Guatemala - Third Telecommunications Project

Document of The World Bank FOR OFFICIAL USE ONLY _0 Report No. P-3716-GU REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$30.0 MILLION TO THE EMPRESA GUATEMALTECA DE TELECOMUNICACIONES WITH THE GUARANTEE OF THE REPUBLIC OF GUATEMALA FOR A THIRD TELECOMMUNICATIONS PROJECT February 8, 1984 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Official Foreign Exchange Rate Parallel Foreign Exchange Rate (1983) US$1.00 = Q 1.00 US$1.00 = Q 1.35 Q 1.00 = US$1.00 Q 1.00 = US$0.74 In this report, currency accounts are expressed in Quetzales (Q) and US Dollars (US$) at the Official Foreign Exchange Rate. ABBREVIATIONS AND ACRONYMS CABEI - Central American Bank for Economic Integration CACM - Central American Common Market DGCT - Direccion General de Correos y Telegrafos DGRT - Direccion General de Radiodifusion y Television GUATEL - Empresa Guatemalteca de Telecomunicaciones ICB - International competitive bidding IDB - Inter-American Development Bank ITU - International Telecommunication Union UHF - Ultra high frequency (300 - 3,000 MHz) VHF - Very High Frequency (30 - 300 MHz) FISCAL YEAR January 1 to December 31  FOR OFFICIAL USE ONLY GUATEMALA THIRD TELECOMMUNICATIONS PROJECT LOAN AND PROJECT SUMMARY Borrower: Empresa Guatemalteca de Telecomunicaciones (GUATEL) Guarantor: Republic of Guatemala Amount: US$30.0 million equivalent, including capitalized front-end fee. Terms: Repayable in 15 years, including 5 years of grace, at the standard variable interest rate. Project Description: The project is comprised of the following: (a) rural telecommunications--about 8,000 exchange lines in rural areas and provision of primary telecommunications facilities to rural communities; (b) international network--extension of the Central American international network and provision of a new international exchange in Guatemala City, and (c) urban telecommunications and technical assistance--a subproject which comprises (i) the installation of: a total of about 109,600 additional lines of local exchange equipment in urban areas with associated cables to make about 100,000 additional connections and provide about 3,500 public call office telephones; eighteen microwave and radio systems with about 400 additional long distance circuits; a national long distance exchange in Guatemala City; a computer; and training equipment; (ii) construction of buildings; and (iii) retention of foreign experts (7 staff-years) to assist GUATEL in administration, planning, finance and management. Risk: The principal risk is the possibility of delayed physical implementation due to procedural delays and to unforeseen circumstances. This is acceptable since in telecommunica- tions projects such as the proposed project that involve a relatively large number of independent works and activities, delay in the completion of some works does not necessarily prevent the utilization of other newly created assets. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - Estimated US$ Million Equivalent CostsiT/ Local Foreign Total Subproject (a) Rural Services2/ 6.4 25.7 32.1 Subproject (b) International Services2/ 7.6 26.0 33.6 Subproject (c) Local and Long Distance 17.4 66.7 84.1 Facilities Computer 0.4 3.0 3.4 Buildings, Towers and Roads 3.6 - 3.6 Consultants - 1.0 1.0 Training 1.1 0.7 1.8 Base Cost 22.5 71.4 93.9 Contingencies: physical 0.2 -- 0.2 price 5.7 9.2 14.9 Total Sub-project Cost 28.4 80.6 109.0 Front-End Fee on Bank loans -- 0.4 0.4 Total Financing Required 42.4 132.7 175.1 Financing Plan: US$ Million Equivalent Local Foreign Total IDB 18.0 18.0 CABEI 26.0 26.0 Suppliers/Export Credit - 40.8 40.8 GUATEL 42.4 17.9 60.3 Bank - 30.0 30.0 Total Financing 42.4 132.7 175.1 1/ GUATEL is exempt from customs duties on imported goods and pays no local taxes on goods and civil works. 2/ Including contingencies.  - iii - Estimated Disbursements: US$ Million Equivalent Bank Fiscal Year 1985 1986 1987 Annual 14.3 14.0 1.7 Cumulative 14.3 28.3 30.0 Rate of Return: 35 percent Staff Appraisal Report: Report No. 4034-GU, dated February 8, 1984.   INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO EMPRESA GUATEMALTECA DE TELECOMUNICACIONES WITH THE GUARANTEE OF THE REPUBLIC OF GUATEMALA FOR A THIRD TELECOMMUNICATIONS PROJECT 1. I submit the following report and recommendation on a proposed loan for the equivalent of US$30.0 million to the Empresa Guatemalteca de Telecomunicaciones (GUATEL) with the guarantee of the Republic of Guatemala to assist in the financing of a Third Telecommunications Project. The loan, which includes a capitalized front-end fee of 1.5 percent, would have a term of 15 years, including five years of grace, at the standard variable interest rate. PART I - THE ECONOMY 1/ 2. A report entitled "Guatemala Economic Memorandum" (Report No. 4195-GU) was circulated to the Board in June 1983. The conclusions of that report are incorporated in this section. Annex I summarizes the main social and economic indicators. Overview 3. Guatemala's population of about 7.5 million (mid-1982) is growing at about 3.0 percent per year. Its most significant characteristic is a sharp ethnic division. The Indians, about half of the total population, constitute its poorest segment. The separation of the Indians from the rest of society - of mixed ancestry and European origin - has its roots in cultural and linguistic differences, and has been exacerbated by lack of access to good land, public services, and employment in the modern sectors. Malnutrition is severe and infant mortality is high. The adult literacy rate is only 46 percent, one of the lowest in Latin America. The high population density (262 per square kilometer of agricultural land) is nearly triple the average in Latin American countries. Resources 4. Guatemala has a diversified physical environment. The varied climate and dispersion of good soils allow cultivation of a variety of agricultural products. The country has some petroleum and nickel deposits 1/ This is identical to Part I of the President's Report for the proposed Industrial Credit Project.  - 2 - as well as substantial hydro-electric power potential and some exploitable geothermal fields. Guatemala's natural beauty, mild climate, archeological monuments, and proximity to the United States constitute a good potential for tourism development. Structure of the Economy 5. The small size of the country makes external markets important to growth, while making the economy vulnerable to fluctuations in inter- national prices. Exports of primary agricultural and manufactured products (mainly consumer goods) have been a major source of growth. Primary products are exported to the U.S., Europe, and Japan. A major share of manufactured exports is oriented to other countries of the Central American Common Market (CACM). Guatemala has consistently achieved trade surpluses vis-a-vis other CACM members, but the dynamism and growth poten- tial of this market has been reduced recently by economic and political problems in the region. 6. Agriculture, manufacturing, tourism and, recently, oil are important sectors in Guatemala. Agricultural output growth at 3.8 percent a year during 1965-1982 has been among the highest in Latin America; the sector presently generates over one-fourth of GDP and about half of total employment and exports (mainly coffee, cotton, sugar, bananas, and beef). Savings from export agriculture provide a substantial share of investment financing. Industrial output, which grew at an annual rate of about 5.8 percent during 1965-82, presently contributes over one-fifth of GDP, employs one-sixth of the labor force, and accounts for about one-third of exports. In the mid-1970s, tourism expanded to rank third after coffee and cotton as a foreign exchange earner. Tourism earnings, however, fell from about US$82 million in 1979 to US$12 million in 1982 as political tensions in the region increased and security conditions in Guatemala worsened. Crude oil production started in 1979 and reached about 10,000 barrels per day in 1983, equivalent to one-fourth of domestic consumption. About half of the production is exported, since it cannot be used domestically because of its high sulphur content. Proven oil reserves are modest, estimated to last about six years at the current rate of production. Exploration conti- nues, however, and the Government hopes to confirm larger reserves. Growth Paths 7. Until the 1960s, Guatemala's growth originated mostly from exports of traditional products. During the 1960s and early 1970s, indus- trial growth was stimulated by Guatemala's participation in the CACM, which provided manufacturing firms with a larger protected market. This period saw the emergence of a dynamic industrial class. However, as the limit of expansion of the CACM trade was approached, further development of industry was constrained. This limitation, combined with a decline in world demand for traditional export crops, underscored the need to broaden the basis for economic growth. Towards this end, the Government is taking steps to re- orient its incentive system to encourage non-traditional exports to markets outside the CACM, both in industry and in agriculture, to stimulate the domestic economy through their multiplier effects.  -3- Recent Growth Trends 8. Between 1965 and 1978, Guatemala enjoyed steady and substantial economic growth with a low rate of inflation. GDP grew at six percent per year, fostered by favorable world prices for the country's traditional exports, growth of manufactured goods to CACM countries and expansion of tourism. The private sector played a major role in diversifying exports by developing cotton and sugar plantations, and by creating the largest indus- trial sector in Central America. During the last six years, however, the country experienced serious economic difficulties caused mainly by (i) falling world demand and prices for Guatemala's traditional export crops and rising international prices which led to a 24 percent deterioration in the terms of trade; (ii) payment difficulties in the CACM, which adversely affected exports of manufactures; and (iii) political developments in Central America which discouraged private investment and foreign financing while stimulating private capital outflows. All of these unfavorable deve- lopments resulted in a significant deceleration in GDP growth from five percent in 1978 to less than one percent in 1981 and a decline in 1982 to minus 3.5 percent and in 1983 to minus 2.3 percent. Fiscal and Balance of Payments Policies 9. Government policies until the late 1970s have given top priority to financial stability and to providing a favorable climate for domestic and foreign investors. Key elements of this approach have been a strong and stable currency, freedom from external payments restrictions, import protection through the CACM common tariff, and minimal taxation. Current public revenues fluctuated around 12 percent of GDP; current expenditures, around 9 percent; public investment, about four to five percent; and the public deficit, about two to three percent. The level of public expendi- ture was low, compared with that of countries at a similar stage of econo- mic development, and economic growth benefitted only a small segment of the population. Basic services, particularly in, education, health and rural developments, remained inadequate. 