Bolivia - Ulla Ulla Development Project

FILE |O:y Document of FILE C0pr The World Bank FOR OFFICIAL USE ONLY Report No. P-2197-BO REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN AND CREDIT TO THE REPUBLIC OF BOLIVIA FOR THE ULLA ULLA DEVELOPMENT PROJECT December 30, 1977 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 Currency Unit = Bolivian Peso ($b) US$1 = $b.20.O0 $b. 1 US$0.05 FISCAL YEAR January 1 to December 31 ABBREVIATION AiD ACRONYMS BAB - Agricultural Bank of Bolivia BE - State Bank COMBOFLA - Bolivian Committee for the Production of Wool DPH - Department of Public Health of the University of San Andres FOMO - National Manpower Development Service FOTRAI4A - Alpaca Wool Processing and Marketing Company IBTA - Institute for Agriculture and Technology IDIF - Physics Research Institute of the University of San Andres INBOPIA - National Institute for Handicrafts and Small Industry INFOL - National Institute for the Development of Wool MPSSP - Ministry of Social Security and Public Health SNC - National Roads Service  FOR OFFICIAL USE ONLY BOLIVIA ULLA ULLA DEVELOPMENT PROJECT LOAN/CREDIT AND PROJECT SUMMARY Borrower: The Republic of Bolivia Beneficiaries: The National Institute,for the Development of Wool (INFOL), the National Institute for Handicrafts and Small Industry (INBOPIA), gthe Agricultural Bank of Bolivia (BAB), the National Manpower Development Service (FOMO) and-the State Bank (BE). Amount: Loan: $9.0 million. Credit: $9.0 million. Terms: Loan: 20 years including 5 years of grace at 7.90% per annum. Credit on standard IDA terms. Relending Terms: The Government would onlend US$8.4 million at 12% and US$0.1 at no interest, and make available the remaining US$9.5 million as a grant. Project Description: The proposed project would help set up an integrated system for the production, processing and marketing of alpaca/llama/vicuna wool with the objective of raising the income levels of poor farmers and artisans. It would also complement the directly production-oriented-activities with production support and social infrastructure investment to improve the quality of life of the alpaca/llama farmers in the Ulla Ulla region. The proposed project would finance: (a) alpaca/llama/vicuna development in Ulla Ulla comprising credit to farmers., an. alpaca/,llama research program, a commercial demonstration farm, a vicuna conservation and development,program and,production support and social infrastructure; (b) improvements in the collection.,,storage and processing of alpaca/llama/ sheep wool, including construction of a processing plant and research.. on llama wool dehairing; (c) credit ,ff wool handicrafts development; and (d) administration costs. The project faces the risks associated with the coordination and imple- mentation of a complex project with commercial and social sector components.. The project contains a number of innovate components not tested under field conditions in Boliyia. The project would therefore be monitored very closely. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Estimated Cost: US$ Thousands Local Foreign Total *Alpaca/llama/vicuna Development: Project facilities and technical services (including commercial farm) 2,636 922 3,558 Credit 630 870 1,500 Vicuna conservation program 55 12 67 Sub-total 3,321 1,804 5,125 Collection, storage and processing 2,244 3,527 5,771 Wool Handicrafts Development 1,845 325 2,170 Productive Support and Social Infrastructure 1,614 814 2,428 Project Administration 1,215 611 1,826 Total baseline cost 10,239 7,081 17,320 Contingencies: Physical 355 466 821 Price 4,379 1.528 5,907 Total project cost 14,973 9,075 24,048 Financing Plan: US$ Million Bank/IDA Government 1/ Total Alpaca/llama/vicuna Development 3.5 1.6 5.1 Collection, Storage and Processing 4.9 0.9 5.8 Wool Handicrafts Development 1.4 0.7 2.2 Productive Support and, Social Infrastructure 1.8 0.7 2.4 Project Administration 1.4 0.4 1.8 Contingencies 5.0 1.7 6.7 Total 18.0 6.0 24.0 1/ Of which EEC is expected to provide $2,q million, for items to be determined.  Estimated Disbursements: (US$ Million) FY79 FY80 FY81 FY82 FY83 Annual 3.6 5.9 3.4 2.7 2.4 Cumulative 3.6 9.5 12.9 15.6 18.0 Rate of Return: The overall economic rate of return of the project is estimated at 25%, excluding the social infra- structure and some of the technical assistance components. Appraisal Report: Report No. 1708a-BO dated December 27, 1977.   REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN AND CREDIT TO THE REPUBLIC OF BOLIVIA FOR THE ULLA ULLA DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed loan and credit to the Republic of Bolivia for the equivalent of US$9 million each to help finance an integrated development project for alpaca/llama farmers, with special emphasis on alpaca/llama/sheep wool marketing and processing, and wool handicrafts. The loan would have a term of 20 years, including five years of grace, with interest at 7.90% per annum. The credit would be on standard IDA terms. PART I - THE ECONOMY Introduction 2. A report entitled "Economic Memorandum on Bolivia" (1546-BO) dated March 23, 1977, was distributed to the Executive Directors. Country data sheets are attached as Annex I. Background 3. Despite the increasing importance of petroleum and natural gas exports, as well as significant mineral deposits, Bolivia remains one of the poorest countries in South America. The majority of its population is engaged in traditional agriculture. Even though Bolivia is one of the world's foremost exporters of tin, only a small part of the labor force is employed in the modern sector. The infrastructure is primitive and the road and rail networks reach only a fraction of the country. The combination of strong traditional ties within the indigenous communities and geographic, health and educational obstacles to population mobility has perpetuated the demogra- phic concentration on the inhospitable 3,000 to 4,000 m high plateau, the Altiplano. About half of Bolivia's population lives a physically, culturally and economically isolated subsistence existence in this region, which is rich in mineral deposits but limited in agricultural potential. 4. The 1952 revolution sought to put an end to the dual structure which had characterized Bolivia's economy since colonial times and to deprive the landowning and mining oligarchy of its economic base. This objective was only partially achieved. Progress was made in eradicating feudal relations, distributing the land and eliminating obstacles to social mobility. The agrarian reform and the nationalization of large mines, however, were followed by falling production. GDP declined in the 1950s and did not recover to its pre-1952 level until 1961. During the subsequent decade, output increased steadily at an average annual rate of around 5%, providing for per capita income increases averaging 2.5% p.a. As a result, GNP per capita, which had  - 2 - fallen by 24% in the 1952-60 period, recovered to its 1952 level by 1970 and was more equally distributed. However, the momentum of economic growth was again lost in 1969/71, when political instability led to declining private investment and deteriorating public finances. The deterioration of public finances reflected a structural problem in the economy. Bolivia's public sector is proportionately one of the largest in South America and a source of livelihood for a sizeable segment of the population. With scarce employment opportunities in the private sector, pressures to expand public employment proved difficult to resist. Large expenditures on wages and salaries, combined with a weak tax system, have limited the resources available for public invest- ment. Moreover, the inability of the public sector to generate adequate savings limited its capacity to utilize available external capital assistance. 