Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY Report No. P-2319-PH REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF THE PHILIPPINES FOR A THIRD INDUSTRIAL INVESTMENT CREDIT PROJECT THROUGH THE DEVELOPMENT BANK OF THE PHILIPPINES May 8, 1978 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 US$1 P P 7.40 P 1 I US$0.135 P 1 million = US$135,135 ABBREVIATIONS CB - Central Bank of the Philippines DBP - Development Bank of the Philippines DOI - Department of Industry IGLF - Industrial Guarantee and Loan Fund IPD - Industrial Projects Department LBP - Land Bank of the Philippines OBUs - Off-Shore Banking Units PDBs - Private Development Banks PDCP - Private Development Corporation of the Philippines PISO - Philippine Investments Systems Organization SBAC - Small Business Advisory Center SMI - Small and Medium Industries FISCAL YEAR January 1 - December 31 FOR OFFICIAL USE ONLY PHILIPPINES THIRD INDUSTRIAL INVESTMENT CREDIT PROJECT THROUGH THE DEVELOPMENT BANK OF THE PHILIPPINES Loan and Project Summary Borrower: Republic of the Philippines Beneficiary: Development Bank of the Philippines (DBP) Amount: $80 million equivalent Terms: The proposed loan would have an interest rate of 7.50% p.a. The $30 million of the proceeds of the loan, which would be earmarked for small- and medium-scale industry (SMI) and for establishment of a training institute, would have a fixed repayment term of 20 years, including 5 years of grace; the $50 million of the proceeds of the loan for large-scale industry would be repaid to the Bank on the basis of a flexible amortization schedule reflecting the composite repayment schedules of DBP's subloans. Relending Term: The Government would relend the proceeds of the proposed loan to DBP on the same terms and conditions as those for the proposed Bank loan except that the Government would bear the foreign exchange risk on the subloans for small- and medium-scale industries and for financing the cost of establishing a training institute. The foreign exchange risk ont subloans for large-scale industry would be borne by the subborrowers. DBP would charge an interest rate to subborrowers of 12-14% p.a. plus a service fee of 2% p.a. for loans of more than P 150,000 ($20,300). The maxi- mum repayment period for small- and medium-scale industry subloans would be 12 years, including a maximum three-year grace period. Subloans for large-scale industry would have a maximum term of 15 years, including an appropriate period of grace. Project Description: The project provides long-term finance for the establish- ment and expansion of industrial enterprises of all sizes with the exception of cottage industries. About $50 million of the proposed loan would be earmarked for large-scale enterprises and $29.7 million for small- and medium-scale industry. In addition, about $300,000 would be used by DBP to establish a development banking institute to train the management and personnel of smaller development finance institutions. In addition This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - ii - to providing the resources required for expanding the industrial base of the Philippines, the project would help in further improving the institutional capacity of DBP. There are a number of financial and industrial sector issues which the Government would need to address within the next few years. The degree of success of the Government in addressing these issues would have a significant effect on the development impact of DBP's industrial lending. Estimated ----- ($ million) ---- Disbursements: Bank FY 1979 1980 1981 1982 Annual 9.3 22.7 41.0 7.0 Cummulative 9.3 32.0 73.0 80.0 Staff Appraisal Report: No. 1972-PH, dated April 21, 1978 REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT ON A PROPOSED LOAN TO THE REPUBLIC OF THE PHILIPPINES FOR A THIRD INDUSTRIAL INVESTMENT CREDIT PROJECT THROUGH THE DEVELOPMENT BANK OF THE PHILIPPINES 1. I submit the fcllowing report and recommendation on a proposed loan to the Republic of the Philippines for the equivalent of $80 million. The loan would be at an interest rate of 7.50% p.a. The proceeds of the loan would be relent to t:he Development Bank of the Philippines (DBP) at the same interest rate for on-lending to specific productive small, medium and large-scale enterprises. The portions of the proposed loan ($30 million) for SMI lending and for the training institute would have a repayment term of 20 years, including 5 years of grace; the portion for large-scale industry ($50 million) would be repaid to the Bank in accordance with a flexible amortization schedule reflecting the composite amortization schedules of DBP's subloans. These would have a maximum term of 15 years, including an appropriate grace period. PART I - THE ECONOMY /j 2. An economic mission visited the Philippines in July/August 1977 and its report, "The Philippines: Country Economic Memorandum" (No. 1765-PH of October 26, 1977), was distributed to the Executive Directors under Secretary's Memorandum PHL77-2 on October 27, 1977. A basic economic report, entitled "The Philippines: Priorities and Prospects for Development" (SecM-76/366), was previously distributed to the Executive Directors on May 18, 1976. Macroeconomic Performance 3. During the 1960s, the Philippine economy grew in real terms at an annual rate of about 5-1/2%. However, the rate of growth was less than what might have been achieved if the country's considerable natural and human resources had been utilized more effectively. The benefits of growth were also distributed relatively unevenly, both with respect to regions and income classes. While overall agricultural growth was reasonably satisfactory, repeated food deficits were experienced. The growth of productive employment opportunities failed to keep pace with the expansion of the population and labor force. Low letvels of taxation resulted in inadequate public expenditure for necessary infrastructure and social services. Poor export performance combined with the heavy import dependence of domestic industry led to chronic weakness in the balance of payments. /1 This section of the report is substantially the same as that of the Philippine Investments Systems Organization (PISO) Project (SecM/78-63), which was approved by the Executive Directors on April 27, 1978. - 2 - 4. The growth of the Philippine economy accelerated slightly to an annual rate of 6% in the 1970s. Fluctuations, however, have been significant. In the period 1970-72, when the effects of a balance of payments stabilization program initiated in 1970 were being felt, the economy grew less rapidly, exports and imports of goods and services were roughly equal, and the shares of public and private fixed investment in GNP were stable at still relatively low levels. Economic growth was unusually good in 1973 as sharply higher prices for traditional export commodities stimulated demand, agricultural production rebounded strongly from the natural disasters of the previous year, and the balance of payments registered a substantial current account surplus. The export-led income boom of 1973 was followed by an investment boom. The resulting high investment rate, together with favorable sugar prices, temporarily sheltered the economy from the impact of the oil price increase in late 1973 and the following world recession, and real GNP growth was maintained at 6% in 1974-75. The first half of the 1970s also saw significant structural changes in the economy, the most important of which were an increase in the level of public investment, financed in large part by a greater tax effort, a recovery in export growth, a shift of the domestic terms of trade in favor of agriculture, and the slowing of the population growth rate. 5. The collapse of sugar prices in late 1975, following earlier declines in the prices of other major export commodities, altered the external situation dramatically. The terms of trade dropped by 23% in 1975, and as a result the current account deficit rose to 6% of GNP, and the overall balance of payments deficit to $500 million. Thus, the necessity of restoring balance to the external accounts was superimposed on the Government's longer-term objectives of faster economic growth and a better distribution of its benefits. To maintain the momentum of growth and investment, the Government adopted a policy of increasing capital inflows in the near term to finance the resulting expanded current account deficits while accelerating export growth in the longer term. In 1976-77, the economy - led by exports, public investment, agriculture and construction - has continued to grow at 6% per year. Unfor- tunately, much of the stimulus from an expansion in export volume was offset by further deterioration in the terms of trade. However, inflation, which reached a peak of 31% in 1974 as a result of externally generated pressure on domestic prices, has slowed to a rate of about 7% because of the deceleration in international inflation and a conservative monetary-fiscal policy. Development Strategy 6. The Government's development objectives and policies, which were recently set out in a Five-Year Development Plan for the period 1978-82, call for further acceleration of economic growth, first to 7% and then to 8%. The development strategy focuses on an expansion of more productive employment opportunities at a rate of 3.6% per annum, reduction of income disparities, greater selfsufficiency in food and energy, strengthening the balance of payments, and increased development in rural areas. In addition, the Plan includes strategies for development in each of the country's thirteen regions. In general, the Plan is an elaboration of the policy directions pursued by - 3 - the Government in recent years. It is also broadly consistent with the Bank's basic economic report, although investment, manufacturing output, and exports are projected to grow more rapidly than visualized therein. It should be feasible to accelerate the overall growth rate to 7% as the terms of trade stabilize, but more rapid expansion of manufacturing is necessary to do so, and effort needs to focus on improving the efficiency of investment. Agriculture 7. For a country with fairly good soils and a reasonably literate rural population, agricu:Ltural yields in the Philippines are relatively low. Possible reasons for this situation are the low quantity and quality of irrigation facilities and high vulnerability to weather risks; land tenure patterns; and weak agricu:Ltural credit, extension, and other supporting services. Agricultural production has, nevertheless, grown at an average rate of 4-1/2% per year in the 1970s. The performance of the sector was exceptionally strong in 1976 and 1977, as production increased by 7%, and the Philippines has been virtually self-sufficient in rice, its main staple, for the past three years. / 8. The Government gives high priority to riculture and rural development. It has undertaken a number of step to increase the availability of irrigation and supporting services, and has-/also expanded programs to improve living conditions in rural areas, including rural electrification, health and family planning, and rural roads. However, while irrigation investment has been raised substantially, improvements in the quality of supporting services - particularly credit and extension - are necessary. 9. For historical reasons, land ownership in the Philippines is inequitably distributed. The land transfer program, which has been in operation for five years and covers rice and corn growing areas, proceeded quite rapidly when larger landholdings were the focus of concentration, but progress has been slower recently as the focus has been on a larger number of medium-sized holdings, which often belong to middle-class landowners. As of June 1977, an estimated 120,000 tenants, or 30% of the total tenants under the program, had received Certificates of Land Transfer, which established their claim to the land. Despite the difficulties in the process of implemen- tation, the transfer program remains an important part of the Government's rural development strategy. Industry 10. During the 1960s, Philippine industrialization was promoted by high tariff protection and subsidized finance, and consequently industrial growth was primarily in the area of import-substitution with a high capital intensity. Performance was disappointing with respect to employment, exports, and the overall rate of growth of output. In the early 1970s the Government floated the exchange rate, which then depreciated significantly, and introduced policy changes to reduce tariffs and realign industrial incentives. Further efforts to reduce remaining biases in favor of import substitution and capital intensity will still be needed, however, to accelerate the rate of industrial growth as projected in the Five Year Development Plan. - 4 - 11. Manufacturing industry has grown at a relatively slow average rate of about 6% in the 1970s. Moreover, due to the slow increase in national income and demand because of the decline in the terms of trade in the last two years, manufacturing growth has also slowed, and investment has stagnated. On the other hand, industries producing nontraditional exports have expanded rapidly from a very low base as their exports increased almost fivefold in the four-year period 1973-76 in response to exchange rate adjustment and special measures designed to alleviate existing restrictions on imports and thus reduce the bias towards production for the domestic market. As noted above, further efforts in this direction will be needed if industrial exports are to continue to grow at a rapid rate. The construction industry has also grown rapidly as the expansion of relatively construction-intensive public investment and large tourism investments in the Manila area raised construction expendi- ture from 6% of GNP in the early 1970s to 12% in 1976. Employment, Incomes and Population 12. Employment increased by about 4.6% annually during 1973-76, a considerable improvement over the historical growth rate of 2.4%, and was able to keep pace with the rapid growth of the labor force. Particularly noteworthy was Lhe growth of employment in manufacturing, which essentially stagnated during 1970-74, but grew by 8% annually during 1975/76, resulting in part from the growth of labor-intensive production for export. However, because manufacturing's share of total employment is small, agriculture and services continue to function as residual sources of employment and account for most of the growth in total employment. 