10. During 1980-81, there was a departure from the generally cautious fiscal and monetary policies. In an effort to stimulate the economy, the Government increased public investment to 7.4 percent of GDP in 1980 and to 8.6 percent in 1981. However, a sharp decline of fiscal revenues from foreign trade and domestic production brought about a substantial deterio- ration of public savings which dropped to about 1.1 percent of GDP in 1981. The public deficit reached 6.8 percent of GDP in 1981 and was financed mostly through an expansion of Central Bank credit, which tripled in 1980 and doubled again in 1981. The rate of inflation increased to 9.5 percent per annum on the average during these two years. 11. Expansionary fiscal policies in 1980-81 were accompanied by large external imbalances which drained international reserves. Imports continued to increase while depressed export proceeds caused an acute  - 4 - shortage of foreign exchange. The current account deficit of the balance of payments increased from 2.6 percent of GDP in 1979 to 6.5 percent in 1981. Low levels of official external financing, difficulties in collect- ing payments in convertible currencies from other CACM countries, drying up of foreign commercial bank and supplier credits and net private capital outflows of about 2.8 percent of GDP annually further exacerbated the foreign exchange shortage. To protect reserves, exchange controls were introduced in 1980 and made more stringent in 1981, while the Central Bank increased its borrowing from foreign sources. Nevertheless, net foreign exchange reserves decreased to US$23.5 million at the end of 1981, equiva- lent to about 0.2 months worth of merchandise imports (compared to US$733.1 million, equivalent to 6.3 months of merchandise imports in 1978). 12. The Government which took office in March 1982 started addressing the rapidly deteriorating economic situation by taking austerity measures aimed at containing the disequilibrium in public finances and balance of payments. Total Government expenditures in 1982-83 were about 20 percent below the level in 1981 as a result of sharp cutbacks in both current and capital spending. Current expenditure was reduced mainly through a freeze in Government salaries, reductions in personnel and cuts in budget alloca- tions of goods and services. Costly, low priority infrastructure projects were either postponed or cancelled. As a result, the central government deficit was cut to 4.6 percent in 1982 and about 3 percent in 1983, from 7.4 percent in 1981. The growth of domestic credit to the public sector also dropped, to about 30 percent from 97 percent in 1981, and the rate of inflation decreased to about six percent. In November 1982, the ceilings on domestic interest rates were lowered to 12 percent (for loans) and to 9 percent (for deposits) in line with the downward trend of domestic infla- tion and foreign interest rates. 13. The current account deficit of the balance of payments also diecreased to 3.8 percent in 1982 and about 2.6 percent in 1983, as imports ideclined more rapidly than exports reflecting the decline in economic acti- vity as well as an intensification of exchange controls. Net short term capital outflow decreased. However, falling long-term capital receipts were insufficient to finance the current deficit. To cut the loss of gross reserves, the Government introduced restrictions on import payments and delayed the processing of commercial payments, resulting in arrears of about US$280 million at the end of 1983. Pressure on the quetzal resulted in a premium of 30-35 percent for the dollar on the officially tolerated parallel market. The loss in net reserves was sharply reduced in 1982 and was reversed in 1983. :L4. Based on a stabilization program, the Government reached agree- ment with the IMF for a stand-by arrangement of US$120 million equivalent (upper credit tranches) over the period August 1983-December 1984. Through 1983, Guatemala has qualified for all purchases available under the stand- by. In the external sector, the stabilization program aims at achieving a small overall surplus in 1984 and a reduction of payment arrears, while relaxing exchange controls. The stabilization program is predicated on achieving further progress in the fiscal area, including a tax reform to improve the efficiency of the tax system and to support production and  -5- exports with a view toward encouraging rapid economic recovery. The program aims at containing the overall public sector deficit at 3.0 percent in 1984, while increasing government current and capital expenditures to support a larger development effort, particularly to reduce poverty in rural areas and diversify exports. During 1984, the Government expects that the main contribution to adjustment will come from tax reform legislation which was enacted in 1983, and is designed to improve the over- all efficiency of the tax system. The main component of the reform is the substitution of a value added tax for the existing sales (stamp) tax. The new tax is expected to reduce significantly tax evasion. In addition, the existing progressive rate structure of the corporate income tax has been simplified; a new tax on the net income of financial institutions has been introduced; taxation of credits, transfers and repatriated income of foreign investors has been changed to be comparable to that of other countries with the view to encourage foreign investment; and taxation of beverages and other selected items has been increased. To support produc- tion and improve export competitiveness, the tax package provides for exemption of exports from the value added tax, progressive elimination of all other taxes on exports over the next three years and tax credits of up to 15 percent for non-traditional exports outside the CACM. The Government's budget for 1984 envisages a modest increase of current expen- diture (about 11 percent) and a significant increase of current revenues (about 24 percent) from the depressed levels of 1983, with the objective of financing about US$418 million of capital expenditures. Although much higher than capital expenditures in 1983 (US$287 million), the 1984 level would be near the levels achieved in the late 1970s. 15. As regards credit, the program calls for a slowdown in the growth of overall domestic bank credit to a rate consistent with approximate equi- librium in the overall balance of payments. A significant part of this deceleration is to result from the fiscal measures and the resulting reduc- tion in credit demands. The authorities have stated their intention to follow a flexible interest rate policy, to ensure that domestic interest rates in the banking system continue to be positive in real terms and competitive with comparable rates abroad. Elimination of a 3 percent stamp tax on bank credits in the context of the tax reform has helped to reduce the excessive cost of short-term borrowing. External Debt 16. Apart from the Bank, official external financing has been provided primarily by the Inter-American Development Bank (IDB), the Central American Bank for Economic Integration (CABEI), the U.S. Agency for International Development (USAID) and the Investment Fund of Venezuela (VIF). IDB funds carried a substantial concessional element and often con- tained components repayable in local currency. The IDB made loans for agriculture (credit, irrigation and fisheries), industry, electric power, transportation, rural education, water supply, and health services. CABEI concentrated mainly on regional projects in highways, telecommunications, and in recent years, on power and water supply projects. USAID mainly  -6- financed rural development, rural electrification, rural education and health facilities. VIF assisted in power generation and transmission. 17. The external public debt of Guatemala is low by international comparisons. In 1982, its outstanding and disbursed medium- and long-term public external debt amounted to only 12.6 percent of GDP. Service pay- ments on that debt were equivalent to 6.8 percent of exports of goods and non-factor services. International agencies accounted for 46.8 percent of total disbursed and outstanding debt in 1982. The Bank's share of the debt outstanding was 16.6 percent and its share of service was 25.2 percent in 1982. Of other major lenders to Guatemala, IDB holds 21.7 percent of external public debt outstanding, VIF 18.8 percent, CABEI 8.3 percent, and USAID 7.6 percent. Prospects and Creditworthiness 18. The country is facing liquidity problems in the external sector as well as in the fiscal accounts. The authorities are addressing these problems within the framework of the stabilization program agreed upon with the IMF. In the medium- and long-term, economic prospects of Guatemala should improve, and the economy might sustain a growth rate of three to four percent, provided the authorities continue to carry out a comprehen- sive development effort. The Government is about to complete preparation of a 1984-87 development program and has sent the Bank a statement of the main policies it intends to follow. These policies aim at (i) strengthen- ing private investment incentives and promoting labor intensive production; (ii) stimulating financial savings and private capital inflows; (iii) increasing public savings to enable public enterprises to finance a larger part of their capital outlays from their own resources; (iv) modernizing and diversifying industrial and agricultural enterprises; (v) re-orienting incentives to favor non-traditional exports to markets outside the CACM; and (vi) shifting away from infrastructure investments, in favor of produc- tive and social sectors. The Governement is expected to use external debt capacity prudently to address the problems in productive sectors and in a few main social areas, in order to reactivate the economy, expand public services for the urban and rural poor and reduce social tensions. Thus, if the country continues to carry out economic programs in line with those of the recent past, Guatemala is considered creditworthy for Bank lending. In view of the country's pressing need for development finance and considering the Government's progress and planned efforts to contain the public sector deficit and to redirect expenditures to social services for low-income groups, Guatemala's poverty-oriented development projects merit support beyond their foreign exchange costs. PART II - BANK GROUP OPERATIONS 19. Guatemala to date has received Bank loans totaling US$293.7 million (including US$20 million on third window terms) for 13 projects. Of these, three were for education; four for power; two for telecommunica-  - 7 - tions; two for highways; one for livestock development; and one for earth- quake reconstruction. Seven Bank-financed projects have been completed in Guatemala, three in electric power and one each in telecommunications, edu- cation, livestock and highways. Performance audit reports have been issued for two power projects, and the livestock, education and telecommunications projects. The performance audits conclude that project objectives generally have been achieved; however, implementation has been much slower than forecast during appraisal. Effectiveness of all Bank loans has been delayed because of a lengthy ratification process. Most projects now under implementation have also been delayed by the limited administrative capa- city of the institutions involved as well as weak inter-agency coordina- tion. However, disbursements of Bank loans have reached a satisfactory pace in the past two years. Two large power projects have accounted for the bulk of disbursements since 1978. Annex II contains a summary state- ment of Bank loans and IFC investments as of September 30, 1983. 