Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4855 PROJECT PERFORMANCE AUDIT REPORT NICARAGUA AGRICULTURAL AND IN)TTSTRIAL REHABILITATION PROJECT (LOAN 1785-NI/CREDIT 966-NI) December 28, 1983 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit = Nicaraguan Cordoba (C$) C$ 10.00 = US$1.00 C$ 1.00 = US$0.10 WEIGHTS AND MEASURES Metric System and I quintal (q) = 100 pounds (lb) 22.046 q = 1 metric ton (m ton) manzana = 0.7 hectare (ha) ABBREVIATIONS AGROINRA - Agroindustrias de Reforma Agraria - State Agroindustries AGROMEC - Empresa Nacional de Agromecanizacion - National Enterprise for Agricultural Machinery APP - Area Propriedad del Pueblo - People's Property Area BAMER - Banco de America BANIC - Banco Nicaraguense - Nicaraguan Bank BCN - Banco Central de Nicaragua - Central Bank of Nicaragua BND - Banco Nacional de Desarrollo - National Development Bank BNN - Banco Nacional de Nicaragua - National Bank of Nicaragua COIP - Corporacion Industrial del Pueblo - People's Industrial Corporation FOR OFFICIAL USE ONLY ABBREVIATIONS (cont.) CORFIN - Corporacion Financiera de Nicaragua - Nicaraguan Financial Corporation 4 ENIA - Empresa Nicaraguense de Insunos Agropecuarios - Nicaraguan Agricultural Inputs Ente:prise FONDO/FED - Fonda Especial de Desarrollo - Special Development Fund IAN - Instituto Macional de Reforna Agraria - Agrarian Reform Institute of Nicaragua IDB - Inter-American Development Bank INBIERNO - Instituto Macional de Bienestar Campesino - National Institute for Rural Welfare INFOMAC - Instituto de Fonento Nacional - Institute for National Development MIDINRA - Ministerio de Desarrollo Agropecuario y Reforma Agraria - Ministry of Agricultural Development and Agrarian Reform MIPLAN - Ministerio de Planeacion - Kinistry of Planning PROAGRO - Progranas AgrarLos - Agrarian Programs PROCAMPO - Programas Campesinos - Farme-s' Programs UPE - Unidad de Produccion Estatal - State Production Unit USAID - United States Agency for International Development This document has a restricted distribution and may be used by recipients only in the perfornance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. PROJECT PERFORMANCE AUDIT REPORT NICARAGUA AGRICULTURAL AND INDUSTRIAL REHABILITATION PROJECT (LOAN 1785-N/CREDIT 966-NI) TABLE OF CONTENTS Page No. Preface ............ ............. .. . . .................... j Basic Data Sheet .. . . . . . .. . . . . . .. . .. . . . . . . ..i Righlights ....................... ............... ...... . . . iii PROJECT PERPORMANCE AUDIT MEMORANDUM I. PROJECT SUMMARY ........................................ 1 II. MAIN ISSUES .......................................... 3 A. Emergency Lending .............................. 3 B . Bank Performance ................................... 7 Annex 1 - Comments from FED ............................... 11 PROJECT COMPLETION REPORT 1. Background ......... . . .............. .... .. .. 15 II. The Project ..... .... ... ....... .... ............ 16 III. Implementation ........................... 18 IV. Project Impact ... .............. ......................... 23 V. Loan Administration and Management ....................... 28 VI. Special Issues and Lessons Learned ....................... 30 Tables 1 -9 Map - IBRD No. 15645 PROJECT PERFORMANCE AUDIT REPORT NICARAGUA AGRICULTURAL AND INDUSTRIAL REHABILITATION PROJECT (LOAN 1785-NI/CREDIT 966-NI) PREFACE This is a performance audit of the Agricultural and Industrial Rehabilitation Project in Nicaragua, for which Loan 1785-NI in the amount of US$20.0 million and Credit 966-NI in the amount of US$10.0 million were approved in December 1979. The Loan and Credit were closed in December 1982, and final disbursement was made on May 10, 1983. The audit report consists of an audit memorandum prepared by the Operations Evaluation Department (OED) and a project completion report (PCR) dated June 30, 1983. The PCR was prepared by the Latin America and the Caribbean Regional Office. The audit memorandum is based on interviews with Bank staff asso- ciated with the project, and on a review of the PCR, the President's Report (No. P-2661-NI) dated November 29, 1979, the Loan and Credit Agreements of January 4, 1980, correspondence with the Borrower, and internal Bank Group memoranda on project issues as contained in relevant Bank Group files. A copy of the draft report was sent to the Borrower on October 5, 1983 for comments. Comments received from FED are attached as Annex I to the PPAM. The audit finds the PCR comprehensive and accurate with respect to the project's principal achievements and shortcomings and has no reason to question its conclusions. The audit memorandum highlights aspects of emer- gency lending associated with this project, with special emphasis on the Bank's performance. . iL - PROJECT PEFORMANCE AUIT REPORT NICARAGUA AGRICULTUIAL AND INDUSTRIAL RElHABILITATION PROJECT (LOAN 1785-NI/CREDIT 966-NI) BASIC DATA SHEET KEY PROJECT DATA Apprainal Actual or Actual as Z of Estimate Estimated Actual Appraisal Estimate Project Costs (USS million) 37.65 58.03 153 Loan Amount (US* miLlion) 20.0 20.0 100 Credit Amount (US$ million) 10.0 10.0 1I0 Date Board Approval 12/18/79 12/16/79 Loan/Credit Agreement Date 01/04/80 - Date Effectiveness 02/01/80 01/25/8u loU/a Date Physical Components Completed Ob/30/81 03/31/81 83/a Proportion Completed (Z) 100 - Closing Date 12/31/L 12/31/82 1 0/a Economic Rate of Return (Z) n.a. n.a, Financial Rate of Return (4) n.a. n.a. Institutional Performance Good Number of Direct Beneficiaries 890/b CUMULATIVE DISBURSEMENTS FY80 rVa FYS2 FY83 Appraisal Estimate (US$ million) 8.5 30.0 - Actual (US$ million) 5.4 25.6 29.8 30.U Actual as 2 of Estimate 64 85 99 I0A Date of final disbursement: 05/10/83 MISSION DATA No. of Mandays Specializations Performance Types of Date Persons in Field Represented/c RatingLd Trend/e Problems/f Identification Preparation/g ( 09/79 7 112 A(3),B,D,E,F Appraisal& ( Subtotal 112 Supervision 1 P1/SU 2 10 E,G 2 1 Supervision 2 02/80 1 3 A 1 1 Supervision 3 05/80 1 3 A n.a. n.a. n.a. Supervision 4 06/60 1 5 G 2 2 M,T Supervision 5 09/80 3 5 A(2),C 1 2 - Supervision b 09-10/80 2 b G 2 2 M,T Subtotal 32 Total 144 OTHER PROJECT DATA Borrower: Republic of Nicaragua Executing Agency: Fondo Especial de Desarrollo (FED) Fiscal Year: January 1 - December 31 Name of Currency (Abbreviation) Cordoba (CS) Currency Exchange Rate: Appraisal Year Average: US61.O0 - CS 10.0 Intervening Year Average: US$1.00 - CS 10.0 Completion Year Average: US1.00 - CS 10.0 Follor-on Project Name: Industrial Rehabilitation Credit Project Loan Number: 2028-NI Loan Amount (US$ million): 30.0 Date Board Approval: June 25, 1981 /a Calculated in terms of months from date of Board approval. /b Excludes industrial component and agricultural machinery subloans. 7 A - Economist; B - Loan Officer; C - Agriculturalist; D - Architect/Planner; E - Industrial Economist; F - Technical Assistance; C t tDF Operations Officer. /d 1 - Prbblemrfree or minor problems; 2 * Moderate problems; 3 - Major problems. e 1 Improving; 2 * Stationary; and 3 - Deteriorating. If F - Financial; M * Managerial; and T - Technical. 7- Mission also appraised the Urban Reconstruction Project. BEST COPY AVAILABLE - iii - PROJECT PERFORMANCE AUDIT REPORT NICARAGUA AGRICULTURAL AND INDUSTRIAL REHABILITATION PROJECT (LOAN 1785-NI/CREDIT 966-NI) HIGHLIGHTS The Agricultural and Industrial Rehabilitation Project was appraised in September 1979, became effective in January 1980 and was closed in December 1982. The purpose of the project was to increase the resource flow into the country and assist the Government of Nicaragua to regain the levels of output, exports and employment in the agricultural and industrial sectors which existed before the civil war and change in government in 1979. The project provided financing for (a) short- and medium-term credit to private farmers and public sector enterprises for the production of annual crops and for the maintenance of permanent crops; (b) long-term credit for a time slice of the coffee rehabilitation program started in 1976; (c) medium-term credit to private and public enterprises for reconstruction efforts in the indus- trial sector; and (d) technical assistance. Due to the larger than expected demand for agricultural credit, the original allocation of the US$30 million loan/credit proceeds was changed as follows: agricultural rehabilitation, US$16.4 million (originally US$7.0 million); coffee cehabilitation, US$5.5 million (US$7.5 million); industrial rehabilitation, US$8.0 million (US$15.0 million); and technical assistance, US$0.1 million (US$0.5 mllion). The loan/credit proceeds were speedily disbursed, reflecting the large underlying demand for credit and the stream- lined procedures and operation of the Special Development Fund (FED) as the project implementing agency and of the financial intermediaries. Agricultural aud industrial subloans were extended to public and private sector enterprises. The agricultural subloan recovery record of the private and public sector was good with the exception of one subloan to AGROMEC, a state enterprise in charge of providing agricultural mechanization services, which has not been repaid due to the difficult financial sittation of the enterprise. It is too early to report on the recovery of Industrial subloans. No financial and economic rates of return were computed at apprai- sal. The estimated financial returns to the activities financed by the sub- loans granted appear adequate. The activities financed resulted in increases in output and, although it is difficult to quantify the precise contribution of the project, both the industrial and agricultural sectors in Nicaragua have managed to restore an important part of the lost output and exports during the period 1980-1982. Undoubtedly, this is at least partially due to - iv - the project. Owing to its emergency nature, the project did not specifically include institution-building objectives. However, despite the partial elimi- nation of the technical assistance component and the fact that the project was substantially completed in a little over one year, some institutional improvements were observed. Other points of special interest include: - in the face of an emergency situation, the project was pre- pared and implemented quickly; however, the resulting gaps in documented information limit the scope of its evaluation (PPAM, paras. 11-14; PCR, paras. 1.05 and 4.01); - the overriding objective of injecting funds into the economy was achieved at the cost of sacrificing other worthwhile proj- ect features (PPAK, para. 15; PCR, para. 4.13); - agreed procurement provisions were not followed in the acqui- sition of some agricultural machinery (PPAM, para. 17; PCR, para. 3.19); and - information in the PCR on the implementing agencies, such as the agencies' financial condition, the operation of a revolv- ing fund, and monitoring activities is insufficient to deter- mine the project's impact on these agencies (PPAM, paras. 24-25). - 1 - PROJECT PERFORMANCE AUDIT MEMORANDUM NICARAGUA AGRICULTURAL AND INDUSTRIAL REHABILITATION PROJECT (LOAN 1785-NI/CREDIT 966-NI) I. PROJECT SUMMMARYI/ 1. After the events of 1979 which entailed, among other things, the destruction of productive facilities and infrastructure, a reduction in the economy's productive capacity, and the virtual bankruptcy of financial insti- tutions, the new Government sought emergency assistance from the Bank Group to help repair war damage and replace inventory losses. In response, this project was identified and appraised by a multi-purpose mission visiting Nicaragua in September 1979. The Board approved a US$20.0 million loan (Loan 1785-NI) and a US$10.0 million credit (Credit 966-NI) in December 1979, which' became effective January 25, 1980. The Closing Date was postponed one year to December 31, 1982 to provide additional time for implementation of the industrial component, and the final disbursement took place in May 1983. 