Ecuador - Guayaquil Urban Development Project

Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY Report No. P-2648-EC 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 ECUADOR FOR A GUAYAQUIL URBAN DEVELOPMENT PROJECT November 20, 1979 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit Sucre (SI.) Calendar 1978 November 1, 1979 US$1 = SI. 25 S/. 25 SI. 1 5 US$0.04 US$0.04 FISCAL YEAR January 1 to December 31 ABBREVIATIONS BEV - Banco Ecuatoriano de la Vivienda (Ecuadorian Housing Bank) BP - Banco del Pacifico (a Guayaquil commercial bank) CENAPIA - Centro Nacional de Peque'nia Industria y Artesania (National Small-scale Enterprise and Artisan Center) FONAPAR - Fondo Nacional de Participaciones (a national fund used to finance local government programs) IESS - Instituto Ecuatoriano de Seguro Social (Ecuadorian Social Security Institute) JUNAPLA - Junta Nacional de Planificacion (National Planning Board) JNV - Junta Nacional de la Vivienda (National Housing Board)  FOR OFFICIAL USE ONLY ECUA)C~ GUAYAQUIL URBAN DEVELOPMENT PROJECT LOAN AND PROJECT SUMMARY Borrower: Republic of Ecuador Beneficiaries: Municipality of Guayaquil, Banco Ecuatoriano de la Vlivienda (BEV), Banco del Pacifico and other participating private banks Amount: US$31.0 million equivalent Terms: Payable in 17 years, including four years of grace, at 7.95 percent interest per annum Relending Terms: The Central Bank, acting as agent for the Borrower, would onlend the loan's proceeds to all beneficiaries at the same interest as the proposed Bank loan. It would also absorb the foreign exchange risk on the loan. Commercial banks participating in the small enterprise credit program would rediscount up to 70 percent of their subloans with the Central Bank. The maturities on Central Bank on- lending to commercial banks would vary depending on the terms of each bank's subloans. Eighty percent of these are expected to be repaid in 2-3 years although some subloans for construction will have 12 year amortization periods. BEV and the Municipality would repay funds onlent to them by the Central Bank for housing loans and services to low-income areas over 17 years, including 4 years of grace. The Borrower would assume the commitment charge and interest on the Bank loan for the Municipality during the grace period. Project Description: The project's dual objectives are (i) to provide improved shelter to 12,700 households and employment to about 5,000 persons, thus benefitting some 100,000 people or 10 percent of Guayaquil's population and (ii) to develop institutional capacity to address urban needs on a larger scale both in Guayaquil and nationwide. Nearly 90 percent of project investment is targeted to help families whose incornes are below Guayaquil's absolute poverty threshold. The project includes three major components: loans and technical assistance to small-scale enterprises, slum upgrading plus sites-and-services development, and loans for housing construction and improvement. Since a multi-sector urban project of this nature has not been implemented beEore in Ecuador, there is a risk that management problems might occur due to inexperience. However, technical assistance and close supervision have been built into project design to reduce this risk. This document hs a restricted distribution and may be used by recipients only in the performnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  -ii - Estimated Costs: (US$ Million Equivalent) Local Foreign Total A. Support to small-scale enterprise 5.9 3.3 9.2 B. Services to low-income areas: Upgrading 6.2 0.2 6.4 Sites and Services 6.3 0.1 6.4 Community infrastructure 2.9 0.8 3.7 Assistance to Municipality 0.9 0.5 1.4 C. Housing Loans 13.2 0.5 13.7 D. Physical contingencies 1.8 0.2 2.0 Price contingencies 7.6 1.2 8.8 Total 44.8 6.8 51.6 Financing Plan: Bank 24.2 6.8 31.0 Government 1.2 - 1.2 Housing Bank 5.8 - 5.8 Municipality 7.4 - 7.4 Commercial banks 2.7 - 2.7 SSE Revolving Fund 2.2 - 2.2 Small-scale enterprises 1.3 - 1.3 Total 44.8 6.8 51.6 Estimated ----------- US$ thousands by Bank FY ----------- Disbursements: 1980 1981 1982 1983 1984 1985 Annual 380 6,600 7,780 8,530 5,970 1,740 Cumulative 380 6,980 14,760 23,290 29,260 31,000 Rate of Return: 18 percent for all components which have quantifiable benefits, which represent 70 percent of project investment. Staff Appraisal Report: Report No. 2415-EC, dated November 9, 1979.  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF ECUADOR FOR A GUAYAQUIL URBAN DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Ecuador for the equivalent of US$31.0 million to help finance a Guayaquil Urban Development Project. The loan would have a term of 17 years, including 4 years of grace, with interest at 7.95 percent per annum. The proceeds of the Loan would be relent to the Banco Ecuatoriano de la Vivienda (BEV) and the Municipality of Guayaquil for 17 years, including four years of grace, at the same interest rate as the proposed loan. In addition, Banco del Pacifico and other qualifying banks would rediscount up to 70 percent of their subloans for small-scale enterprises with the Central Bank at 7.95 percent interest. The maturities on Central Bank onlending to eligible commercial banks would vary depending on the terms of each bank's subloans. PART I - THE ECONOMY 2. The most recent economic report on Ecuador, Report No. 2373-EC entitled "Development Problems and Prospects of Ecuador: Special Report" was distributed to the Executive Directors on June 18, 1979. This President's Report incorporates the main conclusions of the economic report. Annex I summarizes the main social and economic indicators. Growth 3. During the past six years, the Ecuadorian economy has experienced rapid economic growth spurred mainly by exports. Between 1972 and 1978, GDP grew at an 8.9 percent annual rate in real terms and by 1978 the country's per capita income stood at US$910. 4. Petroleum was the main engine of growth through 1976, despite a decline in the volume uf its exports since 1974. This decline in volume not- withstanding, petroleum (crude and derivatives) still accounted for 42 percent of the value of goods exports in 1978. 5. While economic growth continued to be high in both 1977 and 1978-- with increases of the GDP equal to 7.7 percent and 5.3 percent respectively-- it has been nonetheless lower than the average growth of 10.2 percent during the 1972-76 period. The sources of most recent growth were different. Agri- cultural export prices increased rapidly in 1977, and preserved the growth momentum; increased volume of exports of agricultural products in 1978 lent buoyancy to the economy. Increased exports were the combined result of good banana and cacao crops and of the sale of coffee stocks.  6. Economic activity in 1978 was also partly affected by factors other than the impact of international markets. Uncertainty as to the outcome of elections and to some extent scarce credit availability contributed to a sLowdown in the rate of new private investment, which, while it increased by over 19 percent in 1977, remained practically unchanged during 1978. Social Development and Change 7. Despite the rapid economic growth which led to the present relatively high average per capita income level, much of the Ecuadorian population continues to live in poverty. In 1975, the average annual per capita income of the poorest 25 percent of urban dwellers represented less than one-fifth of the country average per capita income and the corresponding figure in the countryside was much lower. While open unemployment is only about three percent of the country's labor force, underemployment is estimated to be as high as 30 percent. Highly concentrated ownership of land and other produc- tive resources, low rates of retention in primary schools and poor health conditions have limited the access of the poor to income-producing assets. The high rate of population growth -- 3.4 percent per annum -- remains another impediment to the solution of underemployment and poverty. 