Peru - SIDERPERU Technical Assistance Project

Document of F111 COPY The World Bank FOR OMCIAL USE ONLY Repot No. P-2856-PE REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE EMPRESA SIDERURGICA DEL PERU (SIDERPERU) WITH THE GUARANTEE OF THE REPUBLIC OF PERU FOR THE SIDERPERU TECHNICAL ASSISTANCE PROJECT June 25, 1980 This dumt bhs a restricted distribution and miLy be sed by recipients only In the pefruance of tbeir ocll duties. Its Contents may not otherwise be disclosed without World Bank autborIatIon.  CURRENCY EQUIVALENTS The exchange rate is being adjusted daily roughly in line with the difference between domestic and international inflation. The exchange rate and currency equivalents in effect on May 31, 1980 were as follows: CURRENCY UNIT = Sol (SI.) Calendar 1979 May 31, 1980 US$1 = SI. 224.55 SI. 278.0 S/. 1 = US$0.0045 US$ 0.0036 S/. 1,000 = US$4-45 US$ 3.60 FISCAL YEAR January 1 to December 31 ABBREVIATIONS DR Direct reduction process for the production of sponge iron used as a raw material in steelmaking EAF Electric Arc Furnace ERP Economic Recovery Program SIDERPERU Empresa Siderurgica del Peru (State-owned Steel Company of Peru) SLRN Stelco-Lurgi-Republic-National (a coal-based DR process) SOFRESID Societe Francaise d'Etudes Siderurgiques (French Engineering Consultants) tpy Metric tons per year  FOR OFFICIAL USE ONLY REPUBLIC OF PERU SIDERPERU TECHNICAL ASSISTANCE PROJECT LOAN AND PROJECT SUMMARY Borrower: Empresa Siderurgica del Peru (SIDERPERU) Guarantor: Republic of Peru Amount: US$5.0 million Terms: Repayable in 10 years, including 3-1/2 years of grace, at 8.25 percent per annum. The loan would be refinanced by any future loan that the Bank might make for the second stage of the SIDERPERU expansion program. Project Description: The objective of the technical assistance project is to strengthen SIDERPERU's project execution and plant operation capability to enable it to successfully install and manage a two stage 400,000 tpy expansion of the Chimbote steel mill. The project would include the following: (i) assistance in project management and start-up for the 200,000 tpy first stage of the expansion program which is now getting underway; (ii) assistance in the operation of existing plant facilities and initial operation of the first stage expansion facilities; (iii) operational training for SIDERPERU personnel, partly on-the-job and partly in a plant with similar technology abroad; and (iv) preparation of a feasibility study for the 200,000 tpy second stage of the expansion program, including a technical and economic review of the first stage and coal transpor- tation and electric system studies. The SIDERPERU expansion project will involve the utilization of coal-based direct reduction technology. SIDERPERU's five year experience in the operation of a pilot plant, the testing done by bidders for the direct reduction plant on the local iron ore and coal to be used in the process and the technical assistance SIDERPERU will receive under the project are expected to minimize problems with the use of this technology. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not othetwise be disclosed without World Bank authorization.  - ii - Estimated Cost: The estimated cost of the project, exclusive of taxes, is as follows: Local Foreign Total -----(US$ millions)------ Project Management 0.40 1.70 2.10 Operating Assistance 0.15 0.80 0.95 Operational Training 0.20 0.90 1.10 Studies 0.05 0.60 0.65 Sub-Total 0.80 4.00 4.80 Physical Contingencies 0.10 0.20 0.30 Price Contingencies 0.10 0.80 0.90 Total 1.00 5.00 6.00 Financing Plan: Local Foreign Total -----(US$ million)------- Bank Loan - 5.0 5.0 SIDERPERU 1.0 - 1.0 1.0 5.0 6.0 Estimated Disbursements: Bank FY 1981 1982 1983 1984 ----(US$ millions)---- Annual 1.2 1.9 1.6 0.3 Cumulative 1.2 3.1 4.7 5.0 Rate of Return: Not applicable. Appraisal Report: None.  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE EKPRESA SIDERURGICA DEL PERU (SIDERPERU) WITH THE GUARANTEE OF THE REPUBLIC OF PERU FOR THE SIDERPERU TECHNICAL ASSISTANCE PROJECT 1. I submit the following report and recommendation on a proposed loan to the Empresa Siderurgica del Peru (SIDERPERU) for the equivalent of US$5.0 million to help finance the SIDERPERU Technical Assistance Project. The loan would have a term of 10 years, including 3-1/2 years of grace, with interest at 8.25 percent per annum. In accordance with the normal procedure for preinvestment loans, the loan would be refinanced under any later loan that the Bank might make for the second stage of the SIDERPERU expansion program. PART I - THE ECONOMY I/ 2. A basic economic report entitled "Long-Term Development Issues: Peru" (Report No. 2204-PE) was distributed to the Executive Directors on April 13, 1979. This part is based on the report's findings as well as those of more recent economic missions to Peru. Country data sheets are attached as Annex I. Resource Endowment 3. Peru, the fourth largest country in Latin America, is divided by the Andes mountains into three distinct regions: the coastal region (Costa), with 46 percent of the population where modern economic activity is concen- trated; the mountain region (Sierra), with 44 percent of the country's popula- tion, which encompasses the highlands above 2,000 meters; and the sparsely populated, tropical rain forests east of the Andes (Selva). The rugged topography limits trade between the three regions. 4. Peru's natural resources include large deposits of minerals, particularly copper, iron, silver and zinc, located mainly in the Sierra and the southern Costa and phosphates on the northern Costa. Petroleum resources, particularly in the jungle areas of the North and offshore, are believed to be substantial but their full extent has not yet been ascertained. Another major natural resource is the large fishing potential in coastal waters, although its magnitude is subject to sharp gyrations. Agricultural land is limited, and most of the soils suitable for intensive agriculture are already being farmed. 5. As a result of three decades (1930-1960) of rapidly falling mortality rates, population growth accelerated. In the early 1960's, birth rates started a gradual fall, mainly caused by the urbanization process and by improved education. But with declining death rates, population has continued to grow at about 2.8 percent p.a. It is expected that population growth will only 1/ This section is substantially unchanged from the Bayovar Phosphate Engineering and Technical Assistance Project President's Report of June 9, 1980 (Report No. P-2845-PE).  - 2 - slightly fall to about 2.6 percent p.a. over the next 20 years, unless an effective demographic policy is adopted. Given the structure of Peru's population, the labor force is expected to grow in excess of 3 percent per year during the next 20 years. 6. Crude oil is the dominant source of energy in Peru, supplying approxi- mately 80 percent of Peru's commercial energy requirements. Although Peru's energy resource base is relatively diverse with scope for expanding hydro and coal based power generation, petroleum will provide the major part of Peru's energy requirements throughout the rest of this century. After having been dependent on imported crude oil for many years, domestic oil production increased almost threefold between 1976 and 1979, enabling Peru to export oil in substantial quantities for the first time since 1958. Despite this encour- aging production trend, domestic consumption is likely to rebound after several years of stagnation so that Peru may once again become a net importer of petroleum in the mid-1980's unless new oil reserves are discovered. Past Development Policies 7. Since the military came to power in 1968, the Government has followed a development strategy directed at achieving economic growth and at narrowing the sharp differences in wealth and opportunities among people in different income classes and geographical regions. The Government has tried to correct interpersonal and interregional imbalances by expanding the role of the State in the economy, changing the pattern of asset ownership, reducing foreign ownership of national resources, orienting industry and agriculture toward producing essential goods for the domestic market, stimulating the deconcentra- tion of economic activity out of Lima, and reforming the educational system to make it more responsive to local economic and social needs. Through national- ization and creation of new enterprises, the State has taken direct control of over 150 enterprises in key economic sectors, and its share in total capital formation has risen from less than one-fourth in 1968-70 to over 40 percent in 1974-1979. By imposing complex legislation, the Government has also strictly controlled the operations of the private sector. 