20. Bank financing for infrastructure projects has supported the creation of more efficient public agencies. It also has been instrumental in maintaining a Bank presence in the country through lending operations, while continuing a dialogue with the authorities on the desirability and implementation of a larger development effort. Bank lending for education has more directly encouraged the undertaking of key development challenges we believe the Government faces--such as expanding the provision of basic services, both productive and social, to the rural and urban poor, and supporting the formation of a modern industrial private sector--with the objective of promoting economic diversification and easing the growing social tensions which have characterized Guatemala's recent past. Encouraging progress has been made in the last two years in the Bank's dia- logue on sectoral and project issues. 21. IFC has made three investments in Guatemala. The first, a US$200,000 loan in 1958 for a flour mill, has been fully repaid. The second, a loan of US$15.0 million to Exploraciones y Explotaciones Mineras Izabal, S.A. (EXMIBAL), a company established in Guatemala to exploit the nickel ore deposit at Lake Izabal in eastern Guatemala, was approved in July, 1973. After some initial delays in finalizing the project design and in arranging additional financing made necessary by substantial cost over- runs, the plant began operations in mid-1977. The third was a loan of US$3 million to Cementos Progreso S.A. (formerly Cementos Novella S.A.), a Guatemalan enterprise, to help finance an expansion of its existing cement production facilities. The expansion was completed and commercial opera- tions started in 1979. 22. The pipeline of projects for Bank consideration has improved over the last two years. A Basic Education Project to assist in textbook devel- opment, construction of primary schools in poor urban areas and education planning was approved by the Board in June 1983. An Industrial Credit Project is scheduled for Board consideration shortly. A Power Distribution Project has been appraised; it includes measures for the rationalization and strengthening of the institutional framework of the energy sector. The Government has requested Bank assistance in preparing projects in the fields of low-cost housing, productivity of small farmers, water supply and  export diversification, and in strengthening the country's ability to plan and carry out public investment projects. PART III - THE TELECOMMUNICATIONS SECTOR Sector Organization 23. Public telecommunications services in Guatemala are operated by a corporation, Empresa Guatemalteca de Telecomunicaciones (GUATEL), and two departments in the Ministry of Communications, Direccion General de Correos y Telegrafos (DGCT) and Direccion General de Radiodifusion y Television (DGRT). 24. GUATEL was established in 1971 as an autonomous, state-owned, commercially-oriented enterprise responsible for the maintenance and opera- tion of all public telecommunications services in Guatemala, except domes- tic telegraph. According to its charter, GUATEL has authority to decide on its development policies, tariffs, investment programs, annual budgets, borrowing, organization and staffing. In practice, it has to seek the opinion of the country's planning agency, the Secretaria General del Consejo Nacional de Planificacion Economica, and the concurrence of the Ministry of Finance on tariff changes, investment programs, and foreign financing. 25. Domestic public telegraph service and the postal service are operated by DGCT, a government department in the Ministry of Communica- tions. DGCT operates an outdated network of manual telegraphs, magneto telephones and open wire lines interconnecting 542 telegraph/postal offices throughout the country. The Government intends to modernize the system and plans to appoint an interagency committee to study appropriate solutions and draw up plans for phasing out the manual network. 26. The Ministry of Communications regulates the use of radio fre- quencies, and licenses their use by public and private entities. At present there are about 2,900 licensed private radio links and networks (mostly VHF), operated by public utilities, industries, farms, and others. There are about 110 radio broadcasting stations (of which 10 are state- owned) and five television networks (one state-owned). GUATEL provides leased facilities for transmission of domestic and international programs. 27. Manufacturing of telecommunications materials in Guatemala is limited to posts (concrete, metal) and polyvinyl chloride ducts. Telephone cables of up to 800-pair capacity are manufactured in Costa Rica and El Salvador, where posts, ducts and hardware are also produced. Local pri- vate contractors are used for part of the civil works and the installation of ducts, cables and rural telephone systems. Foreign suppliers usually undertake with GUATEL's support the installation of new types of equip- ment. GUATEL executes part of the construction and cable installation works.  - 9 - Access, Usage, Facilities and Quality of Service 28. As of end 1983, Guatemala had an average main telephone density of about 1.4 telephone lines in service per 100 inhabitants. This is below the average for all other Central American countries except Honduras (0.8), and compares unfavorably with the averages for Central America (about 2.0 lines) and Latin America (about 4.0). Existing telephone service is con- centrated in the metropolitan area of Guatemala City, which has about 12 percent of the country's population and 85 percent of all telephone lines. Nonetheless, with a density of about 9.7 lines per 100 inhabitants, Guatemala City ranks well below several other Latin American capitals (e.g., San Jose 16, Montevideo 13). Only 51 of the country's 304 seats of local government (cabeceras municipales) have telephone service. There are only 1,060 public call office or coinbox telephones in the country, or one for every 7,500 inhabitants. Overall, only about 25 percent of the country's population has local access to telephone service. 29. Business and government subscribers account for a large part of the traffic--particularly long distance and international services--and are estimated to contribute over 60 percent of the total revenues. The share of business activities, however, is probably higher than recorded since a considerable proportion of telephones classified as residential serve both business and personal activities. 30. In recent years, the installation of subscriber lines was slowed down by a lack of timely development of the cable network and protracted supplier-related technical difficulties which prevented a new type of elec- tronic exchange equipment from working at full capacity. As a result, at the end of 1983 only 35 percent of the expressed demand for lines, total- ling 312,300, was met by the 108,500 lines in service. Increased calling rates per telephone connected has created considerable local network con- gestion in the main cities, made worse by repeat call attempts. Long dis- tance and international facilities are adequate, but congestion at the local level also affects these services and results in a high proportion of incompleted call attempts. 31. Based on block by block estimates in Guatemala City and 60 other cities and towns, on actual and expected land use patterns and on assump- tions on demand per dwelling and business in various categories, GUATEL forecasts that demand will total about 412,000 by end 1987--a 7.2 percent annual growth rate. These forecasts are conservative, even in light of the overall slow growth of the economy in recent years. Nonetheless, sig- nificant uncertainties affect these forecasts, as they are based on 1976 estimates. As part of the project, GUATEL will develop an improved system of demand forecasting by: (a) using market surveys and other sources; (b) periodically updating block by block surveys; (c) comparing forecasts with empirical evidence; (d) identifying users of services, cost of service, and demand characteristics in the course of the tariff structure study; (e) improving the reliability of local traffic data; and (f) consolidating long-term planning functions and building up in-house economic expertise. Provisions are included in the project to finance experts and training to  - 10 - help GUATEL in carrying out these tasks under terms of reference satisfac- tory to the Bank. Sector Goals 32. The Government's stated long-term objectives for the telecommuni- cations sector are to meet demand, modernize existing services,introduce new ones, and keep operations profitable and capable of generating part of the funds needed for investment. In working towards these goals, GUATEL prepared, with ITU assistance, a master plan for the period 1981-2000 in four five-year stages, with the number of telephone lines increasing to 483,000 in 1990. Based on the actual number of lines in service and a realistic assessment of the executing capacity of GUATEL, a revised 1984-87 program was prepared with Bank staff assistance. This program is feasible and adequately reflects Government development priorities. The program im- plies raising the number of telephone lines added per year from about 7,100 in the period 1975-82 to about 17,000 in 1984, 25,000 in 1985 and 1986; and 30,000 in 1987. Total exchange capacity would increase from 146,800 in 1982 to about 290,000 in 1987; connected lines, from 97,500 to about 205,000. The percentage of total demand covered by lines in service would improve from 35 percent in 1983 to about 50 percent in 1987. Telephone lines outside Guatemala City would increase more rapidly than in the capi- tal and would account for 24 percent of the total, compared with 15 percent in 1982. Over the period, the share of population with access to tele- phones would increase from 25 percent to 35 percent; the number of public telephones and of municipalities with telephone service would increase more than five times, reaching 6,180 and 250, respectively. Bank Assistance 33. GUATEL has received two Bank loans. The first loan (Loan 792-GU of January 5, 1972), of US$16.0 million equivalent, financed the provision and extension of local, long distance and international telecommunications facilities. The project was satisfactorily completed in December 1978 (Project Completion Report of May 17, 1979) after delays which resulted from an earthquake in 1976. The second loan (Loan 1104-GU of April 29, 1975), of US$26 million equivalent, assisted in financing jointly with the Central American Bank for Economic Integration (CABEI) a further improve- ment and expansion of these services. The project is now expected to be completed by February 1984, about three and a half years later than origi- nally envisaged, mainly due to technical problems affecting several large telephone exchanges (paragraph 30). 