Peru - Bayovar Phosphate Engineering and Technical Assistance Project

Document of FILE COPy The World Bank FOR OFFICIAL USE ONLY Report No. P-2845-PE 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 PERU FOR THE BAYOVAR PHOSPHATE ENGINEERING AND TECHNICAL ASSISTANCE PROJECT June 9, 1980 This document has a restricted distribution nd may be used by recipients only in the performnce of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS The exchange rate is being adjusted daily roughly in line with the difference between domestic and international inflation. The exchange rate and currency equivalents in effect on April 30, 1980 were as follows: CURRENCY UNIT - Sol (S/.) Calendar 1979 April 30. 1980 US$1 - S/. 224.55 SI. 271.9 S/. I - US$0.0045 US$ 0.0037 S/. 1,000 - US$4.45 US$ 3.68 FISCAL YEAR January 1 to December 31 ABBREVIATIONS CENTROMIN - Empresa Minera del Centro del Peru (Central Mining Company of Peru) COFIDE - Corporacion Financiera de Desarrollo (Development Finance Corporation) ENCI - Empresa Nacional de Comercializacion de Insumos (National Inputs Marketing Company) ERP - Economic Recovery Program HIERROPERU - Empresa Hierro del Peru (Iron Company of Peru) INI - Instituto Nacional de Industria (National Industrial Institute of Spain) MINEROPERU - Empresa Minera del Peru (Mining Company of Peru) PROBAYOVAR - Empresa Promotora Bayovar (Bayovar Promotional Company) SPCC - Southern Peru Copper Company tpy - Metric tons ptr year  FOR OFFICIAL USE ONLY REPUBLIC OF PERU BAYOVAR PHOSPHATE ENGINEERING AND TECHNICAL ASSISTANCE PROJECT LOAN AND PROJECT SUMMARY Borrower: Republic of Peru Beneficiary: Empresa Promotora Bayovar (PROBAYOVAR) which would receive the proposed loan as a capital contribution from the Borrower. Amount: US$7.5 million Terms: Repayable in 10 years, including 2 years of grace, at 8.25 percent per annum. Project Description: The objectives of this project would be to determine the technical and economic viability of developing the 600 million ton Sechura Desert phosphate deposits in northern Peru. The project would include the following: (i) studies to determine the level of phosphate reserves, optimum mining methods, and the most economic source of sulfuric acid for the production of phosphoric acid; (ii) physical, chemical and acidulation tests to establish the most economic phosphate rock treatment process as a basis for plant design; (iii) studies to determine plant site location, water supply and other infrastructure requirements; (iv) preparation of a market analysis and marketing strategy; (v) a preliminary study of the feasibility of uranium recovery from phosphate processing and exploitation of nearby potash deposits; (vi) preparation of a feasibility report based on the above studies; and (vii) if the feasibility report confirms the technical and economic viability of the Bayovar investment project, preparation of basic engineering and contract documents, other pre-contracting activi- ties and a study of project organization. The scope, costs and financing requirements for the Bayovar investment project would be determined on the basis of these studies. Because PROBAYOVAR is a newly created entity, it will require assistance in initiating and coordinating project activities. Technical and management advisory services to provide this support would be included in the project. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - Estimated Cost: The estimated cost of the project, exclusive of taxes from which the project is exempt, is as follows: Local Foreign Total -----(US$ millions)------ Mineral Reserves Study 0.3 0.3 0.6 Rock Beneficiation and Reactivity Testing 0.1 0.4 0.5 Infrastructure Study 0.2 0.1 0.3 Market Study 0.0 0.2 0.2 Uranium and Potash Studies 0.1 0.1 0.2 PROBAYOVAR Expenses and Technical Advisory Services 0.6 1.2 1.8 Basic Engineering and Contract Preparation Activities 0.3 4.0 4.3 Project Organization Study 0.0 0.1 0.1 Sub-Total 1.6 6.4 8.0 Physical Contingencies 0.2 0.4 0.6 Price Contingencies 0.2 0.7 0.9 Total 2.0 7.5 9.5 Financing Plan: Local Foreign Total -----(US$ millions)------ Bank Loan - 7.5 7.5 PROBAYOVAR 2.0 - 2.0 2.0 7.5 9.5 Estimated Disbursements: Bank FY 1981 1982 1983 ---(US$ millions)---- Annual 1.7 4.5 1.3 Cumulative 1.7 6.2 7.5 Rate of Return: Not applicable. Appraisal Report: None.  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF PERU FOR THE BAYOVAR PHOSPHATE ENGINEERING AND TECHNICAL ASSISTANCE PROJECT X 1. I submit the following report and recommendation on a proposed loan to the Republic of Peru for the equivalent of US$7.5 million to help finance the Bayovar Phosphate Engineering and Technical Assistance Project. The loan would have a term of 10 years, including 2 years of grace, with interest at 8.25 percent per annum. The loan would be provided to the Empresa Promotora Bayovar as a capital contribution. PART I - THE ECONOMY 2. A basic economic report entitled "Long-Term Development Issues: Peru" (Report No. 2204-PE) was distributed to the Executive Directors on April 13, 1979. This part is based on the report's findings as well as those of more recent economic missions to Peru. Country data sheets are attached as Annex I. Resource Endowment 3. Peru, the fourth largest country in Latin America, is divided by the Andes mountains into three distinct regions: the coastal region (Costa), with 46 percent of the population where modern economic activity is concen- trated; the mountain region (Sierra), with 44 percent of the country's popula- tion, which encompasses the highlands above 2,000 meters; and the sparsely populated, tropical rain forests east of the Andes (Selva). The rugged topography limits trade between the three regions. 4. Peru's natural resources include large deposits of minerals, particularly copper, iron, silver and zinc, located mainly in the Sierra and the southern Costa and phosphates on the northern Costa. Petroleum resources, particularly in the jungle areas of the North and offshore, are believed to be substantial but their full extent has not yet been ascertained. Another major natural resource is the large fishing potential in coastal waters, although its magnitude is subject to sharp gyrations. Agricultural land is limited, and most of the soils suitable for intensive agriculture are already being farmed. 5. As a result of three decades (1930-1960) of rapidly falling mortality rates, population growth accelerated. In the early 1960's, birth rates started a gradual fall, mainly caused by the urbanization process and by improved education. But with declining death rates, population has continued to grow at about 2.8 percent p.a. It is expected that population growth will only  - 2 - slightly fall to about 2.6 percent p.a. over the next 20 years, unless an effective demographic policy is adopted. Given the structure of Peru's population, the labor force is expected to grow in excess of 3 percent per year during the next 20 years. 6. Crude oil is the dominant source of energy in Peru, supplying approxi- mately 80 percent of Peru's commercial energy requirements. Although Peru's energy resource base is relatively diverse with scope for expanding hydro and coal based power generation, petroleum will provide the major part of Peru's energy requirements throughout the rest of this century. After having been dependent on imported crude oil for many years, domestic oil production increased almost threefold between 1976 and 1979, enabling Peru to export oil in substantial quantities for the first time since 1958. Despite this encour- aging production trend, domestic consumption is likely to rebound after several years of stagnation so that Peru may once again become a net importer of petroleum in the mid-1980's unless new oil reserves are discovered. Past Development Policies 7. Since the military came to power in 1968, the Government has followed a development strategy directed at achieving economic growth and at narrowing the sharp differences in wealth and opportunities among people in different income classes and geographical regions. The Government has tried to correct interpersonal and interregional imbalances by expanding the role of the State in the economy, changing the pattern of asset ownership, reducing foreign ownership of national resources, orienting industry and agriculture toward producing essential goods for the domestic market, stimulating the deconcentra- tion of economic activity out of Lima, and reforming the educational system to make it more responsive to local economic and social needs. Through national- ization and creation of new enterprises, the State has taken direct control of over 150 enterprises in key economic sectors, and its share in total capital formation has risen from less than one-fourth in 1968-70 to over 40 percent in 1974-1979. By imposing complex legislation, the Government has also strictly controlled the operations of the private sector. 8. As a result of these actions, the pattern of asset ownership in the economy has changed drastically. Through nationalization, the share of foreign-owned assets fell sharply. A sweeping land reform redistri- buted 43 percent of the country's best farmland to workers' cooperatives benefitting some 25 percent of all rural families. Through other laws, industrial workers were given shares in their employers' firms and, in the mining sector, a share in profits. The Government has also given a strong autarkic orientation to its agricultural and industrial sector policies and strengthened the incentives for industries outside of Lima. 9. The Government's programs have benefitted large numbers of Peruvians, but hardly reached the poorest which continue to live in abject poverty. It is estimated, for example, that about three quarters of rural families, mostly "minifundistas" (those farming less than 2 ha) and the landless seasonal workers, have not been reached by social programs. The Government imposed controls on prices of a number of domestically produced goods and heavily subsidized imported petroleum and foodstuffs. Most of the subsidized products,  however, were more important in the consumption basket of high and middle- income Peruvians than in that of the poorest groups. Moreover, artificially low prices for some products--such as mutton and cereals--actually hurt the poor who produced these items, and affected production negatively. 