Uruguay - Second Industrial Credit Project

Document of IL COpy The World Bank FLE Co FOR OFFICIAL USE ONLY Report No. P-2909-UR REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO REPUBLICA ORIENTAL DEL URUGUAY FOR A SECOND INDUSTRIAL CREDIT PROJECT November 25, 1980 This document ba a restricted ditdbution and may be med by recipints oly in the perforance of their oficial duties. Its contents may not oherwise be disclosed without Word Bank authrIaion.  CURRENCY EQUIVALENTS (as of May 2, 1980) 1/ US$1.00 = N$8.77 N$1.00 = US$0.114 N$1,000 = US$114.003 N$1,000,000 = US$114,025 GLOSSARY OF PRINCIPAL ABBREVIATIONS USED IN THE REPORT BROU - Bank of the Republic FONDO = Central Bank's Fund for Development Investment Financing IDF = Industrial Development Sub-fund of Central Bank's FONDO PAT = Technical Assistance Program of Ministry of Industry and Energy UA _ Assistance Unit (Unidad Asesora) in the Ministry of Industry and Energy GOVERNMENT OF URUGUAY FISCAL YEAR January 1 - December 31 1/ As noted in para 31, the Government is pursuing a policy of mini- devaluations.  FOR OFFICIAL USE ONLY URUGUAY SECOND INDUSTRIAL CREDIT PROJECT Loan and Prolect Summary BORROWER : Republica Oriental del Uruguay BENEFICIARIES : Government would pass on the Bank Loan proceeds cor- responding to the credit component (US$29,450,000) to the Central Bank's Industrial Development Subfund (IDF) for on-lending through commercial banks and casas ban- carias for efficient industrial and tourism projects. Through the technical assistance component, the Govern- ment would be provided with consulting services (US$550,000). AMOUNT : U$30 million equivalent. TERMS : Repayable at a fixed 12 year amortization schedule at 9.25% per annum. RELENDING TERMS In respect of the credit component, Government would absorb the foreign exchange risk between the various currencies and the US dollar or the local currency, depending whether sub-loans are expressed in US dollars or pesos as well as the risks associated with any decline of LIBOR below the Bank rate, and would make available the funds through the IDF in the Central Bank to financial intermediaries in two different ways: (a) in US dollars at a floating interest rate equal to LIBOR plus 1% and (b) in pesos subject to indexation of principal based on domestic inflation with a 0.5% interest rate. In all cases, an 0.75% commitment fee on undisbursed amounts would be charged by IDF to the intermediaries. Final interest rates to sub-borrowers would be freely negotiated between intermediaries and the subborrowers to ensure market rates as well as adequate spreads to intermediaries. PROJECT OBJECTIVES: The main objectives of the project would be to: (a) finance productive industrial, agroindustrial and tourism investments within the framework of Uruguay's import liberalization policies to improve the inter- national competitiveness of Uruguayan industrial and tourism enterprises; (b) help establish project pro- motion and formulation capacity within participating private intermediary banks; and (c) provide technical assistance to the main appraisal unit under the proposed project (UA) and to industrial borrowers to improve their production, technology, and managerial efficiency. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contenst may not otherwise be disclosed without World Bank authorization.  - ii - BENEFITS The project would help the country improve the inter- national competitiveness of its industrial and tourism enterprises within the framework of its import liberali- zation policies. The project is expected to have a significant development impact through industrial growth, foreign exchange earnings and savings, employment genera- tion and institutional improvements. About 65-80 sub- projects would be financed for a total cost of US$66 million equivalent, and direct employment generation could exceed 3,200 jobs with an average cost per job of ITS$20,000. RISKS : The project does not involve unusual risks. However, some uncertainty exists about the effects of current foreign exchange policies on industrial profitability and investment behavior. This and the new and untried institutional arrangements, might cause delays in the commitment period stage of the project. ESTIMATED COST Components Local Foreign Total --------US$ Million-------- Credit Program 19.78 45.61 65.39 Technical assistance 0.30 0.45 0.75 TOTAL 20.08 46.06 66.14 FINANCING PLAN : Local Foreign Total Government (tech. assis.) 0.20 0.20 Bank (tech. assis.) 0.10 29.90 30.00 Project Sponsors 13.19 13.19 Central Bank 4.75 4.75 B of A Loan 1.84 16.16 18.00 TOTAL 20.08 46.06 66.14 ESTIMATED DISBURSEMENTS: 1981 1982 1983 1984 Annual 4.0 12.0 10.0 4.0 Cumulative 4.0 16.0 26.0 30.0  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLICA ORIENTAL DEL URUGUAY FOR A SECOND INDUSTRIAL CREDIT PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Uruguay for the equivalent of US$30 million to assist in financing the Second Industrial Credit Project. The loan would be repaid on the basis of a fixed 12 year amortization schedule at an annual interest rate of 9.25%. The loan proceeds for the credit component would be channeled through the Central Bank's Industrial Development sub-fund (IDF) to commercial banks and casas bancarias to finance loans made by such institutions and at an interest rate of: (a) in the case of US dollars, LIBOR plus 1.0%; and (b) in the case of pesos, 0.5% of adjusted principal indexed to domestic inflation. Terms would be up to 10 years, including a grace period of up to 3 years. An amount of US$550,000 equivalent from the loan proceeds would help finance technical assistance mainly to the Ministry of Industry's Technical Assistance Program. The Government would bear the foreign exchange risk; the commitment fee to the Bank would be substantially passed on through IDF to the financial intermediaries. PART I - THE ECONOMY 2. An Economic Memorandum (No. 2706-UR) was distributed to the Executive Directors in July 1980. An economic mission visited the country in September and October 1980 to review general economic developments, with particular emphasis on the agricultural and financial sectors. Its report will be distributed to the Executive Directors later this fiscal year. A summary of Country Basic Data is attached as Annex I. Economic Performance 3. After having become one of the most prosperous countries in Latin America in the first half of the twentieth century, Uruguay's economy deteri- orated steadily in the next two decades. This was the result of policies that favored urban consumption and high-cost industrial import substitution at the expense of investment, exports and growth. A well-educated and predominantly urban population generated increasing demands for high employment, better public services and social benefits. The attempts to meet these demands took the form of fiscal, exchange rate and price policies that resulted in a sus- tained transfer of income out of the resource-rich agricultural and livestock sector mainly into consumption by the urban population. Industrial sector development, strongly stimulated by shortages of consumer goods during World War II, was fostered through a deliberate import substitution and protection policy during the immediate post-war era. However, economic growth faltered as agricultural production, productivity and exports declined after the Korean  - 2 - War. Moreover, industrial import substitution possibilities in the small domestic market were quickly exhausted. Unemployment and underemployment rose sharply. Government policies aimed at maintaining urban income and consumption levels resulted in strong inflationary pressures, capital flight and serious misallocation of resources. During the early 1970s, political and social un- rest marked by urban terrorism and labor strife further discouraged savings, investment and any initiative to expand output and exports. 4. Uruguay had instituted comprehensive welfare legislation in the 1920s when the resources that could be obtained from the livestock sector seemed inexhaustible. Progressive legislation covering such areas as social security retirement and survivors' pensions, job security, unemployment com- pensation, free health and education services provided mechanisms for redis- tributing income. Uruguay was thus able to achieve early a high level of social progress as evidenced by an income distribution pattern that compares favorably with that of many developed countries. Although Uruguay experienced a drop in per capita income during the 1960s and early 1970s, the country has attained levels that are comparable to those of some developed countries and above those of most developing countries in health (life expectancy at birth of 71 years), education (94% literacy rate), and nutrition (per capita intake of protein of 87 grams per day). 5. The redistribution mechanisms were not, however, immune to economic instability--and, in effect, contributed to it. The uncoordinated growth of the social security system and its liberal benefits, coupled with a stagnant economy and rapid inflation, caused increasing stress on the country's re- sources. Larger transfers from the Central Government were needed to provide decreasing real benefits to a growing number of people. In addition to the financial burden on the Government, the high level of contributions required by the system from employers increased the cost of labor. This high cost, coupled with the incentives to the use of capital inherent in the import sub- stitution strategy, acted as a brake on the creation of employment. Moreover, inefficient administration resulted in an inadequate level of real benefits, and, together with the old age structure of the population, resulted in a large number of people working past retirement age (though as retirement was at 55 years, this was not necessarily a great burden), further limiting employment opportunities for the groups entering the labor force, many of whom emigrated to neighboring countries. 6. Furthermore, during the quarter century extending from the end of World War II until the early 1970s, high tariff protection and an overvalued exchange rate fostered an industrial sector primarily geared towards the domestic market. The accompanying distortions in resource allocation created an economic environment which was not propitious to the development of export- oriented manufacturing industries. The subsidies implicit in the above policies also made possible the survival of inefficient import-competing enterprises. The difficulty, in many cases, of achieving economies of scale with a relatively small domestic market was also a contributing factor to the sector's inefficiency. Furthermore, the import substitution policy created a bias against agriculture by making the domestic terms of trade unfavorable to it and by discouraging traditional exports through an overvalued exchange rate. The combined effect of these factors was reflected in unfavorable trends in the external sector of the economy. By 1958, the nominal level of Uruguay's  total exports was similar to that achieved in the 1940s (around US$155 million), while the import level had increased considerably (from an average of about US$79 million in 1942-46 to US$204 million in 1957-61), and the share of imported goods in manufacturing output had also increased (from 39% to 50%). Far from achieving economic autonomy, the import substitution strategy deepened the dependence of Uruguay on imported goods, and in particular that of its industrial sector. 