Mexico - San Fernando Rainfed Agricultural Development Project

Document of The World Banken F 'etV j.t t FOR OFFICIAL USE ONLY Report No. P-3354--ME REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO NACIONAL FINANCIERA, S.A. WITH THE GUARANTEE OF UNITED MEXICAN STATES FOR THE SAN FERNANDO RAINFED AGRICULTURAL DEVELOPMENT PROJL June 2, 1982 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 The Central Bank withdrew from the exchange market on February 18, 1982. Prior to that date, the rate of exchange was 26.9 peso to the US dollar. In recent weeks the peso has been traded around 47 to the dollar. FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES 1 hectare = 10,000 m2 2.47 acres 1 kilometer = 0.62 miles 1 square kilometer (kmn2) = 0.39 sq. miles = 100 ha 1 kilogram = 2.2 pounds 1 liter (1) = 0.26 gallons I metric ton (mt) = 1,000 kg = 0.98 long ton ABBREVIATIONS ANAGSA - National Crop and Livestock Insurance Agency Inc. (Aseguradora Nacional Agricola y Ganadera, S.A.) ANDSA - Conasupo's National Storage Facilities (Agencia Nacional de Servicios de Almacenamiento) BANRURAL or BNCR - National Rural Credit Bank (Banco Nacional de Credito Rural) CONASUPO - National Marketing Corporation for Basic Foods (Compania Nacional de Subsistencias Populares) DGCSA - General Directorate for Soil and Water Conservation I (Direccion General de Conservacion del Suelo y Agua) DGDUT - General Directorate of Rainfed Districts and Units (Direccion General de Distritos y Unidades de Temporal) DT - Rainfed District (Distrito de Temporal) FICART or FICAR - Trust Fund for Credit in Rainfed Areas (Fideicomiso para Credito en Areas de Riego)  FOR OFFICIAL USE ONLY ABBREVIATIONS (Continued) FIRA - Agricultural Trust Funds of the Bank of Mexico (Fondo de Garantia y Fomento para la Agricultura, Ganaderia y Avicultura del Banco de Mexico) ICB - International Competitive Bidding LCB - Local Competitive Bidding NAFINSA - National Development Bank (Nacional Financiera, S.A.) PIDER - Integrated Rural Development Program (Programa Integral de Desarrollo Rural) PLANAT - National Plan for Rainfed Agricultural Development (Plan Nacional de Apoyo a la Agricultura de Temporal) SAHOP - Secretariat for Human Settlement and Public Works (Secretaria de Asentamientos Humanos y Obras Publicas) SAM - Mexican Food System (Sistema Alimentario Mexicano) SARH - Secretariat of Agriculture and Water Resources (Secretaria de Agricultura y Recursos Hidraulicos) SOE - Statements of Expenditures SPP' - Secretariat of Programming and Budgeting (Secretaria de Programacion y Presupuesto) SRA - Secretariat of Agrarian Reform (Secretaria de Reforma Agraria) 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.  /f 1 a ,  MEXICO THE SAN FERNANDO RAINFED AGRICULTURAL DEVELOPMENT PROJECT LOAN AND PROJECT SUMMARY Borrower: Nacional Financiera, S.A. Guarantor: United Mexican States Amount: US$138.4 million equivalent (including US$2.1 million capitalized front-end fee). Terms: Fifteen years, including 3 years of grace, at an interest rate of 11.6 percent per annum. Project Description: The project will increase productivity and crop production (mainly sorghum) on about 240,000 ha already cultivated and expand production of grain sorghum on an additional 164,500 ha presently uncultivated. Implementation would be carried out over a six-year period and would benefit some 17,100 families, including the 8,200 families to be settled under the land reform program. In addition, the project includes a study for future development of grain movement and storage and a feasibility study for a second stage rainfed development project in an area south of San Fernando. The project is not expected to have any harmful effects on the environment. Although opening up new lands and creating open areas may have some effect on the biological life in Tamaulipas, over 22,500 ha in the proposed project area are to be retained as a wildlife reserve. The main risks associated with the project would be (a) institutional, (b) climatic and (c) financial. Regarding institutional aspects, the task would be to ensure coordi- nation between the different programs to be implemented under SAH, SRA and SAHOP. The most serious climatic risk would be drought, but the area seems to be relatively safe and water conservation through the technical assistance program will help to reduce this risk. Finally, although there is a risk that short-term governmental budgetary constraints may delay local counterpart funding, the Govern- ment has assured the Bank that high priority will be given to funding of this project.  - ii - Estimated Cost: Local Foreign Total -------US$ millions------ I. Civil works (land levelling, land clearance and drainage) 90.6 70.8 161.4 II. Civil works (buildings) 3.6 1.0 4.6 III. Equipment 1.6 12.2 13.8 IV. Training 5.1 0.1 5.2 V. Studies 3.6 0.2 3.8 VI. Right-of-way 3.5 - 3.5 VII. Operation, maintenance and salaries 36.1 7.6 43.7 VIII. Total Baseline Cost 144.1 91.9 236.0 IX. Contingencies Physical contingencies 21.1 13.9 35.0 Price contingencies 47.1 30.5 77.6 X. Front End Fee - 2.1 2.1 TOTAL 212.3 138.4 350.7 Financial Plan: Local Foreign Total -------US$ millions------ Government/beneficiaries 212.3 - 212.3 Bank - 138.4 138.4 TOTAL 212.3 138.4 350.7 Estimated Disbursements: Bank FY 1983 1984 1985 1986 1987 1988 -------------US$ millions-------------- Annual 7 8 12 25 30 56 Cumulative 7 15 27 52 82 138 Rate of Return: 18 percent Staff Appraisal Report: Report No. 3764-ME, June 2, 1982  NTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO NACIONAL FINANCIERA, S.A. WITH THE GUARANTEE OF UNITED MEXICAN STATES FOR THE SAN FERNANDO RAINFED AGRICULTURAL DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed loan to Nacional Financiera, S.A. with the Guarantee of United Mexican States for the equivalent of US$138.4 million to help finance the San Fernando Rainfed Agricultural Development Project. The loan, which includes a capitalized front-end fee of 1.5 percent on the Bank loan, would be repaid over 15 years, including 3 years of grace, with interest at 11.6 percent per annum. PART I: THE ECONOMY 1/ 2. The Mexican economic situation and major issues of economic policy were analyzed in "Mexico: Development Strategy - Prospects and Problems" (3605-ME), distributed to the Executive Directors on August 31, 1981. Country data sheets are attached as Annex I. Background 3. For the last thirty years, the Mexican economy recorded a high rate of growth: on average, GDP grew at 6 percent per year, in real terms, between 1950 and 1980, allowing output per capita to increase by 3 percent per year over the same period. Sustained growth brought about rapid industrialization: especially after 1955, industry has been the most dynamic sector of the economy, growing at an average rate of 7.5 percent per year, while agricultural oul:put grew at 3.5 percent per year; thus, the share of the industrial sector in GDP went up from 26 percent in 1950 to 38 percent in 1980. A similar change took place in the structure of foreign trade, with manufactured products account- ing for an increasing share of total exports between 1950 and 1975. Finally, the last thirty years witnessed the passage from a rural to a largely urban society: in 1980, the fraction of total population living in urban areas was estimated to exceed 60 percent, while it was less than 30 percent in 1950. 4. Successful exploitation of profitable opportunities by a dynamic private sector has been the main engine of growth in the Mexican economy; but the market mechanism, left to itself, would have done little to correct the effects of an uneven distribution of resources on the relative position of the poorer segments of the population and of the less favored areas of the 1/ This section is substantially unchanged from the President's Report for the Pollution Control Project (P-3302-ME) of May 4, 1982. However, some minor changes have been introduced in paras. 10-17.  - 2 - country; hence the government has had to play a critical role in balancing the need to provide resources and incentives for growth against the demands for a fair distribution of its benefits. 5. In the early seventies, the government sought to build up infrastructure, expand basic industries, stimulate agricultural output and implement massive social programs; the difficulties it encountered in mobilizing enough resources to attain all these aims simultaneously led to excessive public sector deficits, while domestic supply rigidities caused a large part of aggregate demand to spill over into imports. Efforts to redress financial imbalances by strengthening public revenues fell short of their goal, and, in September, 1976, the hitherto fixed parity of the peso was abandoned, while the Government imposed a strict stabilization program on the economy. Economic Performance, 1976-1981 6. The Administration of President Lopez Portillo, which took office in December 1976, saw the control of inflation and the improvement of the current account balance as its most urgent tasks; it succeeded in reducing the rate of increase of domestic prices by half between 1977 and 1978 while, at the same time, the current account deficit decreased by over 40 percent. In 1978, the economy resumed its path of rapid growth. One of the major constraints on economic growth - the availability of foreign exchange - had been greatly relaxed by the successful exploitation of Mexico's oil reserves; these, which at the end of 1981 stood at 72 billion barrels (with potential reserves estimated at 200 billion barrels), enabled the economy to purchase the raw materials and capital goods needed to sustain high GDP growth, while the revenues from federal taxes on oil exports provided the Government with resources, on a hitherto unprecedented scale, to pursue some of its long-standing policy goals. 7. In 1978-1981, output grew at an annual rate exceeding 7 percent, above what would be needed to absorb the new entrants into the labour force; open unemployment is estimated to have fallen to 4-5 percent of the labour force in the modern sector. The Administration succeeded in achieving investment growth of over 16 percent per year, strengthening its support to agriculture, reversing the trend towards a worsening trade balance on basic foods, containing to some extent rural migration and providing small farmers with access to more efficient production methods. Finally, a combination of fiscal incentives and administrative regulations had a positive effect on spatial decentralization, one of the major policy objectives of the Administration. 