Peru - Eighth Highway Project

Document of The World Bank FILE CO FOR OFFICIAL USE ONLY Report No. P-3193-PE REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF PERU FOR AN EIGHTH HIGHWAY PROJECT January 25, 1982 I 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 authoriation.  CURRENCY EQUIVALENTS The exchange rate is being adjusted daily roughly in line with the differential between domestic and international inflation. The exchange rate and currency equivalents in 1980 and as of December 31, 1981 were as follows: Currency Unit = Sol (S/.) Calendar 1981 January 15, 1982 US$1 S/. 426.60 S/. 517.04 S/. 1 US$0.0023 US$0.0019 SV. 1,000 US$2.34 US$1.93 FISCAL YEAR January 1 to December 31 ABBREVIATIONS CORPAC - Corporacion Peruana de Aeropuertos y Aviacion Comercial (Peru Airports and Civil Aviation Authority) DGC - Direccion General de Caminos (Highways Directorate of the MTC) DGTT - Direccion General de Transporte Terrestre (Land Transport Directorate of MTC) ERP - Economic Recovery Program IDB - Inter-American Development Bank MTC - Ministerio de Transportes y Comunicaciones (Ministry of Transport and Communications) ORETT - Comision Reguladora de Tarifas de Transporte (Regulatory Commission for Transport Tariffs of MTC) OSP - Oficina Sectorial de Planificacion (Sectoral Planning Office of MTC) PPAR - Project Performance Audit Report SEM - Servicio de Equipo Mecanico (Mechanical Equipment Service of the MTC) USAID - United States Agency for International Development vpd - vehicles per day  FOR OFFICIAL USE ONT' REPUBLIC OF PERU EIGHTH HIGHWAY PROJECT LOAN AND PROJECT SUMMARY Borrower: Republic of Peru Amount: US$93.0 million equivalent Terms: Repayable in 17 years, including 4 years of grace, at 11.6 percent interest per annum. Project Description: The project's objective is to provide support for key elements of the Government 's expanded highway investment program and to strengthen the Ministry of Transport and Communications' Highways Directorate (DGC). The project includes (i) rehabilitation of 195 km of severely deteri- orated paved roads; (ii) improvement of another 400 km of unpaved roads, to a gravel or paved two lane standard; and (iii) assistance for strengthening DGC's road maintenance operations through provision of equipment, spare parts, workshop improvements, technical assistance and training staff. In order to improve the quality of management in DGC, the project also provides for contracting experienced engineers and managers to fill senior positions. Finally, the project also includes detailed engineering for future road rehabilitation and improvement and technical assistance for preparing a regional development project and for executing three transport sector related studies. Special Risks: The project's main risks are (i) that DGC will not be able to implement the project effectively; the loan would provide funds for hiring consultants for project supervision and in-line experts for DGC in order to minimize this risk and would include provision for consultation between the Bank and MTC before major new projects are undertaken so that the risk that DGC's scarce managerial resources are diverted to other lower priority projects is minimized; and (ii) that costs will exceed estimates. The fact that detailed engineering for project civil works has been essentially completed reduces this risk to an acceptable level. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - Estimated Costs: Local Foreign Total -----US$ millions------ A. Road Rehabilitation Program 17.9 18.6 36.5 (i) Civil works for 195 km of roads 15.0 16.1 31.1 (ii) Engineering and Supervision 2.9 2.5 5.4 B. Road Improvements 39.1 36.2 75.3 (i) Civil works for 400 km of roads 34.1 31.8 65.9 (ii) Engineering and Supervision 5.0 4.4 9.4 C. Road Maintenance Program 2.4 8.8 11.2 (i) Equipment, spare parts and workshop improvements 1.7 8.5 10.2 (ii) Contracted services 0.7 0.3 1.0 D. Strengthening Highways Administration 1.4 1.6 3.0 E. Transport Sector Technical Assistance 0.7 1.1 1.8 Base Price 61.5 66.3 127.8 F. Physical Contingencies 9.3 9.4 18.7 G. Price Contingencies 19.2 20.3 39.5 Total 90.0 96.0 186.0 Financing Plan: Local Foreign Total ------US$ millions----- Bank - 93.0 93.0 Co-financing 1.5 3.0 4.5 Government 88.5 - 88.5 Total 90.0 96.0 186.0  - iii - Estimated Disbursements: 1983 1984 1985 1986 (US$ millions by Bank FY) Annual 18.3 32.4 31.2 11.1 Cumulative 18.3 50.7 81.9 93.0 Rate of Return: About 39 percent. Staff Appraisal Report: Staff Appraisal Report No. 3619b-PE, dated January 21, 1982.   INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMFNDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF PERU FOR AN EIGHTH HIGHWAY PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Peru for the equivalent of US$93 million to help finance an eighth highway project. The proposed loan would be repayable over 17 years, including 4 years of grace, on a fixed amortization schedule with interest at 11.6 percent per annum. PART I - THE ECONOMY 1/ 2. An economic report entitled "Peru-Major Development Policy Issues and Recommendations" (Report No. 3438-PE) was distributed to the Executive Directors on May 4, 1981. This part is based on the report's findings and on those of economic missions to Peru in June and September 1981. Country data sheets are attached as Annex I. Natural and Human Resources 3. Peru, the fourth largest country in Latin America, is divided by the Andes mountains into three distinct regions: the coastal region (Costa), with 46 percent of the population and most of the country's modern economic activity; the mountain region (Sierra) with 44 percent of the country's population; and the sparsely populated tropical rain forests east of the Andes (Selva). The country's rugged topography limits trade between the three regions. 4. Peru's natural resources include large deposits of minerals-- particularly copper, iron, silver, and zinc--located mainly in the Sierra and the southern Costa. There are also large phosphate deposits, located in the northern Costa. Petroleum resources found in the jungle areas and offshore are also substantial, but their full extent has not yet been ascertained. Another major natural resource is the large fishing potential in coastal waters, although the magnitude of the catch is subject to sharp fluctua- tions. Only a small portion of Peru's total land area is arable, and most of the soils suitable for intensive agriculture are already being farmed. 1/ This part is an updated version of Part I from the Small Scale Enterprise Project President's Report of November 18, 1981 (Report No. P-3154-PE.)  - 2 - 5. Crude oil is the dominant source of energy in Peru, supplying approximately 80 percent of the country's commercial energy requirements. Although Peru's energy resource base is relatively diverse, with scope for expanding hydro and coal based power generation, petroleum is expected to remain the major energy source through the rest of this century. After having been dependent on imported crude oil for part of its energy requirements since the early 1960s, Peru increased domestic oil production almost threefold between 1976 and 1979 to about 190,000 barrels per day. As a result, Peru exports oil in substantial quantities (about 60,000 barrels per day). Despite this encouraging production trend, domestic consumption is expected to rebound after several years of economic stagnation. To enable Peru to remain a net petroleum exporter, therefore, the Government has embarked on a strategy of accelerated secondary recovery and exploration efforts to increase production and of rational pricing policies to contain demand growth. This strategy is already bearing fruit with petroleum output expected to increase in 1982 to an average level of 207,000 barrels per day. Prices for domestically consumed petroleum products have been increased at regular intervals. In addition, new legislation was enacted offering special tax incentives to investors, both domestic and foreign (see para. 20). Response to the tax incentives has been positive. 6. As a result of three decades of rapidly falling mortality rates, Peru's population growth accelerated during the 1930-1960 period. In the early 1960s, however, birth rates started a gradual fall, mainly caused by the urbanization process and by improved education. But with declining death rates, population has continued to grow at about 2.7 percent p.a. and is currently estimated at about 17 million. It is expected that population growth will fall only slightly to about 2.4 percent p.a. over the next 20 years, unless an effective population control policy is adopted. The Government is conscious of the need to slow down Peru's demographic growth rate and is now developing a primary health care program which would contain a family planning component. The urban population is increasing at 4.3 percent p.a., and about a quarter of all Peruvians live in the Lima area. Given the structure of Peru's population, the labor force is expected to grow in excess of 3 percent per year during the next 20 years. Past Development Policies and Performance (1968-78) 7. Two successive military Governments, in office from October 1968 until July 1980, followed a development strategy aimed at promoting economic growth and improving distribution of income and wealth, not only on the individual level but also between regions. To achieve these goals, the first military Government expanded the role of the State in the economy, changed the pattern of asset ownership, reduced foreign ownership of national resources, oriented industry and agriculture toward production of essential goods for the domestic market, stimulated regional deconcentration, and reformed the educational system. Through nationalization and creation of new enterprises, the State took direct control of key economic sectors. Moreover, the Government imposed complex legislation to control the operations of the private sector. 8. The pattern of asset ownership in the economy changed drastically. Through nationalization, the share of foreign-owned assets fell sharply. A sweeping land reform redistributed 49 percent of the country's best farmland  - 3 - to workers' cooperatives comprising some 30 percent of all rural families. Through other laws, industrial workers were given shares in their employers' firms and, in the mining sector, a share in profits. While these actions benefited large numbers of Peruvians, they barely reached the poorest groups, which continue to live in abject poverty. It is estimated, for example, that almost three quarters of rural families--mostly "minifundistas" (those farming less than 2 ha) and landless seasonal workers--were not reached by these programs. Moreover, subsidies were given to products that were more important in the consumption basket of high- and middle-income groups than in that of the poorest groups. Artificially low prices for some products actually hurt the poor who produced these items, and affected production negatively. Although many of the policies and structural changes carried out after 1968 were meant to achieve rapid growth and more equality, their cost proved to be excessive and their implementation inefficient. 