8. As a result of these actions, the pattern of asset ownership in the economy has changed drastically. Through nationalization, the share of foreign-owned assets fell sharply. A sweeping land reform redistri- buted 43 percent of the country's best farmland to workers' cooperatives benefitting some 25 percent of all rural families. Through other laws, industrial workers were given shares in their employers' firms and, in the mining sector, a share in profits. The Government has also given a strong autarkic orientation to its agricultural and industrial sector policies and strengthened the incentives for industries outside of Lima. 9. The Government's programs have benefitted large numbers of Peruvians, but hardly reached the poorest which continue to live in abject poverty. It is estimated, for example, that about three quarters of rural families, mostly "minifundistas" (those farming less than 2 ha) and the landless seasonal workers, have not been reached by social programs. The Government imposed controls on prices of a number of domestically produced goods and heavily subsidized imported petroleum and foodstuffs. Most of the subsidized products,  -3- however, were more important in the consumption basket of high and middle- income Peruvians than in that of the poorest groups. Moreover, artificially low prices for some products--such as mutton and cereals--actually hurt the poor who produced these items, and affected production negatively. 10. In the final account, one of the most significant achievements of the Government was the promotion of the cultural and political integration of the country. Owing in great part to the land reform, an important segment of the rural population has become better organized and is able to communicate its priorities in a more forceful and articulate way. Unfortunately, although many of the policies and structural changes carried out since 1968 were meant to achieve rapid growth and more equality, the cost of these measures proved to be excessive and their implementation inefficient. The Economic Crisis 11. For ten years, 1968-77, the military Government followed expan- sionary fiscal and credit policies. A rapid increase in expenditures (includ- ing large defense outlays) was not matched by a parallel increase in revenues. Pricing, interest rate, and foreign exchange policies encouraged consumption and discouraged savings, exports and, sometimes, overall production. As a result, aggregate demand considerably exceeded aggregate supply. Excess demand, in turn, led to strong inflationary pressures and widening external gaps, with a loss of international reserves and a massive build-up of external debt. 12. The problems were exacerbated by circumstances beyond the control of the authorities. Anchovies, the fishing industry's principal resource, virtually disappeared as the annual catch dropped from around ten million tons in 1968-71 to an average of 2.3 million tons in 1975-78. Furthermore, Peru's terms of trade worsened sharply between 1974 and 1978. Export prices, particularly for copper and sugar (which together accounted for almost one- fourth of merchandise exports), fell from their high 1974 levels at a time when import prices soared. Petroleum reserves, which in the early 1970's were predicted to lead to a quick expansion in export earnings, have taken much longer to come on line. 13. Public sector savings dropped steadily in relation to GDP from 4.4 percent in 1970 to dissavings of 2.6 percent in 1977. Major causes were the erosion of the tax base owing to excessive tax incentives, loopholes in the tax system, weak enforcement, rises in the budgetary cost of subsidies for foodstuffs and petroleum products, and sharp increases in defense outlays. At the same time, public investment expanded rapidly and was increasingly concentrated on capital-intensive projects with long gestation periods and little immediate contribution to the growth of output or employment. 14. Inflation accelerated from 5 percent per year in 1970 to 38 percent in 1977. Interest rates, however, remained substantially negative in real terms, discouraging financial savings and stimulating capital flight. Moreover, the exchange rate remained practically constant between 1968 and 1975, thus contributing to the overall disequilibrium. National savings fell dramatically from 16 percent of GNP in 1970 to 8 percent in 1977, when they financed only  about one-half of investment. Following a period of rapid expansion in 1968-74, during which GDP grew by more than 6 percent per year, the growth rate dropped progressively and became negative in 1977 and 1978. 15. The growing disequilibrium was reflected in the balance of payments. The current account deficit averaged US$1.1 billion per year in 1974-77, equivalent to nearly 9 percent of GNP. To finance this deficit, Peru accum- ulated a massive external debt. Peru's total private and public external debt-including short-term indebtedness--stood at almost US$8.3 billion by year-end 1977, equivalent to two-thirds of GDP and four times exports of goods and non-factor services. Much of this debt was contracted on fairly short maturities with three fourths of the public sector's long-term debt--which is estimated to have totaled US$6.4 billion--scheduled to be repaid over the 1978-82 period. 16. Beginning in 1975, several unsuccessful attempts were made to cope with the mounting economic crisis. By mid-1978 the economic crisis had reached grave proportions, with a drop in real GDP and inflation approaching 100 percent. Moreover, the private sector was finding it increasingly diffi- cult to open letters of credit for new imports and the banking system's net international reserves had dropped to a negative level of US$800 million. Financial instability had reached the point where practically all economic activities were adversely affected. The public sector was fast approaching the point where it would no longer be able to fully service its external debt. Peru was no longer creditworthy. Stabilization Measures 17. A new economic team was named in May 1978. Since then, the Govern- ment has adopted a number of important measures aimed at strengthening public finances, stimulating exports and stemming the loss of international reserves. By means of a crawling peg, the sol was devalued from S/. 130 per U.S. dollar in May 1978 to about S/. 266 at the end of March 1980. Most subsidies were eliminated, thus closing an important drain on public savings. In addition, a number of tax measures were adopted and Government expenditures restrained. Interest rates on bank loans were raised from 16 to 31.5 percent per year. Peru reached agreement with foreign commercial banks to reschedule US$185 million of principal payments due in the second half of 1978 until January 1979. The Government also negotiated a stand-by arrangement with the IMF for SDR 184 million. In July 1979, this stand-by was replaced by a new one for SDR 285 million, in support of the same financial program. Peru's debt outstanding to the IMF as of December 31, 1979 amounted to SDR 414 million. 18. The Government's financial stabilization program, supported by the stand-by, has resulted in a dramatic improvement in public sector finances in 1979. Public sector current account savings rose from - 0.7 percent of GDP in 1978 to about 3.6 percent of GDP in 1979 and the overall deficit was reduced from 6.4 percent of GDP in 1978 to 2.9 percent in 1979. Central Government revenues increased by 23 percent in real terms, while current outlays declined by 6 percent. Payments for wages and salaries alone fell by some 7 percent in real terms, partly as a result of a reduction in excessive civil service employment. The elimination of subsidies on food and petroleum  - 5 - products, initiated in mid-1978, also contributed to the control of current expenditures. On the revenue side, several measures--including a 10 percent import surcharge, a higher tax on traditional exports and an increased tax on interest charged on bank loans--helped to achieve the revenue target. In spite of good fiscal performance, however, inflationary pressures remain strong, with consumer price increases of 67 percent in 1979 and over 50 per- cent (on an annual basis) during the first quarter of 1980. Debt Restructuring 19. Major debt-relief operations carried out in late 1978 enabled Peru to reduce substantially the debt-service burden for 1979 and 1980, postponing repayment to the 1982-1986 period. In May 1978, the Soviet Union rescheduled the equivalent of about US$140 million of maturities originally due in 1978-80. These amounts are to be repaid over a 10-year period including three years of grace. In November, at a Paris Club meeting, the OECD countries agreed to reschedule 90 percent of principal payments due by the public sector to governments and guaranteed suppliers in 1979 (US$250 million) and 1980 (US$263 million). These amounts are to be repaid over a period of eight years, in- cluding three years of grace. The Paris Club creditors also agreed to re- schedule 90 percent of the principal payments due in 1979 and 1980 on private sector debt guaranteed or insured in the creditor countries (about US$30 million in each year). In addition, Peru has negotiated smaller amounts of debt relief with non-OECD countries. At the end of 1979, in view of the improved balance-of-payments situation (para. 24), the Government decided to forego the Paris Club debt rescheduling option for 1980. 