Under thi a mnt, ADB hadresponsibility for dminisrng is project for IDA, I.e., subprojec procsi,procuremet montoring, processing of witrawal applications, supervison, monito ofaudit and periodic reports, and the PCR. There had been little direct consultation andcollaboration between the ADB and IDA during the preparation of dteir respective projecs(athough IDA did use ADB's appraisal as the basis of its Me m andReommendation of the President). While ADB adm ed entirely the credit andcomputrztion components under IDA Cr. 1813-TON, IDA took a direct and active role(ncuing a June 1988 mission) in supervising the project's policy component 1; a resof dis direct involvement by IDA was closer collaboration with ADB dung the prepaationof the follow-up IDB project in seeking stronger policy and Instittional idUonality.Compiance with legal covenants was satisactory -refer Table 7 of "Stedtcal Inforaion".

5.2 Considering that this project represented IDA's first lending opeion inTo and taking into account the procsing famework under which It was undeaken,project design and qecaions appear to have been reasonable and realistic. Moreover, indibss fi e Implemenon of tffis project, it i important to note that the follow-upproject I.e., IDA's Second TDB Priject (Cr. 2084-TON) cofinanced with ADB's FourthTDB Project (Ln. 990-TON(SP)J represnted a truly collaborative effort: it was appraisedjointly in June 1989, became effective in August 1990, and was jointly supervised inFbuary 1991. As fiter elarated In Section 6 below, this folow-p coficingoperation not only enabled the policy refom iniaed under the 1DB Projet to be pushedahead, but resuled in fArter conditionality addressing a number of TDB's Inustttionaldeficiencies that had come to light durng the inmplemnti of th projec IThe mjorrisc, as identified by IDA at the time of appraisal, was that Implemenation of intr ratereform might be delayed or might not be as broad as was necessary to addre ditortonsIn te financial sectr. While delayed was never defined, te eventual remowval of aRinterest rateceilings in Tong effective July 1, 1991, achieved the project's policy objecdve.A second risk Identified at the time of appraisal, was ihat subsequt revision of TDB'snternal onlendig inter re strucre and impkmentatko of acdons to Improve loanquaty (which were not specifically identified) would not be undrtakn and that TDB'sprofiAbilit woud not improve. While severa revsions in TDB's interes re strucehave been made to date and specific actions (as provided under the fllow-up project) are

It Tho diveficaDt sudy (to be caoed out by end-June 1988) - see Section 3.1 abov - had btdeired foUowing the Ju 1988 IDA supervisian mission. ToWs existng ine rate rgimeffecive prcluded TDB frm mobizing oter tan go nt equity caWal and _extnal funds.Altough TDB had already undetake aninternal study of drsification fupinsdetailed evauaio of both mead"t demand and the insituional cofncil bneft ocia d wispecifptions was required. T uis dy waso ycy beuner thofollow TDB pr4oectlTh US$60,000 equrialn for this study was reallocatd for TDB's c u Pgam

-64-

being taken to address IDB's arrears problem, the appropriateness of TDB's onlending rates(especially for its micro lending portfolio) and TDB's low profitability remain outstandingand so far, unsatisfactorily addressed issues.

6. Results

6.1 Tho TDB Project sucoeeded in achieving its objectiva of inere rate policyreform and resource transfer; while progress was satisfactory with respect to IDB'sintiIon-building objectve, greater emphasis was devoted to thi matr under the follow-up project.

6.2 Polic Rdfr. Under Cr. 1813-TON, the Government agreed to prepare,no later than June 30, 1988, an action programn, acceptable to IDA, for achieving a market-oriented, flexible intest rate sucture. IDA accepted the Goven2ment's proposal of May1988 outlining a timetable for achieving this. Implementation of the timetable, however,was contngent upon implementation of the then-proposed National Reserve Bank (NRB)legislin (prepared wi TA provided by the Inoernational Monetary Fund), since itprovided the mecaism for Implementig intet rate reform. Ihe NRB becme fuly

on July 1, 1989. Announcing Its intention to promote a mairt-detminedterest rate regme In Tonga that would reflect the stau of the finacial mariets of Tonga's

major trading partners, the NRB, as an interim move towards establishing such a policy,raised the ceiling on lending rates to 13.5 percent effective that sme date. In early 1991,the Contracts Act of 1921 was repealed, and on June 17, 1991 (effectve July 1, 1991), theNRB announced the removal of the ceiling on interest rates - thus bringing the Borrower intocompliance with the covenant under Cr. 2084-IND providing for implementation of such apolicy by March 31, 1991.

6.3 Tuhe Trmsfer, Ih TDB Project succeeded in the transfer of foreignexchange resource for Invstmen, meeting both commitment and disbursement scheduls asprovided under the Project./ As noted in the PCR (refer para. 30), TDB's projectappraisal and supervision procedures have been generally satisfactory. At the tme ofappraisal, there wer no quantitave targets specified as to how the IDA funds should beutlized (subproject data provided by TDB is summarized in Tables 9.A-D of "Statistcalinf;ormation). As compiled by the TDB, a total of 141 subloans were fnanced, six ofwhich were above the *free-limimt of $40,000. Services (Including transportaton andtorism) accunted for almost 56 percent of funds; industry and manufacturing, almost 43percent; and agiculture, less tm 2 percent. Two-thirds of fimds went to existingcompanies. Becuse data regarding actual subproject operational and finacial performanceis limited, due to the fact dt most subprojects financed under the Credit have beenoperatnal for only a hort time, a meaningful asessment of socio-economic benefitsderived from these invesmes is premre. Available data on similarly financedsubpojects under the ADB loan, however, indicate satisfactory results (paras. 18-24 of the

I Sublomns msde under this cofinaced opeation weon vot financed on a g gm basis. once ADDfiuds wowe commted, then IDA fiuds w or o uized.

-65 -

PCR). Arrears data is more complete; on a positive note, 24 of the 43 largest borrowersof IDA fimds (accounting for approxinately 50 percent of these funds) had no arrears (asof May 31, 1992); only two of them (accourting for less than 15 percent of IDA funds)acuted for 80 percent of the large borrowers' total arrears. [Arrears data on borrowersfinanced with ADD funds is dscussed in para 25 of the PCR.J

6.4 TDB'. Institional Develtm= 'TDB's numangent, suti andorganizatinl structue, srengtned wAith TA provided by ADB and other bilaterals, aredeemed satisfctoty (pars. 26-28 ad 45 of the PCR). During project implementation, TDBepanded its aset base almost thre-fold - from TS9.6 million at end-1986 to T$25.0 millionat end-1990; its loan portfolio aepanded from TS8.0 to 21.9 million during this same period.During thi same period, return on average total assets (before taxes) fluctuated bewen 0.6and 1.4 percent; return on average equity (after taxes) was very low, fluctuating between1.3 and 1.9 percent 'IDB Is the m4jor source of term credit In Tonga and has contributedsgnificantly to economic development In the Kingdom. (Refer parms. 29-36 and 44 of thePCR.) It Is worth noting that since 1989, TDB's annual net incom has exceeded therevenue genred by earig assets other loans - prior to 1989, TDB's overallprofitality posion had derived from income eaned on aseu other than its loan portfolo.As noted above, a number of _Imrvements in TDB's personnel managmnt policies andprocedures, computerization of Its accounting system and staff training were Introducedduring project implemeion. However, in the course of project supervision, it was foundhat a mber of TDB's Internal operaing ad accounting polIcies/procedures made it

difficult to evalue its true financil position and performance. Thus, as part of the follow-up TDB project, several changes have been adopted by TDB's Board that reflect moreprudent lenig and financial practices, including modification of its policy of recogning

rest income on an accrual basis, limng such accals to performing (clearly defined)lo only, clear guidelines and procedus fo reschedulng and restructuig loans (and

lminating the captalz of accrued inrest), and standardized procures for wringoff bad debt. WIth TA provided under an ADD grat, a Loa PortfoLo Review wasunderken in 1990 by external consaDn; as a resul of th review, TIDB's Board adoptedIn 1991 a metodolo for establishig adequate loan loss provisions based on repaymetperformance, qualit of collater, and bonrower's oveall finacial position andperfonnance. While the daa show that total and hard-core (i.e., of more dtan twelvemonths) amrs steadily increased between tnd-1988 and end-1991 (reversing a decline insuch arrears during the previous tree yewrs), It Is clear as to how much of thisdetioration was real or the result of the TDB having instutd more prudent operatingand account practices. Howver, it should be noted that during th time, TDBmanagement took te pnuden acdon of iceasing provisions - from 6.8 percent ofoutstandig loan portfolo as of end-1986, to 11.4 percent as of end-1991. TBD has alsoinitiated a numer of itral measu to address its are problem, including moreintenive contct with problem clients, strengtin of ieral do In and collateralprocedures, and taking legal action a t delinquent borrowers (refer Attachment A).

6.5 One institonal iue ta remans unsatisfactory is IDB's onlending interesrate strucue, especally with respect to Its micro-lending operations (i.e., loans of less taTS1,0O0). As identified at the time of project appraisal, and as confirmed by a review

-66 -

undertaken in 1990 by extenal consultants financed with an ADB TA grant under thefollow-up nroject, TDB's interest rate structure (even as revised upward in light of the July1, 1989, and July 1, 1991, NRB announcements) does not allow TDB to recover its cost ofdelivering, supervising and administering (including risk and appropriate profit margins)smaller-sized loans (i.e., of up to T$3,SO0, which continue to account for about 25 percentof TDB's annual loan approvals). While dated conditionality was incorporated under thefollow-up project providing that the Government would take the neceary meures tocompensae TDB for all costs associated with such lending (if for development reasons itwas felt that it would not be proper for llB to charge interest rates that would permit suchcost recovery), satisfactory action has yet to be taken.

7. Sustaiabiliy

7.1 On the macro side, the interest rate policy reform initiated under IDA Cr.1813-TON/ADB Ln. 782-TON(SF), and subsequentiy completed through the NRB under thefollow-up cofinanced operation [i.e., IDA Cr. 2084-TON/ADB Ln. 990-TON(SP)J, lays astrong foundation for furiher reform of Tonga's financial sector hat can be expet topromote donmstic savings, improve and rationalize the allocation of credit resources, andencourage efficient private investment. A Financial nion Act was passed by theLegislative Assembly and became law in April 1992 - this will allow freign banks tooperate in the county and introduce competitveness in the market

7.2 On he instion-building side, it remains to be seen whether TDB can fllydevelop into a self-sustaining and viable financial institution. Since its establihment in1977, ADB and IDA have provided subsnial resources and technical assistance o TDB.Proress has been made in improving TDB's operational and accounting policies andprocedures. However, profitability has been very low and TDB still needs to address asubstantial arreas problem. With the likelhood of increasing competition in the future, itis crucial that TDB, with the Govenmnt's (as shareholder) support, take the necessarysteps to ensre t its lending rate stucte allows for full recovery of costs (including risk)and provides for adequate profit margins; in those intances (specifically, regarding micro-loans) where approprate lending rates would be considered too high on developmt andsocb-economic grounds, unrecovrble costs ought to be compensad dictly by theGovernment and not cross-subsidized by TDB's other clients. Prospects for TDB'ssusinability as a commercially viable (and expanding) intiton, especially in light of amore liberalized financl sector, are further constrained by its dependence on govenmentequity and essentially concessionary funds from external aid donors; with an average amnualcost of borrowings ranging between 2.9 and 3.4 percent during the past seven years (wihthe foreign exchange risk being bome by the Goverment) and domestic deposit rates in therange of 6 to 8 percent, resource diversification options are limited - a concern shared byTDB (refer Attachment A).

8. Association/Borower Performae

8.1 The Association's involvement in this project (refer Tabes 8.A and B of'Statistical Informationw for details), aldtugh less staff-intensive than in its other South

-67 -

Pacific DFC operations, was consiste with the agreed procedures with ADD for suchcofinanced operations. lhe Goveanment's comnitmen to tie TDB Project's objectves wasclearly demontated by It actons with respect to the establismet of the NRB, whichsubsequently led to the evental achievement of the interest rate policy reform promotedunder the project. It might be argued, In hindsight, that greater atention should have beenfocused at the time of appraisal and even during supervision on the issues of TDB's finnlalviability and commercial sustainability, specifically, its authority to adjust Its lending ratesin line with the macro" deregulation of interest rates. However, it should be recogizedthat, once pogress was made on the macro front, a renewed emphasis was placed on TDB'slonger term viability and sustaabity, and these conern were reflected more extensivelyin the follow-up project.

9. Lessons Leared

9.1 There are several lessons that can be leared from the TDB Project.

(a) To deal with issues related to a financial sution's commercal viability andsustlailty it is important to have an apptopriate macro environment With theKingdom's legally mandated inerest rate ceiling of 10 percent firmly in place at the tme of

asal, the TDB Project's expectation of a speedy impl aon of macro int tepolicy reformnn hinsght, was overly optimistic. As such, coreonig expectations ofadopdon by TDB of an appropriate onlending interest rate structue foowingimpl on of the macro reform, diversification of its fimding resources to other thanquity capitl and concessionary loans, plus the emphasis on profitability as a major

intituional objective, proved premae;

(b) Single lending operaions with broad policy and institutional objectives would seemto be too ambitious. A series of operations probably would be more reaistic in order tohnge the macro enviroment and instional practices. Moreover, onoe an appropriate

macro finil famework is in place, it can be just as difficult to reorient previs thikingand pracdtes, and to make the neesary instiuonal changes required to operecompetitvely in the new environm Both the Borrower and the ADB/Association mustbe prepaed not only to agree on an agenda of necessary acto to cort previudeficinces, but to implement them accordingly. In this regard, the follow-up TDB projectsets forth such an agenda;

(c) Familiarity with and und ing of the implementng agency's operaig policiesand inral pceds are extemely critical to both project design and imp oLendin agencies must be wiling to devote adequate stffing resources in order to achinethis, thus facdlitg a productive dialogue witi the Borrower and maximizing prospect forsuccessfl implemenion of project objectives; and

(d) In a cofinanced operation, t is important to prooeed on a filly collaborative basisto emure contnuity and also consistency in project supervision. The follow-up TDB project[i.e., Ln. 990-TON(SP)/Cr. 2084-TONI was able tu draw successfully on experien - itwas Joiny appraised and, although not joily negotiated, all project procss procedums

a am financig of suprjet) ad c, a incorporaed In deresve ADB and IDA leSa doculs, ar tIe sam; the project has been jointlysupervised, ad all project-elaonte withe Bome/TDB are coniatedby ADB (who has lead spervislon rNsl _ ibit as outlied in the rspective Letter ofCredit Admii on).

-69 -

PROJECT COmETION REPRT

TONGA

TONGA DEVELOPMENT BANK PROJECT(CREDIT 1813-TON)

STATSCAL INFoRMAON

1. Related IMA CredIt

Credit 2084: Second Tonga Development Bank Project, apprved Inany 1990, is in activ status.

2. Project metable (IDA)

Dae Date Datitem paedrevised actua

Appraisal Missi (ADD) - - 01186Idtficaon - . 11186vPe o Updaig Msion - -A028

Exe. Projed Summary 0387Credt N egt n 04,Board Appoval - 06102/87Crodit Signature - - 07115187Credt Effectiveness 09/87 - 09/288Credit Closing & 1231/90 - 1213190Ptoject Compledon Is 12/31/89 - 12/31189

La IDA's mision for updting te ADB's Appraia Report& Credit account was dosed on Apri 8, 1991 with caellton of SDR 20,826.56.L& Final data for mision of sublo applications under Categor 1.

-70 -

3. MDA's Credlt Disbsm

CUMuLATIm EMAT AMD ACUAL DIURSEMEM (AMoUwr I US$'OOO)

FY88 FY89 FY90 FY91

Appraisa Estimate SO 1,200 1,900 2,0001AActual 311 1,464 2,033 2,078Actul as % of Estimate 52.2 122.0 101.6 103.9Dat of FaDIl:?ish_ April 8, 1991

1* DuDing project implemention, US$ equivalent of the SDR 1.6 million CreditIeased from US$2.0 million to US$2.11 million.

4. Poject npleon

Appraisal_diaton Estimate - Acha -

No. of subloms disbed None La 1411 3761*

Avrg subloan siz (UJS$'00) None la 15.3La 3.1h

1A For IIDA.& for ADB.

5. p.Ject FRmug

SoUrcD Pla Actu(S$'OO) s (US$'000) %

IDA 1,800LA 40.9 1,881 32.9ADD coflcing 1,001 22.7 1,164 20.4TDB 700 15.9 1,76414 30.9Subboffowas 900 20.5 9011i 15.8

la Excluding crdit of US$200,000 for thdcal ce.& Eudig t Ufbnln of US$195,000 for tecnic c.& Excudn expenditures for thald iaco .1A For subprojecs with a tol Investment cost of US$5,000 equivalet ad above.

-71 -

6. Project ReultsDiwr Bemus (IDA)

Appns Esthated a subprojecIndlator la Esimato appralsal tir Actua

NewJoba Sawed Nonw 128 116Total in_eime (USS'00) Nooo 2.904 luomphs &Addiional annal oln MUM0) Nowe 1,176 noompct&

la For subpsojee with an anmt coa US$5,000 equiNalet aN abow e.B Demzu mog subpmojeca financed under the Credt appea to hav been operaional for only a dbospeiod of thu. when TDB compild actul dea, stWt arn imed - lo see Tall 9.B ad 9.C.

7. Status of Covants (I)A)

Deadilnafo

Covamat Suje 3-

A_E

avmu Sl a br am e

4.01 (a) tA*osh d ke srdo amaain al ninot .

el,p^4~nddk Amocadoo" b nie

=MbW n impei nuia *bFll(as O . to TM

ezpsa*uue &or a ba e" owya Oa h

d ogod d_rb NW boa

S.0 bo2.06 (c) TDa do Su v o to toe AndiCowUe

Aasedhdoo m the udi ea wthbin ams yalyd

mads saw fmke and of ach qursr.

sodm2.0r (s) TDB D dsmi to tke Anaddel 1Emamowbqrewon am sIls prd of ADDI blad abov mioatW, land

mzks-alebtd, flme*l about imlat

b_m lk4k.

so_3miAs TDB Im I_mo n de deposits ado Isauia.q*by ud exo_t3:1, aW eb

-v tadomeate_wl3u t

tutu.S2. D?(a Iot o p dud1 mitwto the Daaolat3o,1931 Rojectl adauwa by

aWn applto . fdoe aprovam of uADD n I

mablam above _ eo4it, a 1 a absoo

Smo"M30 TDala A mi i g fctuM.onuald oaed debt-30 In e shmyl-am

teanule raioule D n3e, IM pi

-72-

8. Use IDA Resources

A. Staff inputsoIn staff week)

Stage of Pl_ d Revis iproet oyde HQ Fild HQ Field HQ Feld Total Comm_.

Touh App - - - 6.7 1.0 7.7

Appraisdl thugh Boad App - - - - 1.0 - 1.0

Bord Approa trugh

Sup sion - - - - 5.8 1.0 6.8

TOtaW - ILl B

B. Mission LaDays Pu_faace

Proe cycle Month/ No. of in Spelalaion Ming Type ofyear pONOInS fiedA -pse statu probem.

rUgh Appai 02/87 1 S Fncil Anyst - -

Appraisa 6thoug

Board -bpovl

supriso OC/= I S F;ai nlyst 2 |ud T9m ig _b06189 & - Pni Analyst 2 of po lcy n; needOs"90 FPam 590 2 t-o --- '- 1DB's03/91 - Final Anayst I na l peomban

Rating Status: 1 - Minor, 2 - Modeato.

fg ADB's minion an outlhnd on pao iii of tho PCR.& Joint miso wih ADD, manly to appai the Scond TDB PrjctIg Joint mision with ADD to speso the Second TDB Proc

73 -

9. IDA SUBPJECT (CIUf UNIN) DATA

9.A IM rMUNTAI DATA SuMAY

1. NumbIm ofM1

2. Slctoral d_iWkft of mmt

(a) Agricultre 11 30,059 1.6(b) Industry &k I I26 800,8S7 42.6(c) Sweas wu:l dIIng 104 1,049,910 55.8

and tows

Tal 141 *-M82I6 nu0

3. Ske oftsbj

(a) Up to $2,500 19 26,467 1.4(b) $2,50I to $5,000 78 277,824 14.8(c) $5,001 to $10,000 19 133,403 7.1(d) $10,001 to $20,000 14 195,140 10.4(s) $20,001 to $40,000 5 184,186 9.8(t) Over $40,000 6 1,063,720 56.5

i,8)~~~~~~~~~~L ill nu6 4. gMgwbi of SawnLh1m

(a) IaaauML LULMJ nu

S. h P4WE

(a) Now 70 609,826 32.4(b) Expansion 71 1,271,000 67.6

II 141 LMtU26 UQ 0

6. Bv Maulz

(a) Upto Iyewr 8 7,304 0.4(b) Over I oar to 2 yo 53 105,450 5.6(c) Over2yens to3y yew 53 217,820 11.7(d) Over3 yersto5y ays 14 721,041 38.3(a) Over S yeas to 10 yeats 13 827,141 44.0

raw Mi 1W26 100

7. Me= Abv Free Limit 1USS40069f LML63Z

o3338U3221e i31sies..t§*- etti3S;eti0|tt l Ele

_ ;f_s t_e3!88|w$E_E :; 32;8t23g eEWo

iiiiiivSSIiiiiiiiiiijiiiiiiiiiiiiiijiiiiiiit:SS torir[IirFIII[IIFFFJ[rIfifERSTg5§§g 'II

4~~4.444~ ..S.g gg |W444

IE W-W09*^^^^ r * s ***s x s "e y§g;.. .3 3

i."e *WMMV00 t. MM MM 4-*b* 00 #000W MV .d aW ow0; OM V | 0V V

t_ t 05I iii E~~~ ~~ . "WW.*..*ii"*.-e*""X§w;

MV OWWOV VVVWWW#V4hWWEPbW 0 0^0 0* ** W z

ViE

IV ~ ~ ~~~~~~~- ... - t

9. IDA SUBPROJECr (CREDIT LINE DATA

9.C F%maclal and Economic Pefraneo Subprojects Above US$5,000

US. 8ab3.rs?~~~. JWN

330 lnl MAi on" 1,720.8 1*.77. 1,913.9 1,820. 33M. 149.7 387.3 188. 12.0 10.0 10.2 U.S. 3 3 180.0S44 = 66 Inine. 73. ".0 79. Ws.* 1.0. .3. 20.0 -33.4 MA. .41.4 23.1 .47.1 1 1 3,0.0SIS MJ~~~38. U.S. 422.2 U.S. MA0 B.*. U2.5 n.e. 13.0 a.*. 1U.3 U.S. 4 4 68.0348 fr.ismy t.1. Ust*l 714.4 a.e. 014.7 201.0 I4SM 1824 228.1 39.0 32.0 10.0 23.0 a.a. S 3 32.3SA7 8th. boUt. Vama. *68.0 813.2 1,004.0 862.9 M*.3 30. 2 1320 97.3 110 180 12.0 22.0 40 33 5.43so Nffott Would B"e. 481.7 37.4 441.7 43145 47.3 39.? 10.1 14.1 3.0 i.a. 10.0 10 8 14.0352 Yete 388.0 0.4n. 780.0 138.0 23.4 im.*. 41.0 20.6 3$.3 n.e. 44.3 13.0 12 10 13.3481 tAlw 60.2 ae. "0.3 U.S. 234 a... 23.0 a.*. 39.7 .a.. 39. I I 59.6470 l.nht"anf 149.4 n.&. 133.4 U.e. 33.4 U.S. 32.7 R.e. 31.0 U.S. 21.3 a..1. 7 4 8.4#31 Nalfas, 17. 14.3 17.2 24.4 $.S 3d1 9.2 13.3 44.2 28.0 33.4 38.0 2 2 18.6482 ?.aUIa 34.2 a... 33.8 U.S. 1.3 3.8 4.2 a.a. U2.3 a... 11.7 n.e. 3 3 7.472 Vq 20.0 U.S. 21.0 a... 4.0 a... 4.3 U.S. 31.3 a... 30.0 a.'. 1 1 17.4380 pacniP 22.0 a... 22.0 a... 5.4 a.6. 3.8 a... 26.4 a... 24. n.e. I 1 17.2430 Paet.1.2 a... 19.2 a... 4.2 a.e. 4.3 U.S. 32.8 a... 3U. D.*. I 1 17.048* ?.n. 0.0 33.8 50.0 Sa.. 13.0 a... 13.1 U... 24.2 a... 24.2 a... a I 16.3449 Maek.2.0 U.S. 20.0 n.e. 4.0 a... 3.3 a.'. 23.0 a... 27.3 a.*. 1 1 14.7458 pae.t 24.8 U.S. 24.0 a... 9. a... 10.0 a..t. 34.3 a... 40.3 a.*. a 2 3.8390 9.2., 42.0 a.S. 43.0 a... 8.3 a.&. 8.3 U.S. 20.2 a.*. 18.9 U.S. 3 3 3.7388 L..3ln 23.0 U.S. 28.0 a... 4.? a... 7.0 a.". 24.1 a... 23.0 a.&. I 1 10.3473 Sabo. 26.0 a... 24.0 n.. 4. a... 4.3 a... 14.6 a... 17.1 D.&. 3 3 3.0476 *Afoy 9.6 a... 9.4 a..U.. 1.3 a.. . 1.5 a.. 1.4 a.&. 13.4 a... I I 9.0"93 Mleoll 3.8 U... 3.8 a... 1.? a.S. 1.7 U.S. 29. n.e. 21.1 a... I I 9.0493 Koanefifi 9.0 a... 9.0 a... 2.1 a.&. 2.2 a.'. 23.3 U.S. 24. a... 1 1 7.8s0o Mesas. 10.0 U.S. 10.0 ak... 2.8 a... 2.8 at... 28.3 n.&. 28.3 a.&. 1 1 7.4494 L.tam 31.1 U.S. 31.1 U.S. 8.8 1a.. 8.7 a... 39.2 a... 28.2 n.&. 3 3 2.1487 Natalula 10.3 nl.a. 10.3 U.S. 3,9 S.*. 2.3 n.e. 34.7 U... 23.8 n.&. I I 6.6"S3 ?.latstuw 12. U.S. 12.0 U.&. 1.4 a.&. 1.A a.e. 12.2 .a.. 11.2 n.S. I I 4.6494 PaI*M 8.4 a... 8.4 U.S. 1.? a.'. 2.3 a... 19. n.*. 27.3 a.e. I 1 4.430so* upa 10.3 n.S. 10.3 .. 4.2 a... 4.4 U.S. 40.1 a... 43.8 a.&. I 1 4.4491 Pagp~ on453 Llbe 10.9 a... 10.9 a.. 3.1 a... 3.1 n.e. 29.7 .a.. 28.8 n.e. 1 1 4.2434 lteal. 8.9 U.S. 8.9 a... 2.3 a... 2.2 a.*. 24.3 a... 24.7 n.S. 1 I 4.1437 OtatSbAy 10.4 a.S. 10.4 U.S. 1.9 ni.e. 1.8 U.S. 18.0 U.S. 18.0 U.e. I 1 4.2441 MOSSe 30? in484 famma. Mt? -N480 *MUMs 12.0 U.S. 12.0 n.e. 2.4 a.e. 2.9 U.e. 20.2 U.S. 24.5 n.e. I 1 4.2442 Ofeb 9.3 a... 9.0 U.e. 1.7 Ma.. 2.2 n.e. 18.1 a.*. 24.5 a... I I 4.2474 Wade.o 8.7 U... 8.7 S.*. 2.1 la.e. 2.3 U.S. 30.3 U.S. 28.4 a.*. I 1 6.247t Vehaba. 10.4 a... 11.4 n.e. 2.1 D.e. 3.8 u.e. 20.4 n.e. 33. U.S. I 1 4.0448 Anebe 9.3 a.. .3 n.e. 2.1 *.e. 2.2 n.e. 22. 21.0 23.1 n.e. I I 4.0498 Letus. 0.8 n.e. 9.8 n.S. 2.4 n.e. 2.4 a... 24.3 n.e. 23.3 U.S. I I ,.e454 LeatutM tnn444 KtnAVn 8.4 n.&. 8.4 n.. 2.1 n.e. 2.0 n.e. 23.0 n.e. 23.8 n.e. I 1 5.2439 ?OaDel 8.2 n.e. 8.2 a... 2.1 11a.. 2.0 U.S. 23.7 n.e. 24.4 n.e. 1 1 3.2499 Los'eeN.ia. 9. n.S. 9. a... 2.4 a... 2.3 n.S. 24.3 n.ek. 24.3 a... 1 I 3.2490 I.ehiaha 8.3 n.S. 8.7 a... 2.2 a... 2.3 U.S. 23.9 n.e. 26.4 na.. 1 I 3.1ltw S.7374.4 a "b 443 ita 9444 ua 1,174.4 UMak s. - a ____9 24.4