9. Between 1968 and 1977, Peru's Governments followed expansionary fiscal and credit policies. A rapid increase in expenditures was not matched by a parallel increase in revenues. Public sector savings dropped steadily in relation to GDP from 4.4 percent in 1970 to dissavings of 2.6 percent in 1977. As a result, aggregate demand considerably exceeded aggregate supply resulting in strong inflationary pressures and widening external gaps. 10. Inflation accelerated from 5 percent per year in 1970 to 38 percent in 1977. Interest rates, however, remained substantially negative in real terms, discouraging financial savings and stimulating capital flight. Moreover, the exchange rate remained practically constant between 1968 and 1975, thus contributing to the overall disequilibrium. National savings fell dramatically from 16 percent of GNP in 1970 to 8 percent in 1977, when they financed only about one-half of investment. 11. The growing disequilibrium was reflected in the balance of payments. The current account deficit averaged US$1.1 billion per year in 1974-77, equivalent to nearly 9 percent of GNP. To finance this deficit, Peru accumulated a massive external debt. At year-end 1977, Peru's total private and public external debt--including short-term indebtedness--stood at almost US$8.3 billion, equivalent to two-thirds of GDP and almost four times annual exports of goods and non-factor services. Three-fourths of the US$6.4 billion long-term public sector debt (including undisbursed) was scheduled to be repaid over the 1978-82 period. 12. Following the 1968-74 period of rapid expansion during which GDP grew by more than 6 percent per year, the growth rate dropped progressively and became negative in 1977 and 1978. In this two-year period, GDP per capita dropped by over 6 percent and unemployment and underemployment rose to almost 60 percent of the labor force, up from less than 50 percent during the early 1970s. According to Government estimates, the purchasing power of the average salary had fallen 40 percent by 1978 compared to 1970 and that of the average wage by over 16 percent. Stabilization Policies and the Economic Recovery Program (1978-80) 13. From 1975 on, several unsuccessful attempts were made to cope with Peru's deteriorating economic situation. By mid-1978 the economic crisis had reached grave proportions, with a drop in real GDP and inflation approaching  - 4 - 100 percent on an annual basis. Moreover, the private sector was finding it increasingly difficult to open letters of credit for new imports and the banking system's net international reserves had dropped to a negative level of US$800 million. Financial instability had reached the point where practically all economic activities were adversely affected. The public sector was fast approaching the point where it would no longer be able to fully service its external debt. Peru was no longer creditworthy. 14. Beginning in May 1978, the Government adopted a number of important stabilization measures aimed at strengthening public finances, improving the balance of payments and curbing inflation. The Government also negotiated a stand-by arrangement with the IMF for SDR 184 million. In July 1979, this stand-by was replaced by a new one for SDR 285 million as continued support of the stabilization program. Peru's debt outstanding to the IMF as of December 31, 1981 amounted to SDR 578.9 million. 15. Major debt-relief operations carried out through the Paris Club and with the Soviet Union and commercial banks in 1978 enabled Peru to reduce the debt-service burden for 1979 and 1980 by postponing repayment of about US$1 billion to the 1982-1986 period. In view of the strong balance of payments performance in 1979 and 1980 (para. 18), the Government decided to forego parts of the rescheduling options in exchange for slightly better conditions for new loans from commercial sources. 16. To overcome the economic recession, in late 1978 the Government adopted a comprehensive Economic Recovery Program (ERP) which, in addition to the above-mentioned stabilization actions, included measures to open up the economy, promote non-traditional exports, strengthen the tax system by broadening its base, and generally improve the efficiency of resource allocation in the private and public sectors. Import liberalization was the most important element of the ERP and is expected to have salutary long-term effects on resource allocation and on prices. These policy changes--together with a declining domestic market because of the recession--resulted in a major reorientation of industrial development, with a large increase in the value of manufactured exports from US$200 million in 1977 to the US$750-800 million range in 1980-81 (equivalent to about 8 percent of output). The Government also drew up a public sector investment program that aimed at redirecting investment towards projects of clear economic priority and with positive effects on production and employment. In support of the ERP, the Bank approved a US$115 million program loan in May 1979. The carrying out of the ERP was generally satisfactory. Performance in some critical areas--e.g., export promotion and import liberalization--actually exceeded expectations. In other areas--e.g., improvements in the quality of public investment and in raising interest rates--progress was more modest. 17. The Government's stabilization-cum-economic recovery program resulted in a strong improvement in public sector finances in 1979. Central Government revenues increased by 23 percent in real terms, while current outlays declined by 6 percent. Payments for wages and salaries alone fell by some 7 percent in real terms, partly as a result of a reduction in excessive civil service employment. Public sector current account savings rose from -0.5 percent of GDP in 1978 to about 3.7 percent of GDP in 1979, and the overall deficit was reduced from 5.7 percent of GDP in 1978 to 1.7 percent in  - 5 - 1979. In spite of the good fiscal performance, however, inflationary pressures remained strong, with consumer price increases of 67 percent in 1979 and of 59 percent in 1980. 18. The implementation of stabilization measures and of the ERP had a positive impact on the balance of payments. Moreover, an increase in petroleum exports, substantial price increases for silver, copper, petroleum, and other commodities, as well as the relatively low level of imports because of the recession contributed to high overall surpluses of the balance of payments in 1979 and 1980. At year-end 1980, the net reserve position had improved to a level estimated at about US$1.3 billion, equivalent to about 4 months of imports. Peru also made greater use of assistance from official bilateral and international sources thus improving the structure of its external debt. The short-term debt of less than one year was sharply reduced from US$1.8 billion at year-end 1978 to US$0.8 billion at year-end 1980. Real GDP growth rebounded to 3.7 percent in 1979; in 1980, growth dropped slightly to 3.1 percent owing, in part, to a drought which affected the agricultural sector. Recent Developments and Outlook 19. In July 1979, the Military Government promulgated a new constitution written by a popularly elected constituent assembly. Elections were held in May 1980, and following his electoral victory, President Fernando Belaunde was inaugurated on July 28, 1980. The new Government faced a challenging economic and social situation with a number of acute problems which had been somewhat disguised by the apparently solid financial situation. These included: high levels of under- and un-employment, particularly in urban areas; higher underlying inflation than had been reported because of price controls and deferred price adjustments for public goods and services; a public sector deficit that had been reduced by freezing expenditures for economic and social services (including education, health and housing), combined with a rigid expenditure structure which did not leave much margin for any significant reallocation of funds ta these and other high priority areas; a balance of payments situation which showed a substantial surplus, but which was partly due to high commodity prices and to the fact that import levels were depressed; and, finally, deteriorated income distribution over the past several years resulting in increased social unrest. 20. The Government named a capable economic team which is committed to economic efficiency, decontrol of the economy (including divestiture of some of the State-owned enterprises), promotion of the private sector (including foreign investment), and policies aiming at a more equitable sharing of the benefits of development through job creation and specifically targetted social programs. Its reliance on, and promotion of, private initiative, in particular, distinguish the present Government's philosophy and economic program from that of its immediate predecessors. During its first year in office, the Government took vigorous measures to address many pressing problems. It was successful in accelerating import liberalization by eliminating non-tariff barriers and lowering tariffs. At the same time, export incentives were streamlined and revised to eliminate abuse and make the system more responsive to exports of products with high manufactured  - 6 - content. The Government also enacted new legislation for the agricultural, mining and petroleum sectors offering greater financial incentives to investors. Finally, it made significant institutional changes in the financial sector, revised the interest rate structure through substantial upward adjustments, and recently introduced a new banking law in parliament which would allow further rationalization and liberalization of the financial system. 21. In an effort to improve resource use, the Government made headway in correcting major price distortions. Food subsidies were greatly reduced and most controlled agricultural prices were adjusted to international levels. The marketing of agricultural products was liberalized, and public utility and petroleum prices were adjusted at regular intervals. Moreover, the Government endeavored to rationalize public investment and its financing -- an effort that was supported by a Bank sponsored Consultative Group meeting in May 1981. 22. The above efforts were complemented by measures to strengthen public sector institutions. The important public enterprise sector, for example, was granted greater autonomy by transforming these enterprises into State-owned limited liability corporations operating under private law. This measure gives these companies, inter alia, greater freedom in fixing staff compensation and, thus, helps them to recruit or to retain capable personnel. Many of the above measures have already had positive short-term effects, and they have laid the ground for medium-term structural adjustments of the Peruvian economy. 