7. The structural changes in the world economy that emerged in late 1973 had a strong impact on the Uruguayan economy. The threefold increase in the price of imported oil (Uruguay imports 100% of its oil needs), substantial increases in other import prices, and the closing of the European Economic Community to meat imports contributed to a sharp reversal in the balance of payments, a precipitous deterioration of fiscal performance and to an acceler- ation of domestic inflation. The economic team appointed in iid-1974 deter- mined that long-term solutions to the country's economic problems went beyond stabilization and required a fundamental reorientation of economic management away from an inward-looking and towards an export-oriented development strategy. The basic objectives of the new program were the improvement of resource allocation and productive efficiency through greater reliance on the price mechanism, and the promotion and diversification of nontraditional exports, i.e., those other than grains, beef and wool. The achievement of these objectives required the freeing of domestic prices and the liberalization of the foreign trade and payment system from the burdensome controls instituted in the past. 8. The rapid implementation of export-oriented development measures yielded rapid and positive results in 1975-79. Government economic policy during this period concentrated on fostering growth in the commodity-producing sectors by eliminating various types of controls that distorted resource allocation, and by achieving a more realistic exchange rate in order to promote exports. Quantitative and financial controls on imports of raw materials and capital goods were eliminated; price ceilings on many domestic products were lifted; interest rates on deposits and loans were freed; and nontraditional exports were successfully stimulated through a policy of minidevaluations and the establishment of a system of tax rebates. Reversing policies that prevailed for thirty years, the government eliminated controls on pricing and marketing of agricultural goods in the third quarter of 1978. While the immediate effect of the removal of the ceiling was to increase beef prices by about 20%, the measure should help in the medium term to raise investment in the sector and lead to larger supplies. In a continuation of its liberalization policies, the Government reduced maximum levels of import duties and surcharges in January 1979, introduced a schedule for further reductions over the next six years, and adopted the first stage reductions in January 1980. Ultimately, the Government plans to lower tariffs to a uniform 35% level, consolidate the tariff collection system, and gradually phase out the system of protective import reference prices.  9. The economy responded to these changed policies by achieving an annual average GDP growth of about 4.5% during 1975-79, or 3.6% Per capita, compared with an annual decline of 0.2% during the previous four years. In 1979, expansion was over 8% in real terms, the highest annual rate achieved in nearly 35 'errs. Gross domestic investment also increased from an average of 13.7% of GDP in the period 1970-74 to 18.5% in 1975-79. Production of nontrad- itional exports, particularly leather and textile manufactures, led the recovery of the economy in the 1975-77 period and was instrumental in easing the foreign exchange constraint which had slowed previous development efforts. Moreover, the policy was instrumental in allowing the flow of imports to increase. The current account deficit grew from US$190 million in 1975 (5.1% of GDP) to US$317 million in 1979 (4.4% of GDP), but was more than offset by a resurgence of foreign, mainly short-term, capital inflows, resulting in gains of net foreign exchange reserves. Reserves excluding gold increased from US$73 million in lc75 to US$381 million by the end of 1979, representing roughly 4 months of imports. Official gold holdings of 3.8 million ounces had an approximate market value of US$1.6 billion as of end-1979. 10. The Government's wage and fiscal policies were instrumental in maintaining inflation during 1976-78 in the 50-60% range as compared to 75-80% in 1974-75. The Central Government's fiscal situation improved significantly during this period. The Treasury cash deficit was converted from a deficit equivalent to 4.4% of GDP in 1975 to a surplus equivalent to 0.7% of GDP in 1979. The strong fiscal performance reflected not only real cuts in expenditures--particularly on wages and salaries--but also continued real growth in revenues, mainly from improved import duty collections related to higher imports and buoyancy in value-added and corporate profit taxes. As a result of the reactivation of the economy, and the diversity of redistribu- tion mechanisms, private wage incomes barely changed, with the effects of increased employment approximately offsetting the decline in real wages per person. 11. A reversal of basic price and monetary trends occurred in 1979, however, as the rate of inflation nearly doubled to over 80%. Among the factors which contributed to this reversal were: (i) the greatly increased investment by residents in industry, con- struction and agriculture, supplemented by a surge of Argentine expenditures on Uruguayan consumer goods and real estate. Although both domestic output and imports expanded substantially, capacity constraints led to a situation of excess aggregate demand and accelerating domestic price inflation accommodated by the still high level of redundant tariff protection; (ii) the large increase in the volume of foreign capital inflows, at- tracted by high interest rates in Uruguay and a pre-announced schedule of small exchange devaluations. Dollar rates of return on peso-denominated assets rose to levels as much as 20% above comparable short-term rates available in the Euro-dollar market. Domestic credit resources were also greatly expanded by the deci- sion in May 1979 to eliminate all legal reserve requirements. Thus, emerging aggregate demand pressures were reinforced by the new monetary and financial policies;  (iii) sharp increases in world prices for beef and petroleum, which are major items in the basket of Uruguayan domestic consumption goods; (iv) catch-up increases on a large number of products decontrollc' during 1978 and 1979; and (v) drought-induced shortages of domestic food supplies. 12. The authorities have sought to curb inflation through a package of fiscal, incomes, exchange rate, and trade liberalization measures. Primary importance has been ascribed to two of these measures: (1) pre-announced small devaluations of the peso against the US dollar at rates well under the difference between international and domestic inflation--thereby allowing the peso to appreciate in real terms--and (2) the gradual reduction of import barriers (see Part III for details). These measures are aimed at promoting an eventual convergence between domestic and international inflation rates. Medium and Long-Term Prospects 13. The new price stabilization strategy thus relies on a combination of supply-increasing and demand-reducing forces--rather than only the latter--to lower the long-term rate of domestic inflation, while at the same time inducing a restructuring of the economy toward the most efficient sectors. There is some concern about the adjustment burden these policies may impose upon the economy, particularly upon the traded-goods sector, and the long-range effects of real exchange rate appreciation-if it continues for too long-and uneven tariff protection on resource allocation. Merchandise exports declined 5.7% in real terms during the first half of 1980 relative to the first half of 1979, reflecting chiefly declines in beef and in non-traditional exports (-19% and -13%, respectively). A contraction of world demand and the continuing appreciation of the peso were the principal factors affecting non-traditional exports whereas marketing restrictions have hampered beef exports. (The decision to accelerate slightly the monthly pre-announced devaluations from 16% over the year ending in March 1980 to 21% in the year ending in March 1981 was apparently taken in response to official concerns about lagging exports.) Imports rose 15.6% by volume with capital goods and fuels showing the largest increases (96% and 25%, respectively). Oil stocks declined sharply in 1979 and are now being restored to more normal levels, whereas the rise in capital goods imports reflected substantial new public sector investment particularly in energy and transport, as well as investment in the private construction and import-competing industrial sectors. The current account deficit of US$283 million through the end of June 1980 was nearly as large as for all of 1979, but was more than offset by approximately US$400 million in net capital inflows, so that international reserves grew by US$120 million relative to the end of 1979. Public external debt, including short-term, rose 5% relative to end-1979 and now totals US$1.1 billion. 14. The continued overall strength of the economy and recent progress in reducing inflation have encouraged the authorities to maintain their present adjustment policies. Data through September 1980 indicate that consumer price inflation is currently running at around 50% annually with further declines likely before the end of 1980. Real GDP in the first half of 1980 was 6.5% above that of the first half of 1979. Growth was led by the construction,  - 6 - retail services, and agricultural sectors. Unemployment fell from 8.1% as of end-1979 to 6.6% as of end-June 1980 and real salaries rose 15%. For all of 1980, it is projected that real growth will range between 5.0% and 6.0%, inflation between 40% and 45%, and the overall balance of payments surplus between US$150 million and US$200 million. 15. The major changes in the direction of economic policy undertaken in 1975-80 and the private sector investment response to those changes augur well for the long-run development of the Uruguayan economy. The projections summarized below assume that the Government will continue to foster an open economy with due regard for the maintenance of a sustainable external balance. 