The Challenge of Meeting Shelter Needs in Less Developed Countries

Published by the Government Accountability Office on 1977-11-04.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                          DCCMBINT   L.508M
04056 - [83134408]
The Challenge of Meeting Shelter Needs in Less Developed
Countries. ID-77-39; B-171526. Nove,'ter 4, 1977. 74 pp  *+9
appendices (50 pp.).

Report to the Congress; by Robert F. NelleL, Acting Comptroller
Issue Area: International Economic and Military Programs: U.S.
     Development Assistance Overseas (603); Dcnestic Housing and
     Community Development (2100).
Contact: International Div.
Budget Function: International Affairs: Foreign Bconomic and
    Financial Assistance (151); International aftairs:
     International Financial Programs (155).
Organization Concerned: Agency for International Development;
     Department of the Treasury; Department of State.
C(onqressional Relevance: House Committee on International
     Relations; Senate Committee on Foreign Relations; Congress.
Authority: Foreign Assistance Act of 1973. Foreign Assistantc
     Act of 19S.  Foreign Assistance Act of 1974. International
     Development and Food As.istance Act of 1975.

          Inadequate housing, exacerbated by rapid haphazard
 urban growth, can profoundly affect the overall development
prospects in developing countries. The housing crisis is an
important factor in the overall deterioration in the quality of
life in these countries. Findings/Conclusions: To reach the
lowest income ievels and the most people, international donors
have sought to reduce housing costs to a minimum. Most U.S.
housing assistance abroad has been prcvi ed by the Age:cy for
International Development's (AID's) Housing Investment Guaranty
Program under which the U.S. GovernRent guarantees repayment of
principal and interest to U.S. investors for housing loans to
borrowers in less developed countries. Reconmendatiocs: The
Secretary of State and the Administrator of AID should
distribute available housing guaranties according to demand and
eligibility among the sore low-income nations; work rvre closely
with host country housing and economic -Lanning officials to
sake sure that subsidies are siniaized and their source fully
planned for and that guaranties serve to develop host country
institutions capable of matching the kind of lcw-income housing
initiated by the program; improve coordination by establishiaq
more effective lines of communication ason, the geographic
bureaus, Agency missions, and the Office of sousing within the
Agency to make suri that all Housing Investment Guaranty
projects are planned, programmed, and carried cut as part of the
country's )verall deve]spment. and improve the level of eccnomic
analysis in countries where Housing Investment Guaranty projects
are planned. The Secretaries of State and the treasury and the
Administrator of AID should encourage international agencies to
establish and excute integrated developent plans that recognize
housing as a necessary component of develoFment and direct funds
to countries whose shelter needs are greatest. (SC)



           The Challenge Of
           Meeting Shelter Needs In
           Less Developed Countries
           Inadequate housing, exacerbated by rapid
           haphazard urban growth, is seriously affecting
           the social and economic development of less
           developed countries.
           This report describes the shelter crisis now
           facing the developing countries and empha-
          sizes the difficulties and restraints involved
          in attempts to meet these shelter needs.
          Assistance from international agencies is dis-
          cuissed and recommendations, principally to
          the U.S. Agency for International Develop-
          ment, are made to help them improve shel-
          ter assistance to the less developed countries.

          ID-77-39                                          NOVEMBER 4, 1977
      :a/~:.~~~~~     ~        WASHINGTON, D.C.   20548


To the President of the Senate and the
Speaker of the House of Representativ s

     This report describes the worldwide housing shortage
and the shelter assistance efforts of the Agency for
International Development, the multilateral lending in-
stitutions, private and voluntary organizations, and cer-
tain bilateral donors.

     We made this review to provide an overview of the
world housing .ituation and to identify some of the problem
areas in the planning and management of housing development
assistance.  The report makes recommendations to assist
international donors, principally the Agency for Inter-
national Development, in improving their efforts to provide
shelter assistance to the less cdveloped countries.

     The review was made pursuant to the Budget and Accounting
Act, 1921 (31 U.S.C. 53), and the Accounting and Auditing Act
of 1950 (31 U.S.C. 67).

     We are sending copies of this report to the Acting
Director, Office of Management and Budget; the Secretaries
of State and the Treasury; and the Pdministrator of the
Agency for International Development.

                               ACTING Comptroll.r Ge ral
                                      of the United States
   Squ1lor                        Hills Orffers .ls ., 1iid P1lt,(
   and                            Of Siotes. S.fruvices' aotlItihitlt
   Pollution                human flood into cityshantytowns
   PAfflict                   Peakdown of village and rural ties
   teGrowig Cities                                U.N. Meeting Urges Curb
                                                   On Private Land Holding

Peru's-R uralReform Plans Seem to BypassIndianVillages
       Behind a Facade of Luxury, the Cities of
       Latin America Hlouse Their Poor in Squalor
      Latin         Americas Flee Rural      Poverty for Urban SChaos
Tanzanian Effort to Move
 Unemployed to Villages
   Reportkdto Be Failing
                           Is S15-M illim I !oa                    nswer
                           To Latin Hlousingt Deficit?
                                             LESS DEVELOPED COUNTRIES

                DI GES

               By 1980 1p fly a quarter of the people
               developir  countries--about 550 million--
               will live in cities.  This number
               to increase to nearly 1.2 billion is expected
                                                 by the year
               2000.  If current trends continue, most of
               these people will be living in squatter,
               slum, and shantytown areas where overcrowd-
               ing is widespread and such facilities
               water, sewers, and electricity are
               nonexistent.  (See ch. 1.)

               Inadequate housing, exacerbated by
               haphazard urban growth, can profoundly
               affect these countries' overall develop-
               ment prospects.  Much more than a shortage
               of housing units, the housing crisis
                                                     is an
               important factor in the overall deteriora-
               tion in the quality of life in developing

              To reach the lowest income levels
                                                   and the
              most people, international donors,
                                                    such as
              the Agency for International Development
              and the World Bank, have sought to
              housing costs to a minimum.    Shelter
               (sometimes consisting only of a cement
              floor and basic infrastructure such
              water connections, sewers, and electricity)
              can be provided at low cost and on
                                                    a large
              scale to poor families.   Then, through
              self-help, they can improve and expand
              their homes.   Only if the shelter pro-
              vided matches the paying capacity
              low-income groups can such assistance
              be duplicated by the less developed
              countries themselves.   (See ch. 2.)

             Most U.S. housing assistance abroad
             been provided through the Agency for has
             International Development's Housing
             vestment Guaranty Program, under which
             the U.S. Government guarantees repayment
             of principal and interest to private

  AIuLdae.  I Ilon removal, the report
over date sh ,uld be noted hereon.                   ID-77-39
U.S. investors for housing loans made on
commercial terms to borrowers in the less
developed countries.  This program was re-
directed in 1973 to serve low-income groups
in the developing countries.

Before 1973, nost of the loans authorized
un6er this p ogram were used for building
financial institutions and middle-income
housing.  Housing Investment Guaranty loans
totaled $898.6 million between 1962 and
December 31, 1976.   (See pp. 22 to 25.)

So far,   the revised program shows that:

--Evei. a&ssive levels of U.S. aid could
  provide only a small portion of the in-
  vestment required and would have little
  effect unless tied to policy changes and
  institutional development which become
  part of the longer term programs of
  the less developed countries.

-- Its demonstration effect has been narrow
   and its effect on the housing shortage
   limited, because most loans went only
   to a few countries.

-- Mass duplication of Housing Investment
   Guaranty projects cannot always be as-
   sured for reasons noted on pages 33 to

Shelter assistance to some poor people is
difficult under the kird of repayment pro-
grams offered by the Agency for Interna-
tional Development and the World Bank.
These groups' shelter needs generally can
be met only by humanitarian assistance.

The most active of the international
organizations involved in shelter assist-
ance are the World Bank and the United
Nations. The World Bank is currently
lending about $300 million for shelter
projects.  The United Nations has provided
technical assistance.   International donors
have provided over $'720 million to the
shelter assistance sector.   (See ch. 4.)

Private and voluntary organizations have
also been active in mobilizing financial
and perscnnel resources to help the less
developed countries meet their shelter
needs.  For the most part, these organiza-
tions operate independently of governments
and of each other.    Closer cooperation among
them and with other donors could do more
good in areas where humanitarian aid is the
only appropriate means of -sistdnce.   (See
ch. 5.)
With an expected need over the next 25
years for an additional 200 million shelter
units, international donor assistance coupled
with host government commitment Ti st be di-
rected toward providing low-cost shelter that
less developed countries can duplicate and
that is a part of a comprehensive development
plan.  (See ch. 6.)


The Secretary of State and the Administrator
of the Agency for International Development
-- Distribute available housing guaranties
   according to demand and eligibility among
   more low-income nations, so that the demon-
   stration effect of individual projects will
   be greater.
-- Work more closely with host country hous-
   ing and economic planning officials to
   make sure that (1) subsidies are minimized
   and their source fully planned for and (2)
   guaranties serve to develop host country
   institutions capable of matching the kind
   of low-income housing initiated by the
-- Improve coordination by establishing more
   effective lines of communication among the
   geographic bureaus, Agency missions, and
   the Office of Housing within the Agency
   to make sure that all Housing Investment
  Guaranty [rojects are planned, programed,
  and carried out as part of the country's
  overall development.

-- Improve the level of economic analysis in
   countries were Housing Investment Guaranty
   projects are planned, particularly in the
   areas of long-term balance-of-payments
   prospects and debt-servicing capability.
   (See pp. 48 and 49.)

The Secretaries of State and the Treasury and
the Administrator of the Agency for Interna-
tional Development should encourage interna-
tional agencies to:

-- Establish and execute integrated develop-
   ment plans that recognize housing as a
   necessary component of development

-- Direct funds to countries whose shelter
   needs are greatest and whose governments
   are actively committed to low-income hous-
   ing and community development.  (See
   p. 74.)

GAO recommends that the Congress explcie
with the agency for International Develop-
ment the feasibility of providing housing
aid to lo\v.r income groups who do not
benefit, for the most part, directly from
a commercial term program such as the
Housing Investment Guaranty Program.
Regular development assistance channels
including direct concessional loans and
grants to host governments Lor shelter
programs could be considered a viable
alternative.   (See p. 52.)

The Agency for International Development
generally agreed with GAO's recommendations,
but disagreed with GAO's position on the
program's demonstration effect, institu-
tional development accomplishments, and
thoroughness of project analysis and imple-
mentation.  Discussion of Agency comments
is on page 49.

DIGEST                                                         i


               Nature of the crisis
               Low-income housing in less develcped
                 countries                                     2
                   Shelter development obstacles               4
               Projections of future housing needs
               Scope of review
               Integrating economic development and
                  housing assistance
                    Role of housing in overall economic
                      d( velopment                        10
               Shelter assistance approaches              13
                    Minimum shelser and sites and
                      services                            14
                    Upgrading existing squatter settle-
                      ments                               17
               Our observations
  3        U.S. BILATERAL HOUSING ASSISTANCE              21
               Redirection of the HIG Program             22
                   Legislative framework of the HTG
                     Program                              24
              HIG Program impact on worldwide
                 housing shortage
                   Selection of countries for the HIG
                     Proyr-:m                             28
                   Replicabiiity of HIG projects          33
              Disaster relief shelter programs            42
              Other U.S. donors
                   Inter-American Foundation
                   Peace Corps                            45
                   Department of housing and Urban
                     Development                          45
              Conclusions                                 45
              Recommendations                             48
              Agency comments and our evaluation          49
              Recommendation to the Congress              52

               The World Bank Group
               Inter-American Development Bank
               U.N. system                             65
               Organization of American States
               Asian and African Developmlent Banks
               Other bilateral donors

               Our observation

   I       Letter dated July 21, 1977, from Auditor
             General, Agency for International

  II       Letter dated June 15, 1977, from Acting
             Inspector General for International
             Finance, Department of the Treasury

 III       Our overview--housing situation in           85

   IV      Our overview--housing situation in
             El Salvador

       V   Our overview--housing situation in

   VI       Total HIG authorizations at Decem-
              ber 31, 1976

  VII       International housing assistance
              activities of private and voluntary

 VIII       Schedule of U.N. and related housing

   IX       Principal officials responsible for
              administration of activities
              discussed in this report
 AID   Agency for International Development
 FCH   Foundation for Cooperative Housing
GAO    General Accounting Office
HIG    Housing Investment Guaranty
IDB    Inter-American Develcpment Bank
LDC    less developed country
OAS    Organization of American States
OMB    Office of Management and Budget
PVO    private and voluntary organization
U.N.   United Nations
UNDP   United Nations Development Program
                            CHAPTER 1
                    WORLD HOUSING SITUATION
       The already serious worldwide
  assuming crisis proportions,           housing shortage is
  rural-urban migrations          as population  increases and
  bilities to provide evenvastly outstrip countries' capa-
                            minimal shelter, infrastructure,
  or social services for their
                                 populations. Inadequate
  nonexistent sanitary facilities,                          or
                                      water supplies, and elec-
  tricity characterize most
 countries; overcrowding      of the housing in the developing
 ments have appeared almost widespread. Squatter settle-
 a result of urban migrations, overnight on city outskirts
 overloaded city services          creating further strains as
 social problems. Existingas well as additional health and
 community organizations       housino stock is deteriorating,
                          have been weakened, and
 disaffection is on the rise.                        social

        Housing needs are particularly
 developed ccuntries which                acute in those less
                             can least afford the housing
 required by their populations.
 have addressed the problem          Although some countries
                               in an imaginative   and positive
 manner, others have either
                              accorded housing a lo'v priority
 or neglected the issue altogether.
 developed countries (LDCs),              In many of the less
 adequate housing. Lower        only  the  affluent can afford
 tive to the crowded and income families have no alterna-
                           unsanitary shelters they
 habit.                                                now in-
     Forecasts of future
of the housing picture in needs underline the bleakness
estimates indicate that    developing countries. Current
required to meet demand 200 million shelter units will be
                         over the next 25 years.
    ByEOF     CRISIS
      Much more than a shortage
 ing crisis is an important      of housing units, the hous-
 tion in the quality of life factor  in the overall deteriora-
 crisis must be regarded      in developing  countries.
                         within                           This
community vitality, encompassingthe larger perspective of
ment, health, education,            the whole range of employ-
                          and  infrastructure  needs of a
working community. Squalid
far-reaching impact on all housing conditions can have a
foundly affect the health these elements and thus can pro-
munities. Progress must and vitality of a nation's com-
needs if improvements in be made toward meeting LDC shelter
                          other development areas
to be diminished.                                   are not
                                                 is popula-
     The basic cause of this worldwide crisis
                                             and  low-income
tion growth combined with urban migrations
levels.   Overall population increases reportedly absorb
                                                 in national
one-half to two-thirds of the annual increase
product  and place pressures on educational  facilities,
                                               as well as
employment opportunities, and food supplies,
housing.   These pressures interfere with the provision
                                                 to insta-
of necessary services and, in turn, give rise
                           This situation  has had  an ex-
bility and urban unrest.
                                        whose  ability   to
treme impact on the low-income groups,
                                          seriously  limited.
pay for housing and related services is
ULban growth and the existing pattern of property
                                      shortage   of developed
ship has also resulted in a critical
land, especially in urban areas.

       Most developing countries do not have, or have
                                      the  financial resources
organized themselves to generate,
                                                   housing, in-
to satisfy their urgent and growing needs for
frcstructure, and services.      As a result, most of the
wculd's housing has neen produced by individuals'
            Particularly in urban   areas,  where migrations
                                                        and ren-
from the countryside have resulted in spontaneous
                              of  housina  is viewed as  a blight
dom settlements, this kind
                                      it  represents an  incre-
on the entire community, although
jienftal so)ution to the need  for  shelter.

      With some guarantee of land tenure and with
                                       inhabitants    of  these
technical and financial assistance,
                                  to  improve   their   living
settlements could be encouraged
conditions through the same kind of self-help
                                               settlements.     If
that are now producing these disorganized
                                           to  upgrade   existing
LO)C governmenrts undertook a commitment
                                                   manner, these
squatter housing in a planned and responsible
                             channeled  to  serve  as an impor-
self-help efforts could be
                             to the  nation's   development.
tant resource contributing
                                                    since in some
This type of commitment could be siqnificant,
                                                live   in slum
cities up to 90 percent of the populations
neighborhoods, shantytowns,   and squatter    settlements.




         SLUM AREA IN COLOMBIA.           (FCH PHOTO)

     Many LDC governments, however, have rejected squatter
upgrading and provision of minimal housing on the ground
that these approaches, in fact, institutionalize slum con-
ditions.  In some cases, their policy is to demolish squat-
ter settlements and move the inhabitants to outlying areas.
In the Philippines, for example, where an estimated one-
third of Manila's population lives in squatter or slum
areas, the government has forcibly moved families up to 20
miles from the city.  Such moves to isolated rural areas
cause formidable problems of access to city services and
employment opportunities, as well as the destruction of
any community social fabric within these settlements.

     In many instances, LDC governments have portrayed
housing needs as a "bottomless pit," capable of consuming
the scarce financial, technical, and managerial resources
of the countries.  Rather than divert these resources from
food production, education, and health services, these
countries have chosen not to devote substantial government
outlays to the housing area.   At the same time, many coun-
tries set unrealistically high (and costly) standards for
new housing construction and, thus, actually inhibit the
supply of low-cost housing.   In addition, high utility and
land development standards  limit  land serviced by water,
electricity, sewers, and roads  to  upper-income groups.

     A few governments have actively committed themselves
to low-income housing--Hong Kong and Singapore, for ex-
ample--and are considering such factors a- the disposable
income levels of low-income residents, the need to set
realistic construction standards permitting low-cost build-
ing, and the importance of situating housing near employ-
ment centers.

Shelter development obstacles

     Land speculation, tenure, and zoning patterns are ser-
ious barriers to the rational development of urban areas.
heasures to overcome these barriers are difficult to imple-
ment due to the importance of traditional land ownership
patterns and power structures and the existence of unen-
forceable laws and regulations.  Coupled with these bar-
riers are the high rents c'arged, especially for squatter
housing.  In some developing countries, the poor may pay
rents that reflect returns on capital of from 30 to 100
percent yearly.

     Another factor inhibiting the provision of low-income
housing is the insufficent production of local building ma-
terials in most developing countries.  Imported materials

  sometimes represent almost
  building materials used     50 percent of the value
                          and                          of the
  value of imported goods      up to 10 percent of the
                          in a country.                 total

        Housing finance Institutions
                                     are also   generally under-
  developed and do not
                        serve to mobilize the
  needed to finance shelter.                    private savings
                               One result can   be a limited sup-
  ply of housing available
                            for middle-income   groups and can
  mean that housing intended
                              for the poor is   taken over by
  higher income families.

       The crux of the problem,
 cannot afford most of           however, is that poor
                        the  housing                     people
 struction or financial               being built by formal
                          instrumentalities in               con-
 countries, often because                       the developing
                            the standards for housing,
 and public services have                                zoning,
 and costly levels.         been set at unrealistically
                      Therefore, the poor continue        high
 the uncontrolled squatter                           to expand
 cent of households presentlysettlements and slums.
                                unable to afford the The per-
 housing available in                                 cheapest
                       selected cities is shown
        Location                  Percent of households
      Hong Kong
      Bogota, Colombia
      Mexico City                         47
      Madras, India                       55
      Ahmedabad, India                    63
      Nairobi, Kenya                      64
 Source:   World Bank

      According to the World
                               Bank, investment capital
 scarce in the majority                                   is
 institutions are often of  developing
                        not well enoughcountries.     Financial
                                          developed to provide
the low-cost, long-term
                          financing that would
regularly employed low-income                    enable some
adequate housing.                workers to afford  minimally
                    At the same time, the
corded housing, the backwardness            low priority ac-
and the very poor living            of the building industry,
                           standards prevailing
housing settlements have                          in existing
                           deterred the kind of
balanced social and economic                      rapid but
ate the required higher        development  that  would gener-
                         income levels.    The problem can be
solved only through serious
technical and financial       planning and mobilization
                         resources.                       of
                                    (AID PHOTO)


      Projections of future housing requirements further
 underline the need t3 devote greater resources
                                                to the
 housing sector.  For example:

      -- By 1980 nearly 25 percent of the population
         in developing countries--some 550 million--
         will live in cities.  This number is expected
         to increase to nearly 1.2 billion by the year
         2000, when about a thitd of the population is
         likely to be urban.

      -- The world p .ulation in the year 2000 is
         expected to reach 7.2 billion, compared with
         a 1960 level of about 3 billion and a 1975
         level of approximately 4 billion.

     ---In 1975 there were 90 cities in the developing
        countries with populations of over 1 million;
        by 2000 there will be close to 300 such cities.

     -- The cities of Bombay and Calcutta may grow
        the size of 20 and 30 million people, respec-
        tively, by the year 2000.

     -- El Salvador, already the most densely populated
        country in Central America, will have an esti-
        mated 5 million people by 1980 with a housing
        deficit approaching 288,000 units.  Of this defi-
        cit, 62 percent is expected to occur among fami-
        lies earning $100 a month or less.

     Housing is increasingly being considered a major
ment of economic and social development, requiring
tional resources.                                   addi-
                   The United Nations (U.N.) sponsored Con-
ference on Human Settlements (HABITAT) in June
                                                1976 in
Vancouver, Canada, brought together 134 participating
ernments and various international institutions         gov-
                                                 and citizen
groups to discuss world housing needs, approaches,
                                                    and ex-

     Efforts to meet housing needs have been undertaken
by numerous governments/institutions throuah
and multilateral programs; the United States
                                               Agency for
International Development (AID); the Governments
                                                   of Great
Britain, France, West Germ.any, among others;
                                               various U.N.
agencies and affiliates; rthe World Bank; the
Development Bank (IDB); i.;d various private
                                              institutions and
voluntary organizations.   Since 1962 the United States has

provided over $1 billion in assistance for shelter, $898
million of which was in the form of housing guaranties.
The other donors listed above have provided shelter as-
sistance in excess of $720 million.  The kegree of these
groups' involvement varies considerably, e.- their past
successes in providing housing assistance it the poor
of developing countries have been sporadic end limited.
Their future efforts may be more successful.

     AID redirected its housing programs in A973 to em-
phasize assistance to the poor of developing countries;
the World Bank is emphasizing sites and ser, :.ces and squat-
ter and slum upgrading; and IDB is involves   n providing
housing infrastructure, such as water, sewr      roads, and


     This review was made to provide a persp-ective on the
world housing shortage and factors affecting the situation
and to identify the chief U.S., multilateral, and private
and voluntary organizations (PVOs) involved in alleviating
the housing shortages in the developing countries.   We exa-
mined published documents of U.S. agencies, multilateral
organizations, and PVOs and talked with t.S. and U.N. of-
ficials, representatives of international financial insti-
tutions, and foreign private and government officials.

     We made our review in 1976 and 1977 in Washington,
D.C., at the Departments of State, the Treasury, Housing
and Urban Development; AID; the Inter-American Foundation;
international financial institutions; and various PVOs.
We also visited the U.N. in New York and the U.S. Missions
in Colombia, El Salvador, and Peru.

     The information ii chapter 4 on multilateral and
other bilateral donors' assistance to the housing sector
is meant to be descriptive and should not be construed
as an endorsement of multilateral efforts over U.S. bi-
lateral efforts.  Our lack of audit authority over inter-
national organizations prevents us from evaluating their
programs in the same depth as U.S. bilateral programs.

                          CHAPTER 2



     Meeting the physical requirements of housing
world's expanding populations is only part
                                           of the chal-
lenge.  Equally important is the development of creative
new approaches to rational community development--approaches
which will (1) integrate housing, infrastructure,
ment, and social services at an affordable
                                           cost and in a
manner contributing to a country's overall
                                           economic develop-
ment and (2) develop some capacity within the
                                              country to
make these programs self-sustaining.