2. The main objectives of the project were the recovery of production levels in the agricultural and industrial sectors and to effect an increased resource flow into the country. To this end, US$15.0 million of the loan/ credit was allocated to each of these sectors for onlending to private and public enterprises. Implementing responsibility rested with the Special Development Fund (FED), which was to channel the funds through participating banks to the subborrowers. The total cost of the project was estimated at US$37.65 million. 3. The agricultural component included (a) an agricultural rehabilitation credit line to assist medium-scale private farmers and state-controlled integrated farm enterprises, (b) a coffee rehabilitation credit line for the financing of a time-slice of an ongoing coffee rehabili- tation project, and (c) technical assistance comprising consultancy services, vehicles and a livestock survey. The industrial component was to complement a US$30 million IDB loan for the rehabilitation of existing public and pri- vate industrial enterprises, including repair or replacement of fixed instal- lations and the purchase of goods and services for current production. Eligibility criteria for onlending were broad in both sectors so that a wide range of enterprises and activities could be financed. 4. Total project cost was US$58.0 million or 53% higher than estimated at appraisal, reflecting a more intense reconstruction effort in agriculture than had been foreseen at appraisal. Most of the additional financing was provided by the participating local banks. The demand for credit was much stronger in the agricultural than in the industrial sector. Agricultural subprojects cost a total of US$47.7 million and absorbed US$21.9 million of Bank Croup funds, while industrial subprojects amounted to only US$11.2 1/ Adapted from the PCR. - 2 - million and claimed US$8.0 million of Bank Group funds. The technical assis- tance component was not implemented, except for the purchase of vehicles worth US$120,000. 5. The total number of agricultural subloans granted was 897, of which 645 were for coffee rehabilitation. The 252 subloans for agricultural reha- bilitation financed projects costing a total of almost US$40 million, of which 62% (29% expected at appraisal) went to the private sector; 96% represented short-term credits. There were also 11 medium-term subloans, one of which (extended to the state enterprise AGROMEC) was for US$8.0 million. Onlending interest rates ranged from 10-1.4%, hence they were strongly nega- tive in real terms with average inflation rates of about 30% for 1980-81. Loan recovery rates averaged 87%, excluding AGROMEC's loan which has not been repaid because of that organization's poor financial condition resulting from the low rates charged for its services. 6. Industrial credit was extended for 19 subprojects, with an average size loan of US$420,000. Wholly-owned state enterprises accounted for 44% of the loan amount and 63% of the number of subprojects. Loan recipients were major exporters (a gold mine, sugar mill, chemicals manufacturer and a shoe factory), agroindustries (dairy, beverages and cotton gins), and manufac- turers of construction materials and knives. Most subloans were made for a term of five years. 7. Agricultural production has improved since 1980, especially for cotton and rice. It is difficult, however, to determine how much of this improvement was attributable to the project. FED has estimated an annual value added of over US$40.0 million for the entities benefitting from the project, and the creation of about 6,600 jobs. Industrial rehabilitation was slowed by delays in the preparation of investment proposals, uncertainties in the private sector, and weak market prospects for industrial output. How- ever, industrial sector output also improved, and some encouraging trends for selected export commodities have been observed since 1980. 8. The institutional impact of the project was minor, as expected. The main agencies involved, i.e., FED and the three participating banks (Banco de America, Banco Nicaraguense, and Banco Nacional de Desarrollo), performed on the whole satisfactorily. SqTme improvements were made in the agencies' staffing through new recruitment and staff training, and in their procedures for subproject identification and appraisal. A procurement issue arose when the Agrarian Reform Agency (INRA) purchased a large quantity of agricultural machinery without following the provisions of Section 2.01 (b) of the Project Agreement. The purchases were made to meet the urgent need for machinery services, and a Bank review accepted the procedures used and approved reimbursement. 9. There was no Staff Appraisal Report prepared for this project, and no appraisal or completion estimates of economic or financial rates of return are available. For one major project component - coffee rehabilitation - subloan appraisal estimates of financial rates of return as calculated by the participating banks averaged 16% for small producers and 22% for medium-size producers. Based on the information available, the PCR considers this proj- ect to have been successful. - 3 - 10. Separate agricultural and industrial follow-on projects were contemplated, but a Bank loan was only approved for the Industrial sector. II. MAIN ISSUES A. Emergency Lending 11. Bank Response. This project must be evaluated keeping in mind the special setting in which it was conceived and implemented. It responded to an emergency arising from a revolution which entailed the destruction of productive facilities and infrastructure and a disruption of economic activities. The project followed the first Agricultural Credit Project (Loan 943-NI), completed in June 1978,2/ in place of an originally-planned second agricultural credit project and an industrial credit project. The processing for this project was rapid. After the new government was installed in Nicaragua in July 1979, Bank assistance was requested without delay to aid in reconstruction. A Bank mission arrived in Nicaragua on September 9, 1979 to discuss a suitable approach for assisting the country, to deal with pressing operational matters, and to i6entify and appraise suitable projects. Agricultural and industrial rehabilitation became an important focus, and the present project was formulated in cooperation with the Special Development Fund (FED), which was already known to the Bank as it was also the executing agency for Loan 943-NI.3/ Negotiations were held on November 19-21, 1979, the loan and credit approved on December 18, 1979, and the agreements signed on January 4, 1980. The loan and credit were declared effective on January 25, 1980. The period from identification to effectiveness thus spanned only about four and one-half months. In contrast, the equivalent period for 55 agricultural projects included in OED's Ninth Annual Review (1982) was about 36 months.4/ 12. The emergency character of this operation is thus clearly reflected in the processing timetable atd the Bank's responsiveness. The rapid re- sponse was accomplished by an easing of the conditions normally required under Bank lending, consistent with other emergency operations, and an appraisal according to Bank guidelines was not carried out. The're were also aspects related to implementation which might have been handled differently in a more normal situation. It is noteworthy that two major sectors - agri- culture and industry - were included in the same project. 13. Project Design and Implementation. As there was no Staff Appraisal Report prepared for this project, detailed information is lacking. Of neces- sity, the President's Report describes the project components in very general 2/ See PPAR for Nicaragua - Agricultural Credit Project (Loan 943-NI), OED Report No. 3125 dated September 15, 1980. 3/ The same mission also appraised the Lrban Recenstruction Project for which Credit 965-NI was approved on Deceaber 18, 1979. 4/ Ninth Annual Review of Project Performance Audit Results, OED (Report No. 4720, dated September 16, 1983). terms. Under the agricultural rehabilitation credit line short- and medium- term credits were to be extended to medium-scale private enterprises, and to public enterprises for crop and livestock activities. It is stated that "credits would be to finance any agricultural activity either for the domes- tic or export inarket." The scope of applicability of the proceeds of the loan/credit was thus intentionally designed extremely broad. The FED devel- opment credit line was defined more precisely because it supported an ongoing coffee renovation program, although few details of that program are available in Bank records. The technical assistance component of the project was identified when the project was formulated, but not developed in detail. As it happened, the provisions for undertaking the consultancy services and the livestock survey to be financed under that component as stipulated in the original Project Agreement were not pursued, and the Agreement was changed when it was decided not to implement these activities. Like the agricultural component, the industrial component was also described only in general terms in the President's Report: "Eligible projects would be those for the reha- bilitation of existing industrial enterprises, including those in the construction and construction materials subsectors, of either public or private oAnership. Most of the funds for subloans would be used to finance the cost of goods and services for the repair or replacement of fixed installations, and also to finance the cost of goods and services for current production...." While such a framework gives maximum flexibility to the implemenuing agency, it does not lend itself to a rigorous analysis of proj- ect results.5/ 14. Implementation of the project proceeded rapidly. Most of the agri- cultural credit funds were committed within a year of effectiveness, and the industrial component was completed in about two years. The actual demand for project funds was much greater for agriculture than for industry, hence, markedly different from the notional allocation of funds at appraisal (PCR, para. 3.02). This outcome, which reflects the scant informational basis on which the project had to be designed, resulted from a conscious shift in priority towards agriculture during implementation and is ample justification for the built-in flexibility of the project. But this flexibility in some instances translated into considerable additional work for Bank staff in con- sidering and giving approval for the required changes in existing arrangements. These changes included the provisions for on-lending (i.e., interest rates), the description of the projact to reflect the decision not to implement Part C (1) and C (3) of the project (consultancies and livestock survey), and the transfer of FED from BND to CORFIN. Given the limited staff time available, time spent on these changes and revisions during the relatively short implementation period reduced the time available for monitoring progress in the field. 5/ The Region comments: "Under an IDF line line-of-credit operation, sub- projects are not pre-identified at appraisal, but each one is carefully reviewed by the implementing agency and/or the Bank during project implementation. Impact and other data is available for these subpro- Jects in appraisal documents, and a memorandum was written by Bank staff on every subproject requiring prior approval by the Bank." - 5 - 15. Project Content. Because of the virtual absence of preparation of this project and the short implementation period, the main orientation of staff efforts during implementation clearly was to infuse funds into the economy via the target sectors,6/ Complementary measures and activities to address policy and institutional issues, which are common in Bank projects, could not and werc not intended to be accommodated.7/ For example, there were no provisions in the Agreements dealing with the sharply-negative real onlending interest rates which had resulted and which would normally be acceptable to the Bank only within a longer-term policy framework reflected in the project documents. Furthermore, unforeseen Government subsidies extended through one of the subborrower entities (ACROMEC) with adverse consequences to the subborrower would also be expected to precipitate clear , expressions of Bank concern, but didn't in this case.8/ This project is not unusual in terms of project content in comparison with the Bank's emergency program loans for reconstruction/rehabilitation which, because of their nature, also have not been conditioned on tae preparation of special action plans and have not addressed sectoral or policy issues. But there has been a tendency in connection with such loans to develop a specific policy dialogue concurrent with and as part of implementation; that kind of dialogue did not develop under the present project. There has been a general policy dialogue related to, but outside the project framework. 