Introducción

Government intervention on rural credit markets has figured prominently both in developed and developing countries over decades. For this reason, it is no sur- prise that there is a considerable amount of literature dealing with this topic. It is not the aim of this section to do justice to all these contributions. However, I want to sketch at least the major arguments that might be relevant for the subse- quent analysis in this monograph.

In the Western world, governmental intervention on credit markets is a wide- spread instrument to support national farming sectors. State-administered loan programmes for agriculture include the ‘cooperative Farm Credit System’ (cre- ated in 1916) and the ‘Farm Services Agency’ (formerly the ‘Farmers Home Administration’, created in the 1940s) in the U.S. (BARRY and ROBISON 2001, p.

557), and the ‘Einzelbetriebliches Förderprogramm’ (farm support programme, founded in 1973) or the ‘Agrarkreditprogramm’ (agricultural credit programme) in Germany (LANDWIRTSCHAFTLICHE RENTENBANK 1996).8 The support meas-

ures in these programmes usually encompass interest subsidies, public grants, or public loan guarantees, or a mixture of these elements.

In developing countries, credit programmes sponsored by governments or inter- national donor organisations to boost agricultural production became of major importance after World War II (for an overview see ADAMS 1995). Many of

these programmes were characterised by strict interest controls or ceilings on loan interest rates, additional subsidisation, and extensive loan targeting. The latter was pursued by making credit access conditional on the use of certain in- put or technology packages, supervision, or the affiliation with specific borrower groups. More recently, under the heading of ‘rural microfinance’, there was a shift towards public support of financial institutions serving various types of ru- ral clientele, including women or small-scale enterprises in general.

After the implementation of market reforms, many governments in Central and Eastern European Countries (CEECs) and the Former Soviet Union (FSU) also introduced new, seemingly market conform intervention measures. Specific problems of these countries include the accumulation of debts inherited from former state enterprises, absence of mortgage facilities due to lacking land regis- ters, and low farm profitability as a result of deteriorating agricultural terms of trade (SWINNEN and GOW 1999). However, the policy instruments used resemble

8

The latter two have now merged as ‘Agrarinvestitionsförderungsprogramm’ (agricultural investment support programme), see BEUERMANN et al. (1996, p. 152).

those in other countries, for example loan guarantees, interest subsidies, or the establishment of specialised lending institutions for agriculture (for an overview see OECD 1999).9

It needs hardly any explanation that public support on credit markets is usually welcomed by the beneficiaries. Likewise, from the view of the policymaker, it is a popular, politically expedient, and often relatively easily administered policy instrument (BARRY and ROBISON 2001, p. 559). To the contrary, economists

tend to be much more sceptical with regard to the economic rationale of such programmes. However, serious and comprehensive evaluation of credit pro- grammes is an often costly, methodologically difficult, and sometimes politi- cally undesired task. Despite the more critical attitude of most economists, there is neither a uniform opinion with respect to the reasonable extent and usefulness of government intervention on credit markets in general nor on the impact of specific policy measures on the performance of supported enterprises and pro- jects. Some of the critical issues in evaluating these programmes as stressed in the literature may be summarised as follows:10

1. It is often claimed that governmental credit support helps to improve the

competitiveness and the income generation potential of farm enterprises.

However, ex-post evaluations of state administered credit programmes have shown that they often fail to achieve their objectives. Beneficiaries frequently neither improved the efficiency of their operations vis-a-vis the non- beneficiaries, nor were incomes significantly increased. It seems hence ques- tionable whether government agencies are more successful in selecting prom- ising and economically viable borrowers for their loan programmes than commercial banks. Arguments in favour of these programmes stress their im- portance for supplementing rural incomes. However, distributional effects of loan programmes are often such that existing inequalities are even rein- forced.11

2. If the problems of credit access are related to a lack of collateral, interest subsidies will not lead to an improvement. Public loan guarantees have been

9

A general discussion of transition-specific problems of rural finance can be found in BLOMMESTEIN (1998), KOESTER (2001), and SCHRIEDER and HEIDHUES (1998).

10

For overviews of these arguments see ADAMS (1995), BRAVERMAN and GUASCH (1993),

PEDERSON and KHITARISHVILI (1997), and SWINNEN and GOW (1999).