      In March 1976 the World Bank estimated the
urban slum and unserviced squatter settlement
to be 190 million with an estimated annual
                                            growth rate of
11 million.   To bring this population up to an acceptable
living standard would cost $'0 billion and
                                            to maintain pace
with the yearly increase would cost $2.5 billion
The task of meeting these needs must be approached,
                                                     not on
an isolated basis, but in conjunction with
                                            and as Part of
comprehensive national development plans.
                                            Such an approach
will increase the total impact of development
                                               efforts.   Its
overall effect will be in part to (1) increase
involvement, (2) provide income-producing stimuli,
                                                    and (3)
improve planning for handling the population
                                              influx to
urban centers so that further haphazard urban
is avoided.

     One cannot, however, realistically expect
donors to provide such massive funding.  If acceptable liv-
ing standards are to be achieved, the major
                                             burden will thus
fall upon the developing countries themselves.
                                                 The limited
international funds available should be judiciously
and can only complement and support national
       International donors have recently tried
                                                to integrate
housing assistance with urban development programs.
has implemented an integrated urban development
                                                  project in
Bogota, Colombia, where housing, not necessarily
housing, is considered an essential component
                                                of the proj-
ect.    The World Bank and AID also consider infrastructure
elements when planning their projects.    Continued and sus-
tair.ed emphasis on housing as an important segment
                                                     of urban

development by external assistance agencies will be required
so that LDCs will view housing as a necessary component of
their development efforts.

     Housing and shelter projects must not be treated sim-
ply as residual programs in national development planning
but, rather, as critical components in integrated develop-
ment plans. All too often planners delay improvement of
the housing sector until economic development has achieved
a certain level, rationalizing that the limited resources
are better used in the agricultural and industrial sectors.
However, postponing investment in shelter until a country
reaches a predetermined level of development will exacerbate
the housing deficit and make it all the more difficult to
improve housing conditions.

     The U.N. recognized the importance of integrating
housing and urban development back in 1963, when it reported

     "*   * housing programmes are breeding grounds of
     enterprise, technology, management and craftmanship
     and they frequently serve as a transitional bridge
     for unskilled rural migrants as they become inte-
     grated into urban environments."

     We believe that efforts to assist the poor will show
meaningful results if housing assistance is included as an
integral part of a development assistance package.  For an
integrated development effort to be successful, a greater
degree of donor coordination and a stronger commitment from
developing countries to allocate resources to help alleviate
the plight of the poor will be required.

Role of housing in overall
economic development

     Housing can be viewed as a tool for macroeconomic devel-
opment and should be recognized as complementing other sec-
tors of the economy.  The housing and building materials in-
dustry is a basic industrial sector generating employment
opportunities, expansion of related industries, and develop-
ment of technical skills.

     Investment in housing can contribute to a nation's
overall productivity by drawing on labor otherwise idle or
underemployed. Tha World Bank estimated that in Colombia
seven additional jobs are created for every $10,000 spent on

housing construction, a rate higher than that
                                               for the manu-
facturing industry. Housing construction
affects income and employment levels in other   indirectly
                                               sectors of
the economy through multiplier linkages with
                                              related indus-
'- r;s   and consumer goods.

     A U.N. housing survey indicates that building
constitute 50 to 60 percent of total construction materials
and for this reason, we believe it is essential
oping countries put increased emphasis on        that devel-
                                           producing their
own housing materials from indigenous resources,
consume valuable foreign exchange reserves        rather than
                                            for imported ma-
terials.  Domestically produced housing materials are
to be less costly tnan imported materials              likely
                                           and, again, should
provide employment opportunities.

      Upgrading existing housing conditions also
individual's ability to participate in the         affects the
                                            nation's economy
in the sense that his health, job productivity,
tional abilities are likely to be improved.        and educa-
housing also ser-es as a source of income,     In  many cases,
                                            since many fami-
  4is run businesses and cottage industries
                                            from their homes
or rent out rooms. These income earning
                                          possibilities appear
to be particularly important for low-income
quantifiable but generally recognized social families.    Non-
                                              benefits also
result from upgraded housing.   Improved health
social tension and crime levels tend to result and reduced
                                                  in the higher
pLoductivity of better housed workers.

      In addition, well-planned housing economizes
                                                   on the use
of urban space and can reduce the cost of providing
infrastructure.                                      urban
                  Better location of dwellings in relation
employment can increase disposable income                  to
                                           by cutting com-
muting expenses and reducing overall transportation
ments.                                               require-


PIPED WATER.                                        (FCH PHOTO)


         Traditional, western-style housing concepts have not
    proved appropriate to meet the neecs of LDC low-income
    groups due to costs and building materials requirements.

          To help meet the needs of the low-income families,
    housing policies and programs must be tailored to the coun-
    try's income level and the paying capacity of its house-
    holds.   The World Bank reported that there are wide gaps
    in most developing countries between the cost of housing
    being constructed and what low-income families can afford.
    The Bank stated that a 20-percent reduction in cost would
    increase the number of households able to afford housing by
    18 percent in Madras, India, and only 5 percent in Nairobi,
    Kenya.   To reach the bottom 20 percent of the households,
    'he absolute poor who are in dire need of housing, costs
    would have to be reduced by about 70 percent in Nairobi and
    45 percent in Madras.   The following table shows monthly
    income required to purchase the least expensive adequate
    housing units in selected cities.

                                      Estimates of Monthly Household Income
                                    Required to Purchase the Existing Cheapest
                                    Complete Housing Unit (1) and Percentage of
                                 Households Unable to Afford it in Selected Cities
                                          Interest rate - 10%                Interest rate = 15%
                      Cost of                       Percent of                         Percel:t of
                       unit       Monthly   Income  households       Monthly   Income  households
                     (US$ 1970    payment  required  unable to       payment required   unable to
     City              prices)    CUS$ (2) (USs (3)    afford        (USS (2) (USS (2)   afford
Mexico City              3,005     27.6        184          55        38.8       259           66
Hong Kong                1,670     15.4        103          35        21.5       143           57
Nairobi                  2,076     19.1        127          68        2 .3       177           77
Bogota                   1,474     13.6         91          47        19.n       127           61
Ahmedabad                 616       5.6         38          64         8.7           58        79
Madras                    570       5.3         36          63         7.3           49        79

(    With individual toilet and services.
     Assuming a repayment period of 25 years.
(3) Assuming no downpayment and 15% of household income devoted to housing.

Source:     World Bank

Minimum shelter and
sites and services

      Development planners have looked to the more recent
"minimum shelter" and "sites and services" approaches as
possible affordable low-cost alternatives to traditional
housing.   In the minimum shelter approach small "core"
houses (which may consist of only a floor and a roof) can
be provided at low cost and on a large scale to poor fami-
lies.   Through self-help efforts, the families can then im-
prove and expand these over a period of years as their
incomes increase or as credit for home improvement loans
becomes available.

                       URBAN MINIMUM SHELTER UNIT

                                            Lot with minimal services and core
                                            housing is provided, and then improved
                                            by homeowner through self-help efforts.

     Sourc:   FCH

     In the sites and services approach, sites of land can
be leveled and very basic infrastructure such as water,
sewerage lines, and roads provided.  Both these approaches
can reach greater numbers of people at less cost than tra-
ditional housing, and both incorporate the kind of self-help
concept that eliminates or reduces the need for continued
subsidy.  As long as employment opportunities, community fa-
cilities, and land tenure guaranties are also made available,
these settlements can develop into stable, productive com-

                            SITES AND SERVICES UNIT

                                     INITIAL STAGE - Provision
                                                                    of lot with
                                     minimal services, i.e. sanitation facilities.

                                           INTERMEDIATE STAGE - Family may         build
                                           shelter from any materials available
                                                                                and with-
                                           in their income limitations.

                .~e   d-.

                                         FINAL STAGE - As family income
                                         family improves housing.

Source:   FCH


                                           (AID PHOTOS)

  Upgradinq existing
  s1uatter settlements

       In some areas it may be more feasible
  to upgrade existing settlements              and desirable
                                   rather than to develop
  new minimum shelter projects.   This is especially true
  of squatter settlements which are
                                     well established, 1lave
  some infrastructure, are located
  and where much of the housing has near  employment centers,
                                     already become semiper-
 manent.   Rather than eliminating these
 occurred under the Philippine Governmentsettlements, as has
 taking place in India where thousands       and reportedly is
 LDCs should consider legalizing land    are  being uprooted,
                                        tenure; improving
 streets and sanitary and health conditions;
 cation, job training, and employment           providing edu-
 making credit and technical help       opportunities;  and
                                    available to encourage
 self-help home improvement,.

       It is reported that these approaches
                                            have beei. adopted
 in a number of LDCs.   Tn Zambia, for example, the government
 provides sites and services projects
                                       to its poor and up-
 grades existing squatter housing
                                   with utilities and services
 for the very poorest.   Such projects are viewed as part
 an integrated T:ousing policy rather                      of
                                      than as unique, isolated

       The Government of Peru has adopted
                                             a policy of provid-
 inq adequate housing fcr its people,
                                         which   may include pot-
 able water, sewerage, and/cr electricity.
 is "the accomplishment of a significant         Its stated policy
 housing conditions of the population."      improvement   in the
                                             The objective is to
 integrate the poor within the urban
                                       structure, supply them
 with essential services, and promote
 developed by self-help construction projects that will be
                                       and community partici-
 pation. This will be achieved by
 tax exemptions for low-income housing,         laws involving
                                           use of potential
agricultural land for urban purposes,
                                          preferential financing
for vertical construction in larger
direct construction costs to make      cities,    and limits on
                                    houses more affordable
by families with moderate incomes.
      Land around Peruvian cities is often
                                               marginal in nature
and in the public domain.    Occupation of such land normally
starts as an organized squatter invasion,
that migrate from the same rural               often by groups
                                   area.    Government   policy
is to look benevolently upon such
                                    takeovers of the otherwise
unusable land and to assist the
                                  squatters in developing the

     The Government of El Salvador enacted a law in June
1975 designed to change the structure of land tenure through
acquisiton and redistribution, but in June 1976 the first
project authorized was opposed by landowner, business, and
industry interests.  Consequently, the government approved
amendments to the law in October 1976 which, according to
an AID official, may have effectively gutted the program.
At the time nf our incountry fieldwork, the future of the
land transformation program was uncertain.

     El Salvador has no national housing plan, and the in-
stitutions responsible for urban and regional planninJ and
implementation operate in relative isolation without coor-
dination of their respective activities.  Spatial planning
is not synchronized with national economic and social plan-
ning, both of which fail to influence or guide important
segments of actual development, particularly in th" squat-
ter shelter sector where building largely occurs without
official authorization.

     An initial effort to address the planning problem in
El Salvador was made in 1969 when the government prepared
a comprehensive d£e'elopment plan for metropolitan San Sal-
vador.  The plan presented policies and guidelines on var-
ious aspects of the capital's growth, including a spatial
plan and a recommended institutional framework for urban
development planning.   It also contained an analysis of
specific problems and deficiencies in the planning and im-
plemention process and recommendations for remedial action,
most of which have not yet been implemented.

     Because of the low rate of return in E1 Salvador, gov-
ernment officials and housing contractors are not enthusias-
tic about building sites and services projects.  Conse-
quently, efforts are directed toward the middle- and high-
income groups.  About 95 percent of the houses financed by
the National Housing Bank were for families earning more
than $240 a month--upper-middle-and high-income families.
One government official said he does not favor the sites
and services/self-help approaches to low-income housing
because such projects are not aesthetically pleasing.   A
bank official in El Salvador said he believes his bank would
not be interested in investing in low-income housing, par-
ticularly sites and services/self-help projects, because it
would not be economically feasible.


     Even under the most favorable conditions, it may be a
very long time before developing countries can allocate suf-
ficient resources for better housing and improved community

 facilities. But practical solutions to the critical
 lem of housing in these countries do exist.
      The realistic, yet difficult, approach to providing
 immediate housing to large numbers of needy people
observing ethnic and cultural mores) is to lower standards
and develop the construction industry; use low-cost,
digenous materials where possible; provide              in-
                                             communal rather
than individual water and sanitation facilities; increase
construction density, where appropriate, thus decreasing
the amount of land required for housing; and develop
novative ways to make long-term financing available. in-
      Assistance in the housing sector should not be ap-
proached on an isolated basis, but as an integral
                                                    part of
development assistance programs; providing the physical
requirements of housing is but one part of improving
quality of life of the poor. More importantly, these
people must be absorbed within society--this requires
prehensive national development efforts.                 com-

     When housing assistance is approached as a residual
ponent, experience has shown that middle and higher        com-
groups are most likely to benefit.                   income
                                    Even with donor assistance
now targeted toward the more needy, it is extremely
ficult to reach families below the 20th percentile dif-
strata because of their inability to qualify for repayment
type assistance programs.

      Incorporating housing as a necessary
ponent of an overall development assistanceandprogram
                                                vital com-
provide the poor greater opportunity to improve their
ing standards. The development of viable communities liv-
quires integrating shelter with other urban developmentre-
components, such as transportation, industry, education,
and health facilities. Through the increased employment
opportunities afforded by this overall approach to
ity development, low-income families will be in a position,
as their earning power grows, to afford better shelter.

     Overall resource limitations are a restricting
for any development program. For this reason U.S. factor
ternational assistance should be directed to those and in-
needy countries Qualifying for assistance. Their qovern-
ments should (1) demonstrate a commitment to the
(2) consider housing a necessary component in their
opment program, (3) have displayed a willingness to devel-

slum and squatter housing, and (4) move toward establishing
more realistic construction goals and standards for the
benefit of the poor.  We are not saying the emphasis of de-
velopment programs should be redirected from the sectors of
food and nutrition, population planning and health, and educa-
tion and human development; we are saying that shelter as-
sistance can have a beneficial effect on a country's social
and economic development and should therefore be raised in
importance and consideration in development planning.

                            CHAPTER 3


     U.S. overseas housing assistance can be
                                               traced to the
World War II reconstruction period when
                                         the United States
helped to rebuild Europe's war-ravaged
                                        countries and econ-
omies.  After completing these relief efforts,
shifted to development aid in the third
on institution building and the construction    and focused
                                               of middle-
income housing.  More recently, in response to
Assistance Act of 1973 and AID policy changes, the Foreign
                                                 AID re-
directed its development programs to

     -- benefit and involve as active participants
        the poor majority within the developing
        countries and

     -- concentrate on food and nutrition, popula-
        tion and health, and education and human
        resources development.

     Assisting LDCs to provide shelter for their
                                                   poor is
a new and largely evolutionary area of
                                        assistance.   Mini-
mal housing, sites and services, and slum
proaches have been part of development assistance     ap-
only for the past 4 to 5 years, and AID,
                                          as with all as-
stance agencies, has no long experience
                                         to draw upon in
designing and implementing these programs.
                                              The major
instrument of U.S. housing assistance has
                                           been AID's
Housing Investment Guaranty (HIG) Program,
                                             under which
the U.S. Government guarantees repayment
                                          of principal and
interest to private U.S. investors for housing
                                                 loans made
on commercial terms to borrowers in LDCs.

      To accommodate this policy reorientation
                                               toward low-
income housing, AID has made significant
                                          adjustments in the
HIG Program in the last 3 to 4 years.   While it is pre-
mature to determine whether these changes
                                           are sufficient to
meet the objectives of this program, it
                                         is evident, however,

     1.   Even massive amounts of U.S.   aid can provide
          only a small portion of the investment
          required and would have minimal effect un-
          less tied to long-term policy changes and
          institutional development in LDCs.

     2.   HIG programs have recently been concentrated in a
          small number of countries to meet foreign policy
          objectives.   The result has been a narrow demon-
          stration effect and a limited impact on the hous-
          ing shortage.

     3.   The large scale replicability of HIG-funded
          projects has not and perhaps cannot always be suf-
          ficiently assured, due to factors external to AID
          and to the sheer complexity of housing low-income

     Although the Peace Corps, the Inter-American Founda-
tion, and the Department of Housing and Urban Development
also have some peripheral involvement, AID has primary
responsibility for U.S. overseas housing assistance


     U.S. housing assistance efforts have undergone major
changes in scope and objective since 1973 when AID estab-
lished new policies for the program.     These policies, in
consonance with congressional  legislation,    focused U.S.
assistance on low-income housing.    Before  this  reorienta-
tion, most U.S. housing assistance   had  been  directed at
providing middle-income housing  and  building   financial  in-
stitutions, largely in Latin  America.

     AID's Policy Determination of October 22, 1974, rec-
ognizes the need to deal with the shelter conditions of
the poor and states that AID shelter programs will "give
the highest priority to undertakings submitted by host
governments which clearly lead to the improvement in the
lives of the poorest of their people."

     Prime objectives of AID's housing    programs are to

     -- help develop LDC capabilities for analyzing
        housing requirements and formulating rational
        housing policies,

     -- build or strengthen housing finance institu-
        tions capable of replication on a large scale,

     -- help LDCs examine alternative interest rate
        policies to minimize subsidization, and

     --encourage maximum use of underused resources
       while minimizing the drain on scarce resources.


                                                 (GAO PHOTO)

                                               2GAO PHOTO)
      To accomplish these objectives, AID is assisting LDCs
in (I) establishing affordable housing standards, (2) sup-
porting sites and services and squatter upgrading approaches
using self-help methods, (3) providing technical assistance
for developing vi.able savings institutions, and (4) adapting
new housing materials and construction technology to reduce

     Because of the qreat need for shelter and the scarcity
of available resources, AID has emphasized the importance of
its assistance having a strong multiplier effect if rela-
tively small resource allocations are to be substantial.

     Housing guaranty authorizations in fiscal years 1975
and 1976 have averaqed almost $100 million annually, and
as of December 31, 1976, totaled about $898.6 million si:ice
the program began in 1961.   Although these loans are not
drawn from appropriated U.S. funds, they do represent a con-
tingent liability of the U.S. Government as well as a hiqhly
visible and, in some co,ntries, relatively sizable form of
U.S. development assistance.

     Direct concessional U.S. loans for housing have been
made in recent years on an ad hoc basis for emergency pur-
poses such as disaster reconstruction, and minimal amounts
of development grant funds have been applied.  AID's
Office of Housing contracting activities in the housing
field since 1973 have amounted to about $4.4 million,
drawn from fee income and applied to new program devel-
opment (e.g., shelter sector studies) and monitoring of
disbursing programs.

Legislative framework of the HIG Proqram

     The HIG Program has changed considerably in scope and
objective since its initial authorization under the Foreign
Assistance Act of 1961.  It was originally intended to provide
an opportunity for American construction firms to build pilot
demonstration housing projects in Latin America.  Theoretically,
large individual projects were to demonstrate advanced methods
of housing construction and finance and thus produce multi-
plier effects on the host country housing industry.

      In 1965 the program was reoriented primarily toward
institution building, including labor unions and coopera-
tives, so that housing could be provided on a continuing

basis after the pilot demonstration projects were com-
pleted.  In 1969 the Congress expanded the proqram to in-
clude countries in Africa and Asia, in addition to those
of Latin America.  Until 1974 mos· of the housing built
under this program was affordable only to middle- and high-
income groups.  Unit mortgages averaged $6,500 and incomes
averaged $250 a month.

     Although low-income housing has been one of the objec-
tives of the program since 1965, it did not become a major
thrust of the program un-i. 1973, when AID and the Congress
placed new emphasis o the objective of helping the "poorer

     Restated in the Foreign Assistance Act of 1974, the
basic intent of the HIG Program remains to (1) facilitate
and increase the participation of private enterprise in de-
velopment and (2) promote the development of LDC savings
and loan institutions for financing the construction of
self-liauidating housing projects and related community

     The   last significant change in the authorizing legisla-
tion was   made in the International Development and Food As-
sistance   Act of 1975, which placed the following restric-
tions on   the program.

     -- Except for regional projects, guaranties are
        to be issued only for housinq projects in
        countries now receiving U.S. development
        assistance or which have received it in the
        past 2 fiscal years.

     --Housing projects are to be coordinated
       with, and complementary to, such assistance.

    -- Housing projects are to be specifically
       designed to demonstrate the feasibility and
       suitability of particular kinds of housinq
       or of financial or other institutional

    --At least 90 percent of the aggregate face
      value of HIGs must be issued for housinq
      suitable for families with income below
      the median income of the recipient

    --The total face value of guaranties issued
      for housing in any single country Der fiscal
      year is not to exceed $25 million.

     --The average face value of all guaranties
       issued in any fiscal year is not to exceed
       $15 million.

     -- The total face amount of housing guaranties
        issued worldwide is limited to $1.03 billion,
        of which $600 million is to be used for
        housing projects in Latin America.

     Specific exemptions were made in this law and in the
International Development and Food Assistance Act of 1977
to enable Israel, Portugal, and Lebanon to be eligible for
HIG projects--'.srael up to $75 million, Portugal up to $30
million, and Lebanon up to $30 million, for the period
December 1975 to September 30, 1978.


     As the major U.S. effort for helping to alleviate
the worldwide housing deficit, the HIG Program has con-
tributed as of March 1977 an estimated 105,028 shelter
units built over the 16-year life of the program.  In ad-
dition, it has contributed to the development of shelter
policies and institutions in the LDCs.  The potential
benefit of the revised program, however, is adversely af-
fected by AID's concentration of recent HIG projects in a
relatively small number of countries.  This concentration
occurred as a result of large country program requests
accede& to by AID, congressional earmarking of guaranties
for certain countries, and the Office of Management and
Budget's (OMB's) ceiling on annual authorizations.

     Since the revision of the HIG Program, the majority of
projects authorized have been for minimal housing, sites
and services, or squatter upgrading.  Income groups to be
directly served by these HIGs generally range from the 20th
to the 50th percentiles.  Income groups below this range
are expected to benefit to some extent by the improved qual-
ity of life in slum upgrading areas and by increased rental
possibilities, although AID does not specify exactly how
much of such housing will be made available.

     Recent AID projects have also been designed to serve
as integral parts of existing communities or community de-
velopment plans.   Consideration is given in the planning
documents to the proximity to employment centers; trans-
portation facilities; water, sewerage, and electrical con-
nections; and commercial, educational, and community faci-
lities.  Infrastruicture connections are normally provided

in the HIG projects, but the host country generally is   to
provide primary infrastructure and some community fa-

     Although recent HIG projects differ significantly from
the middle-income housing projects built under the program
before 1974, many are only in the early stages of implemen-
tation. The impact of the revised HIG Program cannot be
fully assessed until low-income groups actually move into
these projects and remain there to improve their housing
through self-help. One potential problem is that middle-
income groups (who might also be inadequately housed and faced
with an unresponsive housing market) may seek to move into
the low-income housing projects.   Recognizing this, AID has
sought to encourage the establishment of national housing
policies and programs to create a balanced housing market
serving all income groups in LDCs.   AIu believes this would
prevent middle-income groups from occupying low-income

     HIG projects alone cannot directly make any big dent
in the housing deficits of the recipient countries.   In
Chile, for example, where AID has directed large sums of
HIG money, AID noted Lhat, as of July 1975, each $50 mil-
lion HIG loan could Snake a 12,000 unit difference in the
urban deficit of 350,000 units.   This represents a very
minor impact on the deficit.   In fact, the program was
never actually intended to make up these deficits.   Rather,
its purpose was to serve an innovative or institutional
support function which would have a lasting effect on the
LDC's ability to meet its own shelter needs.

     The demonstration objective of the program, however,
has been limited by AID's concentration of HIG projects in
the past 2 years in a small number of countries.  Of the
$220 million authorized in fiscal years 1975 and 1976 and
the interim quarter, 82 percent ($180 million) went to four
countries--Korea, Chile, Portuqal, and Israel. Of the re-
maining 18 percent ($40 million), African countries have
received $31 million and Latin America $9 million, as shown
on the following paqe.