16. Another complementary activity that could not be carried out under this project was the strengthening of institutions. When the modest consul- tancy services originally provided for this purpose were considered of lower priority by the Borrower, the Bank agreed to delete that component in accordance with the provisions of Schedule I (para. 5) of the Credit Agreement. No effort was made to channel the freed funds into alternative 6/ The Region advises that this statement must not be construed as meaning that "... the Bank and the Government were unable to properly prepare the project, and that the Bank had no choice but to simply transfer funds." It comments further that "... the end-uses of the credit/loan were carefully tailored to clearly identify rehabilitation needs, con- sistent with the emergency nature of the project." The audit's point in the paragraph is simply that, in terms of original design and the focus of supervision activities, the project environment was clearly more oriented towards disbursement of funds than towards other aspects, including the measurement of the project's impact. 7/ The Region believes that the project was successful because it followed a simple project design which did not stress policy and institutional aspects. 8/ The Region notes that such subsidies did not exist at the time of appraisal and is of the view that the project's implementation period was too short to allow the problems to filter out. Moreover, relevant policy aspects were covered in the Bank's country economic work and are reflected in documents such as the Country Economic Memorandum. The audit feels, nevertheless, that whatever policy discussions had taken place at country level with the Nicaraguan authorities, their impact specifically on this project cannot be identified. - 6 - uses with a potential to improve the institutional infrastructure, partly because assistance reportedly became available from other sources. While reconstruction financing was the overriding purpose of this project, the new circumstances at that time most likely required more than just the mobilization of external resources. That insLitutions needed assistance is evidenced by the fact that one supervision mission of the Bank's regional IDF Division foLussed on strengthening FED's role in promoting industrial sector development, and from the composition of the planned follow-on agricultural credit project which was to have included institution-building features. 17. Procurement. Also resulting from the emergency nature of this project was a case of noncompliance with procurement provisions for the pur- chase of agricultural machinery. Procurement of agricultural machinery and equipment valued about US$17.0 million was not in accordance with Section 2.01 (b) of the Project Agreement, which called for three price quotations before awarding contracts in excess of US$50,000. There was no evidence in the documentation submitted to the Bank of bid specifications, a call for bids, analysis of bids, and a selection process for award of contract. A subsequent review by Bank staff concluded that, in spite of the use of noncompetitive purchasing procedures, most of the contract awards appeared justified, but also that some were not based so soundly. The Projects, Programs, and Legal Departments considered the merits of this case and decided in favor of reimbursement. Bank staff report that this waiver of agreed procurement procedures was considered acceptable in light of the urgency of acquiring the goods, and the lack of ready alternative sources of equipment supply. 18. Bank Strategy. While this project vas being implemented, the Nicaraguan Government, in mid-1980, indicated a desire for Bank Group financing of a second-phase rehabilitation operation. An Industrial Rehabilitation Credit Project (Loan 2028-NI) was approved in June 1981. An agricultural credit project was appraised but did not materialize.9/ This sequence of events prevented much-needed follow-up consultations on agriculture from taking place, with uncertain consequences for investments such as farm machinery financed under this project. 19. A key question is whether this project was a suitable component of the Bank's package responding to the country's emergency situation. The overriding immediate objective embodied in that package was an accelerated resource flow. While the rapid disbursement under this project has been fully consistent with that objective, the audit is of the opinion that a project loan/credit like this one should not be the preferred vehicle to effect a rapid resource transfer if alternatives, such as program lending, exist, for the reasons outlined in this Memorandum (i.e. time-constrained preparation, para. 13; risk concerning desirable sector-specific follow-up, para. 18; limitations to evaluating the impact, para. 21; and effects on supervision/reporting, paras. 22-24). However, it is difficult to determine what, if any, realistic alternatives existed at that time. Suffice it to say 9/ Other lending operations in addition to Loan 2028-NI that were approved subsequent to the approval of this Loan/Credit included one each in 1980 (Credit 1081-NI), 1981 (Loan 1983-NI) and 1982 (Loan 2086-NI); none of these was for agriculture. - 7 - that the drawbacks of sector-specific projects in the Nicaraguan uation were the severe time constraint and, most of all, the uncLrtain env. ument arising from the yet incompletely developed Government policit and programs. Unlike an emergency situation following natural disnsters wi re a known and agreed general policy framework remains in place, th2 exi Ing policy framework was disrupted in the course of this emergency, and incoming Government faced the complex task of formulating a new oae. 20. A rather unusual aspect of this project was the leading role assumed at appraisal by the Bank's regional Programs Department and the involvement of a Bank agricultural projects as well as an industrial develop- ment and finance division to cover the respective sectors. This allocation of responsibilities has some of the characteristics of an emergency program lending operation and as such could be seen as anomalous in a project context but Programs staff leadership actually was an appropriate response to the problems at hand. 21. Project Impact. Bank staff concerned with the implementation of this project consider it to have performed satisfactorily, especially with respect to disbursement but also in stimulating production. The audit is impressed by the rapid resource transfer under the project and also does not challenge staff's judgement on production performance but notes that there is as yet little statistical evidence to support the latter. The PCR provides production time series data for cotton, coffee, rice and sorghum. While production has increased significantly since 1979/80 for cotton and rice, no systematic trend patterns are discernible from these data for coffee and sorghum. Another source (Table 8) gives "annual agricultural production, yields and value of output" for 252 agricultural subprojects, but reportedly on the basis that 241 of these subloans financed only seasonal inputs, the PCR (except for para. 4.05) made no attempt to indicate previous peak levels of production, pre-project levels, or estimated without-project levels. The subprojects' share in national prot.ation also is not available. It is reported in the PCR (para. 4.0;) that FED had estimated an annual agricultural production resulting from the loan/credit funds valued at US$77.0 million, and a value added of US$40.8 million. These figures refer to the total production generated by subborrowers, as it is not possible to discriminate the subloans' incremental output arising from the financing of agricultural inputs and labor. As the PCR indicates (para. 4.01), any judgement with regard to the quantitative impact of agricultural lending operations is therefore uncertain. While information on the aggregate value of industrial subborrowers' output is provided (para. 4.12), the financial condition of those subborrowers is not discussed. No estimate of the economic returns of any investments made under this project has been attempted. This situation, while less than desirable, nevertheless has to be accepted within the context of this emergency lending operation. B. Bank Performance 22. This project was most frequently supervised in 1980 when the major portion of the agricultural credit funds was committed. This level of supervision continued for the industrial component in 1981 when most of its funds were committed. According to information in the files, there were about ten missions dealing directly with this project during implementation, three of which were mainly concerned with the preparation of the PCR. However, o'nly three Supervision Summaries (Form No. 590) have been filed, and - 8 - the quality of supervision reports is uneven. The subjects of the missions' reports deal exclusively with implementation (subsidiary loan agreements, commitment and disbursement of funds, retroactive financing, onlending interest rates, organization and management, reallocation of loan proceeds, etc.) and not at all with expected production and other project effects. The latter omission undoubtedly reflects the short period of only about 18 months over which these missions took place, and staff preoccupation with resource transfer. In lieu of obtaining first-hand impressions, some information on project activities on the ground must have been available from the subloan applications and appraisals and should have been reported. Najor occasions of Bank contact with the project in addition to supervisions were the apprai- sals of the two planned follow-on projects in late 1980, but these are not separately recorded in the files. Consequently, a major problem encountered by the audit was, as mentioned earlier, insufficient documeatation. 23. Practically no information has been reported on the participating banks (except for a positive statement in para. 4.13 of the PCR) for which two aspects are of crucial interest: subloan appraisal/supervision and the banks' financial condition. The banks were required to establish the via- bility of subloan applications. Agricultural plans were to be prepared by the subborrowers, if necessary with the assistance of the banks, to determine the viability of the proposed investments, and appraisal reports prepared by the banks were to be the basis for lending to industrial enterprises. These plans and appraisals not only should give an indication of the banks' perfor- mance in evaluating loan applications, but, additionally, convey information on the subborrowers and the characteristics of the approved subprojects. Concerning the participating banks' financial condition and efficiency of lending, these aspects.are of interest since the banks served as channels of Bank Group funds, and feedback would normally be expected in the course of implementation and at project completion. A review of these banks is the more relevant as the country's financial institutions were experiencing serious financial difficulties prior to the time of approval of this proj- ect.10/ 10/ The Region offers to clarify the situation of commercial banks during the relevant period as follows: "Prior to July 1979, during the last phase of the events leading up to the change in administration, assets of commercial banks had been withdrawn or stolen, leaving the banks in- solvent when the revolution was completed in July 1979. The new Govern- ment quickly took steps in the second half of 1979 to re-capitalize the banks and to channel government deposits to them. By mid-August 1979, public confidence had been largely restored and the outflow of privately held deposits was reversed. Spurred by an expansionary credit policy, loan portfolios improved, deposits grew rapidly through the rest of 1979 and the overall financial condition of the banks improved significantly by early 1980, when the project was approved by the Bank. During proj- ect appraisal and supervision missions, the Bank devoted considerable attention to ensure that the financial intermediaries were able to channel effectively Bank funds to credit users for the purposes of the project." These events are what drew the audit's attention to the participating banks and to the referred information gap in the PCR. - 9 - 24. Two aspects of pacticular interest with respect to FED are the revolving fund and the project's monitoring activities. A Special Account was to be established with the Central Bank with an initial deposit of US$3.0 million, to be replenished from time to time, for the purpose of financing local expenditures through FED (Section 2.03 of the Credit Agreement). As revolving funds like this one are a relatively recent feature in Bank proj- ects, an account of the operation and the utility derived from this fund beyond the initial transfer should have been given. FED was also to estab- lish and maintain procedures (and cause the participating banks to do the same) which were adequate to monitor and record the progress of the project (Section 4.02 (a) of the Project Agreement). Vith the absence of a Staff Appraisal Report, this provision assumed added importance. Specific informa- tion on the procedures and findings pertaining to this covenant would have greatly aided the evaluation of this project. 