5. On coming to power in 1971, President Banzer faced the need to provide jobs for the unemployed and to revitalize investment and growth. Initially, this task was complicated by a sharp deterioration in Bolivia's terms of trade, which produced a weakening in the balance of payments and a further deterioration in public finances, eventually leading to a substantial devaluation in 1972. However, more rational economic policies were put into effect and a more favorable climate for private investment was established. New laws offering guarantees and incentives to private investors, especially in the hydrocarbon field, were promulgated and claims pending from earlier nationalizations were settled. The Government also improved public adminis- tration and the pricing policies of some public undertakings. These policies were successful in increasing private investment and in bolstering the rate of growth. 6. A number of important steps have been taken by the Government to improve the living conditions in both the rural and urban areas. In the urban sector, a new housing bank (BANVI) was created in 1974 to promote and coordi- nate the financial aspects of low-cost housing and infrastructure schemes. In the rural sector, investment is being directed towards integrated rural development projects to provide basic social services, infrastructure, and credit and extension services (see Part III below). More generally, the lack of sufficient public investment projects suitable for external financing, which held back economic and social development in the 1960s, is being over- come thanks to efforts on the part of the Government (see paragraphs 13 below). Recent Economic Developments and Prospects 7. Bolivia's economic performance has continued to be strongly in- fluenced by movements in its terms of trade, which have been particularly volatile in recent years. The sharp increases in petroleum and mineral prices in 1974 resulted in a major terms of trade gain, which led to a dra- matic reversal in the balance of payments and increase in foreign exchange reserves. While GDP increased by about 5%, improvements in the terms of trade helped raise gross domestic income by more than 20%, permitting a substantial increase in both consumption and investment. Moreover, this was accomplished within the context of an unprecedented improvement in public finances. After current deficits in 1970-73, the Central Government achieved savings equivalent to one-third of its capital expenditure. For the public sector as a whole,  - 3 - savings in 1974 exceeded 10% of GDP and covered nearly 90% of capital expendi- ture. On the balance-of-payments side, a near doubling of exports permitted a trade surplus which exceeded US$160 million despite a rapid increase in imports. The current account showed a surplus for the first time in decades and net capital inflows approached US$90 million, nearly four times their 1973 level, as a result of substantially higher loan disbursements to the public sector and increased foreign investment associated with hydrocarbon exploration. Consequently, foreign exchange reserves rose by a record US$124 million. 8. The extreme dependence of the Bolivian economy on its foreign sector was once more brought into focus in 1975 and early 1976 as, with world eco- nomic recession, the country's terms of trade deteriorated and export volumes declined. Mineral exports fell by well over 20% as the weighted average of mineral prices declined by approximately 13%, and shipments of most minerals fell as a direct result of the recession and the unloading of speculative stocks on international markets. The situation was exacerbated by the fact that exportable surpluses of crude petroleum were significantly reduced for the second year in a row due to falling production and rapidly rising domestic consumption of hydrocarbon derivatives. While the export picture was helped by a significant price increase for natural gas exports to Argentina, this could not compensate for the overall decline in export earnings. On the whole, merchandise exports in 1975 declined by 16%. On the other hand, growth of GDP and investment continued unabated as imports rose by about 36% in the wake of the start-up of new public investment projects and the liberalization of imports for consumer durables and motor cars earlier in 1975. As a result, the balance-of-payments current account shifted from a surplus of US$150 million in 1974 to a deficit of US$190 million in 1975. Despite further substantial increases in disbursements of medium-term loans to the public sector, net foreign exchange reserves fell by US$54 million to US$134 million, or about 2.5 months of imports. The weakening of the balance of payments was accompanied by a deterioration of the fiscal situation. The Central Government's current surplus decreased to just about 1.7% of GDP, after reaching 2.6% in 1974, and increased borrowing from external sources and the domestic banking system was necessary to finance growing public investment, even though some public utilities strengthened their financial situation through to increased rates. 9. The authorities, reacting to the weakening of the external sector, took action late in 1975 to tighten imports restrictions. This resulted in a significant reduction of nominal import growth to 2% in 1976 which helped to generate a small trade surplus. A trade deficit of about US$20 million is forecast for 1977 due to a 19% expansion of merchandise imports which could not be offset by the 16% increase of merchandise exports. At the same time, Bolivia continued to attract substantial external capital inflows which enabled it to finance the current account deficit. Uncertainty caused by the presidential election in July 1978 however has created pressure on Bolivia's reserve position in recent months. In response to these pressures and because of rising debt service requirements, the Government is taking measures to implement an overall stabilization plan which would include additional tariffs  on imported consumer durable goods and strict restriction on general purpose foreign borrowing by the public sector's institutions. The authorities have recently created a technical council for public enterprises and issued a Presidential Directive which sets out guidelines aimed at reducing their current and investment expenditures and at improving accounting procedures. Also, tax administration is being made more effective through a taxpayer register, an increase in the number of firms subject to external auditing requirements and changes in indirect taxation. 10. Economic growth prospects over the medium- to longer-term depend on the Government's ability to increase savings and stimulate investments particularly those for developing hydrocarbon, mineral and agricultural resources. Investment in mining and hydrocarbons is accelerating. Inten- sified exploration for hydrocarbons by the state-owned petroleum company and private foreign companies is underway and may lead to significantly increased production and exports of crude petroleum and natural gas, which should permit an acceleration of economic growth towards the end of the decade. Recent exploration results have been fairly positive, i.e. a new oil field with immediate commercial potential was discovered by Occidental Petroleum in the Tita fields in the department of Santa Cruz. Occidental's initial oil production next year is targeted at 10,000 barrels per day, equivalent to 25% of Bolivia's daily oil output. Likewise, Tesoro Petroleum made a gas and petroleum strike in Tarija. The commercial potential of this field however has yet to be assessed. Debt Service and Creditworthiness 11. Bolivia's external debt outstanding and disbursed at the end of 1976 amounted to 1.0 billion and the debt service constituted 18.8% of exports of goods and non-factor services net of investment income abroad. As a result of increased borrowing from commercial banks and suppliers' credits over the last few years the structure of the external debt has worsened. Thus, between 1971 and 1976 the average maturity has decreased from 24 to 14 years, while the interest rate has risen from 4.5% to 7% and the grant element of new loans fell from 36% to 17%. Because of the heavy investment requirements associated with development of the mining and hydrocarbon sectors and the large import content of these investments, Bolivia's trade gap and current account deficit can be expected to rise for the remainder of this decade. As a consequence, the debt service ratio is expected to increase to about 24% by 1980. However, as investments in these sectors come to fruition, exports will accelerate and import requirements of investment will decline. A gradual fall in the debt service ratio is therefore likely in the later 1980s. In view of the nature and growing size of Bolivia's debt, prudence in selecting and utilizing external capital will have to be an essential element of debt management. 