8. During the past decade -- and in particular during the years follow- ing the beginnings of oil exploitation (1972) and the increase of petroleum export prices (1973) -- an important urban middle class has emerged. It is composed mainly of entrepreneurs, civil servants -- who account for over 10 percent of urban employment -- and of employees of the modern sectors. This urban middle class has been growing both in size and in relative income and has been the major beneficiary of recent economic growth. 9. Despite the considerable movement of the rural population to the cities -- the share of city dwellers in total population changed from 28.5 percent in 1950 to 41.6 percent in 1975 -- the economy and society of Ecuador still suffer from a pronounced dualistic structure. The indigenous population of Ecuador accounts for over one-third of total population, and it is in this group, settled predominantly in rural areas, as well as within the marginal urban population, that the poverty roots are deeply anchored. This population has a lower average level of productivity and benefits considerably less from basic infrastructure -- education, public utilities, roads -- than other segments of the population. 10. The Ecuadorian administration is increasingly aware of the need to integrate social policy with general development policy. In the rural areas, the strategy of rapid agricultural growth is now pursued in a context of regional development. In the urban areas, increasing attention is given to small and medium-scale enterprises and to exportable labor-intensive manufactured goods. These are, however, only the first steps in a long and intricate process of increased attention to social needs. Basic External and Internal Financial Equilibria 11. Rapid increases in world prices for Ecuadorian agricultural exports largely contributed to the maintenance of the overall buoyancy of the economy during 1977-1978. It also led to substantial gains in income. These  -3 - factors, coupled with slow growth of the domestic supply of food, resulted in inflationary pressures. A strong and decisively implemented monetary and credit policy and heavy food imports helped to curb these pressuires. As a consequence, the annual rise in consumer prices did not surpass an annual average of 12 percent in the period 1976-1978 and is expected to remain near 11 percent in l179. 12. Durirn, 1970-78, Ecuadorian imports increased at an average rate of 9.8 percent in real ter--. The main rorces behind this increase were: (i) the high invest-ent rates achieved during the period and the related demand for imported capita-l goods, mainly for the industrial and transport sectors; (ii) the steep demaa.d for inputs by the industrial sector; and (iii) the growing demand for some imported agricultural products. 13. Real exports of goods were increasing by 9.7 percent during 1970-78. Petroleum was responsible for most of this growth, since non-oil exports remained practically constant in real terms between 1970 and 1977. The resource gap has been low, even in the past few years, when petroleum exports declined from 59 million barrels in 1973 to 42 million barrels in 1978. It was only 0.7 percent of GDP in 1977, and was insignificant in 1978. The current account balance of payments deficit was equivalent to 2.2 percent of GDP, but may increase substantially in 1979 despite price rises for crude oil exports, due to an expected 81 percent increase in factor payments. 14. Fiscal policies in the 1976-78 period were clearly expansiornary and monetary growth accompanying them was strong throughout the first half of 1977. While revenues remained constant, budgetary expenditures grew by 12.7 percent in 1977 in spite of a fall by 20 percent in capital expenditures compared to 1976. The General Government sector deficit increased from 2.4 percent of GDP in 1976 to 4.1 percent in 1977 and 7.3 percent in 1978. In order to stem this trend and minimize the inflationary impact of fiscal policies, fiscal autho- rities turned strongly to foreign borrowing and launched sales of foreign- currency denominated bonds in the domestic capital market. Starting in mid- 1977, the monetary authorities introduced restrictive credit policies which resulted in a decline in the rate of growth of money and quasi-money f.rom 35 percent in 1976 to 20 percent by the end of 1977, and to 12 percent in 1978. These credit restrictions resulted in a considerable reduction in private sector investment during 1978. 15. As financing of the fiscal deficit was increasingly sought :in external financial markets, public external debt outstanding at the end of 1977 grew by 58.9 percent compared with the end of 1976. Terms, maturity and grace periods of the newly contracted debt hardened as most of this new debt: was provided by commercial sources. Ecuador's debt-service ratio increased from 4.5 percent in 1975 to 12 percent in 1978. The Government made efforl's during 1978 to soften the accumulated debt by being more careful in the choice of foreign credits used to finance part of its deficit and, at the beginning of 1979, was able to renegotiate US$510 million -- or about one quarter of its foreign debt -- contracted on the least advantageous terms, in order to improve the debt profile and lighten the future debt-service burden. Pre- payment of these hard-term loans during 1979 will raise the debt-service ratio for this year to 33.1 percent, although the ratio without the prepayment would only be 9.8 percent.  -4- Sectoral Developments 16. Domestic consumption of petroleum and of its products has been growing at 16 percent per annum in the last several years. By 1977, -re-tAfrd of the country's petroleum output was consuned internally. Although the growth rate of domestic consumption is expected to slow in the coming years as a result of the lower GDP growth rate, the amount of petroleum available for export may still continue to decline, limiting the country's import capacity. Under these circumstances, and unless new petroleum resources are discovered and exploited, the country's import capacity would become a serious constraint to the zrowth of the economy. 17. The decline in the volume of petroleum exports may slow down if Ecuador resumes oil exploration, which has slackened in the past few years. Investment in rehabilitation of known oil fields will also be needed. To accomplish improved oil exports, two main economic decisions will have to be implemented -- first, the decision to invest substantially in oil explor- ation -- whether with own resources or through risk-taking foreign enterprise, and, second, the decision to increase domestic prices of petroleum. Petro- leum prices in Ecuador are among the lowest in the world -- less than 20O per gallon of gasoline -- and this has largely stimulated the excessive domestic consumption. 18. The agricultural potential of Ecuador is at present largely under- utilized and could be used both as an engine for medium-term growth and as a means to alleviate social inequities. Ecuador has enough fertile land to expand agricultural and livestock output at a reasonable cost. Its forestry and fisheries potential is also considerable. While increases in produc.ion of crops and livestock should mainly satisfy the domestic demand, forestry and fisheries products could be directed to' the foreign markets. In particular, the agricultural potential of one important region of the country -- the Costa -- is very substantial. New regional institutions have been created in order to manage the development of these zones. The use of new lands, better access to land ownership or rental in traditional agricultural regions, and improved techniques of cultivation could slow down the rural exodus, relieve the pressure on urban labor markets, and improve the distribution of income. 