                                                     Per capita
                Amount                Cumulative       gr)ss
             fiscal years               percent       national
                1975                of total HIG      product
Country     and 1976 (note a)      authorizations   ($U.S.) (1973)

            (in millions)

Korea       $ 60.0                       27           $     400
Chile         55.0                       52                 720
Portugal      40.0                       70               1,410
Israel        25.0                       82               3,010
Cameroon      10.0                       86                 250
Zambia        10.0                       91                 430
Ivory Coast    8.4                       95                 380
Peru           5.0                       97                 620
Paraguav       4.0                       99                 410
Botswana       2.6                      100                 230

    Total     $220.0

a/Includes transition quarter      (July 1 to Sept. 30,   1976).

Selection of countries for      the HIG Proqram

     Although AID has desiqned projects to serve income groups
earning below median income levels in the countries selected,
only two of the countries selected since the beginning of fis-
cal year 1975 for HIG projects aualified by AID's operating
definition as among the poorest countries (per capita aross
national product of less than $275).  These countries,
Botswana and Cameroon, have received only $12.6 million
(6 percent) of the $220 million authorized.

     AID does nut believe that very low per capita income
countries are suitable recipients for HIG project loans,
which are made on commercial rather than concessional terms.
As AID states in its October 1974 Policy Determination:

     "Housing guaranty investments are a useful
      means of transferring private U.S. resources
      to developing countries which are able to
      serve an increasing volume of foreign loans
      at prevailing market interest rates, but are
      experiencing difficulty gaining access as
      newcomers to the long-term private capital
      markets.  The housing guaranty loan is
      especially well suited to the needs of
      countries in which concessional loans are
      beinq phased out.

      "High income developing countries which are
      accumulating reserves and already have ready rapidly
      to the long-term private capital markets are access
      ally not eligible for housing guaranty loans, gener-
      cept when the Regional Bureau determines that ex-
      cial considerations otherwise justify a guaranty.
      Very low per capita income countries (including
      least developed countries) which will continue the
      require concessional aid for an indeterminate to
      riod are generally not suited for housing      pe-
      loans, unless compelling circumstances justify."
     The stated procedure by which countries are
selected to receive HIG projects can be summarizedinitially
lows. The host country expresses co the AID         as fol-
                                              mission or
embassy an interest in housing programs; if
                                             its request con-
forms to U.S. development and housing assistance
and HIG criteria, the Office of Housing's regionalpolicies
with the concurrence of the AID mission or          officer,
                                            embassy, works
with the host country to help determine the
                                             country's hous-
ing needs and to refine the prospective project.

     AID's major criteria for assessing
                                         prospective pro-
jects are (1) host country commitment
                                       to providing low-
income housing on a planned and integrated
                                            basis for its
population, (2) the contribution the
                                      HIG project will make
to the development of housing and
                                  housing finance institu-
tions capable of continuing to provide
                                        low-income housing,
and (3) the ability of LDCs to repay
                                      the loans (i.e., balance-
of-payments prospects and debt-servicing
                                          capability).  Once
AID is satisfied that these criteria
                                      have been met, it ap-
proves the loan guaranty and submits
                                      it to the Interagency
Development Loan Committee 1/ for
     Political considerations also enter
                                         into the selection
process.  As AID's former Deputy Administrator
before the Congress,                           testified

      "The basic decision to extend or withhold
      assistance is a political decision,
                                          and this
      kind of guidance is provided to AID
                                          by the
      Secretary of State."

The most frequent critics of the economic
                                          justification of
certain prospective HIG programs have
                                      been the Treasury

l/Voting members of the committee are
                                       the Departments of
  State, the Treasury, Commerce, and
                                      the Export-Import
  Bank; OMB and the Federal Reserve
                                     often participate
  but do not vote.

Department and OMB, both of which questioned the ability of
certain HIG projects to serve low-income groups, the amount
of the interest subsidy involved, and the size of the debt
burden to be incurred by LDCs.  As the Treasury Department
stated on one HIG proposal,

     "We do not wish to go on record in support
     of programs which are economically question-
     able when the real rationale is essentially

The Department of State and AID have not agreed with these

     In addition to congressional guidelines, selection of
countries is affected by (1) the importance the AID mis-
sion director attaches to housing as a form of U.S. assist-
ance, (2) the LDC's need for balance-of-payments support,
and (3) the $100 million annual ceiling OMB places on HIG

     The attention paid by AID missions to local housing prob-
lems and programs varies widely and depends upon the partic-
ular interests of both the host country and the mission di-
rector.  An AID official noted, for instance, that on one
occasion a mission director discouraged host country in-
terest in a HIG project even before the viability of a low-
income housing project could be determined.     In other in-
stances, we were informed, mission  directors   have shown
little interest In housing programs and   have  chosen  to con-
sider housing as a minor element of  U.S.  assistance   efforts.
AID mission officials in El Salvador,  for  example,   told us
that the mission has not emphasized housing    in recent  years
but has concentrated on areas emphasized by the Government
of El Salvador--agriculture, education, health and popula-
tion, and economic policy. The AID Mission Director ex-
pressed the view that, although housing should be part of a
development assistance program if it could create long-term
employment opportunities to increase income or induce sav-
ings, construction of factories would have a greater impact
on a country's long-term development.   He noted that his
comments were relative to El Salvador  and  that his attitude
could change depending on the country  he  was  discussing.

     HIG projects a'so constitute a good source of foreign
exchange and can serve a short-term balance-of-payments
support purpose.  The foreign exchange requirements of
housing provided through recent HIG programs are generally
quite low, since most of the materials used are produce]
indigenously.  HIG projects thus provide dollars which are

 not consumed by imports and can therefore be flexibly
 Such economic support has been an identifiable purpose
 the HIG projects on several occasions in Chile, Portugal,
 and Israel.  In Chile, for example, AID's Latin America
 Bureau stated that

      "*  * * a basic objective in Chile in particular
     has been to assist the Government (GOC) to over-
     come very serious economic problems, including
     balance of payments and debt service difficul-
     ties.    In keeping with this policy, AID provided
     economic assistance to the GOC up to the $90 mil-
     lionl ceiling.* * *"
      Since 1971 Israel has been selected to receive $125
million in housing guaranties.   The United States has pro-
hibited the use of these moneys for projects in the occupied
Arab territories.   On November 11, 1976, the United States
supported a U.N. Security Council resolution which "strongly
deplored" Israeli settlement in these territories.
are over 50 Israeli settlements in the West Bank, the
Heights, and the Gaza Strip and Sinai Peninsula. Addition-
ally, Israel has undertaken construction efforts in
Jordanian sector of Jerusalem.

     Although U.S.-guaranteed funds are not to be used di-
rectly in support-of these settlements, the U.S. moneys
effect free Israeli funds which could conceivably be    in
                                                     put to
such uses, i.e., substitution financing. While there
evidence that this has been happening, the situation  is no

     OMB placed a $100 million ceiling on annual HIG author-
izations for the first time in fiscal year 1976.  This ceil-
ing was imposed because OMB felt that

     -- HIG loans represent a contingent liability
        on the U.S. Government, drawn from the U.S.
        capital market, and thus need to be subject
        to the same budgetary procedures required for
        appropriated funds; and

     -- the HIG Program had been growing rapidly while
        projects had not been thoroughly planned at the
        authorization stage.

     OMB believes that the ceiling serves as a control
mechanism over the program which also encourages AID
to improve HIG programing.

     AID does not agree that it is realistic to have
final project plans at the authorization stage but gets
these at later stages in the project's development.  AID
also points out that the HIG Program now follows the same
budgeting procedures as appropriated funds and that the
programs are consistently monitored.  AID agrees on the
continuing need to improve HIG programs but believes the
approach OMB uses and the judgments on which it is based
are inadequate bases for program policy.

     AID maintains that the $100 million annual ceiling has
not yet posed problems for AID by forcing decisions between
competing projects.  However, AID did have to reschedule
about $2 million of a 1976 HIG authorization programed for
the Ivory Coast to conform to this ceiling.  AID expects
greater problems with this ceiling in fiscal year 1977 and
last year requested OMB to increase it to $175 million to
cover anticipated guaranty loans in fiscal year 1977.   OMB,
however, rejected this reauest but agreed to review the
ceiling during the current fiscal year.

     Considering the political aspects of AID's decision-
making process and the fact that 82 percent of the HIG pro-
ject loans in fiscal years 1975, 1976, and the transition
quarter have been concentrated in only four countries, it
is possible that the OMB ceiling may cause a squeeze on
funds available to poorer countries in urgent need of low-
income housing but not high among U.S. political considera-

     We believe, however, the OMB ceiling currently serves
a useful purpose in forcing AID to proceed cautiously in
the initial stages of this largely experimental low-income
housing program so that the HIG projects will success-
fully demonstrate the feasibility of low-income housing on
a large-scale basis by the LDCs.

     In commenting on our report, the State Department and AID
noted that the selection of countries for HIG authorizations
has not meant that the political and economic purposes of
HIGs in Chile, Portugal, and Israel have been so overriding
that the shelter purposes of the programs were not served.
They added that despite their obvious political and economic
purposes, important shelter development objectives were in-
cluded in these programs.  They also noted that in the cases
of Chile and Peru, large loan guaranties were based on these
countries' readiness to undertaKe sizable programs with
significant institutional changes for low-income people.
This readiness was due to their greater absorptive capacity

 and their progres toward developing the institutional
 framework required to conduct large shelter programs,
 is considered not to be the case yet in most African

      We do not intend to imply that political and economic
objectives of HIGs are so overwhelming that little   is accom-
plished in providing shelter assistance.   The program does
provide shelter assistance even though the selection
countries is influenced by factors other than need.    of the
                                                       What we
want to establish is that criteria other than shelter
do affect the selection of countries receiving HIGs
                                                      and may
result in a shortage of funds available to poorer countries
in urgent need of low-income housing but not high among
political considerations. We also recognize that the
                                                        size of
HIGs in LDCs depends to a degree on absorptive capacity,
well as other factors; however, the fact remains           as
                                                  that most
HIGs authorized during fiscal years 1975 and 1976 were
centrated in four countries and the economic and political
aspects of the selection process contributed to this

Replicability of HIG projects

     A basic objective and major premise of the HIG Program
is that HIG projects can be used to help build and
housing institutions serving low-income groups so
                                                   that such
housing can continue to be provided on a large-scale
As stated in AID's Policy Determination:

     "AID assistance should have a strong multiplier
     effect.  By building shelter finance institutions
     capable of replication on a large scale and encour-
     aging technical and financial innovations, the ef-
     fect of small resource allocations will be

     Replicability of HIG projects is affected by (1) the
amount of subsidy involved in the program, (2) institutional
development, and (3) project planning and implementation.
These three elements are discussed below.

     Host country subsidies

     An important factor determining the large-scale replica-
bility of HIG projects is the extent of the host country's
subsidization policy. Artificially low interest rates
sulting from government interest rate subsidies exacerbate
the scarcity of housing investment funds for lower
groups because the tendency is for the subsidies to income
the middle- and upper-income groups.  Additionally, devoting

scarce public resources to interest rate and other subsides
is a practice difficult to sustain on a continuina basis.

     Many LDC governments are reluctant to reduce housing
standards and therefore housing costs to the point where
housing is affordable without subsidization to the lowest in-
come groups.  Many view sites and services and minimal housing
approaches as serving just to create more slums. On at least
one occasion, regarding a World Bank project, the host govern-
ment strongly criticized the very minimal nature of the shel-
ter being provided.  AID officials consider this general ac-
ceptability problem to be one of getting LDC governments to
understand that such minimal housing approaches are, in fact,
the only viable means of reducing housing costs so that the
urgent shelter needs of low-income groups can be met in the
near future.

     Although some U.S. officials believe there must be some
minimum standard below which U.S. assistance should not be
associated, there is also the belief that AID should insist
that subsidies be kept to a minimum by keeping costs to a
minimum.  AID's shelter policy statement points that in-
terest rate subsidization can be a highly sensitive domestic
political issue.  Some governments view subsidized housing as
a legitimate means of income redistribution and may actively
pursue this as a conscious policy.  An operating premise of
the HIG Program, however, is that housing can and should, to
the extent practicable, be provided on an unsubsidized basis.

     The extent of the interest rate subsidy allowed by AID
was one of the major criticisms raised within some AID offices
and at the interagency authorization process for the 1975
$20 million HIG for Portugal.  An assessment made within AID
of the effects of this subsidy indicated that the proaram
would represent a continuing drain on Portugal's financial
resources which could not be sustained. The program would
thus end up as a token gesture toward alleviating the
Portuguese housing problems.

     The general position of AID and the State Department
was to recognize that the subsidy element in the Portuguese
program represented the most practicable minimization possible
to achieve at the time.  This fact, they said, combined with
the broad purpose of HIG as part of a security supporting as-
sistance aid package, formed the basis for the authorization.

         f ~.                It.'         *...


                       .r"   .


                                      (AID PHOTOS)

    Another case where the subsidy element was criticized was
the most recent HIG program for the Ivory Coast. As the
Treasury noted:

     "It appears that the lower income groups will
     be reached in this part of the program by
     offering very soft terms rather than by re-
     ducing the standards to what is affordable
     by those groups. Thus, the HIG loan may not
     make an adequate contribution to building
     stronger financial institutions, a major goal
     of the HIG program."

     AID maintains that the Ivory Coast Government's accept-
ance of the principal of cost recovery for some parts of the
program represents a major policy shift toward improving over-
all financial planning for shelter.
     We believe that the United States should encourage LDCs
to set housing standards at a level enabling low-cost shelter
to be provided for the lowest income groups to the extent
practicable without subsidization. Where certain circumstances
dictate that LDC governments subsidize--as part of a conscious
and planned policy of income redistribution that would permit
low-income group access to shelter--the Unites States should
work closely with the government to assure that the source of
such subsidy is available and adequately planned for.

     Institutional development
     A second factor determining the large-scale replicability
of HIG projects is the extent to which institutions are built
or strengthened as a result of the project. Developing a host
country commitment to low-income shelter programs through re-
direction of its housing policies is an essential element of
irstitution building. In addition, means for mobilizing do-
mestic capital to finance low-itcome shelter must .alsobe de-
veloped if LDCs are to be able to provide such shelter on a
continuing and large-scale basis once the HIG Program in that
country is completed.
     AID views one of the HIG Program's major accomplishments
to be the establishment of viable, ongoing mortgage credit in-
stitutions in many LDCs, making a continuing contribution to
the resolution of housing sector problems.  In the late 1960s
and early 1970s, most housing guaranty programs concentrated
on the development of mortage credit institutions.
     AID does not restrict its interpretation of institution
building to the development of shelter finance institutions;
it also regards host country development of a rational low-
income housing policy and, where necessary, the development
of specialized financial/administrative entities such as

   national housing authorities
                                of state housing finance
   agencies as forms of
                        institution building.
         For example, AID
   example of the impact cites the HIG Program in Korea as an
                           it can have on the host
   housing Policies.   AID                             country's
   sector survey of Korea'snotes that its June 1971 shelter
                              housing needs indicated
   serious housing shortage                               that a
   ment had not concentrated existed and that the Korean Govern-
                                on housing as a priority
   an initial involvement                                   area.    As
                            in November 1972 AID
   $10 million housing guaranty                     authorized a
   housing institution              to support the principal
                        and to generate government              Korean
  an expanded housing                                   interest in
                        program.     In 1974 a $20
  approved to finance
                        somewhat less expensive million HIG was
  the Korean Government
                          redirected its housing housing.      In 1975
  higher priority to smaller,                        policies to give
  million in guaranties           low-income housing units.
                                                                 The $60
  cal year 1975 has been authorized since the beginning
  housing, with some moneysused   for  direct                 of  fis-
                                              financing of low-income
                               used for slum rehabilitation
  ects.                                                          proj-

        Although $90 million
                                in guaranties has been
  Korea, since the beginning                             authorized to
  impact on private banking of 1972 there has been very little
  savings and loan system       institutions.   There is no organized
  savings are channeled      presently  existing  in
                           into small, unorganized Korea.     Private
  the "key money" system),                           groups (known as
  available to meet the       which are not capable
                          housing needs.              of making funds
  Korean Housing Bank,                      Although there is a
                         it has a very limited
 housing funds.    AID is currently assisting capacity to provide
 ment in analyzing the                            the Korean Govern-
                          financial institution
 ing Koreans' personal                             needs, but chang-
 term process. Once       savings habits
                       HIG loans are no is    judged to be a long-
                                           longer made available
 provide the housing                                               to
 capital from other sources    in Korea, there is no certainty
                                will be made available            that
 purposes.                                               for housing

       In other instances,
 countries, such as Israel guaranties are being provided to
                             and Chile, whose financial
 tions overall are fairly                                    institu-
 suffering capital shortages.      developed but are temporarily
 assisted in the important         These countries are being
 to meet low-income housing  task   of gearing their institutions
 features have been included  needs,   and certain innovative
grams.                         as   part of these guaranty
          In Chile, for example,
will be used to finance             some of the guaranteed pro-
                          a self-help pilot project           funds
taken by rural cooperatives.                            to be under-
partment of State and             In the case of Israel,
                        AID maintain that they              the De-
ing institutions better                           are
                          serve low-income people helping hous-
changes to their internal                             by suggesting
maintain that when existingfinancing mechanisms.       They also
                              institutions are moved
                                                         to serve a

market not previously served, such as the poor, important
institutional change occurs.

     We do not deny that this can be an important factor
in institutional development, but we believe, and it is
acknowledged, that the primary reason tor the large size of
the HIG Programs in Chile and Israel was their immediate
need for capital.

     An infusion of capital may simultaneously serve a
number of other purposes.  It may, for example (1) stimu-
late a seriously underemployed construction industry and
thereby generate badly needed jobs, (2) strengthen the
short-run balance-of-payments position of the country, or
(3) make foreign exchange available immediately to countries
which may require it for other uses for which they have not
received financing.

      In several of the African countries (Botswana, Camero--,
and Zambia) where HIGs have recently been authorized, the
mobilization of local savings capabilities through the es-
tablishment of savings and loan institutions or cooperative
associations, as was done in Latin America in the 1960s with
the assistance of the HIG Program, is not an immediate objec-
tive.   In Botswana and Cameroon the purpose of HIGs is to
develop a local program capacity to implement new programs
of sites and services.

     Whether it is realistic as a general rule to attempt
to establish private savings and loan institutions to serve
LDC needs for low-income housing is difficult to judge.   On
one hand, AID officials state that there is a substantial
savings capacity among low-income groups that remains un-
tapped as a source of capital; money presently spent on
rent could just as well be spent on mortgage payments if
inexpensive housing could be made a-ailble.   On the other
hand, LDC governments have sometimes insisted on maintain-
ing housing standards at levels that preclude the construc-
tion of very low-cost shelter, thus requiring government sub-
sidizati3n.  In many of the countries undertaking these pro-
grams, there are no financial institutions to serve low-
income housing needs. A continuing government willingness
to subsidize low-income housing may result in keeping the
government as the primary builder and source of financing
for low-income housing.

     In commenting on our report, the Department of State
and AID stated that the development of squatter upgrading,
sites and services, and core house programs in LDCs is a
considerable achievement, largely due to the influence and
efforts of external development agencies. We agree.   They

 emphasize the difficulty of introducing
 approaches to countries where these      low-income shelter
                                     may be thought to re-
 quire radical policy changes.  They believe that these in-
 novative approaches must be introduced
 basis, with focus on low-income shelter on an incremental
                                          needs gradually
 sharpening over a period of years.

      State and AID believe that AID played
 part in Korea and Peru in assisting         an important
 develop new institutions or change   these countries to
                                     existing ones to serve
 the shelter needs of low-income people.
                                           We agree.
     They added that program forms now
these countries include squatter         in development in
                                  upgrading and sites
and services. These are considered
development. Our point, however,     forms of institutional
                                   is that unless the HIG
programs also emphasize and serve
                                   to develop a continu-
ing means to mobilize the domestic
                                    capital needed to provide
low-income families with the opportunity
with a long-term, low-interest loan,       to purchase shelter
HIG-sponsored low-income housing      the  replicability of the
                                  projects is questionable.
      Project planning and implementation

     Another factor affecting the replicability
ects is the adequacy of economic                of HIG proj-
                                 analysis and planning that
goes into the development of the
                                 proposal.  OMB believes that
HIG projects are not thoroughly planned
thorization, and that greater attention at the point of au-
                                        should be given to
detailed economic analysis.  The Treasury Department shares
this overall view and based its nonconcurrence
Coast HIG on the lack of sufficiently          on the Ivory
                                      detailed analysis pro-
vided by the proposal paper.

     As mentioned earlier (see pp. 31
AID on the amount of detailed         and 32), OMB differs
                              project planning which should with
be required at the preauthorization
                                    sLage. OMB seeks greater
detail and analysis; AID wants such
be developed after authorization    detail and analysis to
                                 but before signature of loan
and guaranty contracts.

      Inflation rates in recipie-r countries
                                               are another
potential problem for LDCs mak .,g
country institutions receiving rn:.a:ing  repayments.  Host
                                          loans with dollar
payback requirements may suffer losses
local currency income from mortgage       if the institution's
verted to the full amount of dollars  payments  cannot be con-
                                       needed to pay back the
loan.   Convincing LDCs of the feasibility
ing provided through institutions            of low-income hous-
                                   capable of making long-term,
low-interest loans is a major purpose
                                         of the HIG Program.

If these institutions suffer because of home buyer delin-
quencies or high inflation rates affecting their ability
to meet the dollar payback requirement, the viability of
the whcle concept of low-income housing may be questioned
in cases where such programs are externally financed.

     There are AID officials who believe that the level of
economic analysis of proposed HIG projects could be im-
proved.  Particular areds mentioned as needing more thorough
analysis are long-term balance-of-payments impact and debt-
servicing capability, existing administrative capability in
the recipient country, financial capacity of the target pop-
ulation, costs and returns data, and inflation rates.

     The HIG Program abroad is implemented through the Of-
fice of Housing's five regional housing offices in Seoul,
Korea; Abidjan, Ivory Coast; Nairobi, Kenya; Tegucigalpa,
Honduras; and Panama City, Panama.  The regional housing
officer abroad participates in the project development pro-
cess and is responsible for onsite supervision of housing
projects within his office's geographic jurisdiction. Thus,
the regional officers in Nairobi, for example, typically
spread their time between ongoing projects in Kenya, Zambia,
and Botswana.

     Their supervisory and management responsibilities in-
clude preparing periodic progress reports on onigoing proj-
ects for the Office of Housing in Washington; evaluating
plan designs; approving construction schedules and price
increas- requests; preparing sales reports; advising the
host country on administrative matters; servinq as contact
point between AID and other international donors of housing;
monitoring allocation of housing to see that the target
group is served; and monitoring procedures for awards of
major contracts.

     In the case of Peru, where U.S. concessional loans hale
been made for diaster-related reconstruction housing, AID
mission personnel are also actively involved in implement-
ing HIG projects.  AID has informed us that where there i3
no housing officer assigned to a given mission, regional
housing officers serving several countries, in coordinatior
with AID mission personnel, carry the active responsibility
for planning, implementing, and supervising the HIG projects.

     In Portugal, where $40 million in HIG Proqram loans
have been authorized since the beginning of fiscal year
1975, there is no regional housinq officer handling the
program, nor is there anyone in the mission specializing
in housing.  AID has informed us that this program is ac-
tively monitored from Washington by the Housing Office and

 its contractors.  It will be monitored by a new regional
 housing office to be established in Tunis.

     Geographic bureau interest in housing also
                                                  varies and
depends largely on the priority the bureau
                                            gives to housing
and other development areas such as food,
                                           population, and
education.   The geographic bureaus have been involved
the HIG Program to some extent, since authorizations    in
loan guaranties require their approval.
                                          Once the bureau
authorizes the loan, its involvement in
                                         the HIG Program's
implementation may be reduced as it may
rely on the Office of Housing regarding
                                         operational aspects
of the program.   In general, the bureaus tend to be more
interested in developing and implementing
                                           projects using
appropriated funds.