12. Bolivia enjoys a substantial resource base in agriculture, minerals and hydrocarbons, which augurs well for continued high rates of economic growth but which will require increasing amounts of external financing for its development. Bolivia can be considered creditworthy for some external lending on conventional terms, provided present policies designed to augment production  in the export sectors - including particularly mining and hydrocarbons - continue, and provided further that the market prospects for Bolivia's major export - tin - do not deteriorate. However, Bolivia's external dependence on a few nonferrous metals and minerals makes the balance of payments particularly vulnerable to market fluctuations and lowers the ratio of debt service to exports that may be considered consistent with prudent debt management. This consideration, together with Bolivia's low per capita income and its con- sequently somewhat constrained capacity to general additional savings, argue for blending lending on conventional terms with some concessional loans. This is particularly the case at a time when Bolivia's capacity to utilize foreign capital to good advantage - its absorptive capacity - has expanded more rapidly than has the safe ceiling on debt on conventional terms. 13. The Government, in pursuing its development policies, is making a serious effort to mobilize domestic resources and to secure foreign resources at the best possible terms to finance the investment program included in its first five-year economic plan. To this end, the Government submitted to the first Consultative Group Meeting for Bolivia held in Paris May 1977 and to the meetings of private international financial institutions which was held immediately after the Consultative Group Meeting, a list of 70 projects and 10 major pre-investment studies. Most of the Governments and International Agencies represented at the first Consultative Group Meeting expressed interest in financing, under concessionary terms and in varying degrees and amounts, many of the high priority projects included in the list. Nevertheless, either because of the large size or the sector, some of the projects were outside the interest of the Consultative Group members and will require financing from the private financial institutions. Moreover, implementation of the whole investment program will require external assistance for high priority projects in excess of the foreign exchange component, in particular, for projects in the agricultural, education, urban and other social sectors where requirements for imported equipment and materials are relatively limited. Although substantially increased suppliers' and financial credits will prob- ably become available, prudent debt management requires that they should cover not more than about a third of the public capital inflows needed during 1977- 80 for meeting a GDP growth target of 6% annually. The remainder should be obtained on softer terms from bilateral and international development financing agencies, including the Bank and IDA. PART II - BANK GROUP OPERATIONS IN BOLIVIA 14. Although Bolivia is an original member of the Bank, it did not obtain any Bank Group funds until 1964. Bolivia's tight budget constraints and restricted capacity to service external debt had limited Bank Group assistance until recently. Apart from a US$23.3 million Bank loan for a gas pipeline, Bank Group operations until FY75 were exclusively through IDA. After Bolivia started to export, in small quantities, natural gas and petro- leum, IDA's lending was reduced, the last IDA credit being the Agricultural Credit I Project in June, 1975. To date, the Bank Group has approved 21 operations for Bolivia amounting to US$275.6 million, of which seven have been fully disbursed. Net of undisbursed balances, Bolivia's debt to the Bank and  - 6 - IDA in 1975/76 represented 7.9% of its public debt. The Bank's share of the service on this debt is about 4%. Both figures are expected to increase marginally by 1980. 15. Bank Group lending to Bolivia has assisted in the development of various sectors. US$27.2 million have been for agriculture where our lending has helped the Government to initiate long term progress for the development of a viable livestock industry, to increase agricultural production and to improve living conditions on the Altiplano, as well as to strengthen the Agricultural Bank of Bolivia as a development institution. The five credits for power projects, totalling US$53.4 million, have been instrumental in modernizing the sector, expanding electricity services, stabilizing the electricity supply and setting up a regulatory agency. Also, a public power company was set up which has been operated in an efficient and financially sound manner. A US$23.3 million loan was made for the construction of a gas pipeline from the Santa Cruz area to the border with Argentina. Two loans and a credit for railways totalling US$75.0 million, of which US$3.3 million were cancelled when ENFE obtained funds from bilateral sources to purchase locomotives, have helped to improve the quality of management, efficiency of operations and financial condition of the national railways. A recently approved aviation development project will assist Bolivia's efforts to develop agriculture in hitherto isolated areas and to provide efficient freight and passenger transportation. Three operations, for a total of US$28.2 million, for medium- and small-scale mining aim at increased production and improved sectoral coordination. A loan for a water supply and sewerage project of US$11.5 million is expected to improve services in the main mining cities and 70 rural communities. A loan of US$15 million for an education and vocational training project will assist Bolivia to develop its human resources in a more effective and rational way. Finally, a loan of US$17 million will help Bolivia to mitigate the serious urban problems in La Paz and improve the living conditions of the urban poor particularly in that city. 16. Because of the narrow scope for private investment, IFC became active in Bolivia only in 1973 through an investment of US$400,000 in a firm producing cables and plastic products. Two IFC investments since then have contributed to the establishment of local market for long-term securities: an equity participation of up to US$550,000 in Banco Industrial S.A. (BISA) in conjunction with a Bank loan of US$10.0 million for the same institution to assist in financing medium-sized industrial and mining enterprises, and US$337,500 in Banco Hipotecario Nacional to assist in the development of mortgage banking. Annex II contains a summary statement of the status of Bank Group operations in Bolivia as of November 30, 1977, and notes on the status of ongoing projects. 17. Remarkable progress has been made in achieving the goals set for Bank lending to Bolivia. On the macro-economic level, the Government has made important strides towards formulating a coherent and consistent set of overall economic policies. On the sector and project level, public services have been improved and the institutions strengthened. The financial position of the railroads and power sectors compare favorably with that of similar entities in other developing countries. Also, during the last two years, the  - 7 - Government has established an excellent record in providing the required counterpart funds for Bank-financed projects. Future Bank lending will con- tinue to support Government efforts to establish' infrastructure necessary for sustained economic development while simultaneously improving the distribution of the benefits of economic growth. In this con'text, recent Bank activities have focussed on the less developed regions and the lower income strata of the population. At present, Bank loans for irrigation, highway maintenance, railways, electric energy, forestry, industry and mining are under preparation. PART III - THE RURAL SECTOR 18. The rural sector plays an important role in Bolivia's economic development. Almost 70% of Bolivia's populat'ion live in rural areas and over one-half of the country's labor force depend on agriculture for its livelihood. Agricultural production accounts for one-fourth of GDP and 12% of the country's export earnings.' Until recently, the bulk of public and private investment for agriculture was channeled to the northern and eastern lowlands which have large reserves of lands suitable for crop production. As a result, commercial agriculture expanded rapidly and standards of living in those areas have shown considerable improvement. 