Document of r n n The World Bank FILE CUOY FOR OFFICIAL USE ONLY Report No. P-24hL4-HO REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF HONDURAS FOR AN INDUSTRIAL CREDIT PROJECT January 11, 1979 This document has a restricted distribution and may be used by recipients only in the performance of their offlcial duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENT Currency Unit = Lempira (L) L 2.00 = US$1.00 L 1.00 = US$0.50 ABBREVIATIONS BANAFOM - Banco Nacional de Fomento (National Development Bank) BCH - Banco Central de Honduras (Central Bank of Honduras) CAAFIID - Central American Agreement on Fiscal Incentives to Industrial Development CABEI - Central American Bank for Economic Integration CACM - Central American Common Market CDI - Centro de Desarrollo Industrial (Industrial Development Center) CET - Common External Tariff CIDA - Canadian International Development Agency COHDEFOR - Corporacion Hondurena de Desarrollo Forestal (Forestry Development Corporation) CONADI - Corporacion Nacional de Inversiones (National Investment Corporation) FONDEI - Fondo Nacional de Inversiones Industriales (National Industrial Development Fund) IDB - Inter-American Development Bank UNDP - United Nations Development Programme UNIDO - United Nations Industrial Development Organization USAID - United States Agency for International Development FISCAL YEAR January 1 - December 31 HONDURAS FOR OFFICIAL USE ONLY INDUSTRIAL CREDIT PROJECT LOAN AND PROJECT SUMMARY Borrower: Republic of Honduras Amount. US$15.0 million equivalent Project Executing Agency: National Industrial Development Fund (FONDEI), established and administered by the Central Bank to make medium- and long-term loans for industrial subprojects through the Forestry Development Corporation and other financial intermediaries. Lending Terms: 20 years, including 5 years of grace at an interest rate of 7 percent per annum. Relending Terms: Government would on-lend the proceeds of the proposed Bank loan to FONDEI on the same terms as the Bank loan. FONDEI would lend to financial intermediaries in local currency at 7-8 percent interest for subloans to small scale enterprises, and 9 percent for subloans to larger ones; financial intermediaries would on-lend FONDEI funds to subborrowers at no more than 12 percent interest, with repayment terms of up to 15 years for general industry loans and up to 17 years for forestry loans, including up to 3 years of grace. The foreign exchange risk would be carried by the Central Bank which would charge a fee of 0.5 percent per annum on the outstanding balance of subloans. Project Description: The project's principal objective is to establish an institu- tional capacity to select, appraise and finance efficient industrial projects. Medium and long term credit, which is in short supply, would be made available to financial intermediaries through FONDEI to finance fixed assets, permanent working capital, related services and preinvest- ment studies. Financial intermediaries would receive incentives to lend to smaller enterprises. Special features would be provided to facilitate lending for wood industry projects. The project also includes the services of consultants to train and advise various institutions on appraisal and supervision of subloans, and to improve the Industrial Development Center. The project faces no special risks, although close initial supervision may be required since the institutional arrangements for project adminis- tration are new. F This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - ii - Estimated Cost: US$ Millions Local Foreign Total Industrial Credit 13.4 15.0 28.4 Sources of Financing: US$ Millions Percentage Bank Loan 15.0 52.8 Central Bank 5.0 17.6 Intermediaries 2.8 10.0 Subborrowers 5.6 19.6 28.4 100.0 Disbursements: Bank FY 1979 1980 1981 1982 1983 Annual 1.1 2.9 4.3 3.9 2.8 Cumulative 1.1 4.0 8.3 12.2 15.0 Staff Appraisal Report: 2199-HO of December 29,1978. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF HONDURAS FOR AN INDUSTRIAL CREDIT PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Honduras for the equivalent of US$15.0 million for an industrial credit project. The loan would have a term of 20 years, including 5 years of grace, with interest at 7 percent per annum. The proceeds of the loan would be placed in the Central Bank's National Industrial Development Fund (FONDEI) and relent through financial intermediaries to the final bene- ficiaries for up to 17 years, including up to three years of grace, with interest at no more than 12 percent per annum. PART I - THE ECONOMY 1/ 2. A report entitled "Memorandum on Recent Economic Development and Prospects of Honduras" (1856-HO) was distributed to the Executive Directors on January 10, 1978. The main findings of the Report are summarized below. Country data sheets are attached as Annex I. Long-term Development Trends 3. The long-term growth rate of the Honduran economy has been exceed- ingly low. Between 1950 and 1975, real per capita GNP grew by only 1 percent a year. Honduras' per capita GNP in 1977, US$450, is one of the lowest levels in the Western Hemisphere. Honduras' poverty is also evident from a variety of indicators. Malnutrition is severe: about three-quarters of pre-school children are believed to suffer from protein and caloric deficiencies, and infant mortality is estimated at 118 per thousand live births. It is esti- mated that roughly 60 percent of the population has no access to safe piped water and about 75 percent lives without any form of sanitary waste disposal. Furthermore, these are country averages which conceal substantial regional disparities, as living conditions in the rural areas, which account for about two-thirds of the population, are much poorer than in the cities. 4. A major reason for Honduras' poor growth performance has been the continued dependence of the economy on the production and export of a few agricultural commodities, especially bananas, whose prices depend on a fluc- tuating world market situation and whose output may be greatly influenced by weather conditions. The latter was dramatically illustrated when 1/ This section is substantially unchanged from the section on the economy in the President's Report for the Nispero Power Project (P-2403-HO) dated November 1, 1978. extensive destruction of the banana plantations by Hurricane Fifi in 1974 reduced the volume of bananas exported in 1975 to about one-half the level of 1973 and contributed to a drop in per capita income of about 3 percent. 5. There are many reasons for the continued dominance of bananas in the Honduran economy. Known mineral deposits are not extensive. A serious lack of basic infrastructure and deficient development policies in the past have left Honduras' agricultural resources underutilized. In addition, the mountainous topography of the country has made the expansion of the road network slow and costly. There has been progress, however, since 1960, and major achievements include the establishment of a basic transportation net- work connecting the main population centers, and a considerable expansion of electric power service. 6. Much land suitable for agriculture is still unutilized, and the country has sizeable forest resources, but agricultural output only grew at about 2 percent yearly between 1950 and 1975. Uneven land distribution and deficient credit, technical services and development programs have kept agricultural growth far below its potential. Government Development Efforts 7. Since 1972, development efforts have increased substantially and several measures have been taken to lay the basis for the current improved economic outlook over the longer term. A land reform program which began in December 1972 aims at greatly improving land utilization as well as increasing the income and employment of the poorest peasants through the transfer of unutilized or poorly utilized land from large landowners to landless rural families. Another major policy development was the national- ization of timber rights in January 1974. A new forestry law established guidelines for private sector participation in forestry development and created the Corporacion Hondurena de Desarrollo Forestal (COHDEFOR). In the same year, the Government established the Corporacion Nacional de Inversiones (CONADI) to promote and finance industrial projects. Another major achieve- ment was an improvement in Government planning and executing capacity, parti- cularly in infrastructure, which has resulted in a substantial increase in public fixed investment from 3.3 percent of GDP in 1972 to 6.6 percent in 1974 and over 8 percent in 1977. The Government has also made an effort to increase investment in the social and productive sectors and strengthen public finances through tax reforms and better tax administration. A 1975 tax reform made the tax on coffee exports an ad-valorem tax with marginal rates ranging from 10 percent to 20 percent depending on coffee prices, substituted a 3 percent value added tax for the sales tax, and raised the tax rates on beer, cigarettes and liquor. Recent Economic Developments 8. While Honduras was adversely affected by one of the worst hurricanes in its history in 1974, it had also to contend with the oil price rise of that year and the later OECD recession. As a result, during 1974-75, total GDP remained almost stagnant, severe balance of payments difficulties arose and the country's savings capacity was seriously reduced. Import prices rose much - 3 - faster than export prices, and the terms of trade deteriorated substantially before recovering in 1976. The resource gap, which was equal to about 1 percent of GDP during 1972-73, averaged 11.6 percent during 1974-75. The rise in consumer prices, which had averaged 2.7 percent a year between 1966 and 1973, accelerated to 13 percent in 1974 before declining to 8 percent in 1975. 9. A high level of public investment, the gradual recovery of banana production and the doubling of coffee export prices were the major factors responsible for an improvement of the economic situation in 1976. Real GDP grew at about 6.6 percent and the price level increased by only 5 percent. Partly as a result of higher coffee prices, merchandise export earnings grew by about 31 percent in current terms over 1975. Government tax revenues increased from 10.8 percent of GDP in 1972-73 to 12.8 percent in 1976 and, while there was a substantial increase in public current expenditures, public savings were estimated at 2.7 percent of GDP in 1976 compared to an average 2.2 percent in 1972-73. However, as investment expenditures for hurricane reconstruction and development purposes were stepped up considerably, the overall deficit of the Central Government increased from 2.5 percent of GDP in 1970 to 4.9 percent in 1976. 10. In 1977, economic expansion continued with real GDP growth estimated at 8 percent, due mainly to the expansion of public investment (about 17 per- cent), and to a doubling of coffee prices from the 1976 level. The rate of inflation accelerated to 8.6 percent owing to: (i) higher liquidity brought about by coffee sales, (ii) rising import prices, (iii) poor domestic crops of basic grains. The balance of payments had a current account deficit of US$121 million, somewhat above the US$109 million recorded in 1976, mainly due to the rapid increase of imports and the retention of coffee sales in the second semester of 1977. Foreign exchange reserves, however, increased by about US$40 million, as a result of greater disbursements of foreign loans. With regard to the public sector, Central Government current revenues reached 16.4 percent of GDP, while public savings increased to 3.3 percent of GDP. The total tax burden increased to 14.5 percent of GDP. Growth Prospects 11. The growth prospects for 1979-82 are good. Real GDP is expected to increase at an annual rate of about 6 percent, barring natural disasters. Real exports should be able to grow at about 7 percent a year, reflecting continued recovery of banana production from the September 1974 hurricane, increased coffee production owing to higher yields and new plantings, expan- sion of sugar production, an increase of lumber exports made possible by the currently planned expansion of sawmill capacity, increased beef production (also the result of an ongoing program), expansion of fruit and vegetable production for export and promotion of tourism. Coffee prices, although they have declined from the unusually high 1977 level, are expected to remain well above 1975 levels in real terms. In addition, the Government plans to accelerate economic growth over the medium-term through an ambitious public investment program designed to alleviate the most significant bottlenecks to the country's development process. The presently designed development strategy calls for large public investments in infrastructure, in export diversification through forestry development, industry and tourism, and in agriculture to implement the agrarian reform program and increase productivity. - 4 - 12. The expansion of the public sector's investment expenditures together with the necessary increase of complementary current expenditures creates a need for additional increases in taxes and the tariffs of public enterprises in the 1979-82 period as well as for careful control of other current expendi- tures. The Government is considering a series of proposals to mobilize addi- tional domestic resources in support of its development program. 