-76 -

9. IDA SUMPROJECr (CREDff LN DATA

9.D AIRAS OF SUDmOICIS ADM Us$5ss,m EQUIVhM(As of May 31,1991)

t 1AmUt LoseSublos Ou__ Ot- the Owr

go. Subborwoer -DA ID5 Total standing 6 o. 12 soe. 12 wa. Total

lt'l Dateline lotol. 480.0 520.0 1,000.0 763,723Royco hAlg. induct. 267.5 379.1 466.6 735,582 2,000 2,000Raaot 32.7 332.4 345.1 495,512 159.174 159,176friendly Islnd motel 205.6 144.4 350.0 816,213 112,600 112,600South Pacific Manuf. 266.8 33.2 300.0 264,026Pacific Island De. 56.1 127.9 164.0 392.*62Voes. 119.5 60.5 160.0 309,401 6,040 6,640Lulv 39.8 - 39.8 16,604 2,340 2,340Taufateauf 40.0 - 40.0 25,277 6,400 6,400.s'afue 30.0 10.0 40.0 9,219 4,000 4.000

T$uulop 16.1 - 16.1 13,504 600 600Vap 16.4 - 18.4 5,876 1,200 1,200Pasonl*v 1.0 3.0 13.0 74 74 74Palanitee 12.7 - 12.7 4,637 4,465 4.485Tupounai. 16.0 - 16.0 38,129 29,000 29,000Kateakls 11.6 11.6 5,904Pseat 11.5 - 11.5 17,567Uatav 5.6 9.*4 15.0 6,912Loseltv 10.0 - 10.0 2,096 1,770 1,770MaiUe 6.1 - 6.1 4,353A1of4 7.5 . 7.5 2,443 1,500 1.500Watin'ol 6.0 . 6.0 955:tavJsflafts 4.9 - 4.9 1,226Msan.. 3.9 s e.t 2,95t' 70 570Latu 6.5 - 6.5 94 -Kotulalos 5.9 - 5.9Toolutauv 6.2 - *.2PaUN 4.9 - 4.9 3,202 130 130T'Xitupouk 5.0 - 5.0 2, 50Tonsap 4.5 - 4.5Lolohoaf 5.8 5.6Tu'±vaa S.6 - 5.8Otutahar 5.7 - 5.7 5,086 5,086 5,086hteom 5.7 - 5.7 1,324 325 325Pam"a" 5.7 * 5.7K"uikus 5.7 - 5.7 141 141 141Ofab 6.1 - 6.1 *5 120 120oala" 6.2 - 6.2 1,776

Fehakoc 5.0 - 5.0 3,205 1,3s0 1,360hAsnakio 6.0 - 6.0Latus 4.8 - 4.6 1,141Latut 5.4 - 5.4Lutuav 4.9 - 4.9To5aga 3.9 - 3.9 650 650Le.aeuga1us 4.9 - 4.9 2,943Lkislakas 4.8 - 4.6 1,966

1.823.9 S93.4 3L962m017 L4tL0 . 30A.062 342.f87

,7- Attacbmnt A

ASLAN DEVELOPBVI BANKSouth Pacific Regional Office

Port Vila, Vanauu

To Thl World Bank, USA Fax No. : (1) 202 477 W139Attn :Mr. PeterR. Scheret, Pages : I

Chief, IEOD, Counry Dept. III (inc. this sheetFromt L.A. Hayashi, Ref No. FOT0037/93/MRDrmnn

Director, SPRO. Date : 14 January 1993

Thank you for your fax message of January 6 and the attached copies of yourProject Compleidon Repors for Credit 1813-TON and Loan 2598-FiU.

We have reviewed the two documents and find them to be in accordance withour views and analysis and therecr have no significant comments to offcr. One

minor comment we would make *efers to para 2.2 of the TDB document wherein an Reflected in"actual negalive spread' on TDB'i overall lending operations is refered to. in fact footnote i ofthe "Ezvaiuatio,TDB has always achieved a positive interest spread on its tending operations.

We offer somewhat belated best wishes for 1993 and look forward to vorkingwith you again durinn the year.

Best wishes.

Yourn sincetely,

C(.

L.A. Hayashi,Dirctor, SPRO.

PHONE: (678) 23300 MTEX: (771) 8 AW NH FX (8) 218

28 Jwaory 1993

Mr Petr R. Scherer,C^f.IMausny and Ergy Opera.. ar Divislor.Couwny Depanm1n It - East Asia & Pac#Te Region,WORID A4IK,Waa* xton DC 20493.VISA.

(Fax # 202 477-13131

Dear Sir,

Fwther to your leter dawed 6 Janumary with the aaached report on the above-mentionedbstject, I a submiting herewith 7DB comments. Miniss,y of Finance wiU be preparing

sepately tleir comments as considered necessar.

On behalf of IDE mana8ement I want to thank you so much f,r the eforts being taken tocovmekte h Project Complerion Report. 7DB truly appreckuss the repon wh in general,truy rflects dse macro environent in which TDB operated duing the dme of appraisal aswell as IDB's overall performance.

1) Regardfing die interest rate developments subsequent to project compktion, 7DBfhe revieW au Interest rate strxcture In August 1992 (See Annex 1) to take account of adownward siW In literest rates generaly. Rate reducins were offered ' borrowers on aUsectors and the opponunity was taken to restrncture the interest rate schedule in sewrnalrespects.

2) JDB acknowedges the Associdon 's concenm with 7DB's onk"ng berst raesmature wth respect to mico-lending operadons. TAis is panicularly wu, regard torecovering ft cost of delivernng, administering and monitoring of such lan.

HoweVer. s a catalst of development especiall with the grass rot level who compose themjorfiy of those clients involved in micro-lending, it Is considered Inappropriate for 7DB

.19- Attachment BPage 2 of 4

to charge rwes that would permit cost recovery. Current Indicators are that a .signt#cantpercentage of WD's micro accounts are in arrears. To increase lending rates on themsacounts would only deteriorate the current slsawon. At the time of the last review it wasfek that die thim was not appropriate to seek compensaion for the cost of these loans.

TDB [&ao &dt1A& aWU Amars'

1) 7DB acowledges the deterioration it. te arrears position and Is seeking was ofaddessing s arrears problems. Thse include overhaulng ofloan appralsal medsw, earlierand morefreqen contact with clients where probles are indicaed. adoption qf Innovie incorporateucSs wng/"workotow ofprobkm loans to rehabliUtat probIem projeCts, strengtenlng Of in par, ,

de Bank's docwneradon and securiry procedures and adpting of legal action where of thencnary to prmote recovery. It must also be noted ta part of th problem associated with Evaluationaccouns in arfears stem from the retarded growth experienced by the bank's traditional Summry markets.

Ddvenfiiiokn of ThB'S fundi resource Other-than egaui

I) WVB ha recognised thefact that it can not indefinitely continue to depend on equirycgpkal and soft loans from credit lines. Furthennore, evaluation of the bank's perfonmncestronly ndates that there are not many bright prospects on the Bank's traditional mar*eis. referencecAs such, TDB's Board recently adopted proposals to expand actiies to take up selected in para.cowmmrci ban knding, fiinds managemenr and domesticfind rising. Ths Is expected ro of thegenerate revenue which will enable 7DB to strengthen ls developmental rok in dwe economy Evalvatiorwd proide addional competition In the banking sector. a Aa

71e probility of sccess is conaddered higher than any new foreign owned bank because:

- 7DB is totall localfy owned and already has a well developedbranch)represenative offices in aU island groups;

- Is closely auwd to local conditions; and- is currently staffed by experienced professionals.

Fainlliadsw &At and gandenzaaR~dnr gf the i"Mlmendiit agency's

BMfli sapports dte report's comments about the needfor the Lending Insdtutiona to bemore fajmliar and understand the implementing agency's polies and Iernal procedures.

Thi will enu reallsic appraising of loans as well as successfl implementation ofppmjects.

Full ofilabonu*an AL co-finackers ia co-fiAncd loans:

TDBJftty suppors these commenus.

Table 4Corn cdgn Table I Pageau Xcorrected

Number of loans disbured should be 141 not 114.

2

s so - Attachment BPage 3 of 4

corned. km. 7.1:.

FlJwaclal Inxdtudoal Ac~ ~ ~ ~ ,~ I~ ~reflectedFEntawla lmhdonl Act wat p4asd and becww law In April 1992. in vara.7.1

Llew MorrisAcdn M8fe8 Dirmctor

3

- 81. fAttacbment a

PaTe 4 of 4

-NEW RATI'ES

OLD PRXNE STANDARD PENALTYaR= CUSTME CtER RAT

, Too PxT oitv Sector

1.1 Small scale (<'$1000)subsistence farming,agriculture, fishing 10.0 8.5 9.5 -10.5

1.2 Comaercial ($1000)agriculture, farming,fisbing 11.5 9.5 l0.5 11.5

1.3 Export-orientedindustries * 12.0 10.0 11.0 12.0

1.4 Tourism-relatedindustries 12.0 10.0 11.0 12.0

1.5 Raw materials processing,agro-industrialindustries 12.0 10.5 11.5 12.5

2._ High Zriotily Seotlor

2.1 Other manufacturing 12.0 10.5 11.5 12.5

2.2 All loans for farmvehicles and equipmentand land acquisition 13.0 11.5 12.5 13.5

3.- Lowx Piorit;6 -r

3.1 All other commercialprojects, trade stores,s*rvoicos, buses, taxis 13.0 11.i 12.5 13.5

( 3.2 Majority or fully 1 .. . 13.5

/ foreign-owned proje cts 13.0 1., 12.5 13.5

* A 0.5% reduction is available if TDB Is grantedcontrol of export proceeds.

7 S.pt~u 199w TPUII.doc

82 -

1w. ASIAN DEVELOPMENT BANK

26 September 1990

Mr. P. R. SchererChief, AS5IEThe World Bank1818 H. Street, N. WWashington D. C. 20433U.S.A.

Dear Mr. Scherer,

As requested, please find enclosed Project Completion Report of Loan782-TON(SF): Third Tonga Development Bank Project.

With Idnd regards.

Very madyy

FRASERCJffcer-JbSCargeProgams Department (East)Division 3

Enclosure

/rgt

T.l.m 44AeaJ-wU .1.a)m.3este.set(w;io.uJ) F*Pbs.4 .Jo3.2) 7434011Tel..: a333ADD JL4013ADf PM.4.W ADI PN

- 83 -

R ESTRICTEDPCR: TON 18158

ASIAN DEVELOPMENT BANK | ,,. I , o _Zrw

PROJECT COMPLETION REPORT

OF THE

THRD TONGA DEVELOPMENT BANK PROJECT

(PsW B of the Third MulUproJect and Tonga D.Iopmuit Bank Project)(Loan No. 782-TON(SF))

IN

TONGA

Octobw 1969

CURRENCY EQUIVALES

Currenccy Unit - Pa'anga (TS)

As of 30 Januarv 1986 As of 30 June 1989

T$1.00 $ S0.7194 TSl.00 a S0.7636$1.00 = TS1.390 $1.00 a TS1.30958

(i) The Pa'anga i8 tied to the value of the Australian dollar.(ii). In this report, an exchange rate of TS1.30 a $1.00 is used.

This was the rate prevailing at the time of the Mission'sVisit.

AREVII

ASAS - Australian Staffing Assistance SchemeBOT - Bank of TongaCFTC - Commonwealth Fund for Technical CooperationDFI - Development Finance InstitutionEEC - European Economic CommunityEIB - European Investment BankIDA - International Development AociationIFAD - International Fund for Agricultural DevelopmentNRB - National Reserve BankSPRO - South Pacific Regional OfficeTDB - Tonga Development Bank

I.O0TES

(i) The fiscal year (FY) of the Government of Tonga ends on30 June while that of TDB ends on 31 December.

(it) Throughout this Report, WS refers to US dollars.

BOARDD F. ASIAN DEVELOPMENT BANK

DIRECTORS

IN.271-8931 October 1989

PROECT COMPLETION REfLT

The following Project Completion Report is attached

for ingormation:

Third Tonga Development Bank Project(Part B of the Third Multiproject and

Tonqa Development Bank Project) (Tonga)(Loan No. 782-TON(SF))

-87-

*PV:TON 048

JiuiT COMPLETION REPORT

.O THE

TuIRD TONGA DCVUOEPNT BANK PlWECT(Part S of the Third Nultiproject and Tonga Development Dank Project)

(Loan No. 782-TOI(SFl))

IN

TONGA

October 1989

Note: This Report was prepared by a Bank Mission that visited Tongs from19-30 June 1989. The Mission consisted of Michael Davey(Financial Analyst/Mission Leader) and J. Z. Mjii. (SeniorAssistant).

-88 -

ASIC DATA SHEET

A. Loa dentiffcation

1. Country Kingdom of Tonga2. Loan Number 782 TON(SF)3. Loan Title TDB III Project 1/4. Borrower Kingdom of Tongs5. Name of DPI Tonga Development Bank6. Amount of Loan SDR 0.879 milion

(01.0 millionequivalent)

B. Loan Data

1. Appraisal- Date Started 13 January, 1986- Date Completed 29 January 1986

2. Loan Negotiations- Date Started 8 April 1986- Date Completed 11 April 1986

3. Date of Board Approval 19 June 1986

4. Date of Loan Agreement 10 July 1986

5. Date of Loan Effectiveness- In Loan Agreement 8 October 1986- Actual 2 October 1986- Number of Extensions None

6. Terminal Date for Commitments- In Loan Agreement 2 October 1989- Actual 25 July 1988- Number of Extensions None

7. Closing Date for Disbursements- In Loan Agreement 2 October 1990- Actual 8 June 1989- Number of Extensions None

8. Termw to the Borrower- Interest Rate 1.0 per cent service charge- Maturity 40 years- Grace Period 10 years- Repayment Terms 40 years including 10

years graoe period (fIxed-typemortiaion)

1/ Represents the third credit line to TDB which forms Part B of the ThirdMultiproject and Tonga Development Bank Project.

-89

9. Terms of Relnding- Iterest rate 3.0 per cent per annum- Maturity Is year- Grace Period 6 yews- Free Liit '$40,000 equivaent- Repayment Terms 15 eaos including 6 year

1tac period (ftied-typeamristo)

10. Interest Rote for Subloan- As per Project Agrement (1) Top priority sectors

(agriculture, fisheries,lvestock natwural resoc) -6 pewr cent

(ti) Hih prioity setors (export-oriented industries,

manuactuing raw materiaand tourism) - 8

per cent

(i1) AJU other industril andcommercial lomn - 10 per cent

- As applied bY TDR (M) Top priorty setors - 8 per

(I) 1igh priority sectors - 8 percent

(ii) All othor development lans -10 per cent

11 DIsbursemnts

- Amouat Disbursed sBl 0.879 milion(*1,164.051.45 equivalent)

- Amount Cancelled no"

1 Number ot Sublok Made 376

2. Sectoral Distribution of Subloen

*, (*'{$000)'X

a) Agriculure 253 334.9 2s 50ob) Industry and u arg 10 108U5 9.3 30.0c) Services including transportation

and tourim 11 .J2A .A1 Total m 1AMU I=a I=Q

.90-

3. 8se of Sublorms(*'000)

BL2. Amonnt a

a) Below $2,600 277 173.8 14.9b) Over $2,500 up to 5,000 43 161.1 13.8c) Over 5,000 up to 10,000 40 270.2 23.2d) Over 10,000 up to 20,000 8 116.1 10.0e) Over 20,000 up to 40,000 5 145.6 12.5f) Over 40,000 A297.2 2

Total a1.1640 m24. Other Breakdown of Subloam

- Br Geoiftravhica iegs1n

a) Tongatapu 345 1,129.7 97.0b) E'ua 6 2.3 02c) Ha'apai 19 4.7 0.4d) Niuhs 3 7.7 0.7e) Vavu .41

Total M L1U.ft

- B3 PurIoDe

a) Now 30 107.9 9.3b) Expansion L

- aIr BIurI&Z

a) Up to I yr 14 2.0 0.2b) Over 1 yer to 2 yeas 282 300.1 2.8) Ove 2 year to 3 yew 55 2526 217

d) Ovr 3 yeato 5 years 18 257. 22.1o) Over 5 years to 10 yeas 1 32LI

Total M Ll0

L Subloans Above Free Limit

- Number 3Aggregat Amount $2,07

D. Data St flank sn

55,1e 1asSes 22 _sp-2 Ost Is 1 10 ?iil Aay"nt- (In T 1las) 23 Isp.I Got IOU 2 2 Sr. D"* Seek

- 4_3 (US0 I) 33511S" & Lest(US 211) 41b0 imJ 13 2 2t ilss"l &Msys

-91 -

I. BAClGKROUND

A. Briet HistorZ

1. The Tonga Development Bank (TDB) was established under the TongaDevelopmer;t Bank Act of 1977, with the assistance of the Bank 1/ and atartidoperations on 1 September 1977. TDB is owned by the Government (94 per cent)and the Bank of Tonga (BOT), a commercial bank (6 per cent). As of 31December 1988, TDB's authorized capital was T$7.0 million, of which TS5.52 millionhad been issued and fully paid-up. The Government and TDB have a closeworking relationship and TDB generally conforms to the economic priorities setby the Government through the national development planning programs. Underthe Act, the Government appoints TDB's Managing Director, directorsrepresenting the Ministries concerned in TDB's operations Z/ as well as two ofthe eight directors and the Chairman of the Board, usually the Minister ofFinance. Within this framework, TDB enjoys a reasonable degree of autonomyin its day-to-day activities, including freedom to approve financial assistanceto individual projects/borrowers.

S. Sco=e of ODeRaZt_ns

2. As set out in the TDB Act and TDB's Statement of Operating Policies(Appendix 1), TDB's scope of operations covers all sectors of the economy(except trade) and almost all types of financial or advisory ascistance (loans,guarantees, equity participation, and technical, managerial and financialconsulttng services) including identification, formulation and promotion of newbusiness opportunities.

3. TDB's main operational activity however remains the provision ofmedium and long term loans to productive enterprises in the agricultural,industrial and commercial sectors.

C. RelationshiD with the Bank and other Lenders

4. Since TDB's establishment in 1977, the Bank has provided TDB threeloans totalling $3.5 million V and four technical assistance grants totalling$623,000. The technical assistance has been for the establishment of TDB, TDB'sinitial operation and staff training, upgrading TDB's expertise for the economicevaluation of subprojects, for computerization of TDB's accounting system andfor review of TDB's personnel management policies and procedures.

1/ TA No. 174 for $240,000 approved in July 1976.2/ Ministry of Finance, Ministry of Agriculture, Fisheries and Forestry and

Ministry of Labor, Commerce and Industries.V Loan No. 376-TON(SF) for $1.5 million approved in December 1978; 624-

TON(SF) for SDR 0.918 million ($1.0 million equivalent) approved in March1983; and 782-TON(SF) for SDR 0.879 million ($1.0 million equivalent)approved in June 1986.

.92 -

5. In addition to Bank assistance, TDB has obtained through theGovernment loans from International Fund for Agricultural Developnent (IFAD)and from the International Development Association (IDA), which co-financed theBank's second and third loan, respectively, to TDB. TDB has also obtained loansfrom the European Economic Community (EEC), the European Investment Bank(EIB), the Governments of Australia and United Kingdom and BOT.

D. Bationale for the Bank Loan

6. The Bank's third loan to TDB of $1.0 million equivalent was intendedto augment TDB's foreign exchange resources for the purposs of extending loansfor specific development projects in the agricultural, industrial and servicessectors, thus supporting the Government's development objectives whichemphasized the high priority to be given to productive investment within thesesectors.

7. An indicative sectoral utilization of ' the loan proceeds was:agriculture (50 per cent), industry (30 per cent) and services includingtransportation and tourism (20 per cent).

8. To ensure that the objectives of the Bank loan were achieved and topromote TDB's ongoing institutional development, specific covenants wereIncluded in the loan documents. These covenants required TDB to amend itsinterest rate structure to reflect changes in the Government's interest ratepolicies; to implement agreed recommendations from the review of TDB'spersonnel management policies to be financed under Bank technical assistance;to adopt an operating strategy formulating a more specific profit objective for1987-1990; and to meet and maintain minimum annual collection ratios andmaximum hard-core arrears ratios.

-93 -

II. IMPLEMENTATION

A. Lendint and Interest Rate "PoLiies

9. The basic document guidingt TDB's lending policies and operations isits Statement of Operating Policies (see Appendix 1) which has remainedunchanged and continues to provide satisfactory guidance to TDB.

At the time of appraisal in January 1986, TDB's interest rates forlending were: 6 per cent for top priority sectors (i.e. agriculture, fisheries,livestock, natural resources); 8 per cent for high priority sectors (Le. export-oriented industries, manufacturing, raw materials processing and tourism); and10 per cent for other industrial and commercial loans. In '4arch 1986, TDB, inconsultation with the Bank, increased its Interest rate for top priority sectorlending to 8 per cent and also introduced a front-end fee on all new loans. Themajor impediment to TDB charging a more market-oriented interest rate has beenthe Contracts Act of 1921, which contains a provision limiting all interest ratesin Tonga to a maximum of 10 per cent. To assist the Government In developinga more appropriate interest rate policy, technical assistance was provided as acomponent of Part A of Loan No. 782 (the Multiproject Component) for a reviewof interest rate policies. The Consultant employed under this technicalassistance recommended that the interest rate ceiling be removed and that suchaction should be combined with a more active exchange rate policy.l/

11. During 1986-19388, the Bank continued to dialogue with the Governmenton the need to establish a market-oriented interest rate structure. Due to theneed to link action on interest-rate reform with exchange-rate reform, theGovernment has preferred to postpone such reforms until the appropriatetechnical capabilities were in place. In February 1989, the Governmentestablished the National Reserve Bank (NM) which commenced operations from1 July 1989 with appropriate expertise provided under International MonetaryFund technical assistance. Under the NRB Act, the existing 10 per cent ceilingon interest rates was repealed as of 1 July 1989. The Government announcedthat as of that date, it proposed to encourage the emergence of a fully market-determined interest rate structure. As an interim move in that direction,Interest rates up to a maximum of 13.5 per cent could be charged. TDB hassubsequently adopted an interest rate structure fully reflective of theGovernment's new policy.

