Honduras - Third Agricultural Credit Project

Document of The World Bank FlE COrP FOR OFFICIAL USE ONLY Report No. P-3550-HO REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOGMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$ 45.0 MILLION TO THE REPUBLIC OF HONDURAS FOR A THIRD AGRICULTURAL CREDIT PROJECT May 2, 1983 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 EQUJIVALENTS Currency Unit = Lempira (L) US$1.00 L 2.00 US$0.50 = L 1.00 WEIGHTS AND MEASURES Metric System GOVERNMENT OF HONDURAS FISCAL YEAR January 1 to December 31 GLOSSARY OF ABBREVIATIONS BANADESA National Bank for Agricultural Development BCH Central Bank of Honduras CABEI Central American Bank for Economic Integration CONADI National Investment Corporation CONSUPLANE Superior Council of Economic Planning CU Coordination Unit FI Financial Intermediary IDB Inter-American Development Bank IMF International Monetary Fund INA National Agrarian Institute MRN Ministry of Natural Resources PAC Project Administration Contract PU Project Unit of the Central Bank SOE Statement of Expenditures UNDP-RUTA Regional Unit for Technical Assistance USAID United States Agency for International Development  FOR OFFICIAL USE ONLY HONDURAS THIRD AGRICULTURAL CREDIT PROJECT LOAN AND PROJECT SUMMARY Borrower: Republic of Honduras Beneficiary: Central Bank of Honduras (BCH) Amount: US$ 45.0 million equivalent, including capitalized front-end fee Terms: 20 years, including 5 years grace, at standard variable interest rate Relending Terms: The Government would make funds available to BCH on the same terms as the Bank loan for the purpose of redis- counting subloans of financial intermediaries to sub- borrowers for investments in agriculture and other productive activities in rural areas. The credit risk would be borne by the financial intermediaries; the foreign exchange risk would be borne by BCH. Project Description: The project has two equally important objectives. One is to provide funds for farm and non-farm investments in rural areas, and for working capital complementary to such investments, to promote (a) agricultural exports to improve the country's balance of payments; (b) increased rural production, incomes, and consumption; and (c) rural employment. The other is to improve institutional capacity to provide credit efficiently 2nd to assist farmers to develop bookkeeping and managerial skills in order both to participate more actively in the process of institutional lending and to derive more benefit from their farms. The project would consist of (a) a line of credit for both agricultural and non-farm investments (70 percent of base cost); (b) a line of short-term credit to cover working capital needs generated by investments (26 percent); (c) incremental staffing and equipment for a Project Unit (PU) in BCH to supervise and coordinate administration of credit funds by Financial Intermediaries (FI) (3 percent); and (d) training for staff of both the PU and FIs and for small-scale farmers (1 percent). Of the 36,000 persons who would benefit directly from the project, about 90 percent are expected to belong to small-scale farming families; about 40 percent of the credit funds are expected to be lent to small-scale farmers. The main risk of the project is that the National Bank for Agricultural Development (BANADESA), the major channel for loans to small farmers, may become This document has a restricted distribution and may be used by recipients only in the performance of | their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - ineligible to participate in the project because of its financial problems. To minimize this risk and improve BANADESA's operation, technical assistance and strengthening of BANADESA is provided under the proposed project. Estimated Cost: US$ Millions Equivalent Local Foreign Total Credit Program A. Long-term Investments 33.2 18.3 51.5 B. Short-term Credit 13.7 4.9 18.6 Subtotal 46.9 23.2 70.1 Project Unit (incremental staffing and equipment) 1.4 0.8 2.2 Training 0.6 0.4 1.0 Baseline Total 48.9 24.4 73.3 Price Contingencies 0.4 0.2 0.6 Total Project Cost 49.3 24.6 73.9 Front-end Fee - 0.2 0.2 Total Financing Required 49.3 24.8 74.1 Project Financing Plan: US$ Millions Equivalent Local Foreign Total Bank 20.2 24.8 45.0 BCH 12.6 - 12.6 FIs 7.7 7.7 Subloan Beneficiaries 8.8 - 8.8 Total 49.3 24.8 74.1 Estimated Bank Disbursements: ----------US$ million--------- FY: 1984 1985 1986 1987 Annual 5.0 14.2 17.3 8.5 Cumulative 5.0 19.2 36.5 45.0 Economic Rate of Return: Not applicable. Appraisal Report: No. 4298-HO, dated April 25, 1983.  