Document of The World Bank FOIL OMCIL USE ONLY Report No. 5744 PROJECT PERFORMANCE AUDIT REPORT PHILIPPINES - DEVELOPMENT BANK OF THE PHILIPPINES (LOANS 998-PH and 1190-PH) June 28, 1985 Operations Evaluation Department This document han a astiM distriUm and amy be used by reiplemis eoly In the prfwmaace o thefcial duiem. ls coukemis =ay not oherwie be disclosed withou WedM Bank mhoratem. ABBREVIATIONS ADB - Asian Development Bank BOI - Board of Investments COA - Commission on Audit DBP - Development Bank of the Philippines DFC - Development Finance Company ERR - Economic Rate of Return FRR - Financial Rate of Return FTI - Food Terminal Inc. GDP - Gross Domestic Product GOP - Government of the Philippines GNP - Gross National Product HSDC - Human Settlements Development Corporation IPD-I - Industrial Projects Department I MMIC - Marinduque Mining and Industrial Corporation NFA - National Food Authority NRC - National Housing Corporation NPC - National Power Corporation NSC - National Steel Corporation OBU - Offshore Banking Unit PASAR - Philippine Associated Smelting and Refining Corporation PCR - Project Completion Report PDB - Private Development Bank PDCP - Private Development Corporation of the Philippines PICOP - Paper Industries Corporation of the Philippines PPAM - Project Performance Audit Memorandum PPAR - Project Performance Audit Report SAL - Structural Adjustment Loan SGV - Sycip, Gorres, Velayo and Co. SMI - Small and Medium Industry UNICOM - United Coconut Oil Mills EXCHANGE RATES Name of Currency (Abbreviation): peso (P) Average Exchange Rate During the Period: 1974 US$ = P 6.79 1975 USS = P 7.25 1976 US$ = P 7.44 1977 USS = P 7.40 1978 USS = P 7.37 1979 US$ = P 7.38 1980 USS = P 7.51 1981 US$ = P 7.90 1982 USS = P 8.54 1983 USS = P 11.11 1984 US$ = P 16.70 FISCAL YEAR To June 30, 1976, July 1 to June 30 From January 1, 1977, January I to December 31 FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT PHILIPPINES - DEVELOPMENT BANK OF THE PHILIPPINES (LOANS 998-PU and 1190-PH) TABLE OF CONTENTS Page No. Preface ......................................................... i Basic Data Sheets... .... . ........................ ii Highlights .................................................... iv PROJECT PERFORMANCE AUDIT MEMORANDUM Page No. I. BAEGROUND... ............ .......... I Industrial Sector .. ...................... ...... 1 Financial Sector....... ......... .................. 2 The Development Bank of the Philippines.................. 3 II. PROJECT OBJECTIVES AND DESIGN . ........ ........... 4 Loan 998-PH (US$50 million)............... ........ . 4 Loan 1190-PH (US$75 million). ............ ............ 6 III. UTILIZATION OF BANK FUNDS......................... o ....... 6 Loan 998-PH................................................ 6 Loan 1190-PH................................................ 8 IV. INSTITUTIONAL DEVELOPMENT....... ........................ 9 V. OPERATIONAL AND FINANCIAL PERFORMANCE..................... 11 VI. CONCLUSIONS....... --o........... ..................... 13 ATTACHMENTS A. DBP - Approvals (Current and Constant Prices)............. 15 B. Comments Received from the Borrower .................... 16 This document has a restricted distribution and may be used by recipicals only in the performance of ther oHki dum Its contnms may not otherwi be dsdosed without World Bank authorization. TABLE OF CONTENTS (cont'd) PROJECT COMPLETION REPORT Page No. I. Introduction ........... 19 II. Environment........... ...... ... 19 III. The Development Bank of the Philippines.................... 20 IV. Loan Objectives.... ........ ... ...... ..... . ......... 22 V. Utilization of Loans 998-PH and 1190-PH............o...... 25 VI. Institutional Development....................... ........ 28 VII. Operational and Financial Performance of DBP............... 34 VIII. Conclusions............................ ............... 44 ANNEXES 1. Estimated and Actual Loan Disbursements ............o...... 48 2. Summary Charactistics of Large Industrial Subprojects Financed .. .w.......o...............o...... ....... 49 3. Status of Implementation of Large Subprojects Financed ..... 50 4. Reasons for Large Subproject Completion Delays 51 5. Current Operational and Financial Status of Large Subprojects .......... ... o ....... 52 6. Details of 28 " Problem Projects- by Principal Reasons Behind Failure ..... o ..... ............... 53 7. Financial Performance of Large Subprojects Financed ...... 54 8. Economic Performance of Large Subprojects Financed ....... 55 9. Summary Characteristics of Small- and Medium-Scale Subprojects Financed (Loan 1190-PH) 56 10. Status of Implementation of a Sample of 25 Small- and Medium-Scale Subprojects Financed in Metro Manila Area ... 57 11. Summary of Performance of a Sample of 25 Small- and Medium-Scale Subprojects Financed in Metro Manila Area ... 58 12. Financial Status of a Sample of 25 Small- and Medium-Scale Subprojects Financed in Metro Manila Area .............. 59 13. Smallholder Tree Farming Component (998-PH): Overview of Project Completion Report ....... ....... ... 60 14. Resource Mobilization During Implementation of Loans 998-PH and 1190-PH ............... ............. 72 15. Projected and Actual Lending and Investment Operations, 1975-82 ..................... . ............ 74 16. Characteristics of Loans Approved, 1975-82 ............. 75 17. Projected and Audited Balance Sheets, 1975-82 . ........ 77 18. Analysis of Arrears Position, 1975-82 . .......... 79 19. Analysis of Collection Performance (Loans and Guarantees), 1975-82 (Table 1) ..................................... 80 Analysis of Collection Performance (Loans only), 1975-82 (Table 2) ........................... ........... 81 20. Projected and Audited Income Statements, 1975-82 ........... 82 PROJECT PERFORMANCE AUDIT REPORT PHILIPPINES - DEVELOPMENT BANK OF THE PRILIPPINES (LOANS 998-PH and 1190-PH) PREFACE This is a performance audit under Loans 998-PH and 1190-PH to the Government of the Philippines in the amounts of US$50.0 million and US$75.0 million respectively. The Government made the entire amount of both loans available to the Development Bank of the Philippines (DBP) for on-lending to private industry (and in the case of the first loan, to small tree farmers). Loan 998-PH was approved in June 1974 and the final disbursement was made in January 1982. Loan 1190-PH was approved in December 1975 and the final disbursement was made in April 1982. The Project Performance Audit Report consists of the Project Performance Audit Memorandum (PPAM) prepared by the Operations Evaluation Department and the Project Completion Report (PCR) prepared by the East Asia and Pacific Regional Office of the Bank. The PCR is based on a draft PCR prepared by DBP. The PPAM is based on the PCR, the Staff Appraisal and the President's Reports, the loan documents, sector and economic reports, the summaries of the Board discussions, study of the project file and discussions with present and former Bank staff. The PCR very ably describes the experience with the two projects, providing an analysis of DBP's institutional development, operational and financial performance ana the use of the Bank' s funds. The PPAM examines the design of the projects, elaborates on particular aspects of the institutional development of DBP and draws lessons from the project experience. Comments received from the Borrower are reflected in the report and are reproduced as Attachment B. PROJECTS PERFORMANCE AUDIT REPORT BASIC DATA SHEET PHILIPPINES - DEVELOPMENT BANK OF THE PHILIPPINES (LOAN 998-P1) (Amounts in US$ millions) LOAN STATUS As of 3/31/85 Original Disbursed Cancelled Repaid Outstanding Loan 998-PH 50.00 49.57 0.43 18.12 31.45 CUMULATIVE LOAN DISBURSEMENTS F775 F176 F07 FW8 FV9 F230 F1B1 F82 (I) Pned /a 6.10 22.73 40.9 49.09 49.39 9.70 50.0D 50.00 (ii) Acual 3.40 32.10 40.40 43.90 45.82 46-(B 46.70 19.57 (ifi) (ii) as Z of (1) 4.6 141.2 100.3 89.4 92.8 92.7 93.4 99.1 OTHER PROJECT DATA Original Actual Board Approval - 6/11/74 Loan Agreement - 6/12/74 Effectiveness 9/16/74 9/09/74 Final Subproject Submission 9/30/76 9/30/81 Loan Closing 12/31/81 12/31/81 Borrover Government of the Philippines Executing Agency Development Bank of the Philippines MISSION DATA /b No. of No. of Date of Month/Year Weeks Persons Manweeks Report Identification 05/72 3 3 9 10/24/72 Appraisal 01/74 3 3 9 05/05/74 Supervision I 05/75 /c 4 2 8 08/11/75 Supervision II 11/75 4 2 8 02/04/76 Supervision III 10/76 4 2 8 02/01/77 Supervision IV 10/77 /d 4 2 8 08/18/78 Supervision V 11/78 3 3 9 03/30/79 Supervision VI 08/80 /e 4 3 12 04/07/81 Supervision VII 07/81 3 1 3 09/15/81 Supervision VIII 02/82 2 2 4 04/05/82 Supervision IX 06/82 2 3 6 10/06/82 Supervision X 12/82 2 3 6 01/26/83 Supervision XI 03/83 1 3 3 03/28/83 Completion 06/83 3 -2 6 03/27/84 /a The industrial component was expected to be fully disbursed by the end of FY78 with subsequent disbursements being in respect of the forestry component. /b Excluding forestry component. /c. In conjunction with appraisal of Loan 1190-PH. /d In conjunction with appraisal of Loan 1572-PH. /e Although there was no regular supervision in 1979, there was a preparation/preappraisal mission in November 1979 that involved DBP. PROJECTS PERFORMANCE AUDIT REPORT BASIC DATA SHEET PHILIPPINES - DEVELOPMENT BANK OF THE PHILIPPINES (LOAN 1190-PR) (Amounts in US$ millions) LOAN STATUS As of 03/31/85 Original DisborseJ Cancelled Repaid Outstanding Loan 1190-PR 75.00 75.00 0.00 17.55 57.45 CUMULATIVE LOAN DISBURSEMENTS FY77 FY78 FY79 FY80 FY81 FY82 (I) Planned 14.00 52.00 72.75 75.00 75.00 75.00 (ii) Actual 3.10 26.10 58.82 69.75 71.06 75.00 (iii) (ii) as Z of (1) 22.1 50.2 80.9 93.0 94.7 100.0 OTHER PROJECT DATA Original Actual Board Approval - 12/16/75 Loan Agreement - 1/28/76 Effectiveness 4/28/76 4/06/76 Final Subproject Submission 3/31/78 9/30/78 Loan Closing 3/31/80 9/30/81 Borrower Government of the Philippines Executing Agency Development Bank of the Philippines MISSION DATA No. of No. of Date of Month/Year Weeks Persons Manweeks Report Appraisal 05175 4 4 16 11/15/75 Supervision 1 11/75 4 2 8 02/04/76 Supervision II 10/76 4 2 8 02/01/77 Supervision III 10/77 /a 4 2 8 08/18/78 Supervision IV 11/78 3 3 9 03/30/79 Supervision V 08/80 /b 4 3 12 04/07/81 Supervision VI 07/81 3 1 3 09/15/81 Supervision VII 02/82 2 2 4 04/05/82 Supervision VIII 06/82 2 3 6 10/06/82 Supervision IX 12/82 2 3 6 01/26/83 Supervision X 03/83 1 3 3 03/28/83 Completion 06/83 3 2 6 03/27/84 FOLLOW-ON PROJECT Third Development Bank of the Philippines project, Loan 1572-PH, approved June 6, 1978, in the amount of US$80.0 million. /a In conjunction with appraisal of Loan 1572-PH. /b Although there was no regular supervision in 1979, there was a preparation/preappraisal mission in November 1979 that involved DBP. -iv- PROJECT PERFORMANCE AUDIT REPORT PHILIPPINES - DEVELOPMENT BANK OF THE PHILIPPINES (LOANS 998-PH and 1190-PH) HIGHLIGHTS The Development Bank of the Philippines (DBP) was a very large, Government-owned institution at the time the Bank was requested to assist in improving its operations (para. 8; PCR, para. 3.01). A 1972 evaluation mission identified a large number of serious organizational and financial problems, including weak appraisal and supervision work and major arrears. Based on these findings, the Bank made a series of recommendations to DBP designed to help solve these problems, but DBP was prepared to accept only some of them (para. 12; PCR, paras. 3.03-3.05). As DBP refused to accept an outside audit of its financial position, required to ascertain its true financial condition, or to undertake a major structural reform, the institution-building objectives of the first project were modest (para. 17; PCR, para. 6.01). The second project also sought only gradual institutional impro- vement in a number of areas (para. 18; PCR, para. 6.01). However, a primary objective of both projects was to bring about an improvement in the procedures, standards and financial position of DBP. This was seen by the Bank as being critically important if DBP were to be used as the principal channel for an increasing amount of financial assistance to the private sector in agriculture and industry, a goal of the Bank. Only limited progress was made (para. 33; PCR, para. 6.02). At the time the second project was appraised, Bank staff expressed reservations about the functioning of DBP's top management team. These related to the criteria for the appointment of most of them. The fact that the Chairman (the chief executive officier) was unable to directly appoint his own top executives was seen to be a major impediment to improving DBP's management and thus its performance. The Bank, however, was unable to achieve any change in this area, a fact which may explain much of DBP's failure to achieve significant improvements in its operations or procedures (paras. 36-40). The second major objective of both projects was transferring resources to sound projects. The Bank Loans financed 48 larger industrial subprojects, some 1,300 smallholder tree farmers (a pilot project included in Loan 998-PH for convenience) and 787 small and medium sized industrial (SMI) subprojects (under Loan 1190-PH). While the forestry component was fairly successful, most of the larger industrial subprojects are in diffi- culty. Sufficient data are not available to reach a judgement about the SKI subprojects, though what is available suggests they are faring better than the larger ones. This position reflects both DBPrs appraisal and supervision work and the economic conditions in the Philippines (paras. 21-32; PCR, paras. 5.03-5.11). DBP's financial position over the past ten years has been charac- terized by a vulnerable liquidity position and the poor quality of its portfolio. The liquidity problem stems essentially from DBP's dependence on the rollover of short-term Government deposits or loans and from the arreage problem, including loans made at the Government's request (para. 44; PCR, paras. 7.09-7.10). Potential losses on DBP's portfolio are substantial and far exceed the present provision (para. 45; PCR, para. 7.12). As a result of the lack of action by the Government and DBP to reverse the deterioration in DBP's financial position, the Bank and DBP informally agreed in May 1983 that there would be no new commitments under any existing lines of credit to DBP until certain steps to improve the situation were taken. So far these steps have not been taken and DBP's financial position has worsened (para. 47). An important lesson to be learned from these two projects is the critical importance of there being effective, capable top management con- tinuously in place in a DFC, if institutional changes are expected to be made (para. 52). An equally important lesson is the necessity for a DFC to enjoy autonomy if it is to make investment decisions based strictly on finan- cial and economic criteria (para. 53). The general failure to achieve any significant institutional improvements may be a result of the Bank's not having pursued these topics vigorously and continuously as well as the lack of commitment on the part of the Filipino authorities to introduce major institutional reforms (para. 50). While these two projects were not successful, it does not necessarily follow that other Bank projects which used DBP as a conduit only were inappropriate (para. 51). -1- PROJECT PERFORMANCE AUDIT MWMORANDUM PHILIPPINES - DEVELOPMENT BANK OF THE PHILIPPINES (LOANS 998-PH and 1190-PH) I. BACKGROUND Industrial Sector 1; 1. The Philippines' industrial sector2/ grew rapidly in the 1950s as the Government's import substitution policies led to a significant replace- ment of imports by domestic production. Throughout the 1960s industrial and trade policies continued to favor import substitution in consumer goods production, with the result that by the end of the decade the manufacturing sector was heavily dependent on imported inputs and there were virtually no manufactured exports other than traditional processed primary commodities. Moreover, the artificially low prices of capital goods, due to the higher valuation of the domestic currency that the strict foreign exchange controls permitted, combined with high protection, led to inefficient investment with a high capital/output ratio and inadequate employment creation. 2. Due in part to this structurally unsound pattern of manufacturing growth, the balance of payments deteriorated rapidly and the Government realized in the late 1960s that exports in general, and manufactured exports in particular, needed to be more actively encouraged. Steps were also needed to accelerate industrial output and employment growth and to encourage more efficient use of resources by domestic industries. Various incentives for industrial investment in preferred areas and in export-oriented activities were consequently introduced, the exchange rate was depreciated in 1970 and a number of export promotion measures were introduced. 3. These and other reforms in the early 1970s marked the start of a more outward-looking policy and contributed to an improvement in economic performance beginning in 1972. Growth in manufacturing during the 1970s averaged a satisfactory 7% p.a. During this period manufacturing accounted for about 25% of GDP, with the industrial sector as a whole accounting for about one-third. Non-traditional manufactured exports did grow rapidly from the early 1970s and increased their share in merchandise export value from a negligible level to 48% in 1983. Hovever, in 1983 export production still accounted for only 14% of manufacturing value added and a mere 4% of GDP because the products were still derived largely from assembly and consignment 1/ For further details see The Philippines: An Agenda for Adjustment and Growth, Report No. 5258-PH, November 30, 1984. 2/ The industrial sector includes mining, manufacturing, construction and utilities. -2- activities which have few backward linkages. However, most of the valued added in manufacturing was still produced by enterprises oriented towards the domestic market, reflecting the fact that in spite of reforms, trade and industrial policies until well into the 1970s were still geared towards import-substitution of consumer goods. 4. By the late 1970s the Government began to recognize the need to address these underlying structural problems more forcefully and embarked on a program of reforms in the 4ndustrial as well as other areas. These reforms were spurred by the impact of the second oil crl-sis in 1979 and the subse- quent international recessions. The medium-term program of industrial policy change initiated by the Government in 1980 was supported by the Bank's first Structural Adjustment Loan to the Philippines. Financial Sector 3/ 5. The financial sector in the Philippines is relatively well developed with commercial banking, consisting of both foreign and domestic banks, being the kingpin of the system. An array of other institutions has emerged at various stages to perform specialized functions. There is a well developed and very active short-term money market. 6. The most significant drawback of the system was and continues to be the relatively underdeveloped state of the long-term capital market. As one result, there has been excessive reliance on short-term credit. While the financial sector does seem to have expanded its role in financial intereediation, the source of its growth has been international credit rather than domestic savings. In 1980, following a joint Worli Bank/IMF study4/ the Government undertook major financial sector reforms which moved in the direction of the universal banking concept, thereby permitting more flexible system to increase the flow of longer term savings and loans. The impact of these reforms has so far been less than anticipated due to severe strains imposed on the financial systems in 1981 and 1983. 7. In 1981 the financial system went through a serious crisis of confidence caused mainly by the abuse of the money market by the issuance of commercial paper on an unsecured basis. It highlighted two fundamental but long-standing weaknesses of the system, namely its excessive dependence on short-term credit and the tendency of financial institutions to rely on general knowledge about borrowers rather than on proper creditworthiness and project analysis. The 1983 financial sector crisis arose from the general deterioration in the Philippine's economic performance following the second oil crisis in 1979 and the subsequent international recession, exacerbated by the structural problems of the economy. The deteriorating 3/ For further details see The Philippines: Aspects of the Financial Sector, A Joint World Bank/IMF Study, May 1980. 4/ See footnote 3. -3- performance of industrial enterprises was reflected in the worsening port- folio and increasing liquidity problems of financial institutions. Public sector financial institutions were particularly affected as they provided the bulk of financing for private as well as public sector investments and guar- antees for private financing. In addition, many financial intermediaries, especially the smaller ones, experienced massive deposit withdrawals leading to illiquidity and, in a number of cases, mergers with stronger institutions or receivership. The Development Bank of the Philippines 8. The Development Bank of the Philippines (DBP) was established by statute in 1958 as a successor to the Rehabilitation Finance Corporation which was created in 1947. It is wholly owned by the Government, which appoints its full-time chairman and the eight other members of its Board of Governors, half of whom are full-time executives. It is active in practi- cally all sectors of the economy, though most of its activities are in pri- vate industry. It is the main source of medium- and long-term financing in the Philippines, providing over half of the total. Reflecting the volume and diversity of its operations, DBP is a very large organization with an impor- tant role in the economic development of the Philippines. 9. DBP's operations grew rapidly during the 1960s, though the emphasis on direct lending in the early years shifted to guarantees in the late 1960s. This shift resulted mainly from a lack of resources to meet the increasing demand. The peso devaluation of 1970 (para. 2) had a serious effect on a number of DBP's clients, especially those which were heavily dependent on imports, causing many to default on DBP loans or, more often, on loans guaranteed by DBP. These defaults also reflected the weak appraisal work by DBP. 10. The defaults caused a serious liquidity problem for DBP, forcing a marked slow down in operations during 1971 and 1972. Operations picked up in 1973, however, and continued to increase throughout the rest of the 1970s. In part this was due to Bank lending through DBP which began in early 1971 and which by the end of 1984 totalled US$688 million through 17 separate loans (PCR, Annex 14).5/ 11. Three loans for agricultural projects (rice processing, livestock and fisheries) were made through DBP (i.e., made to the Government which on-lent the funds to DBP) before Loan 998-PH was granted. These projects 5/ Te experience with seven of these projects has been discussed in tim following PPARs: TLtle Ian No. Report No. Report Date First ivestock 823-PH 2128 June 30, 1978 Small and Mdin Industries DevelopDeot 1120-H 3969 June 16, 1982 First and Second Fisheries 891--FH & 1270-PH 4222 December 13, 1982 Rice Processing 72D-PH 4554 June 15, 1983 First Sipping 1048-PH 4910 January 31, 1984 Second Grain Processing 1269-PH 5448 February 6, 1985 -4- essentially used DBP only as a conduit, though the second and third also included some technical assistance to improve the performance of the specific unit within DBP that handled the project. Though it was recognized at the time that DBP was the agency in the Philippines best equipped to handle loans for agricultural development and a natural channel for such loans, it was also realized that DBP, because of the poor quality of its loan portfolio, would not be found creditworthy for a direct loan. 12. During the preparation of these loans the Government and DBP indicated that they would like Bank assistance in reforming DBP, including its industrial lending activities. This request was repeated in January 1972 at the time the second agricultural loan was negotiated and led to a May evaluation mission, involving both DFC and agricultural staff, which identi- fied a large number of serious organizational and financial problems (PCR, para. 3.03). Based on these findings, the Bank made a series of recommenda- tions to DBP designed to help solve these problems (PCR, para. 3.04) but DBP was prepared to accept only some of them (PCR, para. 3.05). 13. DBP did request Bank assistance, however, in developing an opera- tional manual, and a consultant was seconded to DBP for eight months starting in November 1972 to assist in this effort. Though no manual was produced as no decision was made on how DBP should be reorganized, several papers on specific topics such as project appraisal, follow-up, financial management, personnel management, etc. were produced. 14. Sufficient progress was made by DBP in improving its financial structure and reorganizing its industrial lending activities to warrant send- ing an appraisal mission for a first industrial project in January 1974. It was recognized, however, that DBP was still not creditworthy to receive a direct Bank loan and that therefore any loan would have to be made to the Government for on-lending to DBP.6/ II. PROJECT OBJECTIVES AND DESIGN Loan 998-PH (US$50 million) 15. The first industrial project involving DBP, supported by Loan 998-PH, had two basic objectives: (a) transfer of resources for the devel- opment of the industrial sector; and (b) institutional improvements in DBP's standards and procedures. It was also expected that the loan would provide the Bank with a useful vehicle for a discussion of broader policy issues affecting the Philippines industrial sector (SAR, 1974, para. 5.04; PCR, para. 4.01). Unlike the previous agricultural projects, this project included arrangements to strengthen DBP administratively and financially in 6/ DBP states that it never wanted to be a direct borrower from the Bank (Attachment B, para. 1). -5- order to make it eligible for direct Bank loans at some time in the future (SAR, 1974, para. 1.02).7/ 16. This project represented a broadening of the Bank Group's effort to assist the industrial sector in the Philippines. Prior to this project the Bank Group had made four loans to and an equity investment in the Private Development Corporation of the Philippines (PDCP), the other main provider of term finance to private industry, although much smaller than DBP.8/ Using DBP as a second intermediary was expected to provide greater overall impact as well as scope for further institution-building (SAR, 1974, para. 5.03). 17. The design of the project reflects, inter alia, DBP's refusal to accept an outside audit9/ of its financial posiCion, which was required in order to ascertain DBP's true financial condition (SAR, 1974, para. 4.11), and to undertake a major structural reform (PCR, para. 3.06). As a result, it was agreed that the development of DBP into a viable financial institution would be a gradual effort achieved through a series of industrial loans (PCR, para. 3.06), with only modest specific institutional improvements sought under the first project (PCR, para. 6.01). These included (a) increasing the staff in Industrial Projects Department I (IPD-I), the department of DBP that would handle the proceeds of the Loan (SAR, 1974, para. 4.02); (b) adopting a Statement of Operating Policies and Procedures agreed with the Bank (SAR, 1974, para. 4.03); (c) accelerating the account-by-account examination of industrial accounts in arrears being undertaken by DBP and determining a suitable level of provisions for bad debts (SAR, 1974, para. 4.10); and (d) evaluating, with Bank assistance, DBP's existing audit system and identifying its weaknesses, and undertaking a program for remedying these weaknesses (SAR, 1974, para 4.11). DBP also agreed to (e) make appropriate qualitative, procedural and presentational improvements in the project appraisal work of IPD-I, including the establishment of an economic evaluation unit (SAR, 1974, para. 4.04); (f) institute within IPD-I systematic procedures for supervision including comprehensive reporting requirements from borrowers (SAR, 1974, para. 4.05);and (g) prepare three-year business forecasts and financial projections and otherwise improve its planning (SAR, 1974, para. 4.07). 7/ Included in the project was an unrelated smallholder tree farming proj- ect, involving $2 million of the Loan. This was a pilot project, included at the Government's request, primarily for convenience because the same investment channel and managers were to be used. Its achieve- ments are adequately described in the PCR (para. 5.11 and Annex 13). 