19. By contrast, agricultural production and living conditions of the peasants on the Altiplano and in the Andean valleys have remained stagnant at extremely low levels; 80% of the rural population of the country live in these areas. Agriculture in the Altiplano is based on a few subsistence crops and on the raising of llamas, alpacas, sheep and some cattle. The small scale of farm operations, adverse climatic conditions and low soil fertility impose stringent constraints on the application of modern technology. While there is little scope for expanding land under cultivation, crop yields and livestock production could be increased above the present low standards by improved farming methods, better farmer organization and adequate supply of inputs. The Government is determined to improve the economic and social conditions of the rural poor in those areas, even though it is aware that there can only be gradual and limited progress, given the inherent human and environmental constraints and the relatively poor record *of previous attempts to raise the standard of living in these regions. 20. Generally, previous administrations have attempted to solve the problems of the rural poor on the Altiplano and in the valleys through land redistribution and directed colonization. Land redistribution has largely been limited to the northwestern highlands of the country where it was accom- panied by the abolition of unpaid labor and' the creation of peasant unions. The resulting large number of very small farms constrained growth of produc- tivity and income. Past efforts to promote large-scale migration to the lowlands have not significantly altered rural population densities. The failure of the directed colonization schemes has-been due mainly to the migrants' weak defenses against tropical diseases, their strong attachment to ancestral land and their reluctance to break off their strong community ties.  - 8 - 21. The present administration decided to follow different development approaches. One approach is characterized by the Ingavi Rural Development Project (Loan 1211-BO), which is designed to provide improved production inputs and technical assistance to increase production of traditional crops, forage and milk in areas suitable for rain-fed and irrigated agriculture. Another approach is reflected in the proposed project which is designed for the farmers whose land is unsuitable for crops or cattle, but supports alpacas, llamas and vicunas. Since the wool of these animals commands high prices in the world markets, this land offers potential for development. 22. The present administration has begun to mobilize financial and human resources to implement its development strategy for the Altiplano and the Valleys. A special office to coordinate all the development activities in the Altiplano has been established with the assistance of the UNDP. Concurrently, the Government has begun to reform relevant institutions and to improve sector management capabilities. In early 1974, the two previously separate Ministries of Agriculture and Rural Affairs were merged. A new semi-autonomous Institute for Agriculture and Technology (IBTA) has been recently established to formul- ate priorities for, and carry out research and extension services in, the agricultural sector. IDB is providing IBTA with technical and financial assistance to strengthen its research and agricultural extension programs. PART IV - THE PROJECT 23. A report entitled "Appraisal of Ulla Ulla Development Project," No. 1708a-BO dated December 27, 1977, is being distributed separately. The project was identified in November 1975. Two preparation missions financed by the Organization of American States (OAS) visited Bolivia in July 1976 and November 1976. The appraisal mission visited Bolivia and Peru from March 5 to April 13, 1977. Negotiations were held in Washington on November 28 to 30, 1977 and the Bolivian team was headed by Alberto Valdez, Sub-Secretary, Ministry of Planning and Coordination. 24. The proposed project would be the second Bank Group operation for integrated rural development in Bolivia. It forms part of a concerted, comprehensive effort by the Government, with the assistance of the Bank Group, to find ways of alleviating poverty and increasing agricultural production in the Altiplano. Project Description 25. The proposed project would help set up an integrated system for the production, processing and marketing of primarily alpaca/llama wool with the objective of raising the income levels of poor farmers in Ulla Ulla and the Central Altiplano and artisans in La Paz and Cochabamba Departments. The project would complement the directly production-oriented activities with production support and social infrastructure investment to improve the quality of life of the alpaca/llama farmers in the Ulla Ulla region. The proposed project would finance: (a) alpaca/llama/vicuna development; (bj improvements  - 9 - in the collection, storage and processing of alpaca/llama/sheep wool, including construction of a processing plant and research on llama wool dehairing; (c) productive and social infrastructure in the Ulla Ulla region; (d) development of solar energy devices; (e) credit for wool handicraft development; and (f) administration costs for the implementing agencies. A. Alpaca/Llama/Vicuna Development Project Area 26. The Ulla Ulla region (see map), located in the Department of La Paz, northeast of Lake Titicaca, covers about 300,000 ha of extensive plains at an average elevation of about 4,200 m. About 3,000 families live in the project area; alpaca/llama raising is the principal economic activity. There are some 150,000 alpacas, 25,000 llamas and 600 vicunas. Most of pasture land is community owned; usufruct rights for plots of different quality are rotated regularly to distribute benefits evenly among the members of the community. Areas suited for cultivation are extremely scarce. Employment opportunities are limited to jobs in village administration, and in the few alpaca/llama buying stations. Living conditions are harsh and life expectancy is about 45 years. 27. To date, the project area has received little assistance from the Government and the target population is considered among the poorest in Bolivia. Social infrastructure and health and education services are grossly inadequate. Personal hygiene practices in the project area are deficient; water is contaminated and there are no waste disposal facilities for the local population. Classrooms are damp and cold and lack adequate lighting and drinking water facilities. Due to the deficient education system the majority of local students is ill-prepared to contribute to the development of the local communities. On-Farm Development 28. The project would provide credit to farmers for on-farm development and herd management; about 70% of the funds lent are expected to be channelled to farmers in the Ulla Ulla region, the remaihder to farmers in the Central Altiplano. Subloans would be made to improve traditional animal shearing and wool handling and classifying practices, and to construct facilities for animal husbandry and range management programs; subloans to individual farmers would be secured by chattel mortgages on the animals. The extension services provided under the project would advise participating farmers on better practices, and on the preparation and implementation of farm development plans; veterinary services would also be available. The Experimental Station and Commercial Farm 29. An experimental station and commercial farm would be established