8. A marked increase in the size of the budget was the first result of the Government's new commitments: the expenditure budget grew, in real terms, 20 percent per year between 1979 and 1981; furthermore, actual expenditures exceeded budget figures by significant amounts (by as much as 12 percent in 1981). Revenues have grown more slowly, and, as a result, the public sector deficit amounted to over 14 percent of GDP in 1981. Despite a high rate of mobilization of private savings into the financial system - made possible by  - 3 - a scheme of adjustable rates on peso deposits - the Government had to resort increasingly to foreign borrowing: although foreign indebtedness, as a percentage of GDP, had fallen from 31 percent in 1977 to 20 percent in 1980, it reached 30 percent in 1981; in the same year, the Government's planned foreign borrowing amounted to more than half the revenues expected from oil exports. By 1980, moreover, the side-effects of rapid GDP growth were making themselves felt; aggregate demand - with total investment growing at over 16 percent per year, in real terms, since 1979 - was exerting pressure on prices, an,d domestic inflation reached 26 percent, while the nominal exchange rate had remained practically stable since 1977; as a result, non-oil exports were decreasing in real terms, while imports - encouraged to some extent by a more liberal trade policy - had grown by 30 percent per year since 1979. At the end of 1980, the current account deficit amounted to 4 percent of GDP, as it had in 1976. Recent Developments 9. In 1981, the need to bring domestic inflation under control and to help restore the competitiveness of non-oil exports became obvious. The Administration opted for a policy of gradual adjustment, counting on slower demand growth in 1982 - brought about partly by a deceleration of public expenditures - to moderate inflation, and allowing a faster rate of float of thLe peso to reduce the gap between domestic and foreign prices over a two-year period. With a favourable outlook for oil exports, no major problems were expected on the external sector, and a path of gradual adjustment to a rate of growth of 6-7 percent appeared sustainable in the long run and was considered to be less costly in terms of inflation and unemployment than more drastic stabilization measures. Thus, the Administration decreed a 4 percent cut in its expenditures, reintroduced import licenses on 80 percent of imports, tightened public procurement procedures and allowed the float to proceed at a faster pace. 10. This program suffered a setback when, in the second half of 1981, it became apparent that oil sales would not reach their target: actual oLl revenues, at US$14 billion, turned out to be 25 percent below what had besen forecast. The public sector had to increase its foreign borrowing by $4 billion, and the current account deficit reached an estimated $11.3 billion, or 8 percent of GDP, at the end of the year. The exchange markets reacted by increasing the downward pressure on the peso, and, in early 1982, two events combined to make a guided float increasingly costly to maintain: on the one hand, it seemed likely that oil sales for the year would again fall short of expectations; on the other, the 5 percent increase in domestic prices in January - due in part to the rise in domestic fuel prices decreed in December 1981, and in part to a 34 percent raise in the minimum wage for 1982 - suggested that inflation, which had reached 28.7 percent in 1981, might well accelerate further in 1982. Once more, the exchange markets reacted unfavourably, and, in order to stop the steady drain on reserves required for maintaining the float, the authorities withdrew their support of the peso on February 18. The peso is presently trading around Mex$47 to the dollar, amounting to an adjustment of 70 percent (40 percent in dollar terms).  -4- 11. Simultaneously, the Administration announced a stabilization program, which was published on April 19, and whose main points are a 3-point reduction in the public deficit/GDP ratio, an overall reduction of 8 percent in public expenditures, lower targets for public and private imports, ceilings to monetary growth and federal borrowing, the imposition of a monthly monitoring process for the expenditures of all public agencies and the setting of ex- penditures targets for the main public enterprises. Investment projects, in particular, will receive close scrut:.ny before they are authorized to proceed. Finally, the Administration has committed itself to the liberalization of certain essential imports (basic foodstuffs, raw materials and capital goods). Prospects 12. The rate of inflation for 1982 has been forecast at 50 to 60 percent, partly as a result of the devaluation and partly because of the wage increases (between 10 and 30 percent for the public sector, 30 percent for a large part of the private sector) granted shortly thereafter. This suggests that the credit ceilings set by the stabilization program will turn out to have substan- tial effects on real expenditures. As a result, GDP growth is likely to be only about 3 percent, in real terms, in 1982. 13. The Mexican administration has sought to minimize the disruption caused by the stabilization measures, so as not to jeopardize the remarkable growth of the past years. In doing so, it has opted for a policy which will trade off inflation and external imbalances in the very short run for a lesser effect on real growth. The high inflation expected in 1982 will likely offset part of the effects of the devaluation on the competitiveness of non-oil exports. On the other hand, the external sector can improve, in the short run, only to the extent that imports show a substantial deceleration, since, even though the adoption of a more realistic parity has removed a major obstacle to non-oil exports, the stimulus to foreign sales is unlikely to have a significant effect on aggregate exports in the next few months. Finally, the Administration has little margin to reduce its expenditures during this fiscal year; the only item in which substantial cuts can be effected in the short run is public investment: general expenses (38 percent of the expenditure budget), debt service (21 percent) or transfers and sub- sidies are virtually fixed for the duration of the budget. On the other hand, if the Administration adheres to a strict budgetary policy, thereby contributing to moderate the rate of domestic inflation, significant improve- ments are likely to appear by the end of 1983. Non-oil exports, led by tourism and certain consumer goods, will probably grow substantially; a reduced public sector borrowing requirement will reduce the pressure on the peso; and by 1984 Mexico could reach a sustainable 6 percent rate of GDP growth, while maintaining the current account deficit within manageable limits. Lastly, the Administration has an opportunity to overhaul the entire system of transfers and subsidies, improving their cost-effectiveness.  - 5 - 14. The country still faces structural problems in the years to come, related mainly to poverty and unequal interpersonal and inter-regional distribution of income. Efforts were made in the past to improve the living conditions of the poorer segments of the population. A family planning program started in 1972 assisted in bringing the growth rate of the population to an estimated annual average of 2.6 percent, down from 3.5 percent in the 1970s. To tackle the problems of malnutrition and increasing dependence on foreign food, the present Administration launched the SAM (Mexican Food System) Program, aimed at increasing self-sufficiency in basic foods, providing for minimum nutritional needs of the poor and increasing rural employment. The Administration also placed greater emphasis on the promotion of small scale irrigation, rehabilitation of underutilized existing irrigation works and provision of credit and technical assistance for the development of rainfed agriculture. 15. The main urban-regional problems are: growing congestion, pollu- tion, high cost of services (especially water) and other management problems that stem from the continued growth of Mexico City (already the third most populous metropolitan area in the world and moving rapidly to become the first) and Monterrey and Guadalajara, located in the dry, densely populated central plateau; and retarded development, poverty and great difficulty in providing better jobs or adequate public services to the one-third of all Mexicans who live in small, scattered centers in rural areas. The present government took many positive steps to confront these problems, including an administrative reorganization and the elaboration of a comprehensive National Urban Plan in 1978 and of a National Industrial Development Plan in 1979, which reflected the preoccupation of the present Administration with the long-term prospects of the industrial sector and their implications for the correction of the employment and regional imbalances problems. 16. The high rate of growth experienced by the Mexican economy in recent years has provided the strongest weapon to tackle the long-term problems mentioned above. At the present time, Mexico is in the midst of an adjustment process which will mean lower real growth and employment generation in the next few years. Lower growth, however, will afford an opportunity to reappraise many of the past years' goals and policy instruments, and there is evidence that the Administration, after having adopted unpopular decisions in a politically difficult year, intends to carry out such a reappraisal. 17. Mexico's public and publicly guaranteed debt service ratio has been increasing over the recent past and peaked at 69 percent in 1979. This high ratio reflects the still relatively low level of exports to GNP and the high proportion of Mexican borrowing from commercial banks. The public debt service ratio declined to around 30 percent in 1980, as a result of a rapid increase in petroleum exports, and because some of the debt contracted on the least favorable terms had been prepaid; but it is estimated to have risen s-Lgnificantly in 1981. Debt service on Bank loans amounted to about 3.2 per- cent of public debt service in 1980; this ratio is projected to remain about the same during the mid-1980s. The Bank currently holds about 5.9 percent of Mexico's total medium and long-term public debt, and this ratio is not likely to change significantly over the next few years. Mexico is creditworthy for borrowing on conventional terms.  - 6 - PART II - BANK GROUP OPERATIONS IN MEXICO 1/ Bank Operations 18. As of March 31, 1982, Mexico had received 72 loans from the Bank amounting to US$5,218.1 million net of cancellations and terminations; of these, 44 loans totalling US$2,438.6 million were fully disbursed. The Bank held US$4,405.3 million, of which US$1,942.9 million had not yet been disbursed. 2/ Some 46 percent of Bank lending has been for agriculture and rural development, 14 percent for industry, 13 percent for power, and 15 percent for transporta- tion; the remaining 12 percent has been for water supply, tourism, urban development and vocational training projects. Annex II contains a summary statement of Bank loans as of March 31, 1982 and notes on the execution of ongoing projects. 