8/ PPARs have been issued on two projects involving PDCP: Report No. 1576, dated April 29, 1977, on Loan 630-PH and Report No. 4565, dated June 17, 1983, on Loan 1052-PH. 9/ Under DBP's Charter its accounts are audited by the Commission on Audit of the Government (COA). DBP points out that to replace the COA with a private auditing firm would require an amendment to its Charter and to the Constitution of the Republic of the Philippines (Attachment B, para. 4). However, the Bank's proposal was not to replace the COA but to have an additional audit carried out by a private firm. -6- Loan 1190-PH (US$75 million) 18. The objectives of the second industrial project with DBP, supported by Loan 1190-PH, were: (a) resource transfer directed mainly towards invest- ments which would: (i) further diversify the non-traditional export base; (ii) encourage greater domestic value added through downstream domestic pro- cessing of traditional exports; and (iii) promote intermediate and capital goods production; and (b) continuation of the institution building process started with Loan 998-PH. Under this latter objective, further gradual improvement was expected in the following areas: (i) the quality of DBP's industrial project appraisal; (ii) the quality of industrial project super- vision; (iii) the quality and quantity of staffing in IPD-I; (iv) reduction in the growth of DBP's contingent liabilities (i.e., its guarantee opera- tions); (v) strengthening of its long-term resource base; (vi) improvements in earnings performance through improved collections and a more appropriate level of interest rates and charges; (vii) reduction in arrearages; (viii) more adequate provisions for risks and reserves; and (ix) major improvement in the quality of auditing and internal reporting (SAR, 1975, para. 6.01; PCP, para. 6.01). 19. As is clear from the list of areas to be improved, as well as from its financial position, DBP still faced many serious deep-rooted problems at the time of the second project. It is therefore quite appropriate that only gradual improvement was envisaged. What is surprising is that the Bank at this time felt that DBP was sufficiently creditworthy for a direct Bank loan on the basis of its agreement to implement programs to improve its arrears situation and the quality of its audit, and an indirect loan was made only at the Government's request (SAR, 1975, para. 6.04). 20. The second industrial loan was originally intended for medium and large-sized projects (SAR, 1974, para. 3.02) with smaller projects covered by an earlier loan made through DBP (Loan 1120-PH, approved June 5, 1975). That loan, however, was fully committed more rapidly than expected and, in order to prevent an hiatus in DBP's small and medium industries (SMIs) assis- tance program, US$25 million of Loan 1190-PH was reallocated to SHIs in February 1977. In the end, US$28.5 million of the Loan was utilized by SHIs. III. UTILIZATION OF BANK FUNDS Loan 998-PH 10/ 21. The first subprojects authorized under Loan 998-PH were submitted to the Bank before the Loan was declared effective and authorized immediately 10/ The discussion that follows covers only the industrial subloans. Utilizetion of the $2 million smallholder tree farming component is covered in Annex 13 to the PCR. -7- thereafter. The original subproject submission deadline was September 30, 1976, about two years after effectiveness, by which time most of the loan was committed. Subsequent changes in the amounts utilized by subprojects, due to changes in subproject scope or design, in equipment costs, etc., as well as cancellations and a transfer to Loan 1190-PH, led to funds becoming available for re-commitment and the submission deadline was extended in March 1981 to September 30, 1981, to allow these additional funds to be utilized. In the end, US$47.6 million of the US$48 million allocation was disbursed to 20 sub- projects. The closing date did not need to be extended as it had originally been set 3k years after the expected last disbursement of the industrial component to accommodate the forestry component. 22. The total cost of the 20 subprojects was US$157.6 million equiva- lent versus an estimated cost of US$134.3 million equivalent, an overall cost overrun of US$23.3 million equivalent or 17%. Ten subprojects had cost overruns ranging from 1OZ to 48%, three had cost underruns and seven had neither. Ten subprojects had time overruns, ranging from 3 to 23 months (on average, 13 months), nine were completed on time and one 9 months ahead of time (PCR, Annex 3). The significance of these figures is of course a func- tion of how well the original estimates of cost and completion time were pre- pared. As DBP's appraisal work was not of a very high standard, it is likely that part of the overruns is attributable to faulty estimates and part to the usual reasons of changes in project design, delays in equipment deliveries, etc. (PCR, para. 5.04 and Annex 4). 23. Six of the subprojects, accounting for almost half of the Bank's funds, were in the textile subsector. Otherwise, the subprojects were sec- torally well distributed. Eleven were new subprojects and nine were expan- sions of existing enterprises. The geographical distribution generally reflected the overall pattern in the Philippines (PCR, para. 5.03 and Annex 2). 24. Towards the end of 1983 only three subprojects were operating with- out problems and another three with only minor problems. Six were suffering from major problems and eight were closed. Reflecting this position, four- teen subprojects were in arrears and only five were making profits (PCR, paras. 5.05-5.06 and Annex 5-7). At the time the subprojects were appraised, DBP estimated their FRR as ranging between 12% and 50Z and the ERR of the thirteen larger subprojects as ranging between 11% and 59%. These were recal- culated for eight subprojects (the others were either closed or facing uncer- tain futures). In two cases both were negative due to accumulated losses. The FRR for the other six ranged between 6% and 41% and the ERR, between 8% and 31% (PCR, Annex 8). 25. The twenty subprojects were expected to create 4,476 new jobs at an average cost per job created of US$35,200. equivalent. The maximum cost per job created was US$294,570 equivalent; the minimum, US$2,040 equivalent; the median, US$20,930 equivalent (PCR, para. 5.07 and Annex 8). -8- Loan 1190-PH 26. Loan 1190-PH was committed in two and a half years, the subproject submission deadline being extended once by six months. The closing date was extended by a year to September 30, 1981, with the final disbursement taking place on April 22, 1982. The proceeds were used to finance 28 medium and large sized subprojects (US$46.5 million) and 787 SHIs (US$28.5 million) (para. 20). 27. The total cost of the 28 lar;er subprojects was US$172.6 million equivalent versus an estimated cost of US$147.5 million equivalent, an over- all cost overrun of US$25.1 million equivalent or 17%. Seventeen subprojects had cost overruns ranging from less than 1% to 81%, while six had underruns and five neither. Nine subprojects were completed on time, five had time overruns of only three months, ten had time overruns of between 6 and 24 months, and four were never completed. The comments in para. 22 regarding the reasons for overruns apply equally here. 28. Of the loan proceeds that financed larger subprojects, 24% was lent to chree textile enterprises. The remaining funds were lent to enterprises in 14 different subsectors. Fifteen subprojects were expansions of existing enterprises with the remaining 13 subprojects being new ones. The geographi- cal distribution was similar to that for Loan 998-PH except that eight sub- projects were located in Mindanao, a relatively undeveloped region. These were largely resource based projects (timber, copper mining, coconut oil production) (PCR, para. 5.03 and Annex 2). 29. Nine of these subprojects were closed and five others had major problems at the end of 1983. Six were operating without problems and eight with only minor problems. Only eight subprojects were not significantly in arrears on their loans. Fourteen subproject were operating at a loss (PCR, paras. 5.05-5.06 and Annexes 5-7). The FRR was expected at the time of the appraisals to range from 9% to 137%; when recalculated for those subprojects still operating reasonably well (16) the range was 4% to 52% with one nega- tive. It is interesting to note that the highest ex post FRR was for the project with the lowest expected FRR and the one negative expost FRR was for the project with the highest expected FRR. The ERR was calculated at apprai- sal for the 22 larger subprojects and ranged from 10% to 138%. It was recal- culated after operations began for eleven subprojects and ranged from 8% to 75% with one negative (PCR, Annex 8). 30. These subprojects were somewhat more labor intensive than those financed under Loan 998-PH, being expected to create 6,026 new jobs at an average cost per job created of US$28,670 equivalent. The maximum cost per job created was US$97,400 equivalent; the minimum, US$1,900 equivalent; the median, US$25,920 equivalent (PCR, para. 5.07 and Annex 8). 31. Of the 787 SMI subprojects financed from the Loan, 443 were new enterprises and 344 existing ones. Sectorally the distribution was well balanced with no one subsector receiving more than 11% of the loan proceeds. -9- The geographical distribution indicates that Metro Manila received 26Z of the number and 43% of the amount, reflecting the larger average loan size approved in DBP's Head Office (PCR, para. 5.08 and Annex 9). 32. DBP surveyed 25 of the 787 SMI subprojects to determine their status and performance. As the PCR notes (para. 5.09), this sample suffers from at least three significant biases (all are located in Metro Manila, all are larger than average, and most are expansions) which means conclusions drawn from it may not apply to the other SMI subprojects. Nevertheless, it is interesting to note that these 25 subprojects did not suffer cost and time overruns to the same extent as did the larger subprojects and on balance were operating more successfully (PCR, para. 5.10 and Annexes 10-12). IV. INSTITUTIONAL DEVELOPMENT 33. A primary objective of both projects was to bring about an improve- ment in the procedures, standards and financial position of DBP. This was seen by the Bank as being critically important if DBP were to be used as the principal channel for an increasing amount of financial assistance to the private sector in agriculture and industry, a goal of the Bank (PCR, para. 3.02). Some progress was achieved before the first loan was granted and further progress was made between the first and the second projects. This progress, however, was very limited. 34. In part this was due to the nature of DBP itself, its size and complexity, its management structure and the degree of outside influence in its affairs. While DBP's Chairman was making serious efforts to improve DBP's overall organizational efficiency, the Government was requesting it to undertake a number of hotel and resort projects financed with a one-year securities repurchase agreement with the Central Bank, to be rolled over for a minimum period of five years. This, plus the fact that most of its other recent domestic currency loans had also been based on short- and medium-term Government deposits, was distorting its asset-liability structure (SAR, 1975, para. 5.14). In addition, despite efforts to reduce arrears, at the time of the appraisal of the second project about 60% of the total number of accounts were in arrears with almost half the total principal outstanding being affected by arrears (SAR, 1975, para. 5.16). 35. It is noteworthy that, despite the importance the Bank placed on improving DBP's institutional performance and the problems the Bank knew DBP was facing, there was no supervision mission to review the situation in depth between the appraisal missions for the first and for the second projects, a period of 16 months. Though the Bank's mission to appraise the first small and medium industries development project (Loan 1120-PH) reviewed DBP's activities in some depth in November 1974 and other missions to the Philippines would pay short visits to DBP, these were no substitute for a full, technical supervision. -10- 36. At the time the second project was appraised, Bank staff expressed reservations about DBP's Board structure and the functioning of its top management team (internal memo dated June 4, 1975).11/ This team consisted of the Chairman and the four members of the Board who were full-time execu- tives of DBP. The reservation concerning the Board structure was that its composition did not adequately reflect as wide and diverse a set of objective views at the policy-making level as would be desirable. It was felt that the Board would be able to perform a more useful and effective role if it excluded all executive officers of DBP other than the Chairman and included a wider spectrum of senior government officials representing those areas in which DBP played a major financing role. 37. The reservation concerning the top management team related to the criteria for the appointment of the four full-time executive members of the Board (not the Chairman). The fact that the Chairman was unable to directly appoint his own top executives was seen to be a major impediment to improving DBP's management and thus its performance. As one result, these individuals were not functioning as a well-knit team, leading to the lack of essential delegation of authority and responsibility. 38. It was recognized that any significant improvement in the situation would require major amendments to DBP's Charter as well as the delegation of the appointment authority to the Chairman. These were seen as important objectives, given that a significant portion of the total Bank lending to the Philippines was and would be channelled through DBP, and ones that should be pursued independently of a particular loan. Because of their importance, it was felt that they should be discussed between Bank management and the Philippine Government. 39. The record indicates that Bank management raised the question of the Board's composition with the authorities in late 1975 but is not clear whether this and the management team issues were pursued. In any case, the issue of the Chairman's authority to appoint the four full-time Governors has not been resolved, though there are indications that new full-time Governors have generally been the choice of the Chairman since 1977. Also, the issue of the Board and management structure has not been resolved. In spite of this, eleven Bank loans (including Loan 1190-PH) totalling US$572.6 million were made through DBP since these concerns were expressed. While many of them no doubt simply used DBP as a conduit, Loan 1190-PH and its follow-on Loan 1572-PH had as specific objectives further institutional improvements within DBP. 40. However, progress since the second Loan was granted has remained limited. The PCR correctly notes the key role played by the Chairman in bringing about reforms (para. 6.02) but does not discuss how his ability to 11/ The May 1972 reconnaissance mission had recommended, inter alia, modification of the Board and management structure but this had not been accepted by DBP (PCR, paras. 3.04-3.05). -11- achieve improvements has been circumscribed by the roles played by the other four top executives and the Board. It is difficult to quantify what effect this has had on DBP's failure to achieve significant improvements in its operations.12/ 41. The PCR (Chapter VI) describes in some detail the progress made by DBP in achieving the specific institutional improvements set as objectives for each project (paras. 17 and 18). As previously noted, this was mixed. The number of staff in IPD-I has been increased as planned but, because DBP as part of the Government system cannot compete with the private sector on the same terms, it has difficulty attracting the quality of staff it needs (PCR, para. 6.03). Appraisal work has improved but still lacks to some extent rigorous analysis and critical judgement (PCR, para. 6.05). Project supervision, on the other hand, has not improved significantly, a serious problem given the arrears situation (PCR, para. 6.06). Financial planning has improved but this has demonstrated a need to improve resource management (PCR, para. 6.07). In mobilizing resources DBP has relied almost entirely on the Government and its agencies for local currency and on official sources for foreign currencies, though it has had some success in raising foreign resources from commercial sources, albeit usually with the Government's guarantee (PCR, paras. 6.08-6.09). V. OPERATIONAL AND FINANCIAL PERFORMANCE 42. The PCR describes quite fully DBP's operations during the period 1975-82. It notes that much of the increase in total financing provided by DBP during this period was due to its refinancing of its clients' existing debt and its conversion of loan arrearages into equity investments. These measures were taken by DBP in an effort to rehabilitate problem projects. They proved ineffective because many of the projects had structural problems caused by distortions due to the Government's past industrial policy and the poor quality of DBP's appraisal work. DBP instead should have focused on each project's underlying problems (managerial, technical, marketing, financial, etc.) and developed a package of remedial measures tailored to these problems (PCR, para. 7.04). 43. DBP's actual approvals of loans, investments and guarantees from 1971 through 1982 are given in Attachment A, as are refinancing and conversion operations from 1975 onward. These are presented in both current and constant 1980 prices. The latter series indicates that there was no real increase in DBP's operations between 1972 and 1979 when the refinancing and conversion operations are netted out, and in fact there was a gradual decline. Operations in 1980 and 1981 did show a substantial real increase, due mainly to larger guarantee operations; three large mineral projects 12/ Regional staff note that the present Chairman recently indicated that he is receiving the full support of the current full-time Governors. -12- accounted for most of the 1980 guarantees while a fourth mineral project and the rollover of existing guarantees accounted for most of the 1981 total. Operations in 1982 fell back, in real terms, to the level of the mid-1970s (PCR, para. 7.06). 44. DBP's financial position over the past ten years has been charac- terized by a vulnerable liquidity position and the poor quality of its port- folio. The liquidity problem stems essentially from DBP's dependence on the rollover of short-term Government deposits or loans (para. 34) and from the arrearage problem, including loans made at the Government's request. While the Government has provided DBP with liquidity support, as agreed from time to time with the Bank, these arrangements have not been fully satisfactory as they have not adequately protected DBP from failures of projects supported at the Government's request (PCR, paras. 7.09-7.10). 45. The Bank has been aware of the poor quality of DBP's portfolio since 1972, but has apparently never been able to do much to improve it. DBP's collection ratio has never exceeded 50% since the early 1970s. Though action programs to review problem accounts have been agreed with the Bank at various times, little has been accomplished. The massive refinancing and conversion programs (para. 42) have served to temporarily hide the magnitude of the problem but have done little to solve it. Potential losses on DBP's portfolio are substantial and far exceed the present provision of P 180 mil- lion; the conversion into equity investments of past due principal and inter- est on loans alone totals some P 7 billion or almost 90% of the total equity portfolio. Were the provisions for possible portfolio losses increased to a more prudent level, DBP would most likely find itself bankrupt (PCR, para. 7.12-7.13). 46. DBP's profitability was originally negatively affected by the interest rate and other charges it was able to levy. These were raised some- what at the time of Loan 1190-PH and more substantLally in the 1980s, and now are in line with market rates (PCR, para. 7.16). More serious, however, has been the collection problem. While holding down profits throughout the period (interest income is correctly reported on a cash basis), DBP's collec- tion performance has deteriorated since 1979. This is reflected in the increase in conversions into equity of arrearages since then (Attachment A). These conversions, moreover, have had the effect of increasing reported income through the capitalization of interest and other fees, though none of these funds were actually received. If this "income- had not been included, DBP's net income would have been negative since 1979 and its net worth reduced by some 85%. As DBP presumably converted this overdue income because it never expected to receive it, that is probably a more accurate picture of DBP's current financial picture than the reported one (PCR, paras. 7.14-7.17). 47. As a result of the lack of action by the Government and DBP to reverse the deterioration in DBP's financial position, the Bank and DBP informally agreed in May 1983 that there would be no new commitments under any existing lines of credit to DBP until certain steps were taken. These -13- were, inter alia, that a proposed detailed plan of action for the rehabilita- tion of DBP be revised to provide for annual independent audit requirements satisfactory to the Bank and that a memorandum of agreement be entered into between the Government and DBP regarding the non-performing accounts of proj- ects undertaken at the Government's request. So far these steps have not been taken and DBP's financial position has worsened. No Bank loan has been made through DEP since June 1982. VI. CONCLUSIONS 48. Both projects had the same two broad objeztives: resource trans- fer to the industrial sector and institutional improvements in DBP's stan- dards and procedures. In neither case were these objectives fully met. Most of the larger industrial subprojects financed under the loans were either closed or in serious trouble (paras. 24 and 29). The SHI subprojects were apparently faring somewhat better, though the data is incomplete (para. 32). On the other hand, the tree farming component under Loan 998-PH was success- ful. 49. With regard to institution building, it seems clear that overall the Bank has had little impact on DBP, its procedures, standards or financial position. The Bank has been helpful in improving to some extent IPD-I's appraisal work, though there is much room for further improvement. Some of this improvement has been brought about through the Bank's review of apprai- sal reports sent it, and the subsequent dialogue with DBP. On occasion the Bank's efforts have led to improvements in the subprojects themselves or their withdrawal for further evaluation by DBP. On other occasions, though, it appears from the record that in reviewing subprojects the Bank let oppor- tunities for fruitful dialogue on analytical techniques and methodological approaches slip away. 13/ 50. Given the many and diverse problems facing DBP, it was appropriate for Bank staff to draw particular attention to the need to improve the func- tioning of DBP's top management team as this would be a precondition to achieving improvements elsewhere (paras. 39-40). The general failure to achieve any significant institutional improvements may be a result of the Bank's not having pursued this topic vigorously and continuously as well as the lack of commitment on the part of the Filipino authorities to introduce major institutional reforms. 51. While these projects were not successful, it may not be appropriate to conclude from the experience that the Bank should not have used DBP as a channel for financial assistance to the private sector in agriculture and industry. Even though the industrial subprojects assisted under these two 13/ Regional staff note that these were often followed up verbally in the field. -14- loans are not in general performing well, the causes may be rooted more in the economic crisis facing the country than in poor appraisal and supervision work on DBP's part. Where the primary objective of a Bank project utilizing DBP was assistance to a particular sector or subsector (for example live- stock, grain, shipping) and, if there was a project objective aimed at DBP, it was limited to the particular unit dealing with the project, it might have been quite appropriate to use DBP as a conduit. What sets the two projects under review apart from others is that a primary objective of each wes the overall institutional improvement of DBP. 52. An important lesson to be learned from these two projects, then, is the critical importance of there being effective, capable top management con- tinuously in place in a DFC if institutional changes are expected to be made. The chief executive officer, in this case the Chairman, should be able to appoint his own lieutenants in order to ensure a smoothly working team at the top. This is not a new lesson; many other performance audits of DFC projects have drawn the same lesson, but rarely so clearly. 53. An equally important (and also not new) lesson is that a DFC must enjoy autonomy if it is to carry out its mission. The PCR also draws these two lessons, as well as three other valid ones. Autonomy includes the abil- ity to reach its own investment decisions, to raise its own resources, to recruit its staff on terms and conditions it sets and to establish its lend- ing rates in line with its costs and risks. While there may be a legitimate place within an economy for a financial institution which is closely con- trolled by the government, the Bank should recognize the difficulty in caus- ing such an institution to make decisions based strictly on financial and economic criteria. 54. The difficulty in influencing such an institution is amply demon- strated with DBP. The Bank was too optimistic as to what could be achieved through the two loans under review, not appreciating how complex and intract- able were the problems of rehabilitating a large, multi-purpose Government development bank. Of course, without the Government or DBP being willing to undertake a major institutional restructuring, little progress was possible. In retrospect, it would appear that the Government's and DBP's unwillingness to take the necessary major institutional steps should have been sufficient warning to the Bank that institutional improvement objectives would be extremely difficult if not impossible to achieve. It is encouraging to note that the Government and DBP have now established the long-run goal of intro- ducing major institutional reforms not only in DBP but also in the overall government financial sector. The Bank should follow this very closely to ensure their successful implementation. DVELOPHr BAM OF THE PHILIPPINES APP LSVAIB (aERENT AND OSTAM PRICES) (pesoe millions) FY71 FY2 FM73 FY74 FY75 FY76 FY77 CY77 CY78 CY79 CM8 CY81 CY82 (Mrrent Prices) loans 50 162 234 293 2,431 2,477 2,014 2,780 3,041 4,558 5,461 6,794 4,949 Investnents - 149 1 78 212 84 110 289 402 1,317 1,171 2,744 2,831 Guarantees 504 1474 j158 2,760 811 1,355 979 1031 1,247 859 4p767 6,642 2,188 Totals 554 1,785 1,824 3,131 3,454 3,916 3,103 4,100 4,690 6,734 11,399 16,180 9,968 Of which: loans for refinancing clients' existing debt 13 324 0 965 970 2,128 1,207 2,300 1,485 Conversion of arrearages into equity 0 0 0 226 276 1,304 1,120 2LO59 2,056 Totals (Net of ref inancing and conversions) 3,441 3,592 3,103 2,909 3,444 3,302 9,072 11,821 6,427 Wholesale Price Index (1980 - 100) 25.9 29.3 36.3 53.6 56.5 61.7 67.8 67.8 71.0 84.5 100.0 113.1 125.2 (1980 Prices) Loans 193 553 645 547 4,303 4,015 2,971 4,100 4,283 5,394 5,461 6,007 3,953 Investnents 0 509 3 146 375 136 162 426 566 1,559 1,171 2,426 2,261 Guarantees 1,946 5,031 4,377 5,149 1,435 2,19 14! L521 I 1,017 1,767 5,873 1 748 Totals 2,139 6,092 5,025 5,841 6,113 6,347 4,577 6,047 6,606 7,969 11,399 14,306 7,962 Of which: Loans for refinancing clients' existing debt 23 525 0 1,423 1,366 2,518 1,207 2,034 1,186 Conversion of arrearages into equity 0 0 0 333 389 1,543 1 1,I21 1,642 Totals (Net of refinancing and conversions) 6,090 5,822 4,577 4,291 4,851 3,908 9,072 10,452 5,133 - - - - - - - UMMOM . Attachment B -16 - Page 1 (DEVELOPMENTr BANK OF THE PHIMPPINES) OVPICE OF THE CHAIRMAN COmEMTS FROM THE BORROWER 13 May 1985 Mr. Yukinori Watanabe Director Operations Evaluation Department International Bank for Reconstruction and Development 1818 H street, N. W. Washington, D. C. 20433 U. S. A. Dear Mr. Watanabe: We would like to give our coments/observations on the Project Performance Audit Report for Loans 998-PH and 1190-PH. We are focusing our comments on specific points raised in the report, which we feel are not quite accurate. 