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF HONDURAS FOR A THIRD AGRICULTURAL CREDIT PROJECT 1. I submit the following Report and Recommendation on a proposed loan of US$ 45.0 million to the Republic of Honduras for the Third Agricultural Credit Project. The loan would have a term of 20 years, including 5 years of grace, with interest at the World Bank's standard variable rate. All proceeds of the loan would be relent on the same terms as the Bank loan, to the Central Bank of Honduras. Of the total Bank loan, US$ 32.9 million is expected to be on-lent through participating financial intermediaries to final beneficiaries for terms of up to 12 years, including 5 years grace, at an annual interest rate fixed at 5.5 points above the World Bank standard variable rate in the semester the subloan contract was signed; US$ 9.3 million is expected to be on-lent to beneficiaries of investment credit provided under the loan, through short-term loans with a maximum term of 18 months and at the same interest as long-term loans, for the purpose of financing short-term working capital needs complementary to the investments; US$ 1.6 million would help to finance the incremental staffing and equipment needs of a Project Unit in BCH; and US$ 0.7 million would help to finance the training component. The balance of US$ 0.5 million would be used to cover price contingencies and the Bank's front-end fee. PART I - THE ECONOMY 2. A report entitled "Current Economic Memorandum on Honduras" (3312-HO) was distributed to the Executive Directors on July 29, 1981. Bank missions visited Honduras during December 1982 and March 1983 to review recent economic performance. The main findings of these missions are summarized below. Country data sheets are attached as Annex I. 3. Honduras is a poor country. Per capita GNP was about US$ 600 in 1981, one of the lowest in the Western Hemisphere. Malnutrition is severe; infant mortality is about 9 percent of live births; and the literacy rate is only 60 percent. One-half of the population is without safe water and three-quarters of the households are without access to sanitary waste disposal and electricity. 4. The population of about 3.8 million is now growing rapidly, at about 3.4 percent a year, straining available resources. While two thirds of the economically active population is employed in agriculture, only one-quarter of the land area is arable. The Government is showing some awareness of the population problems. Family planning information and services are provided at Government health clinics to anyone requesting them. In addition, a local, private affiliate of the International Planned  - 2 - Parenthood Federation supports two urban clinics, reaching about three percent of the fertile female population. External assistance to these and other smaller programs comes from the United Nations, private organizations, and USAID. 5. During 1950-75, the real growth rate of the Honduran economy was 3.7 percent per year; per capita income grew by only about one percent per year. A number of factors contributed to this poor performance. A major reason was the continued dependence on banana exports, and deteriorating terms of trade. 6. The risk of dependence on one or two export crops was illustrated dramatically during 1974-75 when extensive destruction of the banana planta- tions by one of the worst hurricanes in Honduras' history resulted in a sharp reduction in exports and GDP; about seven percent in the latter. Further- more, the terms of trade deteriorated by about one fifth, owing to large increases in petroleum prices and rising prices for imported goods. As a result, the resource gap grew from about 1 percent of GDP during 1972-73 to an average of 5 percent during 1974-75, and the rate of inflation accelerated from 2.7 percent a year during 1966-73 to 11 percent a year in 1974-75. 7. Subsequently, real GDP recovered remarkably during 1976-79, as it grew by 7.7 percent per annum. Real investment--public and private--and ex- ports were the most significant growth factors. The quantum and value of ex- ports grew rapidly at 11 and 25 percent yearly, respectively, as a result of a one-third expansion of coffee production, partial recovery of banana pro- duction, and higher coffee prices. However, the terms of trade deteriorated significantly after 1977 owing to rapidly rising import prices coupled with a decline of coffee prices. Rising import prices prevented a return to the traditional price stability of the economy and adversely affected real wages. Inflation averaged seven percent a year during 1976-79. 8. The favorable growth performance of the economy during 1976-79 was partly a result of more aggressive Government development policies in the 1970s. Serious infrastructure deficiencies in transport and power were eased when a basic network of trunk highways and ports was built. As a result, private activities expanded rapidly, taking advantage of the externalities provided by the public sector. Improved Government planning and executing capacity was behind the infrastructure expansion; public fixed investment increased from 3.3 percent of GDP in 1972 to 6.6 percent in 1974 and to 8 to 9 percent in 1978-79. To finance these expanded activities, the Government made efforts to strengthen public finances through tax reforms in 1975, 1979, and, most recently, in 1981 and 1982. Nevertheless, public finances weakened during 1980-1982, as noted below. Recent Developments 9. In 1980-82, economic growth slowed down as exports and investment lost their dynamism. Private investment was adversely affected by political events in Central America and by tight credit. Furthermore, the country's financial position deteriorated. The current account deficit of the balance of payments averaged about US$ 280 million (10.6 percent of GDP), and net  - 3 - official foreign exchange reserves declined substantially in spite of significant inflows of foreign official capital, partly because of a sharp decline in foreign commercial credits. Public finances also deteriorated; Central Government current expenditures increased rapidly during 1980-81, reflecting salary adjustments and large increases in the areas of education and health. Since January 1982, a new, democratically elected idministration has tightly controlled current expenditures, but revenues from tax reforms in 1981 and 1982 have been insufficient, and public finances continued to be tight in 1982. Weak public finances during 1980-82 brought about a larger than usual increase in the use of domestic credit by the public sector and a tightening of credit to the private sector. As part of a stand-by agreement with the IMF covering a 14-month period ending in December 1983, the Government took significant revenue measures. These were: an increase of the value added tax; a 20 percent import surcharge; higher excise taxes on soft drinks, liquor, and beer; and new selective consumption taxes, mostly on cars. A new simplified import tariff is now being considered in Congress. In addition, tariffs of the port authority, power company, telecommunications company, and water authority were increased. The overall deficit of the non-financial public sector, as a percentage of GDP, however, will only decrease slightly because of the additional burden that will be created by the needed refinancing of the National Investment Corporation (CONADI) obligations with foreign commercial banks arising out of its support to private projects with share capital, loans, and loan guarantees. Many of these projects are now bankrupt or in arrears on their debt obligations, and the Government is honoring their debts. Negotiations with foreign commercial banks to refinance the debts of CONADI and a few other public agencies are nearly complete. About 18 percent of existing external public debt (about US$ 225 million) is being refinanced; about US$ 120 million of amortization payments will be rescheduled. Furthermore, to increase private savings and resource mobilization by private banks, interest rates were freed on savings deposits and on loans financed with foreign credits. Prospects and Development Programs 10. Economic growth prospects during the 1980s are uncertain. The large Government investment effort underway, together with the good prospects for increasing export volumes of lumber and some other non-traditional exports, as well as possible diversification efforts by the private sector, could result in significant growth in the mid to late 1980s. Nevertheless, the outlook for 1983-84 is less optimistic because of the political climate in the region, low export prices, and reduced demand in the industrialized countries. As a result, real GDP growth may be only about 1.4 percent a year during 1980-85. Public finances are expected to remain tight. Maintenance of domestic demand levels, proper policies, and an improved investment climate could help revitalize the private sector so that it can contribute to further growth of the economy and take advantage of the new opportunities opened by the Government investment effort. However, private investment prospects are now negatively affected by the unsettled situation in Central America. 11. The current account balance of payments will likely show moderately high deficits because of the large public investment program's import re- quirements and higher prices for capital imports. The quantum of exports  would likely expand at a very low rate for the next few years; low export prices will also affect foreign exchange earnings from exports. This growth rate is much lower than in the recent past because banana production has- almost recovered to pre-hurricane levels, and coffee production will most likely not expand as rapidly as in 1976-80, when it grew 40 percent. The most dynamic export will likely be lumber, which is expected to almost double in volume once the new sawmill in the Olancho area becomes fully operational in 1983. 12. The public investment program for the next few years shows contin- ued large expenditures on infrastructure projects, particularly for on-going power and transport projects, which are still crucial, given the country's development stage; and heavy investments for export diversification, mainly through forestry development. Also likely are large expenditures for agri- cultural and rural development as well as for primary education and health. Parallel increments in current expenditures are programmed to staff and equip the education and health centers. Full implementation of this program is not likely because of tight public finances and limitations in administrative capacity to prepare and implement new projects, particularly in the rural and social sectors. Nevertheless, the public sector's administrative capacity to prepare and execute projects has shown a marked improvement in the past few years. This is reflected in the increased share of public investment in GDP and has made it reasonable to expect that the major components of the program, some of which have been under preparation for a number of years, will be implemented in a relatively timely manner. 