19. The industrial sector of Ecuador, representing 17.8 percent of the country's GDP, should help in sustaining moderate growth in the next several years. Ecuadorian industry, predominantly privately owned, has been largely geared to import-substitution in consumer goods, and has been operating in a strongly protective environment. This has deflected entrepreneurs' interest from transformation of the couintry's natural resources. Moreover, with the relative prices of capital and labor distorted by the system of investment incentives, making the price of capital relatively cheaper than it would have otherwise been, compared with the cost of labor, production techniques have become increasingly capital-intensive. These investment policies in the past have been largely responsible for discouraging the industrial sector from involvement in activities in which it could have a strong comparative advantage. Measures to change such policies have been discussed within the  previous Ecuadorian Government. Their final design and implementattion, to be decided by the newly elected Government, could have an important effect on restructuring the industrial sector, and should then result in a stronger, more efficient growth pattern. This will require, in particular, changes in tariff, price and interest policies in order to strengthen sectors with more favorable export prospects and to reduce the possibility that inefficient industries be established. Outlook 20. In the recent past, the overall economic management in Ecuador could be considered relatively adequate, although there were serious weaknesses in public administration. The Government has resisted the temptation to sink oil revenues into wasteful and grandiose schemes and has, instead, used the proceeds of petroleum exports for more modest investment projects, generally corresponding to real needs of the economy. It has also fostered a climate conducive to increased private investment which resulted in an acceleration of the industrialization process. 21. Ecuador's GDP growth rate is estimated to have declined to around 5 pe-cent in 1979 -- in spite of favorable oil prices -- as a combined result of a very low rate of growth of agriculture, stagnation in petroleum production and lagging investment. In the medium term, the Ecuadorian econoniy has only fair growth prospects. The external sector may not exert in the luture as strong a growth-propelling role on the economy as in the past, mainly because oil exports are expected to continue their decline and agricultural exports may be constrained by price trends and prospects of the international markets. While the prospects of the Ecuadorian economy could be strengthened through timely implementation of improved policies in the petroleum, agriculture and manufacturing sectors, it is now clear that a growth pattern of about 5 percent yearly will require recourse to increased external borrowings. 22. Ecuador has considerable natural and human resource potential. To develop it fully and efficiently, far reaching changes in its economic policies are needed. Some were initiated by the previous Government but more remains to be done by the new Administration. The size of the country's foreign debt is not excessive and its recent and successful efforts to improve the debt structure should make its debt service payments manageable. Therefore, Ecuador remains creditworthy for borrowing on conventional terms. It wilL need to use this borrowing capacity. Its net external borrowing needs (and the debt service ratio) could more than double in real terms between 1979 and the mid-1980's in spite of policy improvements, since the medium-term prospects for non-oil exports are not buoyant and the volume of oil exports will fall in the medium-term even if significant domestic petroleum price rises are undertaken. Real domestic price rises would decrease private savings and the higher public revenues should be rapidly spent, given the many pressures for expanded social outlays. To help meet the need for additional external resources, we, therefore, recommend a significant share of local cost financing by official lenders.  PART II - BANK GROUP OPERATIONS IN ECUADOR 23. Bank group operations in Ecuador date back to 1954 when a loan was made for a first highway project. In all, the Bank and IDA have extended 23 loans and six credits to Ecuador, totalling US$334.7 million net of cancellations. As of October 31, 1979, US$178.6 million of this amount had been disbursed. The IFC has made eight loans and investment commitments in Ecuador. Two were for a large textile company, four in a development finance company and one each in a sugar mill and a cement company. These operations have amounted to US$22.4 million in commitments of which IFC now holds US$18.5 million. 24. Execution of Bank Group financed projects has often been hampered by weaknesses in Ecuador's implementation capacity. This, in turn, reflects the insufficiency of the country's public sector managerial and technical resources--a constraint that is still a serious obstacle to Ecuador's eco- nomic and social development. Annex II contains a summary statement of Bank loans, IDA credits and IFC operations as of October 31, 1979, as well as notes on the execution of ongoing projects. 25. Bank and IDA lending in Ecuador was originally concentrated in transport and power, where there were--and still are--substantial bottlenecks to be overcome. To date, approximately 34 percent of Bank Group lending has been for transport. Six of the eight loans and credits extended for trans- port were to improve the country's road network and two to help finance the expansion of the port of Guayaquil. Lending for power has aimed at improving generation and distribution facilities in Quito. The first livestock develop- ment loan, approved in FY67, marked the beginning of a diversification in the Bank Group's lending program away from straight infrastructure. Since then, the Bank Group has made eight loans and credits for agriculture and fisheries, four DFC loans to support industrial development, a credit and a loan for education, one loan for water supply and two technical assistance loans. Bank Group involvement in the directly productive and social sectors has grown to the point where it now accounts for about 56 percent of total Bank Group lending. 26. Turning to the future, Bank lending will continue to assist in (i) the creation of a physical and social infrastructure base capable of fostering development; (ii) the expansion of productive capacity in crucial sectors; (iii) the strengthening of agencies to implement projects effec- tively; and (iv) the improvement of living conditions for the urban and rural poor. In addition to the urban development project which this report recommends, the Bank is preparing a feeder road-cum-maintenance project, a second rural development operation, a small scale industrial credit project and a petroleum project. Most of these operations would have important institution building aspects and include sizable technical assistance components. 27. Substantial development financing has also been provided to Ecuador by the Inter-American Development Bank (IDB) and USAID and, to a lesser extent, by other bilateral sources. IDB has been, by far, the single largest  -7- lender to Ecuador. Its commitments to the country as of September 30, 1979 totalled US$594.6 million equivalent. Past IDB lending has been concentrated in the agriculture, power, health/sanitation and transport fields. Most of IDB's loans to the country have come from the Fund for Special Operations and normally carry two percent interest, a 10 year grace period and repaymient terms of up to 40 years. It is likely that IDB will remain Ecuador's major development lender in the immediate future with agriculture and irrigation accounting for an increasingly large share of its lending program. USAID, which has lent Ecuador US$103.6 million equivalent, has not made any new commitments to the country since 1973. Recently, however, this agency has expressed an interest in renewing its operations in the country beginning in 1980, primarily in the rural development sector. 