1. The report made mention, in at least three paragraphs, the issue of DBP's creditworthiness in relation to whether it merited a direct loan fram the WB or not. Reflected in DEP officials who were active participants in the formulation and footnote 6 to negotiation of the two credit lines recall with certainty that para. 14. See right from the start, DBP never wanted to become a direct borrower aso from WB. Creditworthiness was never an issue and should not be 19. raised as an issue in the report. 2. The report states that the high failure rate of projects was largely reflective of poor appraisal capability of DBP. The potential Assumptions used in appraisal were believed to be reasonable impact of during the time of evaluation of these projects. The report seems external to discount the impact of unforseen external factors at the time factors is of project appraisal, notably the slump in the export market of already r-:-- most of the projects financed and the series of devaluation of the ognized in peso which brought devastating results specifically on the large paras. 9 and projects whose obligations under the WB lines had all to be deno- 51. minated in various foreign currencies. This brings to our mind the WB Textile Modernization Loan, which could have caused the death of even the few remaining viable textile mills, had they then agreed to utilize the line. Attachment B -17 - Page 2 Mr. Yukinori Watanabe 13 May 1985 Of course, neither should we forget the fact that most of the large projects app.'oved under 998-PH and 1190-PH were reviewed by the World Bank in compliance with the covering Agreements that loans of $1.0 million and above should be subject to WB review and approval. It would seem that while the report is critical of DBP's appraisal capability, what actually happened is that the WB itself had validated the appraisal reports involving 90% of total loans granted under 998-PH and 86% of total loans granted under 1190-PH, when it gave its own approval for the recommended loans. 3. The report appears to have conveniently pointed to the unwillingness of the Philippine Government and the DBP to undertake a major institutional restructuring of DBP, as the overriding reason for the failure of the WB to achieve the institutional improvements envisioned for DBP. At this point, we feel that some facts should be straightened out. Already First, it was DBP and the Philippine Government which initiated reflected in the request for WB assistance to strengthen DBP's institutional para. 12. capability. Adoption of the recoumendations in the study contracted out to a WB nominee however was not done bscause some of the recommendations were considered unrealistic and rather drastic by the management then. Para. 39 Second, it appears that the WB did not anymore raise the issue of notes that a major institutional overhaul as a critical condition in the the follow-on approval of subsequent credit lines. If indeed the WB has been was to the vigorously pushing for this, it is quite surprising that several two loans credit lines followed after 1190-PH. And these involved not a few being re- appraisal and supervision missions. We find this quite puzzling viewed also since the WB had always operated on a highly leveraged position included during negotiations of these lines. institutional improvements Yes, it is true that appraisal missions, almost without fail would as specific require organizational changes in departments to carry out objectives. projects. This accounts for the reorganization done twice in Industrial Projects Department I, once in Industrial Projects Department II, Agricultural Loans Department, Agricultural Supervision Department, the Small and Medium Industries Lending Departments, and the Department of Development and Rural Banks, all structured conformably with the suggestions of the WB missions. We are tempted to reflect now on the result on DBP's present organization of the WB's recommendations to streamline depart- ments. These seem to have somehow added to the complexity of the organization that it has always been critical about. - 18 - Attachment B Page 3 Mr. Yukinori Watanabe 13 May 1985 4. The statement about DBP's refusal to accept an outside audit is Reflected in slanted. The Comission on Audit exists as per the Constitution footnote 9 of the Republic of the Philippines and is mandated to be the sole to para. 17. entity to audit the operations of government corporations like the DBP. This fact is clearly stated in the Charter of the DBP. There is no way the COA can be replaced by a private auditing firm unless there is an amendment to the DBP Charter and our Constitution. We freely gave our coments on aspects in the report which we believe should be reviewed in order to achieve a balanced conclusion aboft the two projects. After all, I am made to understand that the report is meant to give lessons not only to DBP but also to the WB. Very truly yours, AR C. ZALAMEA ' Chairman /rco 19 - PROJECT COMPLETION REPORT PHILIPPINES - DEVELOPENT BANK OF THE PHILIPPINES (LDANS 998 and 1190-PH) I. INTRODUCTION 1.01 This project completion report reviews Loans 998-PH and 1190-PH. These are the first two industrial loans made by the World Bank to the Development Bank of the Philippines (DBP) through the Government of the Philippines. Prior to these, the only Bank assistance extended to DBP had been three agricultural loans in the total amount of $33.4 million. As of December 1983, a total of 16 Bank loans in the total amount of $624 million had been approved for DBP. These included $130 million for agriculture and $494 million for industry. At that date, a total of $332 million had been disbursed, of which $61 million had been repaid and $271 million was outstanding. II. ENVIRONMENT 2.01 During the 1970s, the Philippines followed a much more dynamic growth-oriented development strategy than in the past. The growth rate of GNP rose from 5% in the 1960s to almost 7% at the end of the 1970s. Recently, however, the world recession has been reflected in the domestic economy. The second round of oil price increases and resulting upsurge in inflation, together with declining commodity prices and export demand, had a very adverse effect on the economy bringing about a severe recession. Real GNP growth fell from almost 7% p.a. in 1977 through 1979 to an estimated 2.5Z in 1982. 2.02 During the 1970s, manufacturing industry as a whole grew only at about the same rate as GNP; manufactured exports, however, grew dramatically during the decade in response to various export promotion measures introduced in the early 1970s. Towards the end of the 1970s and through the early 1980s as industrial sector growth deteriorated markedly, it was increasingly recog- nized that the industrial sector was facing some major structural probleL. Past trade, financial and industrial policies geared to support import substi- tution and capital intensive industries resulted in low efficiency and mis- allocation of investment. Such export growth as did occur took place largely outside the main policy regime through resort to export processing zones and bonded warehouses. In order to correct the import substitution and capital- intensive biases of previous industrial and trade policies and to promote those industries having comparative advantage, the Government developed a phased policy reform program to be implemented over a five year period. The first phase, which was started in 1980, has focused on a major tariff reform/trade liberalization program and export promotion measures. The second phase, currently being implemented, includes a fundamental reform of indus- trial incentives and promotion policy; further measures for the ongoing trade policy reform; and policy reforms for the energy sector and public resource management. To support the Government in its first phase of policy reform, - 20 - the Bank approved in September 1980 a $200 million Structural Adjustment Loan (SAL I). Support by the Bank of the second phase of reforms was provided under a $302.3 million SAL II, approved in 1983. 2.03 In conjunction with the trade and industrial policy reforms, in 1980-81 the Government introduced a comprehensive set of banking and financial sector reforms. These reforms included: liberalizing banking regulations to allow different types of financial institutions to undertake expanded activi- ties, thereby increasing competition within the financial sector; and lifting interest rate ceilings for loans over two years maturity, resulting in posi- tive real interest rates for the first time since 1978. These reforms aimed at increasing savings and the availability of term-finance and reducing frag- mentation and inefficiency in financial institutions. The reforms were supported by the Bank's Industrial Finance Project (Loan 1984-PH), approved in May 1981. 2.04 In retrcspect, the 1974-82 period during which the two projects were implemented was a turbulent time for DBP and a period of basic structural adjustment in the economy. The decline in the economy, starting in 1979 following the second round of oil price increases and the ensuing inter- national recession, had a major impact on the corporate sector as a weak demand depressed domestic, and subsequently foreign, sales and borrowing coats rose sharply as a result of higher interest rates and exposure to foreign exchange risk during a period of substantial devaluation of the peso. The corporate sector was rendered even more vulnerable by the previous macro- economic policy regime which had encouraged the growth of many inefficient firms which could not survive the general economic deterioration and the increasing competition from foreign firms permitted by even the gradual liberalization of the trade regime. The severe financial distress in the corporate sector has, in turn, seriously weakened Philippine financial institutions, including DBP. III THE DEVELOPMENT BANK OF THE PHILIPPINES 3.01 Background and Role of DBP. DBP was established in 1958 as a Government-owned development bank and is by far the country's largest supq ier of long-term credit. In 1981, it was responsible for financing about 9%--' of gross fixed capital formation, and at that year-end its long-term portfolio accounted for almost half of the total outstanding long-term portfolio of the financial system. DBP's financing operations encompass almost all segments of the economy, concentrating on the private industrial sector and covering both large- and small-scale enterprises. DBP has also been active in providing loans to the agricultural, real estate (mainly low-cost housing, hospitals, schools and hotels) and transport sectors and income-generating projects of municipal and provincial governments. DBP has, in addition, also been instru- mental in promoting and developing a large number of private development banks 1/ Net of refinancing operations. - 21 - (PDBs) and rural banks throughout the Philippines and has assisted in financ- ing special Government programs (providing relief to victims of natural calamities, etc.) and has taken over a number of financially distressed firms. 3.02 Background to Bank's Relations with DBP. In the early 1970s, the Bank embarked on a policy of increasing lending to the Philippines and as a part of that policy was seeking a means of increasing financial assistance to the private sector in agriculture and industry. After considering various alternatives, Bank staff concluded that DBP, despite its weaknesses, was the best available financial intermediary to increase lending to the productive sectors. Between 1971 and 1973, the Bank made three loans to the Government for relending to DBP to support agriculture projects (grain processing, livestock and fisheries). However, DBP was regarded mainly as a lending channel, acting as an agent for the Government, and, during this period, no major effort was made to address the institutional problems of DBP. 3.03 In February 1972, the Government and DBP requested the Bank's assistance in strengthening DBP's institutional capability in conjunction with the possibility of a loan for industrial financing. In response to this request, a Bank mission undertook a preliminary evaluation of DBP in May 1972. The evaluation revealed that DBP was beset with serious organizational and financial problems. Its organization was both inefficient and extremely complex, reflecting the great diversity of its functions and operations, the overlapping and duplication of functions among various units, excessive frac- tionalization and little delegation of authority. It had too many supervisors in relation to staff, and the usefulness of DBP's branches in some areas was doubtful, particularly in view of the presence of PDBs and rural banks. Rather than being governed by a set of policies, DBP's operations were mainly guided by precedents established on an ad hoc basis. It carried out virtually no project appraisal other than an evaluation of the client's credit standing and there was no systematic follow-up on its portfolio. DBP's financial position was extremely weak with a total debt/equity ratio of over 10:1, a current ratio of 0.2:1, 85% of industrial loan accounts in arrears and 80% defaults on loans guaranteed by it. These problems were further compounded by serious weaknesses and deficiencies in its accounting and management information systems and inadequate audit of its accounts, which made it impossible to assess its true financial situation. 3.04 Based on the reconnaissance mission's findings, the Bank recommended: (a) re-examination and re-definition of DBP's objectives and scope of operations including its relationship to the banking system and to other institutions in the capital market; (b) modification of the organization and management structure (more specifically: (i) the re-examination of DBP's activities and programs in the light of DBP's underlying objectives; (ii) the revamping of DBP's corporate structure to enable it to deal efficiently with the programs it must carry out; (iii) the streamlining of DBP's charter to deal only with broad objectives, fields of operations and general policies; (iv) the broadening of the membership in DBP's Board of Governors and the shifting of the executive authority from members of the Board to DBP's perma- nent professional staff; and (v) introduction of mechanisms for the budgeting and financial planning, each explicitly linked to specific operational programs); (c) thorough re-examination and overhaul of staffing and procedures - 22 - (which should provide, inter alia, for the re-definition of departmental func- tions and individual jobs, the improved flows of information, staff develop- ment programs, improved appraisal and supervision procedures, and the re-exa- mination of the objectives and the viability of DBP's branches. The results should be set out in an operational manual); (d) the strengthening of DBP's capital structure and financial position (based on an audit by qualified external auditors according to internationally accepted practices and stan- dards); and (e) reinforcement of sound relationships with both public and private institutions and enterprises including DBP's borrowers to assure DBP's effectiveness. 3.05 DBP had reservations about a number of the Bank's comments and recommendations outlined in para. 3.04, because DBP found them to be "too general and sweeping". However, the then DBP Chairman was prepared to consider a program of action incorporating some of the Bank's recommendations, specifically (b) ((ii) and (v) only), (c) and (e) from the preceeding para- graph, though he did not wish to be tied down to timetables on definite action programs associated with IBRD lending. Moreover, DBP did request Bank assi- stance in the development of an operational manual, which would cover policies that govern every type of lending and other operations, internal allocation of responsibilities, procedures and the flow of work. Unfortunately, the manual was not produced, though a Bank staff member was seconded to DBP for a period of eight months in 1972/73. Some partial reorganization was, however, effect- ed in 1973, with the creation of three separate industrial departments: Industrial Projects Department I (IPD-I) dealing with large loans; Industrial Projects Department II with small loans; and Industrial Projects Depart- ment III with public utility and transport loans. The reorganization empha- sized client specialization with a view to improving efficiency of DBP industrial lending operations. The financial structure of DBP was improved considerably with the conversion of P 1.3 billion of debt owed to the Government and Central Bank into DBP equity. This conversion tripled DBP's equity base and reduced DBP's total debt/equity ratio from over 10:1 to 2.7:1. 3.06 When the Bank's mission for the appraisal of the first industrial loan visited DBP in January 1974, it was able to point to substantial improve- ments, inter alia, in the quality of industrial project appraisal. The Bank recognized from the outset that while progress had been made, much still needed to be done to make DBP a fully sound and efficient financial institu- tion. Since the Government and DBP did not feel a need to undertake major structural reform, it was agreed that the Bank, the Government and DBP would work together through a series of industrial loans to gradually reform DBP. The loans would be made to the Government for relending to DBP, thus intending to avoid the implication, that might have been given by a direct loan, that DBP was a fully sound financial institution. IV. LOAN OBJECTIVES 4.01 The main objectives of the Bank in extending the development finance company (DFC) type loans through DBP under both loans were substantially the same: (a) transfer of resources for the development of the industrial sector; - 23 - and (b) gradual long-term development of DBP into a sound, viable and effi- cient institution. The Bank also hoped that a series of DFC type loans through DBP would provide the Bank with a useful vehicle for raising broad policy issues with the Government concerning the industrial and financial sectGrs. In addition, it was expected that Loan 1190-PH would be directed mainly towards investments in three areas, namely, to further diversify the nontraditional export base, to encourage greater domestic value added through downstream domestic processing of traditional exports, and to encourage investments in intermediate and capital goods production. DBP's performance in utilizing both loans is discussed in Chapter 5. The specific institution- building objectives under these two loans are listed in para. 6.01 and DBP's performance in achieving these objectives is reviewed in Chapters 6 and 7. V. UTILIZATION OF LOANS 998-PH AND 1190-PH Resource Transfer 5.01 Rate of Utilization. Loan 998-PH was closed on the original closing date of December 31, 1981, after the cancell.ation of $428,448. Loan 1190-PH was fully disbursed on April 22, 1982, about one year after the original clos- ing date (Annex 1). The reasons for this delay were: (a) the uncertain busi- ness climate; (b) the reluctance of private entrepreneurs to bear the foreign exchange risk; and (c) competition from the Offshore Banking Units (OBUs). While Loan 1190-PH had originally been intended to finance only large indus- trial subprojects, during implementation $25 million was reallocated to small and medium industry (SMI) to help accelerate disbursements. 5.02 Fund Allocation. Loan 998-PH was used to finance twenty medium and large industry subprojects ($47.6 million) including thirteen subprojects ($44.4 million) above the free limit of $1 million (paras 5.03 through 5.07) and to assist 1,202 smallholder tree farmers ($2 million) with holdings of a total of 15,022 hectares in farming a fast growing pulp wood species (Albizzia falcateria) (para. 5.11). Loan 1190-PH was used for financing twenty-eight medium and large industry subprojects ($46.5 million) including fifteen sub- projects ($41.2 million) above the same free limit of $1 million (paras. 5.03 through 5.07) and for assisting 787 subprojects ($28.5 million) in small- and medium-scale industry (paras 5.08 through 5.10). Large Subproject Characteristics 5.03 The 48 medium and large industry subprojects are in 17 different subsectors (Annex 2). The largest amount went to textiles (9 projects or 36% of the two loans, by amount) followed by lumber/wood products (3 projects or 9.9%), chemicals (6 projects or 9.2%), and mining (2 projects or 8.2%). Those priority areas stated in para. 4.01 received a fair proportion of support under both loans: (a) $17.55 million (or 19% of the two loans) were given to 10 subprojects engaging in the manufacture of nontraditional export goods (including garments, rubber shoes, leather products, food products and furni- ture); (b) $20.33 million (or 22% of both loans) were extended to eight sub- projects engaging in downstream processing of traditional exports (particu- - 24 - larly copra for coconut oil and forest products for plywood and wood products for export); and (c) $22.13 million (on 23% of both loans) were directed to eight subprojects engaging in production of intermediate and capital goods (principally chemicals, textiles and car parts). Geographically, the shEre of subprojects in Metro Manila was 31% in number and 19% in amount; that of Southern Tagalog, 25% and 35%, respectively; and that of Central Luzon, 12.5% and 5%, respectively. Those subprojects in Mindanao, a relatively under- developed region, accounted for nearly 23% in number and 36% in amount, thanks to a number of large resource based project (timber, copper mining, coconut oil production). The above pattern is generally in line with the geographical distribution of DBP's overall industrial lending operations during 1976-82 (Annex 16). Nearly 50% of subloans both in number and amount were for new projects; this is rather high compared with experience of other DFCs in the Philippines. By subloan size, nearly half of the subprojects involved IBRD funds of less than $1 million though subloans of over $4 million accounted for 53% of both loans by amount. Major machinery and equipment requirements were procured largely on the basis of evaluation of three or more quotations. Operational and Economic Performance of Large Subprojects 5.04 Operational Results. Operational data on the large subprojects financed are provided in Annexes 3 and 4. Total project costs for the 48 sub- projects was P 2,486 million, of which DBP financed 49%, funding 27% of total project cost from IBRD loans and 22% from other sources including its own funds. As of May 31, 1983, 44 projects were completed and four projects were not. Of the 44 completed projects, 25 projects (57%) had cost overruns of 1.3% to 82% (with an average of 29%) and six projects (13%) had cost underruns ranging from 1.6% to 31% (with an average of about 20%). Only 13 (30%) pro- jects were completed with negligible variance in project cost. The cost over- runs were mostly caused by long delays in project completion or changes in project design; the major cost underruns resulted from the scaling-down of project scope after the subproject had been appraised. Nineteen subprojects (43%) were completed on or ahead of schedule, while 25 subprojects (57%) show- ed time overruns ranging from 3 to 24 months with an average overrun of 11 months. A variety of factors contributed to delays in project completion (Annex 4), but the most common factor appeared to be delays in the arrival of machinery caused either by problems with the supply of equipment or by delayed compliance by project sponsor with predisbursement conditions. Other reasons included delayed availability of local currency funds, technical problems in installation, and the problems in the protracted time needed to ensure the availability of major raw materials. 5.05 Annexes 5 to 7 provide data on the financial and operational performance and current status of the 48 large subprojects financed under Loans 998-PH and 1190-PH. As of May 1983, 44 subprojects had been completed, but only 31 were in operation. Of these, about one third had exceeded (or nearly achieved) their respective sales targets for the second year of opera- tions, one third were operating with some difficulty (as reflected in less than satisfactory sales performance), and the remaining third were operating poorly with major difficulties. Of the 17 subprojects which were not in operation, four subprojects had been burned down, three coconut mills were - 25 - acquired by UNICOM in conjunction with the Government's plan to rationalise the coconut oil milling industry, seven subprojects were either already fore- closed or in the process of being foreclosed, and three subprojects faced an uncertain future with weak prospects for recommencing operations (Annexes 5 and 6). Data on actual sales for the first and second year of operations are available for 40 of the 44 completed subprojects. Actual aggregate sales are fairly close to DBP's appraisal estimates thanks to two large subprojects whose actual sales exceeded by more than three times their estimated sales because of their undertaking of further expansion with or without DBP financial assistance. If these two subprojects are excluded, actual aggregate sales of the 38 subprojects amounted to only 60% of estimated sales. Actual overall loss of the same 38 subprojects amounted to P 113 million for the second year of operation, and thus fell far short of the estimated overall profit for that year of P 268 million. In the second year of operation, only five subprojects had their actual profits exceed estimated profits (Annex 7). In sum, of the 48 subprojects, 28 were either not in operation or facing severe financial problems. 5.06 Reflecting poor operational and financial performance of many subprojects, 35 subloans under Loans 998-PH and 1190-PH were in arrears as of December 31, 1982, five had been prepaid, only four were up to-date, and the remaining four had been foreclosed (Annex 5). Total arrears of principal and interest amounted to $14.4 million equivalent, representing 30% of the principal outstanding for subloans financed under Loans 998-PU and 1190-PH. The arrears for these subloans more or less reflected DBP's overall portfolio quality (para. 7.11). 5.07 Economic Performance. Details on economic performance of the large subprojects are given in Annex 8. Actual capacity utilization was considerably lower than estimated due partly to project completion delays and start up difficulties experienced and partly to the weak market situation faced by many subprojects. Assumptions made in the original project appraisals regarding the ease with which projects could attain full operation turned out to be generally over-optimistic. Thirty-two out of 48 projects were expected to be export oriented. In the 16 cases where actual data were available, aggregate actual exports were about 40% less than the appraisal estimates. A number of projects were unable to penetrate new export markets; for others, export volume built up much more slowly than had been antici- pated. Only in four cases did export achievement exceed expectation. Under Loan 998-PH, 4,277 jobs were created at an average cost of P 273,000 (or US$32,000) per job. Under 1190-PH, 5,200 jobs were created at an average cost of P 253,000 (or US$29,800) per job. In aggregate, actual jobs created were about 94% of the original expectation. The cost per job was relatively high, reflecting the fact that DBP financed a number of subprojects engaging in production of intermediate goods (para. 5.03) which are capital intensive. 2/ United Coconut Oil Mills (UNICOM) is a private corporation which was organized to serve the objective of pooling and coordinating the resources of the coconut farmers and the oil millers in the buting, milling and marketing of copra and its by-products. - 26 - Value added for 21 subprojects on which actual data were available amounted to P 157 million, about 40% lower than the estimate of P 271 million. For 24 subprojects, ex post FRRs were calculated. The FRRs for three subprojects were negative. The remaining 21 subprojects had FRRs ranging from 4% to 52%, with a weighted average of 17% (as compared to the ex ante weighted average for the 21 subprojects of 31%). This overstates the average performance of the subprojects financed, as a large proportion of the 24 subprojects for which ex post ERRs could not be calculated are distressed (para. 5.05). Ex post ERRs were calculated for 19 subprojects. Three of the subprojects had negative ERRs while the remaining 16 subprojects had ERRs ranging from 8% to 75%. The weighted average ex post ERR for the 16 subprojects was 19%, as compared to the weighted average ex ante ERR of these subprojects of 36%. Small and Medium Industry (SMI) Subprojects under Loan 1190-PH 5.08 Annex 9 summarizes characteristics of the 787 SKI projects financed out of $28.5 million allocated under Part B of Loan 1190-PH. Average loan size was $36,245. Over 80% of loans by number were under P 500,000, though 50% by amount were over P 1 million. 