13. Power investments will be the largest of the proposed program, averaging about 40 percent of public fixed investment, mostly because of the large, lumpy investment required for the El Cajon hydroelectric project, which the Bank Group is helping to finance (Loan 1805-HO and Credit 989-HO, of 1980). This high share is justified, since imported oil costs reached US$ 170 million (23.0 percent of c.i.f. merchandise imports) in 1982, compared to only US$ 14.7 million (6.6 percent of merchandise imports) in 1970. An expanded domestic demand and possible return to higher oil prices would bring about a much larger bill for imported oil in the future. The El Cajon project will reduce significantly the country' s dependence on foreign energy sources. Moreover, through a project financed by a Bank loan (Loan 1861-HO, signed on June 23, 1980), the Government will step up efforts to promote oil exploration by private companies. 14. Forestry investments include one large sawmill with completion expected in 1983. The large transport investments include roads for the sawmill, further rural roads, a modest expansion of the trunk highway system and completion of a new port at Castilla for wood product exports. Agricultural investments will be focused on rural development projects for three major valleys (Aguan, Guayape and Comayagua) and the western area of the country. Health investments will be concentrated on water supply and medical facilities for Tegucigalpa, San Pedro Sula and provincial towns, as well as for expanded health services in rural areas. Special efforts for training of nurses and other health personnel will facilitate stepped-up health and family-planning activities in the future. Educational investments are mostly for primary schools, the university, and agricultural and  - 5 - vocational training institutions. Nutritional improvement efforts provide for widened food distribution and vaccine coverage for school children and expectant mothers. 15. The Government's investment and financial programs, the latter supported by the IMF through a 14-month stand-by arrangement, should strengthen the balance of payments in the mid-1980s by reducing significantly the fuel import requirements of the economy, generating increased exports, particularly lumber and wood products, and by containing excess domestic demand. The large size of its public investment program, the uncertainty which now prevails in the Central American region and affects also Honduras, and past volatility in Honduras' export receipts, have led the authorities to agree with the Bank on annual reviews of the investment program and its financing prospects. The Bank plans to continue monitoring closely Honduras' progress. Honduras' adherence to a prudent financial program, its relatively careful demand management and still low debt service make it creditworthy for Bank lending. However, given the present and foreseeable poverty of the country, even with these measures, the Government will need external assistance in excess of the foreign exchange component of development projects suitable for international finance. With the expected improvement in the international environment and, consequently, possible increased availability of concessionary finance, Honduras should be a candidate for borrowing on somewhat softer terms than it is currently receiving. External Financing 16. As the import needs of the economy expand, particularly the imports related to the public investment program, the current account deficit is expected to average US$ 240 million during 1983-85. As a result, substantial capital inflows will be required. The bulk of the external financing requirements is expected to be met through public borrowing. Honduras will require an estimated gross capital inflow of about US$ 1 billion during 1983-85, of which about 40 percent will be disbursed from commitments made through the end of 1981. 17. Honduras' disbursed public external debt repayable in foreign currency amounted to US$ 1.2 billion or 46 percent of GDP at the end of 1981; US$ 1.9 billion if undisbursed commitments are included. In the past, Honduras has managed to keep its external debt-service ratio fairly low, because foreign loans were almost all on concessionary terms. Although the debt-service ratio in 1981 was 13 percent, it increased to 20 percent in 1982 as a result of the Government's taking over CONADI's direct debts and guarantees to private investors (paragraph 9). This is not expected to be repeated since the Government and the Bank are collaborating in a program to restructure CONADI and monitor its financial practices. The debt-service ratio is expected to peak at about 26 percent by the mid- to late-1980s and  - 6 - decline gradually thereafter, given reasonable recovery of the world economy. Nevertheless, continued maintenance of Honduras' creditworthiness will depend on the efficiency with which it chooses and implements its major public investment projects; on careful, continued demand management, including cautious use of non-concessionary borrowing; and on pursuing more active export promotion policies. 