B. Characteristics of Subloans

12. The third Bank loan to TDB was utild to finance a total of 376subloans. Of these, three subloans for $0.297 million were above-the-free limitof $40,000 while the remaining subloans, for $0.867 million, were below-the-freelimit. The main characteristics of subloans financed under the loan and thepattern of their distribution by sector, size, geographic location, purpose andmaturity are shown in the Basic Data Sheet.

.X/ At the time of appraisal, the value of the Pa'anga was maintained at paritywith the Australian dollar.

-94 -

13. As indicated in Table 1 below, the actual sectoral allocation variedfrom the indicative allocation envisaged at the time of appraisal.

Table 1: Indicative and Actua Sectoral D2istribution

{Per cent)Sector Indicative Actual

Agriculture 50.0 28.8Industry and manufacturing 30.0 9.3Services including trans- 20.0 61.9portation and tourism

Total 100I0 100.Q

14. The relatively large proportion of subloans to the service sector wasdue to the financing of relatively larger projects in transportation, tourismincluding hotels and restaurants, and retail trading. The sectoral distributionof subloans made from the Bank loan, however, is not reflective.of TDB'sdistribution of overall approvals during FY1986 to FY1988, which weredistributed as follows: agriculture, 46 per cent; manufacturing, 13 per cent; andcervices, 41 per cent. While agriculture continues to dominate TDB's lendingoperations, the manufacturing sector continuous to be constrained by the limitedavailability of domestice raw materials, and a shortage of local entrepreneurs andtechnicians.

15. Of the 376 subloans financed, 277 subloans (74 per cent) were in thesmallest size range (below T$2,000), totalling only $0.174 miUlion or 15 per centof the Loan amount. In contrast, three larger subloans, two of which were fortourism subprojects and or.e of which was for manufacturing subproject,accounted for $0.297 million or 26 per cent of the Loan amount. The averagesize of subloans was $3,096, almost twice the average subloan sizes of $1,458 and$1,708 under the first and second Bank loans, respectively.

16. By location, about 97 per cent of the loan amount was allocated toprojects on Tongatapu and only 3 per cent to the outer islands. The relativelyhigh allocation of projects to Tongatapu, while reflecting the concentration oftbusiness activities on that island, also indicate the difficulties encountered byTDB in terms of high costs and poor communications in servicing outer islands.TDB has been making appropriate efforts to increase its lending to the outerislands and has a branch office fn Vava'u island and representative office eachin Ha'apai, 'Eua and Niuas.

17. The proceeds of the Loan were utilized mainly for expanding exidtingbusinesses. Only 30 of the 376 subloans financed new projects with the balance(91 per cent of Loan proceeds) financing expansions. The maturity of subloansranged from 9 months to 10 years, with most of the subloans (26 per cent byvalue) having maturities of less than two years. There was a preponderance ofsmall agricultural loans, the majority of which had maturities of up to threeyears.

-95 -

C. ImDlementation of Sub-raoiects

1. Implemektation Status

18. In view of the difficulty in obtaining data for such a large numberof small subloans, the Mission focussed its attention on evaluating the availabledata on 56 subprojects involving subloans of more than $5,000 each, totalling$0.829 million or about 71 per cent of the loan amount. Appendix 2 providesdetails of the implementation status of these subloans. The actual aggregatecost of these subprojects was T$3.173 million (*2.311 million), almost the same asthe estimates made by TDB at the time of appraisal. TDB financed 60 per centof the total project coat (of which 36 per cent was met by the Bank loan and 24per cent from TDB's local currency - esources). Financing from other sources(mainly the IDA credit) contributed about 15 per cent while the sponsors' shareaccounted for about 25 per cent. Of the 56 subprojects, cost overruns totallingT$5,000 were incurred by seven subprojects. Cost savings were achieved by27 subprojects, mainly through non-utilization of the budgets for contingencies.Twenty-two subprojects were implemented in accordance with cost estimates.

19. Most subprojects involved the purchase of "off-the-shelf" plant andequipment and, accordingly, most subprojects were implemented in a timelymanner.

20. Procurement procedures applied by TDB were in accordance with theBank's guidelines and practices for South Pacific countries. Most of theprocurement was made on an 'off-the-shelf" basis. For larger commercial andindustrial subloans, reasonable competition was adopted. Considering the sizeand nature of the subprojects, the procurement procedures applied wereappropriate. Details of procurement by country of origin are given in Appendix3. New Zealand accounted for $0.667 milion (58 per cent) folowed by Japan for$0.424 million (36 per cent) and Australia for $0.072 million (6 per cent).

D. Initial OQeration of Subprojects

1. Operational. Financial and Economic Performance of Subn rolects

21. Data concerning the operational, financal and economic performanceof the subprojects exceeding $5,000 each are provided in Appendix 4. Thefinancial performance data available from TDB covered 53 subprojects for thefirst year of their operation. Of these, three subprojects incurred losses, 37operated less profitably than anticipated, and 13 earned higher profits thanestimated. Similarly, data on 49 subprojects were available for second yearoperations. Of these, 11 operated at a loss, 24 operated less profitably thananticipated, and 14 subprojects earned profits higher than expected.

22. During the first year of operations, four subprojects made returnsof more than 20 per cent on average equity, 28 earned between 10 per cent and20 per cent, and 18 subprojects earned less than 10 per cent. Similarly, duringthe second year of operations, 10 subprojects earned more than 20 per cent onaverage equity, 22 earned between 10 per cent and 20 per cent, and 6subprojects earned less than 10 per cent. This shortfall in the financial

96

performance of some subiprojects was mainly caused by inadequate supply ofraw materials and spare parts, especially for those subprojects located in theouter islands.

23. The socio-economic impact of subprojects, measured by foreignexchange earnings/savings, incremental employment and investment cost per jobwas considered satisfactory. Annual foreign exchange earnings or savingsattributed to the 13 subprojects which reported such data totalled T$0.285million in their first year of operation. The 54 subprojects for which data areavailable generated 176 additional Jobs, at an average investment cost per jobof T$11,070.

24. In addition, certain non-quantifiable socioeconomic benefits havebeen generated by the subprojects. First, the Bank-financed agriculturalsubloans have helped Increase food production with a resultant increase inemployment and farmers' income; second, the assistance to transport serviceshas contributed towards faster delivery of farm produce to market; and third,the Bank loan helped mobilized local funds for development purposes. EachTongan pa'anga equivalent provided under the Bank Loan was supplemented bylocal investment funds of T$1.37.

2. Current Status of SubDrojects

25. Of the 56 subprojects of more than $5,000 each, 11 subloans werefully repaid as of 31 May 1989, while 45, totalling T$1.322 million ($1.017 million)were outstanding (see Appendix 5). Of the outstanding subloans, repaymentsof 24 subloans were on schedule, 20 were in arrears of up to six months and onewas overdue for more than six months. Total arrears were T$68,927 ($53,020) or5.2 per cent of total amount outstanding. The quality of the subloan portfoliofinanced under the BiLnk loan compares favorably to TDB's general loanportfolio.

E. Operational Performance of TDB

1. Organization. Management and Staffing

26. TDB's major policy-making and governing body Is Its Board ofDirectors. The Board consists of eight members, of whom seven are appointedby the Government (including the Managing Director), and one by BOT. TheBoard meets at least monthly to set policies and to consider loan applications ofT$40,000 or more. TDB's organizational structure (see Appendix 6) is consideredappropriate for smooth and effective operations. The Bank technical assistance(No. 777-TON) to review TDB's personnel management policies and procedureshas resulted in organizational improvements. These improvements were: (i) thebifurcation of the Deputy Managing Director's (DMD) responsibilities into twopositions (Ie. DMD for Operations and DMD for Finance and EconomicDevelopment); (ii) the creation of two separate units for Economics and Researchand Staff Training; and (iii) reporting of branch offices to the Head Office onfunctional lines. The positions of DMD for Finance and Economic Development

-97-

and the heads of Economic and Research and Staff Training are currentlyoccupied by expatriates 1/ who are working with appropriately qualified localcounterparts.

27. *TDE's total staff increased from 88 (including 32 professionals) at 31December 1985 to 95 (including 55 professionals) at 31 December 1988. Thismovement reflects an appropriate reduction in the numbers of clerical and othersupporting staff during the period, largely as a result of closer managementcontrol of employment of such staff and also reflecting the effects ofcomputerization of TDB's accounting system. The increase in professional staffmembers over the period primarily reflects increased staff located in TDB'sVava'u branch and representative offices in the outer islands. The Consultantunder the Bank's technical assistance (No. 777-TON) produced manuals on staffrecruitment and performance appraisal that have strengthened TDB's personneladministration policies and procedures.

28. With the creation of the Staff Training Unit, staff training is beingundertaken in a more organized and planned manner. The Unit has, since thebeginning of 1988, conducted a total of 37 in-house training courses on variousaspects of development banking. In addition, the Unit has conducted regulartraining needs surveys and has introduced personnel planning procedures.

2. Lending Olerations

a) Loan Qperations

29. A detailed analysis of TDB's lending during 1986 to 1988 by sector,t3e of borrower. geographic location, size and maturity of lean in prvi ded inAppendix 7. During the period 1986 to 1988, TDB's lending increased at anannual compounded growth rate of 43.3 per cent. This growth was fairly evenlydistributed between the agriculture, industrial and service sectors. Agricultureloans, principally for financing root crops, vanilla, fruit and vegetableproduction accounted for 45.5 per cent of the total lending during the three-year period. Services and tourism related activities accounted for 39.8 per centof the total lending and manufacturing accounted for 12.9 per cent. Most ofTDB's clients are repeat borrowers who, during the period, accounted for 69 percent of all borrowers. TDB's lending has been concentrated on the main islandof Tongatapu, which accounted for 85 per cent of the total approvals. Themajority of TDB's approvals remained in the range of T$1,000 and below whichtotalled 7,793 loans or 81.2 per cent of the total number of loans approvedduring 1986 to 1988. The distribution of loans by maturity shows that loans ofless than two years received the largest share of TDB's total lending during theperiod, accounting for 39.2 per cent.

J;f DMD for Finance and Economic Development is provided under theAustraian Staffing Assistance Scheme (ASAS), while the other two areprovided by the Commonwealth Fund for Technical Cooperation (CFTC).

-98 -

b) Project APn3raisal and Sunervision Procedures

30. TDB's procedures for loan processing, documentation, procurement,disbursement and supervision have been generaUy satisfactory. TDB's loanappraisal procedures in particular have benefitted from the technical assistanceprovided since TDB's establishment by the Bank and other agencies. Theeconomic evaluation of loans of T$10,000 and above has improved and greaterattention is now being provided to the analysis of financial and marketingaspects of subprojects.

F. Financial Performance of TD8

1. Size and Quality of Portfolio

31. TDB's loan portfolio has increased in line with its lending operationsfrom T$8.04 million in 1986 to T$16.06 million in 1988, an annual compoundedgrowth rate of 41.3 per cent. TDB's equity investment portfolio remainsnegligible, representing only 0.2 per cent of the total portfolio.

32. The quality of. TDB's loan portfolio has remained generallysatisfactory. Total arrears rose from T$0.75 million in 1986 to T$1.06 million in1988. Similarly, hard-core arrears (overdues of more than 12 months and casesunder legal action) increased from T$0.33 million in 1986 to T$O.48 million in 1988.However, in ratio terms, TDB's total arrears to total loans outstanding showedan improvement from 9.3 per cent in 1986 and 1987 to 6.6 per cent in 1988.While hard-core arrears also improved from 4.1 per cent in 1986 to 3.0 per centin 1988, TDB has not been able to comply with the limit covenanted under theLoan that such arrears should drop to 3.0 per cent (by 1986) and 2.0 per cent(by 1987). The cash collection ratios of 68.5 per cent in 1987 and 72.2 per centin 1988 were short of the Bank's loan covenant which requires TDB to achievea cash collection ratio of at least 75 per cent by 31 December 1987 and forsubsequent years. Impediments to achieving the covenanted ratios as at 31December 1988 stem mainly from late payment of two large working capitaladvances for export of Tonga's vanilla crop. The Mission noted that TDB isundertaking appropriate actions to achieve compliance with these covenants.As at 31 May 1989, TDB's annual collection ratio Improved to 74.3 per cent whileits hard-core arrears ratio was reduced to 2.5 per cent. TDB's provision forbad and doubtful debts has also increased significantly, and at 31 December1988, was equivalent to 6 per cent of total loan portfolio. The adequacy of theseprovisions has been certified by TDB's independent auditors. An analysis ofTDB's arrears and collection performance is given in Appendixes 8 and 9,respectively.

2. Financial Statements and Ratios

33. TDB's projected and actual balance sheets, Income statements andcash flow statements for the period 1986-1988 are provided In Appendixes iO,11 and 12. During this period, TDB's total assets increased at an average annualrate of 34 per cent, compared with the 5 per cent projected. Most of thisincrease was due to the expansion of the loan portfolio.

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34. Although TDB's long-term debts increased (in order to finance anincreased lending volume) at a rate faster than its share capital (43 per cent asagainst 20 per cent), its debt/equity ratio as at 31 December 1988 was 1.7:1,below the ceiling of 3:1 prescribed by the Bank.

36. TDB has maintained marginally acceptable profitability during theperiod with the 1988 return on average equity of 1.7 per cent being the highestachieved to date. The high ratio of administration expenses to average portfolio(6.1 per cent in 1988) is the major cause of this low protitability. The need tomaintain relatively high staff members to administer the large number of Smallloans and the wide geographic spread of TDB's client base are factorscontributing directly to TDB's high cost structure. The ability of TDB'smanagement to address these factors is limited because of the Government'srequirement that TDB should provide "social sector"nI lending.

36. Other aspects of TDB's financial performance have been satisfactory.

0. Covenants

37. Details of the loan covenants and their compliance status are givenin Appendix 13. The Bank loan covenants have been substantially compUed with,with the exception of the covenants requiring maintenance of a minimumcollection ratio and a maximum hard-core arrears ratio (see pea. 32).

R. Bank's Performance

38. The third Bank loan was declared effective on 2 October 1986, withinthe 90-day limit set for this purpose and was fully utilisd ahead of the originalclosing dates. The Bank's turn around time for processing of below the freelimit subloan applications averaged four days and for above free limit subloanswas about three weeks including the time taken in seeking clarification andadditional information. This turn around time for the third Bank loan was asignificant improvement over the performance in respect of the second Bankloan, which averaged 27 days.

39. The Bank has made adequate efforts to review TDB's operationsthrough annual review and other missions. The scope of these missions andquality of their reports have been satisfactor. In addition, the Bank wassuccessful in recruiting Consultants under the piggy-backed technicalassistance who achieved a high degree of success In meeting their terms ofreference in a timely manner.

1/ Loans of less than T$2,500 provided in support of family-based subsistenceagriculture, village-level service activities and other social supportactivities.

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III. EVALUATION OF APPRA1SAL AND IMPLE]MENTATION

A. _Loan Appaidsal

1. Covenants

40. The covenants included in the loan dc-,uments were generally well-conceived and appropriate in the circumstances prevailing at the time ofappraisal. In particular, the covenants requiring minimum annual collectionratios and maximum hard-core arrears ratios encouraged TDB's management topay particular attention to the quality of TDB's loan portfolio. While thesecovenants were not fully complied with, the extent of non-compliance wasmarginal as at 31 May 1989, reflecting a significant improvement in TDB's arrearssituation since the time of appraisal. In retrospect, the maximum hard-corearrears ratio covenant was set at an unrealistically high level. The Missionconsiders that the maintenance of TDB's hard-core arrears at 2.5 per cent ofportfolio instead of the 2.0 per cent covenanted would not unduly detract fromTDB's financial position. A minimum return on net-worth covenant, which wasnot included In the loan documents, might have promoted closer control of TDB'sadministration expenses. While the ratio of administration expenses to totalportfolio value declined slightly from 6.5 per cent to 6.1 per cent between 1986and 1988 and was less than projected, the annual expenditure on such expenseshad increased by 65 per cent during the period. As a result, TDB did notbenefit from the potential economies of scale that might have been expectedfrom a near-doubling of loan portfolio value during the period. A covenantrequiring TDB to adopt an operating strategy for the 1987 to 1990 periodspecifying profit objectives was complied with. However, TDB has delayed theimplementation of this strategy while it awaits the drafting of a new FinancialInstitutions Act that the Government is currently preparing. Until this Act isfinalized, TDB is prevented from adopting a diversification strategy that wouldhave the primary objectives of increasing TDB's domestic resource mobilizationand improving its profitability.

2. Technical Assistanct

41. The Project provided appropriate technical assistance that hasresulted in the substantial strengthening of TDB's institutional capabilities,particularly as a result of the computerization of the accounting system. Thiscomputerization has enabled TDB's management to obtain more accurate andtimely information on the status of TDB's finances and portfolio quality and hasenabled a substantial increase in portfolio size to take place without an increasein supporting staff numbers.

3. Quality of ADDraisal

42. The appraisal mission's projections of TDB's operations wereconservative and did not anticipate the rapid increase in lending levels,especially in the services sector, that occurred during 1987-1988. However, theappraisal mission's observations and suggestions for improvement in appraisalstandards, supervision procedures, personnel management policies and financialposition were appropriate. In general, the Mission considers that theformulation of the Project and the quality of appraisal were satisfactory.

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IL ISplmenla&2n

43. The implementation of both the third Bank loan to TDB and of thesubprojects; financed thereunder have been generally satisfactory. TDB'sevaluation of subprojects has improved over its performance under the earlierBank loans. However, the Mission is of the view that scope stil exists for TDBto further improve its procedures for monitoring the financial and economicperformance of subprojects. Technical assistance provided by CFTC iscurrently implementing improved procedures for this purpose as well asproviding. assistance to TDB's program of sector studies.

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IV. CONCLUSIONS AND RECOMMENDATIONS

44. The PCR Mission concludes that the utilzation of the Bank Loan hag1on the whole, been satisfactory, and the loan his achieved its purpose ofextending assistance to specific development projects in the agricultural,industrial and services sectors in the Kingdom. The accompanying technicalassistance has resulted in significant strengthening of TDB's institutionalcapabilities. TDB has made substantial progress in establishing itself as a majorsource of term credit and has contributed significantly to economic developmentIn Tonga.

46. TDB's operations have expanded considerably during the period ofutilization of the Bank Loan and TDB's management expects this expansion tocontinue during the next few years. While the Mission considers that TDB'scurrent manasemerit, staffing and organization are of sufficient strength forTDB to continue to maintain appropriate operational standards, it also considersthat further institutional strengthening should be considered to ensure thatadequate control is maintained over TDB's quality of lending, portfolioadministration and profitability.

46. The Mission considers that acceptance and implementation of thefolowing recommendations would strengthen TDB's capabilities to provide anappropriate and development-oriented channel for Bank funds.

i) Prtoi Revoiew

47. The rapid increase in portfolio value during 1986 to 1988 reflects anincrease in average loan size for TDB and more rapid processing of loanapplications. In order to provide a verification of the appropriateness of TDB'sloan appraisal and supervision procedures and capabilities, a detailed portfolioreview should be undertaken. Such a review should have the primary objectiveof identifying potential problems within TDB's loan portfolio, providing anappropriate classification of the portfolio according to the quality of loans,providing an ex-poste review of appraisal standards and a verification of theadequacy of TDB's provision for doubtful debts.

ii) rnternal Audit

48 Reflecting the importance of internal audit functions to assist TDB'ssenior managemeot in overseeing TDB's operations, additional qualified staffhave been sought for the staffing of the Internal Audit Unit. The Missionrecommends that the rectuitment of such staff should be afforded a highpriority. In addition, an appropriate expert should be recruited to prepare anInternal audit manual to guide the work of the Unit.

iiI) Accounting System and Procedure.

49. The computerization of TDB's accounting system has removed a majorbottleneck within TDB's administrative functions. To ensure that maximumadvantage is taken of the computerized accounting system, TDB should furtherdevelop the system to provide increased flexibility for the charging of interest,

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the classification of portfolios, the recording of interest Income and thedisaggregation of loans to individual borrowers. An updated accounting manualshould be prepared to fully reflect the operation of the accounting system andTDB's policy of reporting income on a full-accrual bahis should be modified toprovide a more prudent accounting of income earned from problem loans.

iv) 2iversilction of Activ-itles

50. In order to address the problem of continuing low profitability, TDBshould utilize, as soon as possible, technical assistance offered by the AustraianGovernment for a study of TDB's diversification options.

v) sAMU Training

51. TDB has established a staff training unit which is now well advancedin identifying and meeting the training needs of TDB*s middle-level and lower-level staff. However, internal staff-training activities will not be sufficient tomeet the advanced training requirements for these staff who are expected todevelop as TDB's future senior management or to prepare the existing managersfor a diversification of TDB's activities. TDB should therefore carefully identifythese particular training needs and identify external training activities thatwould satisfy them.

vi) "Miko" Lending

52. In order to promote the Government's social development objectives,TDB provides relatively low-cost loans of less than T$1,000 for specifiedactivities including subsistence agriculture and fishing. Such lending isexpensive to undertake and TDB's costs ar not fully covered by the interestIncome received. In order to provide an appropriate basis for: reviewing, withthe Government, TDB's policies and procedures for such lending; seeking meansof providing such lending at lower cost; and evaluating the various means ofreducing the implicit subsidization of such lending, it is recommended that TDBreview its 'micro" lending activities. The review should provide an estimate ofthe annual net cost to TDB of such lending and Identify alternative mechanismsfor such "micro" lending.

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ADpendix 1Page 1

TONGA DEVELOPMENT BAttStatement of Ogerating Policies

A. The Bank

Tonga Developrent Bank was established under the Tonga DevelopmentAct 1977 as an independent statutory body. The functions of the Bank are topromote the expansion of the economy of Tonga for the economic and socialadvrancement of the people by giving financial and advisory assistance in itsdiscretion to any enterprise operating or about to operate in Tonga.

In carrying out its functions the Bank will be guided by the followinggeneral operational, financial and promotional policies.

S. Sc of Activities

1. The Bank will conduct its operations within the general framework of theGovernment's economic policies, plans and priorities.

2. Although the primary role of the Bank is to promote economic developmentand production in the private sector, the existence of Government or otherpublic ownership in an enterprise will not preclude that enterprise frombeing assisted by the Bank.

3. The Bank will finance projects aimed at increasing production anddevelopment in the fields of agriculture including horticulture, livescockand fishing; timber extraction and reforestation; quarrying, industry,manufacture and processing of all kinds; tourism; commerce; transport andcommunication; and service industries Including professions.

4. The Bank will finance both new enterprises and the expansion ormodernization of existing enterprises (the work "enterprise" as used in thisPolicy Statement having the same meaning as is defined in the TongaDevelopment Bank Act 1977 and includes cooperatives and communityactivities). Particular attention will be given to promotion of the entry ofnew entrepreneurs into the field of productive endeavour and thedevelopment of managerial and entrepreneurial skils.

5. The Bank will provide financial and other forms of assistance in the followingways:

(a) extending loans;(b) making equity participation;(c) guaranteeing the finance provided by other sources;(d) providing technical, managerial and ffnancial consultancy services;(e) assisting in the identification, formulation and promotion of new

projects.

(Reference in text: page 1, parm 2)

.106-

ARien!dix IPage 2

6. The Bank's financial assistance wiU be primarily for the acquisition of fixedassets. However, the Bank may in deserving cases also finance seasonal andshort-term credit requirements in the agricultural sector as well as workingcapital requirements in any sector.

C. Development Policies and Oferating Princgiles

7. It will be one of the Bank's important aims to investigate and identifyinvestment opportunities, and to promote and assist in the establishment ofenterprises of importance to the. economy.

8. In addition to the operating principles mentioned under Section 6 of theDevelopment Bank Act 1977, the Bank will also give preference, indetermining whether or not assistance is to be given to any enterprise, toenterprises which will:-

(a) use local raw materials in processing and manufacture;(b) make use of labor intensive technologies and provide more opportunities

for employment and training of local people;(c) contribute effectively to broadening the base of local entrepreneurship

and ownership;(d) have a good potenCal for expanding exports or decreasing imports;(e) lower costs and improve the efficiency or standards of goods and

services;(f) lead to an increase in the incomes and living standards of people,

particularly of those at the village or grass roots level.

9. The Bank will carry out its operations as a development finance institutionin accordance with sound banking and business practices.

10. The Bank will provide financial assistance only to those projects which, onthe basis of its own analysis, appear to be economically justified, technicallyfeasible, financially viable and profitable. Special attention will be given tothe quality of management of the enterprise and to the market prospects ofthe project.

11. The Bank will endeavour to secure its loans and guarantees in accordancewith sound banking practices, but in doing so the Bank will have due regardto Its functional requirement to promote the economy for the economic andsocial advancement of the people of Tonga.

12. Applicants will be required to proide a reasonable equity in the enterpriseto ensure that they have an appropriate stake in their own venture. Theywill also have to ensure that the total financial requirement for thesuccessful implementation of the project will be available.

107 -

AP2endix 1Page 3

13. The Bank will ensure, in making its financial assistance available to anyborrower, that the financial requirement for the completion and commissioningof the project is appropriately covered, including due allowance for possiblecost overruns.

14. Normally, loans will be disbursed after the promoter has made his ownfinancial contribution to the project and after ensuring that suchdisbursement is in accord with the requirements of the financial planapproved for the project.