443 projects (56% of total) were new and received 49% of total amount under Part B. The sectoral distribution of SKI projects financed was well balanced. As a percentage of the total number of SKI projects financed, food and beverage represented 16%, followed by mechanical and electrical products with 14%, textile with 12% and lumber/wood products and non-vetallic products each with 10%. In terms of amount dis- bursed, the above five main subsectors each received between 10% and 11%. The remaining 11 subsectors each accounted for less than 6% (by number) and 9% (by amount). Geographically, the share of subproject approvals going to Metro Manila was 25% in number and 43% in amount, reflecting the larger average loan size approved at the Head Office. Following Metro Manila were Central Luzon with 14% in number and 12% in amount, Central Visayas with 10% and 11% respec- tively, Southern Tagalog with 10% and 9% respectively, and Llocos with 10% and 5% respectively. Mindanao as a whole absorbed 15% in number and 12% in amount. On balance, the characteristics of SKI projects financed under Loan 1190-PH are generally in line with DBP's overall SKI operations. Operational Results of a Sample of SKI Subprojects 5.09 The Sample. In order to gauge the actual impact of the SKI component of Loan 1190-PH, DBP undertook a survey of 25 subprojects with subloans of P 1.5 million and above in the Metro Manila area. Obviously, at least three major differences exist between the population and the sample: in terms of regional distribution, the sample does not include any projects located outside Metro Manila; in terms of size, the sample does not cover small projects at all; and the sample includes only three new projects while over 56% (or 443 projects) of the population were new projects. The limited coverage of large expansion projects in Metro Manila was mainly prompted by the administrative difficulty of covering projects under supervision of DBP branches. 5.10 Total project cost for the 25 SKI subprojects surveyed was P 124 million, of which DBP financed 31% with IBRD funds. DBP's projections of pro- ject cost for the 25 SKI projects were reasonably close to reality with only - 27 - six projects experiencing major cost overruns (one with 87% overrun, three between 20% and 25% and two with about 10%). Eight projects were completed with minor (less than 10%) variance and 11 projects with negligible variance in project cost. More than half the projects were completed on schedule while the completion of the remaining (12) projects differed from schedule by only a few months (Annex 10). Combined total sales in the first full year of opera- tion were P 266.1 million, 6% less than estimated by DBP (Annex 11). However, over 60% of the subprojects failed to realize their expected sales, and there- fore profits suffered. Actual profits were about 45% of the estimated P 20.3 million. Nine projects planned to export, and their actual exports were P 91.6 million compared to an estimate of P 96.2 million. Actual incremental employment was 1,175 with a cost per job of P 100,000 as against the estimated 1,244 with P 95,000. As of December 31, 1982, 13 of the 25 projects were in arrears, though total arrears as a percentage of principal outstanding was only 9% (Annex 12). Overall performance of the sample of SMI subprojects was impressive and much clos-- _u what had been expected at the time of subproject appraisal when compared to the performance of DBP financed large industrial projects. However, given the size and nature of the sample, it would be inappropriate to apply the main findings flowing from the sample to the population of DBP's SMI portfolio. Tree Farming Component: Under Loan 998-PH 5.11 Under Part B of Loan 998-PH, an amount of $2 million was allocated to assist some 1,300 smallholder treefarmers in planting about 10,400 ha of Albizzia falcateria and developing small areas of subsistence crops and some livestock. An overview of the PCR prepared by DBP and comments of the rele- vant proj-ct staff of the Bank are provided in Annex 13. Project implementa- tion began and ended on schedule. The project reached 92% of the projected smallholder target population and covered 144% (15,022 ha) of the projected area, and output was expected to exceed the appraisal estimate of 200 solid cubic meters per hectare. With this expected yield, the financial rate of return to the tree farmers would have been not lower than 20% provided that wages did not rise beyond P 17 per laborer per day. Although the project is not in a normally typhoon-prone area, it was struck on March 19, 1982 by typhoon "Akang" and tree-farms were badly damaged - overall it is estimated that about half of the area struck was destroyed. However, the loss was reduced by some of the damaged wood being utilized for pulp and although project benefits have been eroded the project could still be a success, depending on the effort put into rehabilitation which is mainly by coppic- ing. Factors in the potential success of the project are: (a) an assured market for the product - Paper Industries Corporation of the Philippines (PICOP) has guaranteed to purchase all output: (b) close supervision of the tree farmers; (c) technical assistance provided by PICOP; and (d) the project design built on the previous experience of both DBP and PICOP in this type of project and on simple labor-intensive technology. DBP's performance has generally been commendable with regard to this component, but it has been slow in determining its posture on rehabilitation of this project. - 28 - VI. INSTITUTIONAL DEVELOPMENT 6.01 The institution-building strategy adopted and applied by the Bank to DBP can be characterized as a gradual (or "successive limited") approach, initially focusing on partial reorganization and limited reform and gradually broadening and deepening the Bank's institutional development impact on DBP through the continuing relationship. Reflecting this strategy, the institution-building obje-tives under Loan 998-PH were modest, focusing narrowly on: (a) an increase in the staff of an operating unit (Industrial Projects Department I - IPD-I); (b) the formulation and adoption of a State- ment of Operating Policies and Procedures for Industrial Financing; (c) an acceleration of the account-by-account examination of industrial accounts in arrears; (d) the steps to be taken for evaluating DBP's existing audit system; and (e) improvements in DBP's planning. Under Loan 1190-PH, the focus of institutional development was broadened to seek: (a) improvements in the quality of DBP industrial project appraisal and project supervision; (b) an increase in the quantity and quality of staffing in IPD-I; (c) a reduction in the growth of DBP's contingent liabilities; (d) strengthening of the long-term resource base of DBP; (e) improvements in the earnings performance of DBP through improved collections and a more appropriate level of rates and charges; (f) a reduction in arrears; (g) more adequate provision for risks and reserves; (h) major improvements in the quality of auditing and internal reporting; and (i) the protection of DBP against the effects of any eventual default or loss of loans made by DBP at the instance of the Government. Viewed against the specific institution-building objectives for DBP set out under Loans 998 and 1190-PH, the accomplishments and remaining shortcomings are discussed in paras. 6.03 through 7.19. 6.02 It should be pointed out that, while the specific institution- building objectives noted in the preceding paragraph were being pursued, DBP adopted a number of measures for improving its overall organizational effici- ency. These measures included: (a) restructuring of its organization to emphasize sectoral specialization; (b) creation of new departments for better handling of trust operations, large problem projects, corporate planning, internal control, and manpower development; (c) creation of subsidiaries for devising a better management information system and for active marketing of acquired assets; and (d) reduction of the number of departments reporting directly to the Chairman. Despite these and other steps taken, DBP has become an increasingly complex institution which is much more like a holding company or a conglomerate than simply a financial intermediary, due to its takeover of a number of financially distressed firms, including financial institutions, at the request of the Government. The increased role of DBP as a source of finance for Government initiated (or behest) projects, and as a financier of last resort for failing firms, has severely affected DBP's financial position as it was not possible, despite the Bank's efforts, to work out fully satis- factory procedures for handling Government behest projects. This factor together with a deterioration of the business environment seriously diluted the positive impact of various specific financial measures introduced under the two loans on DBP's financial condition. The gradual approach to institution-building proved to be marginally effective. DBP was a large and complex institution and improvements in certain selected parts and aspects had - 29 - only a marginal impact on an overall institutional development. Besides, part of the reason for the slow progress has been that the momentum for reform of DBP gained in 1972 was interrupted at least twice by a leadership vacuum in DBP, in 1976 (caused by the then Chairman's long illness and eventual death in July 1976) and between 1979 and 1981 (during which time DBP was managed by an "Acting" Chairman). The appointment of a new Chairman in mid-1981 was a clear indication of the Government's awareness of the need to vigorously pursue the institution-building tasks started in 1972. All the indications are that the new Chairman has been pressing ahead with these tasks as rapidly as broader constraints permit. Organization and Staffing for Large Industrial Lending 6.03 Plans for augmenting IPD-I staff have been satisfactorily imple- mented. Total professional staff of IPD-I increased from 29 in 1973 (when Loan 998-PH was appraised) to 52 in 1975 (when Loan 1190-PH was appraised) and further to 96 as of May 31, 1983. The median length of service of IPD-I staff is 5-7 years, both with DBP and IPD-1. Since 1973, IPD-I has undergone a series of organizational changes. However, IPD-I had more or less operated until mid-1981 with three operating groups (Project Evaluation, Account Servicing and Project Supervision). Moreover, each functional group had four industry divisions. While industry specialization had contributed to a better appreciation of the characteristics and problems of specific industries, excessive functional specialization resulted in a lack of coordination in appraisal work, and the division of supervision responsibilities by project status brought about a lack of continuity and consistency in dealing with problems arising during the implementation of projects. Besides, this organi- zational arrangement in IPD-I resulted in sub-optimal staff deployment and utilization and hampered their professional growth. Suitable organizational changes, however, were implemented in late 1981 under the "Action Program" agreed upon in conjunction with accreditation of DBP as a participating financial institution under Loan 1984-PH. With these changes (regrouping of the Project Evaluation Group and the Project Supervision Group to form three integrated operating units on the basis of industry specialization), the appointment of a new supervising governor and strengthening of departmental management, the functioning and capability of IPD-I as a whole has apparently improved. However, some of IPD-I's staff still need more practical business experience. DBP continues to face difficulties in attracting staff with the requisite combination of experience and qualifi:ations because DBP cannot compete with the private sector on the same terms. IPD-I, therefore, uses consultants, whenever necessary, to handle particularly complex cases, and has recently formed an informal Staff Investment Review Committee composed of Supervising Governor, Executive Officer, Assistant Executive Officer and staff members on the appraisal team. This committee, chaired by the Supervising Governor, represents a means for staff training and for much more active quality control of project appraisal. Operating Policies 6.04 DBP's Board of Governors adopted a Statement of Operating Policies and Procedures for Medium- and Large-Scale Industrial Financing before the Agreement of Loan 998-PH was signed, and a Statement of Reserves Policy was - 30 - adopted before the signing of the Agreement for Loan 1190-PH. Both statements were drafted in consultation with the Bank. The statement of Operating Policies and Procedures has provided useful broad guidelines for operations of IPD-I. However, given the absence of a critical analytic approach underlying IPD-I's project work (paras. 6.03, 6.05 and 6.06), these guidelines do not appear always to have been rigorously applied during the implementation of Loans 998-PH and 1190-PH. The Statement of Reserves Policy provided the basic policy framework under which DBP would make appropriate provisions for port- folio losses and accumulate a reasonable level of reserves to provide for foreign exchange risk and possible losses on the guarantees portfolio. As indicated in para. 7.17, this policy was not fully implemented. It should be noted, however, that the manner in which DBP's policies are formulated (and/or revised) has over the years become increasingly systematic. Fewer policy decisions are now made in the context of considering individui] projects. DBP has recently introduced a number of important policy changes - with a view to improving its overall operating standards and achieving a long-term goal of restoration of its financial viability. Furthermore, DBP is in the process of a long overdue review of all the existing operating guidelines and procedures relating to large-scale industrial financing with a view to streamlining them and to preparing appropriate operational manuals. Procedures 6.05 Industrial Project Appraisal (IPD-I). The depth and general quality of DBP's industrial project appraisal work 4Yad already improved substantially by the time the Bank approved Loan 998-PH.- But still further substantive, procedural and presentational improvements were required, particularly with respect to the evaluation of a project's economic merits. Arrangements for further improving IPD-I's project appraisal capability, discussed and agreed upon during negotiations for Loan 998-PH, and Loan 1190-PH, were subsequently implemented. In period 1974/75, the initial major improvements in project appraisal were made and by then systematic project evaluation became rou- tine. By 1978, IPD-I had managed to build up adequate staff strength both in number and expertise for coping with all important aspects of project 3/ These changes include: rationalization of policies governing DBP's operations on refinancing (para. 7.04); successive raising of its lending rates (para. 7.16); reduction of DBP's maximum exposure (including guarantee) in a single project from 75% of total project cost to 50%, thereby encouraging joint financing with private financial institutions; increased requirements of project sponsors' contribution to projects from 25% of total project cost to 35%; reduction of allowable loan value from 80% irrespective of types of collateral to 60% for machinery and equip- ment (and 80% for real estate); and requirements for project sponsors to put up additional collateral to meet approved collateral ratios. 4/ At that time, each of the technical/financial, marketing and creditworthiness aspects of appraisal were undertaken separately by three separate departments. Also, DBP relied heavily on information supplied by BOI on market, economic and technical aspects of projects. - 31 - appraisal without any support from other departments. However, with emphasis on functional specialization, five specialists (management specialist, market analyst, economist, engineer and financial analyst) were involved in each pro- ject appraisal. This staffing pattern during 1978-81 contributed, to an ex- tent, to an improvement in the analytical framework relevant to an in-depth evaluation of specific aspects of individual projects, but also was responsi- ble for IPD-I's failure to develop well rounded project officers (para. 6.03). In terms of the coverage of appraisal reports and the methodo- logy used, the quality of IPD-I's project appraisal was comparable to other DFCs in the Philippines. However, the problem of the absence of rigorous analysis and critical judgement, identified at the time of appraisal of Loan 998-PH and confirmed during appraisal of Loan 1190-PH, tended to persist. The Bank's reviews of "A" subprojects (above the free limit) revealed that judge- ments and essumptions made by IPD-I staff tended to be over-optimistic and insufficiently supported by the analysis contained in the appraisal report. Poor actual performance of subprojects discussed in paras. 5.04 to 5.07 confirms that DBP's evaluation of subprojects indeed tended to be overly optimistic, though realization of DBP's appraisal estimates was certainly affected by the poor economic conditions prevailing when the projects were completed. Recognizing that a basic shift toward a critical analytic approach requires more managerial inputs, DBP has recently formed a Business Develop- ment Group (mainly to screen all project proposals prior to undertaking any in-depth appraisal) and an informal Staff Investment Review Committee (para. 6.03) to ensure a critical assessment of project merits and risks. Reflecting this new approach and the lack of loanable-funds, the rate of rejection (on project grounds) of requests for financing has risen signifi- cantly under the new management. 6.06 Industrial Project Supervision (IPD-I). Steps were taken by IPD-I to improve project supervision, including the introduction in late 1975 of a work scheduling system for systematic, planned project visits and collection and reviews of periodic reports from clients. This work scheduling system, however, had not been adhered to nor had performance against scheduled work program been closely monitored by IPD-I's management during 1975-81. This could be attributed to: (a) a possible overestimatioa of DBP's capability to introduce major improvements in its supervision practices; (b) the staffing problem confronted by IPD-I (para. 6.03), a compartmentalization of supervi- sion work by project status and the ill-defined division of responsibilities spread supervision staff strength rather thin with consequent difficulty in meeting work schedules; and (c) the absence of appropriate policies on refi- nancing operations which resulted in misdirected emphasis on noncash collec- tions and encouraged supervision staff to give higher priority to refinancing/restructuring operations rather than to the necessary normal supervision work. To address these problems, organizational changes were made in late 1981 and suitable policies on refinancing operations were adopted in May 1982 after due consultation with the Bank. In addition, IPD-I has recent- ly lightened its supervision workload by transferring a number of major pro- blem projects to the newly established Special Project Management Units for intensive care. IPD I is currently undertaking a comprehensive review of problem accounts (starting with those with a total exposure of $5 million or more) using outside consultants. With the ratio of professional staff (67 in three Operating Industry Groups) to projects (157 companies in IPD-I) of less - 32 - than 3 (or les3 than 7 companies per each project team -_) IPD-I should be able to undertake normal supervision work effectively once its existing staff acquire practical experience through the ongoing portfolio review exercise with the help of consultants. Collection efforts have apparently been inten- sified and closely monitorad through weekly collection meetings (para. 7.15). However, it is unlikely that any major improvements in collec- tion performance will be achieved until the economic environment significantly improves. Financial Planning and Resource Mobilization 6.07 Financial Planning. Up to 1973, DBP had not undertaken any advance financial planning except for annual budget and cash flow forecasts. By 1975, DBP had demonstrated its improved capability in financial planning by recast- ing three-year operational and financial projections to reflect the changes in the interest and penalty rate structure. Since then, DBP has regularly pre- pared 5-year operational and financial projections with active parti.cipation of operating departments in providing planning inputs. However, these plan- ning exercises had been based on the critical assumption that resources would be somehow made available for DBP to meet the increasing demand for long-term funds. This unwarranted assumption coupled with a continuous decline in loan collection rates resulted in a buildup of undisbursed local currency commit- ments (P 1 billion as of December 31, 1982) not covered by available resources. It became apparent, therefore, that resource management by DBP was not being undertaken on a systematic long-range basis. This deficiency in financial planning and management is being corrected by the newly established Corporate Planning Unit. 6.08 Mobilization of Peso Resources. Arrangements for bolstering DBP's long-term peso resources base, discussed and agreed upon under conditions for Loan 1190-PH (and subsequent Loan 1572-PH) were adequately implemented. The Government raised DBP's paid-in capital from P 1.8 billion in 1975 to P 4.3 billion in 1982 and increased its special time deposits with DBP from P 400 million in 1975 to P 1,324 million in 1982. DBP's total long-term peso resources (including contractually short-term Government deposits) increased from P 6.2 billion in 1975 to P 25 billion in 1982. As the table below shows, DBP has almost entirely relied on the Government add its agencies for peso resources. 5/IPD I had 25 project teams as of May 31, 1983. - 33 - DBP: Sources of Long-Term Peso Resources (Amounts in P Million) 6/30/75 12/31/82 Amount z Amount Z DBP equity 2,044 33 5,306 21 Bonds/country side bills 724 /a 12 3,965 /a 16 Borrowings from: Government (mostly IBRD funds) - - 1,346 /b 5 Government financial institutions 585 9 4,223 17 Central Bank 1,034 16 1,962 8 Government deposits 1,878 30 8,179 33 6,268 100 24,986 100 /a Up to the end of 1979, countryside bills (of about P. 1.6 billion) carried an interest rate of 9% p.a. (tax free). Since 1980, interest on these bills is no longer tax free. /b Under the terms of the Subsidiary Loan Agreements for such projects (for financing agriculture and small and medium industry projects) under IBRD and ADB loans, the Government relends the proceeds of these loans to DBP in pesos. It should be noted, however, that DBP's unrealistically low interest rate structure until October 1981, when DBP brought its lending rates in line with the market rates, severely limited DBP's capacity to tap the market and made it heavily dependent on the Government for funding. After the adjustment of its lending rates in 1981, DBP was able to issue countryside bills/other bills of about P 1,395 million in 1982 at an effective rate of around 17% p.a. However, DBP's capacity (and the incentive for DBP) to tap the market for pesos will remain limited until its financial viability is fully restored. 6.09 Mobilization of Foreign Currency Resources. Like its domestic currency resources, DBP has relied heavily on Government support to raise its foreign exchange resources. During 1975-82, DBP raised additional foreign currency resources of $2.2 billion (Annex 14). These consisted of: IBRD - 34 - funds borrowed through the Government totalling $688 million- (31% of total $2.2 billion), of which $316 million was actually disbursed by the end of 1982; ADB funds borrowed through the Government totalling $67.5 million (3%), of which $38 million was disbursed at end 1982; borrowings of $687 million (31%) from the Central Bank, largely for making good foreign currency guaran- tees; borrowings from commercial sources totalling $597 million (27%), of which only $148 million was raised without the Government's guarantee; foreign currency deposits of the Government with DBP totalling $123 million(6Z); and foreign currency deposits of foreign banks totalling $25 million (1%), repay- ment of which was guaranteed by the Government. The amount of foreign cur- rency resources made available to DBP was large. Even considering that DBP's borrowings from the overseas commercial sources was guaranteed by the Govern- ment, its efforts to tap commercial funds have been reasonably impressive. Unfortunately, however, with the exception of IBRD and ADB funds, the bulk of foreign currency resources had to be used for making good foreign currency guarantees, servicing DBP's foreign debts, and refinancing of existing loans. VII. OPERATIONAL AND FINANCIAL PERFORMANCE Operational Performance 7.01 Overall Financing Operations. For the period 1975-79, the actual levels of DBP's financing operations (an average of P 4.4 billion per annum) exceeded by a significant amount the levels projected (P 2.7 billion per annum) at the time of the appraisal of Loans 998 and 1190-PH (Annex 15). The large discrepancy can be explained by the following factors: (a) appraisal forecasts, particularly those made at the time of appraisal of Loan 998-PH, were in retrospect too pessimistic and were based on highly imperfect infor- mation on the availability of resources, DBP's project pipeline and Government investment plans; (b) DBP's operations in 1975 and 1976 were boosted by one- time approvals totalling over P 1.2 billion for a number of hotel and resort projects made at the behest of the Government; (c) DBP's operations from 1976 onwards were inflated by refinancing operations, including the conversion of loan arrearages into equity investments, totalling P 324 million in 1976, P 1.2 billion in 1977, P 1.25 billion in 1978 and P 3.43 billion in 1979; (paras. 7.03 and 7.05); (d) the rapidly increased availability in mid-1970's of foreign exchange funds and peso funds (with the augmentation of Government deposits with DBP through 1981) enabled DBP to boost its lending operations; and (e) DBP's guarantees for very large projects significantly increased the overall level of financing operations (para. 7.06). 7.02 DBP's financing operations for 1980-82 are also summarized in Annex 15. Total approvals increased from P 6.7 billion in 1979 to P 11.4 bil- lion in 1980 due largely to a sharp increase in guarantees from P 859 million 6/ Including $247 million for financing agricultural and small and medium industry projects, on which the Government assumed the foreign exchange risk. - 35 - in 1979 to P 4.8 billion in 1980, and to continued massive refinancing opera- tions, amounting to P 2.3 billion in 1980. DBP's overall operations in 1981 were unprecedentedly high with total approvals amounting to P 16.2 billion, the bulk of which, however, represented guarantees (P 6.6 billion largely for rollover of existing guarantees) and refinancing operations (totalling about P 4.4 billion including conversion of arrearages into equity investments). In 1982, DBP's approvals fell to a total of P 9.9 billion, including refinancing operations of about P 3.5 billion, reflecting a sharp decrease in guarantees of P 4.2 billion and a slowdown in DBP's lending operations, from P 3.7 bil- lion in 1981 to P 1.7 billion in 1982, which was due partly to the suspension of acceptance in the latter part of 1982 of new loan applications, except those which could be financed out of available specific funding sources. 