10. In the final account, one of the most significant achievements of the Government was the promotion of the cultural and political integration of the country. Owing in great part to the land reform, an important segment of the rural population has become better organized and is able to communicate its priorities in a more forceful and articulate way. Unfortunately, although many of the policies and structural changes carried out since 1968 were meant to achieve rapid growth and more equality, the cost of these measures proved to be excessive and their implementation inefficient. The Economic Crisis 11. For ten years, 1968-77, the military Government followed expan- sionary fiscal and credit policies. A rapid increase in expenditures (includ- ing large defense outlays) was not matched by a parallel increase in revenues. Pricing, interest rate, and foreign exchange policies encouraged consumption and discouraged savings, exports and, sometimes, overall production. As a result, aggregate demand considerably exceeded aggregate supply. Excess demand, in turn, led to strong inflationary pressures and widening external gaps, with a loss of international reserves and a massive build-up of external debt. 12. The problems were exacerbated by circumstances beyond the control of the authorities. Anchovies, the fishing industry's principal resource, virtually disappeared as the annual catch dropped from around ten million tons in 1968-71 to an average of 2.3 million tons in 1975-78. Furthermore, Peru's terms of trade worsened sharply between 1974 and 1978. Export prices, particularly for copper and sugar (which together accounted for almost one- fourth of merchandise exports), fell from their high 1974 levels at a time when import prices soared. Petroleum reserves, which in the early 1970's were predicted to lead to a quick expansion in export earnings, have taken much longer to come on line. 13. Public sector savings dropped steadily in relation to GDP from 4.4 percent in 1970 to dissavings of 2.6 percent in 1977. Major causes were the erosion of the tax base owing to excessive tax incentives, loopholes in the tax system, weak enforcement, rises in the budgetary cost of subsidies for foodstuffs and petroleum products, and sharp increases in defense outlays. At the same time, public investment expanded rapidly and was increasingly concentrated on capital-intensive projects with long gestation periods and little immediate contribution to the growth of output or employment. 14. Inflation accelerated from 5 percent per year in 1970 to 38 percent in 1977. Interest rates, however, remained substantially negative in real terms, discouraging financial savings and stimulating capital flight. Moreover, the exchange rate remained practically constant between 1968 and 1975, thus contributing to the overall disequilibrium. National savings fell dramatically from 16 percent of GNP in 1970 to 8 percent in 1977, when they financed only  about one-half of investment. Following a period of rapid expansion in 1968-74, during which GDP grew by more than 6 percent per year, the growth rate dropped progressively and became negative in 1977 and 1978. 15. The growing disequilibrium was reflected in the balance of payments. The current account deficit averaged US$1.1 billion per year in 1974-77, equivalent to nearly 9 percent of GNP. To finance this deficit, Peru accum- ulated a massive external debt. Peru's total private and public external debt--including short-term indebtedness--stood at almost US$8.3 billion by year-end 1977, equivalent to two-thirds of GDP and four times exports of goods and non-factor services. Much of this debt was contracted on fairly short maturities with three fourths of the public sector's long-term debt--which is estimated to have totaled US$6.4 billion--scheduled to be repaid over the 1978-82 period. 16. Beginning in 1975, several unsuccessful attempts were made to cope with the mounting economic crisis. By mid-1978 the economic crisis had reached grave proportions, with a drop in real GDP and inflation approaching 100 percent. Moreover, the private sector was finding it increasingly diffi- cult to open letters of credit for new imports and the banking system's net international reserves had dropped to a negative level of US$800 million. Financial instability had reached the point where practically all economic activities were adversely affected. The public sector was fast approaching the point where it would no longer be able to fully service its external debt. Peru was no longer creditworthy. Stabilization Measures 17. A new economic team was named in May 1978. Since then, the Govern- ment has adopted a number of important measures aimed at strengthening public finances, stimulating exports and stemming the loss of international reserves. By means of a crawling peg, the sol was devalued from S/. 130 per U.S. dollar in May 1978 to about SI. 266 at the end of March 1980. Most subsidies were eliminated, thus closing an important drain on public savings. In addition, a number of tax measures were adopted and Government expenditures restrained. Interest rates on bank loans were raised from 16 to 31.5 percent per year. Peru reached agreement with foreign commercial banks to reschedule US$185 million of principal payments due in the second half of 1978 until January 1979. The Government also negotiated a stand-by arrangement with the IMF for SDR 184 million. In July 1979, this stand-by was replaced by a new one for SDR 285 million, in support of the same financial program. Peru's debt outstanding to the IMF as of December 31, 1979 amounted to SDR 414 million. 18. The Government's financial stabilization program, supported by the stand-by, has resulted in a dramatic improvement in public sector finances in 1979. Public sector current account savings rose from - 0.7 percent of GDP in 1978 to about 3.6 percent of GDP in 1979 and the overall deficit was reduced from 6.4 percent of GDP in 1978 to 2.9 percent in 1979. Central Government revenues increased by 23 percent in real terms, while current outlays declined by 6 percent. Payments for wages and salaries alone fell by some 7 percent in real terms, partly as a result of a reduetion In excessive civil service employment. The eliminatfon of subhsdies on food and petroleum  -5- products, initiated in mid-1978, also contributed to the control of current expenditures. On the revenue side, several measures--including a 10 percent import surcharge, a higher tax on traditional exports and an increased tax on interest charged on bank loans--helped to achieve the revenue target. In spite of good fiscal performance, however, inflationary pressures remain strong, with consumer price increases of 67 percent in 1979 and over 50 per- cent (on an annual basis) during the first quarter of 1980. Debt Restructuring 19. Major debt-relief operations carried out in late 1978 enabled Peru to reduce substantially the debt-service burden for 1979 and 1980, postponing repayment to the 1982-1986 period. In May 1978, the Soviet Union rescheduled the equivalent of about US$140 million of maturities originally due in 1978-80. These amounts are to be repaid over a 10-year period including three years of grace. In November, at a Paris Club meeting, the OECD countries agreed to reschedule 90 percent of principal payments due by the public sector to governments and guaranteed suppliers in 1979 (US$250 million) and 1980 (US$263 million). These amounts are to be repaid over a period of eight years, in- cluding three years of grace. The Paris Club creditors also agreed to re- schedule 90 percent of the principal payments due in 1979 and 1980 on private sector debt guaranteed or insured in the creditor countries (about US$30 million in each year). In addition, Peru has negotiated smaller amounts of debt relief with non-OECD countries. At the end of 1979, in view of the improved balance-of-payments situation (para. 24), the Government decided to forego the Paris Club debt rescheduling option for 1980. 20. As regards the large medium-term public debt to commercial banks, in keeping with an agreement concluded in December 1978, Peru repaid in 1979 the bulk of the US$185 million rolled over from 1978 (para 17 above). The agreement gave the Government the option of refinancing up to 90 percent of the maturities due in 1979 and 1980. The Government, however, decided earlier this year not to take advantage of the 1979 maturities, thus obtaining slightly better conditions for outstanding debts. It is likely that the option to refinance 90 percent of the 1980 maturities will be taken. Social Situation 21. The economic crisis has been reflected in two consecutive years of negative growth. Total Gross Domestic Income fell by 0.6 percent in 1977 and a further 4.1 percent in 1978. In this two-year period GDP per capita dropped by over 8 percent. Nearly one half of Peru's labor force is believed to be unemployed or underemployed, i.e., earning less than the minimum wage or working less than 35 hours a week and wishing to work more. According to government estimates, the purchasing power of an average salary had fallen 40 percent by 1978 compared to 1970 and that of an average wage by over 16 percent. In these circumstances, the social situation has been unavoidably tense, and several general strikes took place during the past year. 22. In July, 1979, the military Government promulgated a new constitution, written by a popularly elected assembly. Elections were held on May 18, 1980, and the transfer of authority to the government of President-elect Fernando  - 6 - Belaunde Terry is scheduled to take place on July 28, 1980. While it is too early to assess future government policies it is most likely that the Belaunde Government -- in line with campaign pledges -- will give high priority to social and employment problems, particularly through housing and labor-intensive small- scale infrastructure programs. The Economic Recovery Program 23. With the financial stabilization program and the debt restructuring, the Government has brought the fiscal and external gaps under control. These efforts, however, have not yet helped much in overcoming the deep economic recession. To this end the Government conceived an Economic Recovery Program (ERP) which would reverse the decline in GDP and lay a basis for a financially sound economic recovery. The ERP includes, in addition to the above-mentioned stabilization actions, measures to open up the economy, stimulate industrial sector efficiency, promote non-traditional exports, strengthen the tax system by broadening its base, and generally improve the efficiency of resource allocation in the private and public sectors. In this connection, the Government formulated a Public Sector Investment Program that aims at redirecting public investment towards projects of clear economic priority and positive effect on production and employment. In support of the ERP, the Bank approved a US$115 million program loan in May, 1979. Progress in carrying out the ERP, which is closely monitored by the Bank and periodi- cally discussed with the Authorities, is generally satisfactory with perfor- mance in some critical areas--e.g., export promotion--actually exceeding expectations. 