Mexico - Second Urban and Regional Development Project

Document of The World Bank FOR OFFICIAL USE ONLY FILE COPY Report No. P-3035-ME REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO BANCO NACIONAL DE OBRAS Y SERVICIOS PUBLICOS, S.A. WITH THE GUARANTEE OF UNITED MEXICAN STATES FOR A SECOND URBAN AND REGIONAL DEVELOPMENT PROJECT April 23, 1981 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 UNIT - PESO (Mex$) Since September 1, 1976 the Mexican peso has been floating; it fluctuated around Mex$ 22.60 to the US dollar from mid-1977 to the end of 1980. On April 9, 1981, the peso traded at 23.74 per US dollar. FISCAL YEAR January 1 - December 31 ABBREVIATIONS BANOBRAS - National Bank for Public Works and Services (Banco Nacional de Obras y Servicios Publicos) CEPROTAB - Productivity Center for the State of Tabasco (Centro de Productividad del Estado de Tabasco) COPLADE - State Planning and Economic Development Committee (Comite de Planeacion del Desarrollo Economico del Estado) CUC - Coordination Agreements between the Federal and the State Governments (Convenios Unicos de Coordinacion) Institutos - State Housing Institutes (Institutos de Vivienda) PEMEX - Mexican Petroleum Company (Petroleos Mexicanos) SAHOP - Secretariat of Human Settlements and Public Works (Secretaria de Asentamientos Humanos y Obras Publicas) SAM - Mexican Food System (Sistema Alimentario Mexicano)  FOR OFFICIAL USE ONLY MEXICO SECOND URBAN AND REGIONAL DEVELOPMENT PROJECT LOAN AND PROJECT SUMMARY Borrower: Banco Nacional de Obras y Servicios Publicos, S.A. Guarantor: United Mexican States Amount: US$164 million equivalent Terms: 15 years, including 3 years of grace, and interest at 9.6 percent per annum. Project Description: The project would support orderly growth and social development in the south-eastern states of Mexico and help establish a systematic approach to urban and regional development. The project consists of the following components in the States of Tabasco, Veracruz and Chiapas: (i) Shelter-related Facilities, including: - sites and services; - construction material credits; - urban upgrading; - home improvement loans; and - community centers. (ii) City-wide Infrastructure, including: - water supply works; - sewerage works; and - other infrastructure. (iii) Municipal Facilities and Services, including: - retail markets; - a wholesale market; - slaughterhouses; and - refuse collection. l 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 - (iv) Productive Activities, including: - credits to artisans; - credits to small-scale enterprises; - industrial estates; - training center; and (v) Studies and Support Activities - Studies to prepare development programs and urban plans in the region; technical assistance to implementing agencies; and studies on pollution control in the region. Promotional activities for project programs. Benefits and Risks The principal benefits would be (a) promotion of the Government's spatial strategy and support for invest- ments in one of its most important growth regions; (b) the establishment of mechanisms to implement, finance and operate urban and regional development programs with the active participation of state, municipal and community organizations; (c) improve- ments in the backward and forward linkages between the rapidly growing oil sector and the regional economy; (d) improvements in the level of shelter and of other urban infrastructure, as well as in basic urban services; and (e) better cost-recovery and replicability procedures for shelter and basic urban services programs through the establishment of proper management and financial procedures. The major risk is that the institutional improvements required of various agencies in order that they carry out their additional tasks under the project would not be achieved as rapidly as expected. The experience and technical capacity of most Mexican institutions dealing with this project justify the expectation that the project would be implemented without undue delay. On the whole, the risk is acceptable.  - iii - Estimated Cost: US$ million Local Foreign Total % Shelter-related programs 94 36 130 54 City-wide infrastructure 33 24 57 24 Municipal facilities and services 14 9 23 9 Productive activities 14 13 27 11 Studies and technical assistance - 5 5 2 Total Baseline Costs 155 87 242 100 Design and supervision 8 4 12 Physical contingencies 17 9 26 Price contingencies 124 64 188 Total 304 164 468 Financing Plan: US$ million Local Foreign Total % Bank loan - 164 164 35 Beneficiaries 29 - 29 6 Government 275 - 275 59 Total Project Cost 304 164 468 100 Estimated US$ million Disbursements: Bank Fiscal Year 82 83 84 85 86 87 Annual 7 16 36 44 43 18 Cumulative 7 23 59 103 146 164 Rate of Return: About 14 percent for components which constitute 83 percent of total project costs. Staff Appraisal Report: Report No. 2937-ME, dated April 24, 1981.   INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO BANCO NACIONAL DE OBRAS Y SERVICIOS PUBLICOS, S.A. WITH THE GUARANTEE OF UNITED MEXICAN STATES FOR A SECOND URBAN AND REGIONAL DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed loan to Banco Nacional de Obras y Servicios Publicos, S.A. (BANOBRAS) with the guarantee of United Mexican States for the equivalent of US$164 million to help finance a Second Urban and Regional Development Project. The loan would have repayment terms of 15 years, including 3 years of grace, with interest at 9.6 percent per annum. US$51 million would be onlent in pesos to finance shelter related programs and US$20 million would be onlent in pesos as credit to artisans and small-scale enterprises. .he shelter related loans would be repaid over 15 years and interest charges would be 15 percent per annum Credits to artisans would be repaid over up to 5 years at an interest rate of 15 percent per annum; credits to small-scale enterprises would have maturity periods of up to 5 years, and interest rates would be one percentage point above the average cost of term funds to multipurpose banks in Mexico. The Government would bear the exchange risk. PART I: THE ECONOMY 1/ 2. The Mexican economic situation and major issues of economic policy were analyzed in "Special Study of the Mexican Economy: Major Policy Issues and Prospects" (2307-ME), distributed to the Executive Directors on May 30, 1979. The most recent economic mission visited Mexico in February 1980 and is about to finalize its report. Country data sheets are attached as Annex I. Past Performance 3. For the three decades preceding the mid-seventies, Mexico was successful in achieving rapid economic growth while also maintaining stability in prices and equilibrium in the balance of payments. From 1940 to 1970, GDP growth exceeded 6 percent per year in real terms, inflation averaged less than 5 percent per year from the mid-1960s to 1972, and the dollar value of the peso, fixed in 1954, was maintained until 1976. The Government's role in this achievement was to carry out direct investments in infrastructure and in key industries such as power, steel and petroleum, while creating a stable regula- tory and institutional framework, as well as good profit prospects, to induce private sector growth. 1/ This section is substantially unchanged from the President's Report for the Port Development Preparation Loan (Report No. P-2982-ME of March 5, 1981). However, paras. 5 to 8, 11 and 15 were modified to some extent.  - 2 - 4. This strategy produced considerable progress and better living standards for many Mexicans. However, the incomes of poor farmers and marginal urban dwellers, whose productivity was low and has not been increasing, have been lagging behind. There was, therefore, little reduction in contrasts within the Mexican economy. Land reform was largely implemented in the late thirties and while further land redistribution has continued, most of the peasants who received land could not significantly improve their economic status as the parcels of land allocated were small, the soil often quite arid and benefits from infrastructure, credit and technical assistance scant. Rapid population growth, which reached a peak of almost 3.5 percent per year by the mid-1970s, also made social equity difficult to achieve. Even Mexico's sustained economic growth was not sufficient to absorb the rapidly growing labor force into productive employment, and by the 1970s some 50 percent of the labor force was either relatively unproductive and poorly paid, or openly unemployed. 5. Policies undertaken to remedy this situation in the first half of the seventies were somewhat self-defeating. As a result, by the mid-1970s Mexico experienced increasing public sector deficits, inflation, large balance of payments deficits, capital flight and a marked slowdown in the real rate of growth of GDP, which dropped to 2 percent in 1976--the lowest rate experienced since the mid-thirties. On September 1, 1976 the authorities abandoned the fixed exchange rate and let the peso float; it devalued by 80 percent. The authorities also adopted a plan for economic stabilization for which Mexico obtained major support from the IMF. The Administration which took over in December 1976, established as its main objective control of inflation, to be followed by a return to high rates of economic growth. The former was to be achieved through stabilization policies, while the latter was to be made possible thanks to the impact of major oil discoveries which would reduce the foreign exchange constraint. Both objectives were important in restoring the confidence of the private sector. Recent and Current Situation 6. The Government succeeded in bringing inflation down to 17 and 18 per- cent in 1978 and 1979, respectively, as against an annual rate of almost 29 percent in 1977. The deficit in the current account of the balance of payments peaked at US$4.2 billion (or 5.3 percent of GDP) in 1975 and declined to US$1.8 billion (equivalent to 2.5 percent of GDP) in 1977. Favorable oil prospects and increasing capital inflows brought about a rapid increase in imports reflecting both a decisive reduction in protectionism and the growing demand for capital and intermediate goods upon which the expansion of the economy depended. The current account deficit increased to US$2.9 billion (or 3.2 percent of GDP) in 1978 and further to US$5.2 billion (about 4.3 percent of GDP) in 1979. The public sector deficit peaked at about 9 percent of GDP in 1975 and declined to about 7 percent in 1979. Mobilization of savings by the banking system has recovered. GDP growth was about 7 percent in 1978 and 8 percent in 1979 as compared to 2 percent in 1976. 7. The growth record for 1980 continued to be favorable and GDP is estimated to have increased at about 7.5 percent. The current account deficit of the balance of payments was much higher than anticipated due to continued expansion of imports (mostly capital and intermediate goods and foodstuff)  - 3 - and is estimated to have been US$6.7 billion (about 4 percent of GDP). Despite the substantial inflow of imported goods, strict domestic credit restrictions, generally adequate lending rates and modest increases in real wages coupled with substantial productivity increases, inflation has been higher than anticipated. This is essentially because of expansionary budgetary policies, with investments increasing at a rate of more than 15 percent a year in real terms. A shortage of essential consumer goods and construction materials, aggravated by the inadequacy of the transport system to handle distribution of domestically produced goods along with increasing imports, has contributed to price increases. The increase in the consumer price index in 1980 was around 30 percent. 8. The persistence of strong inflationary pressures is beginning to exert increasing influence upon a number of factors in the Mexican economic scene. First, the now substantial differential between price trends in Mexico and in its major tracing partners, which has not been fully compensated in the exchange rate, is eroding the hitherto adequate inducements to export non-oil goods and makes imported goods increasingly attractive to domestic users, even in cases where domestic production is efficient. Secondly, wage pressures, which have been moderate and have not contributed to the inflationary process up to now, may gain force if strong inflation continues. Both these impacts could affect the pattern of resource allocation in Mexico, tilting it toward capital intensive processes of production. 9. The Government will not have an easy task in maintaining price increases much below 30 percent during 1981. The need to expand public investment in key infrastructure sectors and to maintain the present level of expenditure in the energy sector leaves relatively little scope for sig- nificant adjustments in the size or structure of public expenditure. At the same time, the intention of the Government to implement much delayed increases in prices of publicly supplied goods like gasoline will imply a temporary push upwards of the price index. Economic Problems and Prospects 10. Mexico has the organizational and natural resources necessary to attain its ambitious goals of rapid growth and alleviation of poverty. The new petroleum riches will greatly relax the financial constraints on growth. The proven oil and gas reserves are estimated at about 60 billion barrels. Exploitation of these reserves should allow Mexico to substantially increase production of crude oil and natural gas from the equivalent of about 1.2 million bbl/day in 1976. The recently stated goal of the Government is to reach a production level of about 3.0 million bbl/day in 1981, and to more or less maintain it at a level that will accommodate exports of 1.5 million bbl/day (compared to the 1.1 million bbl/day target up to September, 1980). The Government continues to indicate its unwillingness to exceed this limit for fear that Mexico will increasingly become a classical "oil producing country" with the economic and social tensions that would ensue. But even at this production level, the challenge is: how to mobilize Mexico's resources-- its human skills, its institutions, and its experience--to help resolve its long term development problems. The most serious of these are poverty, unemployment, inadequate growth of agricultural production in non-irrigated lands, and urban-regional imbalances.  - 4 - 11. Poverty: Mexicans have participated unevenly in the remarkable economic growth of the last several decades. According to estimates for 1977, at least 2.8 million households (25 percent of the total) had incomes of less than one-third the national average, of which at least 2.4 million (22 percent of the total) lived in absolute poverty. The root causes of this persistent problem are three: rapid population growth, past neglect of non-irrigated agriculture (where some two-thirds of the poor are principally employed), and slow absorption of labor in high-productivity jobs. 12. The Government is acting on all three fronts. A family planning program started in 1972 has already helped reduce population growth from 3.5 percent per year to an estimated 2.9 percent in 1980. The program is being further strengthened by the present Administration, with the ambitious goal of reducing population growth to 2.5 percent per year by 1982 and to 1 percent by the year 2000. New approaches are also taking hold in rainfed agriculture (see para. 15). On the employment front, new tax incentives have reduced the anti-employment bias and additional efforts to stimulate employment will have to be continued. The expected rapid growth of output should also create jobs more rapidly. In spite of this progress, however, the still rapid growth of population and the staggering increase of the labor force (at 3.7 percent per annum) made unavoidable by the high percentage of young people in today's population, renders the eradication of absolute poverty a difficult goal to attain in the near future. The Government has under its consideration several types of subsidies for the poor. These could prove to be short-term palliatives and preempt resources which would otherwise be available for investment in employment-creating activities or for improving educational or health standards of the poor on a more permanent basis. 13. Open and hidden unemployment, which are now respectively at 6-7 percent and 40 percent of the labor force, will remain major problems in the years to come. With the expected GDP growth rate of 8 percent per annum, the economy should be able to absorb the additional labor force, assuming no significant change in the participation rate (now at about 29 percent) and some increase in labor productivity. In absolute terms, however, the present levels of underemployment and unemployment are likely to remain. 14. A National Employment Plan was published in 1979. It calls for a number of measures to strengthen the so-called informal sector in both urban and rural areas. To increase the productivity of those employed outside the modern sector, and their employment opportunities, a major effort will be required in the area of vocational training. Technical assistance programs are also needed to stimulate more organized and structured forms of activities, especially in the services sector. While there is no doubt that the authori- ties are concerned about unemployment and underemployment, and while the institutional structure to carry out some important programs already exists, a concentrated effort will be required to take effective action and to make better use of human resources by substantially reducing the level of hidden and open unemployment. 15. In agriculture, crop and livestock production has shown inadequate growth since the mid-1960s and, of late, demand has outstripped domestic supplies of grains. Faced with diminishing returns to investment in new large-scale irrigation works, continuing low productivity and income per  - 5 - capita in the non-irrigated ("rainfed") sector, widespread malnutrition and increasing dependence on imported food (especially grains), the present Administration has launched a major program (SAM - the Mexican Food System) aimed at increasing self-sufficiency in food, providing for minimum nutri- tional needs of the rural and urban poor and increasing rural employment. SAM emphasizes increased production of grains through a combined system of subsidies, guaranteed producer prices and government underwriting of crop loss risks. Greater emphasis is being placed on technical assistance, demonstra- tion and credit to develop the underutilized rainfed agricultural potential. Programs to rehabilitate existing irrigation works serving nearly one million ha are underway. Small-scale irrigation development is being promoted. Construction of new large-scale irrigation units continues, but now represents a smaller proportion of government investment. The banking system is being encouraged to provide greater support to agricultural production and processing programs. These initiatives should lead to an acceleration of production growth, more equal development opportunities for Mexico's farmers, and an improvement in the living conditions of the rural poor. 16. The main urban-regional problems are two-fold: (a) growing conges- tion, pollution, high cost of services (especially water) and other manage- ment problems that stem from the continued rapid growth of Mexico City (al- ready the third most populous metropolitan area in the world and moving rapidly to become the first) and other areas in the dry, densely populated central plateau, and (b) retarded development, poverty and great difficulty in providing better jobs and/or adequate public services to the one-third of all Mexicans who live in towns of less than 2,500 inhabitants. The present Government has taken many positive steps to confront these problems, including an administrative re-organization, elaboration of a comprehensive urban development plan, and introduction of a strong package of incentives to promote growth in a few well-selected growth poles. 17. The expected high growth rate of the economy in the years to come is the country's strongest weapon with which to reduce poverty and unemployment. Industry has moved to the leading position and is expected to play a major role in expanding domestic production and exports. A National Industrial Development Plan was published in 1979 and it reflects the preoccupation of the present Administration with the long-term prospects of the industrial sector and their implications for employment. Industry has the potential for considerable expansion in many areas, including efficient import substitution in chemicals, petrochemicals and capital goods as well as exports of a variety of manufactured products. While most of the above industries are known for their capital intensity, they are expected to promote secondary industries with considerable employment opportunities. These will be enterprises producing secondary petrochemicals, finished plastic goods, metal parts and components for capital goods. Tourism export earnings are also expected to increase substantially. The prospects for the industrial sector are, however, subject to the caveats mentioned in para. 8 above. 18. The main problem for the Mexican economy in the years to come will remain the reconciliation of high growth rates with relative price stability and a larger participation of low-income groups in the expanding wealth of the nation. The National Development Plan, published in April, 1980, marks the final  step in the planning activities carried out by the present Administration and places in a consistent framework the specific targets indicated in a number of sectoral plans prepared in the previous two years. In addition to presenting a macroeconomic picture of development prospects, the National Development Plan dwells in great detail on the policies required to achieve various economic and social targets. These policies are essentially sound but call for a major implementation effort on the part of the Administration. Growth with low inflation poses difficult challenges of adjusting prices of public goods and services without undermining the existing consensus of the country, and improving income distribution would call for policies that encourage labor intensive technologies in industry and agriculture without slowing down modernization of the economy. 19. Mexico's public and publicly guaranteed debt service ratio has been increasing over the recent past and peaked at 69 percent in 1979. This high ratio reflects the still relatively low level of exports to GNP and the high proportion of Mexican borrowing from commercial banks; the ratio of external public debt to GNP (24 percent in 1979) is average for middle-income countries. The public debt service ratio declined to around 30 percent in 1980, not only as a result of rapid increases in petroleum exports but also because some of the debt contracted on the least favorable terms had been prepaid. Debt service on Bank loans amounted to about 3.2 percent of public debt service in 1980; this ratio is projected to remain about the same during the early and mid-1980s. The Bank currently holds about 5.7 percent of Mexico's total medium and long-term public debt, and this ratio is not likely to change significantly over the next few years. Mexico is creditworthy for borrowing on conventional terms. PART II - BANK GROUP OPERATIONS IN MEXICO 1/ Bank Operations 20. As of February 28, 1981, Mexico had received 69 loans from the Bank amounting to US$4,798.9 million net of cancellations and terminations; of these, 38 loans totalling US$1,870.4 million were fully disbursed. The Bank held US$4,106.3 million of which US$2,011.6 million h/ad not yet been disbursed. Some 45 percent of Bank lending has been for agriculture and rural development (24 loans for US$2,144.7 million), 16 percent for industry (12 loans for US$747.5 million), 15 percent for power (12 loans for US$704.8 million), and 17 percent for transportation (14 loans for US$816.4 million); the remaining 7 percent has been for water supply (US$255 million), tourism (US$114 million), and urban development (US$16.5 million) projects. Annex II contains a summary statement of Bank loans as of February 28, 1981 and notes on the execution of ongoing projects. A loan for port development preparation was approved by the Executive Directors on March 24, 1981. 1/ This section is substantially unchanged from the President's Report for the Port Development Preparation Loan (Report No. P-2982-ME of March 5, 1981). However, the section has been updated and a new paragraph (para. 23) added.  -7 - 21. Implementation of most Bank-financed projects was delayed during the period of economic difficulties in the mid-1970s and during the period of adjustment and stabilization that followed the September 1976 devaluation of the peso. Since then, the Government has taken important actions to accelerate implementation of projects. Adequate budget financing has been provided. Projects which had important structural constraints were modified and rephased to account for changed circumstances. Government and Bank officials have periodically met to review project implementation, and greater attention has been focused in Mexico on monitoring project implementation and disbursements. As a result of these measures, most of the Bank-assisted projects are proceeding satisfactorily and plans have been formulated to strengthen execution of those projects where improvement is still needed. The effectiveness of these actions is reflected in disbursement totals. In FY78 US$91 million were disbursed to Mexico, in FY79 disbursements totalled US$233 million and in FY80 disbursements further increased to US$404 million, or 38 percent of the undisbursed balance at the beginning of the year. FY81 disbursements through February were US$255 million. IFC Operations 22. As of February 28, 1981, IFC had made investment commitments in 22 companies in Mexico, for a total of US$536.0 million, of which US$395.3 million had been sold, repaid or cancelled. A summary statement of IFC investments is presented in Annex II. Bank Strategy 23. The main objectives of Bank lending in Mexico have been to: (i) support policies and programs leading to a wider distribution of the benefits of economic growth; (ii) help finance projects that make, directly or indirectly, significant contributions to output and employment; (iii) help reduce Mexico's urban-regional imbalances; and (iv) help break bottlenecks preventing more rapid growth. Therefore, the Bank has preferentially sup- ported projects of high social priority that help the rural or urban poor, projects that promote higher levels of employment and production, and those that help to decentralize economic activity. Given Mexico's potential for satisfying its future foreign exchange needs, the Bank is now concentrating on the institution-building aspects of the projects it finances and on the development of suitable sectoral and economic policies through regular dis- cussions with the authorities, as well as in the context of project financing. The Bank is thus helping to create the institutions, policies and mechanisms which would channel self-generated resources to meet the above mentioned objectives in the future. The Government is fully in accord with this new emphasis, and has requested that the Bank concentrate its efforts on sectors which are of key importance to Mexico's development and which require insti- tutional improvements and/or the formulation of suitable policies with great- est urgency. The proposed project would match this strategy by strengthening the planning and implementing capacity of institutions at the state and municipal level, by improving cost-recovery practices and by aiming at the solution of urgent problems that currently impede a balanced development in an important region of Mexico.  - 8 - 24. Because of the difficult structural problems of Mexico's agricul- ture and the sector's crucial importance to the country's further development, the Bank has made agriculture the leading sector for its lending. The Bank's agricultural lending program for Mlexico has four goals: first, to increase productivity of presently cultivated lands through selected programs of irri- gation and on-farm improvements; second, to improve the productivity of small farmers through programs for (a) rural development, (b) rainfed agricultural development, and (c) new areas in the humid tropics which are suitable for cultivation; third, to complement infrastructure investments with general support services, including agricultural extension and marketing programs and provision of medium-term credit; and fourth, to promote employment opportunities in rural areas through programs of agro- and rural-industries. The Bank has made eleven loans in FY76-81 totalling US$1,466 million for irrigation, rural development and agriculture, agro-industries and livestock credit programs. Several projects for rainfed agriculture, rural development, irrigation and support services are in preparation. A rainfed agricultural development project was approved by the Executive Directors in January 1981, and an integrated rural development project is expected to be ready for presentation to the Executive Directors early in FY82. 