7.03 Lending Operations. DBP's actual level of lending operations as compared with the forecasts made at the time of the appraisal of Loans 998-PH and 1190-PH and of subsequent Loans 1572-PH and 1984-PH are summarized below: FY75 FY76 CY77 CY78 CY79 CY8O CY81 CY82 (in P million) - Forecast 'a 506 2,035 2,781 2,436 2,600 4,132 3,577 4,149 Actual 2,431 2,463 2,780 3,041 4,558 5,461 6,794 4,949 Less: Loans for refinancing clients' existing debts to: DBP 13 324 38 397 1,735 953 1,099 1,485 Other creditors } 927 573 393 254 1,201 n.a. Net of refinancing 2,418 2,139 1,815 2,071 2,430 4,254 4,494 3,464 /a Latest available forecasts contained in IBRD appraisal reports. DBP's approvals of loans, net of refinancing operations, were lower than expected in 1977-79 and 1982. DBP's lending for creating new assets and for optimizing the use of existing assets, in fact, showed no growth during the years 1976 through 1979 despite the increased availability of resources to DBP. The strong turnaround in productive lending activity in 1980 and 1981 was short-lived due to DBP's tight liquidity situation which led DBP to sus- pend acceptance of loan applications in the latter part of 1982. 7.04 The bulk of refinancing operations shown in the preceding paragraphs and the conversion of loan arrears into equity investments discussed in the following paragraph represented measures taken in the past by DBP to rehabili- tate problem projects. Such measures had proved ineffective in improving the portfolio quality and/or the cash collection rate because: (a) many of these projects bad structural problems caused by distortions due to Government's past industrial policy and the poor quality of DBP appraisal work; (b) DBP had until recently focussed mainly on refinancing assistance rather than preparing - 36 - a comprehensive package of remedial measures (managerial, technical, marketing and financial) - this excessive emphasis on refinancing/restructuring had inhibited DBP from adopting a problem solving approach to its project super- vision work; (c) in some instances DBP had resorted to an arrangement called "dacion en pago" - in these cases borrowers were allowed to surrender their assets to DBP in settlement of its claims and DBP in turn leased the asset back to the same borrowers on concessionary terms. In compliance with the "Program of Action for Improvement" agreed upon at negotiations of Loan 1984- PH, DBP adopted, on May 26, 1982, policies governing its operations on refi- nancing, conversion of arrearages into equity investments and "dacion en pago". However, since conversions of interest in arrears of refinanced loans and/or equity investments are treated as collections, DBP continued to resort to the refinancing/conversions in 1982 with a view to showing a profit (para. 7.14). 7.05 Equity Investments. The actual levels of DBP's equity investments fRr surpassed the projections made at appraisals as illustrated below: FY75 FY76 CY77 CY78 CY79 CY80 CY81 CY82 (in P million) Forecast /a - - 35 33 30 400 500 600 Actual 212 49 226 374 1,317 1,171 2,744 2,831 Less: Conversion of arrearages n.a. n.a. 226 276 1,304 1,120 2,059 2,056 Net of conversion 212 49 - 98 13 51 685 775 /a Latest available forecasts contained in IBRD appraisal reports. As discussed in paragraph 7.04, conversions of arrearages into equity invest- ments resulted from arrangements aimed at rehabilitating problem accounts, while direct investments were mostly based on government directives. The significant increases in the level of direct investments in 1981 and 1982 were due mainly to DBP's investments in private commercial banks at the behest of the Government to avert the collapse of certain banking corporations. DBP's equity portfolio at the end of 1982 stood at F 7,936 million which exceeded DBP's own net worth of P 5,306 million. DBP's equity investments (P 3.5 bil- lion preferred shares and P 4.4 billion common shares) consisted of equity holdings in: (a) 71 distressed corporations in various fields, which accoun- ted for 68Z of DBP's equity portfolio; (b) 16 hotels in financial difficulty - 16%; (c) 10 commercial banks and finance companies, mostly weak institutions - 11%; (d) 6 non-financial public sector enterprises - 4%; and (e) 39 private development banks - IZ. 7.06 Guarantee Operations. One of the objectives of Loan 1190-PH was to reduce the growth of DBP's guarantee operations. Through the provision of - 37 - foreign currency resources for DBP to finance capital goods imports, depen- dence on guarantees for suppliers' credits extended on relatively harsh terms could be reduced. The levels of DBP's guarantee operations actually declined from P 1.5-P 2.8 billion per year during 1972 through 1974 (when DBP's lending operations were on an insignificant scale of less than P 300 million per year) to a level below P 1.3 billion from 1975 through 1979. However, in 1980 DBP's guarantee operations jumped to P 4.8 billion with the guarantee of $345 mil- lion for the Philippine Associated Smelting and Refining Corporation (PASAR) copper smelter project (one of the eleven major industrial projects) and $196 million for two other large projects, the coal conversion program of Marinduque Mining (MIC) and another large copper mining project. In 1981, with the approval of guarantee of $359 million for the Philippine Phosphate Fertilizer Corporation project (another of the eleven major industrial pro- jects) and short-term guarantees of $247 million for the rollover of maturing guaranteed loans to the mining industry, the level of DBP's guarantee appro- vals increased again to P 6.6 billion. In 1982, in the absence of very large medium-term guarantees, DBP's guarantee operations dropped to P 2.2 billion, the bulk of which represented short-term guarantees of $171 million for the rollover of maturing guaranteed loans to the mining industry. 7.07 Loan Characteristics. DBP's lending operations during 1975-82, net of refinancing of its old loans, covered virtually every sector of the Philip- pine economy with the industrial sector being the major beneficiary (53% of total loan approvals during 1975-82) followed by real estate (22%), agricul- ture (19%), banking sector (4%) and provincial governmen5 (2%). DBP's indus- trial lending during 1975-82 amounted to P 27.6 billion - for 297,161 accounts, covering a wide range of industries; the high proportion of mining (25% of total industrial lending during 1975-82), public utilities (23%) and textiles (15%) largely reflected DBP's lending to these industries for refi- nancing their debts to other creditors (Annex 16, Table 2). DBP's industrial loans in 1975-82 continued to be directed toward Manila and the Central and Southern Luzon regions. These areas received 57% in amount of total indus- trial lending in 1975-82, but in number 64% of industrial loans went to the other, less-developed regions. Although DBP's lending for small and medium industry (loans between P 50,000 and P 2,000,000) increased in number from an annual average of 330 accounts in 1975-76 (with an average loan size of P 424,000) to 520 accounts per year in 1977-79 (with an average loan size of P 360,000) and further to 630 accounts per year in 1980-82 (with an average loan size of P 240,000), the overall average size of industrial loans increased from P 250,000 for 1975-76 to P 750,000 for 1977-79 and P 2 million for 1980-82. This was due to a steady decline in loans for tricycle financing and for very small cottage industries for which DBP uses private development banks as a channel for funds, and also to DBP's refinancing of clients' large existing debts to other creditors. 7/ Including loans made to clients for refinancing their debts to other lenders. - 38 - Financial Position and Performance 7.08 Financial Position. Projected and actual balance sheets for 1975 through 1982 are summarized in Annex 17. The actual growth of DBP's assets well exceeded the projections for the following reasons: (a) DBP's loan dis- bursements (including DBP's refinancing its clients' debts to other creditors, but net of DBP's refinancing of its existing loans) were substantially higher than expected; (b) with the chronically low loan recoveries, DBP continued to rely heavily on borrowings (largely Government deposits) for maintaining its liquidity and servicing its debts; (c) the capitalization of arrearages of interest and other charges through conversion into equity investment on loans considerably inflated DBP's assets; and (d) DBP's advances on guarantees (for making good on clients' defaults on loans guaranteed by DBP) were much higher than expected. 7.09 Arrangements for strengthening DBP's financial position and bols- tering its long-term resource base, agreed upon at negotiations for Loan 1190- PH in October 1975, were adequately implemented. As agreed, the Government: (a) converted in December 1975 P 400 million of its short-term deposits with DBP into time deposits with maturity of 5 years (in addition, a further P 500 million of its savings deposits with DBP were converted into 3-year time deposits on October 1, 1976); (b) increased DBP's share capital by P 883 mil- lion in 1976 and 1977 (before the appraisal of Loan 1572-PH was completed); and (c) arranged a moratorium on principal repayments of borrowings from the Central Bank for the hotel financing program. Despite the above measures, DBP's liquidity remained largely dependent on the rollover of short-term Government deposits, making its liquidity position vulnerable to any heavy withdrawals by the Government of its deposits. To reduce this dependence and to improve DBP's overall financial position, covenants were incorporated in Loan 1572-PH in which the Government agreed to: (i) give due consideration to DBP's liquidity position before making any withdrawals from its deposits; (ii) raise DBP's paid-in capital from P 2.5 billion in 1978 to P 4 billion by 1981 or such later date as may be agreed; (iii) help DBP raise additional Iong-term resources; (iv) assist DBP in selling investments made at the Government's request in three large companies; and (v) arrange for payment of arrears on other loans made at the Government's behest (this particular provi- sion was originally included in conditions for Loan 1190-PH). The last two provisions were incorporated into DBP's "Program of Action for Improvemegs Agreed" upon at negotiations for Loan 1984-PH, with some modifications. - 7.10 The Government has taken some actions to implement these agree- ments. In summary: (i) in aggregate terms the Government increased its 8/ Under Loan 1984-PH, DBP has undertaken to renegotiate, on a best efforts basis, the agreements or arrangements for the sale of the said three investments. The Government had agreed to provide financial support to DBP if the Government behest projects would impair DBP's overall finan- cial viability and liquidity position. - 39 - deposits with DBP from P 3 billion in 1977 to P 8 billion in 1982 -; (ii) the Government raised DBP's paid-in capital to P 4.3 billion in 1982; (iii) the Government has actively assisted DBP in obtaining additional resources total- ling about P 20 billion in 1978-82; (iv) DBP continued to pursue negotiations of terms and conditions for the eventual disposition of its investments in two of its subsidiaries, Food Terminal Inc. (FTI) and National Housing Corporation (NRC). As for FTI, DBP has required the purchaser (National Food Authority - NFA) to secure an unconditional guarantee from the Government to cover the assumed obligations of FTI. NFA is negotiating with the Government for such a guarantee. With regard to NHC, renegotiations between DBP and the Human Settlements Development Corporation (HSDC) have been at a deadlock since HSDC's price and payment proposals presented in its letter of June 3, 1982, were unacceptable to DBP. Regarding the third subsidiary, National Steel Cor- poration (NSC), DBP is satisfied that National Development Corporation (which took over NSC in March 1981) has been up-to-date in paying installments rela- ting to its purchase of NSC. However, the terms of sale were very favorable to National Development Corporation. DBP proposes to transfer these three accounts to "Government Behest Accounts"; and (v) while the Government has provided DBP liquidity support to help DBP stay afloat, it has not cleared up all the arrears on Government behest loans. The Government has not completely executed this commitment because: (i) instead of providing direct compensation the Government provided liquidity support to DBP by maintaining its large deposits with DBP. The Government considered this arrangement more feasible given its tight budgetary position; and (ii) it feared that DBP, assured of automatic compensation, may not exert the efforts needed to recover these loans. Given the Government's concerns, a clear understanding between DBP and the Government on the principles and procedures relating to Government behest projects was necessary. This issue was covered by the "Action Program" refer- red to in the preceding paragraph. While,e "Action Program" provides the definition of Government behest projects - , procedures for identification of such projects and their subsequent handling, and the Government's assurance to provide liquidity support to DBP in case DBP's overall liquidity position is imperilled, arrangements were not fully satisfactory in that they did not pro- vide DBP with effective protection against the adverse effect of Government behest accounts as analyzed in the following paragraph. 7.11 Portfolio Quality. The poor quality of DBP's portfolio has been known to the Bank since 1972 when the Bank undertook a preliminary evaluation of DBP (para. 3.03). In light mainly of the large volume of arrears in DBP's portfolio and the absence of a sufficiently thorough audit of DBP's portfolio, 9/ Although the heavy withdrawals of deposits by the Government in the latter half of 1982 adversely affected DBP's already tight liquidity situation and caused DBP to suspend the acceptance of loan applications, total Government deposits on a year-to-year basis grew by about P 700 million in 1982. 10/ Defined as those which the Government considers to be of national importance and for which DBP is requested to finance even though such projects do not meet DBP's normal investment criteria. - 40 - DBP was not considered creditworthy enbugh for a direct Bank loan and, there- fore, the first Bank DFC loan and subsequent loans were made through the Government for relending to DBP. It is important to note that, at appraisals of Bank DFC loans for DBP, the Government was expected, as it had in the past, to help DBP, as necessary, attain a satisfactory financial position. Such understandings with the Government and certain specific measures agreed upon for improvement of DBP's overall financial condition and performance have pro- vided the Bank with a basis to expect a gradual strengthening in DBP's financial condition even though DBP's collection ratio never exceeded 50% since the early 1970s. However, in retrospect, the Bank underestimated the gravity of the debt-servicing problems of DSP's clients and was rather opti- mistic in its outlook for possible progress. The condition of DBP's portfolio (loans, equity investments, guarantees, and acquired assets) is briefly reviewed below: (a) Loan Portfolio. DBP's loan portfolio grew from P 4.2 billion (53.8% of total assets) in 1975 to P 25.2 billion (57.3%) in 1982. DBP's loan portfolio continues to cover a broad spectrum of sectors/- subsectors but is heavily concentrated in a few large clients (DBP's loans to six clients amounted to P 6 billion at end 1982, or 24% of total loan portfolio). On paper, actual arrearages on loans and advances declined from 22% of total principal outstanding in 1975 to 13% in 1982, and principal affected by arrears, from 54% to 26%. But this was largely the result of massive refinancing/restructuring undertaken by DBP in recent years (Annex 18). However, nearly 50% (P 12-13 billion) of DBP's total loan portfolio were exposed to 90 government behest projects, almost all of which are non- performing. The ratio of non-performing portfolio to total loan portfolio would rise further if all problem accounts are taken into ount. DBP's collection ratios remained extremely low (below 35% from 1979) (Annex 19). (b) Equity Investments. DBP's equity portfolio increased from P 537 million (or 26% of DBP's own net worth) in 1975 to P 7,936 million in 1982, exceeding by nearly 50% DBP's own net worth of P 5,306 mil- lion; over P 6 billion related to government behest projects. As analyzed in para 7.05, about 89% of the equity investments were acquired through conversion of past due interest and loans. There- fore, the value of DBP's equity portfolio is dubious. This is also borne out by the facts that DBP's common share holdings of P 4.4 billion earned no dividend at all in 1982 and that its preferred share holdings of P 3.5 billion earned dividends of P 108 million (or only 3% annual rate of return), which included accrual of divi- dends without legal declaration on the part of the investee companies. 11/ Collection ratios (including advanceson guarantees) were 40% in 1981 and 38% in 1982. Had non-cash collections in the previous years been added to the denominators for 1981 and 1982, collection ratios would have been much lower than 35%. - 41 - (c) Guarantees. Guarantees outstanding rose from P 3,515 million in 1975 to P 8,045 million in 1982. Over P 6.5 billion related to government behest projects. The default rate on guaranteed loans falling due remained extremely high (71% in 1981 and 83% in 1982). In 1981 and 1982 alone, advances made by DBP against guarantees falling due amounted to p 2.6 billion, causing a heavy drain on DBP's already tight liquid resources. (d) Acquired Assets. Assets acquired through foreclosure (or through "dacion en pago") increased from P 1.1 billion in 1975 to P 2.9 bil- lion in 1982. In 1982, these assets generated an income of P 82 million (or annual rate of return of 2.8%). 7.12 It is apparent from the foregoing that potential losses on DBP's portfolio are substantial and in all probability far exceed the provisions presently made (P 180 million) for non-performing and doubtful accounts. Although exact magnitudes are not yet fully determined, there are strong indications -hat the inherent portfolio losses have substantially eroded DBP's net worth (though on paper DBP's total debt including guarantees/equity ratio was 8.2:1 at the end of 1982, well within the contractual limit of 10:1) and that with the present portfolio conditions, DBP cannot make a profit without major financial restructuring and institutional reforms. 7.13 An important item of DBP's Action Program agreed with the Bank under the Industrial Finance (Apex) project (Loan 1984-PH) was the review of DBP's large problem accounts with exposure of $5 million or above. The objectives of this review are to: (a) undertake suitable rehabilitation plans for those projects which are basically viable; and (b) take hard decisions on those facing intractable problems. This exercise is being undertaken in phases. In the first phase, 87 large problem accounts initially identified are being evaluated; the remaining large problem accounts would be covered in the subse- quent phase. It is DBP's intention to ultimately review all problem accounts with exposure of P 5 million and above. Work on the review of the 87 accounts was in a final stage as of September 30, 1983. DBP made decisions on most of these accounts except for about 10 accounts, studies on which are currently in various stages of completion. 7.14 Financial Performance. The appraisal rep2l s of Loans 998-PH and 1190-PH conceded that DBP's expected profitability - would remain only moderate with net income averaging about 4% of DBP's net worth during 1975-79 and recognized that DBP is a government-owned development-oriented institution and that its profitability is not strictly comparable to private profit- oriented institutions. DBP's actual net income exceeded the projected level 12/ DBP's profitability is to a large extent a function of its collection performance because DBP, in accordance with accounting policy followed by all government institutions in the Philippines, is expected to report interest income on a cash basis and interest expenses on an accrual basis. - 42 - in 1975, fell far short of expectation in 1976 (due to the cancellation of the sale of Marinduque Mining shares which would have generated a tax free capital gain of about P 188 million), and was fairly close to projections in 1977 through 1979 (Annex 20). However, DBP income for 1979 through 1982 included substantial amounts (totalling P 4.58 billion) of "non-cash income" resulting from the capitalization of interest and other fees through conversion into equity investments or loans. Had income of this nature been excluded from the reported income, DBP's net income would have been negative since 1979 and DBP's reported net worth of P 5.3 billion at the end of 1982 would have been reduced by P 4.6 billion. 7.15 Measures for enhancing DBP's income earning capability, discussed and agreed upon at negotiations for Loan 1190-PH in October 1975, were imple- mented with mixed results: (a) the upward revision of interest rates in January 1976 resulted in the increase of DBP's interest spread (on accrual basis) from 2.5% in 1975 to 3.7% in 1977; (b) along with changes in interest rates, DBP raised its penalty charges; and (c) DBP started charging an annual service fee of 2% on loans approved from September 1976. Wbile DBP's income generating capability improved substantially between 1975 and 1979, DBP's col- lection performance significantly deteriorated in 1979. Steps taken by DBP for ensuring its financial viability, discussed and agreed upon at negotia- tions for Loan 1984-PH in March 1981, were satisfactory in that its lending rates were revised October 7, 1981, and brought in line with the market rates (para. 7.16). Only recently, better arrangements for government behest pro- jects are seriously being considered by the Government and DBP. In order to improve cash collection, DBP has taken a number of measures which include: (a) preparation of collection targets emphasizing cash collections; (b) weekly monitoring of such cash collections; (c) tightening of supervision activity including board and management participation, placement of DBP designated controller; (d) personal delivery of bills to large deliquent borrowers by project officers; and (e) legal action against willful defaulters. In addi- tion to these, DBP is considering the possibility of streamlining procedures for foreclosure with a view to facilitating and expediting legal proceedings and for disposal/auction of acquired assets. Finally, at the request of DBP, the Central Bank issued guidelines which would provide for denial of financial privileges by other financial institutions to defaulting clients of DBP. How- ever, these measures have so far failed to produce any improvement in DBP's loan collections mainly because of the prolonged depressed economic conditions. 7.16 Interest Rate. At the time of appraisl,of Loan 998-PH, it was explicitly recognized that the 12% and 14% p.a. - ceiling for lending rates established under the Anti-Usury Law resulted in distorted investment decisions and inability of financial institutions to mobilize term rcnources. While under Loan 1190-PH DBP's interest rates were raised in January 1976, they still continued to be limited by the Anti-Usury Law, though DBP was able to introduce a steep penalty rate (2% per month) on loans in 13/ 12% p.a. on loans or portions of loans secured by land; 14% p.a. on loans or portions of loans not secured by land. - 43 - arrears and default on guarantees. DBP introduced some major changes in its lending rates and general charges in October 1981 to bring its rates in line with the market rates, with its standard fixed interest rate for medium and large industry being raised from 16% and 18% p.a. (depending on collateral) to 21% p.a. Also, DBP introduced a system of variable Peso lending rates charg- ing at 5% over Manila Reference Rate (currently about 16%). Borrowers of foreign currency loans granted from DBP's foreign currency borrowings with fixed interest rate were charged at 21% p.a.; this policy was changed in January 1982 and DBP decided to charge an interest rate equivalent to its cost of foreign currency funds plus a margin of 4%. DBP adopted on January 26, 1983, the following changes in foreign currency lending rates: (a) for new loans, 4% above DBP borrowing cost; (b) for new IBRD, ADB and Apex subloans, 4% above combined weighted average borrowing cost; and (c) an existing 21% rate can be reduced to 4% above DBP cost or 18% p.a., whichever is higher, provided that borrowers pay off arrears or that the project is still viable and the subloan is restructured with substantial payment of arrears and/or submission of additional collateral. The foreign exchange risk is borne by subborrowers. Thus, an objecive of Loan 1190-PH to bring about a more appropriate level of rates and charges has been achieved. 7.17 Reserves Policy and Position. Provisions for doubtful accounts and reserves for contingency, accumulated by DBP in accordance with its Statement of Reserves Policy, stood at P 900 million (or 2.5% of total long-term port- folio including guarantees) as of December 31, 1982. These provisions and reserves, however, do not reflect serious doubts about the actual value of DBP's portfolio as discussed in para. 7.11 and therefore are grossly inade- quate. DBP's reserves policy also requires DBP to appropriate 20% of its annual net income as the foreign exchange risk reserve until such reserve is equivalent to 15% of total foreign liabilities on which DBP bears the exchange risk; this reserve stood at P 50 million, or 1.6% of DBP's net exchange risk exposure, as of December 31, 1982. 7.18 At negotiations for Loan 1190-PH, it was agreed that for all future foreign currency borrowings the exchange risk would be passed on to the ulti- mate borrowers. If this did not prove to be possible, the risk would be borne by the Government for a fee (applied to the outstanding amount) which would be passed on to the ultimate borrower. However, DBP's net exchange risk exposure increltd from about $107 million as of June 30, 1975, to nearly $338 mil- lion - as of December 31, 1982, reflecting mainly drawdown of $243 million from the Central Bank Consolidated Foreign Borrowings program (exchange risk on which is still to be passed on to ultimate borrowers). DBP's exchange risk exposures have substantially reduced since December 31, 1982: overall risk exposure to $331 million as of March 31, 1983 and net risk exposure to $151 million. However, DBP suffered net foreign exchange losses of P 291 14/ DBP's foreign exchange risk exposure stood at $508 million as of December 31, 1982. Of this $508 million, agreements have been made with respect to $170 million for transferring exchange risk to its clients as disbursements are made. Given this agreed transfer of risk, DBP's net exchange risk exposure stood at $338 million as of December 31, 1982. - 44 - million for 1982 (as against P 89 million for 1981), of which P 267 million resulting from the revaluation of long-term foreign currency assets and liabi- lities were deferred. As of December 31, 1982, the accumulated deferred foreign exchange losses exceeded a cumulative balance of deferred foreign exchange gain by P 197 million. 7.19 Audit. DBP's accounts continue to be audited by the Commission on Audit (COA), a Government body. As was agreed under the terms of Loan 998-PR, an evaluation of DBP's audit was undertaken in conjunction with the appraisal of Loan 1190-PH. COA audit was found to be quite thorough in terms of testing of detailed transactions. However, it was found to be lacking in analytical content and did not include an analysis of DBP's portfolio. Nor was it suffi- ciently supported by working papers. COA audit reports provided unqualified opinions while DBP's financial reporting deviated in some important respects from generally accepted accounting principles as applied in the Philippines and that the audit was not conducted fully in accordance with generally accep- ted auditing standards. Given the then system of compensation, personnel policy and the pre-auditing of transactions, the actual "independence" of COA audit of DBP was questioned. Viewed against this background COA at DBP has made certain progress towards strengthening its independence, expanding the coverage of its audit, streamlining the audit procedures, improving documenta- tion of its audit, and upgrading the quality of its reports along the lines suggested by an audit expert in 1975. COA auditors have prepared long-form audit reports in line with the Bank's "Illustrative Form of Audit for DFCs" since 1976. 0A auditors' opinion on DBP's accounts for 1982 is qualified because of their reservations about the adequacy of DBP's provisions for doubtful loans and investments. However, there still remains an issue of the auditors' failure to disclose explicitly DBP's non-compliance with its own (modified cash basis) accounting policy (para. 7.14). 