on about 4,000 ha which the participating communities have contributed for the use of the project. Initially, the commercial farm would depend mostly on technology already available in the La Raya station in Peru, and later on use  - 10 - technology from the Ulla Ulla research station as it becomes available. The experimental station would be provided with laboratory equipment and facilities for research in parasitology, bacteriology, biology, pasture and nutrition; the station would also experiment on low cost production systems. The tech- nical and economic feasibility of range development under irrigation would be tested on a pilot scale. The commercial farm would serve as a model to local farmers to demonstrate the profitability of a well-managed alpaca/llama raising program and to facilitate the adoption of the development plans prepared by the extension services. Arrangements for the purchase of the alpacas for the commercial farm and experimental station would be made by INFOL(Section 2.07 of the draft Project Agreement). Profits from the commer- cial farm would be shared by the communities in proportion to the land they have donated to the project. Assurances were obtained during negotiations (Section 3.05 of the draft Project Agreement) that, after ten years, INFOL would transfer title to the commercial farm to the donor communities for operation as a cooperative enterprise. The Protection Scheme for Vicunas 30. The implementation of the vicuna conservation and development program is necessary to protect the few remaining wild vicunas from poachers and to learn more about the animal's physiology, reproduction and migration patterns to facilitate expansion of the vicuna population. Vicuna wool is highly priced and increased vicuna population would make possible the commercial exploitation of the animal providing an additional source of income for the Altiplano popula- tion. Currently, there are only about 1,000 vicunas in Bolivia of which an estimated 600 are in the Ulla Ulla National Reserve. The project would provide funds to carry out research on vicunas; to recruit and train addi- tional guards and to provide facilities and equipment necessary to strengthen the existing conservation program. Productive Support and Social Infrastructure 31. One of the project objectives is to improve the living conditions in the project area through a package of complementary components described below to support the expected increase in production and to upgrade the social infrastructure in the Ulla Ulla region. The Government has agreed to maintain and staff the facilities (Section 4.03 of the draft Development Credit Agreement). 32. Roads - Equipment for the construction and improvement of about 54 kilometers of all-weather roads to ensure the unimpeded flow of goods and services to and from the project area and access of project personnel to farmer groups throughout the project area. 33. Solar Energy Devices - Since solar energy is a potentially exploitable resource in the Altiplano, the project would strengthen local facilities and expertise to permit economic utilization of this resource by the local population, particularly for drying, cooking and water heating. The project would provide financing for the purchase of equipment and tools for the workshop presently operated by the Physics Research Institute (IDIF) of  the University of San Andres in La Paz to develop and test solar energy devices that would be at least competitive with conventional methods and readily acceptable to the rural population. It would also provide scholar- ships for training abroad and finance the services of a solar energy expert. 34. Education - The project includes construction of 25 new classrooms, renovation of two existing ones and replacement of the intermediate school in Ulla Ulla. Houses would be built for teachers and textbooks and teaching materials would be provided. 35. Health - Health posts would be installed in 30 villages. Each health post would be equipped with a first aid kit containing basic drugs for treatment of the most common ailments. The posts would be backed up by a six-bed medical post to be built in Ulla Ulla to handle emergency cases. The health facility at Charazani would be equipped to deliver ambulatory and hospital care for the more serious cases. 36. Water Supply and Waste Disposal - Potable water supply and waste disposal facilities would be provided to about 2,000 families in the project area. About 1,200 pumps and 1,000 pit privies would be installed. 37. Promotion of Women - Assistance will be made available to. 2,000 women living in the project area to improve their health, nutrition, home-care practices, education and handicraft making skills. Funds would be provided for the construction and equipment of five Mother's Club Centers and for the recruitment and training of talented local women to become promotion agents. B. Alpaca/Llama/Sheep Wool Collection, Storage and Processing Alpaca/Llama Wool Industry 38. Alpaca/llama wool is gathered from the producers by the Bolivian Committee for the Production of Wool .(COMBOFLA), a state enterprise, the Alpaca Wool Processing and Marketing Company (FOTRAMA), a cooperative, and itinerant tradesmen. The marketing infrastructure is poor, warehouses and transportation are inadequate. Prices for alpaca wool are set by COMBOFLA, but since they are lower than prices in Peru, smuggling of alpaca wool to Peru is considerable. 39. Increasing sales of artisanal products have generated a large demand for yarn which cannot be satisfied. Because of capacity limitations only about half of Bolivia alpaca wool is processed in Bolivia, the remainder is exported in raw form. Only COMBOFLA and FOTRAMA spin alpaca fiber into yarn. Llama wool is not processed industrially in Bolivia, but is spun manually, as is alpaca wool, throughout the Altiplano. Both the FOTRAMA wool processing plant in Cochabamba and the COMBOFLA plant in Pulacayo are poorly equipped and managed. 40. Traditionally, llama wool has been considered inferior to alpaca or vicuna wool because of the mix of coarse and fine soft fibers. The coarse fibers create processing problems and make the texture of the fabric rough and  - 12 - unpleasant. Llama wool is therefore used mainly for blankets and heavy woolen fabrics. To date, very little has been done in Bolivia to develop an appropriate dehairing technology. The technology exists in the USA and Europe. Availability of a practical and economic dehairing technology in Bolivia would have substantial impact on the country's wool industry and the handicraft sector since it would increase the animal resource base for the production of high quality yarn. Wool Collection, Storage and Processing 41. The existing collection network for alpaca and llama wool would be expanded by acquiring additional storage space. Five new gathering posts would be built and adequately staffed and equipped. The facilities would also be used for sheep wool. Vehicles would be provided to reach all production zones and speed up transport of raw materials to the storage facilities in La Paz. Raw materials would be graded and stored in a warehouse to be built close to the processing plant. 