24. The Government's program led to a strong balance-of-payments perfor- mance in 1979, which is essential for economic recovery, and to restore net international reserves. This was achieved by maintaining an export-oriented foreign exchange policy, realistic interest rates, and the promotion of non-traditional exports; but it is also the result of low, recession prone imports. In addition, Peru benefitted from substantial price increases for silver, copper, petroleum, and other commodities. The Government also intends to improve foreign debt management by, inter alia, making greater use of assistance from official bilateral and international sources. The short-term debt, already sharply reduced from US$1.8 billion at year-end 1978 to US$1.1 billion at year-end 1979, is expected to be further reduced as the gradually improving economic situation permits new trade-related credit lines to be opened. The trade balance is expected to be strengthened by favorable world prices for minerals, and by the availability of a petroleum surplus for export amounting to some US$950 million per year over the next few years. Even though about one third of the projected gross petroleum exports would leave the country as profit remittances, this still implies a major improvement over recent years, when Peru was spending in excess of US$200 million per year on fuel imports. 25. Based on assumptions that are cautiously optimistic, the country is expected to show a strong balance-of-payments performance through the mid- eighties, with current account surpluses and a build up of foreign exchange reserves in spite of heavy debt repayment obligations. The balance-of-payments situation may, however, deteriorate in the second half of the eighties (or even earlier), when the exportable surplus of oil is expected to decline. This will eventually result in increasing current account deficits, particularly if imports exceed the level now expected as a result of the recently started  - 7 - import liberalization process. Against this background and given Peru's large overhang of external indebtedness, there is a continuing need for official development assistance. Considering the expected medium-term balance-of-payments performance and assuming that the authorities continue to carry out the ERP and to maintain prudent financial policies, Peru is credit- worthy for Bank lending. PART II - BANK GROUP OPERATIONS IN PERU 26. The Bank has approved 38 loans to Peru for a total amount of US$779.3 million, net of cancellations. About 31 percent of the Bank's lending to Peru has been for transportation (mainly highways and ports), 23 percent for agriculture, 15 percent for the US$115 million May 1979 Program Loan, 15 percent for the energy sector, 10 percent for mining and industry and about 6 percent for education and urban development. 27. Of the US$332.8 million undisbursed as of April 30, 1980, over 50 percent is attributable to five project loans made in the 1976-1977 period. The slow start-up of these projects--only two of which were "repeater" operations--as well as the slow progress of previous operations was due, in large part, to weak project execution capacity and to a shortage of counterpart funds that worsened as the economic situation deteriorated during this period. As a result, disbursements have averaged about US$25 million per year over the past few years (Annex II contains a summary statement of Bank loans as of April 30, 1980, and notes on the execution of on-going projects). In an effort to improve this situation: (i) the Bank has recently opened a resident mission in Peru; (ii) the Executive Directors have approved modifications in the Education and the Lima/Amazon Corridor Projects (see Annex II for further details); (iii) adequate counterpart funds have been provided by the Government for 1979 and 1980; and (iv) the Government has set up a special commission to monitor loan execution and resolve administrative problems. With these actions, the pace of disbursement is now increasing; US$32.2 million was disbursed on project loans in the first nine months of FY 1980. 28. Program Loan disbursement started slowly because of the unforeseen increase in foreign exchange availability in Peru as a result of booming exports and continued depressed import levels, as well as substantial debt rescheduling. In order to accelerate disbursements, the list of eligible imports has been expanded to include additional high priority industrial inputs. In recent months, Program Loan disbursements have increased markedly. As of May 25, 1980, US$93.3 million had been disbursed. 29. The main objectives of Bank lending to Peru have been to assist in (i) the creation of the physical infrastructure needed to sustain and foster development; (ii) the expansion of productive capacity in crucial sectors; (iii) the consolidation of structural and institutional changes, particularly land and education reforms; (iv) the strengthening, through engineering loans and normal lending operations, of local capacity to prepare,  -8- implement and operate projects effectively; and (v) improving living condi- tions for the urban and rural poor. In the past, Bank lending concentrated on infrastructure in the transportation and power sectors. More recently, the Bank's emphasis has shifted to more directly productive fields -, mining, agriculture and industry -- to aid Peru in surmounting its balance of payments problems. Lending for social projects has also grown. 30. The next operations that would be ready for the Executive Directors' consideration include a technical assistance loan for the Chimbote steel mill expansion, a regional airports project, a mining operation, a second indus- trial credit loan and a highway maintenance project. This program would be reviewed with the new Government to assure its agreement. 31. It is estimated that bank loans constituted about 4.4 percent of Peru's total public external debt outstanding and disbursed, at the end of 1979, and absorbed about 2.7 percent of the country's external debt service in 1979. Assuming increased recourse to long-term bilateral and multilateral aid by Peru, the Bank's share in the country's outstanding public foreign debt by 1985 could reach about 15 percent and its share of debt-service would be around 8 percent. 32. IFC commitments to date have been US$29.7 million (including US$15 million to the Southern Peru Copper Corporation for the Cuajone Copper Mining Project) of which US$17.2 million is held by the Corporation. A summary statement of IFC investments as of April 30, 1980 is presented in Annex II. 33. The other principal official agencies lending to Peru -- IDB and USAID -- are expected to continue giving special attention to agriculture with IDB emphasizing agricultural, industrial and mining credit, roads and small scale irrigation and USAID stressing rural development. Total loan commitments as of December 31, 1979 by IDB and USAID were US$646.0 million and US$275.0 million, respectively, and their shares of debt service as of end-1979 were both estimated at 0.6 percent. PART III - THE INDUSTRIAL AND PHOSPHATE SECTORS A. Mining and Manufacturing 34. The industrial sector in Peru (manufacturing and mining, excluding petroleum) accounted for 32 percent of GDP in 1978 and employed 14 percent of the labor force. Manufacturing is the largest component of the industrial sector, responsible for about 80 and 90 percent, respectively, of its contribu- tion to GDP and employment. Mining, however, is critical to Peru's economic development because it generates 40-50 percent of Peru's foreign exchange earnings and makes a significant fiscal contribution through exports taxes. 35. Manufacturing. Until recently, the Government followed a policy of import substitution and high tariff protection and trade restrictions for development of the manufacturing sector. As a result, manufacturing absorbed a substantial amount of foreign exchange, while its exports were insignificant.  - 9 - In 1976, imported industrial inputs came to about US$750 million, representing over a third of merchandise imports and 24 percent of industrial value added. During the 1971-1976 period, manufactured exports averaged only 6 percent of total total merchandise exports. 36. This import substitution policy produced an inward oriented indus- trial sector with little interest and ability to compete in world markets. At the same time, however, the manufacturing sector in Peru diversified substantially. The share of traditional consumer goods industries now accounts for only about 40 percent of total manufacturing output, while intermediate goods industries have grown in importance. The two largest such industries, chemicals and basic metals, now represent 17 and 11 percent of manufacturing output, respectively. The engineering and technical assistance loan proposed in this report would finance studies to prepare a possible major new phosphate fertilizer industry for Peru. 37. There has been growing recognition in recent years of the ineffi- ciency of the domestic manufacturing industry, its vulnerability to the country's recurrent foreign exchange difficulties as a result of dependence on imported inputs and its limited contribution to economic development because of its high net absorption of foreign exchange. The problems of the industrial sector became particularly evident during the economic crisis of the past few years. When Peru's economic activity began to slow down in 1975, industrial growth dropped from an average growth rate of 7 percent per annum during 1960-75 to to 4.2 percent in 1976. As the economic crisis deepened in 1977 and 1978, physical industrial production decreased by 3.9 and 2.4 percent, respectively. At the same time, the highly protected local market allowed oligopolistic industries to raise prices indiscriminately, thus fueling the high inflation of recent years. 38. The overall policy framework towards manufacturing began to change in mid-1976, with the adoption of a more realistic foreign exchange policy. In addition, a very generous set of export incentives was established in mid-1976 and strengthened in late 1978. These actions, together with a substantial reduction in domestic demand, generated an unprecedented growth in non-traditional (mainly manufactured) exports. They include textiles, processed fish for human consumption, and fishing boats. From a low of US$133 million in 1976 (10 percent of merchandise exports), non-traditional exports increased to almost US$680 million in 1979. They grew to about 20 percent of merchan- dise exports that year--not as great an increase as in the overall growth of non-traditional exports because of the increases in oil and metal exports in 1979. 39. The other significant policy change designed to improve industrial efficiency, the trade liberalization element of the ERP (see para. 23), has proceeded generally according to schedule. In particular, non-tariff protection to industry through import prohibitions--the main feature of Peru's industrial policy until 1978--has been dismantled to a large extent and the process is expected to be completed by mid-1980. A new tariff struc- ture was approved and has been in operation since last December, most tariff exemptions and exonerations have been eliminated and the system of export promotion has been improved. Nevertheless, the trade liberalization program is far from complete. Considerable efforts will have to be made in the coming years to achieve the full transformation of Peru's industrial structure.  - 10 - 40. Mining. Exploitation of Peru's mineral resources goes back to the mining of gold, silver and copper by the Incas prior to the Spanish conquest. The growth of the mining sector was particularly impressive during the 1950's, when the enactment of a simplified mining code with a clear and favorable tax regime greatly improved the investment climate and foreign capital flowed into the sector. Copper production increased sixfold during the decade, the output of lead, zinc and silver more than doubled, and exploitation of Peru's iron ore potential began. 41. In contrast, the 1960's were years of relative stagnation in the sector, characterized by decreasing investor confidence and little investment. After the 1968 military coup, the Government began to assume a more active role within the sector. In 1970 the state-owned Mining Company of Peru (MINEROPERU), was established with the purpose of bringing into operation a series of high-priority mining and metallurgical projects. The Cerro de Pasco Corporation, now CENTROMIN, was nationalized in early 1974. The Marcona Mining Company, a U.S. firm exploiting Peru's iron ore resources, was national- ized in mid-1975 and became HIERROPERU. The Government also took over all overseas marketing of metals and centralized this function in a new state enterprise, Mineroperu Comercial. 42. In the public sector, all mining operations including sector planning now come under the jurisdiction of the Ministry of Energy and Mines, which is also responsible for the petroleum and power subsectors. The Ministry's Planning Department establishes investment priorities but leaves primary responsibility for carrying out investment projects to the state mining companies. 43. Four companies--CENTROMIN, HIERROPERU, Southern Peru Copper Corpora- tion (SPCC) and MINEROPERU--account for a major part of the country's mining output. CENTROMIN has the most diversified production, including copper, silver, zinc, lead and other metals at seven mines in Peru's central Sierra. It accounts for around one-third of the sector's output and employment. CENTROMIN is now expanding the Cobriza copper mine and building a mine water treatment plant with the assistance of the US$40 million first Bank mining loan (Loan 1281-PE of 1976) and two IDB loans. HIERROPERU operates Peru's major iron ore mining complex. SPCC, the only remaining private company in large-scale mining, is the country's single largest producer and exporter of copper. Since its creation, MINEROPERU has completed a large copper refinery at Ilo and the Cerro Verde copper mine and it is now constructing the Cajamarquilla zinc refinery outside of Lima. 44. Peruvian experience in the planning of major mining development projects is limited since this function had, prior to nationalization, tradi- tionally been performed in the headquarters of the foreign parent companies. CENTROMIN, which inherited the organization and staff of the Cerro de Pasco company, has some capacity to carry out investment projects and this is being strengthened with Bank support. MINEROPERU, however, still has only limited project development capability. In the past, some of its projects have been poorly designed and have lacked strong economic justification. Because it does not have experienced staff, MINEROPERU has relied on joint ventures with foreign investors and turnkey contracts for construction of its projects.  - 11 - 45. Given Peru's limited agricultural base and its still small manufac- turing sector, the Government's policy has been to depend heavily on mining for the foreign exchange earnings needed to maintain economic growth. Because of stagnant or declining prices over the last decade, however, there has been relatively little new investment or real growth in the value of mining exports, except for the 1976-77 period when the Ilo, Cerro Verde, and SPCC's Cuajone copper projects came on stream. New investment was also stymied by the weak project preparation capability of state enterprises. 46. With recently improved prices, Peru's state mining companies have been pressing ahead with substantial investment programs for the next decade in order to increase and diversify mining production and they are seeking Bank and other foreign assistance to help carry out these programs. The next phase of CENTROMIN's investment program will include expansion of three polymetallic mines. This is expected to cost about US$350 million and CENTROMIN has requested a second Bank loan to help finance this project. MINEROPERU has had responsibility for the development of a variety of projects including the expansions of its Cerro Verde copper mine and Ilo refinery, several large new copper mines (e.g., Tintaya) and the US$700-800 million Bayovar phosphate fertilizer project which is the subject of the proposed engineering and technical assistance project recommended in this report. MINEROPERU has sought the support of possible joint venturers for development of a number of these projects. B. The Phosphate Industry 47. Total world consumption was about 35 million nutrient tons of phosphate (P205) in 1979. About 87 percent, or more than 30 million nutrient tons, was used for fertilizers and the remaining 13 percent (technical phosphate) went for other industrial uses; mainly detergents, animal feed and insecticides. The paragraphs below discuss the world production, consump- tion and trade patterns for phosphate rock, intermediates and finished products. 48. World production of phosphate rock in 1979 was about 130 million tons of which 51 million tons were exported. The two major exporters, Morocco (18.0 million tons) and the USA (13.6 million tons) together accounted for about 62 percent of the world phosphate rock exports. They were followed by the USSR, Jordan, Togo and other smaller producers, which accounted for the balance of world phosphate rock exports. The market is oligopolistic, and, as a result, it is difficult for newcomers to establish themselves quickly as phosphate rock suppliers. 49. Phosphoric acid, an intermediate product in the manufacture of concentrate phosphate fertilizers, is mainly produced by reacting phosphate rock and sulfuric acid. World phosphoric acid installed capacity was 28 million nutrient tons in 1979 and production was 22 million nutrient tons that year, or about 79 percent of installed capacity. Of this, 2.1 million tons were exported, mostly by the USA (0.7 million tons), South Africa (0.4), and Morocco (0.3) which together accounted for 68 percent of the world phosphoric acid export market.  - 12 - 50. Phosphate fertilizer is used mainly in the industrialized countries of Europe (including the USSR), North America and Oceania, which together account for 83 percent of consumption. The growth rate for phosphavte fertilizers demand has averaged 6.2 percent per annum over the last 20 years. This may level off somewhat to 5.0 percent during the next six years--despite of rapid demand growth in the USSR, Eastern Europe and the developing countries, since demand is expected to grow slowly in the USA, Western Europe and Japan. The world supply and demand balances indicate that there is sufficient capacity to meet demand into the early 1980's but that the surplus will gradually diminish and that there will be a supply shortage in the mid-1980's unless new capacity is added. In the strengthening market that will ensue, prices--which began increasing rapidly after 1973--are likely to increase further in real terms. Although there is time to build additional plants in the early 1980's to avoid any shortfall, the margin is narrow. In fact, for some phosphate intermediate and final products (notably phosphoric acid and diammonium phosphate) shortages are already apparent. After 1984, about 1.5 million tons per year (tpy) of new or expanded P905 capacity will be required each year to meet demand. Any delay in the commissioning of new plants scheduled to come on stream up to 1983 will create shortages earlier than projected. 51. Changing Phosphate Trade Patterns. During the past 20 years or so, the proportionate share of different phosphate products has changed signifi- cantly. There has been a steady decline in the relative share of simple low concentrate products (like rock applied directly, basic slag and single super- phosphate), with a corresponding growth in phosphoric acid based concentrated products. Phosphoric acid based fertilizers comprised about 58 percent of the total phosphate fertilizer supply in 1979 as compared to about 11 percent in 1956. In the future, it is likely that most new phosphate production will be phosphoric acid based, and low concentrate products will show only a relatively small increase. 52. Until a few years ago, the phosphate fertilizer needs of developing countries were met almost entirely by processors in industrialized countries which, with the major exception of the USA, imported phosphate rock at rela- tively low prices. Now, however, it is generally more economic to construct large-scale treatment complexes at the phosphate rock source. There is not only a transport cost advantage but because the large producers maintain a high administered price for phosphate rock, processers who are dependent on imported rock are put at a significant cost disadvantage. This will mean increased trade in phosphate intermediates in the future at the expense of phosphate rock. Industry sources forecast that by 1984 phosphate intermediates will comprise about 33 percent of the total phosphate trade as compared to 8 percent in 1967 and 25 percent in 1979.  - 13 - 53. After 1984, about 5-6 new phosphoric acid plants, in addition, to those now being planned, will be required to come on stream every year in the medium-term to meet forecast demand. Apart from the USA and possibly the USSR, it is likely that most of these plants will be built in developing countries with phosphate rock resources. Morocco, with its large deposits, will undoubtedly play a leading role in helping the world meet its phosphate requirements, but supplies will also be needed from other sources. 54. Prospects for the Peruvian Phosphate Industry. With presently estimated reserves of about 600 million tons of phosphate rock, and potential resources of up to 10 billion tons (about 15 percent of the world's potential resources), the phosphate deposits of the Sechura Desert could eventually make Peru a major world supplier of phosphate. The Sechura deposits are located in a wide depression about 30 km from a proposed port site at Bayovar on the northern Peruvian coast. The deposits are sedimentary in origin and are concentrated in eight beds containing an average of about 20% P 205. Preliminary analysis and laboratory tests of the concentrate rock have shown good prospects for its conversion into phosphoric acid. In view of the relatively low phosphate content of the rock as mined, and in view of the good potential markets for phosphoric acid and concentrated phosphate fertilizers, the most attractive approach to the development of the Sechura Desert deposits would be to process this rock to phosphoric acid and phosphate fertilizers in Peru, primarily for export. 