13. Preliminary survey data show that the share of income received by the poorest 40% of families, which remained constant during the 1961-71 period, increased from 12% in 1971 to 15% in 1975. The income share of the top 20% of families remained about the same as in 1971, while that of middle income families declined correspondingly. Due to the improvement in agricul- ture' s terms of trade, the growth of agricultural production, the decline in urban real wages following the devaluation in 1970, and the stagnation of industrial employment until 1975, the ratio of the average rural income to the average urban income rose from 48% in 1971 to 57% in 1975. Real per capita consumption increased by about 2% annually in 1971-75. Hence, after allowance for price increases, real incomes in rural areas, where most of the poor live, have probably increased somewhat, while real urban incomes have remained about the same. 14. The population is estimated at 43.3 million in 1976 and is currently growing at 2.8% as compared to a 3.0% growth rate during the 1960s. The Philippines has an active family planning program registering approximately 650,000 new acceptors per year. Although the number of new acceptors has reached a plateau as the program faces the increasingly difficult problem of reaching rural areas, the estimated proportion of married women of reproductive age practicing family planning increased from 20% in 1974 to 25% in 1977. -5- Investment and Savings 15. Due largely to the buoyant export performance in 1973 and the subsequent increase in incomes, investment boomed in 1974-75. Private investment rose from 14% of GNP in the early 1970s to 20% in 1975. Public investment was raised from 2% to 4% of GNP with the growth in revenue from international trade taxes, improvements in tax administration, and improved project implementation capacity. Subsequently, public investment has been raised further to an estimated level of 6-1/2% of GNP in 1977. The private investment rate, on the other hand, has fallen somewhat to an estimated 18% of GNP. Although the private investment rate is well over the 14% average of the early 1970s, the revival of private investment is an important short-term problem. Furthermore, the high incremental capital-output ratio, the relatively modest growth of manufacturing output and employment, and the structural underutilization of capacity in some industries suggest that the efficiency of investment also needs to be improved. 16. Aggregate savings performance has improved during the last decade and is comparable to that: of other countries at a similar stage of economic development. In 1976-77, gross domestic savings maintained the level of 25% of GNP achieved in 1975 aLnd financed about 80% of total investment, with the balance coming from foreLgn savings. In order to increase the efficiency of financial markets in intermediating between savers and investors, the Govern- ment has made significant improvements in financial policy. Organized banking institutions have been strengthened. Interest rates were realigned in 1976 and again in 1977 to encourage a greater flow of financial savings into time and savings deposits relative to short-term deposit substitutes, and to reduce the spread between borrowing and lending rates. Further reforms are required to increase the availability of long-term domestic currency resources. Special credit programs have been adopted to expand lending to the credit-short agricultural e-ctor and rural areas and to serve the needs of medium- and small-scale industries. However, a deterioration of loan recovery rates has been experienced by all government financial institutions and credit programs, creating a difficult policy dilemma. On the one hand, the programs have become costly means of achieving their objectives, and the growth of arrears reduces the overall efficiency of resource mobilization and allocation. On the other hand, the programs do redress imbalances in the availability of credit so that arrears have to be reduced without closing necessary credit channels. Government Expenditures and Revenues 17. Public expenditures and revenues have historically claimed a much smaller share of national resources in the Philippines than in many other developing countries. In the early 1970s, general government expenditure averaged only 12% of GNP, public investment was strikingly low at about 2% of GNP, and tax revenues stood at 11% of GNP. Government expenditures were dominated by general administration and social services, particularly education. This situation had resulted from a variety of factors including difficulties in raising tax revenue and weak implementation capacity in the public sector. Since the early 1970s, the Government has taken steps to - 6 - correct the situation and raise both the overall level of expenditures and the share going to economic services and public investment. By 1977 govern- ment expenditures had reached an estimated 18% of GNP, and public investment, which has risen very rapidly in the last two years, equaled about 6-1/2% of GNP. 18. Recognizing that a large increase in tax revenues would be required to finance expansion of the public investment program, the Government has undertaken a comprehensive program of tax reform to raise the needed revenues equitably and efficiently. In the short term, needed revenues have been raised through revisions in indirect taxes. In the long term, structural changes are to be made to raise the built-in elasticity of the tax system, to reduce distor- tions in economic incentives and dependence on cyclically volatile taxes on international trade, and to improve equity by increasing the proportion of revenues coming from direct taxes. The Government has increased the ratio of domestic taxes to GNP by an impressive 1.5 percentge points between 1975 and 1977 through new tax measures and vigorous efforts to improve taxpayer compli- ance and collection performance. However, much of the success in mobilizing revenue from domestic sources has been offset by a sharp decline in the yield of export taxes and import duties due to cyclical fluctuations. Total tax revenues, which had been raised from 11% of GNP to 13.6% by 1975, rose to only an estimated 14.1% in 1977. Greater resource mobilization by government financial institutions and government corporations, whose investment programs have grown rapidly, is also needed. External Trade and Capital Flows 19. Largely as the result of a 23% decline in the terms of trade in 1975, the current account recorded a deficit of $900 million, or 6% of GNP. To meet the immediate payments problem, the Government drew down its international reserves, obtained loans under various IMF facilities, and expanded its borrowing program to finance necessary imports. For the longer term, a strategy was adopted of accelerating export growth both to hold the current account deficit about constant, while it declined relative to GNP, and to meet the debt service payments on the higher level of external borrowing. 20. Some progress in these directions was made in the last two years. In 1976, in spite of a further 11% deterioration in the terms of trade, a substantial increase in export volume and slow growth of import payments narrowed the trade def cit and partly offset the higher net interest payments. Although somewhat larger than in 1975, the current account deficit was stabil- ized at 6% of GNP. Net capital inflows were nearly doubled to $1.1 billion. Most of the inflow was from medium- and long-term loans, two-thirds of which were public loans reflecting in part increased disbursements from official sources. Estimates for 1977 show a further substantial expansion in export volume which, with little expected change in the terms of trade, import volume, services or transfers, would reduce the current account deficit to 4% of GNP and eliminate the overall payments deficit. Hence, on the whole, the balance of payments position has strengthened significantly. 21. To achieve a 7% growth rate in real GNP, as projected for the period 1978-82, imports will have to grow faster than they have recently and a net capital inflow of at least $1 billion per year will be required. Assum- ing continued sound debt management and the maintenance of a balanced maturity structure of foreign borrowings, the overall level of external debt of the Philippines is expected to remain within reasonable limits. The ratio of debt service payments to exports and nonfactor services would average about 19%, of which 7% would be public debt service, during the plan period (1978-82). 22. In order to ensure that the long-term capital transfer is commensu- rate with the level of development expenditures which will be required during 1978-82 and that debt service obligations remain within reasonable limits, the Government sought commitments of official assistance of $750-800 million in 1978 at the meeting of the Consultative Group for the Philippines, held in Tokyo on December 1 and 2, 1977. This amount is likely to be available. However, since many of thet planned projects which are to be financed from external sources have a low foreign exchange component, some local cost finan- cing is necessary, in appropriate cases, to meet the Philippines' external financing requirements. PART II - WORLD BANK OPERATIONS /1 23. As of March 31, 1978, the Philippines had received 51 Bank loans (of which two were on Third Window terms) amounting to $1,332.5 million and three IDA credits amounting to $32.2 million./2 At that date, IFC investments totalled $86.3 million. The share of the Bank Group in total debt disbursed and outstanding is about 11% and its share in total debt service is about 5%. These ratios are expected to increase to about 19% and 8%, respectively, by the end of the present decade. Annex II contains a summary of IDA credits, Bank loans and IFC investment as of March 31, 1978 as well as notes on the execution of ongoing projects. 24. The Bank Group has financed projects in virtually all sectors of the economy with particular emphasis on agriculture and basic infrastructure which have each accounted for about one third of total Bank Group lending. In agriculture, emphasis has been given to expanding irrigation systems to increase food production and to credit programs to support foodgrain produc- tion and processing, livestock and fisheries production and tree farming. Support has also been provided for integrated rural development projects in low income areas. The Bank Group also provided large amounts of assistance in developing power and transportation because substantial improvement in basic infrastructure has been needed to compensate for many years of past neglect and to provide the basis for future growth of the productive sectors. In the industrial sector, the Bank's main thrust has been on strengthening the capacity of public and private development finance institutions with /1 Part II of this report is substantially the same as that of the Philippine Investments Systems Organization (PISO) project which was approved by the Board on April 27, 1978. /2 Since then, a loan of $60 million for rural electrification was approved by the Executive Directors on April 4, an IDA credit of $28 million for a rural infrastructure project on April 11, and a loan of $15 million for the Philippine Investments Systems Organization (PISO) project on April 27, 1978. - 8 - increasing attention given to meeting the needs of small and medium industries. In the social sectors, the Bank Group has provided support for education programs, designed to improve the quality of primary and secondary education and to meet trained manpower requirements in agriculture and industry. In urban areas, assistance has been provided for water supply projects and for programs to upgrade living conditions in low income urban areas and to develop low cost sites and services. Support has also been provided to the Philippine population program through assistance for the construction of multipurpose rural health units and for training of family planning staff. 25. There has been a marked improvement in the execution of Bank- financed projects in the last five years compared with the experience in the late 1960s, when there were serious problems caused by a shortage of peso counterpart funds and weak administration. Almost all ongoing projects are now being implemented reasonably well and the results of supervision and project completion reports indicate that the economic benefits for most projects are likely to be in line with appraisal estimates. However, the overall rate of disbursement is marginally below what would be expected given the generally good project implementation, and the Government is currently reviewing disbursement performance on an agency-by-agency basis to identify possible reasons for disbursement lags and to find appropriate solutions. 