25. There was one subloan that warrants special attention. AGROMIC borrowed the unusually large amount of US$8.0 million in a single subloan for agricultural machinery. There were some unfavorable features which distin- guished this loan: procurement of machinery not in compliance with origi- nally-agreed provisions, lack of consultation with the Bank on AGROKEC's reorganization and on machinery utilization, AGROMEC's policy to provide cus- tom services below cost, and total default on repayments. There could be adverse implications for the econonic life and efficiency of AGROKEC's investments should this subsidy policy continue. Although Bank staff have reported evidence of productive use of agricultural machinery, the audit is greatly concerned that circumstances have prevented the Bank from engaging in a constructive dialogue on this crucial issue with the Borrower. 26. In summary, the audit finds that the Bank provided maximum flexi- bility in the use of loan/credit funds for this project. It responded quickly to meet Borrower demands even though the new Government's strategies and policies had not fully evolved. This having been an emergency lending operation, the depth of analysis and reporting had not reached the level of projects appraised and executed under non-emergency conditions, and the only fully documented aspect in the PCR is the speed with which it the project was processed and implemented. While the net benefits may well have been posi- tive for this project, the economic, financial, incone, balance-of-payments, budgetary and other effects, as well as the sustainability of benefits cannot be estimated, or can be estimated only very approximately in some respects. This experience demonstrates that an objective ex post assessment of the impact even of a purportedly successful emergency loan tends to be diffi- cult. Furthermore, when the Bank makes an emergency loan in a situation where key policy issues are not yet settled, it has to be aware that it faces the risk that these issues cannot be resolved to the Bank's satisfaction within the envisaged time span. s -A' ~ 2 . - 11 - Annex I Comments from FED (Translated fron Spanish) Mr. Shiv S. Kapur Director Operations Evaluation Department World Bank Washington, D. C. We have examined the Project Performance Audit Report on the Agricul- tural and Industrial Rehabilitation Project, Loan 1785/Credit 966/NI, and we find it very satisfactory in its objective analysis of the project. Regards, Franklin Davis Director of Industrial Projects (FED) 女 せ り がり I与 7え ．与 父 夫 13 - NICARAGUA AGRICULTURAL AND INDUSTRIAL REHABILIT&TION PRDJECT LO&V 1785-NI/CREDIT 966-IqI PROJECT COMPLETION REPORT June 30, 1983 一／夕一 才痲＇唱二。，、．多以不沼 - 15 - NICARAGUA AGRICULTURAL AND INDUSTRIAL REHABILITATION PROJECT LOAN _T785_-NI7_CREDIT 966-NI PROJECT COMPLETION REPORT 1. BACKGROUND 1.01 As a consequence of the 1979 revolution, the new Government of Nicaragua took ovt.- a deeply depressed economy, a virtually insolvent banking system, a disjointed public administration, a huge foreign debt, a population seriously affected by war, and heavily damaged urban centers and productive facilities. 1.02 The Government requested emergency assistance from the Bank Croup to help repair the physical damage and replace inventory losses, estimated to amount to about US$250 million, equivalent to at least 15% of the estimated 1979 gross domestic product. These losses led to a reduction in income and production during 1978/79 that probably exceeded US 500 million and a fall in per capita income from US$840 in 1978 to US$570 in 1979. 1.03 In response to the Government request, a Bank mission visited Nicaragua in September 1979. By October, the first emergency action invalving the financial restructuring of three of four ongoing projects was prepared and approved by the Board. At the same time, the September mission also identified and prepared, in close collaboration with the Government, an Agricultural and Industrial Rehabilitation Project l/ designed to provide critically needed financial assistance primarily to restart production and regain normal production levels in the agricultural and industrial sectors. The project was presented to and approved by the Board on December 18, 1979 in the form of a US$20.0 million loan (Ln. 1785-NI) and US$10.0 million credit (Cr. 966-NI): US$15.0 million of the total proceeds was allocated to the agricultural component and US$15-0 million to the industrial component. Implementing responsibility for the project was to rest primarily with the Special Development Fund (FED), a second-tier leading institution attached at the time to the Development Bank of Nicaragua (BDN), (later the National Development Bank (BND)). BND, on behalf of FED, signed the loan and development credit agreements with the Bank Group on January 4, 1980. The loan/credit became effective on January 25, 1980. 1.04 in contrast to the circumstances prevailing when other emergency loans/credits have been granted in the past by the Bank Group to countries that suffered physical damage and production losses similar to those experienced by Nicaragua during the war, the financial institutional framework of the country was sound and left largely intact, with the banking system continuing to function despite shortages of credit funds. This permitted the project to be designed exclusively as an economic rehabilitation project to be implemented largely through lines of credit to be disbursed by financial institutions with proven records, adequate staff, and previous experience of Bank lending operations. l/ The mission also identified and prepared an Urban Reconstruction Project 4hich was presented to and approved by the Board on the same date as the Agricultural and Industrial Rehabilitation Project. - 16 - 1.05 Given the uncertainties in any credit project concerning the final mix of commodities to be financed with the proceeds and the emergency nature of the loan/credit, , the President's Report 2/ did not include illustrative investment models or provide any estimate of expected incremental output. The Project Completion Report (PCR) therefore concentrates its aralysis on the end-use of the proceeds of the loan and credit (activities financed, type of sub-borrower, type of subloan, interest rates, subloan recovery, and the like) and on the administrative and technical efficiency with which this emergency project was handled. II. THE PROJECT Objective 2.01 The main objective of the project was to assist the Government's recov'ry program to restore the productive capacity of the economy. First pri. :y was given to enpanding the area under cultivation in time for the spring 1980 planting. A second, but still urgent, priority was to recover lost industrial output. The new Government established three main priorities for both agricultural and industrial sectors: (a) restoration of production; (b) generation of employment; and (c) promotion of exports. Project Costs and Financing 2.02 Total costs of the project were estimated at appraisal at US$37.65 million, of which US$0.2 million was to be financed by the Government and US$7.45 million by the sub-borrowers and/or financial intermediaries. Financing by the Bank Group totaled US$30.0 million, of which US$20.0 million was to be in the form of a loan over 20 years, with five years grace, at 7.95% interest per annum, and US$10.0 million was to be in the form of a credit on standard IDA. terms. The project was to be disbursed over one and one-half years. Components 2.03 The project comprised the following components; (a) agricultural rehabilitation; (b) coffee rehabilitation; (c) industrial credit; and (d) technical assistance. 2.04 Agricultural Rehabilitation. This US$7 million line of credit was to provide short- and medium-term credit allocated on a 20%-80% basis for: (a) medium-scale private farming operations (US$2 million) 3/; and (b) state-controlled, intensive, integrated farm enterprises managed at the time by State Agroindustries (ACROINRA), now the Ministry of Agricultural Development and Agrarian Reform (MIDINRA) (US$5 million). 2/ The President's Report (P-2661-MI) served also as the Staff Appraisal Report. 3/ Small-scale farmers were expected to be covered by loans from IDB and USAID. - 17 - 2.05 Short-term credit (US$5.6 million) was expected to be used for the production of annual crops and for the maintenance of permanent crops, including the purchase of seeds and agrochemicals and other seasonal items, while medium-term credit (US$1.4 million) was to finance the replacement of agricultural machinery and equipment, on-farm investments, and rehabilitation of the livestock subsector, mainly commercial poultry and pig production. 2.06 Coffee Rehabilitation. This US$7.5 million line of credit was to provide long-term financing for a time slice of the coffee rehabilitation project initiated by FED in 1976 following the first outbreak of coffee leaf rust in Nicaragua. The program financed the establishment of nurseries, maintenance expenditures during the first three years of the new plantings, machinery, equipment and other on-farm invescments related to coffee production and processing. Funds were expected to finance 150 small-scale farms and 520 medium-scale farms 4/ with a total area of 9,900 ha under coffee production. The average subloan per borrower was expected to be US$32,740, or US$2,212 per ha. 2.07 Industrial Credit. The US$15 million allocated to the industrial component, together with US$30 million provided by IDB, was designed to assist the Government in its initial reconstruction of the existing private and newly created public enterprises in the industrial sector. 5/ Primary responsibility for channeling the Bank and local counterpart resources for sound rehabilitation projects rested with the FED, which was responsible for reviewiag all subproject appraisals submitted by financial intermediaries BND, the Nicaraguan Bank (BANIC) and the Bank of America (BAMER). Subprojects requiring Bank financing in excess of US$500,000 had to be sent to the Bank for prior approval. 2.08 Technical Assistance. This component, allocated US$0.5 million, was to finance: (a) about 14 man-months of consultant services to assist (i) BND to develop agricultural credit policies and procedures; and (ii) FED in financial and management matters; (b) 25 four-wheel vehicles and minor office equipment to expand BND and FED's capacity to deliver technical assistance to sub-borrowers; and (c) a livestock survey to be carried out by the Ministry of Agriculture to assess the impact of the war on the subsector and to serve as the basis for future policy formulation and assistance to the subsector. 