Summary: In response to a congressional request, GAO provided an overview of the issues confronting the Farm Credit System, focusing on internal problems that have contributed to the system's financial problems.
GAO noted that: (1) the system's loan portfolio quality deteriorated significantly during 1985, and its surplus declined by almost half; (2) the system incurred an operating loss of over $1.9 billion in 1986; and (3) the Farm Credit Administration believes that the system's problems will continue. GAO found that these problems resulted from: (1) decreasing agricultural income; (2) falling land values; (3) a steep decline in market interest rates; (4) poor management practices and decisions; and (5) a complex and decentralized organizational structure, consisting of hundreds of separate and distinct legal entities. GAO believes that, to overcome its problems, the system needs to: (1) develop an organizational structure that would establish management accountability and responsibility for systemwide actions; (2) lend at competitive interest rates, while generating sufficient income to arrest its financial deterioration; (3) create an effective credit management process; and (4) retain investor and borrower support. GAO also believes that, as long as the system's debt continues to be the joint liability of all of its components, it must establish a centralized source of accountability to promulgate binding uniform standards of business conduct.