34. The Bank's past participation has enabled Guatemala to (a) re- organize the sector prior to the first loan by merging separate entities and establish GUATEL as the sole agency responsible for telephone and telex services; (b) begin to establish a modern long distance telecommunications network with the associated long distance exchange at Guatemala City to link the principal areas of the country and to initiate a national subscri- ber dialing network; (c) expand the local telephone services in Guatemala Guatemala City and in a number of provincial towns; and (d) create a financial base for further development of telecommunications facilities.  - 11 - 35. The Bank's participation through a third loan to GUATEL aims at: (a) helping design and implement organization and management improve- ments which would enable GUATEL to increase the pace of expansion of its services about twofold over the project period, and to efficiently maintain and operate a greatly expanded telecommuni- cations system (paragraph 38); (b) strengthening through GUATEL the participation of private entre- preneurs in the sector, while ensuring overall system compatibi- lity and performance (paragraph 38); (c) promoting the continuation of substantial net transfers from GUATEL to government to be used in other sectors less capable of mobilizing domestic resources (paragraph 50); (d) strengthening GUATEL's capacity to plan future investment (para- graph 31) and establishing tariffs leading to more efficient use of plant and allocation of new resources (paragraph 51); and (e) helping finance GUATEL's 1984-87 program, together with sup- pliers, the Central American Bank for Economic Integration and the Inter-American Development Bank (paragraph 40). PART IV - THE PROJECT General 36. The proposed project was prepared by GUATEL and approved by the Government of Guatemala. The Government presented the project to the Bank in June 1981 with a request for financing. A Bank mission appraised the project in February 1982 and negotiations with GUATEL and the Government were held in Washington, D.C., from October 4 to 8, 1982. The Guatemalan Delegation was headed by Mr. Leonel Gonzales, Advisor to the Minister of Finance, and Mr. David Monzon, Member of the Board of Directors of GUATEL. A Staff Appraisal Report entitled: "Guatemala: Third Telecommunications Project" No. 4034-GU, dated February 8, 1984 has been distributed to the Executive Directors separately. A loan and project summary appears at the beginning of this report, and a supplementary data sheet is given in Annex III. Project Description 37. The proposed project is a high priority self-contained part of GUATEL's 1984-87 development program. It provides for a balanced and inte- grated development of local, long distance national and international services in urban and rural areas. The project comprises the following three subprojects which can be executed independently:  - 12 - (A) extension of rural services by the installation of about 8,000 exchange lines, and providing primary telecommuni- cations facilities to communities currently without such services--this subproject is partially financed by a US$18 million loan from IDB; (B) extension of the Central American international network and provision of a new international exchange in Guatemala City--this subproject is to be partially financed by a US$26.0 million loan from CABEI; and (C) a subproject proposed to be partially financed by the Bank and suppliers' credits comprising the following: (a) the installation of: (i) a total of about 109,600 additional lines of local ex- change equipment (79,000 lines in Guatemala City and 30,600 lines in 24 provincial towns), with associated cables to make about 100,000 additional connections and provide about 3,500 public telephones; (ii) eleven microwave radio and seven UHF/VHF systems with about 400 additional long distance circuits; (iii) a national long distance exchange in Guatemala City; (iv) computer equipment for GUATEL's data processing service; (v) training equipment; (b) the construction of buildings to house equipment; and (c) the retention of foreign experts (seven staffyears) to assist GUATEL in administration, planning, finance and management. Institutional Improvements 38. Even after the progress made under the First and Second Tele- communications Projects, the need for further institution building in the sector is substantial. Although direct lines installed grew from about 39,000 to about 108,500 since the initiation of the First Telecommunica- tions Project in 1972, a large backlog of unsatisfied demand has resulted from the rapid growth of economic and commercial activities over the last installations in recent years. The sector therefore is facing an urgent need for a very rapid increase of the connection rate. Under the proposed expansion program, the number of telephone lines added each year is  - 13 - scheduled to increase rapidly from about 6,000-8,000 lines per year in the past, to about 30,000 per year by 1987. GUATEL's capacity to undertake this large investment program is being augmented by resorting increasingly to private contractors for the construction of cable plant, and to sup- pliers for installation of equipment as well as for its first year mainten- ance; house wiring might also be executed by private contractors. However, the major increase in size of operations will require a number of organiza- tional changes and improvements within GUATEL to (a) streamline the com- mercial, administrative and technical functions involved in processing new lines from application through installation; (b) strengthen project coordi- nation and supervision as the size, number and dispersion of works increase and more suppliers and contractors are involved; (c) revise organization and staffing accordingly; and (d) establish standards for subscriber-owned terminal equipment to ensure systemwide technical compatibility and ade- quate maintenance. These changes, and a strengthening of GUATEL's finan- cial management, investment planning and policy-making capability initial- ly focussing on tariffs and demand forecasting, constitute the core of a package of institutional development for which seven staffyears of foreign experts will be retained under the project, with a total foreign exchange cost of about US$1,000,000. Project Cost and Financing 39. The total cost of the project is estimated at about Q 175.1 million (US$175.1 million) including the front-end fee. The foreign exchange component is US$132.7 million equivalent, or about 76 percent of project cost. The project cost estimates are reasonable. The costs reflect estimated December 1982 prices based on GUATEL's experience with contracts relating to ongoing works and those signed for goods under Loan 1104-GU, and on experience in other countries, with adjustments for inflation to bring them up to an end 1983 level. GUATEL is exempt from payment of customs duties on imported goods and pays no local taxes on goods and civil works. Price contingencies for the Bank subproject amount to 15.8 percent of total base and physical contingency costs. They result from the year-by-year estimates of local cost increases of 12 percent annually from 1984 through 1987; and foreign cost increases of 7.5 iercent in 1984; 7.0 percent in 1985; and 6.0 percent in 1986 and 1987. The foreign cost increases are applied to the contract date since all contracts in this sector are made on a fixed price basis. Contracts are likely to be signed by end 1984, and most of the equipment would be delivered by end 1985. The foreign and local cost increases are in line with the Bank's guidelines. Except for variations in quantities which could occur in civil works and for which a physical contingency amounting to five percent of local costs has been provided, no other physical contingencies for the Bank subproject are considered necessary. The proposed quantities of equipment are based on detailed forecasts and engineering, and are not expected to change significantly. According to experience, any unexpected increases of transmission equipment on some routes will be compensated by corresponding unexpected decreases on other routes. The dispersion of cable networks throughout the country permits adjustments which make provision of physical contingencies unnecessary.  - 14 - 40. To finance the project, GUATEL would contribute from its internally generated resources US$60.3 million equivalent, or about 34 percent of total project costs. The foreign cost of about US$132.7 million would be financed by: (i) a US$18.0 million loan by IDB, with a maturity of 40 years, including a 10 year grace period, and interest of 1 percent per annum during the grace period and 2 percent thereafter, for the rural telephones subproject (A) of paragraph 37; (ii) a US$26.0 million loan by CABEI, with a maturity of 15 years, including 3 years of grace, and interest of 12 percent per annum, for the international network subproject (B) of paragraph 37; (iii) about US$40.8 million in suppliers' and export credit for the local and long distance switching and pulse modulation equipment required for the installation of about 97,200 lines of local exchange out of the 109,600 lines included in C(a) (i) and B long distance exchange included in C(a) (iii) of paragraph 37; on request by GUATEL, the Bank has assisted in seeking financing from officially supported credit institutions; (iv) the proposed US$30.0 million Bank loan, for other components of subproject (C) in paragraph 37, i.e. cables, transmission equipment, computer system, emergency power plant, coin box telephones, a small extension of existing exchange equipment (paragraph 42) and technical assistance; (v) US$17.9 million from GUATEL's internally generated funds. GUATEL would finance all the local costs amounting to US$42.4 million equivalent. Agreement was reached at negotiations that the Government will promptly make available to GUATEL any funds necessary for project completion (Section 2.02 of the draft Guarantee Agreement). Procurement and Disbursements 41. Bids have been received for the supply contracts and credit offers for the switching equipment described in para. 40 (iii) above, costing about US$45.0 million (including contingencies), and which is not to be financed out of the proceeds of the Bank loan. Based on these bids, we are satisfied that cost estimates of the project are reasonable and that supplier'/bilateral credits are available and acceptable. Bid evaluation is expected to be completed by June, 1984, and would be based on an assessment of technical responsiveness and the combined cost and credit terms by comparing the present values of the flows of payments and servicing of the credits. The award would be made on the basis of the lowest evaluated bid taking into account financing terms. The Government and GUATEL have requested Bank assistance in the tendering and bid evaluation, to assure that the choice of the supplier is technically sound,  - 15 - that appropriate quality standards will be observed, and that coordination with the execution of the other components of the subproject will be satis- factory. The Bank has reviewed the bid documents and would also review GUATEL's bid award recommendations (Section 5.07 of the draft Loan Agree- ment). Assurances have been obtained from GUATEL at negotiations that the Bank would have access to the relevant switching facilities and construc- tion sites, and to information reasonably needed for the coordinated execu- tion of the various project components (Section 3.04(d) of the draft Loan Agreement). 