16. Under such a policy framework, GDP could/grow by about 5% a year during 1981-84, with gross domestic investment at about 20% of GDP and a resource gap of about 2% of GDP. Since the populatioa is projected to grow by 0.9% per year, per capita GDP growth would be a highly satisfactory 4% per annum. Because infrastructure investment is projected to absorb a higher- than-normal share of total investment resources--and thereby reduce the amount available for directly-productive purposes--the capital-output ratio is assumed to be relatively high, i.e., on the order of 4.5. Based on the likely finan- cial resource availabilities and the public sector's absorptive capacity, public sector investment is projected to increase from an average of 3.8% of GDP during 1976-78 to 6% in 1984. This appears to be adequate to address the most urgent physical and social infrastructure needs of Uruguay's growing economy. Corresponding to higher anticipated levels of investment, imports of capital goods are projected to grow rapidly. However, in view of an expected pause in the growth of real fuel imports as additional hydroelectric capacity replaces power now being generated by thermal plants, total imports in constant prices are expected to grow by less than 6% per year during 1981-84. Real exports, on the other hand, could grow by around 6.3% annually, provided cost-price relationships are held in line with world trends. This assumes continued success in expanding non-traditional exports and large increases in meat exports after 1981 when the livestock investments undertaken in 1978-79 will have matured. 17. The current account deficit would average about US$640 million a year. Gross capital requirements to finance this deficit, meet amortization payments and maintain prudent minimum foreign exchange reserve levels are projected at around US$900 million a year. Public sector borrowing is expected to cover roughly half this need--around US$490 million annually. New commitments of about US$600 million a year would be required to support the projected disbursements of public sector loans, of which roughly two-thirds would come from foreign private commercial banks. About one-quarter of the financial flows--or US$200 million annually--is projected to derive from net new foreign direct investment, mainly in real estate and construction, while the rest would be provided by increases in non-resident banking claims on domestic banks and by private non-guaranteed borrowing, chiefly suppliers' credits. Assuming a continuation of the structural changes already initiated by the Government, Uruguay should be poised for a period of steady growth and remain creditworthy for borrowing on conventional terms. The total debt service burden (public and private borrowing) plus payments of royalties  -7- and dividends, although projected to rise from 16% in 1979 to 24% of goods and non-factor services in 1984, will remain moderate relative to levels reached during the early and mid-1970s and leave the country with some flexibility to increase public borrowing, as necessary, should the flow from private sources fall short of expectations. As of August 31, 1980, the Bank held US$211.4 million of long-term debt in Uruguay, including US$138.8 milliCT'r undisbursed. The Bank's share of Uruguayan external debt, disbursed and undisbursed, represented 11.4% of the total. It is anticipated that this share will decrease over the next several years in light of an anticipated slowdown in the rate of new borrowing from the Bank and the growing role of private foreign bank lending in financing Uruguay's external borrowing requirements. PART II - BANK GROUP OPERATIONS IN URUGUAY 18. To date, Uruguay has received US$327.2 million (net of cancellations) in Bank loans. On a sectoral basis, Bank assistance to Uruguay (18 loans in total) has been for power (32%), transport (29%) and livestock (30%), industry (6%) as well as vocational training and technological development (3%). IFC has made four investments in Uruguay: in Fabrica Uruguaya de Neumaticos S.A. (US$3.8 million) to introduce radial tire production, increase tire manufac- turing capacity and improve operating efficiency; in Acodyke Supergas S.A. (US$950,000) to help finance a new liquid petroleum gas bottling plant; in Astra Pesquerias Uruguayas, S.A. (US$4.5% million in loans and up to US$0.9 million in equity) to help finance an integrated fishing and processing project; and in Sur Invest Corporation (US$10 million in loans and US$667,000 in equity) to assist this newly established casa bancaria in funding its leasing operations. Execution of these projects has, on the whole, been satisfactory. Annex II contains a summary of Bank loans as of August 31, 1980, and IFC investments as of September 30, 1980, and notes on the execution of ongoing projects. 19. In FY80, a loan of US$24.0 million was approved in December for a Fifth Power Project, in January a loan of US$50 million for the Montevideo Port Project, and in April a loan of US$24 million for an Agricultural Devel- opment Project. In addition to the proposed project, work is underway on a telecommunications project for possible consideration by the Executive Directors during the next year. 20. The Bank, in its program in Uruguay, is trying to assist the Govern- ment in implementing its strategy for putting the economy on a path of sus- tained growth. More specifically, the objectives of the Bank's program are to: (i) foster productive activities by promoting the expansion and diversi- fication of export earnings; (ii) help strengthen the country's sectoral policies and public sector institutions; (iii) improve and promote the inte- gration of the economy with the large markets of neighboring Argentina and Brazil, as well as as with overseas markets; and (iv) assist the country to develop policies and programs to diversify its sources of energy. 21. The proposed project is designed to help improve the international competitiveness of industrial and tourism enterprises as well as expanding nontraditional exports, the principal vehicle for economic growth; at the same  8- time, the project will support simplifying the cumbersome tariff and import regulation structure and lower the rate of protection, which is necessary to increase the efficiency of the industrial sector. Lending for agriculture is designed to continue supporting increased production in the livestock subsector for exports as well as helping the Government to gradually place greater emphasis on expanding crop production, while encouraging the government to follow agricultural marketing policies responsive to the free operation of market forces. Bank lending for power, telecommunications and transport is designed to support the Government efforts to rehabilitate and modernize the country's key infrastructure to foster sustained economic growth, rising in- come, exports, and employment, and also assist Uruguay's efforts to integrate with its neighbors (Brazil and Argentina) and its other major trading partners. PART III - THE INDUSTRIAL SECTOR AND FINANCIAL SYSTEM Recent Performance and Prospects 22. After almost two decades of stagnation with GDP per capita declining 1% p.a. between 1955 and 1973, manufacturing industry in Uruguay has developed a new dynamism with the annual growth in production averaging around 7.5% between 1974 and 1979. The rise in output of more than 10% achieved in 1979 represented the largest annual increase since 1953. During the last five years, the sector's performance exceeded that of the rest of the economy and its share in GDP rose from 25.8% in 1974 to 31.7% in 1979. 23. The surge in industrial activity is associated with the measures which the Government has taken since 1973 to reverse the previous inward- oriented strategy and to open the economy, as described in Part I. Through 1978, the expansion in exports of manufactures was the major element in the rise in manufacturing output. Starting in late 1978, there were sharp expan- sions in demand within the domestic market, although some of this probably reflected indirect exports, and purchases by the large number of Argentine tourists who have been visiting the country. The expansion of exports was highly concentrated among non-traditional manufactures based largely on local raw materials; as compared with 54% of total exports in 1974, these items accounted for 61% in 1979. Exports of manufactured products (excluding food, beverages and tobacco) represented about 15% of the gross value of comparable industrial output in 1978 as compared to 7% in 1974. 24. Uruguay had traditionally been a major world exporter of both raw wool and hides and skins. The country has now moved towards the export of more advanced manufactures of these items, which are sold in the markets of the main developed countries. This evolution has been most marked in the case of leather, particularly leather garments and shoes. In the case of wool, the structural change in exports has until recently been more moderate but in recent years there has been a substantial expansion in exports of woolen garments as world demand for these items appears to have risen. Exports of other manufactured products, such as automobile parts and tires, ceramics, cement and industrial chemicals have also shown relatively large increases. Most of these products are sold within the former Latin American Free Trade Association region, particularly to Argentina and Brazil, and benefit from regional preference arrangements as well as from the special bilateral trade agreements with these two neighboring countries.  - 9 - 25. As a consequence of the growth of manufactured exports, there have been some modifications in the structure of industry. Export-oriented sub- sectors (e.g., textiles, clothing, shoes and leather products) increased their share in total value added in the sector at the expense of sub-sectors depen- dent upon the local market (e.g., metals, machinery and equipment) or tradi- tional exporv- (e.g., food, beverages and tobacco). These developments have resulted in the generation of substantial new employment opportunities. Since 1975, the increase in employment has remarkably paralleled the growth of the value added in manufacturing in constant prices. Labor intensive branches such as clothing, shoes and leather products, generated more than 40% of the increase in employment between 1975 and 1978. 26. In mid-1973 the Government adopted an industrial investment promo- tion law to encourage the growth of industries of "national interest". The main criterion for coverage is the extent to which the enterprise contributes to expanding and diversifying exports in an efficient manner. The main in- centive is a reduction of the tariffs on imported capital goods to 10%. Since the establishment of the mechanisms for administering the law in early 1974, there has been a substantial flow of requests for obtaining its benefits. In mid-1980, pursuant to the reversal of price and monetary trends referred to above, a growing number of enterprises were cautious with regard to expansion plans, particularly in the case of export-oriented industries whose interna- tional competitiveness has been affected by the appreciation of the real exchange rate and the reduction of export incentives. Real non-traditional export growth slowed in the last two and one-half years to less than 2% annually. Moreover, the recession in world markets raised some questions as to future demand growth. For a number of industries which have benefitted particularly from the relatively advantageous position Uruguayan products enjoy in Argentine markets or from the flow of tourists to Uruguayan resorts, the special prob- lems of uncertainty over income growth in Argentina posed additional obstacles to further investment plans. Similarly, industries which had become dependent upon exports to Brazil, particularly those items subject to preferential treat- ment under the bilateral agreement, were confronted in December 1979 with a major change in their competitive position as a result of the substantial cruzeiro devaluation and tighter import controls. 