26. As noted in Part I of this report, the Government's Five-Year Devel- opment Plan highlights a strategy which focuses on the expansion of productive employment in agriculture and industry, reduction in income disparities, greater self-sufficiency in food and energy and increased development in rural areas. The Bank Group's future lending program has been designed to assist the Government in achieving these objectives. Agriculture and rural development will account for the largest part of future lending, with continued emphasis on food production and increasing the productivity and incomes of small farmers. However, the program provides for several new initiatives, including a first loan to support the strengthening of the national agricul- tural extension service and a first loan for developing multiple cropping systems in rainfed areas, where there is substantial rural poverty. Increased support will also be provided for integated rural development projects which will support the Government's objectives of redressing region.al imbalances ii' income. Substantial assistance will also continue to be given to industry with special attention being given to expanding the development of labor- intensive, small and medium industries outside the Metropolitan Manila area. The share of lending for social sector projects is expected to continue to increase as a result of greater emphasis on construction of urban water supply and sewerage systems and further assistance to the lower income urban areas through low cost sites and services projects. The Bank Group will also continue to provide support for improving the quality of education and for expanding the Government's population program in rural areas. While the Bank Group will continue to provide support for transportation and power infrastruc- ture projects needed to support the Philippine development effort, the share of Bank Group lending for these sectors will decline somewhat in the years ahead primarily because alternative sources of financing are available to finance a large part of the power generation program. - 9 - 27. As noted in Part I, the Philippines has experienced a serious deterioration in its international terms of trade in the last several years, which has necessitated substantial foreign borrowing. While the overall level of debt remains manageable, the Philippines will need to obtain substan- tial amounts of foreign assistance on concessional terms to support its expanding development program. In view of this consideration, the per capita income of the country and the generally good management of the economy, a limited amount of IDA financing will be proposed for the Philippines; the first IDA credit since 1974 was recently presented to the Executive Directors and a second is scheduled for FY79. 28. This is the ninth loan to be presented to the Executive Directors this fiscal year and would bring total lending to the Philippines to $208 mil- lion. Loans for urban development, water supply and multipurpose dam projects are expected to be ready for presentation within the next few months. PART III - THE :[NDUSTRIAL SECTOR AND INDUSTRIAL FINANCE /1 29. The industrial sector (defined as manufacturing, mining and con- struction) in 1976 accounted for about one third of GDP and 15% of total employment. Manufacturing is by far the largest component of the industrial sector accounting for about one quarter of GDP and about 11% of employment. Food and beverages are the largest manufacturing group followed by chemicals and textiles. Manufacturing enterprises are predominantly privately owned and generally concentrated in large capital-intensive units. 30. Industry grew at a rate of about 6% per annum between 1955 and 1971. Its growth rate accelerated in the early 1970s. However, as the Philippine economy was adversely affected by the worldwide economic slowdown and the sharp deterioration in t!he Philippines' terms of trade, the growth rate declined to 4.6% within the last three years. Capital investments for plant and equipment increased by only 5% in 1976 and are estimated to have increased at about the same rate in 1977. Exports and growing government expenditures should give increased stimulus to the economy and contribute to an expansion in the rate of industrial growth and investment. The longer-term prospects for industrial growth are favorable because of the good natural and human resources of the Philippines and its active private sector. 31. There are, however, a number of important issues confronting the industrial sector. Historically, Philippine industrial production was geared primarily to the needs of the domestic market and there has been heavy reliance on protection policies applied through the tariff system and some degree of import control. In the late 1960s, the Government became aware of the problems implicit in this approach and through the Investment Incen- tives Act of 1967 and the Export Incentives Act of 1970 has sought to expand /1 With the exception of paragraphs 35 through 38 which have been added, this section is substantially the same as that of the President's Report on the Philippine Investments Systems Organization (PISO) Project (SecM/R78-14), which was considered by the Executive Directors on April 27, 1978. - 10 - ,he nontraditional industrial base and to expand exports and industrial employment. In addition to the incentives provided under the Export Incentives Act, the peso was devalued in 1970, an Export Processing Zone was established and an Export Council was created to make recommendations on various aspects of export promotion. Partly in response to some of these measures, non- traditional manufacturing exports grew rapidly during the period 1973-77. However, Philippine industry still remains heavily protected and differential rates of protection combined with selective export incentives to various industries are still producing less than optimal industrial and export growth. To rationalize the industrial sector and to provide the basis for future growth, it will be necessary for the Government to move toward a less restrictive trade regime by gradually removing import restrictions and reducing tariffs. The Government, with the assistance of a Bank-financed consultant, is undertaking a major review of industrial protection and incentives and is considering a major tariff reform. Further stimulus could be provided through continuing analysis and information programs on foreign market potential, simpler export procedures, larger credit programs and establish- ment of trading houses. 32. Philippine industry has contributed relatively little towards alleviating the problems of unemployment and underemployment. Between 1960 and 1974, manufacturing employment grew at an annual rate of about 2.5%. The rate of employment generation, however, has markedly improved during the last two years as employment in manufacturing grew at an annual rate of 8% in 1975 and 1976, partly as a result of Government's programs designed to foster the growth of small and medium industries which have considerable employment potential. 33. Manufacturing enterprises remain heavily concentrated in the greater Metro-Manila Area which accounts for about 40% of such enterprises. The problem of the geographic concentration of industry is receiving increasing Government attention. Measures already taken in this regard include provision of incentives for projects located in less developed areas, promotional measures by the Board of Investments and its practice of negotiating the location of the project before its approval, a ban on new plant establishment within 50 km of Manila (except export-oriented projects) and a requirement that the Industrial Guarantee and Loan Fund (IGLF) and the Development Bank of the Philippines (DBP) direct at least 60% of their small-scale lending outside Metro-Manila. Further decentralization of industry will be encouraged by the Government's rapidly expanding public infrastructure program (particu- larly roads and rural electrification), major regional planning and development efforts, and a planned program of regional industrial estates. 34. The Government's Five-Year Development Plan (1978-82) projects that the manufacturing sector will grow at an annual rate of 9% during the Plan period and that manufacturing investment will grow at an annual rate of 15.5% (from $1.7 billion in 1977 to nearly $3 billion in 1982). The Government's plan calls for the rapid growth of labor-intensive, small and medium industries producing for both domestic and export markets, and the establishment of some large, resource-based projects to deepen the industrial structure and develop further the country's natural resources. An example of such a project is the planned construction of a copper smelter to process copper concentrates that are currently exported. - 11 - Role of Small and Medium Industries (SMI) 35. In 1974, small and medium industries together accounted for 84% of modern manufacturing firms, employed 31% of the labor force in the industrial sector and contributed 20% to gross value added. The relative growth rate of SMI vis-a-vis large-scale industry has been historically uneven. Between 1962 and 1968, SMI grew more rapidly than larger industrial firms. This pattern was reversed between 1968 and 1971. Since then a more balanced growth has been achieved between SMI and large industry. In 1974, the specific industries in which SMI accounted for over 50% of employment were furniture, leather products, metal products, machinery and miscellaneous industries. 36. A Commission on Small and Medium Industries was created in 1974 in the Department of Industry (DOI) to promote and assist the growth of SMI and to coordinate the programs of both Government agencies and Government-supported institutions for assisting small entrepreneurs. A number of specific programs have recently been set up to assist small-scale entrepreneurs: the University of the Philippines runs an entrepreneurship development program; the Medium and Small Industry Coordinated Action Program (MASICAP) assists small entre- preneurs in preparing project feasibility studies and in applying to financial institutions for loans; Small Business Advisory Centers (SBACs) provide mana- gerial and technical consultancy services to SMI; Trade Assistance Centers pro- vide marketing assistance to SMI and coordinate their operations with those of the SBACs; and the Design Center of the Philippines and the Food Terminal Inc. also provide marketing-related assistance to SMI for product design and development, storage and distribution. 37. The major sources of medium- and long-term financial assistance for SMI are DBP and the Industrial Guarantee and Loan Fund (IGLF). The IGLF is a long-term rediscount and guarantee fund, which is administered by the Central Bank. It provides credit to small industries through a network of intermediary financing institutions and gives priority is given to small businesses which do not possess sufficient collateral to borrow from other sources. The volume of term credit provided by both DBP and IGLF increased substantially in 1975 whLen the Bank's first loan (No. 1120-PH) for SMI in the Philippines became available. However, SMI enterprises, which are generally short of working capital, are constrained by the relative lack of institutional sources of short-term credit. The Central Bank is devising ways to induce the commercial banking sector to lend more for SMI. 38. While the Government has provided considerable financial technical assistance to SMI, the provision of adequate infrastructure and support - 12 - services has proceeded less rapidly. The handicaps to SMI in the regions from power shortages, inadequate repair and maintenance, and delays in obtaining financial assistance appear to be substantial. The Government, as part of its Five-Year Development Plan, plans to establish a number of industrial estates to provide the necessary infrastructure for the development of SMI in the regions outside Metro-Manila. Industrial Finance 39. The core of the Philippine financial system is a large commercial banking sector, both local and foreign, that operates under the branch banking system and is the main source of working capital and trading credit. In addition to the commercial banks, there are a number of investment houses, savings and loan associations, rural banks and regional development banks. The Government Insurance System and the Social Security System are active in real estate and mortgage financing. Investment houses operate in the active short-term money market. In late 1976, the Government allowed foreign bank branches or offices to establish Off-Shore Banking Units (OBUs) and expand the Foreign Currency Deposit Units to undertake foreign currency credit operations. The Government-owned Development Bank of the Philippines (DBP) and the Private Development Corporation of the Philippines (PDCP) are the only two specialized long-term lending institutions. 40. As noted in paragraph 16, the aggregate savings performance in the Philippines has improved generally during the last decade and is comparable to that of other countries at a similar stage of economic development. Since 1975, gross domestic savings have been at a level of 25% of GNP and financed approximately 80% of total investment. However, in order to reach a gross investment level of more than 31% of GNP by 1982 and reduce the country's dependence on foreign savings, the Five-Year Development Plan (1978-82) calls for an increase in gross domestic savings to a level of more than 28% of GNP at the end of the Plan period. To achieve this objective, gross domestic savings will need to increase by more than 17% per annum during the next five years, requiring a marginal savings rate of nearly 30% per annum. 41. In addition to raising the level of savings, there is also a need to increase the maturity of financial assets. While the gross acquisition of financial assets by the private sector rose from approximately 7% of GDP in 1965 to over 12% in 1974, the relative share of short-term assets increased from only 17% to more than 40% during the same period. This was mainly due to statutory limits on deposit rates of credit institutions while no ceilings existed for money market rates. Given the needs of the investment program for long-term finance, the present preference for financial assets with shorter maturities represents an important issue for the Government's financial policy. With a view to lengthening the average maturity of financial instru- ments and to encouraging the mobilization of savings through banking institu- tions, ceilings on bank rates on savings deposits were raised from a range of 6-6.5% to 7-7.5% and on time deposits from a range of from 8-11% to 8.5-12%. Ceilings on interest rates for loans with maturities exceeding two years were raised from 12-14% to 19% in January 1976. As the rate of inflation has been - 13 - about 7%, the real interest rates are all positive. In June 1977, a 35% withholding tax on interest paid on short-term financial instruments was introduced, while a 15% wiLthholding tax on interest paid on savings and time deposits was set. These measures have resulted in a 36% increase in real terms in savings and time deposits in 1977. 