El Salvador - Third Highway Project (supplementary)

RESTRICTED FILE COPY Report No.p -571 This report was prepared for use within the Bank and its affiliated organizations They do not accept responsibility for its accuracy or completeness The report may not be published nor may it be quoted as representing their views INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMEN REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED SUPPLEMENTARY LOAN TO THE REPUBLIC OF EL SALVADOR FOR THE REVISED THIRD HIGHWAY PROJECT November 14, 1967  INTERATIOtNAL BANK FOR RECONSTRUCTION AD DEVEPINPtMT REPORT AND RECOMUMDATION OF THE PRESIDENT TO TEE EXECUTIVE DIRECTORS ON A PROPOSED SUPPLEMTARY LOAN TO THE REPUBLIC OF EL SALVADOR FOR THE REVISED THIRD HIGIh PBOJECT 1. I submit the following report and recommendation on a proposed loan in an amount in various currencies equivalent to US$2.8 million to the Republic of El Salvador. PART I - HISTORICAL 2. The Bank and IDA have financed three highway proje^ts in El Salvador; the first two, a Coastal Highway Project and a Feeder Road Program, were financed by the Bank and have been satisfactorily completed. an IDA Credit of US$8 million, the only one to El Salvador, was ma.de in 1962 to finance the foreign exchange costs of the Third Highway ProJect. The project consisted of improvement, reconstruction or construction of seven trunk roads and four feeder roads, maintenance reorganization, and engineering services. In 1964, after the growth of traffic had been much faster than expectedn the Government asked that funds allocated to finance the construction of the feeder roads be released to upgrade the design standards of two of the trunk roads, deferring the construction of the feeder roads to the next stage of the highway development pro- gram. This change was approved by the Executive Directors on December 23, 19645 but it was never formally ratified by the Salvadorian au- thorities. Once the engineering design of the feeder roads was well advanced and the benefits accruing from their early complet'ion becamne increstsingljr apparent, the Government decided to retain them in the project3 and to proceed with their construction. I agreed that there *es a good case for constructing the feeder roads but-that the financing requested would have to be in the form of a Bank loan. 3. Negotiations were held in Washington during the week of December 13, 1965. The Government was represented by the AmAbassador of El Salvador to the United States, Rarn6n de Glairmont-Duefias. 4. Presentation of the loan to the Executive Directors has been delayed because of the need for the Government to obtain authorization from the National Assembly which in El Salvador is a constitutional re- quirement, The Appraisal Report, first prepared in November-l965, was updated by a mission that visited El Salvador in August 1967.  - 2- The proposed loan, the eighth to El Salvador, would increase the Bank1s total lending to El Salvador to US$53 million (net of cancel- lations). DA has made one Credit of US$8 dillion. The fol.oweing is a sumnary of Bank loanls and MDA credits to EL Salvador as at Octo'cer 31. 1967: ___________________________Amount (Us$ milion) Ioan or Credit Year Borrower Purpose Bank IDA Undis- _umber bursed 22 1949 Comisi6n del Rio Lempa Power 12.5 nil 104 1954 Republic of El Salvador Roads llol nil 216 1959 Republic of El Salvador Roads 5.0 nil 221 1959 Comisi6n del Rio Liempa Power 2.7 nil 263 1960 Comisi6n del Rio Lempa Power 3.4 nil 31 1962 Republic of El Salvador Roads 8o0 lr2 342 1963 Comisi6n del Rio Lempa Power 6.o nil 358 1963 Administraci6n Nacional Tele- - de Telecomunicaciones commmni- - cations 9.5 1.0 Total (less cancellations) 50.2 8.0 2.2 of which has been repaid to Bank and others 20 04 Total now outstanding - 29.8 Amount sold 3.6 - of which has been repaid 2.6 1.0 _ Total now held by Bank - and IDA 28.8 8.0 Total undisbursed 1.0 l12 2.2 6. -ix Bank loans have been fully disbursed. Disbu.rsements under loan 358-ES are proceeding satisfactorily. Disbursements under Credit 31-ES have been slower than expected due to revisions made to the pro- ject and because of the uncertainty regarding the availability of ad- ditional financing. On September 15, 1967 the Executive Directors agreed to postpone the Closing Date to December 31, 196'7 and also agreed i.n principle to a further postponement provided the proposed supplementLary loar would be approved and signed before Deceriber 31, 1967. It is now expected that Credit 31-ES will be fully disbursed by Novem- ber 1, 1968 and, as a corollary to the ap?lementzry loon nou proposed, the Closing Date of Credit 31-ES .ill be postponad to that dateQ  -3- 7. IFC has no outstanding operations at the present time in ESl SalvadorO. A $140,000 investment in radustrias Te:ti'es, Se. A, made in 1959, imae paid brack in l962, 8. An education project in El Salvador has already been appraised and it is expected that a loan 1j.J.l be presented to the Executive Directors withip tlc next