Philippines - Second Small and Medium Industries Development Project

Document of The World Bank ; t.-- A FOR OFFICIAL USE ONLY Report No. P-2570-PH REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPtf' TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF THE PHILIPPINES FOR A SECOND SMALL AND MEDIUM INDUSTRIES DEVELOPMENT PROJECT May 30, 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 US$1.0 P 7.40 P 1.00 US$0.135 P 1 million = US$135,135 P 1 billion US$135 million ABBREVIATIONS DBP - Development Bank of the Philippines IGLF - Industrial Guarantee and Loan Fund MASICAP - Medium and Small Industry Coordinated Action Program NBFI - Non-Bank Financial Intermediaries NEDA - National Economic and Development Authority PDCP - Private Development Corporation of the Philippines FISO - Philippine Investments Systems Organization SMI - Small and Medium Industries UPISSI - University of the Philippines Institute for Small-Scale Industries USAID - United States Agency for International Development FISCAL YEARS July 1-June 30 (up to June 30, 1975) July 1-December 31, 1975 (interim) January 1-December 31 (from January 1, 1976)  FOR OFFICIAL USE ONLY PHILIPPINES SECOND SMALL AND MEDIUM INDUSTRIES DEVELOPMENT PROJECT Loan and Project Summary Borrower: Republic of the Philippines Beneficiaries: The Industrial Guarantee and Loan Fund (IGLF), a financing scheme administered by the Central Bank of the Philippines, and the Ministry of Industry Amount: $25 million Terms: 20 years, including 5 years of grace, with interest at 7.9% per annum Relending Terms: The Government would relend $24.5 million of the proceeds of the proposed loan on the same terms as those for the Bank loan to IGLF. The latter would make financing available to accredited institutions for their lending to small- and medium-scale industries, and would charge these institutions an interest rate of 6.7% on their lending to small-scale industries and 9% on that to medium-scale industries. The Government would bear the foreign exchange risk. Project Description: The project would: (a) support IGLF's lending program over a two-year period; and (b) strengthen the Ministry of Industry's Medium and Small Industries Coordinated Action Program (MASICAP) of providing technical assistance to small entre- preneurs in project preparation. The project would help in improving the effectiveness of IGLF and the capacity of the participating financial intermediaries in mobilizing and allocating resources to small- and medium-scale industry, and would bring about greater regional dispersion of investment. In addition, approximately 11,500 new jobs would be created in both rural and urban areas and about 510 projects would benefit under the project. Problems that have delayed the first SMI project and were partly responsible for a high level of arrearages have been largely addressed by a proposed new set of policies for IGLF which would provide for greater efficiency in its operations, and attract greater partici- pation from among the financial institutions. The risks associated with this project are related to the efficiency with which these policies are implemented. 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 - Estimated Disbursements: Fiscal Year 1980 1981 1982 Annual 6.65 11.10 7.25 Cumulative 6.65 17.75 25.00 Rate of Return: The average rate of return of a sample of projects under the first loan was about 60%. A similar return is likely under this project. Staff Appraisal Report: No. 2417-PH dated MIay 18, 1979.  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 SECOND SMALL AND IEDIUM INDUSTRIES DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of the Philippines for the equivalent of $25 million to help finance a second small and medium industry development project. The loan would be for a period of 20 years, including 5 years of grace, with interest at 7.9% per annum. The Government would relend $24.5 million of the proceeds of the proposed loan, on the same terms as those for the Bank loan, to the Industrial Guarantee and Loan Fund (IGLF) to support IGLF's program for lending to small and medium industries through accredited financial institutions. The Government would use the balance of $0.5 million to strengthen the Ministry of Industry's Medium and Small Industries Coordinated Action Program (MASICAP) of providing assistance to small entrepreneurs in project preparation. The Government would bear the foreign exchange risk. PART I - THE ECONOMY /1 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 PHL-77-2, dated October 27, 1977. An updating economic mission is currently in the field. 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%, but with more effective economic management the rate of growth could have been higher. The pattern of growth was also structurally unsatisfactory in a number of respects. The benefits of develop- ment were distributed relatively unevenly, with respect to both regions and income classes. While overall agricultural growth was reasonably satisfactory, repeated foodgrain deficits were experienced. The growth of productive employment opportunities failed to keep pace with the expansion of the labor force. Low levels of taxation resulted in inadequate public expenditure for necessary infrastructure and social services. Finally, poor export performance combined with heavy import-dependence of domestic industry led to chronic weakness in the balance of payments. 4. During the 1970s there have been significant improvements in economic management. Public revenues have been increased substantially, public sector implementation capacity has been strengthened, and the ratio of public investment to GNP has risen from 2% in the early 1970s to 5% in 1976-78. /1 This section of the report is substantially the same as that contained in the President's Report for the Second Population Project (R79-62) which will be considered by the Executive Directors on June 5, 1979.  - 2 - Private investment also increased, and the ratio of total fixed investment to GNP rose from 16% in the early 1970s to 25% in 1976-78. As a consequence of higher levels of investment the construction industry boomed. Agriculture has performed well in response to the spread of irrigation and higher yielding rice varieties, more favorable price policies, and some improvements in supporting services. Selective steps were taken to promote nontraditional manufactured exports, which have grown rapidly. On the other hand, the performance of that part of the manufacturing sector oriented to the domestic market has remained only "fair" in a comparative sense and has been inadequate in relation to the Philippines' need to generate productive employment opportunities. The net effect of the above developments has been acceleration in the trend GNP growth rate by one percentage point to 6-1/2%. 5. An important constraint has been placed on Philippine development options by the sharp deterioration of its terms of trade since 1975, stemming from the increase in oil prices and depressed prices for major Philippine commodity exports such as sugar and copper. As a result, real national income has been growing more slowly than real national product and, with the higher level of investment, the dependence of the economy on foreign savings has increased. Although the terms of trade have recently stabilized, the current account deficit is still about 4% of GNP. Development Strategy 6. The Government's development objectives and policies, which were 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 productive employment oppor- tunities at a rate of 3.6% per annum, reduction of income disparities, greater self-sufficiency in food and energy, a strengthening of the balance of payments, and increased development of rural areas. In addition, the Plan includes growth strategies for each of the country's thirteen regions. In general, the Plan is an elaboration of the policy directions pursued by the Government in recent years. It is also broadly consistent with the Bank's assessment of priorities, although Plan projections for investment, manufacturing output and exports are somewhat higher than Bank staff estimates. It should, however, be feasible to accelerate the overall growth rate to 7%, but more rapid expansion of manufacturing is necessary to do so, and the efficiency of investment also needs to be improved. Agriculture and Rural Development 7. In recent years the trend growth rate of the agricultural sector has been slightly over 4%, which by international standards is quite good. However, variations among subsectors have been considerable. Due to the spread of irrigation and high yielding varieties, irrigated rice production has increased rapidly. The Philippines, once a chronic importer of rice, actually exported 100,000 tons of rice in 1977/78. With completion of large irrigation projects now under implementation, continued rice self-sufficiency appears assured for the 1980s. On the other hand, locally adapted technologies for improving yields of rainfed grains, particularly corn, are still under development, and rainfed agricultural areas have a high incidence of poverty. Productivity in the coconut sector is relatively low because of a large number of overaged trees, but a major replanting program is scheduled for the early 1980s when a sufficient number of HYV seedlings becomes available. Increasing  - 3 - pressure of population on the land and inadequately controlled commercial logging have led to soil erosion and deterioration of some forest areas. The Plan calls for a major reforestation effort, but this will require substantial upgrading of Government administrative capabilities in this area, develop- ment of new hill-cropping technologies, and resolution of difficult land tenure problems. 8. As well as providing greater support for agricultural production, the Government has substantially expanded programs such as water supply, electrification, rural roads, and health to improve living conditions in rural areas. An agrarian reform was also instituted in 1972 which provides for transfer of tenanted holdings of rice and corn land in excess of seven hectares and enforcement of leasehold instead of sharecropping on remaining tenanted holdings. As of March 1978, only about 10% of the estimated number of land transfer beneficiaries had completed all formalities, but about 60% had received Certificates of Land Transfer (the initial step in the process establishing their claim to the land). Industry 9. Manufacturing has grown at an average rate of about 6-1/2% during the 1970s. The greater part of the sector, oriented to the domestic market, has been promoted by high tariff protection and an incentive system which has favored the use of relatively capital-intensive production techniques. Relatively little employment has been generated in relation to Philippine factor endowments. Macro statistics such as the incremental capital-output ratio suggest that the efficiency of investment has been low, and most manufacturing plants have located in the greater Manila area. Reform of tariffs and other industrial incentives to bring these into line with develop- ment objectives are presently being considered by the Government. 10. Beginning in 1970, selective measures have been introduced to promote nontraditional manufactured exports, including permitting firms in selected export industries to import needed goods free of duty and establishing export processing zones. Further details on the industrial sector are given in Part III of this report. Population Growth, Employment and Income Distribution 11. The 1978 population is estimated at 45.5 million. The popula- tion growth rate fell from 3.0% in the intercensal period 1960-70 to 2.8% in the intercensal period 1970-75. 