7.20 Reporting Requirements and Performance. Loan 1190-PH had an objec- tive to improve the quality of DBP's internal reporting, particularly on its overall arrears situation and its lending and guarantee operations. DBP's reporting to the Bank under Loans 998-PH and 1190-PH has been reasonably time- ly and the quality of its reports is improving. DBP's reporting of arrearages has improved radically since 1976, with arrearages data classified and broken down by a variety of categories. However, DBP continues to face difficulties in achieving complete accuracy in compiling data on small loans. Part of the problem lies in Branch-Head Office communications. DBP continues to work on improvement in the management information system with the assistance of the Bank under the Third Livestock/Fisheries project (Loan 1894-PH). VIII. CONCLUSIONS 8.01 The performance of DBP in achieving the objectives (para. 4.01) of Loans 998-PH and 1190-PH was mixed. Disbursements under both Loans, although somewhat slower than expected, were completed without major extension of the closing dates (para. 5.01). Performance of medium and large subprojects was generally below what had been expected; of the total 48 subprojects, seventeen projects were not in operation and eleven were operating poorly with major - 45 - difficulties (para. 5.05). Calculations of ex-post FRRs and ERRs for selected subprojects, for which such exercises could be done, averaged 17% and 19%, respectively; however, most of the projects for which 2E-pst FRRs and ERRs could not be calculated were in distress (para. 5.07). Overall performance of the sample of SKI subprojects is impressive; however, the size and nature of the sample make it inappropriate to apply the main findings flowing from the sample to the population of DBP's SKI portfolio (paras. 5.09 and 5.10). The tree farming component under Loan 998-PH has been successful; DBP's perfor- mance has generally been commandable with respect to this component (para. 5.11). 8.02 Steps for institutional improvements (para. 6.01) narrowly focussed on IPD-I have been implemented with a limited success. IPD-I's staff strength both in number and expertise has expanded, but its staff have yet to display the business accumen and judgement needed for appraising complex projects and for dealing with projects in difficulties (para. 6.03). New policies suggest- ed by the Bank have been duly adopted but DBP does not seem to have rigorously applied these policies for/during the implementation of Loans 998-PH and 1190- PH (para. 6.04). Sophisticated appraisal methodology and work scheduling system for systematic project supervision have been introduced, but expected improvement in the quality of industrial project appraisal materialized only partially because of the absence of a critical assessment of project merits and risks (para. 6.05), and the scheduled supervision work could not have been adhered to nor had performance against the scheduled work program been closely monitored (para. 6.06). Since late 1981, DBP has introduced numerous measures for improvement of large-scale industrial financing including reorganization of IPD-I, and rationalization of policies and procedures (paras. 6.03, 6.04 and 6.06), but the real impact of these measures will be felt in the future. While DBP has undergone a series of organizational changes for improving its efficiency, it remains a very large and complex institution undertaking a multiplicity of functions. Effective management of such a large and complex organization is difficult in the best of circumstances. 8.03 The Government took the necessary steps agreed with the Bank which were designed to bolster the long-term resource base of DBP (paras. 6.08 and 6.09) and to strengthen DBP's overall financial condition (paras. 7.09 and 7.10). DBP's burgeoning business during 1975-82, which was inflated by refinancing operations (para. 7.01), was almost entirely financed by the Government and its agencies or through guarantees. On DBP's part, it has carried out the account-by-account examination of industrial accounts and undertaken massive refinancing/restructuring to reduce arrears, but these measures have proved to be an ineffective solution to DBP's portfolio problem (para. 7.04). DBP has raised and brought its lending rates in line with the market rates, but '-his measure has not yet resulted in improvements in the earning performance of DBP because of poor collection performance (paras. 7.15 and 7.16). DBP has taken some internal measures to improve collections, but not much progress on cash collections could be made because of further detc 1- oration of the economic condition (para. 7.15). DBP has, to a large extent, completed its work on the large problem account review (para. 7.13). DBP is making 'ts best efforts to renegotiate the arrangements for the sale of its investments in two companies (para. 7.10). DBP has taken certain steps to improve its financial planning and management information system, but much - 46 - remains to be done (paras. 6.07 and 7.19). CA's audit of DBP's accounts, although achieved certain procedural and presentational improvements, is still not fully acceptable. Despite gains in various areas, DBP has failed to sustain its financial viability (paras. 7.11, 7.12 and 7.14). In the final analysis, the objective of gradual long-term development of DBP into a sound, viable and efficient institution has yet to be achieved. 8.04 The lessons learned from the Bank's experience with the first two DBP projects are: (a) The problems of rehabilitation of a large, multipurpose Government development bank were much more complex and intractable than initially realized. The Bank sought to bring about institutional improvements in each of the two loans in a gradual manner, but was too optimistic about what could be achieved. Substantial progress would not have been possible without a major institutional restruc- turing, which the Government and DBP were not willing to undertake. (b) The difficulties inherent in separating DBP's role as a source of finance for Government projects from its role as a "commercially oriented" financial institution also proved to be intractable. It was not possible to work out satisfactory procedures for handling Governent behest projects. This situation raises the general question as to the circumstances in which a multipurpose government bank can be given sufficient autonomy to operate as an effective financial institution. (c) A financial institution such as DBP is vitally affected by changes in its external environment. The international recession and adverse shifts in the terms of trade profoundly affected Philippine firms. The corporate sector was rendered even more vulnerable by the previous macroeconomic policy regime, which had encouraged the growth of economically inefficient firms which could not survive the general economic deterioration and increasing competition from abroad permitted by even a gradual liberalization of the trade regime. This underscores the need to take account of macro-economic variables in assessing the longer-term creditworthiness of a financial institution. (d) The importance of strong leadership supported by a solid well-knit management team is paramount. The absence of such leadership was a crucial factor at certain junctures in the deterioration of DBP's financial position. The new Chairman of DBP has been carrying out an effective dialogue with the Government to ingulate DBP from poli- tically motivated lending and to arrange measures for the rehabili- tation of DBP. The Bank at various times considered the possibility of insisting on the appointment of expatriate advisors to assist DBP in its institutional reform, but did not persist as DBP management did not believe that such assistance would be helpful. The Bank did not insist on external advisors because it did not believe that such advisors would have been effective if DBP did not want them. In retrospect, it may be possible that the Bank should have taken a stronger position on this point. - 47 - (f) The experience with DBP suggests that an audit by a government body may not be the most effective method for a government financial institution. (While the Bank had proposed, on several occasions, the use of external auditors, the Government felt that this was inappropriate. Under Philippine law, a 1 public sector institutions are subject to audit by COA. The Government maintained that the appointment of external auditors would create an unacceptable precedent.) -48- ANNEX I1 PHILIPPINES DEVELOPMENT BANK OF THE PHILIPPINES (LOANS 998-PH AND 1190-PH) PROJECT COMPLETION REPORT Estimated and Actual Loan Disbursements ($ million) Calen- Loan 998-PH /a Loan 1190-PH dar Arprait...: Actual Appraisal Actual year/ estim-ce/ Per Cuan- estimate/ Per Cumu- quarter quarter quarter lative Z /c quarter quarter lative z 1975 1 2.45 0.80 0.80 1.60 - - - - 2 3.65 2.60 3.40 6.80 - - - - 3 3.65 14.90 18.30 36.60 - - - - 4 3.86 4.60 22.90 45.80 - - - - 1976 1 4.36 4.40 27.30 54.60 - - - - 2 4.76 4.80 32.10 64.20 - - - - 3 4.98 4.10 36.20 72.40 1.00 - - - 6 4.69 1.50 37.70 75.40 2.00 - - - 1977 1 4.19 0.80 38.50 77.00 5.00 - - - 2 3.70 1.90 40.40 80.80 6.00 3.10 3.10 4.1 3 3.21 1.00 41.40 82.80 8.00 5.90 9.00 12.0 4 2.60 1.00 42.40 84.80 10.00 4.60 13.60 18.1 1978 1 2.10 0.30 42.70 85.40 11.00 5.90 19.50 26.0 2 0.89 1.20 43.90 87.80 9.00 6.60 26.10 34.8 3 0.91/b 1.50 45.40 90.80 7.50 4.03 30.13 40.2 4 - 0.10 45.50 91.00 6.00 6.35 36.48 48.6 1979 1 - 0.32 45.82 91.64 4.50 13.21 49.69 66.3 2 - - 45.82 91.64 2.75 9.13 58.82 78.4 3 - 0.10 45.92 91.84 1.50 3.53 62.35 83.1 4 - 0.07 45.99 91.98 0.75 1.15 63.50 84.7 1980 1 - - 45.99 91.98 - 3.11 66.61 88.8 2 - 0.09 46.08 92.16 - 3.16 69.75 93.0 3 - 0.07 46.15 92.30 - 0.19 69.94 93.3 4 0.55 46.70 93.40 - 0.35 70.29 43.7 1981 I - - 46.70 93.40 - - 70.29 93.7 2 - - 46.70 93.4A0 - 0.77 71.06 94.8 3 - - 46.70 93.40 - 0.72 71.7R 95.7 4 - - 46.70 93.40 - - 71.78 Q5.7 1982 1 - 2.87 49.57 99.14 - 1.93 73.71 98.3 2 - - - 99.14 - 1.29 75.00 100.0 Total 50.00 49.57 49.57/d 99.14 75.00 75.00 75.00 100.0 la Includes tree farming component of $2 million. Tb Amount of $0.91 million spread over period July 1979 to June 1981. 7T Percent of total approved amount of $50 million. d Amount of approximately $0.43 million was cancelled. AEPID October 1983 49 - AM 2 PillLIPPIRES DEVELOPHENT BANK OF THE PHILIPPINES (LOANS 998-PH AND 1190-PH) PROJECT COMPLETION REPORT Sumary Characteristics of Large Industrial Subprojects Financed Number of subproleacs 998- 1190- Amount (s '000) PR PR Total 2 998-PR 1190-PP Total 2 Nature of Project New 11 13 24 50.0 27,951 24,119 52,070 55.4 Existing 9 15 24 50.0 19,620 22.353 41,973 44.6 Total 20 28 48 100.0 47,571 46,472 94,043 100.0 Sectoral Distribution Food 1 2 3 6.2 876 3,585 4,461 4.7 Coconuts 1 2 3 6.2 480 6,742 7,722 8.2 Textiles 6 3 9 18.8 22,912 11,089 34,001 36.2 Apparel 2 1 3 6.2 491 2.240 2,731 2.9 Lumber 1 2 3 6.2 2,558 6,792 0,D50 9.9 Furniture 1 - 1 2.1 585 - 585 0.4 Printing - 2 2 4.2 - 1,357 1,357 1.4 Leather 1 2 3 6.2 1,93D 885 2,815 3.0 Chemicals 2 4 6 12.5 7.669 969 8,638 9.2 Nonmetallic 1 1 2 4.2 1,130 2,530 3,660 3.0 Metal 2 3 5 10.4 659 1,784 2.443 2.6 Machinery - 2 2 4.2 - 1.197 1.197 1.3 Extractive 1 1 2 4.2 2,740 4,982 7,722 8.2 Public utilities - 1 1 2.1 - 359 359 0.4 Transportation - 1 1 2.1 - 908 908 1.0 Cene,al services 1 - 1 2.1 5.041 - 5,041 5.4 Other - 1 1 2.1 - 1.013 1,053 1.1 Total 20 28 48 100.0 47,571 46.472 942063 100.0 Geographical Distribw- tion 11ocos - - - - - - - - Cagayan Valley - - - - - - - - Central Luzon 3 3 6 12.5 3,341 1,337 4,678 5.0 Metro Manila 5 10 15 31.2 10,761 6.876 17.637 18.8 Southern Tagalog 7 5 12 25.0 21,438 11.700 33.13R 35.2 Bical 1 - 1 2.1 2,740 - 2.740 2.9 Western Visayas - 2 2 4.2 - 1.625 1,625 1.7 Central Visayas I - 1 2.1 876 - 876 0.9 Eastern Vissyas - - - - - - - - Northern Mindanao 2 1 3 6.2 3.538 876 4,414 4.7 Southern Mindanao - 6 6 12.5 - 21,528 21,i28 22.9 Central Mindanao 1 1 2 4.2 6,877 2.530 7.407 7.i Total 20 28 48 10.0 47,571 4f6.472 94,n3 1a0.0 Size of Loans Up to S500.000 4 9 13 27.1 1,15n 2,061 3,213 3.4 $500,000-1,n00,000 4 6 10 20.8 3.072 4,9nR 7,80 8.5 $1.000.000-1,500,000 1 2 3 6.2 1.130 2,116 3.246 3.4 $1.500.000-2.000,000 1 2 3 6.2 1,930 3.787 5,717 6.1 S2,000,000-2,500,000 1 1 2 4.2 2,269 2,239 4.508 4.8 $2,500.000-3,000,000 3 2 5 10.4 8,090 5.259 13,349 14.2 S3.000.000-4.000,000 - 2 2 4.2 - 6,077 6,077 6.5 Over $4,000,000 6 4 10 20.9 29,930 20,023 69,953 53.1 Total 20 28 48 100.0 47,571/a 46,472/b 94,43 100.0 /a The remaining loan amount not cancelled of S2.0 million wa used for the Small- bolder Tree Farming Project (Annex 13). /b $28.53 million under Loan 1190-PR was utilized for small and medium industry (Annexes 9-12). AEPID October 1983 ri 11 til jIi~~~' I2 #1 t~ ; I1[ fli filE.-R.- ii i rr, i pl Eg t:'" 1 rim i HuI'1j i 1I I IiId [ { -5-ANNEX - 51- PRILIPPINES DEVELOPMENT BANK OF THE PRILEPPINES (LOANS 998-PH AND 1190-PR) PROJECT COMPLETION REPORT Reasons for Large Subprolect Completion Delays /a Change in Delayed in- Input and Lack of machinery Change in stallation/ raw material sufficient spec. and/ machinery Delayed running in availability local cur- Other or design supplier delivery problems problem rency funds 998-PH A-01 Lotus Exports X A-02 Fil Mosaic X X/b A-03 Philippine Polyamide 1 A-06 Golden River Mining X X A-08 Surigao Coconut I A-lI Nabubay Vinyl X I A-16 Far East Starch I 1-02 Machine Tools I X B-08 Masy Metals X/c 1190-PR A-02 Wearever Textile I X A-03 Emperor Textile X A-05 Sabena Mining X A-13 Mindanao Steel I A-14 Sugarland Agro Industrial I B-01 Mackay Machinery X X B-11 Navotas Industrial I B-12 Manara Cassava Flour X 3-13 Philippine Pigment and Resin I /a The following projects were not fully completed: Crown Fruits and Cannery (11tJ-Pf A-17) commened cannery operations on time, but the pineapple plantation component of the project is still incomplete. Santa Clara Lumber (1190-PH A-l0) ceased operations before all new plant had been deliveredr on site. Noroll Mills (1190-PR A-9) and Eastern Davao Oil Mills (1190-PH A-18) were acquired by UNICOM in September 1979, before projects had been completed. Internetional Components (1190-PH B-14) was foreclosed prior to full project completion. /b A typhoon delayed construction of building. /c Project delayed due to changes in product design requirement of the sole buyer. AEPID October 1983 å 1 v 11 m Wm1l1 SmÅli i mil, IlI . .......16.... UsI - 1,I i a a stat sie'g alli .i i .0 .u.n...,b ..., 1 . 1S e ei i .i* d fi: 5111 . g. J.L' !g~1Lh~C I~~frg ~ w-~ bk . . bbuhLl. bI.bbtåhC, -L. . h . th.L. .iIl - b Ci ii'; 1'2' b [.bj''iiiEI ibb 1. 51 ~ 'II hl lj II } hi 41 li -53 - AMIE 6 PNILIPPINE DEVELPENT AIm OF T1E PILIPPIUEg (L.MIS 998-Pr AND 1190--PI) PRNDCr CofifETIONf piC Detail of 28 "froblam Pro -e/a by Prinfiýpe emson. auhl Pai1ere REauon Kom NMaae Tech- Pin.e. Sbproject merker ffterual ment i 998-pe ~ wr7i r~a± x x x A-0 P 7oate x X x A-03 Phlluppine Poly.mae 2 2 A-06 Golden River Kinin x x A-07 SurigMo Cocumet Davealopiet x A-09 råperor Tetil (X) x A-10 ~ag.1 Textila x A-11 mabuhay vinyl x X X A-12 Ledemaw Overe.. x x 2 8-02 Machina Teol. 2 X -03 Nnef11 Kneafselrig x x B-04 Portunoff 2 a-06 Vaarever Textil (1) x x »-08 aay Etal. x X 5-09 Ricer N1ll. 2 X 9 1 6 4 7 1 190-Pl A2Elrewr Teuilg x A-03 ceperor Textilm x A-05 Saba= Mäinine x x A-06 Philippinu RI-Standard x x A-09 Noro11 Killf x A-10 Santa Clara Lumbar x x x X A-11 Da. Ti~her x x X A-13 Hädano Stael 2 A-14 Sg~rland Agro-Indstril x x x A-18 Ewetern Davo 011 N11e x 5-12 Nera Casava FIur x x B-13 Philippne Pigent x x x 8-14 ikternational Compoemte x x x B-16 Arla Nov. & Stae Industries X 8 a 7 4 5 a "Problem Project" ar, the 17 ubprojecte hich wra nmoperatioal am at Key 31. 1983, and the 11 embprojecte which ~er operating with major difficulty at that date (Anle 5). Noten 1 market - a ~laar problem in 17 out of 28 cese. Nain factora vere: - drop ta world da~d/price (Dva. Tiber. Santa Clara Leaber. Sabea ltning, Ldemen Oveweaw) - problem. la obaiig export qutaa (Fortumoff. NotIlla Nenufacturng - ~ack of Interationel cagpectIvenee (Pil-Noamic, Philipp~n. Polymmide, Philippin HI-Standard. Philippinf Pigmknt and a)in) - lack of export. due to produc qumntity und quellty problem (Ricer Kills, Nimera Ca~ave) - effected by local dam~n probleme (Ke»y Ntaln, Kahhay Viyl. 1e~hine Tool. Kind~@a Stael, Atla. Developer and Steel) 2. P~u Material. - a problem it 5 ec. 3 of hich du to goverement epo~- sored reoranleation of cocout industry (Serigoo Coconut, atern Domo 011 Nilla and Noroll ille). Other case: 1 involved imp~a reutrictions on axploitation of remourcen (Philppine Pigseat and eln) 1 lack of Incentiven for farmare ro gro material. (Namera Caava). 3. Kena t - in ca~e of Vearever and Ikperor TMetla KUla, fire damaged prJEUct L-1979. Protraectad iuran~ problem have recad ce enc~ of recomencog oparatin in emah cal~. In other 9 ca., quetio~ raised as to mismaent compctence, or vied. of certain actions/decisioas. 4. Te~hical - problam in 8 ou of 28 cases: - long delay in projet cofpietion (ahaay Vinyl) - operatIonel problee (icor nill., Devao Tiuber, Golden River =ining) - vrong plant/poor te-hea eupar~ision (Da*va Tieber, Sugarland Agro-Induutrial, Fil NaFaiX) - projecte n=ver fully completed (Intearationl Compoentu, Santa Clara Lamber) 5. FinncIal - a problem in ~larly avery Iestnce. bt of critlical impor- tance in poneibly 12 caem. October 1983 $fls' ft-eI!,-l-----0 1502!^ &ct. p2 mas,a c~ en wpt11 -jkkgl, 1191..11 -fl-- --- 1z 5i LIC @Ar f s InSEEk -fl----- *t* 9 qI.L-%-- - - - l %2Il2i l 2igl f ; ~ ;ökl§* HIOS, !.. ijli 111»12 l lkcfIl MHRWRM22a liii'-- - -A-l SISjM k tigMC kla3kAk22 « jo ian ; stsiid- -mo22a :~ ~~~~~~~ m1é tÄ~4 j UE'I.U sd uI4~ ~1 EJ~IM~EJ J ~P 1 ~fl~!EjWEU~EIII511j1! il. ~.4~.r~ 9<42 9< l - ån dn dlit ~i2!E ~9!I!5IM~h j~Ba~;ca: idil- -i sj.hI1- - 0 '11hU 1 d Vi lmE 9m ga i ]1 1 - - 9< c$Ji, ;k '1 .UTIGH.Mä,i,s. liptil.iiiiii äm,i1.4i i m ål IPI .U ........... a.M.... .s .. S;1a s. a a lägwsä !fyäm Kolpgt n satgg sim 1 3153 sä aysigtii 2 erm i .in egsa pp fsa 5 g im. al 'Iis~~~~~~~ mw blå 33~ J I~~g~iEm1 ~53111 1 Ss, £ is ia ia .,.sgmp,.I is ni~Iuan iinmu 1: l is en is i.i,s a ....~~ titei Pi 1 i läggdiosgi:wsi i M IEHOEN e 1 i i .ssil i WiM i l o 11% Iidis 11 nälýiin u o 1 [c "--izs 13 M MU9363 t. . I ål 1.9 31 IN6, hä..läm4 äm..Is I 2! 8. 1414 ..å. >b11 -56 - ANE 9 PHILIPPI?ES DEVELOPMENT BANK OF TE PHILIPPINES (LOANS 998-PR AND 1190-PH) PROJEC COmpLETR REPOr Summary Characteristics of Small- and Hdium-Scale Subprojects Financed (Loan 1190-PH) Amount approved Number ($'000 IBRD portion) No. 2 Amount 2 Nature of Projects New 443 56.3 13,929.6 48.8 Existing 344 43.7 14,595.6 51.2 Total 787 100.0 28,525.0 100.0 Sectoral Distribution Food thnuaring & Beverage 128 16 3,247 11 Coconut Products & Preparation I - 15 - Textile, Apparel & Other Finished Products 97 12 3.182 i Lumber, Wood Products, Furniture & Fixtures 80 10 2,868 10 Paper and Paper Products 12 2 911 3 Printing, Publishing & Other Allied Industries 27 3 1.158 4 Leather & Leather Products 20 3 813 3 Chemical & Chemical Products 15 2 1,302 5 Non-metallic Products 82 10 2,894 10 Metal Industries 41 5 2,443 9 Mechanical, Electrical Equipment, Appliances, Accessories & Parts 110 14 2,873 10 Ice Plant and Cold Storage 37 5 1,779 6 Transport Equipment & Repair 37 5 706 2 Extractive Industries 41 5 1,843 6 Rubber Products 13 2 488 2 Miscellaneous Manufacturing Industries 46 6 2,003 8 Total 787 100 28,525 100 Geographical Distribution Ilocos 78 10 1,545 5 Cagayan Valley 28 4 693 2 Central Luzon 103 14 3,340 12 Metro Manila 202 26 12,058 43 Southern Tagalog 82 10 2,474 9 Bicol 30 4 538 2 Western Visayas 33 4 700 2 Central Visayss 82 10 2,999 11 Eastern Visayas 22 3 731 2 Western Mindanso 12 1 776 3 Northern Mindanao 56 7 1,214 4 Southern Mindanao 33 4 684 2 Central Mindanso 26 3 773 3 Total 787 100 28X525 100 Size of Loans (P) 50,000-100,000 295 37.5 2,769 9.7 100,000-500,000 369 46.9 7,817 27.4 500.000-800,000 19 2.4 1,183 4.2 800,000-1,000,000 28 3.6 2,543 8.9 Over I million 76 9.6 14.213 49.8 Total 787 100.0 28,525 100.0 AEPID October 1983 PH1ILIPPINES' DEVELOPMENT BANK OF THE PHILIPPINES (LOANS 998-PH AND I 190-PR) PROJECT COMPLETION REPORT Status of Iaplementation of a Sample of 25 Medium- and Bmall-Scale Subprojects Financed in Metro Manila Area Project financing Project Compleon Date atIaRD Estimate tual Variance -- (P '000) -- Overrun IBRD IBRD actual I as (months) Name Sector Nature approved actual of actual pro- -- ($ 000) -- ject cost & MCR Industries, Inc. Printing & Publishing Expansion 4,656 5,156 i 2OR 208 30 July 77 July 77 - Lim, Manuel T. Metal Products Expansion 2.737 2,737 - 167 167 46 July 78 Sept. 7A +2 Sto, Mariana A. Food Manufacturing Expansion 3,837 4,000 4 161 161 30 April 78 May 78 +1 Perna BLocks and Pipes Concrete Products Expansion 2.297 4,298 87 176 176 31 Jan. 30 April a0 +3 Universal Hills Weaving & Textile Mfg. Expansion 8,920 8,920 - 200 200 17 Hay 78 Hay 78 - Asia Electronics Electrical Appliances & Equip. New Project 5,899 6,500 10 155 116 13 Jan. 77 Jan. 77 - Supreme Containers Ind. Paper and paper products Expansion 3,309 3,309 - 173 173 39 Dec. 78 Jan. 79 +1 By Peng Hong Metal Products Expansion 5,000 5,000 - 250 250 3B Jan. 73 Jan. 78 - Koolmark Manufacturing Corp. Electrical Machines/ Expansion 4,045 4,045 - 160 160 30 July 78 July 73 - Apparatus Supply Pioneer Ceramics Concrete Products Expansion 2,500 3,000 20 250 250 63 July 77 July 77 - A. 0. Adriano Furniture, Inc. Woodworks & Furniture Expansion 3,632 4,466 22 243 243 41 Jan. 79 Jan. 79 - Neltex Development Co. Plastic Products Expansion 7,622 7,000 (3) 180 180 19 June 78 June 78 - Chermoso Footwear, Inc. Shoe Manufacturing New Project 4,161 4,161 - 224 224 44 July 78 Jan. 81 +46 Cancio Associates Woodvorks & Furniture Expansion 6,120 6,120 - 190 190 23 May 73 Jan. 79 +A Sehuant Inc. Wearing Apparel Expansion 9,415 9,145 - 219 239 20 June 77 June 77 - Universal Towel Manufacturing Spinning, Weaving of Towels Expansion 3,258 3,258 - 200 200 4f July 77 Aug. 77 +1 Ceneral offset Press Inc. Printing & Publishing Expansion 8,609 8,612 - 250 250 22 Dec. 78 Dec. 78 - Star Paper Paper Products Expansion 6,047 5,794 (4) 210 250 12 Dec. 7R Dec. 7t - L. M. Handicrafts Novelties/Handicrafts Expansion 6.011 7,511 25 250 250 25 Feb. 79 Feb. 74 - Caguioa Asuncion Wearing Apparel Expansion 2,578 z,on 9 223 223 60 Jan. 79 Feb. 79 +1 Marlon Parts Manufacturing Motor Vehicles Expansion 4,240 4,305 I 190 190 33 July 79 Aug. 74 +1 Everfit Manufacturing Corp. Wearing. Apparel Expansion 3,086 2,993 (3) 181 161 45 April 78 Aug. 78 +4 HaStato, Arsenio Stee Products Expansion 3,134 3,211 2 224 224 52 Oct. 78 Oct. 78 - Gutierres, Daniel Vood 6 Cork Manufacture New Project 3.216 3,336 5 239 239 49 April 31 May aI +1 Agehes Manufacturing Corp. Chemical Products Expansion 3,590 3,590 - 223 223 47 Feb. 78 March 78 +1 Total 117.919 124.092 .2 5.20 .67 31 /a Conversion rate used P 7.5 * $1, average rate at time of project Implementation, except, Marlon Parts Manufacturing (P 7.4 - SI), Deniel outierres (9 7.9 - $I) and Chermoso Footwear (P 8.2 * 51). AEPID October 1983 PRILIPPINIS DEILOPINT SANK OF 11 PRILIFFINES (LOANS 99-PH AND 1190-PR) PROURCT COMYLSTION REPORT Sumar of Performance of a sample of 25 Small- and Medium-Scale Subprojects In Metro Manila Area Net earnings as Income before 3 of average tax as I of avg. Capacity utili- Incremental Investment Mame Total sales /a Profit loss networth total assets sation plst b I Estiate Actual 210 6 8Actual Estimate Actual Estlaste Actual TitMte Atual latiete:A8tual ettsteiAmtiual Estias At ---- (P -000) -- - -- (V '0m) - - ( 00) - NCR Industries. Inc. 1,002 3,592 807 n.e. 27 n.a. 18 I .A. 75 75 Nonemport 8 17 540 470 Lim, Manuel T. 12,686 10,813 141 2,121 7 36 A 4 83 70 - do - 54 54 S1 51 Sio, Mariano A. 2,498 U.a. 157 n.a. 21 a.m. 9 n.a. 63 60 - do - 29 29 132 13 parma Blocks and Pipes 7,540 5,301 426 297 34 30 14 10 70 55 - do - 44 48 52 90 Universal Mills 18,615 15,574 685 142 22 7 7 I 50 50 - do - 12 12 741 743 Asia clectronice 50,435 47.058 2,948 3,200 71 59 41 30 65 A5 49,294 40,000 307 107 5 61 Supreme Containers Ind. 5,299 2.239 211 235 27 13 23 a 57 45 Nonexport 13 30 255 110 Sy Pan& Rong 7,695 4,165 411 54 47 16 19 is 60 30 - do - 107 107 46 46 Koolmark Manufacturing Corp. 2,695 6.553 319 (81) 36 Ga.. 12 a.A. 57 80 - do - 47 19 A6 213 8 Pioneer Ceramics 2,899 4,027 84 141 46 5 21 4 84 50 - do - 35 65 71 46 A. G. Adriano Furniture, Inc. 2,326 4.509 320 n.a. 54 na.. 19 na. 7 62 1,512 152 76 56 48 no Miltes Development Co. 1,058 1,600 209 320 6 6 4 4 66 46 234 254 36 38 232 184 Chermoso Footwear, Inc. 7,506 8,571 450 (22) 24 (2) 13 (1) 50 NO 2,477 3,000 112 220 37 19 Cancto Associates 9.638 6,549 367 198 14 11 6 4 50 50 Nonexport 30 25 204 245 Ssheani Inc. 11,800 14,083 777 $20 20 16 6 4 67 55 2,950 3,309 76 76 124 124 Universal Towel Manufacturing 29,954 24,134 1,550 315 31 6 26 4 90 90 Nonexport 212 120 IS 27 General Offset Press Inc. 22,250 17,355 3,000 (726) 22 (14) 19 (6) s0 78 - do - to a 161 1,077 Star Paper 30,000 28.624 1,500 1,233 37 35 13 11 75 70 - do - 11 30 550 579 LM Handicrafts 18,000 19,575 1,200 3is 9 8 3 3 90 90 18.000 19,575 28 28 215 268 Casutoa Asuncion 12,000 13,880 521 n.A. 30 G.A. 27 a. so no 11,000 12,493 98 30 26 93 Merlon Parts Manufacturing 9,084 9,500 597 480 37 35 i 17 70 70 9,084 9,500 30 10 424 431 Everfit Manufacturing Corp. 1,650 200 n.A. n.A. M.A. U.a. Ua. U.e. 68 61 1.650 2.000 13 10 237 300 MaStoto, Arsenlo 1,116 416 103 (62) 89 (44) 8 (3) 65 37 Nonexport 16 16 196 201 Gutierrez, Daniel 4,800 1.900 141 14 29 20 9 A 73 40 - do - 46 20 70 169 Agehe Manufacturing Corp. 10,591 9,003 1,200 (209) na. G.a. G.A. ns 85 as - do - 14 19 256 184 Total 282,537 266.097 20,261 8.985 96,221 91,641 1.244 1.174 45 Im /a All operational and financial measures compare setimated and actual performance in the first year of full operations. ARPID October 1983 59- ANNEX 12 PHILIPPINES DEVELOPMENT BANK OF THE PHILIPPINES (LOANS 998-PH AND 1190-PH) PROJECT COMPLETION REPORT Financial Status of a Sample of 25 Small- and Medium-Scale Subprojects Financed in Metro Manila Area Amount outstanding Total Arrears as IBRD Others Total arrears Z of total Name ($000) - (P 000) - (P 000) amount outstanding CR Industries, Inc. 103 690 1,720 7 0.4 Lia, Manuel T. 26 1,970 2,230 522 23.0 Sio, Mariano A. - 1,980 1,980 5 0.3 Perma Blocks and Pipes 360 1,310 4,910 139 3.0 Universal Mills - 1,960 1,960 - - Asia Electronics - 2,040 2,040 2,032 99.6 Supreme Containers Ind. 19 2,680 2,870 800 28.0 Sy Peng Hong - 2,590 2,590 - - Koolmark Manufacturing Corp. - 1,960 1,960 58 3.0 Pioneer Ceramics 86 2,810 3,670 359 10.0 A. G. Adriano Furniture, Inc. 243 2,410 4,840 341 7.0 Neltex Development Co. 180 600 2,400 294 12.0 Chermoso Footwear, Inc. 163 540 2,170 - - Cancio Associates 159 530 2,120 236 11.0 Sehwani Inc. 238 790 3,170 - - Universal Towel Manufacturing 126 420 1,680 - - General Offset Press Inc. 105 350 1,400 - - Star Paper 152 510 2,030 - - LM Handicrafts 250 830 3,330 180 5.0 Caguioa Asuncion 63 210 840 - - Merlon Parts Manufacturing 87 290 1,160 Everfit Manufacturing Corp. 86 290 1,150 - - Magtoto, Arsenio 210 700 2,800 267 9.5 Gutierrez, Daniel 239 800 3,190 - - Agchem Manufacturing Corp. - - Fully Paid Total 2,895 29,260 58,210 5,240 9.0 Note: $1.00 - 9 10.00 Conversion rate. Status as at December 31, 1982 AEPID October 1983 -60 - ANNEX 13 Page 1 PHILIPPINES INDUSTRIAL INVESMENT AND SMALLROLDER TREEFARMING PROJECT (LOAN 998-PH) SMALLHOLDER TREEFARMING COMPONENT Overview of Project Completion Report A. Overview 1. This project was a component of the Industrial Investment and Smallholder Treefarmers Project (Loan 998-PH). US$2 million was allocated to the Development Bank of the Philippines for the development in the Bislig Bay area of Mindanao of some 1,300 smallholder treefarmers by planting about 10,400 ha of the fast growing species Albizzia falcataria and developing small areas of subsistence crops and some livestock. It was conceived as a sue- tained yield management system through an eight-year rotation. Trees would be sold at prevailing market prices in the Bislig Bay mill of the Paper Indus- tries Corporation of the Philippines (PICOP) under a marketing contract bet- ween PICOP and the smallholder. The model tree farm was supposed to be 10 ha, 8 ha of which would be for Albizzia falcataria and 2 ha for crop or livestock production. The project objectives were to ensure a steady supply of pulpwood to PICOP mills; provide regular additional income to smallholder treefarmers; encourage a settled lifestyle and provide steady employment of shifting cultivators (Kainginero). The project became effective in September 1974, and was completed in December 1981. An overview of the PCR and comments are presented below. 