13. While real exports are expected to increase at about seven percent a year during 1978-82, Honduras' terms of trade are expected to deteriorate. As the import needs of the economy expand, in particular the imports related to the investment program, the current account deficit is expected to increase to US$200 million by 1981 and US$250 million in 1985, and large capital inflows will be required. The bulk of the external financing requirements will have to be met through public borrowing. Honduras will require an estimated total gross capital inflow of US$900 million for the six-year period 1977-82, of which about US$255 million will be disbursed from commitments made through the end of 1976. 14. Honduras' public external debt repayable in foreign currency is esti- mated to be US$436 million at the end of 1977, US$787 million if undisbursed commitments are included. In the past, Honduras managed to keep its external debt service ratio fairly low, because foreign loans were almost all on concessionary terms. It is important that the country continue to borrow on reasonably soft average terms, in view of the country's poverty, the fact that it will continue to depend on exports of a few commodities with volatile price prospects, and because, historically, natural disasters have sharply reduced the volume of exports every few years. Even if Honduras is successful in obtaining about two-thirds of the financing it needs for its investment program on terms similar to those offered by the international lending agencies, the debt service ratio is likely to rise from about 7.1 percent in 1977 to about 13 percent by the mid-1980s. Continued maintenance of Honduras' credit- worthiness will depend on the efficiency with which it chooses and implements its major public investment projects; careful, continued demand management, including cautious use of nonconcessionary borrowing; and on export promotion policies. The Bank will be carefully monitoring Honduras' performance in this regard; a mission is scheduled for January 1979 to review necessary Government actions and policies in these fields. 15. Although the IDB was Honduras' largest creditor as of December 31, 1977 about three fourths of its total loans disbursed and outstanding is repayable in local currency, so that IDB's share of the disbursed public debt repayable in foreign currency of US$436 million is only 5.4 percent. The Bank Group holds 27.5 percent of the disbursed public debt outstanding repayable in foreign currency. CABEI accounts for 18.5 percent of the total, the US Government for 17.4 percent, Venezuela for 12.3 percent, privately held debt for about 15.2 percent and other debt for 3.7 percent. 16. In terms of the sectoral thrust of lending by the principal external agencies apart from the Bank, AID has concentrated on agriculture and educa- tion, IDB on transport, agriculture and forestry, health, education and - 5 - housing, and CABEI on transport, industry, power housing and tourism. It is expected that AID and CABEI will continue lending primarily in the same sectors in the future, while IDB would concentrate on agriculture, forestry, transport, industry and power. The lending of the external agencies from 1950-1977 was as follows: IBRD IDA AID IDB CABEI TOTAL Total Gross Lending 1950-1977 177.5 53.2 113.4 294.7 199.2 838.0 Gross Lending 1950-1965 25.9 12.5 26.7 27.2 8.1 100.4 Gross Lending 1966-1977 151.6 40.7 86.7 267.5 191.1 737.6 Sectoral Lending 1966-1977 Transport 88.3 5.0 - 32.1 74.7 200.1 Power 60.3 9.5 - - 20.9 90.7 Telecommunications - - - 14.7 10.1 24.8 Education 3.0 3.0 10.5 17.4 - 33.9 Health - - 2.6 33.2 10.2 46.0 Housing - - 5.0 12.5 16.5 34.0 Agriculture and Forestry - 23.2 48.5 155.4 4.1 231.2 Industry - - 5.0 2.2 33.2 40.4 Other - - 15.1 - 21.4 36.5 PART II - BANK GROUP OPERATIONS IN HONDURAS 1/ 17. Beginning with a loan of US$4.2 million for roads in 1955, Honduras has to date received eighteen Bank loans totalling US$218.2 million and ten IDA credits totalling US$57.6 million, both net of cancellations. The most recent Bank Group operations are the US$5 million credit for education (approved in March 1978), the US$10.5 million Guayape Regional Development Loan (approved in May 1978) and the US$30.5 million Nispero Power Loan (approved in November 1978). As of October 31, 1978, a total of US$77.1 million remained to be disbursed on twelve operations for ports, electricity, roads, livestock, education and agricutural credit. The proposed loan would raise the total of Bank Group assistance from US$275.8 million to US$290.8 million. Execution of projects financed by the Bank Group has, on the whole, been satisfactory. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of October 31, 1978, as well as notes on the execution of on-going projects. 18. In the past, Bank Group lending was heavily concentrated in trans- port and power, where inadequate facilities hampered the development of the country. The First Livestock Development Credit approved in 1970, how- ever, marked a first step towards the diversification of our lending. Since then, this diversification has continued through operations for a Second Livestock project; a First Education project, which included as major components primary and secondary teacher training schools and support for 1/ This section is substantially unchanged from the section on Bank Group Operations in the President's Report for the Nispero Power Project (P-2403-HO) dated November 1, 1978. vocational training centers and the national agricultural secondary school; a First Agricultural Credit project to finance livestock and crop development with emphasis on assisting agrarian reform settlements through investment credits and a substantial technical assistance program; a Second Education Project to help finance rural primary schools and agricultural vocational education; and the Guayape Regional Development Project to assist small farmers and agrarian reform settlements in the Guayape Valley. The proposed Industrial Credit loan would be the Bank's first for industrial development in Honduras. 19. In future lending to Honduras, we plan to support the priorities of the Government's investment program by giving increased emphasis to investment in agricultural and rural development to support the agrarian reform. We would also help finance activities to strengthen the balance of payments by reducing Honduras' reliance on banana production, while continuing to lend for physical infrastructure where there are still deficiencies to be overcome. A follow-on to the First Agricultural Credit Project and additional rural development projects, now being identified, are planned. Processing of a proposed loan for tourism development is well advanced, and Bank support is also being considered for a COHDEFOR pulp and paper project. In transport, we plan to place emphasis on assisting the construction of a network of feeder and access roads to support the Government's agricultural program. We also hope to continue financing power development, in addition to the recently approved Nispero hydro power project, through participation in the large (US$487 million) El Cajon hydroelectric project which is scheduled to come on stream in the mid-1980s. It is expected that the Bank, IDB and CABEI will contribute to the El Cajon effort, and the Bank has been helping Honduras contact bilateral sources to seek additional concessional financing. 20. It is expected that the Bank Group share of total external public debt disbursed and outstanding will drop from 27.5 percent in 1977 to 26.4 percent by 1981 because of increasing lending by other external agencies and a slight increase in commercial borrowing. The IBRD share of debt service in 1976 was 23.4 percent and is projected at about 24.3 percent by 1981. 21. Until recently, IFC's activities in Honduras included a 1964 loan and a share subscription, of US$295,000 and US$82,500 respectively, in a tannery, Empresa de Curtidos Centroamericana, S.A. (ECCASA); and a US$75,000 share subscription in a pilot promotional company, Compania Pino Celulosa de Centro America (COPINO) in 1969. COPINO was established to develop an indus- trial project based on timber from the Olancho Forest Reserve, but a series of obstacles to project development arose, and efforts to go forward with it were virtually halted in 1971. While current plans for the Olancho forest industries project do not include a role for COPINO, the IFC is assisting the Government in creating an organizational structure for the project and selecting a technical partner. In December 1977 the Executive Directors approved a US$9.0 million loan, and up to US$1.0 million equity investment, for Textiles Rio Lindo, S.A. de C.V. for plant expansion aimed at almost doubling its production capacity. PART III - THE INDUSTRIAL SECTOR IN HONDURAS Structure 22. Honduran industry is less developed than that of the other Central American countries and the industrial base is relatively small. Manufacturing industry accounts for only about 17 percent of GDP, 23 percent of total merchandise exports, and employs about 10 percent of the labor force. Indus- trial value added grew by 3.8 percent per year (approximately the same rate as the economy) during the 1960s. Available information indicates that employment in industry increased by the same 3.8 percent on average annually during this period. 23. The production of heavy intermediate and capital goods remains minimal. The processing of local raw materials, mainly agricultural and forest products, continues to represent almost two-thirds of industrial value added. Intermediate goods, composed mainly of chemicals, petroleum, rubber and non-metallic minerals, constitute about 20 percent of industrial value added, and artisanal products about 16 percent. 24. Industrial enterprises in Honduras are relatively small. According to the 1975 industrial census, over half of the principal manufacturers (those producing the bulk of industrial value added) employed fewer than 20 workers. Most industrial employees are involved in consumer goods production. 25. The rather low level of development indicated by these statistics reflects the various domestic constraints which have impeded Honduran industry. The domestic market has been small and has not expanded rapidly. In the past, transport and power facilities were inadequate. There has been a shortage of qualified managers, technicians and semi-skilled workers as a result of widespread illiteracy and limited training facilities. The adult literacy rate is 53 percent and the educational level of the labor force is also low, e.g. 41 percent of Honduran workers in 1974 had no formal education. Voca- tional training systems are not highly developed. For these reasons the Government has been substantially increasing education expenditures, assisted by Bank Group operations approved in 1974 and 1978. 