18. At the end of 1981, the Bank Group held about 20.7 percent of the disbursed public debt outstanding and repayable in foreign currency; excluding IDA, the Bank's share is about 14.3 percent. These shares are not expected to increase significantly in the next few years. About half of the Inter-American Development Bank's (IDB) total loans disbursed and outstanding are repayable in local currency, so that IDB's share of the disbursed public debt repayable in foreign currency is only 11.7 percent. The Central American Bank for Economic Integration (CABEI) accounts for 8.8 percent of the total, the U.S. Government for 10.2 percent, Venezuela for 10.2 percent, privately held debt for about 30.2 percent and other debt for 8.2 percent. 19. During 1970-82, the principal official lending agencies committed some US$ 1.9 billion at FY82 prices, of which the Bank Group provided 34 per- cent, IDB 32 percent, CABEI 22 percent, and the U.S. Agency for International Development (USAID) 12 percent. IDB has concentrated on manufacturing, agriculture, power, transport, water and sewerage, and education; CABEI on transport and power; and USAID on agriculture and education. PART II - BANK GROUP OPERATIONS 20. Beginning with a loan of US$ 4.2 million for roads in 1955, Honduras has to date received 28 Bank loans totalling US$ 438.5 million and 12 IDA credits totalling US$ 85.1 million, both net of cancellations. Bank Group lending to Honduras was unusually large during 1979 and 1980, both because of the Government's stepped-up investment program and because of the major investment in the El Cajon Power Project, for which a US$ 105.0 million loan and US$ 20.0 million credit were approved on March 11, 1980. While we hope to actively continue to support Honduras' development efforts, the annual Bank Group lending level is constrained by the relatively large size of the El Cajon operation in our portfolio. An important factor which will be taken into account in determining the pace and size of future lending will be the Government's capacity to implement its large ongoing program and to absorb further operations (paragraph 14). As of March 31, 1983, a total of US$ 166.6 million remained to be disbursed on 12 Bank Group-assisted operations for electricity, roads, education, agricultural credit, industrial credit, ports, regional development, tourism, and petroleum exploration. Execution of projects financed by the Bank Group has, on the whole, been satisfactory.  - 7 - 21. Speed of disbursements in Honduras has varied considerably by sector, with power projects generally accounting for the largest share. In FY82, disbursements reached a record high of US$ 46.6 million. Agricultural credit accounted for the second-largest share of the disbursed amount, US$ 9.1 million. Disbursements under the Second Agricultural Credit Project have been moving particularly well. Annex II contains a summary statement of Bank loans, IDA credits, and IFC investments as of March 31, 1983 as well as notes on the execution of ongoing projects. 22. In the past, Bank Group lending was heavily concentrated in trans- port and power, where inadequate facilities hampered the development of the country. However, the First Livestock Development Credit, approved in 1970, marked a first step towards the diversification of our lending. Since then, while lending for power and transport has continued, diversification of our lending has increased through operations for another livestock project, two education projects, two agricultural credit projects, a regional development project, two industrial credit projects, a tourism development project, and a petroleum exploration promotion project. 23. In future lending to Honduras, we plan to support the Government's objectives to increase production, employment, and exports, and to raise living standards of the poor by emphasizing projects in the productive and social sectors. On the productive side, in addition to the proposed project, we would continue to provide credit to the industrial sector. On the social side, we would attempt to complement the active programs of other agencies, such as USAID and IDB, by lending for water supply/sewerage and housing pro- jects aimed at improving living conditions for the urban poor, and would also continue to emphasize rural development to support the Government's agrarian reform efforts. New lending for infrastructure could be considered once the immediate obstacles to development are overcome and the Government's absorptive capacity improves. In formulating our lending program we will continue to coordinate our efforts closely with other international and bilateral agencies. 