Philippines - Agricultural Support Services Project

Document of The World Bank FOR OFFICIAL USE ONLY pj c Py Report No. P-3099-PH REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF THE PHILIPPINES FOR AN AGRICULTURAL SUPPORT SERVICES PROJECT June 23, 1981 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS US$1.00 = Pesos (P) 7.5 P 1.00 = US$0.133 REPUBLIC OF THE PHILIPPINES FISCAL YEAR January 1 - December 31 ABBREVIATIONS APPU - Agricultural Project Preparation Unit (of MOA) ARO - Agricultural Research Office BAEcon - Bureau of Agricultural Economics (of MOA) BAEx - Bureau of Agricultural Extension (of MOA) BAI - Bureau of Animal Industry (of MOA) BPI - Bureau of Plant Industry (of MOA) BS - Bureau of Soils (of MOA) ETD - Extension Training Division (of BAEx) FAO/CP - Food and Agriculture Organization (of the U.N.) Cooperative Programme FNP - Food and Nutrition Plan FNRI - Food and Nutrition Research Institute IPB - Institute of Plant Breeding (of UPLB) MOA - Ministry of Agriculture NFAC - National Food and Agricultural Council (of MOA) NFA - National Food Authority NGA - National Grains Authority NNC - National Nutrition Council NSDB - National Science Development Board PCARR - Philippine Council for Agriculture and Resources Research PMC - Project Management Committee (of MOA) PMO - Project Management Office (of MOA) PPD - Planning and Programming Division (of MOA) RIARS - Regional Integrated Agricultural Research Station UPLB - University of the Philippines, Los Banos Campus  FOR OFFICIAL USE ONLY PHILIPPINES AGRICULTURAL SUPPORT SERVICES PROJECT Loan and Project Summary Borrower: Republic of the Philippines Amount: $45.0 million Terms: The loan would be for a term of 20 years, including five years of grace, with interest at 9,6 % p.a. Project Description: The proposed project seeks to strengthen and expand a wide range of agricultural support services other than extension, which is being supported under an ongoing Bank-financed National Extension Project. The project finances research on plant breeding, particularly on crops other than rice, and also on small-farm systems to develop technology which would effectively integrate crops and backyard livestock. It aims to improve the plant and livestock regulatory services of the Ministry of Agriculture and strengthen the Ministry's capability to plan, prepare and implement projects. It is expected that the expanded services will raise agricultural productivity and output, and will enhance rural incomes, particularly of small farmers. Through support of the second nationwide nutrition survey, the project will also strengthen the data base for the Government's Food and Nutrition Plan. Although the project's benefits do not lend themselves to precise quantification, a large proportion of the country's 2.35 million farm units could benefit from it, at a relatively small average cost per farm family. Risks associated with the proposed project are related to two main issues: (a) the implementation; and (b) the impact of the project. Firstly, a number of recently reorganized and decentralized institutions will be responsible for implement- ing a wide range of subprojects and the accomplishment of pro- ject objectives may thus be delayed since the recent reorgan- ization has yet to be tested. In addition, the Ministry of Agriculture (MOA), which will play a key role in coordinating project implementation, has had relatively little experience in implementing foreign-assisted projects. However, the various project components are not closely interdependent, and while the performance of some MOA agencies could fall short of expectations, this would not impair the effective implementa- tion of other project components. The second risk is related to the efficient dissemination of research results through extension, and farmer acceptance of research recommendations, both of which will be critical to the success of the project. There is also a risk that improved research and regulatory services may not raise farm production and productivity This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - as anticipated. However, farmers in the Philippines have a good record of adopting new and innovative technologies, and improvements are being made in the methods of disseminating information under the National Extension Project. In addition, experience indicates that benefits from research are usually high, and substantial benefits are anticipated from the increased production resulting from the combination of livestock and crops in the small farm systems being developed under the project. Estimated Local Foreign Total Cost: - $ million ------ Agricultural Research 19.3 10.3 29.6 Plant Regulatory Services 3.4 1.8 5.2 Livestock Regulatory Services 2.6 5.7 8.3 Agricultural Planning 2.5 0.6 3.1 Project Implementation 4.2 4.7 8.9 National Nutrition Survey 1.0 0.3 1.3 Base Cost Estimates 33.0 23.4 56.4 Physical Contingencies 4.0 2.9 6.9 Price Contingencies 9.0 4.7 13.7 Total Project Cost 46.0 31.0 77.0 Taxes 2.5 - 2.5 Total Project Cost (net of taxes) 43.5 31.0 74.5 Financing Plan: IBRD 14.0 31.0 45.0 Government 32.0 - 32.0 Total 46.0 31.0 77.0 Estimated Disbursements: Bank FY: FY82 FY83 FY84 FY85 FY86 FY87 FY88 ----------------- $ million ------------------ Annual 0.6 2.8 8.1 11.1 10.7 8.8 2.9 Cumulative 0.6 3.4 11.5 22.6 33.3 42.1 45.0 Economic Rate of Return: N.A. Staff Appraisal Report: No. 3378-PH, dated June 23, 1981.  REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF THE PHILIPPINES FOR AN AGRICULTURAL SUPPORT SERVICES PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of the Philippines for the equivalent of $45.0 million to help finance an agricultural support services project. The loan would have a term of 20 years, including 5 years of grace, with interest at 9,62 per annum. PART I - THE ECONOMY 2. An economic report, entitled "The Philippines: Domestic and External Resources for Development" (No. 2674-PH), was distributed to the Executive Directors under SecM79-822, dated November 16, 1979. A mission visited the Philippines in 1979 to analyze the extent of poverty and review policies affecting it. The mission's report, "Aspects of Poverty in the Philippines: A Review and Assessment" (No. 2984-PH) was distributed to the Executive Directors on December 1, 1980 under SecM80-919. The next economic mission is planned for September 1981. Country data are given in Annex 1. Performance in the 1970s 3. During the 1970s, economic performance improved considerably, raising the trend GNP growth rate to 6% at the end of the decade. The ratio of fixed investment to GNP rose from 16% to 24% during this period. Half of the increase in investment was in the public sector; the ratio of public investment to GNP rose from 1.5% to 5.5% during the decade, reflecting substantially expanded revenues and improved implementation capacity. Export growth was accelerated, particularly in nontraditional manufactures, while growth in imports of oil and consumer goods was restrained. Overall, expan- sion in agricultural production was quite rapid, and foodgrain deficits were eliminated in the second half of the decade. Population growth was also slowed in the 1970s. However, the economy still has a number of structural problems. Most importantly, the efficiency of investment has been low, particularly in manufacturing industry producing for the domestic market; industrial employment has not expanded rapidly enough; and poverty is still widespread. 4. The economy's structural problems are reflected in its balance of payments. Improvements achieved in the early 1970s were more than offset by a sharp deterioration of the Philippines' terms of trade since 1975, stemming from the oil price increases, accelerated international inflation,  - 2 - and depressed prices for major export commodities. Consequently, the Philippines has had to rely heavily on foreign borrowings to finance the imports needed to maintain growth and investment levels. To hold the external deficit at a sustainable level in the coming years, additional structural adjustments in the balance of payments will have to be achieved through reduced dependence on imported oil, increased efficiency of investment, and improved performance of the industrial sector. Development Strategy r 5. The Government's Development Plan for 1978-82 has as objectives the rapid expansion of productive employment; improvements in economic, social and regional equity; and provision for the basic needs of the population. The agricultural strategy emphasizes food production, crop diversification, and stronger linkages with processing industries. The industrial strategy calls for promotion of export industries, development of small- and medium-scale industries, regional dispersion of industrial growth, increased efficiency of investment, and selected large-scale projects. The Plan includes social development targets in education, housing, health, and family planning. In addition, the Plan outlines development strategies for each of the country's 13 regions. A recently completed Food and Nutrition Plan, which complements the Development Plan, aims at eliminating malnutrition by 1990 through increased food production and nutrition programs. 6. The Development Plan elaborates the policy directions pursued by the Government in recent years and is broadly in line with the Bank's assessment of the country-s development priorities. In view of changes in the international economy, the Government has recently revised the Plan, reducing the target of GNP growth for 1981-82 from 8% to 6%. Macro Issues for the 1980s 7. As noted above, the Philippines faces several fundamental long- standing development problems which will need increased attention during the 1980s. The four most important of these are reduction of population growth, poverty alleviation, employment generation, and increased efficiency of investment. 8. Population Growth. The Philippines has achieved an impressive reduction in population growth from 3% in 1970 to about 2.4% in 1980./l Nevertheless, rapid population growth is still strairning available land resources, aggravating already serious employment and poverty problems, and burdening the public budget with a high growth in demand for basic public services. Further reduction of population growth is, therefore, vital for the country-s development. The Philippines has an active family planning program which has expanded rapidly during the 1970s. Participation in the family planning program is still low by East Asian standards, and the number /1 This figure is based on a more recent survey than the Annex I data.  - 3 - of new acceptors has reached a plateau as the program has faced the increasingly difficult problem of extending into rural areas. 9. Poverty Alleviation. Despite satisfactory economic growth during the 1970s, the incidence of poverty remains high at 40-45%. Income distri- bution continues to be very skewed, and there is a small elite which is conspicuously wealthy. Regional disparities remain pronounced, with the incidence of poverty reaching 60-70% in the least developed regions. Large numbers of people, especially in the rural areas, which account for about 80% of the poor, still suffer from malnutrition and lack safe water, basic education and health facilities. An increasingly unfavorable man/land ratio, the resulting expansion of cultivation into marginal lands, limited employment opportunities in the industrial sector, and the sharp deterioration in the external terms of trade have put downward pressure on real incomes. Although the Government instituted several programs during the 1970s that should directly improve the lives of the poor, most of these were implemented on a large scale only toward the end of the decade and will require several years to achieve a marked impact. Key steps needed to alleviate poverty will be the development of rainfed agriculture, more balanced regional development, rapid expansion of manufacturing employment, continued improvement in basic public services, and further reduction of population growth. 10. Employment Generation. Growth of productive employment, partic- ularly in the industrial sector, has lagged behind the rapid expansion of the labor force, and considerable underemployment exists. During the 1970s, the agriculture and service sectors had to absorb an excessively high proportion of new entrants to the labor force. Manufacturing employment stagnated in the first half of the decade, and picked up only slightly thereafter as labor-intensive export production grew. Overseas employment, especially in the Middle East, increased rapidly, providing a temporary income opportunity. As the absorption capacity of the agricultural sector is limited, employment generation in manufacturing will have to increase considerably in the 1980s. 11. Efficiency of Investment. While private and public investment rose sharply during the last decade and have reached reasonable levels, the accompanying expansion of the economy's real output has been relatively low. In addition, the low rate of industrial job creation indicates that, on average, investment has not been labor-intensive enough. The low efficiency and labor-intensity of investment have been caused by the distortive effects of past trade, industrial, and financial policies on the allocation of capital. In view of tight resource constraints to be faced in the 1980s, the efficiency and labor-intensity of investment will be critical determinants of future growth in output and employment. Sectoral Issues 12. The Philippines macro-economic performance reflects achievements and problems at the sectoral level. The more important of these are summarized below for the agricultural, industrial, and energy sectors.  - 4 - 13. Agriculture and Rural Development. Although there has been con- siderable variation among subsectors, the trend growth rate of the agriculture, fishery, and forestry sector was about 5% during the 1970s, which is quite high by international standards. The Philippines, once a chronic importer of rice, began to export modest quantities in 1977, and rice self-sufficiency appears assured for the 1980s. Production of fish and nontraditional export crops, such as bananas and coffee, has also expanded rapidly. However, the development of rainfed agriculture, which is of critical importance for raising the incomes of the rural poor, has lagged a behind. Technologies to increase yields of corn and feedgrains are still under development, as are multiple cropping systems. Productivity in the important coconut export sector is low because of a large number of overage trees, although a major coconut replanting program is scheduled for the early 1980s. Furthermore, population pressure on the arable land is steadily increasing, and soil erosion in hilly areas that have been logged over or settled is a serious problem. 14. The Government has provided substantial support for rural develop- ment. Agricultural production has benefitted from the introduction of high- yielding varieties, improved credit, extension, and irrigation programs. Rural infrastructure programs in water supply, electrification and health services have also been expanded significantly. An agrarian reform of rice and corn land, instituted in 1972, is well advanced. 15. While these programs have achieved considerable improvements, the gains have been uneven among regions, crops, and farming systems. Difficult issues remain to be addressed if the living conditions of the rural poor are to be improved. Solutions to the interrelated problems of low incomes and poor soils in marginal settlements will require the development of tree cropping and mixed farming technologies, resolution of land tenure questions, and substantial upgrading of the administrative capability of the agencies concerned. Steps are also needed to reduce the incidence of poverty among subsistence fishermen, coconut farmers, and sugar cane workers. 16. Industry. Although industrial and trade policies were improved in the early 1970s, manufacturing industry grew only at about the same rate as GDP, and its growth pattern remained unsatisfactory during the decade. Excessive protection and artificially low cost of capital have led to low efficiency of investment and stagnation of manufacturing employment in industries producing for the domestic market. The introduction of export promotion measures in the early 1970s did lead to extremely rapid growth in exports of nontraditional manufactures, which rose from about $50 million in 1970 to $2.1 billion in 1980. Nontraditional manufactures now account for one-third of the country-s total exports. However, the export expansion has been concentrated on a few items, and backward linkages with the rest of the economy have been limited due to the high cost and low quality of domestic inputs. Consequently, nontraditional manufacturing export industries have developed as an outward-looking enclave in an otherwise heavily protected economy.  -5- 17. The objectives of the Government's industrial policy are to accelerate growth of output and employment, sustain the high growth of manu- factured exports, reduce import dependence of domestic industry, improve the efficiency of investment, and promote industrial development outside the Manila area. Since industries producing for the domestic market still account for more than 80% of manufacturing investment, output, and employ- ment, restructuring of home industries as well as continued export expansion are needed to achieve these objectives. In 1979, the Government initiated a series of fundamental policy reforms designed to improve the performance of the industrial sector. The first phase of the reform program, which is currently being implemented, focuses on strengthening of export incentives and reduction of protection through tariff reform and liberalization of import licensing. The Government is preparing a second phase of reforms that will address shortcomings in the investment incentives and promotion system as well as restructuring of industries which have to adjust to a more competitive environment. 