4/ Defined as a farm with total area under coffee of less than 14 ha, and where most of the family income derives from coffee production. A medium-scale producer is one with more than 14 ha, but less than 70 ha, or, if having less than 14 ha under coffee, deriving most of the family income from activities other than coffee production. 5/ After the revolution, the state acquired control of 31% of the gross value of industrial production. Four state corporations were established to control state industrial enterprises and three to control mining and fossil fuels. As of June 30, 1980, the state held a majority interest in 91 industrial enterprises, of which 70 were managed by the Corporacion Industrial del Pueblo (COIP), the largest industrial entity, which, in turn, had shareholdings in a total of 99 enterprises, including the 70 majority-owned firms, and a minority interest in 22 and had taken over seven enterprises. - 18 - Project Benefits 2.09 The major benefit of the project was expected to be its contribution to regaining prewar levels of output, exports and employment in the agricultural and industrial sectors. Because of the special emergency nature of the loan/credit,however, no economic or financial rate of return was computed. III. IMPLEMENTATION A. Agricultural Components Overall Credit Performance 3.01 Overall credit demand far exceeded the levels estimated at appraisal, especially for agricultural rehabilitation. Total on-farm investment costs were estimated at US$18.1 million, while the actual costs in current prices amounted to US$46.7 million (approximately US$38.2 million in 1979 prices) of which Bank/IDA financed, after reallocation, US$21.9 million (47%). The balance was financed (a) by financial intermediaries, US$17.9 million (38%); (b) by project beneficiaries, US$0.6 million (1%); and (c) from FED's own internal resources, US$6.3 million (14%) (Tables I and 2). 3.02 Because of the large demand for credit for agricultural rehabilitation activities (para 3.01) and the initial slow development of demand for credit in the industrial component and, in view of the stated Government priorities, the loan/credit proceeds were reallocated on October 20, 1980. The allocation to agricultural rehabilitation activities was more than doubled to US$16.38 million while allocations to the remaining components were correspondingly reduced, especially that to the industrial credit component which was lowered to US$8 million from the original US$15 million (Table 3). 3.03 The agricultural component provided short-, medium- and long-term credit for a total of 897 subloans covering 47,340 ha. The agricultural activities financed are shown in Table 4 and are summarized below: Agricultural Activities Financed Total Value % of %of of % of Subloans Total Area Total Subloans Total (No.) (Ha) (US$'000) A. Agricultural Rehabilitation Food Crops 15 2 11,659 25 8,041 17 Export Crops 209 23 26,040 55 22,691 49 Livestock 21 2 - - 820 2 Machinery 7 1 - - 8,264 18 Subtotal 252 28 37,699 80 39,816 86 B. Coffee Rehabilitation 645 72 9,641 20 6,868 15 Total 897 100 47,340 100 46,684 100 - 19 - 3.04 The project's total agricultural lending of C$ 466.9 million (US$46.7 million) over approximately 20 months does not reflect its importance to Nicaragua when compared to the country's total agricultural lending program in 1980 and 1981 (C$ 3,846 million and C$ 4,540 million, respectively). In effect, the project lending was targeted to financing export crops and complemented by the IDB and USAID loans (para 5.08) helped finance a large proportion of the foreign exchange input costs required for continued and/or renewed agricultural production and exports. Lending by Type of Borrower 3.05 The appraisal had projected a total of US$7 million for the agricultural rehabilitation credit line of which US$2 million (29%) would be on-lent to the private sector and US$5 million to the public sector (71%). Instead, a total of US$39.8 million was lent for agricultural rehabilitation subloans, 62% of which (US$24.8 million) went to private sector, medium-scale farmers. State-controlled farm enterprises received US$15 million in subloans (38%). When the coffee rehabilitation credit, all of which was on-lent to private farmers, is included, lending to the private sector amounts to 68% of the total (Table 5). The ratio 62%-38% for the actual private/state enterprise allocation of credit funds compares with the appraisal estimate ratio of 29%-71% and indicates the strong demand for project funds by the private sector in Nicaragua, underpinned by a land ownership structure in the major agricultural activities which is predominantly privately owned. 3.06 The coffee rehabilitation credit line was on-lent for 645 projects (670 had been estimated at appraisal); 55% of the total number and 24% of the total value of the subloans went to small-scale farms (farms with less than 14 ha). At appraisal, only 22% of the subloans liadl been expected to go to the small-scale sector. (Table 5). Lending by Type of Credit 3.07 Short-term subloans had been expected at appraisal to account for 80% of the US$7 million of Bank/IDA funds earmarked for the agricultural rehabilitation credit line component. Eventually, 252 subloans were extended under this component of which 241 (96%) for US$31.5 million (79%) were on-lent for short terms, mostly to finance food and export crops. This is consistent with the share of short-term agricultural portfolio in Nicaragua in 1982 which amounted to 73% of the total credit extended--C$ 5,136 million. 3.08 The 11 medium-term subloans granted under the agricultural rehabilitation component amounted to US$8.3 million (21%), almost all of it accounted for by subloans for agricultural machinery. In fact, a single subloan to the National Enterprise for Agricultural Machinery (AGROMEC), which provides mechanized services to agriculture, accounted for US$8 million (96% of all medium-term subloans and 20% of all the agricultural rehabilitation subloans), while the balance of US$0.3 million went to six small machinery and equipment subloans and four livestock subloans (Table 5). All the long-term credit subloans (US$6.9 million, or 15% of the total agricultural credit under the credit/loan were extended for the coffee rehabilitation program to partially finance 645 subloans (Table 5). - 20 - Lending by Area 3.09 The agricultural rehabilitation credit line financed subloans in every department of the country except Madriz, Rio San Juan and Zelaya (Table 6). Most subloans, as was to be expected, were concentrated in the relatively more important agricultural departments of Chinandega, Leon, Matagalpa, Granada and Managua, which accounted for 87% of the 252 subloans and 84% of their total value. Interest Rates 3.10 FED rediscounting rates to the financial intermediaries were in the range of 7% to 11%. Such intermediaries charged a 3% spread over the rediscounting rates, which was adequate to cover subloan administrative costs and risk. Interest rates to the sub-borrowers (10% to 14%) were those specified in the Project Agreement and amended in March 1980 (Table 7) to differentiate between long and short-term subloans and to maintain consistency with the rates by the Central Bank for the agricultural sector. 6/ Subloan Recovery Rates 3.11 According to FED, the recovery rates of principal (there are no arrears in interest payments) for the agricultural rehabilitation subloans extended under the project, as of April 1983, are as follows: Face Value Recovery of Loan Recovery Rate (US$ M) (US$ M) (%) Bank of America Private sector subloans 8.12) 13.35 88 Public Sector subloans 7.06) Nicaraguan Bank All private sector 12.18 9.98 82 National Development Bank Private sector loans 4.46 4.24 95 Public sector subloan 8.00 - 0 Subtotal private 24.76 21.37 86 3ubtotal public 15.06 6.20 41 3.12 The recovery rate of private subloans by all the banks and public sector subloans extended by BAKER has been adequate, averaging 87% of a total face value of US$31.81 million, with the balance in arrears still being actively followed up or in the process of being rescheduled. The principal and the 6/ The interest rates were set in line with the Central Bank rates to agriculture and on the basis of an expected deceleration of the rate of inflation -according to the President's Report, the consumer price index had risen by 28% between April 1978 and April 1979. Subsequent information from MIPLAN reflects the following iiiflation rates (Consumer Price Index) in this period: 1978, 4.6%; 1979, 48.2%; 1980, 35.3%; 1981, 23.9%; 1982, 25.5%. - 21 - interest of the single loan extended by BND to the public sector (AGROMEC), have not been repaid due to financial difficulties and this accounts for the low recovery rate (41%) in the public sector (without AGROMEC's subloan the recovery rate is 88%). The Government is also studying the enterprise's financial reorganization and recapitalization and a realistic debt rescheduling (para 4.14). Including the AGROMEC loan, the subloan recovery rate for the agricultural rehabilitation subcomponent was 69%. According to the Ccntral Bank of Nicaragua, arrears of the total agricultural loan portfolio outstanding in the country in November 1982 were 27.5%, which is slightly better than that for the project when the AGROMEC subloan is included. B. Industrial Component 3.13 Because of the initial slow utilization of industrial credit, US$7 million was reallocated to the agricultural component where credit needs were more immediate. Nineteen subprojects were financed from the balance of US$8 million, or an average of US$420,000 per subproject. Wholly-owned state enterprises amounted to 44% of the amount of Bank lending and 63% of the number of subprojects, while firms with 100% private ownership accounted for 26% of the total amount as well as the number of enterprises. Firms with mixed ownership received 30% of the available funds and accounted for 11% of enterprises financed. Over all, enterprises with private shareholders received 56% of total lending, although they represented 37% of the number of firms financed. Most (70%) of the Bank financing available under this component went to four large enterprises, which borrowed a total of US$5.6 million. Three of these are major exporters and include Nicaragua's most productive gold mine, its largest and only modern sugar mill, and a producer of polyvinylchloride for use 'n plastics manufacturing. The other major enterprise to be financed was a shoe factory, which accounted for about 10% of domestic shoe production. One major subproject, an integrated textile mill involving spinning, weaving and dyeing of cotton cloth, was rejected by the Bank because the appraisal presented by FED lacked sufficient justification for the project. 7/ 3.14 As Nicaragua was undergoing considerable food shortages, a major effort was also made to finance enterprises in the food processing subsector, particularly producers of milk, dairy products and beverages. A total of US$1.3 million was lent to four subprojects in these areas, accounting for 16% of the loan amount. In addition, eight cotton gins were also rehabilitated at a cost of US$0.6 million, in an effort by the Government to restore sufficient ginning capacity to process the 1979/80 cotton crop. Also, two producers of construction materials were financed (US$0.5 million) and a manufacturer of knives and metal tools (US$0.1 million). Eight of these enterprises are located in Managua (where 60% of Nicaraguan industry is found), seven firms are in Leon, three companies are in Chinandega, and one is in hasaya. 