42. The project would also finance construction of a new processing plant in La Paz, with a total annual capacity of 300 m tons of yarn in two shifts. The project would provide all equipment, including scouring faci- lities, carding and spinning units, and consultant services. The plant would also be suited for the production of sheep yarn. In the light of the strong demand for alpaca wool, it is expected that the plant would have no difficulty in selling its production to Bolivian and/or foreign users. Llama Wool Dehairing 43. The Government would initiate negotiations for the purchase of dehairing technology and submit a proposal for Bank/Association consideration before June 30, 1978. Assurances to this effect were obtained during nego- tiations (Section 3.04 of the draft Development Credit Agreement). Should the Government be unable to purchase the technology at a reasonable price, a research program would be carried out in Bolivia. In this case the project would finance the cost of constructing and equipping a pilot processing plant, a complete fiber testing laboratory and a qualified and experienced research staff. C. Wool Handicrafts Development The Wool Handicrafts Industry 44. The-Bolivian handicraft industry, particularly wool-based handi- crafts, is a vital source of supplementary income and employment for many Bolivians. The industry generates about US$4 million in foreign exchange per year. The bulk of Bolivian artisans depend on subsistence farming for their livelihood and supplement their income by sales of handicrafts. Textile artisans, however, faced with a permanent shortage of alpaca yarn, lack of credit to purchase adequate equipment, lack of technical assistance and deficient marketing facilities are a long way from realizing the full market potential. Growth of the industry has been slow, but prospects have  - 13 - brightened by the creation in 1974 of the National Institute for Handicrafts and Small Industries (INBOPIA), set up to promote the development of the sector. Handicrafts Development 45. Credit and technical assistance would be provided to help about 3,400 rural and urban artisan families in the Departments of La Paz and Cochabamba to increase production and exports of typical textile handicraft items; subloans would be secured by chattel mortgages. The project would provide for: (a) a US$2.0 million credit line to finance the capital require- ments of artisans working with alpaca/llama/sheep wool; (b) a US$1.0 million technical assistance program to help INBOPIA organize artisan production and marketing groups, promote exports of Bolivian handicrafts, contract the production of radio programs in Aymara and Quechua to inform artisans about the handicraft programs, supervise the training program for the participating artisans implemented by the National Manpower Development Service (FOMO), and assist the State Bank (BE) in the implementation of the artisan credit com- ponent; (c) a US$100,000 purchasing fund to enable INBOPIA to buy and sell some of the handicraft articles produced by artisan organizations in order to protect the producers by sustaining adequate price levels. E. Project Administration 46. The project would provide financing for salaries and overhead costs of INFOL, the agency responsible for project execution. It would also provide incremental administration costs for INBOPIA. Project Cost and Financing 47. The estimated total cost of the project, including contingencies is US$24 million equivalent, of which US$9 million or 38% represent the foreign exchange component. The Commission of the European Community has agreed to participate in the project and will provide a grant equivalent to US$2.0 million to finance local expenditures. Of total project cost, the Government would contribute US$4 million or 17%, the European Community US$2 million or 8%, and the Bank/Association US$18 million or 75%. The proposed loan/credit would finance the estimated foreign exchange cost of US$9 million plus US$9 million local costs. Local cost financing is justified in Bolivia in view of the country's poverty and its intensive efforts to mobilize domestic savings and also because of the importance of the project to the Government's overall strategy in engendering development in the Altiplano. The project costs include provision for 254 man-months of consultant services at an estimated average cost of US$47,000 per annum for a total cost of US$1.2 million equiv- alent. 48. The Government would be the borrower and would bear the foreign exchange risk. Proceeds of the loan/credit as well as the Government counter- part funds would be channeled to the participating agencies. Project funds would be made available by the Government as a grant except for the credit program for alpaca/llama development and for handicrafts, the commercial farm,  - 14 - and for the collection, storage and processing plant facilities. Funds for the credit programs would be onlent to farmers and handicraft producers at 12%; for the collection, storage and processing facilities, funds would be onlent to INFOL for 15 years including 5 years of grace at 12% interest; for the commercial farm funds would also be onlent to INFOL for 14 years, including 4 years of grace at no interest. The Government would make its contribution according to a schedule to be agreed upon with the Bank/ Association. Funds would be disbursed from the Central Bank project accounts only on authorization from INFOL, except for BAB and BE which would be re- imbursed against proof of disbursements on subloans to project beneficiaries. The Central Bank would receive 1/4% on outstanding subloan amounts as compen- sation for its services. Payments of interest and principal from the credit program would be accumulated in the project account and managed as revolving funds. Assurances on the above were obtained during negotiations (Sections 3.01 and 3.02 of the draft Development Credit Agreement). Procurement and Disbursement 49. New equipment for the processing plant (US$2.5 million, excluding contingencies), road construction and maintenance equipment (US$300,000, excluding contingencies) and vehicles (US$261,000, excluding contingencies) would be acquired through international competitive bidding according to Bank/ IDA procurement guidelines. Equipment for llama dehairing research facilities would be procured on a negotiated basis. INFOL would coordinate the require- ments of the participating agencies and issue the calls for tenders. All tender packages for equipment in excess of US$100,000 equivalent would be procured through international competitive bidding in accordance with Bank/ Association procedures. Furniture and office equipment would be procured through local competitive bidding according to local procedures which are satisfactory to the Bank. Procurement of most handicraft and farm inputs would be carried out by farmers through normal commercial channels. Road work would be undertaken by SNC on force account. Civil works contracts would be awarded after local competitive bidding. 50. The Bank/Association would disburse over a period of five years 100% of foreign expenditures for vehicles, equipment, consultants' services and overseas training; and 68% of local expenditures for equipment, materials, civil works, credit and project administration. Organization and Management 51. The project would be executed by a recently created institution, the National Institute for the Development of Wool (INFOL), which will be respon- sible for the formulation of long-term strategies for the development of the alpaca/llama/sheep wool industry and for ensuring an adequate supply of wool to textile plants and Bolivian artisans. INFOL's operating procedures, financial endowment and business purpose have been established by decree, and are acceptable to the Bank/Association. The general manager, already appointed, is an able and qualified professional. He would be supported by a deputy manager and a small core staff of qualified professionals. Assurances  - 15 - were obtained that the Government and INFOL would provide for sufficient incentives to retain qualified personnel (Section 4.04 of the draft Develop- ment Credit Agreement and 3.02 of the draft Project Agreement). An expert in administration and management would be hired for 24 months to assist the general manager. Assurances were obtained that an expert with qualifications and experience satisfactory to the Bank/Association would be employed by July 1, 1978 (Section 2.02(a)(i) of the draft Project Agreement). 