Nicaragua - Grain Storage Project

ZIV -J- AF1 RESTRICTED No. P - 24 [UE CO'PY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATIONS of the PRESIDENT to the EXECUTIVE DIRECTORS on the PROPOSED GRAIN STORAGE LOAN TO NICARAGUA October 23, 1951  INrERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTOfS OQ THE PROPOS7D LON TO NICARAGUA 1. I submit the following report and reconmendations on a request from the Government of Nioaragua for a loan of-$550,000 for a grain storage project. PART I - HISTCRICAL When the loans for highway,construction and agricultural machinery were submitted for the consideration of the Executive Directors in June 1951, mention was made (see President's Report, R-457) of the preliminary stage at which the Bank Mission had found the grain storage project and of, the action which was being taken to complete the preparation of the projects 3. The report of the FAO expert, which was favorable, was followed up. b, the submission of a detailed project by the Nicaraguan Government. 4. Negotiations on this project were opened at the Bank on October 8, 1951. Representing Nicaragua were Dr. Guillermo Sevilla-Sacasa AmbassadQr to the United States, and lMr. Alfredo Sacasa, Commercial Cpunsellor 4t the Nicaraguan Embassy. PART II - DESCRIPTION OF THE PROPOSED LOAN Borrower 5. The Borrower would be the Government of Nicaragua. Purpose 6. The purpose of the loan would be to provide foreign exchange for the importation into Nicaragua of a complete grain storage plant, with accessory equipment, and its installation in Managua* Amount 7. The loan would be in the amount of $550,000. Terms 8. The loan would bear interest at the rate of 4-3/8% per annum, including the statutory commIi3sson of l%.  -2- 9. The commitment charge would be 3/4 of 1% per annum and would accrue from the Effective Date of the Loan Agreement, or from February 15, 1952, whichever would be the earlier. 10. Amortization would be by semi,-annual payments of principal commenc- ing September 15, 1954, and calculated to retire the loan by maturity on iIarch 15, 1962. I11. I consider that the proposed schedule for the repayment of prin- cipal and the rate of interest and other charges in connection with the proposed loan are reasonable and appropriate. Legal Instruments 12. A draft Loan Agreement between the Bank and the Republic of Nicaragua is attached as Appendix I. The ProJect 13. The proposed plant is a small but complete terminal grain elevator equipped to receive, clean, dry, fumigate, aerate, temper, store and ship shelled corn, paddy rice and beans. The grain will be received and shipped in bags in accordance with local custom, but will be handled by the plant in bulk. Nicaragua prodduces two crops.a year and the plant will be able to handle 12,000 tons a year with a storage and elevator capacity of only 6,100. tons. 14. The Ministry of Economy, which will operate the plant,-will buy damp, uncleaned grain from farmers at harvest time, through local buyers, and sell dry, clean grain pome months later to food dealers. Any surplus at the end of the season will be held for emergencies or exported. To ensure that the plant handles enough grain to operate efficiently, "the grain will be bought at slightly higher prices and sold at slightly lower prices than those of the speculative grain dealers (see paragraph 16 bolop).. 15. In addition to the normal operating costs, including labor, power and amortization of loans, the plant must absorb the shrinkage of 15% of weight of corn and 9% of weight of beans due to drying and cleaning, Present buying and selling prices in Nicaragua allow ample margin for this shrinkage. An important objective of the operators of the plant will be'to narrow the spread between buying and selling prices to the lowest point conpiatent with business-like operation of the plant. Justification for the Loan 16. Corn (maize) and beans, the chief food crops of Nicaragua, grow well in the west and in normal years are produced in sufficient quantity to supply local needs and provide a small surplus for export. Nevertheless, the country suffers from recurring shortages of these commoditiep and from widely fluctuatipg prices owing to the fact that from 20 to 30 per cent Of the amounts produced is lost each year from spoilage caused by molds and  -3- insects. In the damp tropical climate of Nicaragua, grains contain a high percentage of moisture'at maturity. Unless the moisture 'content is reduced quickly and the dried grain stored in air-tight containers, spoilage begins within three weeks. Farmers have almost no facilities for drying and storing and are forced to sell their crop as soon as it is gathered for whatever it will bring. Speculators buy the damp'grain, store it in containers scarcely better than those of the farmers and gamble that a rise in price will offset their loss from spoilage. The result is a low price to farmers, a high price to consumers and a food supply of low quality. 17. In addition to stabilizing the supply and price of food in M4anagua, the plant will serve as a pilot for additional grain processing in Nicaragua, will improve the quality of food consumed and, through savings from spoilage,' will increase the quantity and quality of grain available for export. - 18. The report on the proposed loan by the Committee provided for in Article III, Section 4, Paragraph (iii) of the Articles of Agreement i attached as Appendix II. PART III - PROSPECT OF FULFILLNENT OF FINANCIAL OBLIGATIONS 19. The economic survey of Nicaragua (R,-456) circulated to the Board in June 1951, at the time of the preceding loans to Nicaragua, is still valid in its general conclusions. 