25. Past Bank lending for industry has been aimed at (a) assisting the Government's efforts to reduce the balance of payments deficit, (b) decentralizing industrial activities away from the major and increasingly congested urban areas, and (c) promoting greater employment in the sector by supporting medium- and small-scale industry. A steel project which the Bank helped structure and finance is now operating in a previously under- developed area on the west coast of Mexico (Lazaro Cardenas) and the city in which it is located is developing into a new growth pole. The fertilizer sector has been strengthened by two Bank assisted projects which the State- owned fertilizer company (FERTIMEX) is carrying out. Loans for projects to promote the development of small- and medium-scale industrial enterprises and to support an industrial equipment fund (FONEI) were approved by the Executive Directors in FYs78-79; they offer support to the private sector at a time of rapid expansion. The Executive Directors also approved in FY80 a second small and medium scale industries project and a project for the mining sector, which up to now has received insufficient resources from the financial system. Two capital goods industries projects are under discussion for possible Bank support, which would aim at assisting the Government develop adequate policies for the sector, institution-building and the transfer of appropriate tech- nology to Mexico, so that employment might be increased in the engineering subsector and the manufacturing industry strengthened. 26. As regards physical infrastructure, the Bank's operations have been focused on investments in key areas of the country as well as on institutional reforms and sector policies aiming, inter alia, at suitable pricing mechanisms to help generate additional resources for investment financing. The Airports Development Project (FY74) was designed to support the Government's policy of regional integration; the Fourth Railway Project (FY81) supports improve- ments of institutional aspects and financial management of the sector. The Mexico City (FY73) and Medium-Size Cities (FY76) Water Supply projects have been instrumental in the establishment of specialized institutions for effi- cient provision of drinking water and in the pricing of water at levels more  - 9 - closely related to costs. A Highway Sector Project was approved by the Executive Directors in FY79. A loan for a Second Medium-Size Cities Water Supply Project and a loan to assist the Mexican Government in structuring large investment in port development were approved by the Executive Directors in November 1980 and March 1981, respectively. 27. The Government and the Bank have long recognized the regional economic disparities prevailing in Mexico. A project to assist in the devel- opment of the Lazaro Cardenas conurbation area on the West Coast was approved by the Executive Directors in FY78. The project now considered would be the second operation of the Bank in this sector. 28. A national program for the vocational and technical training of middle management positions in the industrial sector is being considered for possible Bank financing. The Economic Development Institute (EDI) is assist- ing CECADE (a similar institute under the Ministry of Programming and Budget- ing) in training Government staff in several aspects of project preparation, monitoring and evaluation. A course on urban and regional development has recently been concluded and several courses for agriculture, rural develop- ment, and agro-industries are programmed for the near-term. 29. The Inter-American Development Bank (IDB) is the second largest source of multilateral aid to Mexico. The IDB has made loans totalling US$2,428 million to December 31, 1980. Over sixty percent of this lending has gone for agricultural and rural development projects, and the balance for transportation, industry, water supply, and tourism infrastructure. In 1980, the IDB approved three loans totalling US$280 million for water supply, fisheries and pre-investment study projects. The IDB and the Bank have worked in parallel on several projects; most recently the IDB and the Bank have each made loans for the National Program for Small-Scale Agricultural Infrastruc- ture, the Integrated Rural Development Program (PIDER), and agricultural and livestock credit, small- and medium-scale industries development, and hotel development projects. The International Fund for Agricultural Development (IFAD) has approved a loan of US$22 million for a rural development project in the State of Oaxaca which was appraised by the Bank's staff and for which the Bank is acting as cooperating institution for administering the loan. The Bank has financed a few projects in which there has been parallel financing from bilateral and commercial sources (e.g., power, steel and tourism devel- opment projects). In recent discussions with the Government, the possibility of a more widespread use of cofinancing arrangements was explored and we intend to seek opportunities for such cofinancing in the near future.  - 10 - PART III - URBAN AND SPATIAL DEVELOPMENT IN MEXICO Background 30. Mexico's outstanding spatial problems are the heavy concentration of economic activity, wealth and people in Mexico City, the lack of integration between urban and rural areas, and imbalanced inter-regional development. In 1978, about 65 percent of the 65.4 million people of the country lived in urban centers of more than 2,500 inhabitants. The Mexico City Metropolitan Area held almost 32 percent of the urban population, and the Guadalajara and Monterrey metropolitan areas contained another 10 percent between them. The same year, over 40 percent of the GDP was contributed by the Federal District and the State of Mexico, while at the other extreme seven states contributed less than 1 percent each. 31. The allocation of resources for investment in Mexico's urban areas has not followed clearly defined objectives and problems of coordination between institutions have been commonplace. The result has been that large segments of the population have lacked housing and essential facilities such as access to safe water supply and sanitation. The absence of regulation in the use of urban land has resulted in problems of poor environmental quality and inefficiencies in the transport system. In 1970, 71 percent of the urban population and 29 percent of the rural population had access to potable water. For sewerage, the respective proportions were 40 percent and 3 percent. The 1970 census registered a net housing deficit of about 840,000 units, with an additional 2.5 million units in poor condition, while 1.7 million units were classified as overcrowded. 32. The Secretariat of Human Settlements and Public Works (SAHOP) is the main agent for planning urban development and implementing basic infrastructure and other works. SAHOP has been responsible, through different departments and special funds, for meeting a substantial part of the demand for housing in the country. Between 1950 and 1970 the share of the public sector in total housing supply was about 8 percent. This share increased to 18 percent in 1970-76 and is expected to more than double by 1982. National Spatial and Urban Development Policies 33. Because of the Government's awareness of the serious degree of economic concentration in the country, the main goal of urban policy in Mexico in recent years has been to curb the growth of Mexico City and to a lesser degree that of the two other main metropolitan areas (Guadalajara and Monterrey). The Law of Human Settlements (1976) provides the legal basis for planning and implementing a spatial development strategy. Its objectives are: to promote medium-sized cities as alternatives to the largest urban centers; to foster rural-urban integration; to encourage local participation in solving urban problems; to enforce land use control; to improve urban services, and to minimize journeys between residential and work locations within cities.  - 11 - 34. In May 1978, SAHOP published a National Urban Development Plan, which explains the spatial strategy of the present Administration. The objec- tives include the rationalization of the urban system through integrated, balanced development of urban centers; the provision of increased access to urban infrastructure and public services, and the preservation of the urban environment. The Plan also sets specific goals for the provision of water and sewerage services. 35. The Plan proposes policies aimed at achieving a national urban system by the year 2000 which would consist of three cities of more than three million people (Mexico City with 20 million and Guadalajara and Monterrey with 3 to 5 million each), plus 11 cities with more than one million people and 17 with over half a million each. 36. The evolution of such a national urban system implies relative reductions in the rate of growth of the three largest metropolitan areas; the accelerated growth of regional centers and medium cities that would provide services on a regional basis, and the improvement of public services in the larger population centers in rural areas. The Plan defines 10 zones which will receive support on a priority basis, and identifies three large metro- politan areas where growth will be controlled. Priorities are defined in relation to the capacity to absorb population and provide employment and with regard to the resource endowment of their associated regions. 37. The spatial policies outlined in the National Urban Development Plan have been further emphasized by the policies in the National Industrial Plan, published in March 1979. This provides for industrial estates and adequate infrastructure in priority areas, preferential credit and energy prices for firms locating in them, and tax credits as incentives for certain investments and for employment as the main policy tools for spatial deconcentra- tion of economic activity in the country. Lazaro Cardenas, the site of the first Bank supported urban project in Mexico (see para 45), is identified as the center of a priority region in both plans and the Isthmus of Tehuantepec, the region selected for the second urban development project now proposed, is also identified as a priority region (see attached map - IBRD 15686). 38. The National Development Plan issued in April 1980 endorses the spatial policies outlined in previous sectoral plans. In particular it states that the transport system would be redesigned to facilitate decentral- ization and that transport tariffs would be revised to reflect real costs. For housing, the goals suggested for 1982 are the construction of 2.78 million housing units of which almost I million would be built by the public sector. In line with the social policies of the Mexican government, the low income population is the main target of public action in the housing sector. Proposed action focuses on new housing and sites and services with building costs which can be adjusted according to affordability. 39. Regarding infrastructure, the National Development Plan also endorses the spatial goals of the National Urban Development Plan. The National Development Plan calls for the use of existing programs and agencies dealing with low-income population to implement infrastructure works in rural areas. Decentralization of decision-making and implementation is to occur through the use of "coordinating agreements" (CUCs) between federal and state governments.  - 12 - 40. As part of the National Urban Plan, SAHOP has produced urban develop- ment plans for most states in close consultation with the local authorities. Urban development plans for the main cities have also been prepared. The Isthmus Region and The Project Area 1/ 41. The Isthmus region, in which the project would be located, comprises an area of about 14 million ha, of which about 2.5 million ha are in the State of Tabasco, 7.5 million ha in the State of Chiapas, 2.0 million ha in the State of Oaxaca, and 2.0 million ha in the State of Veracruz (see attached map - IBRD No. 14902). Its population in 1970 was estimated at about 3.1 million, or 6.2 percent of the national total. About 40 percent of the region's popula- tion lives in urban areas--defined as those with at least 2,500 inhabitants. 42. The recent growth of the petroleum sector has severely disrupted the region's social and economic structures. Daily on-shore production of hydro- carbons was equivalent to 1.16 million barrels in 1979. The National Oil Company's (PEMEX's) investments in the Villahermosa area rose from Mex$ 420 mil- lion in 1976 to nearly Mex$ 16,000 million in 1978, while investment in basic infrastructure works and services fell from Mex$ 1,600 million in 1976 to Mex$ 1,400 million in 1978. At the request of the Government, the Bank undertook a special study of the problems emanating from oil development in the State of Tabasco. 2/ 43. Few backward and forward linkages have developed between the oil industry and the rest of the regional economy, which has benefitted only marginally from the rapid growth of the oil sector. Reliance on services "imported" from other regions has been the norm because the region is not yet equipped to provide the needed inputs. 44. The very rapid growth of Coatzacoalcos and Minatitlan, in the State of Veracruz, has been mainly a function of the expansion of the secondary petroleum-related industries, including the development of the port of Coatzacoalcos to serve these industries. Most of the areas are subject to flooding and to serious air and ground water pollution caused by the surround- ing industrial plants. Pressure on housing is severe, with most of the construction sector engaged in PEMEX-related activities. About 35 percent of the population of Coatzacoalcos and about 25 percent of that of Minatitlan live in informal settlements, mostly without adequate water supply, sewerage, storm drainage, or paved roads. The conditions of the low-income groups in Villahermosa are also precarious. Many newcomers settle along river banks and in other low lying areas surrounding the city, and infrastructure is generally inadequate. Between 30 percent and 40 percent of these households are without access to regular water and sanitary facilities. 1/ A more detailed description of the Isthmus region may be found in "The Economic Development of the Isthmus Region of Mexico" (Report No. 1080-ME), March 30, 1976. 