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 propor- tion of married women of reproductive age practicing family planning increased from 15% in 1973 to 27% in 1978. However, by East Asian standards, this index is still relatively low. 12. Employment increased by about 4.6% annually during 1973-77, 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. With the exhaustion  - 4 - of most new land resources suitable for cultivation and the exploitation of the most easily irrigable areas, industry will have to provide employment for about one half of the new entrants to the labor force in the next decade. Employment in manufacturing essentially stagnated during 1970-74, but grew by 7% annually during 1975/77, 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 still continue to function as residual sources of employment and accounted for most of the increase in total employment. 13. For historical reasons, income distribution has been highly skewed in the Philippines, and there is a small elite which is conspicuously wealthy. Recent trends in income distribution are mixed but, on balance, positive. Because of the improvement in agriculture'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 0.48 in 1971 to 0.57 in 1975. Real per capita consumption has increased by about 2% annually. Hence, real incomes in rural areas, where most of the poor live, have probably increased somewhat, while real urban incomes have not improved substantially. As a result, although accurate statistics are not available, the share of family income received by the poorest 40% of families appears to have increased somewhat, the income share of the top 20% has remained about the same, and that of the middle-income families has declined correspondingly. Nevertheless, the incidence of poverty remains high, at 40-45%, in both rural and urban areas, and malnutrition is wide- spread. Public Finance 14. The public sector has 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 correct the situation and has raised both the overall level of expenditures and the shares going to economic services and public investment. By 1978 Government expenditures reached an estimated 16% of GNP, and public investment, which has risen rapidly in the last three years, equaled about 5% of GNP. This expansion in the public investment program has brought about badly needed improvement in basic infra- structure particularly in transportation, power and irrigation, as well as the development of more effective programs in the fields of urban development, health and family planning. 15. 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. Despite a sharp cyclical decline in the yield of export taxes and import duties, the overall tax ratio was raised by more than two percentage points through a series of new, mainly indirect, tax measures and vigorous efforts to improve taxpayer compliance and collection performance.  Moreover, import tariff exemptions were reduced and the financial position of certain public enterprises was improved through selective price increases. However, further reform measures will be needed to improve the equity of the tax system and to strengthen its responsiveness to the growth in GNP, mainly by increasing the proportion of revenues coming from direct taxes. In addition, fiscal and tariff incentives will need to be rationalized further to eliminate remaining biases favoring import substitution and capital intensity. Continued effort will be needed to ensure that Government corporations finance an appropriate share of their investments from their own savings. Private Savings and the Financial Sector 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. Gross domestic savings now finance about 85% of total investment, with the balance coming from foreign savings. In order to increase the efficiency of financial markets in intermediating between savers and investors, the Government 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 sector and rural areas and to serve the needs of medium- and small-scale industries. A deterioration of loan recovery rates was experienced by all Government financial institutions and credit programs. The Government has already taken a number of steps to improve collections; further efforts in this direction are necessary to improve financial discipline and ensure an adequate flow of credit to the productive sectors without burdening the public finances. External Trade and Capital Flows 17. To meet the acute balance of payments problem in 1975, which largely resulted from the decline in terms of trade, the Government drew down its international reserves, drew upon various IMF facilities, and expanded its borrowing program to finance necessary imports. For the longer term, the Government adopted a strategy of accelerating export growth both to hold the current account deficit about constant in absolute terms, while letting it decline gradually relative to GNP, and to meet the debt service payments on the higher level of external borrowing. 18. In spite of a further deterioration in the terms of trade since 1975, the current account deficit has behaved as anticipated over the last three years - averaging $1.0 billion per year but declining from 6% of GNP in 1976 to an estimated 4% in 1978. Export volume, although constrained in 1978 by the depressed sugar market, increased substantially over the three-year period as a whole. Import payments, after growing slowly in 1976 and 1977, accelerated with the recovery of private investments in 1978. To finance the current account deficits, net capital inflows were nearly doubled from the 1975 level of $580 million to an average of $1.1 billion per year in 1976-78. Most of the inflow came from medium- and long-term loans. About two thirds  - 6 - of this was from public loans, a reflection in part of increased disbursements from official sources. As a result of increased borrowing, the debt service ratio has risen from 16% in 1975 to 20% in 1978. 19. To achieve a 7% growth rate in real GNP, as projected for the initial years of the Plan period (1978-82), import volume will have to grow at a similar rate, and a net capital inflow of at least $1 billion per year will be required. However, the commencement of oil production, which now accounts for 15% of domestic consumption, early this year promises some longer term relief on the import side. Assuming a continued effort to promote exports and sound debt management, the overall external debt of the Philippines is expected to remain within reasonable limits. The ratio of debt service payments to exports of goods and nonfactor services is expected to average around 21%, of which half would be public debt service, during the Plan period and to decline thereafter. 20. In order to ensure that the long-term capital transfer is commensu- rate with the level of development expenditures required during 1978-82 and that debt service obligations remain within reasonable limits, the Government sought commitments of official assistance of $850-900 million in 1979 at the last meeting of the Consultative Group for the Philippines, held in Paris in November/December of 1978. This amount is likely to be made available. However, since many of the projects planned for financing from external sources have a low foreign exchange component, some local cost financing is necessary, in appropriate cases, to meet the Philippines' external financing requirements. PART II - WORLD BANK OPERATIONS /1 21. As of April 30, 1979, the Philippines had received 61 Bank loans /2 (of which two were on Third Window terms) amounting to $1,929.9 million and four IDA credits amounting to $60.2 million. At that date, IFC investments totalled $88.4 million. The share of the Bank Group in total debt disbursed and outstanding is about 8% and its share in total debt service is about 6%. These ratios are expected to be about 12% and 5%, respectively, by the end of the present decade. Annex II contains a summary of IDA credits, Bank loans and IFC investments as of April 30, 1979, as well as notes on the execution of ongoing projects. /1 This section is substantially the same as that contained in the President's Report for the Second Population Project (R79-62) which will be considered by the Executive Directors on June 5, 1979. /2 Includes Loan 1661-PH, Fourth Highway Project, $100 million, which was signed on March 9, 1979 and is not yet effective. Does not include the Second Provincial Cities Water Supply Project, $16 million IBRD and $22 million IDA, which was approved by the Executive Directors on May 29, and the Second Population Project, $40 million IDA, which will be considered by the Executive Directors on June 5, 1979.  - 7 - 22. 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 the irrigation system to increase food production and to credit programs to support foodgrain produc- tion and processing and livestock, fisheries and tree farming production. Support has also been provided for integrated rural development projects in low-income areas. The Bank Group has also provided large amounts of assistance in developing power and transportation to provide the basis for future growth of the productive sectors. Substantial improvement in basic infrastructure has been needed to compensate for many years of past neglect due to low levels of public expenditure. In the industrial sector, the Bank's main thrust has been on strengthening the capacity of public and private development finance institutions, with 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 slum living conditions and to develop low-cost sites and services. Support has also been provided to the Philippines population program through assistance for the construction of multipurpose rural health units and for training of family planning staff. 23. 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 supervision and project comple- tion reports indicate that the economic benefits for most projects are likely to be in line with appraisal estimates. However, the overall rate of disburse- ment 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. 24. As noted in Part I of this report, the Government's Five-Year Development Plan highlights a strategy which focuses on the expansion of production and employment in agriculture and industry, reduction in income disparities, greater self-sufficiency in food and energy, and increased development in rural areas. The Bank's future lending program has been designed to assist the Government in achieving these objectives. Agricul- tural and rural development will account for the largest part of future lending with continued emphasis on food production and programs to increase the productivity and incomes of small farmers. However, the program pro- vides for several needed new initiatives, including support for strength- ening the national agricultural extension service through the recently approved loan and a first loan for developing multiple cropping systems in rainfed areas, where there is substantial rural poverty. Increased assistance will also be provided for integrated rural development projects which will support the Government's objectives of redressing regional imbalances in income. Substantial assistance will also continue to be given to industry, with considerable attention given to expanding the development of labor-inten- sive, small and medium industries outside of the Metropolitan Manila area.  