42. The Philippine financial system does not yet include an effective bond market mainly because longer-term interest rates have been statu- torily controlled. An addlitional constraint is the dominance of the term market by Government financial institutions because of the preferential treat- ment given to their debt :Lnstruments. Only very limited capital expansion is being financed through the stock exchange partly because private owners are reluctant to share control over their enterprises and prefer financing through borrowing. Recently, however, a 5% tax was introduced on closely held corporations to encouirage them to go public. 43. Financial institutions and credit programs in the Philippines have experienced deterioration of loan recovery rates during recent years which has seriously affected their financial performance. This is due, in part, to the rapid expansion of credit programs to the productive sectors and to interna- tional economic conditions which have had an adverse effect on some domestic enterprises. The Government is devoting increased attention to the problem of arrears so that loan recovery can be expected to improve. 44. It is important for the Government to adopt a systematic long-term plan to develop the Philippine financial sector along lines which will more fully support the development of the economy. A financial sector mission is scheduled to visit the Philippines in the fall of 1978 and the Bank is intending to continue its discussions with the Government in this important area of development policy. The Bank's Role 45. The Bank has assisted industrial development in the Philippines by providing financial and technical assistance to financial intermediaries to help them expand and improve their medium- and long-term lending programs to productive enterprises. The Bank lending for the sector so far has been channelled through DBP, PDCP, the Philippine Investment Systems Organization (PISO) and IGLF. Total Bank lending for this purpose has amounted to about $295 million, including a loan of $30 million for the Fifth PDCP Project, signed on February 9, 1978 and a $15 million loan to PISO, approved by the Executive Directors on April 27, 1978. Increasing attention has been given in recent years to the needs of small and medium industries as $55 million of the proceeds from existin,g Bank loans is being used for financing such enter- prises. In addition to the portion of the proposed loan to DBP, which would be earmarked for onlending to small and medium industries, a second loan to help support the Industriial Guarantee and Loan Funds' (IGLF) program of financing small and medium industries through privately-owned financial inter- mediaries is scheduled for presentation to the Executive Directors in FY79. These projects have been designed to meet the medium- and long-term capital requirements of industries of all sizes and to strengthen the institutional capability of public and private lending institutions. - 14 - 46. Progress under the ongoing industrial projects financed by the Bank is generally satisfactory. With the exception of the Fifth PDCP and PISO loans, which were approved only recently, most of the funds under previous loans have been committed. Results of post-implementation analyses indicate that both the financial and economic rates of returns of subprojects financed are well above the opportunity cost of capital in the Philippines. The results of the Second Industrial Investment Project are summarized in Part IV of this report. PART IV - THE PROJECT 47. The proposed loan would be the third for financing the industrial development of the Philippines through DBP./1 This project was appraised in October 1977, and negotiations were held in Washington, D. C. in April 1978. The Philippine negotiating team was led by His Excellency Eduardo Romualdez, the Philippine Ambassador to the United States, and Mr. J.V. de Ocampo, Vice-Chairman of DBP. A Staff Appraisal Report entitled "Staff Appraisal Report on the Development Bank of the Philippines" (No.1972-PH) is being distributed separately. Supplementary Project Data are provided in Annex III. 48. About $50 million of the proposed loan would support DBP's program for lending to large industries, including manufacturing, mining and ocean shipping. About $29.7 million would support DBP's Small and Medium Industry (SMI) lending program. It is expected that about 90% of the SMI component would be used for financing of enterprises with assets not exceeding $250,000, or projects with average cost per job not exceeding $3,600 (1977), the urban poverty threshold figure determined by the Bank for the Philippines. A small component of $300,000 is included in the loan to finance the establishment of a development banking institute in DBP for training of management and personnel of smaller development finance institutions, particularly of Private Development Banks (PDBs)./2 The proposed loan would finance the foreign exchange cost of /1 DBP has to date received eleven loans aggregating $245.3 million. Of these, two loans were for industrial development, one for SMI, seven for agricultural projects and one for inter-island transportation. /2 These banks established in the provinces with the assistance of DBP provide finance to small-scale entrepreneurs and farmers. So far 34 of these are in operation. Their total resources, as of the end of 1976, amounted to 1P 476 million with loans outstanding of about P 360 million. - 15 - directly imported capital goods and would also finance the indirect foreign exchange cost of locally procured equipment, civil works and initial stock of inventories. 49. As for all previous loans to DBP, at the Government's request, the proposed loan would be made to the Republic of the Philippines. The proceeds would be relent to DBP under a subsidiary loan agreement which would be signed before the proposed loan becomes effective (Section 6.02(b) of the draft Loan Agreement). The large industry component of the loan would have a flexible amortization schedule reflecting the aggregate of repayment schedules of sub-loans made by DBP whLich will have a maximum repayment term of 15 years including an appropriate grace period. The portion of the loan for SMI and the training institute would, however, have a fixed repayment schedule of 20 years, including a 5-year period of grace. The SMI subloans would have a maximum maturity of 12 years including a grace period of up to 3 years. TLe large industry sub-borrowers would assume the foreign exchange risk. The Government would assume the foreign exchange risk on the portion of the loan used for SMI lending and the training institute. In accordance with its present policy, DBP would charge its sub-borrowers under the proposed loan interest at 12% per annum on loans secured by land mortgage and 14% per annum on loans otherwise secured. In addition, a service fee of 2% per annum would be charged on subloans over P 150,000 ($20,300). DBP's "free limit" for large industry subloans, above which the subloans would require Bank approval, would be $1.5 miLlion (Section 2.02 (b) (ii) of the draft Loan Agreement). DBP would not be required to obtain the Bank's prior approval for financing SMI projects. Instead Bank staff would monitor closely the quality of appraisals through a mechanism of post-disbursement reviews and regular field supervision. A subloan ceiling of $6.0 million is proposed for large industries to ensure that DBP uses the loan for a fairly large number of projects. The SMI loans would range between P 50,000 (about $6,760) and P 2.5 million (about $338,000). DBP's Legal Framework and Scope of Activities 50. DBP was set up in 1958 as a successor to the post-war Rehabilitation Finance Corporation. Today, DBP is the largest source of long-term finance in the Philippines and it accounts for about 80% of term-lending in the country. DBP's activities consist cf loans, guarantees and investments in almost all sectors of the economy. lThe industrial sector has been the largest recipient of DBP's assistance (66%) followed by agriculture (20%), real estate (10%) and others (4%). DBP's authorized capital is P 3.0 billion, of which P 2.6 billion was paid in as of September 30, 1977. Economic Impact of DBP's Operations 51. DBP is the largest supplier of long-term credit in the country. Over the period FY1973-77, DBP's operations amounted to P 15.4 billion, representing 13% of gross fixed capital expenditure in the Philippines. At the end of 1976, DBP held 11% of the assets of the Philippine financial system. DBP's planned industrial investment is equivalent to about 9% of the total under the Five-'fear Development Plan (1978-82). - 16 - 52. The impact of DBP's operation can be seen by considering the indus- trial loans made over the last two years. Eighty-five large industrial projects were financed having a total cost of P 2.3 billion, of which DBP's financing amounted to 37%. An estimated 15,000 jobs were created at average cost per job of $18,000, lower than the Board of Investment (BOI) approved projects ($22,000). Over $250 million will be generated in exports. The weighted ex-ante internal financial rate of return, was 27% and the economic rate of return, 29%. From the proceeds of the two previous Bank loans, DBP had financed, as of August 31, 1977, about 800 SMI projects involving a total investment of P 410 million and creating about 14,000 new jobs. The weighted average economic rate of return was about 50% and the average invest- ment per job, under $4,000. Organization, Management and Staff 53. Overall responsibility for DBP's policies and operation rests with a government-appointed Board of Governors comprising nine members, five of whom including the Chairman constitute DBP's top management team. The Board has almost complete operational autonomy within the framework laid down in DBP's Charter. DBP's present organization consists of the Head Office in Manila and a network of branches throughout the country. DBP's industrial lending and guarantee operations are handled by three industrial projects departments: Industrial Projects Department I (IPD I) handles large industry loans; Indus- trial Projects Department II (IPD II) deals with cottage industry and SMI; and Industrial Projects Department III (IPD III) mainly concentrates on financing transportation, tourism, public utilities and industrial services sectors. 54. Since October 1976, Dr. Placido Mapa, Jr. has been the Chairman and Chief Executive of DBP. He has considerable experience in banking and economic management. Since his appointment, Dr. Mapa has undertaken a number of steps aimed at improving DBP's institutional capacity. A number of personnel changes at middle management levels have resulted in improvement in the overall quality of management. Organizational changes necessary to handle more efficiently the growing volume of operations have also been undertaken. These have resulted in noticeable improvement in the functioning of departments and in interdepartmental coordination. DBP's plans for further organizational changes in IPD I and IPD II, responsible for the implementation of this project, were reviewed during negotiations and are satisfactory. 55. As of the end of August 1977, DBP's total staff numbered about 3,500, divided almost equally between the Head Office and branches. About 60% of them were professional staff. DBP's staff increased by more than 12% between August 1976 and August 1977. However, it still faces some staff shortages, particularly in specialized technical areas. DBP has budgeted for about 970 additional staff positions (70% of them professional), which it expects to recruit within the next 12 months. DBP's salary structure, has been revised and is expected to enhance DBP's ability to recruit and retain qualified staff. - 17 - Appraisal and Supervision 56. The quality of appraisal of large-scale industrial projects carried out by IPD I has been steadily improving, although at a slower pace than originally expected. This is because the staff in this department is rela- tively inexperienced. Special training programs, already in progress, are expected to remedy this problem. Appraisal reports tend to be excessively descriptive. Market analysis is weak and economic rate of return (ERR) analysis is restricted to only Bank-financed projects of over $2 million. IPD I is now in the process of setting up a unit for market and economic analysis of projects and expects to include ERR analysis for all projects over $500,000. It will also take into account more explicitly the employment impact of projects it finances, including cost per job created and possible choices of technology. The quality of SMI appraisals has improved consider- ably. Appropriate analytical techniques adopted a year ago are now routinely applied to all SMI projecits. IPD II plans to apply ERR analysis to all projects above P 1.5 millLon ($200,000). 57. Supervision of Large-scale projects by IPD I is generally weak and irregular. However, DBP's management is currently considering separating the supervision and account servicing functions within IPD I, which together with recent management changes and the recent completion of a project supervision manual, should improve the quality of supervision. Until 1976, supervision of SMI projects carried out by IPD II was inadequate. However, corrective measures are being taken. Operating Policies and Development Strategy 58. While there have been no changes in DBP's Statement of Policy for industrial financing over the past three years, a number of Board resolutions have been passed within the last two years, resulting in major policy changes aimed at: (a) streamlining internal operating procedures; (b) strengthening DBP's financial management; and (c) standardizing and rationalizing lending terms for industry. Similarly a number of improvements have been made in policies affecting DBP's SMI lending since 1974. 59. DBP has just formulated a short-term industrial development strategy. The objectives spelled out in the strategy in respect of DBP's large industry financing operations include inter alia: (a) greater emphasis on relatively smaller and medium size industrial enteprises; (b) intensified promotional activity to attract new entrepreneurs; (c) adoption of investment priority plans for SMI and large industries on the basis of contribution to development of the country's natural resources, impact on balance of payments, geographic decentralization, and employment creation; (d) mobilization of additional resources both from internal and external sources; and (e) development of staff. DBP's development strategy also provides for increasing its technical assistance to the country's smaller development finance institutions such as Private Development Banks (PDBs). 