28. As of December 31, 1978, Ecuador's outstanding public external debt, including undisbursed, amounted to about US$2.3 billion. Bank Group lending constituted about 12 percent of this amount and absorbed about 3.6 percent of the Government's external debt service. IDB lending was equivalent to about 21 percent of Ecuador's debt and USAID accounted for about 5 percent. Assuming increased recourse to long-term bilateral and multilateral debt, by 1985 the Bank's share of Ecuador's outstanding public foreign debt could reach 17 percent and its share in debt service would climb to around 12 percent. PART III - THE URBAN SECTOR General Characteristics 29. Urbanization in Ecuador has been rapid in recent decades, sp,urred on by migration from rural areas. Forty-two percent of the total population, or 3.3 million persons, currently live in urban areas. The two largest cities are Guayaquil and Quito, with about 1,000,000 and 750,000 inhabitants, respec- tively. Urban job opportunities, however, have not kept up with the growth of the cities. The urban population increases by 4.4 percent each year, but urban employment has been growing by only 3.6 percent annually. The result is increasing unemployment and underemployment. The distribution of incomes in cities is also highly skewed. The poorest 20 percent of the urban population receive only 3 percent of total urban income and an estimated 40 percent of the urban population, over 1,000,000 people, survive on incomes so low they cannot afford a calorie-adequate diet. 30. A portion of job seekers are absorbed by the labor-intensive small firm subsector. An estimated 75 percent of all industrial employment is generated by these small enterprises. To survive and expand, small entrepre- neurs must overcome several constraints. They lack access to reasonably priced credit and must often rely on suppliers' credits at interest rates of 25-40 percent per year or borrow from money-lenders at 10-20 percent per month. In addition, to grow beyond the artisan level, many entrepreneurs would require additional management skills. 31. Social infrastructure provided by the public sector during lthe 1970's has largely benefited the cities rather than the rural areas. Yet about a third of urban residents are still without access to piped waiter, even  - 8 - from public standpipes. These people rely mainly on tanker trucks for water, although this system is inconvenient, unsanitary and costs 25 times as much per liter as piped water. Nearly half of urban households are without adequate sewerage and drainage services, adding to sanitation problems. 32. The housing deficit in Ecuador was estimated by the National Planning Board (JUNAPLA) at 485,000 units in 1977. Despite the construction of 98,000 units by major public sector housing agencies and the private sector as part of a national program during the 1974-77 period, the deficit continues to grow. As elsewhere, most of new public housing in Ecuador is only accessible to middle income groups. Generally, houses built by the Ecuadorian Housing Bank (BEV) cost between US$4,000 and US$18,000 which, without subsidies, is unaffordable to nearly half of Ecuador's urban population. To date, houses contracted through the Ecuadorian Social Security Institute (IESS) have cost over US$10,000 and the savings and loan associations finance even more expen- sive homes. Urban Development Institutions 33. At the national level, the National Housing Board (JNV) is charged by Government with overall responsibility for housing sector policy, especially for low-income housing. BEV, which has the same president as JNV, serves as both the financing and construction agency for public housing efforts. Both institutions are technically and financially competent, have grown rapidly in the 1970's, and have developed some low-cost housing on an experimental scale in rural areas. However, they have provided little financing for home improvement or self-help housing, and have not yet been able to respond to the demand for very low-cost urban housing on any significant scale. BEV's reliance on cement-block, fully serviced units has kept shelter costs prohibitively high for low income families. 34. At the local level, municipal institutions in Ecuador are generally inefficient and limited in their technical and revenue-collecting capabilities. Utilities services in the larger cities are managed by public companies, which also suffer from financial and management limitations. The Central Government has become heavily involved in the decisions of city administrations and also provides approximately 60 percent of the municipalities' funds. The National Participation Fund (FONAPAR) was established in 1973 when the Central Government took over collection of beer, coffee, cigarette and some income taxes previously collected by cities. FONAPAR has annual revenues of over US$100 million, a major portion of which is redistributed to the municipalities to meet current expenditures. FONAPAR allocations for investment are made only after spending plans are approved by JUNAPLA and the Finance Ministry. Urban Poverty in Guayaquil 35. Guayaquil shares many problems typical of coastal cities in Latin America. It became important as a river port and commercial center. In the 1960's with annual increase in population of up to seven percent, it was one of the continent's fastest growing cities. The growth rate is now 4.6 percent, still high enough to imply a doubling of population by the year 2000. Its geographic expansion, however, has been constrained by the Guayas River,  - 9 - estuaries, hills, and seasonal flooding (see the attached Map). The c:Lty center has, therefore, became densely populated (over 60,000 people per square kilometer), with nearly 200,000 people crowded into slum apartments. lMany of these tenement houses are now being torn down and replaced by commercial buildings, forcing the swampy or hilly areas surrounding the center to absorb larger numbers of poor families. 36. Guayaquil's climate is tropical; flooding and stagnant pools of water after heavy rains are common. However, this has not stopped a growing number--about half of the city's residents--from seeking housing in the Suburbio, the city's oldest and largest slum, where migrants began building cane houses on poles over marshland years ago. Residents of this area now number half a million. The Municipality has at times deposited its garbage around blocks in the Suburbio as a form of landfill. Public water and electricity have been supplied to the more consolidated parts of this zone, but sewerage installation is only now beginning. Consequently, the death rate from sanitation-related diseases in Guayaquil is higher than in other urban areas of Ecuador. At the southwestern edge of the Suburbio, settlers continue to put up temporary houses on poles over water and live without public, services. The process is coming to an end, however, as the Suburbio spreads out towards an estuary which is a natural boundary to its growth. 37. As a result, squatter invasions have begun to the north and south of central Guayaquil. The most rapidly growing invasion is in the south, in a municipally owned area called Guasmo. Guasmo's lowlands are subJect to seasonal flooding. Despite this fact, during the latter part of 1978 a succession of invasions has more than doubled the population of squatter settlements there, to over 3,500 families. In the north, invaders are settling on the steep hills near older low-income settlements such as Lotizacion Mapasingue. 