20. As regards the large medium-term public debt to commercial banks, in keeping with an agreement concluded in December 1978, Peru repaid in 1979 the bulk of the US$185 million rolled over from 1978 (para 17 above). The agreement gave the Government the option of refinancing up to 90 percent of the maturities due in 1979 and 1980. The Government, however, decided earlier this year not to take advantage of the 1979 maturities, thus obtaining slightly better conditions for outstanding debts. It is likely that the option to refinance 90 percent of the 1980 maturities will be taken. Social Situation 21. The economic crisis has been reflected in two consecutive years of negative growth. Total Gross Domestic Income fell by 0.6 percent in 1977 and a further 4.1 percent in 1978. In this two-year period GDP per capita dropped by over 8 percent. Nearly one half of Peru's labor force is believed to be unemployed or underemployed, i.e., earning less than the minimum wage or working less than 35 hours a week and wishing to work more. According to government estimates, the purchasing power of an average salary had fallen 40 percent by 1978 compared to 1970 and that of an average wage by over 16 percent. In these circumstances, the social situation has been unavoidably tense, and several general strikes took place during the past year. 22. In July, 1979, the military Government promulgated a new constitution, written by a popularly elected assembly. Elections were held in May 1980, and the transfer of authority to the government of President-elect Fernando Belaunde is scheduled to take place on July 28, 1980. While it is too early to assess future government policies it is most likely that the Belaunde  - 6 - Government -- in line with campaign pledges -- will give high priority to social and employment problems, particularly through housing and labor- intensive small-scale infrastructure programs. The Economic Recovery Program 23. With the financial stabilization program and the debt restructuring, the Government has brought the fiscal and external gaps under control. These efforts, however, have not yet helped much in overcoming the deep economic recession. To this end the Government conceived an Economic Recovery Program (ERP) which would reverse the decline in GDP and lay a basis for a financially sound economic recovery. The ERP includes, in addition to the above-mentioned stabilization actions, measures to open up the economy, stimulate industrial sector efficiency, promote non-traditional exports, strengthen the tax system by broadening its base, and generally improve the efficiency of resource allocation in the private and public sectors. In this connection, the Govern- ment formulated a Public Sector Investment Program that aims at redirecting public investment towards projects of clear economic priority and positive effect on production and employment. In support of the ERP, the Bank approved a US$115 million program loan in May, 1979. Progress in carrying out the ERP, which is closely monitored by the Bank and periodically discussed with the Authorities, is generally satisfactory with performance in some critical areas--e.g., export promotion--actually exceeding expectations. 24. The Government's program led to a strong balance-of-payments perfor- mance in 1979, which is essential for economic recovery, and to restore net international reserves. This was achieved by maintaining an export-oriented foreign exchange policy, realistic interest rates, and the promotion of non-traditional exports; but it is also the result of low, recession prone imports. In addition, Peru benefitted from substantial price increases for silver, copper, petroleum, and other commodities. The Government also intends to improve foreign debt management by, inter alia, making greater use of assistance from official bilateral and international sources. The short-term debt, already sharply reduced from US$1.8 billion at year-end 1978 to US$1.1 billion at year-end 1979, is expected to be further reduced as the gradually improving economic situation permits new trade-related credit lines to be opened. The trade balance is expected to be strengthened by favorable world prices for minerals, and by the availability of a petroleum surplus for export amounting to some US$950 million per year over the next few years. Even though about one third of the projected gross petroleum exports would leave the country as profit remittances, this still implies a major improvement over recent years, when Peru was spending in excess of US$200 million per year on fuel imports. 25. Based on assumptions that are cautiously optimistic, the country is expected to show a strong balance-of-payments performance through the mid- eighties, with current account surpluses and a build up of foreign exchange reserves in spite of heavy debt repayment obligations. The balance-of-payments situation may, however, deteriorate in the second half of the eighties (or even earlier), when the exportable surplus of oil is expected to decline. This will eventually result in increasing current account deficits, particularly if imports exceed the level now expected as a result of the recently started import liberalization process. Against this background and given Peru's large overhang of external indebtedness, there is a continuing need for official development assistance. Considering the expected medium-term balance-of- payments performance and assuming that the authorities continue to carry out the ERP and to maintain prudent financial policies, Peru is creditworthy for Bank lending.  PART II - BANK GROUP OPERATIONS IN PERU 1/ 26. In addition to the US$7.5 million Bayovar Engineering and Technical Assistance Loan which the Executive Directors are expected to consider in June, the Bank has approved 38 loans to Peru for a total amount of US$779.3 million, net of cancellations. About 31 percent of the Bank's lending to Peru has been for transportation (mainly highways and ports), 23 percent for agriculture, 15 percent for the US$115 million, May 1979 Program Loan, 15 percent for the energy sector, 10 percent for mining and industry and about 6 percent for education and urban development. 27. Of the US$332.8 million undisbursed as of April 30, 1980, over 50 percent is attributable to the five project loans made in the 1976-77 period. The slow start-up of these projects--only two of which were "repeater" operations--as well as the slow progress of previous operations was due, in large part, to weak project execution capacity and to a shortage of counterpart funds that worsened as the economic situation deteriorated during this period. As a result, disbursements have averaged about US$25 million per year over the past few years (Annex II contains a summary statement of Bank loans as of April 30, 1980, and notes on the execution of on-going projects). In an effort to improve this situation: (i) the Bank opened a resident mission in Peru; (ii) the Executive Directors approved modifications in the Education and the Lima/Amazon Corridor Projects (see Annex II for further details); (iii) adequate counterpart funds were provided by the Government for 1979 and 1980; and (iv) the Government set up a special commission to monitor loan execution and resolve administrative problems. With these actions, the pace of disbursement is now increasing; IJS$32.2 million has been disbursed on project loans in the first nine months of FY 1980. 