52. INFOL would have five divisions: Agricultural Credit and Extension, Planning and Monitoring, Marketing and Processing, Agricultural Credit and Extension and Administration which would be located in La Paz, and Agricul- tural and Social Infrastructure to be set up in Ulla Ulla. The Agricultural Credit and Extension Division would prepare and supervise investment programs and promote the credit program among farmers in Oruro and Potosi. It would also be responsible for organizing courses on alpaca, llama and sheep develop- ment with the local universities and for promoting programs to train Bolivians at La Raya Experimental Station in Peru. 53. The Planning and Monitoring Division (PM) would collect data and prepare annual forecasts for wool production and demand for wool and yarn, and, on the basis of such information, establish minimum selling and purchas- ing prices for wool and yarn to ensure a steady and timely supply of raw materials to processing plants and yarn to artisans, and to keep INFOL self- sufficient. The support price system would be managed through a price stabilization fund under PM's guidance. Assurances were obtained during negotiations that INFOL would submit a detailed proposal to the Bank/ Association for comments not later than October 31, 1978 on the pricing mechanism and the operating procedures of the fund (Section 2.09 of the draft Project Agreement). PM would also monitor the overall progress of the project and other development programs being implemented by INFOL. Assurances were obtained during negotiations from the Borrower that requests for construction of new wool processing plants or expansion of existing capacity would only be approved after consultation with INFOL in order to ensure that plant capacity is consistent with the supply of raw materials (Section 4.05 of the draft Development Credit Loan Agreement). 54. The Marketing and Processing Division (COMPRO) would assume full responsibility for the collection, sorting, storage, processing and selling of wool and yarn to artisans and industrial users. It would not engage in handicraft activities (Section 3.02(c) of the draft Project Agreement). Assurances were also obtained that INFOL would sell to FOTRAMA alpaca wool to meet its annual requirements subject to a ceiling of 50 m tons (Section 2.08 of the draft Project Agreement). COMPRO would also be responsible for the development of a llama dehairing technology, export promotion and establishing and maintaining an efficient grading and quality control system. Assurances were obtained that a consulting firm would be contracted on terms and condi- tions acceptable to the Bank/Association, by January 1, 1979, to provide technical know-how and to implement management control programs as well as to set up a training program for plant personnel (Section 2.02(a)(iii) of the draft Project Agreement). COMPRO would operate the COMBOFLA facilities to be  - 16 - taken over by INFOL. Since COMBOFLA's Pulacayo processing plant would be scrapped once the new processing plant is completed, assurances were obtained during negotiations that INFOL would adequately compensate Pulacayo workers (Section 2.10 of the draft Project Agreement). 55. The Agriculture and Social Infrastructure Division (ASI) will be located in Ulla Ulla. Given the remoteness of the project area from the main centers of population and the harshness of living conditions in the area, the compensation program for the staff in Ulla Ulla would be made attractive. ASI's chief, already appointed, is an able and qualified professional. He would have overall authority and responsibility for execution of the alpaca/llama component of the project. He would also be responsible for the implementation of the social infrastructure components. For the research program, ASI would be assisted by specialists in pasture and forage and experts in animal breeding and production. Assurances were obtained during negotiations that experts with qualifications and experience satisfactory to the Bank/Association would be employed no later than July 1, 1978 (Section 2.02(a)(v) of the draft Project Agreement). 56. To strengthen beneficiary participation, an ad hoc committee would be established in the project area to provide advice on matters relating to programs undertaken under the project, annual investment plans, and any issue which might arise between the participating farmers and project management (Section 3.04 of the draft Project Agreement). 57. A monitoring unit would be set up within ASI to conduct a continuous study of overall project activities and to evaluate project performance in Ulla Ulla. Information collected by this unit together with that of PM would provide a basis for management decisions during implementation of the proposed project as well as for future projects in the Altiplano. Assurances were obtained during negotiations that the monitoring unit would be established by April 1, 1978 and that quarterly progress reports would be sent to the Bank/ Association within two months of the end of each quarter (Section 2.13 of the draft Project Agreement). Implementation 58. INFOL would construct and operate the experimental station and commercial farm, and the facilities for the collection, storage and processing of wool. It would be responsible for the vicuna conservation program and the acquisition of llama dehairing technology. INFOL would enter into contractual agreements with INBOPIA for the handicrafts component; with the National Roads Service, for the road program; the Ministry of Social Security and Public Health, for the health component and the water supply and waste disposal system; the Ministry of Education, for the education component; the IDIF, for the solar energy program; and the Wildlife and National Parks Division of the Ministry of Agriculture for the vicuna conservation and development program (Section 2.03 of the draft Project Agreement). BAB and BE, under subsidiary agreements with the Central Bank, would act as financial agents for the credit components.  - 17 - 59. INBOPIA would be primarily responsible for the handicraft component and in addition to its operational contract with INFOL, would enter into a contractual arrangement with BE, the National Manpower Development Service (FOMO) and local radio stations for implementation of the lending program, training and radio broadcasting respectively. INBOPIA would contract an expert in organization and management, an expert in marketing and fair organization, and short-term consultants in textile engineering and design. Assurances were obtained during negotiations that experts with qualifications and experience satisfactory to the Bank/Association would be employed by July 1, 1978 and the short-term consultants by January 1, 1979 (Section 2.02(b) of thie draft Project Agreement). 60. The National Road Service (SNC) would construct and improve project roads. Annual maintenance of project roads would be carried out by SNC through force account. Assurances were obtained during negotiations that the Govern- ment would maintain all roads in the project area during execution and after completion of the project (Section 4.03(a) of the draft Development Credit Agreement). 61. The Ministry of Social Security and Public Health would be responsible for the construction, equipping and administration of health facilities. Under an agreement with the Ministry, the Department of Public Ilealth of the University of San Andres would be responsible for implementing the health program. Assurances were obtained during negotiations that the Borrower would maintain the health facilities after the completion of the project period (Section 4.03(b)(i) of the draft Development Credit Agreement). The Ministry would supervise the operation and maintenance of the water and waste disposal components. Assurances were also obtained during negotiations that INFOL would contract with the Ministry the carrying out of investigations to determine priority areas to be served with potable water and availability of aquifers, and prepare a plan of operation bef6re purchasing pumps (Section 2.03(b)(ii) of the draft Project Agreement). 62. The implementation of the education component would be supervised by an expert to be contracted by the Project Unit managing the Bank financed Education and Vocational Training Project (Loan 1404-BO). He would be seconded to INFOL and reside in Ulla Ulla. Assurances were obtained during negotiations that the expert's qualifications and experience would be satisfactory to the Bank/Association and that he would be contracted within three months of loan signing (Section 2.02 (c) and (d) of the draft Project Agreement), and that the Borrower would provide adequate budgetary allocations for the maintenance and repair of all buildings and equipment provided under the project (Section 4.03 of the draft Development Credit Agreement). 