3.15 Fourteen fixed capital and six working capital subloans were granted by FED with Bank funds. Total working capital financing was US$3.0 million, and total fixed asset financing was US$5.0 million. Most subloans (15) were made for 7/ Because of the issues raised by this subproject, the Bank decided riot to finance any textile subprojects under the second industrirl rehabilitation project until such time as a sector study has b. n completed showing what the sector's rehabilitation needs reallf are. - 22 - a term of five years. One was for less (two years), two were for six years and two were for 10 years. The latter involved enterprises undertaking sizable investments. Grace periods were granted for about one half of the subloans. In general, while FED was willing to make loans for up to five years in order to minimize the debt service burden during the initial rehabilitation period, It was not willing to extend longer terms if a firm's cash flow indicated that it could repay within the five-year period. In the case of private firms, FED usually required that no dividends be paid during the life of the subloans. 3.16 The total amount of investment financed was US$11.2 nillion, of which US$6.6 million was for fixed capital costs and US$4.6 million was for working capital. Foreign exchange costs amounted to US$7.0 million, or 62.5% of total project cost. The Bank financed 71.4% of the total, covering all of the foreign exchange costs plus 8.9% in local costs. The balance of the financing was provided by commercial banks (12.9% of total costs), beneficiaries (14.4X) and FED's own funds (1.3%). C. Technical Assistance 3.17 The technical assistance component of the project (US$500,000) was reduced to US$120,000 in the reallocation of October 8, 1980, in order to provide additional financing for the quick disbursing agricultural rehabilitation credit component. The technical assistance component thus included financing for a small but important training program and for the purchase of 11 vehicles and office equipment. It was expected that assistance for the consulting services and the livestock survey subcomponents, which were excluded, would be included in future normal Bank support programs. Total US$ Bank Group Financing US$ Vehicles 2 automobiles 1-,630 11,704 8 jeeps 100,000 80,239 1 microbus 14,938 11,950 Subtotal 129,866 103,893 80 Office Equipment 20,496 16,107 79 Total 150,362 120,000 80 D. General Audit Reports 3.18 The project accounts and the consolidated FED financial statements were audited by an independent auditing firm acceptable to the Bank. In the project implementation years (1980/81), the auditors gave unqualified opinions to the financial statements submitted by FED. - 23 - Procurement 3.19 A large proportion of agricultural equipment financed under the loan/ credit was bought on the basis of market prices quoted by local importers for equipment of specified characteristics and with direct invoicing. Although the procedure was not always consistent with the Project Agreement stipulation that at least three price quotations should be requested before awarding contracts in excess of US$50,000, the change was required by the urgency with which farm machinery was needed for the planting season and in sae cases because, following the disruption caused by the war, only one dealer had the equipnent required available. A mission sent by the Bank to review the procurement procedures and commitment decision of the Nicaraguan authorities concluded that they were in general logical and based on price competitiveness and/or superior technical design, availability of parts and service technicians. Disbursement 3.20 Disbursements from the Bank to FED were timely and speedy, and the assistance provided by FED to the staff of financial intermediaries eliminated the chance of any problems in subloan disbursement processing. Reibursements were made through a revolving fund, totaling US$3.0 million and established in the Central Bank as a separate account for the agricultural and industrial credit parts of the project. The system proved to be highly effective in facilitating rapid disbursement. IV. PROJECT 1MPACI A. Agricultural Component 4.01 While the project's production volume and value levels, as shown in Table 8, are considerable in absolute terms, it is difficult to ascertaia quantitatively how much of the progress that was achieved during the period of project implementation in regaining pre-war levels of agricultural output and exports can be attributed to the project and how much is due to the agricultural investment and price and subsidy policy of the Nicaraguan Government. 14owever, without the proceeds of this rehabilitation credit/loan, it is probable that a further reduction in output might have ocurred in Nicaragua in the period 1979-1981. 4.02 A total of 252 subloans were financed through the agricultural rehabilitation credit line. Of those, 224 were for seasonal credit in food and export crop production, including the purchase of seeds and agrocbemicals, with a total expenditure of US$30.7 million. About US$8.0 million of this total was in 15 subloans mostly to large-scale public enterprises that financed about 11,700 ha of food crops (beans, horticultural crops, maize, rice, sorghum, bananas and peanuts) and US$22.7 million in 209 subloans largely to medium-scale private farmers that financed about 26,000 ha of crops, principally for export (primarily cotton and coffee). In addition, 21 Livestock subloans were nade for the purchase of cattle (fattening and dual purpose), with a total value of US$0.8 nillion, and seven medium-term subloans financed the purchase of agricultural machinery, with a total investment value of US$8.3 million (Table 4) to provide mechanized agricultural services on about 78,000 ha (Table 8). As part of the country's ongoing coffee rehabilitation program, 645 medium and long term subloans were made with a total value of US$32.8 million of which the project partially financed US$6.9 million (Table 4). - 24 - 4.03 As shown in Table 8, total production in the 154 subloans granted for cotton cultivation, which was the single largest end use of agricultural rehabilitation credit funds, amounted to 16,700 m tons (approximately 22% of the national cotton production in 1980/81) with a total value of US$24.5 million. Coffee production in the 53 farms supported by short-term subloans amounted to over 4,600 tons, with a value of approximately US$10 million. In addition, the 645 medium and long-term subloans financing coffee rehabilitation on approximately 9,600 ha are expected to produce at full production approxinately 9,391 tons of coffee annually, with a value of about US$25.8 million. 4.04 The single largest subloan in the project (US$8 tillion) was made to AGROKEC to finance the purchase of agricultural machinery and equipment. The large volume of machinery was necessary due to the losses during the war and shortages of labor resulting from the interruption of the flow of workers from neighboring countries. AGROMEC is one of MIDINRA's enterprises, responsible for providing agricultural mechanization services to private and public sector farm holdings. The proceeds of the subloan, which was extended by BND, financed during 1980 the purchase of 289 tractors, 575 implements, 60 harvesters (for cotton and grain and 61 pieces of support equipment (para 3.19).!/. 4.05 The following table provides country-wide estimates of area planted and production and yield from 1975 to 1983 in the four agricultural crops that received the largest share of credit/loan proceeds. 4.06 The project's credit component contributed to the large increase in area planted to cotton and to cotton production that took place in 1980/81 following the drastic decline in 1979/80. Pre-war levels of production, however, have not been reached and, in fact, in 1982/83 there has been a slight erosion of the gains achieved in 1980-82 due to the continued lack of investment by the private sector, shortages of labor and the inability in the public sector to take up the slack. Area planted to, and production of, coffee was not greatly affected by the war because coffee, different from cotton, is a perennial crop; is less capital intensive; and is largely a small- and medium-size farmer activity. Introduction of mechanization, largely through AGROHEC services, ard changes in relative prices vis-a-vis other grains account for the increase in rice production from 1979 onwards. The floods and drought of May-Septenber 1982 9/ and, in the case of sorghum, the decline in relative prices, also contributed to the decline in area planted and in production which has occurred in 1982/83 for the four commodities. 4.07 The total production value during the period of project implementation resulting from the agricultural subloans extended under the project have been estimated at US$77 million, of which US$40.8 million represented value added. Of 8/ Since 1979, AGROMEC has bought and financed through other sources additional agricultural machinery at a cost of US$25.7 million. According to FED, the subloans which financed the purchase of this equipment are also in arrears. 9/ See FAO "Republic of Nicaragua: Assessment of Basic Food Production and Availability During 1982/83 in Areas Affected by Floods and Drought," Office for Special Relief Operations, OSRO, Report 02/83/E, Rome, L983. NICARAGUA: Area planted, yield and agricultural production - 1975176-1982/83 (Selected Commodities) -------- Cotton ---------- ------- Coffee --------- ---------- Rice ---------- ------- Sorghum -------- Produc- Produc- Produc- Produc- Area tion Yield Area tion Yield Area tion Yield Area tion Yield (ha'000) -- (m ton) ---- (ha'000) --- (m ton) ---- tha'000) --- (m ton) ---- (ha'000) --- (m ton) ---- 1975/76 143.2 108,945 .76 84.0 48,555 .58 29.7 55,627 1.87 60.1 62,109 1.03 76/77 198.1 116,227 .59 84.0 58,513 .70 21.1 37,500 1.78 56.3 54,545 .97 77/78 212.4 121,509 .57 84.0 54,545 .65 24.6 47,727 2.94 43.7 42,274 .97 78/79 173.7 112,100 .65 94.5 64,318 .68 27.7 59,100 2.13 51.4 63,045 1.23 79/80 38.2 21,532 .56 98.0 55,636 .57 21.1 42,595 2.02 49.9 62,706 1.26 80/81 94.3 74,809 .79 92.4 58,405 .63 38.4 62,045 1.62 53.9 100,000 1.86 81/82 93.0 63,164 .68 92.4 5,591 .58 41.8 90,105 2.16 55.9 88,702 1.59 82/83 84.0 56,364 .67 91.0 53,182 .58 41.2 91,562 2.22 30.2 63,734 2.11 Source: UPANIC MIPLAN, and Mission. June 24, 1983 RFRT NOV AlfAll aMNN - 26 - the total production value, US$36.6 million was exported. A total of 2.4 million man-days employment was generated, equivalent to approximately 6,600 full-time jobs. The employment creation of the project resulted in an additional US$6.4 million income from salary and benefits. Average financial rates of return in the coffee renovation subloans were estimated at 16% for small-scale producers and 22% for medium-scale producers. According to FED, profit margins for the short-term credit subloans for agricultural crops, after payment of interest, were acceptable and ranged from 10% for cotton in 1980 to 13% in 1981; 10% for rice, 8% for sorghum, 19% for vegetables, 10% for beans; 11% for maize; 10% for bananas and 6Z for sugarcane. On the other hand, although the purchase by AGROMEC of agricultural machinery for a total value of US$8 million, was appraised by FED before the subloan was approved and the rate of return was considered acceptable, AGROMEC in fact has incurred heavy financial losses and has been unable to meet the loan repayment conditions. B. Industrial Component 4.08 The slower than anticipated utilization of the industrial component was not due to a failure in project design, but rather to other factors which had not been fully foreseen at the time of appraisal. The concept of rehabilitation was intended to permit rapid response to Nicaragua's most pressing reconstruction needs in a joint effort with other multilateral and bilateral lenders. However, the lead time required for rehabilitation of industrial plants was underestimated, since this depended on obtaining needed inputs, replacement parts and equipment; reestablishing or recapturing a market for the firm's products; replacing key technical and managerial personnel; and renegotiating the existing debt. Many firms were under-capitalized, had contracted sizable debts, and were not generating sufficient cash to pay their debts. Firms which had large obligations in foreign exchange were the worst off, and many became financially insolvent after the cordoba was devalued by 42% in April 1979. As purchasing power fell, firms were also faced with a rapidly declining domestic demand at the same time that regional export markets were shrinking. These problems were compounded for state enterprises, which faced enormous organizational, managerial and administrative difficulties. 