The share of lending for social sector projects is expected to continue to increase primarily as a result of greater emphasis on construction of urban water supply and sewerage systems and further assistance for slum upgrading' and low-cost sites and services projects. The Bank Group will 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 infrastructure needed to support the Philippine development effort, the share of Bank 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. 25. 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 some foreign assistance on concessional terms in the near term 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 has been included in the Bank Group's overall lending to the Philippines. 26. This is the ninth and final loan to be presented to the Executive Directors this fiscal year. Loans for rural development and education projects are in advanced stages of preparation, and may be ready for presentation in the first half of the next fiscal year. PART III - THE INDUSTRIAL SECTOR AND INDUSTRIAL FINANCE The Industrial Sector 27. In 1977, the industrial sector (comprising manufacturing, mining and construction industries) accounted for 35% of GDP and 14% of total employment. Manufacturing activities dominate the industrial sector, account- ing for 25% of GDP and 10% of employment. The most important industries within the manufacturing sector, in terms of value added, are food, chemi- cals, rubber products, beverages and tobacco. Manufacturing enterprises are, for the most part, privately owned with output concentrated in large capital- intensive units, though the more rapidly growing and labor-intensive export industries have come to play an increasingly important role. 28. The industrial sector grew rapidly during the 1950s as the Govern- ment's import-substitution policy, an overvalued exchange rate, and low interest rates combined to encourage replacement of imports by domestic production. A period of slower growth followed until the economy started picking up again in 1972. In response to the 1974 worldwide recession, industrial growth rates plummeted temporarily. In terms of gross value added, at constant prices, the growth rate of the manufacturing sector fell from about 14% in 1973 to 3.5% in 1975 but increased to 5.7% in 1976 and 7.5% in 1977. Capital investment in the manufacturing sector, which increased by 27% in 1975, reflecting decisions to expand capacity taken in 1973 and 1974,  fell to 5% in 1976, and is estimated to have increased at about the same rate in 1977 and 1978. Mtanufactured exports, especially nontraditional exports, which grew from $226 million in 1973 to $717 million in 1977, and growing Government expenditures should give increased stimulus to the economy and contribute to the expansion of industrial growth and investment. 29. Because of the good natural and human resources of the Philippines and an active private sector, the long-term prospects for industrial growth are favorable. There are, however, a number of important issues confronting industrial development. Industrial production continues to be geared toward the domestic market with relatively high protection, in the form of tariffs and import controls, being provided for import-substituting consumer good industries while little or no assistance is given to producers goods and export industries. The result is that few intermediate good industries have been developed and overprotected import-substitution consumer good industries are generally producing low-quality output which would not be able to compete in international markets. 30. The remarkable growth in nontraditional manufactured exports over the past few years has been based largely on raw materials imported through bonded warehouses or the export processing zone and, in effect, has few linkages to domestic manufacturing. The Government recognizes the importance of consistency between the tariff structure and investment incentives in achieving balanced industrial development and has formulated appropriate legislation regarding both policies. In order to provide a more comprehensive approach to this problem, the National Economic and Development Authority (NEDA) has commissioned a study, financed by the Bank, to analyse the effects of tariffs, quantitative restrictions and other tax incentives upon industrial development and to recommend appropriate policy changes. Findings of the study form a basic input into the work of the Bank's Industrial Sector Mission which was in the field in February 1979. 31. Until the mid-1970s, industrialization did relatively little to alleviate the problems of unemployment and underemployment in the Philippines. Between 1960 and 1971, employment in manufacturing grew at an annual rate of about 2.5% but experienced no growth between 1971 and 1973. In 1975 and 1976, however, employment generation in manufacturing grew at an annual rate of 8%, partly as a result of Government programs designed to foster the growth of small and medium industries having considerable employment potential. 32. Manufacturing activity in the Philippines is heavily concentrated in Metro-Manila and the neighboring regions of Central Luzon and Southern Tagalog. The problem of geographic concentration of industry is receiving increasing attention and the Government has undertaken several steps to create conditions conducive to geographic dispersal of industry. These actions include: the Board of Investment's practice of negotiating project location prior to approval; a limitation on the establishment of new nonexport- oriented industries in the Metro-Manila area; and a directive to Government- owned financial institutions that 60% of their small and medium industries (SMI) financing be directed to areas outside Metro-Manila. The Government's program to develop supporting infrastructure, such as roads and electricity,  - 10 - in outlying provinces, coupled with major regional planning and a planned program of regional industrial estates, will further aid in decentralizing industry. 33. 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 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. Small and Medium Industries (SMI) 34. In 1975, small and medium industries (those employing between 20 and 199 workers) accounted for 85% of the total number of modern manu- facturing firms, 29% of total employment and 30% of gross value added. The growth rate of SMI has been uneven. After a modest increase in the mid- 1960s, growth in SMI, measured by employment and value added, declined during 1967-71. Although official statistics for the later years are not available, it is believed that after 1971, SMI experienced a rapid real growth parti- cularly after 1974 when the Government's SMI development programs came into effect. The industries in which SMI contributed more than 50% of total employment were furniture, printing and publishing and leather products. 35. In an attempt to provide a coordinated, integrated and comprehen- sive approach to the development of SMI, the Government created, in 1974, a Commission on Small and Medium Industries in the Ministry of Industry. Twelve agencies are represented on this Commission which acts as a coordinator for SMI programs of member agencies and initiates its own programs. Recently, under the auspices of this Commission, a number of specific programs have been established. The Medium and Small Industries Coordinated Action Program (MASICAP) aids entrepreneurs in project development by helping them to prepare project feasibility studies and in applying to financial insti- tutions for loans. Other programs include: an entrepreneurship development program run by the University of the Philippines Institute of Small-Scale Industry (UPISSI); Small Business Advisory Centers which provide managerial and technical consultancy services to SMI; trade assistance centers where marketing assistance is provided; the Design Center of the Philippines which aids SMI in project development and design; and Food Terminal, Inc., which deals with storage and distribution of SMI products. There are other Govern- ment programs which provide assistance in marketing and distribution, promotion of subcontracting and regional dispersion of industry. Industrial Finance 36. The core of the Philippine financial system is the large commercial banking sector comprising both local and foreign banks. In addition, there are a number of investment houses, savings and loan associations, rural banks and regional development banks. Long-term finance is provided mainly by  - 11 - three development finance institutions. In late 1976, Offshore Banking Units were established and the Government relaxed some of its regulations regarding Foreign Currency Deposit Units. The Government Service Insurance System and Social Security System provide finance for real estate and mortgage financing. Although two stock exchanges exist, the volume traded is small and is con- centrated in a few issues. A bond market was developed in 1977 and several new issues have appeared on the market, most of which have been underwritten. Relatively little capital expansion is financed through the stock exchange as private owners remain unwilling to share control over their enterprises. 37. The Government has adopted a number of measures to increase the maturity of financial assets including: increasing the interest rate on saving and time deposits, regulating the yield and increasing the minimum denomination and maturity period of money market operations, increasing the required reserves against deposit substitutes and imposing a 35% transaction tax on interest paid on all commercial paper issued in the primary market. As a result of these measures, the share of savings and time deposits as a proportion of GNP rose from 7.8% in 1975 to 11.6% in 1977. 38. The Government, through specific programs administered through different types of financial institutions, had attempted to meet the credit needs of the economy which were not being adequately met by the private sector. Most of these programs have faced low loan recovery rates, weakening the financial viability of the institutions involved, and often resulting in large budgetary allocations. The Government is, however, paying increasing attention to this problem. Under all these programs measures have been adopted to reduce arrears. 39. There are two major sources of medium- and long-term credit for SMII: Development Bank of the Philippines (DBP) and IGLF, a compensatory financing and guarantee fund of the Government. The volume of credit provided by both DBP and IGLF has increased substantially since 1975 when the Bank's first loan (No. 1120-PH) for SMI1 in the Philippines became available. Term credit is more easily available for small industry than for medium industry. Short-term financing, particularly for working capital, is limited and the Central Bank is taking measures to devise ways to induce the commercial banking sector to lend to SMI. Mfeanwhile DBP and IGLF have increased the volume of working capital finance available to SIiI and have liberalized the terms and conditions for such financing. 