2. Since tree crops have a long maturation period, none of the financed tree farms were expected to have harvested a crop by the time of project com- pletion but a few tree farmers did harvest early. The assessment of subloan performance in the PCR is therefore limited. This evaluation should be considered preliminary and requires updating yearly by focussing on project participants who will have harvested their tree crops. 3. Given these constraints, the PCR evaluates the project fairly in terms of performance, reasons for differences between appraisal estimates and actual achievements, and the lessons learned from the project. Although there is minor illogical reasoning and miscalculation, the document is satisfactory. B. Project Implementation 4. US$2 million was provided by the Bank to DBP to expand its tree farm loan program in conjunction with PICOP. The project area includes the provinces of Agusan del Sur, Surigao del Sur, .Davao del Norte and Davao Oriental in Mindanao. Small landholders grew Albizzia falcataria for pulpwood and were guaranteed a market and minimum price for their trees at harvest from the seventh year onwards. Although the PCR stated that the number of -61 - ANNEX 13 Page 2 borrowers was 1,159 and treefarm area financed was 8,968 ha, the actual number of subloans is 1,202 and area financed is 15,022 ha. The project has reached 92% of the projected smallholder target population and has extended loans covering 144% of the projected area. The average size of the tree farms financed was 12.5 ha. A survey for the PCR was made of 232 selected participants, grouped according to the number of hectares planted and the year in which their subloan began. Nearly all of the tree farms were situated within 3 km of the roadside (average distance of 1.3 ka) where the trees could be hauled away. ACTUAL NUMBER OF SUBLOANS AND AREA FINANCED No. of Subloans Actual Area Financed (Has) Project Project Actual Projected Actual year number number Z ha ha % 1974 200 71 36 640 837 131 1975 300 482 161 1,280 5,231 413 1976 400 252 63 2,080 3,707 178 1977 400 289 72 2,720 3,535 130 1978 77 1,760 1,167 66 1979 31 1,280 495 39 1980 640 Total 1,300 1,202 92 10,400 15,022 144 5. PICOP has benefited greatly from the program, both through the establishment of wood resources for its pulp mill and closer cooperation with smallholders in and around its concession. The forest concession i, now less subject to frequent damage from bush fires and Kainginero activity. PICOP has also gained good public relations through the project. 6. Project implementation began and ended on schedule, although the phasing target dates for enrollment of subborrowers, plantation development, and loan availability in each year diverged somewhat from the schedule projected in the appraisal report (para. 5.02.1). To assure loan security, the Bank and DBP had limited the borrowers to those who possessed either a legal title to the land or had occupied the same area of alienable and disposable public lands for at least 10 years without legal title. Land covered by homestead and free patent leases was not accepted as loan collateral. This restriction sharply limited the area of land eligible for financing, and consequently the number of loan applications began to decline by late 1975. To remedy the problem, this requirement was relaxed to include privately-owned land covered by long-term leases as well as alienable ani disposable public lands covered by approved free patent and homestead applications (para. 5.01). Therefore, the actual number of loan applications reached 61% over the projected number in 1975 although - 62 - ANNEX 13 Page 3 it was 64% under the projected number in 1974. In the long run, the issue of land ownership and tenure must be genuinely resolved based on careful study; and effective land use strategy must be drawn up by the Government. This land issue is one of the major constraints to promoting forestry development in the country, and the Bank too must assist any government efforts in this direction. 7. Although there were no changes in the scale of funding for the project, some aspects of its actual scope and design differed from the appraisal report plan. These differences include the nature of the lands utilized, agro-forestry and intercropping practices, tree farm development period, tree spacing, frequency of fertilizing and weeding, and the harvesting (para. 5.03.1). (a) Although the farmers wishing to raise crops or livestock could apply to DEP for another loan, DBP did not use the smallholder treefarming loan for non-silvicultural purposes as expected because: (i) some of the tree farmers preferred to plant trees rather than crops because pulpwood production was more profitable in the long run than agriculture or livestock raising; (ii) as 39% of the tree farmers surveyed also felt, the loan size per hectare was too small for tree planting and there may not have been sufficient funds for an agroforestry combination (paras. 5.03.3 and 4). The PCR notes the n-scessity of continually monitoring the appropriateness of loan ceilings. However, it does not analyze the adequacy of the 1979 increase in loan size from P 1,300 per ha to P 1,700 per ha. (iii) landless slash-and-burn farmers who would have wanted loans for agriculture did not qualify for the DBP loans. As a result, the loans often went to absentee owners who disregarded the proposed 80-20 ratio for planting trees and agricultural crops and instead planted the entire area with trees. The 20% agricultural crop cultivation had been planned to provide income to tide the farmers over the long maturation period for the tree crops. Since participants did not need the added income, they spent the entire amount of their loan for growing trees. Although 93% of the tree farmers fully planted their loan areas in falcataria, 7% interplanted part 63- ANNEX 13 Page 4 of their project area with other crops such as coconuts, coffee and bananas using their own financial resources. (b) The original scheme of developing one-fourth of the tree farm area in each of four consecutive years was modified. In practice, 78% of the tree farmers planted their entire area in one year, and the rest completed more than 50% of their planting within the first year. Farmers gave several reasons for not staggering their plantings: a desire to reduce administrative, labor and capital costs; their fear that seedlings would not be available in each of the following years; their belief that maintaining tree crops at one stage of growth is easier than maintaS -g crops at several stages of growth; and the DBP requiremen. that subborrowers clear the entire area of their treefarm -1thin one month after the first loan release in order to avoid loan cancellation (para. 5.03.2). Since many farmers planted the entire area in the first year, most farms are ready to harvest after 8 years. The farmers may produce more than PICOP's yearly needs (because the planting area was over projected in 1975, 76, 77), thus creating a surplus. It is possible that prices may stagnate if harvesting is not carefully controlled with assistance from DBP and PICOP through appropriate harvest control guidance. (c) For the most part, tree farmers followed the 4 by 4 meter spacing for Albizzia falcataria suggested in the appraisal report. How- ever, 22% chose a different spacing, claiming that they did so either because it was easier to take care of trees at another spacing or upon the recommendation of an employee of PICOP or Bureau of Forest Development (BFD) (para. 5.03.5). Spacing recommendations should have been more flexible and based on con- ditions such as their projected survival rate and eventual use. (d) Despite the target of fertilizing twice a year in the first and second years, only a few farmers fertilized at the time of planting and even fewer fertilized in subsequent years. Farmers gave several reasons for not fertilizing as planned: fertilizer was not available, the soil was naturally fertile and PICOP included fertilizer in the potting soil for seedlings it supplied (para. 5.03.6). Fertilizer application should have been under constant review and been adjusted according to results from field trials. Farmers also failed to weed as frequently as advised because they believed falcataria would quickly shade out the weeds. Despite falcataria's rapid growth rate, a number of inspected tree farms did not appear to be well-maintained (Bank's supervision didn't note this, even though weeding practice in the plantation process is one of the most important). The failure to fertilize and weed caused tree 64 - ANNEX 13 Page 5 growth to be less than PICOP's estimate of 250 solid cu u/ha at age 8. Nontheless expected yields will exceed the appraisal estimate of 200 eu a. (e) The DIP branch in Butuan attracted many applicants in that area. This was rather far from PICOP's mill in Bislig and increased transportation costs for PICOP. The Butuan tree farmers also can sell their wood to other companies after having received PICOP's technical assistance. Reacting to this, PICOP restricted the range of its involvement to within a 60 km hauling distance of Bislig. Although a 100 km radius had been envisaged at appraisal, enough smallholders were located within the reduced area to absorb the project loan. PICOP continued to provide technical assistance during the first year of development to those smallholders in the 60 to 100 km band who had been certified by PICOP as eligible for a DBP tree farm loan, before reducing the radius of its operations. 8. Even after deduction of the 25Z equity contribution of the tree farmers, the total costs of plantation development, excluding harvesting costs, usually exceeded the amount of the loan releases. A number of the tree farms inspected did not appear well-maintained, an indication of insufficient loan size. The impact of harvesting cost is too much for tree farmers, since harvesting expenses are not covered by the Loan. Therefore PCR recommends an increase in loan size and a regular review of the ceiling to compensate for inflation (paras. 5.06.2 and 5). Including harvesting expense in the loan is understandable, since harvesting constitutes the largest part of the production cost. Otherwise, farmers who don't have enough capital to cover the cost of hiring a logging company would be forced to give away a share of these profits as payment. If the loan amount is extended to cover harvesting, they can harvest timber at a lower cost. Although the loans for harveting costa; should be checked on an individual basis to see whether or not they are viable, the ceiling review could take place whenever the need arises rather than on a predetermined basis. 9. At appraisal, total project costs through the first harvesting rotation were estimated at US$2.8 million or P 18.9 million, including the subborrower's equity contribution of 25Z of plantation development costs. Total actual expenditures up to December 31, 1980, for the project were slightly lower than the appraisal estimate (para. 5.04.1). 10. Although a loan balance of US$77,719.10 remained at the end of 1981, the balance was disbursed on January 21, 1982. 11. Project benefits for isolated and scattered tree farmers will be less than normal because PICOP is not willing to absorb the higher than normal transportation cost for the logs to be harvested. - 65 - ANNE 13 Page 6 12. Benefits to farmers may also be reduced by having only one customer for their products. One customer may offer a price lower than what farmers could obtain in a competitive market. It is desirable, therefore, that f.rmers can sell to other buyers easily, and in the following Smallholder Tree Farming and Forestry Project it is stated in the appraisal ruport that they have the freedom to sell to other buyers after first informing the company. 13. Generally, however, the project succeeded in achieving its major goals,l which were to: produce pulpwood efficiently, increase the entrepreneural capacity and technical knowledge of smallholder tree farmers, contribute to rural economic development, improve the environment, and promote DEP's institutional development by obtaining reforestation development experience (both technical and administrative). At current prices, discounted gross benefits to tree farmers per hectare are P 7,219.71 assuming a high yield and P 5,775.77 at low yield (paras. 6.02.1-11). This project financed job opportunities for 1,202 tree farmers and had a positive effect on the distribution of income. C. Economic and Financial Evaluation 14. A tree farm is financially viable (i.e., with a projected IRR to tree farmer not lower than 20%) if wages are lower than P 17 per laborer per day and yield ranges from 200-250 solid cubic meters per hectare. Since labor is the main component of project costs, economic/financial evaluation is very sensitive to the wage rate. In general, returns to society exceed returns to the tree farmer. The prescribed silvicultural practices provided an adequate return to the tree farmer only at the low average wage and the reasonable high yield assumption. By typical silvicultural practices, tree farmers are able to earn a good return except when the low yield and high wage assumptions are combined (paras. 7.01.1-7.01.4). 15. Albizzia is known to respond well to thinning, which is being practised by a number of tree farmers. Thinnings in the fourth and fifth years are desirable from the viewpoint of some farmers, because- this creates early revenues and enables them to repay DBP at a faster rate than originally intended. PICOP is taking thinnings only from conveniently located farms. Thinnings yielded about 50 cu ft/ha, giving a gross income of about P 3,900 per ha and a net income cf P 2,400 per ha (supervision in December 1976). Thinnings do not, however, suit the raw material requirements of the processing plant because of the light density and poor strength of Albizzia thinnings. Late thinnings (e.g., in year six) may yield a more suitable wood. 16. The rate of loan processing by the Butuan Branch of DBP fell. This fall is largely attributable to the Branch's loss of 25 staff to the new Surigao Branch, including its only trained forestry appraiser. Left with only one appraiser working on tree farming loans, the branch requested /l See, however, note at the end of this Annex. -66 - ANNEX 13 Page 7 two additional appraisers, but DBP headquarters agreed to send only one trained forester in January 1977 (most likely as a cost control measure). This was inadequate to make up the large application backlog in a reasonable time; therefore, progress towards full commitment of funds was not as rapid as expected. The delay of inspection because of the small staff size could have hurt the farmer's normal operation on each tree farm. Because the delay of inspections could cause the delay of loan releases, the normal schedule for weeding might not have been followed. The delay of inspections could have discouraged the tree farmers and caused the inspectors to lack confidence in their power to judge the tree farm fairly and give proper guidance to-the farmers. In spite of that, demand for tree farm subloans did not decrease. To deal with this problem, preference was given to applicants holding homestead title to their lands, although it had been expected that applicants with less substantial land rights would be eligible for loans. With the establishment of the DBP subbranch at San Francisco, Agusan del Sur, in 1979, administration congestion has been reduced and accessibility to tree farmers has increased. The Bank's strong recommenda- tion to increase staff size led DBP to recruit one professional forester each for the Butuan City Branch and the DBP Head Office. However, the PCR has not mentioned the impact of this action. Considering the seriousness and consequences of the DBP's late recruitment of a limited member of foresters and the resultant large backlogs in subloan approvals, measures to remove these and other processing constraints should be taken at an early stage in a similar situation in the future. 17. Seventy-six percent of the tree farmers surveyed who had difficulty complying with loan application requirements complained that the process involved too much expense, mainly because they had to travel too far and too often (para. 8.01.1). Loan processing procedures have been improved; tree farm loan applications are submitted by PICOP to DBP and completed with PICOP's certification that the respective properties are suitable for tree farming. 18. DBP complied with the loan agreement provision regarding mainten- ance of separate accounts and records for the project and submitted annual status reports to the Bank containing information on disbursements, receipts, subproject locations and loan availability and commitments (para. 8.06.1). D. DBP Performance and Development 19. The supervision mission in January 1977 commented on the poten- tially dangerous Albizzia falcataria canker disease caused by fungus. Although said not to be serious at that time, nonetheless, PICOP has drawn up a joint proposal with the Forestry Research Institute to develop control measures against the disease and PICOP was expected to devote attention to its control. The PCR mentions that 64% of the interviewed tree farmers had no major problems with insects or diseases and only 8% identified either as a major problem. Although isolated disease outbreaks occurred, they were - 67 - ANNEX 13 Page 8 contained because the disease was localized and the affected parts of the trees could be removed. Since this disease rarely affects overall tree growth, damage has been negligible so far. The extra long-run risk of pests or diseases associated with monocultures seems to be low with fast-growing species such as A. falcataria (para. 9.02.2). 20. The report has not touched upon the extent of damage caused by the disease. If 8% of the farmers surveyed considered insects and diseases to be a major problem, more careful analysis is necessary even though Albizzia falcataria have not had serious diseases. The report describes no treatment for diseased trees but removal of affected trees. DBP should work with BFD to monitor and control the spread of disease. E. Conclusions 21. The project successfully achieved the following goals: producing pulpwood efficiently; increasing the entrepreneurial capacity and technical knowledge of small tree farmers; contributing to rural economic development; improving environmental quality; and promoting institutional development of DBP. In addition, the project reached small landholders. PICOP was active in promoting farm forestry by providing a guaranteed market for participants' pulpwood and an assured supply of tree seedlings and extension advice. It also offered participants in the program other agricultural inputs such as seeds, fertilizer and improved breeding livestock. However, the project was not totally successful. Some of the original strategies for implementing the project proved to be too complicated or expensive for the participants (para. 12.03). The major shortcoming of the project was that it did not involve the poorest of the poor, or the landless slash-and-burn farmers. Many of the participants were not smallholder farmers but absentee owners of small woodlots who availed themselves of the investment opportunity. Therefore, the agro-forestry approach was not needed for them. Thus all efforts, including study, must be continued to solve the problems of landless slash-and-burn farmers. 22. Following are the major reasons for the success of the project: there was a well-developed, assured market; the project emphasized technical assistance; close supervision of the tree farmers helped to ensure good results; the project's design was built on the previous experience of both DBP and PICOP in financing smallholder tree farming; and the basic infrastruc- ture for seedling supply and tree growing, harvesting, and utilization already existed in the project area; and it built on simple labor-intensive technology. 23. From PICOP's viewpoint, the project reduced uncertainty in its supply of inputs essential to continued mill operation. To PICOP, small- holder treefarming is a very inexpensive way of establishing plantations with low overhead and labor costs. The project also served to improve the company's public relations (para. 12.05). - 68 - ANNEX 13 Tage 9 24. From the perspective of the tree farmer, the project was generally favorable, although a significant number of farmers declined to participate. When asked whether they would agree to participate in a small project in the future, 38% of the interviewed tree farmers answered affirmatively; 29% declined, saying it depended on the specifics of the project or their own personal circumstances; and the rest did not know. Those who were willing to participate again cited the low input requirements of falcataria; those who answered negatively preferred to shift to other crops such as coffee, rubber or giant ipil/ipil in the expectation of higher net returns. The mean response of interviewed tree farmers was "good" (para. 12.06). 25. In our view, the above points represent the main issues arising during project implementation. We are in agreement with conclusions of the PCR. F. Bank Performance 26. The success of the project indicates that the targets, goals and preagreement requirements set by the Bank were reasonably realistic. Although the PCR mentioned that Bank supervision and field missions were effective in promoting interagency coordination and resolving institutional issues (paras. 11.01-11.05), the project would have benefitted from more frequent and detailed supervision missions. Furthermore, missions should have touched upon agronomic, silvicultural and socio-economic indices. The Bank supervised the project in May 1975, December 1975, and January 1977. The last supervision report recommended scheduling the next supervision mission in December 1977 and including an expert technical review of A.falcataria establishment and husbandry methods adopted at Bislig, but there is no indication that the recommendation was followed, although the preparation and appraisal missions of Treefarming II may have included some supervision of this project. G. Lessons Learned 27. The PCR lists the following as the main lessons learned from the project: the need for periodic re-evaluation of the loan size; the desirability of including financial assistance for harvesting and the institution of measures to resolve harvesting issues; the necessity for adoption of the original model for agroforestry, combining silviculture with the production of other crops and livestock (paras. 1.01-1.09). These are reasonable although the loan amount would need to be reviewed on a specific schedule. The PCR does not, however, mention several very important lessons. First, to reach poor farmers with the original agroforestry model, the practices of DBP (which did not use the loan for non-silvicultural purposes) should be improved by setting the appropriate guidelines to qualify poor farmers. Second, the major problem during the project implementation was inadequate staffing at DBP branch office and a backlog in loan approvals and subsequent releases. Decisive measures to secure staff - 69 - ANNEX 13 Page 10 and equipment to serve the project adequately had to be taken. Also, measures had to be taken to simplify loan processing and to eliminate the need of tree farmers to travel long distances to DBP branch offices. H. Other Matters 28. During the project period, rainfall was exceptionally heavy once in early 1981 when flood-induced landslides caused more problems than the standing floodwaters. There were isolated outbreaks of canker disease, but this was contained and did not affect overall tree growth. About 22% of the interviewed farmers found it hard to protect trees from grazing animals, but there were few problems with illegal logging or land suitability (paras. 9.02.2-9.02.6). 29. Institutional coordination from project formulation through imple- mentation was one of the reasons for the success of this project. DBP's Butuan City branch cooperated with PICOP in initiating and promoting the project and PICOP's performance in providing technical assistance for participating tree farms was good (paras. 9.05.1-9.05.10). Coordination with BFD has had to be improved. Note 30. On March 19, 1982, Agusan del Sur and Surigao del Sur were hit with typhoon "Akang," and treefarms funded under this project were badly damaged. By the estimation of DEP, damage to affected areas was as follows: Area affected: 11,308 ha No. of borrowers: 931 Amount outstanding from affected borrowers: P 10,030,890 As this is not a normally typhoon-prone area and the last typhoon was recorded here in 1945, damage to the project farms could not have been fore- seen. PICOP was able to buy the older trees Jamaged in the typhoon, but could not absorb the younger trees which were not saitable for pulp mill processing. Despite the salvage effort the typhorn considerably eroded project benefits. DEP is attempting to compensate for this somewhat by utilizing part of the undisbursed loat balance to- restructure existing loans and rehabilitate the damaged areas through a program to provide affected farmers with liquidation loans, additional rehabilitation loans, and financing of accrued interest. The program is now being implemented by DBP's Butuan and San Francisco branches, and publicized by both PICOP and DBP. Completion of processing applications for rehabilitation of the damaged areas is targeted for end-June 1984. -70- ANNEX 13 Page 11 Attachment About Overview of the PCR 998PH KEY PROJECT DATA Appraisal Actual on Item expectations current estimates Total Project cost (US$ million) 2.8 2.8 underrun or overrun (Z) Loan/credit amount (US$ million) 2.0 Disbursed - 2.0 Cancelled - - Repaid to - Outstanding to - - Date physical components completed 1980 1980 Proportion completed by above date (%) 100 100 Proportion of time underrun or overrun (%) Economic rate of return (%) 14% more than 14% Financial performance similar Institutional performance similar OTHER PROJECT DATA Original Actual or estimated Item plan Revisions actual First mention in files or timetables - - 12/13/73 Government's application - -- Negotiations - - 5/03/74 Board approval 06/11/74 - 06/11/74 Loan/credit agreement date 06/12/74 - 06/12/74 Effectiveness date 09/09/74 - 09/09/74 Closing date 12/3i1/81 - 12/31/81 (last dis- bursement Jan. 21, 1982) Borrower GOP Executing agency DBP Fiscal Year of Borrower July 1-June 30/ Jan 1.-Dec 31 Follow-on project name Smallholder Tree Farming Forestry Project Loan/credit number 1506-PH Amount (US$ million) 8.0 Loan/credit agreement date January 23, 1978 - 71 - ANNEX 13 Page 12 MISSION DATA No. of No. of Date of Item Sent by Month/Year weeks persons Man weeks report Identification Preparation Preappraisal Appraisal 01/74 5 05/05/74 Total Supervision I 05/75 05/75 Supervision II 12/75 3 days 3 days 12/30/75 Supervision III 01/77 3 days 3 days 03/14/77 Completion * 01/82 09/18/81 COUNTRY EXCHANGE RATES Name of currency (abbreviation) Pesos (P) Year Appraisal year average Exchange rate US$1 = P 6.75 Intervening years average US$1 = Completion year average US$1 = ti.cN cn.o4 f I' trC ti t-NC-r ecr vi C CC C4 i tiC C p Cc tie t ier- :2 fm cl0 ogøti.n.. alj Ag.. AzA i1 -iniøjIA MM M MM M tJjj,L~ t.~~j u v:Uiniiv ý N n ný c.. tvC-r@ :Zet ni2ittttiii RAM t - - -UN C - - 9- i -i 9 9 %.% 9' % Ni C4 leo t fr ~ ~ ~ ~ ~ ~ a 6t Ned ajN3 tfiM d~ ø,, 0 w, L4ø m ffo,m.> "4q m " W W ~4I Z;! *IkCo.e~e t ¶4qCC4e uc . qs~t0ifCC.WN~ -f ... - ii 48 nfrfuWU*ufrfrW ,uflfm*flu Iet eeeeemeeneeeegøk - 73 - Page 2 Ammn~ (5 Millesl) (6/l2/74-12/11/82) amot in C~£- Dis- OM- Date of curay demt Tr omse- ted bsed stamding Sor~ of fr~d. approuvl centracted ga US Naturity interest rate <) (year) antar <mt of re- (millän) NL1e. la pymmnte) PoriE CLurreey (Offletal) AD, 108-? å2/19/7s 2.2 2.2 1984-44 7.70 15.5 R.P. - - - 247-PMl 12/10/75 s 21.7 21.7 1979-90 8.75 34 LP. 21.7 21.7 I 371-P8I 12/26/71 5 8.6 8.6 1984-94 7.70 15.5 R.P. - - - 321-PRI 12/16/77 s 35.0 35.0 1981-92 8.30 15 X.9. c9.4 16.7 11.4 Subtotal 67.5 17.5 41.1 19.4 i0.$ Total 755.3 751. 9.5.1 332.2 Peregn urrncy(Central BUnk) Entrs ~a .E the Philipplnas a. 1 06/20/78 5 75.0 75.0 02/10/15 35 5/16 7 R.P. 75-n 75.0 49.4 2 10/16/79 $ 56.7 56.7 01/30/fl 10 1/8 30 ILP. 16.7 53.9 44.1 3 03/06/80 1 12.5 12.5 05/28/fl 11 7/16 e0 8.P. 12.5 32.5 32.1 4 03/13/8 $ 5.2 5.2 04/20/9 1 3/36 10 8.P. 5.2 5.2 5.2 5 06/02/3 9 1,514.7 6.91l 06/02/90 7.7 30 8.p. 6.8 6.8 6. 