15. The repayment period of a loan made by the Bank, including a grace periodas appropriate and needed, will be determined taking into account;

(a) the repayment capacity of the enterprise;(b) a reasonable payout to the promoter during the term of the loan; and(c) the optimum use of the Bank's own funds in maximizing the turnover

of its portfolio.

16. The Bank will supervise closely the use of its funds, the progress of theproject financed and the performance of the enterprise, to ensure thatremedWal action Is taken promptly should circumstances so warrant.

17. The Bank will require its borrowers to keep records and accounts inaccordance with sound and generally accepted accounting principles, andto furnish whatever information on their operations and accounts that itdeems appropriate. The Bank will also maintain the right to inspect theenterprises it finances, as well as their operations, records and books ofaccounts.

18. The Bank wiU endeavour to asist farmers and entrepreneurs with theprovision of managerial, financial, technical and other advisory services.It is the aim of the Bank to help its borrowers towards the successfulcompletion of their projects.

19. The Bank will continue to build up an effective organization and develop anadequate and technically qualified staff, in order to carry out its functionsefficiently and to assist its clients in the formulation and conduct of theirprojects.

20. Business secrets and other private information furnished to the Bank byclients wiU be treated as confidential.

D. Diversification of Portfolio

21. In order to reduce the concentration of risk, the Bank will seek to diversifyits portfolio by sectors of operation and by avoiding inappropriately largeinvestment in any one project. In view of its developmental function, theBank will also pursue geographical diversification of its portfolio.

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Aeipndix 1Page 4

22. The Bank's equity investments shall service mainly as a catalytic agent forthe establishment as well as for the expansion of enterprises. The Bank willnormally dispose of such investments to Tongan nationals when appropriate.The Bank's equity investment shall not normally exceed 25 per ce. of thepaid in capital of the assisted enterprise.

23. The Bank will not normally commit to a single e nterprise in the form of equityparticipation more than 10 per cent of its unimpaired paid in Share Capitaland Reserve Fund. The aggregate equity investment of the Bank at any timeshall not exceed 25 per cent of its paid in Share Capital and Reserve Fund.

24. The Bank's total commitment in the torm of loans, equity investment andguarantees in a single project or enterprise shall not exceed;

(a) 25 per cent of the total of the Bank's unimpaired Share Capital andReserve Fund; and

(b) 75 per cent of the tangible assets of such enterprise including theBank's own investment.

25. In exceptional cases meriting special consideration, limits under Clause 24 (b)may be exceeded provided the loan is covered by adequate additionalsecurity over assets not forming part of the project.

26. In financing worthwhile projects requiring more than its maximum lendinglimits under Clause 24, the Bank may seek a syndicated cooperation of otherinstitutions, both domestic and foreign, lmiting the Bank's liability in suchcases to the ceiling referred to under such Clause.

E. Financial Guidelines

27. The Bank will review and determine from time to time the rate of interestand fees to be applied to its advances in the light of prevailing Governmentpolicy and developments in the capital market, with due consideration to thecosts of its own borrowings.

28. The Bank will not carry the exchange risk on its debts payable in foreigncurrency.

29. The Bank will not seek to take a controlling interest or management of anyenterprise in which It has invested, other than by representation on theboard of directors (or similar committee) In appropriate cases. However,should it become necessary to protect its own Interest, the Bank may takesuch action as it considers appropriate in the circumstances.

30. The Bank will not undertake long-term borrowing obligations, includingguarantees, that in the aggregate would exceed three times the total of itsunimpaired paid in Share Capital and Reserve Fund.

-109 -

Aipgendix- Page 5

31. The Bank will maintain accounting records adequate to reflect its businessoperations in accordance with sound and generally accepted accountingprinciples and practices.

P. Provi6ions and Reserves

32. The Bank shall set aside in each year at least 50 per cent of its operatingprofit in that year as a provision against bad and doubtful debts until suchtime as the provision equal 10 per cent of its loans, equity investments andguarantees outstanding, and will thereafter set aside annually such amountsas are sufficient to maintain the provisions at least at that leveL

33. The Bank shall set aside annually to its General Reserve the whole of its netincome during the first five years of its operation and thereafter annually,at least 50 per cent of Its net income until such time as its General Reserveis equal to the azmount of its paid In Share Capital.

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- 111 -

AoSpetdix I

TONGA DEVELOPMENT BANK

Details of Procgrement by Country of OritinUnder Loan No. 782-TON(SF)

(in $)

Country & AmountX

1. Australia 40 72,456.69 6.2

2. Japan 103 424,181.13 36.4

3. New Zealand m 66741a. .iL

Total 3lQiLAft

(Reference in text: page 5, par 20)

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- 113 -

tONC mIViWuNVIT amNK APpendix 5

Current status of Subprojects 35,000 iqulvalent and Above

Financed Under Loa No. 782-TOMISF)

(As of 31 Nay 1989)(TS)

Preset ArrestTOR Fina_in8 --

Subloan -- - -- Anount Lesa tha OverNo. Sub-8errow r AD8 TD8 Total Outstanding 6 soa. 6-12 woe. 12 moe. Total

1 Gateway Entrprlas 18,000 165,670 183,670 - -2 NMao * Liliet, Soakal 30,?71 9,123 40,000 34,228 - - - _3 Friendly Islands AIrway. 25,089 13,401 38,490 3,931 3,931 - - 3,9314 Vete Motors 36,000 24,000 60,000 43,233 13,420 - - 13,4207 Atunals Tongotea 10.128 - 10,125 7,278 350 - - 3509 Tsutoso Nstao 12,72? - 12,127 6,848 - - - _11 T.S. Fifita A Sons 53,255 81,745 135,000 128,311 6,000 - - 6,00012 Nosni Vaks 9,750 1,83? 11,58? 12,376 100 t _ 10013 Mol Tapealara 14,213 1,245 i5,458 15,420 - - - -14 Paper Industries, Ltd. 13,350 - 13,350 6,848 - - -15 S. pope & H, TanslgA 12,551 - 12,551 5,306 1,120 - - 1,12016 T A N Tapuelul 7,473 - 7,473 5,249 - - _ _17 T & S Fatai 7,550 - 7,550 3,414 - - - -

18 Villas. Lapal 8,600 - 8,600 6,084 - - - -19 TanIela Lolobea 7,302 - 7,302 2,496 - - - -20 Slotoae Taunsbolo 16,193 1,717 17,910 12,543 50 - - S021 Solosone Naau 8,769 - 8,769 4,519 94 - - 98475 Sivne Latu 26,500 7,000 33,800 5,063 -1,080 - - 1,08076 Supileo A P. Fdoliki 75,000 45,000 120,000 92,933 3,350 - - 3,3507T F.O.A. Cowley 35,000 - 35,000 27,368 300 - - 30076 Siva S&kona. 46,610 - 46,610 18,754 - - - -80 Saul& Nateaki 13,756 - 13,756 8,907 - - - -8t P. Karalus 22,808 4,042 26,850 21,186 - - - _82 L Vaka'uta 40,718 179 40,897 34,911 6,315 - - 5,31583 Preo & Sons, Ltd. 92,035 57,966 150,000 86,495 11,800 - - 11,800141 S. Koal 7,204 - 7,204 - - - - -142 F. S"fi tO,000 - 10,000 8,231 - - - -154 N. Pu" 1,668 _ 7,666 1,689 - 1,689 - 1,689155 V. TeOSUa 9,436 - 9,436 9,034 1,594 - - 1,59420n S. LouSd 8,973 8,913 - - - - _209 T. Kalb*e 6,016 - 8,016 - - - - _210 V. Saulsls 10,000 - 10,000 - - - - -222 M. Seati 10,000 - 10,000 10,414 700 - 700230 P. Teululo 8,560 - 8,560 - - - - _254 S. V"s 9,265 - 9,265 8,216 - - - _257 T. Fiel.kep 10,000 - 10,000 9,763 - - - -214 0. Fon*fI 9,836 - 9,835 - - - - -2?? T. Vehekite *,15 7,165 3,879 - - - -284 S. Tota. 9,418 . - 9,475 5,399 - - - -28? V. Feboko 8,305 - 8,305 3,205 - - - -295 V. Fukofuks 9,000 - 9,000 8,945 1,649 - - 1,649305 F. See1e 10,000 - 10,000 - - - -333 F. Like 7,250 - 7,250 4,695 100 - - 100339 S. K*tu'u 6,196 - 6,795 - - - - -345 5. FQgPoIPOi 8,489 - 8,489 6,275 - - - -360 International DOatelle 3Otl 220,000 300,000 520,000 539,291 10,000 - 10,000353 T. Vka 6,600 - 6,500 - - - - -3$4 V. Psla 10,000 2,500 12,50 10,205 - - - _38? 0. Esoerson 10,000 16,100 26,100 21,600 3,205 - - 3,208359 S. Fairs 10,000 12,238 22,238 14,263 - _366 V. Sasay 9,000 150 9,750 6,96g - - - -369 8. Soaksi 4,780 - 6,750 - - - - -370 TSt& Tours 10,000 1,000 17,000 11,413 - - - -380 M. Rai 7,500 2,500 10,000 9,194 740 - - 740384 F. NoJelson 1,600 400 7,900 8,765 460 - - 450385 9. T. S aNas 21,208 - 21,208 21,208 - - -

Total 1,138,143 754,412 1,892,555 1,322,38? 67,238 1,689 - 68,927---- -------- -- ------

-e__e__-_- in __ __ _ ,___

(Reference in text: page 6, para. 25)

-114- Appendix' 6

I_____I ___ rIi

ui-

I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I( 1{

I-0:

(Reference in text: page 6, para. 26)

0 -115~~~~~~~~~~~~~~ls- Ahpndnixz 7

TON-rA DERMOHER= AN

Aaalwats of Loau m-ad Iguitv !gvestment Aneow-ovls. 19fif-1991(T$ ' 000)

As of Dfernb*r 31 .... JL... JU i.JU ... .JML to!..JIL.. ..... Loo

L.a.. 3.444 4.396 2,77 8,176 3.377 9,3 3301 7.773 3.944 10.973 3.013 1u.s4Upily luve.44a.8

LAeardtag to ScoLpAllu r.u 2,4S7 29736 2.320 3,271 2.941 4.103 2.747 4.431 3,142 7.334 4.290 10,094

tmdu"37 ~~361 its"8 S" 4,813 494 3.183 s33 3.120 447 3,290 499 3.384Stan 214 180 107 go aes 147 i1s 22 1us It? 22n 204

Acoerding to 2YS. of UommtcNo Botvrmu 1,143 1,344 727 1,244 1,084 3,380 1.557 3.481 1.561 .3,091 14685' 5.443lepeat b.nvrowr 2.018 1.882 1,UI 2.734 2,087 3,349 1.832 3.347 2.294 4.703 3.073 7.033'Alm 110-. TIbk4e.rb 201 1.442 1ts 2.020 187 2.00 83 733 34 1.107 St 1.374"Ala 3gb' MtSth4i.b 22 303 22 2,178 as 4#94 9 211 13 71 S t0*AS*aR 14k" 006v.aUSat I 10to -

WA ~ W&I 4A$f WI WI L U? LA1 LM L &U 1421 *'"jWI bil t1jl

Aasordla to 0Omarapbloal f.ooatos?Ts2pp" 2.140 3,744 1.80 7.218 2,0" 71846 2.131 4.097 2,573 9.497 3.41 MU60on"a 393 190 237 124 330 2S" 217 133 147 101 220 192Ea'ep" 234 144 193 22n 27" I1 277 183 S09 1S" 379 199via". 1no $ 90 34 155 St u1s 41 usO 74 134 90Yaw.,, 323 404 424 374 3S" 997 726 1,277 76s 1,113 789 3,400

LAMI 3 W 4 WI6 WM WI L= WI& WA50 LI i_ 10.97 L" MIW_According to ala.

up to 781,00 3,03 1.070 2.219 &11 2.3* 1.0s" 2,326 M97 2,420 to0o" 2.644 1.307Ownr 781000 to "8.s00 227 375 294 327 343 537 378 034 72 1,082 1.211 1,71Q0 "is"to72504 Y83.0 81 "a2 102 394 241 691 343 1.213 320 1,784 489 1,2420,.t 783,000to 7810,000 s0 in 74 543 123 "I2 14" 101 1i0 1,241 IS9 1.244owr. 710.000 to 783,000 41 79o 4? 1.333 91 1.484 73 1,471 78 1,330 47 1,0380var""too0 to004 47800,0 S 393 S S82 4 310 S 393 7 S01 2 1330vr. 28100,00 4 1.316 14 4,134 13 4.089 4 1.844 10 5.737 It 4,137

tiai Ml"" 1.12 hAL hllLU b LM LlM hZZI '*' &2Z1 bLJO I$-$$

LAa.rdlug to VaWturlor to I ysaw 1,431 1,270 1,402 1.413 734 1,302 467 1.789 1.129 3.171 2,487 6.039over I rose go 2 year. 1,313 1.149 944 1.613 1I938 1,739 1,830 1.789 2.007 1.370 1.897 1,514Over 2 year to 3 year. 197 322 13s 672 433 1.114 474 1,388 374 1,84* 494 1.332Over 3yeass to Sy.ar it 408 44 1,04S 213 2.042 237 1,709 104 still 107 843Over S year. to 10 years 20 978 1s 1.471 21 1.303 27 88 25 348 14 1,883Over 10 years 2 63 10 1,317 is 1,70 4 204 3 202 14 as

Lsuma Growth gato (S) 24.3 77.9 15.4 -17.8 41.1 .24.

-116 - Apvna 8

Aa0101ais gf Arroars. 1986-1921(T$ '000)

Am of De1mer 31 1 .411L. _ 11 '"tl..._.. .- =t U . Lso$ AVAS 38. "%MuM go. AImtan 8o. lA1.0 o.- hWAe. So. *AMM

Iodsasrtee 147 Su 13 "I A " 194 837 79 840 s0$ 1.73941 '1 Ism 679 "9 *448 8 741 275 1*402 733 937

.l AM 1 2ffi "a I.04S 1 030 j.ft 1.04I ,2.4441 LJl .Z_

0r *s2*a to, seeh at 147 398 in 48 $33 36 38 378 444 36 S"3ote ado"$" 9 wado "11 1n 8 u1 1 6 194 808 174 334 174 30

er 9 SSh. a. U seadhe 6 148 1*7 11n 91 10 844 114 301 138 338Ove 1is seeth 8 8 38 428 338 44 33 734 3 9 1.3S 81 1.831Le 4t "am so 8 2 1 27 34 - - - - -

12E Zsm j3 l.ln l.1 Ius Ijg 1.376 I.4S L.a3 WLA3

-,_=L$84 849 641 "it 40 1*2 379 1.3 643 2.06* 711 2.3*1*&. 9 17 12 3 11 o 40 SU 41 so ,. 37 SOBtau 1 6 3 10 i1 17 87 24 33 14 36 1Ia'apl 107 84 110 40 132 43 106 37 90 it s0 17Ya,aZ,a 87S 130 87n 174 800 us 207 819 830 393 224 39

IntL JDES Zs ALM in JAAl lafs L-U Li I.*04 LMA JDE0 LWATOtal. fe Perafol 4.5 8.044 4, 0 9.7S4 4.0s 16.0S9 4384 19,#43 4#O *. 2,141 S.01 2u.w4prowiad tor b, d debts S47 60 973 1. s 1.708 8.3S3fdoleit for b" debtsof toa tso "ceuf (2) 4. 7.0 4.0 6.4 7.7 11.4

Provieio for had debts as 2 at

umde it eal "aua"e (27 734 74.8 91.3 81.9 69.7 *3.03a.-de.r arrear I as : oftotw porsei3o (1) 4.1 4.8 3.0 3.9 4.0 8.J

LAsn rat. ak 94 9.3 6.6 8.1 11.0 12.2LfS449 4n*d S} ltA OWM N*- MMUN * PI= 4S. V.0 UP*."

lb (Tota poresses) lto.

* - 117 - Appendix 9

TONGA DEVELOPMENT BANK

Collection Performance on Loan Portfolio, 1986-1991(T$ '000)

As of December 31 1986 1987 1988 1989 1990 1991

Arrears at the beginningof the period 528 746 909 1,064 1,578 2,442

Current dues duringthe period 4,983 6,362 6,842 7,906 10,878 12,760

Total dues for collection 5,511 7,108 7,751 8,970 12,456 15,202

Loans rescheduled 861 1,332 1,093 802 1,092 /b

Cash collection 3,904 4,867 5,594 6,240 8,922 16,877

Arrears at the endof the period 746 909 1,064 1,578 2,442 2,710fa

Percentage Com=arisonCash collection/totaldues for collection (2) 70.8 68.5 72.2 'Q.6 71.6 111.0

L Excludes accounts that are 1-3 months in arrears./b Not available.

e .dat. 'ywa1tb xrIr!~I 1*m - 1

Itmv adq T 3 Mm op U 4t f 1T W

I'sW- stl ISO's tze tzs t TSSOt S7 n' agV-t 2- *-t tztt¢tttttAtttttS-t4912"

TIM VTMS VST ?T9* ?'mS tSO*t 110 am* 15 mm IT OtitiIBS*

's M7 Is wm ret 'Urt 'w't U' MM MM Xe "Vol

tnlt If on ne Cat Ca to nt . ont itupu

1W?? Ti am'? Un MM r1W? NM1' WM' 117'? WDFIIWZ11M uxV

ot' aet act' tts* $St ot'C sss W^^ t so"X QWFRO _;t'? *3 les t-T s i it ;- 0in

is: ii:~~401 01:o 510' 55:l an o : *: a4 toa.~..wg'w urn~ ~ an'y tot ui urr WT Ott 11UT UT 1" VP W

- * -X ost - ots er * Tnts oOil't: ' £'? ist' ? - *S - oot VMt't tsr: atots' :: tOi O ts :t ote 0 0o0t otoIt see

9l gt cn1 c nt Ott on uit 0 d"S Wmff n?t "It Ca: Ca sOt si tot @it CM) S_Ut- Au

m tst nM:t "Tot tc,t MIT 1ttt 1tt69 (U) U in

m5 nt t99 ff m 1 on Off et oe* s C * * t t4

tolt *Ct "t HO st bc *t on m tnq"u iszovz

UP?W!VS ST'? IWT 1'? tw w i UE mmW m UT?W'?UW

to*n0 01?'t f9f1'S 9*1'S gCi t9it ei09t 9n on1 89 d e*I am - - - - - sapaPm IP3ZpS44S

moot Mott Oct's ~~~~~~~~~~~~~~~~~~~so"

mm-f irm ;em RF0$ Wm ran ;59 W9m NMi * 1W

Iitl'f 105,11 MIiS? soil'? £CIS Pit'S OTtr* "90'S 3.9'£61M

te:'0?SWil 01'S £i'9 etRfW I'iO' M9 Tim i u ew V

1£ 90t tt tt 't Ugt SO? it C I £ t so" Otht109: i?'i tt £9 St WiOD 01 1m Pt 9 *l Tff:DC ~ ~ ~ ~ ~ ~ ~ ~ 00 . Ot)

Otct tesi OT6 Oct 00 ott tt *eCoo wum uaioa-" V

Cl ctet t 4tt 19t m got tot no 5 t vn MW

vmet n t'n e t'V Tmvw It to" e* T'sv I ts m Tom I WeOff t n n U eft goa tC otO *_ VW

16n1-9861 '1020914 65tvOlt m' Y Pu, VI P33*&@ X

XMv J.ZiMINOA3U VoM0Zl

ott tXT b"w tat

119-Avvendix 11

TOMIG DEVELOPMENT uAs

Proeectod la and Actual Income St*tment, 1986-1991(T$ '000)

=s-a . 1*%V S

Zasean lease 454 418 744 51 831 1.24) 3409 1.9"70 2.34latne" _ tumme is 44 u 91 48 45 2 41 Its

vtu4 S $ S 3 S S a oObur n 143 0o 157 91 its 24 28us 7

1.a.inL Su 3444 57 33t se81 99 411 0so2 "4OCth a latatlea, exp ss.s 11 80 129 I48 1s 243 350 539 433betv""_1M E4 $' SO is $i Us El i4 *lo

lo LO Rl 19 L3 El in *.X *.z # A

Pr.evS*e Lt 4emb3f2. a..ous. Ili is Ls? LIs 124 29 370 40S S20Gs" GI bo_wueas 144 147 170 In 1? 24) 34 383 4*n

t- 74 42 124 2

ISLtiMa a A l IL IL U ill in Di

kaum e eg" o qiT Cs) 1.0 14. 1.) 1.5 1.0 1.7 4.9 1 .4 .0Adm. empensaItw. totlgotfolle CZ) 7.2 4.S 4.8 4.0 4.4 4.1 4.8 S.4 7et.. q. 6.4 5.$ 4.7 5.5 4.7 4.7 5. 8.8 8.

SSAW srad 8.2 8.S 8.1 7.3 8.2 8. 8.4 124 11.3

jft heZ .. ut " te Cho1 4l .Ppett (3S).Lk 15N*j In, jpJffpt*1 -La* s ,4M 2 4 I2Z594&Zt 1uvec e e.g we. __ .o au 4 e | ||_ ~ v. B v

- 120 - Aooendi.x 12

TONGA DEVELOPMNT BANK

Projected /a and Actual Cash Flow Statements. 1986-1991(T$ '000)

AG of Doneebor 31 1986 1987 1988 1989 1990 1§91Proj. At roj cu Proj .AculPl Ac tual Acstal A.cva

SourceNet Profit (beforo provision.) 133 204 209 286 239 432 d1e 133 349

eco;o tax - - - (74) (42) (124) (26) (90)Nou-casah xcpoense 54 51 59 58 57 126 138 145 161Collection of principal 2.243 2,456 3,078 3,4S7 3,102 4,603 6.420 9,374 14.928

Iuterest on borrowiuso 146 147 174 179 178 263 337 411 71

Available for debt ssrviciuz 2 596 2.858 3.520 3.980 3 502 5.384 7 89 10.239 15.816

Iucre... in paid-in cupital 142 437 100 1,227 100 403 895 581 2.394

Drawdown of borrow4uie 1,438 1.201 - 2.315 - 3.725 1.790 2.161 23648

futuro borrowings 300 . 650 . 530 . - _

Inecreaco (decroese) in currontliabLitise (75) (209) (10) 62 116 381 193 2.163 (1,S31)

Total Source 4 401 4 287 4.260 7,584 4 268 9,896 10.269 15.146 19.149

AvylicatiousLepeyuest of borroinse

principal aud intorest 352 412 448 520 487 702 1.357 933 94

Diebursan*nttLoam 3,411 3,968 3.798 5,124 4,169 10,814 S,83 11S.30 16.498

Equity inveetaneto 50 - 60 - 75 - 2 (2)Acquisition of fixed aseots 129 38 178 556 13 280 110 72 242

tInroroa in current asoat. 25 7 5 51 - (61) 40 14 139

Chane in liquid asocto 434 (138) (2191 1.333 (476) (1,839) (303) 2.769 1.302

Total Applications 4 401 4 287 4 260 7 384 4 268 9 896 10.269 13.146 19.149

Debtlcervice coverage (tioee) /l 7.4 6.9 7.9 7.6 7.1 7.7 4.7 10.7 16.7

La As specitied in the Appratsal Report (ADS).Lb Sourcec available for debt e s alcing

Lepayanut or Sorrouvis (prc4pI a. hat4erst).