60. DBP's procurement procedures ensure that purchases under its subloans are made with due regard for economy and efficiency. It usually requires at least three competitive quotations, and its staff carefully checks the suitability of equipment. Disbursements are made after detailed scrutiny of supporting documents. - 18 - Operations 61. As of June 30, 1977, DBP's cumulative approvals /1 of financial assistance amounted to P 27.6 billion. Since FY75 loans have replaced guaran- tees as the most important type of operations as a result of increased avail- ability of long-term resources; equity investments have been insignificant. Over the period FY72-76 DBP's total approvals rose from P 1.8 billion to P 3.9 billion. In FY77 approvals dropped to P 3.1 billion as a consequence of decreased agricultural lending, a fall in guarantees, and a significant reduction in hotel financing. Industrial loan approvals rose from P 55 million in FY72 to about P 1,080 million in FY76 and FY77. Of the manu- facturing projects approved in FY75-77, consumer goods industries accounted for 61%, intermediate goods 29%, and capital goods 10%. In the past three years, DBP has made concerted effort to diversify its lending away from Metro-Manila. As a result, only 23% of new loans approved in FY77 were for projects in Metro-Manila compared to 37% in FY75. Concurrently, the share of the relatively less developed region of Mindanao increased from 14% in FY75 to 48% in FY77. 62. DBP's SMI portfolio recorded a twofold increase rising from P 132 mil- lion ($18 million) as of June 30, 1975 to P 384 million ($52 million) as of June 30, 1977. The majority of SMI loans fall within P 100,000 - 500,000 range. They are fairly evenly distributed among industries, with labor-intensive industries being a major beneficiary. While the share of Metro-Manila in the total number of loans approved dropped from about 42% in FY76 to about 30% in FY77, it increased from about 35% to 49% in value terms reflecting the larger average size of loans. To ensure a better regional dispersal, not more than 10% of the SMI component of the proposed loan would be used for loans over P 1.5 million in Metro-Manila Area (Section 2.02 (b) (iv) of the draft Loan Agreement). The majority of DBP's SMI subborrowers continued to be small entrepreneurs. In FY77, over 80% of the recipients of SMI loans had assets, at the time of application, of less than P 500,000. Financial Aspects 63. As of June 30, 1977, DBP had total assets of P 14.3 billion, debt (including guarantees) to equity ratio of 5.5:1 and a current ratio of 1.2:1. In the last two years, the Philippine Government took a number of measures to bolster DBP's long-term resource position. These included an additional contribution of about P 880 million to DBP's share capital and conversion of P 940 million of the Government's short-term deposits into medium- and long- term deposits. In addition, DBP, on its own, raised long-term resources of about P 1.9 billion. Despite its considerably stronger financial position, /1 Including the approvals made by DBP's predecessor institution. - 19 - DBP's liquidity is still dependent on the rollover of short-term Government deposits, a consequence of the persistent imbalance between maturity structure of DBP's assets and liabilities. An additional financial problem that DBP faces is its excessive exposure to foreign exchange risks, which increased from $107 million in 1975 to $267 million as of December 1977. 64. To improve DBP's cash position, assurances were obtained during negotiations that: (i) DBP's share capital would be increased by P 1.5 billion to reach P 4 billion by 1981 (Section 4.02(a) of the draft Loan Agreement); (ii) the Government would assist DBP in raising further long-term capital (Section 4.02(b) of the draft Loan Agreement); (iii) DBP would liquidate its investments in two subsidiaries and in one affiliate company (Section 4.02(c) of the draft Loan Agreement); (iv) the Government would compensate DBP for defaults on loans made at Government's behest (Section 4.02(e) of the draft Loan Agreement); and (v) in the future DBP would handle all the Government behest projects, which do not meet DBP's normal financial and economic criteria, on an agency basis administering funds to be provided by the Government (Section 4.02 (d) of the draft Loan Agreement). In addition, an informal understanding was reached with the Government that when withdrawing its deposits from DBP it would give due consideration to DBP's liquidity position. 65. DBP's net income for FY77 was about P 82 million, or only 3.2% of the average equity. DBP has taken a number of steps in the past two years, including raising interest rates and strengthening collection efforts to increase its net income. Furthermore, the agreement by the Government to compensate DBP for defaults on Government behest projects should also improve DBP's profitability. 66. In relative terms DBP's loan arrears position has considerably improved in the past two years; between June 30, 1975 and June 30, 1977 as percentage of total outstanding loan portfolio, actual arrears declined from 15.5% to 10.5% and portfolio affected from about 59% to 44%. Part of this reduction is due to growth in portfolio and rescheduling of loans. However, DBP has taken a number of steps to improve collection rates, including more relaxed loan terms, higher penalties for delinquencies and more intensified supervision. In addition, DBP, since mid-1977, has launched an aggressive, institution-wide collection drive. The performance of each department is judged against meeting given collection targets. The services of collection agencies have also been used for recovering small loans. Bank staff will monitor closely DBP's progress in this regard against targets which DBP has established and which are satisfactory. Projected Operations and Resource Requirements 67. DBP's resource requirements for new commitments up to June 30, 1980 are estimated at P 7.8 billion/l which DBP proposes to meet /L Industrial loan approvals only are projected to be P 1.4 billion in 1978, P 1.5 billion in 1979 and P 1.6 billion in 1980. - 20 - through increase in capital, internal cash generation, divestment of some of its investments, borrowings from the Central Bank, issuance of bonds and foreign exchange borrowing from the Bank, ADB and commercial sources. DBP expects to fully commit, in the second quarter of 1978, the existing Bank loan (No. 1190-PH) for industrial financing. DBP would therefore need the proposed Bank loan in early third quarter 1978. The large industry component of the proposed loan would provide 45% of the total foreign exchange require- ments of DBP's large industry lending up to June 30, 1980; the remaining requirements would be funded through an ADB loan and DBP's direct foreign exchange borrowings from commercial sources. The proposed SMI component would provide 75% of DBP's SMI loan commitments during the next two years. The remaining costs of SMI projects would be met by DBP from its own resources. Financial Projections 68. According to DBP's financial projections its total assets are expected to grow at an average rate of 15% per annum in the period between 1977-82, increasing from P 14.3 billion to P 29.2 billion. This projected growth rate is conservative considering the 35% growth achieved in FY77 and 22% growth projected for DBP in the Government's Five-Year Development Plan. The forthcoming Government contribution to DBP's share capital and its growing retained earnings are expected to enable DBP to maintain a declining trend in its debt/equity ratio despite sizeable borrowings. 69. DBP's net income is estimated to rise rather rapidly in the period from P 118 million in 1977 to P 979 million in 1982. The major factors contributing to this rapid increase are: (i) growth in portfolio; and (ii) an assumption of improved loan collection ratio. Even if the non-cash income from hotels is ignored the projected improvement in profitability would be reasonably satisfactory. The projected debt service coverage is positive in all the years. Justification and Risks 70. The project would provide the needed long-term resources for DBP's lending program for large, medium- and small-scale industry. It would assist the Government in attaining its objectives of employment generation at a reasonable cost, export promotion and regional dispersion of productive economic activities. Although DBP has made considerable progress in the last few years in developing its institutional capacity, in which the Bank has had a key role, there are a number of areas referred to in the text of this report which still need to be further improved. The Bank's continued association with DBP through this project is expected to contribute toward further strengthening of DBP, which is the most important development finance institution in the Philippines. - 21 - 71. The effectiveness of DBP and other development finance companies in the Philippines in mobilizing and allocating medium- and long-term financial resources for economic development will depend to an important degree on the adequacy of measures, which the Government will need to adopt within the next few years, to resolve the broader financial and industrial sector issues referred to in Part III. These sectoral concerns will form an important part of the continued policy dialogue between the Government and Bank staff over the next year or two. PART V - LEGAL INSTRUMENTS AND AUTHORITY 72. The draft Loan Agreement between the Republic of the Philippines and the Bank, and the draft Project Agreement between the Bank and DBP, and the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement of the Bank are being distributed separately to the Executive Directors. 73. Special conditions of this loan are referred to in Section III of Annex III. The signing of a Subsidiary Loan Agreement between the Republic of the Philippines and DBP has been established as an additional condition of effectiveness of the proposed loan (Section 6.02(b) of the draft Loan Agreement). 74. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATIONS 75. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments May 8 , 1978 ANNEX I TABLE 3A Page 1 of 4 pages PHILIPPINES - SOCIAL INDICATORS DATA SHEET LAND AREA (THOU KM2) _----------. PHILIPPINES REFERENCE COUNTRIES (1970) TOTAL 300.0 MOST RECENT AGRIC. 109.6 1960 1970 ESTIMATE THAILAND TURKEY KOREA SOUTH ** GNP PER CAPITA (USS) 140.0* 230.0* 410.0*/a 210.0 * 500.0* 280.0* POPUL.TION AND VITAL STATISTICS POPULATION (MID-YR. MILLION) 27.4 36.9 43.3/a 36.3 35.6 32.2 POPULATION DENSITY PER SQUARE KM. 91.0 123.0 144. 0a 71 0 46.0 327.o PER So. KM. AGRICULTURAL LAND 328.0 375.0 395.0/a 263.0 65.0 1371.0 VITAL STATISTICS CRUDE BIRTH RATE (/THOU, AV) 45.1 44.2 43.8 44.3 40.6 35.0 CRUDE DEATH RATE (/THOU.AV) 17.9 13.2 10.5 13.7 14.4 11.4 INFANT MORTALITY RATE (/THOu) 84.6 .0 72.0/a LIFE EXPECTANCY AT BIRTH (YRS) 49.4 55.6 srj.s 55.5 54.4 65.0 GROSS REPRODUCTION RATE 3.5/a 3.3 3.3 3.2 2.6/b,c 2.6 POPULATION GROWTH RATE (I) TOTAL 3.0 3.0 2.8 3.1 2.5 2.3 URBAN 4.0 4.0 3.9 4.9 4.9/d 6.4 URBAN PDPULATION (X OF TOTAL) 25.3 27.6 29.8 15.0 38.7 41.2 AGE STRUCTIJRE (PERCENT) 0 TO 14 YEARS 45.7 45.6 43.2 45.1 41.7 42.1 15 TO 64 YEARS 51.6 51.6 54.0 51.8 54.0 54.5 65 YEARS AND OVER 2.7 2.8 2.8 3.1 4.3 3.4 AGE DEPENDENCY RATIO 0.9 0.9 0 0.9 0.9 0.8 ECONOMIC DEPENDENCY RArIo 1.3/b 1.5 1.3/b 1.1 1.1/e 1.4 FAMILY PLANNING ACCEPTORS (CUMULATIVE, THOU) .. 320.0 4065.0/a 470.0 .. 4424.7 USERS (% OF MAARIEO WOMEN) ., 2.0 25.0/a 10.0 8.2 42.0 EMPLOYMENT TOTAL LABOR FORCE (THOUSAND) 10100.0 12400.0 15400.0/a i6700.0 14500.0/f 10200.0 LABOR FORCE IN AGRICULTURE (%) e61.0/C ss.o/a 52.67i 79.0 67.0 50.4/a 1INFOPICYrn (% Oe LABOP FORCE) I.? 7.5 4.C . 4.0/& 4. INCOMLE D:STRIBUTION % OF PRIVATE INCOME REC'D BY- HIGHEST 5% OF HOUSEHOLDS 28.8 .. 22.0 32. /h 17.i HIGHEST 20% OF HOUSEHOLDS 58.2 54.0 53.3 51.1 80.60 h 44.5 LOWEST 20% OF HOUSEHOLDS 4.2 5.6 2.9 1r LOWEST 40% Of HOUSEHOLDS 11.9 11.7 14.7 14.3 9.4 Th 17.7 DISTRIsUTION OF LANO GWN-R.,il I OWNED BY TOP 10% OF OWNERS .. .. 43.0/c .. 53.0 28.0 X OWNED BY SMALLEST 10% OWNERS .. .. 2.07 *- 0.9 2.o HEALTH AND NUTRITION POPULATION PER PHYSICIAN .. . 11Q. 0/d 7970.0 2250.0 2110 0 POPULATION PER NURSING PERSON .. .. 42U.01i 6650.0 1770.0 /i 2170 o/b POPULATION PER HOSPITAL BED 1180.0 850.0 880.0 890.0 500.0 1900.0 PER CAPITA SUPPLY OF - CALORIES (K OF REQUIREMENTS) 83.0 93.0 105.7 103.0 110.0 103.0 PROTEIN (GRAMS PER DAY) 44.0 45.0 55.6 52.0 78.0 65.0 -OF WHICH ANIMAL AND PULSE 19.0/d 22.0 1 17.0/a 22.o 19.0 DEATH RATE (/THOU) AGES 1-4 9.0/e 6.g 7.5 .. 14.7 /k EDUCATION ADJUSTED ENROLLMENT RATIO PRIMARY SCHOOL 95.0 113.0 117.0 81.0 109.0 104.0 SECONDARY SCHOOL 26.0 49.0 49.0 16.0 28.0 41.0 YEARS OF SCHOOLING PROVIDED (FIRST AND SECOND LEVEL) 10.0 10.0 10.0 12.0 11.0 12.0 VOCATIONAL ENROLLMENT (x OF SECONDARY) 14.0/f 6.o/b 9.0 14.0 /b 14.0 t6.0 ADULT LITERACY RATE (%) *- *- 87.0 79.0 55.0 /1 87.0 HOUSING PERSONS PER ROOM (URBAN) .. .. .. .. t.9 2.7 OCCUPIED DWELLINGS WITHOUT PIPED WATER (x) 80.0 76.0 * .. 64.0 80.0/c ACCESS TO ELECTRICITY (% OF ALL DWELLINGS) 17.0 23.0 31.0 .. 41.0 50.0 RURAL DWELLINGS CONNECTED TO ELECTRICITY (X) *- 7.0 10.0 18.0 30.0 CONSUMPT ION RADIO RECEIVERS (PER THOU POP) 22.0 72.0 *- 78.0 89.0 126.0 PASSENGER CARS (PER THOU POP) 3.0 8.0 8.0 s.0 4.0 2.0 ELECTRICITY (KWH/YR PER CAP) 100.0 235.0 291.0 124.0 247.0 307.0 NEWSPRINT (KG/YR PER CAP) 1.3 2.0 1.5 1.0 .0.7 3.5 SEE NOTES AND DEFINITIONS ON REVERSIE No fA paes. NOTES mIc. oheriennoed,dat fo 190 efe toanyyea btween 1959 and 1961, for 1970 betwee 1968 aod 1970 god for KMot Recent tatimete between 1973 god 1975. . COp par -apja data are based on the World bank 4tl.s eathodololy (1974-76 basis). 1O Koreg haa been selected as go objective country on the basis of its similar Population, location ond Income level end, like the Philippioms, tt ts -cp.,,ld to groas repidly tn the toning years. AjU,jjj&j 960 la 1950-55; - lb Ratio of population uondr 15 and 65 and over to total labor force; /c As pelcmsetp &f malayeati __ - /d 1960-62; In 1962; IL Not inclssdimg vocational ehort-torm coucee. 