38. Dealing with spontaneous settlement has become an urgent priority for the public authorities, in part because virtually all municipal land has been distributed. However, past municipal policy toward squatters hals been inconsistent. At times, the Municipality has donated land to invaders or to their cooperatives, but the resulting expectation of free land encouraged more invasions. At other times, municipal land was offered for sale at a token price. 39. The titling system in Guayaquil is confusing and antiquated and has caused serious delays in titling for current residents. Restrictions on tenure and title in Guayaquil have developed over the years as a result of municipal regulations. Many residents of the Suburbio, for instance, hold conditional title to their plots donated to them by the city but they have been prohibited by law from mortgaging these properties. In other cases, unrealistically high urbanization standards imposed by the city have limited private urban develop- ment (a problem to be reviewed by the study referred to in paragraph 52). One "below-standard" private urbanization, Lotizacion Mapasingue, has never obtained municipal approval necessary for transfer of titles to purchasers although it had already been divided and sold. Most bill-of-sale holders for Mapasingue lots who could not obtain clear titles did not build on their lots and now find their land invaded by squatters.  - 10 - 40. Over the years, there has been protracted official discussion of the pressing need for public action to raise low incomes, upgrade slums and provide sites and services to accommodate urban growth in Guayaquil. A series of major studies were undertaken, and several mayors attempted to generate interest in massive sites-and-services development, but with little practical effect. The city's financial and managerial limitations have permitted execution of only a small portion of investments planned to relieve poverty. Bank Group Operations in the Urban Sector 41. The Bank Group has not previously lent to Ecuador for integrated urban development. However, Loan 1030-EC (approved June 25, 1974) provided US$23.2 million to Guayaquil's municipal water company, about half of which was for the purpose of extending potable water to the low-income sections of the city and surrounding areas. This effort is complemented by a municipal sewerage project financed by IDB, which is providing landfill, sewerage, and drainage to much of the Suburbio and attempting to address some of the titling problems discussed above. 42. In April 1978, the Bank agreed with IDB and the Municipality to finance a consultants' study from its Second Technical Assistance Loan (S-006-EC) to prepare future urban development projects in Guayaquil for possible financing by the Bank and/or IDB beginning in 1981. Meanwhile, the Government and the Bank agreed to initiate a limited-scale project--such as the one proposed in this report--on the basis of already available studies. The proposed project would not only benefit the city's poor but also help to begin developing the institutions and procedures that will be required to carry out later projects. IV - THE PROJECT 43. The project was prepared primarily by the Municipality's Department of Urban Planning, with substantial assistance from Bank missions. It was appraised in December, 1978. The appraisal mission's report (2415-EC, dated November 9, 1979) is being distributed separately to the Executive Directors. Annex III contains supplementary project data. Negotiations of the loan took place in Washington from October 16 to 23, 1979. The Ecuadorian delegation was headed by Mr. F. Swett, the Central Bank staff member selected to be the Project Coordinator. Representatives of the Municipality, BEV and the Banco del Pacifico also attended negotiations. Objectives 44. The proposed project would initiate programs of employment genera- tion and residential development of benefit to the low-income population of Guayaquil. The project would directly benefit about 17,700 households or about 100,000 persons, 10 percent of Guayaquil's population. It would also promote institutional developments including:  (i) expansion of the support which commercial banks and the Government are now providing to very small scale enterprises; (ii) improvement of the Municipality's project execution and finaacial management capacity, as well as its urban development norms and land titling practices; and (iii) an increase of BEV's involvement in lending to low-income groups, using more appropriate technology and achieving better cost recovery. Project Description 45. The proposed project would include three related components: (a) Support to small enterprises: expansion of an existing line of artisan credit, through one or more commercial banks in the city; (b) Services to low-income areas: upgrading (landfill and basic infrastructure) in two substandard settlements, Lotizacion Mapasingue and Guasmo North, and development of 3,700 sites with services in two new areas, Alegria and Floresta Pilot; and (c) Housing loans: small loans for house improvement and/or construction to an estimated 9,700 residents of the project sites, and in other low-income sections of the city. The proposed project would be carried out over a five year period beg:Lnning in 1980 and running into 1985. Its civil works components would be completed in about three years but the lending for housing and small enterpriseS would carry on through the final two years. 46. The small enterprise credit component would account for about US$9.2 million (or 22 percent) of project costs excluding contingencies. It would consist mainly of expanding a successful artisan credit program which Banco del Pacifico (BP) launched in March 1977. BP is Ecuador's fastest growing and second largest commercial bank with total assets of about US$285 million. To date, BP has loaned US$600,000 to 800 small industrial ventures-- mostly woodworkers, shoemakers, tailors and dressmakers. The average firm served so far employs only three persons, including the owner, and has fixed assets of US$1,100. 47. Under the proposed project, BP--and other commercial banks which develop satisfactory small enterprise credit programs--would make an estimated 6,400 subloans averaging about US$1,100 in 1979 prices. The subloans would be for working capital, acquisition of fixed assets and construction. Altogether, around 5,200 firms employing approximately 16,000 persons would receive sub- loans. The program would be open to small enterprises city-wide including the four areas in which this project's other components would be carried out. Eligible enterprises would be those having no more than six employees and fixed assets of under US$5,000. In addition to the small industrialists which BP assisted in the past, small commercial and service enterprises (e.g., mechanics, barbers and carpenters) could also receive credit under the project.  - 12 - 48. CENAPIA, the National Small-Scale Enterprise and Artisan Center, would furnish technical assistance--primarily in the areas of management, accounting and financial administration--to approximately 85 percent of the subloan's recipients. CENAPIA was created in 1975 as an arm of the Ministry of Industry and Commerce specifically to promote small-scale enterprises. So far, it has been hampered in this task by institutional weaknesses. To overcome these, both UNIDO and IDB are providing CENAPIA with technical assis- tance. Under the proposed project, CENAPIA would be further strengthened. It would receive 40 man/months of consultants' services, at an average cost of US$5,000 per man/month, to (i) improve the marketing support CENAPIA would offer sub-borrowers; (ii) study the feasibility of an artisan market in Guayaquil; and (iii) evalute the effectiveness of the credit component. The qualifications, experience and terms and conditions of employment of these and other consultants retained under the project would be satisfactory to the Bank (Section 3.05 of the draft Loan Agreement). The project would also finance up to US$600,000 of CENAPIA's incremental operating costs, mainly new personnel, for serving the recipients of subloans. 