28. Program Loan disbursement started slowly because of the unforeseen increase in foreign exchange availability in Peru as a result of booming exports and continued depressed import levels, as well as substantial debt rescheduling. In order to accelerate disbursements, the list of eligible imports was expanded to include additional high priority industrial inputs. As of May 31, 1980, US$109.6 million of the loan had been disbursed. 29. The main objectives of Bank lending to Peru have been to assist in (i) the creation of the physical infrastructure needed to sustain and foster development; (ii) the expansion of productive capacity in crucial sectors; (iii) the consolidation of structural and institutional changes, particularly land and education reforms; (iv) the strengthening through technical assistance loans and regular operations of local capacity to prepare, implement and operate projects effectively; and (v) improving living conditions for the urban and rural poor. In the past, Bank lending concentrated on infrastructure in the transportation and power sectors. More recently, the Bank's emphasis has shifted to more directly productive fields -- mining, agriculture and industry -- to aid Peru in surmounting its balance of payments problems. Lending for social projects has also grown. 1/ This section is substantially unchanged from the Bayovar Phosphate Engineering and Technical Assistance Project President's Report of June 9, 1980 (Report No. P-2845-PE).  - 8 - 30. Aside from the Bayovar loan mentioned above, the next operations that would be ready for the Executive Directors' consideration include a regional airports project, a mining operation, a second industrial credit loan and a highway maintenance project. This program would be reviewed with the new Government to assure its agreement. 31. It is estimated that Bank loans constituted about 4.4 percent of Peru's total public external debt outstanding and disbursed, at the end of 1979, and absorbed about 2.7 percent of the country's external debt service in 1979. Assuming increased recourse to long-term bilateral and multilateral aid by Peru, the Bank's share in the country's outstanding public foreign debt by 1985 could reach about 15 percent and its share of debt-service would be around 8 percent. 32. IFC commitments to date have been US$29.7 million (including US$15 million to the Southern Peru Copper Corporation for the Cuajone Copper Mining Project) of which US$17.2 million is held by the Corporation. A summary statement of IFC investments as of April 30, 1980 is presented in Annex II. 33. The other principal official agencies lending to Peru -- IDB and USAID -- are expected to continue giving special attention to agriculture with IDB emphasizing agricultural, industrial and mining credit, roads and small scale irrigation and USAID stressing rural development. Total loan commitments as of December 31, 1979 by IDB and USAID were US$646.0 million and US$275.1 million, respectively, and their shares of debt service as of end-1979 were both estimated at 0.6 percent. PART III - INDUSTRY AND THE STEEL SUBSECTOR A. Industry 34. The industrial sector in Peru (manufacturing and mining, excluding petroleum) accounted for 32 percent of GDP in 1978 and employed 14 percent of the labor force. Manufacturing is the largest component of the industrial sector, responsible for about 80 and 90 percent, respectively, of its contribu- tion to GDP and employment. Mining, however, is critical to Peru's economic development because it generates 40-50 percent of Peru's foreign exchange earnings and makes a significant fiscal contribution through exports taxes. 35. Until recently, the Government followed a policy of import sub- stitution and high tariff protection for development of the manufacturing sector. As a result, manufacturing absorbed a substantial amount of for- eign exchange, while its exports were insignificant. In 1976, imported industrial inputs came to about US$750 million, representing over a third of merchandise imports and 24 percent of industrial value added. During the 1971-1976 period, manufactured exports averaged only 6 percent of total merchandise exports. 36. This import substitution policy produced an inward oriented indus- trial sector with little interest and ability to compete in world markets. At the same time, however, the manufacturing sector in Peru diversified  - 9 - substantially. The share of traditional consumer goods industries now accounts for only about 40 percent of total manufacturing output, while intermediate goods industries have grown in importance. The two largest such industries, chemicals and basic metals, now represent 17 and 11 percent of manufacturing output, respectively. The technical assistance loan proposed in this report would assist the preparation and execution of an important expansion of Peru's steel industry. 37. There has been growing recognition in recent years of the ineffi- ciency of the domestic manufacturing industry, its vulnerability to the country's recurrent foreign exchange difficulties as a result of dependence on imported inputs and its limited contribution to economic development because of its high net absorption of foreign exchange. The problems of the industrial sector became particularly evident during the economic crisis of the past few years. When Peru's economic activity began to slow down in 1975, industrial growth dropped from an average growth rate of 7 percent per annum during 1960-75 to to 4.2 percent in 1976. As the economic crisis deepened in 1977 and 1978, physical industrial production decreased by 3.9 and 2.4 percent, respectively. At the same time, the highly protected local market allowed oligopolistic industries to raise prices indiscriminately, thus fueling the high inflation of recent years. 38. The overall policy framework towards manufacturing began to change in mid-1976, with the adoption of a more realistic foreign exchange policy. In addition, a very generous set of export incentives was established in mid-1976 and strengthened in late 1978. These actions, together with a substantial reduction in domestic demand, generated an unprecedented growth in non-traditional (mainly manufactured) exports. They include textiles, processed fish for human consumption and fishing boats. From a low of US$133 million in 1976 (10 percent of merchandise exports), non-traditional exports increased to almost US$680 million in 1979. They grew to about 20 percent of merchan- dise exports that year--not as great an increase as in the overall growth of non-traditional exports because of the increases in petroleum and metal exports in 1979. 39. The other significant policy change designed to improve industrial efficiency, the trade liberalization element of the ERP (see para. 23), has proceeded generally according to schedule. In particular, non-tariff protection to industry through import prohibitions--the main feature of Peru's industrial policy until 1978--has been dismantled to a large extent and the process is expected to be completed by mid-1980. A new tariff structure was approved and has been in operation since last December, most tariff exemptions and exonerations have been eliminated and the system of export promotion has been improved. Nevertheless, the trade liberalization program is far from complete. Considerable efforts will have to be made in the coming years to achieve the full transformation of Peru's industrial structure. B. The Steel Industry 40. Background. The beginnings of Peruvian iron and steelmaking can be traced back to the Incas. Peru's first modern steel mill was constructed near Chimbote on the Peruvian coast about 420 km north of Lima and began operations in 1956 under joint public/private ownership based on the use of the Marcona iron ore deposits located 480 km south of Lima. Chimbote was  - 10 - selected for its deep water port facilities and the hydroelectric potential of the near-by Santa River. In addition to Chimbote, there are two small privately owned rolling mills with a total production capacity of about 74,000 tpy, mostly of steel bars, and several foundries which produce about 50,000 tpy of forgings and castings. One of the private mills is now planning a 100,000 tpy steel- making plant, which would go into operation in 1984. 