* 121 -0 DPoDdix 13

Cosplianc with Loa Cove tse de. Loan ft. 152 MOMf)

~~~~~~__..__._____ ........................ _ . _ *............................... .

endes tNature of Covenant &I CO_VAt_ R e

. . ... _ .. . ...................................... ____.._.__........ ,_,,,,,, __

1. O.ICA?ZON5 O SNL laoDDa (COVY31._ ___e_ .......... _____.................__

I. Shall rel the pro eds of the la u L . 6. d wit.

to Ton on the following tex" an 1 are Iaooditional (a) interest rate of thrZe

per cent Per anuS; (b) repayent of 1S

years includin a grace period of sixyears and (o) asumtion of foreignexange risk by the Government.

2. Ensure that 11T sl conult the lak L.A. sob. t. c¢ I"d with.

prior to effecting any chang in Its Vera 2Interest rtas.

3. 0t to permit 113 to ske anY substantial L.A. Sb. 6, cemlled With*

amendmt to Its Articles of Associatio Vea 8

or PolicY Sttatemet without prior agedement

of the Covernment san the bank.

4. Prior to aking any appointmet of ikasgi L.A. Sob. S. coop" with.

Dire ctor of 3 consut the, SAk regawdimg Pao 4

the qualiftcations. experience and towan

of office of the persnel probes" for

appintment.

t. Shall ensure that TN is staffed by suitably L.A. Sob. 6. C_ M1a with.

quallfld proftssionals with adequateo pas £

*xperience am technical experttse.

I. O3L"SAOMS O tl UZCUTIMG ACVC (13)

1. lSmot as the ank my otherwise agre 13 V.A. Ocap"e With.sall mt substantally a_md its ArUiles seee 8.0"(0

of Association or Its Ptlicy Stat_meat.

T. s3 shl turnish to the Sank a11 such A. C with

reorts and Inormation as the lank ahall. Stiem &(e)

reasonably request on the loan an n %th

auboe.

. tDS OL tfurnish to the lak qarlterly V.0li_ with.

reports on the excution of the project aN Seth-"es 1.6b)

on the operatio ad management of 133.

(Reference in text: pase 9. paz. 37)

- 122 -A"WWIdX 13Page 2

.,.______..........................._._.__,.................. _._ ....... __..... ___t .......... _ .. _._ ... "_........... .. ..... S newe to

mature of Covennt Loan Covenants Sarka. ............................. _.-_._______._ _ … _ ........_

4. TDS shal have Its accounts and financial t.A. Cocliad with.statements audited by independent private Section 3,0Oauditors and furnish the Bank Its auditedfinancial Statements An th auditor'sreport within six months atter the closeof Its fiscal year.

S. Excpt as the Dank may otherwise agree, V.A. Complied with.SDS "all not establish or acquir any Seetiso 3.00(c)subeidiary.

S. TD3 shall maintain a debt/equity ratio P.A. Compled withot not higher than 3:1 and a debt ervioe Section 3.09coverage ratio of not lees thbn 1.5 times.

T. 11 h shall onsult th Dank prior to P.A. Schedule. Complied With.effecting any change in its interst rates. Vtsr 2

S. TD sall contin to give high priority P.A. Sedleo, Complid ithto Its statf training program for its Vexs.offleros in Its heed ottice and brancbesaNd to iniorm the Bank annually on itsVr'gres.

. TOD shall, within tbree months of completion V.A. Shedtule, Comp1ied with.of the tial repwort to be sub_itt by the Pam 9Cosultat undr fart ot Dank T.A. T1-TO,formute and discus vith the Sank planto Implement any agreed recomendatios.

10. 1D shall, within th first six _mths t.a. Schedule , Coled witb.of each fiscal yoar, prepar anA furnish atam 10to the Bank its financial proejotions,

licluding Inome statemets, amsh flostamnt *nd balsan osheets for thsuceeding thre y rs.

11i T shall loeaeW, and thereafter V.A. Sched1le, Vet fully olmpledmaintain *ini_mo nanual cash collection Ytsr 11(a) with. CaI collsatioeratios, calculated on a rollin quarterly was *6 35 enOt asbasis, as fellows: (i) by 31 Docember 19#6 S1 96OeWt 115 an"*ad for thre sibsequent quarters - T0S; 12.2 VW anA as ofsad (ii) by 1 December 1987 and for all 31 Do36 1 aJ.subsequent quartr 751.

.…_ ________._._..__ _____ _ _ . m _ _._ _ __ _

- 123 -

PROJECT COMPLETION REPORT

FIJ

FIJI DEVELOPMENT BANK PROJECT(LOAN 2598-FIJ)

December 16, 1992

Industry and Energy Operations DivisionCountry Depatment MEast Asia and Pacific Region

CURRENCY EQUWALENIS

Currency Unit - HJian Dollars (FS)

At Loan Appraisal in April 1985 - F$1.00 = US $0.8382US$1.00 = F$1.1930

At the closing date for Loan F$1.00 = USS0.6874Disbursement In November 1988 - US$1.00 = F$1.4548

Since 1975, the exchange rate of the Fiji dolla has been determined daily in relation to aweighted basket of currencies of Fiji's major trading partners.

ABBREVATIONS

ADB - Asian Development BankCDC - Commonwealth Development CorporationDPI - Development finance InsttionEIB - European lavesenbft BankFDB - Fiji Development BankFY - Fiscal yearIBRD - nternational Bank for Reconstruction and DevelopmentPCR - Project Completion ReportSPRO - South Pacific Regional Office (of ADB)

NOTES

The Fiscal year (FY of te Government coincides with the calendar year, while tha of the FijiDevelopment Bank ends on June 30.

.125 -

PROJECT COMPLETION REPORT

FIn

FUI DEVELOPMET BANK PROJECT(LOAN 2598-FIJ)

PRI:ACE

This is a Project Completion Report (PCR) for the Fiji Development Bank (PDB)Project for which Loan 2598-FU in the amount of US$6.S million was signed on October 10,1985. The original Loan Closing Date was December 31, 1989; however, the loan account wasacally closed on November 3, 1988, following a request from the Govemment of Fiji, and anundisbursed balance of US$5,317,146.77 was cancelled. In 1989, after receiving the IBRD'sagreement to waive the prepayment premium, the Government of Fiji prepaid the outandingloan balance.

The PCR was prepared by staff of the Asian Development Bank (ADB), with whomIBRD cofnanced the Project, following a project completion mission to Fiji June 10-20, 1990.Under an agreement between the IBRD and the ADB, the ADB was responsible for ovealproject formulation and appraisal, and for subsequent supervision of project implementation.The PCR is accompanied by an Evaluation Summary prepared by IBRD staff.

- 127 -

PROJECT COMPLEION REPORT

FUI

EUI DEVELOPMENT BANK PROJECT(LOAN 2598-FJJ)

IBID'S EVAWUIAN SUMMARY

Project Name: Fiji Developmet Bank ProjectLoA Number: 2598-FULoan Amount: US$ 6.5 millionCancelition: US$ 5.3 millionRegiona Unit: East Asia and Pacific Region-

CountryDepatmetContry: Fijisector. Financoia radaiSubsectw. Development Baking

L Ilroducton

1. Mm Fiji Devlopment Bank (FDB) Project was IBRDs ninth lo to Fiji. As partof its geal srategy of cos-fective leading to the PacMic slad couni, te Bank Grouphad decded to lend fthrough ofinang oeions with the Asia Ddeopme Bank (ADB).Ie IFDB Project was the seventh coflmcing opeaton in the South Pacffic vude betweenthe ADB and the Bank Gwup shic 1982; the project, howvr, was the flisn Fiji cofinanewith the ADB s te lead cofinancing ageny.

2. Under this cofiancing sarngem, ADD had the lead repnsibif preprin,apprai and admining the project ncluding sev and prepai the respecproJect o mpleidon repor (PCR)1. The aagemet for the cofinanced FDB Project wereoutdiand in a 'Lettor of CreAdmin io betwee ADD and IBRD dated October 8, 1985.IBID's forma PCR, orginaly scheduled for compledon by June 30, 1990, wa pospowd dueto ADB's resed work progm. Completed in December 1990, ADWs PC1 on its Second FIiDevd_opmen Bank Project [Loam 739-PU (OCR)], which was cofinanced wth BDs Loan No.2598-FU, is provided in the Attachment.1/

IV Ih PCI wa prepred by an ADD prjet completin rview misdo., wvic vid IiJue 10-20, 1990.

- 128 -

11. Background

3. Consistent with the IBRD's strategy of focusing on rural development, includingrural infastructure, the project was also in line with the Govermnent's strategy of fostering thedevelopment of altenative crops and associated agro-industries in order to raise the level ofinvestment and economic growth (specifically, to diversify the structure of the economy, whichdepended heavily on sugar). The Bank's involvement in the project, and in the agriculturalportfolio in particular, would allow FDB to increase credit available to smaller-scale farmers.

4. The FDB was estblished on July 1, 1967, under the FDB Act of 1966, as aGovernment-owned, autonomous institution with its own Board of Directors. It is the onlydevelopment financing institution in the country providing long-term financing of projects(mainly in the private sector) in agriculture (ncluding fisheries), industry, mining and to theservice sectors including trsport, communications and tourism.

m. Project Objectives and Description

S. The objectives of this cofinanced project were: (i) to support the institution-building efforts with respect to FDB as recommended by an ADB technical assistance missionin 1983; (ii) to transfer capital and technical support for industry (particularly agro-processing),griculture and related service activities; and (iii) to improve the efficiency and orientation of

sected publicly-owned enteprises.

6. The IBRD Loan was in the amount of US$6.5 million, of which US$3.5 millionwas m cofinancing with a US$7.0 million ADB Loan under the same terms and conditions. Thebalance of US$3.0 million was to be used by the Government for making fither equityinjections to FDB with these funds specifically earmarked for FDB's agricultural lendingoperations. The cofinanced portion of IBRD loan was to be udlized with the ADB loan on a33:67 pro rata disbument basis for subloans financed under the project.

IV. Project Design and Implementation

7. The project was preqared by ADB and FDB, and was appraised by ADBJIBRD inJanuary-February 1985. Negotiatons were held in Manila from April 24 to 26, 1985. FDB'sStatement of Operating Strategy and General Business Policy- emphasizes the developmental

role of FDB in: providing financing and equity participation in agriculturd and industriaepris; contributing to the Government's planning processes; developing new financingschemes; and providing business management counsel.

8. At the time of appraisal, FDB's instittional and operational aspects were foundsatisfactory; its wanagement and staff were qualified and competent. Although its profitabilityhad slightly deteriorated since FY1983/84 (following increases in the cost of its borrowings fromthe local financial market), FDB maiained a sound financial position. The quality of itsportfolio was found to be generaly satisfactory; afrears were at a manageable level and weredeemed adequately covered by its provision for bad debt.

9. The Appraisal Mission concluded that the FDB was a suitable agency for channelingADBIIBRD funds to private enterprises in Fiji, and that it was capable of processing and

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superviing both loans and equit Investments. In addition to the standard loan covenants, FDBagreed to the following: O) a maximum debtlequity ratio of 3:1; (i) a minimum debt-servicecoverage ratio of 1.25 times; (Ili) a minimum ret (before provisions) on its average equityof 6 percent per annum; (v) an annual review of its interest rate stucure; and (v) recruitmentof a qualified engineer by December 1985.

10. Project risks identified at appraisa related to the lack of itationalcompetitveness of most Fijian eepries In tm of pricing, product design and quality. ibisproblem was due largely to the small size of the local market, extreme distances from majorexport markets, the lack of trained personnel, and the underdevelopment of local industriessupplying components and intermediate inputs. Industries based on agriculture and forestry wereconsidered to have comparative advantages.

II. By May 1987 (eleven months after loan effectiveness), both commitmes anddisbursements were well behind the appraisa estimates. The major causes attributed to this lagincluded: (i) FDB's utilization, to the exclusion of ADB/JBRD fiuds, of a low itferest creditline from the European Invetmet Bank (BIB) at 6.4 percet terest compared to the fixedintrest rate of 9.65 percen on IBRD/ADB funds; (u) market lending rates were lower thantoe charged under the Bank Loan Alhough the interest rate charged to FDB under the BankLoa compared favorably to the cost of funds raised through bond issue denominaed in Fijiduring 1985 to 1987, FDB was concned that exchange rate movement would result in theBank funds becoming relatively expensive.ZI Subsequent to 1987 the fieancial system in Fijibecame relatively liquid and FDB was able to raise funds through bond issues at interest ratessignificantly less than those charged on the Bank Loan; and (iii) FDB did not normally preparecomprehensive loan appraisal reports that the Bank required for above free-limit subloans.Therefore, utilization of the Bank fimds to finance larger subprojects was not attractive to FDBas such udlization would have involved significant aditi work in preparing subloan apprreports to meet the Bank's requirements (also refer paras. 13 and 14 of the ADB's PCR). AfterMay 1987, cv dsturces In Fiji shaply reduced investment demand and the prospects forsignificant new commitments under the credit line for new long-term projects were discouraging.By March 1988, FDB bad committed only US$0.83 million of IBRD funds.

12. FDB's financia performa was declining. As of end-December 1987, FDB, witha return of 5.1 percent (efore provisions) on average net worth, was not in compliance with thelegal covenant specifying that it should maintain at least a 6 percent return (the FY88 return wasprojected to improve to 5.8 percent, sil below the coveanted 6 percent). In addition, FDB'sarrears position had deteriorated, from 8.4 percent of total loan portfolio as of December 1984,to 12.8 percent as of end 1987. Moreover, FDB faced two potent threats: (I) if the economicdownturn persisted, FDB's loan portfolio could conte to deteriorate; and (U) politicaluncertainty and poor economic peformance miht smate prures on FDB to accept behestulending projects. In additon, FDB's own equity Investment operations were relatively inactiveand supplementary financing was not required (refer para. 27 of the ADB's PCR).

2/ Me Govenimet lad asumed the fomtpg exchnge risk on te Loa However, given the nnn-concesioay nature of dt interest rafe charged, TDB's Management was reuctant to incur suhrisk for the Government

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13. Considering the unfavorable invesment climate and economic downtu that Fijiwas experiencing, there was little that FDB could do in the short term to improve itsprofitabflity. As a resut of these concerns and the fact that the ADB/ABRD funds could not beused profitably, the Goverment requested, in November 1988, cancellation of both theundisbursed ADB and the IBRD credit lines.

V. Project Results and Institutional Sustainablilty

14. At the request of the Government, for reasons discussed above, US$5.3 million(almost 82 percent) of the IBRD loan was cancelled in November 1988. A total of 51 subloanswere financed under the Project. Of these, only five sabloans were above the free-limit ofUS$80,000. A detailed breakdown of these subloans by sector, size, geographical location,purpose and mafity is given in the Part I (Basic Data) C. (Implementatio Data) of the ADB'sPCR. Due to largely unavailable information on these subprojects, a closer ament of theecnomic Impact and financl performance of the subprojects could not be made (refr parm.23, 24, 25 and 48 of the ADB's PCR). Data on equty disbuement not available.

15. In terms of instiutiona performance during the three-year project implementionperiod, the FDB experienced increasing arrears, a drop in collection performance and lower-thananticipated profitability. However, the ADB's PCR mission concluded ta, overall, the FDB'sfinanciaW performance had been satisfactory, and during this period the FDB Management hadtaken adequate action such that a deteriorati situation was controlled in a tmely mne (referparas. 34-41 of the ADB's PCR). Another important institutional issue concerns FDB's staffing.Before the polit events of May 1987, FDB had equte qualified and experienced staff.However, a large number of professional staff resigned thereafter. Many of these resignationswere due to emigration, while others moved to senior positions in the public service sadfinancial sectors within the Country. Mmis staff change resulted in an inetable detedoration inthe levels of skill and expeience of the FDB staff (refer para. 31 of the ADBs PCR) and withit a weakening in the performance of FDB.

VL P formance

16. The IBRD's direct involvement in this project was more than customary for projectscofinanced with ADB-ik participated in both project appraisa and field supervision. In responeto the low utilization of the IBRD/ADB fimds, the Bank agreed to the finmcing of permaworking capita and to an expanded definiton of digible entpdses under the agriciutua creditcomponent However, these meares had no sgnificant Impact on incasing the level of fundsutilization. The Bank's involvement, especialy in consultation with senior govenmnent officialsduring project implementation, helped to clarify their views as to whether they should continueexending IBRD/ADB credits. However, it is unlikely that even if the ADB and IBRD hadplayed a more active and direct role, the outcome of the project could have been much altered.Both the lack of demand for project funds and the FDB's declining performance were influencedpredominanly by economic developments after the political events of May 1987.

VIL Lssons Learned

17. The fact that only 18 percent of loan proceeds were utilzed can be attribtd toeconomic factors unfeeen at the time of appraisal; specifically, depresed investm demand

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that followed the political evens of mid-1987, compunded by FDB's subsequent accs tolower-cost funds from the EIB, and the domestic financal market, mang the Bank loanproceeds noncompetitive. While such politial and ensuing economic developments weredifficult to identify at the time of appraisal, it appears that more thorugh assesment of theimplications of FDB's likely access to concessionary fnding woud have led to a resentof the timing of the loan. Even a relatively short delay would have demonsatd that thedemand for term financing in Fiji could have been met from the BIB loan and that the Bank wasnot in a position to compete.

18. While instittional streamlining was among the project objectives, the project didnot include specific action programs which would have helped improve FDB's asset managementand credit evaluation/loan processing procedures, thus no contrbution was made to improveFDB's financW performace. Even if specific measures to seek such an improvement wereincluded in the project design, above mentioned extena circmstn would have made theminffectve.

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PROJECT COMPLETION REPORTFmJ

FI DEVELOPMENT BANK PROJECTLOAN 2598-FIJ)

STASCAL INFRMATION

1. Related Bank LAnsm and/or Credits

Loan/Credit Ytar ofTide Purpose Approval Status Comments

NOT APPLICABLE: In. 2598-FU was the fist and onlyproject in this sector.

2. Project Timetable

Date Date Dateitem Planned Revised Actual

- Identification la 09/30/84 _ 11/19184 (ADB)

- Prepraton -

- Appraisal Mission 01185 - 01/24185

- Loan Negotiations 04/18/85 - 04/22/85 aointlywith ADB)

- Board Approval 06/18/85 06/18/85 07/02/85

- Loan Signature - - 10/01/85

- Loan Effectiveness 12130/85 05/27/86,k 06/10/86

- Loan Closing 12/31/89 - 11/03/88L1

- Loan Completion 12/30/87 06/10/89/,d 11103/88L

Lb Executive Project Summary.a Loan effectiveness date was postponed for a second time to 07/10/86.& Loan account was closed on 11/03/88.Ia As revised on June 20, 1988.

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3. LAan DIbursements

Cumulative Esdmated and Actu Di(US$ '000)

ElM Eli Ell EY1

Apprasal Estmate 1,600 4,400 6,200 6,500

Actual 0 450 940 1,1831A

Actud as % of EsWmate 0 10.2 15.2 18.2

Dat of Fil Dum - 11103/88

La US$5,317,146.77 was cancelled on 11/03/88.

4. Project J mnt

AppraisaIndicators Estimate Actu

No. of Subloans approved iSOla SllaAverage subloan size US$90,000/a US$35,770/a Lk

La For both IBRD and ADD.& On a disment basis.

S. Noject UlnF1_

Source Plane Revised FinlM(USS '000) (USS '000) % (JS$ '000)

IBRD 6,500 - 16 1,180 -

ADB Cofinancing 7,000 - 18 1,214EIB Cotfnng 2,500 - 6 N.A.la -

Domestic 24,000 - 60 N.A./a -

-Q1.

La Not avalble.

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6. Project Results

Direct U,dlta

Appais E at Estmated at fllIndicators estimate dosing dato dodlopment

Now jobs gerated 700 Limited dat makes ameaningMi sae

Total investmnt US$40 million N impossible - referaxII pars. 23, 24, 25 and

Value-added US$8 million 48 of the Atachment(ADB's PCR)

tional annual US$16 millionIncome

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7. Status of Covenants

Deadline forCovenant Subject compliance Status

Project A-areement1. Section 3.04 Annual audit in compliance

requirement

FDB to furnish to the Sept. 1 of each in complianceBank its financial yearprojections forensuring 5 years

FDB to furnish to the Dec. 15 of each in complianceBank the coming yearyear's projected loandisbursement

2. Section 3.06 FDB shall maintain a - in compliancedebt/equity ratio nothigher than 3:1

FDB shall maintain a - in compliancedebt service ratio notless than 1.25:1

3. Schedule, FDB shall review its - in compliancepara. 4 interest rate annually

4. Schedule, FDB shall employ a Dec. 31, 1985para. 12 qualified engineer

5. Schedule, FDB slall maintain a - not in compliancepara. 13 minimum return

(before provisions) of6% on its average net-worth

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8. Use of Bank Resoures

A. Staff Inpu

Stage of Planned -nRedid Project Cycle HQ Field HQ Field HQ Field Comments

Appraisal throughBoard Approval 13.7 4.8

Board approvalthrougheffectiveness - -

Supervision 4.4 1.2

~~~~~~~~IL Q

Nouthl lumber of Day@ Speelallloa Performeace ratios VW ofProject Cycle year pereon. In field rpuue ttopba

ppralsal la 01/85 1 14

Negotiations li 04/85 2 10

Bard approvalthrough effectiveness - - -

Superviseon /b 07/86 1 310/87 1 3

'- Jointly with ADS massion.IBID.

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ATTAacMT A

Fiji CPOBo 104

Development T 914WinBank

Referencee LQ/DSP/ejg

PAXTO: Mr. Peter R. Scherer, COMPANY: WORLD BANK

CITY: Washington DC FAX NO: 202 477 1313

FRO M: Mr. Laisenia Qarase PAGESTO1 FOLOW: Nil

SUBJECr: Fiji Developwet Ban Project (Lowi 2598-F DATE: 19 January, 1993.

Dear Sir,

We have reviewed the project completion report (PCR) and fully agree with

its contents.a~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The report is a full coverage and we thus do not have a; 'thlng to add.

We thank you for your assistance to-date.

>n Crn............ .....a r*rEe' _4 * >Laisenia qarase, x- rMANAGING DIRECTOR. Fri

... T1

139-

ATTAClMENT B

ASIAN DEVELOPMENT BANKSouth Pacific Regional Office

Port Vila, Vanuatu

__________________________~~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~ __ _

To : The World Bank, USA fax No. : (1) 202 477 t rCAttn : Mr. Peter R. Scherer, Pages : 1

Chief, JEOD, Country Dept. III (imcl. this sheet)From : L.A. Hayashi, Ref No.: FOT0037/93iMRDrmn

Director, SPRO. Date : 14 January 1993

Thank you for your fax message of January 6 and the attached copies of yourProject Completion Reports for Credit 1813-TON and Loan 2598-FUI.

We have reviewed the two documents and find them to be in accordance withour views and analysis and therefore have no significant comments to offer. Oneminor comment we, would make refers to para 2.2 of the lDB document wherein an"actual negative spread" on TDB's overall lending operations is referred to. In factTDB has always 4,hievrd a positive interest spread on its lending operations.

We offer somewhat belated best wishes for 1993 and look forward to workingwith you again during the year.

Best wishes,

Yours sincerely,

t 4.li90L .

L.A. Hayashi, ADirector, SPRO.

- 141 -

Thisvo R.ot s be* pee pw.w kwASIAN DEVELOPMENT BANK od*R&4°weof , a*

4P-3

PROJECT COMPLETION REPORT

OF THE

SECOND FIJI DEVELOPMENT BANK PROJECT

(LOAN NO. 739.FIJ [OCRD

IN

FIJI

December 199

CURRECY EOUIVALENS

arAsnrX Unit FL Do- llia Dllars (ESl

At Loan Appraisal in April 1985 F$1.00 - US$0.8382US$1.00 - F$1.1930

At the closing date for Loan F$1.00 - US$0.6874Disbursement in November 1988 - US$1.00 - F$1.4548

Since 4 April 1975, the exchange rate of the Fiji dollar has beendetermined daily in relation to a weighted basket of currencies ofFiJi's major trading partners.

A B B R E V IA T I O N S

CDC Commonwealth Development CorporationDFI Development finance institutionEIB - European Investment BankFDB - Fiji Development BankFY - Fiscal yearIBRD International Bank for Reconstriaetion and DevelopmentPCR - Project completion reviewSPRO South Pacific Regional Office (of the Bank)

NTS

The FLscal year (FY) of the Government concides with the calenderyear, while that of the Fiji Development Bank ends on 30 June.

- 143 -

?I * "siC DT

A. IFICATION

1. Country Fiji2. Loan Number 739-FIJ (OCR)3. Loan Tltle Second Fiji Development Bank

Project4. Borrower FLiJ Development Bank5. Amount of Loan - ADB $ 7.0 million

- IBRD $ 3.5 million..........

$10.5 million

B. mhax-mu

1. Appraisal- Date Started 25 January 1985- Date Completed 07 February 1985

2. Loan Negotiations- Date Started 24 April 1985- Date Completed 26 April 1985

3. Date of Board Approval 16 July 1985

4. Date of Loan Agreement 21 August 1985

5. Date of Loan Effectiveness- In Loan Agreement 19 November 1985- Actual 10 June 1986- Number of Extensions Four

6. Torminal Date of Commitments- In Loan Agreement 10 June 1988- Actual 15 November 1988,- Number of Extensions One

7. Closing Date for Disbursements- In Loan Agreement 11 June 1990- Actual 15 November 1988- Number of Extensions None

8. Terms to the Borrower- Interest Rate 9.65 per cent per annum- Maturity 15 years- Grace Period 3 years- Free Limit $80,000 equivalent

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* Repayment Terms 15 years including 3 yearsgrace period (fixed-typeamortization)

9. Interest Rate for Subloans At a rate providing to FDBfor each subloan, a minimuminterest spread of 3.0percent per annum.

10. Disbursements AER- Amount Disbursed $1,214,498 $ 609,762- Amount Cancelled $5,785,502 $2,890,238

C.

1. Number of Subloans Made 51

2. Sectoral Distribution of Subloans

No. Amount X=- . .............. ----

($'000)a) Garment Manufacture 9 421.4 23.1b) Other Manufacture 17 807.0 44.2c) Construction 7 170.5 9.4d) Transport 17 344.4 18.9e) Tourism 1 80.9 4.4

TOTAL 51 1,824.2 100.0

3. Size of Subloans

a) Below $5,000 1 4.3 0.2b) Over $5,000 upto $20,000 26 350.8 19.2c) Over $20,000 upto $50,000 14 426.9 23.4d) Over $50,000 upto $80,000 5 315.2 17.3e) Over $80,000 5 727.0 39.9

TOTAL 51 1,824.2 100.0- _

4. Other Breakdown of Subloans

. By Geo ranhical Locationa) Central/Eastern 20 859.4 47.1b) Western 24 829.2 45.5c) Northern 7 - 135.6 7.4

51 1,824.2 100.0_ __ -

-145 -

No. Amount X

($1'00)

a) New 16 612.3 33.6b) Expansion 35 1,211.9 66.4

TOTAL 51 1,824.2 100.0

a) Upto 3 years 20 296.4 16.2b) Over 3 years to 5 years 15 557.7 30.6c) Over 5 years to 10 years 13 733.7 40.2d) Over 10 years to 12 years 3 236.4 13.0

. ........ -----

51 1,824.2 100.0

5. Subloans Above Free Limit- Number 5= Aggregate Amount $727,054

D. DETAILS OF LINE OF EOUITYLine of Equity Number LE-3 FIJAmount Approved $250,000Amount Disbursed NILAmount Cancelled $250,000

E. DATA ON BANK MISSIONSNo. of No. of SpecializationMembers Mandavs of Members

Review Mission 17-29 Mar 1988 1 12 FinancialAnalyst

Special Loan 23-28 Mar 1988 1 4 ControlDisbursementOfficer

PCR 11-19 Jun 1990 2 14 Sr. FinancialAnalyst &Tech. Asst.