40. A joint Bank/I11F financial sector mission visited the Philippines in March of this year to assist the Government in designing policy measures which would make the financial sector more effective in supporting the Philippine development objectives. It is hoped that the findings of the mission will form a firm basis for a dialogue between the Government and the Bank on broader financial policy issues. The Bank's Role 41. The Bank has assisted industrial development in the Philippines by providing financial and technical assistance through financial intermediaries to help them expand and improve their medium- and long-term lending programs. Bank lending for the sector so far has been channelled through DBP, the  - 12 - Private Development Corporation of the Philippines (PDCP), the Philippine Investments Systems Organization (PISO) and IGLF. Total Bank lending to these institutions has amounted to about $375 million. Increasing attention has been given in recent years to the needs of SMI; $85 million from existing Bank loans has been earmarked to finance SMI and provide technical assistance to this sector. 42. The financial and industrial sector reports which are being prepared are expected to provide a better basis for understanding the overall policy framework affecting industrial development in the Philippines. In the future, the Bank is considering the possibility of making a large loan to an apex institution, most probably the Central Bank, which would relend the proceeds to individual development finance companies. This project would provide a convenient vehicle to work with the Government in addressing the industrial and financial sector issues set out in the preceding paragraphs. 43. Progress of the ongoing industrial projects financed by the Bank is generally satisfactory. With the exception of three recently approved loans, (PISO, Third DBP and Fifth PDCP), funds under previous loans have been fully committed. Post-implementation analysis indicates that both the financial and economic rates of returns of subprojects financed are well above the opportunity cost of capital in the Philippines. 44. The Bank's first loan to IGLF, approved in 1975, was a $12 million component of Loan 1120-PH which has since been fully disbursed. Initially, the loan moved more slowly than expected due to a number of problems. First, the financial institutions were rather hesitant to participate as they were not well informed of the new IGLF policies adopted in 1975 (see para. 50). Second, the introduction of the accreditation scheme (see para. 52), which aimed at simplifying the procedures of IGLF, was delayed. Finally, the inter-agency Review Committee (para. 53) that provides overall guidance to IGLF, because of its relatively junior level representation, could not provide effective guidance to IGLF under new policies and concepts. Measures to alleviate these problems were taken in 1976 and 1977: the communication between IGLF and financial institutions improved; the accreditation scheme became effective; and the Review Committee was both restructured and upgraded. These measures had a significant positive impact on IGLF both institutionally and operationally. However, further improvements are required to make IGLF a more effective program. So far, IGLF's financing has largely remained limited to small industries. Some industries, however, in order to make the most efficient use of resources, need credit and assistance to move from the small industry stage to the medium industry stage. IGLF also has to promote its program more effectively and rationalize some of its policies better to meet the needs of the SMI sector. The proposed loan is designed not only to provide additional funds to IGLF but also to strengthen IGLF institutionally.  - 13 - PART IV - THE PROJECT 45. The proposed loan would be the second for financing the development of small and medium industries in the Philippines./l This project was appraised in November-December 1978, and negotiations were held in Manila in April 1979. The Philippine negotiating team was led by the Honorable Manuel S. Alba, Deputy Minister of the Budget. A Staff Appraisal Report entitled "Staff Appraisal Report on the Second Small and Medium Industries Development Project" (No. 2417-PH) is being distributed separately. Supplementary Project Data are provided in Annex III. 46. The proposed loan has two components: (a) $24.5 million to support IGLF's program for lenlding to SMI through a number of accredited financial institutions; and (b) $0.5 million for strengthening the Medium and Small Industries Coordinated Action Program (M4ASICAP) which provides assistance to small entrepreneurs in project preparation. The first component would cover IGLF commitments over a two-year period from July 1979 to June 1981. Dis- bursements would spread over a three-year period, from October 1979 to June 1982. The proposed loan would finance about 510 SMI projects with a total investment of P 325 million (about $44 million). It is expected that about 80% of the IGLF component would be used for the financing of small industries and labor-intensive medium industries with assets not exceeding $250,000, or projects with an average cost per job of no more than $4,400 (1980), which is the estimated urban poverty threshold for the Philippines. The IGLF component of the proposed Bank loan would finance an equivalent of the direct and indirect foreign exchange cost of imported and locally procured equipment, civil works and working capital, which account for about 56% of the total cost of an average subproject. The IGLF loan would finance, on an average, 75% of the total cost of each subproject while the proponent's equity would finance the remaining 25%. Disbursements under the proposed Bank loan would be made against 75% of each IGLF subloan. IGLF would provide the remaining 25% out of its resources provided to it free of cost by the Government. The $0.5 million component for MASICAP would be used to finance the establishment of nine regional offices with permanent professional staff to upgrade the quality of MIASICAP assistance. This component would finance 100% of the cost of imported and locally manufactured equipment and vehicles and 50% of the staff training cost and salaries of new permanent staff for the initial two years. IMASICAP would follow standard Government procurement procedures, which give due consideration to competitive prices and proper quality and therefore are satisfactory to the Bank. 47. The proposed loan would be made to the Republic of the Philippines, and would have a fixed repayment term of 20 years, including a 5-year period of grace. The Government would bear the foreign exchange risk. The IGLF subloans would have a maximum maturity of 12 years including a grace period of up to 3 years. The rolled-over funds resulting from the shorter maturities of the subloans would be used by IGLF for financing SMI projects on the same terms and conditions as the original loan. The Government would charge IGLF interest at the same rate as it would pay to the Bank. The ultimate sub- borrowers for IGLF funds under the proposed loan would be charged an effective interest rate, including service charge, of 15% for medium scale industry and 14.7% for small-scale industry. Considering an average inflation of 8.8% /1 In addition, the Bank's two loans to DBP (Nos. 1190-PH and 1572-PH) had a SHI component totalling $55 million.  - 14 - over the past three years, and a projected rate of 7%, the onlending rate would represent a positive real rate of interest. IGLF would charge the accredited institutions an interest rate of 6.7% for their lending to small- scale industries, and 9% for lending to medium-scale industries, thus allowing a spread of 8% on the former type of lending and 6% on the latter./I Margins accruing to IGLF on loans made under the project, including interest-free Government contribution, would be about 0.8% on small industry loans and 3.1% on medium industry loans. IGLF loans would range between P 50,000 (about $6,760) and P 2.5 million (about $338,000). As in the first loan, IGLF would not be required to obtain the Bank's prior approval for subprojects under the loan. Instead Bank staff would closely monitor the quality of appraisals through post-disbursement reviews and regular field supervision. IGLF would, at the request of the Bank, submit a periodic summary of loans approved and copies of appraisal reports on loans above P 500,000 (about $67,500)(Section 4.04 of the draft Loan Agreement). IGLF's Legal Framework and Scope of Activities 48. IGLF, a compensatory financing fund owned by the Philippine Govern- ment, was established in 1952 under a Counterpart Project Agreement between the Philippine Government and the Economic Cooperation Administration of the U.S. IGLF provides financing to a variety of financial institutions against loans made to small industries. As the credit risk for such financing is borne by the financial intermediaries, IGLF, in addition, provides a partial guarantee against possible losses on loans to small industries. Over 95% of IGLF's financing has gone to manufacturing projects while the remaining 5% has gone to tourism and service industry projects. The Government's contri- bution (including the Counterpart Funds) to IGLF amounted to P 59.0 million as of December 31, 1978. Economic Impact of IGLF's Operations 49. IGLF is one of the two sources of long-term finance available to SMI. As such the project provides credit to groups normally denied access to term credit and generates employment at a relatively low cost in both rural and urban areas. Since the projects to be financed cannot, at this stage, be identified, it is not possible to make an ex ante analysis of the economic impact of the loan. However, the overall impact of the project is likely to be similar to the last one. As of December 31, 1978, 393 projects had been financed under Loan No. 1120-PH with an estimated total project cost of P 228 million (about $30.8 million). An estimated 9,889 new jobs would be created with an average cost per job of $3,110. Moreover, almost 100% of the financing went to enterprises with assets not exceeding $250,000. The /1 Small industries are defined as having assets of from P 100,000 to P 1.0 million ($13,500 to $135,000) and medium industries having assets of from P 1.0 million to P 4.0 million ($135,000 to $540,500). These definitions have been found to correspond to the employment level of 20-99 workers in small industries and 100-199 workers in medium industries.  - 15 - estimated incremental sales from these projects amounted to $49 million, of which export sales accounted for $6.5 million. The economic rates of return, computed for a sample of firms, ranged from about 17% for a furniture project to about 215% for a garment industry, the weighted average economic rate of return being about 60%. The regional dispersion of IGLF-assisted projects is significantly better than in the SMI sector as a whole. Operating Policies and Operational Priorities 50. Some important policy changes were made in 1975 when the terms of the Bank Loan No. 1120-PH were incorporated. The most important changes were: increasing the interest rate to participating institutions and end- users; incorporating an automatic guarantee feature; and introducing the accreditation scheme. In order to make the IGLF program more attuned to the needs of SMI and to encourage greater participation of financial institultions, several new and important policy changes are proposed under the project. Until now, as mentioned in para. 44 above, IGLF has essentially limited its financing to small industry. However, many small industries are in need of financing, if they are to evolve from the small industry stage to the medium industry stage and make more productive use of labor and capital. Financing to medium industries is not easily available and hence, under the new loan, medium industries will also be eligible for IGLF financing. Consequently, the maximum IGLF loan size will be raised from the present limit of P 500,000 to P 2.5 million (about $67,500 to $338,000). Adequate safeguards will be provided to prevent accredited institutions from financing medium-scale industry at the expense of small industry. The safeguards include a higher gross spread accruing to the accredited institution for small industry loans (8%) than for medium industry loans (6%); and a higher proportion of guarantees available on small industry loans than on the medium industry loans. As a matter of policy, IGLF would encourage participating institutions to give priority to small industry. The other major policy change proposed is raising the effective interest rate (including service charge) to the end-user of IGLF funds from 13.2% to 14.7% for small-scale industry and 15% for medium-scale industry. At present, IGLF is the cheapest source of long-term local currency financing in the Philippines. The increased interest rate, coupled with the introduction of a penalty charge on defaults, should help bring IGLF's charges more in line with those of other financial institutions. Finally, IGLF's guarantee policy will be modified with a view to making a distinction between a collateral-short and a credit-risk guarantee. It is expected that the new guarantee policy will better serve the interest of IGLF's ultimate subborrowers. All of these changes are incorporated in a policy statement, the adoption of which by IGLF is a condition of effectiveness of the proposed loan (Section 6.01 of the draft Loan Agreement). Following the adoption of the policy statement but not later than October 31, 1979, IGLF would prepare a compre- hensive policy and administrative manual for the guidance of its own staff and that of the financial institutions (Section 3.07(b) of the Loan Agreement). 51. In carrying out its mandate to support efficient small and medium industries, IGLF intends to emphasize increasingly proper project selection. A program of cooperation between accredited institutions and the Commission on  - 16 - Small and Medium Industries is being initiated to ensure that deserving small and medium industries receive the necessary finance. The export-oriented and labor-intensive projects would be given priority but other merits such as geographical dispersion of investment, value added and use of indigenous raw material will also be taken into consideration. IGLF also aims at building the organizational staff capacity of accredited institutions so that a core of credit institutions is developed, capable of efficiently handling SMI projects. The Accreditation Scheme 52. Prior to September 1976, IGLF operated the sponsorship scheme under which all decisions pertaining to project approval were made by the IGLF unit. To bring about a greater decentralization of decision-making and to shorten processing time, the accreditation scheme was introduced. Under this scheme, IGLF operates as an apex institution and all appraisal and supervision responsibility is delegated to the accredited institution. After some lnitial delays, the scheme is working satisfactorily. As of November 30, 1978, 20 institutions had been accredited, of which 10 were commercial banks, 9 were Non-Bank Financial Intermediaries (NBFI) and one was a private develop- ment bank. NBFI have been more active than their commercial bank counterparts. For the period August 1976-December 1978, NBFI accounted for 71% of the value of loan approvals while commercial banks accounted for 27%. The greater participation of NBFI is likely to continue for at least two reasons. First, unlike commercial banks, NBFI have better expertise in SMI project evaluation. Second, as NBFI do not have access to low cost resources, such as bank deposits, the risk return trade-off of the IGLF program is more attractive to them than to their commercial bank counterparts. However, after the proposed policy changes, described in para. 50 above, are carried out, there would be a greater incentive to financial institutions, especially commercial banks, to use IGLF financing. Management, Organization and Staff 53. IGLF is administered on behalf of the Government by the Central Bank's Department of Loans and Credit. An interagency Review Committee advises IGLF on all policy issues. Until 1977, the Review Committee was essentially a working level committee of relatively junior-level repre- sentatives of the member agencies. As a result, the Committee was not very effective in promoting interagency cooperation, contributing to Government's policies concerning the SMI sector and gaining the confidence of the parti- cipating financial institutions. The Government alleviated these problems in 1977 when the Review Committee was both restructured and upgraded. The Review Committee now comprises representatives of the National Economic and Development Authority (NEDA), Central Bank, Ministry of Industry, Ministry of Finance and the University of the Philippines' Institute for Small-Scale Industries (UPISSI). In addition, the Chief Executive Officer of IGLF is an ex-officio member of the Committee. While the Review Committee advises IGLF, the final authority to approve policy changes rests with the Director General of NEDA. 54. The Department of Loans and Credit of the Central Bank has a separate unit which handles IGLF operations. While the Director of the Department of Loans and Credit oversees IGLF operations, the unit is managed by an assistant  - 17 - IGLF unit to operate more effectively, the unit will be suitably restructured along with further delegation of authority to the Chief Executive Officer by the Review Committee. 55. As of November 30, 1978, IGLF's professional staff totalled 23. If the reorganized IGLF unit is to function efficiently, some strengthening of staff will be needed. While the professional caliber of the staff is reason- ably satisfactory, most would benefit from further training, particularly with respect to industrial project appraisal and supervision. It was agreed that the IGLF unit in the Central Bank would be strengthened and more adequately staffed so as to ensure that the IGLF operations are efficiently carried out (Section 3.07(a) of the draft Loan Agreement). Procedures and Standards 56. IGLF's appraisal procedures have been simplified and shortened since the introduction of the accreditation scheme in 1976; under the accre- ditation system the processing time is three to seven days compared to four to six months under the old system. The quality of appraisals conducted by accredited institutions varies. In general, the Non-Bank Financial Inter- mediaries which generate the bulk of IGLF's business, tend to perform analy- tical and comprehensive project appraisal. However, appraisals performed by other institutions, such as commercial banks, are not so comprehensive, and are mostly collateral-oriented. IGLF would provide assistance to such institu- tions in project appraisal. In the past, owing to the small loan size, no economic or financial rate of return was computed. These calculations will now be undertaken for all loans in excess of P 1.5 million (about $203,000). 57. Projects approved by accredited insitutions undergo a two-tiered supervision process. First, IGLF conducts its own end-use verification to ensure that there is no diversion of funds. The second tier of supervision is performed by the accredited institution with the objective of helping the borrower identify and resolve any production, financial or managerial problems. WThile some accredited institutions undertake this type of supervision, others do not. IGLF plans to monitor the accredited institutions and their super- vision efforts, and provide training in standard follow-up procedures whenever necessary. 58. ICLF's procurement and disbursement procedures appear to be working satisfactorily. The accredited institution checks the prices quoted and the suitability of the items proposed by the end-user. In addition, IGLF's periodic end-use-verification missions ensure that there has been no diversion of funds. Owing to the large number of projects, the Bank's disbursements are made against a statement of expenses provided by IGLF; a post-disburse- ment audit carried out by the Bank indicated that the procedure was operating satisfactorily. Operations 59. IGLF provides 100% financing in the form of special time deposits to a variety of financial institutions against loans to small industries. As of December 31, 1978, cumulative special time deposits approvals since the  - 18 - establishment of IGLF in 1952 stood at P 319 million (about $43.1 million) for 1,032 projects. Since 1975, in accordance with an agreement (No. 1120-PU) with the Bank, all special time deposits approved were automatically guaranteed by IGLF up to 60%. IGLF's volume of approvals slowed down in CY76 (P 29 million) and CY77 (P 20 million) but recorded a significant recovery in CY78 when approvals amounted to P 47 million. 60. Manufacturing activity continues to dominate the sectoral distribu- tion of IGLF's approvals, accounting for nearly 95% of 1978 approvals with no undue concentration in any particular subsector. The regional distribution of IGLF project approvals, though still skewed in favor of Uetro-I4anila, is much less regionally concentrated than the portfolio of private financial institu- tions or the overall distribution of SMI. The average size of IGLF loan approvals in 1978 was P 336,000 (about $45,000). In 1973, 82% of loan approvals by value were for fixed assets and 18% for working capital finance. IGLF's working capital loans have maturities up to three years, while a majority of the fixed assets loans have maturities of five to seven years. Financial Aspects 61. IGLF's total assets as of December 31, 1978, stood at about P 162 million (about $22 million), having increased almost threefold since December 31, 1974. Special time deposits and short-term investments repre- senting temporary placements of liquid resources, account for over 96% of total assets. IGLF had a strong financial position with a debt equity ratio of 1.1:1 as of December 31, 1978. As of the same date, IGLF's total liquid and near liquid assets (cash and short-term investments) covered its out- standing undisbursed commitments by about 15 times. Provisions for possible losses are made annually and amounted to P 2.5 million (about $338,000) or 2.2% of outstanding portfolio as of December 31, 1978. IGLF's net income in CY78 amounted to P 2.8 million (about $374,000) which, given its role and nature of financing, is satisfactory. 62. Arrears on IGLF's loans outstanding both between IGLF and partici- pating financial institutions and between the institutions and ultimate subborrowers have increased lately. As of December 31, 1978, the arrears ratio was about 16% on IGLF's own portfolio and 26% on the portfolio of the participating financial institutions. In order to alleviate IGLF's arrears situation, the Government and the Central Bank have agreed on an action program which comprises: (a) increasing the interest rate on IGLF loans; (b) introducing a penalty charge on defaults; (c) adopting a more realistic policy on grace periods keeping in view the project's debt servicing capability; (d) a closer monitoring of the quality of appraisals and super- vision done by participating institutions and the quality of their portfolio; and (e) undertaking a program of reviewing the portfolio of financial insti- tutions with a view to recommending follow-up actions such as restructuring, additional financing or foreclosure where necessary. Wlen these measures are implemented, the default rate is expected to come down.  - 19 - Projected Operations and Resource Requirement 63. IGLF expects a significant increase in the volume of its business, especially after the inclusion of medium industries in its financing program. New approvals of loans to accredited institutions are therefore projected to rise from P 85 million (about $11.5 million) in CY79 to P 135 million (about $18.0 million) in CY82. IGLF's total resource requirements for new commitments, including non-Bank financed operations and debt servicing up to June 30, 1981, are estimated at P 325 million (about $44 million) which IGLF proposes to meet through internal cash generation, further contributions by the Government of approximately P 50 million (about $6.7 million), and the proposed Bank loan. IGLF has already fully committed and disbursed the $12 million IGLF component of Loan No. 1120-PH. IGLF therefore needs the proposed loan by the end of the second quarter of CY79; during the inter- vening period IGLF would use its own resources. Financial Projections 64. According to IGLF's projections, total assets are projected to grow at an average rate of 30% in the period CY78-82 from P 162 million to P 465 million. This growth rate is achievable as the actual growth rate in IGLF's assets in the past five years has been about 25%. The proposed addi- tional contribution by the Government and internal cash generation will enable IGLF to maintain a strong financial position and a very satisfactory debt service cover. 65. IGLF's gross income is projected to maintain a secular growth trend rising from P 10.1 million (about $1.4 million) in CY78 to P 34.7 million (about $4.7 million) in CY82, while the net income is estimated to rise from P 2.8 million to P 8.0 million (about $379,000 to $1,080,000) in the same period. On the whole, IGLF's projected income is satisfactory. As the profitability of IGLF is to some extent affected by the administrative fee charged by the Central Bank,/l it was informally agreed that any increase in the fee would be in line with the actual increase in expenses and with prior consultations with the Bank. Medium and Small Industries Coordinated Action Program (MiASICAP) 66. MASICAP was established by the Development Academy of the Philippines in 1973, and transferred to the Ministry of Industry in June 1974. The aim of the program is to stimulate investment in SMI in regions outside Metro- Manila by assisting SMI in the preparation of projects which might be financed /1 Central Bank's administrative fee currently is 1% of the highest outstanding balance of special time deposits and guarantees in the preceding year.  - 20 - from the entrepreneur's own resources, or through institutional credit. The program emphasizes field work and extension services. At present, the MASICAP staff number 147, of whom 137 are field staff organized into 49 teams of 2-3 persons. Each team is assigned a specific geographic area usually comprising one or two provinces. 2lASICAP's geographic coverage is extensive and almost covers the entire country except Metro-Manila. The core of the staff of MASICAP consists of senior year college students wishing to parti- cipate in the program who are given nonrenewable two-year appointments. New recruit training is provided by senior team leaders and through lectures from representatives of the Government and financial institutions. The rationale behind the staffing policy is to maintain a high degree of motivation in the program and, although not an explicit objective, this policy has resulted in a low-cost program given its size and geographic reach. MASICAP services are provided free of cost to the end-user. 67. Since the program began, NASICAP has undertaken over 5,300 feasi- bility studies, of which 4,090 were finalized and submitted for financing. Over 50% of MASICAP projects (2,135) processed by financial institutions have been accepted for financing. Currently, about 1,200 projects are assisted each year. The average loan and project size of MASICAP clients are P 225,000 (about $30,400) and P 450,000 (about $60,800), respectively. In general, larger projects are directly appraised by the financial institutions, while MASICAP help is sought for smaller loans, where the transaction cost per unit is high. 68. The main strength of MASICAP is its motivation to try to address problems which the organized financial sector is unwilling to tackle on its own. The main weakness of the program has been its lack of experience and continuity. The policy of limiting the service of field staff to two years has meant that experience and knowledge of local conditions gained have not been retained within the program, adversely affecting, in some cases, the quality of project preparation work done by MASICAP. Consequently, the percentage of MASICAP-assisted projects operating with difficulties and/or in default is relatively high. If not remedied, the financial institutions may become hesitant in financing MASICAP-assisted projects. The project therefore proposes to reinforce MLASICAP by providing for some continuity in its operations by: (a) introducing nine regional offices with permanent experienced technical staff to supervise the work of MASICAP teams; and (b) involving M4ASICAP field staff in the supervision of projects in close cooperation with the financial institutions. As in the past, a small sample of projects will be monitored annually. There are to be three permanent staff in each regional office who will be responsible for project identification, feasibility studies and the supervision activities of the field staff. The supervision provided by I4ASICAP will be on a regular basis. The Ministry of Industry will keep the Bank informed of its supervision and monitoring activities through regular reporting. Justification and Risks 69. The project would support the Philippine Government's SMI develop- ment program aimed at reducing income disparities. The economic and social benefits resulting from the project are likely to be substantial. Under the IGLF component, about 510 projects are likely to benefit under the project involving a total investment of P 325 million (about $44 million). Most of these projects belong to groups that are normally denied access to term  - 21 - credit. Approximately 11,500 new jobs will be created in both rural and urban areas at a relatively low cost of $3,800 per job. In addition, the project would bring about a greater regional dispersal of investment and aid in the institutional development of a number of financial institutions. The loan will help develop institutional expertise in project evaluation, prep- aration and supervision. Accredited financial institutions are already building up their expertise in this field and will be further strengthened under the project. A restructured MASICAP will aid potential end-users in preparing project feasibility studies. This is likely to improve the quality of M4ASICAP's output which will help in the promotion of economically and financially viable SMI projects. 70. The numerous institutional and policy problems that have delayed the first SMI project and were partly responsible for a high level of arrearages have been addressed by a proposed new set of policies for IGLF (see para. 50) which would provide for greater efficiency in its operations, and attract greater participation from among the financial institutions. The risks associated with this project are related to the efficiency with which these policies are implemented. The full achievement of the employment and export impact of the proposed project would also depend in part on improvement of the overall policy framework affecting industrial development; these issues will be discussed in depth with the Government in the context of the forthcoming financial and industrial sector reports. PART V - LEGAL INSTRUMENTS AND AUTHORITY 71. The draft Loan Agreement between the Republic of the Philippines and the Bank 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 to the Executive Directors separately. 72. Special conditions of the loan are referred to in Section III of Annex III. Adoption of the policy statement by IGLF is an additional condition of the effectiveness of the proposed loan (Section 6.01 of the draft Loan Agreement). 73. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 74. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments dIay 30, 1979 Washington, D.C.  - 22 - ANNEX I Pase 1 of 5 pav"es TABLE 3A PHILIPPINES - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAGES PHILIPPINES /a LAND AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE) TOTAL 300.0 SAME SAME NEXT HIGHER AGRICULTURAL 85.6 MOST RECENT GEOGRAPHIC INCOME INCOME 1960 lb 1970 /b ESTIMATE /b REGION /c GROUP /d GROUP /e GNP PER CAPITA (US$) 140.0 230.0 450.0 616.0 432.3 867.2 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 147.0 301.0 326.0 522.0 251.7 578.3 POPULATION AND VITAL STATISTICS TOTAL POPULATION, MID-YEAR (MILLIONS) 27.4 36.9 44.5 URBAN POPULATION (PERCENT OF TOTAL) 25.3 27.6 29.8 30.1 24.2 46.2 POPULATION DENSITY PER SQ. EM. 91.0 123.0 148.0 156.8 42.7 50.8 PER SQ. KM. AGRICULTURAL LAND 360.0 472.0 520.0 794.8 95.0 93.3 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 45.7 45.6 42.9 40.8 44.9 42.9 15-64 YRS. 51.6 51.6 54.2 55.4 52.8 53.5 65 YRS. AND ABOVE 2.7 2.8 2.9 3.2 3.0 3.5 POPULATION GROWTH RATE (PERCENT) TOTAL 3.0 3.0 2.8 2.3 2.7 2.5 URBAN 4.0 4.0 3.9 5.1 8.8 4.7 CRUDE BIRTH RATE (PER THOUSAND) 45.0 43.0 35.0 34.6 42.2 37.8 CRUDE DEATH RATE (PER THOUSAND) 15.0 11.0 9.0 8.7 12.4 10.8 GROSS REPRODUCTION RATE 3.5 /f 3.3 2.4 2.6 3.2 2.5 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 191.7 750.8 USERS (PERCENT OF MARRIED WOMEN) .. 2.0 25.0 22.1 14.2 20.0 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1970-100) 99.1 100.0 110.8 106.8 104.3 107.3 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIRENENTS) 83.0 86.0 87.0 108.7 99.5 105.3 PROTEINS (GRAMS PER DAY) 44.0 45.0 50.0 57.7 56.8 63.0 OF wHICH ANIMAL AND PULSE 19.0 j5 22.0 19.2 17.0 17.5 21.7 CHILD (AGES 1-4) MORTALITY RATE 9.0 6.6 7.5 4.0 7.5 8.0 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 49.4 57.0 60.0 59.0 53.3 57.2 INFANT MORTALITY RATE (PER THOUSAND) 84.6 81.0 80.0 44.0 82.5 53.9 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL *- 39.0 21.9 31.1 56.8 URBAN *- * - 51.0 58.3 68.5 79.0 RURAL *- 33. 9.8 18.2 31.8 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. *- 56.0 28.6 37.5 30.9 URBAN 76.0 66.6 69.5 45.4 RURAL .. 40.0 44.0 14.8 25.4 16.1 POPULATION PER PHYSICIAN .. 3150.0 4103.1 9359.2 2706.8 POPULATION PER NURSING PERSON .. 3840.0 4990.0 1520.2 2762.5 1462.0 POPULATION PER HOSPITAL BED TOTAL 1180.0 850.0 880.0 657.1 786.5 493.9 URBAN *- *- - 145.5 278.4 229.6 RURAL .. .. .. 1011.8 1358.4 2947.9 ADMISSIONS PER HOSPITAL BED .. .. .. 19.0 19.2 22.1 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.8 5.9 .. 5.2 .. 5.2 URBAN *- 6.2 .. 5.2 .. 5.0 RURAL *- 5.8 .. 5.4 .. 5.4 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL .. 2.3 .. .. .. 2.0 URBAN .. 2.1 .. .. 2.3 1.5 RURAL .. 2.4 .. .. .. 2.7 ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 17.0 23.0 31.0 39.1 28.3 64.1 URBAN .. 60.4 .. .. .. 67.8 RURAL *- 7.0 10.0 .. 10.3 34.1  - 2 3 - ANNEX I Pa-23 -1 of 5 pages TABLE 3A PHILIPPINES - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAGES PHILIPPINES - MOST RECENT ESTIMATE) /a SAME SAME NEXT HIGHER MOST RECENT GEOGRAPHIC INCOME INCOME 1960 lb 1970 /b ESTIMATE /b REGION /c GROUP /d GROUP /e EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 95.0 114.0 105.0 95.6 75.8 99.8 FEMALE 93.0 113.0 103.0 93.7 67.9 93.3 SECONDARY: TOTAL 26.0 50.0 56.0 43.3 17.7 33.8 FEMALE 25.0 50.0 57.0 38.6 12.9 29.8 VOCATIONAL (PERCENT OF SECONDARY) 14.0 .. .. 