55. Phosphate consumption in Peru was 20,200 nutrient tons in 1979, and is expected to rise to about 40,000 nutrient tons by 1985. Peru's present phosphate fertilizer production capacity is about 12,000 nutrient tpy. In addition, a pilot plant established at Bayovar produces 20,000 tpy of phosphate rock concentrate containing about 5,600 nutrient tpy, which is used in Peru for either direct application or single superphosphate production. 56. An economically sized phosphate fertilizer project would typically produce 400,000-500,000 nutrient tpy, well above Peru's own phosphate fertilizer needs. It would, therefore, have to be export-oriented. A preliminary review of the supply/demand situation for the ANDEAN group and Chilean phosphate fertilizer markets shows a total deficit of about 200,000 nutrient tons by 1985. In addition to Latin America, the East and South Asian regions, which lack local phosphate resources, could become attractive markets for a phosphate fertilizer complex involving production of phosphate rock, phosphoric acid, and finished fertilizer products. Bank Lending for Industry and Mining 57. Aside from a US$2.5 million loan (Ln. 116-PE of 1955) for develop- ment of a cement plant, which was successfully completed, the Bank's only industrial sector project in Peru was the US$35 million DFC I operation now in execution (Ln. 1358-PE of 1976). After a slow start as a result of the domestic recession, commitments have picked up recently and the credit line is over 70 percent committed. Full commitment is expected by December 1980.  - 14 - 58. The Bank's first mining operation (Ln. 1281-PE of 1976 mentioned in para 43 above) also started slowly because of a lack of local counterpart funds. With a supplemental IDB loan and support from the Bank's Program Loan (Ln. 1693-PE of 1979) the project got underway in 1979. Engineering and procurement activities are now well-advanced on the Cobriza copper mine com- ponent, while construction of the other major element of the project, the mine water treatment plant is underway. PART IV - THE PROJECT Project History 59. The Bayovar phosphate deposits were first discovered in the 1950's as a result of oil exploration in the Sechura Desert. Several international companies have been interested in exploiting the deposits but the relatively low quality of the Bayovar concentrates and anticipated high production costs made doing so unattractive when compared with projects based on the higher quality rock deposits in the USA or in Morocco. Since 1975, however, the project's prospects have been significantly enhanced by the growth of the phosphate intermediates trade, higher international prices for phosphate rock, intermediates and final products, as well as by the gradual decline in the average P205 content of rock elsewhere in the world. In April 1977, MINEROPERU and the mining research and development subsidiary of the Spanish Government holding company Instituto Nacional de Industria (INI), entered into an agree- ment to reexamine the viability of the project and to carry it out on a joint venture basis if it proved economically and technically feasible. 60. In December 1978, the INI group completed its feasibility study based on production of 880,000 tpy of concentrated ore annually, which was in turn to be used to produce 210,000 nutrient tpy of phosphoric acid for ulti- mate conversion into 350,000 and 200,000 tpy of triple superphosphate and diammonium phosphate, respectively (high concentrate phosphate fertilizer products). The project showed a marginal rate of return of about 10 percent. A Bank review of the proposed project in response to a Government request indicated that the project's low economic return was primarily due to its relatively small size. Bank staff suggested that for the Bayovar project to be competitive on the international markets, it should include at least a two million tpy concentration plant and a 330,000 tpy phosphoric acid plant, with partial or total conversion into phosphate fertilizers. This would be equivalent to 400,000 nutrient tpy. The estimated cost of such a project, including the necessary infrastructure, would be US$700-800 million; however, the project would have a rate of return of about 15 percent. Agreement was reached in March 1980 between the Government and the INI group that the optimal project size and product mix should be determined prior to starting the Bayovar project. The Government also requested the proposed Bank loan to finance the additional studies necessary to resolve technical, market and economic issues.  - 15 - 61. The proposed engineering and technical assistance project was appraised by Bank missions to Peru in January 1980 and Spain in March and April 1980. Negotiations were held May 15-16, 1980. The Peruvian Delegation was headed by Mr. Luis Guiulfo, President of the Empresa Promotora Bayovar S.A. (PROBAYOVAR), which was created to carry out the project. There is no separate appraisal report for this project. Supplemental data are contained in Annex III. Prolect Oblectives and Description 62. The objectives of the engineering and technical assistance project are to determine the technical, economic and financial viability of developing the Sechura Desert phosphate deposits. 63. The project would consist of two phases as follows: First Phase: (i) studies to determine the level of phosphate reserves, optimum mining methods and the most economic source of sulfuric acid for the production of phosphoric acid; (ii) physical, chemical and acidulation tests to establish the most economic phosphate rock treatment process as a basis for plant design; (iii) studies to determine plant site location, water supply and other infrastructure requirements; (iv) preparation of a market analysis and marketing strategy; (v) preliminary studies of uranium recovery from phosphate processing and exploitation of nearby potash deposits; (vi) a feasibility study to evaluate the results of the studies mentioned in (i) - (v) above in order to determine the optimum size and composition for the Bayovar phosphate project; Second Phase: (vii) if the project is determined to be feasible, preparation of basic engineering and contract documents, prequalification of contractors and evaluation of bids for the Bayovar investment project and a study of project organization. First Phase 64. Mineral Reserves. The Sechura Desert phosphate deposits have been fairly well explored. However, PROBAYOVAR must determine the accuracy of previous drilling programs and the precise level of phosphate reserves. Also, the optimum plan for carrying out mining activities must be prepared.  - 16 - 65. Sulfur is the second major input (after phosphate rock) of an integrated phosphoric acid plant and there is a need to review alteVn4tive sources of sulfur or sulfuric acid for the project. There are large 4eposits of pyrites (iron and copper sulfides) from which sulfuric acid could be produced, at Tambo Grande about 180 km north of Bayovar, and exploration work is underway. The project would include a review of the results of this work to determine the technical feasibility of using the pyrites to manufacture sulfuric acid. If the results of this review are positive, the economic merits of producing sulfuric acid from the Tambo Grande pyrites rather than from other local or foreign sources of sulfur would be studied. 66. Rock Tests. A rock testing laboratory would carry out physical and chemical tests to determine the most economic process for concentrating crude ore for phosphoric acid manufacture. This work would provide the basis for the design of the concentration plant and it would also provide data for the phosphoric acid tests. 67. Because of the limited knowledge of the characteristics of the Bayovar rock, a comprehensive program of phosphoric acid reactivity tests will be necessary to establish the design criteria for, and the economics of, the manufacture of phosphoric acid and phosphate fertilizers. 68. Infrastructure. Depending on the size of the project, fresh water requirements will be up to five million cubic meters annually. Consultants would investigate alternative sources of water supply, including underground water and the possibility of obtaining water from the nearby Chira Piura irrigation system which was originally designed taking into account the demand for fresh water at Bayovar. The project would also include a determi- nation of the optimum site location for both the concentration plant and phosphoric acid and phosphate fertilizer plants, as well as road, port, servicing and maintenance facility requirements. In addition, there would be a study of the establishment of a new township at Bayovar to accommodate project workers and employees. Finally, the timing for all construction would be determined. 69. Market Study. Although general market information is available, it should be reviewed in the light of the specific project proposal. A consultant would, therefore, (i) review the Peruvian fertilizer market including proposals to increase the use of fertilizers in Peru; and (ii) review the world market and define a marketing strategy for the export of phosphate rock, phosphoric acid and phosphate fertilizers. 70. Uranium and Potash Studies. Preliminary indications are that uranium can be economically recovered from Bayovar phosphoric acid. The project would include a study to confirm this and determine the technical requirements for a uranium recovery unit. Given the limited knowledge avail- able, this study is meant to be exploratory in nature; it is not expected that any decision on the uranium recovery can be taken before the production of phosphoric acid has started.  - 17 - 71. Proven potash reserves near Bayovar amount to 8.3 million tons of potassium chloride and such reserves could justify a separate potash project. A brief study would be carried out in order to determine (i) the precise level of existing potash reserves; (ii) the technologies available to manufacture potash; and (iii) the economic merits of such investment and what additional studies and tests should be undertaken. 