     Coordination between AID mission and regional
ing officers has on occasion been inadequate.
                                                In one in-
stance a mission criticized the Office of
                                           Housing on the
grounds that it "acted unilaterally and
                                         in a heavy handed
manner without fully trying to understand
                                           the mission's
viewpoint," that they had been "slow and
                                          careless" regard-
ing communications and reports, and that
                                          regional housing
office operations had been unable to provide
                                              the continuous
presence and overall support which a $10
                                          million program

     Geographic bureaus are also not being systematically
kept informed of the progress and problems
                                           with ongoing
HIG projects.  The country desk officers in Washington,
who must keep abreast of all U.S. development
efforts in their countries of responsibility,
                                              do not always
receive the periodic project evaluations
                                         and reports sent
by the regional officer or contractor to
                                         the Office of
Housing in Washington.

     An AID official, in criticizing the Office
for operating independently of the regional bureaus Housing
country missions, stated that his bureau
                                         would like con-
trol over HIG project loans so that housing
                                            could be effec-
tively integrated into AID's development
                                         plans for indi-
vidual countries.

      On a couple of recently designed projects
                                                 in Latin
America, the Office of Housing and the
                                        Latin America
Bureau have worked closely together integrating
                                                  HIG proj-
ects with appropriated U.S. funds for community
ment.   We believe that integrated Housing Office/geographic
bureau projects are the most effective kind
                                             of shelter/
urban development assistance.


     The United States has provided housing assistance to
disaster-affected areas on both a short-term emergency
basis (tents, roofing materials) and as part of longer term
reconstruction programs.  Emer ancy grants and concessional
loans for permanent reconstruc) Ion programs have been pro-
vided in the past several years to Guatemala, Nicaragua,
and Peru--all of which have suffered devastating earth-
quakes.  In addition, concessional loans have been author-
ized to help Portugal meet 4 ts needs for low-income hous-
ing in the wake of the influx of refugees from Africa.

     Since early 1970 U.S. appropriated funds used for hous-
ing have included loans and grants as follows:

                                       Loan         Grant

Peru        1970 earthquake         $18,000,000    $10,550,000
Nicaragua   1972 earthquake          15,000,000      3,000,000
Honduras    1974 hurricane            1,000,000          -
Guatemala   1976 earthquake               -         13,798,060
Cyprus      1974 civil strife                       23,320,000
Lebanon     1976 civil strife            -           4,500,000
Portugal    1975-76 urban housing   23,250,000         250,000

     Since the May 1970 earthquake in Peru, the United
States has provided $28.55 million in concessional loans
and grants and $43.28 million in housing guaranties to im-
prove shelter conditions in Peru.   When these reconstruc-
tion projects are completed, over 100,000 families will
have benefited.   In our November 1976 visit to Peru we
observed that the reconstruction shelter programs sup-
ported by the U.S have so far met with delays in imple-
mentation.   For example, it took 4 years to complete
projects funded by an AID disaster relief grant awarded
in 1970.   Delays were also experienced under AID's 1971
$3 million AID loan and its 1972 $15 million loan.

     The delays were caused by (1) the Peruvian Government's
inability to establish responsibilities among its newly
created administering and Implementing agencies.   They were
experiencing reorganizations, personnel turnovers, changes
in direction after projects were started, and inflation
costs.  There were additional delays in completing market
studies and development plans, all of which caused some
participants to lose interest and some low-cost housing
units and serviced sites to be left unoccupied.

      S=-S0-t f-       =       -   -

             _"    '
                           -       E        p   '

                                                    (GAO PHOTOS)

     In commenting on our report, the Department of State
and AID noted that delays in program implementation have
occured, but are a perfectly natural phenomenon in the com-
plex process of providing shelter assistance.  They added
that, although all changes they had hoped to achieve did
not occur, very important progress was made and such clear
movement to fundamental change is of great importance.

     We concur that the movement toward change is of im-
portance; however, we do not agree that delays are a na-
tural phenomenon when project accomplishment is a complex
process.  We believe that if projects are adequately planned,
programed, and implemented, program delays can be reduced
considerably.  The reconstruction shelter program in Peru,
in our opinion, has taken too long--more than 6 years.


Inter-American Foundation

     The Inter-American Foundation was founded in 1971 as
a nonprofit Government corporation managed by a nonsalaried
Board of Directors, primarily drawn from the private sector.
Its principal goal is to support local private endeavors in
Latin America in the fields of social and civic development
in order to achieve broader popular participation in modern-

     As of Feburary 1977 the Fcundation had approved grants
totaling about $4,281,681 for 13 housing projects in Latin
America and the Caribbean.  The primary rationale for sup-
porting housing projects is that housing can be an effective
catalyst for social change, if it directly involves the re-
cipients.  Through its projects, the Foundation has learned
that standard housing schemes must be severely modified to
make housing accessible to the poor.  A sites and services
approach, consistent with the people's cultural values and
ability to pay, appears to be most feasible.

     In 1972 the Inter-American Foundation approved a grant
of $625,000 to the Foundation for Minimum Housing in El Sal-
vador for the purpose of developing new communities focused
around the construction of 1,000 homes.  It was hoped that
the grant would also interest other public and private fund-
ing sources in supporting the Foundation for Minimum Hous-
ing's program by demonstrating on a large scale that
marginal-income people are able to purchase low-cost hous-
ing.  As a result of the opportunity for experimentation
which the grant provided, the Foundation for Minimum Hous-
ing developed a viable, low-cost sites and services hous-
ing model with a strong community development component and
was able to obtain a loan from the World Bank to construct
7,000 additional homes.

      A loan to this same organization
                                        was approved in April
 1976 to organize 19 production
                                 cooperatives among the res-
 idents of low-cost housing projects.
 financial and technical support        It will provide
                                  and assist in organizing
 one or more cooperative federations.

 Peace Corps

      The Peace Corps is not directly involved
 assistance programs; however, volunteers        in shelter
 have participated in national programs     in Latin  America
 growth away from major urban centers    designed  to  redirect
 cities. They have helped to improve   and  toward secondary
 smaller cities, upgrade municipal management, services to
 regional planning projects. In response         and initiate
 asters, volunteers have assisted          to natural dis-
                                   local reconstruction ef-
 forts by serving as city planners,
                                     landscape architects,
 and social workers. In Colombia the
 in a World Bank project in conjunctionPeace Corps may assist
                                         with Colombian Govern-
 ment agencies, concentrating their
                                     efforts in the slum areas
 of 20 Colombian cities.

Department of Housing
and UrbanDevelopment
     The Department of Housing and Urban
predecessor agencies initiated U.S.       Development and its
                                     international housing as-
sistance. However, over the years
overseas responsibilities have been most of the Department's
                                     transferred to AID.
      The Department is the focal point for
in formal bilateral agreements on urban      U.S. involvement
West Germany, Japan, Sweden, Spain,      affairs  with France,
                                     the United Kingdom, the
Soviet Union, and Iran, which basically
changes of information and technical     provide for ex-
     The agreements with the Soviet Union
                                            involve the ex-
change of data and expert teams in fields
tion materials and building for extreme     such as construc-
                                         climates and unusual
geological conditions.
     The HIG Program as revised in 1973 has
                                             not been under-
way long enough to make final judgments
which it can assist LDCs in meeting      about the extent to
ing needs. AID officials generally  their  low-income hous-
                                    consider it a complex,
evolving program in the sense that sites
minimal housing approaches for very       and services and
                                    low-income groups have

only recently become part of development assistance pro-
grams. As the AID Administrator testified before the Con-
gress in reference to the HIG Program's recent reorientation:

    "I do not know whether it (the HIG Program) can
    go further without some changes. * * * I think
    this (credit being extended at commercial rates)
    is a somewhat difficult condition to have directed
    to low-income housing. * * * I think we have to
    look at some structural changes to enable it
    to be effective in those fields."

      Significant changes have been made in the HIG Program
since 1973 to meet the needs of low-income groups.   These
changes have focused on (1) AID's determination that re-
cipient countries develop housing policies and institutions
which take low-income housing needs into consideration and
(:!) AID's recent concentration on sites and services, slum
uigrading, urban infrastructure, and minimal housing ap-
pcoaches to serve low-income groups. An important constant
element of the program is that HIG loans continue to be made
at commercial rates since they are supplied bj the U.S. pri-
vate sector.

     AID officials believe that a significant 3avings poten-
tial does exist among low-income groups in LDCs and that
self-help efforts can be relied upon to improve and main-
tain minimal housing once land tenure is assured.  These
officials believe that, even though loans are made at com-
mercial interest rates, the projects are still within the
range of low-income families. AID officials have stated
that they recognize the possible resistance of LDC govern-
ments toward minimal housing projects and have undertaken
such projects in countries which they believe are receptive
to them. The strategy AID follows is incremental, seeking
deeper change- step by step over time.

     Some AID officials expressed doubts about the adminis-
trative capability within some LDCs to service the HIG
Program and future low-income housing programs. Although
technical assistance is provided as a component or supple-
mental part of these programs to train local staff in ad-
ministrative skills, some uncertainty exists as to the ade-
quacy of such assistance if this largely experimental ap-
proach to low-income housing is to be replicated on a larger
scale by the host country. We believe the administrative
capability of the host country and the technical assistance
provided to strengthen this capability is a key feature of
the HIG Program and should be closely monitored by AID of-
ticials as projects progress.

      Inflation rates and debt-servicing
                                          capability are fac-
 tors that AID officials are to consider
                                          in determining
 country eligibility for HIG project
                                      loans.  Too heavy a
 debt-servicing burden and high inflation
                                           rates in LDCs can
 result in host country defaults on
                                     HIG project loans.
       As mentioned earlier, other U.S. agencies
 questioned whether economic factors
                                      have been adequately
 analyzed.   The fact that recent loans are guaranteed
 the host country does not, we believe,                by
                                         lessen the need for
 thorough economic analysis of the abilities
 income beneficiaries and the recipient       of both the low-
                                         country to repay the

      AID has broadly interpreted the institution
 element of the HIG Program, and the               building
                                      replicability of HIG
 projects has not been, and perhaps
 ciently assured because of factors externalalways be, suffi-
                                              to AID and
 the complexity of providing housing
                                      assistance to low-
 income people.

     Changes in some LDC housing policies
                                           have , ~n ac-
complished, innovative housing administration
                                                programs de-
signed, and capital-short financial
                                     institutions supported
through the HIG Program. Minimization
                                        of the host country
subsidy is a politically sensitive subject
often touching directly on their domestic with many LDCs,
                                           policy goals.
Mobilization of local savings into organized
oriented toward serving low-income housing    capital markets
                                            needs is also an
extremely difficult objective to achieve.
are goals of the program and are prime      FPth, however,
that funds will continue to be available ,ctors  in assuring
                                          after HIG project
loans have been disbursed.

      Concerning the HIG Program's impact
 the worldwide shortage of low-income      on alleviating
                                       housing, we believe
that, although low-income groups are
                                       the target beneficiaries
 in countries receiving HIG loans, the
                                        program's effect may
have been limited by the heavy concentration
a very small number of countries. The          of guaranties in
primarily intended to be a vehicle for   HIG Program was not
                                         providing countries
with infusions of U.S. commercial capital,
that AID, consistent with demand and         and we believe
                                      program  guidelines,
should distribute housing guaranties
                                      among a greater number
of low-income nations so that the demonstration
dividual HIG projects is maximized.               effect of in-

     In addition, providing HIG shelter
                                        assistance to low-
income families below the 20th percentile
difficult to achieve because of high      income bracket is
                                     interest rates.  AID

informed us that the program financed by the most recent
HIG for Peru is designed to reach families with incomes
from the 12th to the 39th percenti]2. AID believes that
in slum upgrading projects it is possible to reach below
the 20th percentile. In general, however, we believe
these people can benefit only from humanitarian assistance
and indirectly from HIG programs.

     AID is now considering approaches which include hous-
ing as a necessary component of urban development, but closer
coordination between AID's Office of Housing, geographic
bureaus, and missions overseas will be required. AID needs,
as an agency, to consider how to integrate HIG projects with
its other overall development assistance and development
projects. It should also work closely with other donors to
promote and implement integrated development approaches.
For example, it should maximize use of the expertise and
technical assistance resources available within the U.N.
system, particularly the U.N. Center for Housing, Building,
and Planning, which is heavily involved in housing project
planning and preinvestment studies.   (See ch. 4, p. 63.)

      As a largely evolutionary approach to low-income hous-
ing, the HIG Program must be planned and implemented very
carefully and evaluations and reassessments made contin-
uously along the way. Otherwise, the program could be
seriously discredited, and many LDC governments could
abandon altogether these initial attempts to house their


     In view of the experimental nature of the current HIG
Program and the great difficulty of successfully demonstrat-
ing that low-income housing can be feasibly undertaken on a
large scale by LDCs, we recommend that the Secretary of
State and the Administrator of AID:

     1.   Distribute available housing guaranties among
          a greater number of low-income nations,
          consistent with demand and program guide-
          lines, so as to maximize the demonstration
          effect of individual HIG projects.

     2.   Work more closely with host country housing and
          economic planning officials to assure both that
          subsidies are minimized and their source fully
          planned for and that HIG project loans serve to
          develop host country institutions, particularly

            financial institutions, capable of
            the kind of low-income housing initiated
                                                     by the
            HIG Program.

       3.   Improve coordination by establishing
            fective lines of communication betweenmore ef-
            geographic bureaus, AID missions,
                                               and the
            Office of Housing to insure that
                                              all HIG
            projects are planned, programed,
                                              and imple-
            mented as part of an overall integrated
            development effort.

      4.    Improve the level of economic analysis
            countries where HIG projects are         in
            particularly in the areas of long-term
            balance-of-payments prcspects and
            servicing capability.


      The Department of State and AID generally
 our recommendations.                           agree with
                       In doing so they noted that
      1.   HIG guaranties have been recently
           trated in a few countries principally
           accommodate specific country authorizationsto
           of the legislation, i.e., Portugal
           Israel.   They added that AID has never
           turned down an approvable request
                                                 for a
           HIG program for low-income housing
           that the basic reason they do not      and
                                                 have HIG
           programs in more countries is that
           have not received sound program
           from eligible countries.    State
           feel that reducing the number or and AID
           HIGs in certain large countries size of
                                             would not
           necessarily allow for increases
          They do not agree with our conclusion
          concentration has limited the program'sthat
          demonstration effect and thereby
                                               its im-
          pact on alleviating the housing shortage.
      While we recognize that certain HIGH
specific country authorizations of             are a result of
                                      the legislation (about
30 percent of available funds for
                                     fiscal years 1975 and
1976), we believe the program has
tion effect.                         had  a limited demonstra-
                This is because out
cent of total HIG funds available of the remaining 70 per-
                                     in fiscal years 1975 and

1976, only 18 percent was authorized to LDCs outside the
area of program concentration.  We believe that if the
program is to alleviate the worldwide housing shortage,
its demonstration effect needs to be broadened through
wider distribution of housing guaranty programs among
LDCs.  The lack of greater demand from eligible LDCs for
AID's low-income housing guaranty programs raises ques-
tions, we believe, both about whether LDCs are ready to
undertake shelter programs for their poor and about how
LDCs perceive the appropriateness of the program for their
countries.  The reasons for this lack of greater demand
need to be fully examined, so that a wider distribution
of housing projects can be achieved.

     2.   State and AID believe every effort is made
          to assure program replicability--the successful
          results are not recognized in the report.

     We are not hypothesizing that AID has made little ef-
fort to help gear LDC institutions to serve low-income
housing needs or that such changes have little effect on
program replicability.  We believe that AID is trying to
insure replicability, but is not fully considering impor-
tant factors assuring the program's replicability.   Unless
the HIG Program also serves to develop a continuing means
to mobilize the domestic capital needed within these
countries tor long-term, low-interest housing loans, the
replicability of HIG projects on a large scale by rDCs them-
selves is not sufficiently assured, if in fact it can ever

     3.   State and AID said that HIG projects are
          planned with host country economic and hous-
          ing officials and that attempts are made to
          insure that host countries move in the di-
          rection of sounder policies, including sub-
          sidy minimization and the development of
          institutions which can replicate the kind
          of housing initiated by the program.

     We are aware that HIG projects are planned with host
country economic and housing officials and that considera-
tion is given to subsidy minimization and replicability.
We believe that working more closely with these officials
toward the goals of (1) reducing housing standards to a
level affordable by the low-income group and (2) mobilizing
domestic capital to provide long-term, low-interest hous-
ing loans will result in the greatest possible achieve-
ment in these areas; we do not deny that AID has made such

 efforts.  In our report we identify certain
 where subsidy minimization and institutional instances
 have been difficult to achieve for            development
                                    reasons sometimes be-
 yond AID's control, and program
                                 replicability consequently
 has not been assured.  The Congress should be informed
 these difficulties.                                     of

      4.   In commenting on the report State
            indicated that the HIG Program is and AID
           into the AID programing process
                                            and that
           although coordination is generally
                                                good, they
           will continue to seek ways to improve
           tion between the Office of Housing      coordina-
                                                and the re-
           gional bureaus in Washington and
                                             betwee- re-
           gional housin; offices and field
           They noted they now have a regional
           office in Panama and will soon
                                           have another
           in Tunisia.

      We are encouraged about AID's continuing
 improve coordination.                          desire to
                         However, the coordination will
 necessarily be improved just because                   not
 offices will be established.          the regional housing
                                A reverse effect could
 result--the regional housing offices
                                       could operate more
 independently of AID missions, adversely
 plementation of an overall integrated     affecting the im-
                                        development effort.
      5. AID is seeking clearer approaches
                                             to urban
          development uFing HIG and other
                                           resources in
          support of host country development
      We believe AID's actions to
tive in nature and, if followed develop the above are posi-
                                  through, will provide for
shelter as a segment of overall
                                  development efforts in

     6.    AID will seek ways to continue
           analysis of a country's balance to improve the
                                            of payments
           and debt-servicing capability.

      We believe a commitment to this
                                      analysis will promote
a more efficient and effective shelter
in LDCs as well as increase the         development program
                                 replicability of the pro-

     AID also commented that it is interested
its efforts in urban community                 in increasing
                               improvement, but that avail-
able resources are limited for integrated
development programs, apart from          shelter and urban
                                 HIG and Security Supporting
Assistance funds0 AID added that
                                  it is making a major effort

to introduce the HIG Program to more countries while
ing sound programs of shelter for low-income people,
that it communicates with other donors and organizes
conferences to explain the program and offer assistance
countries interested in developing shelter projects.

     AID commented that it has the legal authority to
regular technical and capital assistance funds for
and urban shelter, but that housing projects are
                                                  seldom pro-
posed for funding out of regular development aid
                                                  funds, ex-
cept for disaster reconstruction projects, because
is viewed as the primary AID mechanism for housing the HIG
AID believes that the current reexamination of
                                               foreign aid
programs by the executive branch and the Congress
                                                   will pro-
vide an opportunity to reassess the lack of shelter
in the regular concessional financing programs of
                                                   the U.S.

     As we indicated in chapter 2, we believe housing
be (1) given increased emphasis because of the
                                                seriousness of
the existing shortage and (2) considered a part
                                                 of overall
development objectives in LDCs.  In this light, if shelter
assistance provided through conventional means,
                                                 such as
the HIG Program, cannot reach the poorest people,
tion should be given to providing shelter to these
through concessional shelter development programs.


     We recommend that the Congress explore with AID
feasibility of providing housing aid to lower income
who do not benefit, for the most part, directly
                                                 from a com-
mercial term program such as the HIG Program.
development assistance channels including direct
loans and grants to host governments for shelter
could be considered a viable alternative.

                             CHAPTER 4

                                     BILATEPAL DONORS_

                        HOUSING ASSISTANCE
       Several multilateral organizations
 portance of housing in                    recognize the im-
                         the development process
 viding assistance in the                          and are pro-
                           housing sector    These
 tions can be roughly divided                       orqaniza-
 institutions whose primary    into (1) international
                             objective is to extend     financial
 LDCs to promote economic                             loans to
                           and social development
 U.N. and its specialized                           and (2) the
                           agencies whose housing
 focus on technical                                 activities
 activities of these assistance.   This
                      organizations, to chapter summarizes the
                                         which the United States
 is a major contributor, and
 housing field.               of other bilateral donors
                                                         in the


       The World Bank Group 1/
 early 1 9 70s, and since 197f entered the shelter area in the
 services and slum upgrading has been emphasizing sites and
 proving housing for low-income a means of providing and im-
 housing projects emphasize       groups.  Officials planning
                              access to primary and secondary
 sources of employment and
                             seek complementary projects,
 as water and sewers and                                  such
                           educational and health facilities,
 by other international donors
 itself.                         and by the recipient country

      In establishing criteria
Bank maintains that the          for project selection, the
degree for improved housing    can  afford to pay to some
                              and selects projects according
to employment impact, host
                            government interest, size
the problem, and number of                              of
Although the target group poor people to be assisted.
                           varies from country to country,
the most common group falls
                              in the approximate lower
percent of the income distribution.                     40

      In defining the target population
ices project, the Bank uses              for a sites and serv-
                             the standard of absolute
people who cannot afford                               poverty--
                          basic nutritional requirements.
This translates to about
                          the lower 40 percent of
lation, but World Bank officials                   a given
                                  said that, realistically,popu-

l/Includes the International
                             Bank for Reconstruction and
  Development, popularly known
                               as the
  ternational Development Association, World bank, the In-
  Finance Corporation.                  and the International

even a sites and services projec' cannot re,.ch   those below
the 15-percent level.

     For many of its sites and services projects, the Bank
provides an absolute minimum, such as a pipe for sewage,
and the resident completes a home tabsed on what he wants
and can afford.     Projects u3e indigenous materials and at-
tempt to use   local  personnel.    A Bank official estimates
the cost of  a  project  unit  ranges  from $760 to $3,500, de-
pending  on location   and  materials  costs.  It is estimated
that the  Bank  has  loaned  about  $300 million for shelter proj-
ects and that this could rj5i      to $500 million by 1980.   The
Bank finances about 50 perent of each overall project       with
the remainder provided by the host government or other fi-
nancial institutions.

     Technical assistance is included as a component of
project loans if the recipient country so desires;    however,
the country must pay technical assistance costs.   The  Bank
will also lend money to buy technical assistance.   Other
sources of technical assistance that the Bank draws on
its projects include U.N. Development Program  (UNDP)  funds,
PVOs, and other bilateral donors.  Additionally, the Bank has
attempted to establish a network of local personnel who can
give assistance on various projects.

      The World Bank coordinates its housing efforts in two
ways.   Internally, the urban projects group at the Bank
coordinates its programs with other groups within the World
Bank system.   For instance, when designing its sites and
services project in Peru, the urban projects group coordin-
ated with one of the Bank's industrial projects groups.      The
result was the development of an industrial project    near  the
sites and serv ces project.   Thus, the Bank  was able  to  at-
tack the housing problem along with the unemployment problem.
The Bank also attempts to stay in touch informally with other
international donor representatives in order to be aware of
other donors' housing assistance plans.    Through this type
of coordination, the Bank feels it can work with other
 in a complementary way.

      On November 4, 1974, the World Bank and the Interna-
 tional Development Association agreed to loan a total of
 $8.5 million to the Foundation for Minimum Housing, a private,
 nonprofit foundation with considerable housing expertise, for
 a sites and services project in El Salvador.