42. Other equipment for the urban telecommunications part of the pro- ject totalling US$28.1 million (including contingencies) has been grouped in appropriate bidding packages to be procured by international competitive bidding in accordance with Bank guidelines. Qualifying Manufacturers from Central American countries would receive a preference in bid evaluation of 15 percent, or the import duty, whichever is lower. Among the goods pro- posed for Bank financing, only cables, estimated to cost US$7.7 million, are manufactured in some Central American countries. Switching equipment in an amount not to exceed US$500,000 for the extension of lines in two small exchanges procured through international competitive bidding under Bank Loan 1104-GU, would be obtained through negotiated purchases with existing suppliers (Schedule 4 Part C of the draft Loan Agreement). This is justified for purposes of standardization, full use of the floor space planned for such extensions in existing buildings, and economies resulting from the use of existing common equipment. The Bank will ensure that the prices are reasonable. All Bank-financed bidding packages (five in total) for goods are estimated to cost over US$1.0 million equivalent each and would be subject to the Bank's prior review of procurement documentation. 43. Extensions to existing equipment totalling US$5.3 million, to be financed from GUATEL's own resources, would be imported after negotiations with existing suppliers. Cable ducts and some external plant totalling US$ 4.0 million which are manufactured locally and would be financed from GUJATEL's own resources, would be obtained through local procurement proce- dures, which permit competition and are satisfactory. The Bank has assisted in drawing up terms of reference for the consultants. Goods for the IDB and CABEI subprojects would be procured in accordance with the guidelines of the respective institutions. 44. Loan disbursements have been estimated on the basis of the above schedule of procurement. Disbursements would be made for 100 percent of foreign expenditures for all goods and consultants. Contracts for public call offices and consultants are expected to be signed in March 1984 and up to US$350,000 of retroactive financing, or 1.2 percent of the loan amount, would be disbursed in respect of expenditures made after January 1, 1984. Where called for in the contract, disbursements would include the foreign costs of installation of goods. All disbursements would be fully documen- ted. The closing date of the loan would be June 30, 1988.  - 16 - Project Implementation 45. Organization and Management. Based on the experience it gained under the first and second projects, GUATEL prepared engineering designs, bid documents and technical specifications for all Bank financed goods in the project. GUATEL would supervise the work of contractors employed to lay, joint and terminate all cables; would second its staff to assist the supplier in the installation of the exchanges; and would carry out the acceptance testing of all equipment installed. GUATEL's management has the experience required for the execution of the project. The project is expected to be completed by December 31, 1987. 46. The Borrower. GUATEL would be the Borrower under the proposed loan. GUATEL is administered by a five member Board of Directors compri- sing the Minister of Communications, the Minister of External Affairs, the Minister of the Interior and two other directors appointed by the President of the Republic. The Board and the management are vested with adequate powers to carry out their duties effectively. GUATEL's day-to-day business is administered by the general manager and the deputy general manager. Its organization, which is similar to that existing in other autonomous tele- communications enterprises, comprises five divisions dealing with adminis- tration, financial matters, planning and design, operation and maintenance, and construction and supervision, respectively. Field activities are directly controlled from headquarters in Guatemala City. The current orga- nizational setup has functioned satisfactorily with the present level of GUATEL's operations. The 1984-87 period, however, will be one with a greatly expanded level of investments and operations; this will require major upgrading and streamlining of administration and financial manage- ment, improvements in work coordination and supervision, laying down norms for operations, and establishing staff strength to achieve the scheduled grade of service. For this purpose, GUATEL proposes to retain foreign experts to assist in institutional development. In total about seven staff years of experts would be required at an average cost of about US$12,000 per staff month, including travel and subsistence. Assurances have been obtained at negotiations that GUATEL would retain such experts in accor- dance with Bank guidelines with qualifications and terms of reference satisfactory to the Bank (Section 3.02 of the draft Loan Agreement). The selection of such experts is about to be completed. 47. Staffing and Training. GUATEL has sufficient qualified staff to carry out the project and its technical training facilities are adequate. With the improvements which are planned in management and staffing, GUATEL should also be able to manage efficiently the greatly expanded operations resulting from the project. As of December 31, 1983, GUATEL's staff totalled 3,500 to operate about 108,500 main lines. The staff ratio of about 32 per 1,000 main lines is satisfactory, considering that GUATEL maintains long distance overhead line facilities to remote areas. With their replacement by radio systems and further automation of long distance traffic under the proposed project, the staff ratio is expected to decrease to 25 in 1987, when about 205,000 lines will be in operation. GUATEL plans  - 17 - to establish a staffing plan with specific recruitment targets for all levels and types of staff, together with an appropriate salary structure to retain experienced staff on a full time basis. The ITU has assisted GUATEL in setting up and operating a training center which provides training in all of the specialist areas required by the organization. GUATEL also makes use of training facilities provided by other national institutions and by a regional telecommunications training center in El Salvador. Some specialized telecommunications training is provided by equipment suppliers. Additional training needs to be provided only for the staff of the finance department. 48. Accounting and Audits. Under the proposed project, about 24 staffmonths of technical assistance would be provided to the finance department to prepare and start a staff training program; improve accrual accounting systems and procedures; and computer programming. In November 7, 1980, the Government instructed all public enterprises to introduce a cash accounting system similar to its own. Following negotiations, the Government confirmed that this would not be required for enterprises with a commercial character. Assurances were obtained that GUATEL will continue to maintain an accrual accounting system (Section 5.06 of the draft Loan Agreement). GUATEL's accounts are subject to internal audit by a statutory auditor and to control-of-payments audits by the Contraloria de Cuentas, a government auditing body. GUATEL engaged the firm of Lizarralde y Ayestas (associated with Arthur Young) for the external audit; the current arrangements are satisfactory. During negotiations, assurances were obtained from GUATEL that it will continue to engage external auditors satisfactory to the Bank and that it will transmit the auditor's report to the Bank within four months from the end of each fiscal year (Section 5.02 of the draft Loan Agreement). 49. Financial Aspects. GUATEL's financial performance during the period 1975-82 has been generally satisfactory, both in terms of rate of return and of internal cash generation. The revenue covenant of the second project (Loan 1104-GU) has been met except in 1977, and rental tariffs were increased by about 40 percent in May of 1978. The rate of return on revalued average net fixed assets in operation was about 15 percen. in 1979, 17 percent in 1980 and 11 percent in 1981. Although the rate of return fell slightly below 10 percent in 1982 and 1983, cash flow remained satisfactory. Net internal cash generation averaged 63 percent of total applications in 1978-83 and is forecast to finance 52 percent of total applications during the project implementation period. At end 1982, GUATEL's current assets were 1.3 times current liabilities, and its long-term debt equalled about 33 percent of total capitalization; this indicates a strong financial position and substantial capacity for additional borrowing. During negotiations GUATEL agreed that (i) it will take measures, including tariff changes, so as to achieve a rate of return on revalued average net fixed assets in operation of at least 12 percent in 1984 and at least 13 percent starting in 1985 and thereafter (Section 5.05 (a) of the draft Loan Agreement), and (ii) it will not incur any additional capital expenditures in excess of Q3 million (US$3 million equivalent) per annum during the project implementation period unless a financing plan has been approved by the Bank (Section 5.04 of the draft Loan Agreement).  - 18 - 50. As a Government-owned entity, GUATEL's statute requires it to pay each year to the Government 45 percent of its adjusted annual net income. Considering the substantial investment program GUATEL had to undertake, the Government agreed to let GUATEL accrue the corresponding amounts as a long-term debt starting in 1976, and to retain them as equity contri- butions during 1979-83. Following negotiations, the Government abrogated this agreement effective retroactively to 1982. GUATEL has resumed full payment to the Government of 45 percent of its net income and has paid Q 2.0 million of the total Q 11.4 million in accrued debt relating to the period 1976-78 to the Government. This ensures an appropriate balance between the financial needs of the Government and GUATEL. 