23. In spite of the above policy initiatives, economic performance in 1981 lagged behind expectations; the growth of production and employment was particularly sluggish. The balance of payments deteriorated substantially as a result of declining export prices, high interest rates on the country's debt with commercial banks, and a rapid expansion of imports. The loss in net reserves is estimated to have amounted to about US$800 million, equivalent to about 4 percent of GDP. A major factor in the deterioration of the balance of payments was the large public sector deficit which is estimated to have reached about 8 percent of GDP. On the positive side, however, inflation decelerated during the past few months to an annual rate of about 50 percent, mostly because of the openness of the economy and the price dampening effects of an increase in imports. 24. Reducing the public sector deficit has, once again, become the major challenge facing Peru's economic managers. While the deteriorated export situation has had a negative impact on tax revenues, the deficit is mostly the result of steep increases in expenditures and somewhat lagging adjustments of petroleum and rice prices. Excess expenditures over initial budget allocations were incurred mostly for investment projects of lesser priority. To tackle the difficult public finance situation, the Government is drawing up a restrictive financial program for 1982 with tight credit ceilings and limits to foreign indebtedness. It is also expected that the Government will trim the public investment program in line with its investment priorities. The Bank has an ongoing and frank dialogue with the Peruvian Government on these issues.  25. Based on cautiously optimistic assumptions with regard to economic management, the country is expected to experience economic growth of about 4-5 percent per year and a manageable balance of payments situation during the next two years. The balance of payments situation could, however, become precarious, if the exportable surplus of oil declines. While measures are being taken to speed up petroleum exploration and to increase manufactured exports, the results of these endeavors may not come in time to countervail the potential foreign exchange shortfalls. Against this background, there is a continuing need for official development assistance. Taking the above factors into account, considering an expected debt service ratio hovering around the 30 percent mark and assuming that the authorities continue the initiated course of economic policies, Peru is creditworthy for Bank lending. PART II - BANK GROUP OPERATIONS IN PERU 26. The Bank has approved 44 loans to Peru for a total amount of US$960.4 million, net of cancellations. About 29 percent of the Bank's lending to Peru has been for transportation (mainly highways and ports), 18 percent for agriculture, 17 percent for the energy sector, 18 percent for mining and industry, about 6 percent for education and urban development and 12 percent for a program loan in support of the ERP in 1979. 27. As of September 30, 1981, US$360.9 million was undisbursed on Bank loans currently in execution. (Annex II contains a summary statement of Bank loans as of September 30, 1981 and notes on the execution of on-going projects.) Disbursements on Bank-financed projects moved slowly in the mid- and late-1970s, primarily because of weak project execution capacity and a shortage of counterpart funds that worsened as the economy deteriorated during this period. In an effort to improve disbursements: (i) the Bank opened a resident mission in Peru and restructured a number of slow moving projects; (ii) the Government took steps to provide adequate counterpart funds for Bank-financed projects; and (iii) the Government also set up a special commission to monitor loan execution and resolve administrative problems. These actions are bearing fruit. About US$44.0 million was disbursed on project loans in FY1980 and US$70.5 million during FY1981. This compares with average yearly disbursements of US$27.5 million during FY1977-79. 28. The main objectives of Bank lending to Peru are to assist in (i) the creation of the physical infrastructure needed to sustain and foster economic development; (ii) the expansion of productive capacity in crucial sectors, i.e., petroleum, agriculture and mining; (iii) the strengthening, through technical assistance loans and regular operations, of local capacity to prepare, implement and operate projects effectively; and (iv) the improvement of living conditions for the urban and rural poor. In the past, Bank lending concentrated on infrastructure in the transportation and power sectors. More recently, the Bank's emphasis has shifted to more directly productive fields -- mining, petroleum, agriculture and industry -- to help Peru to strengthen its balance of payments. Lending for social projects has  - 8 - also grown. As part of its assistance strategy, the Bank convened a Consultative Group Meeting for Peru on May 25-26, 1981 to help the Government arrange financing for its public investment program. The next operations that would be ready for the Executive Directors' consideration include projects in petroleum, power, agricultural research and extension, and water supply. These would be later followed by projects in rural development, health, education and housing. The Bank is also considering a technical assistance loan to help strengthen public sector management. 29. Bank loans constituted an estimated 5.8 percent of Peru's total public external debt outstanding and disbursed at the end of 1980, and absorbed about 2.6 percent of the country's external debt service in 1980. Assuming increased recourse to long-term bilateral and multilateral aid by Peru, the Bank's share in the country's outstanding public foreign debt by 1985 could reach about 10 percent, and its share of debt-service could be around 4.5 percent. 30. IFC commitments as of September 30, 1981 were US$38.3 million (including US$15 million to the Southern Peru Copper Corporation for the Cuajone Copper Mining Project) of which US$15.9 million were held by the Corporation. A summary statement of IFC investments as of September 30, 1981 is presented in Annex II. The IFC is now considering assistance for a palm oil venture. 31. The other principal lending agencies active in Peru are the Inter-American Development Bank (IDB) and the United States Agency for International Development (USAID). Total loan commitments as of December 31, 1980 by IDB and USAID were US$652.4 million and US$348.6 million, respectively, and their shares of debt service as of end-1980 were estimated at 0.6 percent and 0.5 percent, respectively. In its future lending, IDB is expected to emphasize lending for agriculture, industry, mining, roads, and small scale irrigation. USAID is expected to stress rural development and health. PART III - THE TRANSPORT SECTOR Background 32. The transport systems in Peru's three regions vary greatly: in the Costa region, where most of the population and economic activity is concentrated, the system is generally adequate although many roads need extensive repairs. While the system in the Sierra is more developed than that in the Selva, in both these regions it is inadequate and needs expansion in order to provide access to isolated -- and undeveloped -- areas of the country. However, the rugged terrain, combined with difficult geologic and climatic conditions, makes improvement in both regions a slow and expensive process. The present Government has made improvement of transport, particularly the road network, a primary objective. 33. Development of the transport system began with construction of coastal ports during the colonial period. Then, in the nineteenth century, independent private railways were built to connect the mining areas in the  - 9 - Sierra with the coastal ports. During the present century, roads have played an increasingly important role and now over 80 percent of non-petroleum freight movements and 70 percent of passenger traffic move by road. Most of the improved road network is in the Costa. There are a few paved roads connecting the Costa with the Sierra but only one which connects with the Selva. As a result, access to the Selva is poor and dependent on dirt and gravel roads, a handful of regional airports and some small river ports. Institutional Framework 34. Overseeing transport sector activities in Peru is the respon- sibility of the Ministry of Transportation and Communications (MTC), which was formed in 1969. MTC sets policy and investment priorities for the sector as a whole and executes the road investment program. It is split into four transport directorates, two of which are responsible for land transport and the others for water and air transport. These are assisted by various advisory units, the most important of which are the Sectoral Planning Office (OSP) and the Regulatory Commission for Transport Tariffs (ORETT). OSP is responsible for reviewing policies and for preparing a comprehensive investment plan for the sector based on general guidelines established by the National Plannning Institute. ORETT is responsible for reviewing and proposing tariff structures and for regulatory activities. There are also five public enterprises in the sector which are responsible for operations in the areas of railways, shipping, ports, airports and urban transport. 35. While centralization of responsibility for the transport sector has had the advantage of ensuring good coordination between the transport modes and has aided planning, the MTC has, in the past, not delegated sufficient authority to the five transport sector public enterprises referred to in para. 34. The Government has recently changed this giving more authority -- particularly for execution of investments -- to these five enterprises while maintaining planning and policy responsibility in MTC. These changes are well designed and should streamline sector management. More far-reaching action is, however, required to improve MTC's highways directorate (DGC) which is responsible for maintaining and improving the road network but is not adequately staffed for this task. DGC is discussed in greater detail in paras. 46-48; strengthening DGC would be a major objective of the proposed project. Railways 36. Peru has never had an integrated railway system; the network consists of 2,200 km of line linking various mines in the Sierra with ports in the Costa. As is typical of the countries in the region, railways have declined in importance and now carry only 5 percent of total traffic. Most of this consists of minerals for which the railway is expected to continue to have a role to play in the future. Ninety percent of the railway system is owned and operated by the Government's National Railways with two lines operated by CENTROMIN, a large State-owned mining company. Although revenues generally cover expenses, the National Railways have continually needed financial support from the Government for investment purposes and a total of US$76 million is budgeted for the railway -- mostly for rehabilitation of track and rolling stock -- in OSP's 1981-1985 investment plan.  - 10 - Ports 37. Peru is served by 36 public ports which are the responsibility of the National Port Authority. In addition to serving international traffic -- most of which flows through Lima's port, Callao -- these ports play an important role in the internal movement of bulk cargo. Coastal traffic represents about 36 percent of total cargo traffic in Peru and consists primarily of the shipment of crude oil and oil products from the terminal of the northern Peru pipeline at Bayovar to Lima and, to a lesser extent, of iron ore shipments from San Nicolas in the south to supply a steel works at Chimbote on the north coast. The use of coastal shipping is, however, below its potential. A study carried out under the Sixth Highway Project (Loan 1025-PE of 1974) indicates there could be substantial economic benefits in expanding coastal shipping but that such expansion would be difficult under the current regulatory and institutional structure of the sector. For these reasons, technical assistance would be provided under the proposed loan to analyze these problems and recommend a strategy to foster the development of a combination of trucking and shipping as an alternate to long haul trucking in the coastal corridor. 38. Domestic- river traffic, although growing, accounts for only about 3 percent of total ton/km and is mainly diversified dry cargo. This traffic is carried entirely on the extensive river system of the upper Amazon River and its tributaries, which provide a natural transportation network for the whole of eastern Peru. Since this river system is oriented toward Brazil and the Atlantic and connections with the Costa are poor, it has been largely underutilized. It was with the idea of spurring greater use of this potential network that the Lima-Amazon transport corridor concept, financed under Loans 1025 and 1196-PE, was developed. These loans supported the completion of an improved highway link from the coast to a river port on the Amazon headwaters at Pucallpa and for improving other river ports to serve the Selva. Civil Aviation 39. Civil aviation has long been important in integrating isolated areas of the country into the national economy. One of Peru's main domestic airlines, Fawcett, was founded in 1928 and is one of the oldest in the Americas. The other principal carrier is the State-owned airline, AEROPERU. These two carriers roughly share domestic traffic, which totalled about 1.75 million people, and accounted for 16 percent of total passenger/km, in 1980. The main airports in the country are in Lima, Cuzco, Iquitos and Arequipa. In addition, there are 52 other small airports, most of which have rudimentary facilities. Traffic growth has been rapid (over 9 percent) over the last ten years but has been constrained because of the inadequate infrastructure at these airports and because of poor communication and navigation systems. The Aviation Development Project (Loan 1963-PE of August 19, 1981) is aimed at alleviating these problems through upgrading airports at four fast-growing regional centers in the Selva and through provision of needed navigation and communication equipment.  - 11 - Transport Sector Strategy 40. Between 1977 and 1979, an average of just over US$100 million per year, or about 12 percent of public fixed investment, was committed to the transport sector. Roads accounted for over 80 percent of these investments. These amounts proved inadequate given Peru's size and stage of development and the present Government, correctly, plans to give higher priority to transport. OSP's current investment plan for 1981-1985 provides for average annual transport sector expenditures of about US$370 million/year or 20 percent of total public fixed investment. Of this total, about 75 percent would be spent on roads for maintenance, rehabilitation and construction, while 8 percent would be spent on ports, 11 percent on airports and 6 percent on other modes. 41. These investment levels are ambitious given the volume of expenditures in the past and the institutional constraints, especially in the highway subsector. The major investment priority in the sector is improving land transport, owing to (i) the poor condition of the network in the Costa and the Sierra; and (ii) the need for improved access to large areas in the Selva. However, execution of the investments will require substantial improvement of MTC's management. The proposed project includes funds for hiring experts who would help MTC to carry out its program (para. 60). The Highway Subsector 42. Peru's highway network totals abut 58,500 km, of which only 10 percent is paved, 21 percent is gravel and the remaining 69 percent consists of earth roads and tracks. The length and coverage of the paved network is inadequate -- road density is half that in the neighboring countries of Chile and Ecuador -- and much of it is in poor condition and needs repair because it was not initially well designed for current traffic needs nor has it been adequately maintained. The backbone of the road network is the Pan-American Highway which runs 2,700 km along the coast from the northern border with Ecuador to the southern border with Chile. From this highway several roads -- most of which are in poor condition -- run inland to large towns in the Sierra but only a few cross into the Selva. The Bank-financed Trans-Andean Highway, from Lima to Pucallpa, is the only all-weather road connecting all three regions of the country. Improved access to the various regional centers in the Selva is important to the development of Peru. In order to achieve this, the Government plans to improve Tran-Andean connections and gradually construct the "Marginal de la Selva" which would be an all-weather road running through the Selva from the north to the south, on the eastern side of the Andes. Road Transportation 43. Peru's total vehicle fleet amounted to almost 500,000 vehicles in 1980; of these, 82 percent were light vehicles, 4 percent were buses and 14 percent were trucks. Growth in the fleet was only about 2 percent p.a. in the 70's reflecting the general stagnation of the economy. MTC data on traffic levels indicate that the highest traffic is on the Pan-American Highway which experiences traffic levels of as much as 3,000-6,000 vehicles per day (vpd) over some stretches. Traffic on other important roads in the Sierra and Selva is much lower generally ranging from 200 to 500 vpd.  - 12 - 44. The trucking industry is supervised by MTC which sets tariff levels, recommends taxes and other charges affecting road transport, provides permits and enforces regulations. The industry is highly fragmented -- private owner-operators provide over 90 percent of the capacity -- and thus tends to be competitive. However, previous Government policies protected the local vehicle manufacturing industry which produced trucks of low capacity with gasoline powered engines. Consequently 90 percent of the truck fleet is of this type and only the remaining 10 percent are more efficient with diesel powered engines. The current, more open, economic policy should ease this situation in time. In addition, there are problems with truck overloading which significantly increase the wear on the heavily traveled roads and which can only be controlled through improved enforcement of loading regulations using weigh scales. MTC has a few scales but needs more to police overloading. The proposed project would provide technical assistance and additional weigh scales to MTC for this purpose (para. 68). Highway Administration 45. Highway administration, in the past, had been the responsibility of MTCts Land Transport Directorate (DGTT). This directorate was responsible for both managing the highway network and supervising freight and passenger traffic moving on the network. DGTT had two basic problems, however: it was badly organized and poorly staffed. As a result, it was not able to manage the road network efficiently. The specific weaknesses were: (i) weak overall management -- which led to poor definition of priorities and slow execution of projects; (ii) unsatisfactory technical work -- which led to inappropriate design in many cases; (iii) unclear definition of responsibilities of the regional management -- which adversely affected road maintenance operations; and (iv) inadequate management of the equipment fleet -- which led to low availability of the equipment needed for maintenance operations. 46. The current Government has taken action to deal with the organizational problem by splitting DGTT into two directorates, one of which is responsible for highway infrastructure (DGC) and the other for land transport operations and regulations. The fact that these functions were previously combined meant that insufficient attention was given in DGTT's headquarters to managing the highway network and that DGTT's managers in the various regional offices were sidetracked from looking after the network because they were dealing with operational problems such as accidents and licenses. Now that DGC is only responsible for improving and maintaining highways, more attention will be given to the network at headquarters -- where most of the overall planning and contract supervision is done -- and in the regional offices where most of the road maintenance is executed. 47. DGC has, however, inherited DGTT's staffing problem. In recent years, DGTT was seriously weakened by the loss of engineers, both to the private sector -- as a result of low salaries -- and to other public sector organizations offering better career possibilities. In addition, retirement took a toll of senior staff, while DGTT failed to develop younger highway engineers and experienced managers. The present staffing of 116 engineers  - 13 - and less than 100 technicians is inadequate for managing the highway construction, rehabilitation and maintenance programs which are presently being prepared by the Government. 