19. Of the $5.2 billion total lending, about $2.5 billion was for establishing or strengthening institutions for channeling credit to areas where credit supply was deficient or non-existent, and setting up in the commercial banking system the ability to carry out project-related appraisal of investments in agriculture, industry, and tourism. These credit programs have facilitated lending to low-income farmers and small- and medium-scale industrial enterprises based on productive investment plans rather than collateralized credit. 20. Implementation of most Bank-financed projects was delayed during the period of economic difficulties in the mid-1970s and during the period of stabilization that followed the September 1976 devaluation of the peso. Since then, the Government has arranged adequate budget financing and has significantly improved project implementation. Four projects which had important structural constraints were modified and rephased to account for the changed circumstances. Government and Bank officials have met periodically to review project implementation, and greater attention has been focused in Mexico on project monitoring. As a result of these measures, most of the Bank-assisted projects are being implemented satisfactorily and disbursements have risen from US$91 million in FY78 to US$413 million in FY81. IFC Operations 21. As of March 31, 1982, IFC had made investment commitments in 23 companies in Mexico, for a total of US$551.2 million, of which US$404.1 million had been sold, repaid or cancelled. A summary statement of IFC investments is presented in Annex II. 1/ This section is substantially unchanged from the President's Report for the Pollution Control Project (P-3302-ME of May 4, 1982). 2/ These totals do not include a $180 million loan for agricultural develop- ment approved in March 1982 but not yet signed. They also do not include a US$152.3 million loan for capital goods and $60 million loan for pollution control approved after March 31.  -7- Bank Strategy 22. The main objectives of Bank lending in Mexico have been to: (a) support policies and programs leading to a wider distribution of the benefits of economic growth; (b) help finance projects that make, directly or indirectly, significant contributions to output and employment; (c) help reduce Mexico's urban-regional imbalances; and (d) help break bottlenecks preventing rapid growth. 23. Because of the difficult structural problems of agriculture and the sector's crucial importance for the one-third of the population living in the rural areas, the Bank has made agriculture the leading sector for its lending. The Bank's agricultural lending program in Mexico has four goals: first, to increase productivity of presently cultivated lands; second, to improve the productivity of small farmers; third, to complement infrastructure investments with support services such as extension, marketing, and credit; and fourth, to promote employment generating investments in rural areas. The Bank has made eleven loans in FYs76-81 totalling US$1,466 million for irrigation, rural development and agricultural, agro-industrial and livestock credit programs. A US$175 million loan for a rural development project and a US$180 million loan for an irrigation rehabilitation project have been approved by the Executive Directors in FY82. An agricultural marketing project and a fisheries development project have been appraised. Several projects for rain- fed agriculture, regional or river valley development and rural credit are in preparation. 24. Bank lending for industry has aimed at: (a) reduction of the balance of payments deficit; (b) decentralizing industrial activities away from the major and increasingly congested urban areas; and (c) promoting greater employment. A steel project which the Bank helped structure and finance is now operating in a previously underdeveloped area on the west coast of Mexico, and the city in which it is located, Lazaro Cardenas, is developing into a new growth pole. Four loans for industrial projects to promote the de!velopment of small- and medium-scale industrial enterprises, to finance expansion of small- and medium-scale mining, and to support an industrial equipment fund (FONEI) were approved by the Executive Directors in FYs78-80. They offer support to the private sector at a time of rapid expansion and are directed at all three goals mentioned above. A loan for a vocational training project was approved by the Executive Directors in July 1981; it is assisting a program to increase the supply of skilled workers and technicians. A US$152.3 million loan for development of a capital goods industries and a US$60 million loan for Pollution Control were recently approved by the Executive Directors. 25. Bank lending for physical infrastructure has focused on regional development and strengthening of institutions and sector policies. A highway sector project (FY79) and the fourth railway project (FY81) support these goals. The first and second medium size cities water supply and sewerage projects (FY76 and FY81) reinforce the planning, management and finance of specialized water supply and sewerage institutions at the federal and municipal levels and contribute to the establishment of tariffs more closely related to costs; a third project has been appraised and is expected to be presented to the Executive Directors in the coming months.  -8- 26. The Government has adopted a National Urban Development Plan that spells out its regional development priorities in operational terms. A project to assist in the development of the Lazaro Cardenas conurbation area was approved by the Executive Directors in FY78, and a second project for oil-producing southeastern Mexico was approved by the Executive Directors in FY81. An engineering loan for preparation of a Metropolitan Deconcentration Program will be submitted to the Executive Directors in the coming months. 27. The Economic Development Tnstitute (EDI) is assisting CECADE (a similar institute under the Ministry of Programming and Budget) in training Government staff in project preparation, monitoring and evaluation. EDI assistance is directed at urban and regional development, agriculture, rural development and agro-industries courses. The Bank has also assisted the Mexican authorities in training personnel for managing water supply and industrial credit projects. 28. The Inter-American Development Bank (IDB) is the second largest source of multilateral aid to Mexico. The IDB has made loans to Mexico totalling US$2,697.1 million as of March 31, 1982. Over 60 percent of the total has gone for agricultural and rural development projects, and the balance for transportation, industry, water supply, and tourism infrastructure. The IDB and the Bank have coordinated their assistance on several projects. Each has made loans for the National Integrated Rural Development Program (PIDER), agricultural and livestock credit, small- and medium-scale industries develop- ment, and hotel development projects. The International Fund for Agricultural Development (IFAD) has approved a loan of US$22 million for a rural development project in the State of Oaxaca which was appraised by the Bank's staff and for which the Bank is acting as cooperating institution for administering the loan. 29. Bank-supported power, steel, fertilizer and tourism projects in Mexico have been co-firnanced by several bilateral export credit agencies and commercial banks. The capital goods credit project, recently approved by the Executive Directors will be co-financed with commercial banks and export credit agencies. In January 1982, Mexico borrowed US$500 million to provide comple- mentary financing for Bank-assisted projects where project specific co-financing would be difficult. PART III - THE AGRICULTURAL SECTOR Background 30. Mexico has a land area of about 197 million ha of which about 30 million are considered cultivable, 78 million are classified as range land and 44 million are suitable for forestry. The remaining 45 million ha are either too dry, too poorly drained and saline, or too steep for any form of agricultural development. Of the estimated 30 million ha of potentially arable land, the cropped and irrigated areas have respectively fluctuated around 15 million ha and 4.7 million ha since the late 1960s. Since 1965, the cropped area has increased slightly and agricultural production has risen at an average annual rate of about 2.3 percent. Livestock production, however,  - 9 - has expanded during the same period at an annual rate of approximately 4 per- cent. Because other sectors of the Mexican economy have developed at a faster rate, agriculture's share of the GDP declined from 14 percent in 1965 to around 7.4 percent in 1980. Agriculture remains an important source of employment, accounting for about 40% of the total labor force. Although a significant proportion of the labor force is linked to agriculture, compared to other sectors, family income in the sector is relatively low. About two-thirds of the agricultural labor force have earnings below the minimum wage. Consequently, improving agricultural productivity and production, especially of the small holders, is at the core of the Mexican strategy for alleviation of poverty. 31. For three decades, 1940-1970, agricultural as well as livestock production increased at average annual rates of about 5 percent; within this peiriod while livestock production grew steadily, there was somewhat of a deceleration in agriculture, the growth rate declining from 7.6 percent for the decade of 1940s to 3.6 percent for the period 1960-70. In the 1940s and 19.50s, Mexican agricultural growth was accompanied by increases in area under cultivation: in the decade of the 1940s the non-irrigated lands under agricul- ture increased by 36 percent, in the 1950s area under irrigation increased by 40 percent. Output growth in the 1960s and subsequently has been almost entirely because of yield increases. In the 1970s non-irrigated acreage under cultivation remained virtually constant and, with double cropping, the irri- gated area harvested increased substantially. Crop composition also changed in the 1970s, as output of fruits, vegetables and coffee expanded rapidly and grain production almost stagnated. In the 1980s, once again the Government has moved to increase the area under cultivation, primarily by promoting crops in pasture land, and improving the carrying capacity of the poorer range lands. The proposed project is an exercise in this direction. 32. Demand for agricultural products has remained strong throughout the past decade. With a population of 67 million growing at about 3 percent per annum, and with an average per capita GDP growth of 2 percent to 3.5 per- cent per year, annual consumption increase ranged from about 3 percent for maize 1/ to 6 percent for wheat, 7 percent to 10 percent for meat products, especially pork and poultry, and 8 percent to 12 percent for fruits and vegetables. The demand for grains and high value foods is expected to continue to expand in the eighties. 