18. Energy. Another sector critical for the success of the Philippines- structural adjustment effort is the energy sector. Since the 1973-74 oil price increase, the Philippines has made a considerable effort to reduce its dependency on imported oil. Demand restraint - largely through pricing and taxing measures - held the growth rate of energy consumption one percentage point below that of GDP. Steps to increase and diversify domestic energy supply have included the development of hydroelectric, geothermal, coal, and nuclear energy. Limited domestic petroleum production also began in 1979. However, due to the long gestation period of energy projects, domestic energy production still constituted only 18% of total commercial energy consumption in 1980. In response to the "second oil crisis", the Government is accelerating its program for domestic energy production but further taxing and pricing initiatives will also be needed to restrain demand. Domestic Resource Mobilization and Allocation 19. Domestic Savings and the Financial Sector. During the 1970s, gross domestic savings expanded considerably, reaching 24% of GNP and financing about 80% of total investment. However, the savings ratio needs to rise by another 2-3% of GNP in order to maintain investment levels while simultan- eously limiting the current account deficit and the country's reliance on foreign savings. In addition, interest rates and other financial incentives affecting the labor-intensity and efficiency of investment, the flexibility and competitiveness of the financial system, and the maturity of lending all needed to be increased. Hence, in 1980-81 the Government introduced a comprehensive set of financial reforms. Interest rates are being substan- tially decontrolled and revised monetary, fiscal, and rediscount policies are being introduced. Legislation to encourage multipurpose banking has also been adopted to reduce the present excessive specialization and fragmentation of the financial system and to increase competition. 20. Public Finance. During the 1970s, the Government has raised the overall level of public expenditures by 5% of GNP and has increased the shares  - 6 - going to economic services and investment. Toward the end of the decade, total government expenditures reached an estimated 17% of GNP, with public investment equalling about 5.5% of GNP. The expansion of public expenditures has made possible improvements in basic infrastructure, particularly in transportation, power and irrigation, as well as expanded programs in urban development, health and family planning. At present, the size of the public investment program is appropriate, and its composition is, with a few exceptions, broadly consistent with th-j country's development priorities. 21. In the last few years, however, public investment has been cons- trained by the availability of resources, outdated contracting regulations and rigid budget execution procedures which were introduced in anticipation of a tight revenue situation. Problems were particularly acute during the period of high inflation in 1979 and 1980, and they caused the Government actually to underspend its capital budget. As resource constraints are likely to remain tight during the next decade, further strengthening of investment programming and budgeting procedures will be needed to concentrate resources on the highest priority projects. 22. The rapid expansion of public expenditures has been made possible by a program of systematic tax reform. The proportion of revenue coming from domestic taxes has been raised through increases in indirect taxes and improved collection, thus reducing dependence on cyclically volatile taxes on international trade. The tax ratio was raised by two percentage points to 13.6% of GNP during the decade but has remained about constant in the last few years. Continuation of a strong revenue effort, both by the Government and government corporations, will be necessary to finance further expansion in infrastructure and social services. Further tax reforms are needed to raise the elasticity of the revenue system, to improve its equity by increasing the proportion of revenue coming from direct taxes, and to eliminate remaining distortions in economic incentives. Balance of Payments Adjustment and External Capital Requirements 23. The 1979-80 oil price increase has considerably tightened the long- term balance of payments constraints for the Philippines. The share of oil in total merchandise imports increased from under 12% in the early 1970s to over 25% in 1980. The current account deficit widened to an estimated $2.2 billion in 1980, equivalent to 6.1% of GNP. If growth and investment rates are to be maintained, accelerated structural adjustments in the economy and the balance of payments have become essential to hold the external deficit at a sustainable level. Considerable reforms have already been introduced with respect to trade, industrial, and financial policies (see paras. 17 and 19), and improvements are under consideration in energy policy. Additional policy measures will be needed in these areas as well as resource mobilization and investment programming. Implementation of necessary adjustment measures should make it possible to sustain economic growth at 6.0-6.5%, mainly through improved performance of the industrial sector. However, policy measures will require a number of years to effect the needed structural improvement in the  - 7 - balance of payments. The current account deficit, therefore, is expected to widen further in nominal terms while declining in relative terms to about 4% of GNP in the mid-1980s. 24. The Philippines raised its external borrowing sharply to finance the balance of payments deficits incurred after the 1973-74 oil price increase. During the second half of the 1970s, net disbursements from medium- and long- term loans doubled to an estimated $1.1 billion in 1980. Despite substantial borrowing, the debt service ratio stood at only 17% in 1980, largely because of the rapid expansion in export earnings. Substantial additional foreign capital will be needed during the period of adjustment to the 1979-80 oil price increase, and net disbursements from medium- and long-term loans will have to double again in the next five years. If the Philippines can sustain the strong export performance of the recent past, the debt service ratio would still remain in the range of 18%-20% in the mid-1980s. 25. Official sources are expected to provide about 40% of the Philippines' gross external capital in the early 1980s. The last Consultative Group Meeting, held in January 1981, agreed that it would be reasonable for the Philippines to seek official development assistance (ODA) of about $1.2 billion during 1981, a slight increase over the ODA commitments it received in 1980. 26. As noted above, satisfactory progress has been made in domestic resource mobilization. However, because the deterioration in the terms of trade has increased the Philippines' external financing requirements, and many projects planned for ODA have low foreign exchange costs, the necessary resource transfer can be achieved only through some financing of local costs of projects and non-project lending. PART II - WORLD BANK OPERATIONS 27. As of May 31, 1981, the Philippines had received 75 Bank loans (of which two were on Third Window terms) amounting to $2,815.7 million and six IDA credits amounting to $122.2 million. IFC investments totalled $108.6 million. The share of the Bank Group in total debt disbursed and outstanding is currently about 15%, and its share in total debt service is about 7%. These ratios are expected to be about 13% and 9%, respectively, by 1985. Annex II contains a summary of IDA credits, Bank loans, and IFC investments as of May 31, 1981, as well as notes on the execution of ongoing projects.  - 8 - 28. The volume of annual World Bank lending to the Philippines has increased substantially from an average of about $90 million in FY71-75 to an average of $420 million in FY77-81. Although the Bank has financed projects in virtually all sectors of the economy, particular emphasis has been given to agriculture, which has accounted for more than one-third of total Bank/IDA lending. Another fifth of Bank lending has been for the transportation sec- tor. Lending for power, industry, and social sectors followed in declining order of size. The sectoral allocation of Bank lending remained fairly stable throughout the 1970s. Pronounced changes took place only within infrastruc- ture as lending for transportation and power declined in the second half of the 1970s, while lending for water supply and urban development was initiated during this period. 29. Within sectors, however, considerable changes have taken place in Bank lending. In agriculture, lending initially focused on expanding the irrigation system, credit programs, and other services to support rice production. More recently, efforts have been made to diversify agricultural production through loans for treecrops, livestock, and fisheries, and to assist low-income areas through integrated rural development projects. In the industrial and financial sectors, the Bank initially concentrated on streng- thening individual development finance institutions and on providing for the credit needs of small and medium industries. In the last two years, however, industrial and financial lending has been to support the implementation of needed policy reforms. A structural adjustment loan was made in September 1980 in support of trade and industrial reforms. Improvements in financial sector policies were the basis for the May 1981 Industrial Finance Loan, which also introduced a new institutional concept to broaden the reach of Bank lending by channelling loans through an "apex" unit in the Central Bank. 30. W4hile overall implementation of Bank-financed projects in the Philippines has been satisfactory, disbursements have been slower than antici- pated, and implementation problems increased in the late 1970s. These diffi- culties, in part, reflect administrative problems caused by high inflation and tight budget constraints (para. 21). They also result from the changes in the scope of the Bank's lending operations: a substantial increase in the number of projects, new areas of lending, an emphasis on institution-building, and efforts to reach specific target groups and deprived regions have all made implementation a more demanding task than in the past. A project iiaplerentation review was held in May 1980, and steps have subsequently been taken to correct some of the administrative problems. Another implementation review is planned for the end of this year. 31. The Bank's future lending program has been designed to assist in achieving the major objectives of the Government's Development Plan (para. 5). Particular emphasis is being given to supporting poverty alleviation efforts and to bringing about needed structural adjustments in the economy. Economic and sector work is being closely integrated with lending operations. Future project, sector, and structural adjustment loans will be designed to address  - 9 - the wide variety of technical, institutional, and policy issues facing the Philippines. Additional structural adjustment loans are planned to support further reforms in trade, industry, and other key policy areas. In sectoral terms, agriculture and rural development will continue to account for the largest share of lending, with emphasis on food production and programs to increase the incomes of the rural poor. Substantial assistance will be given to industry through subsector loans aimed at restructuring or developing specific subsectors; through increased financial and technical assistance to small and medium industries, particularly outside the Metro-Manila area; and through continued industrial finance projects utilizing the recently introduced "apex" concept. Increased effort is also planned over the next several years to develop domestic energy resources and to strengthen the institutions responsible for developing and managing energy supplies. The Bank's support for projects in education, health, family planning, and urban development will aim at improving basic services and supporting employment creation, particularly in less advanced areas of the country. 32. This is the first loan to the Philippines to be presented to the Executive Directors this fiscal year. Loans for national fisheries develop- ment and textile sector rehabilitation have been appraised and are scheduled for Board presentation later in the fiscal year. PART III - THE AGRICULTURAL SECTOR Sectoral Highlights and Problems 33. Agriculture is the main source of livelihood for over 30 million people, some 70% of the population, who live in the rural areas. It accounts for 30% of GNP, employs over half the nation's labor force, and contributes 60% of foreign exchange earnings. The total cultivated area is about 9 million ha, of which 1.2 million ha are irrigated, mainly for rice production. Of the nonirrigated area, some 5 million ha are used for growing cereals, principally rice and corn, and the remainder is planted to rainfed annual and perennial crops, including such important export crops as sugarcane and coconuts. 34. While the share of agriculture in GDP has declined during the past decade, in absolute terms production has risen steadily. From 1970 to 1979 the overall annual increase in agricultural production averaged 5.3%; the rise in food crop production averaged 6.0% a year; and the production of rice - the staple food of most Filipinos - expanded at 4.7% annually. Produc- tion increases, particularly of rice, were assisted by strong government ini- tiatives, including substantial investments in irrigation infrastructure, and the launching, in 1973, of a major campaign (Masagana 99) to increase rice production by introducing high-yielding varieties and technical packages,  - 10 - combined with extension and credit. The Philippines achieved self- sufficiency in rice in 1977 and has since been a small net exporter. However, efforts to achieve self-sufficiency in other crops, particularly corn, which is an important staple food in some parts of the country as well as a major source of animal feed, have been less successful. While encouraging strides have been made in the private sector in introducing high-yielding, disease- resistant varieties of corn, the delivery system to extend this improved technology to large numbers of small farms is not yet in place. Productivity in the coconut sector is also relatively low because of a large number of over-age trees. A replanting program is scheduled to start in the early 1980s when a sufficient number of high-yielding seedlings will become available. Production of fish and nontraditional export crops such as bananas and coffee has expanded rapidly. 35. The national demand for livestock protein is expected to increase by about 40% between 1978 and 1985, compared with an estimated population increase of about 25%. Annual growth rates in the commercial production of pigs and poultry have kept ahead of overall demand for meat during recent years, but the growth in the number of cattle and water buffalo (carabao) has been much lower. In recent years, the rapid growth of pig and poultry production has been sustained by a heavy reliance on imported feedstuffs, with adverse consequences for the country's import bill. The Government has taken steps to encourage livestock producers to move to a domestic feed regime, including an ongoing village cattle dispersal program aimed at increasing "backyard" production based on crop residues and other local feed materials. 36. The Philippines has 2.35 million farm units, 85% of which are smaller than 5 ha. The national average farm size is 3.6 ha. Owing to population pressure, a growing number of people have migrated to areas with limited agricultural potential which are poorly served by infrastructure and public services. The cultivation of such areas, typically hilly and of poor fertility, and including large tracts of land which, for conservation reasons, are officially designated as forest areas, has not only failed to generate an acceptable level of income for the people concerned, but is also causing serious ecological damage. The development of agro-forestry programs which reconcile the needs of people who have little choice except to open up marginal areas for cultivation with the overall environmental concerns of the country, has high priority. A serious effort to remove the uncertainties of land tenure should be an important element in any such program. 37. While the country's irrigated area has grown steadily, and ongoing and planned investments will continue this trend with resulting benefits to the farmers concerned, the position of rainfed farmers remains largely weak and uncertain. In Iloilo, the Government has launched the first project for multiple cropping in rainfed areas (para. 52). The Government is considering multiple cropping projects in other parts of the country, but further work needs to be done to identify the most suitable areas and to undertake the needed basic and adaptive research in order to create a foundation for such projects.  - 11 - 38. As many as 40% of rural families are believed to earn incomes below the level required to meet minimum nutrition needs. Although the average Filipino diet provides 89% of food energy requirements, more than 30% of all households consume diets with less than 80% energy adequacy. This problem is particularly serious for pre-school children, of whom about 22% are moderately or severely malnourished. Several experimental nutrition programs have been launched in an attempt to alleviate the problem. Government Strategy 39. During the past decade the Government's agricultural policies were directed principally toward the objectives of self-sufficiency in rice and corn, the stabilization of staple food prices, the formulation of programs to serve the needs of people in less favorable areas, the promotion of exports and the replacement of imports, and the improvement of the nutritional standards of the population. The Government provided substantial support for agricultural production through credit, extension, research and irrigation, and policy objectives have already been achieved in some measure. Expanded rural development programs such as water supply, electrification and health have also been initiated. 