2/ This study, "Mexico - Oil Impact on Regional Development: A Case Study of Tabasco" (Report 3087-ME), was circulated to the Executive Directors on July 31, 1980.  - 13 - Previous Urban Projects in Mexico 45. The first urban project supported by the Bank in Mexico was the Lazaro Cardenas Conurbation Development project (Loan No. 1554-ME of Sep- tember 27, 1978). The Lazaro Cardenas project was an attempt to deal with a variety of urban and regional development issues in a priority region which had been the subject of other Bank-supported projects: the Las Truchas (SICARTSA) steel project, the FERTIMEX fertilizer complex and, nearby, the Zihuatanejo- Ixtapa tourism development project, which included an international airport. The project includes shelter-related programs, credits for productive enter- prises, river control works, rural feeder roads, and regional and project preparation studies. 46. During implementation, progress has been made towards reducing subsidies in shelter programs by suitable changes in interest charges for mortgages and in tariffs for services. The success of shelter programs has led to their rapid expansion and has attracted the attention of sociologists and experts in the country. A particularly successful component is the self-help housing construction program, which is being implemented at a much quicker pace than originally expected. Implementation of the other components has been less satisfactory and accounting inadequacies in the construction materials credit component have been detected and not yet resolved. Bank disbursements are behind the original schedule by about one-and-one-half years. The Government is now reviewing proposals for expediting the project. PART IV - THE PROJECT Project History 47. In the context of its new Law of Human Settlements and the National Urban Development Plan, the Government of Mexico requested a Bank loan to help finance the Second Urban and Regional Development Project in 1977 (see Annex III). The project was appraised in June 1979, and reappraised in February 1980 to review institutional arrangements. Negotiations were completed in Washington, D.C. in March 1981. The Mexican negotiating team was led by Mr. Rodrigo Sanchez (BANOBRAS). A Staff Appraisal Report, entitled Second Urban and Regional Development Project, No. 2937-ME, dated April 24, 1981, is being circulated separately to the Executive Directors. Project Objectives and Components 48. The project is a multisectoral approach to the more pressing problems of the section of the Isthmus region extending along the Gulf of Mexico in the three states of Chiapas, Tabasco and Veracruz. The main components are: shelter-related programs; city-wide infrastructure, including water supply and sewage disposal; municipal facilities (such as wholesale and retail markets, refuse collection and slaughterhouses); support for employment-creating productive activities (such as credit to artisans and small enterprises and vocational training), and studies on ecological problems of the area and orderly programming of future growth. Complementary works, such as river control and drainage, rural feeder roads and transport infrastructure, as well as special support for the agricultural sector, are under consideration by the  - 14 - Government. The extraordinarily rapid pace of development of the oil and petrochemical industries, and the sugar industry, have caused many ecological problems in the region. The project would only improve the region's environ- ment marginally, but would promote studies leading to more effective pollution control programs in the respective states in the future. The major features of the project are summarized in the Loan and Project Summary at the beginning of this report. 49. The institutional structure of the project is designed to enable state and local authorities to participate in it and to take account of their priorities. The participation of local authorities in the preparation and implementation of this project would encourage the support necessary for success and may provide an attractive model for future projects in other regions in Mexico. Further details of the institutional aspects of the project are presented in paras. 52 to 62. Project Cost and Financing 50. The total cost of the project is estimated at about US$468 million, including contingencies and taxes. The proposed Bank loan of US$164 million would finance the foreign exchange cost. The Government's contribution would be US$275 million and the beneficiaries would finance the remaining US$29 million. The cost estimates of the various project components are detailed in Annex IV and summarized in the Loan and Project Summary at the beginning of this report. 51. Costs are based on detailed designs for typical sub-projects in each of the shelter-related programs, feasibility studies for a sample of the city-wide infrastructure works, surveys of demand for productive credits, and preliminary estimates for all other components. They are based on 1979 prices plus price escalation, 1/ and include physical contingencies averaging 15 percent over the base prices. This level of contingencies is appropriate in view of the simple nature of the works and the experience with similar works in Mexico. Approximately 80 staff-months of consultant services are expected to be required to carry out studies and support activities, at an estimated base cost of US$70,000 per staff-year. Execution and Administration 52. The borrower would be BANOBRAS, to which counterpart funds would be transferred by the Government except for the resources passed on to the project institutions as Government grants. BANOBRAS would on-lend IBRD funds to the various state and municipal implementing institutions according to procedures and conditions agreed with Bank and to be included in subsidiary loan agree- ments between BANOBRAS and these institutions. The conclusion of subsidiary loan agreements, satisfactory to the Bank, between BANOBRAS and each project institution would be a condition of disbursement for the respective project 1/ For local costs 30 percent in 1980, 25 percent in 1981, 20 percent in 1982, 15 percent in 1983 and 12 percent in 1984 and 1985. For foreign costs 12.5 percent in 1980, 9 percent in 1981, 8.5 percent in 1982 and 7.5 percent through 1985.  - 15 - component. It is expected that most of these agreements would be concluded by July 31, 1981, except the agreements with the municipalities, which would be concluded by December 31, 1981 (Section 3.01(b)(i) and Schedule 1, paragraph 4(d) of the draft Loan Agreement). All funds on-lent by BANOBRAS to state or municipal agencies would be guaranteed by the corresponding states. Project agreements would be signed between BANOBRAS and each State involved in the project (Section 3.01(b)(ii) of the draft Loan Agreement). The conclusion of at least one project agreement with a state and one subsidiary loan agreement with a project institution in the state signing the project agreement are con- ditions of loan effectiveness (Section 6.01 of the draft Loan Agreement). 53. A federal interministerial committee for the project will be estab- lished not later than June 30, 1981 to coordinate project related policy matters (Section 4.03 of the draft Guarantee Agreement). BANOBRAS has established a project unit in Mexico City responsible for supervising the implementation of all project components and for following-up on any actions required to correct difficulties. This unit will authorize all transfers of resources and payments, and will be the contact agency for the Bank on all project-related matters. The unit now has a director, a project engineer and a financial administrator assigned full-time to the project. Assurances were obtained during negotiations that the project unit would be staffed adequately at all times (Section 3.02 of the draft Loan Agreement). In addition, the state development and planning committees (COPLADEs) would coordinate and monitor the progress of the parts of the project to be carried out in their respective jurisdictions, and would be responsible for coordination with the federal and state governments. 1/ 54. Each state actively participated in the definition of the scope and of the composition of the project. This participation was extended to the municipal and, where appropriate, community levels. Consistent with the wishes of the present Government to delegate more responsibility to states and municipalities, this project would be almost exclusively implemented by state and municipal agencies (Schedule 2 of the draft Loan Agreement). However, BANOBRAS would be directly responsible for the execution of parts of the productive credits component as there are no appropriate local agencies in this field. The water supply and sewerage works would be carried out by new water supply and sewerage authorities through SAHOP. With these exceptions, the main role assigned to federal agencies is to provide technical support, and to generally supervise the execution of the works. 55. Implementation of the shelter-related components would be the responsibility of state housing institutes (Institutos). These institutes are responsible for the provision of shelter to low-income groups and households without regular incomes. Although originally established as local representa- tives of a federal housing institute (INDECO), they have gradually become executing agencies for state financed programs, presently operating with the financial support and under the combined guidelines of both federal and state 1/ The representative of the Federal Secretariat of Programming and Budgeting in each state is the technical secretary of the respective COPLADE. The president of each COPLADE is the Governor of the state.  - 16 - authorities. As part of the project, this evolution would be completed by adjusting the official bylaws of each of the three Institutos (one in each state) to make them clearly responsible to the respective state authorities. The Institutos are presently funded exclusively through budgetary transfers; however, in adjusting their bylaws, provisions have been made to allow them to borrow funds from BANOBRAS. 1/ These measures are expected to increase their effectiveness, make them more responsive to local needs and improve their performance with respect to cost-recovery procedures. 56. The water supply and sewerage component in the State of Tabasco and in Reforma (State of Chiapas) would be implemented and operated by recently created state-wide water authorities. In the Veracruz cities of Coatzacoalcos and Minatitlan, these works would be implemented by a water authority covering both municipalities. These authorities would contract sub-loans with BANOBRAS and would be responsible for operating and administering systems and for cost-recovery. The establishment of these authorities, under arrangements satisfactory to the Bank, would be a condition of disbursement for the water supply and sewerage component in the respective states (Schedule 1, para. 4(b) of the draft Loan Agreement). In every case the respective works would be designed and executed under the supervision of SAHOP according to procedures already agreed between the Bank and SAHOP for the Bank-supported Second Medium-Size Cities Water Supply and Sewerage Project. Feasibility studies have been carried out for water supply works accounting for approxi- mately 30 percent of the project's water supply and sewerage component. Studies satisfactory to the Bank for at least 60 percent of the planned water supply and sewerage works would be completed not later than January 31, 1982 and for the remainder of the works not later than January 31, 1983 (Section 3.03(a) of the draft Loan Agreement). 57. The access roads for city-wide improvements would be implemented and maintained by the municipalities, except in Reforma (Chiapas), where the Instituto would be responsible for their implementation. The municipalities would be responsible for the implementation, operation and maintenance of all items included in the municipal facilities and services component (i.e., markets, slaughterhouses, and refuse collection and disposal), and would assist the Institutos in the urban upgrading. Because of the serious manage- ment and accounting deficiencies that prevail in most of the area's municipal- ities, substantial technical assistance would be required to ensure their proper and effective participation in the project; such assistance would be arranged by BANOBRAS (see para. 61). 58. Implementation of the productive credits and promotional programs would be the responsibility of BANOBRAS and the Institutos. In the case 1/ The Institutos in Veracruz and Tabasco are already controlled by the state and have legal capacity to borrow funds. The bylaws of the Instituto in Chiapas would be amended, this modification being a condition of disbursement for this component (Schedule 1, para. 4 (c)(ii) of the draft Loan Agreement).  - 17 - of credits to the formal sector 1/, BANOBRAS would promote, prepare and provide credit for individual operations. A special unit has been created within the BANOBRAS credit department for this purpose (Section 3.10 of the draft Loan Agreement). Onlending terms (para 65) and other conditions of the credit program, would be consistent with those used in the Lazaro Cardenas Conurbation Development Project and are specified in Section 2.03 and Schedule 5 of the draft Loan Agreement. In the case of credits to artisans, the promotion and preparation of credit requests would be handled by the Institutos, while the formal processing of each credit would be done through commercial banks. As a condition of disbursement, the Institutos would establish special departments for handling the activities related to this project component (Schedule 1, para. 4(c) of the draft Loan Agreement). 59. The industrial estates would be developed under state trust funds. Each trust would have a Technical Secretariat consisting of representatives of the Federal Government, local municipalities and the privPte sector. Once the final location of an estate had been selected, the site would be acquired by the state and turned over to the new trust. Its Technical Secretariat would then supervise the implementation of civil works, and promote and administer the estate under procedures consistent with those applied under the Bank-supported Small and Medium Scale Industrial Development Project. Feasibility studies for all the industrial estates would be presented to the Bank for approval not later than December 31, 1982 (Section 3.03(c) of the draft Loan Agreement). 