49. Services for low-income areas would be the project's single largest component, accounting for US$17.9 million (44 percent) of project costs excluding contingencies. The Municipality would upgrade squatter settlements in two existing neighborhoods, Lotizacion Mapasingue and Guasmo North (see the attached map). Specifically, it would regularize land tenure, introduce orderly densification, provide basic infrastructure and engage in land filling in both neighborhoods. The Municipality and BEV would also develop 3,700 serviced plots for low income families at Alegria and Floresta Pilot (see attached map). Both areas are presently vacant but are natural sites for settlement as population pressures in Guayaquil continue to grow. 50. Under the project, the Municipality and Central Government agencies would provide some minimal off-site infrastructure--including a 16" water main to Guasmo North and an access road to Alegria-as well as needed community facilities. The latter would consist of five primary schools, three health centers and five markets. Ecuador's Central Bank, which has been operating an innovative, poverty-oriented development fund in rural areas, would launch a similar community development program in project areas. The program would further skills training, provide employment services, and encourage the introduction of new, appropriate technologies for house construction. 51. To assist the Municipality in carrying out its pivotal functions under the "sites and services" component, funds would be provided to the municipal project unit established for this purpose (para 58). The funds would help cover the unit's operating expenses and finance the purchase of vehicles and equipment. Funds would also be provided for 122 man/months of technical assistance (i) for detailed design, engineering, tendering and supervision of construction under the project; (ii) to study ways of improving the Municipality's financial management; and (iii) to monitor and evaluate the project and prepare follow-up projects. Special monitoring arrangements include an evaluation advisor who would reside in the project areas for extended periods to observe actual impact on beneficiaries.  - 13 - 52. The study to improve the Municipality's finances would be completed by June 30, 1980. Based on its findings, the Municipality would prepare a program to improve its financial management. The Bank would be afforded a reasonable opportunity to comment on the study and proposed program and the Municipality would then carry out the program according to a timetable satis- factory to the Bank (Section 3.02(d) of the draft Loan Agreement). The Municipality would also review its current urban development regulations and furnish the results of this review to the Bank for comment not later than March 31, 1981. By this date, the Municipality would also propose amendments to these regulations so as to facilitate and promote slum upgrading and further sites and services development in Guayaquil (Section 3.02(e) of the draft Loan Agreement). 53. The housing loans component would account for US$13.7 million or 34 percent of project costs excluding contingencies. BEV would make an estimated 9,700 small loans for house improvement and/or construction of new houses in the four project areas and in other low-income sections of the city. The loans are expected to average about US$1,415 in constant 1979 terns. Most would range from about US$200 to US$2,600. Under the project, BEV would also receive modest technical assistance for long-term financial planning, project preparation and the provision of titling assistance. 54. Furthering the use of appropriate technology and mechanisms for meeting low-cost housing needs is an important aspect of this component. BEV's Floresta Pilot would offer several shelter options, all much below the current prices of BEV housing in Guayaquil. BEV also plans significant expansion under this project in its financing of home improvement and indi- vidually constructed houses for low-income families, a variation from its normal practice of building large tracts of housing units. To assure that the project reaches the target poverty group, eligibility criteria for sub- borrowers have been agreed to by BEV and the Bank: family income under S/. 6,000 (US$240) monthly, which is just above the poverty line, and a minimum of two years residence in Guayaquil (Schedule 5 of draft Loan Agree- ment). In addition, the Municipality would sell lots in Alegria directly to applicants, with payments to be made over 15 years at 12 percent interest, in those cases where eligible families want to construct homes without borrowing from BEV (Section 3.02(i) of the draft Loan Agreement). 55. An important institution-building feature of this project is that it would help regularize land tenure for Guayaquil's poor. Clear and mortgageable title to land is a prerequisite to borrowing from BEV. However, the inefficient titling system in Guayaquil has limited access to credit for many poverty-level families by depriving them of collateral. In recognition of the need to streamline the tenure and titling system, and as a prelude to this project, the Municipality has recently made significant efforts to sort out various land-related problems. It has resolved to remove the prohibition on mortgaging donated properties in the Suburbio. The Municipality has also decided to sell, rather than donate, Municipal land to squatters in Guasmo North. Moreover, the Municipality has completed initial expropriation  14 - procedures for the Alegria site. In October 1979, Ecuador's Congress decreed the establishment of a Commission to assist in the Municipality's sale of Guasmo land to present residents and transfer of title to Mapasingue residents. Regular- ization of tenure under each of these differing situations will provide the Municipality's legal and urban planning staffs with considerable experience for continued resolution of land tenure problems in the rest of the city. To assure the legalization of title for beneficiaries of this project, the Borrower would take, or cause to be taken, all measures required to regularize the land tenure situation in project areas according to a timetable satisfactory to the Bank (Section 3.08 of the draft Loan Agreement). The timetable for the Alegria site was agreed upon at negotiations, and agreement on those for Guasmo North and Lotizacion Mapasingue have been made conditions of disburse- ment for investments in those sites (paragraphs 4(c) and (d) of Schedule 1 of the draft Loan Agreement). The Floresta pilot site is already BEV property and therefore does not require any special steps for legalization of title. Project Execution 56. The Municipality of Guayaquil, BEV and BP, plus other commercial banks that might participate in the small enterprises credit program in the future, would be responsible for project execution in accordance with the terms of supplementary agreements with the Central Bank. Signature of such agreements, whose terms would be satisfactory to the Bank, would be a condi- tion of disbursement for each component. The Central Bank would act as the Government's financial agent, under a special contract (Section 3.01(b)(i) of the draft Loan Agreement) and would appoint (in fact already has) a project coordinator satisfactory to the Bank to orchestrate the various components. This project coordinator would monitor project execution, facilitate interagency communications and generally serve as contact point for institutions involved (Section 3.01(b)(i)(C) of the draft Loan Agreement). The Government would establish and operate in the Central Bank two revolving funds to facilitate project execution: one, of US$300,000 equivalent for the small-scale enterprise credit program, and another, of US$1 million equivalent, for the Municipality's component (Section 3.01(e) of the draft Loan Agreement). The Ministries of Education and Health would construct the schools and health posts under the project. They would also staff, operate and maintain these facilities (Section 3.06 of the draft Loan Agreement). 