48. The Minister of Transport and Communications is taking action to deal with the staffing problem by finding a solution to the related problems of low salaries and consequently unattractive career prospects in the Ministry. More specifically, the Minister will develop new grade classi- fications and a revised salary structure for MTC staff. After exchanging views with the Bank, this structure would be put into effect by January 1, 1984 (Section 3.07 of the draft Loan Agreement). In the interim, MTC plans to (i) increase the use of consultants for technical work including design, supervision of construction and management of force account works; and (ii) hire, under special salary conditions, experts to fill key positions in DGC. The proposed loan would help finance both these efforts (para. 68). MTC also plans to implement a training program to upgrade the quality of operational staff; the basic features of this have been agreed with the Bank. This detailed program is being prepared with the assistance of a consultant under the Bank's ongoing transportation project (Loan 1196-PE of 1976); implementation of the program would also be financed by the proposed loan (para. 68). Highway Improvement and Maintenance 49. Road improvement and new construction is managed by DGC's construc- tion department but is generally carried out by private contractors who are often directly supervised by consultants acting on behalf of DGC. There are about 600 registered contractors in Peru, 25 of whom have the capacity to carry out road works. The quality of the work done by these firms is reason- ably good. 50. Because of the seismic, topographic and climatic conditions in Peru, highway maintenance is very difficult, and a large amount of emergency maintenance is required to keep roads open in the face of landslides and floods. Moreover, for years budget allocations for maintenance have been insufficieat. Consequently, the network has continued to deteriorate (para. 42). Road maintenance is the responsibility of MTC's regional offices but a separate Mechanical Equipment Service (SEM) of MTC has been responsible for providing, repairing and operating the maintenance equipment which they use. SEM has not had sufficient funds to keep the equipment working, however, and of its fleet of 2,500 vehicles only 40 percent were operating in 1980. Highway Strategy and Financing 51. Upon coming to power, the present Government demonstrated its strong commitment to a vigorous policy of improving the road network through strengthening MTC's highway administration (para. 46) and through provision of additional funds for both constructing and maintaining roads (para. 40). Average annual funds provided for roads in the 1981-1985 investment plan are US$280 million which is well above the US$80 million average provided in the last two years. Over 70 percent of these funds are allocated to road construction and improvements -- especially for parts of the Marginal de la Selva road -- but the plan also provides increased funds for maintenance.  - 14 - The maintenance allocation of US$38 million for 1981 was considerably higher in real terms than the US$15 million provided on average during the last two years. In addition, the investment plan includes US$40 million to get SEM's maintenance fleet back in shape. 52. Seventy five percent of financing for road expenditures is provided from the national budget and foreign loans with the remainder coming from road tolls, license fees and rentals. Foreign loans have come mainly from IDB, USAID and the Bank in the past, but in the last twelve months about US$200 million has been borrowed from foreign private banks in order to get the road program quickly underway. The Bank supports the increased priority the Government is giving to road investment but is concerned that the funds provided be appropriately balanced between rehabilitation, maintenance and new construction. The provision of sufficient funds for maintenance and repair of roads in accordance with sound engineering practices is, therefore, called for under the proposed loan (Section 4.04 (a) of the draft Loan Agreement). The new road construction which is currently underway is part of an overall plan which is well justified but there is a danger that lower priority projects may be started within this period. In order to help minimize this possibility, the Government and the Bank would exchange views on any substantial new road projects outside the plan -- those involving over US$10 million in investments -- which are proposed during execution of the proposed project (Section 4.06 (e) of the draft Loan Agreement). Road User Charges 53. In the case of Peru, road users pay some direct charges -- in the form of road tolls and license fees -- to MTC. These amounted to about US$12 million in 1980. In addition, indirect road user charges -- such as fuel taxes, import duties and fees -- are paid to the Government and these amounted in 1980 to about US$180 million. Total road user charges, therefore, more than covered the $115 million spent on highways in 1980 and this is typical of the pattern over the last few years. Furthermore, user charges should increase because of the increased economic activity in Peru and because one of the main user charges -- gasoline prices, including taxes -- are expected to increase. An important element of the Bank's policy dialogue with Peru has been to encourage the Government to increase fuel prices. There has been some progress on this score. These have been raised steadily in the last year and the price of gasoline is now just over US$1 per gallon - though the price of other petroleum derivatives is lower; further increases are scheduled and the Government intends to raise the price of gasoline to US$1.25/gallon by mid-1982. The domestic price of other petroleum derivatives would also be raised pari passu with that of gasoline. Past Bank Group Lending 54. The Bank has made 13 loans for US$277.3 million for transportation development in Peru. Four loans, totaling US$20.2 million, have been for ocean ports, including the first Bank loan to Peru in 1952. There have been seven loans totaling US$186 million for highways, a US$13.1 million loan for railroad rehabilitation in 1963 and, finally, a US$58 million loan for airport development in 1981. 55. The two most recent transportation projects (Loan 1025-PE of 1974 and 1196-PE of 1976), which have been carried out by MTC, have encountered implementation problems. Improvements in the Lima-Amazon Corridor, which these loans helped finance, was substantially delayed because of inadequate  - 15 - design during preparation and poor management during implementation. As a result, there were cost overruns on both projects and the loans were eventually restructured, with the Executive Directors' agreement (President's Memoranda R78-36 and R79-59) to eliminate sections which could not be completed within a reasonable period. As part of the restructuring of Loan 1196-PE, financing for road maintenance activities was also increased because of its high priority. After restructuring, better progress was made in both projects and Loan 1025-PE was completed in early 1981. All road sections and ports under the reformulated Loan 1196-PE have either been completed or are under construction; the project is expected to be completed in mid-1982. 56. There have been Project Performance Audit Reports (PPARs) on three Peru transportation projects. The first (SecM 75-567 of August 1, 1975) covers the Port of Pisco Loan (Loan 446-PE of 1966). The PPAR concludes that this project, completed with some two years of delay, enabled the Bank to play an important role in strengthening the sector's institutions, including the establishment of a National Port Authority in 1970. However, it notes that, by the time the project was completed, the Government had not taken any action to provide housing for port workers and to readjust port tariffs to reflect costs -- both conditions of the loan. The second PPAR (SecM 76-292 of April 23, 1976) prepared in connection with the Second Road Construction Loan (Loan 425-PE-of 1965) concludes that the project's primary objective -- the construction of a paved road between La Oroya and Aguaytia -- was not achieved. This was mainly because of large cost overruns caused by extraordinarily difficult topography, inclement weather and landslides, and the shortage of counterpart funds triggered by a fiscal crisis in Peru in the late sixties. Nevertheless, a revised, scaled-down project suggested by the Bank was completed with a delay of three years. The Government generally complied with covenants, particularly those concerning a user charge study and axle load control. The third PPAR (SecM 80-590 of July 29, 1980) dealt with the Road Reconstruction Project (Loan 706-PE of 1970). The loan was made to assist Peru in rebuilding roads in the Huaraz Valley after a 1970 earthquake. The PPAR concluded that there were considerable delays and cost overruns because engineering work had not been done at the time of approval. However, the project contributed to regional institution building, and the roads now provide good land access to the Huaraz Valley, thus opening up the region to economic development. Special efforts have been made in the design of the proposed project to incorporate the lessons learned from these previous projects. Firstly, detailed engineering was done on the major road sections prior to negotiations -- this should reduce the possibility of costs being underestimated. Secondly, special steps are being taken to strengthen MTC's highways directorate so that it will implement the project effectively (para. 68). PART IV - THE PROJECT 57. The present Government has made improvement of the road network a prime objective of its development strategy and requested Bank support in this effort. Early in 1981, Bank staff identified high priority elements of the Government's program that deserved support and have helped MTC to prepare the project recommended in this report.  - 16 - 58. The project was appraised in March of 1981. The appraisal mission's report entitled "Staff Appraisal Report - Eighth Highway Project (No. 3619b-PE, dated January 21, 1982) is being distributed separately. Annex III contains a supplementary Project Data Sheet. Negotiations were held in Washington from December 3, 1981 to December 7, 1981. The Peruvian Delegation was headed by Mr. Nicolas Hurtado, Advisor to the Minister of Transport and Communications. Project Objectives and Description 59. The objectives of the proposed project are to provide assistance for key elements of the Government's highway investment program by supporting priority road rehabilitation and improvements while also assisting in the needed strengthening of DGC's management and its maintenance activities. 