26. The relative backwardness of Honduran industry meant also that it was unable to take full advantage of the opportunities offered by the creation of the Central American Common Market (CACM) in 1961. CACM intra-regional trade, largely in manufactured goods, increased rapidly from US$30 million in 1960 to US$252 million in 1968. While annual Honduran exports to its CACM partners rose from US$8 million to US$30 million over this period, its share of intra-regional trade fell from 27 percent to 12 percent. The country's trade balance with the CACM became increasingly negative in the 1960's and its manufacturing growth rate in 1960-68 (unlike that of the rest of Central America) was lower than during the 1950's. Its comparatively low level of development also made it difficult for the country to attract a substantial share of the investments which followed the creation of the Common Market. Despite the virtual absence of restrictions on private foreign investment in - 8 - Honduras, foreign companies interested in establishing manufacturing facilities tended to locate in the more developed Central American countries. Finally, in 1970, a year after hostilities with El Salvador, Honduras withdrew from the CACM and reduced or canceled some of the incentives to industry that had been enacted pursuant to the CACM agreement. 27. The last few years, however, have seen important and promising changes in the industrial sector. The industrial growth rate almost doubled over the pace of the 1960s averaging an annual rate of 7 percent in 1970-77. Faster growth was facilitated initially by the reduction in competition from imports when Honduras left the CACM. Subsequently, Honduras signed bilateral agreements with each of the CACM countries except El Salvador, providing for partial restoration of free trade along CACM lines but offering certain advan- tages to Honduras, which was permitted to charge tariffs on some manufactured goods from CACM countries. Signing of these agreements was followed by the renewed granting of industrial investment incentives, which triggered a process of modernization and expansion of industrial capacity. The industrial growth rate during this period would have been slightly higher but for the effects on the Atlantic coast region of the 1974 hurricane, which caused wind and water damage to industrial facilities, local raw material shortages, dis- ruptions to transportation and lower demand for industrial goods from the affected population. Although industrial value added grew by only 2.6 percent in 1975, the sector recovered rapidly thereafter, and industrial value added increased by 11.8 percent in 1976 and 11.5 percent in 1977. 28. Fixed investment in industrial plants has also accelerated in recent years. In 1973, investments increased by 32 percent in real terms over the depressed level of 1972, in sharp contrast with the about 7 percent annual growth during 1965-70. The higher level of 1973, amounting to about US$30 million, was maintained in 1974-75 and investments rose to some US$45 million in 1977. There have been corresponding increases meanwhile in labor productiv- ity, manufactured exports and locally made consumer goods. Larger and more efficient factories have been established, and these are assuming increasing importance in overall manufacturing value added. It is also notable that, in 1974-76, the volume of Honduras' exports to its Central America neighbors increased at an average rate of 41 percent p.a., and its share of regional trade doubled from 1973 to 1976. Prospects 29. Honduras' prospects for further industrial growth, on the basis of planned expansion and demand perspectives as well as the recent trends, are good. The domestic market for manufactured goods should improve in line with the country's medium term development potential. While manufactured exports to other Central American nations have been increasing, there also has been a significant growth of trade with Europe, primarily exports of processed foods and lumber. These are expected to continue growing along with sales of seafood, meat products, textiles and apparel. In addition, labor costs are lower in Honduras than in Costa Rica, Guatemala and Nicaragua. These advantages. coupled with a relatively stable investment climate and comparatively good labor-management relations, should keep Honduras reasonably competitive. -9- Government Policies 30. The realization of these prospects will largely depend on government policy and development efforts. These have been well oriented in recent years. The increased level of public investment, particularly for infra- structural improvements and in agriculture, forestry, tourism and industry, is notable. To facilitate productive investment in industry, the Government took two important institutional measures in 1974. It created CONADI to fill a gap in industrial equity and term financing, and to expand public and mixed Honduran ownership of larger scale enterprises. CONADI provides long-term credit and supplies technical and managerial assistance through equity participation in new industrial projects. As of the end of 1977, CONADI lent US$35 million equivalent and issued some US$45 million equivalent of guarantees for food processing, textiles and apparel, wood and paper products, metal-mechanic industries and others. 31. A second important institutional action in 1974 was the establishment of COHDEFOR to manage all forest lands, develop Honduras' extensive forest resources, and finance forest industry. COHDEFOR has sole responsibility for all logging and sawing, as well as exporting wood products. It has grown into a generally sound organization whose exports are now established in European and USA markets. COHDEFOR's demonstrated capacity to make relatively high profits has given it a financial base to expand its investment in, and assistance to, forest industry development, with favorable prospects for the growth of a modern, efficient forest products industry. COHDEFOR plans investments in lumber processing in the next several years more substantial than the US$11.4 million equivalent so far provided and on a longer term basis. 32. Under the 1979-83 Economic Development Plan, the Government's targets established for industry are: (i) achievement of an average real growth of 9 percent p.a. so that industry increases its contribution to GDP from 17 percent in 1977 to 19 percent in 1983; (ii) growth of manufactured exports by 15 percent p.a. in current terms, with the proportion of domestic value added in exports progressively increasing; and (iii) more rapid develop- ment of labor-intensive small and medium sized enterprises. To achieve these targets, the Plan envisages: (i) a more selective import substitution strategy focusing on efficient industries; (ii) increased promotion of exports outside the CACM; (iii) identification of new industries in which Honduras might have a comparative advantage; and (iv) providing increased credit and technical assistance to small- and medium-sized industrial firms. Industrial Finance 33. Institutions providing finance to industry in Honduras include the Banco Central de Honduras (BCH), the aforementioned CONADI and CORDEFOR, 13 commercial banks and, until recently, the Government-owned Banco Nacional de Fomento (BANAFOM). 34. BCH, established in 1950, is generally regarded as a well-managed and adequately staffed organization. It has been active, apart from its normal responsibilities as a central bank, in economic development. BCH has established a rediscounting facility, available to a variety of financial - 10 - intermediaries, which has helped to finance inventories of export commodities and to meet short-term liquidity requirements for agriculture and, to a lesser extent, industry. BCH also operates a guarantee fund for financing non- traditional exports, and has administered three IDA-supported agricultural credit projects (Cr. 179-HO, 434-HO and 628-HO) in an effective manner. 35. BANAFOM, the largest bank in Honduras, had been virtually the only source of industrial term credit to small and medium size industry. By 1975 BANAFOM had acquired an industrial portfolio of US$6.3 million equivalent of which about one-third was in arrears. The rather small size of such loans, as well as the poor repayment record involved (42 percent of the number of outstanding loans were in default) and the relatively high costs of admin- istration associated with small loans, discouraged other banks from participa- ting in such finance. In early 1977 the BCH undertook a review of BANAFOM's activities and capabilities. As a result, it was decided that BANAFOM should focus its resources on its expanded agricultural development responsibilities and phase out all industrial lending. 36. In recent years, reflecting BCH's efforts to increase competition in commercial banking, important changes have occurred which have given the banking system a broader base, an enlarged clientele, and an improved geographic spread. As a result, the number of commercial banks has increased, and the system is channeling an increasing amount of resources into agriculture and industry. Honduras' 13 commercial banks have provided about 80 percent (US$102 million as of December 31, 1977) of industrial credits. These credits, on average, account for 22 percent of the commercial system's outstanding loans. However, the commercial banks are engaged mainly in short-term lending activities. In 1976-77, loans for less than one year accounted for 72 percent of lending while loans with maturities of three years and over accounted for only 8.7 percent of the total. A major factor has been the structure of interest rates which discouraged commercial banks from seeking long-term funds. 37. Monetary policy in Honduras has traditionally focused, inter alia, on maintaining the stability of the lempira within a system of free-currency convertibility, and controlling inflation by maintaining the domestic inflation rate at about the same level as Honduras' principal trading partner, the US. These objectives have been achieved principally by modifying reserve requirements on deposits, regulating the percentage of bank lending for particular purposes, limiting discount and rediscount facilities mainly to agricultural crop and export financing, and taxing non-essential imports. Partly as a result of these policies, inflation in Honduras historically has been low. The consumer price index averaged 2.7 percent p.a. during 1966-73, accelerated to 13 percent in 1974, and then declined to 8 percent in 1975, 5 percent in 1976 and 8.6 percent in 1977. Interest rate adjustments have played a relatively small role in monetary policy. The Government in the past decade has set maximum interest rates on loans which have been modified infrequently. In the case of productive loans, the maximum rates were constant at 8 percent between 1967-71 but were increased during 1972-74 to 11 percent. Until recently, moreover, commercial bank lend- ing rates did not distinguish between short and long-term loans. - 11 - 38. The Government's interest rate policy, and resource mobilization efforts by commercial banks have succeeded in raising mainly short-term resources. Consequently, internally generated resources have traditionally been relied on for the financing of industry. Until 1971, equity, undistri- buted profits, and depreciation reserves provided over two-thirds of indus- trial resources, while loans and credits accounted for less than one-third of financing. Since then, however, debt financing has rapidly increased in importance and now accounts for about 40 percent of industrial finance. 39. Over the long run, Honduras will have to mobilize a larger supply of domestic capital to finance industrial development than it has so far. Appre- ciating the difficulties of the scarcity of term financing, the Government enacted new regulations earlier this year. These exempted interest rates for productive loans with terms of three or more years from the 11 percent maximum, with the proviso that they be related to the cost of mobilizing funds. The new regulations should allow the commercial banks to charge rates attractive enough to provide an incentive for a gradual shift to term financing. 