51. Tariffs. GUATEL's tariff structure needs to be reviewed: the monthly service charge is low and includes a free allowance of 400 local call pulses; call units are charged to residences at a lower rate than to business and government subscribers; and numerous miscellaneous charges probably generate more administrative costs than revenues. Provision has been made under the proposed project to finance technical assistance to help GUATEL carry out a tariff study under terms of reference acceptable to the Bank. During negotiations, GUATEL agreed to complete a tariff study by June 30, 1984 and furnish to the Bank a satisfactory plan of action to implement the study's recommendations by September 30, 1984 (Section 3.05 (a) and (b) of the draft Loan Agreement). Benefits and Return on Investment 52. Benefits. Telecommunications services benefit all sectors of Guatemala's economy. Compared with alternative means of communication, telecommunications are often more efficient in terms of capital and energy consumption and user time. With adequate telecommunications facilities, the level and variety of productive communication can be increased considerably, and activities which would otherwise not be feasible can be realized. 53. Telecommunications can be expected to play a significant role in Guatemala especially at this time when a concerted effort is made to diversify the economy and improve social services. The project aims specifically at (a) reducing the cost of locating production outside the capital city area, thereby helping decentralize economic activity towards the new areas being opened up, particularly the Franja Transversal and El Peten; (b) improving the working of the market mechanism by extending access to information as needed to foster competition and develop production, services and regional trade; (c) increasing the efficiency of transportation through coordination of vehicle use and some substitution of travel, resulting in energy savings; (d) facilitating the extension of health, education, government administration, production and other services to low income rural areas; and (e) mobilizing domestic savings by transferring part of the net income from telecommunications operations to the Government (paragraph 50).  - 19 - 54. The planned increase of line installation rates under the project will permit an increase in the proportion of the demand met by services from about 35 percent in 1983 to about 50 percent in 1987 for the country as a whole. This will still leave an unmet demand of about 207,000 lines at the end of the program. In the areas outside the capital city, about 69 percent of forecast demand for telephone connections will be met in 1987 compared with 29 percent in 1982. This will involve expansion of exchange capacity in Quetzaltenango, Guatemala's second largest city, Flores, the main town in the Peten region, and Puerto San Jose, where a major sea port is being developed. Telephone service would be extended to most of the 304 seats of municipal government, about 60 other places, and more than 500 agricultural cooperatives. With this, the proportion of people outside Guatemala City with access to telephone service will roughly double. 55. The configuration of GUATEL's existing network limits the number of viable alternative solutions that could be considered to achieve the program targets. The timing and scope of the work items proposed in the program, of which this project is an integral part, are based on engineering studies designed to introduce, where appropriate, electronic digital switching techniques at the least cost. Given existing telecommunications technology, the program, as a whole, represents the least cost solution to provide the quantities and types of equipment which would meet the targets set out in GUATEL's four-year development plan. 56. Telephone services are being expanded significantly into what the Government considers to be high priority rural and provincial areas (see above, paragraph 54). This will result in a more equitable distribution of the benefits of telephone service in Guatemala, including a possible financial cross-subsidy from urban subscribers to rural public call offices or connections which in the short run may not generate sufficient revenues to cover costs. In the capital, there would be an increased proportion of subscribers living in dwellings which are typical of relatively low income residences and a correspondingly reduced proportion of high income homes, with no change in the middle income range. 57. Return on Investment. The internal financial rate of return on the 1984-1987 investment program, defined as the discount rate which equalizes the present value of the cost and revenue streams (at 1983 price levels), is 20 percent. A sensitivity analysis on the internal financial rate of return indicates that a 10 percent increase in capital expenditures and operating expenses and a 10 percent decrease in operating revenues would result in a rate of return of about 13 percent. The estimated minimum economic rate of return of the program is 35 percent, assuming that new subscribers added over the period would be willing to pay the same tariffs in real terms as existing subscribers. This estimate understates total program benefits, since it does not fully include the consumer surplus which callers or subscribers receive, and does not fully account for all external benefits associated with transport substitution, business opportunity, administrative efficiency, etc.  - 20 - Risk 58. There are no unusual risks associated with the program. A possible risk may arise out of delayed physical implementation due to unforeseen circumstances such as delays in the execution of the civil works, receipt of material or equipment, installation of equipment and plant, and execution of the connection program. Moreover, in telecommuni- cations projects, which comprise a number of independent works, a delay in the implementation of a few works does not generally prevent the use of other newly-created assets. When such delays do occur, costs and revenues tend to be deferred by roughly the same degree, so that the overall impact on the return on investment is usually not significant. The previous project was implemented approximately according to schedule with the exception of the switching equipment which was delayed due to technical problems beyond GUATEL's control. To reduce the risk that supplier-related problems may affect project implementation, bid specifications included a requirement that equipment offered must be field-proven. Environment and Health Aspects 59. No adverse environmental or health effects are expected as a result of the project. PART V - LEGAL INSTRUMENTS AND AUTHORITY 60. The draft Loan Agreement between the Bank and Empresa Guatemalteca de Telecomunicaciones (GUATEL), the draft Guarantee Agreement between the Republic of Guatemala and the Bank, and the Report of the Committees provided for in Article III, Section 4 (iii) of the Articles of Agreement of the Bank are being distributed to the Executive Directors separately. The most important features and special conditions of the draft Loan Agreement and the draft Guarantee Agreement have been included in Part IV and are summarized in Section III of Annex III of this report. 61. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 62. T recommend that the Executive Directors approve the proposed loan. A.W. Clausen President Attachments Washington, D.C. February 8, 1984  - 21- ANNEXI Page 1 of 6 T A B L E 3A GUATEMALA - SOCIAL INDICATORS DATA SHEET GUATEMALA REFERENCE GROUPS (WEIGHTED AVERAGES) I. HOST (MOST RECENT ESTIMATE) /b l/b RECENT MIDDLE INCOKE MIDDLE INCGIE 196O-/-b 1970- ESTDMATE- LAT. AMERICA & CARIB EUROPE AREA (THOUSAND SQ. KN) TOTAL 108.9 108.9 108.9 AGRICULTURAL 24.8 24.8 27.0 GNP PER CAPITA (US$) 260.0 430.0 1140.0 2088.2 2453.6 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 180.0 234.0 308.0 1407.6 1580.8 POPULATION AN) VITAL STATISTICS POPULATION,MID-YEAR (THOUSANDS) 3966.0 5353.0 7477.0 URBAN POPULATION (2 OF TOTAL) 33.0 35.7 39.4 65.9 47.8 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILL) 12.1 STATIONARY POPULATION (MILL) 25.0 YEAR STATIONARY POP. REACHED 2120 POPULATION DENSITY PER SQ. KM. 36.4 49.2 66.7 35.6 82.0 PER SQ. KM. AGRI. LAND 159.9 215.7 268.6 93.2 157.2 POPULATION AGE STRUCTURE (2) 0-14 YRS 46.2 45.7 43.0 40.1 31.9 15-64 YRS 51.1 51.6 53.9 55.8 60.9 65 AND ABOVE 2.7 2.7 3.0 4.1 7.2 POPULATION GROWTH RATE (7) TOTAL 2.9 3.0 3.0 2.3 1.6 URBAN 3.7 3.8 3.9 3.7 3.4 CRUDE BIRTH RATE (PER THOUS) 48.3 44.1 39.1 31.5 25.0 CRUDE DEATH RATE (PER THOUS) 18.5 13.9 10.3 8.1 9.1 GROSS REPRODUCTION RATE 3.4 3.1 2.6 2.0 1.7 .FAMILY PLANNING ACCEPTORS, ANNUAL (THOUS) . . 21.2 19.8 USERS (% OF MARRIED WOMEN) .. 7.0 18.0/c YOOD AND NUTITION INDEX OF FOOD PROD. PER CAPITA (1969-71=100) 93.0 101.0 116.0 113.0 108.4 PER CAPITA SUPPLY OF CALORIES (2 OF REQUIREMENTS) 96.0 94.0 93.0 111.3 129.6 PROTFINS (GRAMS PER DAY) 60.0 57.0 55.0 67.9 92.3 OF WHICH ANIMAL AND PULSE 21.0 20.0 19.0/d 34.1 34.6 CHILD (AGES 1-4) DEATH RATE 10.4 9.2 5.2 5.3 10.4 HEALTH LIFE EXPECT. AT BIRTH (YEARS) 47.2 52.9 58.8 64.6 67.2 INFANT MORT. RATE (PER THOUS) 91.9 87.1 65.9 62.6 71.4 ACCESS TO SAFE WATER (%POP) TOTAL .. 38.0 40.0/e 64.8 URBAN .. 88.0 87.07? 77.8 RURAL .. 12.0 14.07; 44.3 ACCESS TO EXCRETA DISPOSAL (x OF POPULATION) TOTAL .. .. 25.0/e 54.6 URBAN .. .. 40.07? 69.8 RURAL *. 11.0 17.0/e 29.8 POPULATION PER PHYSICIAN 4420.0/f 3730.0 8600.0 1776.0 1094.8 POP. PER NURSING PERSON 9040.0/f 1260.0 1620.0 1012.2 762.5 POP. PER HOSPITAL BED TOTAL 380.0 470.0 520.0/g 477.0 334.0 URBAN 190.0/f 210.0 .. 667.5 216.0 RURAL .. .. .. 1921.6 ADMISSIONS PER HOSPITAL BED .. 19.6 .. 27.2 20.0 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.2/i 5.0/ . URBAN 5.27i 4.97.. RURAL 5.371 5 AVERAGE NO. OF PERSONS/ROOR TOTAL 2.6/i 2.2/ . URBAN 1. 97i 1.67 .. RURAL 3.17T 2.77 . ACCESS TO ELECT. (% OF DWELLINGS) TOTAL 22.0/i 28. 5/1 .. . URBAN 56.07i 67.8.. RURAL 4. 0/1i 5.4 .... -- - - -- - - - -- - - -- - - - -- - - -- - - - _---___ __---_--__------__ __-___--_--__-___ _--___-__-_--__--_-_ _-__-__-___ __ __ __ _-__ _--___ __ _--____ -__ _ -_ -  -22 - ANEX I Page 2 of 6 T A B L E 3A GUATEMALA - SOCIAL INDICATORS DATA SHEET GUATEMALA REPERENCE ROUKS (WIGIED ASRAZS) /f MOST (MDST RECENT 157TDIAT) /b 0/b 19,70/-b RECENT LA MIDDLE INCOME MDDLE 110c0 1960 1970- ESTIMAT/b LAT. AMERICA & CARIB EtOPE EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 45.0 57.0 69.0 105.0 102.2 MALE 50.0 62.0 74.0 106.3 107.2 FEMALE 39.0 51.0 63.0 103.6 97.9 SECONDARY: TOTAL 7.0 8.0 16.0 40.0 56.5 MALE 8.0 9.0 17.0 38.6 63.4 FEMALE 6.0 8.0 15.0 41.2 48.9 VOCATIONAL (2 OF SECONDARY) 18.6 15.0 19.0 34.0 22.4 PUPIL-TEACHER RATIO PRIMARY 30.0 36.0 34.0 30.7 24.7 SECONDARY 8.0 14.0 20.0 16.7 22.1 ADULT LITERACY RATE (Z) 31.5 4'6.1 . 