72. Feasibility Study. The above studies and tests would be carried out in parallel and are expected to take about 12 months to complete. Together, they would account for about 23 percent of total project costs. Based on the results of the studies, a technical advisor would prepare a feasibility study. This would take about six months to complete. It would determine the optimum size and composition for a Bayovar investment project and establish its economic justification. This study, other technical advisory services (see para 75) and the administrative costs of PROBAYOVAR, would account for 22 percent of total project costs. Second Phase 73. The second phase of the project would account for about 55 percent of total project costs and would take about six months to complete. A condition of disbursement for this phase would be agreement among the Bank, the Government and PROBAYOVAR that the results of the feasibility study confirm the technical, economic and financial viability of the Bayovar investment project (Paragraph 4 of Schedule 1 to the draft Loan Agreement). The second phase would consist of the basic engineering design to accurately determine project costs and financing requirements and a study that would recommend an organizational structure, management and operating systems for execution of the Bayovar investment project. It might also include preparation of contract documents, prequalification of bidders, evaluation of bids and recommendation for awarding of contracts for the Bayovar investment project; however, the initiation of these activities would require Bank approval (Section 2.02(e)(iii) of the draft Project Agreement). Project Execution 74. The project would be carried out by PROBAYOVAR, which is owned 60 percent by MINEROPERU, 30 percent by the Government's Development Finance Corporation (COFIDE) and 10 percent by the state-owned National Inputs Market- ing Company (ENCI) which markets fertilizer in Peru. The project would be executed in accordance with the terms of a Project Agreement between PROBAYOVAR and the Bank, the signing of which would be a condition of loan effectiveness (Section 6.01 (a) of the draft Loan Agreement). In order to complete the legal process of establishment of PROBAYOVAR, it must be registered as a corporation. Such registration, as well as the ratification by PROBAYOVAR's shareholders of corporate actions (e.g., the contracting of consultants) undertaken before such registration, would be conditions of loan effectiveness (Section 6.01(c) of the draft Loan Agreement). PROBAYOVAR has nominated candidates for its four senior staff positions (general manager, economist, mining engineer and chemical engineer). The appointment of these senior staff acceptable to the Bank would be a condition of loan effectiveness (Section 6.01(b) of the draft Loan Agreement). Thereafter, for any change in the four senior staff positions, PROBAYOVAR would obtain prior Bank approval with respect to the candidate's qualifications and experience (Section 3.01(b) of the draft Project Agreement).  - 18 - 75. In order to assist PROBAYOVAR in carrying out the project, one or more qualified consultants would be contracted to provide technical advisory services. In addition to preparation of the feasibility study referred to in para. 72, these services would include (i) drafting the terms of reference and the selection of consultants for the tests and studies to be undertaken; (ii) supervision of their execution; and (iii) reviewing the conclusions of such tests and studies. The appointment of the technical advisor(s) would be a condition of loan effectiveness (Section 6.01(c) of the draft Loan Agreement). Technical advisory services would be contracted prior to the hiring of any other consultant under the project (Section 2.02(b) of the draft Project Agreement). The services of only one or two consulting firms are expected to be required for the execution of the studies and tests. 76. PROBAYOVAR is expected to form the nucleus of the future company which would implement and operate the Bayovar investment project. INI is now considering whether it wishes to participate in PROBAYOVAR but in order not to delay the project the Government wishes to initiate the engineering and technical assistance project promptly. If INI decides to participate, it is expected that it would become a shareholder of PROBAYOVAR and finance a portion of the local costs of this project equivalent to its equity interest in the company. Alternatively, it might without making an equity investment, provide technical guidance to PROBAYOVAR in the preparation of the Bayovar investment project. In order to ensure that the Bank is in agreement with significant future changes in the ownership of PROBAYOVAR, Bank approval would be required for any transfer of more than 15 percent of PROBAYOVAR's capital stock or the incorporation of new shareholders in PROBAYOVAR (Section 5.01(c) of the draft Loan Agreement). 77. After completion of the second phase and before taking a decision to proceed with the Bayovar investment project, the Government, PROBAYOVAR and its shareholders would afford the Bank a reasonable opportunity to exchange views on the proposed project (Sections 3.03(b) and 2.02(e)(iii) of the draft Loan and Project Agreements, respectively). Project Costs and Financing 78. The total financing required for the engineering and technical assis- tance project is estimated at US$9.5 million (exclusive of taxes, from which the project is exempt), of which US$7.5 million represents foreign costs and would be financed by the proposed loan. The cost estimate is based on early 1980 prices. Physical contingencies of 10 percent on all costs (except basic engineering design) have been added. Price contingencies were based on an estimated annual worldwide inflation rate of 10 percent. The proceeds of the loan would be provided by the Government to PROBAYOVAR as a capital contribu- tion (Section 3.01(c) of the draft Loan Agreement). The shareholders in PROBAYOVAR would finance local project costs through their equity contribu- tions. The Government has agreed to ensure that the shareholders' capital contributions will be made when due (Sections 3.01(d), and 5.01(b) of the draft Loan Agreement).  - 19 - 79. To help assure prompt initiation of the project, up to US$50,000 in retroactive financing would be provided to help finance costs incurred after June 1, 1980 for contracting technical advisory services and starting the studies mentioned in para 63(i) (Paragraph 4 of Schedule 1 to the draft Loan Agreement). 80. An estimated 200 man-months of foreign consultants and 120 man-months of local consultants will be required. The average cost of foreign engineering and technical and other consultancy services is about US$10,000 per man-month. The cost of local consultants is about US$2,000 per man-month. Selection of Consultants and Disbursement 81. The qualifications, terms of reference and conditions of employment of all consultants financed under the loan would be acceptable to the Bank (Section 2.02(a) of the draft Project Agreement). Disbursements of the proposed Bank loan would be made against 75 and 95 percent, respectively, of the total cost of the first and second phases of the project, representing the foreign exchange component of the services eligible for Bank financing. Benefits and Risks 82. On the basis of Bank experience with similar projects in other phosphate producing countries, there are strong grounds to believe that an economic phosphate fertilizer project can be developed at Bayovar. Emerging production and trade patterns in the phosphate industry favor large scale projects such as the one envisaged in Peru. Ultimately, the Bayovar investment project could be a major source of supply to help satisfy the steadily growing world demand for phosphate fertilizers. The proposed engineering and technical assistance loan would help assure that the estimated US$700-800 million Bayovar project, one of the most important that Peru is currently planning to undertake in the next five years, is properly prepared and executed. This responds to the Government's objective of trying to ensure the high quality of major new public investment projects. 83. Development of the phosphate deposits of the Sechura Desert, which have potential reserves of several billion tons, would make a substantial contribution to Peru's balance of payments, with anticipated annual gross export earnings and import savings of about US$200 million in 1980 terms. Also, the project would represent a major step in stimulating development of the Bayovar region, which could become a new pole of industrial development in Northern Peru. Infrastructure in the area would be expanded if the fertilizer project goes forward. In addition to the phosphate project, there is the possibility that the studies to be carried out on the prospects for exploitation of potash, pyrites and uranium might lead to economically viable projects. 84. Although the Bayovar investment project would be highly capital intensive and would create only about 1,500 direct new jobs, a substan- tial work force would be required during its construction. Also, more job opportunities would be created as the project stimulates additional investment in the area.  - 20 - 85. Because PROBAYOVAR is a newly created entity, it will require assistance in initiating and coordinating project activities. For this reason, technical advisory services would be contracted to provide supporting management services for the project. PART V - LEGAL INSTRUMENTS AND AUTHORITY 86. The draft Loan Agreement between the Republic of Peru and the Bank, the draft Project Agreement between PROBAYOVAR and the Bank and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed to the Executive Directors separately. 87. The draft Loan and Project Agreements conform to the normal pattern for loans for engineering projects except, that at government request, no pro- vision has been made for refinancing the proposed loan. The main features of the Loan and Project Agreements are referred to in the text and listed in Section III of Annex III. Special conditions of loan effectiveness would be (i) the execution of the Project Agreement (para 74); (ii) the appointment of consultants acceptable to the Bank to provide technical advisory services for the project (para 75); (iii) the registration of PROBAYOVAR as a corporation and ratification by its shareholders of the actions undertaken on its behalf before such registration (para 74); and (iv) the appointment of the four senior staff of PROBAYOVAR (para 74). A special condition of disbursement for the second phase of the project would be agreement between the Bank, Government and PROBAYOVAR that the results of the feasibility study confirm the technical, economic and financial viability of the Bayovar investment project (para 73). 88. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 89. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments June 9, 1980 Washington, D.C.  - 21 - AiNEX I TABLE 3A Page 1 of 5 PERU SOCIAL INDICATORS DATA SHEET PERU REFERENCE GROUPS (AD1USTED AylAGES LAND AREA (THOUSAND sQ. KM.) - MOST RECENT EST'NATE) - TOTAL 1235.2 SAMt SAME 'IEXT HICHtR AGRICULTURAL 2J. 0 MOST RECENT GEOCRAPHtC INCOME INCOME 1960 /b 1970 lb ESTIMATE /b REGION /c GROUP /d GROUP /. GNP PER CAPITA (US5) 250.0 420.0 7'40.0 1124.4 1097.7 1942.6 ENERGY CONSU?"TION PER CAPITA (KILOGRAMS OF COAL EQUIVALEOT) 445.0 619.0 642.0 943.1 730.7 1646.7 POPATION AND VITAL STATISTICS TopULATION, KID-TEAR (mILLIONS) 10.2 13.5 L6.4 URUAN POPULATION (PERCtNT Of TOTAL) 46.3 57.4 62.8 59.3 49.0 51.2 POPULATION PROJECTIONS POPULATION IN TEAR 2000 (OILLIONS) 29.0 STATIONARY POPULATtON (MILLIONS) 55.0 YFAR STATIONARY POPUrLATION IS REACHED 2085 POPULATION DENSITY PER SQ. KM. 8.0 11.0 13.0 23.5 44.6 28.2 PER SQ. X0. AGrUCULTURAL LAND 33.0 44.0 54.0 80.5 140.7 100.5 POPUATION AGE STRUCTURE (PERCENT) 0-14 YRS. 4U.2 45.0 43.9 40.9 41.3 35.4 15-64 YRS. 52.0 51.9 53.0 54.4 55.3 56.3 65 YIRS. AND ALOVt 3.8 3.1 3.1 3.9 3.5 5.1 POPULATION GROWTH RATE (PEtRCENT) TOTAL 2.6 2.9 2.8 2.4 2.4 1.7 URBAN 4.7/& 5.0 4.5 3.7 4.5 3.0 CRuDE BIRTH RATE (P'R THOUSAND) 47.0 42.9 39.0 32.8 31.1 27.5 CRUDE DEATH RATE (PER 7HOUSAND) 19.0 14.7 12.0 8.5 9.2 9.1 GROSS REPRODUCTION RATE 3.1/h Z.9 2.8 2.4 2.2 1.8 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. .. .. USERS (PERCENT OF ARRIED WOMEN) . . 17.7 34.7 FOOD AND NUTRITION INDEX OF FOO9 PRODUCTION PER CAPITA (1969-71-100) 110.0 102.0 90.0 99.4 104.4 102.0 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 97.0 99.0 100.0 107.0 105.0 120.8 PROTEINS (GRAMS PER DAY) 50.0 61.5 61.7 60.4 64.4 80.9 OF WHICH ANIMAL AND PULSE 25.0 24.3 25.3 28.3 23.5 31.3 CHILD (AGES 1-4) %IOR.ALITY RATE 28.0 20.0 16.0 6.7 8.6 5.1 NEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 48.0 53.0 55.7 63.6 60.2 65.6 INFANT MORTALITY LATE (PER THOUSAND) . 122.0/f .. 76.1 46.7 45.5 ACCESS TO SAFE WATER (PERCENT OF POPULATION) rOTAL .. 35.0 47.0 63.4 60.8 69.4 URBAN .. 58.0 72.0 79.5 75.7 85.1 RURAAL .. 8.0 15.0 38.6 40.0 43.0 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 36.0 .. 58.8 46.0 70.1 URBAN .. 52.0 - 77.8 46.0 88.3 RURAL *- 16.0 *- 24.5 22.5 33.2 POPULATION PER PHYSICIAN Z200.0/t 1920.0 1580.0 1841.9 2262.4 1343.2 POPULATION PER NURSING PERSON 3620.07i 3200.0 .9 933.7 1195.4 765.0 POPULATION PER AOS?ITAL BED TOTAL 490.O0 470.0 500.0 563.4 453.4 197.6 URBAN . 410.0 340.0 279.; 253.1 260.2 RURAL X 3450.0 13000. 1140.9 2732.4 io55.3 ADMISSIONS PER HOSPITAL BED .. 19.0 .. 25.7 22.1 17.3 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 4.9 5.5 4.9/1 5.0 5.3 4.7 URBAN 4.8 .. 5.1ti 4.8 5.2 4.4 RURAL 4.9 .. 4.7/1 5.3 5.4 5.1 AVERAGE NUMSER DF VSRSONS PER ROOM -OTAL 2.3 2.3 1.9/1 1.3 1.9 1.1 TRBAN 2.0 .. .771 1.3 1.6 1.2 RLRAL 2.7 .. 2-!I 1.3 2.5 1.2 ACCESS TO rLICTCRICI7Y IPERCENr OF DWELLINCS) 'OTAL 26.0 32.1 32.i/1 54.3 50.J 56.0 URBAN 50. .. 54.3- 30.1 .1.7 i5.i RURAL ' .2D . . ' . 7TE . Z t 7. 14.2.17.0  - 22.- ANNEX I TASLE 3A Page 2 of 5 P-L SOCIALIONDtCAIlORS OATA SZ MrL'UCE c0ouPs (AOJUST!2 iACEAI - 5OST &ECLNT ZST IAE) - SANE SME A EXZ 4C0ER YOSt tECr- 20oClUHC ZNCONE LICOtZ 1950 /b 1970 lb ESTVIASZ /b R2EGON /c G71OUP /d OoUP /e OEDCATION AD.JUSTED InROLwlw. .05os ?lfARS: O0AL 53.0 107.0 110.0 107.3 102.5 101.7 .1ALE 95.0 114.0 116.0 109.1 108.6 110.0 FErmLZ 71.0 99.0 107.0 107.4 97.1 92.S SECONDARt: TOTAL 15.0 30.0 49.0 40.5 33.3 51.2 SALE 16.0 54.0 54.0 40.4 38.4 56.4 FDlALE 11.0 26.0 44.3 39.0 30.7 43.7 VOCAftONAL 2NWL. (: OF SECOtDAzY) 20.0 17.0 23.0 18.5 11.5 18.3 PI?fltZA0 IAITO _- PMIM! 36.0 40.0 40.0 37.1 35.8 27.1 SZCODART 12.0 23.0 23.0 17.9 22.9 25.3 ADLT LITERACT lATE (PUCT) S1.0 *- 72.0 77.4 64.0 36.1 CONSU57 I0N ? SSEO40EL CAMS PM IROUSAND POPATAON 3.0 17.0 17.6 29.1 13.5 53.4 RADIO 8LCEIVUS ?a AOUSA POPULATIO.N 101.0 . 34.0 101.0 172.1 122.7 225.9 TV 2IECZIVS P? THOUSAND P0PULATION 3.0 29.0 32.0 67.9 38.3 102.6 n!WSPAP11 ("OAa!Y GENIAL XTfEUst") CRCl ATTON PM ThOUSAND PO?ULATION . 124.0 96.0 76.1 40.0 78.5 C7W1tA ANNUAL ATTENDANCE PM CAPITA .. .. .. 4.2 3.7 3.6 LaOR FORCE TOTAL LA30R FORCZ (THOUSANDS) 3100.0 4300.0 4600.0 !ZltALE (PECENT) 21.0 20.7 21.9 21.5 25.0 24.5 AGRICULTURE (nxCM) 52.5 46.8 40.0 30.2 43.5 28.9 2MWSRYf(PUCZNT) 19.6 20.1 20.0 23.8 21.5 30.6 P?ATIC?A.TION RATE (PERCENT) LOTAL 31. 29.1 29.2 30.9 33.5 33.8 i4611 49.2 45.8 45.3 47.3 48.0 51.3 ?DtALE 13.2 12.1 12.8 13.3 16.8 16.3 OCOZ4IC DEP I'NCY ATIO 1.6 1.5 1.6 1.5 1.4 1.3 INCOIZ DISTRISQOtcN -'IRC2NT OF PRIVATE INCOat _ECEIVED AY RIGDST 5 PUCET Or '9U5EOLDS 39.0/k .. .. 23.7 20.8 3I1CHST 20 ?'.RC7rNT OF SOusREOLDS 64.47- 61.0/1 . 58.7 52.1 57.6 LO4JEST 20 ?ERCEN2T OF H0USEHOLDS 2.5/k 1.9/1 .. 2.9 3.9 3.4 ."07T 40 ?ZRCEN4T OF ROaSEPOLDS g.o7k 7.07 .. 9.9 12.6 11.0 .OVIRTY !A2CET C2OUPS T.IATEOD AB50LUTE ?OvERT INc0 LEVEL (USS P?ER CA2ITA) U8J1AN .. .. 235.0 263.6 270.0 2URAL *- *- 180.0 185.1 183.3 !ST':-XTEO RELATOVE POVERTY INCONE LYVEL (TJSS Pt CAPIT-A) YN1 .. .. 293.0 396.3 282.5 550.0 RUiRAL .. .. 200.0 308.1 248.9 403.4 ISTIN.ATED POPUtATION 3ELO.W POVERTY 0NCM!E LtVEIL (PERCENT) U96AN .. .. S9.0 35.2 20.3 RUlliLL .. .. . ~~~~~~~~ ~ ~~~~~~~46.6 35.3 . .Not Available aNot pplicable. YOTZS /a he adjusted group averages for each indicator are populac4on- ighttd geometric means, excluding :h. exetrme 'l.fias of ::1e indicacor and trhe 50c populated oouitry 'n each jroup. Coverage of :ountries among ;he 'ndl-ators oepends on availabliLty of data ard is aot uniform. /b Unless other'i.se wtaed, data for 1960 refer to any Fear between 1959 and 1?61; for i970, bec,aen ?169 and 1971; and !or Aost lecent lstimst., betwen 1974 and 1977. _'-cn .m.rfc. & Caribbean; d n:rnarmdace 0tddle :000g. (S551-1135 par capia, 1976); ;e Upper widdla ::acfe (51136-2500 per capita, 1976); /; 1970-75; j 1956-61; /h 1960--S; 9 r6a; L96; k ?ersonan L ncome 4%thin Labor !orce; /1 1972. "ovt Racenc scsLmaze osf CNP per.captca is for 1978. Augus.c 979  - 23 - ANnXE I rmWnMXi OF SMA INIA0 Page 3 of S Noten: Although the data are drama fra source generally judged the most mothoritativ,en ad elible, it should ales be acted that they may not be intern.- tisselly ocaparable b.c-s of the lack of standardized deriitions end concpts -ed by differeet coutries in collecting the data. lbs data aec, nooatheless, use f.1 to desc.ribe orders of agpitode, indicate treade, sd chsrsoteriae certae major differeeces betweeIn ontris.. The djp4tedgf ~ png or each indicator s- Ppnpltlo-weighted geometric eamas,ecldn the note'se nnes. Of the indicat.c sod the met populated -outry 16lUi IpT . to lack of data, grop Iaweeges of all indicators for Capital Borplon Oil taporters ad of indicators of Motes. to Water and tE-reta Disposal , Hdosing, Inoom Distribution sod Poverty for other coutry gwopn,.ar popslatioo-eilghted geoatric emOe without eoloina of the eutro value end th mt populated country. 9Sim. the covers.. of countries the in .dictrs lapels a avaailtv of&dta ad be nt elf c. ction mt be teericed is relatias raveree Of one lrietiot to mnother. Thoes.aeasae mtIs osefo I as v1,f o._-I n indicator at a tins oma the coeto -a refrmapae aruem. LUMAID a (thounad eq.he.) A.... to tasoreta ipsl(ecn.foenais total. obs,a col 5 - Total nurfc ares oprising lad ares ad inand eaters, miter of peopl (ttal orba,a ofloa)srved by crta dipsA daiclturs Ntet recent estigat of sgricoltorsl are ..acd teaporeri) peroeotsges of their respective Dpopulti..n. knoreta dispos.1almy inolod or Permeanotly for rope, pawoore, sachet ad blaze garden. or to the col11otioo ad dieposal, silt a without trent-mt, of the n-ete l1Ie falow and wete-zater by water-borne elects or the use Of pit privie- adoL si GNP ER PTA S$)-GlNP per capita ostixate at osrrent sarht price PoaainprPwlin - Population divided by nuber of prsoticing physirison a.wmaed byseae coversion mthod - World Bash Atlaa (1976-78 hbciel jI?l ~ lial school at university Inte... 196o, 1970, ad 19789 data. Peaa nor iorsn Person - P.Delation divided by ..e b of practicing ale aniSlCUPIIC P88 F CAPITA - de-al consuption of Ocaeroial eoerg a eaegcot oes rciclwe,a ltsincec foa dLante, petroleum untorl gac sod hydro-, nooea ad gec- Popuation Par Hoepital =ed rto.ta, otrbs. ad rura - Poplation (total, urban, tb.eral eletricity in kiloernac of coal eqainleotpr.caPita; 19,60, ad -rura) divided bythi renPotv noro hocpitn.l beds noalabirlol 1970, sod 1976 data. jobito ad private g.roera ad speviaicd h.ctpitnl ad vehabilitatioonc-t-r H.epita1s ar ectblie .taet pergahetly etaffed by at leact on pdoywloino. POOtItATIhe ADIl VITAL SATISTICI Establiehaacts providing priecipall costodial cur -hc ot iocladed. Rural Total Popu1atio', tad-YCeiFLillion .. Ac of July 1; 1970, 1970, nod hospitale, bh-oe, inolde health and eadlcnl ceot-r 000 permanetly ataffvd i977 data. by a phoyeiciae (but by a medical naalntsnt, o-e, midoife, etc.) skich of fo Urb. Pputlation (pret of total) - Patio of achn to total popontioc; ib-patiet acocbdation ad provide a Iialtd renge of medical ferilitlei. dIffeen deitie of - orb .aen -Y sTff-t Oomperability of dnta Ainispedoialed - T01otal ber of adeoioi.o. to or diw-hsge from smog contis;160, 1979, sod 1975 data. bo tpol divided by the catert of beds. Population Proj ertione R7 Itt45 14np~Yter 011 - torrent peolntion proj et.ono or bae 00. dHOUSIG t5otal pepintion by one sod s wd their mortality sod fertility Avr iov of gHucehold (Poreonc r,h Ihebod) -total, urban seA rurl - rntrs. ProJection 'pavmtrrs f rtscility raten oneprine of threeA h ho.oehold con.sict f agopo n iduals who hor living qaartve end leveIo noaiog Isfe vopotnoyatbirth looreaing with cootryn. their uint meals. A boarder or lodger my or any not h.ic -lcndrd 10 th pee o-pito inooso 1od, sod femle life wopeotancy atabiliniog at hooccohld for ttiatietla porpeoec. 77.5 yearn. The psrmtvro for fertility atr also have three le-ne o!Erege ubro pennnerronattlbrbn o rrl- Aorgc ounbvr annunin deolino io fertility sco-ding to icoelvlsdpn fP,ro pe -ro in nll arba, adtrurl o-osied -~ coooi oa url salty olseino perforanore. Eaob ouontry is thieo aeslgnod 000 of thece D-pvtsel Ielinge -oclsdv oa-peraoct otrtoture wd u_ooopicd pos nine ootioatlnoos f mortality nod fertility trends for projection Aocecs -ttoE hlctriolty (Percentf doellingo) - tot.l. orbn. sod ro-l - Coo dIntiooy ouaoo Is n _t oaiocory op tosstoonlbweie oo cr...it totni, urbn end -orI d-e1-go trenpeottWiey. 010c ti bith rte o eeos to tie deth rn, ad als the one otruoor rsiwcot . Tio isahinv-d conly after fertility rates EDUCAT10H deoline to te replsoeneo level of-at ot reprod-ction rate, ohe. idAete iroit Oato v:,h geraInofomorpl..ce iteIlf _osty. Th estationary npoP- Prmr ool- total cole wd fen-Idroon- total, coearI nnrenol Iti00 sine o- -tiaatrd 00 the tanJo of the projeted cha-traoorti-i seinto algeat the princry lcv-I aspretv fvoeto ra of tbc popolntion In thr pcor 2000, ad the rate of deciinc of fertility oohcol-sg popltloon;InoralIp ccldeo obIildren Igd -lprbu rate to e-yl-oet ecel. odjooted foe differen.t lengthy of primary ed-otico, foe ontriro 090h Y-artatioonr popopaticn is roarhed - The yea when etotionn.ey ppolntico uiversl -1doca tiot --rlleet ow, ..oceed 100 pe-ces ov oepyllo cio- h.w beec reahed. are helon - above oth sfficinI school ege. oe co. ha. - Mid-y-u porolition pe oqunr ksioneiv (100 htectrv) of edoctoneubeit eetfu yerof approord .r...ry lo,usruo.lo; totalse pir-idee gIeo..ral ticatlon, or teahe %tniciog iontrot.t-. roe popilo Per o. in.