Programmatic Decentralization and Competitiveness SAL

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This Programmatic Decentralization and Competitiveness Structural Adjustment Loan Project aims to assist the Government of Peru implement the decentralization of public functions and resources, in tandem with measures to help ensure continued sound public finances, and economic growth. The program proposes the first of three loans, using a Programmatic Structural Adjustment Loan instrument to support short- and medium-term reforms on state decentralization, and economic competitiveness. A single-tranche programmatic loan would be followed by two further single-tranche loans. The first proposed loan has three specific objectives 1) protect fiscal sustainability during Peru's transition to a more decentralized state; 2) assist in strengthening management, and fiscal capacity at sub-national levels for their progressive assumption of service responsibilities; and, 3) support the creation of a better regulatory, and investment environment for upgrading Peru's competitiveness. The subsequent loans will depend on the progress of this initial reform program. An underlying objective of the proposed Loan is to enrich, and extend the government's overall program of accelerated reforms over the past two years. However, risks have been identified in political, economic, financial and technical areas. To mitigate these risks, dialogues with the opposition, and civil society in general, export diversification and competitiveness, the continued strengthening of bank supervision, and a debt management strategy in particular, will outweigh such risks.