27. However, consistent with the Government's aim of promoting convergence between domestic and international inflation rates, data for the first nine months of 1980 indicate that the increase in consumer prices has decelerated markedly relative to the same period in 1979. With the acceleration of the nominal rate of preannounced dollar-peso devaluations discussed in Part I, there are grounds to believe that appreciation of the exchange rate will slow significantly. This in turn could alleviate industry concerns about exchange rate policy and encourage new investment. In fact, according to a recent survey of 99 medium to large industrial firms under-taken by the Ministry of Industry, intended industrial investment in 1980-82 appears to be quite substantial when compared to previous years. The surveyed firms indicated planned investments of close to US$210 million in 1980-82, primarily to modernize their plants, to improve product quality or to reduce operating costs. Further indications of a strong demand can be seen in the fact that the available funds under the first industrial loan to finance export-oriented  - 10 - projects are currently being committed at a faster rate than in the past and in the near-doubling of real capital goods imports during the first half of 1980 relative to the first half of 1979. 28. For the bulk of those enterprises serving the local market, the shift from the import substitution industrialization strategy to a more open economy approach should not cause major dislocations. Economically viable production is possible for a wide range of finished consumer goods and for many agricultural and construction inputs where economies of scale are not significant or where transport costs are important. Moreover, as evidenced by trade patterns during more normal periods, a good portion of Southern Brazil and parts of Argentina along the Uruguay River lie within a natural market area for Uruguayan products. Domestic enterprises will, however, require important investment programs to modernize and improve efficiency and some have already begun that process. In this connection, a number of firms would benefit from the liberalization measures, which would provide them with access to cheaper and better quality imported intermediate goods, enabling them to compete more favorably with imports of finished products. 29. There is, nevertheless, a group of industries which have been dependent in part on excessively high effective protection and which were, as constituted, unlikely to be able to meet external competition under a more liberal import policy. Most of these are- among consumer electric and elec- tronic appliances and mechanical engineering branches that are based on imported components with low or no tariffs while the final products are subject to high tariffs. Several of these enterprises have already begun to rationalize their production, specializing in one or a limited number of products, and some have been able to develop export capacity. These have included skill-intensive products such as dies, metal fasteners and simple agricultural tools which benefit from the availability of relatively inexpen- sive skilled labor in the country. 30. The new trade and internal pricing policies are expected to shift the long-run terms of trade towards agriculture and to encourage greater investment in, as well as diversification of, that sector. To some extent, this will lead to the production of many agricultural items which will be subject to further processing, particularly for export. As a consequence agro-industries are likely to be among the more dynamic manufacturing activi- ties in the future and new projects will tend to concentrate in these sub- branches. Some examples which have already emerged are milk-based concentrated protein solids and a wide range of processed fruits and vegetables, as well as the entire group of processed fish and shellfish. Exchange Rate and Export Incentive Policies 31. In 1972 the Government introduced the policy of periodic mini- devaluations in contrast to the prior practice of irregular major devaluations. Since October 1978, the devaluation has been pre-announced for varying periods of time. The intention of this policy has been to use exchange rate policy to reduce inflation as the pre-announced rates have generally been below the difference between domestic and international inflation. From 1973 through  - 11 - 1977, the measures taken by the authorities resulted in a substantial depre- ciation of the real exchange rate (15 percent on an export-weighted basis). With the introduction of the pre-announced rates, the peso experienced a 1.9% appreciation in, 1978, a 14% real appreciation in 1979 and a further 8% appre- ciation during the first 8 months of 1980. 32. While the real exchange rate devaluation played an important role in improving the international competitiveness of Uruguayan manufacturers until the end of 1977, the establishment of a number of incentive measures was also helpful in making the export of Uruguayan products profitable. Under the "reintegro" program, which in 1972/73 was extended to promote a wider range of exports of non-traditional products, the percentage of tax rebate offered to exporters reached as high as 46% of the f.o.b. price for certain consumer goods products. In 1978 and 1979, however, these rebates were considerably reduced, declining to around 14% of the f.o.b. value of eligible exports. At the end of 1978, the Uruguayan authorities sharply curtailed "reintegros" for certain woollen and leather products exported to the United States, although retaining the program for exports to other markets. This measure was taken after the US Government moved to impose countervailing duties on imports of these items from Uruguay and resulted in sharp declines of these exports to that market. In December 1979, the government formally adhered to the Code on Subsidies and Countervailing Duties, making known in an accompanying GATT Declaration that it intended gradually to eliminate all export subsidies as from 1982, excepting the reimbursement to exporters for internal taxes. In March 1980, the Uruguayan authorities reinstated the previous levels of export incentives for exports. Subsequently, in a June 1980 policy state- ment dealing with exchange rate and commercial policies, the government announced its intention to continue all of the reintegros at the current levels until December 31, 1981, after which they would be gradually reduced to a uniform level of 5% by 1985. 33. A second measure to stimulate exports, introduced in 1976, involved highly subsidized interest rates for financing both production for export and export shipments. In line with other measures adopted since 1978 to decontrol interest rates, this system of financing was eliminated in early 1979. Import Liberalization 34. Uruguay's import substitution possibilities were largely exhausted by 1958, while the country's real export level continued to decline for another 15 years, as unfavorable conditions in international markets for beef and wool reinforced the export-depressing effects of domestic policies. This situation produced an appreciable fall in the level of imports (from about 17% of GDP in the late 1950s to 12% during 1965-67), which adversely affected the import-dependent industrial production. Thus, the manufacturing sector, in turn, stagnated during 1958-74. 35. Import liberalization has represented a major objective of official policy since the early 1970s. A first step was taken in 1975 with the elimin- ation of import quotas but the major task remained of overhauling the extremely complex import protection system which includes tariffs, surcharges, consular  - 12 - fees, port charges, arbitrary reference prices ("aforos") upon which the sur- charges are applied, and multiple administrative requirements. In December 1978, a decree was issued establishing guidelines to reduce the overall level of protection through (a) consolidating tariffs, surcharges and special taxes into a sin?. overall rate which would be lowered to 35% by 1985 on the basis of equal annual reductions beginning January 1, 1980; (b) unifying the adminis- trative requirements which are currently supervised by at least four agencies of the government; and (c) eliminating the "aforo" system. At the beginning of 1979, an interministerial committee was established with responsibility for working out the details of implementation. In the course of its work, the committee recommended immediate tariff reduction to the 35% target level for about 500 items which were not being produced locally. Substantial tariff reductions were also introduced for a small number of items where price rises had occurred faster than justified by local cost increases. 36. On January 4, 1980 a decree was published, which incorporated the first stage of the tariff reductions scheduled for 1980 ranging in nominal terms from around 6% ad valorem on items bearing the lowest tariffs to 13% on those bearing the highest. A single tariff classification was defined and single tariff rates were established for these items incorporating the four previous components--the "normal" tariff, the surcharges, consular fees and port charges. However, the components were separately identified and in place of the expected single collection, each of the participating agencies continued collecting its individual share. In addition, although the prin- ciple of applying the tariffs to c.i.f. import prices was established, author- ity was given to the Minister of Economy to formulate a system of reference prices in instances where it was shown that dumping was taking place. By administrative decree in March 1980, a reference price system was established based on the prior "aforo" system. 37. The value of imports has risen steadily since the first petroleum price increase at the end of 1973. During recent years, however, the main elements in the import rise have been non-petroleum items. In 1979, the value of imports rose by almost 60% over the previous year, half of which was attributable to volume increases in virtually all categories of products other than petroleum. This expansion reflects in part the measures taken during 1979 to reduce tariff protection. The number of tariff categories in which imports were registered increased from 4,900 in 1978 to 8,400 in 1979. Paradoxically, there was a sharp increase in actual tariff receipts as a percentage of the total value of imports. The latter occurrence can be explained by the fact that, for a number of products not produced in the country and not previously imported, reducing the previously prohibitive protection led to the emergence of new imports at still substantial tariff rates. Moreover, on imported products competing with domestic production, the high effective protection afforded by the prevailing system was eroded by the nearly 16% appreciation of the import-weighted real exchange rate in 1978 and 1979. Because of this, net effective protection declined by more than the amount implied by the tariff reductions alone. The study of the import liber- alization process which is to be undertaken in connection with the proposed loan is expected to examine in more detail the precise nature of the impact of that process (see para. 57 below).  - 13 - 38. Continued progress in meeting the timetable for import liberaliza- tion established in the decree of December 1978, as well as in eliminating the obstacles which have resulted in only partial achievement of the targets set for this year, will largely determine, in conjunction with exchange-rate policy, the future vitality of Uruguayan exports. It will also provide the surest incentive to upgrade and modernize domestic industry, thereby lessening the chances of a return to the economic stagnation and social deterioration of the recent past. The proposed loan is being structured to the tariff reduc- tion program enacted in December 1978 and provides for a review and analysis of the progress achieved in reducing tariffs with a view to ensuring that loan proceeds will have a maximum impact on the process (see para. 57). Contract- ing of the study would be a condition of effectiveness of the loan. The Financial System 39. The banking system in Uruguay comprises the Central Bank of Uruguay, three state banks - Banco de la Republica (BROU) the Mortgage Bank and the Insurance Bank - twenty-one private commercial banks and seventeen casas bancarias. Casas bancarias are new institutions established since 1977 and able to engage in all operations open to commercial banks, except obtaining deposits from Uruguayan residents and offering checking account facilities. The financial system comprises, in addition, several small insurance companies (life, fire and maritime transport) and the Montevideo Stock Exchange. Cur- rently there are no development banks in Uruguay. 40. The Central Bank was established in 1966 with responsibilities for formulating and executing monetary and credit policy, supervising and control- ling the banking system, issuing currency and managing international reserves. Until 1966, BROU was in charge of central banking activities, and at present continues to be in charge of some fiscal activities for the Government (e.g. collection of certain duties and tariffs) and some official foreign exchange transactions, in addition to commercial and long-term agricultural lending activities. 41. Commercial banks were severely affected by several Uruguayan eco- nomic crises in the 1963-74 period, when the total number of private banks decreased from 81 to 21 as a result of financial failures or mergers to avoid bankruptcies. In 1965, the Government prohibited the establishment of new private banks to help minimize financial difficulties for existing banks. This prohibition has tended to inhibit competition among banks, which in turn has affected the quality and variety of banking services. The present Govern- ment's financial and monetary policies on the other hand, have been reversing the trend by liberalizing the financial sector, which has given new momentum to the banking system. Competition and credit volume have increased substan- tially since 1974 as a result of increased demand for credit and influx of capital from abroad. Deposits and financial assets have averaged a real growth rate of 10% p.a. in 1974-79. The commercial banking system's credit to the private sector has grown by 123% in real terms since 1974. As of December 31, 1979, the system's credit outstanding to the private sector amounted to N$ 19 billion (US$2.2 billion), which is equivalent to 34% of GDP compared to only 18% in 1974. The private commercial banks were responsible  - 14 - for most of the growth, and as a result, BROU's participation in the financing of the private sector decreased from 54% in 1974 to 29% in 1979. The recently established casas bancarias have also participated actively and accounted for 5% of total private credit at the end of 1979. Similarly, the establishment of a merchant banking-type institution, Sur Invest, with the support of IFC, may help develop underwriting and equipment leasing operations in the Uruguayan financial market. Sur Invest would be eligible to participate under the pro- posed project. The First Industrial Credit Project 42. The US$35 million Industrial Development and Export Promotion Proj- ect (Loan 1176-UR), which was approved in December 1975, originally had two principal components: (a) US$24.5 million to be used for financing imported raw materials, spare parts and packing materials used by Uruguayan exporting industries; and (b) US$10 million for financing industrial export subprojects. Because of slow utilization of the first component, and of the improved balance of payments position of Uruguay, US$14.2 million were cancelled in February 1977, and the previously disbursed funds under that component (US$10.3 million) were transferred to the subproject financing component. Of the total of US$20.8 million subsequently available under the second component, US$18.3 million were committed by August 15, 1980, for the financing of 30 subprojects, with a total investment cost of US$32 million. Additionally, 13 technical assistance subprojects totalling US$0.23 million equivalent have been approved under the project. The net foreign exchange impact of the sub- projects financed under the loan is estimated to amount to US$56 million, equivalent to 1.8 times the total investment costs and to 3.1 times the Bank's resources. 43. Under the first project, the Central Bank established in November 1975 the Fondo de Financiamiento de Inversiones para el Desarrollo (Fondo) to channel long term resources through the banking system for financing private industrial projects. Experience under the Fondo program shows that the cost per job has been about US$20,000 (a total of about 14,000 jobs were created under the Bank/AID program). Initially, the resources channeled by the Fondo were the US$20.8 million from the first credit project and US$4.6 million from an AID agroindustrial loan. Subsequently, other lines were incorporated into the Fondo: an IDB loan (US$15 million) for meat packing subloans and a KfW loan (US$26.6 million equivalent) for fisheries subloans. Subloans were appraised by the staff of the Unidad Asesora (UA, the appraisal unit in the Ministry of Industry and Energy for the earlier and the proposed projects), and subsequently reviewed and approved by an interinstitutional committee (the Coordinating Committee) with representatives of the Central Bank, the Ministries of Finance and Industry, and the Planning Office. As an incentive to interme- diate and long-term loans, financial institutions were allowed to obtain guar- antees up to 60% of Fondo subloan amounts from a Guarantee Fund established by the Central Bank, also under the first project. This two-tier credit system proved itself a viable mechanism in Uruguay for financing efficient industrial projects. 44. While Fondo operations have overall been successful, its organiza- tion and lack of integrated policies have prevented it from providing a continuous flow of resources to the productive sector. Each of its lines  - 15 - of credit has been governed by its own regulations and relending conditions. Credit lines incorporated after the Bank's first industrial credit and AID's agroindustrial loans required institutions other than UA to appraise subprojects with different appraisal criteria and standards (Instituto de la Carne and Instituto de Pesca for IDB and KfW subloans, respectively). Moreover, the Fondo has not had local funds to supplement its foreign credit lines and permit financing of local costs. Now that the two most active and successful credit lines (AID's and the Bank's first industrial loan) have been fully committed, the Central Bank intends to establish a new Industrial Development Fund (IDF) as a sub-fund of FONDO, that has been designed with Bank's assistance, with new operating policies and procedures that will be common for all lines of credit. As the first Bank financed project is still in execution, no OED report has been prepared. PART IV - THE PROJECT 45. A report entitled "Staff Appraisal Report for a Second Industrial Credit Project" (No. 3095-UR, dated November 18, 1980) is being distributed separately and a Loan and Project Summary is placed at the front of this report. A supplementary Project Data Sheet is appended as Annex III. The project was prepared in November 1979, was appraised in March 1980 and post appraised in July 1980. Negotiations were held in Washington in October 1980; the Uruguayan delegation was led by Mr. Carlos Corti, Under-Secretary of the Ministry of Industry and Energy. Project Objectives and General Description 46. The proposed project aims at helping the country to improve the international competitiveness of its industrial and tourism enterprises. To this end the project is designed to: (a) finance investments within the framework of Uruguay's import liberalization policies to improve the inter- national competitiveness of Uruguayan industrial and tourism enterprises; (b) help establish project promotion and formulation capacity within parti- cipating banks; (c) provide technical assistance to the main appraisal unit under the proposed project (UA) and to industrial borrowers to improve their production, technology, and managerial efficiency. This effort would complement efforts underway in connection with Loan 1594-UR (US$9.7 million), approved in 1978, which is designed to provide vocational training to indus- trial workers and assistance for technological research and development for export-oriented industries, and the work being done by the Centro Nacional de Tecnologia y Productividad Industrial, which, through a UNDP-financed project, is providing technical assistance to industrial enterprises in a limited numbers of subsectors. 