Mexico - Industrial Restructuring Project

Document of The World Bank FOR OFFICIAL USE ONLY A1 /3 o 1 7 - /H1 Report No. 7293-ME STAFF APPRAISAL REPORT MEXICO INDUSTRIAL RESTRUCTURING PROJECT MARCH 24, 1989 Trade, Finance and Industry Division Country Department II Latin America and Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (As of December 31, 1988) Currency Unit = Peso (Mex$) US$1.00 Mex$2,200.00 Mex$1,O000 US$0.45 Fiscal Year January 1 - December 31 We!ghts and Measures Metric System Abbreviations ACF Average Cost of Funds ANAPROMEX National Flower Industry Association ANIQ Asociacion Nacional de la Industria Quimica (National Association of Chemical Industries) BANCOMEXT Banco Nacional de Comercio Exterior (National Bank o,c Foreign Commerce) CEPROFI Certificado de Promocion Fiscal (Tax Promotion Certificate) CONASUPO Compania Nacional de Subsistencias Populares (National Basic Foods Company) DCR Domestic Content Requirement DRC Domestic Resource Cost ERR Economic Rate of Return FERTIMEX Fertilizantes Mexicanos S.A. (Mexican Fertilizer Company) FICORCA Fideicomiso para la Cobertura de Riesgos Cambiar4os (Trust Fund to Cover Foreign Exchange Risk) FIRA Fondo Institucional de Recursos Agropecuarios (Institutional Fund for Agricultural Resources) FONEI Fondo de Equipamiento Industrial (Industrial Equipment Fund) FRR Financial Rate of Return GATT General Agreement on Tariffs and Trade GIRA General Interest Rate Agreement (Between Mexico and the Bank) IMIT Instituto Mexicano de Investigaciones Tecnologicas (Mexican Industrial Technology Institute) INA Instituto Nacional de Autopartes (National Autoparts Institute) LIBOR London Interbank Offered Rate MFA Multifiber Agreement  FOR OFFICIAL USE ONLY MEXICO STAFF APPRAISAL REPORT INDUSTRIAI RESTRUCTURING PROJECT Table of Contents Loan and Project Summary ......................... i - iii I. SECTORAL CONTEXT ................... I1 A. Industrial Sector Competitiveness . B. vernment Restructuring Strategy. 2 C. Bank Assistance Program .6 II. SUBSECTOR-SPECIFIC RESTRUCTURING STRATEGIES . . 7 A. Textiles .8 B. Autoparts .12 C. Agro-industry ..................... 17 D. Other Subsectors .20 III. THE PROPOSED LOAN .21 A. Project History .21 B. Project Objectives .21 C. Project Description ..................................... 21 D. Loan Amount .24 E. Financing Plan .24 F. Institutional Arrangements .24 G. Relending Terms and Conditions .25 H. Disbursements .28 I. Procurement .28 J. Retroactive Financing .29 K. Monitoring, Reporting and Auditing .30 L. Justification and Risk .30 IV. RECOMMENDATIONS. 30 This report was prepared by Messrs. Eberhard von Loehneysen, Carlos Corti, LATTF; J.J. de St. Antoine, LA2AG; Ira Lieberman and Leonard Jordan, Consultants, following two missions to Mexico in November 1987 and January 1988. The report was updated by Mr. Neil Hughes after negotiations. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  -2- LIST OF ANNEXES 1. Long-term Government Strategy for the Textile Industry 2. Long-term Strategy for the Automobile and Autoparts Industry 3. Proposed Financial Instruments 4. Outline for a Technical Assistance Program 5. Borrower and Executing Agencies 6. Key Indicators for Project Implementation 7. Selected Data and Documents Available in the Project File 8. Estimated Schedule of Bank Loan Disbursements 9. Supporting Tables Industrial Sector 1. GDP by Sector 1980-86 2. Index of Manufacturing Production by Sector 3. Gross Domestic Product of Manufacturing Industry 4. External Trade Financial Sector 5. Assets and Liabilities of the Banking System (Banco de Mexico) 6. Assets and Liabilities of the Banking System (Commercial Banks) 7. Assets and Liabilities of the Banking System (Development Banks) 8. Nominal and Real CPP Rates, 1978-87  - i - mco INDUSTRIAL RZSTR