11.3 7.4 12.8 PUPIL-TEACHER RATIO PRIMARY 36.0 29.0 29.0 30.0 34.3 34.9 SECONDARY 27.0 33.0 31.0 25.4 23.5 22.2 ADULT LITERACY RATE (PERCENT) 71.9 82.6 87.0 84.0 63.7 71.8 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 3.0 8.0 8.0 9.3 7.2 12.4 RADIO RECEIVERS PER THOUSAND POPULATION 22.0 72.0 .. 97.6 71.1 104.5 TV RECEIVERS PER TLOUSAND POPULATION 1.4 10.0 17.0 21.8 14.1 28.1 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 17.0 14.0 18.0 25.9 16.3 45.2 CINEMA ANNUAL ATTENDANCE PER CAPITA 0.6 .. 7.6 4.6 1.6 4.6 EMPLOYMENT TOTAL LABOR FORCE (THOUSANDS) 10100.0 12400.0 16200.0 FEMALE (PERCENT) 34.4 33.1 35.3 33.2 28.0 25.7 AGRICULTURE (PERCENT) 61.0 55.0 50.0 48.4 54.1 46.2 INDUSTRY (PERCENT) 15.2 15.8 14.0 PARTICIPATION RATE (PERCENT) TOTAL 39.8 36.6 35.3 38.9 37.8 33.8 MALE 52.1 48.6 47.1 48.6 50.3 48.1 FEMALE 27.4 24.4 23.3 28.4 20.9 17.3 ECONOMIC DEPENDENCY RATIO 1.3 1.5 1.3 1.2 1.3 1.4 INCOME DISTRIBUTION PERCENT OF PRIVATE LNCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 28.8 .. .. 17.3 19.5 23.6 HIGHEST 20 PERCENT OF HOUSEHOLDS 56.2 54.0 53.3 45.6 48.9 52.3 LOWEST 20 PERCENT OF HOUSEHOLDS 4.2 3.6 5.5 6.5 5.9 4.3 LOWEST 40 PERCENT OF HOUSEHOLDS 11.9 11.7 14.7 17.3 15.7 13.1 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 250.0 140.8 155.9 191.9 RURAL .. .. 190.0 112.8 97.9 193.1 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 132.0 .. 143.7 319.8 RURAL .. .. . 76.8 87.3 197.7 ESTIMATED POPULATION BELOW POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 39.0 27.7 22.9 19.8 RURAL .. .. 44.0 40.4 36.7 35.1 Not available Not applicable. NOTES /a The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and the most populated country in each group. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1973 and 1977. /c East Asia & Pacific; /d Lower Middle Income ($281-550 per capita, 1976); /e Intermediate Middle Inacome ($551-1135 per capita, 1976); If 1950-55; /g Av. 1960-62.  - 24 - ANNEX i, Page 3 of 5 pages DEEINYlIONS OF SOCIAL INDICATORS Noe: Th.1 adjusted group averages fur ear, indicator are population-weighted geometric meass, ccl.uding the extreme values of the indicatrr anf tLae nms populated -cuntry is each group. Coverage of coustrles among the indicators depends o sva.lablldy of data ead is not oniforn. Due ta lack of data, groa, av. arages Cr CapItal Surplus _li Eiporters and indicators of access to water and excreta disposal, housiog, icune distribution and povert's are simple pap,iatiuc-uegi tod geo-etrc measts without the maclsior. of extreme values. LAND ARiA ithousand sq. km) Populaticn per hospital bed - total, srbar sad rural - Polatioc (total, Total - fetal surface area coaprising land area and i.iane waters. arbas, and rural) divided hy their respectuie r.umber af hcspital beds acrocultural - Most recent estimate of agricultural area used temporarilv available in pohlic and private generas arc specialized ho-pital asd re- or permarently for amps, p asres, .arket sad ki-chen gardens or to hab'litatio- cesters 'aspitals are esceb tshnert aera:rln staffed ha lie fallow. a: leust one physiciares..................... Establis:moents pro-_di'g pri:ncipally custccial care are not included. Rural hosnita'u, nowever include healt- ad aedi- INP PEh 'CA! l (E SS) - ON? per - a-ita esticates at current rarket prics, -a- casters not permanertly staffed by a phvsicias (but by a nedicnl oulcailrtd by ason conversion method us World Saak Atlas (1971-77 basis); sistaet, urse, midwife., etc.) which offer in-patient acoom.nodatio anrd '96C, 19-C, and 1977 data. provide a .inited range f m.edicai facilities. Admiosions per hospital hed - Total onuher of admissions to or 'izchoageu NiMERGY Ci Si'lPTIPI PER CAPITA - Ann-al consumption of commercial energy from hospitals divided by the nsmber of heds. (cool ash lignit, pootroles, natural gas and hydro-, nuclear and go- t-nercal elctricity) is kilog.aus of coal equivalent per capita. HOLSING Avrg ieo ousehold (rersonsa per household) - total, orio.n, and aural - PCPIAC.I ci-=_.ll MIAN .ICrTltTICS hAbousehold consists of a group of individoals who share living cu-rter- Total population, mid-year (villioss) - As of Jsly 1; if not available, and their tain m.eals. A boarder or lodger mev or ray not ha inaludad is average oP two erd-yar estr-ates; 1960, 1970, asd 1977 data. the household far statistical purposes. Statistical definitio-s f h-oue- 'rhan populatieo ('ercent of trta') - Ratio of urban to total -onDs- hold vary. cios; diff-ent definitiros of orban areas may affect comparability Average aunber of persons ner room - total, urban, and rural - Average cur- cf dara u-ra countries her of persons per room in all, urhas, and rural cccupied ccrnvti-oa. Ppulation deit dwellings, respectively. Dwellings eoclude nso-per.anent sarsoturos and Per so. km. - id-year populuriner square kilmoretr (i00 hectares) unoccupied rarts. of total arsa. Access to electricity (percent of d-ellingsa - coral, urhar, a -rural - Per sq. om. agra 'a' cura st-Compatod ..us ac gricltur lash a b vef cicsal duellings with electricity in lIving quarters as p-v-an.nag only. of -otai, srbao, and rural dwellings r-speotively. Populaticn ago trcture (oerceat) - Children (0-14 years), working-age (15-64 years), and retired (h5 years ad. over) as percentages of mid- EDUCACION year populauros. Adjusted esrotlmosst rtuics Population grow-t rate (per-ent) - total, and urban - Compos-d annual Priarav school - total, and female - Total and fem-le esrollrart of all open growth rates of totas and urbas nid-year proulationo for 1910-60, at the primary level as percentagos of respe-tivel prinary school-age 960-7, asd 17-75. populations; cornally includes children aged 6-'1 'ears but adjusted for Crude birtr rate (per thousand) - Annous live births per thaousa.d of different lengths of primary education; fcr cauntrieos with noiversai eda- mid-year population; ten-year aritheetic averages e-ding in 196h and cation snrollmo.ot mny excead 10C percenr since some po,ils are blow or 1971 and flra--oar average endir.g in 975 for most recent estimate. abov The o ffici1 scho.l age. Crude deart. rate Lser thousand) - Annual deaths per thousaod of mid- Secandar, s-o - total, and female - Compated as sbove; secondary ecena- year population; te-year urithatic avoragfs endialg in 19hC and 1970 tihe requires at least four years of appoeved prmr.ary nstructionr; pre- and fica-year average ending is 1975 icr most recent estimate. vides general aecarioval, or teacher tra.ning 1nstructione for p-pils GCrss reprLdhcri-s rate - Average number of daughters a wonan will bear usually of 2 to : pears of age; ocor-sponrhnce courses are generally no oer osmal aeprod-ctive period if she e-periences present age- excuded, syeofifc fertility rates; Usually five-year averages emding is 1960, locations1 earsolnert (ercest of socandary) - Vacatiotel cnstitutios ir- 1970, and 1975. clude tehnical, industrial, or other prcgrams ahich operate iidoeond.otlc Family pla-ning - accertors, annual (thous.nds) - Annual vanher of or as departments of secondary iestitutinos. acceptors of birth-control devices under auspicas of national family Pusil-ceacher ratic - primary, ad secondary - Total studesnt enrolled is plansing program. primary and secondary levels divided by numbers of teachers is the ccrre- Fam.ily planning - users (percent of married women) - Pereantege of sponding levels. married wonen of child-bearing age (15-44 years) who use birth-cont-ol Adult literaev rate (percent) - Literate adults (able to read and write) as devices to all married wombs in same age group. a percentage of total adult population aged 11 years asd over. FOOD ANID NUTR1TICN CONSlJPTION Indes of food produc.tion er capita (1970=100) - Ind-e nauber of per Passenger cars (per th-usand population) - Passenger cars com?rise acoor cars capita annual producticn of all food corohdities. seating less than eight perscos; excludes ambulances, hearses and silitar- Per capita supply of calories (percent of requirements) - Compated fron vehicles. enorgy eguivIal,s of net fuod supplies available is country per capita Radio reeivers (Peo huah ouair - A-' types of receiver for radio Per ay. Avail.ble supplies om .prise domesti prod-ctis, imports less broadoasts to general public per thousad oi earulatior. xccudes oliceoved coporra, and changes in stock. Net supplies xolude animal feed eds, receivers in coustries and in years when registration of radio sets was in quasticies used in food pr-cessing, and losses in distribution. Re- effect; data for recent years may not be -omparable since most countries cu-remrcto were estimated by FAO based on physiological needs for nor- abolished licensing. val activity and health considering environmental tenperaturo, bodh TV receivers (per thousand populatioc) - TV receivers for hrodcast tc ge-era w-ighte, age and se distributions of population, and allowing 10 per- public per thousand populatius; excludes unlicensed TV recoivers is co-n- cent for waste at household level. trios and it rears whea registration of TV sets -was in effect. yea carica supply of protein (grams per day) - Proteti costent of per Newspaper ciroulatuon (per thousasd po-ulation) - Shwow the average circula- capita net supply of ford per day. Net sapply of food is defined as ties of "daily general in-erest --wapaper", definod as a pe-ridical publi- above. Requiremerts for all corntrims established by CSDA provide for caties devoted pritarily to reordirng general oews. Ct is considered tc a miieur. allowane of 60 grams of total protein per day and 20 Srans be daily" if it appears at least four times a Weeo. of ani:nal and pulse protein, of which i0 grams should be animal protein. Cinema annual attendance per c.o.te per year - fiaed on rho ras-er of cic-etn Theae standards are Ilwer than those of ,S grams of total protein and sold during the year, isuludi.g admissions to drive-ic cisesus and mohilo 23 gramo ci uninal protein us as average for the world, proposed hb ,rits. FAC in the Ch_rd -orld Food Survey. Per capita protein supply Prom animal ash pulse - Protein supply of food EMPLOYMENI derived from animals and pulses in grass per day. Tatal labor forc- ,thou..s.d) - Eonom.ica:ly active perscns, incl:d:ng armed Child (ageu I-a) mortality rate (per thousand) - Annual deaths per thus- forces snd u-smclooed but exsluding hcosev-ivos, asodrots, etc. Defini- and in age group 1-4 years, to childen is this age group. tions is various countries aro not cosparable. Female (perce-t) - Per.ale labhr force as percenrepe of total labor force. dEALCH - Labor force in farming, fc-:estry, huoting and fishing Life esportuacy at birth (eaurs) - Average runuer of years of life as perrentage of total labor force. renaining at birth usually fve-year averages ending in 1960, 1970, Industry (percent) - Labor force is mining, constructio-, ma-ufar-t-ng and and 1975. electricity, water and gas as percentage of total Iohor force. Infast mor ral. deth f i.fan uhe Particiati rate (-erceur) - total, male, rc_ fe-ale - Total, male, and one year of age per thousand live birhts. emale iabor cer- as per-estag-r cr their rosy-ctive pFol,alonns. Accssa to sare warer (percent of population) - total, urban n aed rural - Ihese are ILO's adjusted partioipation -auts reflecting see-ten Nu-bhr cf people (total, urbah, and rural) with reasonable access to ctrs:n.t,ro of che pop