60. Specifically the project would consist of: (a) rehabilitation of about 195 km of paved roads, mostly in the northern part of the Costa, as well as engineering for future rehabilitation of an additional 800 km of roads; (b) improvement to a gravel or paved, two lane standard of about 400 km of roads needed to support regional development programs being carried out in the jungle highland regions of the Selva Central and Alto Mayo, as well as engineering for these and further road improvements in both regions; (c) provision of spare parts, equipment, workshop improvements and advisory services needed to strengthen highway maintenance; (d) strengthening highway administration through contracting of 17 experts to fill key positions in MTC as well as supporting development of annual training programs and financing consultant services for planning and installing an improved vehicle weight control system; and (e) consulting services for studies aimed at (i) preparing an agricultural development scheme for the Selva Central region to be served by the road improvements mentioned in (b); (ii) improving coastal shipping operations; (iii) defining a better mechanism to finance feeder road construction; and (iv) improving sector planning. Road Rehabilitation 61. The Government initially identified 700 km of roads urgently needing repair and this component -- consisting of priority elements of this program -- accounts for about 28 percent of the total costs of the project. Specific road sections to be repaved are: (i) the Talara-Cancas road (98 km), a heavily traveled section of the Pan-American Highway carrying about 700 vpd, which passes through tortuous, hilly terrain in the northern part of Peru. Most of the traffic is related to activity in the oil production center of Talara as well as local agricultural production and the border  - 17 - trade with Ecuador; (ii) the Piura-Paita road (53 km), which is also part of the Pan-American Highway carrying around 700 vpd. Traffic consists of agricultural goods transported from the major cotton center of Piura to the port of Paita; and (iii) the Morococha-La Oroya road (44 km), a heavily traveled section of the central highway carrying about 1,900 vpd. This road runs through the important copper mining center of La Oroya and is part of the direct link between the Selva Central agricultural region and Lima. 62. Under this component, financing would also be provided for engineering design and supervision of the above sections and for engineering of further rehabilitation works on about 800 km of roads which would be improved under a possible follow-up project. The actual sections for which this engineering work would be done would be identified based on a study being carried out by consultants financed under Loan 1196-PE. This study is expected to be completed by August 1982 and MTC would consult with the Bank on the results of the study by September 1, 1982 and would adopt an agreed four-year road rehabilitation program based on the study. This program would be reviewed annually by MTC and the Bank (Section 4.06 (c) of the draft Loan Agreement). In addition, the loan would finance a pilot project aimed at introducing better landslide control techniques which could be used in Peru. Road Improvements to Support Regional Development 63. The largest component of the project (59 percent of total costs) would consist of civil works for improving the main roads serving the Selva Central and the Rio Mayo areas as well as the engineering for these and other road improvements. One of the Government's highest priorities is to expand the agricultural frontier in the jungle highlands, where both these regions are located, and it has launched major rural development projects in both areas for this purpose. Rapid development of these areas is important because of the shortage of good, accessible land in Peru which is suitable for arable farming. 64. The Selva Central is particularly important because it is relatively close to Lima and its climate, soils and topography allow it to be used for a range of agricultural purposes. The area already produces over 25 percent of Peru's output of coffee, oranges, bananas and avocados. The long range development plan for the Selva Central envisages a large expansion in this production. The development would involve six major valleys which ultimately would open over 3 million hectares of agricultural land to production and permit settlement of over 700,000 people. The road improvements in the Selva Central (263 km) which would be financed under this project would mean that almost all the narrow, unpaved roads connecting this area and Lima would be upgraded to a two lane paved standard. 65. The Rio Mayo area is about 800 km north of the Selva Central and is also developing rapidly with spontaneous settlement by people who have come from the Costa and the Sierra. The area's population has now reached about 250,000 and production comes mainly from small-scale farmers. This region is seen as having good potential for production of rice, fruits,  - 18 - coffee, tea, beef and oil palm, some of which may be exported. The area is currently being developed with financial assistance from USAID. The Bank is also preparing a rural development project here. The road improvements financed under the project (137 km) would mean that most of the main road connecting the major towns in the region -- which has been cut by landslides several times over the past ten years -- would be improved from a gravel to a paved surface and made safer because of better drainage and slope protection provided. Improving Road Maintenance 66. About nine percent of project costs would be associated with improving road maintenance operations through acquisition of spare parts, workshop tools, some new vehicles and provision of technical support needed to repair vehicles. 67. SEM has already begun taking steps to increase the number of maintenance vehicles in working order. Using spare parts purchased under Loan 1196-PE, SEM is expected to repair 138 vehicles and pieces of equipment by mid-1982 and will establish an initial stock of spare parts and tools needed for preventive maintenance of the equipment. The proposed project would expand this program through rehabilitation of another 275 vehicles and pieces of equipment by mid-1983 as well as by increasing the stock of spare parts. The spare parts needed to overhaul the equipment would be defined with the assistance of consultants and the program for such procurement would be reviewed and agreed with the Bank prior to placing orders (Section 3.08 of the draft Loan Agreement). In addition, by September 1, 1982, and in each successive year thereafter, the Government would provide to the Bank, for comment, a program for equipment renewal and would then provide sufficient funds for equipment renewal (sections 4.06 (b) and 4.04 (c)) of the draft Loan Agreement). This program would initially be based on the results of a study being financed under Loan 1196-PE. Finally, targets for improving maintenance operations for 1983-1986 -- including estimates of related budget requirements -- were agreed during negotiations. The Government would present to the Bank its specific annual maintenance programs, consistent with these targets, for review and comment, by July 31, 1982 and each year thereafter (Section 4.06 (a) of the draft Loan Agreement). Strengthening DGC . 68. In order to strengthen highway administration in the short term, the project would include provision of funds (2 percent of total costs) for: (i) contracting of about 17 experts, to serve as in-line and advisory staff in DGC to provide experienced managerial and/or technical expertise in road maintenance, equipment and workshop operations, geotechnical and soils engineering, planning and also highway design and construction management. Because of the importance of this action to the overall success of this project, hiring of the first five of these experts, who would be instrumental in project startup, would be a condition of effectiveness of the loan agreement (Section 6.01 (a) of the draft Loan Agreement); (ii) contracting specialists to help MTC start annual training programs for operational staff. These programs would focus on improving road and equipment maintenance; and  - 19 - (iii) technical assistance services by consultants for planning and establishing an improved vehicle weight control system (including purchase of related equipment). Adoption of such a system by December 31, 1982 was agreed during negotiations (Section 4.04 (e) of the draft Loan Agreement). Transport Sector Technical Assistance 69. The project would also include funds to carry out three studies and to provide an advisor to OSP to help investment planning. The component would constitute under 2 percent of total costs. These studies would: (i) prepare a detailed agricultural development project, including feeder road requirements, in the Selva Central area directly served by the road improvements which would be financed under this loan; (ii) study traffic demand and recommend regulatory and/or organizational measures for instituting integrated cabotage/trucking services along the coast; and (iii) define a mechanism which would improve the current process of financing feeder and access road investments. The current process is closely tied to other highway financing and thus makes these local road projects vulnerable to cuts in funding. The advisor would help OSP to prepare an investment plan which would be based on sound technical analysis. Related to this, MTC would develop an improved classification of its road network which defines and distributes responsibility for road planning, design, construction and maintenance among national, regional and municipal authorities by October 1, 1982 (Section 4.05 of the draft Loan Agreement). This is useful because, although responsibilities are currently centralized within DGC, the Government is considering decentralizing management of the highway network and it will be necessary to establish such a system in order to provide a framework for possible delegation of some of MTC's responsibilities to regional authorities in the future. Project Execution 70. The project would be implemented over a four-year period (1982- 1985). MTC -- with the assistance of consultants -- would be responsible for overall project execution except for the preparation of the Selva Central project. This preinvestment study would be executed through the special projects unit in the Prime Minister's Office which is responsible for implementing the overall development program of the Selva Central. A detailed project execution schedule was agreed during negotiations with MTC along with a detailed plan of action for achieving the project's objectives. Execution of the project would be overseen by the international office in MTC which was established under Loan 1196-PE in order to coordinate projects being carried out with international agencies. The Government would provide this office with the funds, facilities, services and other resources needed  - 20 - for it to execute the project (Section 3.01 (b) (i) of the draft Loan Agreement). In addition, Banco de la Nacion were represented in the proposed loan's negotiations because of its role as the Government's fiscal agent and because it would be the bank in which the special account provided for under the project is established (para. 75). Project Costs and Financing 71. The total cost of the project is estimated to be US$186 million. This includes local taxes, which represent about 15 percent of total costs, physical contingencies amounting to about 15 percent of costs for civil works and price contingencies, in dollar terms, of 10 percent per year in 1982/83 and 9 percent thereafter. These price contingencies are slightly higher than the Bank guidelines reflecting past experience with projects in Peru. The project's foreign exchange costs come to US$96 million or 52 percent of total costs. The proposed loan of US$93 million, equivalent to 50 percent of project costs, would cover the foreign exchange component of the project items financed by the Bank. Parallel co-financing would be provided for one road section in the Selva Central with an estimated cost of US$6 million. The Federal Republic of Germany -- through their aid agency Kreditanstalt fur Wiederaufbau -- is considering a loan of about US$4.5 million which would cover the section's foreign exchange cost of US$3.0 million and US$1.5 million in local costs. The Government would provide the balance of the funds needed. A total of US$1 million of the proposed loan would finance retroactive expenditures incurred since March 1981. The main uses of these funds would be for (i) the engineering work performed to prepare road sections for bidding; (ii) costs of urgent components of the Selva Central study; and (iii) the costs of the advisors which are hired prior to loan signature. Procurement and Disbursement 72. Civil works financed by the Bank -- amounting to about US$97 million, excluding contingencies, would be procured by international competitive bidding in accordance with Bank guidelines. Altogether, 12 contracts would be bid in four groups, at about two-month intervals; bidding in this way should result in individual contracts ranging in size from US$3.5-10 million, with groups of contracts ranging from US$13-35 million, thus assuring the attractiveness of the jobs to foreign contractors while still making them small enough for local firms to be able to participate. 