F. RELATED LOAN AND TECHNICAL ASSISTANCELoan/ Date AmountTA No. Aoproved Aooroved

($'000)FDB Advisory TA 42 22 Dec 1970 90.0FDB Advisory TA Extension 70 8 Aug 1972 37.0FDB Advisory TA 102 21 Dec 1973 100.0FDB I Loan 174-FIJ(OCR) 21 Dec 1973 2,000.0Review of the Role &Function of FDB 506 16 Feb 1983 100.0

Institutional Support tothe FDB (Training) 1209 9 Oct 1989 290.0

- 147 -

I. BACKCROUND

1. Fiji Development Bank (FDB) was established on 1 July 1967 underthe Fiji Development Bank Act as an autonomous statutory body with its ownBoard of Directors. Although FDB is empowered to provide a full range ofbanking services, it is subject neither to the provisions of Fiji'sBanking Act or Companies Act, nor is it subject to the regulatory controlsof the Reserve Bank of Fiji. FDB's authorized capital is F$50 million ofwhich F$38.8 million had been issued to and fully paid-up by theGovernment as at 31 December 1989.

2. The Government has utilized FDB as a key instrument of economicdevelopment through its promotion and financing of, mainly private sector,enterprises contributing to the diversification and growth of the Fijianeconomy. Accordingly, FDB enjoys the full support of the Government.Apart from providing FDB's equity capital, the Government assists FDB tomobilize resources from both foreign and domestic sources throughprovision of guarantees, foreign exchange risk cover and provision ofspecial status to bonds issued by FDB, thus increasing theirattractiveness to Fijian investors.

3. The Bank has actively supported FDB's institutional developmentthrough the provision of five separate technical assistance projectsduring the period 1970 to 1989. The first three projects funded the costof expatriate experts who held advisory positions during the initialperiods of FDB's staff development programs. The fourth project providedfor a review of the role and function of FDB. The fifth project currentlybeing implemented is designed to strengthen FDB's staff trainingcapabilities following rapid staff turnover during 1988 and 1989 (see para31). The Bank has provided one earlier line-of-credit Project for $2million. 1/

B. Scole of Onerations

4. Fiji Development Bank's basic functions are to facilitate andstimulate the promotion and development of natural resources,transportation and other industries within Fiji. To enable it toundertake these functions, FDB has been authorized to provide loans; issueguarantees; underwrite loans and issues of capital; subscribe for shares,bonds and debentures; establish and manage projects; develop real estatefor sale or lease; and provide advice and extension services to industrialand other enterprises. The major focus of FDB's activities has, however,been the provision of term loans and equity investments for financing ofinvestment projects. As a multi-sectoral development finance institution(DFI), FDB finances projects in the agriculture, fisheries, mining,manufacturing, transport, communications and tourism sectors. FDB hascontributed actively to the development of a capital miarket in Fiji. Inparticular, FDB has established a merchant banking subsidiary (Merchant

/ Loan No. 174-FIJ (OCR), approved 21 December 1973.

-148 -

Bank of Fij3 Limited), a funds anagoemnt subsidiary (FDB NomineesLimited) and Suva Stock Exchange LAlmted, thus providing an institutionalinfrastructure for capital market development.

C. ationshi th the

5. The relatlonshlp between FDB and the Bank has never beenparticularly close and the Bank's two loan projects to FDB havecontributed only a mall proportion of FDB's total fundlng. At 30 June1988, the outstanding balance of the Bank's loans represented only 1.6percent of FDB's outstanding term liabilitles. FOD has also recelved twolines-of-credit from the International Bank for Reconstruction andDevelopment (IBRD), the second of wbich co-financed the subject Loan. TheEuropean Coamunity, Europoan Invostmnt Bank (EIB) and CommonwealthDevelopment Corporation (CDC) have all provided funds to FDB. FDB' s totalborrowings from these three lenders represented 11.4 percent of total termliabillties at 30 June 1989, by which date all borrowiig from the Bank hadbeen repaid.

6. SIB and CDC have generally provided funds at lower cost and withless conditionality than the Bank, thus making them more attractivelenders. On the other hand, FDB has preferred to receive Bank technicalassistance for institution building purposes as consultants fielded undertechnical asslatance from the Bank have generally provided valuablecontributions to FDB's development. PDB, through lts government-supported bond issues, has been able to obtain the bulk of its resourcesat reasonable cost and on attractive terms from local sources.Accordingly FDB has followed a funding policy oriented toward domestLcresources. The Bank is only likely to be a future source of funds for FDBif unexpected developments in local financial markets result in a changein such policies. Regular contact is maintained between FDB and theBank's South Pacific Regioal Office (81PO) in order that the Bank canremain in touch with FDB's status and prospective funding and technicalassistance needs.

D. Rational fgr tdo ANk L

7. The Bank Loan was provlded following the completion of TA No.506-FIJ in July 1983. This technical assistance had provided an intensivereview of the role end function of FDB with a view to enabling FDB to playa more active role ia economic development. The Consultants'recommendations on the rLorganizatiou of FDB and for the amndment ofFDB's Policy statesmet were subquently fully accepted and implementedby the Government and IDS.

8. The review of FDA's role and function undertaken under thetechnical assLstane was prompted partly by the negative growthexperienced by Fiji's economy durLig 1982 and early 1983. This negativegrowth resulted primarily from poor performnc of tho sugar and tourlsmsectors due to the provailing world-wide recession combined with cyclonesand a drought. The Government's response to-this situation was to pursue

-149 -

diversification and acceleration of growth of the economy in order tolessen Fiji's reliance on sugar and tourism. The Government defined a keyrole for FDB in implementing its economic development programs. As theonly DFI in Fiji, FDB was and remains the sole source of term finance forprivate-sector development projects whose implementation would promotediversification and more rapid growth of the economy.

9. The Bank Loan and the Line of Equity (LE-3 FIJ) were intendedto provide support and additional funding for the increased focus withinFDB on the financing of industrial sector projects. These facilities werealso to support FDB's financing of private investment in service sectorprojects related to economic diversification.

10. The Bank Loan was co-financed by IBRD in an amount of $3.5million. The IBRD co-financing was to be from a $6.5 million IBRD loanto the Government, of which $3.5 million was to be on-lent to FDB underthe same terms and conditions as the Bank Loan. The balance $3.0 millionof IBRD's loan to the Government was to be used by the Government formaking futther equity injections to FDB with these funds specifically ear-matked for FDB's agricultural lending operations. The co-financed portionof the IBRD loan was to be utilized on a 67:33 pro-rata disbursement basisfor subloans financed under the Project.

11. The Bank loan and Line of Equity were expected to benefit about150 projects in the industrial and service sectors and to generate anadditional 700 job opportunities.

11. IMPLEMNAIIQE

A. Lendinf Policies

12. Appendix 1 provides a copy of FDB's Statement of OperatingStrategy and General Business Policy. This document was revised in 1984to reflect the recommendations of the Consultants provided under thefourth Bank technical assistance project and has not been amended since.The statement, which lays down FDB's scope of operations, generalpolicies, procedures, financial guidelines and policies regarding thecreation of provisions and reserves is considered satisfactory. Thestatement places an emphasis on the developmental role of FDB and providessatisfactory guidelines for the maintenance of sound project financing andrelated banking practices.

13. . The guidelines have been generally adhered to by FDB althoughthe Project Completion Review (PCR) Mission found that a high proportionof FDB's lending is not undertaken under a project-evaluation format.Instead, a focus is placed on evaluation of debt-servicing capabilitiesand availability of security when loan applications are reviewed. FDB,therefore, follows an approach to its lending operations that is more akin

- 150 -

in some respects to that of a commercial bank than to that of aconventional DnI. The Mission found this approach to be appropriate forthe relatively large number of smaller equipment financing and vehicleloans provided by FDB. However, it was also an aspect that contributedto the poor utilization of the Bank Loan. FDB does not normally preparethe comprehensive loan appraisal documentation that the Bank requires withsubmission of above-free-limit subloans. Utilization of the loan forfinancing of larger subprojects was, therefore, not attractive to FDB assuch utilization would have involved significant additional work inpreparing subloan appraisal reports to meet the Bank's requirements.

14. An aspect of FDB's operations that also contributed to the poorutilization of the Bank Loan was FDB's interest rate structure. Appendix2 provides details of FDB's interest rate structure and prevailinginterest rates in Fiji during the period 1985 to 1989. Although theinterest rate of 9.65 per cent charged to FDB under the Bank Loan comparedfavorably during the period 1985 to 1987 to the cost of funds raisedthrough the issue of Fiji dollar denominated bonds, concern was voicedwithin FDB that exchange-rate movements would result in the Bank fundsbecoming relatively expensive.J/ Subsequent to 1987 the financial systemin Fiji became relatively liquid and FDB was able to raise funds throughfurther bond issues at interest rates significantly less than thosecharged on the Bank Loan. Accordingly, utilization of the Bank Loan washalted during 1988 and the outstanding balance of the loan was repaidduring the tbird quarter of 1989.

B. Characteristics of Subloans

15. The Bank Loan was utilized to finance a total of 51 subloans.Of these, five subloans utilizing a total amount of $727,054 from the co-financed Bank/IBRD Loanl/ were above the free limit of $80,000. The maincharacteristics of subloans and the pattern of their distribution bysector, size, geographic location, purpose and maturity are shown in theBasic Data Sheet.

16. The sectoral utilization of the Loan was consistent withexpectations at the time of appraisal with 67.3 per cent of disbursementsfinancing manufacturing sector subprojects. The recent rapid growth ofgarment manufacture for export from Fiji is reflected in the relativelyhigh proportion (23.1 per cent) of loan proceeds disbursed to that sub-sector. The proportion of loan proceeds utilized for transport andconstruction sector subprojects (18.9 per cent and 9.4 per cent) was

J/ The Government had assumed the foreign exchange risk on the Loan.However, given the non-concessionary nature of the interest-ratecharged, FDB's Management was reluctant to incur such risk for theGovernment.

2/ Each subloan was financed on a 67 per cent, 33 per cent basis fromthe Bank and IBRD Loans. Subloan data in this Report refers to thetotal disbursement from the co-financed Project.

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relatively high. However, this distribution was affected by the lowoverall utilization of the Loan. FDB Management explained that had ahigher proportion of the Loan been utilized, the additional commitmentswould have been mainly for manufacturing subprojects.

17. Below free limit subloans accounted for 90 per cent of subloansby number reflecting FDB's preference for the simpler documentationrequirements of such subloan applications. However, 39.9 per cent of Loandisbursements were to the five above free-limit subloans. One largesubloan of F$388,700 to Rewa Co-operative Dairy Company accounted for 15.9per cent of total disbursements.

16. The subloans financed were distributed evenly between theCentral/Eastern and Western districts of the main island, Viti Levu. Onlyseven subprojects on the less developed Vanua Levu were financed under theLoan. Although a higher utilization of the Loan for subprojects on VanuaLevu would have been preferred as this would have supported investment ina less-developed region within Fiji, the difficulties of establishingmanufacturing based enterprises on Vanua Levu, which has an agriculturaleconomic base and less developed infrastructure, must be recognized.

19. New as opposed to expansion/modernization subprojects accountedfor 33.6 per cent of the utilization of Loan proceeds. The PCR Missionconsider3 this to be a satisfactorily high proportion of the start-upprojects that received funds under the Loan. Many of these newsubprojects were for the garment manufacture sector.

20. Only 13 per cent of Loan proceeds were relent to sub-borrowersfor terms of ten years or more. However, 53.2 per cent of total Loanproceeds disbursed were relent for terms of over five years reflecting theproportion of the Loan utilized for purchase of fixed assets other thanvehicles. Subloans utilized for purchase of vehicles (mainly buses andlight trucks) were normally provided on three to five year repaymentterms, reflecting the economic life of such assets.

C. Imnlementation and Initial Oberation of Sub2roiecgs

1. Imlmtatign Stats

21. At the date of the PCR Mission in June 1990, all subprojectsfinanced under the Bank Loan had been fully implemented. Of the 51subprojects, six incurred cost overruns during the implementation stagetotalling F$563,500 and one subproject cost F$6,000 less than budgeted.Most of the total amount of cost overrun resulted from a change in thescope of the Rewa Co-operative Dairy Company subproject. Of the totalexpenditure of F$6.4 million on the fifty-one subprojects, FDB financedF$2.4 million (37.7 per cent) from the co-financed Bank/IBRD Loan andF$1.8 million (27.5 per cent) from internal sources, commercial banksfinanced $0.9 million (13.8 per cent) and subproject sponsors providedF$1.3 million (21 per cent). Appendix 3 provides details of theimplementation of the subprojects.

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22. Procurement under the Bank Loan was mainly undertaken on a"reasonable competition" basis, this mode of procurement accounting for89.6 per cent of the utilization of the co-financed Bank/IBRD Loan.Appendix 4 provides a summary of the pattern of procurement under theProject. The major source country for procurement was Japan with 37.3 percent. The PCR Mission found that procurement procedures utilized by FDBwere in accordance with the Bank's Guidelines and Practices for SouthPacific countries.

2. Financial Performance of Subtrojects

23. Appendix S provides a slmmary'of the available data related tothe initial financial performance of subprojects. The PCR Mission founda paucity of information with respect to subproject performance. WhileFDB requires the submission of regular financial reports from itsborrowers, receipt of such reports is normally only followed up whenserious arrears situations develop. Moreover, many of FDB's borrowersoperate as sole traders and do not produce formal business accounts. Only28 of the 51 sub-borrowers had pro-'ided financial data summarizing theoperations of their businesses during the first year after, subloandisbursement and only 22 sub-borrowers had provided data in the secondyear of operation. Of the 28 subborrowers providing data on their firstyear operations, 19 (68 per cent) achieved sales figures close to orgreater than those they had originally estimated. In terms ofprofitability, three made losses during the initial year of operation andfifteen (54 per cent) achieved profits similar to or greater than thatprojected. Of the twenty sub-borrowers for whom profit data wereavailable for the second year of subproject operations, 13 earned profitsduring that period similar to or greater than the levels projected at thetime of subproject appraisal.

3. Economic Performance of SubRroiects

24. Data on the economic performance of subprojects were againlargely unavailable. Appendix 6 summarizes the available data onincremental value added, incremental foreign exchange savings/earnings andemployment creation. Fourteen subborrowers that provided such datareported total incremental value added of F$2.3 million for their firstyear of full operation. The same 14 subborrowers reported totalincremental foreign exchange earnings or savings of F$3.6 million for thesame period. Forty-three subborrowers had provided data on employmentcreation and reported that new jobs created totalled 210, 58 less thanestimated from the subproject appraisals.

4. Current Status of Suburojects

25. Appendix 7 summarizes the current status of subprojects, as at31 March 1990. By that date, 24 subloans representing 35.2 per-cent ofdisbursements under the co-financed loans had been fuilly repaid. Eightsubprojects representing 22.6 per cent of the value of disbursements underthe Project were in arrears. Two further subprojects had failed although

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neither was in arrears and on. had fully repaid the subloan. Theoutstanding subloan balances including the component funded from FDB' sinternal sources at 31 March 1990 was equivalent to 38.2 per cent of totaldisbursement.

D. The Line of Enuitt

26. Tho Bank Line of Equity of 8250,000 provided as part of theProject was intended to supplement FD's own annual allocation ofF$200,000 for equity investment operations during the PY 1988 period. TheBank Line of Equity wa intended for im estment in medium-sized industrialenterprises with a maximum Bank investment of $lO0,0in any singleenterprise.

27. Appendix 8, which provides an analysis of FDB's loan and equityinvestment operations during the period FY 1985 to FY 1989, shows that FDBprovided equity investments fron its own resources of F$3.2 million duringFT 1986 followed by F$273,000, F$168,000 and F$440,000 during thefollowing three fiscal years. The high level of equity investment duringFT 1986 mainly reflected FDB's investment in Fijian Property Trust Co. Ltd(F$2.6 million) which was established to promote investment in real estatedevelopments. FDB also invested in excess of F$500,000 in industrialenterprises during FY 1986; these investment opportunities had beenidentified earlier as pipeline projects for the Bank's investment.However, delays in declaring the Project effective (para 42) precluded theutilization of the Line of Equity for these projects. During the periodsubsequent to FY 1986, FDB had difficulty identifying further projectssuitable for the Bank's investment. Furthermore, during FYs 1987 and 1988in particular, FDB's own equity investment operations were relativelyinactive and supplementary financing was not required. FDB's managementfound, in addition, that there was a marked reluctance from promoters ofsmall to medium sized enterprises to accept a large, internationalinstitution as a shareholder in their projects.

28. As a consequence, the Bank Line of EquLty was not utilized andwas cancelled in June 1988 with no project having been put forward for theBank's consideration.

E.o ftrA 1iggl Ilrfsrsane of EXff

1. Oranizati. m

29. FDB's policy-making and governing body is its Board ofDirectors. The Board is appointed by ttw Kinister of Finance andcontinues to comprise nine directors including five representatives of theprivate sector. The composition of 1DB's Board of Directors hassubstantially changed sinec the Bank Loan was approved in 1985. Only theChairman and Managing Director have reoained unchanged throughout theperiod. The PCR Mission reviewd minutes of recent' Board meetings andfound that appropriate comercial guidanc ws provided by the Board toFDB's operations.

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30. Appendix 9 provides an outline of FDB's organization structureat 30 December 1989. Since the time of appraisal of the Bank Loan, theorganization structure has been amended to allow for a third GeneralManager (General Manager Administration and Special Projects). Inaddition, new divisions have been created for special projects, systemsand electronic data processing, audit and inspection and advisoryservices. The changes to FDB's organization have reflected the need tocope with the requirements of the growth of FDB's optrations.

31. Perhaps the most difficult problem faced by FDB during theperiod of utilization of the Bank Loan has been the dramatic staffturnover since the political events of May 1987. There were a total of102 resignations of professional staff between the period June 1987 toJune 1990. 1/ While many of the resignations were a result of emigration,others reflected movement of experienced PDB staff to senior positions inthe public service and financial sector within Fiji. Many of the staffwho resigned held manager-level or higher positions including two GeneralManagers. The PCR Mission found that FDB's Managing Director b*s reactedquickly and appropriately to this situation and has maintained activerecruitment and training programs. However there has been ar inevitabledeterioration in the levels of skill and experience within FDB. The Banktechnical assistance approved in October 1989 2/ was requested tospecifically address this problem. Consultants recruited under thistechnical assistance are currently in the field.

2. Lending ODteraions

32. An analysis of FDB's lending by sector for the period FY 1985to FY 1989 is provided in Appendix 8. During the period FDB's totallending increased at an average annual compounded growth rate of 6.9 percent, significantly less than the average growth rate of 18.5 per centprojected at the time of appraisal of the Bank loan. The principal causeof the relatively slow growth in lending was the political events of 1987and 1988 and their dampening effect on investment levels. A furtherfactor was the deterioration in FDB's staffing situation and the resultingneed to maintain a close control on loan quality.

33. As a result of these factors, FDB's loan approvals declined by35 per cent during FY 1988 over the previous year's figures. During FY1989, a 42 per cent increase in lending levels was recorded following arelatively strong recovery of agricultural investment, the rapid growthof Fiji's garment industry and increased lending to ethnic Fijians forindustrial and comercial purposes.

J/ FDB's professional staff complement stood at around 100 to 115 duringthe poriod.

2/ TA No. 1209-FIJ: Institutional Support to FDB (Training)

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F. Financial Performance of FDB

1. Size and Oualitv of Loan Portfolio

34. Appendix 10 provides an analysis of FDB's portfolio arrearsduring the period FY 1986 to FY 1989. During the period the total valueof FDB's loan portfolio increased by 18.9 per cent while total arrearsincreased by 41 per cent. As a consequence, the ratio of total arrearsto total portfolio increased from 13.1 per cent to 15.5 per cent. Totalarrears had actually declined slightly between FYs 1986 and 1987 and thelargest increase occurred during the period prior to FY 1988. However,available data indicate that FDB probably achieved satisfactory annualcollection ratios of 75 per cent or higher during the period up to FY1987. Collection performance declined quite drastically during FY 1988to a level of 48.9 per cent. As a result of remedial actions taken byFDB's Management, collection performance improved markedly during FY 1989to 68.1 per cent, a figure which compares quite favorably to that ofsimilar-sized DFIs receiving Bank loans. Available data indicate thatduring the period since June 1989, FDB has maintained an annual collectionratio of between 65 and 70 per cent.

35. The sectoral incidence- of FDB's arrears has not alteredsignificantly since FY 1986. The proportion of arrears contributed fromagricultural loans has declined somewhat from 50 to 45 per cent while theproportion of arrears attributed to industrial and commercial loans hasincreased from 30 to 37 per cent. The contribution to total arrears fromthe industrial loans to ethnic Fijians has remained stable at around 20per cent despite the increased lending to that sector.

36. Apart from increasing staff training inputs and imposing tightercontrols on loan quality to address the worsening arrears situation, FDB'sManagement has strengthened the staffing of the operational unitsresponsible for hard-core loan administration. The PCR Mission foundthat FDB's Management had been responsive to the potentially difficultportfolio situation that developed during FYs 1988 and 1989 and that theactions taken had enabled a deteriorating situation to be controlled ina timely manner.

2. Financial Position

37. Appendixes 11, 12 and 13 provide comparative income statements,cashflow statements and balance sheets for FDB for the period FY 1985 toFY 1989.

38. The income statements show that FDB remained profitablethroughout the period. However, reported profits were significantly belowexpectations from FY 1986 onward. A major reason for this situation wasthe implementation of new accounting policies for the recording of incomefrom 1986 onward. While all interest charged had previously been reportedas income, from FY 1986 onward interest on all loans classified as non-

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performingl/ was not recorded as income until actually paid. The effectof this policy has been to reduce FDB's reported profit by between F$0.5mlllion and F$1.5 million per year over the period. In addition,significant increases were made in the annual provision for doubtful debtsfrom FY 1986 onward. Particularly large provisions of F$2.4 million andF$3.1 million were made in FYs 1988 and 1989 respectively, reflecting aprudent response from FDB's Management to the growing level of arrears.As a result, FDB's provision for doubtful debts had increased to a healthy11.25 per cent of total portfolio value by 30 June 1989.

39. As shown in the cashflow statements, FDB has maintained betterthan expected debt servicing capabilities throughout the period, despitethe decline in collection performance during FYs 1987 and 1988. Theuneven debt servicing requirement over time that results from the natureof FDB's domestic bond issuance program is demonstrated by the significantdrop in the debt service coverage ratio from 2.99 to 1.5 times between FYs1988 and 1989 compared with the covenanted minimum level of 1.25 timesunder the Bank Loan.

40. During the five year period the Government provided total equityinjections of F$18.3 million, equivalent to 11.6 per cent of total loandisbursements made by FDB over the period. New term debt from domesticsources funded 37.2 percent of loan disbursements during the period andforeign debt including the Bank Loan funded 7 per cent with the balance44.2 per cent funded from cashflow. FDB has maintained a relativelyconservative long term-debt to equity ratio of close to 2:1 throughout theperiod compared with the covenanted maximum level of 3:1 under the BankLoan.

41. Other aspects of FDB's financial performance have beensatisfactory.

G. Covenants

42. Details of the loan covenants and their compliance status aregiven in Appendix 14. The Bank loan covenants were substantially compliedwith. I

H. The Bank's Performance

43. The second Bank loan to FDB was declared effective on 10 June1986, seven months later than the original closing date for loaneffectiveness and following four extensions of that date. The delay inmaking the loan effective resulted from the hesitancy of FDB's Managementto accept the interest rate of 9.65 per cent to be charged to FDB underthe Project. At the time of Loan negotiations, the Bank's OCR rate wasin excess of 11 per cent and FDB's Nanagement foresaw difficulties in

/ Under FDB's policies a loan is classed as non-performing if four ormore interest payments or loan repayments are in default.

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utilizing the funds at that cost. The OCR rate had fallen to a moreacceptable level from 1 July 1985 and FDB had indicated the Project shouldproceed for Board approval. FDB retained some concern however over therelatively high cost of the funds.

44. The Bank's turn around time for processing of below the freelimit subloans averaged 11 days and for above free limit subloans wasabout three weeks including the time taken in seeking clarification andadditional information. This turn around time was considered acceptableby FDB's Management.

45. The Bank did not mount regular annual review missions to FDB.partly because of the relatively inactive nature of the loan, but alsobecause of the regular contact that was maintained between FDB and SPROstaff. SPRO staff concerned have followed a practice of visiting FDBduring one-two day transit stops in Fiji whilst travelling on Mission toother South Pacific DMCs. The approach taken by SPRO to the supervisionof the loan is considered satisfactory.

II. EVALUATION

A. ADpraisal

46. The appraisal mission's evaluation of FDB's institutionalcapabilities and of Fiji's private sector investment environment was soundand appropriate. The two major factors that affected the utilization of,and economic contributions from, the loan were unforseen developments inFiji's financial markets and political conditions and could not have beenforeseen during appraisal. Despite the low utilization of the Loan, therationale for the Loan remains sound and was responsive to theGovernment's economic development policies.