33. The demand outlook has contrasted sharply with recent output trends for agricultural produce, which (including livestock) slowed down to less than 3 percent in the 1970/80 period. Rice, maize and wheat production grew only 1.9 percent, 2.0 percent and 2.4 percent per annum respectively, i.e., well below increases in domestic consumption, while sugar and cotton production actually declined. The agricultural trade balance reflected these trends: while still favourable overall, exports in the 1970s rose by only 8 percent while imports doubled, reducing the favorable net agricultural trade balance by 50 percent. Mexico changed from a small net exporter of wheat in the 1960s to an importer of about 45 percent of its domestic requirements, 1/ Income elasticity of demand for maize in Mexico is negative; however, aggregate demand has been increasing because of growing feedgrain consumption and population increase.  - 10 - while maize imports rose from 7 percent to 20 percent of domestic requirements. Concerned with the trend, the Government has taken several measures summarized in paras. 39-42. Government Strategy for Development of Agriculture 34. The Government has adopted a strategy aimed at making fuller use of water and land resources, obtaining higher productivity in new and existing lands and expanding the cropped area, both irrigated and rainfed, complemented with rehabilitation of those irrigation districts where infrastructure is inadequate, and construction of drainage infrastructure where land is in poor condition. These programs have received important support from Government agencies, the Mexican banking community, and participating farmers. Increasing attention is being given to rainfed agriculture through the 124 recently established rainfed districts where the Government has assigned high priority to integration of technical assistance and extension services with marketing and credit facilities. The Government is also taking action to meet the needs of the indigenous population and of the people in marginal areas, expanding significantly the program of the Commission for Marginal Areas (COPLAMAR) to extend infrastructure support and delivery of public services (such as health, water, schools, and food distribution) to these groups. 35. Additionally, the strategy for development in the agricultural sector calls for remunerative farmgate prices, along with investment in training, applied research, rural infrastructure, irrigation, land clearing, access roads, as well as marketing and storage facilities. To reduce income disparities in the rural areas, the Bank has supported an integrated approach along these lines by participating in the Integrated Rural Development Program (PIDER) and the National Plan for Small Scale Agricultural Infrastructure Development (PNDR). Furthermore, to provide impetus to agricultural development, the Government has substantially increased credit resources for production and investment purposes. Also, it has taken measures to strengthen the credit and technical assistance delivery systems as well as to promote participation of private banks. 36. A Bank mission to study the agriculture sector visited Mexico in November 1981 and is presently preparing its report. The main purpose of the mission was to examine the sector's performance in terms of production, productivity and resource use, concentrating on pricing policies for farm inputs and products, supply and distribution mechanism, effectiveness of the agricultural subsidy system and efficiency of the grain marketing practices. The mission's preliminary findings suggest that while the Government's subsidy and pricing policies have had positive impact on production of basic grains, the subsidy system should be reviewed for streamlining, possibly reduced, and made more target specific. In previous discussions, the Government has already indicated interest to review the above policies. The mission has also reported some marketing deficiencies in grain production. Recognizing this, the Government has prepared a National Marketing Plan to redress the problems in the marketing subsector. In response to the Government's request, the Bank has recently appraised an agricultural marketing project for perishable products which is intended to modernize the distribution systems. Future projects envisage support for investments that improve marketing, storage and processing of agricultural products.  - 11 - Government Policies and Strategies for Rainfed Areas 37. For many years the most important factor in the rapid increase of agricultural production in Mexico, has been the high rate of expansion of irrigated areas. The rate, however, has slowed in recent years, decreasing to arcund 100,000 ha annually. While it is expected that the current rate of expansion can be maintained for at least 10 more years, it is recognized that the scope for opening and developing new irrigated lands under large-scale schemes is becoming increasingly expensive. Consequently, more emphasis is now being given to rehabilitating the existing irrigated areas, and upgrading technical services. 38. In addition to a shift in its irrigation development strategy in recent years, the Government has adopted measures for promotion of rainfed agriculture. Rainfed agriculture, covering a heterogeneous assortment of soils and climates, ranging from desert to humid tropics, has high potential of development. In terms of public investment, the rainfed areas received relatively little support over the past three decades. Only 10% of public expenditures in the agricultural sector went for development of the rainfed areas even though rainfed agriculture accounts for over 70% of the cropped area and up to 50 percent of the value of agricultural output. The present Administration has devised several programs to promote rainfed agriculture. 39. In early 1977, the Government took the first major step toward in- cresased public investment in rainfed areas by merging the Secretariat of Water Resources with the Secretariat of Agriculture to form a new Secretariat of Agriculture and Water Resources (SARH). This action was followed by a pressidential decree establishing the General Directorate of Rainfed Districts and Units (DGDUT) within SARH, with specific responsibilities for coordinating and expanding activities in promoting rainfed production at the district level. Following the organizational pattern of irrigation districts, DGDUT has established 124 rainfed districts (DT). Their main objectives are to expand extension, research and credit services and to encourage the maximum partici- pation of all local groups involved (producers, banks, commercial technical services, input and marketing organizations as well as other infrastructure agencies) in order to increase output of rainfed crops, livestock and foresry products. 40. A further major step was taken in 1980, when the Government announced a significant expansion of guaranteed price support and input subsidies for a number of basic commodities. Foremost among them were maize and beans and, to a lesser extent, wheat and sorghum. The aim was to achieve a high degree of national self-sufficiency in the production of these commodities and also to improve the nutritional well-being and living levels of low-income urban and rural people. This system, known as the Mexican Food System (SAM), has been in operation for two years now (1980 and 1981), and the production of basic grains has increased dramatically in these years, but with significant sub- sidies (equivalent to about 2 percent of GDP) for the agricultural/rural sector. As stated in para. 36 ante, the Government is reviewing its overall strategy, including subsidies affecting the sector.  - 12 - New Agricultural Laws 41. One of the most significant moves by the Government, following the creation of SARH, has been the enactment in late 1980 of the Agricultural Development Law and the Agricultural Insurance Law. These laws, as they are enforced and their provisions implemented, will have a profound impact on rainfed agricultural development. The former updates and sapplements the basic agrarian legislation, namely, the Federal Water Law and the Agrarian Reform Law, and provides the authority, or legal basis, for carrying out the principal objectives of the Government. These objectives include acceptance of the legal associations of ejidos and small-holders; the corsolidation of minifundia; the provision of legal status to rainfed districts; the expropria- tion of pasture lands suitable for cultivation; and shared risk in production and enforced cultivation of idle lands. SARH was given the responsibility and powers to carry out the above. 42. The Agricultural Insurance Law extends the coverage of the National Crop and Livestock Insurance Agency (ANAGSA) to four kinds of insurance. These are (a) integrated agriculture--covering 100 percent of crop losses, including labor costs; (b) livestock--covering the value of the animal lost or reduced in value, plus medical insurance; (c) casualty--covering losses to agricultural building facilities and equipment; and (d) campesino life insurance--covering anyone who undertakes productive agricultural activities. Given the inherent risks under rainfed agriculture, the Agricultural Insurance Law provides impetus for greater participation of commercial banks as well as of rural families and increased investments in rainfed agriculture. Experience in Previous Projects 43. In the past ten years (FY73-82), the Bank has approved 18 rural development and agricultural loans amounting to US$2,265 million: Irrigation (Panuco, Sinaloa, Fuerte/Sinaloa, Bajo Bravo/ Bajo San Juan I, II, Apatzingan, and Ocoroni) - US$654 million; Rural Development (PIDER I, II and III and Papaloapan Basin) - US$455 million; Credit (four Projects) - US$760 million; Area Development (Tropical Agriculture) - US$56 million; Small-scale Agricultural Infrastructure Development - US$60 million; and Rainfed Agriculture - US$280 million. 44. As noted in Annex II, by and large, these projects are progressing satisfactorily. Implementation of the Panuco, Sinaloa and Bajo Bravo/Bajo San Juan I projects was initially delayed mainly because of budgetary constraints. Accentuating these delays were large cost increases unforeseen at appraisal which was done prior to oil price increases of the mid-1970s. The Government and the  - 13 - Bank jointly reviewed these problems and agreed that the projects be financed over a longer period of time. This review led to reformulation of the Bajo Rio Bravo/Bajo Rio San Juan project with cancellation of US$100 million from the original loan of US$150 million. A supplementary loan of US$25 million was approved by the Executive Directors for the Panuco Irrigation Project on July 11, 1978. Sinaloa Irrigation project was redesigned, and the Bank made a new loan in FY79 for additional works in Sinaloa and the adjoining Rio Fuerte irrigation districts. Following these actions, implementation of these projects has improved. Although these projects have not reached full development yet, the projects have already shown some positive results, for example, cropped area under irrigation has expanded, food production has increased, and many small farmers have received support with improved technical assistance. The Apatzingan and Ocoroni projects are in their initial stages of implementation and satisfactory progress in civil works has been made. The implementation of the Papaloapan Integrated Rural Development Project of October 29, 1974 has suffered delays due to managerial, budgetary and technical constraints. A proposal for modification in the scope of the project and extension of the closing date was approved by the Executive Directors on January 4, 1982. Agricultural production under rainfed conditions has increased significantly with strong technical assistance support under this project. 