                                                  (GAO PHOTO)

                                               (GAO PHOTO)

     According to World Bank officials, the Bank became in-
volved in the E1l Salvador stes and services project because
(1) there was a definite need for low-income housing, (2)
this type of project can reach the very poor, and (3) the
project could serve as a model in establishing a housing
policy.  The Foundation is, in their opinion, a grass roots
development agency which is efficient, innovative, private,
and has had excellent past programs.  It and the Government
of El Salvador maintain a cuasi-official relationship be-
cause the government has no policy concerning marginal and
low-income housing and, consequently, the Foundation's suc-
cess makes it appear that the government is responsible.

     The   project,   expected   SJobe completed by September        1980,
consists   of the:

     -- Development of about 7,000 lots (including elec-
        tric power, water supply, sewer connections,
        and storm drains) at 9 sites; a basic dwelling
        of about 17 square meters will be developed on
        about 50 percent of the lots at each site.

     -- Upgrading of access roads to the sites and           prepara-
        tion of unpaved streets and footpaths.

     -- Construction and equipping of community facilities
        for the sites, including 5 health clinics, 6 primary
        schools, 10 community centers, 26 sports fields,
        and 12 markets.

     -- Establishment of a construction materials fund to
        help participants purchase materials for improving
        their units.

     -- Establishment of a pilot fund         for commercial   co-
        operative en terprises.

     --Advising and training Foundation staff in housing
       administration, commercial cooperative enterprises
       and management, including monitoring, accounting,
       budgeting, and site design.

     Participants     in the   project will    be selected   from appli-
cants whc

     -- have resided in unserviced squatter settlements or
         inadequate housing conditions for 2 or more years;

     -- earn individual monthly incomes of not more than
        $20 or household aggregate monthly incomes of not

        more than $120 (at least 50 percent of the lots
        will be reserved for households earning less than
        $70 a month);

      -- intend to live in the assigned lots;   and
      --are willing to participate   in mutual help and
        community development.

      International Development Association loans are extended
 to governments only and are intended ultimately to benefit
 the entire national economy. Consequently, since the Associa-
tion's $6 million loan is being guaranteed by the Government
of El Salvador, it is being channeled through the National
Housing Finance Agency (which adds a 1-1/4-percent interest
rate) to the Foundation for Minimum Housing.   According to
World Bank officials, the 1-1/4-percent interest rate dit-
ferential will cover any contingency costs or unanticipated
project changes.   Any remaining funds would be used to capital-
ize the Foundation. Also, although the terms of the loan
provide for repayment over 50 years with a 10-year grace
period by the Government of El Salvador, the Foundation
repay the government in 30 years with a 5-year grace period.
Funds generated and/or accumulated during the repayment
are to be deposited in a special fund managed by the National
Housing Finance Agency and used exclusively for financing
sites and services projects for low-income families.   Al-
though the World Bank will monitor the funds as long as
team remains in the country, it is ultimately E1 Salvador's
responsibility to monitor the funds.

      The World Bank provides loans to institutions within
a country.   Its $2.5 million loan, also guaranteed by
E1l Salvador's Government, is extended directly to the
Foundation at an interest rate of 8 percent and a repayment
period of 25 years.   Also, about $375,000 has been allocated
for local and nonlocal researchers for onsite monitoring
the project for at least 2 and possibly 5 years.

     The World Bank is in the final approval stage of a
second project loan to the Foundation for $8 million.   The
project will include land tenure/acquisition, sites and
services (at costs lower than the current project), squatter
upgrading, and small business extension through credit and
technical assistance.

     Since fiscal year 1974, the Bank has also made the
followin g loans for projects that include sites and services
and slum/squatter upgrading.

             Botswana                     $    3.0 million
             India                            35.0
             Indonesia                        51.0
             Jamaica                          15.0
             Kenya                            16.0    "
             Korea                            15.0
             Peru                             21.6
             Philippines                      32.0
             Tanzania                          8.5
             Zambia                           20.0

     A $30 million loan was extended to Guatemala in fiscal
year 1'V6 for earthquake reconstruction to include low-income

     The Bank is expected to approve about 16 urbanization
projects in the fiscal year 1976-77 period. 1/  Annual lend-
ing during this pericd is expected to be about double that
of the entire fiscal year 1971-75 period.  About 4 of the 16
planned projects are for urban transportation and the rest
are for sites and services or squatter upgrading.  Project
lending is expected to include financing for technical as-
sistance and training ranging from 2 to 5 percent of the
total loan amount.


     IDB is a multilateral lending institution that makes
loans within the Western Hemisphere.   It has made no direct
housing loans since 1968, because  it believes that any loan
it made in this area would have only a nominal effect on the
enormity of the housing deficit.   IDB maintains that it can
more effectively aid the shelter sector by investing in
agricultural and industrial development which, in turn, will
boost the economy and stimulate savings which can be used
for housing.  Its housing assistance basically encompasses
three areas.

     -- Disaster reconstruction funds provided to Guatemala,
        Nicaragua, and Peru for building materials.

     -- Strengthening the Inter-American savings and loan
        system through such programs as its 1976 loan of
        $15 million to the Inter-American Savings and Loan
        Bank--an institution composed of private and public

1/The World Bank Group's fiscal    year       is   from July   1 to
  June 30.

         savings and loan associations in Latin
         housing construction/improvement.

      --A 1972 integrated urban development
                                              program in Bogota,
        Colombia, which includes 4,300 housing
      In 1968 IDB extended a $12.6 million
                                            loan for low-cost
housing to the Peruvian Housing Bank.
                                         Approximately 4,700
units were constructed in 10 cities
                                      for families with in-
comes of from $177 to $386 per month.
                                         A $35 million earth-
quake reconstruction loan was made
                                     in the early 1970s to
construct core houses and community
                                      and urban facilities
and to improve existing homes.   This loan was not directed
toward low-income families.

     _        ·--...   I.   j   -

                                                         (GAO PHOTO)

     The results oi the program have not been spectacular.
For example, in the Chimbote area, almost 400 houses and over
3,000 lots remained unsold as of late 1975 due to lack of
demand.   AID also has two projects   in   the Chimbote   area, one
facing many delinquent mortgages end the other      innumerable
construction delays.

     A Peruvian housing authority official said that the
Chimbote problems were due in part to overbuilding--too
many IDB and AID projects were in process at the same time.
An IDB representative in Peru stated there was no coordina-
tion in this case between IDB and AID.  In -ddition, he
said the Government of Peru was constantly rezoning, making
it difficult to plan projects with any degree of certainty,
and that the government did not know what the home buyer

     IDB now feels that it has done enough in the Peruvian
housing sector and will shift to funding basic infrastruc-
ture for sites and services projects.  A loan for $30.5 mil-
lion is being negotiated and will provide funds for water
and sewer projects in 27 cities.

     IDB's 1976 loan to thp Inter-American Savings and Loan
Bank will be used for strengthening the institutional and
financial system of savings and loan associations in Bolivia,
Chile, Costa Rica, E1l Salvador, Honduras, Nicaragua, Paraguay,
and Peru.  Operations to be financed through this loan pro-
gram include (1) the purchase of houses for the beneficiaries
of the program, (2) rehabilitation and/or expansion of houses
serving as domiciles of the program beneficiaries, and (3)
interim financing to contractors for the construction of
housing units to be sold to program beneficiaries.

     Certain conditions are stipulated in granting credits
under the program.  Only members of savings and loan asso-
ciations whose family income (head of family and spouse)
does not exceed the equivalent of $250 per month may be
beneficiaries of the program.  The selling price of houses
financed under the program cannot exceed the equivalent of
$10,000.  Credits for rehabilitation and/or enlargement of
houses cannot exceed the equivalent of $3,000 a beneficiary.

      An IDB official stated that lower income target groups
are risky because those people have always lived in squatter-
type settlements and do not possess the desire to increase
their standard of living or to repay their loans and that
housing programs directed at these groups should be financed
through grants instead of loans.

                                            (GAO PHOTO)

                                             ( GAO PHOTO)

      IDB's $49.9 million urban development loan in Bogota
is directed toward improving general conditions and the
urban infrastructure in one of the neediest areas of the
city.   The program calls for integrated provision of urban
facilities and services to satisfy at least part of the
priority requirements of the eastern zone of Bogota.   The
program is composed of nine subprograms for health, educa-
tion, electric power, housing, sewers, and construction of
roads and community social centers.

     The housing subprogram consists of the (1) construction
of 620 new housing units, (2) improvement and expansion of
about 1,680 dwellings, and (3) preparation of lots and serv-
ices for 2,000 hcusing units.  Of the 620 new units, 520
would be built at an average cost of $3,150 a unit, and 100
at an approximate cost of $2,600 a unit.  The total cost is
estimated at $5.2 million.

      IDB has also made numerous loans for water and sewers,
contributing considerably toward improving living conditions
in Latin America.   Since fiscal year 1974, it has made the
following loans, among others, in the housing infrastructure

Bolivia          $10.0 million    To improve water     system
                                  in Cochabamba.

E1l Salvador     $18.4 million    For first stage of improved
                                  water system for San Salva-
                                  dor and ni.ne surrounding

                 $30.0 million    To expand/improve water sys-
                                  tem--San Salvador; 67,200
                                  nomes lacked water as of

Guatemala        $10.0 million    To complete Guatemala City
                                  water system and sewerage.

                 $ 5.0 million    For water and sewerage sys-
                                  tems for 21 towns.

Honduras         $ 4.0 million    For water   supply   to   rural

Paraguay         $ 7.4 million    For water system for nine
                                  towns as of 1974, with a
                                  population of 160,000
                                  (excludes Asuncion).

  Peru            $ 4.7 million    For water supply to   rural

                  $30.5 million    To improve water and
                                   sewerage in 27 cities.

 Uruguay         $ 7.0 million    For first stage in water
                                  and sewerage service for
                                  interior towns.


     U.N. housing and urban development activities have
focused primarily on assisting member countries to estab-
lish the planning and legislative framework for efficient
and equitable urban growth through research, training,
and preinvestment studies. (See app. VIII.)

     The U.N. views shelter (dwellings and other physical
structures), infrastructure, and social services as insepar-
able components of human settlement.   Many organizational
activities within this area are based on an integrated ap-
proach emcompassing all, three constituent parts.

     The U.N. Center for Housing, Building, and Planning
is responsible for coordinating U.N. activities in these
fields.  It handles technical cooperation and the conduct
of pilot and demonstration projects; analyzes and evaluates
worldwide housing, building and planning problems; reports
to relevant U.N. bodies; researches and develops concepts
and policies related to human settlement development; and
handles documentation and information.

      UNDP is the principal source of multilateral finance
for technical cooperation in the U.N. system.   A UNDP offi-
cial stated that little emphasis has been placed on the
human settlements field because of lack of interest on
the part of LDC governments.   Generally, UNDP only funds
projects which rank high in the priority of a developing
country, and such projects are always government requested.
Criteria in determining which projects to fund include
(1) substantive local government support, (2) available
personnel, and (3) the likelihood that the host government
will establish needed credit arrangements, develop infra-
structure, and carry on with the project following comple-
tion of UNDP involvement.   Usually, UNDP does not provide
direct technical assistance, but funds consultants to assist
the executing agencies.

      Both the U.N. Center and UNDP cooperate with other
national donors, especially the World Bank and IDB.
                                                       For ex-
ample, the Center has conducted preinvestment studies
planning and provided technical assistance to World
projects in Pakistan, Tanzania, and Upper Volta.
                                                   Center of-
ficials expressed an interest and willingness in providing
similar services to AID, and a U.N. Environment Program
cial stated that it could conceivably fund environmental
pects of AID projects in LDCs, should AID and the LDC
ernment so request.   We believe AID should explore these
possibilities.   UNDP is financing a study of urban and re-
gional planning and development in El Salvador, which
World Bank, as executor of the study, views as preinvest-
ment research and plans to use as the basis for possible
future investment in the housing sector.

     Other   examples of U.N. housing   assistance   include:
     -- Research and experimentation with different
        building materials under various climatic and
        topographic conditions and development of indi-
        gencus resource materials. The U.N. Industrial
        Development Organization is assisting Indonesia
        and Botswana in surveying such national resources.
        The U.N. Economic and Social Commission tor Asia
        and the Pacific is conducting research at its
        regional housing center in Bandung, Indonesia.

     -- Water management--supply, use, and disposal.  The
        Food and Agriculture Organization, World
        Health Organization, and U.N. Children's Fund
        are active in this area.

     -- Environmental aspects of various U.N. programs.
        The U.N. Environment Program funds demonstrate
        projects in Indonesia and the Philippines.

     --The U.N. HABITAT and Human Settlements Foundation
       is involved in institution building, the provision
       of real capital, the stimulation of innovative
       approaches to preinvestment and rinancing strategies
       for human settlements activities, technical assis-
       tance, and the mobilization and transfer of scienti-
       fic and technical knowledge.

     The U.N. Center and UNDP remain the principal U.N.
in funding technical assistance in the housing area.
Center provided preparatory assistance to the Ministry
Public Works and Urban Development in Bangladesh for
large-scale project with UNDP assistance in developing

expanding the existing Housing and Building Research Center
in Dacca.  The project envisages institution building; re-
search and development of new and improved building mate-
rials; solution of structural problems related to cyclones,
floods, and difficult foundation conditions; and development
of low-cost housing design and construction techniques.

     The U.N. Center has helped Peru establish a long-term
housing policy through the planning, construction, and initial
management of an experimental housing project emphasizing
low-income needs.  It has assisted Tanzania in designing
a comprehensive sites and services program, and a U.N. ex-
pert will help to organize housing cooperatives for seven
sites and services schemes, including five in Dar-es-Salaam.
An integral part of the program is the improvement of a
squatter settlement containing approximately 7,600 houses
in Manzese, Dar-es-Salaam.

      The 1976 HABITAT Conference in Vancouver attempted to
focus world attention on housing as it affects the quality
of life, but it is unclear what the ultimate impact or
outcome of HABITAT will be.   The most crucial place for
followup is at the local level--the implementation of na-
tional action plans by the participating countries.    However,
there is no evidence indicating that this is happening.     For
example, a U.N. official stated that in El Salvador the in-
terest in the housing field created by the HABITAT Conference
has since dwindled.   U.N. and World Bank officials expressed
skepticism of the Conference and doubted that any meaningful
followup would occur.   The recent 31st session of   we U.N.
General Assembly abolished the HABITAT Secretariat and its
future will probably be decided in late 1977.


     Until recently, housing as a component of urban develop-
ment was a priority area within the Organization of American
States (OAS).  In July 1976, the activities of the urban pro-
grams division, which encompassed housing, were merged within
other OAS activities.  The development of rural towns servic-
ing agricultural areas is now OAS's chief concern, and housing
is not considered an important element of current programs.

     An OAS official stated that the Inter-American Informa-
tion Service in Bogota, Colombia (formerly called the Inter-
American Housing Center), is plagued by financial and person-
nel problems and is no longer functioning in the housing area.
OAS still provides some technical assistance in the form of
seminars and funds studies in housing-related matters (i.e.,

a 2-year, $85,000 study of building materials and techniques
in El Salvador).  An OAS official stated that it has also
responded to emergencies arising from natural disasters in
Peru, Nicaragua, and Honduras with about $200,000 to purchase
such items as low-cost roofing for the disaster victims.


     The Asian Development Bank was created in 1966 to foster
economic growth and cooperation in the poorer countries of
Asia and the Far East.  The United States participated ac-
tively in the Bank's establishment, and its 1976 subscription
to the Bank's capital stock amounted to $361.9 million or 11
percent of the total.  Much of the Bank's lending has been in
agriculture, the agroindustry, and public utilities.   It has
made no loans for directly designated low-income housing, but
it has made loans for shelter infrastructure projects.   In
1975, $20 million was loaned to Hong Kong for sewage treatment
and $16.8 million to the Philippines for its public water sup-

     The African Development Bank has also made loans for in-
frastructure projects.  In 1975 it made the following loans.

       Liberia           $0.92 million for water supply
       Ivory Coast       $5.56    "     "    "     "
       Senegal           $5.00    "     '    "
       Zaire             $5.56    "     "    "
       Mauritius         $4.44    "    for water and power


     Other bilateral donors providing housing assistance
to LDCs include France, West Germany, England, and Canada.

      In France, the "Caisse Centrale de Cooperation Economi-
que" acts as the disbursing agent for the three assistance
funds through which the greatest share of French assistance
is channeled.   The fund serving the countries of sub-Saharan
Africa and Mozambique is responsible for most of the lending
activities in the housing sector.   As of 1975, it was lending
approximately $25 million a year with two-thirds of this as-
sistance going to housing corporations and one-third to public
housing authorities seeking to assist middle- and low-income
groups.   Following the 1970 earthquake in Peru, France donated
15 aluminum housing units to the city of Casma.   A $22.3 mil-
lion   loan   is financing water   and sewer   projects   in Paita and
Talara on     the northern coast of Peru.

     In its housing assistance West Germany's Federal
try for Economic Cooperation seeks to make use of
                                                   the in-
adequately used labor, the initiative and organization
the population, and the informal sector which can
                                                   help in
slum upgrading and sites and services projects.
                                                  In 1976,
West Germany loaned $13 million to Peru to provide
water supply and water distribution systems in Lima.

      England's Commonwealth Development Corporation com-
mitted approximately $148 million through the end
                                                   of 1973 to
mortgage finance companies and housing developments.
22 housing projects were under its direct management
                                                      and 10
other projects have been turned over to local management.
Most commitments have provided seed capital and
                                                 loans to
housing corporations and local authorities, and
                                                 over 20
mortgage finance companies have been created in
                                                 Africa, East
Asia, and the Caribbean.   Technical assistance and town
planning studies have also been supported.

      The Canadian International Development Agency has
devoted limited resources to housing and considers
                                                     it pos-
sible to develop within Canada the basic technical
tal resources required to support LDC efforts.       and capi-
                                                 The Agency
recommends that housing assistance be initiated
                                                 only if and
when national plans of action for human settlements
ment, as discussed at the HABITAT Conference, are
ated with high priority in overall national developmeiint

                             CHAPTER 5



        PVOs are involved in housing assistance throughout the
developing world.     (See app. VII.)  T'.e majority of their
oxtiects are in Latin AmeiLica and Asia and include disaster
Lreflf.    development of cooperatives, squatter rehabilitation,
site.u   and services, and provision of financial and personnel
suppor t.

      These organizatiois respond to government requests or
natural disasters, as well as act on particular humanitarian
projects to complement a country's development program.   In
deterdmining specific programs, PVOs consider the degree of
nped, recommendations by field representatives, availability
of financial and personnel resources, and local self-help
motivation.   They try to maximize the use of indigenous ma-
terials, and most of them employ local personnel for labor,
program design, planning, and community development.

      The majority of PVOs :-o;- that the development of com-
munity organizations to heip Kith shelter problems is a nrime
 indicator of the success of any progcam, while others cle
whether a measurable degree of demand has been satisfied
through a pro(,:am.

      Most PVOs involved in providing housing assistance are
financed by pr vate donations, along with contributions from
religious organizations, rrjaritable foundations, labor unions,
and corporations.   They may also receive funds from AID and
other foreign government agencies, as well as from their own
tlJnd-raising events.

      Use of PVOs to accomplish certain foreign assistance
objectives began in 1946, when President Truman directed that
a committee be established to "* * * tie together the govern-
mental and private programs in the field of foreign relief
and to work with interested agencies and group,;."   In recent
years the Congress has warned ag inst too strong a union
' ?tween PVOs and AID, fearing "that a relationship which too
ciosely joins the Private and Voluntary Agen/.ies with AID may
erode the uniltIe character of these organizations."

     AID's involvement generally con.cerns (1) pLogqams re-
lated to PJ'i registration with t'ie %dvisory Committee on
Voluntary Foreign AID and (2) contracts and gran-s for PVGs

 to carry out AID programs or   their own   programs   in develop-
 ing countries.

       Upon request, the Volunteer Development
                                                Corps sends
 professionals overseas to help officials
                                            take advantage of
 cooperative opportunities and to advise
                                          government officials
 on the loans, supervision, and tecinical
                                           assistance they pro-
 vide to cooperatives.   Some of these housing projects include
 assisting to redesign and operate a prefab
                                              homes factory;
 establishing centralized management of
                                         multiunit co-op hous-
 ing; training the staff of a new government
                                               department of
 cooperatives; and establishing management
                                             services for a
 large housing co-op.   Projects are in Lesotho, Indonesia,
 Chile, and Jamaica.

      The Foundation for Cooperative Housing
                                                (FCH) has worked
overseas with AID, IDB, the U.N., and
                                        local government
housing and cooperative organizations
                                         in developing more than
40,000 housing units and in training more
                                             than 500 housing
technicians and ccoperative leaders.
                                        It received a development
program grant from AID to assist local
                                          governments and coopera-
tive organizations in developing shelter
                                            programs for the
poorest majority in the developing countries.
overseas involve an expenditure of $ 3             FCH programs
                                       ,327,737, most of which
is provided under contract by AID,

      FCH has collaborated with international
                                               agencies, local
governments, and cooDerative groups in
                                        a wide range of self-
help housing programs since 1965.   The type and size of these
projects have varied fronm small rural
                                       co-ops in Panama produc-
ing housing at $300 to $1,000 per unit
shelter projects at $2,000 per unit.    to larger scale minimum
                                       A typical FCH program
is the one in Nicaragua which provides
                                        consulting services to
the Banco de La Vivienda for the construction
                                                and management
of 10,000 housing units.


      Because PVOs work at the grassroots level
                                                  within LDCs,
they develop and possess a degree of
                                       expertise which AID and
other international donors could effectively
                                                use.  During
 initial development of shelter projects,
                                           the donor organiza-
tion should contact representatives of
                                         PVOs operating in the
proposed host LDC to obtain inout on
                                      needs, appiopriate proj-
ect design, and technical assistance
                                      which may be available.
The cbvious result of this process wonid
                                           be more effe-ctive
use of PVOs In housing assistance.

     We believe PVOs could also function more effectively
if they were better informed of what other PVOs and donors
were doing and planning to do in the area of international
housing assistance.  Ideally, AID is in a position to bring
the various PVOs together on a regular basis.  Such meetings
could serve (1) as a mechanism for information sharing both
among the various PVOs and between PVOs and international
donors and (2) as an opportunity for PVOs to have more ef-
fective input, through discussions of ongoing and upcoming
projects.  Such meetings could also serve as a sounding board
for mutual problems and new ideas.

                             CHAPTER   ·


       Findinig ways to meet the shelter
                                          needs of the developing
 world's low-income groups is a
                                  complex and difficult task for
 even the most experienced planners.
 relatively little experience on         There is, for example,
                                   which to rely; project devel-
 opment time is long; and capital
                                     requirements are large.   The
 difficulty of imposing externally
                                      developed approaches to sen-
 sitive, social, political, and
                                  economic problems is compounded
 by the lack of consensus on the
 problem.                          best approach to the shelter
             Yet, for economic, social, and
                                             political reasons,
 the shelter problem must be addressed.

       Despite the proportions of the
                                      housing crisis, however,
 many countries have yet to give
                                  deep attention to improving
 shelter conditions of the poor.
                                   Because inadequate housing,
 exacerbated by rapid haphazard
                                 urban growth, can have a pro-
 found effect on these countries'
                                   overall social and economic
 development prosects, LDC governments
                                         need to recognize the
 importance of the shelter area
                                 in their development efforts.
 An individual's health, educational
 tivity can be seriously impaired     abilities, and job produc-
                                   by unsanitary and overcrowded
 living conditions as can his attitude
                                        toward the political
 structure of his country.

      U.S. bilateral assistance before
                                         1973 through the HIG
Program generally did not improve
                                    housing conditions for low-
income families.   The traditional, western-styled
vided through this program largely                   homes pro-
                                     benefited middle- and
upper-income groups.   At the same time, however, fairly
able savings and loan institutions                          vi-
                                     with the capacity to make
long-term housing loans were established
In the early 1970s the ,orld Bank           in Latin America.
                                   began offering loans de-
signed for lower income groups.
                                  In 1973 AID also entered the
low-income housing area.