47. The covenants and other conditions attached to the Loanreflected the appraisal mission's evaluation of FDB as a relatively matureand soundly-managed DFI. The subsequent performance of FDB, particularlyin coping well with the effects of the political events since may 1987have confirmed that the covenants and conditions were appropriately drawn.

B. Implementation

48. Because 82 per cent of the Loan proceeds were not utilized, theimplementation of the loan cannot be assessed as satisfactory. However,the performance of the subprojects financed as measured by the repaymentand arrears status of subloans can be assessed as satisfactory. A closerassessment of the economic impact and financial performance of subprojectscannot be made because of FDB's operational style which has resulted ininadequate data being collected or retained for such assessment to bemade. However, the Mission considers that FDB's effectiveness as a

- 1i8 -

relatively efficient financial intermediary may outweigh the disadvantagesthat have accrued from the low priority afforded to collection ofsubproject performnce data.

IV. SIhNL

49. The PCR Mission hax concluded that the Project provided aworthwhile contribution to FDB's operstions during the period 1986 to 1988through the financing of 51 subprojects that achieved a reasonable levelof success and through making available, total foreign exchange resourcesfor on-lending of $10.5 million. The availability of those resourcesenabled FDB to undertake with confidence, a program of expanded lendingthat was expected to result in an average annual growth rate for loanapprovals of 18.5 per cent over a five year period. The fact that only17 per cent of the Loan was utilized was largely a result of unforseoenfactors including depressed investment levels resulting from the effectsof political developments during 1987 and 1988 and the availability ofrelatively low cost funds from domestic sources and from other externalagencies.

sO. Factors that were apparent at the time of loan appraisal andthat, in retrospect, can be assessed as important contributors to the lowutilization of the Loan, include the relatively unattractive fixedinterest rate charged at the time on the Bank's OCR Loans and FDB'soperational style, which was not fully compatible with the Bank'sprocedures for implementing line-of-credit projects.

51. The non-utilisation of the Line of Equity was partly caused bytiming factors that precluded the Bank being offered investmentopportunities for 1985 pipeline projects. Another important considerationhowever, was the concern held by entrepreneurs over the effect ofincluding a large international institution as a shareholder in relativelysmall enterprises.

52. During the period of the Loan's utilisation, FDB demonstrateda capability for responding promptly and appropriately to adversecircumstance, largely through astute leadership from its seniormanagement. As a result, FD3 remains a relatively effective andfinancially strong DPI.

53. Based on the Bank's experience with this Project, there may bescope for reconsideration of some of the Bank's procedures for theimplementation of line-of-credit projects, particularly in those caseswhere the line-of-credit is provided to a comercial bank or to arelatively strong DFI that does not utilise the same project evaluationand project supervision fomat followed by more conveftitional DFIs.

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54. Th Mission also conaLders that, subject to development of amore apparent demand for external resources for the financing of privatesector investment ln Fiji, the Bank could consider utilising an "umbrella"lne-of-credit approach that incorporates commrcial banks as well as FDBas executing agencLes for its future private sector operations in thatcountry.

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ApgendL IPage 1

FIJI DEVELOPMENT BANK

STATEMENT OF OPERATING STRATEGY AND GENERAL BUSINESS POLICY

I. THE BANK

1. The Fiji Development Bank (FDB) was established in accordancewith the provisions of the Fiji Development Bank Act approved in December1966, as amended, as a development financing institution for the directsupport of Fiji's economic development. FDB is an autonomous statutorybody with its own Board of Directors, whose members are appointed by theMinister of Finance. It conducts its activities within the framework ofthe Government's economic plans, policies and priorities.

II. BASIC OPERATING STRATEGY

2. FDB's operating strategy includes the following primary elements:

a. To provide loan financing primarily to agricultural andindustrial enterprises operating in Fiji in a manner that willsupport the realization of official national economic planninggoals and establish well balanced lending program in the majoreconomic sectors;

b. To take equity participation in business enterprises and jointventures with the aim of eventually distributing suchparticipation in support of wider participation of the generalpublic and institutional investors in the ownership of businessenterprises in Fiji;

c. To contribute to and participate in the Government's economicplanning processes;

d. To contribute to the national development process throughincreased activity in project identification, determination ofproject feasibility and assistance in project implementation;

e. To promote the planning and development of supervised lendingschemes;

f. To review the need for and, where appropriate, to promotedevelopment of auxiliary financing facilities in Fiji, such ascapital equipment leasing;

(Reference in text: page 3, para.12)

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Appendix lPage 2

g. To furnish constructive business development and businessmanagement counsel to actual and prospective entrepreneurs andmanagers in Fiji;

h. To collaborate with and assist other statutory bodies in theplanning and financing of development projects and enterprises;and

i. To establish specific short and medium term objectives each yearby major economic sector.

III. SCOPE OF OPERATIONS

3. FDB will provide financial assistance to priyate sector andpublic sector enterprises, in each case against security and/or guaranteesacceptable to FDB Management, in the following forms;

Medium and Long term loans; and

- Short term working capital advances in association withmedium and long term loans.

4. FDB will also provide guarantees to all classes of enterprise itconsiders appropriate and financially sound.

5. FDB will take equity positions in all classes of enterprise withthe express purpose of subsequently distributing shares thus acquired tothe general public and institutional investors. In association with equityinvestment, FDB will also underwrite equity issues.

6. Other related support and assistance that FDB will provideincludes assistance to entrepreneurs and uanagers in ascertaining projectfeasibility, in selecting appropriate accounting and control systems, ina"sessing operating performance and in identifying appropriate sources offurther external advice and assistance.

7. FDB will actively promote the establishment of new projects andthe formulation of new enterprises in collaboration with the EconomicDevelopment Board (EDB), other statutory bodies or subsidiaries thereof,Government agencies and private organizations.

8. FDB's operations will be based on the following sectoralconsiderations.

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Page 3

A. Agriculture

9. FDB will make loans to individual farmers, farmers'cooperatives and corporate entities. In extending such loans, FDB willgive priority to developmental projects in agriculture and to supervisedlending schemes.

10. FDB may provide finance to assist in the acquisition ofagricultural land where this is in support of agricultural developmentprojects. FDB will give priority in relation to the purchase of fishingvessels and equipment to those projects which have good prospects forexpansion and development in the fisheries field.

B. Industry and Commerce

11. FDB will make medium and long term loans for investment in fixedassets and to meet permanent working capital requirements in industrialenterprises. It may supplement such assistance by providing short termadvances to cover temporary working capital requirements.

12. FDB will make loans to commercial enterprises for the acquisitionof fixed assets only.

C. Industrial and Commercial Loans to Filians

13. To give those of Fijian race better opportunity to engage inindustrial and commercial activities, FDB will extend medium and long termloans to Fijians in connection with viable industrial and commercialprojects and will provide working capital advances for such projects.These loans will be extended on concessionary terms and, in cases whereGovernment guarantees are applicable, with reduced security requirements.FDB will also finance on the same terms joint ventures between Fijians andnon-Fijians where Fijians are the effective beneficiaries of not less than25 per cent of the equity of such ventures.

IV. DEVELOPMENTL POLICIES

14. In providing assistance, the Bank shall give preference toenterprises which will:

(a) contribute effectively to broadening the basis of localentrepreneurship;

(b) reduce income disparities;

(c) utilize domestic raw materials;

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AonpendLIx Page 4

(d) have a high export potential or potential for importsubstitution;

(e) make use of labor intensive technologies;

(f) introduce new technologies;

(g) contribute to a diversification of the economy; and

(h) create opportunities for the small emerging entrepreneurs.

V. GENERAL POLICIES AND PROCEDURES

15. Financial assistance will be provided only for projects whichappear to be economically and technically viable and financiallyprofitable. Special attention will be given to the quality of managementof the enterprise and market prospects of the project.

16. Applicants requesting financial assistance from FDB shall berequired to submit the project application in writing. FDB may provideassistance to loan applicants as follows:

a. Assistance in the preparation of project specifications andfeasibility studies;

b. Referral of applicants to experts and/or sources ofinformation relating to their projects;

c. Advice and assistance in the selection and installation ofappropriate accounting books and records and relatedoperating controls; and

d. Initial guidance in the preparation of periodic statementsand reports.

17. Applicants shall be required to finance a reasonable portion ofthe total project cost from their own resources to ensure that the totalfinancial requirements for the successful implementation of the project areavailable.

18. Loans will be disbursed taking into account the promoter's c.wnfinancial contribution against proper documentation and in line with therequirements of the investment schedule of the project.

19. FDB shall appropriately supervise the use of its funds, theprogress of the project financed and the performance of the enterprise andersure that remedial action is promptly taken if and when problems arise.

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Page 5

When necessary, FDB will endeavor to provide the necessary services to suchenterprises or it will refer them to other appropriate and availablesources of assistance.

20. The repayment period of loans, including grace period, will bedetermined in accordance with the nature and individual circumstances ofthe projects.

21. The financial assistance from FDB may be used to complement thatof other lenders. In cases where the requested financial assistanceexceeds the limits of the Bank's lending capacity, the Bank may considerjoint financing arrangements.

VI. FINANCIAL GUIDELINES

22. The rates of interest applicable to the various types of loanswill be determined and reviewed by FDB from time to time, in the light ofdevelopments in the capital market with due consideration to the cost ofthe FDB's own borrowings from domestic and other sources.

23. FDB will secure its loans by appropriate collateral coverage andguarantees from its borrowers, in accordance with sound banking practices.but in doing so the Bank will have due regard to its developmenta.functions in the Fiji economy.

24. The Bank will not carry the foreign exchange risk on its debt srepayable in foreign currency. In the event the Government or its agencie,are not prepared to bear the foreign exchange risk relating to its (FDBsrepayment of debts in foreign currency, such risk will be passed on to t:-..Bank's borrowers.

25. Except for the purpose of safeguarding its investment, FDB willnot seek a controlling interest in any enterprise in which it has invested.FDB will not normally participate directly on a daily basis in themanagement of an enterprise in which it holds an equity interest, but itwould expect to nominate representatives as members of the Board ofDirectors of the enterprise to safeguard its interests and to contribute tothe success of the enterprise. As a rule, the FDB's equity participationshall not exceed twenty-five percent (25 per cent) of the paid up capitalstock of an enterprise. In the case of joint ventures and selectedprojects deemed to be of national importance, FDB may invest in equityparticipation up to 49 per cent of the paid up capital stock thereof.

26. FDB's equity investment shall serve mainly as a catalytic agentfor the establishment of tnew enterprises and will normally dispose of suchequity investments as soon as this becomes feasible and a fair price can beobtained therefrom. In all cases, FDB will make every effort to dispose of

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Page 6

such equity investments within five years of its date of acquisitionthereof.

27. FDB will not normally commit to a single enterprise, in the formof share capital more than ton per cent (10 per cent) of its unimpairedpaid-in capital, earned surplus and reserves. The total equity investmentsof the Bank shall not exceed, at any time, the aggregate amount of its ownunimpaired paid-in capital, earned surplus and free reserves.

28. The Bank's total commitments in any single enterprise in whateverform, i.e. loans, equity participation, guarantees or a combinationthereof, will not normally exceed fifteen per cent (15 per cent) of the sumof its unimpaired paid-in capital, earned surplus and free reserves.

29. The total commitment of the Bank in any single non-agriculturalenterprise will not exceed at any time 65 per cent of the total assets ofthe enterprise including the Bank's own investment. This limit may go upto eighty per cent in worthy projects meriting special consideration. foragricultural projects the Bank's total commitment will not exceed eightyper cent of total assets except for projects meriting special considerationwhere an unsaleable lease of land is an essential feature. These limitsmay be exceeded in cases where the loan will be adequately secured becauseadditional securities over assets not forming part of the project areavailable.

30. In the case of commercial Loans to Fijians, there will be nolimitation on the loan to be provided, the sole determining factor beingthe Bank's assessment of the economic, technical and management viabilityof the project.

31. In view of the risks involved in long-term financing, the Bankwill exercise prudence in incurring debt so as to maintain at all times awell-balanced financial structure. The Bank will limit its borrowings toensure that its orutstanding long-term debts at any time shall not exceedthe equivalent of three (3) times the sum of its unimpaired paid-incapital, earned surplus and free reserves.

32. In managing its portfolio, the Bank will endeavor to diversifyits loans and investments in terms of type of industries, location andsectors of industries being financed.

VII. ACCOUNTING

33. The Bank will maintain accounting records adequate to reflect itsbusiness operations and affairs in accordance with generally acceptedaccounting principles and standards.

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oendixLIPage 7

34. The Bank will engage a qualified and independent publicaccountant to audit its books and accounts every year.

VIll. PROVISIONS

35. The Bank will annually make appropriate allocations to aprovision for protection against bad debts and investments in line withsize and quality of the Bank's loan and equity portfolio until suchprovision equals five per cent (5 per cent) of the Bank's portfolio. FDBshall transfer all its net portfolio or reserve fund until such reserveequals 50 per cent of FDB's paid-in capital.

IX. REVISION OF POLICIES

36. This Statement of General Business Policies has been approved bythe Bank's Board of Directors; any revision of the Statement shall requirethe prior approval of two thirds of the members of the Board of Directorsof the Bank.

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AP-PENDIX 2

JI DELQMW BS

Intermt Rate a Pld. in fll1985- 199

(Per Cent Per Anm")

At31 December 1985 196I 1987 1988 196

1. Comnmcial Bark Lend g Rte a/ 13.06 11.97 13.72 12.33 11.5

1. One Yer Deposit Rte1. Lss than F$ 250,0008.0 8.0 8o 8o 7.52. Over F$ 250,000A/ 12.47 7.13 16.23 8.08 n/a

Ill. Governmet 5 Year Bond Rate 10.25 9.08 15.47 8.46 6.68

IV. FOB Lending Rates1. Agricl

LeidingW/ 11.0-11.5 12.5 12.5 13.5 13.52. Cmmercl Loans to ijlansrC/ 11.0 12.5 1z5 13.5 13.53. IndutrilandBusiness Loans 12.5-13.5 12.5-13.5 12.-13.5 13.5 13.5

V. FDB Bonds k/ (6-14 yer 10.84 10.8 - 7.46 7.0

A/ Weighted average yiedk/ Weighted average yied.S/ Specified msses d FDB ascul lnding and comnc lending to Fijins recved explcit

Gsoen ssibde ranging beten 1 per cent and 5.05 per cent during the peiod.

(Reference In tet page 4. pr. 14)

- 169 -

*~~~~~~~~~APNI aX

MPEIfAION 8TAT SOPF M S "NANUNOER LOAN NO. 730.M

(FTOO0)

FtOIwEC OtlSI FINANCING

SL NAMEOP LOCATNOP NAYUREOP INDUSTRIAL VARIATION COMMERIULNO. SUJECTMY _ EOpvxmT ECTR EST. ACnADAOAIO FOE =M-S SPONSOR ToTA

NoI OH IOUWIE LAUTCWA EP. FURNIt R 18.2 1. - 102 - -0.0 t02

can CAVA RAII TAIIE MNE CONIfflUOTI 3.0 12.0 - 23.0 - -0.0 32.0

003 M.R. PATE! XA O TRANSRT 1. 16.5 - 1.0 - - 4 5 10.5

004 O.PRASADaSam tNAMOSI EXP SAWIWNO 41.5 41.5 - 2-5 - 10.0 41eo WE5TERGAMUNTS LUUTWA NEW GARMENT 40.0 40.0 - 1A0 11.0 - 14.0 40.0

ON P.CNANO ISTRIES LUTOKA MOO CONSTROIO 45.0 ".0 40 34.7 - - 4.3 0.

007 8iUR_SS (FJ)V LD SA W CONTRUCTIO 2.0 6.0 - 420 - - 20.0 6240 MOHAMMSOSAS 81TCW1A EXP TRANSPORT 31.5 31.5 20 - - 11.2 31.5

on MUIIOIANINVr NAMI NEW GARMgNT 48.7 4L? - I 122 - 1t.9 46.7

OtO MAOWAUMINUM $VA NEW JCINERY 71.0 80.6 15.0 31.5 40.1 - 15.0 806

O11 RATUKAUAPPAJI LAUTOIA NEW JOINERY 00.0 1*t.0 67.0 25.8 84.2 - 170 127.C

013 vASU DIVAN LAUTOKA MM FURNITUPE 87.0 05.0 0.0 330 420 - . 18 3 C

014 SAA KIAN NADI NEW TRANSPORT 22.0 22.0 - 1t.1 - - S6 22 C

015 LALMOHD3N RGTOIA MOM SAWUUNG 66.0 80 - 34A - - 2!' 4 tM

01t MOI ACRANEHIRE .LTOKA E CONSTRUOTIO 138.0 138.0 - a. 30.1 - 414 138 C

oi7 RAVINVUAYtMAR NAUSR MO TRANSPORT 10.3 10.3 - 7.4 - - 2.9 *o:016 KALRAMN LAUASA P CONSTRUCTIO 4.1 41.1 - 2.3 - - 140 41'

010 TAOI INIVET.LD. StNA SP PRINTIN 234 24 - 1.0 OA - - 21

020 P.8COATLTD SUVA MOO FURNITURE 20.0 21.5 1.5 1i.7 6.3 I S

021 CHAoVAR. NAR , AUTOKA wP TRANSPORT 29.0 29.0 - 20.0 - - a t 29

022 OHAAM SIN LABASA NEW TRANSPOPT 24.0 24.9 - 15. - _0 9 4

023 VINOOPATEL&CO. SUA MOO TRANSPORT 27.5 27. - 18.4 - _ e

024 RAM SANKAR SSGATOIKA MOO TRANSPORT 20.0 20.0 - 13.2 - - 6 1

n26 ERONI sATUWAN NASAU EXP TRANSPORT 17.9 17.0 - t1.3 - _ 80

020 ALI RIZA L8ASA EXP TRANSPORT I6.8 10.8 - 0.5 - - 10 3 *8

027 TAHRALI ABAA MOO TRANSPORT 23.9 23.9 - 14.5 - 9a

o2 LAuTOAPRiNTRY LAUTOKA PP PNTIG S9 52. - 3.'I _ _ , a :

2 EUSIA ENSINEIN OA eV MANUF. 63.0 60 - 40.4 . 22. - -d3

03 MOT?!ANORAOO LAUTOICA PP TRANSPORT 60.2 00.2 - 10.t . 20.0 - 20 sc

031 DIPLOMAT WGE LAUTOKA NEW MANUF. 368.0 36L0 - 143.2 818 _ 140 0 3es

02 SHERAUA LAUTOKA OP QUARRYINO t 32.0 - 28.0 - _ :

a3 LAUTOA GENTRANS LAUTOIA WP TRANSPORT 206.9 200.9 - 14.4 - - 3 94

O4 DOMALOO LTD. A IP MANUf. 103.5 103.5 - 37.4 0.0 10. - 1 !3

1 SuPERIORMANUF. StVA NEW MANUF. 81.6 1. - 430 2.0 - 20 a

m NAVNITLAL LIJTOC PP GARMENT 30.0 30.0 _ 20.0 - _ to0 30

o03 6 E RFM MGTOWA VP TANSPORT 22.0 22.0 - 13. - a s5

036 EAT WEST GA T SUVA NEW GARMENT 67.0 87.0 - 47.0 - _ 200 #7

030 TROPCLGARMENTS atSvA WP GARMENT 35.0 35.0 - 23.0 - - 120 35

040 FtROZOASIOOR LABASA NEW RETAIL 14.9 14.0 - 6. - - 84 14

041 EASOEO LDS PP CONSTRUCTIO, 87.4 37.4 - 18., - l 165 37

042 SAU84) FRAAD SUVA MOO SAWMU. 362 36.2 - 20.2 - - 100 36

04 OEOMUT INAA 1GATOKA MOD TRANSPORT 16.0 10.0 - t1.2 - 53 15

044 TACIRUATRANSPORT SUVA EP TRAMSPORT 67.0 67. - 60 - - 290 &7

me NAROTAU GARNITS $UVA NEW TETL 106.4 1094 - 136 - - 566 196

046 FABCRAFTCLU_ LAUIJOEA NEW TEXIL 2700l 20.0 - 16.0 - 0.0 30.0 270

047 JNJ CORATIO SUVA NEW MANUF. 320.0 320.0 - U.4 17.4 125.0 102.0 329

042 PANORAMA WINT SUWA NEW TOURIS 329.0 ma - 107.7 S3 - 1203 30

040 REWACOOPERTRIVE SUVA NEW DAIRY 2100.0 2a70.0 470.0 336.7 12113 60 2050 250

052 RAINOWTWIE NM P GAMENT a 730 4.0 5 - - 21.0 73

0N RANJETUGRMENT SUVA NEW GARMN 120.0 120.0 - 88.6 1.4 - 30.0 t2C

05 MEL RAWM LASASA gPP SAWMILWNG 1260 1260 - 11.2 - 200 12'160. 0424.6 6176.4 600 13407 6424

*{Reft s in w& peg S.pat. 21)

- 170

NUMMBE OF AMOUNTA. PROCUBJFEMENT PROCEOUPXRES _____

1. PROPIUErARY BASIS 14 18w 10.4

2 REASONABLE COMPETfft 37 164. 89.651 1624. 100.0

BC U1IBM.QE ELMBdEMENT

JAPAN 29 679.9 37.3TAIPEi, CHINA 4 215.6 11.8SWEDEN 1 189.6 104NEW ZEALAND a 1860 10.3AUSTRALIA 5 1526 6.4OTHEfRS 4 397.6 21.8

51 1636. 100.0

(ReferenceIn tsit pog 6, Pam 22

- 171 -

PU DEVELOPMENT AN§K

FINANCIALPERF@RANCE OFIUUPOJET FINANCED UNDER LOAN NO. 739

TOTAL SALES NET IOUE RETURN ON EOUfIY (P)

tottsr 2114tt Istylw w la d 2nd vow

SILNo Name of SibpoMO Ein.11 Acua EIL Actual Es AG" Ebw Aia Et. Actual EC A

cot CttEER INOUStRIES 300 32 nfA 240 0 6 Vs fi 22 14 nVa flb4

002 DAAYRAM de nit 80 ni, 8 a IV& I1 nI W 20 nVa ni

w03 M.R. PATEL 168 ria 1766 nhi 19 IVA 21 na 10 Va 10 nIb

004 D.PRASAD&SONS 1S0 168 180 212 11 14 21 26 11 14 1? 24

OS WESMNRN GAMEN 245 330 2S0 3d0 22 28 25 32 22 2g 35 2D

006 P.CHANO INOUSTRI 700 692 '.7 878 70 9 so 23 47 0 so ts

007 S,BURGESS(FJ)LITD nia nit WS fit nfi nia fi e nie nfi nte Vta Iv

08 MOHAMMED SAIM 72 40 SO es 26 3 32 5 75 10 70 t4

0o MULJI OHANJI INVEs 00 3 120 aS 12 -7 nh/ 2 S5 nia ea tl

010 mIANOHAN ALUMINU 156 nit 103 nh 14 n.a 15 nba 40 nIh 42

o01 RATU KAUAPPAN 200 nia 256 nit 13 nil a nit 20 RIt 12 V

03 VASU OEVAN 300 nh 330 nla 27 nVa 30 nIa 39 n.a 29 n/

014 SASHAS KHAN 10 21 18 23.0 5 4 6 4.2 WS nt n/t nt

015 LALMOHD&SONSL so0 812 610 71O es 62 s0 115 1S 18 23 33

ole MOSILECRANEMIR dia 1da Wit nit 80 nia 04 d/6 130 nta 100 nIt

317 RAVIN VIJAY MAHAR nit n"l nlt da f nbt nfh n/a We n/t nta Iva Vt

m1 SALKARAN 32 40 nit 82 14.6 na Ilva -3 100 n/a nit n/a

o09 TAOI INVEST.LTD. 70 72 90 97 18 17 20 18 60 so eS 45

020 PLASCOAT LTO 250 123 270 nIa 20 -18 25 Ala 25 nia 30 ni

o2t CHANOR. INOAR & 0 74 70 07 5 4 a 6 10 8 lo It

022 DHARASSINGH 22 24 n)a 34 9 4 va ItI 100 40 n/a .20

023 VINODPATEL&CO. 1000 a1e 1100 780 100 84 120 so lo 0 20 8

O24 RAM SANKAR 20 21 2B 31 4 2 8 7 10 9 12 8

025 ERONI U MATEIWAI d ht nt n/t nit nta nd nla nit "is n/a nJt nit

020 ALI RIZA Wst nta lvk nla vla n/a n/a nia nJa nia n%t n/a

027 TAHIRLI dan nh nta n/1 n/t nhs n nt nit n"i nia nIt n.a

028 LAUTOKA PRINTERY 360 n/t 400 nla -1.3 nlt 1S n/t nit n/a 7 oea

029 EUSHA ENGINEERIN nlt ni t a n/ l n n/A nix WA Ala nit nia n/a lit

030 MOTICHANORACO 300 510 n/l nl6 n/a 75 nla nda n/a 25 nit 1a/

031 CIPLOIUAT LUGGAG 64 SO 306 190 -144 dat -42 n/a n/a n/a n/a -.8

032 SHERALI 70 nla gO nla nlt 8 14 13 7 a 11t

033 LAUTOKA GEN TRAN 27m.s nia 270 n nJ n/t ant Iv nda nJt n/a n/A nit

034 OOMALCO LTO. nJa nAlt n /l Ala Ala nht nla n/a n/ n/a n/t n/t

035 SUPERIOR MANUF. 75 20.0 Vn l la 6.7 11.5 nIt la 8.6 20 nit nta

036 NAVNIT LAL nh/a nha nl/t a Alt ita fn/a W/ nd/ nt/a ni/ t/a

037 S. LEKH RIAM ta ntA na n/a nis Ala da n"t b ia nt/a Ivt n/a

03S EAST WEST GARME 336 350 372 460 17 30 10 35 0.8 12 4 12

037 TROPICAL GAfWlEN 720 700 790 750 38 30 40 45 17 13.5 190. la

04o FIROZOASTOOR 42 30 n/a nl t 0.6 6.o nla nt/t 1o 12 nWe nt

041 BASOEC 33.1 ni nla nda 2.2 nit n/a n/a Ala n/a nla nit

042 SAJJBHU PRASAD iat n/a nJa nJa t n/a nha da nW nia n/a Ila

om ;EO OUTT SHARMA t0 13 16 nla 5.8 4.5 7 n/a 19.3 1S 20 '1a

044 TACIRUATRANSPOR 1100 1205 1155 1320 47 45 70 34 1S 18 30 is

045 NAROTAM GARMEN 262.8 250 462 500 -150 -100 08 122 -10 -8 tO tS

040 FASCRAFT CLOTHE 572 SOO 0s6 6oo 3 Ale 20 n/a nit nAa n/a nit

047 JNJ CORPORATIUN 435.4 nla 510 Alt -66.9 nva -10 n/i nda nia n/a nat

045 PANORAMA INVEST 8.4 niA 79 Wsa 4.5 Ala 14.3 nAl d/a n/a nAa n/a

048 REWACOOPEtATIV 15.000 18.714 165 n/h 540 457 58 r/t 15.6 12 14.2 nia

052 RAINBOWTEXTILES 880 920 1144 126 119 ff2 1t0 74 130 s0 1ss Gs

086 RANJET GARMENT 1300 1800 1430 1750 216 300 287 406 18 25 20 27

057 MELETI RAIMURI 450 ni 496 nda 40 n/ 73 nit 23 n/t 24 nil

I/ Exmnteod atit time of wt? a' apptStaW

(Rf twnce in toxt: pages put. 23)