73. Road maintenance equipment and workshop tools, having a base cost of about US$4.5 million, would be procured by international competitive bidding in accordance with Bank guidelines. Improvements to workshops and training facilities, expected to have a cost of about US$1.9 million (excluding contingencies) would be advertised locally, in accordance with local competitive bidding procedures which are satisfactory to the Bank. Spare parts needed for overhauling maintenance equipment, amounting to about US$3.8 million, would be defined with the assistance of consultants and would also be procured through local competitive bidding where possible. In cases where local bidding is not possible these parts would be procured directly from established dealers. Qualified local suppliers of equipment produced in Peru and those from Cartagena Agreement member countries participating in international competitive bidding would be accorded a margin of preference of 15 percent or the prevailing import taxes and custom duty, whichever is lower. The project includes about 250 man-months of technical assistance services, 110 of which would be provided by local consultants and 140 of  - 21 - which would be provided by foreign consultants with an average cost per month of US$2,300 and US$10,800 respectively. Consultants provided under the project would have qualifications satisfactory to the Bank and would be hired under conditions and terms acceptable to the Bank (Section 3.02 (a) of the draft Loan Agreement). 74. Loan disbursement is expected to take four years running from mid- 1982 through mid-1986 and would be made against: (i) 51 percent of total expenditures, excluding the retentions for performance guarantee, for civil works; (ii) 100 percent of foreign expenditures for equipment, spare parts and training abroad; (iii) 70 percent of total expenditures for technical assistance, studies, contracted services;and (iv) 25 percent of local expenditures and 100 percent of foreign expenditures for engineering. 75. MTC has had difficulty in executing Bank projects in the past because it has not had the funds needed to pay civil works contractors while waiting to be reimbursed by the Bank; this problem has been compounded by the high rate of local inflation -- over 70 percent in 1981. In order to permit more rapid provision of funds, the Bank would establish a dollar-denominated special account in the Banco de la Nacion on terms and conditions satisfactory to the Bank (Section 2.02 (b) through (f) of the draft Loan Agreement). This account would be expected to consist of an estimated three months Bank disbursements for civil works at any time. Together with this, the Government would by, August 31, 1982, also establish a revolving fund -- in the Banco de la Nacion and on terms and conditions satisfactory to the Bank -- which would be used to pay the civil works contractors. This revolving fund would consist of not less than two months payment needs and would be replenished by the Government -- and the Bank's working fund -- each time a payment is made (Section 3.01 (b) (ii) of the draft Loan Agreement). Project Benefits 76. The rate of return on the project, as a whole, is conservatively estimated to be 39 percent. The quantified benefits of the project would be the savings in vehicle operating costs, travel time and maintenance costs. The majority of these benefits are attributable to existing traffic, though higher than average growth rates are used to reflect the development which would be expected to take place as a result of the project. 77. The rehabilitation component of the project -- representing about 28 percent of total costs -- has an economic rate of return of 37 percent with the various components having returns ranging from 20 percent to 57 percent. The road improvement component -- representing about 59 percent of total costs -- has an economic rate of return of 40 percent with the individual sub-components ranging between 18 percent and 63 percent. Sensitivity analysis indicates that construction costs would have to increase by 121 percent for the rehabilitation component, or by 176 percent for the road improvement component for these components to become uneconomic. Specific benefits have not been calculated for the maintenance and technical assistance components, which comprise 13 percent of project costs, but it is estimated that these would yield an economic rate of return at least as high as the rest of the project because of their combined effect on lowering transport costs and on improving investment efficiency.  - 22 - 78. In addition, the project has substantial benefits which have not been quantified. Firstly, the road improvement components would promote more rapid development of the Selva Central and the Alto Mayo. These are two rural areas of Peru which have great agricultural potential but which have suffered from inadequate transport infrastructure, which is a serious bottleneck to production and marketing. Secondly, the project would lead to substantial improvement of the management of the road transport subsector and, through the strengthening of DGC, should permit highway improvements to be carried out in a timely manner and without major cost overruns despite the fact that the Government is pushing ahead with an ambitious investment program in the sector. Project Risks 79. The major risk lies with DGC's capacity to manage the project. In order to reduce this risk, the project provides for hiring consultants to directly supervise major civil works and includes provision for hiring individuals to strengthen DGC's capacity. Also, the exchange of views between the Government and the Bank on major new roads projects (para. 55) should reduce the risk that implementation of this proposed project would be delayed because of a diversion of DGC's scarce managerial resources to other, lower priority projects. Finally, there is a risk that this project, like previous Bank-financed road operations, would experience substantial cost overruns. The fact that, in this case, detailed engineering has already been substantially completed should reduce this risk to acceptable levels. PART V - LEGAL INSTRUMENTS AND AUTHORITY 80. The draft Loan Agreement between the Republic of Peru, the Banco de la Nacion (in which the special account would be opened, and the Government's revolving fund maintained, and which, under Peruvian law, must be a party to all agreements providing for external loans to the Central Government) 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. 81. The main features of the draft Loan Agreement are referred to in the text and listed in Section III of Annex III. A special condition of effectiveness would be the hiring of five key experts needed to strengthen DGC. 82. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.  - 23 - PART VI - RECOMMENDATION 83. I recommend that the Executive Directors approve the proposed loan. A. W. Clausen President Attachments January 25, 1982 Washington,D.C.  ANNEX I -24 - Page 1 of 5 Page I TABLE 3A PERU -SOCIAn L INDICATORS DATA SHEET PERU REFERENCE GROUPS (WEIGHTED AVE7AGES LAND AREA (THOUSAND SQ. KM.) - HOST RECENT ESTIMATE)- TOTAL 1285.2 MOST RECENT MIDDLE INCOME MIDDLE INCOME AGRICULTURAL 305.5 1960 /b 1970 /b ESTIMATE /b LATIN AMERICA & CARIBBEAN EUROPE GNP PER CAPITA (US%i 230.0 410.0 730.0 1616.2 2609.1 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 436.3 691.8 736.9 1324.1 2368.4 POPULATION AND VITAL STATISTICS TOPULATION, MID-YEAR (THOUSANDS) 10181.0 13461.0 17149.0 URBAN POPULATION (PERCENT OF TOTAL) 46.3 57.4 66.5 64.2 53.2 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 28.5 RTATIONARY POPULATION (MILLIONS) 55.0 YEAR STATIONARY POPULATION IS REACHED 2085 POPULATION DENSITY PER SQ. KM. 7.9 10.5 13.3 34.3 80.6 PER SQ. KM. AGRICULTURAL LAND 33.0 44.0 54.6 94.5 133.9 POPULATION AGE STRUCTURE (PERCENT) 0-14 YES. 43.6 44.3 42.8 40.7 30.1 15-64 YRS. 52.0 51.8 53.6 55.3 61.5 65 YRS. AND ANOVE 4.4 3.9 3.6 4.0 8.3 POPULATION GROWTH RATE (PERCENT) TOTAL 2.4 2.8 2.7 2.4 1.5 URBAN 5.1 5.0 4.3 3.7 3.1 CRUDE BIRTH RATE (PER THOUSAND) 46.4 41.8 37.8 31.4 22.9 CRUDE DEATH RATE (PER THOUSAND) 19.7 14.5 11.1 8.4 9.1 GROSS REPRODUCTION RATE 3.4 3.0 2.6 2.3 1.6 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) USERS (PERCENT OF MARRIED WOMEN) .. .. FOOD AND NUTRITION INDEX OF FPOD PRODUCTION PER CAPITA (1969-71-100) 96.0 102.0 86.0 108.3 119.8 PER CAPITA SUPPLY OP CALORIES (PERCEhT OF REQUIREMENTS) 95.0 99.0 97.0 107.6 125.7 PROTEINS (GRAMS PER DAY) 62.0 61.0 59.0 65.8 92.5 OF WHICH ANIMAL AND PULSE 27.0 25.0 24.0 34.0 39.7 CHILD (AGES 1-4) MORTALITY RATE 28.5 19.6 13.7 7.6 3.4 HEALTH LIFE EXPECTANCY AT BIRTE (YEARS) 47.7 53.5 58.0 64.1 68.9 INFANT MORTALITY RATE (PER THoUSAND) .. 122.0/c 86.0 70.-9 25.2 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL 14.6 35.0 48.3 65.7 URhBAN 30.2 58.0 60.0 79.7 RURAL 0.8 8.0 25.0 43.9 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 36.0 34.0 59.9 URBAN .. 52.0 51.0 75.7 RURAL .. 16.0 .. 30.4 POPULATION PER PHYSICIAN 2011.7 1904.9 1545.1 1728.2 973.3 POPULATION PER NURSING PERSON 2205.0/d 738.0 745.0 1288.2 896.6 POPULATION PER HOSPITAL BED TUTAL 425.1/e 469.6 542.7 471.2 262.3 URBAN .. 524.8 430.1 558.0 191.8 RURAL .. 3055.3 5747.6 ADMISSIONS PER HOSPITAL BED .. 19.0 23.0 .. 18.2 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 4.9 4.8/f URBAN 4.8 4.97 .. RURAL 4.9 4.67 AVERAGE NUMBER OP PERSONS PER ROOM TOTAL 2.3 1.9/f UKRAN 2.0 i.77 .. RURAL 2.7 2.477 . ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 26.0 32.1/f URBAN 50.7 54.3/f KUKAL 4.2 . 