     Although bilateral and multilateral
                                           assistance con-
stitutes a relatively small portion
                                      of the total invest-
ment in housing and shelter,
                              it can be an extremely important
source of innovation for the
                             (1) income group to be served,
(2) methods to be used, and (3)
                                 institutic.n being developed
or adapted.

     It   istoo early to reach final conclusions
                                                  about the
results of the type of shelter
                                programs now being financed
by bilateral and multilateral
                               agencies.  However, these
program approaches are based on
                                 assumptions that:

    -- A substantial savings potential exists among low-
       income groups in LDCs and can be organized to serve
       as a continuing source of funds for low-income hous-

    -- Low-income groups receiving such shelter will have
       the time, resources, and will to carry out the self-
       help improvement and maintenance component of the
       loan program.

    -- Sites and services and minimal housing, as virtually
       untested approaches, will become an acceptable form
       of housing to the LDCs.

    -- Middle-income groups are adequately served by the
       local housing market and will not end up displacing
       low-income groups from these projects.

     -- The LDCs have the administrative capability to serv-
        ice the loan program and future low-income housing

     --The host government will allocate low-income      housing
       on a fair and equitable basis.

     -- Relocation, wherever it is required as a result of
        assistance, will be carefully planned and carried out
        by the local authorities.

     -- LDC governments will be able to meet the dollar      pay-
        back requiremen'" for loan payments.

       While certain of these assumptions have yet to be fully
tested and need to be closely monitored, we believe that the
current slum upgrading and sitea and services approaches are
legitimate means of meeting part of the shelter needs of the
world's expanding population.        Housing assistance of this
nature can serve [eoth as a demonstration of the feasibility
and acceptability of these minimum-standard approaches and
as a means for developing or strengthening LDC institutions
capable of providing a continuing source of financing and
expertise for shelter projects.         Bilateral and multilateral
assistance    policy is  hinged  on  the  premise that if such as-
sistance is    to be replicated   on  a  large  and continuing scale
by LDCs    themselves,  existing  standards    must be lowered and
  h'e kinds of s|helter provided through international assis-
vL -e must be ccrpatible wi'n the income levels to be served.
If DC financial ilnstituLic s capable of continuing the fund-
 ing of shelter projects are to be developed, LDC aovernment-
should minimize subsidizat on of housing projects.

      An important element still requiring considerably more
 attention is the integration of shelter assistance
 infrastructure and economic and social projects.   Integrating
 projects into a working community requires more concerted
 effort and dedication by governments and donors through
 proved planning.  This sort of commitment to undertake low-
 income housing programs is essential if international
 tance efforts are to have any meaningful impact on     assis-
 conditions in LDCs while simultaneously promoting
                                                    social and
 econumic development.

       Given the scarcity of financial resources among assis-
tarce donors and the magnitude of the world housing
donor funds alone can provide only a small portion
                                                    of the in-
vestment required to deal with LDC shelter needs.
                                                    We believe
that available funds should go to countries whose shelter
needs are most acute, whose governments are actively
to a program of low-income housing and community development,
and where the effect will be greatest.   The large-scale repli-
cability of shelter projects by LDCs themselves must
feature of housing assistance efforts.                be a key
                                         Unless and until LDCs
become committed to an active program of meeting the
needs of their low-income populations, international
tance will have minimal effect.   An effective low-income hous-
ing program should strive toward land tenure security
                                                       and ac-
ceptance of minimal standards, both of which will require
ficult but necessary political decisions by LDC governments.

      T'he United States can also have a more positive effect
in assisting LDCs address their housing n>-.ds than
                                                      it has
 in the past.   We believe that the heavy concentration of
U.S. housing aid in a small number of relatively wealthier
countries in the past couple of years has meant that
U.S. program's demonstration effect has been narrow, the
a limited impact on alleviating the world's l-)w-income
shortage.    U.S. housing and development assistance programs
are not generally intended to serve as vehicl2s for
select countries with massive capital infusions for
tion financing or bhlance-of-payments relief.    As mentioned in
chapter 3, page 49, the Department of State and AID
                                                       do not
agree with this.

      Although we recognize the political aspects of U.S.
policy in foreign assistance, we believe that AID
                                                   should give
priority to the factors out ined In this chapter when
mining how to allocate these low-income housing assistance
funds.   U.S. development assistance should also be coordinated
with oth-r international donors and should be integrated
food and nutrition, population planning and health,
                                                     and edu-
cation and human development assistance to the maximum
sible extent.

      We recognize the importance and evolutionary natur ? of
these recently developed minimal shelter assistance programs
and believe these programs must be planned and implemented
very carefully and evaluations made continuously along the
way if they are to successfully demonstrate to LDCs the via-
bility of low-income housing.   Donor coordination should be
maximized so that each project will have the benefit of
available experience and expertise.   And to the greatest ex-
tent possible, PVOs should be encouraged to concert their
housing efforts so that such humanitarian assistance is
mobilized to reach the lowest income levels to complement
development assistance funds.

     Substantial housing expertise exists among PVOs,
but for the most part, these organizations operate independ-
ently of governments and each other.   Bilateral aid is often
channeled through them because of their experience in parti-
cular fields.  While these organizations cannot now be con-
sidered a private aid network of humanitarian groups, a real
potential exists for them to cooperate more intensively among
themselves and with bilateral and m?]ltiliteral donors to
take concerted action and have greater impact on areas where
humanitarian aid is the only appropriate means of assistance.


     Because of the seriousness of the worldwide housing
shortage and the need to improve donor efforts, we recommend
that the Secretaries of State and thie Treasury and the Ad-
ministrator of AID encourage international donors, including
the international financial institutions, to:

     -- Establish and execute integrated development plans
        that recognize housing as a necessary component of

     --Direct funds to countries whose shelter needs are
       greatest and whose governments are actively committed
       to low-income housing and community development.

     Recommendations to improve U.S.   bilateral   housing assis-
tance are made in chapter 3.

APPENDIX I                                                               APPENDIX I

                                DEPARTMENT OF STATE
                                  WASHINGTON, D.C. 26623

  Auditor enral

                                             July 21, 1977

 Mr. J. K. Fasick
 International Division
 United States General Accounting Office
 Washington, D.C. 20548

 Dear Mr. Fasick:

 Thank you for providing the General Accounting Office draft report
 "The Challenge of Meeting Shelter Needs in the Liss Developed Countries"
 for Agency comment. The pertinent officials within AID and the Depart-
 ment of State have reviewed the proposed report with considerable
 interest and have held a number of discussions with your staff regard-
 ing it. These discussions resulted in some agreed to revisions which
 are not included in our comments. The comments attached summarize
 joint State/AID views of the report's findings and recocmendations.

 Under policy applying prior to 1973, the Housing Investment Guaranty
 Program had brooed development objectives. Permanent financial institutions
 were created ant long-term mortgage loans were available for the first
 time tJ groups lot previously served. The kind of housing built was
 full}    -L..iLL,it   with existing legislation.     The House Committee on
 Foreign Affairs had stressed that mortgage credit should be developed
 for middle and lower-middle-income families whose housing plight was
 felt to be as serious as that of low-income families (H.R. Report
 No. 1778, 87th Congress, 2nd Session, June 6, 196o.

 AID's current program response to sheltering the poor is based, in our
 view, on the best known strategy for dealing with the problem at this
 time. AID has been an important participant in the formulation of this
 strategy, about which we believe there is a strong consensus within the
 development community. The basic approach involves working with develop-
 ing countries to pursue policies which will provide "minimum shelter" to
 large numbers oi lower-income people. The Housing Investment Guaranty
 Program is the chief U.S. shelter program instrument which, in conso-
 nance with AID policy and Congressional intent, is focused on the shelter
 needs of low-income people.

APPENDIX I                                                         APPENDIX I

   We are pleased that your review directs attention to the serious shelter
   and urban crisis in developing countries. The current re-examination of
    'oreign aid programs will give both the Executive Branch and the Congress
   a.n opportunity to reassess the appropriate priority for use of concessional
   reoLources in the shelter sector.

                                       Sincerely yours,

                                         rry    Cromer
                                       Auditog General

GAO notes:     1.   Deleted comments pertain to matters
                    omitted from or revised in the final
                     epor t.

               2.   Page references in this appendix may
                    not correspond to page numbers in the
                    final report

APPENDIX   I                                                       APPENDI

                                                             NEEDS IN THE
               LESS DEVELOPED COUNTRIES," DATED MAY 17, 1977

   General Comments

  We appreciate the opportunity to comment on this draft

                      [See GAO note 1, p.      76.]

  We are encouraged that your review directs attention
                                                       to the very real
  shelter and urban crisis in developing countries.
                                                     The report caught
  the extraordinary complexity of the problems and the
                                                       difficulty of
  creating solutions to it. The need for the development
  solutions and their introduction is recognized, as      of innovative
                                                     is the important
  role external assistance agencies must play.

  AID's Housing Invebtment Guaranty Program is the chief
                                                          instrument for
  U.S. bilateral shelter assistance. That program has
  changed since 1973 and fully reflects AID policy and
  intent in terms of serving low-income people. The
                                                      type of program
  financed since that time reflects an agency program
                                                       response to the
  problem of sheltering the poor which is based on the
                                                        best known strat-
  egies for dealing with it.

 AID's shelter programs have been evolving as years
                                                     of experience have
 accrued. Under the policies applied to the program
                                                      prior to 1973,
 broad development objectives were served as permanent
                                                        financial insTi-
 tutions were developed and as important changes occurred
                                                           making long-
 term mortgages loans available to groups not previously
                                                          served. We
 believe that programs financed prior to 1973 reflected
                                                         policy of that
 time; programs subsequently financed follow current
                                                      AID policy and
 Congressional intent.

 Your report catches the clear evolutionary thread of
                                                       AID's shelter
 policies with ever skarpening focus on low-income
                                                   people and particular
 program approaches designed to serve them. These ate
                                                        reflected in the
 projects now being financed by AID. The fact that
                                                     squatter upgrading,
 sites and services, and core house programs are now
                                                      being tested,
 developed and financed, is a considerable achievement
                                                        largely due to the
 influence and efforts of external development agencies.
                                                           These program

APPENDIX I                                                         APPENDIX I

   solutions are perceived of as radical and require a monumental mind
   change by those responsible for shelter in the public and private
   sector in developing countries. The introduction of these program
   forms focussed on the shelter problems of low-income people by
   external agencies has to be on an incremental basis where movement
   in the direction of change takes place gradually but with ever
   sharper focus on the shelter needs of low-income people. It is in
   the context of the considerable difficulties of this process and the
   incremental change strategy necessary for all international economic
   assistance that shelter programs of external assistance agencies
   must be judged. We say this as a way of pointing out that your review
   caught the process as AID has applied it, for example, in Korea and
   Peru, but then moved to conclusions which we consider to be more
   negative than the facts warrant. In both cases, -.IV has played a
   substantial role. Step by step, programs have assisted in the develop-
   ment of new institutions or changing existing ones so that these have
   movel to serve the shelter needs of low-income people. Program forms
   now in development in these countries include squatter L-grading and
   sites and services. During this complex process delays in program
   implementation have occurred, a perfectly natural phenomenon. Not
   every change one would like to achieve occurred; but very important
   progress occurred. It is the clear movement to fundamental change
   which is obviously of great importance.

   We would like to make some overa'    comments on the Digest of the
   draft and then make speci'          nts on Chapter 3 dealing with U.S.
   bilateral assistance to t             sector.

   Recommendation to State and AID

  We agree in general with your recommendations to the Secretary   of
  State and the Administrator, Agency for International Development.
  In so doing, we want to make the following points:

  1. HIG guarantees have been recently concentrated, in terms of amounts
  of funds, in a small number of countries principally tc accomodate
  specific country authorizations of the legislation as in the cases of
  Portugal and Israel. AID has never turned down an approvMbe request
  for a HIG for a program of housing for low-income people. The basic
  reason why we do not have HIG programs in more countries is that we
  have not received sound requests. Thus reducing the number or size
  of HIGes in certain large countries would not necessarily allow for
  increases elsewhere. Given these facts, you may wish to reoonsider
  your conclusion that concentration has "limited thJ program's demon-
  stration effect and thereby, its impact on alleviating the housing
  shortage". The limits on the program's demonstration effect are not

APPENDIX   I                                                      APPENDIX   I

   a result of program levelsin any country or group
                                                     of countries.
   2. Every effort is made to assure program replicability.
   does not capture the substantial effort expended           The report
                                                    to achieve replica-
   bility in each project negotiation, or the respects
                                                       in which these
   efforts have been successful.

  3. HIG projects can only be, and are, planned in
  host country economic and housing officials. In close concert with
                                                    program development
  phases, we attempt to insure that host countries
                                                   move in the direction
  of sounder policies, including subsidy minimization,
  ment of institutions which can replicate the kind     and the develop-
                                                     of housing initiated
  by the program.

  4. The HIG program is integrated into the Agency's
                                                       overall planning,
  budgeting and implementation process. Coordination
  between the Office of Housing and Regional Bureaus is generally good
                                                      in Washington and
  between Regional Housing Officers and field missions.
                                                          We will continue
  to seek ways to improve it both in Washington and
  illustrated by the recent establishment of a regional  field.  This is
                                                         housing office
  in Panama to serve South America and the immninent
  similar office in Tunis to service North Africa    establishment of a
                                                   and the Middle EaSt.
  5. The Agency is seeking to develop ever clearer
  development which will use the HIG as a resource, approaches to urban
                                                    which together with
  other development resources, support the host country's
  ment effort.                                            overall develop-

 6. Each and every HIG approval involves the analysis
 balance of payments and debt servicing capability.     of a country's
 occurs with other U.S. agencies as well as the       Consultation
                                                IMF and other important
 multilateral agencies on these matters as the authorization
 develops. The best judgement of the Department               process
                                                  of State and AID is
 applied against a standard of reasonableness based
                                                     on the foreign
 economic, political and social policy objectives
                                                   being served. We
 will seek ways to continue to improve this analysis.

                    [See GAO note 1,      p.   76.]

APPENDIX I                                                         APPENDIX I

 Recommendation to the Congress

 AID is interested in expanding its efforts in urban community improve-
 ment. Apart from the HIG or SA resource categories, there are very
 limited resources available for integrated shelter and urban develop-
 ment programs designed to help improve the increasingly deplorable
 conditions in urban communities.

 AID has legal authority to use regular technical and capital assistance
 funds for rural shelter under section 103 and for urban shelter under
 section 106 (a) [6).

 However, housing is not one of the areas of emphasis for rural develop-
 ment contained in section 103 (c), nor of urban development in section
 106 (a)(6). Nor is housing noted under the general technical assistance
 authority contained in section 106 (a)(1). Both the Congress and the
 Agency have seen the HIG program as the primary AID instrument for
 housing programs, except in the case of reconstruction following disasters.
 Therefore, housing projects are seldom proposed for funding out of
 regular development aid funds. The current re-examination of foreign
 aid programs and subsequent legislative action will give both the
 Executive Branch and the Congress an opportunity to reassess this
 relative lack of emphasis on shelter in the regular concessional
 financing programs of the U.S. government.

 Specific Conments on Chapter III

 These comments are directed at Chapter 3.   They also have relevance
 to the Digest and to chapter 6.

Your report takes the position that the demonstration objective of the
program has been seriously limited by A-D's concentration of HIG projects
in the past two years.

We have pointed out to your review staff that projects have been authorized
in ten countries in that period which is a reasonable number compared to
any known standard. It is a larger number of countries than reached by
any other development agency with shelter programs. The number AID is
able to work with is a function of the number of countries ready to work
with it and the authority available. AID has not refused to work with
any eligible countries ready during that period. The impression left
by your report that concentration is causing AID to be unable to work
in more countries is incorrect. In addition, you are also aware that
Congress earmarked large amounts of the available authority for Israel
and Portugal and more recently in Lebanon which AID honored. In the
cases of Peru and Chile, guarantees of large loans were based on the readiness

APPENDIX I                                                        APPEiDIX I

    of those countries to undertake sizeable programs with important con-
    sequences to low income people with significant institutional changes.
   These two countries have a greater absorptive capacity than some even
   poorer countries because they have come a long way toward developing
   the institutional framework required to conduct large shelter programs.
   This is not yet the case in most African countries. In any event,
   shelter projects tend to be large, witness World Bank loans Zor this
   purpose.   (Peru $43.2 million; El Salvador $15 million; Philippines
   $32 million; Indonesia $51 million.) We repeat, therefore, that the
   pattern of guarantees authorized in the last two years hai neither
   limited the demonstraLion effect of the progrwm nor its impact on the
   worldwide housing shortage when the information noted here is taken
   into account.

   In the Section "Selection of Countries to Benefit frog HIG Program"
   beginning on Page 39, the inference is left that the political and
   economic purposes of HIGs in Chile, Portugal and Israel have been
   9o overriding that the shelter purposes of the program were
                                                                not served.
   Despite their obv4.ous political ann economic purposes, important
   shelter development objectives were included in these programs.

                     [See GAO note 1,       p.   76.]

 In the section entitled "Institutional Development" beginning cn page
 43 a case,with which we do not agree, for non-replicability i1 developed
 on the thesis that since Chile, Israel, Peru and Portugal are countries
 with fairly well developed financial institutions, the contribution
 made by the HIG is "less one of actual developmert tt.ar a capital
 infusion into an already established institutional fr,amework." We
 contend that when existing institutions are moveCd o serve a market

APPENDIX I                                                         APPENDIX    I

like that of the poor which they did not previously serve, very imprtant
institutional rhange occurs. This is clearly the case in Chile and Peru.
The latter program is a model of the incremental strategy applied with
successive improvements in service to low-inoolm families by changes in
existing institutions. In the case of Israel we have and are helping housing
institutions better serve low-inomle people by suggesting -changes to their
internal financing mechanism. In Portugal, the institutions were, for all
practical purposes, brand now.

                   (See GAO note 1, p.        76.1

The additional material in this section on project analysis and improved
coordination as sooeen by sone offices within AID by its very bulk conveys
the sense that a oonsiderable problem eists.     The general view here is
that project analysis and coordination between the Office of Housing, the
Geographic Bureaus and the Missions is generally very good. Improvements can
be made and every effort will be made to this end.


The report draws attention to the massive shelter and urban develop-wnt
crisis in a very positive way pointing out that integrated approaches to
its solution can have important economic and social consequnces and that
housing assistance should be raised in importance in development planning.
We agree.

APPENDIX I                                                         APPENDIX I

 We do not ae-ee that the pattern of lending of the past two
                                                               years which
 concentrated availabie authority in four cou'.tries limited the
 demonstration effect                                             program's
                         RHad there teen coutrieas reeking RIGs which were
 turned away in ordetr that large loan gua rltees be made in a
                                                                few countries,
 there might be grounds for such a conclusin.     Had there been greater
 demand and had the program operated in aove countries, the demonstratiou
 effect would have beun wider.

 We are making a maJor effort to introduce the program to more
 and to develop sound programs of shelter for lov-income people.
                                                                  We are in
 constant touch with other donors, particularly the IBRD with
 to develop cooperative shelter projects. We organize regionalwhich  we hopo
 each year to explain the program and offer our assistance to
 wishing to develop shelter projects. A major responsibility
                                                              of our
 regional housing officers ts to provide assistance in this regard.

 We do not agree with the conclusion contained in (Chpter 3 to
 "replicability" is not assured. We believe the results are
                                                             more positive.

APPENDIX         II                                                 APPENDIX II

                               THE DEPARTMENT OF THE TREASURY
                                      WASHINGTON, D.C. 20220

        OFFICL OF
   AwSITANT SIcrAnY                                    June 15,   1577

             Dear Mr. Fasick:
                  In response to your request to Secretary Blumenthal
             for comments on GAO's draft report "The Challenge of
             Meeting Shelter Needs in the Less Developed Countries",
             the Treasury Department noted with interest your deecrip-
             tion of the efforts in housing by the international devel-
             opment banks and concurs in your recommnendation.
                  Your report recommends that the Secretary of the
             Treasury encourage all donors:  (1) to cooperate fully in
             the development of integrated development plans which rec-
             ognize housing as a necessary component of development;
             and (2) to direct assistance to those countries where
             shelter needs are the greatest, where governments are
             actively cemmitted to a program of low-income housing
             and community development, and where efforts will have a
             significant impact. The Treasury Department concurs with
             these recommendations and it continually encourages the
             banki to develop housing projects as necessary and to
             focus their assistance on those countries where the funds
             will be used most effectively.
                  The fourth chapter of your report on the banks in-
             cluded same excellent descriptive material on the types
             of projects the banks are financing and the nature of
             low-income housing.
                  Thank you very much for making this draft report
             available to us for comment.
                                                       Sincerely yours,

                                                      Michael F. Cross
                                                  Acting Inspector General
                                                  for International Finance
             Mr. J. K. Fasick
             International Division
             U.S. General Accounting Office
             Washington, D.C. 20548

                                                    APPENDIX III

                        OUR OVERVIEW--


      Colombia has a total area of 439,513 square
 and in mid-l975 an estimated population            miles
                                          of 23.4 million,
 with 66.8 percent (15.6 million) concentrated
                                                 in the
 large urban areas.  The average annual population growth
 rate during 1970-75 was 2.7 percent, and
                                           the population
 is projected at 26.9 million by 1980.   The urban popula-
 tion growth rate is exacerbated by rural
                                           migration which
 averaged 5.3 Percent a year during 1970-75.

     Colombia's 1975-78 development plan proposes
gradudl entry into the international trade
                                            arena.    The
present government's primary objective is
                                           to continue
accelerating the opening of rew markets
                                        and diversifying
its exports by stimulating the private sector
                                               to maintain
a healthy level of exports.  Urban development is not con-
sidered a high priority, although some programs
                                                 are being
carried out by the institute of Territorial
                                             Credit, the
executing arm for the housing sector.

       Urban housing deficits for 1964   and estimates for
1973   through 1980 are shown below.

                          Total urban
                        housing deficits


                1964                  320,702
                1973                  580,861
                1974                  611,325
                1975                  614,258
                1976                  678,888
                1977                  715,301
                1978                  753,591
                1979                  793,848
                1980                  836,173
     Housing construction in the major Colombian
during 1970-75 has not kept pace, as illustrated
                                                 on the
following page.

APPENDIX !II                                                APPEND: X III

                        Housing units constructed

  City           1970       1971     1972      3973       1974     1975

Bogota          14,027     14,302   13,408   17,151      11,733   12,209
Medellin         3,219      3,540    3,931    5,321       4,128    1,576
Cali             2,286      1,461    3,683    4,847       5,524    3,098
Barranquiila     1 705      1,773    1,U40    3,285       3,265    2,562
Bucaramanga        445        502    1,051       568      1,062      676
Cartagena          -          -        353       783        468      293

    Total       21,682     21,578   23,466   31,955      26,180   20,414

     During 1970-75 a total of 145,275 housing units were
constructed, for :n average of 24,212 units annually.  A
comparison of housing construction and deficits reflects the
magnitude of Colombia's problem in providing shelter for its
citizens, especially in the urban areas.  The problem in the
urban areas is intensified by an average annual rural migra-
tion rate of 5.3 percent.


Institute of Territorial Credit

     The Institute of Tetritorial Credit was created in 1939
to execute and supervise the government's housing program.
The Institute, a c'ecentzalized public agency under the juris-
diction of the Ministry of Economic Development, is governed
by a six-member board, names by the President of the Republic,
and presided over by the Minister of Economic Development.

     The Institute's two primary objectives are to (1) incor-
porate squatter-type settlements into overall urban develop-
ment through rehabilitation and (2) provide low-income
housing through progressive development solutions.  These
objectives are accomplished through

     -- technical assistance to small and        intermeciate cities;

     --land tenure-related programs suci as             legalization and

     -- loans to municipal governments and agencies involved
        in providing infrastructure; and

     -- home   improvement   loans to qualified        individuals.