- 172 -

APPENDIX 6

FIJI DEVELOPM-ENt SNK

ECONOMIC PERFORMANCE Of SUIPROJECTS FINANCED

UNDER LOAN NO. 736-FIJ

(FOR FIRST FULL YEAR OF OPERATION)

INCREMENTAL FOREIGN INCREMENTALINCREMENTAL VALUE SAVINGSIEARNINGS EMPLOYMENT INVESTMENT

ADDED (NO.) COSt PER JOIISIL NAME OF SUBPROJECTNO EST.1I ACTUAL EST. ACTUAL EST. ACTUAL EST. ACTUAL001 CHEER INDUSTRIES nbt nl ni nit 2 2 5.0 5.0002 DAYA RAM n/t nil n/A n/i I NIL 32 -

003 M.R. PATEL nWA nia nl n/a 1 1 ; 1004 O.PRASAD & SONS 60 67 72 83 2 2 20 20005 WESTERN GARMENTS 75 101 175 325 a 10 S 4006 P.CHAND INDUSTRIES 420 381 480 482 0 8 7 5007 B.BURGESS (FJ) LTD n/a nta n/ n; nit nla nla nha n/a008 MOHAMMEO SAHIM n/l n/a nJa nbt 1 1 31 31009 MUUI OHA4JI INVEST n/a 20 n/a 20 11 5 3 6010 MANOHAN ALUMINUM n/a * nl * nh * ni011 RATU KALIAPPAN 96 n/a 8 nla 4 nba 1S n/a013 VASU DEVAN 100 ni/ nJa nia 4 4 22 23014 SADHAS KHAN nla n/a nJs nla 1 1 22 22015 LALMOHO&SONS nl/ nbt nla n/a 1 1 56 56016 MOBILE CRANE HIRE n/a n/a n/a n/a 2 2 so as017 RAVIN VIJAY MAHAR n/a n/a nla nia nl nha n/a n/a018 BALKARAN n/a n/a nla nia 1 1 41 41019 TAOI INVEST.LT D. nla n/a nla n/a 1 1 23 23020 PLASCOAT LTD 150 * 250 * 8 a 3021 CHANDAR. INOAR & V nia nil n/l nI t 1 29 29022 OHARAM SINGH n/a n/a n/a nta I 1 25 25023 VINOD PATEL & CO. n/a n/a nlA nla 1 1 27 27024 RAM SHANKAR n/a nla nla nta 1 1 20 20025 ERONI B.MATEIWAI n/h n/a nla n/a n/a n/a nla nia026 ALI RIZA nta ni/ nia nha 1 I 16.8 16.8027 TAHIR ALI n/a ni nla nit 0 0 - -028 LAUTOKA PRINtERY n/t n/a n/a n/a 5 3 7.0 11.5020 EUSHA ENGINEERIN n/a n/a nl/ n/a n/l nla - -

030 MOTI CHANDRA nb/a n/anhW n/a 0 0 - -

031 DIPLOMAT LUGGAG 230 200 04 so 21 10 17.4 36.0032 SHER AU n/a n/a n/a nt/a I 1 32 32033 LAUTOKA GEN TRAN 0 0 0 0 1 1 200.9 2006034 DOMALCO LTD. n/a n/a nla nit n/a nit nlt nlA035 SUPERIOR MANUF. 20 25 80 50 5 3 17.2 28.7030 NAVNIT LAL n/t nit nla nis n/t n/a nla nta037 S.LEKHRAM 0 0 0 0 1 1 22 22038 EAST WE8T GARME 100 120 300 400 10 10 0.7 0.7030 TROPICAL GAAMEN 240 233 270 250 10 10 3.5 3.5040 FIROZDA6TOOR 0 0 0 0 0 0 - -041 BAS OEC) 0 0 0 0 1 1 37.4 37.4042 SAMBHU PRASAD 0 0 0 0 0 0 - -

043 OEO OUTT SHARMA 0 0 0 0 0 0 0 0044 TACIRUA TRANSPOR n/t ni n/W n/a 2 2 43.0 43.0045 NAROTAM GARMEN 85 170 250 500 30 30 0 6040 FASCRAFTCLOTHE 190 165 230 200 20 20 13.5 13.5047 JNJ CORPORATION 43 25 400 200 20 5 1" 16.9048 PANORAMA INVEST 0 0 0 0 nta nlt lva n/1040 REWACOOPERATIV 150 200 200 150 10 10 257 267052 RAINBOW TEXTILES 100 120 300 340 35 27 2.1 2.3056 RANJEET GARMENT 430 500 480 580 35 30 3.4 4.0057 MELET RAIMURI 0 0 0 0 2 2 02.5 6251/ EstImatd at VW Um of Subr Sub-pr t appiasl.rj p ild

- 173- APPENOIX7

FIJI OVELOPMENT SANK

CURRENT STATUS OF SUjPROJECTTS FINANCEDUNDER LOAN NO. 3g-PfJ

(AS AT 31 MARCH 1990I

ARREARSFOB FINANCING

SUBLOAN AMOUNT LESSTHA 8-12 OVER 12

NO NAMEOFSUBPROJECT ADS/ISRO FOB TOTAL OUTSTANOING a MONTHS MONTHS MONTHS

001 CHEER INDUSTRIES 10.2 - 10.2 NIL - _

002 OAYA RAM 23.0 - 23.0 16.4 1.3 Is.; -

003 M.R. PATEL 12.0 - 12.0 NIL - - -

004 O.PRASAD & SONS 22.5 - 22.5 NIL - - -

005 WeSTERN GARMENTS 15.0 11.0 26.0 NIL - - -

ooo P.CHAND INDUSTRIES 34.7 - 34.7 NIL - - -

007 S.BURGESS(FJ) LTD 42.0 - 42.0 27.1 16.5 - -

coo MOHAMMED SAHIM 20.3 - 20.3 NIL - - -

009 MUUI OHANJI INVEST 18.0 12.2 30.8 27.5 - - -

010 MANOHAN ALUMINUM 31.5 40.1 71.6 62.0 - - -

011 RATU KAUAPPAN 25.8 84.2 110.0 19.8 - - -

013 VASU DEVAN 33.0 42.0 75.0 66.1 - - -

014 SASHASKHAN 10.1 - 10.1 11.2 - - -

015 LAL MOHD & SONS LTD 34.6 - 34.6 NIL - - -

010 MOBILE CRANE HIRE 66.6 30.1 96.0 66.7 18.0 - -

017 RAVIN VIJAY MAHAR 7.4 - 7.4 NIL - - -

018 SAL KARAN 20.3 - 2e.3 7.9 - - -

019 TAOI INVEST.LTO. 179 5.5 23.4 7.8 - - -

020 PLASCOAT LT 13 7 e.3 20.0 NIL - - -

021 CHANDAR. INDAR & V 20.0 - 20.9 NIL - - -

022 DHARAM SINGH 15.9 - 15.9 NIL - - -

023 VINOOPATEL&CO. 184 - 184 NIL - - -

024 RAM SHANKAR 13.2 - 13.2 NIL - - -

025 ERONI S.MATEIWAI 11.3 - 11.3 3.8 - - -

028 ALI RIZA 6.5 - 6.5 NIL - - -

027 TAHIR ALI 14 5 - 14 5 NIL - - -

028 LAUTOKA PRINTERY 33.1 - 35.1 28.4 - - -

029 ELISHA ENGINEERING 40.4 22.0 63.0 NIL - - -

030 MOTICHANORACO 193 20.8 40.1 9.9 - - -

031 DIPLOMAT LUGGAGE 143.2 81.8 225.0 226.8 - - -

032 SHER ALO 28.0 - 28.0 2.1 - - -

033 LAUTOKA GEN TRANS. 176.4 - 176 4 105.7 9.0 - -

034 DOMALCO LTD. 375 66.0 103.6 NIL - - -

035 SUPERIOR MANUF. 43.0 2.0 45.0 36.8 - - -

030 NAVNIT LAL 20.0 - 20.0 0.0 - - -

037 S. LEKH RAM 13.5 - 13.5 9.8 1.6 1.7 3.3

038 EAST WEST GARMENT 470 - 47.0 NIL - - -

039 TROPICAL GARMENTS 23.0 - 23.0 5.0 - - -

040 FIROZOASTOOR 6.5 - 6.5 7.0 - - -

041 BAS OEO 18.9 - 18.9 NIL - - -

042 SAM8HU PRASAO 28.2 - 20.2 12.7 2.7 0.3 3

043 00 OC)UTT SHAARMA 8.5 1.2 9.7 NIL - - -

044 TACIRUA TRANSPORT 56.0 - 58.0 NIL - - -

045 NAROTAM GARMENTS 136.8 - 136.8 NIL - - -

046 FAgCRAFTCLOTHERS 160.0 - 160.0 NIL - - -

047 JNJ CORPORATION 84.6 17.4 102.0 92.1 - - -

048 PANORAMA INVEST 107 7 92.3 200.0 134.3 12.7 - -

049 REWACOOPERATIVE 388.7 1211 1000.0 509.4 - - -

052 RAINBOW TEXTILES 52.0 - 52.0 12.0 - - -

056 RANJEET GARMENTS 88.6 14 90.0 NIL - - -

057 MELETI RAIMURI 93.8 11.2 106.0 89.0 S. - 5.5

2428.5 1759 4187.9 1001.14 67.9 17.9 11.8

(Reference in text: page 6, para 25)

- 174 -

ADpendix 8

FIJI DEVELOPMENT BANK

ANALYSIS OF LOAN AND EQUITY INVESTMENT OPERATIONS. 1985-1989

1985 1986 1987 1988 1989

Proj. Actual ProJ. Actual Prol. Actual Proj. Actual Pro}. ActualYear Ended 30 June

Loan Approvals (Net)Agriculture Loans 7380 6435 11300 6691 1290C 9776 14800 5228 17000 8499IndustriaUComm.Loans 13000 14143 14400 17028 17200 21257 20600 13379 24700 15775Industrial Loansto Fijlans 1620 2417 1780 1452 1950 1811 2140 1600 2350 5583Joint Venture 1000 595 1050 1743 1110 142 1190 1363 1300 964

Total Approvals 23000 23590 28530 26914 33160 32-8 38730 21570 45 302_1

Loan DIsbursements 20468 27873 23262 31165 26817 31082 31233 26891 36493 40094

Eaultv InvestmentsApprovals 6318 4629 200 3175 200 273 200 168 200 440DIsbursements 6318 4629 200 3175 200 273 200 200 440

Total 6318 4629 200 3175 200 273 200 168 200 440

(Reference in text: page 7, para 27)

- 175 - APPENDIX 9

Fdi Development BankAs at 31 December 1989

| NUTRIAL

|CRCLTUREGENERAL _ ADIVISION O

_ SAGER _

A~~~~~~ON

LOANS | ~SPECIAL LOANS5

MGM AlDVISORY_ SERVICES DIVISION |SCRTE

_ | DEPR

AUDIT & INSPECTtON

I~~~~~~~~~~~~~~~~IV

ISION

8 rINNCL PLANNIN

A a BUDGET

R FINANCE DIVISO 10 I

C

F0 GENERAL E t

MANAGEREXCEANlELtD.

(Reference in cexc: page 8, para 30

BUSINE.SS ~~~~~~~~~~~~~~~DEPARTMENT

DIVISION _ | PUBMNL RELATIONS |

D£PARIMN

AMNISTRATISASNIN

DVISION SVSTC

-ftl-l PUSLP~' EX RENtLATINSDEPA-tJ

GENRAL rnei et pg ,pr 4

- t76 -

FMI DE LOPMENTr DANW

ANALYSIS OF AR.19 .8 N6-1889

Yeao ded 30June 19 1987 18 I u

At L GM6827 7564 79 8524IndusVallCommLon 3924 3630 5136 7109Iridusi,aLoamtopanm 2726 2242 2305 3451Joint Venture 52 160 287

Ti AmL& ( 13529 1346 1S631 19084

1 month leW W/A 294 179 20522 - 3 monts WA 828 5 8164 - 5 MonthS WA 883 687 7556 months WA 11481 13909 15461

Toal Arreas WA 1346 15631 19084

Total Loan PoflfIo (E) 103331 110612 113814 122814Promv s for Bad andDoutlMh Dbt (C) 7834 8819 10897 13821

Ratlos(%)AID 109 12.20 13. 15.54C/3 7.58 7.97 9.57 11.25CIA 57.91 65.35 68.1 72.42

(Reference in text: page 9, para 34)

^ 177 -

Aooendix 11

FIJI DEVELOPMENT BANK

PROJECTED AND ACUAL INCOME STATEMENTS(FS'000)

1965 1986 1967 198 1989

Prol. Actual Proj. Actual Prol. Actual Proj. Actual Proj. ActualAsat 30June

INCOMEIncome from loans:Interest 10370 9808 12597 11319 14030 13024 15743 14115 17828 14747Dividends 172 98 124 292 135 - 147 - 161 -

Fees 211 154 199 267 232 255 271 236 317 413Income from investments 282 680 258 380 258 570 258 1076 258 296Other Income 351 62 40 48 50 356 60 455 70 727

TOTAL INCOME 11386 10802 13218 12306 14705 14205 16479 15882 18834 16183

EXPENSESInterest & Other borrowingexpenses 6229 6283 7159 7455 8130 8878 9208 9440 10884 8323

Administrative expenses 2878 2890 32 3007 3374 32 3620 3524 3759 4162

TOTAL EXPENSES 9107 9173 10453 10462 1150 12190 12828 12964 14643 12485

SUFPLUS OF INCOME/EXPENSES 2279 1429 2765 1844 3201 2015 3651 2919 3991 3698LessProvisionforD.Debts 1110 512 1290 1469 1116 1491 1193 2434 1274 3138

NET OPERATING INCOME 1169 917 1475 375 2085 524 2458 485 2717 560

Ratios (%)Retum on Equlty 3.58 2.96 3.86 1.17 5.04 1.42 5.49 1.28 5.41 1.19Retum on Equity before Provision 6.98 4.6 7.23 5.2 7.73 5.17 8.13 6.79 7.94 7.86Retumronlendingoperationsa/ 11.04 10.45 11.82 10.73 11.82 11.3 11.94 11.56 11.95 11.6Retumronoveratioperations l 11.64 8.71 11.63 11.03 11.67 11.47 11.84 12.12 11.99 11.6Cost of borrowings 9.2 9.48 9.31 9.75 9.5 10.53 9.75 10.74 10.56 9.09

at Income from lending operations to average loan portfoliobl Income from lending operations and Investments and other

incone to average loan and equity investment portfolio

(Reference in text: page 9, para 37)

- 178 -

AoeDlnix 12

FIJI DEVELO_PMENT BANK

PROJECTED AND ACTUAL CASH FLOW STATEENTS(FS000)

1985 1986 1987 1988 1989

Proj. Actual Prol. Actual Proj. Actual Proj. Actual Proj. ActualAs at 30 June

SOUiRCESOperations:NotPromfitbeforepayingInterest 8338 7704 10022 9127 11273 10558 12433 12352 13901 11985Increase In provisions for- Depreciation 192 234 198 360 193 528 189 448 184 461- doubttul debts 834 512 724 1469 568 1492 723 2434 835 3138Foreign Exchange rsks 0 90 0 -162 0 -176 0 0 0 0

SaieofEquity Irvestments 197 542 30 247 40 0 50 1620 60 129Client loan repayments 6963 16936 11476 18728 14359 22199 16741 21255 18692 27991

Available for debt senvicing (A) 16524 26018 22450 29769 26433 34601 30136 38109 33672 43704

Increase In capital 6500 5500 2000 2000 1000 4337 2000 3296 3000 3187Drawdown of long-term debtTerm loans - Local 16230 14000 5900 14400 7792 9767 7630 0 21025 20300

- Overseas 400 0 3890 0 6696 1261 4440 5098 724 4664Increase In current labIlities -455 -370 6 -778 -44 1573 11 -2413 500 -582

Total Sources 39199 45148 34246 45391 41877 51539 44217 44090 58921 71273Awlilcatlon

Repayment of borrowings- foreign 347 111 349 113 350 123 1364 427 2374 3278- domestic 4863 5093 2406 2644 3807 4127 2800 2859 9500 17597

Interest on borrowings 6229 6283 7159 7455 8130 8878 9208 9440 10994 8324

DebtServicingReqd.(B) 11439 11487 9914 10212 12287 13128 13372 12726 22868 29199

Oisbursements-loans 20468 27873 23262 31165 26817 31082 31233 26891 36493 40094- equity investments 6318 4629 200 3175 200 -1366 200 405 200 440Acquisition of fixed assets 852 584 206 296 45 6065 46 360 45 426Increase In liquid assets 122 575 664 543 2528 2630 -634 3708 -685 1114

Total Anollcatlons 39199 45148 34246 45391 41877 51539 44217 44090 58921 71273Debt service coverage (A/B) 1.44 2.26 2.26 2.92 2.15 2.64 2.25 2.99 1.47 1.5

(Reference in text: page 9, para 37)

- 179 -

Appendix 13

FIJI DEVELOPMENT BANK

PROJECTED AND ACTUAL BALANCE SHEETS(FSOO0)

1985 1986 1987 1988 1989

Proj. Actual Proj. Actual Proj. Actual Prol. Actual Proj. ActualAs at 30 June

Current AssetCash Deposit 2150 2858 1376 3431 2798 220 1396 2082 511 2626LoansPortfollo 100650 93280 112436 103331 124894 110612 138893 113814 156794 122814Sundry Oebtors 350 762 400 875 450 917 460 2296 470 1509Sub-Total 103150 96900 114212 107637 128140 111749 140749 118192 157775 126949

Equity Investments 7019 5323 7189 8143 7349 12537 7499 13293 7639 14705Sixed Assets 6011 5630 6019 5607 5871 5615 5728 5605 5489 5622

TOTAL ASSETS 116180 107853 127420 121387 141360 129901 153976 137090 170903 147276

Current LiabilitiesAccounts payable & accrued charges 850 1662 850 2080 800 2066 805 2230 1300 4370Term Borrowings due within one year 2755 2798 4156 4090 3056 3102 9856 10026 10009 9701Due to subsidiaries 27 34 30 24 33 22 36 - 38 -

Exchange fluctuations 248 1301 248 176 248 - 248 - 248 -

Annualandlongservicleame 167 161 170 176 173 205 176 184 179 311Sub-Total 4047 5956 5454 6546 4310 5395 11121 12440 11774 14382

Lona Term LiabiltiesTotal Borrowings 70627 60429 76261 70447 87692 74312 88295 68578 98017 70151Provisions for DlDebts 5146 7322 5870 7834 6348 8819 7161 10897 7996Sub-Total 75773 87751 82131 78281 94130 83131 95456 79475 106013 83972

TOTAL LABILMES 79820 73707 87585 84827 98440 88526 106577 91915 117787 98354

Capital & ReservesCapital 26988 25988 28988 27988 29988 32325 31988 35622 34988 38809Reserves 4541 3530 4541 3530 4541 6030 4541 6030 4541 6030Retained earnings 4831 4628 6306 5042 8391 3020 10870 3523 13587 4083

Capital & reserves 36360 34146 39835 36560 42920 41375 47399 45175 53116 48922

TOTAL LIABILMES & EQUITY 116180 107853 127420 121387 141360 129901 153976 137090 170903 147276

RatiosDebt:Equity 2.02:1 2.07:1 2.02:1 2.25:1 2.11:1 2.07:1 2.07:1 1.98:1 2.03:1 1.91:1

Provision for doubtful debts/Total outstanding loans (%) 5.11 7.85 :5.22 758 5.15 7.97 5.16 9.57 5.10 11.25

(Reference in text: page 9, para 37)

- ISO -

AENIX 14PAGE IOF 3

FIJI oEVELOPMENT BANK

COMPLIANCE WITH BANIK8 LOAM COVENANTS UNDER LOAN NO 7_38-F

REFERENCETO LOAN RESPONSiBLE

NATURE OF COVENANT OOCUmENTS AGENCIES STATUS

i, ACT AND POLICY STATEMENT1. F08 sI prompty Inf*m the

Bank ofany propoasl kw LA.amenment ot the FDB Act In Schedule 4 FD0 Compld withorder or the ank to ha a PuS OrsAuble appomnity tocomment on propoed ch4nge.

2. FP8 sIl revive its PlicyStemnt only after muul LA.coUattO ad agreement Schedule 4 FOB Compld withbatwen the Govemment and Pua 7the Sank.

It. BOARD OF DIRECTORS AND MANAGEBENT1. FO0 through the Chairman of

its oard of Directors shalpmptdy Infrm th Bank of LA.any proposed appointmnt to Sdwdule 4 FOS Coe withthe position ot Mnaging Pars 8Director, together with thequalitications, expereneand tenure of offie of thepern to be appointed.

Ill. ORGANIZATION AND STAFFING1. M F08 hall take all

necesry measures LA.to onwr that It Schedule 4 FDO Comptedw ithcontinues to be

ated by suital Prup 0quallfied professionals

with adequate eperienceand technical expetse.

(ii) FO shail. by 31 Dec0mber1086 employ a uItablequaified engineer as aregular daf member.

IV. FINANCIAL MATTERSt. Exoeas. the Sank an FD8

othewis agr, F 8 ShduamanIn. FOB Compiled

(I) a deWbtequity rtio not LA. FOB Coipe dwithighr than 3:1 Secto 5.00

(iidebt serve rato ofnot less than 1.25:1

(Reference in text: page 10, para 42)

- 181 -

APPEDIX 14PAGE 2 OF 3

REEPETO LOAN RESPONSIBLE

NATURE OF COVENANT DOCUMETS AGENCIES STATUS

2. The Guarano (GCVT) shl LA.ber the fweign exchango SctWdul 4 GOVT Comphed withrWiskan Me Loan. Pau 11

3. FOM hall retiew ft tsrate annuaily and eonu ft L.A.Om Ba* pdrr to ntrducn Schedule 4 FOB Compied Withany change In tsh nters Parla 2

4. FOS hl maintain a minimumInteret rate aped of 3* LA.pw annum or 1 all abln Schedu 4 FOB Compied ViMcatgorie. PRs 2

.Exepast Bank maydheW m agree. FOS "ll

midntain a minimum mru LA. Not Compied(before proion* for 8chedule 4 FOS With ptrodoubtful debts) otfe per Pars 10 to FY INU.cent an It avors net-"am.

V. EPOTMNG1. M) FDB ahs"lhahits

aocounts and financiWeteteenta audtedannually by Indepwxdetaudtor acceptble to

e BOnk (approved byGuarantor) and submit LA. FOB Compleod withto the Snk. cetild section 5.006() ome debycopies of suh uditedfinancial statemwnts notlatr hn FIVE montsafter the close of thefIsca yawr to whichthey relate.

() The nudito rephinude detaledaaysIs of FO'SpaobtfUo and thaudior opbinon on LA.(a) the adequacyot FOS's provisions Saedon 5.06(a) FOS Compiled withfor doubtful loans

(b) adequacy ofPOWS eaccutAing andinanca control FOB Compd with

sysmrns includingIntemal audit

2. FOBWlil asoprovldea no LA.form audit report wItn Sdctn 5.0d (a) FOB Complid withFIVE manhS. MULN pus 1d

co:gal i i

c Id i1 ii l 1