20. Since the beginning of June, Nicaragua has borrowed $4.7 million from the Bank and $660,000 from the Export-Import Bank. The present loan would bring the total to $5.91 million, as compared with the figure of 46 6.5 million which, on the basis of the economic survey, the Bank has used as a guide to the additional external debt that Nicaragua could safely assume in the short run. 21. Since July 1951, a member of the Bank.'s staff has been in Nicaragua, as Special Representative of the Bank, together with an engineer also from the Bankts staff. They will remain in Nicaragua for an extended period to aid in rehabilitating the Government's financial and administrative organization and to help in establishing conditions for sound economic development. The reports on their initial period of operations have been very encouraging.'and there are good reasons to believe that their mission will give satisfactory results. 22. In the light of the above considerations, it is my opinion that the Government of Nicaragua would be in a position to meet its obligations under the proposed loan, and that, in making this loan, the Bank would be acting prudently in the interest'of the Republic of Nicaragua and of the members of the Bank as a whole.  - 4 - PART IV - CO1PLIANCE WITH THE ARTICLES OF AGREEMEN 23. I am satisfied that the proposed loan would comply with the require- ments of the hrticles of Agreement of the Bank. 24. I am also satisfied that, in the prevailing market conditions, Nicaragua would elsewhere be unable to obtain a loan of the amount required on reasonable terms. PART V - RECOOMIENDATIONS 25. I recommend that the Bank make to the Government of Nicaragua a loan for $550,000 for a grain storage project, on the terms and conditions specified in the draft Loan Agreement attached hereto. Eugene R. Black October 23, 1951 President  STATUTORY LOAN C O1T.IITT = REPORT To: The President,..Int,ernational Bank,for Reconstruction and Development Report of Loan Committee under Article III, Section 4(iii), of the Articles of Agree- ment on the proposed loan (Grain Storage Project) to Republic of Nicaragua The undersigned Committee, constituted under Article V, Section 7, of the Articles of Agreement of International Bank for Reconstruction and Development (hereinafter-called the Bank) hereby submits its report pursuant to Article. XII Section 4(iii.); of said Articles in respect of the proposal that the Bank grant to the Republic of INicaragua a loan in the principal amount of $;550,000. The purpose of said-loan is to provide foreign excchange for the acquisition by the Republic of Micaragua of equipment, supplies and services to be used in the construction of a,grain storage plant in ITioaragua. 1. The Committee has carefully studied the rmerits of the proposal to grant such a loan and the purposes to which the proceeds of the loan are to be applied. 2,. *The Committee is of the opinion that the project toward the financing of which the proceeds of such loan are to be applied comes within the purposes of the Bank as set forth in Article I of said Articles of Agreement and that the said project is designed to promQte the development of the  - 2 - productive facilities and resources of the Republic of Nicaragua and is in the interests of the Republic of ITicaragua and of the members of the Bank as a whole. 3. Accordingly, the Committee finds that the said pro- ject merits the financisl assistance of the Bank and hereb7 recommends the sa.d project for such assistance. CO1.21ITTIE: Dated at Washington, D. C. October 23, 1951  INTENATIOINAL' BANK FOR RECONSTRUCTION AND DEVELOP1ENT (DRAFT) RESOLUTION NO. Approval of Recommendations of the President that the Bank grant a loan to the Republic of Nicaragua in the amount of$ $550,000; authorization to President or Vic.ce Presi4ent.or Assistant to the President or Loan Direct'or or Treasurer to execute 1oan Agreement (Grain Storage Project) and other documents relating thereto. RESOLVED: 1. THAT the Executive Directors hereby approve the recommendations of the President, dated October 23, 1951, that the Bank grant a loan to the Republic of Nicaragua '(hereinafter called the Borrower) in the principal amount of $550,0oo (or the equivalent thereof in other currencies), maturing on and prior to March 15, 1962, in accordance with the amortization schedule set forth in Schedule 1 to the form of Loan Agreement (Grain Storage Project) between the Borrower and the Bank which has been presented to the Executive Directors with such recommendations, with interest (including commission) and commitment charge at the rates specified in said'form of Loan Agreement, and upon such other terms and conditions as are contained in said form of Loan Agreement which has been presented to the Execbtive Directors with such recomnendati&ns. ?. THAT the rate of commission to be charged in connection with said Loan shall be'l% per annumA of the Sec:6-27  - 2 - principal amount of said loan frora time to tirae outstanding; that said commission shall be included as Dart of the interest and service charge on said loan and shall be payable semi- annually on the dates for the payment of said interest and service charge; and that the amount of said coamaission so Daid to the Bank shall be set aside in the special reserve as provided in Section 6 of Article IV of the Articles of Agreement of the Bank. 3. THAT the form, terms and conditions of the said form of Loan Ag-reement be, and they hereby are, approved; and 4. THAT the President or the Vice President or the Assistant to the President or the Loan Director or the Treasurer of the Bank be, and each of them hereby is, authorized in the name and oni behalf of the Bank (a) to execute with the Borrower and to deliver a loan agreement substantially in the form of the said form of Loan Agreement presented to the Ececutive Directors, wlth such changes therein as they or any of them shall approve, the execution of said Loan Agreement by any of said officers to be conclusive evidence of his approval of any such changes; and (b) to take any and all such other action and execute and deliver any and all such other documents as they or any of them shall deem necessary or proper in the premises and in order to carry fully into effect the purposes of this Resolution. Sec. 6-27