40. There are several other requirements to be met for Honduras to develop effective and sustained industrial growth. Honduras' tariff structure generally has not encouraged uneconomic or over priced manufacturing, and its nominal protection rate is low by Central American standards. The effect of tariffs and other incentives, particularly the liberal system of tax exemptions, has been important in encouraging industrial investment overall, although it has been costly in terms of revenue foregone, and it is likely that much investment would have taken place with lesser incentives. Although the Government is aware of some of the limitations of its industrial incentives policy, it has been reluctant to alter it before a revision of the regional system because of the competition within Central America for new investments. The Bank has recently undertaken a study of industrial development policies in the CACM. Its report should serve as a basis for further discussions with the Central American countries. In the meantime, given the more outward orienta- tion of the Government's industrial strategy and considering also, e.g., the experience of BANAFOM (reference para. 35), it is especially important to over- come the deficiencies of the public and commercial financial institutions in conducting adequate evaluations of industrial loan applications. Under the proposed loan, the sub-project review process would pay particular attention to the economic justification of investments contemplated, regardless of the incentives they might receive. 41. Another requirement is the stimulation of small and medium industrial growth on a sound basis. The importance of smaller enterprises in industrial employment is likely to continue for some time. For this reason, it would be essential to expand the small proportion of term financing that has been accessible so far to small-scale enterprises. On this account, and recognizing the disappointing results of past lending for smaller industry, the Government has given special attention to this problem. It decided to upgrade its Industrial Development Center (CDI). This agency, which had been largely helping individual artisans, is being expanded to provide broader technical assistance services to small and medium scale enterprises. Its budget has been substantially expanded. The Government also has enacted a new law to promote the development of this segment of industry. Its provisions include the extension to small scale industry of the incentive system (tax and duty exemptions) available to larger firms under the bilateral trade agreements with other Central American countries. - 12 - 42. There are substantial indications of an increasing demand for funds consistent with the 9 percent annual growth rate targeted in the 1979-83 Industrial Development Plan. Banks are finding it increasingly difficult to meet even the demand for short- and medium-term financing. Also, CONADI at present has a pipeline of 11 projects and COHDEFOR of 17 projects, whose total investment requirements over the next three years are about US$80 million equivalent. Also, major commercial banks estimate that a number of important projects would be put forward if long-term funding becomes available. 43. To achieve the projected 9 percent annual growth rate over the 1978-83 period would require an estimated average new industrial investment of about US$65 million per year of which 70 percent would be used for purchasing fixed assets and 30 percent for working capital financing. Based upon the increasing importance of loan financing, it appears likely that on average about 50 percent of incremental investment will be financed by lenders, i.e., $33 million in additional resources would be required, on average, each year. The proposed loan of US$15 million would, over the 1979-83 disbursement period, finance about 8 percent of the funds required. The remainder of the investment requirements would be met largely as they have been in the past: through medium- and long- term direct foreign loans; by medium- and long-term loans from CONADI and COHDEFOR; and by loans made by commercial banks with their existing resources, through renewal of short- and medium-term loans. Bank Industrial Sector Activities 44. The Bank has held discussions over a period of years with the Central American Bank for Economic Integration (CABEI), with a view to developing loans for industrial credit in Central America. These efforts, however, have been without success thus far, because of the failure to find a means of providing member country guarantees for a Bank loan. While discussions designed to find a solution to the guarantee problem have been initiated with the new adminis- tration of CABEI which took office last year, the Bank is proceeding with loans to individual countries to support industrial growth in Central America. The first such loan was approved, for Costa Rica, in June 1978; the proposed loan for Honduras would be the second. PART IV - THE PROJECT 45. A Staff Appraisal Report entitled "Honduras Industrial Credit Project", No. 2199-HO dated December 29, 1978, is being distributed separately to the Executive Directors. Supplementary data are contained in Annex III. The project was appraised in May 1978. Negotiations were held in Washington on December 11-14, 1978. The principal representative for the Government was Mr. Gonzalo Carias, advisor to the President of the BCH. Project Objectives and Structure 46. The project would provide financial and technical support to Honduras' Industrial Development Plan for 1979-83. It would help Honduras - 13 - build up an institutional capability to select, prepare, and finance efficient industrial investment projects, particularly of small and medium manufacturing firms and of firms proposing priority projects in the wood industry. It would increase the amount of medium- and long-term credit to industry, thus providing more appropriate financing for industrial expansion than is presently available. 47. The project would be carried out by the National Industrial Develop- ment Fund (FONDEI), which has been established and will be administered by BCH. FONDEI would review and approve medium- and long-term loans for indus- trial subprojects submitted by financial intermediaries. CONADI, CORDEFOR, and up to seven commercial banks are expected to participate in the project. 48. FONDEI would be headed by a qualified director responsible for managing its day-to-day operations who reports to an executive committee, established by BCH and consisting of the President of the BCH, the Minister of Economy, and the representative of the national banking system who sits on the BCH Board. The appointment of FONDEI's director would be condition of loan sign- ing. The committee has over-all responsibility for FONDEI's operations, and BCH will provide technical staff and logistic facilities. Detailed organi- zation and staffing arrangements have been discussed with the Bank and appear adequate to enable FONDEI successfully to carry out the project. 1/ Appoint- ment of additional staff members to form an adequate initial complement would be a condition of effectiveness (Section 6.01(f) of the draft Loan Agreement). Costs and Financing 49. Based on estimates of the likely demand for industrial financing, the resources available to the participating institutions and their capacity to expand operations, the total cost of direct investment financed under the project is estimated at US$28.4 million. The proposed loan of US$15 million would meet all foreign costs which amount to 53 percent of the total project cost. The balance of the financing will be provided by BCH (about 18 percent of total costs), the subborrowers (about 19 percent), and the intermediaries (about 10 percent). 50. BCH would make US$5 million equivalent available to FONDEI as paid-in capital in two equal tranches. A condition of loan effectiveness would be that BCH had paid in US$2.5 million equivalent for FONDEI's initial capital (Section 6.01(a) of the draft Loan Agreement). The Bank loan would be repaid on a fixed amortization schedule in view of the likelihood of many small subloans. BCH would assume the foreign exchange risk on FONDEI's operations, for which it would levy a fee of 0.5 percent per annum on the outstanding balance of subloans. FONDEI's Policies and Operations 51. FONDEI's policies and regulations would permit financing the purchase of fixed assets, associated permanent working capital, installation of equipment, 1/ These arrangements have been created with a view also to FONDEI's serving as the channel for a separate tourism project which the Bank has appraised. - 14 - preinvestment studies and technical assistance services. Projects eligible for financing would entail the creation, expansion or modernization of the productive capacity of enterprises involved in manufacturing, agro- industry, forestry and wood processing, tourism, fishing and fish product industries, and in providing mechanical or specialized transport services closely related to industry. FONDEI's primary focus would be on financing investment projects of small- and medium-sized industrial firms and priority projects in the primary and secondary wood industry. 52. The maximum financing for any single investment or enterprise would be US$750,000 for general industry and US$1.5 million for COHDEFOR subprojects. This is intended to avoid excessive concentration of project financing in a few firms. Other limits apply to ensure that the project significantly benefits small enterprises. Such enterprises would be defined as firms with total assets, excluding land and buildings, of less than US$100,000 equivalent. This definition corresponds approximately to firms with up to 25 employees, and includes most firms which have had limited or no access to credit from the banking system. FONDEI would (i) allocate at least US$2.5 million of the proposed loan and sufficient counterpart financing for small-scale firms; (ii) provide a differential spread to cover the higher costs of small-scale lending; and (iii) coordinate with CDI to ensure that small-scale projects are well prepared and receive the required technical assistance. 53. FONDEI would finance up to 65 percent of the cost of new industrial projects, up to 75 percent for forestry subprojects, and up to 80 percent for expansion and modernization subprojects. Financial intermediaries would finance at least 10 percent of subproject costs and each subborrower the balance. FONDEI's financing would be for up to 15 years for general industry loans and a maximum of 17 years for forestry operations, with up to 3 years of grace. All subloans would be denominated in local currency. 54. The cost of FONDEI financing to the participating intermediaries would vary with the size of the borrower. For COHDEFOR projects and general industrial lending, FONDEI would charge 9 percent. As the participating intermediaries will be permitted to charge no more than 12 percent to the industrial subborrowers, this would allow a spread of up to 3 percentage points to the intermediary. FONDEI would charge 7 percent on loans to small enter- prises with fixed assets (excluding land and buildings) of less than US$40,000 equivalent, and 8 percent in cases of assets ranging between US$40,000- 100,000 equivalent, allowing margins of 5 percentage points and 4 percentage points respectively to the intermediaries. These higher margins are intended to give the latter adequate incentives for lending to small-scale industry. The resulting average onlending interest rate of about 8.75 percent would give FONDEI an adequate margin to cover administrative and other costs. 55. Assuming, as expected, the participating intermediaries charge the full spread allowed under the above arrangements, the effective cost of FONDEI funds to industrial enterprises would be 12 percent. This is in line with existing lending rates for medium and term loans (although interest rates to - 15 - industry for loans of 3 years or more are freely negotiable, actual rates for such loans are 12-13 percent). Since the average inflation rate was 8.6 percent in 1977 and is not expected to exceed international levels in the next 3-4 years, the proposed subborrower interest rates would be positive and reasonable when measured in real terms. Nevertheless, it has been agreed to review by April 1, 1980 and periodically thereafter the adequacy of the proposed relending rates and to revise them, if necessary, in light of such review (Section 2.05(d) of the draft Project Agreement). 