11

See for example BRÜMMER and LOY (2000) and STRIEWE et al. (1996) on Germany.

ADAMS et al. (1984) and VON PISCHKE et al. (1983) contain numerous cases from develop-

proposed as a solution in these cases, since they are supposed to lift credit constraints induced by collateral requirements. However, they may increase the level of defaulting loans due to incentive problems of their own. These may result from the fact that banks have less incentive to properly screen bor- rowers, a kind of moral hazard by banks (KRAHNEN and SCHMIDT 1994, pp.

70-72).

3. Low interest rates and other types of preferential treatment have been pro- posed as a financial buffer for enterprises in an economically difficult transi- tion period. However, favourable loan terms and soft budget constraints might also give wrong signals to enterprises which need restructuring, par- ticularly if they allow an undue postponent of that task (PEDERSON and

KHITARISHVILI 1997, p. 27)

4. Interest subsidies and other government expenditures on loan support might in fact lead to higher interest rates if they induce increasing government bor- rowing. This runs counter to the goal of reducing interest rates.

5. The provision of preferential funds may often involve a lot of bureaucracy and hence imply a substantial transaction cost component, which has the character of a fixed cost for the borrower. Smaller loans therefore become relatively more expensive, which leads to the perverse effect of further re- stricting small farmers’ credit access, just the problem the policy was meant to alleviate. Similar effects result as a consequence of interest rate ceilings

(GONZALEZ-VEGA 1977).

6. The fungibility of credit usually makes specific loan targeting impossible. Subsidised funds may substitute for own funds, thus implying little addition- ality as a result of government intervention. Furthermore, funds may be di- verted to other purposes which were unintended by the government (VON

PISCHKE and ADAMS 1980).

7. Preferential loans are often claimed to improve the access to finance for cer- tain groups of borrowers. However, in the longer run they are detrimental to the development of alternative financing sources, such as trade credit or the formation of self-help groups. They result in little demand for loans at market rates and therefore reduce incentives to become engaged in any innovative activitiy to raise credit.

8. Existing financial intermediaries are often economically strangled by repres- sive financial policies which impose low interest rates on loans and deposits,

since intermediaries are unable to attract sufficient funds and are not allowed to demand cost covering prices for their services.

9. Support programmes starting as short-term responses to specific situations of crisis frequently become permanent programmes because they (a) create ex- pectations on the part of the beneficiary that they will be continued or re- peated, (b) create their own constituency and are for political reasons difficult to remove afterwards, and (c) become incorporated into prices for less mobile production factors such as land and hence raise production costs for new pro- ducers, and therefore demands for their continuation (SWINNEN and GOW

1999, p. 39).

Overall, the experience suggests that there are many potential pitfalls for gov- ernment intervention on rural credit markets. Even so, the policy recommenda- tions drawn from this experience span from suggesting slight modifications of existing programmes in order to avoid the most serious problems up to a total abolishment of governmental credit promotion.12 This corresponds with the am- biguity of policy recommendations based on theoretical reasoning, as outlined in the previous section. It is no surprise that the basic positions concerning gov- ernment intervention on credit markets are widely varying, as the following two quotes may illustrate:

“There is a role for the state in financial markets; it is a role motivated by perva- sive market failures. In most of the rapidly growing economies of East Asia gov- ernment has taken an active role in creating financial institutions, in regulating them, and in directing credit, both in ways that enhance the stability of the econ- omy and the solvency of the financial institutions and in ways that enhance growth prospects” (STIGLITZ 1994, p. 50, italics in the original).

“In summary, there may be good arguments for intervention, and some may be based on market failure. But as one unpacks each argument, the realization grows that, given the current state of empirical evidence on many relevant ques- tions, it is impossible to be categorial that an intervention in the credit market is justified. Empirical work that can speak to these issues is the next challenge if the theoretical progress on the operation of rural credit markets is to be matched by progress in the policy sphere” (BESLEY 1994, p. 45).

A general lesson is hence that serious policy advice will have to take the specific conditions within a country or region into account. The following section aims at summarising the current wisdom on the Polish case.

12

In Germany, the first position seems to be taken for example byBEUERMANN et al. (1996)

and MÜLLER and P.M. SCHMITZ (1996), whereas the latter standpoint is represented by