6 07/21/ 0 S 78.6 78.C 02/08/90 10 10 ILP. 78.6 78.6 78.4 7 05/23,180 5 20.0 20.0 04/20/89 14 3/16 10 L.P. 20.0 20.0 20.0 8 08/26/80 $ 10.0 10.0 01/30/89 10 1/8 30 R.P. 1n.0 10.0 8.6 9 10/22/80 $ 11.7 11.7 04/20/89 14 3/16 10 L.P. 11.7 11.7 11.7 t0 04/10/81 $ 12.9 12.9 08/30/88 11.25 8 L.P. 12.9 12.9 12.9 11 04/14/81 s 0.9 0.9 02/08/90 10 t0 R.P. 0.5 0.9 0.9 12 04/15,81 $ 0.5 0.5 05/26/88 31 1/8 10 ILP. 0.5 0.5 0.1 13 06/19/81 s 8.1 8.1 04/20/99 14 3/16 10 R.P. 13.1 8.1 8.I 14 07/21/81 $ 54.7 54.7 02/06/90 10 10 ILP. 54.7 54.7 14.7 15 08/31/81 $ 26.0 26.0 02/06/88 12 5/8 7 &.P. 26.0 26.0 26.0 16 09/04/81 $ 19.9 19.9 08/30/88 11.25 8 L.P. 19.9 19.9 39.9 17 09/15/1 s 59.7 59.7 02/06/89 12 5/0 8 L.P. 59.7 59.7 19.7 18 02/05/81 5 25.0 25.0 02/08/92 30 10 &.P. 25.0 25.0 25.0 19 06/10/82 5 98.3 98.3 06/14/92 10 3/8 10 LP. - - 98.1 20 06/24/182 $ 69.6 69.6 0/30/8 11.25 8 8.P. - - 69.6 21 12/27/82 5 35.0 35.0 01/15/92 30 1/8 10 L.P. - - i1.0 Total $ 680.3 687.3 652.7 T 1.514.7 Total Foreign Currency 2.187-1 1.523.4 Local rnA nt CP Milltaa) Lear-Term Ca See. M ra 265 var~os P 1,401.4 - 1989 4.0-14.0 30 mne 1.401.4 1.401.4 892.1 &P Aremant vart~s p 847.6 - 1984 .5 3 i ess 847.6 847.6 1.074.4 Domet£e - other. 1980 p 200.0 - 1988 12.0 8 "e 200.0 200.0 200.0 leeds payoble erles - - 1985 .0 5-10 Z.P. - - 84.8 Progr~s bomdb payablc Vrloms p 7.8 7.8 1978 9.0 10 L.P. 7.8 7.8 1.8 DeP Ceentrystde 8i11 Variom P 3.618.4 3.618.4 l981-86 9.0 1 .P. 3.618.4 3.638.4 1.678.7 orld Sak /d - - - 1975-96 - - Non - - 1.313.1/d PIemaial Mi ttuttaff VarTia« P 6.868.8 6.868.8/d 1986 12.0-15.5 3 Nona 6.868.O 6.868.8 4.222.6 HEn - - - 1972-98 - - fio - - 6.8 an/ - - - 3979/80 - - None - - 3.1/d natimli Goernmnt 1ism 06/26/74 - - varloe - - NOn - - 9. NPAL Vartou~ - - 1980 - 10 lion - - 6.0 Nattoai Trosury-Special Gmaranty Pund 1979 P 7.5 1986 8.0 7 Nme - - 7.5 Othera - P 1.039.9 värloo/ - - Nm 1.047.4 l.047.4 - Sub~etsl 11,501.4 Deposits Special te depooit - - - - 7.0-10.5 - None - - 1.321.7 Other depoesite - - - - 10.0-17.0 - some - - 6.855.1 Private - - - - 9.0-10.. - Nnme - - 343.0 Subtotal 8.127.0 E9uity Paid in capital - - - - - - mne - - 4.265.7 Toral Local Carr- - - 24.094.1 CAND TOTAL (f milliom)fM 3.991.5/d /a ThIrd curremcte realaed at ratem an December 33. 1982, viz.: 9 1.00 - 50.00427: AS .0 - S0.0602. DM 1.00 - S0.4223; KD 1.00 - 53.4602 and Sr '.00 - $0.5010 /b Pied loterest per aes. 'n Consralo rat. of T 1.00 - 30.0045. Td Isclodöd In coosolidated stteent of 1ID and AB eredit line. and thus exleded from grand total. 7l reakden not available. 7T 31.00 - p 10.00. tEPID ~ctober 1983 591affiffix? 2U Op "a P11,p.I12pp 8 (5LOs 998-IR AND 1190-7I FMJZCT 004LITION 110ET rZject4d and Actual Lndtfi and in"eItaant Overattons, 1975-82 17 16 jol-Dec Y______ -111041! CIAn CI C111 j r9 rj rej raj.TWEC11, As. åW Iil Amtual Frejected 998 Aatual 49 0 Actual stuiet 1190 Aetual 1512 Actual Fy - CT -- 7? -- CT - 73 1J84 Actuat Ii 3ttuatl Ateat Ae,,evalS Isdustrial loana 42 730L 338 1,172 1.00i 266 1,412 1.08n 1,670 1,All 1,698 1.402 1,111 2,033 1,484 1,357 1,411 2,121 2.611 1,7A 1,672 3,693 1,984 1,99 1,667 lerdm) (13) ( 95) (184) (52,1 (al) (2) (630) MIA (94) (1,0) (7.hS )07> (I,5 (6 )00 9 (796) (1,041) (010 (1,4A3) (1,475) (gis) (1,011) O.i46 I ti,221) (6O A6VICOILovel Ise"a III sw0 324 éfA 841 23$ 846 '110 6rA 136 840 711 ion I,01I 712 701 PA6I 141 11 1,041 111 Til I .1'»" 1,137 sis Beat *etat* And soer e at lodne 60 1,092 69 230 505 341 130 Ø/A 457 348 130 257 161 130 254 &i0 1I 74n 1,059 274 71$ 1,011 194 410 1033 tdøeAtiomalleau - . - - - /A 2 3 - - - private d.elo~ø't hanke And rral d ba e 9 39 10 25 37 23 33 "/A 45 46 25 66 21 løs 134 168 122 Ill 170 152 184 170 10 330 Ollu,, . .~ . . . a - - - - -lus subtetet "4 ja L IA. 2015. 7UI "I 1.23 I.92 181 3.780 31i 3.43å 3.ø4 : 2 3.0 4,sia8 w,0 LaL& i in L.n 6.746 G7, 4. 11 AU 9t) 71 - 110 5 2389 - 33 402 - 3n 1,317 10 400 1.171 - 300 2,74 600 2,832. vet Ith 19u1t1 Iav.es te) (218) (49) W/A - - (226> (376) (1.317) - - (1,171) (2,74) (2.631) t"LaI Lass and la'estnite 106 i."4 1t 3.021 JLM 4 211 3124 låMi 3.069 alU IL&I 3.443 L N .WI 3.671 2a1j0 4.132 6.62 3.72 4-27? 9.111 3 !a7 A A a!Lo.70 Guarmattea 3 - nit - 700 1.354 286 700 gi 740 1,031 700 740 1,847 700 740 454 740 2,966 4,747 74n 2,211 6,641 74n 2,22 2,188 12tLu2 -kO-hl 16 3 4 ~ M> T 3l 3.11 JJ im im ILLU 4Ji å100 ".3 JAMf 4.L%40 M-ølIL 2.70 6.7'4 1.640 L U.48 & M.1 4.012 6.03 16.tal, 4 414 ALgt4 "g4 DLohuamte i ndutrisl lenes 156 307 323 870 496 421 1,241 1,113 1,420 1,4"9 1,517 1,198 1.191 ina20 .1i0 2,129 i,40 i,916 2,6n iA78 1,40 1,737 I.11 5,85 l,11i ( . rg ue (41) W/A (111) (391) "/A A/A (164) M/A (570) N/A (674) (695) (1,-40) (806) (504> (,)O 8 (851) (1,*00> (3,AS) (47) (1,416) (2,762) (1)> (1,142) (1,and) Altieultterl lodne 186 % 01 113 416 80 355 561 613 634 419 73n 703 701 36 713 52 734 467 154 44 A29 570 94 %,"si 334 Real *stat@ end jo,ernt os d 60 202 649 87 926 447 320 687 439 311 Ise 356 381 130 232 404 223 87 1053 214 MA4 $,903 110 813 1,211 reIVoae daelopnient banke Ad rural hanke 4 30 l0 i1 42 23 21 45 41 46 25 63 63 15 103 100 l63 tis 144 171 14 EAS 170 84 11 aubtotal LL 440 1 2.Is$ .769 :IL 2.147 3.448 2.51 J liL "l 3132. 0 1 0 2436 2 598 1LL76 4.7M 3.914 37 3 » . 410 4 43 10 36 - 92 31 156 - 33 553 - 10 417 30 An ',48 8 4nn 1.34A 600 2,46 ." 011ate: assed .. 42 1.232 l.203 60 840 932 11 36 73 62 30 707 69 1,38 71 - 3,617 733 - 4,a5t 740 3.71< Ad%a5ed m tsarantees - 375 312 ist - 334 35 - an - - 603 - - 564 789 - 3711 LaInaludlag reilosocas og eLatit* MD leam et f -3 Itilige la M1 snd P 324 at1itme u 716. Lb aepteent reftamato eliente' oigting debte to Dat. IhYre breakdown ol lun "ther the industriel ned ogitaltaea le net vatlable, L rotjeted Suaranuee approvnle ed dløboremente ender 1190-r åndSZ ed 1172-f o eriItully opeltied t dellare end cenvrted to poten at the follevinA projeeted ushanAa ratene 1140-P1N 1.00 f 7.00 and 1172-11s 61.00 - f 7.40. At10 nesate lig FEf1PFi38 DnI~1 SAXIK av TSE IP1LIPPINB8 (L(M 41A-VM AND 114fIn ) FRN80n C1It*2 au0E CharacterIsties et 10aa. Aprvd 3415-42 ja 30 fillien? Eg. mant M. Emin wo. i.n No. on 11... EM,.. ne, A mikt x No. NUti 9. weigt 3 m1. sant x I1ates 1338 330.0 30.1 3,841 1.000.4 43.6 3,410 24.3 34.4 2,755 1.836.4 63.4 1.921 1,10.7 36.1 1.626 1.356.6 48.0 1.431 3.610.9 sm.6 1,27 3.694.4 64.9 1,179 1.445.7 48.1 2A1v3teraI 47.303 550.5 22.6 64.736 40.9 34.0 10,684 238.7 30.9 24887 34.1 19.3 17,431 508.5 19.0 13,16 701.4 14.1 13,11 630.3 14.2 16,nin 7in.9 13.7 12.016 53S.I I.3 lal 00tate 4,340 1.057.4 43.5 5,123 448.0 18.1 1.11» 219.4 28.3 3,071 26*.9 9.8 3,81 493.4 18.3 6,4t6 499.1. 1.6 1.193 1.011.1 22.4 9,667 99n.2 17.3 7.321 942.2 27.2 oe6v4m9 s Projts 16 34.1 1.4 30 37.2 2.3 9 21.6 1.4 21 79.6 2.9 I . 2.6 l ? 30.2 4.6 14 41.8 0.9 10 92.3 1.6 30 93.0 3.7 r,,ate de"eløpmet baat 87 29.0 1.2 126 39.8 3.6 59 24.2 3.2 480 1.7 0.1 14.2 3.1 164 115.1 4.1 161 151.1 3.4 153 164.1 1.2 153 220.3 4.3 tural aaa 73 1.1 0.4 8 10.9 0.4 31 3.1 0.4 124 62.6 1.3 11.4 0.4 74 1.8. 3.0 Educattewat aestafme . - 38 6.4 .3 . 2.3 .5 1,064 3.9 n.i 0 .18t 4. 0. 1 ,s; 4.2 0.3 1.,3 7.0 0.3 Total jil j.40 j0.O 73.83 j.477.1 02 Ji0. Q3J I j åi jjæ .767 1h0 j44 2R ? 3 1JMn j .;i.% jeg.4% x3.45i 6.414.7 30 ji.l0 1.6947 ja j2.lm3 ja4L1 jom 52,406 300.3 13.4 74,363 612.3 24.7 14,353 144.9 18.7 29,03 31.2 13.4 33,13 13.5 M.4 14,04 45.2 $0.9 11,14 264.4 3.4 l8,o.0 272. 4.8 14,563 207.2 6.0 30,001 - 300.00 384 29.3 1.2 402 33.4 1.3 303 17,n 2.2 934 76.0 2.1 82 63.1 3.4 2,n3 1631.1 5.7 4,894 344.6 ø.9 1 ,174 S44.8 9.4 4,114 384.4 3i.1 5 10:00,1 200,000 3U 4..3 1.9 39 86.8 3.3 223 33.9 4.4 734 107.0 3.6 7n0 43.1 3.5 786 114.4 4.1 407 131.7 3.0 1.245 181.0 1.3 2,033 38Y.1 0.7 g 200,00 - %o,000 211 86.4 3.6 410 31.? 5.3 7I 36.2 7.3 30 I.1 3.6 1i 71.0 1. 3154 UM9.? 4.3 384 140.6 3.2 'lU 3M.A 9.4 1,03 118.0 0.2 500,001 - 1,000,000 103 831.7 3.3 134 384.7 4.6 68 49.0 4.3 Ill 47.9 3.2 137 98.2 3.7 303 142.3 .4 16 41.1 4. 149 131.4 1.1 1m U3.9 11.4 1,000,0 - 2,000,000 43 82.8 1.4 14 '.3 4.4 31 4.1 5.4 149 86.4 3.2 69 i03.2 3.8 99 144.2 3.3 230 4&..1 9.1 222 414.1 7.3 IN 341.1 4.9 3,000,01 - %,000,000 17 43.0 2.6 ?? .4.0 4.8 4å 140.4 10.9 60 161.3 6.1 79 117.3 .1 64 19k2.7 6.6 36 Is.? 3.4 så 311.1 2.0 s 18.8 3.7 Abv. a.000,000 34 8,743.3 73.8 44 n,343. . 279.6 38.3 41 1,771.4 64.1 40 i,39.A 64.1 54 3,458.3 08.3 al 2,760.3 41.0 44 3,714.3 45.3 62 1,77.4 13.1 j00. j4.L0 J30.43 1.47hR j Jl iLt i! 21Ad l000 jM.18 j.7gdJ jqsL j11J, j.483l"737 46n j n 4.4347 IN0.0 JL"O j .44g 7 Jne.k j j jj40 aMlal j4, m .8M,IA JIMh 10.0 1 1.819 133.3 34.8 1.573 596.8 34. 134 I00. 15.9 4 51 79.6 26.0 688 736.6 28.2 1,740 679.8 24.1 3,073 3.143.5 23.7 3,44 2,248.7 39.5 3,391 1,144.q 33.1 llecoo and Hmstatm Frlwic 654 99.3 4.1 2,647 35.4 2.1 355 49.8 6.4 1,307 307.8 11.1 492 130.2 4.9 833 307.0 l0.§ 1,09 337.4 7.6 1.459 292.9 .1 4 126.1 3.4 C'ayat valley and uata**@ 3,8493 42.8 1.8 5,782 112.0 4.5 992 21.0 2.7 4,319 112.0 4.3 1,391 33,0 1.2 1,716 10.8 2.9 3,262 593.7 13.3 3,Nål 134.t m.4 3,149 45.4 3.4 tettral Lase. 12,.rti 200.1 8.3 1S,40 00. 11.1 2,11 131.1 17.1 4,666 393.2 14.4 1,397 240.1 9.3 1,63 81.8 2.9 1,134 319.5 4.4 1,491 141.2 6.0 1,074 199.9 4. guteatr Lme. 3,190 230.6 10.3 7,939 267.9 10.8 3,540 62.9 8.1 2,350 149.7 6.1 2,036 333.3 12.9 1,746 837.7 31.1 1,73n SS8.9 12.5 1,26 1,034.0 1.3 3,211 467.5 13.5 11&.3 and Maa8ste 2,760 102.4 4.2 4,13 3 2.4 472 34.8 :. 004 46.7 0.7 956 4.9 3.5 1,010 120.3 '.3 043 174.5 3.9 3.131 I33.1 2.4 974 12.1 I.1 6esters Tisa 4,030 43.1 3.3 ,367 13,0 '.% , 87.6 33.3 3,43 :0.6 3.5 2,443 326.3 0.4 3,470 183. 61.5 3,439 413.3 4.1 2,353 142.6 3.2 1,793 134.3 4.7 1astor. eisaya. 4,338 98.3 3.8 9.750 348.0 4.8 3,333 57.4 7.3 4,3M 100.9 3.7 3,843 24.8 1 0.9 1,:30 177:7 6.3 2,803 233.4 4,4 3,244 221.8 4.0 ,333 343.8 5.6 8orthern iadess 4,155 322.4 .0 8, 4u8 494.3 1.0 14 S.6 1.3 2,970 497.' 1E.0 4,737 877.7 4.6 3,073 336.1 4.3 3,393 181.3 13.3 3.014 730. 34 .3,3 713.9 31.2 AtIer Nladas. 10,142 108.4 4.4 34,474 146.8 10.0 5,212 90.5 31.8 7,084 262.7 9.4 6,860 399.3 84.1 s,4W 196.8 6.9 3.339 450.4 th.l 3.334 140.0 6.3 5,711 264.1 7.6 Ttl34.303 JjL ý0 L [OM f 739 3 471.3 IW. 15.114 11J.L 100.0 31.3t4 3,LSJf~ j j&-0 .4 , 0 jL. 3I.713 2.433.8 100.0 J3bmj 4.454,7 10.0 37.843 5144.11 300.0 33Alle 1,61.1 IM.0 La Rot uf refiauleg. ASPIO 04*tokr 1983 01~00MT amR 0F TKR PELIPPINU 1A8 998-ii A1m cfm0-pf) 101101 CO löllf00 10? chaater1ttta at indWLrtll aas Aporuved. ålLtjl laj T i -1 me. l£ " P I I , m . . 11 No At. Z o. At. I ie At.me. .. %12. 9 . t o .I. W .t 11 1o As en l-E. -32. = mha6aa,at.8 i105 30.1 4.1 216 33.8 .1 A8 6 7.6 2.9 147 63.7 4.6 8 86.9 5.8 164 131.7 9.7 161 14.9 3.6 16 114.3 3.2 1i 91.1 .0 severech idastr 4 0.5 0. 1 0.5 6 0.2 0.9 8 2.2 0.8 - 0.8 0.3 - - C4i.rnt preds4ts 4 to.8 32.0 6 84.6 8.4 3 16.0 6.0 5 48.1 3.7 3 85.8 3.4 8 4.0 0.3 3 0.0 - - - Tehae. asmigafatr * 8 4.6 0.3 8 10.0 0.6 T oräp, 4 ardage 8 tvise l8 173.6 13.2 40 73.6 6.8 1 1.9 2.9 13 199.4 11.0 11 3M0.4 13.9 21 45.3 47.6 3 121.4 4.4 1 66.6 18.0 0 104.0 6.2 Appa e 6 o- flaeed prodate 1 2,3 3. 88 14.2 1 .3 43 4.8 8.2 11 1.8 0. 8 A 12. . 0 14 ål. : 19 4. 23 10 33.1 3.0 86 3, 1.6 Lmbr 4 rd prena 1 19.4 3.6 80 82.9 8.3 80 28.6 80.6 l 55.8 3.0 4 63.9 1.0 6 33. 3.4 11 883.4 4.3 0 38.0 0.6 1 al.7 .2 F?rmittr, 6 ftutre :a4fatutr* 73 2 .1 108 80.1 8.0 13 2.2 0.R s9 17.7 1.0 41 13.0 0.9 93 38.6 2.9 40 ,1.0 1.0 133 74.3 2.0 846 33 3.0 paper 8 piper predes 3 0.3 3 . 0.k 1 . 6 4.9 0.3 6 2.9 4.3 9 162.8 12.0 9 19. 7.7 9 1 04.6 1. 1 36. 2.8 MAi1ttq, paliskac & Gllad odset*** 33 1.4 0.2 36 42.4 3.2 39 5.9 2.2 30 35.3 0.6 36 33.3 0.9 38 14.6 1.1 41 8.1 0. 03 186.7 0.9 40 13.7 8.4 Leather 6 latber preduets 21 16.7 2.2 33 7.1 0.7 13 15.7 9.9 89 22.0 1.2 8l 14.3 1.0 1.6 0.1 k8 6.9 0.3 13 83.6 0.1 15 3.7 0.2 Remor puedsata 4 8.0 0.8 3 0.6 3 6.0 3.3 7 2.4 0.3 4 8.3 0.1 6 6.1 0. 4 26.4 ., 4 Må.6 1.8 1 0 10 . 1.6 Chemica 6 eh~tal prode.ts 10 318.6 4.2 6 t0ä.l l .4 6 14.0 s.1 26 23.6 1 .3 84 17.8 7.1 :2 11.1 8.3 89 207.9 6.0 2 97.0 0.6 ä1 9.4 0.6 peattek 6 ceff 8 0.8 - 8 8.5 0.6- --------------- 8 85.6 0.4 - - maeg lle fredn* 42 43.8 ;.8 300 22, 1i 47 9,1 3.4 91 348.8 ] .s m 0 12.8 4.4 50 31.9 2.4 76 91.3 3.0 14 711.8 0. c8 9%.9 1.4 Natal inématrria 24 7.5 1.0 57 21.3 2.0 8 12.5 4.7 31 26.7 8.5 20 219.2 14.5 24 54.3 4.0 13 33.0 1.3 3 124.0 1.4 19 57.9 3.5 NachImary (ocher tOan Gåettråag&O 27 9.2 1.2 t0 12.7 i. t8 3.1 1.2 36 14.0 0.6 26 9.5 0.6 19 14.1 1.9 14 19.3 0.7 15 70.7 1.9 5 1.3 0.1 ffelec mehtur 6 apparatma 20 1.1 3.4 1 9.6 0.4 0 83.0 4.1 33 88.3 0.6 4 1.4 0.3 4 2.0 0.3 88 91.3 3.1 1I 63.1 1.7 4 4.0 0.1 Trauprtation qlipmet f. 4v 8.6 1.1 : h2 71.8 3.1 0 88.6 6.0 886 86.t 0.1 18 32.4 1 98 33.4 1.0 0 49.6 .9 63 31.6 0.9 8 14.0 0. m,traet vaari u8 10.7 1.8 44 333.8 30.4 83 32.5 5,1 37 733.6 40.3 31 Z 88.1 12.3 15 42.8 3.1 30 I 92.2 10.3 30 182.4 22.4 15 644.6 41.1 uhlte !tilictieg 3. 6ervtees (inerIdisg 91p1.9) 1,349 f36.7 1.6 4.384 342.5 31.7 1,32 74.9 .8.2 1,466 263.1 20.0 932 194.8 12.8 496 95.1 6.0 294 613.4 23.6 197 1,063.1 24.8 134 407.1 23.5 .etage 166.et .es 518 1 .7 0.4 666 3.0 0.3 468 4.2 .6 43 3.4 0.3 471 5. 0.3 41 4.6 0.4 413 6.1 0.3 3 1 6.7 . 14 8.9 0.5 Other maattset.1g tadustries 86 8.1 0.3 84 823 8.3 2 6.6 3.0 83 3.2 0.2 2 4.8 0.3 80 0.9 0.7 33 07.6 3.2 89 8.3 0.2 1 4.8 0.3 Total 138 L1U0.0 800.0 b .05 1000 låg aitÅ 100 imL 180,1 O AUJ i.50ll . 2 a18 Lii : 1,M 840. m .4.1 * 60l La I fi. 1.101 3.m.s JUiL. a .i66 , mg,o GCfA LMI Katighet&«151 271.2 37.0 227 331.0 30.6 l88 109.3 41.1 17 5321.7 28.8 166 467.5 32.3 101 340.0 19.2 247 669.0 33.3 266 .030.1 31.p 157 575.9 34.6 2l&Nos a Hgles provånce 63 3.3 0.4 317 14.0 1.3 162 0.1 3.0 861 217.0 15.3 89 87.1 3.8 41 371.6 70.0 71 88.6 7.2 0 19.2 5.1 94 41.9 2.1 cavsas Talley 6 Btanco 383 4.1 0.6 347 4.3 0.4 106 . 0. 1 3 4.1 0. 61 6.6 0.1 116 34.3 .1 66 422.6 6.2 49 88.2 0. 13 3 0.0 1.2 Castrl Leta 632 64.5 9.3 8,630 61.5 4.2 610 3a. 83.1 438 32.7 13.9 288 859.1 80.6 9 41.8 1 48 838.7 0.3 11 68.5 3.4 1 93.6 i.6 mentharm Laes 360 168.7 22.5 b,u 80.3 7.4 863 88.8 4.2 135 60.6 3.6 153 236.6 85.7 146 45.4 40.2 864 61.2 11.0 83§ 824.4 16.9 16 121.8 1.3 6161 6 liiahite 86 08.0 7.7 318 1 4.6 1 .4 96 1 .4 0.6 8ts 36.6 8.0 03 66.5 4.4 18 14.1 5.s 79 886.6 4.0 10 10.6 81 18 19.8 1.2 laitirs 2isaya. 178 27.0 3.4 408 1 0.7 .5 1 45 81.4 1.1 41 10.3 3.9 228 13 2. 2 19.9 1. 1 U 33.4 8.3 18 39.9 0.6 92 41.2 2.1 atetis .aya 302 39.0 5.3 512 56.8 1.3 830 74.3 e. 364 34.6 3.9 3240 77.2 3.8 260 49.4 2.7 81* 60.2 21 18 N.23 .0 310 89.6 2,4 meutbers U adaa. 149 14.2 9.9 9 lj 40.1. 37.2 170 39.3 .et 264 434.6 24.3 19 71.1 4.6 14 I.0 0. 162 '19. 82. 1 666.8 1M.0 76 611.0 3l.1 S Kathers n mia 367 28.4 3.8 683 19.7 3.1 695 16.6 6.2 164 127.2 7.0 383 84.6 12.2 271 17.3 2.8 804 173.7 6.7 46 76.9 2.1 800 44.9 2.8 Ll. im2 1002 MII l.040.4 InKO Lim JLi ICU "7J 3 13 8 04 a i oo. i ail. ! s . e ås is.4 tenn mi J24l a10,9 Inn.O Jaf[ 3a494,9 .8 . a 1JJJ la 00. a .3 2.039 14.4 l.j .472 4 .4 4. 7 ,3 88 23.7 6.9 ,63 3 .5 .6 83 19.7 .3 8.00 15.7 1.2 798 15.7 0.6 06 0.4 429 11.0 0.7 500001 - 100,000 08 6.9 0.0 97 7.5 0.7 64 .3 2.0 141 14.1 0.6 109 I8.3 0. 84 84.3 8.8 806 80.2 0.4 312 0. 16 0 9.0 8.8 100.001 - 200.000 58 6.8 1. 16 8.6 0.6 63 9 .0 1.4 803 26.3 1.1 å8 33.9 1.6 214 30.9 2336 34.8 8.1 18 30.3 0.7 11 19 8.3 200.001 500,000 83 4. 3.7 342 38.0 3.3 31 33.8 3.0 77 26.i 8.5 33 8.6 1.8 34 385 8.3 43 36.0 0.6 83 06,0 .5 ln 15.5 1.3 500.00 - 8,000.000 46 37.0 6. 5 43.0 12 8 8. 4.6 27 20. 4.13 0 1 23 1.5 36 23. 2.0 17 27.9 1.1 32 24.0 0.7 86 38.9 0.1 .0000081 - 2.000,000 31 13.0 1.8 33 31.3 4.6 1 33.8 6.7 40 61.0 4.6 40 68.4 1.9 63 830,2 4.4 10 19.7 3.23 8 31.68 .0 34 48.9 3. 3,000,00 - 5,000,000 7 21.6 3.7 46 1s4.3 14.3 38 13.5 37.6 1 14.6 3.0 82 41.4 3.8 4 24.3 8.6 30 803.6 6.0 41 867.9 0.3 46 001 .3 . Ave 5,000,000 30 174.5 76.6 186 36.3 67.4 1 1805.8 39.8 38 1.350.9 81.6 43 1,681.0 84.7 31 1.007.0 80.6 11 3 71.4 69.5 60 3.3640.9 1.0 35 8.438.2 66.3 reM6 2.368 110.0 800.0 "~ .8.0,04 100-u 3.480 304,1 im im L11J .9LI- IM j 1j.51 0 0.0 12" J lf 1,% .% mc .438 2.68,4 100.0 8.307 3.64. 800.0 3.817 å.7. lon.O6 I.g ofs e reftmattag8. cteoer 1983 k* 0 fä l 'gil r rr P . IN, 1 w w 179 99uý r!p4. o rp --. r1. r.5-4h rI . v r g. b - ...- s~~ ll~IPr [!4. . . 05 w0 rPIU PP? ~0 k w >. 1 - - * *w ~~ rrl~ '. pp II94~a pr44. 5 0. [r - om-0 0 u &6 > w m* ik'i I I1! L' H li - r!b lpw4 m a M*zb .t - I. MMS b r! Il åd99:ø :: '4 4åtåMmå bri i i PHILIPPINES, DEVELOPHBHT BAUnK O THE PILIPPIN28 (LOANS 998-PH AND 1190-PH) PROJECT COMPLETION REPORT Analysis of Arrears Posiion. 1975-82 /a (# million) 1975 1976 1977 1976 1974 1980 1981 1982 Jun Jun De Jun Pec Jun Dec Jun Dec Jun bec Jun Dse Jun nee Loans in Arrears Total no. of loans in portfolio 177,990 247,374 2640597 272,665 276,234 279,966 282,477 283,556 291,481 275,366 288,280 286,518 282,665 257,361 253,121 No. of loans in arrears under 1 year 64,625 128,227 143,590 147,462 135,899 t1,191 92,665 81,342 28,117 29.654 35,135 35,373 32,953 31,883 33,357 As 2 of total loan portfolio 36.3 51.8 54.3 54.1 49.2 39.7 32.8 28.7 9.7 10.8 12.2 12.3 11.6 12.4 13.2 Number of loans In arrears over I year 42,361 48,869 56,340 64,401 87,746 117,075 137,659 145,329 145,831 121,517 124,093 119,183 115,482 100,637 104,124 As 2 of total loan portfolio 23.8 19.8 21.3 23.6 3l.7 41.8 48.7 51.2 50.0 44.1 43.0 41.6 40.9 39.1 41.1 Total no. of loans in arrears 106,986 177,096 199,930 211,863 223,645 228,266 230,324 226,671 173,948 151,171 159,228 154,556 148,435 132,520 137,4681 As I of total loan portfolio 60.1 71.6 75.6 77.7 80.9 81.5 81.5 79.9 59.7 54.9 55.2 53.9 52.5 531.5 54.3 Principal Aftacted by Arrears Total principal outstanding 4,182 6,386 7,824 8,934 9,697 10,305 10,899 11,652 12,39 14,050 16,228 18,591 20,635 21,671 25.229 Principal affected by arrears under 1 year 1,031 2,058 2,48C 3,239 4,337 4,312 4,547 5,064 1,315 1,332 1,774 3,485 1,627 1,649 3,049 As X of principal outstanding 24.7 32.2 31.6 36.3 44.7 41.6 41.7 43.5 10.2 9.5 10.9 8.0 7.4 7.6 12.1 Principal affected by arrears over 1 year 1,218 540 672 717 795 969 1,203 1,557 1,687 2,043 1,868 1,781 1,917 2,111 1,421 As 2 of principal outstanding 29.1 8.5 8.6 8.0 0.2 9.6 11.0 13.3 13.1 14.5 11.5 9.6 9.3 9.7 13.5 Total principal affected by arrears 2,249 2,598 3,161 3,956 5,132 5,301 5,750 6,621 3,002 3,375 3,642 3,268 3,544 3,760 4,470 As 2 of total principal outstanding 53.8 40.7 40o4 44.3 52.9 51.4 52.7 56.8 23.3 24.0 22.4 17.6 17.2 17.3 25.6 Actual Amount in Arrears Principal outstanding 4,182 6,386 7,824 8,936 9,697 10,305 10,899 11,652 12,839 14,050 16,22A 18,591 20,635 21,671 25,229 Arrears up to I year 174 248 324 448 546 603 643 699 346 340 416 361 411 432 746 As Z of principal outstanding 4.2 3.9 4.1 5.0 5.6 5.8 509 6.0 2.7 2.4 2.6 2.0 2.0 2.0 3.0 Arrears over I year 762 403 421 487 554 717 865 1,025 1,126 1,255 1,262 1,143 1,399 1,622 2,634 As X of principal outstanding 18.2 6.3 5.4 5.5 5.7 7.0 7.9 B.8 8.8 8.9 7.R 7.2 6.8 7.5 10.4 Total arrears 936 651 745 935 1,300 1,320 1,508 1,724 1,472 1,595 1,678 1,704 1,810 2,054 3,380 As I of principal outstanding 22.4 10.2 9.5 10.5 11.3 12.8 13.8 14.8 11.5 11.3 10.4 0.2 8.8 9.5 13.4 La Data and analysis given in this Annex should be interpreted in the context of major loan rescheduling and refinancing undertaken by DBP during this period. AEPID October 1983 -so- AlNEX 19 PHILIPPINES DEVELOPMENT BANK Or THE PHILIPPINES (LOANS 998-PR AND 119tWPR) PROJECT COMPLETION IEPORT Analysis of Collection Performance (Loans and anaranteem) 1975-82 (P million) Arrears Amount Total Total Collec- Arrears B as at beg. due due collec- tion in at end I of Tear /a of year in year (A) tion cash (3) of year A 1975 Principal - - - - - N/A - Interest - - - - - N/A - Total - - - - - ,110.0 1976 Principal N/A 959.7 MIA 692.8 440.8 949.1 - Interest N/A - N/A 368.5 368.5 269.4 - Total 1,110.0 959.7 2,069.7 1,061.3 809.3 1,218.5 39 1977 Principal 949.1 980.1 1,929.2 740.2 628.1 949.1 33 Interest 269.4 671.7 941.1 683.6 683.6 453.0 73 Total 1,218.5 1,651.8 2,870.3 1,423.8 1,31L.7 12402.1 46 1978 Principal 949.1 1,395.0 2,344.1 1,983.3 1,983.3 1,301.9 85 Interest 453.0 939.3 1.392.3 928.0 928.0 647.5 67 Total 1,402.1 2,334.3 3,736.4 2,911.3 2,911.3 1,949.4 78/b 1979 Principal 1,301.9 1,390.0 2,691.9 1,781.1 791.2 1,574.8 29 Interest 647.5 1,193.1 1,840.6 1,173.1 704.9 583.0 38 Total 1,949.4 2,583.1 4,532.5 2,954.2 1,496.1 2,157.8 33 1980 Principal 1,574.8 1,551.8 3,126.6 2,468.6 870.3 1,070.5 28 Interest 583.0 1,566.0 2,149.0 1,593.4 827.0 782.1 38 Total 2,157.8 3,117.8 5,275.6 4,062.0 1,697.3 1,852.6 32 1981 Principal 1,070.5 1,976.9 3,047.4 2,878.3 1,464.1 1,234.7 48 Interest 782.1 2,264.1 3,046.2 2,063.4 957.0 820.0 31 Total .1,52.6 4,241.0 6,093.6 4,941.7 2,421.1 2,054.7 40 1982 Principal 1,234.7 3,640.6 4,875.3 2,639.5 1,870.2 3,531.9 38 Interest 820.0 2.268.5 3,088.5 2,253.1 1,126.5 1,503.1 36 Total 2,054.7 5,909.1 7,963.8 4,892.6 2,996.7 5,035.0 I8 /a Year is financial year, ending June 30 in 1975/76 and December 31 in 1977 up to 1982. / Prepayments were made by various companies, e.g., Marinduque Mining and Industrial Corporation P 616 million and National Power Corporation P 107 million. P 397 million Is represented by refinancing approved for 15 accounts. Excluding theme elements, collection ratio would be 481. AEPID October 1983 ANNEX 19 - 81 - Table 2 PHILIPPINES DEVELOPHENT BANK OF THE PHILIPPINES (LOANS 998-PR AND 1190-PH) PROJECT COMPLETION REPORT Analysis of Collection Performance (Loans only) 1975-82 (P million) Arrears Amount Total Total Collec- Arrears 3 as at beg. due due collec- tion in at end 2 of Tear of year in year (A) tion cash (3) of year A 1975 Principal 1 - - - - N/A N/A Interest - - - - N/A N/A Total 576.1 - - - - 561.7 NIA 1976 Principal N/A N/A N/A 9.4 309.4 475.6 N/A Interest N/A KIA N/A 3o8.5 368.5 269.6 N/A Total 561.7 637.4 1,199.2 677.9 677.9 745.0 57 1977 Principal 475.6 584.9 1,060.5 466.9 466.9 646.6 44 Interest 269.4 671.7 941.1 683.6 683.6 453.0 73 Total 745.0 1,256.6 2,001.6 1,150.5 1,150.5 1,099.6 57 1978 Principal 646.6 755.9 1,402.5 1,525.0 1,525.0 860.6 In9 Interest 453.0 939.3 1,392.3 928.0 928.0 647.5 67 Total 1,099.6 1,695.2 2,794.8 2,453.0 2,453.0 1,508.1 88/b 1979 Principal 860.8 786.8 1,647.6 1,465.6 715.9 876.6 43 Interest 647.5 1,193.1 1,840.6 1,173.1 704.9 583.0 38 Total 1,508.3 1,979.9 3,488.2 2,638.7 1,420.8 1,459.o 41 1980 Principal 876.6 988.2 1,864.8 1,554.1 785.8 875.5 42 Interest 583.0 1,566.0 2,149.0 1,593.4 827.0 782.1 39 Total 1,459.6 2,554.2 4,013.8 3,147.5 1,612.8 1,657.6 40 1981 Principal 875.6 1,188.3 2,063.9 2,352.8 1,237.6 874.0 60 Interest 782.1 2,264.1 3,046.2 2,063.4 957.0 820.0 31 Total -1,657.7 3,452.4 5,110.1 4,416.2 2,194.6 1,694.0 43 1982 Principal 874.0 1,849.8 2,723.8 2,068.8 1,637.6 1,963.0 60 Interest 820.0 2,268.5 3,088.5 2,253.1 1,126.5 1,503.1 36 Total 1696.0 4,118.3 .5,812.3 4,321.9 2,764.1 3,466.1 48 /a Tear is financial year, ending June 30 in t975/76 and December 31 in 1977 up to 1982. /b Prepayments were made by various companies, e.g., Aarinduque Mining and Industrial Corporation P 616 million and National Power Corporation P 107 million. P 397 million is represented by refinancing approved for 15 accounts. Excluding these elements, collection ratio would be 48%. AEPID October 1983 - I2 - lai'lE 2 rae I of 2 D..EU8~SLUIIT AR OP THE I82L1PPEIhB (LOMIS 998-Ii aN 1I90-NI) proete ad Aodited les etataata 1975-82 (9 stlien> 1975 1976 2977 1178 T17772~ ^CC 998 Act 99H 8850 CE ACt 1590 ACE 1572 AkC 1190 at ii72 AC m cm (en CT) (C) (f) c) lucoe fiteret - lea 264.0 267.6 331.4 415.5 401.3 525.1 391.4 62D.2 784.6 703.2 789.9 800.3 1.16B.5 973. Eanmg fmdS. ed lecuritlew 14.1 70.3 9.4 1800.7 11.2 108.3 314.0 106.3 120.1 10.8 115.8 124.4 178.3 138.3 Ni1eella.ne-u bank f-es 46.4 55.8 67.6 382.7 83.7 75.4 199.7 83.1 99.0 99.0 199.1 189.8 883.9 4.3 other t.cea. 45.9 187.2 m8.5 2m.7 217.3 59m5 26.5 88.1 189.3 239.0 2q.7 266.4 898.O 117.8 Teta Inem 1. 430.4 580.9 513.7 922.4 e13. 904.7 931.6 199.2 1,173.4 .192.0 1.134.5 1,310.7 1j485.3 1,11.9 Expn Enteret aed other fInancial expe-.. 270.6 339.6 306.1 502.0 Så. 639.7 669.2 127.5 842.6 R27.9 O09.5 96.6 1.024. 1.314.4 Provlatn for centieuenclee 5.0 - 5.0 - - - - - - - - - - Sler~ ad other paemanel .epense 49.4 11.3 36.8 54.7 63.7 fA.8 57.9 75.4 83.2 BILL 61.4 93.9 93.1 ..5 Other ad~stttete eepe.e 41.7 78.1 50.3 6.0 80.1 71.7 71.7 801.4 86." 104.1 79.4 92.6 96.9 .9 Total lkpeenc 3M8.7 448.5 i8.4 621 _64..N 790.2 778. .90.3 1.010.6 I.107.6 952.1 1,152.8 1.205.2 8.136.1 8e1 Operttee Iae- 61.7 112.1 95.3 300.9 128.9 124.4 852.8 94.8 162.8 134.4 186.2 15.O 654.3 157.8 Le-: Proeetor tw 1 te. (17.7) (25.7) (27.03 (29.9) (24.2) <18.0) (42.2) <6.53 (24.5 (31.8) (53.) (19.7) (90.8) <28.5) Pr~eelo for deehtf.l ecoete - (15.0) - (.0) (20.0) (17.0) (.0) <6.0) (20.0) - (5.0) - (27.4) - -get Ien~ 44.0 71.4 66.3 26M. 84.7 89.3 101.8 82.3 120.3 103.3 125.7 188.9 136.l 133.3 Ap rprettaee Treneer te p.Id-I. e-pitel - 86.3 - 53.2 88.9 - 21.2 8.8 23.7 20.7 23.8 N.A 67.2 26.7 S.rpl.. - 57.1 - 212.1 - 89.3 84.4 36.5 - - l(5.6 8.A 15.8 - 96eerw f.r leretb exa. ne riek - - - - 16.9 - - .8 23.7 20.7 - M.A 67.2 26.7 Ree for c~tlgeie. - - - - s0.n - - 26.5 70.9 62.0 - IN.A 85.- 79.9 Total ApprePrttenes - 714 - _266.0 4 89.3 101.8 82.3 11N.3 103.3 25.7 f.A 136.8 133.3 Botten 1. La of oeege tol oeo.te GrMee r. .8 0.9 8.9 10.8 8.6 ." 8.9 ?.9 8.3 @.2 9.3 0.3 9.7 9.0 fteMncIal eepe-.. 5.1 5.3 5.1 3.9 3.7 8.6 6.2 1.7 3.9 .9 6.6 6.1 5.9 6.7 Admnustratle eipa 1.7 2.0 1.8 1.4 1.3 1.3 1.2 1.4 1.2 1.3 1.2 1.2 1.1 1.3 Total eepeoes 7.0 7.2 7.2 7.1 7.2 7.1 7.4 7.1 7.1 7.2 3.7 7.1 7.0 8.0 Euro.. betor. pre~elten for imeoe to. 1.3 1.7 1.7 3.5 1.3 1.0 . 0.7 1.1 1.0 1.5 1.0 2.6 5.0 facoaw betor. t-o ad other Pr~latee 1.3 2.0 1.7 1.5 1.4 1.1 1.3 n. 1.2 1.0 1.5 1.0 2.7 5.0 II. Met I.em. - 2 of: A-arag. e~ety 2.2 3.1 3.6 11.4 3.9 3.7 4.0 3.7 4.8 3.6 6.4 3.9 9. 4.1 Share epitel 2.3 6.1 3.7 13.3 4.3 4.3 5.0 3.6 6.3 4.2 8.6 4.4 10.7 6. AEDO October 1983 ANNEX AO Page62 of 2 1979 1980 1R981 1982 1190 Act 1572 Act 1572 1984 Act 1572 1984 Act 1372 1984 Act (FY) (CY) (CY) (CT) (CT) Income Interest on loans 967.6 1.086.3 1,343.3 1,177.3 1,561.6 1,670.1 1,653.0 1,R62.8 2,112.3 2,170.1 2,2RB.4 2,378.4 2,410.3 Earnings on funds and 116.8 162.6 245.3 175.9 287.7 240.6 250.7 336.3 317.0 229.7 383.2 412 n 231.8 securities Himcallansous bank fees 197.1 165.2 148.1 79.8 182.2 181.7 140.1 235.3 212.5 140.1 277.3 24R.7 191.9 Other income 33.3 249.8 278.3 534.0 229.1 435.4 629.9 246.0 566.1 879.9 262.7 735.9 1,562.6 Total Income 1 1,134.8 1,663.9 2,015.0 -,967o 2.260.6 2,527.8 2,673.7 2,680.4 3,207.9 3,419.7 3,211.6 3,71s.0 4,395.6 Expenses Interest and other financial expenses 952.4 1,249.9 1,188.8 1,437.5 1,351.2 1,909.4 2,062.8 1,530.9 2,410.2 1,899.7 1,661.3 2,781.4 3,831.4 Provision for contingencies - - - - - 36.0 - - 40.0 - - 45.0 - Salaries and other personnel expenses 65.1 136.9 104. 169.5 117.7 231.4 215.4 132.3 313.5 247.5 14R.7 400.8 255.4 Other edinTitrative expenses 69.1 8z.4 105.4 60.8 224.2 103.3 109.4 123.4 138.4 107.6 13.4 191.7 127.4 Total Expenses 106.5 1,469.2 1,399.0 1,.8 1,583.1 2,280.1 2,387.6 1,759.6 2,9n2.1 3,315.9 1,943.4 3,40.9 4,293.9 Net Opeting Income 208.3 194.7 616.0 200.3 677.5 247.7 216.1 920.8 305.8 103.7 261.2 356.1 102.6 Leass PovIson for income tax (61.8) (30.7) (110.3) (22.3) (135.5) (27.7) (14.9) (184.2) (33.8) (4.4) (253.6) (39.2) (14.7) Provision for doubtful accounts (5.0) - (25.9) - (o.7) - (48.0) (32.3) - - (35.1) - - L Net Income 141.5 164.0 479.8 177.9 515.3 220.0 223.2 704.3 272.0 108.7 979.5 315.0 117.3 Appropriations Transfers to paid-in capital 28.3 N.A 96.0 35.8 103.1 44.0 44.6 140.8 54.4 21.7 195.9 63.0 23.5 surplue 113.2 N.A 287.8 45.4 308.8 28.0 136.3 416.1 27.8 - 575.5 71.4 - Reserve to& foreign exchange risk - N.A 96.0 34.1 103.0 44.0 15.4 140.9 54.4 - 195.9 63.0 23.7 Reserve for contingencies - N.A - 62.8 0.4 103.2 26.9 6.5 135.4 87.0 12.2 117.6 70.4 Total Appropriations 141.5 N.A 479.8 177.9 515.3 220.0 223.2 704.3 272.0 108.7 979.5 315.0 117.3 Ratios -.Am 2 of average total asset. Gross income 9.3 9.0 10.2 9.9 10.1 10.6 t0.9 10.7 11.6 11.3 11.S 12.2 11.0 Financial expenses 6.7 6.7 6.0 7.2 6.1 8.0 8.4 6.0 8.7 9.6 6.0 9.0 9.6 Administrative expenses 1.l 1.2 1.1 1.6 1.0 1.5 1.3 1.0 1.8 1.4 1.0 2.1 1.2 Total expenses 7.8 7.9 1.1 8.8 7.1 9.5 10.0 7.0 10.5 11.0 7.0 11.1 10. Income before provision for income tax 1.5 1.1 3.0 1.1 2.8 1.0 1.1 3.5 1.1 0.3 4.3 1.1 0.2 Income before tax mud other provisions 1.5 1.1 3.1 1.1 3.0 2.n 1.2 3.7 1.1 0.3 4.6 1.1 0.2 II. Net Income as I oft Average equity 4.6 4.9 11.4 5.0 10.3 5.5 5.7 11.9 6.0 1.7 13.9 6.3 2.4 Share capital 6.0 5.6 13.5 6.1 13.1 6.9 7.2 16.1 7.8 2.3 20.1 8.4 2.8 /a Includes noncash income as follows 1979 - P 607.9 as 1980 - P 1,088.7 at 1981 - P 1,752.6 a; 1982 - P 1,130.8 m. Lb No appropriations were made on the basis of the financial year in 1978 and 1979. AEPID October 1983
World Bank Group · Project Performance Assessment Report
Philippines - First and Second Industrial Investment and Smallholder Tree - Farmers Projects
View original document
The full text is hosted by the publishing organisation. lawenc.com indexes the metadata and links to the official source.
Back to article viewFull text
Key facts
Organisation
World Bank Group
Document type
Project Performance Assessment Report
Country
Philippines
Source
World Bank