45. PIDER I, II and III are multi-sectoral projects designed to improve living conditions and productivity in depressed rural regions. After some difficulties inherent in the nature of such projects and decentralization of the decision-making process, overall progress has been satisfactory. PIDER I has been fully disbursed and a completion report is now under preparation. The PIDER projects have been instrumental in bringing about social and economic improvements in depressed rural areas. The PIDER projects are also developing appropriate technological packages to assist small rural producers that can be replicated in other parts of the country. 46. The disbursement pace of the Fifth and Sixth Agricultural Credit Projects, which have been fully disbursed now, was faster than projected. A Seventh Credit project was approved by the Board on July 8, 1980 and became effective November 17, 1980. This project would be fully disbursed earlier than what was expected at the time of appraisal. These projects, through the private and public banking systems, have provided credit funds and technical assistance for agricultural diversification and increased production. The Tropical Agriculture Project became effective on January 12, 1979, and, although implementation was initially behind schedule, the pace has since accelerated. The Small-Scale Agricultural Infrastructure Development Project that became effective on April 13, 1979 is proceeding on schedule. By allowing the local entities to identify and appraise small irrigation schemes, the project has improved the institutional capabilities for dealing more effectively with the small irrigation subsector. On July 1, 1980, the Rainfed Agricultural Development Project became effective and project administration and implementa- tion in the Rainfed Districts are progressing as planned. The proposed project would be the second loan made exclusively for rainfed agricultural areas and thus it is in line with Government's increased emphasis on improving the pro- ductivity of farmers in such areas.  - 14 - 47. The Bank has completed audit reports on two irrigation projects, the first four agricultural credit projects, and completion reports on the fifth and sixth credit projects are now being prepared. The trend in Bank lending has stressed credit for low-income producers, institutional building, more emphasis on crop production than livestock, and less emphasis on models and more emphasis on sector orientation. Altogether, the agricultural credit projects have absorbed US$925 million of Bank funds, making the program one of the largest in the Bank's agricultural portfolio. 48. An audit report prepared on the Third Irrigation Project (Loan 450-ME) showed that performance of the borrower was generally satisfactory and that no technical, organizational or managerial difficulties were experienced. The audit cited, however, that the borrower had not fully complied with two loan conditions: controlling groundwater extraction and recovering operation and maintenance costs in part of the project area, and recovering additional investment charges in the whole project area. These points have been addressed in subsequent projects, and the Bank has been engaged in protracted dialogue with the Government to increase cost recovery under irrigation projects. In general, recognized difficulties have been overcome in that technical services and on-farm investments, which are essential in meeting project objectives, are now included in project costs, and sensitivity analyses are made on construction delays and on the effects of price changes and benefits. Also, the Bank has become more involved in project preparation and in the determi- nation of the readiness of projects for preparation and implementation than it has been previously. PART IV - THE PROJECT Background 49. A Staff Appraisal Report (No. 3764-ME dated June 2, 1982) is being circulated separately to the Executive Directors. The proposed project was prepared by the General Directorate for Large Scale Irrigation of the Secretaria de Agricultura y Recursos Hidraulicos (SARH) and was appraised by a Bank mission in August 1981. Negotiations took place in Washington, D.C., in May 1982. The Mexican negotiations team was headed by Lic. Luis Nava Hernandez of NAFINSA, and included representatives from Secretaria de Agricultura y Recursos Hidraulicos (SARH) and Secretaria de Hacienda y Credito Publico (SHCP). 50. A brief description of the project may be found in the Loan and Project Summary, at the beginning of this report. Please see the attached map for location of the more important works. Supplementary data on the project are provided in Annex III. Strategy for Development of the Project Area 51. Over the past decade sorghum has become an important grain in the Mexican economy. Even though production nearly doubled during this period, it no longer satisfied the country's demand. Annual sorghum production in 1970 was 2.7 million metric tons and rose to 4.8 million tons in 1980 and  - 15 - reached 4.3 million tons in 1981. The annual growth rate of production between 1966 and 1980 was about 7.5 percent. Sorghum imports in 1970 amounted to 10,900 tons, but rose dramatically to 2.3 million tons in 1980 and are expected to have been higher in 1981. To close the gap and make the country se.Lf-sufficient, the Government is encouraging sorghum production. The project area, in the northern part of Tamaulipas State, where there are large tracts of idle land, has been identified as an area with comparative advantages for sorghum production. 52. Poor drainage is a serious impediment in the area, adversely affecting the scope for expanding agricultural development. Although annual rainfall is relatively low (averaging 438-648 mm), but satisfactory for sorghum, it falls on clay soils which are characterized as being slowly permeable. Consequently, after rainfalls, the clay soils, which comprise 70 percent of the project area, become flooded, limiting their productivity, and roads become impassable. 53. There are other crops suitable for adoption in the area, and rural families - many landless for the present - in and around the area are eager to farm the land. The area's major constraints are inadequate control of land flooding, soil erosion, lack of suitable roads, storage facilities and other infrastructures, soils with poor drainage properties, inefficient use of limited water resources, lack of training facilities, poor distribution of land holdings, and insufficient technical data. The proposed project would directly focus on solving these identified problems, support critical investments and provide strong technical support. Marketing and Storage Facilities 54. Within and around the project area, there are about 88 storage plants, most of them flat warehouses with a total capacity of about 1,200,000 m tons. Private interests control 63 of them (72 percent) with a total capacity of 905,000 m tons. The public sector owns 25 storage plants (28 percent) with a capacity of about 295,000 m tons. In May 1981, the Government (SARH, CONASUPO, BANRURAL) launched a program for constructing 27 additional storage plants with a projected total capacity of 270,000 m tons. The Bank's analysis indicates that existing storage capacity, including construction of the 27 addi- tional silos in progress, would be sufficient to sustain the incremental production under the project in the initial years. In addition to the above Government program, the private sector is likely to participate in providing additional storage in the near future. However, to enable more precise planning for additional silos - their number, type size, location and other asipects of grain movement and storage within and around the project area, - the Government will carry out a study on grain movement and storage under terms of reference agreed between the Government and the Bank. The study will be furnished to the Bank no later than December 31, 1983 (Guarantee Agreement, Section 3.08). Organization, Management and Implementation 5'i. The project aims to increase productivity and crop production (mainly sorghum) on about 240,000 ha already cultivated, and expand production of grain sorghum on an additional 164,500 ha presently uncultivated. Implementation  - 16 - would be carried out over a six-year period and would benefit some 17,100 families, including the 8,200 families to be settled under the land reform program. It would provide for: (a) land clearing of about 155,000 ha. (b) construction of a surface drainage network totalling about 884 km, together with adjacent gravel surfaced feeder roads, draining about 366,000 ha of which 270,000 ha are heavy clay soils with low permeability; (c) construction of an additional 394 km of shallow drainage ditches with adjacent feeder roads, to serve about 134,000 ha of medium to light soils; (d) purchase of necessary equipment for maintenance of the main surface drainage and feeder road networks; (e) construction of about three operations and maintenance centers and workshops, a training center for new settlers and an agricultural research center; (f) incremental cost of extension services to reinforce the rainfed district of San Fernando, including training of middle level specialists, and extension agents; and (g) execution of a grain movement and storage study, and a feasibility study for a second stage rainfed development project in an area south of San Fernando. 56. The project would be organized and managed along the pattern followed in irrigation which will be adapted for rainfed areas. All construction works would be carried out under SARH's Undersecretariat for Large-Scale Irrigation, while operation and maintenance of works in the district and services for agricultural development would be the responsibility of the San Fernando Rainfed District which falls under the jurisdiction of the Department of Rainfed Districts of the Subsecretariat of Agriculture and Operation. During project implementation, physical works would be the responsi- bility of a resident engineer, who would report to the Representative of SARH in North Tamaulipas. After the project is completed, operation and maintenance of the drainage canals, roads and other works would be the responsibility of the Chief of the San Fernando Rainfed District. SARH, SRA and SAHOP will be responsible for the resettlement program. 