56. During 1979-80, FONDEI would not be able to cover its administrative costs and reimburse the Government for the commitment fee under the proposed loan, and payments totalling about US$262,500 equivalent would need to be made out of FONDEI's paid-in capital. Starting in 1981, FONDEI would earn a small profit, and by 1983, when the Bank loan is expected to be fully disbursed, FONDEI would have an outstanding loan portfolio averaging about US$18.6 million equivalent, yielding a net financial spread of 2.8 percent on average loan amounts outstanding. FONDEI's net operating profit would be equal to a return of about 7 percent on paid-in capital and accumulated retained earnings. Thus, as long as the rate of inflation in Honduras maintains its traditional pattern of not exceeding international rates, FONDEI should be able to meet its policy objective of maintaining at least the real value of its capital, despite a comparatively low debt/equity ratio of about 2.9:1. Participating Institutions 57. Participation in the project would be limited to financial institu- tions which meet FONDEI's eligibility criteria, to be defined in participation agreements. To qualify, an institution would have to employ staff capable in FONDEI's judgment of performing project appraisals and of supervising projects to ensure that resources had been used for the purpose intended and that projects progress on schedule. It would be required also to adhere to specified lending and repayment terms, and procurement and disbursement procedures. The signing of participation agreements satisfactory to the Bank with COHDEFOR and at least three other intermediaries would be a condition of effectiveness of the loan (Section 6.01(d) of the draft Loan Agreement). The intermediaries would assume the full credit risk on subloans. They would also provide short- term financing and working capital for subborrowers. The most any one inter- mediary (other than COHDEFOR) would be permitted to commit of Bank loan funds would be US$2.5 million except that loans to small-scale enterprises would be exempted from this limitation. 58. Participating intermediaries would be responsible for preparing subproject appraisals and for sub-loan supervision. To ensure high quality in this work, the intermediaries would follow guidelines which FONDEI would issue. FONDEI's approval of appraisal and supervision guidelines satisfactory to the Bank would be a condition of loan effectiveness, (Section 6.01(e) of the draft Loan Agreement). In addition, the BCH is in the process of arranging a two to three week project evaluation course for the staffs of FONDEI and the other project participants. Initiation of the program would be a condition of - 16 - effectiveness for the proposed loan (Section 6.01(c) of the draft Loan Agreement). The requirements for appraisal of subprojects would vary in accordance with their size and nature. In the case of small industries, appraisals would focus on the viability of the enterprise and its investment plan. The first ten subloans to small-scale industry would be submitted to the Bank for review and comment. Larger projects would be subject to a more detailed review of their technical, financial, marketing and economic aspects. All appraisals would include calculations of employment, domestic value added, and net foreign exchange earnings and savings effects. For any subloans above US$250,000, the internal economic rate of return would be calculated, and these subloans would require Bank approval. On this basis, the Bank should review 30-40 subloans covering about two-thirds of the loan amount. 59. Inasmuch as Honduras' forests represent one of its major natural resources, and given forestry's potential for generating substantial foreign exchange earnings and employment, COHDEFOR's investment program warrants special attention in Honduras' industrial financing plans. For this reason, US$6 million of the proposed loan would be earmarked for wood industry projects (Section 2.02(c)(i) of the draft Loan Agreement). Since COHDEFOR would have a substantial responsibility under the project as a financial intermediary, it would establish a forestry industries financing fund and a project unit to handle project promotion, appraisal and supervision. COHDEFOR also would adopt a statement of operating policy for the fund to define standards for project lending, appraisal, loan approval and supervision activity as well as procurement, disbursement and accounting. Its approval by COHDEFOR's Board and the Bank, along with the establishment of the forestry fund and project unit, would be a condition of disbursement for the part of the loan reserved for COHDEFOR's subprojects (Section 2.02(f)(iii) of the draft Loan Agreement). A special account would be established in FONDEI for COHDEFOR's lending operations. Technical Assistance for Small-Scale Industry 60. An important component of the project, to be financed by the Govern- ment and a UNDP grant, is technical assistance designed to ensure effective utilization of small-scale industry credit. To this end, the Government plans to strengthen the CDI so that it can provide a comprehensive range of services to small enterprises. CDI would be transformed into an autonomous institution and given increased funds to enable it to engage in project promotion, preparation and technical assistance. The goal is to enable CDI to assist some 50 firms during the first year of the project, and eventually 100 to 200 per year. It is expected that financial inter- mediaries would refer small enterprises to CDI for, in the first instance, help in obtaining the data needed to support subloan applications. During project implementation, CDI would provide guidance and supervision to their clients. For these tasks, since CDI has so far concentrated on assistance to artisans, it will need to recruit new staff (industrial economists and an engineer), who would participate in the aforementioned project evaluation training program. For the next two years, CDI would also have to obtain consultants for improving its operations, which the UNDP has agreed to finance. - 17 - UNIDO is expected to be the executing agency. Arrangements for the consultants' employment would be a condition of effectiveness for the loan (Section 6.01(b) of the draft Loan Agreement). CDI has adopted satisfactory staffing plans, 1979-80 budget proposals, and policy regarding charges for its service (a fee of not more than 2 percent of the subloan amount). Procurement and Disbursement 61. For small-scale subprojects, the Bank would reimburse FONDEI for 75% of FONDEI's total financing of individual subprojects. For other industrial subprojects and COHDEFOR subprojects, the Bank would disburse for (i) 100 percent of foreign expenditures for directly imported machinery, equipment, raw material inventories and services; (ii) the CIF cost of imported equip- ment purchased off-the-shelf or 70 percent of local expenditures for such goods where the CIF price cannot be ascertained; (iii) 35 percent, representing the estimated average foreign exchange content, of investments in civil works; and (iv) for forestry subprojects, the indirect foreign exchange cost of inventories, which are estimated at 20 percent. The intermediaries and FONDEI would satisfy themselves that procurement was suitable and reasonably priced, and that the beneficiaries had canvassed the main sources of supply. For larger procurement contracts, items would be procured on basis of several quotations, in accordance with standard practice for IDF-type projects. Project Benefits and Risks 62. The subprojects financed are expected to have a significant economic impact. The bulk of financing would go to those subsectors which depend on domestic raw materials and which provide most of manufactured ex- ports (i.e., lumber and wood projects, food products, textiles and garments, and chemicals). The total investment generated by the project is expected to result in the creation of about 4,000 new jobs (equivalent to 11 percent of factory sector employment according to the 1975 industrial census) at a relatively low investment cost of US$6,800 per job in 1978 prices. Under the wood industry component of the project, new jobs would be provided at a slightly lower average cost of US$5,300 per job, due mainly to the labor intensive nature of projects in the primary and secondary wood subsectors. Such projects would largely benefit families of modest means living in small towns and villages in the Comayagua forest region. 63. Indirect benefits from the project are hard to measure, but primary wood industry project components would normally include, as part of the indus- trial infrastructure, such features as basic housing for forest industry workers and their families, water, electricity, medical services and education facilities. Local small farmers would benefit also from new forest access roads and transportation to market centers. It is anticipated that the impact of the program will be geographically dispersed, with forestry projects in the central part of the country, agro-industrial subprojects mainly along the north coast, and other manufacturing subprojects mainly in the cities of San Pedro Sula and Tegucigalpa. - 18 - 64. The project would also contribute to filling a major gap in term financing of industrial projects in Honduras by providing financing for about 165 subprojects. Total project financing would represent about 8 percent of the new credits required by industry over the expected loan disbursement period (1979-83). In addition, the project would substantially improve the capacity of participating financial intermediaries to base their lending activities on detailed project preparation and evaluation. 65. By providing for creation of a specialized project unit within COHDEFOR, the proposed project would help build the institutional capability necessary for expanding wood industry project promotion, preparation, evalua- tion and financing, and the establishing of ecologically sound programs of forest management. 66. The proposed project, as conceived, does not involve any unusual risks. However, because the institutional arrangements established under the project would be both new and untried, some initial delays in subloan processing by both the financial intermediaries (including COHDEFOR and CONADI) and FONDEI may occur. To minimize delays in project implementation, Bank supervision of, and assistance to, FONDEI would be intensive during the first year, and the Bank would participate (through its normal project supervision missions) in training programs for the staff of FONDEI and participating institutions. PART V - LEGAL INSTRUMENTS AND AUTHORITY 67. The draft Loan Agreement between the Republic of Honduras and the Bank, the draft Project Agreement between the Central Bank of Honduras and the Bank and the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement are being distributed to the Executive Directors separately. The draft agreements conform to the normal pattern of loans for IDF-type projects and their more important features including special conditions of loan effectiveness are referred to in Part IV of the text and listed in Section III of Annex III. There is one special condition of disbursement under the Loan Agreement, i.e. that for the US$6 million allocation of funds for CORDEFOR, COHDEFOR's project unit and fund are established, with operating policies for the fund acceptable to the Bank. 68. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. - 19 - PART VI - RECOMMENDATION 69. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments jaeuary 11, 1979 - 20 - ANNEX I TAHLE 3A HONDURAS - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAGES HONDURAS /a LAND AREA (THOUSAND SQ. R14.) - MOST RECENT ESTIMATE) TOTAL 112.1 SAME SAME NEXT HIGHER AGRICULTURAL 28.7 MOST RECENT GEOGRAPHIC INCOME INCOME 1960 Lb 1970 lb ESTIMATE lb REGION IC GROUP Id GROUP Le GNP PER CAPITA (US$) 170.0 260.0 450.0 1066.7 432.3 867.2 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 155.0 247.0 232.0 911.1 251.7 578.3 POPULATION AND VITAL STATISTICS TOTAL POPULATION, MID-YEAR (MILLIONS) 1.9 2.5 3.0 URBAN POPULATION (PERCENT OF TOTAL) 23.0 26.8 31.4 57.9 24.2 46.2 POPULATION DENSITY PER SQ. KM. 17.0 22.0 27.0 25.6 42.7 50.8 PER SQ. 104. AGRICULTURAL LAND 69.0 89.0 104.0 77.6 95.0 93.3 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 47.8 48.1 48.1 42.0 44.9 42.9 15-64 YRS. 49.7 49.2 49.1 52.2 52.8 53.5 65 YRS. AND ABOVE 2.5 2.7 2.8 3.7 3.0 3.5 POPULATION GROWTH RATE (PERCENT) TOTAL 3.0 2.7 If 2.7 If 2.7 2.7 2.5 URBAN 5.3 /R .. 5.1 4.3 8.8 4.7 CRUDE BIRTH RATE (PER THOUSAND) 54.0 51.5 49.3 35.8 42.2 37.8 CRUDE DEATH RATE (PER THOUSAND) 26.5 19.1 14.6 9.1 12.4 10.8 GROSS REPRODUCTION RATE .. 3.4 3.3 2.6 3.2 2.5 FAMIl.Y PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 12.7 23.0 USERS (PERCENT OF MARRIED WOMEN) .. .. .. 15.1 14.2 20.0 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1970-100) 82.7 100.0 .. 102.1 104.3 107.3 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 84.0 99.0 90.0 103.9 99.5 105.3 PROTEINS (GRAMS PER DAY) 53.0 58.0 56.0 60.3 56.8 63.0 OF WHICH ANIMAL AND PULSE 21.0 25.0 .. 26.7 17.5 21.7 CHILD (AGES 1-4) MORTALITY RATE 14.0 10.0 9.0 8.7 7.5 8.0 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 41.0 49.4 53.5 62.6 53.3 57.2 INFANT MORTALITY RATE (PER THOUSAND) .. .. 118.0 56.9 82.5 53.9 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 34.0 41.0 60.7 31.1 56.8 URBAN 99.0 99.0 78.0 68.5 79.0 RURAL .. 10.0 13.0 34.9 18.2 31.8 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 24.0 .. 61.1 37.5 30.9 URBAN *- 64.0 .. 80.3 69.5 45.4 RURAL *- 9.0 *- 25.4 25.4 16.1 POPULATION PER PHYSICIAN .. 3600.0 /h 3140.0 1899.3 9359.2 2706.8 POPULATION PER NURSING PERSON 19120.0 L/ 8930.0 7680.0 /1 1220.1 2762.5 1462.0 POPULATION PER HOSPITAL BED TOTAL 620.0 /1 570.0 630.0 422.3 786.5 493.9 URBAN 150.0 258.2 2 78 .4 229.6 RURAL 11810.0 .. 2281.6 1358.4 2947.9 ADMISSIONS PER HOSPITAL BED .. .. 24.0 25.6 19.2 22.1 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.7 .. . 5.2 .. 5.2 URBAN 5.5 .. .. .. .. 5.0 RURAL 5.7 .. .. .. .. 5.4 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 2.4 .. .. 2.0 .. 2.0 URBAN 1.8 .. .. 2.1 2.3 1.5 RURAL 2.7 .. .. 2.7 .. 2.7 ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 15.0 .. .. 51.2 28.3 64.1 URBAN 56.7 .. .. 77.3 .. 67.8 RURAL 2.0 .. .. 12.8 10.3 34.1 - 21 - ANNEX I TABLE 3A HONDVRAS - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAGES HONDURAS /a - MOST RECENT ESTIMATE) SAME SAME NEXT HIGHEIR MOST RECENT GEOGRAPHIC INCOME INCOME 1960 /b 1970 lb ESTIMATE /b REGION /c GROUP /Ld GROUP Le EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 67.0 90.0 103.5 75.8 99.8 FEMALE 67.0 88.0 102.9 67.9 93.3 SECONDARY: TOTAL 8.0 12.0 16.0 37.2 17.7 33.8 FEMALE 7.0 12.0 13.0 37.9 12.9 29.8 VOCATIONAL (PERCENT OF SECONDARY) 24.0 18.0 14.7 7.4 12.8 PUPIL-TEACHER RATIO PRIMARY 32.0 35.0 35.0 32.8 34.3 34.9 SECONDARY 10.0 17.8 23.5 22.2 ADULT LITERACY RATE (PERCENT) 47.0 53.0 74.9 63.7 71.8 CONSUMPT ION PASSENGER CARS PER THOUSAND POPULATION 3.0 5.0 5.0 26.9 7.2 12.4 RADIO RECEIVERS PER THOUSAND POPULATION 68.0 57.0 54.0 173.5 71.1 104.5 TV RECEIVERS PER THOUSAND POPULATION 1.0 8.0 16.0 69.4 14.1 28.1 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 21.0 35.0 72.8 16.3 45.2 CINEMA ANNUAL ATTENDANCE PER CAPITA 4.3 1.6 4.6 EMPLOYMENT TOTAL LABOR PORCE (THOUSANDS) 570.0 700.0 /k 760.0 /k FEMALE (PERCENT) 12.5 12.8 13.3 21.4 28.0 25.7 AGRICULTURE (PERCENT) 67.0 62.3 60.3 37.8 54.1 46.2 INDUSTRY (PERCENT) 10.6 12.5 14.7 PARTICIPATION RATE (PERCENT) TOTAL 31.5 30.6 29.8 30.8 37.8 33.8 MALE 55.3 53.5 51.8 47.2 50.3 48.1 FEMALE 7.8 7.8 7.9 13.2 20.9 17.3 ECONOMIC DEPENDENCY RATIO 1.6 1.5 1.8 1.7 1.3 1.4 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 28.0 /1j 28.9 19.5 23.6 HIGHEST 20 PERCENT OF HOUSEHOLDS 60.6 1 57.7 48.9 52.3 LOWEST 20 PERCENT OP HOUSEHOLDS 2.5 /1 3.2 5.9 4.3 LOWEST 40 PERCENT OF HOUSEHOLDS 8.4 /1 10.7 15.7 13.1 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN . 251.9 155 9 191 9 RURAL 105.0 200.6 97.9 193.1 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN 155.0 403.1 143.7 319.8 RURAL . . 111.0 258.0 87.3 197.7 ESTIMATED POPULATION BELOW POVERTY INCOME LEVEL (PERCENT) URBAN 15.0 24.8 22.9 19.8 RURAL 70.0 65.2 36.7 35.1 Not available Not applicable. NOTES Ia The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and the mset populated country in each group. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1973 and 1977. /c Latin America & Caribbean; /d Lower Middle Income ($281-550 per capita, 1976); /e Intermediate Middle Income (S551-1135 per capita, 1976); /f Intarcensal growth rate (1961 and 1974 censuses; due to emigration of El Salvadorean residents in Honduras, the population growth rate ia lower than rate of natural increase; /R 13 important urban centers; /h Registered, not all practicing in the country; /i 1963; /1 Personnel in government services only; /k Aged 10 years and above; /1 1967-68, per capita income. September. 1978 - 22- DEFINITIONS Of SOCIL INDICATOILS ANNEX I 5lg: The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator antd the most popul.ated country in each group. Coverage of countries emmag the indicators depends on availability of data end is not uniform. Due to lack of data. group averages for Capital surplus Oil RExporters cod indicators of access. to water end excreta diapoeal. housing, income distribution and poverty are simple population-weighted geometric -ean" without the eeqlusion of eatreame values. LAND) AREA (thousand sq. km) Population per hospital bed - total, urban, end rural - Population (total, Total - Total surface area comprising land area and inlanLd water*. urban, ad rural) divid*d.by their respective number of hospital beds. A.tclt.ral - Most recent estimate of agricultural area used temporarily available in public end private general and specialized hospital and te- ot permanently for crops, pastures. serket and kitchen gardens or to habilitation centers. Hospitals are establishaents permanently staffed h. lie folIos,. at least one physician. tstablishmnts providing principally custodial care are set included. Rural hospitals. however. include health and medi- GNP tPER CAPITA (USO) - GNP per capita estimtats at current market prices, cal centers set permanently staffed by a phyilcien (but by a medical us- calculated by same conversion method as Vorld Bank Atlas (1975-77 basis); sistent, nurse, midwife, etc.) which offer in-patient acrormod.tico and 1960. 1970. and 1977 data. provide a limited renge of medical facilities. Admissions per hospital bed - Total number of admissions to or discharges ENERGY CONSUM4PTION PER CAPITA - Annual consuaption of coemarcial energy from hospitals divided by th. number of beds. (coal end lignite, petroleum. natural gas end bydro- * nuclear end geo- thermal electricity) in kilograms of coal equivalent per capita. HOUSING Average size of household (persons per househiold) - total, urban. end rural - POPULATION A.ND VITAL STATISTICS A household consists of a group of individuals who share living icurters To tal population mi-yer( lions) - As of July 1; if set available, end their main meale. A boarder or lodger may or ray not be included in average of two end-year estimates; 1960. 1970. and 1977 data, the household for statistical purposes. Statistical definitions of housa- urban Population (percent of total) - Ratio of urban to total popula- hold very. tion; different definLitions of urban area" may aLffect comparability Average number of persons Per room - total, urban, and rural - Aversge nun- of data smong countries, ber of parsons per roone in all. urban, and rural occupied oovn"tional Pouaindnity dwellings. respectively. Omee1lags exclude no-emnn tr-onres and Pe s. o - id-year population per Square kilometer (100 hectares)uocpidpt. of total area. Access to electSrric6it, (percent of dwellings) - tote.1 urban, and trura - Per sq. km. agriculture land - Computed as above for agricultural land Conventional dwellings with electricity in living quarters as percentage only, of total. urban, and rural dwellings respectively. Population sac tructure (percent) - Children (0-14 yerar), working-age (15-64 years) and ret'ired (65 years and over) as prerentagea of mid- EDUCATION year population. Adiusted enrollment ratios PoPulation srowth rats (percent) - total. and urban - Compound annual Primary school - total. =An feasule - Total end female enrollment of a11 ages growth rat"a of total and urban mid-year populations for 1950-60, at the priamary level eas percentages of reepsctiyely primary school-age 1960-70, and 1970-75. populations; normally includes children aged b-il yearn hut adjusted for Crude birth rate (par thousand) - Annual live births per thousand of different lengths of primery education; for countries with univeral edu- mid-year population; teo-year arithmetic averages ending in 1960 end cation enrollment may exceed 100 percent since. some pupils are below or 1970 and five-year average ending in 1975 for mset rarent estimate, above the official school age. Crude death rate (par thousand) - Annual deaths per thousand of mid- Secondary school - total, end female - Computed as above; se ondary edua- year population; tan-Peer arithmetic av.rsees ending In 1960 and 1970 toi rqure at leat four years of approved primary Instrucion; pro- and five-year average ending in 1975 for most recent estimate. videe general vocational, or teacher training inatru-tions for pupils Cross rsproduction rats - Average number of daughters a wonman will bear usually of 12 to 17 years of ago; correspondence courses are generally in her onrmal neproductiye period if she experienc.es present age- ecluded. specif ic fertility rates; usually five-3Fear averages endlng in 1960. Vocational enrollment ( percent of secondary) - Vocational institutions in- 1970. and 1975. clude technial. industrial, or other programs which operate i.depeude.tlv PFamily planning - acceptors, annual (thousands) - Annul nu-ber of or as departments of secondary institutions. acceptors of birth-control devices under auspices of national famtily Pupil-taacher ratio - primary. and secondary - Total students enrolled ic planning program. prisery end secondary levels divided by nunbers of teachers in the corre- Pawily planning - users (percent of setrned women) - Percentage of speeding levels.- married wome of child-bearing age (IS-44 years) who ..e birth-control Adult literacy rate (percent) - Literate adults (sble to read and writs) us devices to all married wonmn in nam %ag group. a percentage of total adult population aged 15 years and over. POOD AND NUTRITION CONSUtFlTION _Index of fond production per capita (1970-100) - Index number of per Passenger cars (par thousand populatio,n) - Passen.ger cars comprise motor tars capite annual praduotios of all fond commodities. sataing less than .siht persons; excludes ambulances, hearses and military Per capita Supply of calories (percent of requirements) - Computed from vehicles. energy equivalent of net fond supplies available in country par capita Radio receivers (per thousand population) - All types of receivers for radio per day. AvaLilable supplies comprias domestic production, ieorts lose broadcasts to general public per thousand of population; secludes unlicensed exports, and changes in stock. Net supplies exclude animal feed, seeds. rsceivers in countries end in yearn when registration of radio sets was in quantities used in food processeing, and losses in distribution. Re- effect; data for recent yearn may not be coeparable since .ost countries quireme.t. were estimated by PAO based on physiological needs for nor- abolished licensing. mel activity and bealth considering environetal temperature, body TV receivers (per thousand Population) - TV receivers for broadcas.t to g .n.ri weights, age and sea distributions of population, and allowing 10 per- public per thousand population; "exludes unlicensed TV ..eceivers to coOn- cent for wear at household leval. trise snd in years when registration of TV socs was in effect. Per capita supply of priotein (g-rams Per day) - Protein content of per Newspaper circulation (par thousand population) - Shows the average circula- capita net supply of f .dprdY. Not supply of fond is defined as tion o daily general interest newspaper", defined as a periodical p.bli- above. Requirements for all countries established by USDA provide for cation devoted primarily to recording general news. It Is considered to a minimum allowance of 60 groas of total protein per day end 20 grams he "daily"~ if it appears at least four times a week. of animal and pulse protein, of which 10 grems should be animal protein. Cinema anmual attendance per capita per year - Based ont the number of tickets These standards are lowr then those of 75 gtems~ of total protein and sold during the year, including adeissions to drive-in cinene and nobil. 