60. The assistance and promotional programs for productive activities would be carried out by various agencies under the supervision and coordination of the BANOBRAS project unit. The training center in Villahermosa would be implemented and operated by the Productivity Center for the State of Tabasco (CEPROTAB), a trust fund for the promotion of training activities in Tabasco. 61. The program of studies and complementary support activities to the various state and municipal agencies involved in the project would be carried out, under the supervision and coordination of the BANOBRAS project unit, by other public agencies and consultants, depending on the assistance required. Assistance would be provided in two stages; the first would serve to define the specific programs and schedule of actions required for each agency. An implementation schedule for these studies would be prepared not later than July 31, 1981 (Section 3.07 of the draft Loan Agreement). Consultants retained to carry out studies and provide support activities, and their terms and conditions of employment, would require Bank approval (Section 3.09 of the draft Loan Agreement). 62. Approximately 420 ha of land are required to implement the shelter- related programs. Of these, about 174 ha were already the property of the various Institutos 2/ as of March, 1980, and the rest (246 ha) still needed to 1/ Small scale enterprises in the formal sector are defined as those with total assets of up to Mex$ 2.5 million (excluding land). Informal sector enterprises (artisans) are those with assets of up to Mex$ 100,000 (excluding land). 2/ 92 ha in the state of Tabasco, 44 ha in Veracruz, and all of the 38 ha required in Reforma (Chiapas).  - 18 - be purchased. The available land is sufficient to carry out a large part of the planned program; no difficulties are envisaged in connection with the purchase of the remaining land for the project. Cost Recovery 63. Major efforts were made during project preparation to establish cost recovery standards and procedures that would ensure the feasibility of carrying out urban projects that pay for themselves and are not a constant drain on public resources. The bulk of project costs will be recovered directly from beneficiaries through appropriate charges and tariffs. The items for which less than full cost recovery would occur are: upgrading (75 percent recovery) community centers (60 percent recovery), and "other infra- structure" (50 percent recovery). There would be no recovery in respect of the training center, studies and complementary support activities. The Government would cover the corresponding costs, about US$18 million equivalent, through transfers to the respective implementing agencies (Section 2.02 of the draft Guarantee Agreement). 64. The estimated proportion of funds recovered from beneficiaries is based on the experience of similar programs in Mexico, and additional assump- tions regarding proposed changes in charges and tariffs. The lending rates charged by BANOBRAS to the intermediaries (implementing agencies) as well as the lending rates and other charges and tariffs to the final beneficiaries would be consistent with those already in force in existing Bank-supported projects: the Second Small and Medium Scale Industries Project, the Lazaro Cardenas Conurbation Development Project, and the Second Medium-Size Cities Water Supply and Sewerage Project. 65. The loan terms for intermediary institutions and final beneficiaries which will be included in the respective subsidiary loan agreements, are summarized below: A. For Shelter Related Items Loan Terms/Service Charges - From BANOBRAS to the Institutos 15 years, at 10 percent per annum. - From the Institutos to final 15 years, at 15 percent per annum. borrowers for home building, improvement or serviced lots B. For Water Supply and Sewerage Works - From BANOBRAS to the water supply 15 years, including a grace period and sewerage authorities equalling the construction period (or 3 and a half years, whichever is shorter), at 9 percent per annum. N.B. The beneficiary households would pay charges that cover operation and maintenance costs, and the larger of the debt service or depreciation on revalued assets, plus working capital.  - 19 - C. For Other Infrastructure Works - From BANOBRAS to the Municipalities 5 years, including a grace period and the Instituto of Chiapas equal to the construction period, at 18 percent per annum. D. For Municipal Facilities and Services - From BANOBRAS to the Municipalities 15 years, including a grace period equal to the construction period, at 16 percent per annum. E. For Productive Components - From BANOBRAS to the Institutos 15 years, at 10 percent per annum. - Artisan credit recipients (a) for working capital: up to 3 years, at 15 percent per annum. (b) for fixed assets: up to 5 years, at 15 percent per annum. - Small-scale enterprise credit (a) for working capital: up to 3 years, recipients at an interest rate at least one percentage point above the average cost of term funds to multipurpose banks over a twelve-month period. 1/ (b) for fixed assets: 5 years, incuding 6 months of grace, at the same interest rate as loans for working capital. Procurement and Disbursements 66. All procurement would be in accordance with Bank guidelines. The preparation of tender documents and the award of individual contracts would be the responsibility of the respective implementing agencies, under the supervi- sion of the BANOBRAS project unit. This unit would also act as a liaison with the Bank on all procurement matters. 67. Civil works valued above US$2.5 million equivalent and equipment and materials valued above US$500,000 equivalent would be contracted through international competitive bidding. To facilitate the participation of inter- national contractors, civil works would, as far as possible, be grouped into contracts with a minimum value of US$2.5 million equivalent. Equipment and materials would, as far as possible, be grouped into contracts having a minimum value of US$500,000 equivalent so that they might be let under international competitive bidding. Since most of the project components are 1/ The cost of term funds (ACF) is published monthly by the Central Bank. It is calculated as the weighted average of interest rates paid on bonds, notes and certificates of deposit. The ACF for the twelve months period ending March 31, 1981 was 22.59 percent  - 20 - relatively small and are geographically scattered, foreign contractors are not expected to participate in many of them. The Mexican contracting industry is capable of undertaking all types of civil works at competitive prices; bids from non-Mexican firms are rarely submitted for such works. About US$50 million equivalent of civil works and equipment contracts--mostly related to water supply and sewerage works -- are expected to be awarded through inter- national competitive bidding. 68. Local competitive bidding under procedures acceptable to the Bank would be accepted for civil works contracts with values between US$250,000 and US$2.5 million equivalent, and for contracts for equipment and materials valued between US$150,000 and US$500,000 equivalent. Civil works and equip- ment and materials for less than the above minima and up to an aggregate limit of US$50 million would be contracted directly through local shopping based on at least three quotations in each case. 69. The Bank would reimburse: (a) 32 percent of total civil works costs (including the costs of engineering, promotion activities and supervision) except for water supply and sewerage works; (b) 45 percent of civil works, equipment and consultant services for the water supply and sewerage component; (c) 26 percent of construction material loans; (d) 55 percent of productive credits; (e) 100 percent of foreign expenditures for equipment and vehicles, or 50 percent of total expenditures if such items are locally procured, except as specified in (b) above; and (f) 100 percent of expenditures for consultants, or 50 percent of other expenditures associated with the promotion of Productive Activities or with the Studies and Support Activities Programs. Overall, the Bank would be reimbursing the estimated foreign costs of expenditures. 70. A total of up to US$5.0 million would be available for retroactive financing of project expenditures incurred after January 1, 1980 (Schedule 1, para. 4(a) of the draft Loan Agreement). These funds would be required for partial payment of works and preparatory studies already begun or carried out by Mexican institutions in anticipation of loan approval, including two sites and services projects in Villahermosa and Coatzacoalcos, preparatory studies for shelter-related water and sewerage works, and some upgrading. 71. Disbursements would be fully documented for most civil works. State- ments of expenditures would be used only for construction material credits, home improvement loans, productive credits and minor expenditures under the studies and support activities program. All expenditures would be independently  - 21 - audited. BANOBRAS would process all required documents through its project unit, and forward them to the Bank with corresponding withdrawal applications. The closing date of the loan would be December 31, 1986. Project Benefits and Justification 72. The principal benefits would be (a) promotion of the Government's spatial strategy and support for investments in one of its most important growth regions; (b) the establishment of mechanisms to implement, finance and operate urban and regional development programs with the active participation of state, municipal and community organizations; (c) improvements in the backward and forward linkages between the rapidly growing oil sector and the regional economy; (d) improvements in the level of shelter and of other urban infrastructure, as well as in basic urban services, which will have an important impact on health, environment and living standards in the region; and (e) better cost-recovery and replicability procedures for shelter and basic urban services programs through the establishment of proper management and financial procedures. The project would directly benefit about 95,000 households (or over half a million people), of which about 19,000 households would benefit from sites and services and construction material credits; 20,000 households from various urban upgrading and home improvement schemes; and another 55,000 households from city-wide infrastructure works. Many of these and other households would also benefit from community-wide health programs, training and new job opportunities. 73. An economic rate of return was calculated for components accounting for about 83 percent of total project costs. These include sites and services, urban upgrading, the materials credit program, community centers, and city-wide infrastructure works. Productive activities, municipal facilities, studies and support activities were excluded because of the difficulty of quantifying their benefits. Assuming a project life of thirty years, the internal economic rate of return (IERR) of the project is about 14 percent. The IERR associated with various sub-components along with a summary of the sensitivity analysis is presented below: IERR (percent) Sites and Services (including shelter) 13 Urban Upgrading 21 Home improvement loans 31 City-wide infrastructure 11 Sensitivity Project (Base Case) 14 All costs increased 15 percent 12 All benefits decreased 15 percent 11 All benefits slipping 1 year 12 All benefits slipping 2 years 10 All benefits slipping 3 years 9 74. There would be significant direct and indirect employment benefits. During Droject implementation, the sites and services component and the other shelter-related programs would generate approximately 13,600 man-years of  - 22 - employment, and the city-wide infrastructure works would create another 6,000 man-years. The employment effect of the credit program and related activities is expected to be of the order of 4,800 new permanent jobs, and as the economic effects of the first round of employment are felt, it is expected that the project could generate many more additional jobs. Risks 75. The institutional risks associated with a multi-sector and multi-city project are higher than those of a simpler project involving only a single sector or a smaller number of institutions. The most serious risks are delays in improving the ability of project institutions to cope with new or expanded tasks. 76. The issues which may adversely affect implementation are: (a) the complexity of the program and the relatively large number of cities and towns included; (b) the newness of the water supply and sewerage institutions could affect their effectiveness in the initial stages; (c) the limited experience of the institutions handling the productive credit component (BANOBRAS and the Institutos). Also, the success of the productive activities component partly depends on the amount of promotion provided to this program; failure to carry-out effectively such promotion would reduce the pace of implementation. Although demand has been estimated conservatively and no reductions in the program funds are expected to be necessary, slippages in disbursements could occur. 77. Efforts have been made to minimize these risks during the process of project preparation. The project unit in BANOBRAS, already established, is expected to play an important role in the supervision of project implementation. Disbursements of some components have been made conditional on the satisfactory implementation of the pending institutional changes. On the whole, the risks, though considerable, are justifiable because of the contribution of the project to the development of a region with unusual opportunities and the favorable impact it would have on the Government's policy of decentralizing planning and financial responsibilities to state and municipal authorities. PART V - LEGAL INSTRUMENTS AND AUTHORITY 78. The draft Loan Agreement between the Bank and BANOBRAS, the draft Guarantee Agreement between the United Mexican States 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. Special conditions of the project are listed in Section III of Annex III. The following features are of particular interest: (a) Additional conditions of effectiveness would be the conclusion of (i) one of the project agreements between the Borrower and one of the states; and (ii) one of the subsidiary loan agreements with a project institution within the same state (Section 6.01 of the draft Loan Agreement).  - 23 - (b) Conditions of disbursement include: (i) for expenditures made by any project institution, the conclusion of a subsidiary loan agreement satisfactory to the Bank between BANOBRAS and such institution (Schedule 1 to the draft Loan Agreement, paragraph 4(d)); (ii) for expenditures made for water supply and sewerage works, the creation of a water supply and sewerage authority (Schedule I to the draft Loan Agreement, paragraph 4(b)); and (iii) for expenditures made by an Instituto in respect of sub-loans to artisans as referred to in paragraph 58 of this Report, the establishment of a credit promotion and administration depart- ment in the respective Instituto. (Schedule I to the draft Loan Agreement paragraph 4(c)). 79. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATIONS 80. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments April 23, 1981  - 24 - ANNEX I TABLE 3A Page 1 of 5 MEXICO - SOCIAL INDICATORS DATA SHEET MEX7CO REFERENCE GROUPS (WEICHTED AVEP.AGES LAND AREA (THOUSAND SQ. M) - MOST RECENT ESTIMATE)- TOTAL 1972.5 AGRICULTURAL 977.2 MOST RECENT MIDDLE INCOME M!IDDLE INCOME 1960 /b 1970 /b ESTIMATE /b LATIN AMERICA & CARIBBEAN EUROPE GNP PER CAPITA (USS) 400.0 750.0 1590.0 1562.9 2749.5 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 770.0 1047.0 1384.0 1055.9 1641.4 POPULATION AND VITAL STATISTICS POPULATION, HID-YEAR (MILLIONS) 36.4 50.3 65.4 URBAN POPULATION (PERCENT OF TOTAL) 51.0 59.0 65.2 63.4 53.9 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 116.0 STATIONARY POPULATION (MILLIONS) 205.0 YEAR STATIONARY POPULATION IS REACHED 2075 POPULATION DENSITY PER SQ. 10. 18.0 26.0 33.0 28. 1 77.2 PER SQ. KM. AGRICULTURAL LAND 36.0 52.0 67.0 81.7 129.5 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 45.6 46.5 45.6 41.4 30.6 15-64 YRS. 51.0 50.0 50.9 54. 7 61. 1 65 YRS. AND ABOVE 3.4 3.5 3.5 3.9 8.2 POPULATION GROWTH RATE (PERCENT) TOTAL 3.1 3. 3 3.3 2.7 1.6 URBAN 5.0 4.8 4.6 4.1 3. 3 CRUDE BIRTH PATE (PER THOUSAND) 45.0 42.0 38.0 34.8 22.8 CRUDE DEATH RATE (PER THOUSAND) 12.0 9.0 8.0 8.9 8.9 GROSS REPRODUCTION RATE 3.2 3.1 3.0 2.5 1.5 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 25.1 845. 7 USERS (PERCENT OF MARRIED WOMEN) .. .. 21.0 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 97.0 100.0 101.0 106.9 113.1 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIRFMENTS) 110.0 112.0 114.0 107.4 125.3 PROTEINS (GRAMS PER DAY) 65.0 66.0 66.0 65.6 91.0 OF WHICH ANIMAL AND PULSE 27.0 27.0 27.0 33. 7 39.6 CHILD (AGES 1-4) tMORTALITY RATE 14.0 9.8 6.0 8.4 4.3 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 58.0 62.4 65. 0 63. 1 67.e INFANT MORTALITY RATE (PER TEOUSAND) 78.0 74.0 60.0 66.5 55.9 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL * 54.0 62.0 65.9 URBAN .. 71.0 70.0 80.4 RURAL .. 29.0 49.0 44.0 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. .. .. 62.3 URBAN .. .. .. 79. 4 RURAL *- 13.0 14.0 29.6 POPULATION PER PHYSICLAN 1700.0 1481.0 1815.0 1849.2 1030.1 POPULATION PER NURSING PERSON .. 1613.0 1398.0 1227.2 929.4 POPULATION PER HOSPITAL BED TOTAL 617.0 831.0 851.0 480.3 289.7 ORBAN .. 549. 0 758. 0 RURAL .. 1289.0 1077.0 ADMISSIONS PER HOSPITAL BED .. .. .. .. 17.0 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.4 5. 7 URBAN 5. 7 5.7 RURAL 5. 2 5. 8 AVERAGE N!MBER OF PERSONS PER ROOM TOTAL 2. 9 2. 5 URBAN 2.6 2.2 RURAL 3. 4 3.2 ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. 59.0 URBAN .. 80. 7 RURAL * 28. 0  ANNEX I - 25 - Page 2 of 5 TABLE 3A MEXICO - SOCIAL INDICATORS DATA SHEET MEXICO REFERENCE GROUPS (IEIGHTED AVERAES - POST RECENT ESTIMATE) MOST RECENT MIDDLE INCQYE MIDDLE INCOME 1960 lb 1970 /b ESTIMATE fb LATIN AMERICA & CARIBBEAN EUROPE EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 80.0 104.0 116.0 99.7 105.9 MALE 82.0 107.0 119.6 101.0 109.3 FEMALE 77.0 102.0 114.0 99.4 103.0 SECONDARY: TOTAL 11.0 22.0 39.0 34.4 64.0 HALE 14.0 27.0 42.0 33.5 71. 1 FEHALE 8.0 17.0 36.0 34.7 56.9 VOCATIONAL ENROL. (T OF SECONDARY) 24.0 24.0 .. 38.2 28.8 PUPIL-TEACHER RATIO PRIMARY 44.0 46.0 46.0 30.5 29.4 SECONDARY 13.0 14.0 17.0 14.5 26.1 ADULT LITERACY RATE (PERCENT) 65.0 74.0 76.0 76. 3 CONSUMPTION PASSENCER CARS PER THOUSAND POPULATION 14.0 24.0 42.4 43.0 84.6 RADIO RECEIVERS PER THOUSAND POPULATION 91.0 278.0 306.0 245.3 192.2 TV RECEIVERS PER THOUSAND POPULATION 18.0 60.0 85.0 84.2 118.5 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 79.0 .. .. 63. 3 93. 0 CINEMA ANNUAL ATTENDANCE PER CAPITA 10.0 5.0 4.2 .. 5. 7 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 10993.0 14493.5 18951.2 FEMALE (PERCENT) 15.2 17.4 19.0 22.2 30.4 AGRICULTURE (PERCENT) 55.1 45.0 39.0 37.1 37.0 INDUSTRY (PERCENT) 19.5 23.0 26.0 23.5 29.3 PARTICIPATION RATE (PERCENT) TOTAL 30.2 28.8 28.8 31.5 40.9 MALE 51.1 47.4 46.8 48.9 55.9 FEM.ALE 9.2 10.1 10.7 14.0 26.2 ECONOMIC DEPENDENCY RATIO 1.6 1.7 1.7 1.4 1.0 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS .. .. HICHEST 20 PERCENT OF HOUSEHOLDS 61.'l/ 60.7 57.7 LOWEST 20 PERCENT OF HOUSEHOLDS 3.4/c 3.3 2.9 LOWEST 40 PERCENT OF HOUSEHOLDS 9. 8/c 9.9 9.9 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 270.0 RURAL .. .. 216.0 190.8. ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 332.0 474.0 RURAL .. .. 332.0 332.5 385.8 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. RURAL .. .. Not available Not applicable. NCTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of date and is not uniform. Lb Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estisate, between 1974 and 1978. /c 1963. Most recent estimate of GNP per capita is for 1979, all other data are aa of April, 1980. October, 1980  - 26 - ANNX I Page 3 of 5 DEFINITIONS CF SOIAoL INDICATORS N-te: Although the data ar d-a fro, souce generall1y judged the moat authoritative nd rlae,it ho-ld also be soted that they may sot be ltte- cactioe.llytonp-rsla heca.se Ifthe lack of staudardioed defioitions and .....ePt. aned hy diff--e toastries Is os11-oiag the dana. The data are,se- theless. -enI to desorth order of na td,indictet treads, and oharareteeterr - is -aJo, differ--e berserosrres ma eteest grup,art(1 the same ouotY grouP of the euhi sot country ned (2) a countrY grop ith somehat high- -cavrge inc- than the cooney geese tof th ujeccooe tecp for 'Cainn urplue Oill Epotters grop shee Mide -om North Africa und Middle taut' is titans be.sase of stronge soi-utualff'icioie) In the referenc getu..p data the averges are populatio wegted arithei eefonahndctrndhnnnlwent least hal of the onre nagophsdt o tht sictr.oeth ioveag of! -ooresaogth rcarefeenso ieaalbiiys data acd Is ot usiform, aution suns e easesised o relatiog aerages of us lodicator t a...her.fThse averagestra onlyhuseflhis..o-p..iggcbs vaLIs of one odloato- an a time e.os the -outey sod ef-seenti grop. flt.--lblt CAll aRIA (thousand 1aqi..us.) u.-d -.- 'eruLati-a rat Physiotan - PoPulation dlivd by a Inaro peotiva phy Aglutcl -initeoagout uolae sdtnepoearily or pe-msetly Poufu prNusn Psa t I Pshpula t dividsd by 1e-beafpesiom forcrPs, Pastures, sacht and birches gard-n ortIie fulle; 1977 dayta, al and femal grafduate sores .1PeIotirl noosesd b sad asitn aas IMP P tCAPTA ii) -GNP prcptesntsencretmrepioa a uhs,odra)dvddhytheir P-petieseas -d beptal d ou1atnd hy sam --oacicemthda Worl BakAisPI"-I:.i);ui, aviei ispbi n ovt gnrledseilsa saia a s lENtilY CiONSUMPTIONS Pit CAPITA - dnos ooeoptioe of -owaocia ergy (caPrthaeno .'eae. Rua batspita-e, bP,es dig inclad humle and ndl sadligit, ptroeu, tturl as nd ydo-,ausea en gethrma elt- teser scp - tsaaly statfa-d by * Pbysiois (hbn by a mdical _aalen,- tri,ty)i klgrm ofca qiaetyrpita; 1961, 1970, mad 19798as,ndie t. bo ofrt-aia eed e andt preside a dove, ~~~~~~~~~~~~~limited range of -edisa1 facilities e tstaietiesi P,.".saha eai POPIJkIOAtN AND) VITAL ITATISTICS taeicue"t0 esia gnriadaereia aeta . n na Toa ouato,MdYar(ilos - As of July 1: 1969, 1970, sod 1979 idisoe_a epsa e Ttlsbr feeatu oe dsbem data, from. .L .to o~I t.o t. . .PI,.;t hespitajs divided by the -b-he of bade. tdiff-Ppu fotio(ctieut of -bosal). - Mroo rs o oa ouai difreedfiiioeo 7uie ra tayffect o-m-arbillty of data HOUSING -neg iusrte; 1960, 1970, and 189dat.Aveaelcoffoshdlesosnrbuhod-tnl,ra,sds - Population Pro actions A.. b.. d . 180houhsIod roma-ine of a geucP at iadividal eke share living qagrtme Poplatetis ear201 -Curea poulaie pejeoios eg bse as196 ed thir _is meals. A b-ede- or lodger nay or nay mat ha ildd L. total population by age Aad sea end t.isi motality and fertility rtes,. the.oseod.o. saisial.,pae PrIvtspseanete.. for mota.lity fates comprise of thes eesaem vcnenne fproert g,-ttl ra.ma ua vrg en i- ueeseraY at birch is-esefg with sosr' a sig noe hro ereepecoIallsi,enrelespidtnaina Ine,cdfemLe life e-Peotency aaillinin at 77.0 year. ThbPrn dteig, rsetv ly. lwlicsenld nsp-nnetsrutre a lecihtry according .s igca lvlndpser family planotg perorane. icee t ticecr trss-fdelng)-tnl-eie m ua _ad countr iste an a one of tinenneceinatios of..A motaiy.ooetionEl dtel-itogs o wis st liaty ) te livin qnee se. p-ramla ad irulity trends f cc peojesie purpse, o oa, ra,adiua eelsg apriey mains coosteol. This is achievad only after fertility ratne daclins so Idjoaned inrollmnotrd Macice.~ilh I.t, tie rpleceeuc evel f unt setyeptsta as hnmo gPsenie pimaytohsi- rre. al gd- tale - t. .irse aal al adfel of, mtrplcsislhe,ty hesaimr poplaton ls was . eof len of-, . sld -g-1a the pimay Leve as pqrmaa feemem is. tpie ea=ltN an inrt of y de ftmeo fertilitY rtst. to i. te te- yerU u dutdfrdfeetlegh fpiaysaim e 11 h, y:~~- 2000, ad th. t.t. of d-t'd h-proidesigeneral,.vocationl, ar.tearbar training"lotrdctilme-feef papi total area. ~ ~ Ii ff-,,y ..t . ,- ;j h.pit 1 1 Pt't: f- t. only. Vocational eaeolieenr leersent ef snocadery) - yacariemel piPinselthatiogma- -11y ii ynrs7, ad rtird (h yers ad oer)as prtsstaes a ni-yer pYa- enn or a depatmetsd o dff ereedaryh institutionst. - f. h.is;1., 90 and 1978 d ata, -Pattpuylop1.i o ~ -rea ite raio-- reima .. and. secondar -y Total acnant enoledt kaioa o 197-il. P9i-7.i.. and q97 -7g aslape.nag f oa adultpopuatio age 15 yersaneer CrudelBirth Rate hectthosofod) - dasu..lire birthsoper housand of mid-yea poysleioc; ihi, 19t, nsf197B Pdta . Cogfgiupg-llpd-ndong. ... -A . CrudeloathRate(one hosnd) -Amahildsatb perthosan ef mid-yesc Pasnedae(erscsn ouaio)-Psegrcastnes )s poultin;19),190,ad 1978 d -das tas earig ee taneihtpoeoa ,edueeyaa-noepberen-a icP oraP rpodcivleeetiibsepeintsprsstae-pcii fee-tRadio l t -nvr one p.thousand -pu datioy i-tAlltypaao ealesforen. cultP es1tee;. usually O~60 fieyera96 ge0 nig a160797,ad 97 hradc ts tog-ri pbirprtasn o oaaimdaeun mi FamilyPiasnig - Aceptors tAgnu - (cosAde l .-hdaa ubro acoep- t to csad idiveni countrie sd Isyid ce whn sgittlla o rdi in taunt ofchild-botiog ag (1)-u yars) wh use h bit-tetrof device prpc T .-ooie peri ho-usd erlain)-Trcevr farf .e.nd-nLr to alld maried Rt tomes h in . de ag grup geerlt pubicperchusadyopleito;t ealdest osbiastmed TM r_ivt.e fOil APP NIJTRCTIli-biOt. P isth....tdrios andP int. totcI thent PrPgIstiatto . of TP set m n d fen CtP-P-I-ti--; 1960, 1 70.~Morao Crulton(ercosmd orltio -Bsosth veae loua Lodgeo oo dotp -erCpt (199-1d.4th). -h ..oden of pe c itadn- lto dal oea nesr esae" e e u- sldclpb prlcic fat edrsoiie Poorioetudeea adfed c itto evtdpimrl o eodi197rn es I ntsuima itorclcot yea isi.Cmoliaovepimrhod eg uaom s e"al"i tepao tlatfn is ek per dy." .va..eley supie omre d_ere rdcto,iporos lesslTtalLao Pot cosod)-Ooe:alysrv eeoeInld qosoticion sad in foo p -crslg andi L190 1emsinditrbuio, Reqir- OUdiiocssL is - ear ... loa oapias are- set co parable 1969, 197- andId vity nd helth cosldeiog erirooesrotesepeatLf.dyI body wigitP,.age Pe.a. (ptcot - Pma i -e frtpe pro tege of rura oafu foe. se upl f odpeiap.d spl ofg 9 P fodis dhfit-d me shov. is- and flcecly aersdgsbepreuoet1ttllao aeeh9 quireootofor ll cesseis esablihed b INO proide 1or muimu 197 anP178d ta .. dIP-t -T .. y.ftbr:d..t t yalce protelo of which 11gra aboald - Idge pofrPte. These. stand activity- e ltieare copu tedestoal mal, Snd al teho g t i-lan maimal rettoas en verage ee theomeld,proposd. by d PA d in . thTid 1960,i. 1970, and ..1975 dt.-Thee mnPtl arapte terms enflpil Worl Ped l ivey 196 -hi,197 .m 197 data.t ag-ecsrutreo tepeuato,an_on im redIAfw a Per.. faOapoensrl rmeae u ues-Poenspl ffo e ae r tee -na inlY tee dirres.i-. rialfrm tial hsdpus in ._ g -ats pe da; 96-6,i 97 sdt97 C. .f. dat. Ecnmi. eeoenyMai Mai of -poultio aee1 a- )sa.na Chil (nos 1-A.d) MorAlityMte leerdrhaiead - ttunona b.deetCf pee-.IhAtianl Is to the roto..ldlaborhfo-tm. ate gr.. 1 -A9 yeodr.. to chidren ishthi.g; gop 0 or sags developing coun-h. .at tries deco detred from ife ishue; 1960, 1970 esd 197 dots. nCiod 0lTbil. .tl .iped. -.lo.t di. i. ..-ty P-..Pit LABO pIIErcn,rcet2 eon,poet2 ecn.edpoatI otn life Ma h pocLaprt atpBirth (years)i - Average tankerhc..years.ci lifet ilmaltisepof.households. athit 190 1970i and ti -ot1978 date90. 97 . isct oclirMted ieetoAm d) - dahui duache of d if..o under a.te yea 979n .t..O IciP pereotgesof hei sPsop~ poplaton, In gc urba P rapilsMrl eaie oetyipn lvlitestie fafe ie a t hoa.tai hord -1tn 6p1e 6 loao set0 sac than"d L. tr fo osesti p... scm tth on . Bran ee sdrvdio h ua cooaldrrd Osbeing ltisiereseenble arsas ofthat. hone. I ualnss e oiti-adjustment tee bl1ame sour.1 living An9urban n97ne,, esosoohie acess woli imly rhs ohs ensewf.. a o dnaino fd h hoseolbttia-d Rplaio oLot Abso Lut Povant Isean .e.. t evereer) - aebm do st hvetof speed oatdiapeopoti liaba byr ofD eke idayi ferhi. hean rura -tt Pr test of d pop.-i (uba end rural whobmr f.btlans 19 n". la.iy seater needs.978_d_t__ Ait.as as Leoenas o f hh 0z theI enec biv pouaionep-.iOnc teta die Ectngl -i.d i a fae iriio pom1ma orud hecelrncaen iesul wthoiwtbu Threatmeoe,~t Eroui Analysi sad, Pfjsin- Pcenm ofd hu.mo nocth a ists-water 7 by anr-of ote eytemi cd ohs seeof Osofe 1990 .f.t pit r1i sod sim:lar -loaralfletihn. -A rp..db A .t. id p.tg.o ol 1 Af 1:PPIt. 1 S.tpt-  - 27 - Page 4 of 5 MEXTCO - ECONC011C DEVELOPMENT 1ATA SMEET Prellstlanyr Actual E.tiLotes pt- cottons Craa,h RCa.s As 7. af GDY 1970 1975 1977 1978 1979 1990 1982 1985 0970-75 1975-87 1/ 1980-85 1/ 1970 1979 1985 R0TIOAL ACCO8TS Cnstant 71972 Pri-ce, 7S1 Millioua Groas -Doo-tic Product 36,970.4 48,509.5 50,968.4 54,434.8 58,786.6 63,214.8 73,655.4 93,835.3 5.6 5,6 8.2 100.3 97.3 90.2 Cott iconl T-noa f Toad. - 114.1 355.1 316.4 '44.0 1.6570.1 4,103.5 7,514.1 '10,053.0 - - 8.3 2.7 9.8 Grosa lo is coron 36.856,3 40,064.6 51,284.8 54,978.8 60 436.3 67,388.3 81,163 104 08. 