63. IDIF would implement the solar energy program. Demonstration of the practical uses of solar energy devices would be carried out jointly in selected areas in the Altiplano by INFOL and IDIF. INFOL would contract a solar energy expert to assist in the developing and testing of simple and low-cost solar energy devices. Assurances were obtained that the expert qualifications and experience would be satisfactory to the Bank/Association and that he would be hired by January 1, L979 (Section 2.02(a)(iv) of the draft Project Agreement).  - 18 - 64. The chief of the unit responsible for the Experimental Station in Ulla Ulla would be in charge of the daily operations of the vicuna conser- vation and development program, including coordination with the Wildlife and National Park Division of the Ministry of Agriculture. INFOL would exchange information and experts in this field with Peru, Chile and Argentina. Im- plementation of the program would be facilitated if the ten-year moratorium which expires in 1979 on all killing, marketing and exporting of vicunas' skin or wool is extended. Assurances were therefore obtained during negotiations that the Government would dicuss this matter with Peru, Chile and Argentina and would support the extension of the moratorium beyond 1979 (Section 4.06 of the draft Development Credit Agreement). 65. INBOPIA would provide technical assistance to artisans in preparing investment plans and loan requests for handicraft activity. BE would be responsible for the technical analysis of each subloan. Following approval, BE would supervise the implementation of each investment plan. BE would assume the financial risk and would receive a margin of 3-3/4% on outstanding subloan balances. Assurances were obtained during negotiations on the lending terms and conditions (Schedule 3 of the Development Credit Agreement). 66. INFOL would prepare farm investment plans and loan applications for alpaca herd development and would carry out technical and financial analyses of subloan applications. Applications would be forwarded to BAB for subloan processing, disbursing and collecting. INFOL would supervise the subloans and assist in the implementation of farm development plans. The Government would assume the financial risk and BAB would receive a margin of 2% on outstanding subloan balances for its participation. In order to carry out its responsibility, BAB would establish an office in the project area. Assurances to this effect were obtained during negotiations (Section 3.03, Development Credit Agreement). Project Benefits 67. Annual incremental production of alpaca wool at full development, estimated to be fifteen years, would be about 330 m tons; potential llama wool production after dehairing would be about 800 m tons annually. The average annual family income of a credit beneficiary would increase from less than US$100 to close to US$900. The welfare of the 3,000 families living in the project core area, of which 2,000 are expected to be credit beneficiaries, would improve as a result of better roads, health services, education, and domestic water supply and waste disposal facilities. The provision of training programs for women in the project area would improve their basic skills and housekeeping practices. At full development, the annual incre- mental value of handicraft items produced by about 3,400 families benefitting from the handicraft credits is estimated at US$6.4 million. A typical artisan family with three of its members actively engaged in making alpaca/llama/sheep wool handicraft items could earn about US$1,800 per annum, about twice its present income. We would expect that the institutional framework established and the experience gained under this project would permit the implementation of similar development programs in large areas of the Altiplano, and the extension of the assistance to the wool textile industry to benefit many additional Bolivian artisans.  - 19 - 68. The overall economic rate of the project is 25%, excluding the social infrastructure and some technical assistance components. The economic rate of return is 18% for the alpaca/llama/vicuna development component, the cost of which is US$5.1 million; 30% for collection, storage and processing, the cost of which is US$4.9 million; and 70% for the handicraft component, the cost of which is US$3.0 million. Risk and Uncertainties 69. All technical and institutional aspects of the proposed project have been closely scrutinized during the preparation and appraisal stages to detect and remedy possible risk factors. The analysis included a thorough review of the overall project design to determine the number of components which could be included in the project without overtaxing the implementing capacity of the local staff. The possibility of excluding some of the compo- nents in order to reduce the complexity of the project was given serious con- sideration by the Government and the Bank/Association. Such an alternative was rejected, however, as it was considered that an integrated system of wool production, processing and marketing was necessary to minimize the risk that the economic benefits of individual components would fall short of expectations because of bottlenecks. Also, it was considered that the long-run advantages of balanced socio-economic development in the Ulla Ulla region outweigh the additional administrative burden. It was reasoned that each component com- plemented closely the others and was necessary for helping the project achieve its overall development objectives. 70. Nevertheless, it is possible that delays and problems not foreseen during preparation and appraisal will emerge during project implementation. It is well recognized that the likelihood of such problems occurring is particularly enhanced by the many innovative components of the project. In view of these uncertainties, the project would have to be monitored very closely and modifications may have to be introduced during project imple- mentation as has been the case with the Ingavi Rural Development Project (Loan No. 1211-BO). PART V - LEGAL INSTRUMENTS AND AUTHORITY 71. The draft Loan Agreement between the Republic of Bolivia and the Bank, the draft Development Credit Agreement between the Republic of Bolivia and the Association, the draft Project Agreement between the Bank, the Association and INFOL, the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement of the Bank, the Recom- mendation of the Committee provided in Article V, Section 1(d) of the articles of Agreement of the Association and draft resolutions approving the proposed loan and credit are being distributed to the Executive Directors separately. 72. The execution of the Financing Agreement between the Government and INFOL is an additional condition of effectiveness of the Loan Agreement and the Development Credit Agreement (Section 6.01 of the draft Loan and  - 20 - Development Credit Agreements). Special conditions of disbursement are that: (i) the Borrower's Central Bank has entered into subsidiary loan agreements with BAB and BE, respectively; and (ii) INFOL has made contractual arrangements with INBOPIA (handicrafts), SNC (roads), Ministry of Social Security and Public Health (health, water supply and waste disposal), Ministry of Education (education), IDIF (solar energy), Wildlife and National Parks Division (vicuna conservation and development). 73. I am satisfied that the proposed loan and development credit would comply with the Articles of Agreement of, respectively, the Bank and the Association. PART VI - RECOMMENDATIONS 74. I recommended that the Executive Directors approve the proposed loan and credit. Robert S. McNamara President by J. 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In U0$ million) A.too1 P-o.iei .. a1.ce 1969- 1973- 1976- 1980- NATIONAL ACCOUNTS 1973 1974 1975 1976 1990 1985 1973 1976 1980 1985 1973 1976 1980 1985 Con..tant 1974 Price . OnlllIion UBS C-th4 Rot. A. PerCent of CDY . CGross Boosnetix P-odoot 1,606 1.686 1,787 1.903 2.41? 32 65 4.8 3.8 6.2 6.1 116.3 106.0 105.3 101. Cot -(o Tt,o of Trade (6-225 -_Z -87 -107 -122 -173 . - - -16.3 -6.0 -5.3 -5. C-,.. D....tlo Inc,os 1.381 1,8 Y.700 1,9 .9 ,9 .1 92 6.3 6.1 100.0 10. 10. 100 I~~o0to (Inol. 81703 ~ ~ ~ ~~~'407 519 613 600 812 985 15.0 13.8 7.9 3.9 29.1