zletath. ond lrm,, tire trond. safe ewter supply (includee treated surface waters or untreated but Ec.oomic deposer a ratio - Rutie of populatior necor la sd 6h ash c-rr tc uncontcamiated water such as that from protected bereholes, springs, the labor fc-e us age group of Il-6u vears. and sa-itary wells) as percentages of their respective papalations. Is -a atlas area a pub io foustais or standpost located no more INCOME DISTRIBTION thar lDC metr.e from a house may be c-osidered as being within rea- Percentace of r vet tincome (both it cash and kind) received bh ri-hest 5 s-able access of that house. I. rural areas reascoable access would percent, riaces 20 percent, poorest 2C percent, asd pocr..esr 0 perceat imply that the housewife or se-bera of the household do not have to of h-use tolds. spe-d a disproportion-at part of the dha in fetshing the fasilvy' water s-eeds. POVTY -ARGET GOIPS Access tc excreta disposal (percent ci oocf lation) - trtal, urban, and Estimared absolire poertv intone level 11$ pea cacito) - urbah anc frra - cral - lumber of peopla (totul, urhan, and rural) served bh rectrs Abslute poverty ircoe level is that incone level below whirl a sonunul disposal as percertages of thoir reepective populations. E-xreta rutrtitonalln adoqus o diet plus essential ron-focd r-eqcrem t.s isora disposal nay include the collection rd disposul, with or without affcrable. treatment, of h-man eucreca and wa-ste-water by wac-hurne systies totimatch reatIve y level (US$ per capri. - and tur-- or the ue of pit privieu asd similar installstlons. Relacive poverty inoeme level is that income level less than -e-tlird Population per phycicies - Population divided by sm.ber of practicing per capita p-r-soal income of the o.untry. physirians qualified from a medical cohool at university level. Estimated rosslaties heluw paovrcy incoee levol percest) - urba and caral - Popula ion -et nursing per-or - Population divided by number of Percent of population (urban and rural) who are either "abclute pe" or pr-oticing male and female graduate curses, practical nurses, ard relative por" whichover is grouter. fEononic and dociol Pata Dirnsics Economuc Analysis and Projections Depar--ect  -25 - ANNEX 1 Page 4 of 5 pages SELECTED ECONOMIC DATA Actual Prelim. Projected Growth Rates (%) 1972 1973 1974 1975 1976 1977 1978 1980 1985 1972-78 1978-85 National Accounts (billions of pesoe at 1972 prices) GDP 56.3 61.2 63.8 68.8 74.2 78.5 81.9 93.8 136.6 6.5 7.4 I'erms of trade adjustment 0.0 1.5 1.3 -0.1 -1.8 -3.0 -2.5 -1.6 0.0 - - GDY 56.3 62.7 65.1 68.7 72.4 75.5 79.4 92.2 136.6 5.9 8.0 Imports - volumue 10.3 10.8 12.9 13.5 13.7 14.6 15.6 16.6 24.3 7.1 6.5 Exports - volume 9.9 11.3 10.0 10.0 11.8 14.9 14.3 15.7 23.4 6.3 7.3 Exports - adjusted for terms of trade 9.9 12.8 11.3 9.9 10.0 11.9 11.8 14.1 23.3 3.0 10.2 Resource gap 0.4 -2.0 1.6 3.6 3.7 2.7 3.8 2.5 1.0 - - Consumption 45.2 48.1 51.1 53.5 55.4 57.8 61.0 70.6 100.9 5.1 7.5 Investment 11.6 12.5 15.7 19.0 20.6 20.4 22.1 24.1 36.6 11.3 7.5 National savings 10.7 14.4 14.7 15.2 16.8 17.5 18.2 21.1 35.0 9.2 8.5 Domestic savings 11.2 14.5 14.1 15.4 17.0 17.7 18.4 21.6 35.6 8.6 9.9 Sector Output (billions of pesos at 1972 prices) Agricujltuire 16.0 17.0 17.5 18.2 19.7 20.5 21.4 23.7 30.2 4.2 5.0 Industry /a 17.4 19.6 20.7 22.7 24.9 26.8 28.5 33.9 55.6 8.6 10.0 Services 22.6 24.3 25.9 27.5 29.0 30.6 32.0 36.2 50.8 6.0 6.8 Prices (1972 = 100) Export price index 100 141 223 214 197 196 214 249 353 Import price index 100 124 197 215 233 245 260 278 354 Terms of trade index 100 114 132 100 85 80 82 89 95 Selected Indicators ICOR 4.5 2.4 4.8 3.1 3.5 4.8 6.0 3.7 3.2 Import elasticity 0.93 0.55 4.61 0.59 0.19 1.13 1.58 0.98 1.03 Average savings rate 19.5 23.0 21.4 21.9 22.3 21.8 21.4 22.5 25.6 Imports/GDP 18.3 17.6 20.2 19.6 18.5 18.6 19.0 17.7 17.7 Investment/GDP 20.6 20.4 24.6 27.8 27.8 26.0 22.0 26.1 26.8 Resource gap/GDP 0.1 -3.2 2.5 5.2 5.0 3.4 4.6 2.7 0.7 Value added Labor force V. A. per worker Outplut, Labor Force & Productivity in 1976 Peso million % Million _ Pesos '_ Agricultuire 38,44(0 29.0 8.1 50.0 4,746 58.0 Industry 44,934 33.9 2.3 14.0 19,537 238.8 Services 49,148 37.1 5.0 31.0 9,830 120.2 Unemployed . . 0.8 5.0 Total/Average 132t522 100.0 16.2 100.0 8,180 100.0 Public Finance 1972 1975 1976 1977 1978 (National Governmenit) (Z of GDP in cuirrent prices) Current revenue 12.2 15.0 13.9 13.2 14.2 Tax revenue 9.7 12.0 11.6 11.2 12.1 Current expenditure 13.0 13.2 12.3 11.6 11.4 Current surplus 0.8 1.8 1.6 1,6 2.8 Capital expenditures 1.9 3.0 3.5 3.4 3.7 /a lncludes mining, manufacturing, construction, and utilities. East Asia and Pacific Region May 1979  - 26A - 26 - ANNEX I Page 5 of S pages BALANCE OF PAY89ENTS AND EXTERNAL ASSISTANCE (USE =illion) Actoal Prelim. Projected Ie 1972 1973 1974 1975 1976 1977 1978 1980 1981 1982 1985 lSumnary of Balance of Payments Exports (CNIS) 1432 2445 3357 3076 3330 4021 4155 5793 7028 8238 12197 Imparts (GNES) 1484 2057 3764 4116 4383 4788 5251 6821 7713 8712 12715 Re-ouroe balance -52 388 -427 -1040 -1053 -767 -1095 -1027 -685 -475 -519 Not factor secice incone Ia -123 -114 -54 -201 -323 -320 -352 -508 -595 -673 -81D Interns- (cen) -93 -59 15 -53 -185 -240 -257 -393 -470 -535 -625 Di-rct innestnent intone (net) -32 -55 -69 -148 -138 -80 -95 -115 -126 -139 -184 Balonce on foods 5 -ri-cen -177 274 -481 -1241 -1376 -1087 -1447 -1534 -1281 -1147 -1329 Transfecs (net) 188 246 276 318 269 260 315 347 382 420 560 torccot Account Bolanca 11 521 -205 -923 -1107 -827 -1132 -1187 -899 -727 -769 fni-ate dicect inneotn-t (not) -22 64 28 125 144 216 160 193 212 234 313 Pobli Ml.T loan dilb-rseln-nt 233 184 180 349 869 903 1049 1142 1241 1321 1521 Repye--s -78 -108 -68 -118 -165 -163 -419 -481 -499 -520 -736 Net diubsonnats 157 76 112 231 704 740 630 662 742 801 783 th-er MLI' Loan dislohr-n-eta 137 196 276 331 538 326 726 845 508 359 262 Repay ne-to -154 -201 -244 -205 -202 -381 -522 -437 -549 -534 -506 Net dilb-r--onatc -17 -5 32 126 336 -55 204 408 -41 -226 -244 rota MLT Lan disbcroa-s--- 372 380 456 680 1407 1229 1775 1987 1749 1680 1783 Rep--onn to -23? -309 -312 -323 -369 -544 -941 -918 -1048 -1104 -1244 Net dioborsemeots 140 71 144 357 1340 685 834 770 701 576 533 NSt dra-iong o- IF 7 -21 -11 110 214 79 -20 -70 13 -85 -ID Slant-ner c:apitol (net) 56 74 231 102 -'96 311 147 195 222 253 375 lapial tcaoaaotluc ,cC.1. -98 -45 -77 292 --35 -300 116 O 0 ID O b-ang8 in -tr-s-rne (- = on:ease) -94 -664 -110 521 60 -164 55 -200 -257 -250 -375 loitoroalainnonl cessnrnno (-nd-year) /b 551 1038 1504 L358 1340 1524 1883 1800 1933 2100( 280 oan-ts nd Loon C_mmitments OfficiaL fronts 1.3 0.0 3.( 0.0 03. 0.0 'T;.tal po>l.io .aca 422.2 232.4 840.i 753.7 1864.0 1294.7 IBRD 29.3 85.7 217.5 L14.0 226.0 317.5 I1A 13.0 12.7 9.5 0.0 0.0 0.0 Oth-r r-iloiilartel 43.3 53.6 83.1 106.0 64.2 207.3 lanenseoto- 275.5 63.4 199.5 182.3 391.6 294.3 Of sichl CPE 0.0 0.0 0.0 13.2 5.9 0.0 Suppliero 2.0 1.9 69.0 37.3 68.1 73.7 Fil-nc1,l Intiltionn 61.7 15.1 244.5 314.2 776.9 272.3 Band. 0.0 0.0 17.1 0.0 367.2 129.7 Oh4r MLT l-ans 130.0 128.0 306.0 283.0 472.0 495.3 .'emxnandum Iten- Cront cLement of cannitnen-t 26.0 28.4 22.3 16.4 8.8 14.7 Average-ing rent (- ) 5.4 6.1 6.5 7.4 8.3 7.9 nAonoge _atrlny (pears) 17.3 24.2 18.2 16.7 13.1 15.3 OndionL, and Lo.>g-Tem tebr (disbu.rse octy5 Oustanding Total debt -ot--aodiog (end of period) 1826.7 1910.2 2070.7 1362.0 4063.0 5149.96 ecbe 31 1977 lOocLndin0 oo.dilaors- d 2584.5 2625.9 3506.3 1755.6 6496.0 8109.0 Enternal Debt Amoant Percent PobLi debt seraice -149.6 -214.5 -187.7 -230.2 -222.7 -441.9 (disb.nued only) Of alilo incees-t -51.6 -31.3 -43.1 -73.4 -87.1 -215.2 81RD 403.7 13.5 01hcr lILT debt o-rvic- -167.6 -185.8 -247.5 -239 .2 --300 0 -357.1 Bonk Group Id 432.6 14.5 7otal debt saroie- -317.2 -400.3 -435.2 -469.4 --522.7 -799.0 Other nultilaterol 155.4 5.2 Go-ernmn ts 873.1 29.2 Eebo Borden Of hEjch centrally Debt seroice ratio 22.1 16.4 13'.0 15.6 16.0 19.9 planned econonBes 0.0 0.0 Debt s-roi-:e ratio Ic 24.5 18.8 15.3 18.1 18.1 21.4 Soppliern 86.5 2.9 Debt t -ervic/GDP 3.8 3.8 3.0 3.0 2.9 4.0 FinancIal i-stitutio-s 914.9 30.6 FPblic felt service/government oevonu 17.0 13.9 7.6 8.1 7.9 15.7 Bo-ds 523.1 17.5 Tntal public MLT debt 2,985.1 100.0 lerms Otier b1LI debt 2,164.8 72.5 Interest a- total DOD/natal DOD 6.1 3.6 4.0 5.4 4.1 6.4 Otter h ML debt (Encl. Total debt Derninn/lnoal 108 17.7 24.7 17.3 16.9 10.5 15.8 ondishorned) 2 489.7 83.4 Total PoblEc debt (inla. Dependency Ratios undisbursed) 5,619.3 188.2 Ctts- dibahrsco-otslninoctn (GOFS) 2S.1 18.5 12.1 16.5 32.1 25.6 Total biLT debt (inl. Slot t-anofon/lmp-rtn (GNFS) 3.7 -1. 0.6 5.1 20.2 10.5 andisbursed) 8,109.0 217.7 Net tronsfon/gros- dinhorsemertn 14.9 -5.3 4.b 3n.8 62.9 41.0 Enponore 1BRD disb/groen total dinb. 4.7 4.6 5.8 12.6 6.5 9.5 Ba-k G-oup disb./gross total disb. 4.8 4.8 7.5 13.9 7.3 9.6 IBRD D0105tnta1 DOD 7.8 7.8 7.9 10.1 7.8 7.8 bDek Group tOLD/otul 00(D 7.6 ".8 8.3 9.6 8.4 8.4 IBRD debt -orrienneltoa deht sr s 4.4 5.1 5.4 5.5 6.6 5.6 Bank Grno7 Bohr serrtre/rnrol debt non 4.4 5.1 5.4 5.6 6.7 5.6 /a Remittances of Filipinos employed ubroad are incloded it "Transfers." /b Grona ceserves of the Central Bank ("Interoot o-a- reserven", IlS). /c Inclnding net direct iloneotnennin:oone. 7d Eacl,den IFC. fe These projections once prepared in day 1978. Reei-od projections will be trepired foll,aifg thE cetoro of an econoetic misson in Joe 1979. Eaot Asio and Pacific Regifoal Office Boy 1979  - 27 _ 27 - ~~~~ANNEX IS Page 1 of 14 pages THE STATUS OF BANK CROUP OPERATIONS IN THE PHILIPPINES A. STATEMENT OF BANK LOANS AND IDA CkRDITS A of April 30, 1979 boon or IrCdio Am-ount (S millio) NSber P_ Borrower Purpose RBok IDA UAdisb--sed Sixtetn loans sod owo oreditt islly diuborsed 251.1 19.S 720-PH 19/1 Rico Proressing sod Storage 14.3 Z.1 809-PH 1972 Nfti-oal Power Corporotion Poser 22.0 1.2 349-PH 1973 Repoblic of the Philippines Edoroesot I1 12.7 1.0 891-PH 1973 Fi-luerlrs 11.6 0.0 /a 939-PB 1973 Ports 0.1 0.5 950-PB 1973 Seroed Highways 68.0 5.5 989-PH 1974 Alrror-Porarsoda Irrfgatono 9.5 23. 999-PS 1974 DFC-DBP 50.0 4.2 1034-PS 1974 Natiooal Poser Corporetion Poser 61.0 5.5 1035-PB 1914 Rapublia of the Philippi-es Popolaroir 25.0 14.0 1048-PH 1974 s"lippilog 20.0 12.0 1052-PH 1974 Philippiee Nsti o.al bAonk DFC 30.0 10.1 1080-PH 1975 Republic of the Tsrlac Philippines IrrIgatIon 17.0 8.1 1102-PB 1975 isral Eroetopsest 25.0 17.9 1120-PH 1975 Small aod Medium o lodostrles 30.0 2.0 1114-PO 1976 Aagot IrriguLlos 42.0 23.5 1190-PH 1976 SF0-DbP II 75.0 19.4 1224-T-PH 19746 Fdocatiso III 25.0 18.3 1225-PB 2976 li-festok r1 20.5 9.1 1227-PS 1976 ChiA/o Orrofatis 50.0 42.3 1272-T-PH 1976 M-nilo Drban 10.0 0.2 1282-PU 1976 UAnlil Urba- 22.0 15.8 1269-PH 1976 Second Grali Proresslog 11.5 11.2 1270-PH 1976 Se-ond Fishe-ifs 12.0 7.5 1353-PB 1977 Third Highoaps 95.0 84.4 1367-PB 1977 Jalaur Torigatiss 15.0 11.1 1324-PB 1977 Foorth Odorotio- 25.0 20.4 1399-Ps 1977 Central Bask of Poe-th R-r1l she Philippines Cerdit 36.5 25.3 1414-PH 1977 Republic of the Nationel Irriga- Philoppioes t42s Systems Improrement 53.0 42.2 1415-PH 1977 Pro-incial Cities Wfoter Spply 23.0 20.0 1421-PH 1977 Secood RBoos tLad Setter-1-t 15.0 14.4 1460-PB 1977 Noti.sol Poser Co-poratioD Srer-h Pote: 58.0 57.5 1506--PA 197f Rephblfi af rho Is-0l4older Tree Philippi.es Fa-soog 8.0 8.0 1514-PH 1976 Philippi-e Notlorl Bask tFo iPDCP) 30.0 30.0 1526-PH 1970 Republic of tAh SArood Nati..ol Philipplsos l- rri os IL-,rooLses. 65.0 64.2 790-Ph 1978 Republir of the Poral Isfle- Philipp...s atesotore 28.0 20.2 1,8-PR 197b Rephblic of the Phi ipposes kd