79.5 69.7 CONSUMPTION PASSENGER CARS/THOUSAND POP 6.6 8.0 13.2/c 45.6 52.9 RADIO RECEIVERS/THOUSAND POP 53.0 41.1 39.8 228.2 165.5 TV RECEIVERS/THOUSAND POP 8.1 13.5 24.1 108.3 124.2 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 21.5 26.7 12.9 64.1 96.3 CINEMA ANNUAL ATTENDANCE/CAPITA 2.3/f 2.0/k 1.4 2.9 2.9 L.ABOR FORCE TOTAL LABOR FORCE (THOUS) 1237.0 1625.0 2291.0 . 3 FEMALE (PERCENT) 12.6 12.9 14.2 24.8 34.5 AGRICULTURE (PERCENT) 66.7 61.0 55.0 31.3 40.7 INDUSTRY (PERCENT) 14.4 17.3 20.5 23.9 23.4 PARTICIPATION RATE (PERCENT) TOTAL 31.2 30.4 30.6 31.3 42.0 MALE 53.9 52.2 51.9 49.8 55.2 FEMALE 7.9 7.9 8.8 14.8 29.1 ECONOMIC DEPENDENCY RATIO 1.6 1.6 1.5 1.4 0.9 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5% OF HOUSEHOLDS .. 35.0/1 HIGHEST 20% OF HOUSEHOLDS .. 60.07 1 LOWEST 20% OF HOUSEHOLDS .. 5.071 . LOWEST 402 OF HOUSEHOLDS .. 13.071i POVIRTf TAflT GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 230.0/d 289.8 RURAL .. .. 160.071 184.5 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 231.0/d 519.8 RURAL .. .. 141.07d 372.1 409.0 ESTIMATED POP. BELOW ABSOLUTE POVERTY INCOMF LEVEL (X) URBAN .. .. 21.0/d RURAL .. .. 25.07. NOT AVAILABLE NOT APPLICABLE N O T E S /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries amotg 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; 'Data for 1970" between 1969 and 1971; and data for "Most Recent Estimate" between 1979 and 1981. Ic 1978; /d 1977; /e 1976; /f 1962; /g 1975; /h 1958; /I 1964; L2 1973; /k 1968; /t Partial survey of urban areas only. May 1983  - 23 - ANNEX I Page 3 of 6 DEFINITIONS OP SOCiAL INDICATORS Note: Alihoah the data are draen fin sources generally judged the anti authoritative and reliable, It should also he noted that they may noat be tenattai reprhebecause of the lack of stdardieed definition and c-o-pta oted by different.. cotri- in rollectlng the data. The data are, nonetheless* useful ne dee..ibe oedera of nagoitude, irdiloae trends, and oh-tr-teiee ce-tec s.lo difiereore heb ac-- unin Thereetrcegropsare11 se sm cu`y group of the tnbjre cou..tiry and (2) a country groput oohthg raoueicc hnterttyaepu h sejccuty(scpfo"IgItueOI oonr ru here "Mtddle Ioc..e event Afric cud Middle Dunn' Is chote he c noofI-teoga Iecn -ana affinities11). In the eeer gop duta the, IneraeaIur poplation anighted aritittic ne..n. fur each iudiletor and ston ov1y oha najunny of the -stten- .Is gophtdatal for Ithat indlato- Since the c-rerag of cunria og the lodlcatoes depends on the 1 avaiahillyof' dat d La out ..off.r,oan esth ear _se rlaiog avnue o -o indi-aar to another Thos anorug Itar oily usful in comparIng the talon ofoehdla-- at a time a_ng the oatry and gEAa (thuasand aq.km.l ouatnpe hsca opulto iie y uhro rrirg Teta1 - Tota1 ...rIace urea comprising laud uraao nlod etr; 91 lytln qa in r ia - Ila sho t aunesiy isne. 197D aud 19f0 data.ilId-.;Praa19tpe6Nrin,Der _n pplat insdidded by unbe ltf inatog agiutrl- Entina- ofagiutrloaued tetporarily on pernatentIly taead m le grdoate noen, a I =.bIsattre*proItlsrsca forcrps, IPastures, sarkt and littheogees rs i fallun; 1960, turing a...tris 1970 cod 180 dat. Iouaio e H-spltul Od - "ttIubn an url-Pepa'tin Ita.I, urhan, andrrl dIndd iyt the repctv nmeof homptee1 bsds GIP pER CAPdlTA (li) - DS per -spita entinant a uco are rcs analbloh in public avd privat geneecl und Ipeotlised haspita1 ned o_inlase bysaecovetonmthod an Wolid nant atat. 11909-t1 hasia); rehuiliut IIvone.--ptlaeetelamuspsemtnetly staffed 196i, i970, and 19891 data. by at _ut one ph yaivian. ttbihnts tiigpninoipa1I,ly tndtai cure are not included.tru i_p_l, eee, ialade heslt ted ENERGY OgNSUgpyiit PEt CAyITA - Aevua apparent co--ptlot on c_arvlmdical center tu peemnet Ylysudid by a physirtas (btnt by a mmdtol1 and geoterme Ilevnrtit Iylo ilorasIf coleq aln pe-cpinu; provide a itun rnge nmuial nariiie. Poe- taittt - P.r-me 1960, 1970, avd 1990 da-o nban htptin,tlods aOv. Priv-ipa/ge...ral hespitala, end -1ra hosptul, mni r rralhospitals and medical and maternityrnes POPULATION ADM7 VITAL STATISTICS Sp.vul aPital ore i-ouded auly under totel. Todtal Pupulation, Mid-Yea (th-uads) - dA of Joly 1; 1960, 1970, ovd i981 Adelissan per H-iotel Bed - Total nuber of udmissios ia e distherge daa fiehsituln divIded by the cumerb nfbde. differen degnrln ofohu yresm yff-re oeparabitivy of deta HOUSING amoog countries; 1960, 1970, and 1981 data.kerg tine ovushifH-,d Ip;Ersans pe -humhaid.) -ttl ura .nd e-e1 eupulatian yrujco stone - A buoutbold nonsinta of a group en individuals sha mbaer liniug qaartmes~~~~~~~~~ total papulatita by Iae ndc sad Itheir atl nod fertility the oueholdfostitca prpe. I Ilt. Proj-tod- pararoet.. for sor1taIity_rutec -oprt o~fthree toraeuber of proaprrom-totu, arbe, sad rsea tr.ae.a. e lernasming life enp-nta-y at "hiehineatu eith v tyt per ofPe-s-- per roveI itelluban, and rurti -r-pied naseest-Isl naPi." n' n lnl nut1 f imiin lf spetanty anbilining at 77.5 dtlig,rseti-ely. isligset lde a-rna --t tarae and ymars. The paeaueners Inn fetityrealobnthe levelsI un1cupled psorn.t autgdecline in fertility u-avdingt Ivicom level and'past fsmJly aton..s to lerctc(percet cI deellinat)-toa.rbsmerna- Pltunlng Perfontav-c -h Duc -cotr Is shenunigued one of these ninefnenoa dliogs iti electricty tinin qatesaspesttg canbiastons of sartaliy adfenliny nende far prajeotttt puross oftoa,ubnatdralnelngesptnly statiu..ury papututin- IoastuIaasry poylati-n thans IsIu gr-th nnetebirth ate In equal tno the deathrae an asosh ageUChAT Iv stutrl_ nlsanto.Tin isahieved only after fertility attadjusted Eny1ninnt tattoo decline n the relu _nntlee vi an1 t-e neyraduoti rat, thin Prlisec actua - tuna1, n-l and fenle - Crass tnta1, male and female han g--ortivo of n rplat _.Itsel cuatly. The stetiu...ry enoleto all aget at the yrinar lerea pecetaesa rmpeniee po pulation sits as- un d on the basin an th proJactd Ibrce-yiaysho-aeppltot omlyi_tlud- rhilde aged :.-II intio of she population in she Yaar DODD, end tie rate of decline v year hut adjoaned for differen lnths of prmytdeta;fur patata -sn till beeea-hed. Setondarysa- -toal saeadfsae-Cmed Ima btn; mevnmdary Faaatu leniydkeducationl.) ... rqires at leas.t Four- Year aappennd primaytaeno"e Per en. he. -Midyr population per nqaehlstr111hcae)u pev-ideI g...r.i, nvutionl, erneach-rtaigierts fee totlara Ih0, 1970, and 1900 dots. PpuIl nuaalyor1 t 17 pears of age;tarpndneetesse ern.h.-agicltuallad -Computd ashun for agrcltura-l land groenully en.c1uded. ony -90, 1970 and 1980 data. _octionl_ rule pret .o-noadsry)-Otainlnsitsu PouainAa 'uPue (percet)- Chldren 70-16 yesrt), tanning-ago (iS- include tecnIcal, industrial orvhe rorm s peran inepend- hiFeats), aud retired lb yese and ae)a paretan o id-Y.a entlyanu departn...tn ofscndr lsi-ttnain. poyulautoo; 191,19170, and 1981I dunn. Pui-ece ai neup n eodr aa stadeses etnIled in Pouatninth Rt prnn)-ttal - lAn.-l groeth r-te of ntal. nid- riaendaudryeesdIide hy number ef tanhers issh tsel- yea pautisnanfur 19..-ho, I9..-7.. and..970-fl. ruopandiug levelt. ptul ,-nOreh lane (act)- urban - lAnual gro-h r--n an urta PAdt li mmorat- pecnt l M Literat adult (tbie tt emd and -t.m) a papansivus. for 1950-60, 1960-70, atd 1970-8i. a percntage of tata dult papuIaniao aged 15 Years andavr Crude Otth nte (en hounand) - hatua live birthn per thuasand an nid- yea papalation; 196O,190,an l19 data. 2isoerTION Crude eath ste (vr thouand) -usnus detis pen thousand ofad-erPassege Cltr (perIbso pulation) - Pes...nger car vprise matte pupulatian; l196i, 1970 cnd 1991 dana. cans ae.gles Ihn eight Peras ...dnsblnes*hses a insiRrptdantivn R.I.e-Anerage numbero, aghesaano erIn stmr nils he ovnemalI reprduntine perlid if she eupeeten-e prenen ag-pcfctdiv iRceiner (per ibtusan2d vrltv)-All typse tfrelertaedt fertility eaten; ususlly fiat-year aenra~~-gen r-ding It 0, d"b 1960,g 1970 n bra-d-otsntnoge..reltphl e hiteId of pnnettun; -ua1de am 19f1. ~~~~~~~~license d receivesn r .ueenad in yemet.te -nitais frdio Faatlr Past-Apceptoos atus f1thvusands) - Annual rusheraf acce.ptor ttuaa in eIffet deta for r--t years may ntbe -psrable st-n r of hirtn,-nvtrt devn P.unde aupIe of ottut..l fomilyP plntg cu-tries ahulished lv tg praou.TgR"""n" leer ikhasan PePa1laito> - TV re-i-er fh bruadest ts Pa.,,Y Planning-sr trrnPtmrre u ) - Prcntg of s..rrled gener al ub per. nao eusin nlae oiesdT een eae a hild-hes.rIng ae(15-It4 an)ah u bsh-nnco deie inc-n-i-a and iv per on rgnu to fT esasI.T'efee all... iarldasnn innaneage grucy. I"I'anr lrclanIonire-hn..s.vd Papulanlnn)-hautb average~ FOODcal fTITOtc yoa c of"duil a genrl-Inestospe'' defined asapeiI ia Indet of Puod ProductIon Per cap1ita196-1=0 nOc- yrPar capita pucrondvtd -r-erlp cc e-adlg genera uat-- In In iscde...d anulrdoc_ln of all fAudoealls Prdcto uclde ted and toib dIly if in appears at tent Four tineesseek. fend nd Is-an-ede- Year baste. Oontditi-e t petnary gado(eg Ci..en n_ duAt_attndanc Per Glt prDa-Dteon the number IF ugarnanetustead sugar) h lot se dible and vuntal nutrients og ticets saId durIng the yenr, Icuig dinastodieiton n cuffs naud tea ure on loded). aggregat podactu ofec ontyIbaile anise, based on -niv...l averge produe pieeig it; 1961~-65,~1970, av lFil data. LA0R F0RCE Per capita supyoCauin y cn frnuemca upated frau Tona taint Prce (tnhusnds) - ica--i-lly ace to Pers..-, ist- ingrmd enrg quvlen tntfn upisaalhei onr percapns per arce ted.. trplaygd hut -unlding -nsnna. tdet, et,enrn day. kn-ilahln -upplin... coprise domsi prodntlan isuts et Poplto ofalaes -ffntin in-r- s tmr e r o buona udran- In coach. tN sppn -nvdeaisal feed, teeds, n-earale; 19h0, 1971 and 198 data. quttIn usditnua pnatg. adlonaIt diarbnas eae(percnt) - Peal lahor force us --rtga If tote1 leb-r fot. .e.rmenseesti-te by FO bae an. d phynivlagintl ..eeds foieh va lAgei-tultr ( peecet)- arfoc it fursing, nare.stey, tanin an aottityaa heulthntatsderitnviru-eeta1 tetpeeatar, bdytegh nishini as percentge of_ttllbyfm;1960,I1970 andI198 data. age and n.. distlhbatin atppayltion, end al1u-ing 10 Fera= for nnte Industry (cement). Laboe turns in nining, nntrn -e,mnfmtttlu a_t inusehald lenel; 19,61-65, 1970.. end 1980 da. an lcrct,tnrnd .d gta pecnaea nu-a labor ftr; 1960, Pe .nntspely an Prtn I(g aper day) - Prist conen ofper -apita 1970 aod 1981 dana. net supply vI tnt pe dey. Met spply offod In def Ind as above. Potlnt av lane. R rercnnl t-tonl, stir, and ieale-Psrtiipatioue Reqtrseos tr llovenresI sthihd bY OtDA prode furnie acIvi.t1y rates art nop.cted at total, sale, and femal labor f...... allatoe o h gam.o.tta yruti6 pn dy ud DO grass of onical snd peroentegI of total,sal and fe...le pap.tlaitn of 1 eges erspetinmly; plepe_l, nf ncinhIDgrass should in unisol pr-in. .et 1960, 1970, and 1911 data, Thes are based In ILO's patitiptian rates .ttadtrdnI are -ove than thasa af 75 grte- of .total peotoins DO gras -fl-ctng ag-se -tut-n an the op it,ad lnng time teend.A at aneal poteinas anaverae fvethe%a-ld, pnvpued hy FMt in the I- ettm enar from n_i_va .v..e. - t. d 5. 