57. Land acquisition for the surface drains and rights-of-way for roads, and ditches would be handled by the Legal Department of SARH. Indemnifi- cation for expropriated land, infrastructure attached thereto, and other associated legal compensations have been included in project cost but would be paid for by the Government. Roads, ditches, drains and buildings would be built by contractors under the supervision of representatives from SARH's construction units. Daily operations would be monitored by the San Fernando Rainfed District's three field offices.  - 17 - 58. Technical assistance and maintenance of roads, ditches, drains and buildings, once completed, would be the responsibility of the Chief of the San Fernando Rainfed District. New farmers would be selected and trained by the Secretariat of Agrarian Reform (SRA) and SARH. Land expropriation would be carried out by SARH/SRA. 59. It is the Government's intention to implement the project in three phases, i.e., in three distinct regions: covering respectively the central, coastal and northwest parts of the project area. The central region (146,000 ha) would be implemented during the first three years of the project because (a) the main infrastructural works (drains and feeder roads) have already been started, (b) the region is subject to heavy flooding, and (c) there is relatively less land to be expropriated in this region compared to the other regions. The coastal region (162,500 ha) would be the second phase since the conditions are virtually the same as in the central region, but to a lesser extent. The northwest region (137,000 ha) would be implemented during the last years of thet project because it is the area which has the largest amount of land expropriated for redistribution. Light soils predominate in this area; consequently, infrastructural works are required. Project Cost and Finance 60. Total project costs are estimated at US$350.7 million including allowances for physical and price contingencies. Physical contingencies for studies and land clearing are estimated at 12 percent. Price contingencies are based on Bank Guidelines and calculated at 10 percent for 1982, 9 percent for 1983 and 1984, 8.5 percent 1985, and 8.6 percent for 1986 and onward. The proposed Bank loan of US$138.4 milion would finance the estimated foreign exchange component of the project (US$136.3 million) equivalent to 39 percent of project cost plus about US$2.1 million capitalized front-end fee on the Bank loan. The Government and beneficiaries will finance all local costs. Credit 61. The proposed project has been declared by the Government a priority project, and, according to the Agricultural Development Law, it will be pro- vided with credit on a priority basis. The project area is served by BANRURAL and at least 13 private banks. Because all on-farm investments have to be financed by the farmer through credit, it is expected that the Government would take all measures necessary to ensure that the beneficiaries of the project are provided with short-term, medium-term, and long-term credit, as and when needed, so as to be able to effectively use the facilities being provided in the project. Assurances have been obtained on this point at negotiations (draft Guarantee Agreement, Section 3.09). Short-term credit would be needed for annual inputs such as seeds, fertilizers and pesticides, while medium-term and long-term credits would be required for on-farm works, storage facilities, sheds, workshops, machinery and equipment. Agrarian Reform 62. Under the Federal Water Law of 1972, SARH was given the authority to expropriate land in irrigation and drainage districts for agrarian reform purposes,  - 18 - and it established, within the proposed project area, the San Fernando Drainage District. The Agricultural Development Law, dated December 1980 and declared effective January 1981, specifies that land devoted to livestock but which has possibilities of being used for crop production can be expropriated by SARH/SRA for agrarian reform purposes and can be designated as rainfed districts. At the same time, the law allows a person or family owning more than 200 ha of grazing land to keep 200 ha for himself or the family. With this authority, SARH/SRA has started to proceed with land expropriation and designated the proposed project area as the San Fernando Rainfed District. 63. Under the Federal Water Law, which has been widely published in the San Fernando Valley, the SRA's Department of Social Promotion has, since May 1980, been working and negotiating with farmers whose land was eligible for expropriation and with farmers who anticipated receiving land under the project. Opposition by farmers was initially intense, but it subsided when, in early 1981, agreement was reached on purchase prices per hectare for different types of expropriated land. The expropriation program is directed exclusively at private land owners holding more than 200 ha devoted to livestock grazing. Such holdings will be reduced in size to a maximum of 200 ha, with the remainder used for ejidos 1/ on which new settlers (ejidatarios) will be located on 20 ha plots per family. The average ejido size will be about 1,000 ha. Land expro- priation has started and is scheduled to take six years, progressing at the rate of 18% for years 1 to 5 of the project and 8% in the sixth year. The present and future land tenure situation is described below. 64. Of the total land area of over 486,500 ha, 95 percent is under some form of citizen ownership. Private farmers owning less than 200 ha make up 19 percent of the total farmers and 19 percent of the total land. Their average holding is 55.3 ha. Farmers owning more than 200 ha comprise 2.5 percent of the farm population and their average holding is 1,036 ha. (about 47 percent of total land). Ejidatarios are the largest group, constituting about 63.2 percent of the farm families, with an average holding of 21.8 ha. The colonos comprise only 15.2 percent of the population and their average family holding is 14.5 ha. The following table illustrates impact of the project on land tenure in the project area. Land Tenure in Project Area Present Future with Project Ownership Families Total Land Families Total Land (No.) ('000 ha) (No.) ('000 ha) A. Large Private 219 227 219 26 B. Medium and Private 1,707 94 1,707 94 C. Ejidatarios 5,642 123 13,838 287 D. Colonos 1,356 20 1,356 20 E. Non Agricultural Reserves 23 60 487 487 1/ The ejido is a property for which the rights are held jointly by its members (ejidatarios) and exploited communally or on the basis of parcels assigned to individuals.  - 19 - 65. After project completion, large farmers presently with holdings totalling about 227,000 ha will lose 221,000 ha; with land reforms in the project area, their average land holdings will come down from 1,036 ha to 118 ha for a total of 26,000 ha. New ejidatarios will number about 8,200 and receive land for th,e first time. Ejidatarios' farm size will be about 20 ha each. Non-agricultural land for common purposes and wildlife reserve will increase two and a half fold. Monitoring and Evaluation 66. Monitoring and evaluation after the construction period would be handled by DGDUT. DGDUT through its district office would be responsible for monitoring and evaluation of the activities in the project's district. For this purpose, the district project office has established a monitoring and evaluation unit. This unit will manage an information system for reporting physical progress of project activities, evaluating the impact of these activities on an ongoing basis, and identifying successes as well as shortcomings in a timely manner. Semi-annual reports, would enumerate the findings and recommenda- tions of the monitoring and evaluation unit. 67. DGDUT through its district office would also prepare, within one year of the closing date, a completion report which would include, in addition to physical achievements, an evaluation of project impact (draft Guarantee Agreement, Section 3.05(c)). Accounts and Auditing 68. All documentations for which reimbursement would be claimed from the Bank loan would be subject to the independent review and approval by the Secretariat of Programming and Budgeting (SPP) in accordance with SPP's established control procedures. SARH would maintain separate accounts adequate to reflect the resources, expenditures and the financial situation of the project which is subject to their internal checks and controls as well as the continuous controls of SPP. A summary statement of such accounts would be prepared annually by SARH and submitted to the Bank, after verification in accordance with SARH and SPP's normal verification procedures which are acceptable to the Bank. Such statements would be confirmed by SPP as to their accuracy and to the fact that controls and verification procedures have been properly and consistently applied. The Government would also furnish to the Bank other pertinent information concerning such accounts and the verification thereof, as the Bank shall reasonably request (draft Guarantee Agreement, Section 4.02). Cost Recovery 69. In accordance with the Federal Water Law of 1972, all recurring costs for operation and maintenance of the basic infrastructure works such as surface drains and feeder road networks, would be fully recovered from beneficiaries. All on-farm investments, including warehouses, workshops, equipment, (estimated to be US$28.0 million), would be paid by the beneficiaries and initially financed through agricultural credit (BANRURAL and private banks).  - 20 - Charges for operation and maintenance costs would be assessed after completion of the works in the area and would be collected annually, commencing the first year after completion of the works. 70. The Federal Water Law further states that: (a) as much as possible of the investment costs would be recovered; (b) at completion of project construction, a socio-economic study would be made to assess the farmers' capacity to pay for such costs, and to determine the level of cost recovery charges; and (c) ejidatarios would, in any case, not be required to pay more than 30% of the investment costs pertaining to their lands. The Government's irrigation projects in the Yaque Valley in Northwest Mexico, for example, have reached the stage where about 30 percent of the investment costs are being recovered through water charges. 