2.7/f  ANNEX I -25 - Page 2 of 5 TABLE 3A PERU - SOCIAL INDICATORS DATA SHEET PERU REFERENCE GROUPS (WEIGHTED AVERA9GS - MOST RECENT ESTIMATE) - MOST RECENT MIDDLE INCOME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b LATIN AMERICA & CARIBBEAN EUROPE EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TUTAL 83.0 103.0 112.0 101.7 105.9 MALE 95.0 111.0 116.0 103.0 109.6 FEMALE 71.0 96.0 106.0 101.5 102.2 SECONDARY: TOTAL 15.0 30.0 50.0 35.3 66.3 MALE 18.0 34.0 53.0 34.9 73.2 FEMALE 13.0 26.0 46.0 35.6 59.5 VOCATIONAL ENROL. (I OF SECONDARY) 20.0 17.0 16.0 30.1 28.4 PUPIL-TEACHER RATIO PRIMARY 34.0 35.0 40.0 29.6 26.8 SECONDARY 12.0 17.0 29.0 15.7 23.6 ADULT LITERACY RATE (PERCENT) 61.0 72.5/f 79.7 80.0 75.4 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 8.0 17.1 18.5 42.6 83.9 RADIO RECEIVERS PER THOUSAND POPULATION 108.0 135.1 135.4 215.0 181.6 TV RECEIVERS PER THOUSAND POPULATION 3.2 29.3 50.8 89.0 131.1 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION , 123.3 51.0 62.8 123.8 CINEMA ANNUAL ATTENDANCE PER CAPITA , 3.2 5.7 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 3193.9 3896.8 5079.7 IEMALE (PERCENT) 21,1 20.7 22.8 22.6 32.9 AGRICULTURE (PERCENT) 53.0 44.8 37.8 35.0 34.0 INDUSTRY (PERCENT) 19,0 20.1 20.0 23.2 28.7 PARTICIPATION RATE (PERCENT) TOTAL 31.4 28.9 29.6 31.8 42.3 MALE 49.6 45.8 45.6 49.0 56.5 FEMALE 13.2 12.0 13.6 14.6 28.5 ECONOMIC DEPENDENCY RATIO 1.5 1.7 1.6 1.4 0.9 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 39.0f HIGHEST 20 PERCENT OF HOUSEHOLDS 64 4Th 61.0/f LOWEST 20 PERCENT OF HOUSEHOLDS 2 5. I 9/f LOWEST 40 PERCENT OF HOUSEHOLDS 8:011 7.o7F POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URRAN 235.0 RURAL 180.0 187.6 ESTIMATED RELATIVE POVERTY INCONE LEVEL (US$ PER CAPITA) URBAN , 293.0 513.9 RURAL , 200.0 362.2 385.1 ESTIMATED POPULATION BELOW POVERTY INCOME LEVEL (PERCENT) URRAN 49.0 RURAL Not available Not applicable. NOTES /n The grop aver.Rpag for each indicator are popultion-eighted arithmetic means. Coverae 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, betweent 1969 and 1971; and for Moat Recent Estimtae, between 1976 and 1979. Ic 1970-75; /d 1964; /e 1962; /f 1972; ,j Personal Income within labor force, * The updated 1980 GNP per capita to be shown in the 1981 Bank Atlas is $930 (at 1978-80 prices). May 1981  ANNEX I -26- Page 3of 5 DEFINITIONS OF S10IAL INDItCATORS Notes A lthough the Iota at dne,.c- nces etrly fudedth setauh.ittis dl reiable, It should aso he totd that they say cot be in,ter tanloollpcosetebl becaue i1 te lac of cedardlesd deficiit Ion adcincPaa used by differren c Lcebsb -1l1-stug ite dat.- e date are,... chelte ueult descrbe reac ta gde, indiate1 tre-ds, acd c-.ete etIn eajor difference-e ...I--. The,eeec gop r 1~1 tIe sam co-cY r-uP of the ujetcunr adI Ia cutr..y getP etch seish.t tigber .. a Seag ictme chat the counrlY grouP aid Ls -ot uitor, cat-t ua he ene-isd It ratio nrgso n ctec caohr hs ceae c tyueu nutelgte lei ice Indicatr atec ine -tg theou ye a.d gef ..cc gops. LAND AREA (thouseu.d eqAt.~) pplto e o2lo e uo a,adrrl oua o r Tota - Total surfac are -orising li-d area and iland -asrt. ur -I n reel:Ottdd by thtetreePtt-i-o.e b,1 h,st :Pio boptl hde, for trPe., Puatrsa, earkce end kitl,ho geod-c ir to lIce fa1lc; IOTA data huhbilii-- ___cnrta toiertlerecI llhucapeesseetly starred hy at Isa one p hyttolan. ll-bahlec-c prr-idie .......ipellYo.eto- 1971, an.d 1979 data. cd lansat es. daldle t hihnfi crie otpstlertsr cod 11lignt- eriet tnta asadIcdo- uoetan eoirtlsap odrrl epia= oa o urll.stet tdndia adscec ceitny to utLegrcaofcol eqinal.n 1960pia lt, 1970, aid 1919 cener. ipcala nrta r clded o u _e.tti. date. o~~~~~~~~~~~~~daaltee. aer NTsia a Tea cushee f adeisairca to or discharges true hospitals Oteided hy the umba of bade. PIPiULATION ADil AITAI. STATItTICS TebiPouaco. i-Ta Ichousada - As of July 1; 1960, 1970, and 1979 HOUfS,fIG Irhan pecuIlation . Porer o.ficl-l - Ratio of urban i total population; I cehold tesee iagru f'tdndul he'hr ite utr ditfeteit definlicoa c urh so. area tr affec .o.....rtbilct' if dat.ndter.. ags A hoardere ogrero a c be taloded it aSui oetclea; 1960, 1970, aid 19 19 dan. ashuehl o tabio upsa Perulsclon Protections A-see obetferos ear os - total ur-e. sed ruesi - Anerags.s Porulatien t rear 211 - Correntpopulationprojenosbt asdi 18,e of parsons pee toes in1 alluban, end e-el -noPid --ntsisaal total Poplto asad st and their cotnailty and fertilit1y rce.19elns essen.p relrealdsiTs.aactutes Ie-1 anMfaIa Ife. enp-tacy satieigs 17.5 pears. The pars- iyre ..cldeelseadeleret 2liigqetr aeeefrfrllity rtce ale h-n he .aee eoicg decline in of toc.., ubrban and rural d.ellirge esp-ctir-ly. tern fOlio aer ding to Loose le-e end past ...i piat g pertiagn-. Ele' countY be char aaattned ore of these oboe cosbit-ttin of a-rt"lit, rfLAD t liacietert onpuieniot-li e scatlenarfc copulation there Is nigroech sinc rianehl- tal . sa lead fesela -_ Cross totl, sal end fea1l sein cosat. This ba achied -1 p tt- feit 1- Ity races deelia. to p,rtap a-he-1-ge pepulctna t li i-oludee children aged'i7 I Pi-il ufttr relacesitsef team ~ly.testbetypplaicle 'In'.sut iarleaithacnrsadiotire acttl 1 cc -ap eareed ... pste -aiasted on tie hatte of the proj e...ed chare. eie. h o the 1popolaco_ sine s popile ers heIst or shone tie crfial. esheel ass. tnhepea 000. sod h.erace of d-olinsderi icttstr rie-teodrrc .l-oe. I-lee_df-sla-ort aseers etcea lear stti . lonern ecrlettit tetchyd - Th. Year h-e stat binary pouato poidsgnea. oatea, Pe teaher tritsg i-ateb-ti..e tea foplft Par s. km. - Kid-perpyo- re paraet be ae qlii eiaril 0...eaboe (IGOflaea p rart.ct of sarsadaryf - Vesab.tL.-Iteibla ...a I IeI96,190I o 1979 data. icriude teebticel. iduail, cs pengee- ofteh epse..s iadeped- Petal. At. ecebtultacal lstd-oeepot.ed aechice foragicitort .d e Yio asacet f eodr annna only; l9Ou, 1970 ted IOTA data. Foril-tsecherrto- pley so erase1st111dniersid it "Pelruisci Age fltecAcr. feetese) - Childeen fl-lu peers). -okiog-age 115- primary -c eedr aasdndd bpcmeshitaiaai r 64 yas.ad retrdfi yseaden-e asPer..eccgee oftid-yearpopo- erra..esdi"gie1-l. Jatiot; 1960, 17, 197 199 aa.Oul icrayrae -orac -dLinsteegrilt fare atred en ierbce Pooclation CGo-h raia IlrecI oa -atul groth canes of -toa aId- adstaprecga tol adult prpoietia- age ItIer n tr yea rrru1latinc for 1950-6, 196-7f.ad 1970-7. Perulacirn Crotch Rate feertet-urban_- .tcul ge es f urban .Pop- CNfaTitt laton fr 95-Al 16071 ed 91970-79 peeie Cats frecioadrelaos-Pssgrrretnie tr Crude Blirth Rrate2 fer ....eadf - Aucoa loebrhs Per th...e.d of aid-pea oars atogls -i sc aig- pehsoss; ccidee ambalane, hearses ai Po palatiot; f960, 1970,. en 1979 data. - iitrthiia crud.e lechbaefrttoead - Auc.aI deetih prr thoue...da of sid-ra- Radio. Riscainere : fret t...c.. ruatn ALl type of retainrs Car radio rrisRIen; tcm _8t, n u9 b dta ofsaod-nahaasra roito pr ti:, an of ppits;seae c hertrs erdcisptedi h aeice reo ag-pa Ifli far- sentes it effete; den fr are Yasra say -te hegsraeeti s til ic rates usualYfisesanrgesdgistA.17,ed 1979.se erttris aholiaad bies..ciu.. nt- cC chi~ld--isein age 115-A4 pastel air - birhti-co -ea deoi-a totssaa ireaic er th..s..d"y-lain S- shows -baseseg tie- all _erted toas in san age sttp. odecsio "dIy genera is caen -asPare-" defIsadasp-isdiA-1 publi-ni.. denotd Prcaailp to e ...dag _aea cv.= t Is -eaidarld FWD~ ANDt NUTRITIO no be "daily" it in efar a -ae fee cites a wash. icdem of Poed Poodoccios ret CapitaIlh-Iel - inter of pee capita ..y... Cites Actua A1-edacerer tssue ase rear- Based ec abs tibe of rooceofeifoed -eeiia rdoinauldsse i edad ciek.bins sod dories hs year. teuiadasic o drie-ba. Lese iso Ialna pear-- basis. Comed itnecoe p Esaygd fag. sgro... sod whlei icatnad o aeg ur are edibla tad --ctin uratsI refse and teaar aeldad). Agg-9regt prodeonioc cq each ceconry ia baseddon LABOR FORCE naional --era predeter price _aight;161i,191 Id 919daa fTal_ LaborPre n edf-fetm -a cte- paratta beolade ret natinastreir of alories Ir rrc of rolaedl-Coariep ten rmd foreste.cepipd buteI idiug. ceie,saat, ate..-. eneergy~qoinale- of setfed -ippia nlabla ncoee pee'tl raia rero ppatotf algEe. efinitions. is -ari.u.. e e r Per dap. Available aipplitekcoprise doesetic pretucioc. Ixenecsieeeco cesPerable; 1960. lOll aid 1979 dan.. eao .an hue Lo stoc. Net Iep - It -olula eciwl 'feed, asd, rsaefeiai al ee ipce pcatgeo ni.cbot fu-r. qeuoibtana i edpeielg aid.7 lessee be LIscitbenli- t.qie urri rrac -_lbor forc is terming, fereane,7ybahstiagae maca stscn atd by FA90 base.d on plyailolgic seed fo noma eon1- ifahing ae peoennaS. uf cobs Iabor Foree; 1960. 90 ed 1979 das ni he iai to...iderieg e-ir-rs.cIt ttpraue ndy seights, S-e pedaanr_r feeei - Lbher tepee it .iaing. osaructi-a sasratnariog adsediatrihtioc ofP p..e..i.n atd nig11peonfiateri syd electicity, escapec gases. p--ttgs of rtta Iabte ferns 1960. leasehold tenslI;I1961-65.10,sd97da, lope and 1979 dana. Per sria soeirof oonar faeesoar ar)- P foteiL cecf ati of per n-pina Pribabnrt ereef-eel es c feslePeritpais or ra erp fPedpe a.fltyr ofofod food,I - bedd cd sahn. As- seiiyrae r cmoe s sa.si,sdtage obricns qeloaesie or ei ceotete estblished by DuA proolde f or ni.itit peereagas. cf i .. al n esl oplne I' a . .g.at..stP. tel a1llaeece of 60 gras- of isee1 plrotin pea day end 10 gem7 of sui,l and 1960, 1970. sod 1979 daa,mes 5 based s II;'. p-tninacip tei rae pul:e proceic, of hbio grav should isaia riin.beesad raf1arinrag-eteer.ttore or the otetn m la ieeed anima trcic as so .. eeg for . c wrld, lpreynsd by PAl in cbs Third ftoosie Dpaesd-ce Rtait - ilsaic of porelsaisa ande 15 sAd 65 aid ee Oerld Pied barnsy; 1961-65, 1970 so 1977 data. sa hab tctsl .blao fires Pee- oaringt oni soel tr aiml"sdnu - P-ensi eepily of feed ds- rine fees anasi i ple ' PI it geamepar da.y; i.,li, 1910 sod 1977P.dtn. IsCO DItTRIBUTIONp Child fases 1-41 tmoalt ian Basler ch-oeedf - Aact,ai deaths ratthouadi eieis fPinn coaIh nrs d LUsd1 .- brit-d hy riohea age goop 1-u yers, ca obiidcacis thi'S.ag gr..bP; foe astdsns1Oyitg -se- 5 ete, isrIipret, te-rsa itp-esn st pnoret Ni p-ete crie data derind feos life tehise; 1965, 1970 ard 199 dan. of bhceeh1ds. HEALTH POVERTY TARGETiAIP Life Earactety. lenitch fy....f d-rArseags teeh of ysere ft life.. rmisiagTh islsig cenmns artrpppotaamsestperylel. kesec ftetns fscet frataebol-nca, eac sdetre iS nurtitlysdeiate 1- dit les aan ,a ne-fe reieeeeeiscu bArt fptisf_l rho,fe eelac essnbla sosc iteasrrcn.1s tesesyppfbeudacr-id actae atr or1 t utresadbt ncnam."cd e itua aeisrnetrrnLrllb -llt eseinedi - asba and. etteld- cart sari, asthat fron peoIttocd borsholac, spig, d eacisary relief asgrl esie ee i nn ee isiscrCa.sese e mia otheir sePrecto rurtlt... Ic at urban ererehbibe peresul Loo_ ef she e..ctrp. Urban lana Lc dercvsd fern the ra1 tecin or scatdp-s l-tsad net sure chat 2OOtaetera fees a honsJnap be lers cih edjlaem_t ftp high. atoert of living in ute aes considerda beita aihic eaoal aceseIiclo5 . icug rsaitdPcpne eo ait ost eaafrliarnj-ubse ri otiist apseddieeprn sPert of the rep in ftfhics the oo" Arises to facec Diesaip rrcn u otaat1 tota. uba. aid rel.- saber ofP"el hote. :e,aId retai asetBd bp ern irala Psec fnsgcs o thsiaeepacinepeelnan. nrs ipslsyis ti h linia sddiepsel. vlsi as citbuctrnsct f base ascrats focoi ed isi1 rena DIiyisie aid aste-wna y 'saan-hats yeats or the aes at Pit P7iriae and aimdAett Aeelyeis ed Pr-f-enbee DtaPsrt-nt 1st instalieniscc. ca~~~~~~~~~~~~~~~~~~~~~~~~My 1991 Poatlttn s PhMi;ei.Ri - Poruletic dt-ds bA b nale P reelrtien ehbrei riseqolifild teaasdtos heis1 ta uira-ity Isn-I. Prelaiotta tireegPeres - Popultist dirided b5 number at peiatitig  -~~~~~~~~~~~~~~~~~~~~~~An 27 D 29 DhW7 7 8ATIA920 90AOUTA, 1965 7977 2975 IET C 39 S 1978 3373 I