Announcement of Mexico Obtains World Bank Loans Totaling Five Hundred Twenty-Five Million Dollars for Export Development and Small and Medium Industries : Largest Amount Ever Approved to Mexico at Single Meeting of Board of Directors on June 24, 1983

• eWorldBank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A.• Telephone: (202) 477-1234 BANK NEWS RELEASE NO. 83/120 Contact: Ciro Gamarra June 24, 1983 (202) 477-5320 MEXICO OBTAINS WORLD BANK LOANS TOTALLING $525 MILLION FOR EXPORT DEVELOPMENT AND SHALL AND MEDIUM INDUSTRIES Largest Amount Ever Approved to Mexico at Single Meeting of Board of Directors The World Bank has approved two loans to Mexico, totalling $525 million, to assist an export development program and a small- and medium-scale industry development project. This is the largest amount ever approved to Mexico by the Bank's Executive Directors at one meeting. The first loan, of $350 million, was approved to the National Foreign Trade Bank (Banco Nacion.al de Comercio Exterior-BNCE) to assist in the establish- ment of an export development fund. This project will help Mexico in a critical • period to =evitalize its non-petroleum exports • _ The second loan, of $J75_ mill~on, was authorized to_ Nacicnal Financ.~era, • S.A. (NAFINSA), Me~icofs National D~vel92ment Bank. The project will support Mex~co's integrated program of assistance to s~tl and medium industry by providing credit a.~d technical assistance to enterprises for main~aining or expanding production and employment levels. This is the· third project of its type a3sist~d by the Worl~ Bank in Mexicoe The Export Development project represents part of the World Bank's Special Actio11 Program to help meet Mexico's critical needs following the financial crisis of 1982. It will complement the assistance being provided to ~exico by the International Monetary Fund and other financial institutions. Both loans were provided from the resources of the International Bank for Reconstruction and Develooment (IBRD), which, together with the International Development Association (IDA). form the World Bank. The loans will be repaid over 15 years, including three years of grace, at an annual interest rate linked to the cost of Bank borrowings. The loans also carry an annual commitment charge of 0.75% on undisbursed balances, and a front-end fee of 0.25% on the amount of the loans. The loans are guaranteed by the United Mexican States. Export Development The Export Development project assisted by the $350 million loan will support the government's efforts to expand non-petroleum exports rapidly, which • 0. are a cornerstone of Mexico's strategy for economic recovery. It will assist in the formulation and implementation of a comprehensive export development strategy and in providing exporters access to increased foreign exchange on reasonable terms for imports of production inputs and equipment during a period of critical foreign exchange scarcity. NOTE: Money figureR are expressed in U.S. dollar equivalents. . .. I  - 2 - The loa~ will be channeled through the Banco Nacional de Cor.iercio Exterior, the T1:·· .. t Fund for the Pro8otion of Export of Manufactured Products (F011EX), the Trust Fund for Industrial Equipment (FONEI), the Trust Fund for Tourism Development (FONATUR), and other government entities providing technical assistance to exporters. About $275 million of loan proceeds wili be allocated initially to FCMEX to expand a. $100 million Expert Development Fund established on an interim basis to finance! imported inputs of Mexican exporters. The Fund was established on April 1, 1983, under the amended Capital Goods Industries Development Project, which was also financed by the Bank. As part of the emergency action to help Y.texico, the Capital Goods project was modified to help initiate a mechanism to finance urgently needed imported inputs for exporting industries. About $71 million will be allocated either by BNCE or through FONEI or FONATUR to provide medium- and long-term subloans for financing fixed invest- ments by industries to help them maintain, expand or generate export capacity, and by hotels to help increase revenues from foreign tourism. The loan also includes about $3.1 million for technical assistance subloans to exporters, and studies to help improve the government's export development strategy and to strengthen the agencies related to the export sector, including the provision of equipment. • ~ ~ The project will make an importan~ contribution to the formulation and implementation of a comprehensive export development strategy, encompassing policy orientation towards exports, improvements in administrative procedures, an<l improved services to exporters and export promotion activities. In addition to strengthening the export promotion agencies in the country, the project is expected to help Mexico lay the basis for achieving the stated goal of a four-fold increase of non-petroleum exports over the next five or six years • .An estimated l~OO to 600 export enterprises are likely to benefit from working capital finance and about 120 to 125 firms from credits for fixed invest~ents under the project. The annual export plans of these firms are expected to account for between one-quarter and one-third of Mexico's nanufactured exports during the project period. Based on estimated import requirements for exports, it is expected that most of the Export Development Fund resources will be disbursed over a period of about 12 months after loan effectiveness and that resources under the fixed investment and technical assistance components will be disbursed within 36 months. Small- and Medium-Scale Industry ~ ....... ·J • A Third Small- and Medium-Scale Industry Project assisted by the $175 million loan will continue support for the integrated program of assistance to small- and medium-scale enterprises (PAI), which was initiated with Bank help in 1978. The project will also help refocus its activities to respond ~ to the present economic situation. ~ ... I  - 3 - •• In addition to financing fixed investments, the project ~ill assist s·ma.11- and medium-scale enterprises to maintain production and employment levels by ensuring access to credit and equity resources to finance their substantially increased permanent working capital requirements. The loan will be channeled by NAFINSA through the Trust Fund for Guarantees and Development of Medium and Small Industry (FOGAIN), National Trust Fund for Industrial Development (FOMIN), and Trust Fund for Industrial Estates (FIDEIN). About $150 million will be used by FOGAIN to provide credit through financial intermediaries to finance fixed assets including equipment and common service facilities, and working capital requirements. FO~UN will use $18 million to make minority equity investments and loans convertible into equity, to help finance fixed investments and permanent working capital. About $4.6 million will go through FIDEIN to provide credit for infrastructure works in industrial estates and about $2 million for technical assistance through NAFINSA and specialized institutions for extension services, including training. Altogether, about 3,000 small- and medium-sized firms are expected to receive finance and benefit from technical assistance programs by "E'OGAIN, • FOHIN, and KAFINSA, and about 12 industrial estates will be assisted through FIDEIN. An e.stimated new 10,000 jobs will be generated in 1983-86 through ~ investnc~t finance from the loan. A further 20,000 to 30,000 jobs will be ~ preserved thro1.!gh helping to provide firms with adequate working capital. The World Bank had already provided two loans, since 1978, cotalling $147 million, to assist Mexico's program of assistance to small and ffiedium- sized industry. Although the Bank's assistance to Mexico for industrlal develop- ment has become broader, involving support to lgrger enterprises with import substitution or export potential, capital goods industries and industrial pollution control, the small and medium-scale industry operations remain a central focus of the assistance strategy • • 0