40. The Government now intends to broaden its objectives to provide a basis for an integrated agricultural strategy. A step in this direction was the publication in December 1980 of the Government's Food and Nutrition Plan (FNP), which was presented to the Philippines Consultative Group meeting in January 1981. The FNP was prepared primarily by the Ministry of Agricul- ture, witlh technical assistance from the Bank, and will serve as a framework for future planning by the Ministry. The three key objectives of FNP are: (a) to increase and diversify production of food and other agricultural commodities, by raising the productivity of both land and labor; (b) to improve the diet of all Filipinos; and (c) to assure a basic minimum diet for those who are undernourished. The strategy for achieving these objectives is to: (a) stimulate food production to ensure availability of requisite food supplies, and generate additional employment and increased income to provide purchasing power, especially to the deprived population group; (b) increase export earnings and produce local substitutes for agricultural imports; (c) maintain consumer and producer food prices at reasonable levels; and (d) direct intervention to correct the most urgent nutritional deficiencies and prevent malnutrition. 41. The programs and projects to be launched in the 1980s would reflect the objectives and strategy of the FNP. Substantial investments would be needed in various activities, including agricultural research, as a means of removing the technical, economic and social constraints on production and productivity. At the same time, there is a need to improve the capability of institutions concerned with planning, programming, implementation, monitoring and regulation in the sector. The policy-making and coordinating agency for nutrition programs, including those sponsored by MOA, is the National Nutrition Council (NNC), created in 1974.  - 12 - Agricultural Services 42. Government institutions concerned with agriculture in the Philippines are primarily responsible for policy formulation and planning, the provision of infrastructure, the generation and testing of technology, the promotion of proven technology through the extension service, promo- tional and regulatory activities concerning crops and livestock, and the stabilization of the grain and export trade. The Government also provides a substantial part of the rural credit directly through government-owned institutions, and by channeling public funds through privately-owned banking institutions. 43. Within the Government, responsibility for the agricultural sector is divided among a number of ministries and associated agencies. Responsi- bility for crop- and livestock-related research, planning, regulation and promotion is assigned to the MOA. The National Irrigation Administration (NIA), an agency of the Ministry of Public Works, is responsible for all national irrigation programs, while the Ministry of Natural Resources (MNR) is responsible for fisheries, forestry, land classification, some soil conservation, and the leasing of public lands. The transfer of land to former tenants is the responsibility of the Ministry of Agrarian Reform. 44. The agricultural sector is also served by a number of autonomous agencies which, although not part of MOA, have governing bodies presided over by the Minister of Agriculture who thus influences their operations. Among these agencies are authorities for individual crops (e.g., tobacco, cotton, abaca), and those which have responsibility for policy formulation, oversight or review of services affecting the agricultural sector (Fertilizer and Pesticide Authority, Presidential Committee on Agricultural Credit). The export marketing of coconut products and sugar is controlled by government corporations. 45. The private sector also plays an important role in serving agricul- ture by importing, producing, and distributing fertilizers, pesticides, feedstuffs and veterinary supplies through more than 2,000 licensed dealers operating, competitively and efficiently, with retail outlets in every municipality of the country. Some dealers also advance credit for farm inputs. The private sector plays the major role in purchasing, processing, and distributing marketed farm products. Even where government commodity agencies exist, such as the National Food Authority or the Philippine Coconut Authority, private traders often act as intermediaries between farmers and the agencies concerned. The recently created National Food Authority (NFA), which has superseded the National Grains Authority (NGA), influences the marketing and pricing of foodgrains and operates selected marketing facilities for other agricultural products. However, the precise nature of NFA's activities and programs (other than those inherited from NGA) have not yet been announced.  - 13 - Ministry of Agriculture 46. The MOA was formerly organized around five bureaus: the Bureau of Plant Industry (BPI); the Bureau of Animal Industry (BAI); the Bureau of Agricultural Extension (BAEx); the Bureau of Soils (BS); and the Bureau of Agricultural Economics (BAEcon)./l A major reorganization of MOA was authorized by Presidential Decree 1579 of June 1978. As part of the reorganization, 12 regional offices of MOA, each headed by a Regional Director of Agriculture, were established in 1980. These took over most of the functions of the bureaus in their regions, and the Manila-based bureaus are now largely advisory. The respective duties of staff in MOA central and regional offices and the bureaus are set out in Administrative Order No. 2, Series of 1981, which has been signed recently by the Minister of Agricul- ture with the concurrence of the Minister of the Budget. The reorganization of MOA has now been fully carried out, although its effectiveness remains to be tested. Assurances were obtained at negotiations that in the event that major changes are required in PD 1579 or in Administrative Order No. 2, the Bank would be consulted (Section 3.13 of the draft Loan Agreement). 47. Although the Ministry of Agriculture has responsibilities extending throughout the country and has a large staff, its operations have been handi- capped by a shortage of funds for its various activities such as research, planning, promotion and demonstration. MOA has also had difficulty in attracting high-calibre personnel for some of its technical/scientific positions, because of its inability to pay competitive salaries,/2 and in using them fully because of a shortage of equipment and vehicles. MOA shares responsibility for agricultural development with other ministries, and the mechanism for interagency coordination needs to be strengthened. The Bank is assisting the Government to start to address this problem by sponsoring a series of inter-agency seminars, the first of which was held during 1980. MOA's planning functions have been handled by the three divisions of its planning service: Project Development and Evaluation (PDED), Project Planning and Programming (PPD), and Special Studies (SSD). The preparation of projects for external financing is handled by the Agricultural Project Preparation Unit (APPU), which was created under the Bank-assisted Smallholder Treefarming and Forestry Project (loan 1506-PH). MOA has recently taken steps to bring together its planning, programming, and project preparation capabilities by linking PDED with APPU in project preparation. PPD will be /1 A sixth bureau, the Bureau of Cooperative Development (BCOP), was transferred to MOA in 1980. /2 The National Extension Project (para. 51) makes provision for consultants to review salaries of Government extension personnel and recommend revisions. A similar consultancy for research personnel is included in the proposed project.  - 14 - responsible for implementing the FNP, and SSD will become a policy-making arm of the Ministry. SSD-s research (survey) function will be transferred to BAEcon. Agricultural Research 48. Traditionally, agricultural research in the Philippines has focused on rice, in which it has benefited from the work of the International Rice Research Institute. More recently, research on other key crops, including corn, has been increased but a bigger research effort is needed on the many other crops and livestock products which have potential, particularly focussed on small-farm systems. An Agricultural Research Office (ARO) was established in MOA in 1980 to coordinate, monitor and evaluate MOA national and regional research, and to coordinate programs contracted outside MOA. The ARO has a Director and two Assistant Directors for Operations and Research and a small technical staff drawn from the Bureaus. 49. Philippine Council for Agriculture and Resources Research (PCARR). Agricultural research outside MOA is conducted by many universities and other institutions. Government funds, including foreign aid, earmarked for agricultural research, are allocated by PCARR which is attached to the National Science Development Board (NSDB) under the Office of the President. The chairman of the NSDB is chairman of PCARR, and the Ministers of Agriculture and Natural Resources are Vice Chairmen. 50. University of the Philippines, Los Banos (UPLB). The College of Agriculture in UPLB was established in 1909 as one of the first two colleges of the University. It is now a reputed national and Asian center for higher education, research and training in all fields related to agriculture and rural development. The core of the UPLB research complex is the Institute of Plant Breeding (IPB), established in 1975, which has undertaken some impressive work on the development, testing, and multiplication of new crop varieties. ULPB's Department of Agronomy also has a good record in crop research and is well placed to expand its programs complementing the work of the IPB. Experience with Past Lending 51. MOA-Implemented Projects. The Bank has to date supported two projects (both ongoing) directly under MOA. The first, the FY79 National Extension Project (Loan 1626-PH), aims to strengthen the extension service through the provision of improved facilities, equipment, vehicles, incremental technical staff and training. Implementation of the National Extension Project is now the responsibility of the Regional Directors of Agriculture, with BAEx coordinating its implementation throughout the country. After a slow start, the project is gaining momentum. The purchase of vehicles and  - 15 - equipment, the construction of extension centers, the appointment of new staff and consultants, and the training of technicians and farmers, are under way. Although substantial amounts of the loan have now been committed, disbursements have lagged, principally because of unfamiliarity with loan withdrawal procedures; efforts are under way to improve the situation. 52. The Rainfed Agricultural Development (Iloilo) Project (Loan 1815-PH) is the second Bank-financed project being implemented by MOA. The loan became effective only in June 1980 and is in the early stages of implementation. The project supports the expansion of multiple cropping technology, developed by MOA in cooperation with the International Rice Research Institute (IRRI), in the lowland areas of Iloilo Province (Region VI), where rice is grown in combination with a second rice crop and/or upland crops. 53. Experience with the MOA-implemented projects indicates that start-up and management problems have caused implementation delays. This has been taken into account in the design of the proposed project by ensuring adequate start-up funds, the establishment of a strong project management office and effective inter-agency coordination. Implementation should also be assisted by the reorganization of MOA. 54. Other Projects. In addition to the projects which are being implemented by the MOA, the Bank has for many years been supporting livestock and crop development through credit projects. Among the credit projects which have been completed are two livestock projects, funds for which were channelled through the Development Bank of the Philippines (DBP), and three rural credit projects through the Central Bank/rural banks. Project completion reports have been prepared on the First Livestock Credit project and the first three Rural Credit projects. The lessons learned concerned mainly the need for institutional strengthening, which have been taken into account in designing the ongoing Third Livestock/Fisheries credit project, and the desirability of providing a package of credit to support a variety of farming activities rather than a single purpose credit, which is being addressed in the proposed project with its emphasis on research on whole farm systems. PART IV - THE PROJECT Background 55. The proposed project was prepared by the Agricultural Project Pre- paration Unit (APPU) of MOA with assistance from the FAO/IBRD Cooperative Programme, and was appraised in May 1980. A post-appraisal was undertaken in October 1980 in order to accommodate changes in some components proposed by the Government after appraisal. Negotiations were held in Washington, D.C. on May 21 and 22, 1981. The Philippines' negotiating team was led by  - 16 - Deputy Minister Manuel Q. Lim, Jr. A Staff Appraisal Report No. 3378-PH, dated June 24, 1981, is being circulated separatelv. Supplementary data are provided in Annex III. Project Objectives 56. The project will improve and expand agricultural research and regulatory services through the MOA's network of agencies and through two outside organizations to raise the productivity of the crop and livestock 4 subsectors. The project complements the Bank-financed National Extension Project (para. 51). A major focus of the project is integrated small farm systems research, aimed at developing new and innovative farming practices to assist small farmers. On a broader front, the project aims to enhance significantly the contribution of qualified staff in the concerned agencies which has until now been limited by a lack of equipment, material and opportunities for advanced training, and to improve the policy formulation and planning capability of MOA. Project Description 57. Over a six-year period, the project would provide funds to: (i) strengthen agricultural research, particularly on crops other than rice and on small farm systems; (ii) upgrade nine existing research stations into Regional Integrated Agricultural Research Stations (RIARs) to undertake the testing of technology applicable to small farm systems; (iii) improve and expand MOA's crop and livestock regulatory services; (iv) strengthen MOA's capability for planning, preparing and implementing projects, and for conducting special studies on food and nutrition and on the rural economy, through funding of incremental staffing and training; and (v) support the second National Nutrition Survey. As a result of MOA's decentralization (para. 46), responsibility for implementing many project components will now devolve upon its Regional Offices. However, MOA will retain a key role in project implementation. Project Components 58. Agricultural Research (US$29.6 million). The project would support both basic research (technology generation) and applied research (technology verification), and would fund the ARO which oversees all MOA's research activities (para. 48). Technology generation would include research on plant breeding in food and feed crops to facilitate diversified production, and research into small farm systems aimed at integrating backyard livestock and vegetable growing with annual and perennial crops, including tree crops. Plant breeding work would be carried out by UPLB (para. 50). Funds for technology testing would develop MOA's capacity to undertake applied agricultural research, particularly the testing of new or modified small farm systems, before they are recommended for farmer use. A small share of the project funds earmarked for agricultural  - 17 - research would be allocated to PCARR (para. 49) to improve the flow of technical information from the research centers to the extension service and other users. 59. At present, MOA has research stations in all of the country's 12 regions undertaking a limited range of research on crops and livestock and also some field testing. However, the stations are not adequately equipped. Since the testing of small farm systems technology needs integrated facilities to deal with crops, soils, livestock and farm management, funds would be provided under the project to upgrade nine of the stations into Regional Integrated Agricultural Research Stations (RIARS), one in each of nine /1 Regions. The RIARS would test not only the small farm systems technology developed by the stations themselves, but also innovations from other institutions within the PCARR network. An assurance was obtained during negotiations that MOA would, by January 31, 1982, establish the 12 RIARS, and appoint a manager for each of them (Section 3.10(a) and 3.11(b) of the draft Loan Agreement). 60. Agricultural Regulatory Services ($13.5 million). The project would upgrade MOA's existing plant and livestock regulatory services. These services include commodity and feed analysis, plant certification, livestock and plant quarantine, livestock field services, disease diagnosis, and vaccine production and quality control. The project would provide additional staff, new and improved facilities, equipment, vehicles, technical assistance and training. 61. Agricultural Planning ($4.4 million). The project would continue to support the project preparation work of the combined APPU-PDED unit (para. 47) in MOA. The unit would assist in the transfer of planning capability from the former Bureaus to the new Regional Offices and assist in the formulation of a regional development program in each region; and help to formulate new projects mainly designed to achieve the objectives of FNP (para. 40). The project would provide funds for a series of surveys and studies on the rural economy, to be carried out by BAEcon (para. 46) working in association with MOA's new Regional Offices. It would also fund a second nationwide nutrition survey, which would strengthen the base for implementing FNP, to be carried out by the Food and Nutrition Research Institute (FNRI). 62. Project Implementation ($8.9 million). Because of the large scope of the project and MOA's relative lack of experience in implementing Bank-assisted projects, a special Project Management Office (PMO) has been created and would be funded under the project. The project would fund: PMO-s /1 The designated regions are Regions II, IV, V, VII, VIII, IX, X, XI, and XII. RIARS in Regions III and VI are being funded from other sources, and technical assistance is provided under the project to select and design a site for Region I, which will also be funded from other sources.  - 18 - administrative unit; conversion of the Ministry's aeroplane to use turboprop fuel; studies bearing on FNP; agribusiness promotion activities; and training. Since the project would expand many programs within MOA, for which existing staff would be reassigned from their present duties, new demands would be made on the professional skills of the staff concerned. Staff training and retraining would constitute an important part of the project, with approximately 40% of MOA staff benefiting from graduate, nondegree or refresher course training. Organization and Management 63. The MOA would have responsibility for the major part of the project, the exceptions being the UPLB and FNRI components. Implementation of MOA components would be by the Project Management Office (PMO) (para. 62) working through three Bureaus and the 12 new Regional Offices. Funds for UPLB (para. 58) and FNRI (para. 61) would be passed directly to those organizations by the Ministry of the Budget (MOB). PMO would be under the control of the Project Manager who has already been appointed. The Project Manager would answer to a Project Management Committee (PMC) comprising the Minister or a Deputy Minister as Chairman, with the Project Manager, appropriate Assistant Secretaries in MOA, and a representative of MOB as members. It is a condition of loan effectiveness that PMC be established (Section 3.07(b) of the draft Loan Agreement). PMC would approve funding for all MOA-based research. 64. The PMO would be directly responsible for the aircraft conversion (para. 62), for all training under the project (para. 62), and for monitoring the progress of implementation by MOA agencies. It would also be responsible for forwarding progress reports from UPLB and FNRI. The establishment of a training unit within PMO is a condition of loan effectiveness (Section 3.07(a) of the draft Loan Agreement). The terms of reference for the PMO and for a monitoring unit to be established within it were agreed at negotiations. 65. The reorganization of MOA during 1980 has resulted in the reassign- ment of many staff (para. 46). An assurance was obtained during negotiations that MOA would finalize, by January 31, 1982, a staffing plan summarizing the duties of all personnel, and their deployment between the Central Office, the Bureaus, and Regional Offices as described in Administrative Order No. 2, Series of 1981 (Section 3.06 of the draft Loan Agreement). 66. Agricultural Research. The Agriculture Research Office (ARO) (para. 48) of MOA would prepare MOA research programs for the approval of a Research Coordinating Committee (RCC), to comprise the Minister or his designate as Chairman, and the Director General of PCARR, the Bureau Directors, and the Director of ARO as members. Three senior research coordinators to liaise with the Regions would be appointed from MOA staff to  - 19 - serve in ARO. ARO would channel funds for approved programs of small-farm technology generation (para. 58) to PCARR for allocation to agencies in its network, and would directly administer the testing of technology (para. 59) on MOA research stations. The major responsibility for plant breeding (para. 58) would rest with UPLB at its Institute of Plant Breeding (IPB). Research on small farm systems (para. 58) would be carried out by the Agronomy Department of UPLB in collaboration with IPB. UPLB would cooperate with the Central Luzon State University, the Visayan State College of Agriculture, and the University of Southern Mindanao to carry out the program in their areas. The program would be subject to approval by a joint MOA-UPLB Small Farm Systems Research Committee to be established under the project. Assurances were obtained at negotiations that: (a) RCC would be appointed by January 31, 1982 (Section 3.08(a) of the draft Loan Agreement); (b) three coordinators would be appointed to ARO by January 31, 1982 (Section 3.11(c) of the draft Loan Agreement); (c) UPLB would contract with the three universities to conduct small farm systems research (Section 3.12 of the draft Loan Agreement); (d) the Small Farm Systems Research Committee (SFSRC) would be established by July 31, 1982 (Section 3.08(d) of the draft Loan Agreement); and (e) annual technology generation testing programs, and UPLB's annual small farm systems program, would be submitted to the Bank by October 31 each year prior to submission to RCC and SFSRC respectively (Section 3.15 of the draft Loan Agreement). 67. Regional Research. Programs for upgrading the RIARS would be drafted in the regions and reviewed by the RCC before approval and funding by the PMC. Research programs to be carried out in the RIARS will be approved by regional research committees, which would be established under the chairmanship of the Regional Director or his designate, to determine regional research priorities, and would be endorsed by the RCC before being submitted to the PMC for funding. Assurances were obtained at negotiations that 12 regional research committees responsible for regionally managed research would be established by January 31, 1982 and that 12 regional research coordinators would be appointed by the same date to act as executive officers of the regional research committees (Sections 3.08(b) and 3.11(d) of the draft Loan Agreement). 68. Regulatory Services. Divisions of the Bureau of Plant Industry (BPI) would be responsible for preparing final details of, and implementing, the commodity analysis, plant certification and commodity quarantine components of the project (para. 60). Plans would be cleared through the  - 20 - Director of BPI, before being submitted through the PMO to the PMC for funding. Since plant certification is a relatively new activity for BPI, the existing, but expanded, Philippine Seed Board, chaired by the Director of BPI, would be designated to review and approve proposals put forward by the service. An assurance was obtained at negotiations that the Philippine Seed Board be so designated by July 31, 1982 (Section 3.08(e) of the draft Loan Agreement). The relevant Divisions of the Bureau of Animal Industry (BAI) would be responsible for preparing details of, and implementing, the feed analysis, livestock quarantine, field services, disease diagnosis, vaccine production and vaccine quality control components of the project (para. 60) assisted as appropriate by the Regional Offices. Investment plans would be reviewed by the Director of BAI and the relevant Regional Directors before being submitted to the PMC for approval and funding. 69. Agricultural Planning. MOA project preparation would be the responsibility of the APPU-PDED which are being linked (para. 47). The combined unit would report to the PMC on project funded activities.. The functional linkage of APPU and PDED and the appointment of a Chief are conditions of loan effectiveness (Sections 3.09(a) and 3.11(e) of the draft Loan Agreement). The capability of BAEcon to carry out the surveys of the rural economy (para. 61) would be expanded through the transfer to BAEcon of the survey and research functions of the Special Studies Division (SSD) of MOA's Planning Service. An assurance was obtained during negotiations that the transfer would take place by January 31, 1982 (Section 3.09(b) of the draft Loan Agreement). Proposals for the second national nutrition survey, to be carried out by FNRI (para. 61), would be furnished through the PMO to the Bank for its review and comments before the proposal is submitted to the National Science and Development Board for approval. An assurance was obtained at negotiations that the proposals would be provided to the Bank by January 31, 1982 (Section 3.14 of the draft Loan Agreement). 70. The Planning and Programming Division (PPD) would be responsible for implementation of the project components supporting the FNP (para. 61). The PPD would liaise with NEDA to ensure that FNP projects are compatible with the national and regional plans of NEDA and that budgetary provision for such plans is made by MOB. PPD would draw on expertise from the private sector, as well as from within MOA, and an internationally-recruited advisor would be appointed to assist PPD in planning its work and designing a series of studies to determine effective measures to enhance the nutrition of families in depressed areas, initially in six regions (para. 62). PPD would also be responsible for agribusiness activities under the project (para. 62). Small regional agribusiness councils would be established to encourage investments in commodity processing, and other enterprises, around the country. It is a condition of loan effectiveness that MOA designates PPD to be responsible for the food and nutrition and agribusiness activities of the project (Section 3.10(b) of the draft Loan Agreement). An assurance was obtained at negotiations that one agribusiness council would be established in each region by July 31, 1982 (Section 3.08(c) of the draft Loan Agreement).  - 21 - Cost Estimates and Financing 71. The total project cost is estimated at $77 million, in 1981 prices, including foreign exchange costs amounting to $31 million and identifiable duties and taxes of $2.5 million. Physical contingencies included in the above amount to 12% of base costs and are estimated at $6.9 million. Price contingencies for the local and foreign components are based on estimated cost escalations amounting to 14% and 9%, respectively in 1981, 10% and 8.5% in 1982, 8% (both) in 1983, 8% and 7.5% in 1984, 8% and 7% in 1985, and 8% and 6% in 1986. Total price contingencies amount to $13.7 million or 22% of the project's base cost and physical contingencies. Subsequent annual recurrent costs due to the project, for which the Government would be entirely responsible after the fifth year, would approximate $10.0 million, inclusive of contingencies. 72. The proposed loan of $45 million would contribute 60% of total project costs, net of taxes, including $14 million of local costs./l 73. Consultants costs ($2.5 million) are based on an average monthly cost of $8,000-$10,000 for foreign pers 1m< (30 man-months) including fees, travel and subsistence, and P 4,000-P 10,000 ($533-$1,333) for local consultants (2,800 man-months, including 1,651 man-months for FNRI and FNP activities). Special skills needed include a feed analytical chemist (six months), veterinary pathologist (six months), veterinary microbiologist (six months), veterinary immunologist (six months), veterinary virologist (six months), agricultural sampling specialist (12 months), nutrition survey methodologist (two months), nutritionist (two months), and food economist (four months). Procurement 74. Principal items to be procured are civil works, equipment and vehicles, specialized items such as laboratory equipment, and off-the-shelf items such as office supplies. Civil works ($14.6 million) would include construction of staff housing, laboratories, greenhouses, screenhouses, fumigation rooms, machinery sheds, storage space, local access roads and fences. In addition, there would be minor office renovations in the BPI and BAI components. The civil works are scattered over the country and spaced over the first three years of the project. For these reasons, and considering the diverse specialized nature of the work, only contracts of $1.0 million equivalent, or above, would be submitted to international competitive bidding. Others would be carried out through local competitive bidding under procedures satisfactory to the Bank, or by force account when local competitive bidding is not feasible. /1 See para. 26 for justification for local cost financing.  - 22 - 75. Equipment ($10.3 million) and vehicles ($1.2 million) would be procured through international competitive bidding in accordance with Bank guidelines. A preference margin of 15% of the c.i.f. price of imported goods, or the prevailing customs duty, whichever is lower, would be extended to local manufacturers in the evaluation of bids. 76. Specialized items and items purchased in small quantities, such as laboratory equipment costing not more than $50,000 per item, but not exceeding $2 million in aggregate, would be procured on the basis of local competitive bidding advertised nationally in accordance with government procedures satisfactory to the Bank. Off-the-shelf items such as office supplies costing not more than $20,000 per item but not exceeding $500,000 in aggregate, would be purchased through prudent shopping, requiring at least three quotations. 77. Specialized internationally recruited consultants and local consul- tancies costing $10,000 equivalent or above would be appointed on terms and conditions satisfactory to the Bank. Their terms of reference would be prepared by the Project Manager and submitted to the Bank before approval by the PMC. Terms of reference for local consultancies costing less than $10,000 equivalent would be prepared by the Project Manager and approved by the PMC. Reports of the latter local consultants would be examined regularly by Bank project review missions. Disbursements and Auditing 78. Disbursements from the loan would cover: (a) 80% of civil works expenditures; (b) 100% of the foreign exchange cost of directly imported equipments, materials, chemicals, and vehicles, 100% of the ex-factory cost of locally manufactured items, and 65% of expenditures for locally procured items; and (c) 100% of total expenditure for consultants' services and overseas training. 79. Disbursements for civil works carried out by force account, and for items costing less than $5,000 each purchased locally, would be made against certified statements of expenditure; disbursements for other expenditures would be made against full documentation. All statements of expenditure would be reviewed and approved by the Project Manager prior to submission to the Bank; supporting documents would be retained in the PMO and made available for review by Bank supervision missions. 80. Project implementing agencies, including MOA, PCARR, UPLB and FNRI, would maintain separate accounts which would be audited annually by independent auditors in line with procedures in other Bank-assisted projects. MOA would submit certified copies of the audited accounts and auditors' reports from the above agencies to the Bank no later than six months after the end of the fiscal year. The auditors' reports would include a separate opinion with regard to disbursements made against statements of expenditure. An assurance to this effect was obtained at negotiations (Section 4.03 of the draft Loan Agreement).  - 23 - Project Benefits and Justification 81. The main benefits from the project will include increased farm productivity and incomes derived from improved small-farm systems, and rehabilitated and improved regulatory services for plant and livestock. Within MOA, agricultural planning and project preparation and management capability to implement complex development projects would be enhanced, and such expanded capability would extend to the new Regional Offices of MOA. 82. Whereas the benefits of the ongoing National Extension Project accrue mainly to rice producers, the proposed project would cover a much wider range of enterprises and products: livestock, including pigs, goats, cattle, poultry and water buffalo; annual crops, including corn, sorghum, sweet potato, mungbean, soybean, peanut and cassava; and perennial crops, including fruits and nuts, and wood yielding trees such as ipil-ipil (Leucaena sp.). A large proportion of the nation's 2.35 million farm units could be affected by the project, which would have some impact on most of the country's cultivated farmland. The project would cost about $33 per farm family, or $9 per hectare of farmed land. 83. The project does not lend itself to conventional economic analysis since neither the benefits likely to accrue from agricultural research and improved support services, nor the speed at which they would materialize, can be quantified accurately. However, relatively modest increases in production due to the project would justify the expenditures involved. For example, if incremental production attributable to the project from only seven major annual crops were to reach $37 million at full project impact in year 15, representing about a 5% increase in crop value above that without the project, the economic rate of return would be 15%. Achievement of this level of incremental production with the project appears feasible. If incremental production of livestock and other crops which would benefit from the project is also taken into account, a rate of return of 15% would be feasible even if incremental production from the seven annual crops fell short of the 5% increase noted above. Risks 84. Risks in this project are of two types: the first concerns imple- mentation, and the second impact. Implementation depends on the strengthening of a large number of institutions - some of which have been reorganized recently - which are pursuing a wide range of programs. Uncertainty regarding the rate at which their performance would improve is unavoidable. While the specific tasks that the agencies are called upon to undertake and their timing seem realistic, performance with regard to some components could fall short of expectations. However, while all the tasks are desirable for the agricultural development of the Philippines, they are not all closely interdependent: delay in one activity will not automatically lead to delays elsewhere.  - 24 - 85. The risk of impact is that improved research and regulatory services may not in fact raise farm production and productivity, or may not do so as quickly as is expected. On the other hand, experience elsewhere indicates that the benefits from research are usually large. This has certainly been true of rice research in the Philippines. The probability is high that the proposed project will yield benefits more than adequate to justify it. PART V - LEGAL INSTRUMENTS AND AUTHORITY 86. The draft Loan Agreement between the Republic of Philippines 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 distri- buted to the Executive Directors separately. Additional conditions of effectiveness include: (a) the establishment of a Training Unit in the Project Management Office; (b) the establishment of a Project Management Committee; (c) the designation of the Planning and Programming Division of the Planning Service to be responsible for the food, nutrition and agribusiness promotion activities of the project; (d) the functional linkage of the Project Development and Evaluation Division (PDED) of MOA's Planning Service, and the Agricultural Project Preparation Unit (APPU) of MOA; and (e) the appointment of a Chief of the merged PDED/APPU (Section 5.01 of the draft Loan Agreement). Special conditions of the project are listed in Section III of Annex III. 87. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 88. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments Washington, D.C. June 23, 1981 By Ernest Stern  - 25 - ANEX I Page 1 of 5 pages TABLE 3A PHILIPPINES - SOCIAL INDICATORS DATA SHEET PHILIPPINES REFERENCE GROUPS (WEIGHTED AVEzRAGES LAND AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE)- TOTAL 300.0 MOST RECENT MIDDLE INCOME MIDDLE INCOME AGRlUULTUIAL 90.8 1960 /b 1970 /b ESTIMATE /b ASIA & PACIFIC LATIN AMERICA & CARIBBEAN GNP PER CAPITA (US$) 15U.0 240.0 600.0 1136.1 1616.2 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 159.1 292.9 355.9 1150.6 1324.1 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUSANDS) 27372.0 36852.0 46748.0 URBAN POPULATION (PERCENT OF TOTAL) 30.3 32.9 35.8 40.8 64.2 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 75.2 STATIONARY POPULATION (MILLIONS) 125.0 YEAR STATIONARY POPULATION IS REACHED 2075 POPULATION DENSITY PER SQ. KM. 91.2 122.3 155.8 373.1 34.3 PER SQ. KM. AGRICULTURAL LAND 360.0 472.0 502.6 2382.8 94.5 POPULATION AGE STRUCIURE (PERCENT) 0-i4 YRS. 44.6 45.5 44.3 39.8 40.7 15-64 YRS. 52.4 51.6 52.6 56.7 55.3 65 YRS. AND ABOVE 3.0 2.9 3.1 3.5 4.0 POPULATIUN GROWTh RATE (PERCENT) TOTAL 2.7 3.0 2.6 2.3 2.4 URBAN 3.8 3.8 3.6 3.8 3.7 CRUDE BIRTH RATE (PER THOUSAND) 45.7 39.2 34.4 29.7 31.4 CRUDE DEATH RATE (PER THOUSAND) 15.6 10.8 8.2 7.5 8.4 GROSS REPRODUCTION RATE 3.3 2.8 2.3 1.9 2.3 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 191.7 650.0 USEkS (PERCENT OF MARRIED WOMEN) .. 2.0 37.0 44.1 FOOD AND NUITRITION INDEX OP' FOOD PRODUCTION PER CAPUTA (1969-71-100) 102.0 101.0 114.0 123.7 108.3 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 97.0 102.5 107.7 112.6 107.6 PROTEINS (GRAMS PER DAY) 45.0 50.0 53.0 62.5 65.8 OP WHICH ANIMAL AND PULSE 17.0 20.0 21.0 19.7 34.0 ChILD (AGES 1-4) MORTALITY RATE 15.6 9.6 6.3 4.8 7.6 HEALTh LIFE EXPECTANCY AT SIRTU (YEARS) 51.0 57.3 61.6 64.0 64.1 INFANT mORTALITY RATE (PER THOUSAND) 98.0 80.0 65.0 50.2 70.9 ACCESS TO SAFE WATER (PERCENT OF POPUIATION) TOTAL .. 36.0 43.0 45.9 65.7 URBAN .. .. 66.0 68.0 79.7 RUSAL .. .. 33.0 34.4 43.9 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL 57.0 59.0 53.4 59.9 UkBAN .. .. 76.0 71.0 75.7 RURAL .. .. 44.0 42.4 30.4 POPULATION PER PHYSICIAN .. .. 2758.2 4428.7 1728.2 POPULATION PER NURSING PERSON .. 3840.0 3115.3 2229.7 1288.2 POPULATION PER HOSPITAL BED lOTAL 1134.1 821.8 558.0 588.5 471.2 URBAN 536.2 392.7 .. 579.6 558.0 RURAL .. .. .. 1138.5 ADMISSIONS PER HOSPITAL BED .. 30.0 .. 36.7 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.8 5.9 URBAN .. 6.2 RURAL .. 5.8 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL .. 2.3 URBAN .. 2.1 RURAL .. 2.4 ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 16.5 23.2 36.0 URBAN .. 60.4 82.0 RURAL .. 6.8 10.0  - 26 - ANE I Page 2 of 5 pages TABLE 3A PHILIPPINES - SOCIAL INDICATORS DATA SHEET PHILIPPINES REFERENCE GROUPS (WEIGHTED AVE AGES - MOST RECENT ESTIMATE)!a MOST RECENT MIDDLE INCOME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b ASIA & PACIFIC LATIN AMERICA & CARIBBEAN EDUCAlIUN ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 95.0 114.0 105.0 99.8 101.7 MALE 98.0 115.0 102.0 100.6 103.0 FEMALE 93.0 113.0 107.0 98.8 101.5 SECONDARY: TOTAL 26.0 50.0 56.0 53.5 35.3 MALE 28.0 59.0 65.0 58.4 34.9 FEMALE 25.0 42.0 47.0 48.6 35.6 VOCATIONAL ENROL. (Z OF SECONDARY) 15.0 .. 34.0 21.1 30.1 PUPIL-TEAChER RATIO PRIMARY 36.0 29.0 31.0 34.2 29.6 SECONDARY 27.0 33.0 36.0 31.7 15.7 ADULl LITERACY RATE (PERCENT) 71.9 82.6 88.4 86.5 80.0 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 3.0 7.6 8.9 12.7 42.6 RADIO RECEIVERS PER THOUSAND POPULATION 21.9 46.6 43.5 174.1 215.0 TV RECEIVERS PER THOUSAND POPULATION 1.4 10.9 19.1 50.6 89.0 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 17.0 13.6 21.2 106.8 62.8 CINEMA ANNUAL ATTENDANCE PER CAPITA 0.6 .. 7.6 4.3 3.2 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 10893.2 13478.1 16608.5 FE2ALE (PERCENT) 34.4 33.1 32.3 37.4 22.6 AGRICULTURE (PERCENT) 61.0 53.0 46.7 50.2 35.0 INDUSTRY (PERCENT) 15.2 16.0 16.9 21.9 23.2 PARTICIPATION RATE (PERCENT) TOTAL 39.8 36.6 35.5 40.2 31.8 MALE 52.1 48.6 47.6 49.8 49.0 FEMALE 27.4 24.4 23.2 31.1 14.6 ECONOMIC DEPENDENCY RATIO 1.2 1.3 1.3 1.1 1.4 INCUME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OP HOUSEHOLDS .. 25.1 hIGHEST 20 PERCENT OF HOUSEHOLDS .. 54.0 LOWEST 20 PERCENT OF HOUSEHOLDS .. 5.2 LOWEST 40 PERCENT OF HOUSEHOLDS .. 14.2 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 260.0/c RURAL .. .. 195.07W 193.7 187.6 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 266.0/c .. 513.9 RURAL .. .. 200.07c 234.3 362.2 ESTIMATED POPULATION BELOW ABSOLUTE POVEKTY INCOME LEVEL (PERCENT) URBAN .. 32.0/c RURAL - .. 41.07W 32.2 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 Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1976 and 1979. /c 1980. Revised June, 1981  -27 - ANNE I Page 3 of 5 pages DEIlNITIONS OF SOCIAL INDICATORS Note: 'Although the data ar dean fto s..u.cees geteraly judged the most e-thoritstee eed reliable, it should also ha totd that they say tee be ietse- e-ttuutlyuu-petbls eos f the lac of.. sadertedi.defothestd eo..c.pte osed by diff fee.. tc...ttis It uollsetiog the data. Tt. date are, ease- thlo, sflto desceth tdee ofegoftude, iodieas steeds, aed ear --rietrl maJor dtfferes.es bet,eetouet-es Therefettuogeepese(I the se . tutry getup of the sehir.te .. teuty ted (2)A esourtey group cloth sosiht htgher averge iotme that the -stry getap of the taJ.te uotry(o-copt I r"oes torylu Oil -op...ttet" groP ther 'Middla I-a... teeth Afrio- aed liddle gus" i, th... haes f --rg-r seeio-ultsruleflhetles) . Ishe refree- grop date the avrtgeear popolatise -eighead aritheetieet for th iedi-as- sod che.t tely abe tajuteyof he uu,ete tou gouphas dae o that diodletu. Shoe th. eeaeof ...teuetiemeghe.eetoedeod ceA aolhle f data tee ledettor tethes soeg th cousep aed rterete grous. - od.-t..ht = M sily LAND AREA (thb...aed sq.k..) Populattue_pter ep lNd-ttl uchac, I! sodeat I Pptato (steal. T-1e-rTltutl-feteo g1utea teue -pteperI,artpo estsl aIlble tpoite td priva -t2.teger l ed petated hospital amAre- - ~~~~~fee -rcP., posture, -atle aed hitcher. g-edee or to lot fa11c; 0978 data. hbailiestiteert- r- Itapitle ate -tetbtiseotte P.-..asay staffed by as least te -physiote_ fEtabli.hm_tta Preidheg peitmipally -teo- IS PIN CAITA (I106) - lINP pet c-pIt oeteste so .uc.e.t P...t...eate eel- da1 _tar.r o is-odad . foca hest itee hat.o. -teoilod h-aIs eesdby see -tuvere esthed as Wueld Oath Atlas (1977-79 basis); 1960, aed medical -ot-sr .to p_-rly staffed bp A phystetie (hot byA 1970, ted 1979 data. sadht ..I shasort, turN. sidaife, see.) shiet offee te-patitesae dashes erd proide a limited ..ege ef madhel fahiheitse. Foe nasel- ENERGY CONSUMPNTIONS Pf1 CAPITA - Aosue.e-I etirof --ctsehl -oey (auto steal pupss-bso hospitols iselude OI pWHOp./gsssOhesphtals a s~~~~ ~~od lgte oea,etrlg.o aed hydr-. tuelo- ted ge.tebt-el sla- adtrural hasPit14 1oat se ttee1 honpiteals ted medheal ae steesty troatep) to kilog_o of-oo equiv-et Pet -apita; 1960, 1970, sed 1979 -aAse. Speetelised h.spitals are tIeldsd ealy ad-r total. date. Admis..it.es pe N-pteal Ned. - Tota somber tf edmish..s so or dischrgs. fete hospitals dfvidsd hp she -ubar of beds. POPULATION AND1 VITAL STATISTICS Tota Pepuleeti.. Mid-Yea (she...o-d. - As of July 1; 1960, 1970, aed 1979 NOUINGIPI t..-d.T data. Aese~~~~~~~~~~~~~~~~~~~~~Aa thea of lease..hold freo....ues .ar .eaeht1d) -ttl es.eArel Ochs Fer pshu fe-te of -eta1 - Rftlo of aches so steal populestee; A hho.sohald eteehee of A getup of eodividsla ah, shar 0lining qesTat dlffese defiteisoco of ube trea as. p effect omparability of data . hi aemas ere slde t rmysth otddi _005 e...eette. 160 197, sud 1979 does, the heosehul furseaisthea p-eptass. P.tulattee Prof-cclee Average ..tbp .o.rret ete -total. ura,td rsa A-tIrg t.' P.caltheit Ivt- 2f0SI - Corec pepuletlum peejeettees see base d to 1980 he fpesespero-h l ree r ua oteepiadcesshn tota populthe hy egs ted se sd ethir metelity sed feetitit pess dr-tliegs, -esp-ti-ely, tstigeamlde t-amesserorestd Projat_e pareeoe P . cc eetalley cotta -upehee of shet. level ..em-.tttped _ pats. hog lIfe -upe-t-c Ac birth It...eieg tfo -totry'. apee -apia iseeco Ateess to fEle5tttity (cerest of d-allias) - sesal. ocer am rural - locel, sad basIc lift epuae tbhlhisig as 77.5 yeses. The para- Cesr-ticest dorloisga etch a1teteht'ty he theegqoreasp_eotsge meter or fertilitY rate alsohav three level esaumlg dsetier ha of .totl, urba, aed ra-e daellilegs -ep-tiv-ly. leeit he aud i otct loya sod pas fatly pleeiegpremee Ito .e....ety is thee ossigred .t. of these tote eumbistihees of esttelity tTOCA-ION ted fertilty creds fur peojecrice P. " ALdlueted tE-1tee Neite Steatosocy peol.aticn - It. a se-i-say pepL.te sheet Is as greeh sie Prince sehoel -teel1, mate ted fot1t - G,esm tota, melt ee femel the birth rote ha oqueI tu elm doath rate, cod also the ag. eetere eetme ofatgeasthc primary leeI epsema .so nP..e.. ic cetot Thisi Ae hievd orly ftrfeteiity rtes. dacliet to poheory chobolAgeppteoe emlpiuee ehldeem ged f-1 the empltetee level of u.it -nrPr-d-otiue rtet, cOn etc ... reeeYear hoe adjustedfo dtfser ngteo9p1 ay deie e fcmtcPlae_. te_clf eatlty The sethtie..y pupulati- shoe ass...ttiss etch usire..s.l edoe..etis el-meo sty eated 100 Pas...C esimated orhe basis uf cth prejeese:d eo enisof the pepulaths sIres some popIlase babo aov t'he off ielat seheol age. ItoYthe yee lg..ad the rate of deuliuc of fertility ret. to replac-.etdr.sbe- ett. melt and femle -_Cmposed as shov;astay meet leve. edu..sthi requiresa tes-ts fou yate of approvd primary i.ss.e.tiet; Ystr-teios-y p-lutacte i. erohed - Tb. y-e shoe retteasry popul.tie provides geesrl, e...tie.rl, orteehe trott.inig ite -otieme fat pepih cite ham bees ea-hed. eat.ally of 12 to 17 Year t age; ...capsetseeeea- are geec-lty .Pteultito teeItey a.oIde. Pee sq. ha. Mid-yea pepalatiue Per tqute kil...e -(100 hee-re) ef teeties e 1oimot f Irse f seeseda_t) - V.ostisma isetitetita. total ae;1960, 197f ted 1979 data. teelads teeobiatl, lftia,oreher Peogeem sloth epmtst imdp..d- lee o. h. attcutra lee Cepad - as abuts foe ogie1t-lra teed .stly er An departmen ts af ..e..eday iseiutes oslY; 1961, 190'Oll at.Pelrahs eeie - I .rse . ted ...ed.. Total soat Iseldh Pepul-ttot Ago Struetac f.. rete - Childec (0-14 year), seeteg-age (it- Pr e sod aeedary leelfivdd b ebteo mebe imt th 64yee),sd etired (60 pear. so d cot) As Pereta.goc of mod-pas Ppop- u.... edagoas ate 16,190-e 079 deta. Autler terte (pae...t) - Lit-eusadut (al eded sitie) porpp eote fur 19110-ho, 960-7.0 ad 197079. Po _ate tee Met.fsst)-ura - Actual groach ctet of oche puPa- CONSUMPTION 1atie.s fee 1900-60, 1960-70, usA 1970-79. Pasaeg Cars (tee thsusatd potulation) - Ptesasgo.. earn .emeissmat Ceude Birth Rat. (p-eth--ed( - 9A-u liv- bIrths Pee the....d of mid-yea otar esathg less thee nighr Pse..rts; meludesshla e h-.:..a ted pepu1atios; 1960, 1970, aed 1979 data. silitmey -bitetl.. Crude Death Race (pec ebthsaed - AetAl deahs pee theesade of mid-year Radio Rsests.. fete thuoned pepalathit) - All types of rct-r-a fee e.di. pepuloi-s 196, 1 970,ed 1979 At. hetad s so -asr1 pbtie per thttsesd of pepelatiom; smeldesas Oro.. tRo-duecies REr-Averae taheef dough cere acnsill heat Is lissedese o isecstie- ed It yearn that. egstans t rah her tasa -ep-d-etv- peeled if the ep-rie-ta Ptn.e.t aga-speeOf he fee- nesse- effcm data far cnt yeses nay tot h b tpss ites ti..lty rests; usoly five-yco scrg's tedig i 96f, 1970g. ad 1979. mas censee b hlihbsd ltig PFsily Patt-csrt.AetoIAt fheusseds) - hiottes caber of e-epteI TVisve fee thoameed teetl1-i- - TV eete...i-a gp beoade..st so of bilth-emterl deirmcde s,Pie_. of _et..tel faniny plssiog P.-gr... general pblihe Pe.th ..s.s.ed popelatias; eseldas uslieead TV te.a.vWen P_sI .lg....timet _ pre_ce ef maried -tee) - P-aretage of matried It toseletd Is yees abe e -htestt of TV eats se is efface mass at hild-be..e ego . (I15-44 ye....) she act bhtth--t-1ee decei-e tNeR-Ps Irtelath= crmean cetelse.ee) - Sheta the assege ole- 011 __eird o.... ho sass age groinp. eulses. mc 'daily Tgnoeal isteeaasms-Papae", defioed Aaa.pmehdit pobtistios devoted petiarily t se -emdimgt gres.. e. 05 .T Is tm-ids-d P000 AND NIIToITIIS S~~~Cioha daily" if it appears ateat fert.ases. utt. of Peed FouelePar Cayite f1069-7t1Lf0) - lede of eAr eApita asai Cmm tAst- Artedasee roe pitches tarTea- Based cm the somber of produethut of all feed cecdcie.Fcduetieoeeeladeaaecd aed feed aed tleats sold d-eig the pee, iteoidIn sdmlssen is t dote-im tinct Itetelcea es CaI . Cm,dieteset-- peiary goods (e.g.2egmets a shl sns Wt-eed ef togae) ehieh ar edible sad ecett. atriests (e.g. t.ff.. amd tea arr -elded). Agg-egot. prodoesie ef a-th teustey Is hoe ... dLAOR FSORCE asttonavccage peeduce Petceeighea 191-601970, ad 1979 data. Test1 L,eboPme (tosda - Raeem-i.laly -ethn pats-, ieladiag Per gotta tpelt f celrtee pecesr of t-itemt) C-pf-e d 0t ru sed fcons ted osa_plyp bet emeldhg he-esiv-, edats t -eegy eavee of etc food supplies -atablul Io eguecy Pet os pita eaetgpplse ef all egs efmtes svae9es7te r Pee day. Available- spitem ceopeis dtee-ie Prtuth mprslesst ...mpatel.l; 1960.RN ar 99 dtm.. cPere sc cag_ it sct _ a suppliesseclu1de to1ima fedtmd,Pel eec - femal islet fetes P is .p.atage of total tabt f.ort. qase't`ries usd he feed Pro.c.siog, td oer Is dlntcibutie. taueItseeler (tersest) - Labor f_e In fsreshg, f-eetay basting med nets sees ettirt.td IyFPAO b...rd -0 physielogheAl eseds N mesma .tec- fishieg An Percentage of tmst1 labo forte; 1960. 1970 aed 1979 data. ithy tad h.,l, th ehdrtt eetr--stl tmperatuce, bedfy a-ighbe aeedtcfrct) - Labor fsestmithg eatotas nmfstt ed stdti.tbute ofpopuOelee, aed allcieg 10 peceo"a oeser t adecetiy, setee- dgAte tsaem aalilttts 90 hau-sbold leco;.09~61-65, 1970, sed 1977 data. 1970 aed 1979 dtl.. Fc iet.c tupelIf pueo(rt e dey) - Fet.te ..e tuoce of pee .aPhit. Peectiatier fr (eeee -tta,mat se femle -PeiieOoc cet sepply. ofIcd per day. Net eupply of food Im defited as abv.- Ne- ntilthvtessseopee s ,mae dt femal labor fortsa qutm sfeeal c -acets ecab habd by tiDA petvtdr foe ihetott pe_ttete of tetel, malt .sA femal pepelatfo of all a ges rapsotheay; aeseeof 60 gete ftetal PteeIe pee day ard 20 grTe of stime aed t96g, 0970, aed 1979 dsta. Tesh- bed o10speispta ae pulse%protete, ef ebich 10 grate mhm1d be asima1 pruetoi. mee..t easd- sefleesiogage-e... .lsenere ofsep.pleets., ned ba.g tint treed. A sede ae lace tha.thrce of 75 grua ef total pete"io ad 23 gEms e feceroteetefete mathomel ee atnal prcit astete-ge for the -1ed, pvpadby PA Or the Tird Iette.it leede-s- Ratio - Rails of pvpu.tsit sde- 11 sed 65 eed sa ,,orld Foed turvy; 1961-65, 1970 o-d 1977 daaI-tetta niefre PeeiapeeIe nupply frto eci_l aed pulse P-Ftutio supply of fined de- rived free teisol ted Pule -t t p- day; 1961-65, 1970 sed 1977 data. ICOcs DtISTRIol'TION Child (aene 1-6) Raet-1oty Rate 1(per hbtuesd)_-ctul deaths Pee ethossd Is sooaeo eet Itett (both is cambt- lied) - Raooivud by richest ag drapS. toc,c hleeO hit Age grouP; ftc -e dottluphg tt 5 pretet,te%, riehee I 20prts,peesf preett. std poorest 40 pretes tisdta derived frt. lift tables; 19ff, 1970 ecd 0929 data. ef hoasahelde. HEALTH PfVERTY0 TARGET GROUP0 aLc accec tBic ....rt -.Avetrag turbin ef peers of lift ttmahoht The lofoeh1 eseste geevey app-te.t a- oe of pevetylels at bitch; 1916,1 1970 aed 1979 data, te sold Is ihotopreted stb emsidealseeis tel,, ea -aeaity Rat (pe tehe-ed -Actual dratba of eesoeudt ate pertmtd Abh. c oteo .t.s leeiold t sta rasedrts of agepe Ihteo live births Astlut evd e Ab emest level is char L Ites leve haites.) ie ad sit - Ates oOt ...(ect o euateS oa.eht tuSefratt-Itam- eutrihal ad- qet t i acer plus sanestCto-la inootaeh s eaerspply , (I'ad.a tcace -uf-c caters er tos-ated hue ....ttsaiaed fErinted Rtcive Povte IsToo lve 0-a tsttta)-ore ad es-1 ctrecaathat free prt.te-d bcehelse, epriaga, eed saritcay stl)a ea saiepvet sealotC t-hhde1vrg s spe f-etrIc -c st-dp-tc lg-ted toh net that 211 mtecs fro A lous may he.- laso ech djafmtefo big tsbss of- le istee- aras eu ladeea beig.athibt res-bslece fof tht Ime. ua teas Eatimated Popelaties Neles Ab.lnott Poverty lct Paa ..eees) - seb- eeasenblaecaseold imly tha the h.osesif. or nebrs uf ehe he....hold adTro-Praee pptto obsa etl l r selt de soc hec c epeed a dispproputti... Fart- of the d.y Ie fe-hieg the peer". AcsoforEe- Dltseeml fecmee oplt -totl ucbo, std r-Arl- tNmb:etf people (tte, ba, tedcaet naevdhybsc-tc diapeseln the eeteictd dispcnat, sith or toth-u staem_t, of hast -eeta Erostte asd aS-ialD fat fisisite sodaseeat .rby etre-berse yntem or the o- of phit peivisa aid 5iI fEctmir Analysis and Peejeemh... Depertns PocPLattat roel Ph-sirhis - Fpolatito dividad by -abac of pesctisieg phyet- 98 ehaa catfid Ir- a nedieal sehoel at usi-eeicy le-e. Popalatito reP. rss P-rse- Pepala~tiee dirided by stale of peaetitimg male ted fenaT &teadose cacos patitel o dre ..s . aset-ss stress.  -28 - ANNEX I Page 4 of 5 PHILIPPINES - ECONOMIC INDICATORS Amount (million US$ at Annual growth rates (5) current prices) Actual Projected Indicator 1979 1976 1977 1978 1979 1980/a 1981 1982 1983 1984 1985 1990 NATIONAL ACCOUNTS Gross domestic product 28,854 7.1 6.2 5.9 5.9 4.7 5.8 6.3 6.3 6.3 7.1 8.3 Agriculture 6,991 8.6 5.0 4.8 5.3 4.3 5.2 5.2 5.0 5.0 5.0 5.0 Industry 10,174 10.0 7.7 6.4 6.7 5.8 6.5 7.2 7.5 7.5 8.5 10.0 Services 11,689 3.7 5.7 6.3 5.5 5.0 5.6 6.2 6.0 6.0 7.0 8.5 Consumption 21,860 4.3 5.2 4.6 4.8 4.2 5.4 5.2 4.9 5.1 5.8 7.0 Gross investment 8,576 8.0 0.7 13.3 7.4 4.8 6.3 6.3 6.3 6.3 7.1 8.3 Exports of GNFS /b 5,528 19.9 17.6 1.6 7.4 11.3 10.2 10.7 11.2 10.6 10.8 10.5 Imports of GNFS 7,110 1.3 5.3 13.2 10.3 5.2 6.6 6.7 6.5 6.6 6.8 7.2 Gross national savings 6,665 -2.0 11.3 8.3 7.7 3.1 - - - - - - PRICES GDP deflator (1972 - 100) 183.6 198.8 210.6 250.8 296.9 - - - - - - Exchange rate (US$1 =) 7.45 7.41 7.38 7.39 7.52 - - - - - - Export price index (1978 = 100) 92.6 95.8 100.0 124.6 140.3 149.9 160.0 170.5 183.3 195.7 258.7 Import price index (1978 = 100) 91.6 94.2 100.0 117.4 142.2 157.0 170.8 185.2 197.1 210.6 289.3 Terms of trade index (1978 - 100) 101.1 101.7 100.0 106.1 98.7 95.5 93.7 92.6 93.0 92.9 89.4 Share of GDP at market prices (%) Average annual increase (%) (at current prices) /c (at constant prices) 1960 1970 1975 1980 1985 1990 1960-70 1970-75 1975-80 1980-85 1985-90 Gross domestic product 100.0 100.0 100.0 100.0 100.0 100.0 5.1 6.1 5.9 6.3 7.6 Agriculture 28.1 27.8 29.0 26.8 25.0 22.0 4.3 4.3 4.8 5.0 5.0 Industry 25.8 29.6 33.5 35.5 37.7 40.6 6.0 8.6 7.6 7.5 9.1 Services 46.1 42.6 37.5 37.7 37.3 37.4 5.2 5.4 5.7 6.1 7.7 Consumption 85.3 79.2 75.8 74.5 72.4 68.7 4.8 5.5 5.2 5.2 6.5 Gross investment 16.3 21.5 31.0 30.1 29.2 30.5 8.2 11.5 6.5 6.8 7.6 Exports of GNFS 10.8 19.4 18.5 19.4 24.7 27.5 5.8 3.2 10.0 10.7 10.0 Imports of GNFS 10.6 19.7 25.3 24.0 26.2 25.4 6.8 6.8 8.0 6.6 6.9 Gross national savings 16.2 20.5 25.3 23.1 25.4 29.2 7.4 9.7 - - - As % of GDP 1960 1970 1975 1980 Labor Force in 1978 Millions (%) PUBLIC FINANCE Agriculture 7.4 44.4 Current revenues 9.8 9.5 13.9 12.8 Industry 2.7 16.2 Current expenditures 9.6 10.9 12.3 9.6 Services 5.6 33.0 Current surplus 0.2 -1.4 1.6 4.1 Unemployed 1.1 6.4 Capital expenditure 2.3 1.9 3.2 3.2 Foreign financing - 0.1 0.3 1.5 Total Labor Force 16.8 100.0 1960-70 1970-75 1975-80 1980-85 1985-90 OTHER INDICATORS Annual GNP growth rate (%) 5.1 5.6 5.9 6.3 7.7 Annual GNP per capita growth rate (%) 2.0 2.7 3.2 3.6 5.1 Annual energy consumption growth rate (%) 7.4 6.2 4.2 4.7 4.6 ICOR 4.5 4.7 4.6 4.5 4.1 Marginal savings rate 0.285 0.330 0.26 0.32 0.35 Import elasticity 1.33 1.12 1.20 1.05 0.90 /a Preliminary estimate. 7'b Historical figures are official estimates based on 1972 weights. In relation to the composition of Philippine exports in the late 1970s these estimates give undue weight to stable or declining exports of raw commodities such as copra, sugar, and logs, and insufficient weight to rapidly growing exports such as nontraditional manufactures and coconut oil. Bank staff estimates of export volume based on 1978 weights are shown on Attachment 3b. /c Projected years of constant prices. East Asia & Pacific Regional Office February 1981  - 29 - ANNEX I Page 5 of 5 pages BALANCE OF PAYMENTS AND EXTERNAL ASSISTANCE (US8$ million) Actual Est. Projected 1976 1977 1978 1979 1980 1981 1982 1985 Summary of Balance of Payments Exports of goods and services 3,387 4,161 4,838 6,177 8,040 9,450 11,100 18,200 Of which: exports of goods 2,574 3,151 3,425 4,601 5,940 7,480 8,500 14,300 Imports of goods and services 4,763 5,248 6,323 8,108 10,620 12,540 14,450 21,700 Of which: imports of goods 3,633 3,915 4,732 6,142 7,870 9,360 10,800 16,200 Transfers (net) 269 260 313 355 410 450 500 800 Current Account Balance -1,107 -827 -1,172 -1,576 -2,170 -2,640 -2,850 -2,700 Direct investment (net) 144 216 171 99 110 200 250 200 MLT loans (net) 1,040 662 891 1,091 1,050 1,700 2,200 2,600 Official-source loans (net) 282 332 333 449 560 800 1,000 950 Private-source loans (net) 758 330 501 642 490 900 1,200 1,650 Other capital (net) /a -238 113 56 -193 530 370 200 300 Overall Balance /b -161 164 -54 -579 -480 -370 -200 400 International reserves (end-year) /c 1,640 1,525 1,883 2,424 3,160 3,000 3,000 3,200 Grants and Loan Commitments Official grants 0.0 0.0 0.0 0.0 Total public loans 1,577.4 1,392.0 2,417.0 2,105.2 IBRD 226.0 317.5 3 533.0 210.5 IDA 0.0 0.0 28.0 62.0 Other multilateral 64.2 226.6 189.2 286.6 Governments 391.6 182.3 370.4 223.6 Suppliers 52.0 194.2 76.7 52.3 Financial institutions 476.4 341.7 1,000.5 1,224.4 Bonds 367.2 129.7 219.2 45.8 Other MLT loans 603.6 115.0 914.0 278.8 Memorandum Items Grant element of commitments 8.8 14.7 16.8 16.5 Average interest (%) 8.3 7.9 7.4 7.7 Average maturity (years) 13.1 15.3 15.9 15.9 Medium & Long-Tem Debt Total debt outstanding (disbursed only, end of period) 4,383.0 5,554.0 6,839.0 7,920.0 Including undisbursed 6,817.0 8,155.0 10,856.0 12,225.3 Public debt service -239.2 -441.9 -468.1 ?0652.5 of which: interest -97.9 -215.2 -167.1 -300.0 Other MLT debt service -283.5 -320.1 -441.9 -375.5 Total debt service -522.7 -762.0 -910.0 -1,082.0 Debt Burden Debt service ratio 15.4 18.3 18.8 17.4 Debt service ratio /d 19.4 22.1 21.2 18.2 Debt service/GDP 2.9 3.8 3.9 3.6 Public debt service/goveroment revenue 9.9 12.0 20.1 18.3 Outstanding December 31, 1979 Terms Amount Percent External Debt (US$ min) Interest on total DOD/total DOD 4.1 6.4 4.0 6.1 Total debt service/total D5OD 10.5 15.8 13.3 13.0 (Disbursed only) IBRD 731 14.1 Dependency Ratios Bank Group /e 763 14.8 Other multilateral 397 7.7 Gross disbursements/imports (GNFS) 37.9 28.7 34.3 30.7 Governments 1,094 21.2 Net transfer/imports (GNFS) 29.6 20.8 16.0 16.7 Suppliers 250 4.8 Net transfer/gross disbursements 78.0 73.0 59.0 52.8 Financial institutions 1,879 36.4 Bonds 783 15.1 Exposure Total public MLT debt 5,167 100.0 Other MLT debt 2,753 53.3 IBRD disb./gross total disb. 5.5 7.4 8.3 10.4 Total MLT debt 7,920 153.3 Bank Group disb./gross total disb.Ie 6.2 7.5 8.3 10.4 IBRD DOD/total DOD 7.2 7.3 8.0 9.9 (Including undisbursed) Bank Group DOD/total DOD /e 7.8 7.8 8.4 10.3 Public MLT debt 8,971.4 173.6 IBRD debt service/total debt service 6.6 5.6 6.9 7.3 Total HLT debt 12,225.3 237.0 Bank Group debt serv./total debt. serv 6.7 5.6 7.0 7.4 /a Short-term capital, monetization of gold, allocation of SDRs, and errors and omissions. 7b Equals change in net international reserves. 7E Gross reserves of the Central Bank ("International reserves, IFS). 72 Includes net direct investment income. 7e Excludes IFC. East Asia and Pacific Region February 1981  - 30 - ANNEX II Page I of 17 pages TIE STATUS OF BANK GROUP OPERATIONS IN THE PHILIPPINES A. STATEMENT OF BANK LOANS AND IDA CREDITS As of May 31, 1981 Loan or Credit Amount (less cancellations) Number FY Borrower Purpose Bank IDA Undisbursed Twenty-three Loans and three credits fully disbursed 416.2 32.2 984-PH 1974 Rep. of the Philip. Aurora-Penaranda Irrigation 9.5 0.6 998-PH 1974 " DBP I 50.0 3.3 1034-PH 1974 National Power Corp. Power 61.0 1.9 1035-PH 1974 Rep. of the Philip. Population 25.0 9.0 1048-PH 1974 " Shipping 20.0 3.5 1052-PH 1974 Philip. National Bank PDCP IV 30.0 1.0 1080-PH 1975 Rep. of the Philip. Tarlac Irrigation 17.0 4.3 1102-PH 1975 " Rural Development 25.0 7.1 1154-PH 1976 " Magat Irrigation 42.0 13.2 1190-PH 1976 " DBP II 75.0 4.0 1224-T-PH 1976 Education III 25.0 5.2 1225-PH 1976 " Livestock II 20.5 0.02 1227-PH 1976 " Cnico Irrigation 50.0 31.3 1272-T-PH 1976 " Manila Urban 10.0 5.0 1282-PH 1976 Manila Urban 22.0 11.1 1269-PH 1976 " Second Grain Processing 11.5 7.8 1353-PH 1977 " Third Highways 95.0 60.8 1367-PH 1977 " Jalaur Irrigation 15.0 7.5 1374-PH 1977 " Fourth Education 25.0 9.2 1399-PH 1977 Central Bank of the Fourth Rural Credit Philippines 36.5 16.6 1414-PH 1977 Rep. of the Philip. Nat. Irrig. Syst. Improvmt. 50.0 34.0 1415-PH 1977 " Provincial Cities Water Sup. 23.0 15.3 1421-PH 1977 " Rural Dev. Land Stlmt. II 15.0 10.5 1460-PH 1977 National Power Corp. Seventh Power 58.0 37.8 1506-PH 1978 Rep. of the Philip. Smallholder Tree Farming 8.0 6.7 1514-PH 1978 Philip. National Bank PDCP V 30.0 10.0 1526-PH 1978 Rep. of the Philip. Nat. Irrig. Syst. Improvmt. II 65.0 49.6 790-PH 1978 " Rural Infrastructure 28.0 23.8 S.8-PH 1978 " Education 2.0 1.3 1547-PH 1978 Nat. Electrif. Admin. Rural Electrification 60.0 8.4 1555-PH 1978 Philip. National Bank PISO 15.0 1.6 1567-PH 1978 Rep. of the Philip. Magat II 150.0 50.8 1572-PH 1978 " Industrial Investment III 80.0 35.8 1615-PH 1978 " Manila Water Supply II 88.0 83.9 1626-PH 1979 " National Extension 35.0 34.1 1639-PH 1979 " Magat River Multipurpose 21.0 17.8 1646-PH 1979 " Small Farmer Dev. (Land Bank) 16.5 11.3 1647-PH 1979 " Second Urban Development 32.0 26.5 1661-PH 1979 " Highways IV 102.0 98.7 1710-PH 1979 " Water Supply II 16.0 16.0 920-PH 1979 " Water Supply II 22.0 21.0 1727-PH 1979 " Small & Medium Industry II 25.0 11.4 923-PH 1979 " Population II 40.0 39.8 1772-PH 1980 " Samar Island Rural Devel. 27.0 26.6 1786-PH 1980 " Fisheries Trng. (Educ. VI) 38.0 37.6 1809-PH 1980 " Medium-Scale Irrigation 71.0 70.9 1814-PH 1980 " Manila Sewerage & Sanitation 63.0 62.1 1815-PH 1980 " Rainfed Agric. Dev. (Iloilo) 12.0 11.9 1821-PH 1980 T Third Urban 72.0 69.8 1855-PH 1980 " Third Ports 67.0 67.0 1860-PH 1980 " Rural Roads Improvement 62.0 60.3 1890-PH 1981 " Watershed Management 38.0 37.9 1894-PH 1981 " Third Livestock & Fisheries 45.0 43.1 1903-PH 1981 " Structural Adjustment 200.0 99.8 1984-PH/a 1981 Central Bank of the Industrial Finance (Apex) 150.0 150.0 Philippines Total 2,815.7 122.2 1,585.5 of which has been repaid (Bank and third parties) 196.3 Total now outstanding 2,619.4 122.2 Amount sold 24.3 of which has been repaid (third parties) 17.8 6.5 - Total now held by Bank and IDA (prior to exchange rate adjustments) 2,612.9 122.2 Total undisbursed 1,500.9 84.6 1,585.5 /a Not yet effective.  - 31 - ANNEX II Page 2 of 17 pages B. STATEMENT OF IFC INVESTMENTS As of May 31 , 1981 Fiscal Amounts ($ million) Year Company Loan Equity Total 1963 & 1973 Private Development Corporation of the 15.0 4.4 19.4 Philippines 1967 Manila Electric Company 8.0 - 8.0 1967 Meralco Securities Corporation - 4.0 4.0 1970 Philippine Long Distance Telephone 4.5 - 4.5 Company 1970 & 1972 Mariwasa Manufacturing, Inc. 0.8 0.4 1.2 1970 Paper Industries Corporation of the - 2.2 2.2 Philippines 1971 & 1977 Philippine Petroleum Corporation 6.2 2.1 8.3 1972 Marinduque Mining and Industrial 15.0 - 15.0 Corporation 1973 Victorias Chemical Corporation 1.9 0.3 2.2 1974 Filipinas Synthetic Fiber Corporation 1.5 - 1.5 1974/1979 Maria Christina Chemical Industries, Inc. 1.5 0.7 2.2 1974 Republic Flour Mills Corporation 1.2 - 1.2 1975 Philippine Polyamide Industrial 7.0 - 7.0 Corporation 1976/1980 Philagro Edible Oils, Inc. 2.6 0.2 2.8 1977 Acoje Mining Company, Inc. 2.3 1.2 3.5 1977 Sarmiento Industries, Inc. 3.5 - 3.5 1978 Cebu Shipyard and Engineering Works, Inc. 2.1 - 2.1 1979 General Milling Corporation 4.0 1.1 5.1 1980 PISO Leasing Corporation 5.0 0.1 5.1 1980 Ventures in Industry and Business - 0.3 0.3 Enterprises, Inc. 1980 Consolidated Industrial Gases, Inc. 4.5 - 4.5 1981 Philippine Assoc. Smelting & Refining Corp. - 5.0 5.0 Total gross commitments 86.6 22.0 108.6 Less sold, acquired by others, 48.6 12.7 61.3 repaid or cancelled Total commitments now held by IFC 38.0 9.3 47.3 Total Undisbursed 5.0 5.0 10.0  - 32 - ANNEX II Page 3 of 17 C. PROJECTS IN EXECUTION /1 Agricultural Sector Credit No. 472 Aurora-Penaranda Irrigation; $9.5 Million Credit and Loan No. 984 $9.5 Million Loan of Nay 14, 1974; Date of Effectiveness: August 22, 1974; Closing Date: December 31, 1981 Overall progress of the project is satisfactory. Work on the dams and transbasin diversion channels was completed in 1975, about one year ahead of schedule. There were initial delays in the award of contracts for the service area improvement works, and further delays were caused by strong typhoons in 1978 and 1980 which damaged some of the project area. Completion is now planned for 1981 - a three-year delay in the original schedule. Due to increased costs, a reduced cropping intensity and delays in construction, the internal rate of return is expected to be close to 12% compared with the appraisal estimate of 17%. Loan No. 1080 Tarlac Irrigation; $17.0 Million Loan of January 27, 1975; Date of Effectiveness: April 30, 1975; Closing Date: June 30, 1982 The project is now about 75% complete. Full completion is expected by June 1982, a two-year delay in the original schedule, caused mainly by managerial problems and late preparation of the designs for the drainage works. The closing date has, therefore, been extended by two years to June 30, 1982. The area developed is likely to be some 20% less than originally planned mainly because of flooding from the Chico, Camiling and Agno rivers. Costs are higher, partly due to the delays referred to above, and the economic rate of return is now likely to be close to 10% compared with an appraisal estimate of 15%. Loan No. 1102 Rural Development; $25.0 Million Loan of April 16, 1975; Date of Effectiveness: July 28, 1975; Closing Date: June 30, 1981 Overall implementation is about 75% complete. The road subproject has been delayed by about two years because most of the construction contrac had to be rebid following the failure of the ongoing contracts. Contracts for the construction of the irrigation works are also behind schedule, but most of these should be successfully completed without rebidding. Recent efforts by the project management office to improve contract performance /1 These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  - 33 - ANNEX II Page 4 of 17 have been successful, and force account works are proceeding well. General shortages of fuel and construction material have now been overcome. Disbursements have improved significantly recently and completion is expected in mid-1982, about two years behind schedule. Loan No. 1154 Magat Multipurpose Project; $42.0 Million Loan of August 7, 1975; Date of Effectiveness: November 4, 1975; Closing Date: June 30, 1982 Civil works by local contract and force acount for rehabilitation and new construction of canals, drains and access roads are progressing well, and the project is about 81% complete. All contracts have now been awarded but some of the work has been postponed until the end of the rainy season. The water management training is continuing satisfactorily. Problems experienced due to budgetary constraints in 1980 are expected to be lessened in 1981 as NIA taps other local financial resources. Due to earlier delays in contract award, budgetary constraints and typhoon damage in 1980, project completion is expected to be delayed by about two years over the original schedule. Loan No. 1225 Second Livestock; $20.5 Million Loan of April 8, 1976; Date of Effectiveness: September 13, 1976; Closing Date: June 30, 1982 The loan is expected to be fully disbursed by June 1981, one year before the closing date (June 30, 1982) as a result of significant subloan demand in piggery and poultry subsectors. Further support to livestock development in the Philippines is being provided under the ongoing Third Livestock and Fisheries Credit Project (Loan 1894). Loan No. 1227 Chico River Irrigation Project; $50.0 Million Loan of April 8, 1976; Date of Effectiveness: July 19, 1976; Closing Date: June 30, 1981 Although the project was due for completion by June 1980, it is now only about 40% complete. Work started slowly due to late procurement of equipment for force account work. Further delays have been caused by changes in design resulting in rebidding the three major contracts for the diversion dam, the main canal and the river siphon; severe and repeated typhoon damage; problems of right-of-way aquisition and the recent suspensio of work on the diversion dam because of security problems. The project is not now expected to be completed before June 1984, a four-year delay over the appraisal estimate. Loan No. 1269 Second Grain Processing Project; $11.5 Million Loan of July 2, 1976; Date of Effectiveness: October 4, 1976; Closing Date: June 30, 1983 Due to delays in implementation of the first phase project (Loan 720-PH) and to the general availability of funds to millers from  - 34 - ANNEX II page 5 of 17 alternative sources, disbursements have progressed slowly. Recently, however, due to DBP's promotional efforts, the subloan demand from millers has been increasing. In addition, DBP is considering financing the grain warehouse construction program of the National Food Authority under this project. In view of these developments, the project funds are expected to be fully committed by the end of CY1981 and the loan disbursed by June 1983, two years behind schedule. The closing date has been extended accordingly to June 30, 1983. The ongoing Grains Losses Study is expected to be completed by the end of 1981. Loan No. 1367 Jalaur Irrigation Project; $15.0 Million Loan of February 14, 1977; Date of Effectiveness: May 12, 1977; Closing Date: December 31, 1982 Overall progress of the project is about 40% compared with appraisal estimates of 55%. Force account work is proceeding satisfactorily. Some of the 24 civil works contracts failed, due to unsatisfactory procurement procedures, but the Government has now taken action to improve the situation. Progress has recently improved, and a timely completion is still expected. Loan No. 1399 Fourth Rural Credit Project; $36.5 Million Loan of April 11, 1977; Date of Effectiveness: June 2, 1977; Closing Date: December 31, 1982 Commitments and disbursements continue to be roughly one-half of appraisal estimates. The Central Bank has reassessed the project and as a result new categories of lending (for medium-size trucks, tree crops and working capital), and a new set of financial intermediaries (private development banks) have been included in the project. More recently the Central Bank has reduced the relative advantages of rural banks in short-term lending vis-a-vis medium- and long-term lending provided under the project, and has introduced a capital build-up program and conversion scheme to lower the high levels of arrears of participating rural banks. Although these initiatives should accelerate implementation, the completion date has been postponed by two years. Loan No. 1414 National Irrigation Systems Improvement Project; $50 Million Loan of May 13, 1977; Date of Effectiveness: August 9, 1977; Closing Date: December 31, 1982 Progress in project implementation has been slow, initially because of staffing and design problems, and more recently because of delays in the review of design and contractual arrangements for the Abulog diversion dam. Shortages of fuel and construction materials, which have been a major cause of delay, have now been overcome. The project is now expected to be completed in 1983, two years later than originally estimated. Implementation improved during the 1980 construction season, and further improvements are expected during 1981, mainly because of better planning and organization, less complicated contract procedures, and completion of designs. Final project costs and benefits are expected to be in line with original estimates.  