71. The Government has agreed that it will take the necessary actions to recover the operation and maintenance costs, and as much as practicable of the investment cost, of the drainage and adjacent road facilities in the project area in accordance with the recommendations of a socio-economic study which will be carried out by the Government in accordance with provisions of the Federal Water Law. The above study will be completed not later than December 31, 1985, and will determine, inter alia, the ability of the beneficiaries to pay for such costs as well as the instruments of recovery (draft Guarantee Agreement, Section 4.04). Procurement 72. Civil Works. The construction of major civil works, land clearing, surface drains and adjacent feeder roads and service roads, totaling about US$177 million and including contingencies, would be procured under Inter- national Competitive Bidding (ICB) in accordance with Bank Guidelines for Pro- curement. Taking into consideration, however, economies of scale, the large earthmoving works involved, and to avoid a multiplicity of contracts, individual contracts, except under prior agreement with the Bank, should be insofar as practicable, no less than US$2 million equivalent. The balance of construction works to be financed under the project, totalling US$60 million, consists of other works, such as land clearing, buildings, operation and maintenance and would be contracted in sizes of less than US$2 million each and will be procured under local competitive bidding (LCB). Some other small-scale works are scattered throughout the project area and may not be of interest to either foreign or local bidders; therefore, procurement would follow LCB procedures, which are satisfactory to the Bank. 73. Goods. Equipment for operation and maintenance, totalling US$18 mil- lion, including contingencies, would be procured under ICB procedures. Appro- priate packages would be grouped and procured in accordance with Bank Guidelines. Qualified domestic manufacturers would receive a preference in bid evaluation of 15%, or equivalent of the import duty, whichever is lower. Miscellaneous items of equipment, vehicles, and furniture, in packages of less than US$300,000 each and not exceeding US$4 million in total, would be procured as per Borrower's LCB procedures and in accordance with Bank Guidelines.  - 21 - Disbursements 74. The proposed Bank loan would be disbursed against normal documentation. Disbursements would be made, however, against statements of expenditures (SOEs) for civil works carried out by force account and for the technical assistance and training. All documents supporting applications for disbursements under SOE procedures would be retained by SARH for Bank review during project supervision. The proposed Bank loan would reimburse (a) 45 percent of civil works (b) 90 per- of equipment, and (c) 20 percent of technical assistance and training expenses. The loan is expected to be disbursed in six and a half years. Retroactive financing of up to US$5 million for civil works already initiated by the Govern- ment since September 1, 1981, would be available. A schedule of estimated dis- bursements is provided in the Loan and Project Summary. Project Impact 75. The proposed project is an important element in the Government's program to develop rainfed agriculture. The underlying tenets of the project are (a) expansion of the agricultural frontier in the San Fernando region by bringing new land into production; (b) exploitation of the comparative advan- tages of the region in basic grain production; and (c) acceleration of produc- tion through diverse investments and improved agricultural support systems. The project, by redistributing land to about 8,200 landless families, would enhance the Government's agrarian reform program. 76. Overall, the project would generate substantial benefits at full development. Incremental production of the principal products--mainly sorghum, maize, beans, sunflowers and cotton--would amount to 640,000 m tons at full development. Incremental production of these commodities alone would amount tc a foreign exchange savings of about US$19 million annually in 1980 prices. The project would increase employment opportunities in the proposed project area and decrease under-employment. At full development, the project would generate about 1.3 million man-days in additional employ- ment. During the course of project implementation, over 17,000 farm families would participate actively in the development program. Cash income of bene- ficiaries would increase considerably. On the average, family farm income would vary between US$2,489 to US$4,239 in 1982 pesos at full development. 77. The project would buttress the institutional capabilities in the project area, improve research and the technical assistance delivery system and strengthen water and soil conservation techniques. With these improve- merits, local institutions would expand their penetration in areas contiguous to the project. Additionally, there are also a number of indirect benefits likely to accrue in the project area such as the stimulation of agroindustries associated with processing of animal feed grains and brewing, and retail operations dealing with the supply of agricultural machinery and chemicals. In addition, the economic life in the project area would be invigorated by the establishment of general commercial enterprises to serve the communities in the area.  - 22 - Economic Rate of Return 78. The economic rate of return (ERR) of the project has been estimated at 18 percent. The results of a sensitivity analysis to test the impact of differing levels of costs, prices and or revenues and other factors are outlined below. Assumption Economic Rate of Return (%) Expected best estimate 18.0 Aggregated benefits reduced by 20% 14.0 Earthmoving costs increased by 30% 15.0 Equipment costs increased by 30% 16.0 Operation and maintenance increased by 30% 16.0 Physical contingencies increased by 35% 16.0 Drought period every 5 years 14.0 Project implementation delayed one year 14.0 Project implementation delayed two years 11.0 Project implementation delayed three years 8.0 79. A switching value test indicates that if the earthmoving portion (major project investment cost) was increased by 72 percent, the project's economic rate of return would be 12 percent (the estimated opportunity cost of capital in the country). The switching value test shows also that the price of sorghum, the main crop, would have to decrease by 32% and the price of cotton would have to be reduced by 70 percent to lower the ERR to 12%. The main factors that could delay project benefits are adverse weather and institu- tional problems. These factors would not influence any specific parameters in isolation such as individual crop yields or area cultivated, but would have a general impact on all crop benefits. Thus, a switching value test on the assumption of delays in reaching full development was performed. This test indicates that a delay of about two years in the completion of the works would make the ERR equal to the opportunity cost of capital. Environmental Impact 80. The project is not expected to have any harmful effects on the environment. Although opening up new lands and creating open unprotected areas may have some effect on the biological life in Tamaulipias, over 22,500 ha in the proposed project area will be retained as a wildlife reserve. Moreover, by clearing land and increasing grain production, there would be more grain left for the migratory and local birds to glean from the fields. The infrastructural works (drains and ditches) should not affect the ecology of the existing lagoons and small islands. More fresh water would be channeled, however, into the lagoons. 81. Since the applications of pesticides would increase in the project area, all chemicals used would be restricted, to the extent possible, to those that have low mammalian toxicity and low hazard to wildlife. All extension agents would stress safety when training farmers and others in chemical use.  - 23 - In addition, the extension agents would be expected to monitor pesticide levels in soil and water, being particularly alert to the effects that the cotton pest control may have on fish, birds, and beneficial insects. The agents would also be concerned with storage, transportation, packaging and disposal of pesticide containers. The pest control program would be closely tied in with the labora- tory and pest control program developed in the Rio Bravo Project, where staff, facilities and equipment exist to make the achievement of program goals possible. Project Risks 82. The main risks associated with the project would be (a) institutional, (b) climatic and (c) financial. Regarding institutional aspects, the task would be to ensure coordination between the different programs to be implemented under SARH, SRA and SAHOP. To minimize the risk, SARH has assigned personnel to serve as the link between SRA and SARH. Moreover, in view of extensive experience of SARH in construction, availability of production inputs, and provision of training for the new farmers, the risks would be minimal. The most serious climatic risk would be drought, but the area seems to be relatively safe since although sorghum yields vary from year to year, they have never been an outright failure. Moreover, water conservation through the technical assistance program will help to reduce this risk. Finally, although there is a risk that short- term governmental budgetary constraints may delay local counterpart funding, the Government has assured the Bank that high priority will be given to funding of this project. PART V - LEGAL INSTRUMENTS AND AUTHORITY 83. The draft Loan Agreement between the Bank and Nacional Financiera, S.A., the draft Guarantee Agreement between United Mexican States and the Bank, and the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement are being distributed to the Executive Directors separately. 84. Special conditions of the project have been described in Part IV of this report and are listed in Section III of Annex III. 85. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 86. I recommend that the Executive Directors approve the proposed loan. A.W. Clausen President Attachments June 2, 1982  - 24- MNEX I Page 1 of 5 TABLE 3A MEXICO - SOCIAL INDICATORS DATA SHEET MEXICO REFERENCE GROUPS (WEIGHTED AVE,!tGES LAND AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE)- TOTAL 1972.5 MOST RECENT MIDDLE INCOME MIDDLE INCOME AGRICULTURAL 977.2 1960 /b 1970 /b ESTIMATE /b LATIN AMERICA & CARIBBEAN EUROPE GNP PER CAPITA (US$) 400.0 750.0 1640.0 1616.2 2609.1 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 769.2 1141.0 1672.7 1324.1 2368.4 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUSANDS) 36369.0 50313.0 65509.0 URBAN POPULATION (PERCENT OF TOTAL) 50.8 59.0 65.9 64.2 53.2 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 108.9 STATIONARY POPULATION (MILLIONS) 188.0 YEAR STATIONARY POPULATION IS REACHED 2075 POPULATION DENSITY PER SQ. RM. 18.4 25.5 33.2 34.3 80.6 PER SQ. R}S. AGRICULTURAL LAND 36.0 52.0 65.1 94.5 133.9 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 45.6 46.5 45.3 40.7 30.1 15-64 YRS. 51.0 50.0 51.2 55.3 61.5 65 YRS. AND ABOVE 3.4 3.5 3.5 4.0 8.3 POPULATION GROWTH RATE (PERCENT) TOTAL 3.1 3.2 2.9 2.4 1.5 URBAN 4.9 4.8 4.2 3.7 3.1 CRUDE BIRTH RATE (PER THOUSAND) 45.0 42.3 36.0 31.4 22.9 CRUDE DEATH RATE (PER THOUSAND) 12.0 9.0 7.3 8.4 9.1 GROSS REPRODUCTION RATE 3.4 3.2 2.6 2.3 1.6 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 25.1 842.0 USERS (PERCENT OF MARRIED WOMEN) .. .. 