23 grass of animal protein ca an averege for the world, proposed by units. PAD in the Third World Pond Survey. Per capita protein supply from animal and Pulse - Protein supply of food E4LOThEINT derived from animals and pulses in gram per day. Total labor force (thousands) - tconomicallp acti-s persons, including steed Child (asom 1-4) morteity rate (per thousand) - Annual deaths per thous- forces and unmeployed but secluding housewives, students, etc. Defini- samd In age group 1-4 pears, to children in thbie age group. tions in various countries are not comparable. FPseale1 (Percent) - Fseals1 labor force as percentago cf total l.bor for-n NR.uINH Agriculture (percent) - Labor force in framing, fo-osry. hunting and f;ohiro Life enpecranc at birth__(years) - Average nueber of years of life as percentage of total labor force. remaining tI birth; usually five-peer averages endintg in 1960, 1970, Industry (percent) - Labor force in moining, construction. manufacturing a-d and 1975. electricity, water and gas &e percentage of total labor force. -Infant mortality rete (per thousand) - Annual deaths of infants under Participation rate (percent) - total, sale. and female - Total, emale, and one year of age per thousand live birhts. eamle labor force as p.rce.. ages of their repctv popultion. Access to safe water (percent of population) - total, urban. end rural - rhese are rTb's adju t.d participation rates retl-cting .a.-se Number of people (total, urban,. and rural) with r"easonble access to scructure of the popolatlos, ond loot ti-e trend. safe water supply (Includes treated surface waters or untreated but Economic dependency ratio - Ratio of population under 15 and h5 sod once to unc-otmiosced water such as that from protected boreholas, springs, the labor forte in age group of 15-64 years.. and sanitary wells) as prerentages of their respective populations. to an urban area a public fountain or standpost located not more INCOME DISTRIBUTION than 200 meters from a house may be considered as being within tea- Percentage of private income (both in cash and bind) received by richest 5 ...nable access of that house. In rural areas reasonable access would percent, richest 20 percent, poorest 20 percent. and poorest 40 percent imply thar the ho-..-if. or mebers of the household do not have to of householde. spend a disproportionate part of the day in fetching che family's water needs. POVERTY TARGET GROUPS Access to exrtret disposal (percent of population) - total, urban, and Estimated absolute PovertY income level (US$ par capita) - urban and rura.. rural - Number of people (total, urban, and rural) served by excret& Absolute poverty income level is that Income level below whith a minit-i dispoeal as percentages of their respective populations. Ecoreta nutritionally adequate diet plus essential no-food requlrent 1.. n o s.t disposal mey include the collection and disposal, with or without affordable. treatment, of huma sexcrets and waste-water by water-borne, systems Eteimatod relative pove-ty inom -lve (US$ per ait)-ra and rural- or the sue 01 pit privisa and simiar installations. Relative poverty Income leve Ls that income level less than ....e-irdT Population per physician - Population divided by number of practicing per capita personel income of the country. physici-an qualified from a medical school at university level. Estimated population below poverty Income le-e (per-nt) - urban and rur.l1 Population par nursing person - Population divided by number of Percent of population (urban and rural) who are either 'absolute pour" or practicing male and female graduate nurses, practical nurses. and "relative poor" whichever is greater. assistant nurses. Economic and Social Data iiso Econonic Aonaly.i. mod c-Jec-i-a Dep-rt.- 23 AMUn I (A-to in nillios of US dolIlr) A O t ua I Projected G r o w t h Ra t s 1976 Shmr. 1965 1970 1973 1976 1977(p) 181 1985 1965-1973 1973-1976 1976-1981 1981-1985 or GODP NATIOGL AECaS (1) Dilliooo ofas at 1967-69 Price) Grosa DinStio Product 549.2 678.1 764.8 834.8 904.1 1106.7 1345.2 4.2 3.0 5.6 5.o 100.0 Gains fro Ter of Trads 8.4 -6.0 -7.9 -15.7 21.1 -27.0 -45.2 -1.9 Gross Doseatio Ineos 557.6 672.1 756.9 819.1 925.2 1079.7 1300.0 3.9 2.7 5.7 4.8 98.1 oporta 1,449 222.5 210.5 249.7 JNd 542.5 405.0 4.8 5.9 6.5 4.3 29.9 Roports - Volume -138.9 -184.9 -210.4 -233.1 .iJ -327.5 -409.8 5.3 8.5 7.0 .8 27.9 Eaporto - Tf.Adju t.d -147.3 -178.9 -202.5 -217.5 eW -300.5 .364.6 4.1 2.4 6.7 4.9 26.1 Re-owres Gap - WT.Adjuated -2.4 43.5 8.0 32.2 18e 42.0 40.4 3.9 Total Co.nwption 472.6 569.1 629.8 688.3 763 a 883.0 1033.4 3.7 3.0 5.1 4.0 82.5 tovestast 82.6 11.6.5 135.1 163.0 238.7 307.0 5.3 6.5 7.9 6.5 19.5 National Savings 75.1 88.4 108.6 116.2 1788 163.0 210.0 4.7 2.3 7.0 6.5 1349 Dotic Saving. 85.1 103.0 127.1 130.8 13.8 196.7 266.6 5.1 1.0 8.5 7.9 15.7 GOP at Current U26 508.7 714.8 899.0 1213.6 1470.0 2256.4 3595.1 7.4 lo.5 13.2 12.3 Setor Ountput (Share of ODP at 1967-9 Prices) Agri-Itur. 0.375 0.358 0.360 0.281 0.290 0.290 0.287 Industry 0.201 0.218 0.226 0.239 0.239 0.2Se 0.251 Ser.i.so 0.424 o.424 0.414 0.459 0.471 0.Wo6 0.462 Ibrchaodis fr.a k O t I P r o 1c t ijoo (isd. of COeract Or4) 197 3 75 7 1977 1970 199 00 191 195 tort .17Food 14.3 21.5 45.o 37.7 39.1 44.6 48.6 52.8 57.5 72.4 1.2 Other Oonr Good 53.9 42.9 49.8 65.2 92.5 90.3 102.2 I13.2 131.1 186.1 2. Pstrol,Oil,Ibricaote 14.7 25.5 68.5 48.2 64.o 77.4 89.0 102.3 117.7 195.4 3. Othsr Iotr_edi te Good, 84.5 100.2 135.9 175.7 199.1 238.3 271.7 309.8 Sl3.1 530.0 4. Capital Goode 55.3 79.5 110.8 138.8 169.6 184.0 223.0 239.2 269.0 443.3 5.1 Total Gcodo (oif) 222.7 269.6 410.0 465.6 564.3 634.6 734.5 817.3 928.4 1427.2 5.2 Total Goods (fob) 203.4 243.6 377.6 427.0 550.5 591.1 675.7 751.9 854.1 1313.0 6. Non-Pctor SIoico. 40.9 62.8 76.7 82.0 95.0 99.0 108.0 117.3 131.4 208.4 7. Total Goods and NFS 244.3 306.4 454.3 509.0 645.5 690.1 783.7 869.2 985.5 1521.4 E orto 1.1 I .a 75.3 94.0 61.5 106.7 125.4 149.3 167.2 181.0 201.5 307.5 1.2 Coffee 25.9 48.5 56.9 100.3 168.o 166.8 146.3 3114.9 142.4 143.3 1.3 Lobr 16.2 39.1 38.8 38.0 47.5 53.7 63.5 87.5 127.1 242.1 1.4 Beef 9.7 21.9 18.3 25.6 22.4 27.8 33.6 40.4 43.7 84.7 1.5 Sugar 1.2 - 7.0 2.2 4.0 1Z.0 16.2 i8.8 20.8 37.4 1.6 Patrolous DOeriv.t-ts 6.2 4.1 12.3 1.1 0.2 2.7 2.9 3.1 3.3 4.3 2. All other goods 43.6 60.6 U3.1 129.6 132.3 1716 192.0 218.9 249.5 441.5 3. Total Goods (fob) 178.1 268.2 307.9 403.5 51"8 583o9 621.7 691.6 788.3 1260.8 4. Noc-Bettor Srioss 18.4 26.3 36.6 39.6 S3.0 5%3 57.8 66.5 76.4 130.0 5. Total Goods nd R13 196.5 294.5 344.5 443.1 572.8 6314.2 679.5 758.1 864.7 1390.8 Pri..o (1967-69 - 1001 A O t o . 1 Proj.ctd O r o w t h R a t * it 17S 0.W -5 0 Y7 'utpj T T98I 1905-0Y73 1973-197h 6 976-19 91 Eoport Price Index 99.81 106.26 139.98 190.09 236.82 264.03 339.39 4.3 10.7 6.8 6.5 Itport Pries Index 94.08 109.82 145.56 203.84 218.42 287.74 375.70 5.6 11.9 7.1 6.9 Torm of frade Index 106.08 96.78 96.17 93.25 108.42 91.76 90.30 -1.2 -1.0 -0.3 -0.4 GDP Deflator (USt) 92.62 105.41 117.55 145.38 162.61 203.89 267.00 3.0 7.3 7.0 7.0 no-al Average Exchange Rate 2.00 2.00 2.00 2.00 2.00 2.00 2.00 Selected Indicato 1%65-73 1973-76 1976-81 1981-85 Labor Pmores sod Outout pr Worker Vain Addd FPr Worker Total labor PoF 17 rices sodSoosoe Rts IOSR 4.18 5.82 3.91 4.36 In mllions S of lotl Ic 0 dollars f 7 -er8g lIport Elasticity i14 1 1.12 0.96 5 -7'T 176 1976- Avrage NAtional Gaviogo Rats 0.14 0.i4 0.15 0.16 Agricltore OUw 5 ; .7 Kargio1 National Sgaioge Rate 0.17 o.15 0.18 0.21 Industry 0.119 14.8 2529 186.5 LIporto/OL1P (cin -ort pri,es) 0.29 0.41 0.42 0.143 Sries 0.19 21 2352 173. IocsOcat/ODP 0.16 0.20 0.21 0.22 Total 5 Reso-rce GOp/GDP 0.02 0.05 9.03 0.23 Detail. 00 Pblic Seotor lvovateet Prognsullixed) P2blic Finance Selected Coicaero 1965 1970 1973 1976 1977 1981 Aj er g5of totr Central Goer,rect Current A ReBucuoo/GDP 10.9 13.2 11.0 15.D 16. 16.4 Social Sactoos 20.78307 712 Tax Reescose/GDP 9.6 11.1 10.7 12.8 114.5 15.4 Agricoltore 3.8 4.9 6.4 Correct EVpecditureo/GDP 9.2 11.1 10.6 114.5 14.4 14.0 Forestry - 2.1 9.5 Correct ertiogo/GOP 1.7 2.1 0.4 0.6 2.0 2.5 Posr 22.7 22.0 36.2 Cur-et lvios/I.eatcest, Ep.. 96.0 45.7 61.3 10.0 32.3 53.7 Transport and Counicationw 52.9 38.7 29.3 PFblic Capital ElpcditturetGOP 2.5 7.5 3.6 8.5 9.4 10.6 Otbsr - 0.1 2.4 PFblic SOingo/PNblic Cpita1 Rope. 95.3 42.6 62.o 34.7 53.9 333 Total 100 100.0 100.0 FuEliEmor Saviogs 39.9 34.4 44.0 Capital Rs-rvoo 4.3 1.8 1.9 REt. Pioccing (Nt) 40.4 60.0 49.1 tot. BorrowiDg (set) 15J4 8 5.0 Total 1i 0 0.1 1.0 (1) ComponrDts say not dd op b c.a.s of rouodiog. (p) Prclliniry. - 24 - AIIIE I HONDLlRASANEI 13ALANO OF PA7JENTS, XRDIS AUL ASSISTANCE AND GEElT (I millions of US dollars at otrreet prices) A c l P ro t i n a 1970 1913 1951 1976 1977(P0 197d 1979 9dO 1901 1902 19035 SkloA,ry of Balance or Payote 1. ECporte (incl. FS) 196.5 291.8 344.5 4h3.1 572.8 634.2 679.5 758.1 864.7 913.6 1390.8 2. .eporte (ioc. NFS) 2h4.3 306.4 454,3 509.0 645.5 690.1 783.7 869.2 985.5 1096.5 1521.4 o " Reo-c B.larac --47.8 -11.6 -109.8 -66. o 472.7 -55.9 -104.2 -111.1 4120.8 -122.9 -130.6 4 faetor ServieJ -22.6 -301 -275 -56.2 .61.8 -66S0 -80.0 -90.0 .98.0 102.0 9 149.0 a. Set Icterest Paye-te -2.5 -5.6 -10.1 -15.1 -90.0 -23.0 -28.7 -36.6 -42.5 -48.7 -89.0 b. Direct I-eet-reet Iecoee -20.0 -21.3 -16.9 -_1.1 -41.8 43.0 -51.3 -53.4 -55.5 -56.3 -60.0 c. Other - 0.1 - 3.2 - 0.5 - - - - - - - 5. Correct Tra-frere (cot) 6.6 6.3 17.7 13.2 13.4 14.0 15.0 16.0 20.0 23.0 30.0 6. Sahao 06 Corro.t Accoont -63.8 -35.4 -119.6 -108.9 -121.1 -107.9 -169.2 -185.1 -198.8 -204.9 -249.6 7. Pri-to Dirct Ievootment 8.4 5.5 10.9 7.6 10.0 20.0 25.0 30.0 35.0 h0.0 60.0 fublc M & LT LIne 6. Dioborse-mt 28.7 18.1 99.2 84.2 104.6 117.7 154.9 153.5 170.7 i86.o 2.9.5 9. Matheatioc 3.1 5.6 6.4 13.3 21.5 25.4 27.4 31.3 38.5 48.7 97.7 10. Set Disb-rsoenets 25.6 12.5 92.8 70.9 83.1 92.3 127.1 122.2 132.2 137.3 151.8 otter 11 & LT Loa-e 11. fet Dibor-eecto 0.4 -3.5 10.3 11.7 17.5 30.8 27.6 29.5 31.0 33.2 50.o 12. Other 4.3 20.3 12.2 18.5 1I. Uee of IMIF R.e.orce 6.3 _7.5 - - 14. Shior-Te-n Capital (cct) 5.0 - 0.9 24.3 4h.6 11. Aloca..tioc or SIE, 3.2 - - - - - - - -- Sl. .paita Tr-avactioce c.i.e. 0.9 11.5 9.4 -1.1 -16.2 17. hoge io reser.e. (-i. cree. e) 7.7 -3.4 -15.9 -23.0 -39.1 -35.2 -10.5 3.4 0.6 -5.6 -12.2 it. Ocet Forcign Eocih-ge le,er.e- (end of Poriod) 9.0 30.0 48.7 71.7 111.1 146.3 156.8 153.4 152.8 158.4 170.6 Crot cod boo- Co=leetet A c t p 1 1/i~i.l a-to 6.o - -10 M.di-- end Loam-Tern (Disbareed 1970 1973 1975 1976 1977 1. Utticlol Irooto -/ - 6.3 - . - - nl 2. fot.l ?9blic M & LT Lo... 22.7 5O.l 182,3 150.3 223.8 f614 Delbt O.et. (DOD end of period) 90.1 133.6 264.1 336.2 436.2 d. 1RRO 5.5 18.8 38.0 35.0 12.0 Prblic Debt Service 5.6 11.2 16.6 28.5 40.7 b. IDA 8.1 6.6 - 14.o 5.0 Ietereet 2.5 5.6 10.2 15.1 21.1 Other Co hiilatera 9.1 6.9 05.3 38.9 127.5 A.cortletioc 3.1 5.6 6.4 13.h 19.6 lcoorre,octe ~~ ~~~~- 6.0 53.2 29.7 50.0 other M & L Debt levele - - - - - c. 0o eict Ceotrohly Plenccd Eco-oliec - - - - - Total Dbbt Service 5.6 11.2 16.6 28.5 ao.7 Scpplierc _ 7.8 - 11.2 .4 a. .ic.cia-. InstitutioP' - 4.1 5.6 21.5 21.0 Debt B orde- R.ti. ~~~~2.0 3.8 o.8 .4. 7.1 Memoraada, Itsee Debt Service batlo 2/ 13.1 11.3 9.7 15.7 1 Debt S-ricce/GDP 0.8 1.2 1.6 2 7 1. .rant Elhonot of Otal C-ooit-ectv 45.5 29.7 19.6 26.7 Poblic Debt Service -CeRtr-l Oce. Re7. 