The Institute's policies and procedures ar.             implemented
by its 24 sectional offices.

                                                  APPENDIX III

       Insti.tute programs are intended
 low-income famiies with monthly         to benefit primarily
                                     incomes of less than P125.
 FTith this in mind, the Institute
                                    develops an individual plan
 to provide nousing appropriate
                                  for the different low-income
 levels.   The housing units are to be
 by the families, as tneir               developed progressively
                             incomes increase.

      The program includes:

      -- Sites and services for families
                                         whose monthly   income
         ranges from $14 to $28.

     -- Minimal iolutions with essential
                                          services directed    to
        families .~hose monthly earnings
                                         are not more than    $70.
     -- Bsjc and intermediate solutions,
                                           averaging between
        41 to 60 square meters and
                                    61 to 90 square meters,
        respectively, and costing
                                   less than $4,167.  Target
        groups include families with
                                      monthly incomes between
        $70 and $139.

     -- Maximum solutions, costing
                                   more than $4,167 and built
        to satisfy the demand of the
                                      middle-income sector.
        These solutions represent about
                                         6 percent of the
        annual projects.  The Institute progressively
        ishes the subsidy and charges                  dimin-
                                       the cost of the
        financing resources according
                                       to the family's ability
     The Institute has the following
                                     housing construction

    -- The Institute finances basic
       for those who already own the and minimal solutions
                                      land.  This program
       makes use of the existing
                                 public works.
    --To avoid sharp cost increases
                                     in the construction to
      minimal solutions, the Institute
                                        will finance the land
      and the building materials.
                                    It will also organize and
      advise the owners to make
                                use of the self-help ap'proach
      to build their houses.

    --A large number of the solutions
                                       are built through
      the participation of the private
                                        sector with the
      Institute picking out the contractor
      building time estimates, and          whose prices,
                                   operating capacity are

                                                APPENDIX III

                                                the private
     -- The Institute also takes advantage of
                           and  managerial capabilities  in
        sector's technical
                   for newer,  better, an: less  expensive
        the search
                                                  and execu-
        housing solutions through the financing
        tion of joint ventures.
                                                accoLding to
     The contractor builds and sells the units
                                                   The Insti-
the stipulated requirements set for the project.     construc-
                   notes that are due at  the end of
tute will pay with
tion with an interest rate of 16 percent.
     Historically, the Institute has depended upon
                                              subsidized low-
appropriations to maintain its programs for
income housing.  Due to an increase in activities, the Insti-
                                                financial back-
tute has entered the "money market" to secure
                                              -re expensive,
ing, although most of the available sources
                                           20  to 24 percent.
lending at interest rates ranging between
                                            internal resources
After the government's resources and other        interest
become commingled, the Institute Achieves
                                            on  the makeup of
rates of about 14 to 16 percent, depending
the capital.

                                                million, of
       In 1975, Institute resources vere $85.1came from the
 which  only $12.9 million (or 15.2 ?ercent)
 government.   Other financing source- for their programs
 include insurance companies, the Popular Bank,
                                        the  Republic, and
 banks, Central Mortgage Bank, Bank of
 the Ne'ional Savings F nd.

 Financial   institutions
                                                     as a
      The Central Mortgage Bank has been designated
                                 finance urban and  housing
 quasi-government institution to
 development programs.  The Bank also manages the Financial
                                           a discounting
 Fund for Urban Development and is used as
 institution by government and private entities.

      The Bank and the Institute of Territorial
                                     in  the  housing  sector,
 coordinate as closely as possible                          tradi-
                                   told  us  that  the Bank
 although a director of the Bank
                               the needs  of  the  low-income
 Lionally has never serviced
 groups, but mainly concentrated on middle-,
                           However,  the  government   has changed
 and high-income groups.                                  of all
                            to  coordinate   the  efforts
 this policy and is trying
                                               agencies to
 participating institutions and government
                                   low-income    groups.
 place a priority on housing for
                                             through the
       The Bank's primary source of funds is
  sale of mortgage bonds.  Such sales have had an adverse
  impact on short-term financing for construction

                                                 APPENDIZ   III

 and contractors. because mcney generated
                                            by these sales
 becomes too exiensive (26 percent)
                                      to compete with the
 savings and loan system's Mioney (24
                                       percent).  In order
 to reach the lower income levels,
                                    the Bank is changing its
 lending scheme to accommodate people
                                        whose monthly income
 is about $83.


      AID has been the only U.S. Government
 involved in Colombia's housing sector, and agenc directly
 were directed at middle-income groups.     its past efforts

      A June 30, 1976, report by the Department
Inspector General of Foreign Assistance,         of State's
Housing Investment Guaranty Program," discussed     "AID
caused by inflationary trends within an economy.  problems
Inspector General stressed the use of mortgage      The
or adjustment clauses to provide adjustments     indexing
paymenCs. Without the protection of such      to mortgage
                                           schemes, the
Inspector General concluded that participating
face the danger of decapitalization as the      institutions
tering mortgage loans outstrip the institutions' of adminis-
from mortgage payments.                            income

Urban regional sector loans
     AID made two urban regional sector loans
                                              to the
government, one for $27.6 million and the
$32.9 million to support it in:           other for

     -- Diverting some migration from the major
                                                cities to
        intermediate cities (30,000 to 350,000 popula-
     -- Improving the infrastructure of low-income
        the cities of Barranquilla, Bogota, Cali,   areas in
     -- Improving local planning and public administration.

     -- Fostering the economic growth of the communities.

     Among the activities
objectives were low-income financed to achieve the loan
                            housing and credit for water
and sewers in small and intermediate cities.

APPENDIX III                                 APPEND;X III

     The living conditions of a number of low-income
families have been improved due to the financial budgetary
resources that the loans have provided.  They have not been
as effective, however, in improving the government's overall
fiscal performanc  or the use of internal resources.  However,
AID reported that the loan's objective of placing a greater
emphasis on low-cost housing was achieved.  Furth2r analyses
imply that the main program objectives were defined more
in terms of quantity then quality, i.e., 23,250 units com-
pleted and 177,500 families benefited, rather than whether
or not the beneficiaries were truly low-income families.

     An April 1974 report by the AID Auditor General stated
that although the Institute was programed to construct
37,500 solutions (price of $920, monthly family income of
$32, and monthly mortgage of $3.20), AID allowed a revision
to the program.  Under the revision., the Institute was not
required to construct any minimum solutions and, instead,
could construct 23,250 "progressive development houses."
These houses were large (3 bedrooms) and selling prices
varied between $1,700 and $3,200.

     We were informed by the AID Mission Director that
there are currently two operating program grants for hous-
ing in Colombia, both centrally funded by AID/ Washington
which also controls the grants.  One grant is to Southwest
Research Institute of San Antonio, Texas, which is working
with the Institute of Territorial Credit to test the use
of sulfur as a surface bonding agent in low-cost house

     The objectives of this project are to use locally
available sulfur as a substitute for cement, reduce
construction costs, and increase strength and durability.
The Research Institute has built 40 houses in Cartagena
as a sample, so that the government can decide whether
this technique will help to meet the increased demands
for low-cost housing.

     The other grant is to the Foundation for Cooperative
Housing, a private organization, to provide technical
assistance for minimum shelter in Medellin.  The project
involves 95 families who, through self-help construction
and cooperative ownership, will occupy the project.   The
price of the houses is to be about $1,750 with monthly
payments of approximately $19.

                                                 APPENDIX III


      None of the multilateral organizations
                                             has a policy to
 assist Colombia in providing housing
                                      to low-income or other
 groups.  For the most part, this is attributable
 organizations shifting their efforts             to these
                                      toward those programs
 having priority to the government.

 World Bank

     The World Bank is involved in virtually
of Colombia economy--socially oriented        all sectors
                                        programs (education,
nutrition, etc.), transportation, power
                                         resources, and
telecommunications.  It is also considering becoming in-
volved in tourism.  The government has not approached the
Bank concerning its possible involvement
                                          in the housing

     Like the other international organizations,
Bank is closely coordinating its activities        the World
                                             with the govern-
msnt to achieve the goals set forth
                                     in the government's
1975-78 development plan--social projects
                                           to redress the
financial and sociological imbalances,
                                        broad development
projects, and nutrition.

     The Director of the World Bank Mission
                                              commented that
there will always be a segment of the
                                       population that will
be impossible to reach through low-income
                                            housing projects
unless it is approached through a straight
                                             welfare or sub-
sidy program.   One example of this segment would be
farmers and others who do not receive                 the
basis and cannot be expected to repay  income  on a monthly
                                       normal housing
mortgage loans.

Inter-American Development Bank

     IDB was active in the housing sector
                                           of Colombia's
economy during the 1960s, but has since
                                         directed its ef-
forts toward agriculture and rural development.
the 1960s, IDB participated with the
                                      government in financ-
ing four separate housing loans.  The total cost of the
programs was about $78.9 million, of
                                     which IDB financed
$34.3 million.  There were 31,535 units completed at
cost varying between $2,074 and $3,305.               a unit

     Notwithstanding IDB's policy of leaving
                                             the respon-
sibility of providing shelter to the
                                     government, in

APPENDIX III                                  ArPENnTX !II

1972 the government requested a $4.4 million loan from
IDB to support an integrated program for urban development.
An estimated $5.9 million housing subprogram ($2.4 million
from IDB) is directed toward improving housing conditions
in one of the neediest areas in Bogota, particularly re-
locating 2,000 families that would be affected by the con-
struction of a major artery through the city.

     We noted that IDB is participating in another inte-
grated development program for Buenaventura, a city on the
coast of Colombia.  This $48 million program is to be imple-
mented during 1976-79 and is directed toward providing the
city with better physical, social, and economic conditions.
The Director of the IDB Mission said that only infrastructure
would be financed by IDB.

United Nations

     The U.N. Development Program has been indirectly
involved in the housing sector but has no immediate
plans for any future involvement.  The UNDP did finance
a study of the "cities within cities" concept, but
the report, prepared in December 1975, was not followed
up with any government action,


     With the hope of establishing a national housing
policy, the President of Colombia directed in October
1976 that a council for housing and urban development
be created.  Participating in -h-is council will be the
Ministers of Economic Development and of Finance; the
Chief of the Department of National Planning; the Managers
of the National Savings Fund, the Institute of Territorial
Credit, and the Central Mortgage Bank; and the Superin-
tendent for Banking.  The main function of the council
will be to coordinate the institutions' activities in
creating and implementing a housing and urban develop-
ment policy that will encompass all income levels.

APPENDIX IV                                              APPENDIX IV

                             OUE, OVERVIEW--


     1ith a total area of 8,083 square mile. and a 1975
population of about 4.2 million, E1 Salvador is Central
America's smallest and most densely populated country.
Rapid population growth has produced an intensive urban
expansion in the capital city of San Salvador and in
four other major cities of Santa Ana, San Miguil, Sonsonate,
and Usulutan.  An estimated 40 percent of the population
lives in urban areas, with about 18 percent (700,000)
San Salvador.

     The projected annual population growth rate of 3.3 per-
cent during 1975-80 will result in a total population of
5 million by 1980.  It is estimated that more than half of
this total will live in urban areas, largely in the San
Salvador metropolitan area.  This situation has had an
extreme impact on the low-income groups, whose ability
pay for housing and related services is severely limited.

     The 1970 aid projected 1980 urban housing deficit by
family income level is shown below.

 Family           Monthly         Estimated
classiri-         family       housing deficit    Percent of deficit
 cation           income        1970   - 190       1970        1980


Marginal    $     0 to  40     29,812    53,772   20.3         18.7
Low              40 to 100     67,921   125,002   46.3         43.5
Middle          100 to 240     35,592    74,351   24.3         25.8
  middle      240 to 400        2,861     9,908    1.9          3.4
High          Above 400        1',573   _24,667    7.2          8.6
    Total                     146,759   287,700

     According to the schedule, two-thirds of the 1970 defi-
cit, or about 98,000 units, applied to families earning
than $100 a month.  Although the percent of the estimated
1980 deficit relative to this population group is expected
to decrease slightly from the 1970 level, in real terms
deficit of about 179,000 units represents a significant
tion of the urban population.

      Housing needs can also be illustrated by consid ring
t..e needs resulting from the formation of new households.

APPENDIX IV                                     APPENDIX IV

During 1960-70, about 10,000 new households were formed
in urban areas as a result of an annual population growth
rate of 3.7 percent and migration from rural areas.  The
majority of these households were Low income.  It is
estimated that the urban area is presently increasing at
the rate of 37,000 to 42,000 persons annually.

     The housing situation b=comes even more acute when
considering that 66 pe-cent of the population in metro-
politan San Salvador live in ]ess than sanitary condi-
tions, 58 percent of the dwellings have only one room,
and less than 50 percent have sewage service.  Another
critical fact is that 20 percent of the metropolitan
area is inhabited by illegal squatters and these settle-
ments are growing by 16 percent a year.

     Total housing production during 1962-70 averaged
about 2,600 units annually, which represented about one-
quarter of annual household formation during the same
period.  In effect, El Salvador is falling further behind
in meeting the housing needs of its overall populace, let
alone those in the lower income groups.


Housing policies

     El Salvador has not yet enacted a comprehensive
legislative code or integrated set of regulations for
urban land use controls and, as a result. urban develop-
ment has been inefficient and has significantly affected
housing for lower income families.  In addition, the gov-
ernment has no national housing plan.

     The institutions responsible for urban and regional
planning and implementation operate in relative isolation
without coordination of their respective activities.   The
Ministry of Public Works is responsible for land use and
building control, transportation, access roads, and trunk
drainage lines for awl major urban developments.  The
Administracion Nacional de Acueductos y Alcantarillados,
a semiautonomous agency, is in charge of all water and
sewer activities in the cointry, while several private
power companies furnish electric services.

     The government has recently established the National
Commission for Housing and Urban Development to give policy
guidance and expedite urban developrment. The Commission
also intends to devote more regular attention to urban

APPENDIX IV                                     APPENDIX IV

and regional planning; however, the manner in which such
coordination will be achieved has yet to be detailed.

National Housing Finance Agency
     The National Housing Finance Agency is a permanent
autonomous government agency established in 1963 to charter,
supervise, and provide financial support to savings and
loan associations. The savings and loan associations re-
ceive funds from the Agency and from the general public
to invest in long-term housing mortgages.

     The Agency's initial capitalization was provided in
1965 in the form of a $3 million loan from AID (plus
$100,000 for technical assistance) and a $2 million con-
tribution from the government. AID provided additional
capital in 1968 with another $3 million loan. Currently,
all Agency capital is generated within the savings and
loan system.

     The president of the Agency told us that, although
it is legally directed to invest in mortgages on low-
and middle-income housing, it has not implemented such a
policy with its member savings and loan associations. It
only approves or disapproves the savings and loan projects
and allows the market to set housing demand.

     During 1962-70, 3,182 houses were financed--95 percent
of them for families earning more than $240 a month and
characterized as being upper-middle and high income.

      According to its president, the agency is still con-
centrating its financing in the middle- and high-income
levels, and the maximum value of houses which can be
financed is $16,000--$24,000 for condominiums. Corre-
spondingly, the lowest cost huuse they will finance is in
the range of $800 to $3,200, which would be affordable by a
family with a monthly income of about $140. According to
documents concerning housing construction in process at
December 31, 1975, the lowest priced house built cost about
     The Agency receives no technical or financial
assistance from external sources and although it would
consider receiving AID loin funds, the funds would have
to be at low interest rates. The Agency president said
that HIG project loans were too expensive for a country
such as El Salvador and that accepting a HIG project
would place a tremendous strain on El Salvador's balance

 APPENDIX IV                                     APPENDIX IV

 of payments. He also said that funneling the current
 project loans through the Central American Bank for    HIG
 Economic Integration was, in his opinion, a mistake
 cause the Bank is adding 1 Fprcent to the HIG rate be-
                                                     of 9-
 1/4 percent.
 Urban Housing Institute

      The Urban Housing Institute was created in 1951 as
 an autonomous government agency to serve low-income
 holds. Since 1974 it has received financing capital
 the government and from reflows and turnovers of out- from
 standing loans. The Institute is programed to receive
 appropriation of $3.8 million in 1977 and a possible    an
 tional $2.4 million in June 1977. Between 1962 and    addi-
 it also received two loans from IDB for about $12 million.

      According to its president, the Institute
about $20 million worth of houses since it was has   built
Although it builds about 1,200 units a year, th, housing
need of the income group it represents (monthly
between, $100 and $300) is about 5,000 units a year,
there is a 50,000 family waiting list for housing. and
     A 1974 World Bank housing sector paper stated that
although the Institute was originally established
                                                    to serve
low-income families, its houses (average cost oi $4,000)
are not affordable by 60 percent of El Salvador's
households.   Income levels of the recipients of the houses
produced during 1962-70 are shown below.

       Family                 Monthly          Houses
   classification          family income      produced
     Marginal              $     0 to 40          -
     Lcw                        40 to 100       3,251
     Middle                    100 to 240       5,418
     Upper-middle              240 to 400       1,084
     High                      kbove 4Cd        1,084
         Total                                 10,837
     Thus, the program has been directed primarily
families whose income is between $100 and $240. Thetoward
tute is planning to finance a project in 1977 which
involve upgrading a squattet settlement. According   will
latest 5-year estimate (1978-82), the Institute hopesto its
complete about 5,000 housing units annually--25,000    to
affecting about 125,000 people.

APPENDIX IV                                        APPENDIX IV

Fondo Social-National Housing Fund

     The Fondo Social is an autonomous government agency
created in 1973 to finance housing construction for certain
workers in E1l Salvador. All registered industrial and com-
mercial workers earning up to $280 a month (currently num-
bering about 180,000) are members of the fund.  Once a
worker becomes a member of the fund, he qualifies for
housing despite the fact that his income may eventually
exceed tbe $280 monthly ceiling.

       In establishing the fund, the government agreed
to   Contribute $10 million during 1974-78 and according
to Fondo Social's general manager, it has so far contrib-
uted $4 million. In addition to this grant, a percent-
age of the member employees' salaries is contributed to
the fund--the employer contributing 5 percent of regis-
tered employees' salaries and the employee contributing
0.5 percent. These contributions total about $1.04 mil-
lion a month.

     As of September 1976 Fondo has provided housing loans
valued at about $13.6 million for about 3,000 families,
with its efforts directed at contributors in the middle-
and upper-income levels, as shown below.

               Monthly            Total value
                income              of loans    Percent
         $     0   to   100   $        8,920      0.1
             100   to   160        1,940,988     14.3
             160   to   200          805,104      5.9
             200   to   280       10,859,882     79.7
                   Total      $13,614,894
     The general manager said that Fondo's lower income
groups are pressing management to be more responsive to
their housing needs. Fondo had about $16 million avail-
able for housing loans, but is having difficulty finding
private contractors willing to construct lower income type
housing. Fondo normally purchases its houses from private
sector contractors.

     When purchasing a house, Fondo requires no down
rayment from its members, doesn't charge any type of fee,
and finances 100 percent of the total cost of the house
and land up to $5,200.

APPENDIX IV                                    APPENDIX IV

     Fondo is now purchasing tracts of land in metropolitan
San Salvador for the future development of low-income hous-
ing.   The general manager stated that to provide housing
that is affordable to low-income families, low-priced land
and low-interest rate housing loans are the primary requi-

Private bank activities

     The Banco Hipotecario is the primary source of private
bank housing loans in El Salvador.  In fiscal year 1975
loans for low-income houses accounted for only 3.9 Percent
of total housing construction loans, while loans foc houses
costing between $6,000 and $32,000 represented 88.7 percent
of the loan portfolio.  In 1976 loans for low-income houses
increased to 7.9 percent of loan funds; loans for houses
in the $6,000 to $32,000 range decreased to 78.2 percent;
and houses costing $32,000 and above accounted for 13.9
percent of the total portfolio.

     According to a Banco Hipotecario official, there has
been little activity in the housing sector during the past
2 years because little credit has been available For housing
construction.  The official believed that the bank would not
invest in low-income housing, particularly sites and services/
self-help projects, because it would not be economically
feasible.  He said that the people participating in such
projects are economically unstable and, therefore, could
not be relied on to repay the loans.


Agency for   International Development

     AID has not emphasized housing in El Salvador in recent
years but has concentrated in the areas emphasized by the
government, which include agriculture, education, health
and population, and economic policy.

     The AID Mission Director does not classify housing as a
mission priority because it would not enhance the country's
overall economic development.  He believes that such
development can best be aided by providing assistance in
the priority areas decided by the country.

     The Director also said that although housing should be
part of a development assistance program if it could accomp-
lish such things as long-term employment opportunities or
induced savings, construction of factories would have more
impact on a country's long-term development.

                                                   APPENDIX    IV

 Housing Investment Guaranty Program

      Since 1964, HIG has financed four
 three completed and one                 housing projects,
                          still in progress.  The three
 completed projects, which were
                                 constructed under the policy
 in effect to 1973, produced houses
                                     priced from $7,000 to
 $11,996 and were aimed at families
 excess of S400.                     with monthly incomes in
                  Available statistics indicate that
 with monthly earnings at this level                  families
                                      are considered to be in
 the high-income bracket.

      The contract for the current HIG
                                        project was signed
 with the Central American Bank
                                for Economic Integration in
 April 1973 and authorized construction
                                         of 800 housing units
 at prices ranging from $5,000 to
                                  $8,500.   The prices have
 twice been reevaluated, the last
                                  time in April 1976, and a
 third price increase is under consideration.
 are for 600 units priced between               Current plans
                                  $9,200 and $10,800.

World Bank

     On November 4, 1974, the World
                                       Bank Group agreed to
loan $8.5 million to the Foundation
                                       foL Minimum Housing for
a sites and services hosing project
                                        to (1) provide in-
frastructure and core units for
                                  self-help  housing, essential
commun 4 ty facilities, and a pilot
                                     fund for small commercial
cooperative enterprises of lower
                                    income groups and (2)
enable households in such groups
                                    to acquire lots and con-
struct houses on such lots.    The $8.5 million lc.,, is being
made available in two separate
                                 increments from the funds
of the World Bank and the International
tion.                                   Development Associa-

Inter-American Development Bank

      IDB is not currently involved in
                                         housing but did
extend two loans in the past to
                                 El Salvador's Urban Hous-
ing Institute for housing constr.ction
                                          and urbanization
projects.   The first loan of $6 million resulted
                                                      in the
construction of 3,708 s inqe-family
                                      hous.ng units (3.102
in San Salvador and 606 in the
                                interior of the countrvy)
and 1,352 apartment units in San
                                   Salvador.    The project
was completed in 1966.   The other
financed the construction of 1,935  loan  of $6  million
                                     single-family units

APPENDIX IV                                    APPENDIX IV

(754 in San Salvador and 1,181 in the interior) and 2,760
apartment units in San Salvador.  This project was com-
pleted in 1971.

     Aithough the income levels of the occupants of the
IDB-financed housing units could not be determined, the
target group of the Urban Housing Institute consists of
those families with monthly incomes between $100 and $300.

U.N. Development Program

     The UNDP is currently financing a study of urban and
regional planning and development in El Salvador to help
the government improve the institutional framework for
formulating, implementing, and evaluating urban and re-
gional development policies, plans, and programs.  The
World Bank, as executor of the study, views it as pre-
investment research and plans to use the results as a basis
for possible future investment in the housing field.

     Although the government had originally expressed
limited interest in initiating the study, its interest has
since increased.  According to a UNDP official, about 60
to 70 percent of UNDP projects in El Salvador are origi-
nated by the government And the remainder by UNDP.  UNDP
is not planning any future housing-related projects, and
other projects would depend on the priorities specified
in the government's 5-year plan for 1978-82.

