PERU
             COUNTRY ASSISTANCE STRATEGY PROGRESS REPORT
                             Chairman's Concluding Remarks

                  Meeting of the Executive Directors      -December7,2004

        The Executive Directors welcomed the joint IBRD/IFC Country Assistance
StrategyProgress Report (CAS PR) for Peru.

        Directorscommended the Government'sability - despitepoliticalpressures              - to
undertakedifficultreformsandmaintainfiscaldiscipline.TheyappreciatedthatPeruhas
performedwellinbringingtheeconomybackto                     its pre-recessionlevelwiththree
consecutive years of growth accompanied by a steady reduction in fiscal deficit.At the same
time, some Directors expressed concern that poverty and inequality remained high despite
recent
     economicgrowth. highlightedimportance
                   They          the                                  of promoting  increased
employment creation, as well as access to and quality of social services for those sectors of
the population that have not felt the positiveimpactofeconomicgrowth.Directorswere
broadly optimistic that continued growth would spur a reduction in poverty and inequality,
but emphasized that the Bank must closely track progressin this area. Directors advised that
further progress should make Peru a good candidate for substantial increase in lending in the
next CAS.

        Directors agreed that the CAS PR is well suited to support the Government's three-
pillar strategyofenhancingcompetitivenesstospurinvestmentsforgrowth;improving
equity in income opportunity and access to public services; and enhancing the transparency,
accountability and quality of publicinstitutions.Directorswerebroadlysupportive            of the
CAS PR's increased emphasis on infrastructure provision. They recognized that, as a fast-
growingmiddle-incomecountry,Peruisfacingbottlenecksinkeyareas                          of public
infrastructure,andagreedwiththeBank'sstrategytohelp               the Governmenttoleverage
private resources through Partial Risk Guarantees. Directors also agreed thatSWApwas an
appropriate instrumentto assist the Government to accelerate investment in infrastructure and
the social sectors. They also noted the role of IFC in supporting private sector investmentin
infrastructure.At the same time, some Directors noted with concern the lower-than-expected
proportion of investment lending in the country program.

        Directorsunderlinedthattransparency      of extractiveindustryrevenuesandpublic
expendituresiscriticalforimprovinginvestmentclimateforprivatesector-ledgrowth.
Directorswerealsobroadlysupportive            of theuseofcountrysystemsinfinancial
management of Bank projectsin Peru, consistent with the Bank policy in this regard.

        Directors stressed the importance of ensuring continuity of the reform process. In
particular, Directors were supportive of the Government's strategy to push ahead with
decentralization and commended the Government for moving gradually and focusing on
capacity building. Directors welcomed the IFC's focus on micro, small and medium
enterprises, key for broad-based job creation, and commended its attention to activities
that promoted greater inclusion of disadvantaged groups, and particularly indigenous
people. Directors also encouraged MIGA to step up its work in Peru in coming years and
continue the good cooperation with other donorpartners.