1970 /a A. percentage of emloyment; lb Not Lmciaading private vocational schools or vocational ehort-term courses. ,10Sr RECtOr E_ST_RIjI /a 1976; Lb Ratio of population under IS and 65 Saw ower to total labor force: /c 0971; LI Regietered emly; beaoved to be oer-estlmeta of ambaer mctually practicing. TIIAILAND 1970 Ia 1964-66; lb Public schools, which Include technicel education at the poot-soand.eiry leawl. nIRgrrY 1970 /a 1967; /b jxcldade 17 eastarn provinces; jc 196S-67; Id 1965-70; to Ratio of population unader 15 cnd 65 and over to labor farce 15 years and over; If 15 yeans cod avar, eseleds masseloyed: La Regitered only; /h Diaponable income; a1 lecludiag aasitmat wmaw.. amd eUnwives; a 1964-4; L_ 1967.48; /I peroaw eio year end -oer who tall the eaneus tahers that they cem read amd writs.. LOREA Rpp. IF 1970 AsN percentage of emplayment; /b Ragiatered, met all precticing im tthA couantry; 15. Water piped inside. Rio, Nowember 17. 1977 DWIITlcOu OF SOCIAL INICATOILS L-nd Atea ~thOO_oJ. Popuslation Psr nursing Parson -Populatiom dividad by v-bSr of p-attcing Total T rog1-f araar. copr ,lagn load greg ad inland weters. male and fesala ra-duate nurana, trainedl or 'cartifi.d'- ...rag., gd fat. 0 .. r..... rs ti-st of agricultural area used tomporarIly or pam- eaMISIa'y Personnel with trainiang or emperloc- onatly f-r 0-op, p.atur.a -gk.t 6 kitchen gardena or to lie fallow. ponualatt oner baital bed - Population divided by n...br of hoaSpit. had, available in publ end Pli'ata general cMi aPacialisad hoepital end GRP per -atit. (US$) - GlNP per -apita atiomatas at currant market pricea, rehabLIttation teeters; estcldes meurim, he mad eatab,lalmat. for -calcult.d by a.- covrsion nthod as World Rank Atlee (1973-75 basis); custodial cod preventive cr.- 1960; 1470 god 1975 data, per capit, supply of caloria Cl4 of reesirm teet - Csawatd from snegy eqvivalamt Of eat food SuPPlies "avaiable is cousstry par capita par day.; Fooulation a-d dit. stgti.tic, eeilable euppliea comprise demean. pOduction, import. leca Saporta, god P.p.l.tioo (mid-year million) us of July first: if sot aveilabla, "verage choogee i.e etock; met Supplies neciude anjmat feed, seeda, quantities uscd of tw and-year eaclmatee; 1 '60, 1970 and 1975 data, in food Proceasing and 1saae0 in dietribtcion; raquirmMMnta -ar. astict.d by FAO baaed on physiological needa for eomal activit, and health ronald- Population danairo - par Squat. he.. -Mid-year population par equare kilonerer ering eneirommntal tmperaturs, body ueaghts, age aed See diatribionna of (100hctrs of total are. popuSlatlO8 md allowiag 10% for waest at beomeheld level. Popul.tiLn danaity - par esare kE ofLaeric. lead - Conputad - above for Pe aiaapyo rtamfr e aS-Potein content of Par Capita agricultural land only. net F11isuppl offodpe dy ntaupl fo is defifedl us above; require- moter for all casatria. eatablished by UBDA goomomic Reaaerch S.rvicee Vital stteigprovid for O eotinsom alloance of 60 grow of total Protein par day, end Cr,j'. 1,4- robrar p-r thousand. awarcee - Annual live birtha par thousand of 20 green sf animal and pulae Protein, of which 10 green sbould be _nieal aid-year popult ion; ten-year arittestic averagen mdivg in 1960 and 1970, prorate; these ateodarda are loner than theme of 75 gr,_ of total prtotin and flv-ya-raver.ge ending i. 1975 for mact recent -tiNate. and 23 grome of enisal prot-ai us an average for the wasrld, Wp_oond by TAO Crude death rate par thousand, average - Asns,l deatha par thousand Of m1d-year in teb Third World faod survey. popolstion; ten-year aritimric. vavrag" ending in 1960 and 1970 cnd five- Par "aPita protein susul, froman imal and nulae - prtein Supply of food ysar roraaenig io 1975 for amot recent atimata. dariv.d from a.nialsan plaus in S.m par dany. InIant mrliyrt /oUl -) Annua deaths of infnts eunder on year of age Death raea C/thou) ames 1-4s - Annuel deathe par thoueaad in Sae group 1-4 par thousand live births. year., to chiidratn in th. age sroup; suggeated aS an indivator of Lifa oxne-a-Ten at birth lyre Avea.ge number of year. Of life remaining at almatritimn. birth; uaully five-yaar cverag aacding in 1960, 1970 and 1975 for develp- 008 coautriso. Education rroa. roprodution rote - veraga masher of live daughter. a samn will bear Adjusted enrollment rai -Irmr,aho - zorollment of all gaas So Pr-- io her .ornal reproductive period if She papei.ance precent aga-apecific centage of primary ocolaspplto;includes childrm aged 6-11 yea.n fertility rat.g; ugualy fi-e-year avaraega endling in 1960, 1970 and 1975 but adJusted for different length. of primery education; for countri.a sith for developing countries. univrera1 education, enrollment may aeteed 1001 since Same pupils ar_ bab_ population groats rate CXl - tots1 - Compound annual growth rates of mid-year or shov the official school agge. population for 1950-60, 1960-70 and 1970-75. dAluat enolctrto- Secondary scobsi - Comuted - abov; seO-dery poplaltion growth rate (l-urban - Computed lika growth rate of total edctonrqir. at Ieast four years of approved primary instruction; population; different definitions of urban areas soy affect tonprability of provides general, vocational or teacher training inatructiona for pupils dat.a mong coutriec.. of 12 to 17 years of age; corependeece omarem are generally eacuded. Urban poPulation (% of total; - Ratlo of urban to Ctots population; different yeere of echoolie. provided (first eecsn,nd lavelg) - Tot.1 yero of defi.itiog of urban areas my affect comparability of data mOnag conresbcooling; at 8ScO-erY lc.ml, voce2tinel inatructim ma" he partially or completely eacluded. Age struts- cuyrcent - Childt.o (i-li years), -crbing-age (15-64 years), VMoctional enrollment CX of .cmodary)-Voainliaioaalcad sod etir-d (65 year. and over) sa pr-cet.gas of mid-year population,tcnaliduraloOtrprgn wht-ichopeat itndapandao;- ordg lfdpednc aio - Racic of Ppoplation onder 15 and 65 .nd over to thugs dcpertnanit of ec-4ary L-atitutiona . of ages 15 through 64. Adult literacy' rate MX - Litertat adults (able to read and write) aS par- E-oonic d-ped-oy ratio - Ratio of population ondor 15 -nd 65 and ovr to -etase of total adult Popu.loato agad 13 yasra adovr thc lohor foo- to ago group of 15-64 years. Faily ol-oiM -cccvs(2 ,ra to) - Cumlative comber of acce ptors Housing of birth-cotrol d-ic.. -oder aupic- of national fatily planning profram Persona gar room (urban) -Aeaeosa fproaprro nocp Fatl, plovaciu - -grys (7. of nrrird .noo) - parc..ntages of married woan Of onattuoture ad ucaccopiid prts..ae; -ig Ol child-hearing ass (15-44 pears) shy use biorth-ontro1 davices to all eared Ocusd tr.uo dwllngd uaithout patsa wae X caidceecoa vig vomen to seen age group. ~~~~~~~~in urban and rural areaa. without imaids or toutide piped water facilities as pa Seta of all ocupeddelins Tota laor orc (tousnd)- iconoica11Y active parsons, including armed alactricity is living quartera ac par-ent of total dvallttga i urban and forceg and .-apIoyed but occluding housewives, atudents, etc.; definitions rural areas. to vaiou -otnriag Sre not -oparabla. Rural duallinaw connected t.oel.ctricity MX - Computad as above for rural Labor for.. In agricultur (X) - Agricultural labor force (i. fataing, forestry, dwellings only. bunting and fisbing) as prcentags af total labor forc.. Unemployed (7. of labor force) - Itneployd are usually defined as proona who Cougomption Sra able and willing to take a Job, out of a Job on a give day, rmetied out Radio racaivrs fpear thou popl - All types of roceivars far radio hoadc-ate of a Job, and seebing work for a spcified mininom period not ......ding one to genaral Public per thougad of population; -ncld.a otlc.ood r-ci-rs scek; may noat b, coparable bet.e.n coutriga due to differant defiuitione in countri.a and to yearn.when registration of radio sets vaa to ffor,; of uneployed and vource of data, e.g. , eaploynt, office atacitolS, aempla data for recat Year. maY not be comparabla SInce neat countrIes aoliahad survYs, c-puleo-Y -seploy-ct iooranc.. li-na in,. PIa..e:grcarCottopol Psegra. comris mtor -eora. rn loom dicribuciooParc...tage of private lnoom, (both in~ cah and kind) lua oLse aight zpersonuPa;- .nbda embulances bseaend military croc.i-d bp richest 5Z, richoac 20%, pooret 20%, ad pororet 401 of haous- vehiclas. holds. Electricity (kwh/yr Lear .ap) - Annua consumption of tadustrial,nprtl pjjjr~~~~~~~~~~~~~~~~~~~~ ~~public and pri-tn electricity In kilowtt hours per capita, ge..eralIly Ocacibuioc f lnd onerhip- Pe-r-agS. of land oucd by veclchiest 10% b.asd on production data, without allema... for looses in grids bot allo-- cod poorest 10% of lend w-oro. tug faor inport and eWmota of c1,,tricity. H..l th .~~~~~~~d N.tritl- ~~~~~~Newsprint (ba/or per cap) - Per ..pic.a cnu-I coneaupoton in bibogroem lies) tb sod fiuitrdiiti by-v-of raoftes.timtatd from domestit p-odoction plus net imports of enowspri.tr physiciona q.alifiod foe a edlIca school at univrsity level. ANNEX I Page 3 of 4 pages ECONOMIC INDICATORS GROSS NATIONAL PRODUCT IN 1976 ANNUAL RATE OF GROWTH (X, constant prices) US$ million x 1966-71 1971-76 1976 GNP at Market Prices 17,631 100.0 5.1 6.6 6.4 Gross Domestic Investment 5,519 31.3 5.9 12.5 6.3 Gross National Saving 4,413 25.0 2.4 10.8 6.6 Current Account Balance -1,106 -6.3 Exports of Goods, NFS 3,115 17.7 -0.5 5.6 18.0 Imports of Goods, NFS 4,270 24.2 4.1 6.5 1.5 OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1976 Value Added Labor Force V. A. per worker US$ million % Million % US Agriculture 5,156 29.0 8.1 50.0 637 58.0 Industry 6,029 33.9 2.3 14.2 2,621 238.7 Services 6,607 37.1 5.0 30.9 1,321 120.3 Unemployed . . 0.8 4.9 .__ Total/Average 17,792 100.0 16.2 100.0 1,098 100.0 GOVERNMENT FINANCE General Government Central Government (P billion) % of GDP (P billion) % of GDP 1976 1976 1971 1976 1976 1971 Current Receipts 20.9 15.8 11.3 18.3 13.8 9.2 Current Expenditure 18.2 13.7 10.1 16.1 12.2 7.6 Current Surplus 2.7 2.0 1.2 2.2 1.7 1.6 Capital Expenditures 4.9 3.8 1.6 4.5 3.4 1.3 MONEY, CREDIT AND PRICES 1972 1973 1974 1975 1976 August 1977 (P million outstanding end period) Money Supply 6,500 7,300 9,000 10,300 12,100 12,800 Bank Credit to Public Sector 3,900 2,400 2,000 5,800 8,900 9,200 Bank Credit to Private Sector 12,600 16,200 24,200 28,500 23,600 34,900 (Percentage or Index Numbers) Money as X of GDP 11.5 10.1 9.0 8.9 9.2 General Price Index (1972 - 100) 100.0 117.6 154.4 166.8 180.1 Annual percentage changes in: General Price Index 6.7 17.6 31.3 8.0 8.0 Bank Credit to Public Sector -2.1 -38.5 -16.7 190.0 53.4 Bank Credit to Private Sector 21.7 28.6 49.4 17.8 17.9 /a All conversions to dollars in this table are at the average exchange rate prevailing during the period covered. * not applicable. ANNEX I Page 4 of 4 pages TRADE PAYMENTS AND CAPITAL FLOWS BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1974-76) 1974 1975 1976 V5S million % (US$ million) Coconut Products 539 21.4 Exports of Goods, NFS 3,431 3,076 3,330 Sugar Products 613 24.3 Imports of Goods, NFS 3,784 4,116 4,383 Forest Products 298 11.8 Resource Gap (deficit - -) -353 -1,040 -1,053 Mineral Products 437 17.3 Fruits & Other Agric. Products 178 7.1 Interest Payments (net) 26 -53 -185 Other Manufactures 456 18.1 Other Factor Payments (net) -154 -149 -138 Total 2,521 100.0 Net Transfers 276 318 269 Balance on Current Account -205 -924 -1,107 EXTERNAL DEBT, DECEMBER 31, 1976 /c US$ million Direct Foreign Investment 28 125 144 Net MLT Borrowing Public Debt, including Guaranteed 2,216 Disbursements 456 677 1,407 Nonguaranteed Private Debt 1,812 Amortization 312 318 368 Total Outstanding and Disbursed 4,028 Subtotal 144 359 1,039 Other Capital (net) /a 143 -80 -236 DEBT SERVICE RATIO FOR 1976 /d Increase in Reserves (+) 110 -521 -160 Public Debt, including Guaranteed 7.2 Gross Reserves Nonguaranteed Private Debt 10.5 (end year) /b 1,978 2,079 2,205 Total Outstanding and Disbursed 17.7 Petroleum Imports 573 710 801 IBRD/IDA LENDING, March 31, 1978 (US$ million) RATE OF EXCHANGE IBRD IDA Annual Averages End Period Outstanding and Disbursed 423.9 29.1 1975 1976 Jan-Aug 1977 Aug 1977 Undisbursed 789.0 3.1 Outstanding, incl. Undisbursed 1,212.9 32.2 US$1.00 - P 7.275 7.447 7.418 7.403 P 1.00 - US$ 0.138 0.134 0.135 0.135 /a Includes SDRs, short-term private loans, Central Bank liabilities, use of IMF credit, and errors and omissions. /b Gross reserves of the Central Bank. /c Excludes short-term debt and IMF standby credit and is on a disbursement basis. /d Ratio of Debt-Service to Exports of Goods and Nonfactor Services. ANNEX II Page I of 12 pages THE STATUS OF BANK GROUP OPERATIONS IN THE PHILIPPINES A. STATEMENT OF BANK LOANS AND IDA CREDITS As of March 31, 1978 Loan or Credit Amounts (S million) Number Year Borrower Purpose Bank IDA Undisbursed Fifteen loans and two credits fully disbursed 218.5 19.5 637-PH 1969 Republic of the Philippines Irrigation 34.0 0.3 720-PH 1971 Rice Processing and Storage 14.3 4.4 809-PH 1972 National Power Corporation Power 22.0 4.3 349-PH 1973 Republic of the Philippines Education II 12.7 3.1 891-PH 1973 Fisheries 11.6 1.1 939-PH 1973 Ports 6.1 2.8 950-PH 1973 Second Highways 68.0 13.9 984-PH 1974 Aurora-Penaranda Irrigation 9.5 5.9 998-PH 1974 DFC-DBP I 50.0 7.3 1034-PH 1974 National Power Corporation Power 61.0 22.1 1035-PH 1974 Reptublic of the Philippines Population 25.0 18.7 1048-PH1 1974 Shipping 20.0 15.0 1052-PH 1974 Philippine Naitional Bank DFC 30.0 18.1 1080-P11 1975 Repuiblic of the Tarlac Philippines Irrigation 17.0 10.9 1102-PH 1975 Rural Development 25.0 21.2 1120-PH 1975 Small and Medium Industries 30.0 8.0 1154-PH 1976 Magat Irrigation 42.0 32.7 1190-PH 1976 DFC-DBP II 75.0 55.5 1224-T-P11 1976 " Education III 25.0 20.1 1225-PH 1976 ' Livestock II 20.5 12.3 1227-PH 1976 " Chico Irrigation 50.0 47.6 1272-T-PH 1976 ISanila Urban 10.0 8.9 1282-PH 1976 Manila Urban 22.0 19.7 1269-PH 1976 Second Grain Processing 11.5 11.5 1270-PH 1976 Second Fisheries 12.0 9.9 1353-PH 1977 Third Highways 95.0 92.9 1367-PH 1977 Jalaur Irrigation 15.0 15.0 1374-PH 1977 Fourth Education 25.0 24.3 1399-PH 1977 Central Bank of Fourth Rural the Philippines Credit 36.5 34.9 1414-PH 1977 Republic