3 5.8 6.6 8.9 180.0 100.0 100.0 Coponta (including 0701 3,754.4 5,835.6 4,702.0 6,475.3 8,544.0 11,724.3 16,516.0 21,575.3 9.2 15.7 11.5 10.0 14.1 20.7 OXpocca 7iaponn ,apecitt) 3,016.6 4,9 2 4,7317 41170 7,623.7 10 610.2 15,099.9 19,790.7 6.4 20.7 18.2 126 19.8 Caaoonoe Cap ~~~~~~ ~~~~~~~737.8 1,726.4 305 358.2 920.8 1,114.1 141 8,1 1,778.6 18.4 -0.3 17.4 82.0 1.5 1.7 C Dmeontl 30,425.4 40,064 3 41,91.7 44,4 7 1 48,532 2 33,4127 61 8722 82 015.2 7 5. 6.0 9.0 182 6 78.8 uonoauueot 7,188.7 4~~~~~~~~~~~~~~~~~~0,526.7 9,398.8 j10,79.9 12,,825.3 15,088.7 1,67.4 23,852,7 8,0 7.8 9..3 19.5 21.2 22.8 Gboss D-istic Sa-ioga 6,430.9 8,800.2 9,368.3 10 521.7 11,904.5 13,975.6 17,449.3 22,073.1 6.5 9.6 8.0 17.4 19.7 21.2 Croso Nat-oual Saninga 5,995.3 7,701.7 0,275.1 9,236.4 10,230.7 12,167.2 15,645.2 20,040.9 5.1 9.4 9.7 16.3 16.9 19.3 TRADE IN GOODS AND 070 Cu.-ant Ilinoa, US$ Mltlions As 77 af Tota1 IsPORTS, TOTAL 3,416.9 S,636.9 7,845.1 11,560.9 17,129.7 26,732,8 44.506.8 71,176.9 20.4 26.2 21.0 180.0 100.0 100.0 Food 27 74.6 499.1 475.1 550.2 659.2 1,080.4 1,275.4 2,028.7 - 21.7 04.9 2.2 3.8 2.8 Petoloo a-ud n-ducta 35,0 269.1 107.5 1730.3 268,1 306.4 306.5 448.6 50 .4 71 7.7 1.0 1.6 0.6 othn GCood2 ,2242.6 5,845,6 33281 7,583.7 11,717.2 18,380.3 30,662.4 488 3 20 3 25 .7 206 63.6 68.4 :8:66 Coo=-atton Servicea 1 064.7 2,022.9 1,934.3 3,248.8 4,485.2 6,963.8 12,202.7 19,859.6 13.7 28.0 22.5 31.2 26.2 27.9 EXPORTS, TVOCAL 2,745.4 6,D01.7 7795.1 10 91.5 15,203.4 24,1_92.6 40,6859 65,305.9 17.2 31.7 20.8 120.0 100.0 100.0 Selenad Agnicolcunal Gode 021.2 814.0 1,439.1 9 2,282.3 3,551. .0 9 4,009.8 5.8 ST 8.5 22.6 15.0 6.1 Palno-o- aud pnodoo- 38 .4 460.1 1,029.4 1,793.3 3,788.3 10,977.8 20,:19'7.9 38,:80895.5 64.3 87,9 296 .6 1,4 24.:9 59.5 YlectaLd Mlenal,l 244.3 423.4 444.9 548.8 952.2 1,095.2 1,343.6 1,8440 11.6 23 2 11.8 8 9 8 3 2.8 eraoufacconae 443.9 1,069.3 1,611.0 2,143.6 2,372.6 2,728.9 3,514.1 3,259.9 19.2 22.3 14.1 16.2 15.6 8.1 Othenlod, - 36.0 79. 23.6 -.--.,, .- Ntn7f-- S-la 1,397.7 3,077.2 3,090.8 4,461.1 3,780.3 7,038.8 9,606.3 15,306.5 17.1 19.0 16.7 50.9 38.0 23.4 TRADEIND070041 Aurcaga 72-100 E pont Ptice ICddx 80.1 162.0 173.8 196.0 254.5 375.9 536.3-/ 684,4 13.0 17,4 11.8 Itopot Proic Index 91.0 148.0 164.0 178.5 199.4 228.0 269.4 329,9 10.2 9.1 7,6 TCoon ef Trade 96.8 109.5 107.1 109.8 127.6 164.8 19981 207.4 2.5 7.5 4.0 VALUE ADDED BY SECRTO Ccaatert 1972 Ilicaa, 0S$ Millie=a A. . of Tanel fninary 4,136.0 4,480.9 4,769.6 4,946.8 4,922.1 5,020.4 5,326.1 5,819.9 1.6 2.3 3.0 11,2 8.4 6.2 eooiday 12,400.0 16,930.9 16,230.3 20026,2 21,963.9 24:.160,3 29,234.0 38,910.0 8.:47.10038 3,4 15 Taidny 20,426.4 270,73.9 27,962.6 29,461.9 31,900.7 34,034.0 39,093.3 48 ,13,0 3.8 4,8 7.6 55.2 54.3 52.3 Total G0 36,970.4 48,509.5 50,968.4 54,434.8 58,786.6 63,214,9 73,655.4 93 835.3 5.6 5.6 8.2 100.0 100.0 100.8 CONOOLIDATED P70LIC0 SCTO 18I5ANC80 As X f GDP Concert Receipta 5,450.4 0,126.6 10,274.0 12,051,0 13,467.3 15,828.7 28,887.7 27,314.3 10,9 11,7 08.9 04.0 22.3 26.2 Connau stpeodit-to 3,008.4 8,646.3 8,907 10,02.5 11,631.5 12,463,0 14,802.9 10,3721.8 17.:2 7.5 8.5 100.6 17.6 08.8 Poblite saireg , 332.0 480.3 8 0 1,869.2 2,035.8 3,307 6 5 984 7 7 742.4 _287 46,32 15.4 422 4.7 7.4 lanasneent 2,098,4 4,723.4 4,202,0 5,212,6 6,822.4 8,278,9 10,534.1 12,885,9 16.3 12.4 8.8 6.0 11,3 12.4 Daficit (nat) 666.4 4,243.1 2,907.9 3,343.3 3,986.6 4,919.2 4,549.3 0,143.4 44.8 2.9 2.5 1.8 6.6 4.9 ALLOCATION OF GROSS FUBLIC SECTOR 1975-79 ORE7ICE A8 . of Total CRnr-y 5,369.1 6,474.1 7,736.9 10,549.5 0.3, 18,4 33.3 Tran,pert and Co- -...caloea 1,75021 l7503, 3 1,537,4 1.473.2 ae -8. 4 464 Sp:oa OnCanef.l 4,221. 4,602,1 4,771,8 3,338.1 n.e 0, 16.9 lodastOr 1,640.0 1,455.6 1 392.4 1,828.3 a.a, 2.I 5. Agfloolt-fa aod Rura1 Dasa1rpRan- 1,977.1 1,617.5 1,562.7 1,474.3 0,. -7,1 4.7 GC:nanl Adui=itratio= aed Defence 3290.8 53 160.8 5,552.2 9,384,2 0.8, 29.9 29.6 C - anca 1,531.7 1,436.9 1,785.2 1,644.0 nn. -LY 5.2 Te.ntan 63,2 73.5 5330 60 .0 n..-1,8 0.2 CoT_l 19,8439 22,323.7 24,3925 3063.0 na 2.4 700.0 DOGh35TIC PRICES Gerni. a Poice Inden 1972 - 110 90.4 162.0 261.4 306.5 365.1 464.2 E-charga Rlte 12.5 12.5 22.6 22.8 22.0 22.9 SLECTED InICAMM - ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Period Averge 0SXLXCTYD IRDICATOR54 P1971-7 1975-80 1980-85 200R 2,62 3.60 6.94 2.71 2.50 2.90 3.21 3.01 3.98 3.66 3.06 ICpont Ol-atitity 2.60 0,60 -4.63 5.20 4.00 4.90 2.00 1.00 1.64 2.8D 1.50 in-g1Ral Sauioge Ratio 2.61 0.23 0.18 0.28 0.20 0,28 0.13 0.20 0.16 0.24 0.20 Vel1a Added pen W-ke- 81972 Pi.es) Is Milliorn Ae % of Tonal 1960-1970 %7 at A-daneg LABOR FO0CE AND OTPUT PRX WOOCER 1960 1970 1960 1970 Growth Ratr 1968 1970 1968 1970 Gralth Rate Agricultur: 5,4 5.1 50.5 39.2 -0.6 608.0 811,0 34.7 33.0 4.4 Indoetry ~~~~ ~~~~~~~~~~2.1 3.0 19.6 23. 3. 2, 468.9 4060 498 143. 5,3 Oanvtoaa 3.2 4 28 37.7 4.4 3,222.8 4,168.7 183,8 142.2 2 3 Total 30.7 13.0 298.9 000.0 2.0 1,755,6 2,843.9 100.0 100,0 5.0 1/ AvoragE glrrrh rare -cloulaatd by lea-t equates. 2/ ThAl aenie, doe, art cafleot ongIng chasgas in tnb claaatflcotten of feed. Th. nes cleretlicantin. eet pyt ftnal, sshe- that these ispatna ene eeseide-nbly higher. 3/ Refleota i_oeneaen ehace of oil enxport 8n nhe total, re nal aeln:cana to the rahleine nre of atl, I April 20, 1880   - 28 - BALANCE OF PAYMENTS, EXTERNAL ASSISTANCE AND DEBT ANNEX I (US$ million at current prices) Page 5 of 5 Prel iminary Actual Estimates Projections 1970 1975 1977 1978 1979 1980 1982 1985 SUMMARY BALANCE OF PAYMENTS Exports (including NFS) 2,745.4 6,081.7 7,795.1 10,92'.5 15,203.4 24,192.6 40,685.9 65,305.9 Imports (including NFS) 3,416.9 8,636.7 7,845.1 11,561.0 17,129.7 26,732.8 44,506.8 71,176.9 Resource Balance - 671.5 -2,555.1 -50.0 -639.5 - 1,926,3 -2,540.3 -3,820.9 -5,871.0 Interest, net 1- - 307.0 -1,266.5 -1,811.5 -2,292.2 - 3,199.2 -4,128.2 -4,990.2 -7,070.3 Direct tnvest-ent Income - 267.5 - 657.5 -401.4 -477.4 -587.0 -587.0 -587.0 -587.0 Workers' Remittances 122.7 174.6 251.0 277.0 320.0 352.0 425.9 566.9 Current Transfers, net 55.3 123.4 168.5 197.9 218.0 239.8 290.2 386.2 Current Account Balance -1,068.0 -4,181.1 -1,843.4 -2,934.2 -5,174.5 -6,663.6 -8,682.0 -12,575.2 Private Direct Investment 322.8 748.8 555.9 530.0 666.5 738.4 928.3 1,380.7 Public Med. and Long Term Loans, net 258.6 3,565.8 4,394.8 4,731.3 3,749.7 5,710.9 7,065.2 9,813.7 Disbursements 821.3 4,418.6 6,727.9 9,147.0 11,576.6 9,578.6 13,053.1 22,290.1 Repayments -562.7 -852.8 -2,333.1 -4,415.7 -7,826.8 -3,867.7 -5,987.9 -12,476.4 Other Capital 588.7 31,7 -2,603.1 -1,893.0 1,177.2 1,183.6 1,565.3 380.9 Change in Reserves (-= increese) -102.1 -165.2 -504.2 -434.1 -418.9 -969.3 -876.8 -999.8 GEANT AND LOAN COMUITMENTS PUBLIC MED. AND L.T. LOANS IBRD 146.8 310.0 162.0 494.5 527.0 747.0 IDA - - - - _ _ Other Multilateral 112.4 121.8 122.0 152.2- 268.4 336.0 Governments 78.8 265.2 223.3 407.8 21.2 250.0 Suppliers 69.7 158.6 105.3 133.4 2.0 300.0 Banks and Financial Institutions 443.5 3,360.7 8,250.5 8,817.8 12,240.3 4,437.8 DEBT AND DEBT SERVICE Public Debt Outstanding and Disbursed 3,238.0 11,541,7 20,420.7 25,152.0 28,901.7 34,612.7 EXTERNAL DEBT (end of period) Interest on Public Debt 218.0 850.4 1,327.2 1,822.8 2,901.2 3,589.4 Outstanding and Disbursed Repayment on Public Debt 475.6 762.6 2,333.1 4,415.7 7,826.8 3,867.7 on Dec. 31, 1980 Public Debt Service (net) 693.6 1,612.9 3,660.3 6,238.6 10,728.0 7,457.1 Burden on Export Earnings 2/ (%) $Millions Percent a. Public Debt Service 24.2 25.8 45.5 55,7 69.1 30.4 Public M & L.T. b. Public Debt Servire and Direct 33.5 36.3 50.5 60.0 72.9 32.8 Loans Investment Income IBRD 1,967.3 5.7 Average Terms of Public Debt Other Off.sources 1,893.9 5.5 a. Interest as 7. of prior year's 7.4 10.2 8.3 8.9 11.5 12.4 Other private 30,751.5 88.8 b .O. and D. Sources b. Amortization as 7. of prior 16.3 9.2 14.6 21.6 31.1 13.4 year's D.O. and D. Total 34,612.7 100.0 IBRD Exposure a. IBRD D.O. and D. as 7 of 18.0 9.7 6.7 5.9 6.0 5.7 public D.O. and D. b. EBRD Debt Service as 7. of 7.7 7.2 4.2 2.9 2.1 3.2 Public Debt Service - Not applicable or available February 27 1981 1/ Includes interest on short-term private and public debt 2/ Includes wor3kers remittances   - 29 - ANNEX II Page 1 of 9 THE STATUS OF BANK GROUP OPERATIONS IN MEXICO A. Statement of Bank Loans (as of February 28, 1981) Loan Amount less Undis- No. Year Borrower Purpose Cancellations bursed 38 loans fully disbursed 1,870.4 909 1973 NAFINSA Water Supply 90.0 21.5 968 1974 NAFINSA Roads 90.0 5.1 970 1974 NAFINSA Irrigation 47.0 15.6 1022 1974 NAFINSA Airports 25.0 3.0 1053 1974 NAFINSA Integrated Rural Development 50.0 33.9 1111 1975 NAFINSA Irrigation 50.0 34.4 1112 1975 FERTIMEX and NAFINSA Industry 50.0 5.2 1186 1975 BANOBRAS Water Supply 40.0 20.8 1232 1976 Ferrocarriles Nacionales de Mexico and NAFINSA Railways 100.0 21.7 1420 1977 NAFINSA Tourism . 42.0 24.4 1462 1977 NAFINSA Integrated Rural Development 120.0 58.2 1524 1978 NAFINSA Tourism 50.0 6.0 1552 1978 NAFINSA Industry 47.0 10.9 1553 1978 NAFINSA Agriculture 56.0 45.3 1554 1978 BANOBRAS Urban Development 16.5 12.3 1560 1978 NAFINSA Industry 100.0 30.6 1569 1978 NAFINSA Agricultural Credit 200.0 4.7 969-1 1979 NAFINSA Irrigation 25.0 6.3 1643 1979 NAFINSA Small-scale Agri. 60.0 58.2 1671 1979 BANOBRAS Highways 120.0 106.5 1686 1979 FERTIMEX and NAFINSA Industry 80.0 48.3 1706 1979 NAFINSA Irrigation 92.0 89.3 1712 1979 NAFINSA Industry 175.0 146.4 1820 1980 NAFINSA Small and Medium Mining 40.0 40.0 1858 1980 NAFINSA Irrigation 160.0 160.0 1881 1980 NAFINSA Small and Medium Scale Industry 100.0 100.0 1891 1980 NAFINSA Agricultural Credit 325.0 325.0 1908 1980 NAFINSA Irrigation 23.0 23.0 1913 1980 BANOBRAS Water Supply 125.0 125.0 1929 1980 BANOBRAS Railways 150.0 150.0 1945 1980 NAFINSA Rainfed Agri. 280.0 280.0 TOTAL 4,798.9 1/ 2,011.6 Of which has been repaid to the Bank 692.3 Total now outstanding 4,106.6 Amount sold 92.3 of which has been repaid 92.0 0.3 Total now held by Bank 1/ 4,106.3 Total undisbursed 2,011.6 1/ Prior to exchange adjustments.  - 30 - ANNEX II Page 2 of 9 B. STATEMENT OF IFC INVESTMENTS (as of February 28, 1981) Fiscal US$ Million Year Obligor Type of Business Loan Equity Total 1958/59 Industrias Perfect Circle, S.A. 1/ Industrial Equipment 0.8 -- 0.8 1958 Bristol de Mexico, S.A. 1/ A.C. Engine Overhaul 0.5 -- 0.5 1961 Acero Solar, S.A. 1/ Twist Drills 0.3 -- 0.3 1962/65/ Compania Fundidora 66/68 Fierro y Acero de Monterrey, S.A. Steel 2.3 21.4 23.7 1963 Tubos de Acero de Mexico, S.A. 1/ Steel 0.9 0.1 1.0 1963 Quimica del Rey, S.A. l/ Sodium Sulphate 0.7 -- 0.7 1964/66 Industria del Hierro, S.A.1/ Construction Equipment -- 2.0 2.0 1970 Minera del Norte, S.A, 1/ Iron Ore Mining 1.5 -- 1.5 1971 Celanese Mexicana, S.A. Textiles 12.0 -- 12.0 1972 Promotora de Papel Periodico, S.A. de C.V.1/ Pulp and Paper 2/ 2/ 2/ 1973/79 Cemento Veracruz, S.A. Cement 15.9 -- 15.9 1974 Cancun Aristos Hotel Tourism 1.0 0.3 1.3 1975/78 Mexinox, S.A. Steel 12.0 3.2 15.2 1978 Papeles Ponderosa, S.A. Pulp and Paper 9.0 2.6 11.6 1978 Tereftalatos Mexicanos, S.A. Petrochemicals 19.0 -- 19.0 1979 Cementos Tolteca, S.A. 3/ Cement 100.0 -- 100.0 1979 Hotel Camino Real Ixtapa, S.A. Tourism -- 3.1 3.1 1979 Conductores Monterrey, Electrical Wire S.A. 3/ and Cable 18.0 -- 18.0 1980 Industrias Resistol, S.A. 3/ Particleboard 25.0 -- 25.0 1980 Vidrio Plano de Mexico S.A.3/ Flat Class 114.9 -- 114.9 1980 Minera Real de Angeles, S.A. de C.V. 3/ Mining 110.0 110.0 1981 Celulosicos Centauro S.A. 3/ Pulp and Paper 59.5 -- 59.5 Total Gross Commitments 503.3 32.7 536.0 Less Cancellations, Terminations, Repayment and Sales 373.3 22.0 395.3 Total Commitments Now Held by IFC 130.0 10.7 140.7 Total undisbursed (including participants) 207.9 -- 207.9 1/ Investments which have been fully cancelled, terminated, written off, sold, redeemed or repaid. 2/ US$25,000. 3/ Gross commitment including amounts sold to participants.  - 31 - ANNEX II Page 3 of 9 PROJECTS IN EXECUTION: PROGRESS AND PROBLEMS 1/ Ln. No. 909 Mexico City Water Supply Project: $90 Million Loan of June 18, 1973: Effectiveness Date: April 30, 1974. Closing Date: June 30, 1981. Overall, the majority of the project works as originally defined have been completed and the physical targets of the project have been achieved. In December 1979, the Executive Directors agreed to amend the Project Description to include new works which would serve the same objective of increasing bulk water supply to the Mexico City metropolitan area and utilize a forecast loan surplus (R79-307). However, the authorities reconsidered the need for some of the works included in the new Project Description and requested that S10.5 million of the loan be cancelled. This cancellation was made as of March 6, 1981. It is expected that the remainder of the loan will be fully utilized before the closing date. Ln. No. 968 Seventh Highway Project: $90 Million Loan of March 1, 1974; Effectiveness Date: May 29, 1974. Closing Date: June 30, 1982. Substantial initial delays have been encountered in project works because of the shortage of budgetary allocations. Substantial cost increases caused by price escalation were also encountered. Taking this into account, a reduction in the scope of the project was made in August 1977, from 16 roads (1,975 km) to ten roads and part of an eleventh road (1,216 km) which, because of cost increases, have the same total cost as the original project. The roads remaining in the project continue to be well justified as benefits have kept pace with costs. Completion is now expected in mid-1981, or about three years behind schedule. Ln. No. 970 Rio Sinaloa Irrigation Project: $47 Million Loan of March 1, 1974; Effectiveness Date: May 29, 1974. Closing Date: December 31, 1981. Project authorities have rephased construction; a substantial reduction in project scope was approved by the Executive Directors (R79-51 of March 13, 1979). Progress is now satisfactory. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution and, in particular, to report any problems which are being encountered and the action being taken to remedy them. They should be read in that sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  - 32 - ANNEX II Page 4 of 9 Ln. No. 1022 Airport Development Project: $25 Million Loan of May 28, 1974; Effectiveness Date: September 16, 1974. Closing Date: June 30, 1981. Although behind schedule and still moving slowly, this project is proceeding satisfactorilv. Project components that have been completed are achieving higher rates of utilization than envisaged at time of appraisal because of greatlv increased air traffic in Mexico. Three of the six project airports are complete. One more will be complete by the end of this year. The last two will be finished next year. The closing date is likely to be extended. Ln. No. 1053 Papaloapan Integrated Rural Development Project: $50 Million Loan of November 15, 1974; Subsequently reduced to US$38 million; Effectiveness Date: January 27, 1975. Closing Date: June 30, 1981. Project implementation is improving after delays due to management difficulties and inadequate budget support. Reprogramming of the project is underway to adjust for these delays, and the project scope is likely to be reduced; the Executive Directors will be asked to approve a new project description shortly. At the borrower's request US$12 million of the loan were cancelled on March 5, 1981. An extension of the closing date is under consideration. Ln. No. 1111 Seventh Irrigation Project - Bajo Rio Bravo and Bajo Rio San Juan: $150 Million Loan of May 8, 1975; Subsequently reduced to $50 Million; Effectiveness Date: July 30, 1975; Closing Date: December 31, 1982. In view of the project's size, complexity and high cost, the Government and the Bank agreed to phase project development over a longer period of time and substantially reduce the scope of the project to be financed under the Bank loan (R77-305 of December 13, 1977 and R79-56 of March 19, 1979). Progress on the revised project is satisfactory. Ln. No. 1112 Fertilizer Project: $50 Million Loan of May 22, 1975; Effectiveness Date: July 30, 1975. Closing Date: September 30, 1981, The Bajio Urea Plant is in operation but construction of the Pajaritos Urea Plant has been delayed mainly because of material shortages and difficulties with contractors. Construction is now expected to be completed by the closing date, and no major problems are expected. The estimated cost is about 35 percent above the original budget, mainly due to increases in equipment and civil works costs. However, the project is still considered to be economically justified.  - 33 - ANNEX II Page 5 of 9 Ln. No. 1186 Medium-Size Cities Water Supply and Sewerage Project: $40 million Loan of January 13, 1976; Effectiveness Date: April 26, 1976. Closing Date: January 14, 1982. Subloan agreements have been signed with all cities included in the project, and works are now progressing satisfactorily. This is the result of several positive measures taken by the Mexican authorities to accelerate project execution, including the preparation and implementation of guidelines for project design and the reorganization of the special project unit in charge of project execution. Ln. No. 1232 Third Railway Project: $100 Million Loan of April 30, 1976; Effectiveness Date: June 16, 1976. Clesing Date: June 30, 1981. The project had a slow start, traffic growth in 1976 was less than anticipated, and funding in 1976-77 (the stabiliza- tion period) was inadequate. Works are now being executed according to a revised investment plan which has been agreed upon with the Bank. Due to initial delays the project is expected to be completed by mid-1981, about two-and-a-half years behind schedule. Ln. No. 1420 Baja California Tourism Project: $42 Million Loan of July 5, 1977; Effectiveness Date: June 28, 1978; Closing Date: June 30, 1981. Construction of infrastructure at both project sites has begun. The first 250-room hotel at Loreto was completed in August 1980. Project implementation is behind schedule due to short- ages of building materials in the area. The marketing studies of domestic as well as North American tourism and the economic study of tourism have been completed. Overall, progress is satisfactory, although difficulties in internal coordination have caused disbursements to lag behind schedule; however, bottlenecks are being eliminated. Ln. No. 1462 Integrated Rural Development Project - PIDER II: $120 million Loan of July 5, 1977; Effectiveness Date: October 28, 1977; Closing Date: July 31, 1981. The project is proceding satisfactorily; major efforts to decentralize project planning and execution have been made. The result is increased beneficiary participation and better coordination between executing agencies at the field level. However, decentralization, reprogramming of micro- region investment plans, and several changes in management have resulted in delay in project execution; the closing date will have to be extended.  - 34 - ANNEX II Page 6 of 9 Ln. No. 1524 Tourism Development Project: $50 million Loan of March 21, 1978; Effectiveness Date: January 12, 1979; Closing Date: December 31, 1981. Progress of commitments is satisfactory and disbursements should be completed before the closing date. Ln. No. 1552 Small- and Medium-Scale Industrial Development Project; US$47 million Loan of May 4, 1978; Effectiveness Date: January 12, 1979; Closing Date: June 30, 1982. After some initial delays, the integrated program to assist industrial enterprises is making rapid progress. Forty-eight extension agents have now received full training and have been assigned to 14 regional offices. Over 80 percent of the loan has been committed. Ln. No. 1553 Tropical Agricultural Development Project: US$56 Million Loan of September 27, 1978; Effectiveness Date: January 12, 1979; Closing Date: December 31, 1983. Five of the six pilot projects have been approved by the Bank; the sixth is expected to be submitted shortly. Project authorities are making excellent progress in the agricultural development program of each pilot project. The applied research programs are proceeding on schedule. Ln. No. 1554 Lazaro Cardenas Conurbation Development Project: US$16.5 Million Loan of September 27, 1978; Effectiveness Date: February 14, 1979; Closing Date: June 30, 1982. The shelter-related component is having better than expected results. Satisfactory progress is being made in the training centers, but delays still remain in the implementation of the productive credits, industrial premises and river control components and the studies. Steps to speed implementation in these areas have been recently discussed with the Government. The possibility of reallocating funds to the shelter-related components is being contemplated. Inadequacies in the accounting procedures of FIDELAC for the construction materials credit program have been detected and not yet resolved. Ln. No. 1560 FONEI III: US$100 Million Loan of September 27, 1978; Effectiveness Date: January 12, 1979; Closing Date: June 30, 1982. Demand for industrial investment financing continues to be strong. Over 97 percent of the loan has been committed.  - 35 - ANNEX II Page 7 of 9 Ln. No. 1569 Sixth Agricultural Credit: US$200 Million Loan of September 27, 1978; Effectiveness Date: January 12, 1979; Closing Date: June 30, 1982. Implementation is proceeding rapidly. The loan is expected to be fully disbursed one year ahead of schedule. Ln. No. 969-1 Rio Panuco Irrigation Project; $25 Million Loan of September 27, 1978; Effectiveness Date: January 12, 1979. Closing Date: December 31, 1981. Major project civil works are on schedule and expected to be completed by the closing date. Progress in agricultural devel- opment has been slower than infrastructure construction. The technical assistance program is being strengthened and will emphasize better water utilization and intensive agriculture. Ln. No. 1643 Small Scale Agricultural Infrastructure Project: US$60 Million Loan of February 6, 1979; Effectiveness Date: April 13, 1979; Closing Date: June 30, 1983. Most livestock and irrigation subprojects to be included in the Project have been approved by the Bank, and the Government is accelerating preparation and presentation of the balance of the program. Ln. No. 1671 Highway Sector Project: US$120 Million Loan of August 23, 1979; Effectiveness Date: October 12, 1979; Closing Date: June 30, 1984. Commitments are ahead of schedule but disbursements are behind schedule because of budget cuts in 1979 and because of delays in submitting reimbursement applications to the Bank. The authorities have agreed to increase budget allocations and speed up disbursement requests. Ln. No. 1686 Second Fertilizer Project - Lazaro Cardenas: US$80 Million Loan of May 18, 1979; Effectiveness Date: September 21, 1979; Closing Date: October 31, 1982. Orders for most of the equipment have been placed and about 30 percent of the construction work is committed with about 22 percent completed. The project is now about 17 months behind schedule and runs the risk of further delays unless implementation arrangements are improved. FERTIMEX's manage- ment is considering steps to improve implementation.  - 36 - ANNEX II Page 8 of 9 Ln. No. 1706 Rio Fuerte/Rio Sinaloa Irrigation Project: US$92 Million Loan of July 30, 1979; Effectiveness Date: October 5, 1979; Closing Date: July 31, 1986. Plans and bidding documents for the Sinaloa component are well underway. Despite initial delays, the Fuerte program is now gaining momentum. Ln. No. 1712 FONEI IV: US$175 Million Loan of July 30, 1979; Effectiveness Date: October 5, 1979; Closing Date: June 30, 1984. Demand for industrial financing continues to be strong; US$125.4 million of the loan have been committed to subprojects to date, and additional subprojects requiring US$31.6 million are being considered. Ln. No. 1820 Small and Medium Scale Mining Development Project: US$40 Million Loan of August 18, 1980; Effectiveness Date: December 4, 1980; Closing Date: June 30, 1984. Project execution is being initiated. Ln. No. 1858 Apatzingan Irrigation Project; US$160 Million Loan of September 29, 1980; Effectiveness Date: December 19, 1980; Closing Date: June 30, 1987. Contracting for the main works has been initiated. Ln. No. 1881 Second Small and Medium-Scale Industry Development Project; US$100 Million Loan of September 29, 1980; Effectiveness Date: December 22, 1980; Closing Date: December 31, 1984. About 14 percent of the loan has been committed (see previous comment on Ln. 1552). Ln. No. 1891 Seventh Agricultural Credit Project: US$325 Million Loan of August 15, 1980; Effectiveness Date: November 17, 1980: Closing Date: March 31, 1984. No major problems in implementation are foreseen. Ln. No. 1908 Ocoroni Irrigation Project: US$23 Million Loan of March 2, 1981; Effectiveness Date: ; Closing Date: June 30, 1986. The loan is not yet effective.  - 37 - ANNEX II Page 9 of 9 Ln. No. 1913 Second Medium-Size Cities Water Supply and Sewerage Project: US$125 Million Loan of January 23, 1981; Effectiveness Date: ; Closing Date: December 31, 1984. The loan is not yet effective. Ln. No. 1929 Fourth Railway Project: US$150 Million Loan of February 12, 1981; Effectiveness Date: ; Closing Date: June 30, 1984. The loan is not yet effective. Ln. No. 1945 Rainfed Agricultural Development Project: US$150 Million Loan, of March 2, 1981; Effectiveness Date: ; Closing Date: June 30, 1986. The loan is not yet effective.  - 38 - ANNEX III Page 1 of 2 MEXICO SECOND URBAN AND REGIONAL DEVELOPMENT PROJECT SUPPLEMENTARY DATA SHEET Section I - Timetable of Key Events (a) Time taken by country to prepare project: 2 years (b) Project prepared by: Housing Institutes of Chiapas, Tabasco and Veracruz, SAHOP and Municipalities, assisted by the local state planning committees (c) First presentation to the Bank: December 1977 (d) Identification of project: April 6, 1978 (e) Departure of appraisal mission: May 16, 1979 (f) Post appraisal mission: February 4, 1980 (g) Completion of negotiations: March 6, 1981 (h) Planned date of effectiveness: August 1981 Section II - Special Bank Implementation Action None Section III - Special Conditions (a) The conclusion of at least one of the project agreements between BANOBRAS and one of the states and of one of the subsidiary loan agreements with one project institution in that state are conditions of loan effectiveness (para. 52). (b) The conclusion of subsidiary loan agreements, satisfactory to the Bank, between BANOBRAS and each of the implementing institutions would be a condition of disbursement for the respective components. Such agreements would be concluded not later than December 31, 1981 (para 52). (c) A federal interministerial coordinating committee for the project will be established not later than June 30, 1981 (para 53). (d) BANOBRAS will maintain a project unit and provide it with adequate staff to carry out its obligations for the project (para 53).  - 39 - ANNEX III Page 2 of 2 (e) The establishment of the water supply and sewerage authorities in a manner satisfactory to the Bank would be a condition of disbursement for the corresponding component in the respective states (para 56). (f) Feasibility studies, satisfactory to the Bank, for at least 60 percent of the works planned under the water supply and sewerage component would be completed not later than January 31, 1982; and for the remainder of these works not later than January 31, 1983 (para 56). (g) As a condition of disbursement for the credit for artisans component, special departments for the support of this program will be estab- lished in all Institutos (para 58).  - 40 ArNNJEX IV Page 1 of I MEXICO SECOND URBAN AND REGIONAL DEVLLOPMENT PROJECT Summary Project Costs (In Million US$) % Foreign Components Local Foreign Total Exchange Shelter-Related Programs - Sites and Services 49.50 19.20 68.70 28 - Construction Material. Credits 26.50 9.30 35.80* 26 - Urban Upgrading 6.00 3.20 9.20 35 - 1Home Improvement Loans 11.00 3.90 14.90* 26 - Community Centers 1.40 0.60 2.00 32 Sub-Total 94.40 36.20 130.60 28 City-WJde Infrastructure - Water Supply 13.50 9.80 23.30 42 - Sewerage 17.20 12.50 29.70 42 - Other Infrastructure 2.00 1.50 3.50 42 Sub-Total 32.70 23.80 56.50 42 Municipal Facilities and Services - Retail Markets 1.60 1.10 2.70 40 - Wholesale Market 2.80 1.80 4.60 40 - Slaughterhouses 8.10 5.40 13.50 40 - Refuse Collection 1.60 1.10 2.70 40 Sub-Total 14.10 9.40 23.50 40 Productive Activities Credits to Artisans 2.70 2.70 5.40* 50 Credits to Small--Scale Enterprises 7.45 7.45 14.90* 50 - Industrial Estates 2.90 2.00 4.90 40 Training Center 0.60 0.30 0.90 35 Promotional Programs 0.00 0.70 0.70* 100 Sub-Total 13.70 13.10 26.80 49 Studies and ConDlementarv Support Activities - Studies - 3.60 3.60* 100 - Support Activities - 1.00 1.00* 100 Sub-Total - 4.60 4.60 100 Sub-Total Base Costs 154.90 87.10 242.00 36 Professional Services 1/ 7.70 3.90 11.60 34 Contingencies 2/ (a) Physical 17.60 9.00 26.60 34 (b) Price Escalation 124.10 63.80 187.90 34 Total Cost of Project Including Land Cost 304.00 164.00 468.00 35 1/ Includes 7% for design and supervision on base cost. 2/ Assuming 15% for physical contingencies and price escalations detailed in PaRe 14, footnote 1. *Neither Professional Services nor Physical Contingencies were considered for these items.  t + 4\o t.t 119~~~~~~~~~~~~~~~I TED STATES OF AMER C i:\ X )>