Farm Credit and the Response of Reform Beneficiaries: The Case of Agrarian Reform in El Salvador

Refugio I. Rochin

No 279104, 1983 Annual Meeting, July 31-August 3, West Lafayette, Indiana from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: El Salvador's agrarian reform cooperatives, which were created in March 1980, have received substantial credit through the Revolutionary Junta Government's nationalized banking system and its Institute for Agrarian Transformation (ISTA). Some 43 million was extended on an "emergency" basis in the first months of the reform in 1980, and it is still unclear what some of the money was used for. Much of it is still unpaid and accumulating penalty interest each year it is refinanced. Some 251 Phase I cooperatives currently receive production credit from banks; the Banco de Fomento Agropecuario (BFA) serves the largest number and is the bank responsible for lending to cooperatives that have severe problems. In general, the commercial banks lend to cooperatives that farm land whose former owner dealt with those banks, and they report generally good repayment by these cooperatives. Overall, about 76 percent of the production loans made to Phase I cooperatives in 1980 and 1981 were repaid, which is better than the record of other Latin American land reforms and also better than the repayment record of non-reform private landowner borrowers in El Salvador. As world interest rates have fallen, these production loans do not appear subsidized, at interest rates around 13 percent. An important link in the loan collection process is the marketing agency, and cooperatives generally sell export crops and basic grains to government marketing intermediaries. The loan repayment is deducted automatically in these cases. However, coffee growers (reform and others alike) are quite unhappy that the coffee marketing institute (INCAFE) makes them wait for payment for more than a year after they harvest the coffee. Detailed studies of the ability of a sample of Phase I cooperatives to pay their debts, including the land debt which they owe (like a mortgage), indicate that many cooperatives can make a profit on current production. They often have problems covering the interest, let alone prinicpal, of the 1980 "emergency" initial loans. On the other hand, several cooperatives cannot realistically expect to cover principal and 7.5 percent annual interest on the value of the land established by ISTA when it compensated the ex-owner. In some cases, it appears that land values declared by owners in 1976 and 1977 were greater than the true value of the land for production purposes. But further study is needed in this area. Management appears to be a limiting factor in the ability of Phase I cooperatives to earn profits in the future.

Keywords: Agricultural Finance; Farm Management; International Development (search for similar items in EconPapers)
Pages: 22
Date: 1983-08
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea83:279104

DOI: 10.22004/ag.econ.279104

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