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the worst, and respond accordingly in the next elections. The moneys to be spent through the Fund
are to be obtained through needed reforms in the present land legislation. However, if the public fears
that the money will be squandered, it will not support those needed reforms. The draft provisions for
the fund should therefore be modified not only to target fund activities more appropriately, but also
in order to ensure support for the other needed land policy reforms.
4. Operation of the LDF
How can the fund make its investment start sooner and go farther, ensure that the
disadvantaged participate, and ensure that land it develops is actually tilled? The Privatization Agency
might well work closely with the LDF in order to show results quickly. For instance, an existing but
unproductive state farm might be divided partly in four commercial family farms. Each would have
to pay an annual ground rent at about the same level as a private owner would charge a tenant. These
would be auctioned to the highest bidder while the rest of the state farm is split into another 40
smallholder plots.'8 Their ground rent could be a little lower per acre, as a subsidy.
These smaller farms would also be auctioned to the highest bidders; but for them, bidding
would be limited to persons owning no other land and who are deemed disadvantaged. For example,
bids might be invited from persons who have been declared redundant in state or parastatal
employment or fear that they soon will be. In order to bid, they should show some knowledge of
farming and promise that they will move onto and cultivate the parcel if their bid wins. Retrenched
employees should be allowed to use their separation pay toward payment for the small leaseholds.
However, the LDF might also identify qualified disadvantaged persons, such as landless farm laborers,
who did not have separation pay to help them bid. They could be given "seed money" grants as initial
working capital, though they would still be required to make some kind of down payment in order to
show that they have some capacity to save, and that they understand that the parcels are not gifts, as
previous government programs have been. 19 In both cases, provision could be made for payment of
at least 25 percent of the bid price in cash, with the balance due over 10 years (commercial farms)
or 15 years (small parcels), at interest. Interest and repayment should be calculated each year in the
current value of maize or other principal crops of the area in order to avoid decapitalization of the
LDF through inflation.
Likewise, the sale should include a reversion clause providing that the LDF would inspect all
land sold one year after sale, to verify that it is in fact in cultivation and determine whether the owner
did in fact live on it. If not, the lease should include full authority for the fund to nullify the sale,
evict the unsatisfactory "buyer," and sell to another eligible farmer as part of its next auction. Where
specific conditions made the delay justifiable, the fund would make a public finding to that effect, and
give an extension of six months or a year to that buyer.
18 Some team members question the division of large state farms into part-commercial and part-emergent or peasant
farms. Others feel that diversity has merit, that each can learn from the other, and that an open land market will in time
determine the best mix.
19 This example is built on a national land fund recently created in Honduras. That fund uses payments made by land
reform and squatter titling program beneficiaries to help landless farm laborers buy small parcels in the land market. No
one who owns more than 10 ha, including the land being bought, may receive credit from that fund. A 20 percent down
payment is required. See Strasma, Meza, and Umana 1993.