of the National Irriga- Philippines tion Systems Improvement 50.0 48.3 1415-PH 1977 Provincial Cities Water Supply 23.0 22.3 1421-PH 1977 Second Rural Development- Land Settlement 15.0 15.0 1460-PH 1977 National Power Corporation Seventh Power 58.0 58.0 1506-PH * 1978 Republic of the Smallholder Tree Philippines Farming 8.0 8.0 1514-PH * 1978 Philippine National Bank DPC (PDCP) 30.0 30.0 1526-PH * 1978 Republic of the Second National Philippines Irrigation Sys tems Improvement 65.0 65.0 Total /a 13_32.5 32.2 789.0 of which has been repaid (Bank and third parties) 110.7 - Total now outstanding 1,221.8 32.2 Amount sold 22.0 of which has been repaid (third parties) 13.1 8.9 - Total now held by Bank and IDA (prior to exchange rate adjustments) 1,212.9 32.2 Total undisbursed 785.9 3.1 789.0 la A development credit of $28 million was approved on April 11 and signed on April 21. A loan of $2 million for an Educational Radio Technical Assistance Project was approved by the Executive Directors on March 21, 1978 and signed on April 21, 1978, a loan of $60 million for rural electrificatiin on April 4, 1978 and a credit of $28 million for a rural infrastructure project on April 11, 1978 and signed on April 21, 1978. In addition two loans, one for $6D million for rural electrification and the other for $15 million for Philippine Investment Systems Organization (PISO) were approved on April 4 and April 27 respectively. a Not yet effective. ANNEX II Page 2 of 12 pages B. STATEMENT OF IFC INVESTMENTS As of March 31, 1978 Fiscal Amounts ($ million) Year Company Loan Equity Total 1963 & 1973 Private Development Corporation of the Philippines 15.0 4.4 19.4 1967 Manila Electric Company 8.0 - 8.0 1967 Meralco Securities Corporation - 4.0 4.0 1970 Philippine Long Distance Telephone Company 4.5 - 4.5 1970 & 1972 Mariwasa Manufacturing, Inc. 0.8 0.4 1.2 1970 Paper Industries Corporation of the Philippines - 2.2 2.2 1971 & 1977 Philippine Petroleum Corporation 6.2 2.1 8.3 1972 Marinduque Mining and Industrial Corporation 15.0 - 15.0 1973 Victorias Chemical Corporation 1.9 0.3 2.2 1974 Filipinas Synthetic Fiber Corporation 1.5 - 1.5 1974 Maria Christina Chemical Industries, Inc. 1.5 0.5 2.0 1974 Republic Flour Mills Corporation 1.2 - 1.2 1975 Philippine Polyamide Industrial Corporation 7.0 - 7.0 1976 Philagro Edible Oils, Inc. 2.6 0.2 2.8 1977 Acoje Mining Company, Inc. 2.3 1.2 3.5 1977 Sarmiento Industries, Inc. 3.5 - 3.5 Total gross commitments 71.0 15.3 86.3 Less sold, acquired by others, repaid or cancelled 25.2 12.0 37.2 Total commitments now held by IFC 45.8 3.3 49.1 Undisbursed 5.0 - 5.0 ANNEX II Page 3 of 12 pages C. PROJECTS IN EXECUTION /I Agricultural Sector Loan No. 720 Rice Processing and Storage; $14.3 Million Loan of February 4, 1971; Date of Effectiveness: May 10, 1971; Closing Date: June 30, 1979 This project provides long-term credit through the Development Bank of the Philippines to finance a program for the development and modern- ization of the rice and corn processing industry. Originally the project was restricted to rice and to the private sector, and the emphasis was on the construction of new integrated large capacity rice mills. Due in part to poor harvests and in part to large cost increases for rice mills, the demand for subloans for new integrated rice mills turned out to be small and, as explained in the President's Memorandum, dated June 8, 1972 (R72-40), the Loan Agreement was amended to shift the project emphasis to rehabilita- tion of existing rice mill:ing facilities. The Loan Agreement was further amended in April 1974 to: (a) expand the scope of the project to include corn in addition to rice, (b) enable local governments and the National Grains Authority to borrow funds under the project, and (c) streamline procurement procedures (President's Memorandum SecM74-244 of April 15, 1974). As a result of these amendments, the project is now generally progressing satis- factorily, although mounting arrears are a source of concern and DBP is now stepping up its supervision and collection efforts to deal with this. Bank loans for subloans have be,en fully committed; however, because of the long construction period of the large subprojects, full disbursement will be delayed until mid-1978 and the Closing Date has been postponed to June 30, 1979. Credit No. 472 Aurora-Penaranda Irrigation; $9.5 Million Credit and Loan No. 984 $9.5 Million Loan of May 14, 1974; Date of Effectiveness: August 22, 1974; Closing Date: June 30, 1979 The project diverts water from the Aurora basin into the Pantabangan reservoir to provide year-round irrigation for 30,000 ha of rice land in Central Luzon. Although the need for foundation and abutment area grouting on the two diversion dams was more extensive than originally expected, progress on the transbasin diversion was excellent. Diversion of 75% of Aurora water, /1 These notes are desigrned to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evalua- tion of strengths and weaknesses in project execution. ANNEX II Page 4 of 12 pages on closure of the first dam in July 1975, was an early benefit for the Central Luzon rice growing area. The second dam was closed on April 1, 1976, about one year ahead of schedule. In the service area, lack of competition and high bids delayed awarding of contracts, but five small local construction firms are now at work. Urgent work is being done by government forces. Project costs have increased about 54% over appraisal estimates, largely as a result of rapid inflation. Although there are added benefits from early diversion resulting in additional water for irrigation sooner than planned, and nearly 5,000 ha have been added to the project, the rate of return is expected to fall from 17% at appraisal to around 14%. The Credit has been fully disbursed and disbursement on the Loan has begun. Loan No. 891 Fisheries; $11.6 Million Loan of May 21, 1973; Date of Effectiveness: December 5, 1973; Closing Date: June 30, 1979 This project is designed to provide long-term credit to the private sector through the Development Bank of the Philippines for marine and inland fisheries development. The demand for subloans has been adequate, and the organization to implement them has been properly established. The project is progressing satisfactorily, and all funds were fully committed by July 1976 and are likely to be disbursed by the Closing Date. A moderate arrears problem has developed, which DBP is tackling by increasing its supervision and collection efforts. Loan No. 1080 Tarlac Irrigation; $17.0 Million Loan of January 27, 1975; Date of Effectiveness: April 27, 1975; Closing Date: December 31, 1980 The project is assisting the Government to improve 21,000 ha of land under three existing national irrigation systems and expand irrigation on 13,000 ha of additional land in Central Luzon. Progress on the groundwater, water management training and NISIS components of the project has been good. All major civil works contracts are now awarded and remaining work is all under way. Also, most equipment contracts are awarded. Progress under the project is satisfactory. Loan No. 1102 Rural Development; $25.0 Million Loan of April 16, 1975; Date of Effectiveness: July 28, 1975; Closing Date: June 30, 1981 The project is assisting the Government to carry out a rural devel- opment project on the island of Mindoro. This includes constructing and improving 150 km of national highways and 280 km of provincial roads, rehabil- itating and upgrading Calapan Port, improving and extending two national irrigation systems to serve 12,000 ha of rice land, and 3,000 ha under communal irrigation systems, providing an agricultural program involving seed ANNEX II Page 5 of 12 pages testing laboratories and rat control, providing protection programs in four watersheds, schistosomiasis control, and assistance to Mangyan tribes. Pro- gress is satisfactory on irrigation and after substantial initial delays, is improving steadily for the road component. These two components are being implemented by agencies having experience with Bank-funded projects, and construction has begun on Calapan Port. With the exception of the Mangyan Assistance Program, however, there was little early progress under the other programs because of inadequate budgeting by the various agencies for the new programs. More adequate budgets have now been approved and all work is expected to proceed rapidly. Loan No. 1154 Magat Multipurpose Project; $42.0 Million Loan of August 7, 1975; Date of Effectiveness: November 4, 1975; Closing Date: June 30, 1982 The project is assisting the Government to improve and expand irrigation on 35,000 ha of. land in the Cagayan Valley of Northern Luzon. Consultant's work on the engineering and economic evaluation studies is completed. The water management training is under way and satisfactory progress is being made on civil works. Loan No. 1225 Second Livestock; $20.5 Million Loan of April 8, 1976; Date of Effectiveness: September 13, 1976; Closing Date: June 30, 1982 The project is designed to increase domestic production of livestock products. As of June 30, 1977, disbursements were $5.0 million, which is about 70X above appraisal estimates. However, arrears under the First Livestock Project are quite high and DBP is now taking steps to improve subloan appraisal and supervision as well as project monitoring. Loan No. 1227 Chico River Irrigation Project; $50.0 Million Loan of April 8, 1976; Date of Effectiveness: July 19, 1976; Closing Date: June 30, 1981 The project is assisting the Government to improve and expand irrigation on 19,700 ha in the Cagayan Valley. Consultants for the Erosion Control Study and for input-output monitoring have been engaged. A start has been made on civil works for rehabilitation of the Chico West and Tuga- Gobgob areas. Bids have been received for the three road links included in the project and contracts have been awarded for two of them. Government evaluation of the third is still under way. After substantial initial delay, the road component of thet project is now progressing more satisfactorily. ANNEX II Page 6 of 12 pages Loan No. 1269 Second Grain Processing Project; $11.5 Million Loan of July 2, 1976; Date of Effectiveness: November 12, 1976; Closing Date: June 30, 1981 The project provides long-term credit through the Development Bank of the Philippines to assist in modernizing and expanding the Philippine grain processing industry. Initial progress under the project is satisfactory. Subloan commitments are expected to begin shortly, now that Loan No. 720 is fully committed. Loan No. 1270 Second Fisheries Project; $12.0 Million Loan of July 2, 1976; Date of Effectiveness: November 12, 1976; Closing Date: June 30, 1981 The project provides long-term credit through the Development Bank of the Philippines to assist in increasing fish production for domestic con- sumption. Initial progress under the project is satisfactory. Loan No. 1367 Jalaur Irrigation Project; $15.0 Million Loan of February 14, 1977; Date of Effectiveness: May 12, 1977; Closing Date: December 31, 1982 This Loan is assisting the Government in rehabilitating about 22,000 ha of existing irrigation schemes and constructing new irrigation and drainage facilities for about 2,900 ha of rice land on the island of Panay. Construction work on the existing main and secondary canals improvement has now begun. Loan No. 1399 Fourth Rural Credit Project; $36.5 Million Loan of April 11, 1977; Date of Effectiveness: June 2, 1977; Closing Date: December 31, 1980 The project provides medium- and long-term credit through partici- pating banks to finance farmers and local entrepreneurs for farm mechanization, livestock, fisheries, and cottage and agro-industries. The project became effective on June 2, 1977. Initial implementation was delayed because of the time required for preparation, but commitments are expected to increase in the coming months. The major problem is to minimize disqualification from participation due to high arrearages and to encourage eligible rural banks to participate. Loan No. 1414 National Irrigation Systems Improvement Project; $50 Million Loan of May 13, 1977; Date of Effectiveness: August 9, 1977; Closing Date: December 31, 1981 This project consists of rehabilitation of irrigation facilities serving 28,000 ha and extension of irrigation facilities to 22,000 ha of farmland in Northern Luzon and Leyte, and a schistosomiasis control program in Leyte. The Loan became effective on August 9, 1977. ANNEX II Page 7 of 12 pages Loan No. 1421 Second Rural Development (Land Settlement) Project; $15.0 Million Loan of June 10, 1977; Date of Effectiveness: October 27, 1977; Closing Date: December 31, 1982 The loan became effective on October 27, 1977. A good start has been made in setting up tlhe administrative structure of the project implemen- ting unit and in improving its planning capacity. Physical progress is somewhat behind schedule as a result of procedural difficulties in obtaining local counterpart funds. This problem, however, is being resolved and project implementation can be expected to be completed on time. Loan No. 1506 Smallholder Tree Farming and Forestry Project; $8.0 Million Loan of January 23, 1978; Date of Effectiveness: Not Yet Effective; Closing Date: December 31, 1982 This Loan was approved by the Executive Directors on December 22, 1977 and signed on January 23, 1978. It is not yet effective. Loan No. 1526 Second National Irrigation Systems Improvement Project: $65 Million Loan of March 15, 1978; Date of Effectiveness: Not Yet Effective Closing Date: December 31, 1984 The project wiLl assist the Government to improve and develop irriga- tion systems for a total of 80,900 ha, control schistosomiasis and strengthen the National Irrigation Administration regional offices. The Loan Agreement was signed on March 15, 1978. It is not yet effective. Credit No. 790-PH Rural Infrastructure; $28 million Credit of April 21, 1978; Date of Effectiveness: Not Yet Effective; Closing Date: December 31, 1983 The project is assisting the Government to construct and improve irrigation facilities on 9,400 ha, construct and improve about 1,390 km of rural roads; improve three ports and construct 300 village wells. The credit was signed on April 21, 1978. The project is at an early stage of