57. The small enterprise credit component would be implemented mainly by BP, which would extend its ongoing artisan credit program. Other commercial banks would qualify for participation as they develop appropriate staff and policies. Eligible banks would enter into subsidiary loan agreements--whose terms and conditions would be satisfactory to the Bank--with the Central Bank (Section 3.01(b) of the draft Loan Agreement). The technical assistance provided to small enterprises would be implemented by CENAPIA. Both CENAPIA and the Federation of Artisans of Guayas Province would refer enterprises in need of credit to participating banks. A committee of representatives of the banks, artisans and CENAPIA would meet quarterly to review progress and coordinate efforts. By April 1, 1981, this group would exchange views with the Bank regarding results of the small enterprise component (Section 3.07 of the draft Loan Agreement).  - 15 - 58. Given the importance of continued attention to land tenure questions, design standards and to general coordination, a Project Unit in the Municipality was established and funded in May 1979. This Project Unit would be primarily responsible for planning, designing, contracting and supervising the provision of services to low-income areas. It would coordinate activities of the national ministries involved in the construction of schools and clinics in the project. The Project Unit would have a staff of 43 at full size, working in technical, community development, finance and legal sections. The Unit would report to the Mayor. 59. BEV and JNV, which customarily work cogether on housing prcgrams, would administer the project's housing loan program and the Floresta Pilot sites and services component through a single project unit with staff from both institutions. This unit would function independently of the Municipality's Project Unit but would liaise with the Central Bank's project coordinator. Furthermore, an administrative agreement between BEV/JNV and the Municipality would specify respective responsibilities and points of coordination. Signature of this agreement is a condition for disbursement of BEV and Municipality loan funds (Section 3.04(a) and Schedule 1, paragraph 4(b)(iii) of the draft Loan Agreement). Cost and Financing 60. The total estimated cost of the project is US$51.6 million, of which the foreign exchange component is 13 percent or US$6.8 million. The proposed loan of US$31.0 million would cover 60 percent of project costs, incLuding the entire foreign exchange component, and US$24.2 million in local costs (see paragraph 22 for justification of local cost reimbursement). The public sector (Municipality, Housing Bank and Central Government) would contribute US$14.4 million, equivalent to 28 percent of the project's total costs. BP would provide US$2.7 million, which--together with reflows of US$2.2 million from the revolving fund established in Central Bank for the project--would cover 9 percent of the cost of the project. Small entrepreneurs would contri- bute the remaining 3 percent. A letter from the Central Government confirming the availability of public counterpart funds was received prior to negotiations and an annual confirmation that budgetary allocations for counterpart funds have been made would be sent to the Bank (Section 3.01(a)(ii) of the draft Loan Agreement). Onlending Arrangements 61. The Central Bank, acting as the Borrower's financial agent, would-- under supplementary agreements--channel loan funds to the main implementing agencies at the same interest rate as the proposed Bank loan. In each case the Borrower would assume the administrative costs and foreign exchange risk involved in handling Bank funds. Banks participating in the small enterprise credit program would be able to rediscount up to 70 percent of each subloan, with the same repayment periods as the subloans themselves would bear (see para 62). The Municipality and BEV would repay the Central Bank on the same terms as the proposed Bank loan, except that the Government would assume the commitment charges and cost of interest for the Municipality during the Bank loan's grace period (Section 3.02(h) of the draft Loan Agreement).  - 16 - 62. BP and other banks that qualify would on-lend to small-scale e- er- prises at the normal commercial interest rate of 12 percent interest for working capital and other short-term investment, or 11 percent interest plus commissions of 2-4 percent for long-term lending (STnedule 5 of the 3'-'.ft lDn Agreement). Eighty percent of the loans would be repayable in two OL Ltniee years but those where construction was involved would run up to twelve years. In the case of housing loans, BEV would charge at least 10 percent interest. BEV's amortization period would be 15 years, rather than its fc3rmal period of 25 years (Section 3.03(c) and Schedule 5 of the draft Loan Agreement). 63. The Municipality would finance the capital costs of upgrading and sites and services through monthly charges to the beneficiaries over 15 years at 12 percent interest (Section 3.02(c)(i) of the draft Loan Agreement). Since municipal collection performance has historically been poor, the Project Unit of the Municipality would monitor the collection of project-related charges (Section 3.02(c)(ii) of the Loan Agreement). Most recurrent costs would be recovered through normal tariffs and taxes. Technical assistance to be provided to the Municipality's Finance Departmeat (para 51) is expected to strengthen its collection capacity. 64. The maximum legal interest rate in Ecuador today is 12 percent, although banking commissions of 2-4 percent which are allowed increase the effective rate for longer term lending to as high as 16 percent. Inflati. was 13.0 percent in 1976, 12.3 percent in 1977 and 10.8 percent in 1978. Projections for 1979 inflation will fluctuate around 11 percent. For 1980-81, the rate could rise somewhat above 11 percent. Thus the 12 percent inc:E: Zst rate charged for two-thirds of the project (small enterprise and services to low-income areas) is expected to be slightly positive. During the coarse of this project's preparation, the Borrower agreed to increase the interest charged for small-scale enterprises lending under this project from 9 to 12 percent per annum. BEV also agreed to raise its interest rates from a nation- wide scale of 4-12 perceTIt to a new scale of 7-12 percent per annum (Section 3.03(b) of the draft Loan Agreement). The 10 percent interest rate charged by BEV for housing loans is likely to continue as a slightly negative real interest rate, but is an improvement over the heavily subsidized rates charged by BEV in recent years. Recovery of Costs 65. An estimated US$49.9 million, or 97 percent of the total costs of this proposed project, would be recovered. Housing loans would be recovered at 10 percent, servicing of low-income areas at an average of 12 percent and small enterprise credit at just above 12 percent. The unrecovered costs of land and infrastructure for community facilities would be offset by charging cost plus 25 percent for land or services used by industry. This high rate of cost recovery should make the project replicable on a larger scale. Procurement and Disbursement 66. An estimated US$18 million in goods and services would be procured through international competitive bidding in accordance with Bank guidelines. Another US$6 million in contracts under US$250,000 each, would be procured  through local competitive bidding procedures acceptable to the Bank. Goods and services financed through the small enterprise credit and housing loan components would be procured through normal commercial channels, since inter- national bidding would be impracticable given th'n large number of sub-borrowers and wide variety of items. Contracts for civil 7orks, which involves about one third of project costs, are expected to be awarded in many cases tco Ecuadorian firms, since the nature of the work to be performed is labor- intensive and the civil works themselves would be relatively small. Landfill and some other works at BEV's Floresta Pilot: site would be undertaken by force account, since proven capacity is available to do this relatively small job quickly. Civil works contracts above US$500,000 and equipment contracL-s above US$50,000 would be subject to prior approval by the Bank. Disbursement of the loan is expected to take place over five years, beginning in 1980. 