6.0 9.9 13.9 15.1 17.1 2. Average Interest (peroe-t) 4.1 5.8 7.9 6.1 Terkos 1. Avoroge MNtority (ye-rc) 29.6 25.2 18.9 22.3 7etere-t cc Total DOD/Total DOI 2.8 L.2 3.9 h.5 4.8 hterrnal Debt (Diobvoeed 3tly) E etimed Debt Total Debt Service/Total DOD 6.3 8.4 6.3 8.5 9.3 EEL~~~~~~~a U. roeted ,Dec.3r. 1977 =~~~t P., t. '~~~~Dedeecy Natis toe 1 & 1 Debt 01w0 8S.okuiouDt P Orcee lisbbcromeete/IPOrts)cith NFS) 11.7 5.9 21.8 1S.9 18.3 8ck G-roop S9.e 5 Net Tra.erers/Icorte 2.7 2.1 3.9 2.4 2.2 Other Otltilateral 120.3 27.6 Net Tra-ceref/OGo.s Dieb-reese to 23.3 34.8 17.8 h.8 11.8 Gooveett 129.9 29.8 E Soppilero- Crcdit. 19.6 4.5 .../ Octal Slab. 31 12.2 13.3 16.6 18.5 Ficarocie I vtitoticc 46.6 10.6 kl. Dib -./ -Tt1 total A! & L poblic Debt 136.2 10.0 Sac k Armor Dihetcroene,ee/Oro,e Total ovdieb1reeo 787.2ll ENo.5T-0010R DOD/Total lDU 33.2 31.2 01.4 20.1 19.9 ,rndisbursed) 787.2 lSo.S Lh8L O~~~0010 eli Serviva/Total Debt Sero. 38.5 40.8 35.1 23.1. 21.1 B-Nk Oroop DOD/Total 30D 80.1 h9.2 32.3 29.2 27.5 Back Orcup Debt Sler/Total Debt Serv. 39.6 43.5 37.1 24.6 21.9 LI D-riega in fore-igecueey. 2/ Debt Service sa3d Direct Ioveet.ect I-c-d, Tp) Praliielary - 25 - ANNEX II THE STATUS OF BANK GROUP OPERATIONS IN HONDURAS A. STATEMENT OF BANK LOANS AND IDA CREDITS 1/ (Net of Cancellations) (As of October 31, 1978) Loan or Credit US$ million amount No. Year Borrower Purpose Bank IDA Undisbursed Fifteen loans and credits fully disbursed 61.1 24.0 841 1972 Emp. Nacional de Generation and Energia Electrica Transmission 12.3 - 1.0 896 1973 Honduras Roads 18.8 - 0.7 434 1973 Honduras Second Live- - 6.6 1.9 stock Dev. 452 1974 Honduras Education - 3.0 0.1 954 1974 Honduras Education 3.0 - 1.9 1081 1975 Emp. Nacional de Generation and Energia Electrica Transmission 35.0 - 5.0 628 1976 Honduras Agricultural Credit - 14.0 11.2 1341/2 1976 Honduras Highways 35.0 - 25.9 1395/6 1977 Honduras/Emp. Nacional Portuaria Ports 12.0 - 12.0 696 1977 Honduras Ports - 5.0 1.9 777 1978 Honduras Education - 5.0 5.0 1576 1978 Honduras Regional Development 10.5 - 10.5 Total 187.7 57.6 of which has been repaid 25.2 0.8 Total now outstanding 162.5 56.8 Amount sold 4.5 of which has been repaid 2.6 1.9 - Total now held by Bank and IDA /1 160.6 56.8 Total undisbursed 57.0 20.1 77.1 /_ Prior to exchange adjustment. - 26 - ANNEX II B. STATEMENT OF IFC INVESTMENTS (As of October 31, 1978) Amount in US$ million Year Obligor Type of Business Loan Equity Total 1964/66 Emp. de Curtidos Centroamericana S.A (ECCASA) Tannery 0.30 0.08 0.38 1969/70 Cia. Pino Celulosa de Centroamerica (COPINO) Pulp and Paper - 0.07 0.07 1977/78 Textiles Rio Lindo, Textiles 9.00 1.00 10.00 S.A. de C.V. Total gross commitments 9.30 1.15 10.45 less cancellations, termination, repayments and sales 6.30 0.15 6.45 Total commitments now held by IFC 3.00 1.00 4.00 Total undisbursed 3.00 1.00 4.00 - 27 - ANNEX II C. PROJECTS IN EXECUTION 1/ Loan/Credit No. Ln. 841 Fifth Power Project: US$12.3 million Loan of June 28, 1972; Date of Effectiveness: December 1, 1972; Closing Date: June 30, 1979. About 90 percent of the project has been completed with the installation of the La Ceiba diesels, the interconnection to Nicaragua and other project works and studies. Its full completion will be delayed by about 3 years beyond the original estimate, resulting from the slow preparation of an expanded load dispatch and communication system for control of energy transfers with Nicaragua and from the addition of a geothermal resource study. Project costs have increased by 14.3 percent (about US$2.3 million) and will be financed by a loan from the OPEC Special Fund and internal cash generation of the Borrower. Ln. 896 Sixth Highway Project: US$18.8 million Loan of May, 30, 1973; Date of Effectiveness: August 27, 1973; Closing Date: June 30, 1979. The project's main objectives have been achieved. The construction of the Tegucigalpa-Talanga Road, the main project component, has been completed. The Comayagua-La Libertad Road, 80 Km of feeder roads, and technical and economic studies for 430 Km of feeder roads have also been finished. Preparation of engineering studies of rural roads has delayed completion of project works about one and one-half years beyond the original schedule. Cr. 434 Second Livestock Project: US$6.6 million Credit of October 29, 1973; Date of Effectiveness: January 18, 1974; Closing Date: June 30, 1979. The Government has largely achieved the objectives of this project. All funds have been committed. However, difficulties in implementation of two major sub-loans (Isletas agrarian reform banana plantation and the Tegucigalpa abattoir) are delaying final disbursements. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the under- standing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. - 28 - ANNEX II Loan/Credit No. Ln. 954 First Education Project: US$3.0 million Loan and US$3.0 million Cr. 452 Credit, both of January 9, 1974; Date of Effectiveness: April 8, 1974; Closing Date: June 30, 1979. Implementation of this project is proceeding in a satisfactory manner. The agricultural training centers are completed and courses for small farmers and their wives will begin in early 1979. The construction of the extension to the agricultural school at Catacamas and of INFOP's vocational training centers at San Pedro Sula and Tegucigalpa should be completed shortly. All teacher training facilities are in operation, except one teacher training school and three related primary application schools which should be completed by the closing date or soon thereafter. Funds for technical assistance and fellowships have not been completely used, due to delays in selecting and approving candidates, but efforts are being made to accelerate commitment of these funds. Ln. 1081 Sixth Power Project: US$35.0 million Loan of January 27, 1975; Date of Effectiveness: May 5, 1975; Closing Date: December 31, 1981. The Rio Lindo Power Plant extension was completed about 2 months ahead of schedule. All river diversion works have been finished albeit with some delays. The project is ex- pected to be completed at slightly above appraisal cost estimates but two years later than originally forecast because of the addition, with Bank approval, of new rural electrification works. Cr. 628 First Agricultural Credit Project: US$14.0 Million Credit of July 2, 1976; Date of Effectiveness: November 30, 1976; Closing Date: June 15, 1981. This credit, which includes funds for agrarian reform settle- ments as well as for individual farmers, is proceeding satis- factorily. As of June 30, 1978, some 45 subloans valued at US$4.0 million had been granted. Commitments of about US$3.5 million have been made for the provision of technical services under agreements with the National Agrarian Institute and the Pan American Agricultural School. - 29 - ANNEX II Loan/Credit No. Ln. 1341/ Seventh Highway Project: US$35.0 million Loan (including 1342 US$7.0 million on Third Window Terms) of December 16, 1977; Date of Effectiveness: March 16, 1977; Closing Date: December 31, 1981. The project is proceeding satisfactorily. The three major construction contracts have been awarded and work begun, and contracts have been awarded for the purchase of mainte- nance equipment. Preparation of the Highway Master Plan is complete; consultants in maintenance operations have been retained. Ln. 1395/ Third Port Project: US$12.0 million Loan (including US$5.0 1396 million on Third Window Terms) and US$5.0 Credit, both of Cr. 696 April 22, 1977; Date of Effectiveness: December 22, 1977; Closing Date: December 31, 1980. This loan finances the construction of Puerto Castilla on the North Coast and the expansion of San Lorenzo in the south. The civil works contract for Puerto Castilla has been awarded; the extension of the pier at San Lorenzo is nearing completion. Cr. 777 Second Education Project: US$5.0 million credit of April 6, 1978; Date of Effectiveness: August 15, 1978; Closing Date: June 30, 1982. The Government recently satisfied the conditions for effectiveness and is beginning to carry out the project. Ln. 1576 Guayape Regional Development Project: US$10.5 million Loan of June 16, 1978; Date of Effectiveness: December 18, 1978; Closing Date: April 30, 1983. The Government has just completed fulfillment of the conditions of effectiveness. Ln. 1629 Nispero Power Project: US$30.5 million Loan of November 14, 1978; Terminal Date for Effectiveness: March 5, 1979; Closing Date: September 30, 1982. The National Electrical Energy Company is expected to meet the conditions of effectiveness shortly. - 30 - ANNEX III HONDURAS INDUSTRIAL CREDIT PROJECT SUPPLEMENTARY PROJECT DATA SHEET Section I: Timetable and Key Events (a) Time taken to prepare project: June, 1977 - May, 1978 (b) Agency which prepared project: Central Bank of Honduras with Bank assistance (c) First presentation to the Bank: May, 1977 (d) Departure of appraisal mission: May 1978 (e) Completion of negotiations: December 14, 1978 (f) Planned date of effectiveness: April 30, 1979 Sectin III: Special Bank Implementation None. Section III: Special Conditions (a) COHDEFOR would participate in the project through a new Forestry Industries Financing Fund and a project unit operating under a statement of policies and procedures satisfactory to the Bank (para. 59); (b) CDI would engage consultants for improvement of its operations (para. 60); (c) FONDEI would finance up to 65 percent of costs for new industrial projects, up to 75 percent for forestry projects, and up to 80 percent for expansion and modernization activities (para. 53) at interest rates of 7-8 percent for small enterprises and 9 percent for others (para. 54). Financial intermediaries would charge subborrowers no more than 12 percent interest on FONDEI funds (para. 54). The adequacy of the proposed relending rates would be reviewed starting not later than April 30, 1980 and, if necessary in light of the review, revised by BCH and the Bank (para 55); (d) Central Bank would provide US$5 million equivalent to FONDEI as paid-in capital (para. 50); - 31 - ANNEX III (e) Proceeds of the loan would be divided so as to (i) reserve US$6 million for COHDEFOR (para. 59) and at least US$2.5 million for small industry projects (para. 52); (ii) limit any participating intermediary other than COHDEFOR to US$2.5 million of these proceeds excluding small industry projects (para. 57); and (iii) limit any single beneficiary to US$750,000 and any single COHDEFOR-sponsored project to US$1.5 million (para. 52). All subloans over US$250,000 are subject to prior Bank approval, and the first 10 small industry subloans would be reviewed by the Bank (para. 58); (f) Conditions of effectiveness for the loan would be that: (i) project appraisal and supervision guidelines satisfactory to the Bank are approved by FONDEI (para. 58); (ii) a project evaluation training program for FONDEI and other participating intermediaries has been initiated (para. 58); (iii) the BCH has paid in a US$2.5 million equivalent capital contribution to FONDEI (para. 50); CDI has made arrangements for consultants for improving its operations (para. 60); (v) COHDEFOR and at least three other intermediaries have signed agreements satisfactory to the Bank to participate in the project (para. 57); and (vi) BCH has appointed FONDEI's initial staff (para. 48); (g) It would be a condition of disbursement under the Loan Agreement for the US$6 million allocation of funds for COHDEFOR, that COHDEFOR's project unit and fund are established with operating policies of the fund acceptable to the Bank (para. 59); (h) It would be a condition of loan signing that a qualified director had been appointed to head FONDEI (para. 48). 0 0 0 0. 14' ) N Re {r -" 0 4' > P 6 ,08\ ,,, / '- 00 - S ' '> WA> p - > lj / & P 0> o 0
World Bank Group · Memorandum & Recommendation of the President
Honduras - Industrial Credit Project
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World Bank Group
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Memorandum & Recommendation of the President
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Honduras
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World Bank