47. Credit would be made available through three types of subloans for industrial and tourism enterprises: (a) project investment financing, up to US$4 million of cumulative Bank lending per borrowing enterprise (with maturi- ties between 4 and 10 years, including grace periods of up to 3 years); (b) technical and management consulting financing up to US$80,000 equivalent per borrowing enterprise (with maturities between 3 and 5 years, including a grace period of up to 1 year); and (c) preinvestment financing, under the same limits and terms as in (b). As under the first industrial export and  - 16 - development credit, all subloans would be appraised by UA and approved by an inter-institutional committee, the Coordinating Committee. In addition, all subloans above US$500,000 equivalent (the new free limit under the project, compared to TTS$200,000 under the first project) would be submitted for approval tc the Bank (Section 4.01(b), (c) and (e) and Schedule 2 of draft Loan Agreement). Free-limit subloans are expected to amount to about 30 subprojects covering about three-fifths of the loan amount. Under the tech- nical assistance component up to US$350,000 would be made available for the following purposes: (A) for UA to hire an experienced consultant in project promotion and analysis to: (i) prepare material for use of participating banks in formulating projects and for training of participating banks in project formulation as required under this project; (ii) help to carry out a training program for the staff of UA; and (iii) work with participating intermediaries to assist industrial clients in the formulation of subprojects; (B) for UA to hire short-term cor.sultants for sectoral and market analyses, procurement matters and technical analyses for specific subprojects as necessary; (C) to cover the Government's counterpart contribution for 1981 for the foreign exchange costs of the UNDP Industrial Investment Promotion Project (a project with UA); (D) for foreign travel expenditures related to training UA staff, including visits to development finance companies in other Latin American countries, in accordance with a program to be agreed by June 30, 1981. In addition, US$200,000 would be used to finance the study of trade policies (Section 5.01(b) of draft Loan Agreement). Project Organization and Execution 48. The proposed loan for a total of US$30 million equivalent would have two components: (a) US$29.45 million for investment credit and (b) US$0.55 million for financing technical assistance to the Government. Resources of the credit component would be passed on by the Government to the Central Bank's Industrial Development Fund (IDF) to be established as a sub-fund of FONDO under the project for onlending through commercial banks and casas bancarias to efficient industrial and tourism projects. The Government would take the full foreign exchange risk between currencies involved in the Bank loan and the currencies in which subloans would be expressed (US dollars or pesos) as well as the risks associated with any decline of LIBOR below the Bank rate. Under the proposed project, the Central Bank would establish the IDF, the Unidad Asesora (UA) of the Ministry of Industry would continue strengthening its organizational structure and project appraisal and supervi- sion capabilities, and financial intermediaries would be given incentives to participate more actively in project promotion and formulation. 49. The Industrial Credit Fund. The reasons noted in para 44 above call for the setting up of a unified Industrial Development Fund (IDF). The establishment of IDF as a sub-fund of FONDO in a form satisfactory to the Bank and together with the enactment of its policy statement also satisfactory to the Bank, would be a condition of loan effectiveness (Sections 8.01(a) and (b) of draft Loan Agreement). IDF would provide financing for industry and tourism, including small scale enterprises. IDF resources would initially amount to US$52.25 million, as follows: (a) US$4.75 million originating from the Government and the Central Bank's original counterpart contributions of US$2.25 million to the AID agroindustrial loan, and US$2.5 million to the Bank's first industrial credit loan; (b) US$29.5 million from resources from the proposed project; and (c) US$18 million from the Bank of America credit  - 17 - line recently made available. This is part of a loan of US$85 million made by the Bank of America on October 3, 1978 to the Central Bank at an interest rate of LIBOR plus 1.25% for 10-1/2 years, including 4 years of grace. The avail- ability of funds to IDF as called for under (a) would be a condition of loan effectiveness (Section 8.01(d) of draft Loan Agreement). Loan recoveries, plus interest and fees income, would be used to serve the Borrower's or Central Bank's IDF-related debt, and remaining balances to finance further investment projects and the Central Bank would ensure that IDF's equity value be maintained in real terms and protected from a possible devaluation of the Uruguayan peso. IDF's cash resources would be maintained in convertible foreign currencies or in securities expressed in the same currencies. 50. The Programa de Asistencia Tecnica (PAT) and Unidad Asesora (UA). The export and agroindustrial subprojects financed by the Fondo were required to be appraised by the P'.T, a technical unit established in April 1975 in the Ministry of Industry, under the supervision of Unidad Asesora, which has been in charge of administering the Investment Promotion Law of 1974. PAT has progressively improved its appraisal capability. By 1977 PAT had already acquired the respect of the financial intermediaries for the high quality of its appraisal work, which has, overall, given a careful and thorough treatment to financial analysis, a difficult task in Uruguay due to distortions created by the high inflation environment. Economic analysis, including employment and balance of payments impacts, have had a sound treatment and provided a good basis for resource allocation. PAT's appraisal work, on the other hand, has been highly manpower intensive and PAT's processing capacity has been limited. On the average, an individual subloan has taken between 4 to 8 months to appraise. Duplication of responsibilities between the President of UA and the Director of PAT have created frictions and administrative difficul- ties; at negotiations, therefore, the Uruguayans indicated that the two units would be merged as UA under a new administrative arrangement; this is a condition of effectiveness of the draft Loan Agreement (Section 8.01(e)). Under this arrangement, UA would absorb all the functions formally handled by PAT (Sections 4.09 and 4.10 of draft Loan Agreement). To channel more of resources through the two-tier system, and to reach a larger number of small enterprises, UA would be expected to delegate most of its present promotion and project formulation responsibilities to financial intermediaries. Given the maturity and experience obtained so far by PAT and UA, and the interest shown by several financial intermediaries, such delegation of authority appears to be feasible. While three separate departments covering promotion, appraisal and supervision had been set up under PAT's director, the area of supervision still remains weak. To strengthen supervision under the project intermediaries would provide a periodic follow up of the financial condition of the borrowing enterprises. In addition UA's supervision manuals and guidelines would be revised and its supervision staff increased. Assurances have been obtained that UA would be provided at all tines with staff and resources sufficient to discharge its responsibilities under IDF's programs. The Government has also undertaken that the salary structure of UA staff would permit hiring and retention of high quality personnel (Sections 4.09 and 4.10 of draft Loan Agreement). 51. Participating Intermediaries. Under the proposed project, financial intermediaries would be required to carry out promotional work and project- formulation assistance work. The latter would consist of: (a) helping the industrial clients in preparing adequate terms of reference for consultants,  - 18 - ensuring that project formulation will be adjusted to UA's guidelines; (b) follow-up of consultants' work during formulation, including review of interim reports to verify coverage and adequacy of treatment of the projects' most critical agpects; and (c) reception from the consultants of adequate formulation work that satisfactorily covers the following aspects of the subprojects: (i) administration; (ii) market analysis; (iii) production-cost structure and evolution; (iv) financial analysis, including financial rate of return calculation and preparation of realistic pro-forma statements (balance sheet, income statement, and use and source of funds; and (v) economic analysis including economic rate of return calculation and estimation of employment and balance of payments impacts. The signing by the Central Bank of partici- pation agreements with at least two intermediaries would be a condition of effectiveness for the proposed Loan (Section 8.01(c) of draft Loan Agreement). Further subsidiary agreements between the Central Bank and participating intermediaries would govern specific subprojects. To encourage long term lending operations by financial intermediaries, the Government intends to maintain the Guarantee Fund (see para. 43) at least during the disbursement period of the proposed loan, including the feature that the portion of loans guaranteed by the Guarantee Fund will be excluded by the Central Bank in the calculation of the debt/equity ratio of banks and casas bancarias. RelendinR Terms 52. The Bank subloans and those from IDF's own resources could be expressed either in US dollars or in pesos, at the option of the industrial borrowers. Government would absorb the foreign exchange risk between the various currencies and either the US dollar or the local currency, depending on whether subloans are expressed in US dollars or pesos. Government would also assume the risks associated with any decline of LIBOR below the Bank rate and would make available the funds through IDF in the Central Bank to financial intermediaries in two different ways: (a) in US dollars at a floating interest rate equal to LIBOR plus 1%; and (b) in pesos subject to indexation of prin- cipal based on domestic inflation with a 0.5% interest rate. In all cases, a 0.75% commitment fee on undisbursed amounts would be charged by IDF to the intermediaries. Final interest rates to sub-borrowers would be freely nego- tiated between intermediaries and the sub-borrowers to ensure market rates as well as adequate spreads to intermediaries. (Part A, (a), (iii) and (b) (iv) of Schedule 2 to draft Loan Agreement). The authorities expect that both will be at reasonable levels, since there is likely to be adequate competition given the existence of 21 banks and 17 casas bancarias. In any event, assur- ances have been obtained that make it possible for the Bank to request consul- tations with the Central Bank on the operations of the IDF (Section 4.07 of draft Loan Agreement); this could be the basis for review if excessive rates or spreads were to materialize. Since repayments for all subloans would be made semi-annually, the base LIBOR for a semester would be estimated as the arithme- tic average of rates outstanding on the last 30 days prior to the payment date. IDF-loan and subloans expressed in local currency would be subject to indexation of principal based on changes in the wholesale price index as published by the Central Bank (Schedule 2, A, (b) (iii) of draft Loan Agree- ment). In the event that price controls should be reinstated, the Government has represented that it would withhold applications for new commitments of peso denominated subloans until a suitable agreement is reached on substitute arrangements for indexation of such subloans (Supplementary Letter). Interest  - 19 - on subloans and IDF-loans