67. Disbursements would cover: (i) 70 percent of small-scale enterprise loans; (ii) 70 percent of expenditures for civil works, administrative expenses, vehicles and equipment for the Municipality Project Unit and community facili- ties; (iii) 67 percent of housing loans; (iv) 40 percent of CENAPIA's adminis- trative expenses for the project; (v) 70 percent of the Central Bank's community development program expenses in Guayaquil; and (vi) 100 percent of foreign expenditures and 60 percent of local expenditures for consultants' services. Documentation requirements for administrative expenses and small enterprise and housing loans were agreed upon during negotiations. Up to US$470,000 of Bank funds would be available for retroactive financing, US$120,000 of this would be for consultants and administrative expenses for project preparation by the Municipality after May 1, 1979, in order to maintain the present momentum in preparation by the Project Unit, and US$350,000 would be for BEV's preparation of land at the Floresta Pilot site beginning October 9, 1S979, so that construction of housing units can begin promptly after the loan becomes effective. Economic Benefits and Poverty Impact 68. The overall rate of return for those components of the project which have quantifiable benefits (equivalent to 70 percent of total project investments) is 18 percent. The upgrading/sites and services componelnt and the housing loans are estimated to have rates of return between 17 and 19 percent. If, for sensitivity purposes, benefits were over- or under-estimated by 15 percent for these two components, their rates of return would vary from 15 to 23 percent. The rate of return for development of industrial sites and markets is 17 percent. 69. Although the subprojects to be financed under the small-scale enter- prise component (about one-fifth of the project) are as yet undetermined, the rate of return on capital among small-scale enterprises now receiving credit from the BP is on the order of 35 percent. This type of small-scale entrepreneurs is expected to be typical of subborrowers under the prcposed project. Other sub-components for which rates of return have not been cal- culated--mainly the schools, health centers and the community development program--are relatively minor. Moreover, while their benefits are difficult to quantify, they are of critical importance to the well-being of the communi- ties they serve.  - 18 - 70. Through its shelter improvement/construction and community develop- ment components, the project would directly benefit an estimated 12,700 house- holds and, through its small enterprise credit component, would create as many as 5,000 new jobs. Living conditions for approximately 100,000 persons-- 10 percent of Guayaquil's total population--would, thus, be improved. 1/ The estimated capital cost per job is about US$1,700, about one-fifth the national average. Additional employment would also be generated by the construction and improvement of houses and residential services. 71. Nearly ninety percent of the proposed project's investments in residential improvements (about 70 percent of the total project) would be targeted towards the nearly 40 percent of Guayaquil households whose incomes per year are below the absolute poverty threshold (US$2,645 in 1979 prices). All lots in project areas will be affordable to families below the threshold. The following table presents, by project area, information regarding the expected number of beneficiaries, unit cost, and percentage of the families in absolute poverty that could afford the required monthly payments. Sites and Services Upgrading Alegria Floresta Mapasingue Guasmo A B Units Units Units Number of households benefitting 3,200 500 1,800 1,700 Cost to purchaser (US$) including minimum housing loan for sites-and-services areas 2,220 3,200 4,000 1,536 1,768 Monthly payment (US$) 26 33 42 18 20 Minimum monthly household income required (US$) 2/ 130 167 211 92 102 Percentage of families below absolute poverty threshold that can afford minimum monthly payment 63 44 8 84 78 Risks 72. Risks associated with the project would be those related to institu- tional commitment and technical and managerial capacity. The new Government has indicated that it will give priority to improved shelter for the rural and 1/ There may be some overlap of beneficiaries between the artisan support and other categories. 2/ Payments for shelter are estimated to be 20 percent of family incolme.  - 19 - urban marginal population. The Municipality, for its part, has been enthusias- tic about beginning to resolve the problems of Guayaquil's poor. Here, the risk is one of possible delays due to administrative weakness in the city's management, or at the Registry of Property, where slow processing of titles has been a problem in the past. By establishing an autonomous Project Unit in the Municipality, by providing for technical assistance to the Municipali;-y and to the Registrar of Property, and by agreeing on timetables for settle- ment of land questions and reforms in financial management and urban development norms, the project has been designed to minimize the risks involved. PART V - LEGAL INSTRUMENTS AND AUTHORITY 73. The draft Loan Agreement between the Republic of Ecuador and the Bank and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed to the Executive Directors separately. 74. The draft agreement conforms to the normal pattern for urban develop- ment projects. The main features of the draft Loan Agreement are referred to in the text of this report and are listed in Section III of Annex III. A special condition of disbursement for each component of the loan would be that supplementary project agreements, satisfactory to the Bank, would be signed between the Central Bank and the relevant participating agencies (para 56). A second condition of disbursement for the components executed by BEN and the Municipality would be that a supplementary project agreement, satisfactory to the Bank, be entered into by BEV and the Municipality (para 59). A condition of disbursement for investments in Guasmo North and Lotizacion Mapasingue would be establishment by the Borrower of a timetable, satisfactory to the Bank, for regularization of land tenure in the relevant sites (para. 55). 75. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 76. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachment November 20, 1979 Washington, D.C.  ANNEX I -20- Page 1 of 5 _ NA 4 1 SOC:AL tEYICATORS DATA 19150 CCUAD0t IgeCRZfRZICN CROUP5 42J JS7!5 84t3tACZS LCUA N - 408? tCCENS !5:HEI - W A L 8 6 SAQ SAME 9ZXT WIC`ER ACICULUVRXA 73.0 MOST RECENT CECORAPHEC INCOC.z fCC0E 1960 Lb 1970 /b EsTIPATE lb RCGION 'I C7F '' cf