41. SIDERPERU. Under the General Industries Law of 1970, the State was given the exclusive right to ownership of "basic" industries, including steel production. This did not affect the small private mills, but as the country's major steel producer the Chimbote steel mill was transferred in 1970 to the newly created, state-owned Empresa Siderurgica del Peru (SIDERPERU), which purchased the interests of the previous private shareholders in Chimbote. 42. SIDERPERU's Chimbote mill is the only integrated steel plant in Peru. It has an annual production capacity of about 500,000 tons of crude steel, which represents 90 percent of Peru's steelmaking capacity. The plant, however, is unbalanced, i.e., given the yield factor between crude and finished steel, crude steel capacity would have to be increased to 920,000 tpy to fully utilize Chimbote's 700,000 tpy rolling and finishing capacity. Because of the imbalance, SIDERPERU has had to rely partly on imported slabs and billets to feed its rolling mills. SIDERPERU produces both flat products -- hot and cold-rolled coil and sheet, galvanized sheet, tinplate -- and non-flat products -- wire rod and and bars. About two-thirds of Chimbote's steel output is produced by the blast furnace/basic oxygen furnace process using as inputs iron ore pellets from the Marcona mines and imported coke. The balance is produced by electric arc furnaces (EAFs) which process mostly imported steel scrap. 43. Deficiencies in the original design of the Chimbote plant, the small scale of many plant units and Government price controls have caused serious operational and financial difficulties over the years. During the first half of the 1970's, a US$130 million program was carried out, which reduced the imbalance between steelmaking and rolling capacity and improved the relationship between plant units. This program, together with the easing of Government price controls and a capital increase of US$80 million in 1979, greatly improved SIDERPERU's financial position. After losses in the mid-1960's and early 1970's, SIDERPERU has shown a profit over the past few years. Its cash generation is presently projected at US$100 million in the 1981-84 period. It is now in a healthy financial position with a long-term debt/equity ratio of 13/87 and a current ratio of 1.6 at the end of 1979. The intended expansion program is expected to further strengthen SIDERPERU. 44. Prices of domestically produced steel products are now set at a level close to landed import prices before duties. For rebars (used primarily for housing and other construction), which constitute about half of SIDERPERU's output, Peruvian prices are somewhat below landed import prices, while domestic prices for other products are roughly 10-20% higher. These prices fully cover SIDERPERU's costs. 45. With the high cost of imported scrap and metallurgical coke and the uncertainty of scrap supply because of periodic shortages on the world market, SIDERPERU has been exploring steelmaking methods which utilize indigenous raw  materials. In this effort, SIDERPERU has been operating an experimental kiln since 1975 to test the use of the SLRN coal-based direct reduction (DR) technology owned by Lurgi of Germany. This process was developed in the 1960's by Stelco (Canada), Lurgi (Germany), Republic Steel (USA) and National Lead (USA). It permits the use of anthracite coal located close to Chimbote to produce sponge-iron from Marcona iron ore pellets. This sponge iron can be substituted for steel scrap in EAF steel production. The process thus provides an alternative and less expensive route to steelmaking for countries that lack coking coal and steel scrap. 46. SIDERPERU's experimental kiln has so far produced 7,000 tons of sponge iron which has been charged to the existing EAFs for the production of steel. Based on this pilot operation, local anthracite coal and iron ore have been determined to be suitable for the production of sponge iron by the coal-based DR process. 47. Steel Demand. Despite having one of the lowest per capita levels of steel consumption in South America, Peru's domestic steel production has never been able to satisfy demand. In recent years the country has been importing about 30 percent of its steel requirements. As a result of Peru's economic growth and large investments in the early 1970s, steel consumption in 1975 reached 624,000 tons (all demand and consumption figures given are in raw steel terms and exclude seamless pipes, rails, forgings/castings and special steels for which demand is highly variable). As a result of the economic recession after 1975, steel consumption dropped sharply to 420,000 tons in 1978, the latest figure available. With economic recovery, the 1975 level of steel consumption could be exceeded by 1981. Thereafter, SIDERPERU expects consumption to grow at a rate of about 6 percent through 1986, and 8 percent afterward. These growth rates must be confirmed in the feasibility study to be financed under the proposed loan but they are reasonable in light of the current low level of steel consumption in Peru and projected GDP growth rates of 5-6 percent in the 1980's. With the initial production from the SIDERPERU first stage expansion described below, 1984 domestic steel production would total about 630,000 tons compared to projected consumption of 777,000 tons. By 1990, production is expected to grow to 1.0 million tons compared to a consumption estimate of 1.2 million tons. 48. SIDERPERU Expansion. In order to help meet this growth in demand and to eliminate its remaining Chimbote plant imbalances, SIDERPERU has recently begun implementing a balancing and expansion program that takes advantage of DR technology. The US$22 million initial phase of this program, which has now been completed, includes a plant-wide elimination of bottlenecks and installation of a DR plant consisting of three medium-size SLRN kilns. These kilns are now in the start-up phase and at full production are designed to have a combined capacity of 100,000 tpy of sponge iron, which will replace imported scrap. The operation of these kilns will enable SIDERPERU to obtain experience with coal-based DR on an industrial scale. Although new steelmaking facilities were not added, the initial phase is expected to increase SIDERPERU's steel production capacity from 500,000 tpy to 520,000 tpy, by permitting more efficient use of its existing EAFs.  - 12 - 49. This phase will be followed by an increase in raw steelmaking capacity of 400,000 tpy in two stages of 200,000 tpy each. Stage I is now being initiated for completion in 1984. Plans are for Stage II to be imple- mented in the 1983-1987 period. The major equipment components of each stage would include a DR plant with 200,000 tpy capacity, an 80 ton EAF, a 1,250 mm wide continuous slab caster and a 50 MW coal-fired power plant. In addition, Stage I would include a continuous billet caster for the existing steelmaking plant and Stage II would include a coal transport system. 50. Excluding working capital, financing charges, utility connections and pre-operating expenses, Stage I is estimated to cost US$185 million in 1980 prices and Stage II US$135 million. Since it is an expansion, this averages a little over US$800 per ton of annual capacity, which is low in comparison with greenfield steel projects whose costs per ton are now at least US$1,000-1,200. 51. Procurement activities for Stage I are now being completed. The Indo/German consulting firm Dastur Engineering helped design this stage and the French consulting firm SOFRESID, acting on behalf of SIDERPERU, called for bids on the principal Stage I facilities. Offers were requested from a large number of equipment fabricators in major supplying countries and awards were made to the lowest evaluated bidders on the basis of reasonable economic and technical criteria. All bids are on a turnkey basis and include financing, including interest during construction. Pre-operating expenses and additional working capital requirements, as well as the local cost component of the technical assistance project presented herein would be financed from SIDERPERU's cash generation. The proposed Bank technical assistance loan would finance the feasibility study for Stage II. 52. Although the Bank has not appraised the SIDERPERU expansion program in depth, a review of its technical, commercial and economic aspects indicates that it is well-conceived and economically attractive. Peru has the iron ore and coal resources to justify expansion of its steel industry to meet domestic demand. Such demand exceeds production capacity and is expected to continue to do so even after completion of the above-described expansion program. Peruvian raw materials are well-adapted to the coal-based direct reduction process and this has been tested to the point where bidders for the DR package are prepared to offer normal industry guarantees for the performance of the plants. The project appears to be economically justified. With inexpensive domestic inputs, particularly coal (which will also reduce the cost of power generation for the project), sponge iron production will be low in cost (US$110/ton), compared with the cost of imported scrap (US$160/ton, c.i.f.). The use of direct reduction allows for an economically efficient project scale to meet the needs of the relatively small domestic market. 