due at the end of a six-month period would be calculated upon the adjusted principal outstanding. Principal would be adjusted as follows: at the end of each period, by using the change in the price index during the period but permitting a lag of two months to allow sufficient time for the publication of the price index by the Central Bank. Disbursements or repayments made within each six-month period ; iLl be similarly adjusted to estimate the balance of adjusted principal outstanding at the end of the period within which they were made. Project Cost and Financing 53. As noted in para. 27 above, a strong demand for industrial financing is expected during the next 2-3 years, mainly for plant modernization and improvements in product quality and productivity. Financial intermediaries would be expected to finance up to 80% of total investment costs, including foreign exchange costs, while borrowers are expected to finance the remaining 20% with their own funds. Financial intermediaries could refinance up to 100% of their financing for individual subprojects with the IDF. Total project cost is estimated at US$66.14 million, with a foreign component of US$46.06 million. The Bank loan would finance about 45% of total project cost corres- ponding to about 65% of the foreign exchange component. A more detailed project cost and financing plan are shown in the Loan and Project Summary. Procurement and Disbursements 54. The proceeds of the Bank loan would be disbursed to cover the foreign exchange costs of specific imported and locally procured equipment and materials, and the full cost of consulting studies, whether the consulting contract is awarded to a foreign or local consultant. Participating inter- mediaries would satisfy themselves that procurement items are suitable for the respective investment projects and reasonably priced, and that the beneficia- ries had canvassed the main sources of supply and are purchasing from the most advantageous source. Whenever justified, items would be procured after obtaining at least three offers and in accordance with standard practices for this type of project (Section 4.03 of draft Loan Agreement). Since it may be difficult or too costly to obtain quotations from several suppliers in case of small orders, the solicitation of offers would be expected mostly for items that individually cost over US$100,000 equivalent. For the financing of the technical assistance component, loan proceeds would cover the full cost of consulting studies and the cost-sharing contribution of the Government to the UNDP project for financing foreign costs. 55. The final date for the submission of subproject proposals to the Bank would be June 30, 1984, and the closing date for disbursement December 31, 1985. Bank funds, subject to the ceilings indicated in para 47, would be disbursed on the following basis: (a) 100% of CIF costs of imported equipment, machinery, and permanent working capital (permanent inventories of imported raw materials associated with increased production); (b) 100% of CIF costs of imported equipment, machinery sold over-the-counter in the local market and permanent working capital (to be estimated by UA on a case by case basis); (c) 40% of the ex-factory price of locally produced machinery and equipment; (d) 40% of the costs of civil works of investment projects; and (e) 100% of consulting services. (Section 4.01(d) of draft Loan Agreement.) Since a two-tier system requires more time for processing subprojects than is normally  - 20 - used by one financial intermedia,y, disbursements would be made for expendi- tures incurred up to 180 days prior to receipt by the Bank of subloan requests, in lieu of the normal 90-day limit. All disbursement requests would be fully documented, including payments under the technical assistance component. Accounts and Audits 56. Under the proposed credit project, the Central Bank would establish and maintain separate accounts for IDF operations in a form satisfactory to the Bank. Assurances have been obtained that IDF accounts will be audited annually by independent auditors satisfactory to the Bank. The scope of such audits would be agreed upon with the Bank. The audit reports are to be sub- mitted to the Bank not later than 6 months after the close of each fiscal year (Section 6.02 of draft Loan Agreement). Study of Trade Liberalization in Uruguay 57. Under the project, subloans will be approved and withdrawals authorized for free-limit subloans, provided that the consolidated tariff reduction targets, specified in the December 1978 decree, are being satisfac- torily achieved at any point in time. In mid-1982, a joint Bank/Government review would evaluate the status of the tariff reform. Continuance of subloan approval and disbursement authorization for free-limit subloans after the review would depend on agreement that the objectives of the decree have been met or will be met within a reasonable time. Similarly, if before the review takes place, policies or measures are adopted with the effect of not permitting or reducing the possibility of achieving the objectives of the decree, the Bank may withold said approvals and authorizations after consulting thereon with the Government (Section 4.02(c) of the draft Loan Agreement). The above review would be based upon a study that would be carried out by consultants satisfactory to the Bank, hired by the Ministry of Economy and Finance under terms of reference, also satisfactory to the Bank. Hiring of the consultants would be a condition of effectiveness (section 8.01(f) of draft Loan Agreement). Such a study would be financed under the proposed loan. The study is expected to be completed no later than March 31, 1982 (Section 5.01(b)(ii) and (c) of draft Loan Agreement) and the joint Bank-Government review undertaken no later than June 30, 1982 (Section 5.02 of draft Loan Agreement). The study would include: (a) levels of nominal and net effective protection (including the combined exchange rate and inflation impact on effective protection); and (b) identification of additional protection, if any, due to use of reference prices different from actual CIF prices or to other non-tariff trade barriers that may have been imposed. In addition to the objective of establishing whether targets of the tariff reduction pr^gra. had been achieved, the study would assess the impact of the Government's policies on industry with the purpose of providing a basis for reviewing with the Government possible next steps in its trade liberalization program. More specifically, the study would: (a) analyze the current levels of effective and redundant protection, and help to establish, if feasible, a system to monitor trends in industrial costs, prices, profits, employment, output, and investment plants; (b) assess pro- gress in implementing the tariff reduction program, including comprehensive analysis of the effects of reference prices and any other non-tariff measures; (c) assess the impact of exchange rate and trade policy on industrial competi- tiveness, resource allocation, and domestic inflation; and (d) propose mea- sures to cope with dumping and under-invoicing, in ways that will not add otherwise to domestic protection.  - 21 - Project Benefits and Risks 58. The proposed project is expected to have a significant developmental impact. It would contribute to improvements in the Uruguayan economic policy framework by supporting the Government's tariff reduction program and by pro- viding a date. 'jase for the formulation of subsequent trade liberalization measures. In addition, the project would build on the institutional develop- ments initiated under the first Industrial Credit Project by: (i) further strengthening UA's appraisal and supervision capabilities; (ii) helping to establish a consolidated industrial financing facility (the IDF) in the Central Bank, with appropriate financial resources and suitable operating policies and procedures; and (iii) encouraging and assisting interested finan- cial intermediaries to become more heavily involved in project promotion and formulation, and to increase their industrial long-term lending activities on the basis of project analysis rather than collateral security. 59. The proposed project would help fill a gap in the availability of long-term resources for financing efficient industrial and tourism projects in Uruguay. While it is difficult to predict accurately the number and size of subprojects likely to be financed, experience under the ongoing project during 1975-79, and UA's present project pipeline, suggest that about 65-80 invest- ment subprojects would be financed for a total cost of about US$66 million. On a similar basis direct employment generated through the subprojects is expected to be about 3,200 jobs at an average cost per job of about US$20,000. Moreover, a significant indirect employment generation effect can be expected through backward linkages in the agricultural and tourism sectors, and through the preservation of employment in firms by making investments to upgrade their production efficiency and international competitiveness. The balance of pay- ments impact may also be substantial, since a significant proportion of bene- ficiary firms are expected to be exporters. In line with previous experience, the economic rate of return for most subprojects is likely to exceed 20%. 60. The proposed project, as conceived, does not involve unusual risks. However, some initial delays in loan utilization may occur because (i) some uncertainty exists about the impact of the current foreign exchange policies on industrial profitability and investment behavior; and (ii) some of the institutional arrangements established under the project would be new and untried, especially the increased responsibilities of intermediaries. Moreover, some delays may occur if there is a delay in meeting the tariff reduction targets on time. To minimize delays in project implementation, Bank supervi- sion of, and assistance to the project would need to be most intensive during the first year of operations. PART V - LEGAL INSTRUMENTS AND AUTHORITY 61. The draft Loan Agreement between the Republic of Uruguay and the Bank together with a letter supplemental thereto and the Report and Recom- mendations of the Committee provided for in Article III, Section IV (iii) of the Bank's Articles of Agreement are being distributed to the Executive Directors separately.  - 22 - 62. Special conditions of the Loan are listed in Section III of Annex III, The following are the special conditions of effectiveness: (i) the Central Bank's Board of Directors would have established IDF with a policy statement satisfactory to the Bank (para. 49); (ii) the Central Bank would deposit within IDF an amount equivalent of not less than US$4.75 million (para. 49); (iii) the Central Bank would have signed Participation Agreements with at least two intermediaries (para. 51); (iv) that the consultants to carry out the tariffs study have been hired (para. 57; and (v) that all action with respect to the reorganization of UA has been taken. In addition under the project, subloans will be approved and disbursements for free-limit subloans authorized, provided that the consolidated tariff reduction targets, specified in the December 1978 decree, are being satisfactorily achieved at any point in time. In mid-1982, a joint Bank/Government review would evaluate the status of the tariff reform on the basis of a study (para. 57). PART VI - RECOMMENDATION 63. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President November 25, 1980  - 23 - Page 1 TABLE 3A URUGUAY - SOCIAL INDICATORS DATA SHEET URUGUAY t1REUICE GROUPS (WEIHT,ED AEVYGES LAND AREA (THOUSAND SQ. KK.) - MOST RCRE ESTl ATE) TOTAL 177.5 AGRICULTURAL 154.6 ISDT RECENT KMDDLE INCOME MIDDLE INCOME 1960 /b 1970 k ESTIMATE kb LATIN AMICA & CARIBREAN EUROPE GNP PER CAPITA (USS) 630.0 870.0 1610.0 1384.1 2381.1 ENERGY CONSUMPTION PER CAPITA (KILOGPAMS OF COAL EQUIVALENT) 825.0 930.0 1054.0 1055.9 1641.4 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (MILLIONS) 2.5 2.8 2.9 URBAN POPULATION (PERCENT OF TOTAL) 80.1 82.1 83.6 63.4 53.9 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 4.0 STATIONARY POPULATION (MIlLIONS) 4.0 YEAR STATIONARY POPULATION IS REACHED 2070 POPULATION DENSITY PER SQ. KM. 14.0 16.0 16.0 28.1 77.2 PER SQ. KM. AGRICULTURAL LAND 16.0 17.0 19.0 81.7 129.5 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 28.2 28.7 27.6 41.4 30.6 15-64 YRS. 64.4 62.6 62.5 54.7 61.1 65 YRS. AND ABOVE 7.4 8.7 9.9 9 8.2 POPULATION GROWTYH RATE (PERCENT) TOTAL 1.5 1.1 0.3/c 2.7 1.6 URBAN 2.8 1.3 0.5 4.1 3.3 CRUDE BIRTH RATE (PER THOUSAND) 22.0 21.0 20.0 34.8 22.8 CRUDE DEATH RATE (PER TROUSAND) 9.0 9.0 9.0 8.9 8.9 GROSS REPRODUCTION RATE 1.4 1.4 1.4 2.5 1.5 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) USERS (PERCENT OF MARRIED WOMEN) .. .. FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 98.0 107.0 101.0 106.9 113.1 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 117.0 120.0 114.0 107.4 125.3 PROTEINS (GRAMS PER DAY) 94.0 98.0 87.0 65.6 91.0 OF WHICH ANIMAL AND PULSE 68.0 65.0 54.0 33.7 39.6 CHILD (AGES 1-4) MORTALITY RATE 4.0 3.0 3.0 8.4 4.3 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 68.0 69.3 71.0 63.1 67.8 INFANT MORTALITY RATE (PER THOUSAND) .. .. 46.0 66.5 55.9 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 92.0 98.0 65.9 URBAN .. 100.0 100.0 80.4 RURAL .. 59.0 87.0 44.0 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 82.0 83.0 62.3 URBAN .. 97.0 97.0 79.4 RURAL .. 13.0 17.0 29.6 POPULATION PER PHYSICIAN 962.0/d 920.0 710.0 1849.2 1030.1 POPULATION PER NURSING PERSON .. 3478.0 .. 1227.5 929.4 POPULATION PER HOSPITAL BED TOTAL 180.0 170.0 241.0 480.3 289.7 URBAN .. .. 212.0 RURAL .. .. 704.0 ADMISSIONS PER HOSPITAL BED .. .. .. .. 17.0 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 3.8/ .. 3.6 URBAN .. .. 3.6 RURAL .. .. 4.0 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 1.5/e .. 2.1 URBAN 1.5/e .. 2.1 RURAL .. .. 2.1 ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 78.0/e .. 80.7 URBAN! 88.0/e .. 89.2 RSIAI 29.O. .. 27.8  - 24 - Paste 2 TABLE 3A URUGUAY - SOCIAL INDICATORS DATA SHEET URUGUAY REFERENCE GROUPS (WEIGHTED AVE ARS - MOST RECENT ESTIMATE) MOST RECENT MIDDLE INCOME HIDDLE INCOME 1960 /b 1970 /b ESTIlfATE /b LATIN AMERICA & CARIBBEAN EUROPE EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 111.0 106.0 95.0 99.7 105.9 IIALE 111.0 108.0 95.0 101.0 109.3 FEMALE 111.0 103.0 94.0 99.4 103.0 SECONDARY: TOTAL 37.0 57.0 60.0 34.4 64.0 MALE 35.0 51.0 55.0 33.5 71.1 FEMALE 38.0 63.0 65.0 34.7 56.9 VOCATIONAL ENROL. (X OF SECONDARY) 23.0 21.0 19.0 38.2 28.8 PUPIL-TEACHER RATIO PRIMARY 31.0 29.0 23.0 30.5 29.4 SECONDARY 13.0 .. .. 14.5 26.1 ADLULT LITERACY RATE (PERCENT) .. 91.0 94.0 76.3 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 39.0 43.0 45.0 43.0 84.6 RADIO RECEIVERS PER THOUSAND POPULATION 305.0 388.0 510.0 245.3 192.2 TV RECEIVERS PER THOUSAND POPULATION 10.0 87.0 113.0 84.2 118.5 NEWSPAPER ('DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION *- 140.0 *- 63.3 93.0 CINEMA ANNUAL ATTENDANCE PER CAPITA 9.0 .. .. .. 5.7 LABOR FORCE TOTAL LABOR FORCE (THOUSAINDS) 1014.4 1140.1 1114.5 FEMALE (PERCENT) 24.6 27.5 29.0 22.2 30.4 AGRICULTURE (PERCENT) 21.0 15.0 12.0 37.1 37.0 INDUSTRY (PERCENT) 29.0 31.0 33.0 23.5 29.3 PARTICIPATION RATE (PERCENT) TOTAL 40.1 38.6 38.5 31.5 40.9 MALE 60.6 56.4 55.5 48.9 55.9 FEMALE 19.7 21.1 21.8 14.0 26.2 ECONOMIC DEPENDENCY RATIO 0.9 0.9 1.0 1.4 1.0 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS .. .. HIGHEST 20 PERCENT OF HOUSEHOLDS .. 51.3/f . LOWEST 20 PERCENT OF HOUSEHOLDS .. 4.0/f LOWEST 40 PERCENT OF HOUSEHOLDS .. 13.3/f POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. RURAL .. .. 319.0 190.8. ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 471.0 474.0 RURAL .. .. 471.0 332.5 385.8 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (F'C-"T'7 URBAN .. .. 30.0 RURAL .. .. 30.0 Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /b UInless 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 1974 and 1978. /c Doe to emigration, population growth rate is lower than rate of natural increase; /d 1962; /e 1963; /f 1967. April, 1980  - 25- toa3 DEIP_ITTONS OF SOCTALID OfIATh Notes: Although the data ar dean fro sources.. g-seraly judged th. most aothorltartv- ond reliable, it should also he notd that they may eon he tote- aonvio..alyeompatahle because of the~ hock of sta-d-odieod defietnloes sad concpts usd hy differete-teonoies te eullactiog the data. The data aro, none- theless,.. usfol no dauceihe orders of ucuantode. idicots tood, cad oh-rut-eiee -entai -J.ee diffeeeaoes hbsnet eutree The eefeea- ge-pe ace (1) the s-m ceustey group of the auhbo-t c...ty op sd (2) a ....srey g-oup aith somehat higher -Isegs beams Lhba tha ouatep group ofthe suh)eteeuatey (eace Pt foe 'Capitel u-pl-a Ott Eptopertees geoupahees 'Middle Teces North Aftire sad Middle fast" Is ohosee hbcu- of stronger soio -an 1s affialt ies). 1o sheb efrere rop dsts the I.rge e population enighted arithastle men for emah iadiatee sod shoe only sh.e at Il.s.f held of the eonnle tI geoup has dana foe thst isditesnr. tines she -ae-gs of -setetee -mag the indli-nees depends no the acllehitiy of data and Is aat us. -idom ane mee he sasr.ia iIn eeatiag sorsgesa one.. iadlestor to soother. These s-eesg see arty usful i -up-eiog tha value of en tdIcao an a rme mg tecetey end fednenc groups. L.AND AREA (tho.sa.d iy.)rpuata per f'hys-ofa -PplTla dioladd by name cc ptacrtiong pep- Tetel - Teteltu1 a. aeaapelieig lend area sad i.lend asters.siaeqalfd cea medical shaol at I uenc leve. Agrtislwrutl - fEeltoc aagrio-Inera1 aes used aemparst. at PItmaey "Pealaia per Nsrl --sea- Ppoplatiee dioded hy enher ad peacnicieg fee crops. p t55mm, macht sad kitchen gseds Ior nolefaln 19'77cdta, mae cad fenal geaduate na-e, practical nurses,. and..antenre... peotiertfniaNd-naa.th.a-rural - Ppulation (ental, GNPf PEE CAPITA (fiS) - lNP pine capita asimtes at contet mafkt pnires, l- aes,anbua) iie b hirrsetl ahofa hospital heds eulsted hy san ----eesios methed as Woeld Nash A~tlas (1976-78 hanis); 19ff, avilble in publio and peivete gen-a sad sPecialieed hespita1 and en- 19T, and 1978 data. habilitratlee esetmo. H-splatalse-s-smlishmsts pse- teely staffed ttfftT CNNIttTIC PflCAPTA- Aasi asssptesad eteecelenegy(oel by a et .-n physils.- sEsh.llshmetr preoldig prineipally ...stadisl PLERGY _ CONSUMPTION PEP, CAP~~~~~~~ITearn re netleIofdd. rsrl h-spta,henevr,ii-lnda hesith and sediea1 and 1lgnitte, pesealsn, etalgas and hydra-, -una- esd geatheena else- canteenou ear psmaently staffed hy I physiteis (hut hy s nedicel ...nstltas teiloity) in kilogIram of eoal equi-slean yet csplea; 19ff. 1970, aed 1978 eunse, midetf, see.) chieh offee in-patient a-aadto ad pr-cide a data. limited range at medies1 farilit'ies. Pee nt.iatiesla purp.... urhen hospi- tals iaelude Alis priaeipsl geenral nd ap-cislined hanpltsls, ead eura1 POPULATI0ON AlND VITAL STATISTICS o iI,Ic1o I1h.i.] . dc1- t-t o.. Tatal Papalatina. Mid-Tea Iillam)- As ad July 1; 19h0. 1970. and 1979 Admisslase pe fanpital Ned - T.n .IumbIe of adnissi... teatr di-ciage- data. foam hanpitals dIvided hy the euche of heds. than Pprlarlon Irprcet oftontal).- Rate. ad urha to trI-l plals diffmesrt dnfinlrtis at arban aea asp ayffect eamparshilfty at data fouinlf anag astee;19ff, 1970, sad 1978 data. Avrs lea ashl rrasceiaeed aa,aias, and ee Pepalenten Peajsanlaas A househol~~~bd essie- ad a grasp ad individuals h. share living quat-e Papulaiten Ia year 20ff - Current papalasias prajaceleas see hased eaI 19ff sed their mete m-I.. A baedee or ledger may or may oat he a,luded In total papclatien hy age sad .-a and thait mrtaltey and fertility rates the haeshold atrerstistiea1 peepae.- PI,ajeetfan paramter ta Ed. - lity retenI eneptis a f three11. ....e.sue evea bnuhe of reespeee -. ,tarl. arhan. ad easl Average tt in8 lid onpectaey at bien ieeaia nih e-uatry'I par esp ita lec-m e dprosprta Pc all erho_ and ceral reuied eaaetta... level,aed feale lie enpatancy thilial t 77.5 yern. Th. peta- d.elli.gt, re-p-riv-ly. Dwel1isge seclude .. pas-pe .m t etouctes- and mtrs far fertility care also have three level saamtiog deel ide In unaceupied reat.. f.rItlit y _cr ding to ic I leve andpan feally pleasing peofemce. ,eas s -letnfiey feer..aI a deelli Ie -trael. -rban had rural1 - Each cac..tryistesegedaed t heseII ala eohstln f martelity C.enven_tianal dellag st electriett is living q_at_r as c. and fertility teends foe ptajnetion purpates of tat1, urban, and earn1 dec11itgs epeley Stastanac eorultrian - 1 In stationary .paplati- there i Isdn growth ine- the hicth rate in equal to the death rate, and also theuneEDnUC- OlATION mains co.necan. Thin is achi_vd uly atnee fertility rtes dcline to Adiunted nEa-Ieet Ratlas the raplacemet level of sia net rnpredaenieo rare, wi. each genate rimac nehool - ttl,sleed fl-ScenGI..t total mal an. d femle eIf _me enpla... Itself ..cotly . The annteacep population nine oa Iaolcra ll age at thn primary Iec-I as pero..ntagat of repertl- antinstnd as the hests of the projected eharactic tinac at theppb tte piay aeles ppuarat;artip slan cid a aet-Il is the year 200f, and the Inte ad d-elien ad fertility careto I spt- years. bus adjastfdta dffeoren lsgtbs at primary eduratian; far -at evl coneans nleeleusra nolet may ..a..d 1SfP- p..n.t Y-sastatio..aro raulatian is reaahnd - The y-a nine stattato pepulatien nl.. sees. puils are-. deleorihav ab at r i ec11 ae n,ina has lena rescindl S... naday eehal - ntal.1. nals ad female - Computedneaha-;a.....daoY Per n. ha. -MId-yea popalatia Pee squat kilometer (101 hactatas) at prvd.. geerl foeanissl, a oefha training rinattytn fotrucpay Peetso ha.. a"tI'rllnd-Cmue sshv e tulaa eduully ad 12 to 17 paces aoae;f resadee case e generall1y P l.r -anelclualln .ptd .b-frgi.1.. .d. udyed. VaaIe' a erllmet (PnreIt ad seonday) .- tiann Iantitutiote Paralatte TL)Ace Itruatuon _(Renr-es - Children (0-14 years) ,,, eahia-n 711- inelndEsNebat-e, indetela i re. arharP I hgam iach epenfe indnpea- b4 year) aed r ded ... ..yar aedov) on parce..na ot amid-year Palo- dently atra depsentens of secondaryioeates 1nties; 196g. 1971, aId 197f'data. Purold-teee cat rimay a -