Organization of American States

     The OAS housing involvement has been in the form of
financial support of studies of housing-related matters.
It assisted the government in a June 1971 housing study
which, among other things, estimated the housing deficits
in urban areas.  OAS is currently financing a 2-year,
$85,000 study by the Foundation for Minimum Housing of
building materials and building techniques in El Salvador.
The study was still in progress during our incountry review
and is not expected to be completed until 1978.


     The Foundation for Minimum Housing is a private, non-
profit, autonomous foundation in El Salvador.  Its activities
began in September 1968 when a group of concerned citizens,
organized by a Jesuit priest (the present executive director),

                                                  APPENDIX IV

 relocated 69 families left homeless
                                      after a flood.   In June
 1970, it was legalized as a foundation
                                          to activate social
 change among the poorest 20 percent
                                      of the population
 (families earning less than $100 a
                                     month), using low-
 cost housing as a catalyst for mutual
                                        help and community

      Under its first 5-year plan, 1971-75,
 facilitated the construction of shelter    the Foundation
                                         for 1,393 families
 in 5 separate housing projects.  By the end of 1975, it had
 also organized five cooperatives in
                                     its housing projects,
 including a central marketing cooperative,
 two more.                                  and was forming

      The Foundation has received financial
programs from public, private, European, support for its
                                            Canadian, United
States, and international sources. The Government
Salvador collaborated with a $2 million loan         of E]
chases and through various agencies that       for land  pur-
power, water, schools, health services, and        electric
ters. Private citizens, businesses, and       community cen-
contributed about $400,000 annually through              also
raisir.g campaigns.                           periodic  fund-

      To establish self-sustaining communities,
 tion involves the people from the start in        the Founda-
designed to create and foster community spirit
promoting its new housing projects, receives       and, after
applications submitted by those interested      and  evaluates
                                             in participating.
      The selected participants receive about 3
                                                  months of
community organization sessions before actual
begins. After each person or family selects construction
housing solution they desire (unfurnished       the type of
only, basic core unit, completed unit, etc.), with services
constructs the housing, streets and passageways, the community
community centers, and other community-related       schools,
Constru(tion normally takes place on the          structures.
participants visit the project sites.     weekends when the
                                        The Foundation em-
ploys people and construction supervisors
                                           who provide
technical assistance and laborers who produce
items, such as toilets and sinks.                standard

     When the project site is completed,
to determine which person or family will a lottery is held
                                          occupy the units
included among the various types selected

APPENDIX V                                                    APPENDIX V

                              OUR OVERVIEW--

                         HOUSING SITUATION IN PERU

     Peru, with a total area of 496,222 square miles, is
the third largest country in South America.  Its popula-
tion was estimated at 16.5 million in 1976, and since 1970
the population has been increasing by an average of 3 per-
cent a year.  By 1980, total population is expected to be
about 18.1 million.  In addition, Peru is faced with a
high rate of rural-urban migration.  Of the migrating popu-
lation, it is estimated that 50.6 percent are from rural

     The Peruvian economy continues to suffer the effects
of 1975 and 1976, during which the balance of payments de-
teriorated, inflationary pressures increased, and the rate
of economic growth decreased.  The government launched a
new austerity program in 1976 with a 44.4 percent devalua-
tion of the Peruvian sol, new price and wage guidelines,
increased taxes, and substantial cuts in government spend-

     Peru's Ministry of Housing and Construction, created
in 1969, estimated that 463,000 housing units must be built
between 1976 and 1980 to keep the existing deficit--esti-
mated at 1 million units--at a constant level.  Housing
units constructed during 1970-75 totaled about 209,117, as
shown below.

                 Public sector             Private sector
                Single     Multi-          Single    Multi-
Year            family     family          family    family        Total

1970            3,785          91          18,448     1,039        23,363
1971            4,436         224          33,621     2,094        40,365
1972            4,311         926          25,822     1,315        32,374
1973            2,550         889          31,993     4,833        40,265
1974 (est)        (a)         (a)          37,493     3,670        41,163
1975 (est)        947          20          28,070     2,750        31,787

       Total   16,029      2,150          175,447    15,691       209,317

a/Not available.

     Comparing the estimated 463,000 housing units that must
be built by 1980 to maintain the existing deficit of 1 mil-
lion units to the trend reflected by the above table indi-
cates that the deficit will likely exceed 1 million units
by 1980.

 APPENDIX V                                            APPENDIX V


     The Government of Peru, primarily through the Minis-
try of Housing and Construction, and secondarily through
the Central Mortgage Bank and the Peruvian Housing Bank,
has assumed the central role in providing shelter and
lated urban facil:.ties throughout the country.  It has
recognized the need for improving the quality of urban
life for all its citizens and especially for the lowest
income groups who reside in squatter settlements.
policy recognizes that the squatter settlements are
manent in nature and upgrading these sites is a major

     The problem faced by Peru and other developing
countries is the inability to mobilize adequate resources
upgrade slum and squatter areas.  The private sector is
reluctant to lend capital to low-income families residing
in, what they consider to be, nonpermanent or risky
Thus, upgrading these settlements for legal integration
the city system is an important process in legitimizing
status of the inhabitants of the squatter areas.

      The Peruvian Housing Bank, a semiautonomous agency
under the guidance of the Ministry of Economy and Finance,
was created in 1962 to establish, administer, regulate,
supervise savings and loan associations.   AID gave it two
seed capital loans of $7.5 million in 1962 and $6 million
]965.   In 1969, it was authorized to mobilize funds (through
issuing of mutual development bonds) and to extend
for housing and construction.   The Peruvian Housing Bank
actively promotes public, private, and foreign investment
for housing and construction.   It has oriented its opera-
tions increasingly to provide technical, economic,
social assistance for housing projects and financial
support for the construction industry.   Recent policy
decisions taken by the board have also committed the
to use a large percent of new financial resources for
grams to assist low-income areas.

     The Bank carries out six basic types of lending
programs.  They are loans

     --to savings and loan   institutions,

     -- to housing cooperatives     (which borrow to purchase

     -- to public and private developers for large-scale
        grams of land development and housing construction,

APPENDIX V                                         APPENDIX V

     -- for direct programs of urban renovation and
        redevelopment in low-income squatter settlements,

     --for special experimental projects in building
       materials, and

     --for development of construction industries.

      In 1971 the Bank began a direct prog:am of lending to
upgrade inner city slums and to provide urban infrastructure
and services to low-income squatter settcements ("pueblos
jovenes"--young towns) on the fringes of    Jma's metropolitan
area.   For e::ample, from pre-1970 throu-    p.?tember 1976,
it provided about $118 million in finan.      for infrastruc-
ture and housing.    AID's most recent HIG loans to Peru are
intended to support the Bank's activities in this area.

     The Social Mobilization Agency was firmed in 1971 with
a mandate to act as a bridge between the government and the
people, helping to make government bureaucracies more respon-
sive to the public and helping people express their desires
to the government. The Agency has been deeply involved in
organizing the residents of the pueblos jovenes and prepar-
ing them for remodeling--necessary before final legaliza-
tion of the settlements.  It is currently under reorganiza-
tion, and, while it is anticipated that its activities will
be somewhat circumscribed, it will probably continue to play
an active development role in the pueblos jovenes.

     The financing of housing is principally the respon-
sibility of four institutional groups.

    -- The Central Mortgage Bank, which is state
       controlled and operates primarily with
       private sector financial resources.

    --The Peruvian Housing Bank, which is state
       controlled and operates primarily with
      government budge;tary assistance, bonds, and
      external funds.

    --The "mutuales" of t'-e saving and loan
      system, most of which, are privately owned by

    -- The "Empresa de la Administracion de Inmuebles,"
       created in 1969, which administers public housing
       after construction and is a key factor in the
       production of shelter for low-income families.

                                                  APPENDIX V

 In 1975, the Central Mortgage Bank held
                                          most of the
 national savings deposits, followed by
                                         the commercial banks,
 savings and loan institutions, and credit
 For example, the credit cooperatives
                                      have about 16 percent
 of all savings.


      The United States has played a principal
 providing financial assistance to the           role in
                                        Government of Peru,
 especially since the earthquake of May
                                         1970.   Assistance
 in shelter programs has been made available
 grant for emergency reconstruction, a         through an AID
                                        loan for community
 development and reconstruction, a followup
 loan for urban reconstruction, and authorizations
 HIG project loans.                                  for

     Since the earthquake of May 1970, $28.55
                                               million in
concessional loans and grants and $43.28
                                          million in HIG
loans have been made to improve shelter
                                         conditions.  Peru
contributed $11.1 million to supplement
                                         two AID concessional
loans and made land available.  Improved shelter conditions,
when completed, will have benefited over
                                          100,000 families.
     Shelter programs supported by the United
                                                States have
met varying degrees of success.  However, several factors
precluded them from being carried out
                                       in a timely manner.
The most pressing issue was Peru's inability
                                               to estab-
lish responsibilities among its administering
                                                and imple-
menting agencies, which were plagued by
                                         inexperience in
their newly created agencies, reorganizations,
turnover, changes in direction after projects
                                                were started,
high inflation, and a major devaluation
                                         during 1976.
      From the beginning, these problems continued
an effect on the timely completion of               to have
                                       all projects supported
by the United States.   For example, it took 4 years to com-
plete projects funded by an AID disaster
in 1970.                                  relief grant awarded
           Under the AID concessional loan, program
tation was so slow that participants in
                                         self-help housing
projects lost interest and repaired their
                                           own earthquake-
damaged homes.   In addition, implementing agencies changed
direction during the program and provided
                                           utility services
to squatter settlements instead of relocating
                                               residents to
newly developed lots with sites and services.
demand was lessened and in Chimbote 437         As a result,
                                         lots funded by this
loan remained unsold.

APPENDIX V                                       APPENDIX V

     Similar problems were experienced in a 1972 AID
concessional loan.   Administering and implementing agencies
were slow in determining their roles and responsibilities
despite AID's attempts to expedite the program.    Market
studies and development plans were not timely.    Construc-
Lion of housing projects did not begin until 1975, 2 years
aft.r the loan was approved.   The lack of timeliness caused
a loss of participant interest and increased costs for
each house.  Several participants left the self-help program
to seek other shelter alternatives and new participants
had to be recruited.   At the time of our review, all housing
units had been assigned, but unit cost will be about 19.5
percent more than originally estimated when the home buyer
applied for his loan.   An analysis of participants' monthly
incomes disclosed a median of $173.   Median family income
reported by the government in 1976 was $118.

     Delays were also being experienced with a HIG conven-
tional loan, which was approved late in 1971 and failed to
meet its November 1976 terminal target disbursement date.
Marketability questions, construction materials, a flood
disaster, and a reorganization of the implementing agency
prompted an extension of this program to Novemtbr 1978.   At
the time of our review, 68 percent of the funds had been
disbursed to fund construction of 1,527 of 3,962 housing
units planned.  We believe the remaining funds will not be
sufficient to fund the remaining housing units now or in
the next 2 years.

     AID's latest effort to support Peru's continuing need
for improved shelter conditions is in the form of a new
HIG program.  The program will provide $15 million to the
Peruvian Housing Bank which, in association with the Minis-
try of Housing and Construc'ion, utility companies, mutuals,
and others, will make financing available to low-income
families for utility services, basic shelter, and home im-
provements.  The program is planned to be countrywide and
it is estimated that at least 60 percent of the funds will
be used to finance projects outside Lima.

     The new HIG Program involves three separate but related

     (1)   Part of the loan is to be used for developing
           basic infrastructure such as water, sewer, and
           electrical services in the pueblos jovenes.
           Infrastructure systems continue to be the
           highest priority need as perceived by residents
           of pueblos jovenes and other slum areas.  Loan

                                                    APPENDIX V

              payments for these systems are expected
                                                      to be
              less than the monthly cost for fuel and
              delivered by truck or cart.

      (2)   A second component of the loan is to be
                                                     used to
            fund the minimum shelter program.   This program
            will involve the construction of approximately
            2,500 basic shelter units in proximity
                                                    to employ-
            ment centers, community facilities,
                                                 and public
            transportation.  Most of these projects will be
            sites and services lots containing basic
            such as water, sewerage, and electricity.
            cases the land required for construction    In all
            be provided by Peru or by other organizations
            such as cooperative associations.

      (3)   A third part of the loan is to be used
                                                   to fund
            the improvement, rehabilitation, or expansion
            of existing housing stock.  The savings and loan
            institution will review each loan application,
            it ic estimated that 900 loans will be made
                  specific project. This is a relatively new
            concept since lower income families are
            able to obtain this type of financing.
                                                     An addi-
            tional benefit of the loan is expected
                                                    to be the
            development of an institutional capacity
            is more responsive to the needs of low-income

      AID's Housing and Urban Development Officer
this program should demonstrate that shelter       believes
                                               needs of most
poor families can be met without direct
                                         subsidies.   For
example, the minimum family income needed
                                           to repay a loan
for combined water, sewers, and electricity
                                              is estimated at
$96.07 a month.   The monthly payment would be $12.50
percent of the families' monthly income.               or 13
                                           For an elemental
house, the minimum income needed would
                                        be $150.00 to make
a monthly payment of $37.50 (25 percent).
                                            For home improve-
ment loans, monthly incomes needed range
                                          between $10 to $195
to meet monthly payments ranging between
                                          $1.50 to $29.00.

     Since 1968 IDB, the World Bank Group,
                                           and the Inter-
American Savings and Loan Bank have provided
                                             financial assis-
tance to upgrade shelter conditions in

APPENDIX V                                         APPENDIX V

World Bank

     In June 1976 the World Bank loaned the National Housing
Bank $21.6 million to fund sites and services, infrastructure
projects, industrial parks, access roads, and health centers
in Lima end Arequipa.  The areas and specific sites have al-
ready been identified, and the Peruvian Housing Bank will ad-
minister the program.

Inter-American Development Bank

     Since 1968 IDB has made three loans to the Govern-
ment of Peru.  The first loan of $12.6 million was made
to the Peruvian Housing Bank in 1968 to provide low-cost
housing units.  This was the first housing project under-
taken by the government at the national level, and 4,724
housing units were built in 10 cities.  The beneficiaries
of the program were families with average monthly incomes
ranging between $177 to $386 a month.  The average amount
mortgaged was $4,238.

     The second loan for $35 million was made in the early
1970s and the project was completed during 1976.  The loan
financed reconstruction projects in the zone affected by
the earthquake and included the construction of core
houses (2,200 units, averaging $1,840), low-cost houses
(2,330 units, averaging $3,000), individual loans for home
improvement (2,560 units, averaging $1,380), lots and serv-
ices (4,50C units, averaging $460), community facilities,
and urban zation works.

     Although   the program was designed to provide low-cost
houses, it was not intended for low-income families. We
found that families who purchased homes funded by this loan
paid between $2,213 and $8,000 in Arequipa between 1972-75.
Monthly incomes of these families averaged between $133
and $283.  Median income reported by the government during
this period ranged from about $77 to $106.  Terms of the
mortgage r-quire 13-percent interest for 20 years, and
monthly mortgage payments range between $26 and $82.

     AN IDB official told us the construction of houses
and the development of lots and services were success-
fully completed; however, a large number of units in
certain areas still have not been sold.  For example,
about 2,000 houses have not been sold because the water,
sewerage, and electricity hookups have not been com-
pleted.  In Caraz, about 500 houses were completed in
late 1975, but 400 remain unsold due to the loss of
demand.  The same situation has occurred in Chimbote,

 APPENDIX V                                         APPENDIX V

 where almost 400 houses and over   3,000 lots have not been

      IDB now feels that it has done enough in the housing
sector and will shift its emphasis to funding basic
frastructure.   A loan for $30.5 million is being negotiated
and will provide funds for water and sewerage projects
27 cities.   The Ministry of Housing and Construction will
be the implementing agency through its sanitary
                                                 works divi-

Inter-American Savings and Loan Bank

     The Bank is currently negotiating a loan to the Peruvian
Housing Bank for $5.2 million to help meet the housing
of lower income members of savings and loan associations
in Peru.  The Bank's program is aimed at financing the ac-
quisition, construction, and repair of housing units
families whose monthly income does not exceed $250.
should be pointed out that median income reported by
government in 1976 ranged between $113 and $216 a
                                                  month in
major urban centers.


     Shortly after   the earthquake of May 1970,   several PVOs
assisted the disaster victims.     Shelter assistance consisted
of tents, roofing materials, and temporary housing units
donated by Church World Services, Catholic Relief Services,
and the Red Cross. After this immediate relief assistance,
PVOs have had only a minor role in helping to upgrade housing
conditions in Peru. However, CARE and Accion Comunitarias
del Peru are supporting ongoing efforts to improve shelter

     CARE in Peru operates with six staff members on an
annual budget of about $222,000. Since the earthquake,
it has supported two housing projects consisting of 120
units located in the earthquake zone and school construc-
tion, irrigation canals, and potable water projects.

     CARE is currently supporting potable water and
tion projects in Purro and Cusco, located in southernirriga-
and is negotiating a grant with AID to provide community
health centers and sewer systems in the provinces of Ancash
and La Libertad, located in the northern region.

APPENDIX V                                      APPENDIX V

      Accion Comunitaria del Peru was founded in 1969 as
a new division of Accion International of New York.
Initially, its efforts focused on a Lima squatter settle-
ment.   Its current projects are located in various squatter
settlements in Lima and in several towns on the north coast.
Accion Comunitaria works to further education and socio-
economic and physical develcpment, primarily in squatter
settlements.   Its projects in 1976 included the formation
of housing production, consumer and savings cooperatives,
social property enterprises, promotion of school con-
struction, and self-help housing.

     Both CARE and Accion Comunitaria efforts are coordi-
nated through the Government Agency for Support of Social

     According to an AID official in Peru, activities of
other PVOs have been weak because of the qovernment's sus-
picion of their involvement in the politically unstable
squatter settlements.  The government has also taken over
a major share of private sector enterprises that once were
a significant source of contributions to these organiza-


     Major donor countries and multilateral organizations
meet together formally every 18 months or so at conferences
sponsored by the World Bank Consultative Group on Peru to
discuss the Peruvian economic situation and to consider
the government's list of development projects that need
external financing.

     At the conference in April 1975 the conferees sug-
gested that the government revise its development project
list and recommended that certain sectors be emphasized
to benefit the people of Peru.  One donor country cited
project implementation problems in Peru and indicated it
was not planning t) finance projects presented in the list.
The conferees also determined that Peru did not have a
financial problem with its medium-and long-term debts, but
suggested that Peru pursue a more stringent foreign debt
management policy to help assure that decisions are con--
sistent with national priorities.
     The following table shows the government's intended
allocations, by sectors, on the project list presented
to the donor countries and multilateral organizations
at that time.

                                                        APPENDIX V

              Estimated external   financing

                            1975      1976       1977

                            ------ (percent)-----

       Agriculture           8.2      9.7       16.2
       Fisheries             3.5      0.6        1.0
       Mining               11.6     26.5       47.7
       Industry             32.4     42.6       34.7
       Power                12.2      9.5         -
       Transport            24.5      7.8         -
       Communications        0.3      2.0         -
       Water and sewers      3.9        -          -
       Education             2.0      0.6         -
       Health                1.4      0.7        0.4

                           100.0     0         100.0
     The National Planning Institute also
                                           holds country-
level annual meetings with donor countries
projects that need grant funds.             to discuss
used to surface problems between donor conference is also
                                        countries and
host-country agencies, and the Institute
                                          attempts to re-
solve such problems.   An AID o-'icial stated that the meet-
ings lacked credibility because the
                                     Peruvian ministries
were not represented.   For example, an area that the In-
situte considers priority 1 may be
                                    priority 10 at the
affected ministry.   The Institute is attempting to correct
this situation.

     The Ministry of Housing and Construction
to streamline the internal coordinating        is attempting
                                         mechanism with the
Central Mortgage Bank and the Peruvian
                                        Housing Bank to
facilitate increased shelter for Peruvians.

APPENDIX VI                                                                 APPENDIX VI

                            TOTAL HIG AUTHORIZATIONS

                               AT DECEMBER 31,    1976

                                      Authorized            Authorized     Authorized
                                         and                   not            and
       Latin America               under contract        under contract    fully paid

        Argentina                   $ 39,722,000          $ 14,600,000          -
        Bolivia                          9,600,000                 -
        Caribbean islands                    -                 2,000,000
        CABEI (Central
         American Bank for
         Economic Integration)          44,000,000            23,000,000
        Chile                           34,690,000            25,000,000
        Colombia                         26,867,000                -
        Costa Rica                        6,600,000                -            -
        Dominican Republic               19,035,000                -            -
        Ecuador                           7,400,000                -            -
        El Salvador                      11,049,250                -            -
        Guatemala                         1,500,000                -       $6,317,000
        Guyana                            6,000,000                -            -
        Honduras                         10,581,332                -            -
        Jamaica                          25,602,000                -            -
        Mexico                           14,500,000                -            -
        Nicaragua                        15,926,000           10,000,000        -
        Panama                           24,953,000            3,400,000        -
        Paraguay                              -                4,000,000        -
        Peru                             46,022,000           15,000,000        -
        Venezuela                        51,463,100                -            -

                                    $395,510,682          $ 97,000,000     $6,317,000


        Botswana                    $         -                2,600,000
        Cameroon                              -               10,000,C00
        Fthiopia                          5,000,000
        Ivory Coast                      12,032,800            8,400,000
        Kenya                            16,994,000
        Liberia                               -                5,000,000
        Senegal                           5,000,000                -
        Zaire                            10,000,000                -
         Zambia                               -               10,000,000

                                     $ 49,026,800         C 36,000,000


         China (Taiwan)              $    4,794,000              -
         Korea                           75,000,000       $ 15,000,000
         Thailand                         4,961,000        -

                                        $84,755,000        $15,000,000

        Europe and Near East

         Iran                        $ 25,000,000         S
         Israel                       125,000,000
         Portugal                      20,000,000             20,000,000
         Tunisia                       14,992,800             10,000,000

                                     $184,992,600          $ 30,000,000

           Total All Regions         $714,285,282          $178,000,000     $6,317,000

        COMBINED TOTAL                                     $898,602,282

        Source:     AID/Office of Housing

                                                                                                                                                           APPENDIX VII

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APPENDIX VIII                                        APPENDIX VIII

List of Abbreviations

   ECA     --   Economic   Commission   for   Africa
   ECE     --   Economic   Commission   for   Europe
   ECLA    --   Economic   Commission   for   Latin America
   i'CWA   --   Economic   Commission   for   Western Asia
   ESCAP        Economic and Social Commission for Asia
           --     and the Pacific
  FAO      --   Food and Agriculture Organization
  ICAO     --   International Civil Aviation Organization
  ILO      --   International Labor Organization
  UNDP     --   United Nations Development Program
  UNEP     --   United Nations Environment Program
  UNESCO        United Nations Educational, Scientific,
           --     and Cultural Organization
  UNFPA         United Nations Fund for Population
           --    Activities
  UNICEF --     United Nations Children's Fund
  UNIDO         United Nations Industrial Development
           --    Organization
  WFP      --   World Food Program
  WHO      --   World Health Organization
  WMO      --   World Meteorological Organization

APPENDIX IX                                           APPENDIX IX



                  DISCUSSED IN THIS REPORT

                                            Tenure of Office
                                            From          To

                      DEPARTMENT OF STATE

    Cyrus R. Vance                    Jan.     1977    Present
    Henry A. Kissinger                Sept.    1973    Jan.  1977


    W. Michael Blumenthal             Jan.    1977     Present
    William E. Simon                  May     1974     Jan.  1977


    John J. Gilligan                  Mar.    1977     Present
    John E. Murphy (acting)           Jan.    1977     Mar.  1977
    Daniel S. Parker                  Oct.    1973     Jan.  1977