53. SIDERPERU has been financially successful in recent years but still requires strengthening in a number of areas. A UNDP program has provided some technical assistance to SIDERPERU in improving its financial and opera- tional management; however, further assistance is necessary in such operational areas as maintenance and production planning. Also, SIDERPERU has little experience in project implementation and needs strong support to carry out its expansion program. The technical assistance project would provide SIDERPERU with this support.  - 13 - Previous Bank Activities in Industry and the Steel Subsector 54. Aside from a US$2.5 million loan (Ln. 116-PE of 1955) for develop- ment of a cement plant, which was successfully completed, the Bank's only industrial sector project in Peru was a US$35 million DFC I operation. After a slow start as a result of the domestic recession, commitments under this project have picked up recently and the credit line is over 70 percent committed. Full commitment is expected by December 1980. The President's Report on the proposed US$7.5 million Bayovar Engineering and Technical Assistance Loan for a phosphate fertilizer project has been distributed for Board consideration. 55. While the proposed Bank loan would be the first to the iron and steel subsector in Peru, the Bank's dialogue with the Peruvian steel industry dates back to the early 1960's when a mission reviewed the technical assistance requirements of the Chimbote steel plant. More recently, assistance is being provided to SIDERPERU through a cost sharing arrangement with the UNDP utilizing technical assistance funds from the 1979 Program Loan (Ln. 1693-PE of 1979) for two consultants who are assisting in the preparation of SIDERPERU's expansion program. Also, in 1979 SIDERPERU received a US$700,000 subloan under the DFC I project to help finance the three medium-size SLRN kilns mentioned in para 48. PART IV - THE PROJECT 56. In May 1979, the Government requested Bank technical assistance for the execution of the SIDERPERU expansion program. The first Bank mission visited Peru in July 1979. 57. The technical assistance project was appraised in April 1980. There is no separate appraisal report for the project. Supplementary data are contained in Annex III. Negotiations were held in Washington on June 13, 1980 and the Peruvian delegation was headed by Mr. Rene Calderon, Technical Director of SIDERPERU. Project Objectives and Description 58. The objectives of the technical assistance project are to strengthen SIDERPERU's project execution and plant operation capability to enable it to successfully install and manage its expanded facilities. The project would include the following: (i) 230 man-months of consulting services to assist in project manage- ment for the installation and start-up of the 200,000 tpy Stage I expansion program; (ii) 100 man-months of consulting services to provide assistance in the operation of existing plant facilities and initial operation of the Stage I facilities;  - 14 - (iii) assistance from a steel company which uses coal-based DR technology to provide training for SIDERPERU personnel both on-the-job and in its plant abroad and 20 man-months of consulting services to establish a training program for SIDERPERU; and (iv) 60 man-months of consulting services to prepare a feasibility study for Stage II of the expansion program, including a technical and economic review of the Stage I expansion, and coal transportation and electric system studies. 59. Project Management Services. This component, which represents about 44 percent of total project costs, would be carried out by a consulting firm and would include the provision of the services of a project manager. The project manager would lead an integrated team drawn from the staff of SIDERPERU and the selected consulting firm. He would be responsible for carrying out Stage I of the expansion program, which will begin shortly, including such aspects as overall coordination, control and direction of the works, scheduling, cost control, management information systems, site and erection coordination, and the provision of start-up assistance. He would report directly to the General Manager of SIDERPERU. The project manager would be authorized to act on behalf of SIDERPERU on project related matters, including all dealings with contractors and suppliers. 60. Operating Assistance. Under this component, consulting services would be provided to strengthen SIDERPERU's operating practices, including yield and quality standards, maintenance procedures, production planning and use of information systems. This would account for 20 percent of total project costs and would not only help SIDERPERU operate Stage I successfully, but would also enhance the performance of present facilities. Although SIDERPERU has gained some experience in coal-based DR from the operation of its pilot plant and will benefit from additional experience as its three new medium-sized kilns go into operation, assistance will be necessary for the start-up and initial operation of the larger Stage I kilns. This assistance would be provided by an experienced operating steel company familiar with coal-based DR technology. 61. Operational Training. This component accounts for 23 percent of total project costs and would include: (i) local on-the-job training for SIDERPERU staff; (ii) training of about 50 local staff for 3-6 months in coal-based DR operation abroad; and (iii) establishment of a training program in SIDERPERU. The first and second elements would be provided by the steel company selected to give operating assistance. For the third element, the company would contract a training advisor to assist in developing and insti- tuting a continuing training program for SIDERPERU staff. 62. Studies. This component, representing 13 percent of total cost, would finance a feasibility study for the 200,000 tpy Stage II expansion program, including a review of the Stage I expansion. The principal aim of the Stage I review would be to provide the information necessary for the design and economic evaluation of Stage II. It might also result in the  - 15 - identification of possible design modifications that might improve the effi- ciency of Stage I. In addition to project design, the Stage II feasibility study would include a market study, estimates of capital and operating costs and a financial and economic evaluation. 63. SIDERPERU will require increased supplies of anthracite coal start- ing about 1984/85. Until then it has large stocks of residual coke fines (powder), which have accumulated over the years and can supplement existing coal supplies for use in the DR process. A study would be carried out to identify the most appropriate means of transporting coal, which would come from the Santa area anthracite mines about 100 km from Chimbote. One solution under consideration is a coal slurry pipeline. In addition, SIDERPERU would carry out a study of its electric generation and distribution system in order to determine how it should be adapted to the needs of the Expansion Program. Project Execution 64. The technical assistance project would be executed by SIDERPERU and would take about three and one-half years to complete. The qualifications, terms of reference and conditions of employment of all consultants would have to be acceptable to the Bank and SIDERPERU would advise the Bank of the criteria to be used in the selection of consultants (Section 3.02(a) of the draft Loan Agreement). Consultants for the project management and studies components of the project would be appointed by September 30, 1980 and those for the operational assistance and training components would be appointed by December 31, 1980 (Section 3.02(b) of the draft Loan Agreement). SIDERPERU and the Government have agreed that after completion of the feasibility study and before a decision is taken on whether to go ahead with Stage II, the Bank would be afforded a reasonable opportunity to exchange views thereon (Sections 3.02(e)(ii) of the draft Loan Agreement). The Bank would have the right to suspend disbursements in the event that, for whatever reason, SIDERPERU ceases carrying out the Stage I expansion (Section 6.01(a) of the draft Loan Agreement). Project Costs, Financing and Disbursement 65. The total cost of the project is estimated at US$6.0 million net of taxes, of which US$5.0 million are foreign costs to be financed by the proposed loan. The cost estimate is based on mid-1980 prices. Physical contingencies of five percent have been added for all items, except studies. Price contingen- cies were based on an annual estimated worldwide inflation rate of 10 percent. SIDERPERU would finance the estimated US$1.0 million local costs of the project from internal cash generation. About 385 man-months of foreign engineering and technical and other consultancy services would be required. The estimated cost per man-month would be about US$10,000 (including overheads and subsistence allowances). The proposed Bank loan would be disbursed against 100 percent of foreign expenditures.  - 16 - Benefits and Risks 66. Although Peru has sizeable iron ore and coal reserves, domestic demand for steel has been substantially in excess of production capacity. The size of the local market, however, does not permit the construction of additional conventional steelmaking facilities large enough to obtain satisfactory economies of scale. SIDERPERU's proposed expansion program, based on the direct reduction of iron ore to sponge iron with the use of local non-coking coal, will provide additional steel making capacity economically. 67. The SIDERPERU steel expansion program would replace 500,000 tpy of imported scrap with a current total cost of US$80 million per year with locally produced sponge iron. The country would thus have a more reliable source of steelmaking raw materials than imported scrap steel, whose supply has been restricted at times. The expansion program would at the same time help develop a local resource (anthracite coal) for which there would otherwise be little use. Given the inexpensive coal supply, the low cost of the sponge iron that would be produced compared to the cost of imported steel scrap and the existence of excess rolling and finishing capacity that would be utilized with the increase in steelmaking, the SIDERPERU expansion appears to be economically justified. Overall, SIDERPERU's expansion would provide Peru with steel products at competitive prices and on a reliable basis. 68. A primary reason for Bank involvement in this project is SIDERPERU's lack of project management experience and capability. Though SIDERPERU has highly qualified engineers in such areas as process development, it does not--as an operating company--have sufficient manpower and experience in construction supervision, project implementation and scheduling and cost control. Without additional support, SIDERPERU is likely to encounter major delays, cost overruns and operational difficulties in implementing its expan- sion program. The selection of an experienced project management team under the proposed Bank project would help to minimize this potential risk. The technical assistance project would thus contribute to strengthening SIDERPERU in terms of management, operation and project implementation. This responds to the Government's objective of trying to ensure that major public investment projects, such as the SIDERPERU expansion, are well prepared and executed so as to avoid the kind of poor quality projects that have hindered Peru's development efforts in the past. 69. While the proposed coal-based DR process has been troublesome in a number of projects, plants in New Zealand (1969), South Africa (1974) and more recently in Brazil are successfully operating with this process. Given SIDERPERU's experience with the process, the risk should be minimal and, as pointed out above, the suppliers are prepared to guarantee the operation of the DR plant. 70. One attractive aspect of the proposed project for the Bank would be the experience it would gain in the execution of a coal-based DR project. In view of the world energy situation there are several countries where a coal-based DR process using non-coking coal might be utilized. Based on its experience in Peru, the Bank could play an important role in assisting in the introduction of this technology to these countries.  - 17 - PART V - LEGAL INSTRUMENTS AND AUTHORITY 71. The draft Loan Agreement between SIDERPERU and the Bank, the draft Guarantee Agreement between the Republic of Peru and the Bank, and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement of the Bank are being distributed to the Executive Directors separately. 72. These draft agreements conform to the normal pattern for loans for technical assistance projects. The main features of the Loan and Guarantee Agreements are referred to in the text and the special conditions thereof are listed in Section III of Annex III. 73. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 74. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments June 25, 1980 Washington, D.C.  - 18- ANNEX I p.,. 1 Page 1 of 5 TAJLU 3A PtRg - SOC INDIGATU D4T4A SBEET PERU RPENECE QOUPS (WEIGRTED AVEZES LAND AREA (THOUSAND So. MO.S -_____ T RECENT _STIVATE_ TOTAL 1285.2 AGRICULTURAL 305.5 MOST RECENT MIDDLE INCME MIDDLE INCOE 1960 k 1970 ESTIMATE k LATIN AMIRICA A CAM7JJAN EUROPE GNP PER CAPITA (USS) 250.0 420.0 740.0 1384.1 2381.1 ENERGY CONSUMPTION PER CAPITA (KIOGRAMS OP COAL EQUIVALENT) 445.0 619.0 649.0 1055.9 1641.4 POPULATION AND VIT AL STATISTICS TOPtLATION, IID-YEAR (MILLIONS) 10.2 13.5 16.8 URBAN POPULATION (PERCENT OF TOTAL) 46.3 57.4 65.6 63.4 53.9 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 29.0 STATIONARY POPULATION (MILLIONS) 57.0 YEAR STATIONARY POPULATION IS REACHED 2090 POPULATION DENSITY PER SQ. DN. 6.0. 11.0 13.0 28.1 77.2 PER SQ. KM. AGRICULTURAL LAND 33.0 44.0 55.0 81.7 129.5 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 44.2 45.0 42.9 41.4 30.6 15-64 YRS. 52.0 51.9 53.4 54.7 61.1 65 YRS. AND ABOVE 3.8 3.1 3.7 3.9 8.2 POPULATION GROWTH RATE (PERCENT) TOTAL 2.6 2.8 2.7 2.7 1.6 URBAN 4.7ye 5.0 4.5 4.1 3.3 CRUDE BIRTH RATE (PER THOUSAND) 47.0 43.0 39.0 34.8 22.8 CRUDE DEATH RATE (PER THOUSAND) 19.0 15.0 12.0 8.9 8.9 GRSS REPRODUCTION RATE 3.1/d 2.9 2.8 2.5 1.5 FAhILY PLANNING ACCEPTORS. ANNUAL (THOUSANDS) USERS (PERCENT OF MARRIED WOMXEN) .. .. POOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 96.0 102.0 85.0 106.9 113.1 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 95.0 99.0 97.0 107.4 125.3 PROTEINS (GRAMS PER DAY) 62.0 61.0 59.0 65.6 91.0 OF WHICH ANIMAL AND PULSE 27.0 25.0 24.0 33.7 39.6 CHILD (AGES 1-4) MDRTALITY RATE 28.0 20.0 16.0 8.4 4.3 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 48.0 *53.0 56.0 63.1 67.8 INFANT MORTALITY RATE (PER THOUSAND) .. 122.0/ .. 66.5 55.9 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 35.0 47.0 65.9 URBAN *- 58.0 72.0 80.4 RURAL .. 8.0 15.0 44.0 ACCESS TO EXRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 36.0 .. 62.3 URBAN *- 52.0 .. 79.4 RURAL .. 16.0 .. 29.6 POPULATION PER PHYSICIAN 2251.0lf 1859.0 1556.0 1849.2 1030.1 POPULATION PER NURSING PERSON 2205.Of 738.0 745.0 1227.5 929.4 POPULATION PER HOSPITAL BED TOTAL 424.01A 470.0 547.0 480.3 289.7 URBAN .. 425.0 RURAL .. 3144.0 ADMISSIONS PER HOSPITAL BED .. 19.0 .. .. 17.0 HOUSING AVERGE SIZE OF HOUSEHOLD TOTAL 4.9 4.9/h URBAN 4.8 5.1h RURAL 4.9 4.7/h AVERAGE NUHBER OF PERSONS PER ROOM TOTAL 2.3 1 . URBAN 2.0 1.77 .. RURAL 2.7 2.4 . ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 26.0 32.1 . UREAN 50.7 54.37. RURAL 4.0 2. ..  - 19 - AMNEX I Page 2 Page 2 of 5 TABLE 3A PERU - SOCIAL INDICATORS DATA SHEET PERU REFERENCE GROUPS (URIGITED AVAffS - MDST RgCEIT ESTIMATE) MOST RECENT MIDDLE INCOME MEDDLE INCOHE 1960 /b 1970 k ESTIMATE k LATIN AMERICA & CARI3BEAN EUROPE EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 83.0 107.0 110.0 99.7 105.9 MALE 95.0 114.0 115.0 101.0 109.3 FEMALE 71.0 99.0 106.0 99.4 103.0 SECONDARY: TOTAL 15.0 30.0 52.0 34.4 64.0 MALE 18.0 34.0 56.0 33.5 71.1 FEMALE 13.0 26.0 48.0 34.7 56.9 VOCATIONAL ENROL. (: OF SECONDARY) 20.0 17.0 23.0 38.2 28.8 PUPIL-TEACHER RATIO PRIMARY 34.0 40.0 40.0 30.5 29.4 SECONDARY 12.0 23.0 23.0 14.5 26.1 ADULT LITERACY RATE (PERCENT) 61.0 .. 