4.09 The attitude of the private sector was a major factor affecting the relatively modest utilization of Bank funds (26%) by wholly-owned private firms. Private businessmen were, on the whole, extremely cautious about proceeding with a full rehabilitation effort, although many entrepreneurs were able to draw on their own resources or to tap the increased liquidity in the banking system (the banks began to experience a large inflow of deposits in early 1980) to finance the relatively low levels of output justified by the reduced purchasing power prevailing after the revolution. Also, lack of labor discipline resulting in plant takeovers and serious work stoppages had made private industrialists reluctant to reinvest. During 1980, however, a dialogue was initiated between public and private sectors, and the Government demonstrated good faith in pursuing the concept of equal treatment for both public and private sector enterprises in the settlement of labor disputes and the allocation of credit and foreign exchange, both of which were critical areas for restoring investor confidence. Nevertheless, private industrialists were still concerned about the end result of the revolutionary process, the sector's role over the longer term, and the Government's failure to define what it meant by its support of the mixed economy concept. As a result, while some industrialists began to make substantial investments in rehabilitating their firms, many others adopted a "wait and see" attitude. - 27 - 4.10 In spite of the many difficulties which faced the industrial sector in its initial efforts at rehabilitation, it managed to restore an important part of its lost output. MIPLAN estimated that real industrial output for 1980 reached C$ 3.0 billion, or 73% 10/ of the 1978 level, which was equivalent to a 7.3% increase over the 1979 output of C$ 2.8 billion. Major industries that were able to exceed 1978 output levels were beverages, tobacco, clothing, rubber goods, petroleum and leather products. Subsectors that continued to show declines in real output were food processing, textiles, wood products, chemicals, and metal mechanics. Subsectors showing a declining trend were those with the greatest rehabilitation needs, as well as the greatest reliance on export markets, and an increasing proportion of output was being directed at reviving the domestic market in chc face of declining industrial exports (30% below 1978 levels). Rapidly increasing costs and the resulting over-valuation of the cordoba affected the competitiveness of Nicaraguan exports in the CAMC market, where the worsening relationship with neighboring countries such as Guatemala and El Salvador resulted in a 51% decline in regional export sales. Nevertheless, some encouraging trends could be observed in 1980. Exports of sugar, meat, seafood, gold and silver to markets other than the USA and the CAMC performed well and further export potential existed for these products. 4.11 In the state sector, the major problem was one of limited absorptive capacity. The issue of what to do with the new state enterprises, coupled with a lack of information or of trained personnel who could make investment decisions, made MIDA, CORFOP or INPESCA uncertain as to how to proceed with the enterprises under their control. 4.12 Following the revolution, Nicaragua's industrial sector was in disarray. Some firms had shut down completely, while others were in danger of ceasing operations, and output and productivity of all firms were seriously affected by the events of the revolution. Under the cirscumstances, and because of the short time frame involved, the incremental output value and employment of beneficiary enterprises in the first full year (i.e. 1981) following commencement of project implementation, have been used as a measure of economic performance. The results are quite dramatic. Incremental output value for that year reached C$921.6 million (the difference between 1979 output of C$837.7 million and 1981 output of C$1,759.3 million) or US$92.2 million at the official exchange rate, in comparison with an investment cost of US$11.2 million. Although employment data is not available for the eight cotton-ginning enterprises, a total of 3,386 jobs were created or restored in the other 11 firms participating under the project. 0 This amounted to an investment cost per job of only US$3,042. C. Institutional Improvements 4.13 Because of the emergency nature of the credit/loan and given that the project was substantially completed in a little over a year, there was not much time to effect institutional changes. Nevertheless, some institutional improvements were observed: (a) staffing of FED's industrial department was completed; (b) procedures for subproject identification and appraisal were adopted; (c) extensive training of staff was begun; and (d) FED's general manager 10/ This exceeded the appraisal estimate of 66%, but fell short of the MIPLAN target of 87%. - 28 - and the director of the industrial department were becoming effective managers (in late 1979/early 1980, they had assumed their positions with no prior management experience). Much of the training carried out during this period was on the job, provided informally by Bank supervision missions to FED staff and to intermediaries through collaboration with FED. The result of these efforts was evident in the quality of appraisal reports, which improved markedly during 1980/81. 4.14 The elimination of most of the technical component and the reallocation of those funds into agricultural credit in response to Government priorities did not materially affect the performance of FED or the financial intermediaries, notwithstanding AGROEC's problems, which were due less to technical shortcomings than to the Government's agricultural policies concerning the level of user fees charged by AGROKEC. These fees were set by MIDINRA in 1979 and have not been changed since, despite cost increases resulting in fees which in many cases are below the AGROMEC cost structure, thus representing a direct input subsidy to agricultural production. The low level of fee recuperation from some public enterprises (Area Propiedad del Pueblo or APPs) which were created to run idle farms and the original lack of management capacity in AGROMEC have also contributed to its financial problems. AGROMEC's reorganization in April 1982 into five separate, financially autonomous and revenue-earning regional enterprises have provided additional flexibility and improved AGROMEC's managerial capacity. However, in the absence of any changes in the fees which each AGROMEC can charge, the financial position of the enterprises has not improved, nor will this change as long as AGROMEC is expected to subsidise agricultural production in Nicaragua. V. LOAN ADMINISTRATION AND MANAGEMENT Loan Processing and Monitoring 5.01 At the outset of the project, there were five participating financial intermediaries involved with the agricultural credit components of the project, but after the reorganization of the financial system, there were only three: BAMER (which absorbed Financiera de Occidente); BANIC (which absorbed Compania Interfinanciera de Nicaragua) and BND. 5.02 The technical departments of the participating banks were responsible for the appraisal of the investment proposals; for processing the subloans which were then rediscounted by FED; and, through periodic field visits, for the control and follow-up of the disbursement plans. 5.03 The Agricultural Departmenr of FED reviewed and approved all the medium- and long-term subloans before disbursement by the participating banks and also conducted field visits, on a random sample basis, of the projects financed, as an additional control measure during implementation. In view of the relatively large volume of the agricultural machinery subloans (para 3.08), staff of the new Supervision and Control Division of FED 11/ conducted a special review of those 11/ FED was originally organized with three divisions responsible for agriculture, industry and small-scale enterprises. In 1982 a new Supervision and Control Division was created and the Small-Scale Enterprise Division was merged with the Industrial Division. - 29 - subloans during which the location and usage of the agricultural machinery financed with project funds was satisfactorily identified. Staffing 5.04 The agricultural staffs of FED and at participating financial intermediaries showed a net increase of 20 staff members and were adequate to attend the project needs (Table 9). 5.05 Although all the institutions lost high level managerial staff in 1979/80, they were replaced almost immediately and training programs were organized (para 5.06) to minimize the disruptions caused by the departures. In general, the staffing situation of FED and of the participating financial intermediaries was adequate, both in terms of number and quality, for the requirements of the project. Training 5.06 A variety of courses dealing with project evaluation and management, finance and technical subjects related to coffee growing were organized for staff of FED and of the financial intermediaries. The staff of the Agricultural Division of FED also provided direct and regular on-the-job training by collaborating with staff of the participating banks in the preparation of agricultural subloans and assisting with subloan and disbursement requests. Facilities 5.07 Staff of the Agricultural Division of FED and of the participating banks were provided with the vehicles required for field work inspections of the farms. Office space and office equipment was adequate for the desk work required for the preparation and handling of the project and the subloans. Other Loan Activity by FED 5.08 During the Bank Group lending operation, the Government of Nicaragua received two additional loans from international agencies for the agricultural sector. The first (No. 639-NI) was granted by IDB in 1981 for a total of US$65 million to finance short- and long-term credit to small- and medium-size agricultural producers and to MIDINRA's agricultural enterprises. The loan proceeds became available after the Bank/IDA funds had been fully disbursed. The implementing agency was BND. The second (No. AID-524-T-36-K-36) was granted by USAID for a total of C$ 140 million (US$14 million) also for agricultural credit to small farmers. This loan was disbursed by FED at the same time as the Bank/IDA loan/credit. The terms of the USAID loan were very flexible in terms of end use and type of subloan and it was a useful complement to Bank Group funds. Additionally, a US$30 million loan was provided by IDB, complementing the Bank/IDA loan/credit for the industrial component of the project. Bank Group Supervision 5.09 The Bank conducted six missions (three for the agricultural and three for the industrial component) to supervise the implementation of this project and to advise on sublending and administrative arrangements. Three additional visits to Nicaragua during 1981 and 1982 had some bearing on the project as well. One - 30 - visit reviewed disbursement procedures and status of the loan and credit funds, while the other two were related mostly to the identification, preparation, and appraisal of a follow-up agricultural credit project. In general, the missions provided adequate follow-up of project implementation and were responsive to the technical assistance requirements of FED. The coordination between the Bank's Agriculture and IDF divisions responsible for the project was adequate. VI. SPECIAL ISSUES AND LESSONS LEARNED 6.01 The PCR has confirmed the views contained in the Special Review of LAC Experience in Emergency Lending (October 30, 1981) in regard to the successful implementation by the Nicaraguan Government of the Agricultural and Industrial Rehabilitation Project. The loan/credit proceeds were speedily disbursed and the project helped to arrest the decline in agricultural and industrial production and exports following the change in Government in 1979 and, in some cases, to regain levels previously maintained. Even AGROMEC, despite the financial problems it has encountered, contributed to the increase in output in Nicaragua through the provision of needed agricultural mechanized services. 