5I ThrSal Pn uoy 11-65,9 l70 and 1990 dta, ftvucDuednp iat - vutio an populin. ne Sed6 n ert Pee capita penin sP'ly tro uminal and~I yos-Pr'telo supply of food the tatu1 lahur Ilrne. d-rird frum ansat cod yua_ In gra- Per dY; 961-.... .... and 1977 Child uas1-4) leanth gate (pertosn)-asuldah ththusndinF etage an Private lo-v (btnn In cah and hind) - ie-in-d by richest ag 4gtv -I nr, to childrenIn-itaegay o ut detlvying per_rt, rihstD percet, pureat 20 pete...t, end ponrest 40 peroet If cutisdata derived fras Llf taie;196, 1970co191da. househa1ds. HEALOTH POVcRTY TARGET GOcUrS at hieth; 1960, 1970 nod 1981 data, should he iterpen-td tinth c-nuid-cb ituIn lfnfat fNen Iny lat - per ntvusad) - -1ua deaths af inlan-vode one. faiuted Absulute ron..ety l-nn- taVel (05pee ipt.) - ubsn ted rana1 - yea vi age Per thc...nd IIe births; 1960, 197D and 19Bf a data.1 Piton pvetY innt leve It Lhat Intme Intlbet hiifh s minimal Aces F.Of tane (cencen of -tpultitn ttlohn udcral - ortnnl dequat diet plu essent..Ial nun-tu. eqd eae Is i not Nuaher of pevylt(taral, urban, ad rua)tb esnble~T ants on sfe affnrdsb mtrsply(icue terted tuf-ac -sesn nran u slac eaieFnr noetvl(S e ns - drhs and ral.l - ancatantatrdutte suhonta from protec~~ted bneholes, spins,ad Rueal1r-nnlv punenty inom Inl- Is one-third an aneeg Pee e-pis sauferytels) a peceoageeof lner repecrepapuatVoa. In avpean.. incs othcunr. Tehut, I Iee in derivd feua the rars arbaaaresa.pahlic foannuin at standpat loca.ted non suecht~ I00 cetrs ee alth adj-t-no for high. en-ns If lining It arbas -a.. frT ahouse nay ... cvldnr. Ie eJug tiltl In tea....ble ates ofthat tniytdFrualn OrI- giAlute- tvrY Ittll eel(soat se hus. luaa rastacai aces ...uld imply that the hausn.-fe orad rurl1 Percet nf population (-riat and rrl b r aal arsber of the houshold dt alt bane to spend a die...peapari.tua Part of p nb _da fO fetchin the fesaly'. sete -ad- _`es t nc Dn isptsal I escason If P,poplatian)~ - totst,rbso,an nay include nie ra1tltian and dlnpus.. IIitl nr ulfcu test_ et ,uf -ont and Racial ent. mysain hIaeteaad tanne tunrby nnter-bvrnn systns or the us If Pit inonl .1aysis mud Pu)Jctiuns Dplpaeett PrtIeudtiilar installaIon. 14ey 1983  - 24 - AiEr I poiul.atic: 7.5 mIllon (mid-1982) Page 4 of 6 GDP Per Cata (1981) US$10980 hwt Itllion tES$ Sime of GDP At Mwkhet Prices (Z) Aerage Aml. lIresse (e) Inicam: (at currnt (at are-t pdrco)a/ (constarm prics) prices) 1982 1970 1975 1980 1981 1982 1970-75 1975-80 1981-86 NXtioa AlcaMB Cs liii0stlr Pmduct 8846 10D.0 100.0 100.0 100.0 100.0 5.6 5.7 0.3 AgricUlture 2247 27.6 28.2 25.4 25.3b/ 25.7b/ 6.2 3.5 1.1 Industry 1859 18.7 18.5 21.5 21.417/ 20.7A/ 5.7 9.0 -2.3 Servison 4740 53.6 53.3 53.1 53.3W1 53.6W1 4.9 5.6 0.9 Cormuptice 7826 86.5 85.7 87.0 89.2 87.9 4.5 6.0 -1.5 koe Itwonlimt 1214 12.8 16.1 15.9 17.4 15.7 5.5 5.3 1.4 Exporte, (247 1318 19.1 21.7 21.8 16.8 14.6 8.9 4.4 0.5 I4orts, (WSF 1634 18.4 23.5 24.8 23.4 18.2 4.3 5.1 -5.0 Gose SNtional Savings 98 12.4 14.4 13.6 9.8 10.8 6.8 4.8 11.4 1978 1979 1980 1981 1982 Prices DP lbPRarzr 100.0 108.6 119.5 130.2 138.5 RachEge Rate 1.0 1.0 1.0 1.0 1.0 Export price index 10D.0 103.0 115.8 114.1 114.2 1iort price iler 100.0 116.6 140.2 150.7 159.7 Terms of trade irdex 100.0 88.3 82.6 75.7 71.5 Compsition of ecdihae Trade (X) ker9ge khial Isrese (Z) (at current prices) (corstant prices) 1970 1975 1980 1985 1972-75 1975-80 1981-86 'por:s 100.0 102.0 100.0 100.0 7.3 6.2 -4.3 Priiy 63.9 68.8 67.3 65.1 8.7 2.0 -6.1 in,fertures 36.1 31.2 32.7 34.9 4.5 13.0 0.1 Isprcs 100.0 100.0 102.0 100.0 3.6 2.5 -4.3 Fcoi 8.5 8.5 6.9 8.2 -11.4 12.3 2.2 Petroleus 5.1 14.0 21.2 17.5 -10.6 12.9 -5.8 lehimry 27.4 28.5 23.7 14.3 15.6 7.1 -13.0 Others 59.0 49.0 48.2 60.0 6.5 -3.0 -2.4 As Z of MP 1970 1975 1980 1981 1982 Pubic Fiumece Current effYs~ 11.8 12.5 14.5 13.9 13.1 Cuxtrent IpEaditure 10.7 10.2 12.9 12.9 12.4 at-rplus (I ) or deficit (-) 1.1 2.3 1.6 1.0 0.7 Capita Expenditure 3.1 3.5 7.4 8.6 6.5 PbreAgn Finasrg 1.4 0.8 2.0 2.0 1.7 Actual Projected 1970-75 1975-0 1981-86 Other Indicmrs GP C 1wth Rate (Z) 5.6 6.0 0.1 CP Fer Capita Goth Rate () 2.6 2.7 -2.7 Electricaity consumtion growth rate (Z ICC 3.0 3.4 14.4c/ leginal esaing Pate 0.11 0.11 0.11 Impoat KLeticity 0.7 0.8 -18.6 Yt At vwiast primce; c apeon are exprossed at factor cost asd may ct aid due to the elusaion of cet iTdirect taoes and sobfidion. bMwime mims at ccent pricos. c/ ICI. va.ue is for 1982-86, sine the aontot price valUe of GDP is almost the agm in 1981 ard 1986.  - 25 - AMX I Page 5 of 6 PopuLation: 7.5 ndllion (mid-1982) GLAMIA: BAIAIE OF PAY!NIS, EXEIL CAPrL, AND MBT tNP Per Capita (1981) US$1,140 tMLllions of US$ at Current Prices) Actual Estimated Proj ected 1978 1980 1981 1982 1983 1984 Balance of Paynts Exports of Goods and NFS 1282.1 1721.5 1454.2 1317.9 1230.3 1362.1 Goods F.O.B. 1092.4 1519.8 1299.1 1199.6 1142.3 1266.7 lbn-Factor ServiCes 189.7 201.7 155.1 118.3 88.0 95.4 imports of Goods and N'S 1647.9 1951.9 2024.4 1621.8 1349.5 1490.6 Goods C.I.F. 1390.6 1598.2 1673.6 1387.7 1174.5 1291.7 lbn-Factor Srvices 257.3 353.7 350.9 234.1 175.0 198.9 Net BcpDrts of Goods axl NFS -365.8 -230.4 -570.2 -320.9 -119.2 -128.5 Net Factor Irxcme -12.0 -55.8 -85.4 -117.0 -147.5 -168.9 Net Transfers 115.6 109.8 90.9 64.8 42.7 46.3 Current Account Baance -262.2 -176.4 -564.7 -373.1 -224.0 -251.1 Direct Rreign Investnent (Net) 119.6 110.7 127.1 86.6 60.0 60.0 MLT loans (Net) 86.3 122.2 260.9 310.0 170.0 232.0 Disbursements 96.7 137.4 283.4 343.6 227.9 331.8 Anrtization -10.4 -15.2 -22.5 -33.6 -57.8 -99.7 Other Capital 131.9 -425.5 -163.9 -28.0 21.9 -16.0 Qiange In Net Reserves -75.6 369.0 340.6 51.5 -27.9 -24.9 (- = increase) International Reserves, Net 733.1 364.1 23.5 -28.0 0 24.9 Reserves as Mbnths of Imports 5.3 2.2 0.1 -0.2 0 0.2 Exterpal Capital & Debts Official grants - - - - (koss disburswnts 96.7 137.4 283.4 343.6 oncessional loans 42.9 58.7 48.2 40.6 DYC 2.8 5.7 7.4 14.2 PEKC - 17.4 - - m. _ _ _ _ Other 40.1 35.6 40.8 26.4 Nbr-Concessional loans 53.8 78.7 235.2 303.0 Officia Fcport CreUts 19.2 24.6 120.2 177.8 IBRD 17.8 34.9 31.5 17.2 Others Miltilateral 15.7 6.4 29.5 65.0 Private 1.1 12.8 54.0 43.0 External Debt Debt O.itstarding and Disbirse 304.0 549.0 8D9.5 1119.4 CEficial 297.4 533.9 742.2 1009.1 Private 6.6 15.1 67.3 110.3 Utdisbursed Debt 440.6 501.4 574.1 391.0 Debt Service Total Service Paynents 26.1 44.8 60.3 87.9 Interest 15.7 29.6 37.8 54.3 Payments as % of Exports QIFS N 2.0 2.6 4.1 6.8 Averae Interest Rate of New loans (Z) 5.8 7.9 8.5 6.4 Averae Mturity of New loans (Years) 23.6 14.5 18.6 13.5  - 26 - Annex I Page 6 of 6 OFFICIAL LENDING BY MAJOR LENDERS AND SECTORS, 1973-82 (In Millions of Constant FY83 US Dollars a/) IBRD IDB CABEI AID TOTAL Transport 20.0 52.7 36.9 109.6 Power 169.4 234.5 91.6 10.5 506.0 Education 49.8 56.7 1.5 21.5 129.5 Health - 203.3 - 5.9 209.2 Housing 29.7 29.8 50.9 11.9 122.3 Agriculture - 79.5 8.3 40.6 128.4 Manufacturing 28.0 9.3 7.4 44.7 Water and Sewerage - - 7.8 - 7.8 Telecommunications 41.1 9.8 50.9 Others _ - 44.3 10.0 54.3 TOTAL 310.0 684.5 260.4 107.8 1,362.7 a/ IBRD commitment deflator used for price adjustments. SOURCES: World Bank Statement of loans. USAID: Status of Loan Agreements. IEB: Status of Approved loans. CABEI Anuario Estadistico 1961/62-1979/80. Ministry of Finance, Guatemala.  - 27 - ANNEX II Page 1 of 2 THE STATUS OF BANK GROUP OPERATIONS IN GUATEMALA A. STATEMENT OF BANK LOANS 1/ (Net of cancellations) As of September 30, 1983. Loan or Credit Year Borrower Purpose Bank Undisbursed No. (US$ millions) Eight loans fully disbursed. 141.5 1104 1975 GUATEL Telecommunications 26.0 2.5 1212 1976 Government Education 14.5 3.3 1314 1976 Government Earthquake Reconstruction, 4.2 0.3 Education and Port 1605 1978 INDE Power 72.0 4.6 1846 1980 Government Highways 17.0 15.4 23282/ 1983 Government Basic Education 18.5 18.5 Total 293.7 of which has been repaid 57.2 Total now outstanding 236.5 Amount sold 5.8 of which has been repaid 5.8 - - Total now held by Bank 236.5 Total undisbursed 44.6 1/ Including exchange adjustments. 2/ Not yet effective.  - 28 - ANNEX II Page 2 of 2 B. STATEMENT OF IFC INVESTMENTS As of September 30, 1983.) Year Obligor Type of Business Loan Equity Total (US$ millions) 1'359 Industria Harinera Flour mill 0.20 - 0.20 Guatemalteca, S.A. 1974 Exploraciones y Explotaciones Mining and Pro- 15.00 - 15.00 Mineras Izabal, S.A. cessing of Nickel 1977 Cementos Progreso, S.A. Cement 3.00 - 3.00 Total gross commitments 18.20 - 18.20 less cancellations, terminations, repayments and sales 14.15 - 14.15 Total now held by IFC 4.05 - 4.05 Total undisbursed  - 29 - ANNEX III Page 1 of 2 GUATEMALA THIRD TELECOMMUNICATIONS PROJECT Supplementary Project Data Sheet Section I: Timetable of Key Events (a) Time taken to prepare project : 15 months (b) Agency which prepared project : GUATEL (c) First Presentation to Bank : June 1981 (d) Departure of Appraisal Mission: January 1982 (e) Completion of Negotiations : October 1982 (f) Estimated Loan Effectiveness June 30 1984 Section II: Special Bank Implementation Action None Section III: Special Conditions A. GUATEL will: (a) retain experts to assist in institutional development, with terms of reference satisfactory to the Bank and selected in accordance with Bank guidelines (paragraph 46); (b) complete a tariff study by June 30, 1984 and furnish to the Bank a satisfactory plan of action to implement the study's recommendations by September 30, 1984 (paragraph 51); (c) continue to maintain an accrual accounting system (paragraph 48); (d) achieve a rate of return on the current value of average net fixed assets in operation of 12 percent in 1984 and 13 percent in 1985 and thereafter (paragraph 49); and (f) not incur any additional capital expenditures in excess of Q3 million per annum during the project completion period unless a financing plan has been approved by the Bank (paragraph 49).  - 30 - ANTEX III Page 2 of 2 B. The Government of Guatemala will promptly make available to GUATEL any funds necessary for project completion (paragraph 40). C. Any amendment of Section 23 of Decree Law No. 14-71 of April 13, 1971 which provides for the transfer of revenues of GUATEL to the Government was added as an additional event of default (Section 7.01(b) of the draft Loan Agreement).  44)0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~JR IRR t22R r ; ' , -- /l: .. . Y - . ,.0 ' , 1v ,_ rE i r li n GUATEMALA _cf/A THIRD TELECOMMUNICATIONS PROJECT f; Local Exchanges and Long Distance Network 'S, wgrtr&y 5 - ''' p EMPRESA GUATEMALTECA DE TELECOMUNICACIONES (Gutel) 2 ______________ I I---- ---- i - - ,, M E X I C I | MEXICO I I~~~~~~~~~~~~P LP C. ~ 8 I,,,u-, I B E L I Z E TELECOMMUNICATIONS FACIIUTIES %.//ALtAEGO INUNDER cg3wS 024 -2. *~' 2 PROPOSES INSTALLATION EXRTING PLc/C 2 i ie * * Loccl relephoeeoe *xhn m~ >, V Repe...ste.~ ......... ....... . ..... ................ cnww.. p,. fio|/ ...... UHF/ VHF u o S Neobe, o14EiE /*'ol _s FPCM I-PC se ICde Mul.IT:,-'I D--I bu fPOET I 4r --In -eI-.T1 6b-cd-es S C-H/CA/N. _|& / /~~~~~~~~~~~/ c> -- 4 i)<. -- tA 6 / + /' 4.--.X>_ /HL)EHUETENANGO ,'t. OA v I f / '\ > A L T A V E R A P A Z I Z A B / EF OSA5 7 IL ESTEEr . .....22/ WI-- 2g_ w, X 9O/1/O S-AIEl/ A4~~~~~~ < > j< Z F t ueo