72.0 76.3 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 8.0 17.0 18.4 43.0 84.6 RADIO RECEIVERS PER THOUSAND POPULATION 110.0 137.0 131.0 245.3 192.2 TV RECEIVERS PER THOUSAND POPULATION 3.0 30.0 38.0 84.2 118.5 NEWSPAPER (-DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION .. 124.0 96.0 63.3 93.0 CINEMA ANNUAL ATTENDANCE PER CAPITA .. .. .. .. 5.7 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 3187.8 3909.3 4980.4 FEHALE (PERCENT) 21.0 20.7 23.9 22.2 30.4 ArRICULTURE (PERCENT) 53.0 45.0 39.0 37.1 37.0 INDUSTRY (PERCENT) 19.0 20.0 21.0 23.5 29.3 PARTICIPATION RATE (PERCENT) TOTAL 31.3 29.1 29.2 31.5 40.9 MALE 49.2 45.8 45.3 48.9 55.9 FEMALE 13.2 12.1 12.8 14.0 26.2 ECONOMIC DEPENDENCY RATIO 1.5 1.7 1.6 1.4 1.0 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 39.0/i .. HIGHEST 20 PERCENT OF HOUSEHOLDS 64.4/i 61.0/h . IOWEST 20 PERCENT OP HOUSEHOLDS 2.5Li 1.9/h LOWEST 40 PERCENT OF HOUSEHOLDS 8.0/Li 7.0/h POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 235.0 RURAL .. .. 180.0 190.8 ESTIMATED RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 293.0 474.0 RURAL .. .. 200.0 332.5 385.8 ESTIMATED POPULATION BELOW POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 49.0 RURAL .. .. HNo available Not applicable. NOTES /a The group averages for each indicator are population-ieighted arithmetic means. 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 Estimte, between 1974 and 1978. /c 1956-61; /d 1960-65; /e 1970-75; /f 1964; 1962; /h 1972; Li Personal income vithin labor force. April, 1980  - 20 - ANNEX I -~~~~~~ ~~Page 3 of 5 OtNiOTlpioN OF socIAL INPICATORS Nots ii Aboh11 h ab dat- t dra'e from souce geneall u Itthe moa a-tiattead reial.t hul at lie noted chat clyma o beine- nscuochlyccsaoablrbecaus of th lack f stanardise defintions nd conepts ued by itiaret counbiesiil coil cotog he dat. The entate note tIl halu,uei ootiaodr ofsg I -Pe, Indct trend,b an o-f,aracetiecena . .ajor dlfecehe ben-e. counitgiIes. I. .Il V of th oiotcuty(ecp on"aia Ilopius Oil 1lpote`' 9t-pnhr "Middle Incom Norh Ott ica end Middle tan'iE becbeas fsrne LAlD ARid (,ib..said syka.) to.acypi;o u-Op-Oico cc--us cc Ioto c --rncog cy Tottl -fotlsolacareropniaaTaod ateaad Inladoaes -h-os. ornoha ic. ccoeu, -110. forc- t ra,mre af.itisgadnso o c .ATo; 1977 dana 'male r. femalt graduate Atre,po cltre,olassatote Gil' PER CgPITu 10511 - GNP per capita esimates sttures aket po-, .Is- ore,ad-ualdil y the it ..pei. nubrofhsit bd cu1aned by sn conerlo mehod aa hand isic Atlas (1976-7t basis); 1960 -oaabe t poblc and pricaim ge _ts an pnid P hasPita' end iY, ard170 dat. n_iitiorant '.fopnlat e .a.lsmen yer. nnn tdtf by si I.a- ie pbystctat. hcbonmnaproiding prinipallo co:t:dia ItEOGY COAShttPTIOtNPEt CAPliA - fata ... ampeonIf IO~ileeg ci0 cr -ne nn -nIudd nrloptasis, h_nener, Inliode health admdica and l11iglte, ptoem aua a hydra-, nulear7 and asohena east- cantata.tot Pletmcelystufe byi a1yymIcta- (hot by a mlbtl ssIia, _irocc on kio ..n of coa sqinae yen capita; toil' 1970, and 1978 nreadntf,rc)oIcIofri-ain atdomdanin_and_ rande: POIU-T~~~~.N AND "TAI, STATISTIUS -bet incude IjO totctfa gete-s ord oP-cli-ed boapftal, en _rra cmyousiimid-beat lailtona -. A. of Joly 1; t9il, 1970, and 19708 dlsootrhsla e oa ubnc dlsooro discharges data. Ironb. .-. pp..t.; - hos1italt dinided by cIt t-nie of bldos --dilfferent dafin~iona of -rboasa saY alfle coparabIliy of dai HOSN 96,1970, aod T978 datu utre aec oabod(es e omhod os na,ad -ura- tota poulatorby ae ad sa sd aeic ortlIt so lerl y rtes th hoomahld dothnsiianoal ocyres yrjccoptomnrmomonlnymeeopia hflslolssr orsel ior aen eto-ca ra natafrltiiyrtJlobc three lanalat asudto d'cIioy On -tobcopleddpdnte friItyacrdn ofnor ae. sdpa famlyplnnogpafonace-Ocesa tecrlc rtaoo doellines) b-dria - orha , ad-utl tec contr Is n.elYassigned one ofg these nInecohiatoo o sttily oneIfnlOellg lyeenllyIc1tigqsir eptrt a -donilotiradlnrjcinupaa.fPt,obtadctdehotapciay th brc tn flis sqaI n b deah.rt,so. a abs ag atucur ye- d-jCA IO maIn1ontnt hi s cia oly af_e fertiltty raeI elt t duidfrolattic ihoacacnee aceofnioarernuoronan,nensr geertin rbtnnsdco-ccs, uPecdt...h.utttt. tlmnfPa d of somc repaces tselfexactin. Th misioosoypopottilo loe ta anrolonotot si agn.t .....on.....c..so p .c ..t....o aiciested on the basis P of l ice P ' pro .c...larc..io ic_s ofteppHton piu obo-uappltos notIy ohor chlde age iIl crabs year 2000 and the rate -o derline of h lecicynt-oepac-yer h b-c edond to- ilrn anlao cmnodctIo o btt aii cotrr Iloitsotoatcnchathoasdl ecn Irnsa 411mprlattI rahd-Th erthnmaEDtrUoCAnIy atoetsTuplIoeONo calo h olIiiscolsr als o hersced rhoanncol-taloladlaan-is,nraabc;ecIdt ,h,polaIiOt...e..ito .e.n.t.-hd-erppuainpe qae cimca eiotlo duain euon thot otyarlfmprtdrooyiarotIo Y4 yesra) and rtire i05 year had Thel a.- pecenaeso mid-,yea op- donytrmdpanentc arod- nstott harlot h..,100 and. 1970. data. Porl-amhe raIo-on may edd eodto-ta noat ltdi ofolnt rmhtt tnet oa nna rnhrtn fttlmd oet ad 11 -aodr lln-ts binlded .by numbers l tasheetto1 b yea poultin fr 05-0,iIolI sd Od-O.c-rapndc lcaa PortmlonOtnghtae rereo) -rbn-outalgrothraes f rba PPO Adlt1 tarcy at Iercni - ich-m auls.lb.e o radmtdnnte let cne to tOl-AT 100-70,and 070-P. mspeccrnmg of orahaduh poruat in agd 11yamn mndo_ er GrdeOtt dat oayhomndl Anua liedrI e hosn fmdya popolaloc; 9ff, 070, nd lOl data ChihnP-ld popoacln; qiO,107,1ad 1)7 -d b.dana.I_ -art 1satin let 1hiilprsn;f olda et-nr, basamsso Inoa I..dcIntaaOaaetubro.agtesasmcil eri ilcrnbca barloms rprdunie erod f haapnlocm reen ae-secifo at ldl icsoes Ianthusodtooltor)- .11ryamo0reaier fr sd t AlnrIeauoal teyar-aegsedtgin16, -0 ad177 radatstR -Irtpolcra huso o oilio;scuemo PaliPloita kctttsI Coalntlad-ab-1uoa-alnoakbenf g acair(emdectaslcutinodtyaaloaienitttdta ,.Pil d-ani-sr rnrato ane pie)-Poatg oyare onre do ..h.. 1.- icnIftg --.1 1-di- o food 1rodctio60 a 1960 it0 1960_7t1B -To f of b-e captaanua tint1o dalygnrlItestoapr,dfin0spnodalub Ino ahndn er ass.ftaIiacoa PimrYood (.g stacta tohr''al--" If I ap-1erd at Plas1et fnuttssama hragasdolauoaeiobIPlrbs....edlbenocaoooen (enffaed-y. Iteaunalunnd_eorsltprls-tad _nsune 1970,iacpae prouce p97e d..g.te llf,17,an 96dt.an -oie01g Parcaofoyy0pp41tltslonie(reroent of raoiinmma- ts-hoo-putlb.d from ~ l l.. . roergy equtooleot of net food supplIes snatlable ir rourtyp per canto 10000 ~~~~~~~~~~~~~~~ pe e.Anial sple cmrm dmsid-yuno. mot lticalLbrtoc tdtaa)-yrneclh cig esn,httdn loot.an eisinaci. Otmpliaeood nmlfed ed. re ore o ,cohyd o oldcglomaosdIdet,tc P1saol 7na; 90--, 111,an 177dos.lohdi. s eronar olotl so Irt "P.. f91ad17 oo Pe crIc upl ofOotl (em ore. day -_rtl oxoco a aoa Inono(ecs I -l Lao. oreI...o,dnsnrto,nnlatno oaIoN yo nlpaIa.ttap- f odI ata s bn.t- adeetron,iss o oaaVrrroro cot.h.(shot fcron lOd quraans onal osnnosaiailahd yId10rr... o aoiat.90mo 17iOso oloacao 0grm ftoa niropr ayn PIre o nml o ... piloPt (act( oalml cOlml-PrIcsoino rols cotor,xiohIb 0 gat... ol beaoolpoe.teestn- -aciiy ae rtcooedaIoalfae and femal lao fore a ard -tmhotrclai ... t-f -ltao do --c-e p Iosnhgatf crestm loe,eladeaacuaIc....shiaisepcue hcrd oo broy;lIil-I,101 id1)75at.4ae-ecyc-oon o th ppuIcIn sd- ooYtbircynd 0fe mii orln .....rIcIa..cii....e or-p cilot Socr(ohcrshct h- 1lI neau yicb-mt as brth;lOu,1971ond 918 ots Id loosoP"hdo. -nlos crdlotn e -huesd -d-to deats-o ina -aude one-I -id o -ue o .bosn ~ hlo . bIrths . TItdT T-OtiChI_d ootsipo I Ochd etnse -tht etr or .. unroe tug dnotanna crttAlh -dmuotbhr thsanti o-odrqor-ntI o thattro prtc sntraih(ooYodbi Pdboehola.nntng.sn hatima..adoa..solos .oo ...o PIoo.bmdh(hi oeopOlubmabmdumf olthiroepectsm ppulaions inacrbaareapoblc toal rlanos poetrr loate ecelis oe-thrd o andage er -nit locorals raoatdpoalocaceloc norelballOOmaeerlrcsahoca smybo pnsccallocteoftheccntry. Orlaclenellslenioddtrmthdn-ra conoidayrtd so beigliti - ap aoabe ece..of .h . hos ..In roes snee lethtthajunes r RarctcofIooInub nea rra dsllacea tod olyiln the .,litostf or J ..lir of .eh. eod htmtdltilinOltblalt ran noelnilec l-ms do cotlace t tran -a d .....ricas yar -on day -i fenlhog -Ihasd ua F- yrrs on dotlii (...b... mId ua)ncae eiotep ohIat coeoao ,ct-scohytcc-cs ocemo or ftt tam I . -11h 190 yct hcf _ornond c1il_tdyo-allat-__  A C T U ~~~~~~~~~~ILI. r7 62 7R01J6132 3 sD475622532.-.1 1937 1965 1990 1975 1976 897 1978 1179 198 1985 1s6576 1976.73 1978-5 800 0.022 33323232 7633.7 9431.1 L 2329.3 22362. 12333. 12338.3 12359.2 12203.3 23932.1 '. 7 -.4. 3.2 U 0.0 3333 33 32 3 3 33303 -2'51.1 027'.5 -3 35739.2 -00z5.539 024.1' -203.3 221i.3 L22. 393 69.3 3fi 2 3 r 33.2 rror7 s d.. 60007. 2275.25 S 55.. 29055. 0623371 2393.9 2120.9 32