organization and mobilization. Transportation Sector Loan No. 939 Second Plorts Project; $6.1 Million Loan of October 24, 1973; Date of Effectiveness: December 19, 1973; Closing Date: July 15, 1979 Progress on civil works construction for both General Santos and Cagayan de Oro has been slow, due mainly to frequent breakdowns of the contractor's dredger in General Santos, and the slow mobilization of con- tractor's plant in Cagayan de Oro. These problems have been resolved and progress on civil works construction at both plants is improving. By June 1977, work was 36% completed in General Santos, and 6% in Cagayan de Oro. The present estimated total project cost is 75% higher than the appraisal ANNEX II Page 8 of 12 pages estimate due to worldwide price increases. However, foreign exchange costs are lower than appraisal estimates as the contractors are locally based. Total traffic at the project ports is in line with appraisal forecasts and a reasonable financial rate of return is being earned. By June 1977 the Philippine Port Authority had taken over 7 of the 18 national ports. Loan No. 950 Second Highway; $68.0 Million Loan of December 12, 1973; Date of Effectiveness: February 27, 1974; Closing Date: June 30, 1979 Overall progress on construction has been generally satisfactory, with about 90% of the project works completed. However, progress on one of the national roads is not satisfactory and this is expected to delay project completion by about 12 months compared to the appraisal estimate. UNDP- financed road feasibility studies were completed in June 1975, and detailed engineering for the Third Highway Project (Loan 1353-PH) was completed in August 1976. Detailed engineering for the proposed Fourth Highway Project was substantially completed in October 1977. The total cost of the project has risen substantially (about 40% above appraisal estimate) because of inflation following the oil price increase in late 1973. About $12 million still remains undisbursed and hence the Closing Date has been postponed to June 30, 1979. Loan No. 1048 Inter-island Shipping; $20 Million Loan of October 29, 1974; Date of Effectiveness: January 15, 1975; Closing Date: June 30, 1979 The Government is relending the proceeds of the Loan to the Development Bank of the Philippines (DBP) for onlending to beneficiaries for the acquisition of new and used ships and for major repairs and con- versions. Commitments were initially slow because of lack of demand from the private sector due to the lengthy period required for the processing of loans, restrictive collateral requirements by DBP, and unfavorable lending terms offered by DBP in comparison with those extended by other lending institutions in the Philippines. However, these problems are now being resolved and subloan commitments have begun to move again. Loan No. 1353 Third Highway Project; $95.0 Million Loan of January 12, 1977; Date of Effectiveness: March 30, 1977; Closing Date: June 30, 1981 The project is assisting the Government in improving the national and rural road systems and their maintenance. Most construction contracts have been awarded. The major problem is delayed implementation of the road restoration/maintenance component of the project. However, priority attention has been given to this problem and, as a result, implementation of these components are expected to accelerate during the coming year. ANNEX II Page 9 of 12 pages Education Sector Credit No. 349 Second Education; $12.7 Million Credit of January 5, 1973; Date of Effectiveness: April 11, 1973; Closing Date: December 31, 1978 The Credit provides $12.7 million to finance improvements to existing middle and higher level agricultural education institutions, curric- ulum development, and new technical and vocational institutions in rural areas. Physical progress is now good under the project and disbursements have reached 75% of planned levels. All of the 32 project institutions have been completed and three fourths of the technical assistance program has been completed. Cost overruns of 13% are expected in dollar terms because of inflation and earlier lack of cost control over civil works; the amount of equipment purchased has been reduced to compensate for cost overruns. Loan No. 1224 Third Education Project; $25 Million Loan of April 8, 1976; Date of Effectiveness: July 29, 1976; Closing Date: June 30, 1981 The project covers the first phase (1976-80) of the Government's eight-year textbook program and provides for the development, production and distribution of 27 million textbooks. It also provides for curriculum development, teacher training and technical assistance. Progress under the project is satisfactory. Disbursements are more than twice the planned level. Loan No. 1374 Fourth Education Project; $25.0 Million Loan of March 25, 1977; Date of Effectiveness: June 9, 1977; Closing Date: December 31, 1981 This project is assisting the Government in developing agricultural education and training. It includes assistance for: specialized facilities for forestry, animal science, and veterinary medicine; a regional agricultural college in the Visayas; and training for extension workers and farmer leaders. Implementation of all aspects of the project is on schedule. Loan No. S-8-PH Educaticinal Radio Technical Assistance; $2 million loan of April 21, 1978; Date of Effectiveness: Not Yet effective; Closing Data: December 31, 1981 The proposed project is assisting the Government to develop and evaluate the cost effectiveness of educational radio in inservice teacher training and primary classroom teaching. The loan was signed on April 21, 1978. The project is at an early stage of organization. Urban Sector Loan No. 1272T Manila Urban Development Project; $10.0 Million and Loan No. 1282 $22.0 MiLlion Loans of June 9, 1976; Date of Effectiveness: December 9, 1976; Closing Date: September 30, 1981 The loan is financing: (a) improvements in basic sanitary services for families living in the Tondo Foreshore and Dagat Dagatan areas, and (b) improve- ments in transportation and traffic in the Greater Manila Area. Construction on 1,500 of 2,000 serviced lots at Dagat Dagatan is nearing completion. The ANNEX II Page 10 of 12 pages high school and health clinic in Tondo have been constructed and the subdivision of lots in the Tondo priority area is also nearing completion. A paper on the status of this project was submitted to the Executive Directors in December 1977. Loan No. 1415 Provincial Cities Water Supply Project; $23 Million Loan of May 13, 1977; Date of Effectiveness: September 9, 1977; Closing Date: March 31, 1982 This loan is financing: (a) water supply improvement and expansion in six provincial cities; (b) feasibility studies for water supply improve- ment in ten additional cities; and (c) feasibility studies for Manila sewerage. The Loan was made effective on September 9, 1977. Progress is generally satisfactory according to the review of the preliminary engineering studies and detailed design of the water supply construction. Power Sector Loan No. 809 Fifth Power; $22.0 Million Loan and $10.0 Million Credit Credit No. 296 of April 3, 1972; Date of Effectiveness: July 1, 1972; Closing Date: June 30, 1978 The project is helping the National Power Corporation (NPC) to finance the construction of a second thermal unit of 150 MW at Bataan and transmission facilities in Luzon. Although there has been some minor delay due to the late delivery of transformers, the project is proceeding satis- factorily. The erection of transmission lines has also been completed. The loan is expected to be fully disbursed before the Closing Date, which has been postponed from June 30, 1976 to June 30, 1978. A tariff increase was approved in October 1976, but this was insufficient to enable NPC to achieve the expected rate of return of 8% on its net fixed assets in operation. Further tariff increases are currently under consideration. Loan No. 1034 Sixth Power; $61.0 Million Loan of July 31, 1974: Date of Effectiveness: November 15, 1974; Closing Date: December 31, 1978 The project is helping the National Power Corporation (NPC) to finance a 100 MW hydro plant at Pantabangan and transmission lines for the further expansion of the Luzon grid and feasibility studies by consultants for a future power project. The generating plant has been commissioned. However, the transmission component of the project is behind schedule because necessary design work has been delayed due to NPC's heavy construction program. For this reason the Closing Date may have to be extended. Costs have increased by 21%, largely due to inflation. ANNEX II Page 11 of 12 pages Loan No. 1460 Seventh Power Project; $58.0 Million Loan of August 9, 1977; Date of Effectiveness: January 6, 1978; Closing Date: June 30, 1982 The project will assist the Government in expanding the transmission system in Luzon, establishing the first stage of a communications system and control center, and training NPC staff. The loan became effective on January 6, 1978. Industrial Sector Loan No. 998 Industrial Investment and Smallholder Tree-Farming; $50.0 Million Loan of June 12, 1974; Date of Effectiveness: September 9, 1974; Closing Date: December 31, 1981 The proceeds of the Loan were relent to the Development Bank of the Philippines (DBP). The industrial portion of the Loan ($48 million) has been used by DBP to finance direct imports for medium and relatively large industrial projects. DBP is using the balance ($2 million) to finance about 1,300 smallholders in a pilot tree-farming project in Mindanao. Subloans are expected to be fully committed by mid-1978. Loan No. 1052 Private Development Corporation of the Philippines; $30 Million Loan of November 12, 1974; Date of Effectiveness: February 7, 1975; Closing Date: June 30, 1979 The project assists in the financing of economically desirable and financially viable industrial subprojects. As of November 2, 1977, commitments for subloans totaling $19.1 million had been made. While subloan commitments have been somewhat slower than originally expected due to the generally slow pace of business activity, the implementation of the project is satisfactory. Loan No. 1120 Small and Medium Industries Development; $30.0 Million Loan of June 5, 1975; Date of Effectiveness: August 20, 1975; Closing Date: August 31, 1979 The DBP portion of the funds has been fully disbursed. After a slow start, commitment and disbursement of funds under the Industrial Guarantee Loan Fund are now proceeding well. However, the Rural Industrial Cooperative Program ($2.3 million) which is being implemented by the National Electrifica- tion Administration is, because of its experimental nature, facing management and staffing problems. Disbursements on this component have therefore been slow. Overall progress of the project is, however, satisfactory. ANNEX II Page 12 of 12 pages Loan No. 1190 Industrial Investment; $75.0 Million Loan of January 28, 1975; Date of Effectiveness: April 6, 1976; Closing Date: March 31, 1980 The proceeds of the Loan are relent by the Development Bank of the Philippines for subloans to finance direct imports for medium and relatively large industrial projects. Commitments of funds, which were initially much slower than expected due to a slowdown of investment in the industrial sector as a whole, have recently improved. The Executive Directors approved a proposal to reallocate $25 million of the funds for small and medium industries on February 25, 1977, and an amendment to the Loan Agreement to this effect was signed on March 16, 1977. As of November 2, 1977, commitments for subloans amounting to $17.5 million had been made. In addition, $5.4 million had been disbursed against the allocation for small- and medium-scale industries. Loan No. 1514 Private Development Corporation of the Philippines; $30 Million Loan of February 9, 1978; Date of Effectiveness: Not Yet Effective; Closing Date: March 31, 1982 This Loan was signed on February 9, 1978 and is not yet effective. Population Loan No. 1035 Population; $25.0 Million Loan of July 31, 1974; Date of Effectiveness: November 13, 1974; Closing Date: December 31, 1979 The project is assisting the Government in expanding rural health infrastructure, and in providing staff training facilities and technical assistance for the development of a management information system and for training. Under the direction of the Project Management Staff in the Depart- ment of Health, overall project implementation is progressing well. Training activities are ahead of schedule in all 12 regions. The civil works component is behind schedule but is expected to be completed ahead of the appraisal report timetable due to simplification of construction design. Progress under the project is satisfactory. ANNEX III Page 1 PHILIPPINES THIRD INDUSTRIAL INVESTMENT CREDIT PROJECT THROUGH THE DEVELOPMENT BANK OF THE PHILIPPINES Supplementary Project Data Sheet Section I - Timetable of Key Events (a) Time take to prepare the project : About two months (b) The agency that prepared the project DBP (c) Date of the first presentation to the Bank and date of the first Bank mission to consider the project October 1977. (d) Date of departure of appraisal mission September 30, 1977 (e) Date of completion of negotiations: April 14, 1978 (f) Planned date of' effectiveness : On or before August 31, 1978 Section II - Special Bank Implementation Action None. Section III - Special Conditions (a) The Government of the Philippines (GOP) would raise DBP's paid in capital to P 4.0 billion by 1981 and would assist DBP in raising additional long- term resources to finance its lending operations and meet its maturing debts (para. 64). (b) GOP would compensate DBP for any losses incurred on Government behest loans (para. 64). (c) In the future IDBP would handle Government behest projects, which do not meet DBP's normal financial and economic criteria, on agency basis administering funds provided by the Government (para. 64 ). (d) Not more than 10% of the loan component for SMI would be used for subloans of over E 1.5 million in Metro-Manila (para. 60).
Groupe de la Banque mondiale · Memorandum & Recommendation of the President
Philippines - Third Industrial Investment Credit (Development Bank) Project
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