ANNEX II Page 6 of 17 Loan No. 1421 Second Rural Development (Land Settlement) Project; $15.0 Million Loan of June 10, 1977; Date of Effectiveness: October 27, 1977; Closing Date: December 31, 1982 Satisfactory progress is being maintained. The Government has simplified and accelerated procedures for issue of land allocation certi- ficates and titles to project area settlers, improving their eligibility for term credit. Substantial progress has been made in construction of roads, bridges and related infrastructure. Initial irrigation works, water supply systems and health stations have been installed. Adaptive research trials have been completed and pilot extension programs for appropriate agricultural packages are now under way. Feasibility studies for development of other settlements are well advanced, but formulation of a long-term land use policy framework is lagging. Previous bottlenecks in the flow of funds and loan disbursements have eased since 1980. Implementation plans for 1981/82, currently being reviewed, show project costs and overall targets in line with original estimates. Loan No. 1506 Smallholder Tree Farming and Forestry Project; $8.0 Million Loan of January 23, 1978; Date of Effectiveness: May 11, 1978; Closing Date: December 31, 1983 Treefarmer enrollment in the DBP treefarming component, which has been slow in the past, has improved markedly following DBP's liberalization of application procedures and collateral requirements. However, so far fewer smallholders and more medium-size land-owners are participating than expected at appraisal. The other components, all of which involve government agencies, now have budget appropriations commensurate with project requirements, although delays in fund releases still occur. The forest research component is progressing well and the wood industries feasibility study is approaching completion. Vehicles and equipment for BFD's Abra plantation component have still not been acquired due to overly cumbersome local procurement procedures. The young planted pines have been infested by a shoot borer insect, which will require immediate control measures. The pace of implementation of this com- ponent will, therefore, have to be reduced and its completion date extended by at least one year. Loan No. 1526 Second National Irrigation Systems Improvement Project: $65 Million Loan of March 15, 1978; Date of Effectiveness: June 20, 1978; Closing Date: December 31, 1984 Topographic surveys, project planning and design have been completed for most of the systems, and construction is fully under way. No major contracts have been awarded and those originally scheduled for 1980 were delayed because of financial constraints and difficulties in completing designs on schedule. To help with this problem, NIA has agreed to retain local consultants to assist in design preparation of drainage works and thus avoid delays in subsequent contract works. Overall progress is satisfactory and the project is expected to be completed as scheduled.  - 36 - ANNEX II Page 7 of 17 Credit No. 790 Rural Infrastructure; $28 Million Credit of April 21, 1978; Date of Effectiveness: July 21, 1978; Closing Date: December 31, 1983 Construction work on communal irrigation systems, village water supply, health stations and ports is proceeding well. As of December 31, 1980, construction of about 34 km of roads had been completed, 300 km of roads (about one-third of the program) were under contract or shortly to be awarded, and 90% of the design work on the remaining roads had been completed. While construction of the irrigation component is behind schedule, overall progress of the project is satisfactory. About 300 rural water supply units are completed and 48 barangay health stations have been built and commissioned. The overall progress on the port component is estimated at about 50%. Loan No. 1567-PH The Magat River Multipurpose Project - Stage IT; $150 Million Loan of May 23, 1978; Date of Effectiveness; August 24, 1978; Closing Date: December 31, 1983. Progress is good. The first stage of river diversion has been successfully achieved and excavation is substantially complete. Construc- tion of the main dam is making excellent progress. Concrete work for the spillway started slowly and suffered from interruptions due to breakdown of the cranes, but the contractor has made up for lost time and is once more nearly on schedule. Work on resettlement of the population to be displaced by the reservoir is proceeding very well. Loan No. 1626-PH National Extension Project; $32.0 Million Loan of December 21, 1978; Date of Effectiveness: March 26, 1979; Closing Date: June 30, 1983 The Ministry of Agriculture, through its Bureau of Agricultural Extension, aims to introduce the training and visit (T and V) system to the national extension service over a four year period. A Project Management Committee has been created under the Deputy Minister's Chairmanship, and appropriate subcommittees and operational units established. Regional reorganization was effected on March 24, 1980 with the appointment of 12 Regional Directors and 24 Assistant Directors, followed by 75 Provincial Executive Officers on March 28. The 1979 incremental staff appointments have been made and recruitment of the 1980 contingent is proceeding. A contract has been let for the construction of 167 extension centers. The first year-s motorcycle allotment has been purchased and distributed under the special vehicle loan fund. Procurement of the other vehicles, for the first and second year, together with equipment, is proceeding. Training was interrupted temporarily during reorganization, but is continuing in cooperation with the USAID/KSU program on Agricultural Production and Marketing. The first consultancy, on extension workers- compensation and duties, and a second, on monitoring and evaluation procedures for extension workers and services, have been let. Pilot areas for introducing the T and V system of extension have been established in all 12 regions of the country. The first four have been evaluated and a report issued. Benchmarker agro-economic surveys, on which the selection of the pilot areas was based, have been completed in the 12 regions.  - 37 - ANNEX II Page 8 of 17 Loan No. 1639-PH Magat River Multipurpose Project; Stage II Irrigation; $21.0 Million Loan of January 26, 1979; Date of Effectiveness: April 25, 1979; Closing Date: December 31, 1983 Implementation started early in 1980 and progress is satisfactory. All major contracts have already been awarded and some are ahead of schedule. All construction equipment has been procured and delivered to site. Completion is expected by mid-1983 as scheduled at appraisal. The only problem to be foreseen is an overall financial constraint which is being carefully considered by the Government. Loan No. 1646-PH Small Farmer Development Project through the Land Bank of the Philippines; $16.5 Million Loan of January 26, 1979; Date of Effectiveness: April 25, 1979; Closing Date: June 30, 1983 Cumulative disbursements of $5.1 million up to March 1981 were lower than the appraisal estimate of $6.4 million due to weak subloan demand and organizational problems. The disbursement rate is expected to accelerate in the near future, however, because of the following: withdrawals under the infrastructure component are expected to start soon since procedural diffi- culties with the government budget have been resolved; LBP proposes to reorganize its field level organization and recruit additional staff to step up subloan disbursements to small farmers; and LBP's subsidiary agency, now participating in the project, is to expand its operations. The loan is expected to be fully drawn down by December 31, 1983 compared to the appraisal estimate of June 30, 1983. Loan No. 1772-PH Samar Island Rural Development Project; $27.0 million Loan of February 1, 1980; Date of Effectiveness: May 21, 1980; Closing Date: June 30, 1985 Procurement of services, materials and equipment for the project is now under way, and the first phase of the Catubig valley studies has been completed. NIA has been experiencing difficulties attracting bidders for construction of communal irrigation systems, and the Bank has therefore recently agreed to the construction of three systems by force account in order to avoid losing the 1981 construction season. Loan No. 1809-PH Medium-Scale Irrigation; $71.0 million Loan of March 28, 1980. Date of Effectiveness: June 25, 1980; Closing Date: December 31, 1986 The loan became effective in June 1980 and project consultants started work in August 1980. Procurement of project equipment is under way. Design and preparation of contract documents for civil works are proceeding on schedule and construction should start as planned.  - 38 - ANNEX II Page 9 of 17 Loan No. 1815-PH Rainfed Agriculture (Iloilo); $12.0 million Loan of March 28, 1980; Date of Effectiveness: June 25, 1980; Closing Date: June 30, 1986 Management of project components implemented through the Ministry of Agriculture (MOA) is proceeding well, but those activities implemented by other government agencies are proceeding more slowly. Efforts are now being made to channel funds to these agencies through MOA, the lead agency. Pro- curement is six months behind schedule, mainly because all vehicle procurement has to be reviewed by the Ministry of the Budget. Nonavailability of credit has been a problem, and measures are being taken to involve banks other than the rural banks, including the Land Bank and the Philippine National Bank. Construction of the training center is delayed because the Provincial Govern- ment has been unable to provide the 25% counterpart funds for construction costs. Loan No. 1890-PH Watershed Management and Erosion Control Project; $38.0 Million Loan of August 4, 1980; Date of Effectiveness: October 30, 1980, Closing Date: December 31, 1986 A good start has been made on implementation of the main components of the project. Jurisdictional difficulties between the implementing agency and the Bureau of Forest Development have been sorted out and a Memorandum of Understanding signed. The National Irrigation Administration is making vigorous efforts to protect the project as much as possible from the current shortage of local funds. Loan No. 1894 Third Livestock and Fisheries Credit Project; $45.0 Million Loan of August 4, 1980; Date of Effectiveness: November 5, 1980; Closing Date: June 30, 1984 A good start has been made in project implementation. As of March 1981, cumulative disbursements of $1.4 million exceeded the appraisal estimate of $1 million. These disbursements were mainly for livestock and inland fisheries subsectors; the loan demand for marine fisheries is, however, weak owing to increases in fuel costs, and DBP is currently reviewing its lending strategies with a focus on expanding support to tuna fishing. Under the non- credit component, the Borrower's Bureau of Animal Industry and Fisheries Industry Development Council are preparing proposals for research and other support programs. DBP's studies on development of a new management informa- tion system and staff training programs are in progress. A plan for monitor- ing and evaluation of future agricultural credit projects is also being developed by DBP. Transportation Sector Loan No. 1048 Inter-Island Shipping; $20 Million Loan of October 29, 1974; Date of Effectiveness: January 15, 1975; Closing Date: June 30, 1981 The Closing Date was extended to June 30, 1981 to allow for the completion of training programs and for ship construction guarantee payments. About 70% of the loan has been disbursed. Loan applications covering the balance of uncommitted funds are under consideration by DBP.  - 39 - ANNEX II Page 10 of 17 Loan No. 1353 Third Highway Project; $95.0 Million Loan of January 12, 1977; Date of Effectiveness: March 30, 1977; Closing Date: December 31, 1983 Overall, the project is about 53X completed and two and half years behind schedule because of slow procurement, poor performance of many contractors, and inadequate planning for the use of local funds. The operations of the Ministry of Public Highways (MPH) have improved but require further efforts, specifically in road maintenance. In road construction and improvement, works on 11 national and 5 minor road contracts are progressing satisfactorily; however, poorly performing contractors continue to cause problems on three national and two minor road contracts. MPH has now undertaken the action necessary to forfeit and retender those five contracts, and contract award is scheduled by mid-1981. The road maintenance and restoration programs have been reviewed and are now making some progress. Of the 28 workshop contracts, 11 are now under construction, 13 are up for rebid and 4 have been renegotiated. There is a significant cost overrun on the workshop contract, caused by changes in the design and price escalation. Procurement of road maintenance equipment, tools and other machinery has been completed. Consultants for supervision of construction of roads and workshops are in place and the road and ferry feasibility studies have been completed. The technical assistance advisors to MPH completed their assignment in November 1979 and training advisors to MPH completed their work in March 1980. Overall, the project completion is likely to be delayed until mid-1983, and the closing date has therefore been extended accordingly. Loan No. 1661 Fourth Highway Project; $100 Million Loan of March 9, 1979 ; Date of Effectiveness: June 15, 1979; Closing Date: December 31, 1983 After an initial delay of several months the implementation of this project has proceeded slowly, mainly because of time-consuming prequalifica- tion procedures for contractors and slow selection of consultants for technical assistance. The overall delay now amounts to at least a year, and the progress in implementing the project continues to be slow. Although MPH has done a considerable amount of preparatory work and international competitive bidding is now under way, no construction or improvement works have yet started. A consulting firm for the design and construction supervision of workshops has started the design work. Land acquisition for road construction and workshops is under way and preparatory work has begun for the continuation of the road maintenance and road restoration programs begun under the Third Highway Project (Loan 1353-PH). Prequalification for equipment suppliers has begun, but bids will be invited only after completion of workshop construction. Loan No. 1855 Third Ports Project; $67 Million Loan of June 13, 1980; Proposed Date of Effectiveness: September 11, 1980; Closing Date: June 30, 1984 Detailed engineering and preparation of tender documents are now complete, and bidding for the four main port contracts is scheduled to take  - 40 - ANNEX II Page 11 of 17 place by mid-1981. Other preconstruction activities are under way and are scheduled to be completed before the main contractors begin work. Consultants have been selected to provide technical assistance for construction super- vision, and contract negotiations are under way. Loan No. 1860 Rural Roads Improvement Project; $62 Million Loan of June 13, 1980; Proposed Date of Effectiveness: September 11, 1980; Closing Date: December 31, 1984 Initial progress in preparing the 1981 rural roads program has been slow due mainly to a delay in providing technical assistance services to the implementing agency. Due to delays in preparing and reviewing detailed engineering for rural roads, no construction contracts will start in the 1981 dry season, putting the project about nine months behind schedule. Consulting services are generally on schedule with the exception of the technical assistance. The Government is aware of the importance of this item and is taking steps to remedy the problem. Education Sector Loan No. 1224T Third Education Project; $25 Million Loan of April 8, 1976; Date of Effectiveness: July 29, 1976; Closing Date: June 30, 1981 The central part of the project, which is the development of primary and secondary textbooks and teachers' manuals in five subject areas, has made continuous progress since the inception of the project. Eighteen million books have been produced and distributed. The project should meet its goal of producing and distributing to schools 75 titles amounting to 30 million copies, as well as training about 250,000 teachers, by the middle of 1981. Civil works are about 28 months behind schedule. Project costs are close to appraisal estimates and disbursements are about 80% of appraisal estimates. Loan No. 1374 Fourth Education Project; $25.0 Million Loan of March 25, 1977; Date of Effectiveness: June 9, 1977; Closing Date: December 31, 1981 Implementation of the project is now some 18 months behind schedule. Rapid price escalation and high credit costs in the 1978-80 period resulted in a slow-down in building activity, the rescinding of an important contract and renegotiation of others, thus delaying implementation of the project's other physical components and dependent educational objectives. The situation is being recuperated and in the process EDPITAF has devolved implementation responsibilities to recipient institutions. An extension of the closing date is to be sought once a revised financial plan has been elaborated with the Finance and Budget Ministries. Overall project utilization of Technical Assistance Specialists is only 20%, while over 80% of Fellowship time has been committed. Enrolments are about on target and other educational developments at UPLB and VISCA are proceeding satisfactorily. There is some tendency to proliferate fields of specialized study and the National Governing Board of the PTC-RD system has not functioned as planned in reviewing important changes in policies and programs.  - 41 - ANNEX II Page 12 of 17 Loan No. S-8-PH Educational Radio Technical Assistance: $2 Million Loan of April 21, 1978; Date of Effectiveness: August 22, 1978; Closing Date: December 31, 1981 The project is being implemented by an Educational Communications Office (ECO), established for this purpose within EDPITAF. ECO is functioning smoothly and is successfully preparing and distributing radio programs and printed materials for the two major project subcomponents - Radio Assisted Teaching in Elementary Schools (RATES), and Continuing Education for Teachers (CET). These programs have been implemented efficiently. The report on the project summative evaluation which has been completed by the University of the Philippines' Institute of Mass Communication, contains informative data on the use of radio for the improvement of education. The Educational Communications Office is now formulating follow-up plans incorporating this data into the forthcoming Elementary Education project. A separate evaluation of the Communication Technology for Rural Education will be completed towards the end of 1981. Loan No. 1786-PH Fisheries Training Project; $38.0 Million Loan of February 1, 1980; Date of Effectiveness: May 19, 1980; Closing Date: June 30, 1985 Although the loan became effective in May 1980, funds were released by the Government only in November, which resulted in some implementation delays. Physical implementation, however, is on schedule. Contract awards for the first 13 packages were expected in the first quarter of 1981. By December 1980, site acquisition was practically completed and equipment lists were nearing completion. The first of five planned RIFT/RCFT staff training workshops was conducted in November 1980. EDPITAF's devolution of major responsibility and funds for implementation to recipient institutions is a major policy change which will require, among other things, the introduction of complex accounting practices. The proposed UPVCF Fellowship program is not consistent with project objectives and will require rigorous review by UPV, EDPITAF and the Bank. Urban Sector Loan No. 1272T Manila Urban Development Project; $10.0 Million and Loan No. 1282 $22.0 Million Loans of June 9, 1976; Date of Effectiveness: * December 9, 1976; Closing Date: September 30, 1981 Overall construction on the Tondo project is about 65% complete. In spite of implementation delays in two key components - construction of major roads and the sewer outfall - overall management of the project has improved: key staff vacancies in the Tondo office have been filled, and NHA's General Manager is increasingly devoting his personal supervision to the project. All but two infrastructure contracts have been awarded and are currently in various stages of mobilization. The Dagat-Dagatan component is 98% complete, and about 1,317 of the 1,501 completed units have been occupied. The short- fall of 499 units will be constructed under the Second Urban Project. The progress of the first package of the road component has been held up due to price adjustment problems in the contract, and implementation of the sewer outfall component has been delayed due to design modifications. However, the contractor has now been selected, and implementation of this component is now expected to proceed smoothly.  - 42 - ANNEX II Page 13 of 17 Loan 1415-PH Provincial Cities Water Supply Project; $23 Million Loan of May 13, 1977; Date of Effectiveness: September 9, 1977; Closing Date: March 31, 1982. Overall project implementation is about one year behind schedule. Major contracts have been awarded; however, due to unforeseen delays in well drilling and late deliveries of pipes, progress is slow. Work has started in four of the six project cities, and contractors are mobilizing in the remaining two. The construction cost is expected to be close to appraisal estimates and project completion is expected to be on target. Loan 1615-PH Second Manila Water Supply Project; $88 Million Loan of July 26, 1978; Date of Effectiveness: December 21, 1978; Closing Date: December 31, 1983. Delays in contract approvals in the ADB-financed components of the project (source and treatment works) have resulted in similar delays in IBRD-financed parts of the project (distribution system). Nevertheless, according to rescheduling prepared by consultants, it is expected that the original target of completing the project by June 1983 will be met with no further slippage. Water rates were increased by 25 centavos in May 1980 and a 10% water rate surcharge was implemented at the end of 1980. A further water rate increase is expected to be implemented after the Presidential elections in June 1981. Loan No. 1647-PH Second Urban Development Project; $32.0 Million Loan of January 26, 1979; Date of Effectiveness: April 26, 1979; Closing Date: June 30, 1984 Since the loan became effective in April 1979, implementation has been in progress on earthworks, sewerage and drainage contracts in Dagat- Dagatan and on the SIR program in the regional cities. An action program to remedy the drainage problem of the Dagat-Dagatan area and to provide adequate fill materials has been initiated through MPW and contracts for major earthworks and infrastructure are now being let. This should considerably accelerate disbursements on the Dagat-Dagatan component. Overall loan disbursement improved during FY80. Due to fill deficiency problems at the Dagat-Dagatan site and general price escalations, the total project costs have increased to approximately $95 million, reflecting a 38% increase over the appraisal estimate. It is likely that the overall project will be completed on schedule by the end of 1983. Credit 920-PH Second Provincial Cities Water Supply Project; $22 Million Loan 1710-PH Credit and $16 Million Loan of June 27, 1979; Date of Effectiveness: November 30, 1979; Closing Date: December 31, 1985. The 50 Water Districts required under the project have been formed. Detailed designs for 12 of the project cities are nearing completion. Work has started on the development of a financial planning and control system, and consultants have started the preparation of a comprehensive management assistance and training proposal. A new institution, the Rural Water Supply Development Corporation, has been created, and is now preparing a list of materials to be procured for rural water supply.  - 43 - ANNEX II Page 14 of 17 Loan 1814-PH Manila Sewerage and Sanitation Project: $63.0 million Loan of March 28, 1980; Date of Effectiveness: September 10, 1980; Closing Date: December 31, 1984. The project is proceeding well, with no major problems. Detailed designs for the Tondo Pumping Station have been completed, and tenders for sanitary sewers in Dagupan and Pandacan called. The organization for the combined sewer program is in place; staffing and training plans are being prepared; and equipment for the water quality monitoring program has been approved for procurement. Disbursements are ahead of appraisal estimates, due mainly to faster improvement in MWSS's management than anticipated. Loan 1821-PH Third Urban Development Project; $72 Million Loan of June 2, 1980; Date of Effectiveness: September 25, 1980; Closing Date: December 31, 1984. With satisfactory organizational and staffing arrangements now established, physical implementation of this project is generally on schedule in spite of procedural delays in budgetary releases. Second phase programs in community upgrading, serviced sites, basic municipal infrastructure and employment promotion are already being identified for inclusion. Power Sector Loan No. 1034 Sixth Power; $61.0 Million Loan of July 31, 1974: Date of Effectiveness: November 15, 1974; Closing Date: March 31, 1982 The generating plant was commissioned in April 1977, and the transmission facilities are now expected to be completed by mid-1981, more than three years behind schedule. The revised cost of the project is estimated at $124.2 million, an increase of about 35% over the original estimate ($92 million). The closing date of the loan has been postponed from June 30, 1981 to March 31, 1982 to allow additional time for payment of retention monies to contractors. Loan No. 1460 Seventh Power Project; $58.0 Million Loan of August 9, 1977; Date of Effectiveness: January 6, 1978; L Closing Date: June 30, 1982 Project implementation is behind schedule, and is expected to be completed one year later than estimated. The foreign exchange component is now estimated at $57.1 million (including additional works) compared with the original estimate of $58.0 million; surplus funds will be used to expand substations to increase the reliability of the system. Due to delays in procurement and because of additional works authorized by the Bank, the closing date of the loan will need to be extended to mid-1983. NPC has still been unable to meet the 8% rate of return target provided in the Loan Agreement and the Government has yet to provide specific assurances that appropriate action will be taken to remedy this. This problem is being followed up by the Bank.  - 44 - ANNEX II Page 15 of 17 Loan No. 1547 Rural Electrification; $60.0 Million Loan of May 10, 1978; Date of Effectiveness: August 17, 1978; Closing Date: December 31, 1981 After earlier improvements in implementation, the project is now behind schedule. About 300,000 house connections were made in 1980, compared with NEA's target of 487,000. NEA's financial performance in 1979 was good, but adjustments to the audited accounts for 1978 resulted in a net loss of P10.3 million ($1.4 million). The Bank has now made a number of recommenda- tions to improve the audit reports prepared by the Commission on Audit. NEA is making efforts to monitor the financial performance of the cooperatives and for the first time has published the financial results of the cooperatives as a supplement to its 1979 report. Industrial Sector Loan No. 998 Industrial Investment and Smallholder Tree-Farming; $50.0 Million Loan of June 12, 1974; Date of Effectiveness: September 9, 1974; Closing Date: December 31, 1981 The industrial portion of the Loan ($48 million) has been almost fully drawn down by DBP to finance medium and relatively large industrial projects. DBP is using the balance ($2 million) to finance about 1,300 smallholders in a pilot tree-farming project in Mindanao; this part of the loan is also substantially disbursed. Loan No. 1052 Private Development Corporation of the Philippines; $30 Million Loan of November 12, 1974; Date of Effectiveness: February 7, 1975; Closing Date: June 30, 1981 After some slowdown in commitments and disbursements experienced in 1976 and 1977 the loan has now been fully committed. Overall progress is satisfactory. Loan No. 1190 Industrial Investment; $75.0 Million Loan of January 28, 1976; Date of Effectiveness: April 6, 1976; Closing Date: September 30, 1981 Commitments of funds, which were initially much slower than expected due to a slowdown of investment in the industrial sector as a whole, improved in 1978 and 1979. The loan has since been fully committed by DBP for subprojects. Disbursements are now proceeding satisfactorily. Loan No. 1514 Private Development Corporation of the Philippines (PDCP); $30 Million Loan of February 9, 1978; Date of Effectiveness: June 23, 1978; Closing Date: September 30, 1982 As of January 31, 1981 commitments under the loan amounted to $25.6 million. The project progress is satisfactory.  - 45 - ANNEX II Page 16 of 17 Loan No. 1555 Philippines Investments Systems Organization (PISO); $15 Million Loan of May 8, 1978; Date of Effectiveness: May 12, 1978; Closing Date: December 31, 1982 The loan is now fully committed and disbursements are proceeding at a satisfactory rate. Loan No. 1572 Third Industrial Investment Credit Project through the Development Bank of the Philippines: $80 Million Loan of June 6, 1978; Date of Effectiveness: September 15, 1978; Closing Date: June 30, 1982 DBP's SMI program is operating satisfactorily and the loan allocation for this component has been fully committed. However, cancellation/withdrawal of some subloans earlier committed under the loan has left an uncommitted balance of $6.5 million under the loan allocation ($50 million) for medium/large industry financing. The overall progress of loan commitment and disbursement is satisfactory. Loan No. 1727 Second Small and Medium Industries Development Project; $25 Million Loan of June 27, 1979; Date of Effectiveness: November 9, 1979; Closing Date: June 30, 1983 After the introduction of policy changes in IGLF in late 1979, IGLF's loan commitment rate has accelerated. As a result, disbursements under the IGLF component ($24.5 million) amounted to $10.4 million as of January 31, 1981 and are expected to be completed before the loan closing date. The reorganization within the Ministry of Industry has considerably slowed down disbursements under the MASICAP component ($500,000). Overall progress of the project is satisfactory. Loan No. 1984 Industrial Finance Project; $150 million Loan of May 28, 1981; Proposed Date of Effectiveness: July 28, 1981; Closing Date: June 30, 1985. This loan was signed on May 28, 1981, and is not yet effective. * Structural Adjustment Lending Loan No. 1903 Structural Adjustment Loan; $200.0 million Loan of September 25, 1980; Date of Effectiveness: November 14, 1980; Closing Date: June 30, 1985 Considerable progress has been made in implementing the Government's industrial development program in support of which the loan was made. The first stage of the Government's five year program of tariff reform and trade liberalization became effective on January 1, 1981; studies are under way to review and improve the Government's industrial incentives and promotion system; end subsector development programs are under preparation to assist  - 46 - ANNEX II Page 17 of 17 domestic industries to adjust to the tariff reform and trade liberalization measures. The first tranche of $100 million has now been fully drawn down by the Government has entered into commitments to utilize nearly half of the $5 million technical assistance component to help formulate and implement various industrial policy measures. The availability of the second tranche of $95 million has been temporarily delayed to allow the Government additional time to finalize and adopt the final phase of the tariff reform and trade liberalization program. Population Sector Loan No. 1035 Population; $25.0 Million Loan of July 31, 1974; Date of Effectiveness: November 13, 1974; Closing Date: June 30, 1981 As of November 1980, 198 of the 219 training centers and rural health units and about 93% of all construction work had been completed. Procurement of furniture and vehicles has been completed, with some items of equipment still remaining. Problems associated with the phasing out of the old Project Management Staff with the resultant loss of continuity and coordination, and with continuing delays in budget release and austerity measures have severely restricted project activities, and the closing date of June 30, 1981 will not be met. Before agreeing to an extension to the closing date, the Bank is requiring, among other conditions, that the required budget funds be released to the Ministry of Health and that a suitably qualified person be hired as a consultant to coordinate project activities. If these conditions are met, it is expected that the project will close by December 1982, three years behind schedule. Credit No. 923 Second Population Project; $40.0 Million Credit of June 27, 1979; Date of Effectiveness: October 15, 1979; Closing Date: June 30, 1985 All sites for POPCOM's offices, warehouses and vehicle maintenance workshops and 126 of the 158 sites for the Ministry of Health's health centers and barangay health stations required for the 1981 construction program have been acquired and surveyed, and the remaining 32 sites are being obtained. Operation research and communication production works are on schedule and procurement documents are being processed for vehicles and equipment. The National Primary Health Care policy paper, implementation guidelines and primers for health workers have been finalized, and orientation and training workshops for intersectoral development and health staff have been conducted in six regions. With the exception of the primary health care component, overall progress has been slow, and as of December 1980 disbursements had barely started. The Bank has provided the Government with a list of recommended actions designed to improve the project management capacity of POPCOM and MOH; however, initial delays in budget release and recent changes in project management may cause slippage in the project completion date.  - 47 - ANNEX III Page 1 of 2 pages PHILIPPINES AGRICULTURAL SUPPORT SERVICES PROJECT Supplementary Data Sheet Section I: Timetable of Key Events (a) Time taken to prepare project: 2 years (b) Agency which prepared the project: Ministry of Agriculture, assisted by FAO/CP (c) First presentation to the Bank: September, 1979 (d) First mission to consider the project: September, 1979 (e) Departure of appraisal missions: April and September 1980 (f) Completion of negotiations: May 22, 1981 (g) Planned date of effectiveness: October 31, 1981 Section II: Special Bank Implementation Actions None. Section III: Special Conditions MOA would: (a) by January 31, 1982, establish 12 RIARS, one in each of the 12 regions, appoint a manager for each of the RIARS, and appoint 12 Regional Research Committees and Coordinators responsible for regionally managed research (para. 59); (b) by January 31, 1982, finalize a staffing plan summarizing the duties of all personnel and their deployment in the various MOA agencies (para. 65); (c) by July 31, 1982, establish agribusiness councils, one in each of the 12 regions (para. 70); and (d) submit its research programs, funded by the project, together with UPLB's small farm systems program, to the Bank annually, by October 31, for comment prior to their approval by the Research Coordinating Committee and the Small Farm Systems Research Committee, respectively (para. 66).  - 48 - ANNEX III page 2 of 2 pages UPLB would: by July 31, 1982 contract with Central Luzon State University, the Visayan State College of Agriculture and the University of Southern Mindanao to conduct cooperative small farm systems research (para. 66). FNRI would: t forward, by January 31, 1982, its survey proposal to the Bank for comment prior to submitting it to the National Science Development Board for approval (para. 69). The following key actions to implement the project are conditions of effectiveness: MOA would: (a) appoint a Project Management Committee (para. 63); (b) establish a training unit within the Project Management Office to be responsible for training under the project (para. 64). (c) link its Agricultural Project Planning Unit with the Project Development and Evaluation Division of its Planning Service and appoint a Chief for the linked units (para. 69); (d) designate the Planning and Programming Division of the Planning Service to be responsible for the food and nutrition studies and agribusiness promotion activities of the project (para. 70).  IBRD 13915RI 116