WASHINGTON, December 10, 2010 – The World Bank Board of Directors approved the financing for a US$100 million stand-by credit line yesterday to strengthen the Peruvian government’s capacity to mobilize resources in case of natural disasters, as well as to promote risk reduction policies and activities.
Peru’s vulnerability in the face of natural disasters is an obstacle to the country’s sustainable development. According to studies carried out by the World Bank, Peru’s economy is one of the 20 most vulnerable in the world to a wide variety of natural risks, both geological and hydro-meteorological. It is estimated that approximately 87 percent of its population lives in areas exposed to seismic, volcanic, floods, frosts and downpour risks, as well as weather phenomena such as El Niño and La Niña.
Given this situation, since 2004 the Peruvian government has taken important steps in implementing more proactive risk reduction activities. Among these is drafting and implementing a National Disaster Prevention and Management Plan and the inclusion of disaster risk assessment in the design of public investment projects at the Finance Ministry.
“The approval of this line of credit will help us increase sectorial capacity to mobilize resources in case of disaster and to strengthen the technical and financial mechanisms related to investing in the prevention and reduction of the country’s vulnerabilities in order to address the poorest populations,” said Ismael Benavides, Peru’s Finance Minister.
The Peruvian government will start implementing the Vulnerability Reduction and Disaster Emergency Care Strategic Budget Program (PPE-RVAE) under a budgetary results-based framework focused on priority sectors such as health, education, water and sanitation. The project also contributes to the development of an overall financial strategy, while looking for an adequate balance between financing, good debt management and greater access to financial markets.
Felipe Jaramillo, World Bank Director for Bolivia, Chile, Ecuador, Peru and Venezuela said that “the financing provided by this project contributes decisively to the development of a national risk reduction policy for natural disasters, which will lay the foundations for the country to effectively reduce its natural disaster risk exposure in a sustainable manner.”
The expected results in different areas from this project include:
- To include a specific budget line for PPE-RVAE in the 2012 and 2013 national budgets.
- Have 20 percent of Health Ministry (MINSA) hospitals with structural vulnerability studies.
- Assess 90 percent of MINSA hospitals under the Hospital Security Index.
- Include risk assessment at drafting level and beyond in all public investment projects for new hospitals built after 2011.
- Adopt standard technical guidelines, developed by the National Sanitation Services Superintendence (SUNASS), to insure that at least four water supply and sanitation companies incorporate disaster risk management into their administrative procedures. Mobilize a number of MEF financial instruments to respond better and to reduce the financial impact of disasters.
- Review the implementation framework for post-disaster investments at the MEF.
This stand-by financing mechanism will be disbursed in case the Peruvian government declares a State of Emergency resulting from a catastrophe caused by a natural disaster. The funds can be disbursed across three years and can be renewed up to four times, potentially up to fifteen years.
This is a US$100 million loan with a variable interest rate (LIBOR + 6 Months plus a variable margin), has a 13.5-year maturity period and an 11-year grace period.