6.02 The reasons behind the success of this emergency loan/credit, especially when compared to other emergency projects of the Bank, can be summarized as follows: (a) strong Government support for and commitment to the program; (b) specific and clearly defined purposes for the lending operation and suitably decentralized authority to the participating institutions; (c) simple and well-established operating procedures for subloan processing and for project implementation, which permitted speedy disbursement of the project funds; (d) reasonably strong institutions with previous experience in working with the Bank; (e) flexibility in modifying the project to adapt it to emerging needs; and (f) successful use of a revolving fund. 6.03 The procurement procedures established at appraisal appeared to balance reasonably well efficiency and speed in the procurement of agricultural equipment. Given the post-war situation in Nicaragua, equipment was in very short supply and often available from only one source; consequently, the Bank applied procurement procedures flexibly. The experience of this project suggests therefore that special care should be exercised in emergency projects to establish procurement requirements that will ensure an efficient use of the resources, but will not slow down the implementation of the project. More important perhaps is the amount of discretionary power vested in the agency administering the loan for granting and supervising subloans. Events in relation to AGROMEC's situation of arrears due to an inadequate level of service fees suggest the need for strict supervision of large subloans. 6.04 On the industrial side, the reluctance of many private businessmen to reinvest their own capital as well as to contract debt financing was not sufficiently recognized in the early post-revolution period. In addition, the seriousness of the financial situation of many firms was not known and the extent of the rapid deterioration of the regional market for industrial exporters was hard to foresee. In this regard, a major lesson learned, which is equally applicable to emergency as well as other projects, is that even a well-designed project is difficult to implement, if limited absorptive capacity (public sector) or unwillingness to invest (private sector) combine to slow down investment demand. NICARAGUA AGRICULTURAL AND INDUSTRIAL RERABILITATION PROJECT PROJECT COMPLETION REPORT Project Cost and Financing 1t (US$ million) Appraisal Estimates ------Actual Actual Total Total US$ Total US$ as 2 of Appraisal Components Local Z Foreign % Equivalent Local 2 Foreign I Equivalent Total Agriculture On-farm investments 2/ 11.70 65 6.40 35 18.10 22.58 48 24.10 52 46.68 3/ 258 Technical assistance - Consultants - - 0.10 100 0.10 - - - - - Vehicles and equipment 0.05 20 0.20 80 0.25 .02 13 .13 87 0.15 60 - Livestock survey 0.20 50 0.20 50 0.40 - - - - - - Subtotal 11.95 63 6.90 37 18.85 22.60 48 24.23 52 46.83 248 Industry Current production 4.50 12.10 16.60 n.a. n.a. n.a. Fixed installations 0.50 1.70 2.20 n.a. n.a. n.a. Subtotal 5.00 27 13.80 73 18.80 4.20 38 7.00 62 11.20 60 Total 16.95 45 20.70 55 37.65 26.80 46 31.23 54 58.03 4/ 154 1/ Us$ = C$ 10. 2/ Includes seasonal production costs (seeds, agrochemicals, etc.). S/ Of these, US$39.82 million was financed by the agricultural rehabilitation line of which US$9.08 million corresponds to investment costs. The remaining US$30.74 million relates to seasonal crop costs. i In real terms, total project costs amount to approximately US$47.8 million. June 28, 1983 f REST COPY AVAIABLE BEST COPY AVAILABLE 32- jable 2 NICARAGUA AGRICULTURAL AND INDUSTRIAL REHABILITATION PROJECT PROJPCT COMPLETION REPORT Proe ct Financin (US$ million) Agricultural % of Coffee % of % of Rehabilitation Total Rehabilitation Total Total Total A. Institutions Financial Intermediaries - Own resources 5.58 14.0 .40 6 5.98 13 - Bank guarantees 1/ 11.91 29.9 - - 11.91 26 Beneficiaries - - .62 9 .62 1 FED's resources 5.95 14.9 .35 5 6.30 14 IBRD/IDA 16.38 41.1 5.50 80 21.88 47 Total 39.82 100.0 6.87 100 46.69 100 Agricultural Coffee Rehabilitation Rehabilitation Total No. of Value No. of Value No. of Value Subloans US$ M Subloans US$ M Subloans % US$ M % B. Financial Intermediaries Banco de America 93 2/ 15.18 2/ 34 .77 127 14 15.95 34 Banco Nicaraguense 127 T/ 12.18 f/ 13 .38 140 16 12.56 2' Banco Nacional de Desarrollo 32 T/ 12.46 T/ 598 5.72 630 70 18.18 39 Total 252 39.82 643 6.87 897 100 46.69 100 1/ The bank guarantee is a line of credit provided to the input supplier through the Central Bank for the purchase of inputs. The financial intermediaries guarantee to the suppliers the amount of inputs purchased by the producers and, when the producers sell their crops, the amount is deducted from the sale and credited to the suppliers' account. No cash chariges hands in the transaction between the supplier and the agricultural producer. 2/ Of the 93 subloans, 87 for a total value of US$8.12 million were made to the private sector and six subloans for US$7.06 million went to the public sector (Area Propiedad del Pueblo). 3/ All subloans to private sector. 4/ Of the 32 subloans, 31 for a total value of US$4.46 million, were made to the private sector and one subloan for US$8.0 million went to the public sector (AGROMEC). June 28, 1983 C* 4 NICARAGUA AGRICULTURAL AND INDUSTRIAL REHABILITATION PROJECT PROJECT COMPLETION REPORT Allocation of Loan Proceeds (US$) Revised % Loan Loan Category Financed Agreement Agreement Disbursed (1) Subsidiary loans for 100% of amount 7,000,000 16,380,000 16,380,000 agricultural rehabilitation disbursed by FED (2) Subsidiary loans for 100% of amount 7,500,000 5,500,000 5,500,000 w coffee rehabilitation disbursed by FED (3) Subsidiary loans for 100% of total 15,000,000 8,000,000 8,000,000 industrial rehabilitation (4) Technical assistance (a) Consultants 100% of total 100,000 - - (b) Vehicles and equipment 100% for direct 200,000 120,000 120,000 imports and 80% for locally procured (c) Livestock survey 50% of total 200,000 - - Total 30,000,000 30,000,000 30,000,000 JD June 24,- 1983 BC7 CoPY AVAILABLE Table 4 NICARAGUA AGRICULTURAL AND INDUSTRIAL RENABILITATIO9 PROJECT PROJECT COMPLETION REPORT Key Iricators (Agricultural Comonent) Value of No. of -- Loan Value --- Average Loan Subloans Manzana I Ha C$'000 US$'000 US$/ha I . Agrlcultural Rehabilitation Credit Seasonal Investments Food Crops - Beans 1 ill 78 211 21 269 - Horticulture 1 1,473 1,031 11,637 1,164 1,129 - Maize 2 1,448 1,014 4,347 435 429 - Rice 3 9,792 6,854 51,878 5,188 757 - Sorghum 6 3,856 2,699 8,794 879 326 - Banana 1 20 14 200 20 1,429 - Peanuts 1 955 669 3,343 334 499 Subtotal 15 17,655 12,359 80,410 8,041 Export Crops - Coffee 53 6,775 4,742 48,161 4,816 1,016 - Cotton 154 30,215 21,151 178,176 17,818 842 - Sugar 2 210 147 572 57 388 Subtotal 209 37,200 26,040 226,909 22,691 Medium- and Long-term Investments Livestock 21 2/ 8,203 820 Machinery 7 82,636 8,264 Subtotal 28 90,839 9,084 Total Part I 252 398,158 39,816 11. FED Development Credit Line Coffee Rehabilitation Small-scale farms (1-20 mz 1/) 356 3,242 2,269 16,450 3/ 1,645 725 Medium-scale farms (20-100 mz) 289 10,531 7,372 52,230 3/ 5,223 708 Total Part II 645 13,773 9,641 68,680 6,868 - Grand Total Parts I and II 897 68,628 48,040 466,838 46,684 1/ Manzana = mz - 0.7 ha. 2/ Seventeen of the 21 projects were for the purchase of steers and have been classified as short term for credit purposes. 3/ Includes partial financings only of coffee farm harvesting. June 28, 1983 NICARAGUA AGRICULTURAL AND INDUSTRIAL REH 'TATION PROJECT PROJECT COMPLETION kZPGt. Lending by Type of Credit and Type of Sub-borrower (Agricultural Component) (US$ million) Estimated Allocation No. of Total Average of Bank Funds Subloans % Cost % Subloan at Appraisal (US$'OOO) (US$'000) (%) By type of borrower (a) Medium-scale private farming 245 97 24,758 62 101.1 29 (b) State-controlled farm enterprises 7 3 15,058 38 2,151.1 71 us Total 252 1o 39,816 100 158 100 By type of credit (a) Short term 241 96 31,495 79 130.7 80 (b) Medium term 11 4 8,321 21 756.5 20 Total 252 100 39,816 100 158 100 Projects Estimated at Appraisal to be Financed with Bank Funds FED Development Line - NO. 7. Coffee Rehabilitation (a) Small-scale farm 356 55 1,645 24 4.6 150 22 (b) Medium-seale farm 289 45 5,223 76 18.1 520 78 Total 645 100 6,868 100 10.6 670 100 June 28, 1983 - 36 - TabLe 6 NICARAGUA AGRICULTURAL AND INDUSTRIAL REHABILITATION PROJECT PROJECT COMPLETION REPORT Agricultural Subloan Distribution by Department 1 2 3 4 No. of % of Total Value % of Department Projects Total of Subloa-n Total (US$'000) Boaco 9 4 286.0 1 Corazo 5 2 190.9 - Chinandega 96 38 11,409.3 29 Chontales 3 1 5,150.5 13 Esteli 2 1 23.6 - Granada 11 4 1,020.5 3 Jinotega 9 4 796.9 2 Leon 67 27 8,259.6 21 Madriz - Managua 10 4 8,259.6 22 Masaya 1 - 95.1 - Matagalpa 36 14 3,727.5 9 Nueva Segovia 1 - 23.6 - Rivas 2 1 66.4 Rio San Juan - - - Zelaya - - - 252 100 39,815.8 LOO June 24, 1983 NICARAGUA AGRICULTURAL AND INDUSTRIAL REHABILITATION PROJECT PROJECT COMPLETION REPORT Interest Rates (Agricultural Component) Rate to No. of Financial Rate to Subloans Intermediary Sub-boriowers () (%) Agricultural Rehabilitation Short-term loans 245 11 14 Medium-term loans ( 6 9 12 ( 1 10 14 Subtotal Z52 Coffee Rehabilitation Small-scale farmer 356 7 10 Medium-scale farmer (289 8.Z5 11 (__ 8.50 11 Subtotal 645 June 24, 1983 NICARAGUA AGRICULTURAL AND INDUSTRIAL RERABILITATION PROJECT PROJECT COMPLETION REPORT Annual Agricultural Production, Yields and Value of Output No. of Total Value of Subloans Area Output Yield Production (ha) (ton) (ton/ha) (USS'000) Rice 3 6,854 31,156 4.5 10,795.7 Cotton 154 21,151 16,756 .8 24,550.3 Sorghum 6 2,699 7,011 2.6 1,002.6 Horticulture 1 1,031 11,496 11.2 1,578.7 Beans 1 78 76 1.0 43.3 Maize 2 1,014 3,291 3.2 687.8 Banana 1 14 61 4.4 28.0 Coffee 53 4,74Z 4,619 1/ 1.0 10 '61.8 Sugarcane 2 147 9,545 64.9 157.5 Peanuts 1 669 1,953 2.9 1,289.3 Agricultural Machinery Services 7 78,176 - 20,530.9 Subtotal 231 Livestock Fattening (steers) 17 21,297 1,44 2 - 5,903.5 Dual-purpose 4 1,179 - - Subtotal 71 Total 252 If "Oro. If Meat. June 28, 1983 BEST COPY AVILuBLE - 39o - - 39-Table 9 NICARAGUA AGRECULTURAL AND INDUSTRIAL REHABILITXTrOV PROJECT COMPLETION REPORT Staffing (Agricultural Conponeint) At Start of At End of Project Project Change FED - Agricultural Division Director 1 1 - Agricultural EcononLst - 1 +1 Livestock Specialist 1 3 +2 Coffee Specialist 2 2 - Supervision and Control 2 1 -1 1/ Typists 2 2 - Subtotal 8 10 +-2 Banco Nacional de Desarrollo Coffee Renovation Program 6 11 +5 Crops and Livestock 4 9 +5 Others 2 2 Subtotal 12 22 +10 Banco de America 2/ Coffee Renovation Program 2 4 +2 Crops and Livestock 1 4 +3 Others 1 2 +1 Subtotal 4 10 +6 Banco Nicaraguense 3/ Coffee Renovation Progran 1 3 +2 Crops and Livestock 2 2 - Others 2 2 Subtotal 5 7 +2 Total 29 49 +20 1/ Transferred to new FED Supervision and Control Division. Y/ Includes staff originally in Financiera de Occidente. 3/ Includes staff originally in Interfinanciera de NIcaragua. June 24, 1983 于 IBRD15645 MARCH 1981 0 N D U R A 5 i imus CAY05 MISQUIT05 ,pv Tua ra v C2 Bonanza tuapi Icinta ørt* Cabetas Lo Constoncio a Rosita Q5 El Salto L 0 Vigla -h,nlo Puerto Isabel okantako n El Turne San Pedro del Norre Rio Blan o g Muy Mvy SJosådeLo Rernates 0 auawås Salto Grande ianla Lucl BOAC ý C oopa Comalo" 11 Sonte Dom inl;o MAIZ 10 ISLANDS Libertad Rarna JI.IIGALF A lo sanditio, B-UeUIELD5 El Bluff 121 ýRANADA Se, Ubeido ý,'ý:2APATERA i. I k Nueva Guinea Morrito Punta Go,dao A"<'9 ýOMETEPEI. a-"2 . .. n Jorget ýAS San Migvelito Nic ara 9,:.*a PeRas Blancos Mor i Cý SOLENTINAME l$, a n eir 9 Sý, dýl ýc,v of ýall,F705 . . - C 0 5 T A R l C A 831
Groupe de la Banque mondiale · Project Performance Assessment Report
Nicaragua - Agricultural and Industrial Rehabilitation Project
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Groupe de la Banque mondiale
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Project Performance Assessment Report
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Nicaragua
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Banque mondiale