-sgrioultuaI lard - Cnwlpted no obo- foe sgrbclt-rl land ucoally of 12 to 17 ic.nr. of ae crepeodeoc -crc ore --Iecly only. v-luded. Popalatico Age Strutur (cercet) - Children (0-14 yeas), oorbcng-age vo...tioos.l -oolen proa f eodayM Vocat'icon oo'tit.tioos ics`i (15~Y--hiya)ln reird b yer d e)e -protwern of oid-yeor tcvbhicsl, lodoetrii oc th pogf m bo prt ldpnet rn pplai;170, i97O, and 177 dais departmeoto of -orodary inotitotions. Poolntcn rowb Pte(peecont) - total - Annosl proth e-tos of total aid- Pscituircbe-pir.nd n-cdar T otnl otodnntne-oll-Ji yea poelaioo or195-h, 9h-7, od1970-77. '"t- p Ii r iwe ceodr "ileeciiddb sarsotahcc00teor- Population Grceth Pate pret - a A.- .1un growth rates of odbs npeodinglelo Peisla.ti..s for 1991-h0O, 19*0-70, sod 1970-75. Adult lit-eay rate Prevent) - lterte edoiito nble tored sod crite as C-d irthRat.(p.rth..-d)- Abonul live bietoc pee ihoo-eud of io- a peecI- ge of total adolt popolotioc agd 15 Y_er o cr year pePnticri; 1960, 19707 sod 1977 data. Crude Death Pate (per thoowand) -_Mnaal deaths per thoooad ol id-yea COI5lrifIcP pepeslstion; 1960, 1970, sod 1977 dnO.tPoegrto(e thossowed oP.ulaioo - Paooreor onri otro Groso Peprodaotioo Pato - Ao-rge ooeh- of dsoght-r I cod didj tear ora1ting lenhbaeih perooc cld-s weboooI., h-aco 7 lbtr in bee osreal reprd-isc-c pe-sd if sic eope-iroce perseot gcv-velc ope_fcfriiyito sol ieya ae -oteding lo 1970. onl Poivr (prtoopp itioo)- -Alil type- of .c.ebvere toe rmAs 1970, wd I75 broadonto to geece.hFniptc pe hs d of pepeitt,o; voIodoonsv Fseily PIisnio -A`ceytoro, AnAlooee ..bo.oo o-bee of --ce-veeocoutri-o sod in Yeses ob.n eegiottioc ofrsl. st oel acceptors of birth-cotrol devi oeuder aunoooIof oninlfeedly o.ffet; data for reItp ace -ect be coops-allo olor o -soui-iv pianin progrwet.ailihed I con.. ismily Plaing U-Sne . trocen ofersdseoI-rretg f onrild TO Oeoeovcro1 tir hoso peoltsoo) - fT ercei-c for oraoni'gces eom ofrhil-be ringag (15-ALyas oh oo tirth--tro1 device-elcpetoa ouain elde- snollI-vcd TtVveco to nil eareled womn i a age g-op. wed icy-o oh- registr,tion of TV se. ..in os ffect. _________________ eeonrn}ier I ircolation (per ihoocad populotion) - Shots the tisoeroghcoircu-r lgntio-oati. F 201 AND NItrRPIf0 of dail geneal lotrvt nccn1. pnpee df)evd n0pe-iodoco pullcati- Indeoof fod Prductin perCatO 11979-71 100) -tilde o.fnpe -npits devted prienily to- ecding genera coo. It inoeiderd to bedoily soolpeodoetiao of al ftc .voditiec. Pr~odto I oisde ace.d wed of it npr-re at leaot floior limo -oke. fee ad in. on olcdar year bacie. Cmditie cover.. prienr gocdc Cis-na Aonun Atteadwe- per Capita oc - ien -hac so tic nuber of socketo (e.. ongar-r isetead of enge) ebio ar e.ditor sod con. l ootrivot_' sold darn- i er cing ngtr-scct rv-csoeondno,i (e.g. coffee sod ten ar -oold.d). dggregate p-d-stioc of e-c c.oth- jolts. iio io bh.oed. on tio... nvrcge prodacer price eighto. Per -aitn caoly of caloriec (-eet ofr -ioetn) - Coepshted ft. roAiBOR FORCE enere eqovalet of et fd ouylic avaioblein cootr pe opi in Tots labor .t forc Oo ssd)- nvoeoclyativ pe--on loolodlg veed prday. Available osypli-ocero d-meti, prodootloc, iep-rte lows forces sd Iemlyd bt e-iuding hoo..ob-e,, wtudeoto, etc. Dof-ito-- opertn., ad oheaco. in stab. Net -uPpliv- -1c lde sosal ford, oceA, in vioroo -wtriee are not -aopnr-ble. qostitico aecd in fordprco me,sd 1i.-se in dist1Itribstio. Peqoire- Fngp14jy-o pt - Fe.-eIs. o force I neI pe-ctsge of Otal1 labor forc meets wer esimated by rAO ins-d 00 phyoiclogivIrcredo for normalt) - Laboe force in farming, forrtry, hating ad utnivity ad heal7th coneiderog voeuetateerue,body o-ghti, fiching so percentage of total labor force age sod n- ditlbstribsto ..f pepsoltoonI, sd s1owing 10) percet foe Indootry lerpet) - Labor force io aling, -ootrot-o, osiofsotaring %vA -ntenat hos..ebold Iecl -elcotric ity, ater ad gao a pervntge of totni lsbor Corce Pe .oPit. oupply of ProteIn lsrce Per day) - Protesvotteot ofrv PtcttonAt pre t) -total,1malt,sd fal - PIrticipation or ,.Pi t net sopply of food pee doy. Net osyPIp of fao ow door nod activity rteo ar I motd nntotl coe, _d febl onio force as Pe-- above. Peqolremets foe all Ic...triec onitbliehed by USDA p-oidr for n ventgos of total, aele ad fenlc peposltion ofoi ro repetivly eloimo allo_se ofI61 grsn of totsi protebo per day sod 20 gra- of 1960, 1970, sod 1975 data. These or ILD-s putiipatlo s rfetn soima sd pWIs Pr-tei, of w1hich., iers obould he animal protoin. ze--notract.re of the poplation, sd long tIer tred. A fIn estiat-n Ths esdarde ore loser tha thon of 75 grea of total protei a. d ar. fc I atona crce.. 09 gram of aiml Protebo an no avrage for the world, prope..ed by PA0 ~ R Ui - Ratio of poplatio drde 15 ad 65 nod ovr to 'Inthe Third World Food lo-cy. the labor : feifI*ge grop o)f 15-64 yearn. roe-sita orotes noonply from animal ad joulce - rPoteic oupply of food derived fro animale sod pisee inganpr s. Et D IONS(T1 Child leesa 1-So) lartalto sate (arithoso)- bonsai deaths per thosawed Peoetes f rvate In-m (both in ho ad hiod) - Received by richest In see group 1-I,per, to ohildre_ in thic one grop; f or most de-c- 5 per'oset, rlohest 20 poroent, poorest 20 percet, and pooret 40 peroent oping -outri-o dnt de-i-ed fro life tablee of houeholde. lieEpcao tBirth (reara A-rAeege nube of year of lIfe Estimated Absoute Poverty I1om Leve (o p. or capta)i - ba n ua Inadt NorhyPao(e tond A- bool deaths of infahts under on hotr itiomalty adeqate diet Plu ense...tb1 00-faod reqaireots iw not yea ofragepeetosdlv it fodbe latr of ptopl (ttl rbs. n ua)wt ewsbeacs t oa Rural relaIvepoety tc lelisa-h ird tf Vea pr cpt caeetercpl (incldes treated orface waters or untreated but Person1 albgi Of the vdowtry. Orbs.-lve is derioed fr- the rura leve onotemleated eater -ho as that from protected brehles, springs, with adjoMetat for highet oto lvn oaraass ad sasitary wells) as Perset.os of the ir reepective pnpsLati_oss. Sstiatcd PalatW n esle 1WAbalut Poverty Icm ee Irroen.t) - orbs ad a ach gara a poblic fountain or etadpost located net mr then Purl rNwet ofpplain(aaa rurl)wh are abolt 'oor 200mters from a house my be oooidered as beIng within rseaewssab mos f than hooe.. In rual _rwa r_aasle ace_s would iolp that the housewife a Sees of th0 houhold du not hson to spend aOoii dOca aaPvs dIsproportionate part of the day in fetching the fatty a ae-ed osmoAayi d Proetoa Departmen Anauet 1979   --24- MNEX I Page 4 of 5 OEBD 7CONOMIC DEVELOPYENT DATA A C T U A L P_1RCLM P R O J C T E D GRO1PT RATE (% p.e.) 1977 1965 1970 5975 1976 1977 1978 1979 1980 1985 1965-76 1976-78 1978-85 'GDP NATIONAL ACCOUNTS (mirlions of US doladrs at 1977 prices) .ross Domestic Product 7633.7 9451.1 12329.3 12706.4 12553.9 12328.2 12759.4 13405.3 17870.1 4.7 -1.5 5.4 100.0 Gaine from Terms of Trade -81.1 274.3 -59.2 -80.9 O.C -285.7 114.5 168.5 535.5 0 Gross Domestic Incom- 7552.6 9723.4 12270.1 12625.5 12553.9 12042.3 12873.9 13573.9 18405.5 4.8 -2.3 6.2 100.0 Imports 2207.8 2247.2 3343.6 2875.3 2694.1 1795.6 2009.9 2298.9 3426.0 z.4 -21.0 8.7 21.5 Eaports 2081.1 2562.2 1911.5 1989.7 2137.8 2368.0 3006.0 3077.9 3646.3 -0.4 9.1 6.4 17.0 oports, Terms of Tr-do Adjusted 2000.0 2836.5 1852.3 1908.8 2137.6 2082.3 3120.5 3246.4 4181.8 -0.4 4.5 10.5 17.0 R.murce. Gp, Tor-e of Trade Adjusted (-:surplus) 207.8 -589.3 1491.3 966.5 556. -286.7 -1110.6 -947.5 -755.7 4.4 Total Consumption 6304.8 7784.7 10942.6 11154.8 11219.2 10106.4 9921.1 10536.3 14695.5 5.3 "4.8 5.5 89.4 I-vest.ent 1455.6 1351.4 2818.8 2437.2 1891.3 1649.2 1842.2 2090.1 2954.3 4.8 -17.7 8.7 15.1 Notiomel Svings 1093.1 1786.2 1116.0 1132.4 965.1 1485.7 2341.1 2436.9 3334.2 0.3 14.5 12.2 7.7 Domestic Saving 1247.8 1940.7 1327.5 1470.7 1334.7 1935.9 2952.7 3037.6 3710.1 1.5 i4.7 9.7 10.6 PRICED IN US DOLLARS (1977 = 100) Export Price Irdes 37.1 47.3 87.6 87.7 100.1 100.0 134.5 150.4 234.1 8.i 7.2 12.8 IDport Prior Codea 38.6 42.7 90.4 91.4 1OO.C 114.6 129.6 142.6 204.1 8.2 12.0 8.6 T.rms of Tramd Indec 96.1 110.7 96.9 95.9 10O.C 87.9 103.8 lOS.5 114.7 0.0 -4.3 3.9 Arnnal A-eroge Exc-ange Date (Soles per N) 26.8 38.7 40.8 57.4 83.81 156.3 224.6 -- -- OUTPUT, LASOR FORCE AND PRODUCTIVITY IN GNP by Doctor Labor Force GNP per Capita 1970 PRICES In Nil, of 0S Doloaro Percent of Total Growth Nate In TiouTnh d P-roent of Total Grooth Rete in uS Moli,rs atA-er 6F<cth M-te [966 1976 1i9p6 1 1961-76 1961 1976 1961 1976 * 1961-76 1961 71961-76 19 e976 1961- Agricu7tore 888.9 1138.9 221.1 13.7 1 1708.6 2109.4 52.8 43.4 1.4 521.8 539.9 41.8 31.5 0.2 1.duatry 1465.3 3167.7 36.4 38.o 5., 616.4 1019.1 19.1 21.0 3.4 2377.2 3108.3 190.8 18.1.2 1.8 Serice- 1666. 4030.9 1.4 48.3 6.C 907.0 17316 28.1 2:- 4.4 1837.2 2327.8 1475 135.7 t.6 TotalVAverage 4020.5 8 337.5 100.0 100.0 5.0 3227.0 4060.1 100. 100.0 2.7 1245.9 1715.5 i 100.0 2.2 CENTRAL GOVERNMENT FINANC7j Prelim. Pro-Jeted (an percent of Current GDP) 1965 1970 1975 1976 1977 1978 1979 1980 1961 1962 Current Revecue 15.2 16.1 15.9 14.5 14.6 15.3 17.7 19.3 19.6 19.9 Current Ropendit-re 14.3 13.4 16.3 16.0 18.3 17.3 14.9 17.3 18.8 19.3 C-rreat 6s-ioge 0.9 2.8 -0.5 -1.5 -3.7 -1.5 2.9 2.0 0.8 0.6 Clpital E.pmnditore 4.5 4.1 5.0 4.8 3.8 3.4 4.3 4.9 4.9 4.9 Ecternel Aenist-mo (Net) 1.2 0.6 3.0 2.0 3.3 0.9 -0.2 n.e. a.a. a. CURRENT EXPENDITURE DE6AILS Actuc D1TACL ON 1977/S2lam Plonm P-an (as percent of total Current Kopend.) 19 1973 1976 1977 PUBLIC SECTOR TtiT 1..oft t1978 INVESTMENT PROGRAM Educstion 30.6 27.9 22.9 18.1 16.1 Health 9.0 6.3 6.2 4.7 6.0 AgrVcilt-re 1262.2 19.6 Agricoltrm 3. 6 4.4 . 13 2 3.64 Industry, Touroim sad RIini8 1375.1 21.3 other Ec..n.eic Services 3.2 4.0 5.2 5.2 2.7 Enegy 1794.4 27.6 Generel Servicee (ircl. defen.e) 46.4 42.7 46.9 54.i 45. t Tran-part sad Cosmaoicstivc 892.4 13.8 IDtereot nn Dobt 5.4 11.3 10.8 15.1 24. Socinl cod local Interest Projeota 1128.3 17.5 Other 1.8 3.3 6.2 5.5 2.5 TotaL Curreat ERpenditure- 100.0 100.0 100.0 10.0 10676. Totd 6452.4 10.0 MINEY AND CREDIT 1973 1974 1975 1976 1977 1978 1979 (pr-lin.) (Millione of Dolen outatsaiug At the end of period) Noney end .i-Yoney 98268 119996 141766 166296 220453 321200 637200 Book Credit to Public Sector 27234 26898 49711 101399 198854 287700 223600 Demk Crtit to Private Sc-tor 73189 84512 108234 134536 17377Z 239300 387500 Mloney so perce- t of GDP 27.4 26.8 25.5 21.6 21.0 19.2 20.9 Cossmler Price Index in Seine (1977-100) 37-5 43.9 54.3 7 100.0 157.8 264.7 Aicoal perceotego ohenga iA: 38 0 Comaor Price Iade- i1 SBlsa 9.5 16.9 23.7 33.5 . 7. 67.7 Bank Credit to Public Sector 53.7 -1.2 8468 104.0 96.1 44.7 -22.3 Beck Credit to Private SDctor 27.7 15.5 28.1 24.3 29.2 37.7 61.9   Ia-cia-Ic a-a- -aCc-a-aCa C-C.aaa-aa-a-,aC- cCa 'CC-a Ca-OCCC.aILa a-a '-Cc Ca-a-a-ac-ta- -a-CtCa a-a- - ujja-  - ;-"a a cc'aaa?P