Government of Panama and World Bank Sign US$39.4 Million Loan Agreement to Enhance Rural Productivity in Panama

Panama City, Panama, May 11, 2007 – President Martin Torrijos attended a ceremony today where World Bank Vice President Pamela Cox and the country’s Minister of Economy and Finance Héctor E. Alexander,signed a US$39.4 million loan agreement for Panama to increase productivity among rural small-scale farmers while protecting important forest, mountain and marine-costal ecosystems.

“The project will bring technical and financial support to some of the poorest rural areas of Panama to brighten the economic prospects of small scale farmers,” said Héctor E. Alexander, Panama Minister of Economy and Finance, at the signing ceremony. “This project supports one dimension of the government’s overriding goal of reducing poverty and inequality in Panama.”

The Rural Productivity Project –PRORURAL – will assist rural small-scale producer associations to form alliances with commercial partners and jointly implement with them business plans to expand market access and increase producer incomes while managing the “push” and “pull” factors that can threaten the environment.

“It is an honor to be here today with President Torrijos and Minister Héctor E. Alexander to sign this loan agreement which will contribute to improvements in rural income and well-being. Achieving these improvements will require increased productivity among small-scale farmers. But the small farmer alone is unlikely to effectively compete in a market dominated by intermediaries,” said Pamela Cox, World Bank Vice President for Latin America and the Caribbean at the signing ceremony. “This project supports productive alliances as a way for rural producers to share both the production risks and market benefits.”

This loan in support of enhanced rural productivity is the first investment loan by the World Bank to Panama since 2001. Under the Torrijos Administration, Panama’s reengagement with the World Bank has also included a Development Policy Loan of US$60 million and a Global Environmental Facility grant of US$6 million. A water supply and sanitation loan to low income communities is currently being prepared, as well as a social protection project and additional financing for on-going policy reform technical assistance and education projects financed by the World Bank. The World Bank and the Government of Panama are discussing extending the lending program through a three-year County Partnership Strategy that would include a mix of lending and non-lending assistance.

Managing push factors include an effort to reduce the exhaustion of raw materials within rural areas—known as natural resource depletion—, deforestation and rural poverty, which drive human migration to the areas of global conservation importance within the Panamanian Mesoamerican Biological Corridor. The project also aims to help rural associations to reduce “pull factors” such as over-exploitation, illegal harvesting by enhancing the enforcement of existing management plans.

The project also seeks to conserve biodiversity of global importance and protect important forest mountain and marine—costal ecosystems in Panama.

The three targeted provinces of Herrera, Los Santos and Veraguas are home to 70,000 farms with 130,000 cultivated hectares, yet employ only 22,000 agricultural workers. There are 68,000 farmers, ranging from medium-sized producers to small-scale farmers who work their own or leased land.

The project will support productive alliances through the following activities:

* Finance preparatory activities that contribute to the presentation of viable business plans for proposed productive alliances. Such activities include:
o designing a communications strategy to raise awareness of and stimulate participation in PRORURAL;
o supporting business skills and organizational training for small-scale producers;
o hiring of specialized technical assistance by alliance members in aid in the preparation of business plans; and
o financing of studies aimed at, inter alia, identifying and strengthening production chains and establishing Environmental Services Payment schemes.

* Finance approximately 70 sub-projects (up to a maximum of US$500,000 each) implemented by rural producer associations in the targeted provinces of Herrera, Los Santos and Veraguas. Sub-projects will be financed in the context of business plans for productive alliances between rural producer associations and at least one agroprocessor, wholesaler or other commercial partner. The project will reach some 5,000 small-scale producers or about 13 percent of total small-scale producers in these three provinces.

* Provide matching grants for about 450 small-scale community investments in natural resource management and productive opportunities that contribute to biodiversity conservation and represent sustainable alternatives to improve their livelihoods. This component is partially blended with the Rural Productivity and Consolidation of the Atlantic Mesoamerican Biological Corridor Project (PAMBC), approved by the Board in June 2006 and financed with a US$6 million grant from the Global Environment Facility.

The project will also work in parallel with the Government of Panama’s agricultural strategy set forth in the 2005-2009 Agricultural Strategic Plan “Let’s Get to Work” (Manos a la Obra) which seeks to reduce rural poverty, create employment and improve producers’ ability to compete through increasing market access.

The US$39.4 million fixed-spread loan is repayable in 15 years and includes a five-year grace period. The loan was approved by the World Bank’s Board of Directors on March 21, 2007.

Source: World Bank

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