Announcement of World Bank Lends Six Hundred Fifty Million US Dollars to Mexico to Support Exports and Decentralization, and Regional Development on March 27, 1991

FOR IMMEDIATE RELEASE World Bank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A.* Telephone: (202) 477-1234 BANK NEWS RELEASE NO. 91/62-LAC Contact: Ciro Gamarra (202) 473-8721 WORLD BANK LENDS $650 MILLION TO MEXICO TO SUPPORT EXPORTS AND DECENTRALIZATION AND REGIONAL DEVELOPMENT WASHINGTON, March 27, 1991 -- The World Bank has approved two loans to Mexico, totalling $650 million, to assist a program of decentralization and regional development and an export sector reforms program. The first loan, of $350 million, will benefit about 5 million poor people in the states of Chiapas, Guerrero, Hidalgo and Oaxaca. The second loan, of $300 million, will support policy changes to make the trade. financing more efficient. The $350 million loan was made to Nacional Financiera and the executing agency will be the Secretariat of Planning and Budgeting. The loan will contribute to the reduction of poverty in Mexico's four most disadvantaged states, through a program of decentralization and regional development. The main objective of the project is to increase the access of poor and indigenous populations to basic infrastructure, social services, larger markets, and agricultural technologies. Seven million poor people (about one third of the country's total) live in Chiapas, Guerrero, Hidalgo and Oaxaca, constituting about 65 percent of the population of these states. The four states have large disadvantaged Indian populations, and a concentration of poverty among women and children. The project fits with the World Bank's emphasis on poverty alleviation in Mexico and incorporates the lessons learned from 15 years of experience in rural development in the country. The policy reforms include changes in the revenue-sharing system, improvement in state fiscal systems to make them more equitable and efficient, and devolving functions to states and municipalities like construction and maintenance of rural roads, small irrigation systems, primary schools, etc. About $274 million of loan proceeds will finance investments in infrastructure projects (rural roads and rural electrification), productive projects (agriculture, forestry and agroindustries), and social projects (education, water supply and sewerage systems). Some $43 million will finance an environmental preservation and archeological protection program, including the protection of the Lacandona reserve, the last remaining tropical rain forest in Mexico. NOTE: Money figures are expressed in U.S. dollar equivalents. 2 About $18 million of loan funds will finance an institutional development program to strengthen project executing agencies (mainly in the agricultural and road sectors), state and municipal planning and budgeting systems, and the state and municipal entities to assume additional administrative functions. The remaining $15 million will be available for future allocation among this three components. The project provides funds for civil works and materials; furniture and equipment; training, studies, and technical assistance. The total investment program is estimated at $1.4 billion for the next four years. . The balance will be provided by the government of Mexico ($771.7 million) and by the beneficiaries ($241 million). The World Bank loan will be disbursed over six years. The project will help reduce by about 40 percent the gap in access to roads, schools and other basic social goods of the populations in the four states, as well as improve economic opportunities to the most indigenous rural populations. In addition, the project will generate about 230,000 man-years of employment in public works. The $300 million export sector loan was made to the Banco Nacional de Comercio Exterior (BANCOMEXT) which will provide credit lines to exporters for pre- shipment financing including acquisition of inputs, fixed assets and permanent working capital, mainly through the commercial banking system. The loan is part of a program of World Bank support to the government's objectives of promoting efficient private sector development and increasing the effectiveness of public sector institutions so as to enable the resumption of economic growth. The loan will support implementation of trade and custom reforms aimed at encouraging efficiency and expanding the tradeable sector, and the transition of BANCOMEXT to a more efficient role in trade financing in a more competitive financial system, and provide financing for that role. About $25 million of loan proceeds will support implementation of policy changes and $275 million will finance the trade-related credit. The loan will be disbursed in three equal parts of $100 million. The first part, including the $25 million for policy reforms, will be available upon loan effectiveness. The second part will be available after January 31, 1992 and the third part after July 31, 1992 after reviews of the program. The loan is expected to be fully disbursed by December 31, 1993. The benefits from the project are expected to be significant. Continuing liberalization of trade and strengthening public administration of trade will improve resource allocation and expand trade. The transition of BANCOMEXT to a more efficient institution will improve and expand trade-related financing Both World Bank loans will have the guarantee of the United Mexican States. The loans are for 17 years, including five years of grace, with a variable interest rate, currently at 7.73 percent, linked to the cost of the Bank's borrowings. They also carry an annual commitment charge of 0.25 percent on the undisbursed balances. -0o-