40.0 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 97.0 100.0 101.0 108.3 119.8 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 110.0 112.0 114.0 107.6 125.7 PROTEINS (GRAMS PER DAY) 65.0 66.0 66.0 65.8 92.5 OF WHICH ANIMAL AND PULSE 27.0 27.0 27.0 34.0 39.7 CHILD (AGES 1-4) MORTALITY RATE 13.0 8.8 5.7 7.6 3.4 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 58.3 62.4 66.0 64.1 68.9 INFANT MORTALITY RATE (PER THOUSAND) 78.0 74.0 60.0 70.9 25.2 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL 23.5 54.0 62.0 65.7 URBAN .. 71.0 70.0 79.7 RURAL .. 29.0 49.0 43.9 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. .. .. 59.9 URBAN .. .. .. 75.7 RURAL .. 13.0 14.0 30.4 POPULATION PER PHYSICIAN 1798.0 1480.6 1815.0 1728.2 973.3 POPULATION PER NURSING PERSON .. 1612.2 1398.0 1288.2 896.6 POPULATION PER HOSPITAL BED ** TOTAL 577.6 828.1 851.0 471.2 262.3 URBAN .. 1151.2 758.0 558.0 191.8 RURAL .. 1350.9 1077.0 ADMISSIONS PER HOSPITAL BED .. .. .. .. 18.2 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.4 5.7 URBAN 5.7 5.7 RURAL 5.2 5.8 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 2.9 2.5 URBAN 2.6 2.2 .. RURAL 3.4 3.2 .. ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. 58.9 .. URBAN .. 80.7 .. RURAL .. 27.8 ..  - 25 - ANNEX I Page 2 of 5 TABLE 3A MEXICO - SOCIAL INDICATORS DATA SHEET MEXICO REFERENCE GROUPS (WEIGHTED AVERA9ES - MOST RECENT ESTIMATE) - MOST RECENT MIDDLE INCCME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b LATIN AMERICA 6 CARIBBEAN EUROPE EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY. TOTAL 80.0 104.0 116.0 101.7 105.9 MALE 82.0 107.0 119.0 103.0 109.6 FEMALE 77.0 102.0 114.0 101.5 102.2 SECONDARY, TOTAL 11.0 22.0 39.0 35.3 66.3 MALE 14.0 27.0 42.0 34.9 73.2 FEMALE 8.0 17.0 36.0 35.6 59.5 VOCATIONAL ENROL. (X OF SECONDARY) 24.0 27.0 9.0 30.1 28.4 PUPIL-TEACHE. RATIO PRIMARY 44.0 46.0 41.0 29.6 26.8 SECONDARY 13.0 14.0 17.0 15.7 23.6 ADULT LITERACY RATE (PERCENT) 65.0 74.2 82.4 80.0 75.4 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 14.0 24.5 42.4 42.6 83.9 RADIO RECEIVERS PER THOUSAND POPULATION 90.7 278.4 306.0 215.0 181.6 TV KECEIVERS PER THOUSAND POPULATION 17.9 59.5 88.7 89.0 131.1 NEWSPAPER ('DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 79.0 .. 66.6 62.8 123.8 CINEMA ANNUAL ATTENDANCE PER CAPITA 10.0 5.0 4.2 3.2 5.7 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 10990.9 14488.8 18965.4 FEMIALE (PERCENT) 15.2 17.4 19.3 22.6 32.9 AGRICULTURE (PERCENT) 55.1 45.0 36.8 35.0 34.0 INDUSTRY (PERCENT) 19.5 23.0 25.7 23.2 28.7 PARTICIPATION RATE (PERCENT) TOTAL 30.2 28.8 29.0 31.8 42.3 MALE 51.1 47.4 46.5 49.0 56.5 FEMALE 9.2 10.1 11.2 14.6 28.5 ECONOMIC DEPENDENCY RATIO 1.6 1.7 1.7 1.4 0.9 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED 8Y HIGHEST 5 PERCENT OF HOUSEHOLDS .. HIGHEST 20 PERCENT OF HOUSEHOLDS 61.1/c 60.7 57.7. LOWEST 20 PERCENT OF HOUSEHOLDS 3.4/c 3.3 2.9 LOWEST 40 PERCENT OF HOUSEHOLDS 9.8/c 9.9 9.9 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 270.0 RURAL .. .. 216.0 187.6 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 471.0 513.9 RURAL .. .. 471.0 362.2 385.1 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. RURAL .. 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 1963. May, 1981 * _ The- updated 1980 GNP per capita and population estimates shown in the the 1981 World Bank Atlas are $2,130.0 (at 1978-80 prices) and 67,458 thousand. ** - Total includes specialized hospitals not included in urban/rural figures.  - 26 - ANNEX I Page 3Tof 5 DEFINITIONS OF SOCIALJ INDICATORS Notes: Although the data are draw iro sucsgnrlyjudged the most -uhrritasir sid r- il., it should also he no:-t that they say nor he ine-- nat-ionllyI opsrahle h..eu-eof rhe laok of sadardised defiriti- end -onrpts osedby dof~fe onrist-oletn h data. The date are ..ora- th Iss -setu to destibe orde- ofwgotue,ldiloans trends, and ohra-terie tran oJodrfrne htno ootis sajtvtty of the ononirtes In a group ha Iss o dthathlodowno ..tino ..a ....eo .nntlseo h Idoro aeds.r h ollhln idn ote indloaro arstine esog the ooutsy end refer nts grooys.,111nd1, -1 -1.01 090y (thousands-Ikm h fonlaoo yrr _osita ftsd-ttlubt r oa nuai (oa Totl Toalsoran sra nepitog an eys nd olndotoo. rhn, tdrurl)dinde hyoierI eadotlo toSe ofhoyitl ad Aglrlrrs-tnleoofgnootoalwraaeneyoorlytynnnsn_ aatabelyh.tad ro-. ennlnddwy-eoilalledossrladr fordnrny, IpIurI wadr n k.. ohe gaden rt io sin; 9 di-e.,t - ha hil..an o-...rs. .. spiyo -o_no saholtero penae_ fysafs ONE IP - CITA (01) -f... pe t.p,ita os...ns attrrn..rr prints owl-ddialtar ard t..a din lds.d toab hsyal,h -ra Innh.d healt INT, -wod 1979d datan . nedloa9l ass. .iI' istatItne. odfe er.l hm -ffa I'-atl n .,.,fm- dlyo wo yI... de. h leltedl r11ge ofhnedina I-hollini- for snarls-- GNPttPERlNiltiAT(USt PR CAPIT -plnalnnosno ofomanle ineg (no: nna pu_ ossura hoptls.... iC ioplgeea oslea ssd lignit, yennnlem, naourw as and hyno-, uoea 7r gosrael-and rore h- stoa . .on ...on rura hopta ldan tedlIa n aenr -io-dny) in . kio rans o noe eqlnaen yetIt nyn;1 99 n b. 19T9 I'rrll.pr,lie hIlnt nninidd nyune ttl daa.Adie9nspeioniroBd fTtafanero ais ins noorOsoi re TotalityoniiaPto-. gid-..ar )nboossndd 1-7At of July..d;h1990, 1970, andl1979 NO1SI-G Ira ooain oneog otl tsu f ra ottl ooain. b Pseol Hnnpisos ofB gou ofT. .n.. dw wh.ser 1t dit-ing -as -r aT ngmu- nes 19id0, t u ., ad 197 d An. tSe booseinli9Inn s9a0istlo197purposes. Porlaio PnOitH"O'htdnS An....heo y..nsenom-na o.. ns.r......rgaom denl,sndfeal hod b - tytoent sn f.lllw -p 77.1b t ynr. dThe pennnethona ,slUns f elentriot_tydin lfyo qoey n as~ .l wates fo ferhi on rte aso boe hreelenesas9slo deottsonof _onl, ~ ura, adntldsl nsnepo ry fertIlIt 1960dio no70 indnrln:ndps aiyyanngprot thInyg smn l ifs- el- rf unit-eh rprdisinan, It ea..h gssgewnyer ho adwer Ito.1' different length ofpimr. aoato. of iome rpatan-e Itsel es_ l h ttoaypylettew a nona ihonnre donnsnlsn ay. ested In9 ptter sent lenel. edo~~~~~~~~~~~~~~~~~Th ---C--tannrq inesa las ftu yersofbppo ,, priar intronirn eor sationay poruenlon s reaned - he yerwe.satoeypp.a.npats geerl nttinl,-1twIetring aronE.frppt siedashennahe.IsolInf i o 7 ersnfag; m iapwdeosoossse-enral Onoolatiwn Dsmslon ser~~~~~~~~~f ttod1. -. ld1 1d1ig Pe n.L.- 1-ya oplntnpr qar iosnr ilhetre f ssaoa ertfe_Isran f*ssdsS Vrti_linttoii ontal anew; 1960, 1970 snd 1979 data. isotude tethntoal, toduetnial, or other pntgrsmm auth speests tndepesd~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~y MCAIO Potuanlo Adieoaae(enet -Eiden(- er)tnrig-g 1-drmr and1. eroneylvesdndd ynasn fnahesi k En tol Irmqron I Nes reoe t - doral -A noet. grosn j tnr of owoe inO sprensefn di pplto gd15yes50mn yeas yrpolaniwna for iNST-hg, lNgIO-T--O, endn 19...t70-79.1IItd Populatin Irsenk Tans IrIone arkan-Annal gyof- r_tij e n_ f d_rhsm pwpw-- CtNthEMPTIO too hnr; 90 INTO, an lth daa rarseoses olrprtesn fpptno;srss e hernomlrrdotv peidishepainepret agespatfh fa- et se i effan f-e dIfry retna y9ars ma toe t he dmpea-t sn nIl m yats. uuallyf iv-yes anerges o dig in1960 1970 sod199.mais 1ane-shboised rssng Pa ty h.eiaAoros,dna trsne -yMotel0rashe of anep Iors TN Psisiera ins I.o-ad onlais b- TOh reftmesl edaaa ofhinh-ono ete O u Iie fntoa etyplsIn general pohilo pe t.sos1e p,.palaf..n; .Crtoesantred ad rtaier steno otkildkarn ae(5-Yyer)ahisekrh-nnrldeis tltheor itoeiodierteoadr_aetn)- Znstesorgetn al artdi ws.mesreesoo.rleo of. 'daily-general interes t n I'ap pst", eie aprsi P "I1 ll flITITO te he 'daly' fIi app-sr-a t....n fistynme anemia.-Ii.i 970nlaeas rdrrpirnegi;16-5,iT,ad17 dana197stat taker Porte thrses ees lyaieprs nidn qninsusd InCodpro hing lad ase in-1 diatriburknt-n. ffqtim- Petolreeron - Idrr tsro dini. famig ferrant= - ka ni hsd bosaoD, t9va; 196-65 17Y, d sd197daa.17 so.P.di197 d _ste. Pe .1iasotEo rasn(ra ner darN"I. --lo Prnirneso e spt ParitiraionRte- enss - oa, ae adfa - d Patiitdne me Inyt ofIndprdy gespyo ffood t_ define as abs7a..Pa st tty 'rtes - are to-ywnd a nIt ~ mae 1n5sae ao sr qoirrmeis losall noatnirs siablisad by ilA pnotde a n sinimm yartneeges f nwnar mishad femae pepalbime e eti agCONSUMnPnItN flosnr of 60gas f ralpn196prda0n 1 assofaiml0e NgI 97,ae N7dan.Ths1aehar7n0L'spr7wpain ae an.. imah pCSt sa vrg ertewn,peea yPA oteTidIogt esrnd -o Ptio-. Patir of ps Pulatt ondr 15 sad i. 65sa o- C ldsrld . PomO urre d 19 1-A 19I n -17 hdn. so nbthsotalIshfr idny- sireda tamanimas as paAlse . in -grams pee day; ..b-60 197 and-,. 197dnaIN h ITIsT EbPtid lease ,.111-a itatnPt ertomsd matdah a thoas97nd in Perennaee ofr (Priat Inno... dbt inp natsh and ~ kind) - ertndhrrrh tr,Ies- dat Oind-fine life tifes hNI. 17 nd17 dt,ofkoehI an ink t90, 970end11770ae. ad besd9b9inarp .sa nIt -msdeal onies,b..ptbII-- eFsniY Par...Iy RAts pe thosadl- osa dats"finans ndron yar gaiatd bslo 1Pseiy aseLeel179$1t _na)- remma ttaY bar f pnple(tonl, rhan so rotaed nitb ) rasmal snore tn:nferabs estermaths thatfrom noiered boshele, sprngs, nd saitar meilts asNtlrltvIoet d-ostvei nrnb .fIaerag pars pi-ta :earsesnighi of theirn rapsi4 eoaIan.inns nbsssaptli prss l tote rfh wn ry:;t~ . Uralni .divdrethcol feo_stat s4tsda ersd o mre hni. mtr)fo oa a he it---1d,..t lee m daen a ihrrs ftimingf inaTV as Mes. n Esset Ilroml lstora f sioltiw - wnin sbae teiraal1 pInd eetfgMs of thsimm tsap 1nn 6m pasalsatees. _Rarrena diPsas ampi, isnlmds ".ly f t P. iNs allstia a dipssldith at attbeo I n 1sa dana of. bmnd srrata an as 1vaa by2n eata-bosasyss O taISafpi pivsae asi.nonma ad hata Data Piise Car sattlasats f:renemin i..t .I sealydsts and Pstirtfs rpain n Peeslatise ear Pvsiesse - Pspalato dvie by yobt. wf pdsasinipbst-Payt.. otass qoaliftad tram a madiost soheol at osiverstay lenal. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ .L Prsolntweear Nrsis Psrso- Ppolaten ivnm yesa fpeirn sale.. fm feaegrdstenr.s rosfatntt,In asaat oas  - 27 - MEIO coNOMC SqEVILOPWOI SALTAISH-EET ANNEX 1 A C T U A0 1 lsilMt- Groth Sates As.4 of 00Y 19-70 1975 19 77 1979 1980 19-81 82 13 19=85 1970 -75 19795-80 1980-es 1970 1980 1985 NATIONAL ACCCUNS Cesatoet 1972 PLsos, GPO$ Millios GDP 36,971.7 48,508.4 50,966.2 59,836.1 63,119.3 67,512.9 50.{7,4 72110.7 78,395.45. 4.3 99.7 96.9 97.8 Gobs i to-oe 120.1 688.5 352.2 792.6 2,049.5 1,461.1 ,706.9 1,41.5 1,801.4 6- -5 0 313. of trade . . . GD1 37,091.8 49,196.9 51,318.5 59,628.7 65,168.9 68,974.0 7!.578.3 73,852.2 80,196.8 6.2 5.8 3.7 100.0 100.0 1090 Ilports (I.Ie.NPS) 4,411. 3 6,661.0 4,891.6 7,677.8 15,087.6 13,108.4 7,151.0 13,016.4 15,135.9 11.1 8.9 4.3 11.9 15.5 18.9 Is.pro t3~273.0 3,767.8s 4,419.3 5,932.4 7,029.5 14,719.2 ll, 251.5 13,173.3 15, 124.7 5.8 13.6 8.5 8.8 10.0 19.9 Reso.re... 1,136.3 28.2 400.3 1,745.4 3.058.3 1,389.2 1,199.3 -156.9 11.2 29.7 1.1 -24.0 3.1 4.7 Ceesospslso 50,935.2 40,8'19'76. 41,999.5 417,859 51585 51,401.9 52,6990.9 53,203.8 97,786.6 6.1 4.8 2.3 85.4 78.8 72.1 Is---eeo. 7,174.8 10,527.9 9,360.0 12,777.6 14,819.1 17,500.0 10,380.0 16,750.0 70,629.0 9.4 5.5 5.6 19.3 72.7 25.7 Gross Do.. S-riogs 6,156.6 8,318.2 9,327.0 11,824.9 13,810.4 17,572.1 18,887.4 20,648.4 22,410.2 6.9 10.6 9.3 16.6 21.2 .27;9. Gros Not.OS-iogs 5,820.6 7,541.7 8,478.4 10,591.9 12,749.7 11.032,8 17,896.4 19,073.2 21,090.1 6.2 10.0 8.8 15.7 18.8 38.3 TRADE IN 00005