24. It is expected that the Bank's share of total external public debt disbursed and outstanding will increase slightly from its current level of 14.3 percent to about 17 percent during the mid-1980s. The IBRD share of public external debt service has dropped substantially since the early 1970s because of increased lending by other external agencies and a slight increase in commercial borrowing. The Bank's share is now about 14 percent and is projected to increase to about 16 percent by the mid-1980s. 25. IFC's activities in Honduras include a 1964 loan and equity investment, of US$ 295,000 and US$ 55,000, respectively, in a tannery, Empresa de Curtidos Centroamericana, S.A. In 1966 an additional equity investment of US$ 27,500 was made in this company. In 1968 and 1970 equity investments totalling US$ 75,000 were made in a pilot company, Compania Pino Celulosa de Centro America, S.A. In 1978 IFC approved a loan of US$ 9.0 million and an equity investment of US$ 1.0 million in Textiles Rio Lindo, S.A. de C.V., a locally owned textile company, to help finance an expansion  - 8 - and diversification project. IFC continues to look for investment opportunities in Honduras. Proposals for cotton cultivation and dairy projects are currently under preliminary consideration. PART III - THE AGRICULTURAL SECTOR Importance of the Agricultural Sector in the National Economy 26. Agriculture currently generates about three fourths of Honduras' export earnings and over one fourth of GDP. The sector employs over half of the economically active population, though most of the agricultural labor force is still engaged in subsistence agriculture. Despite its importance in the economy, the annual growth rate in the agricultural sector during 1970-1980 was only 1.9 percent, owing to the destruction of crops caused by Hurricanes Fifi and Francelia, and to land tenure insecurity caused by the Agrarian Reform in the early and mid-1970s. The agricultural economy is dominated by bananas and coffee. Basic grains (most importantly maize), sugar, tobacco, plantains, cotton, palm oil and citrus follow in importance. Together, bananas and coffee account for more than half of the nation's exports; beef, timber, and sugar account for about another fifth of the total. 27. The world economic recession, which has resulted in stagnant demand and depressed prices for Honduras' main exports, combined with recent international trading restrictions, leads to relatively weak growth prospects for her major foreign exchange-earning exports, particularly bananas, coffee, and sugar. This fact, together with the continued trend toward dependence on imported food staples, indicate a need for Honduras to increase agricultural production in general, and to further diversify its agricultural exports. Private investment may be expected to help to achieve this diversification, given increased access to domestic credit and support from international lenders., The proposed project would help to achieve these objectives. Main Features of the Agricultural Sector 28. Land Use. Honduras has a land area of 11.2 million ha, of which about four fifths is rugged mountains, and the remainder is flat to undu- lating land. About 6.6 million ha are forests and some 1.8 million ha are covered by eroded soils, swamps, or urban areas. The potential farmland totals about 2.8 million ha, of which about 1.0 million ha are used as grass- lands or lie fallow. Use of the remaining 1.8 million ha varies each year; in 1981, 1.1 million ha were under pastures, 0.2 million ha were under per- manent crops, and about 0.5 million ha were cultivated to seasonal crops. 29. Production. The agricultural sector shows a dichotomy in its pro- ductive and social structure. The low average yields of subsistence crops, such as basic grains, are a result of the low level of technology used by small-scale farmers. These crops are often grown on hillsides under shifting cultivation, which causes erosion. Most export-oriented or industrial crops, such as bananas and tobacco, are usually grown using advanced technology and  - 9 - in close coordination with organizations which support production and mar- keting. Coffee is produced under both low and high levels of technology. Livestock production, including production of dairy products, is undertaken by both large- and small-scale farmers under a broad range of technologies. 30. Marketing. The marketing of major export commodities is well-handled by the private sector, and the Honduran Marketing Institute has had a positive effect on the marketing of basic grains. Inefficiencies occur in the processing stage, however, usually because of overdesigned facili- ties. The Government practices market intervention to effect price controls for selected products, but the recent freeing of consumer price controls for milk and meat is expected to provide needed stimulus for production of those foods. 31. Institutions. The Ministry of Natural Resources (MRN), the National Agrarian Institute (INA), and the National Bank for Agricultural Development (BANADESA), discussed in paragraphs 37-39, are the most important institutions in the agricultural sector. Other important organizations in specific subsectors are the Honduran Banana Corporation, the Honduran Corporation for Forestry Development, the Honduran Coffee Institute, and the Honduran Agricultural Marketing Institute. MRN is responsible for animal health, plant quarantine, research, extension, the execution of specific projects, and some services, such as machinery rental. MRN requires strengthening, and USAID is presently providing funds to help consolidate the agricultural research and extension service efforts. 32. Land Reform. INA is responsible for land acquisition and distribution as well as the organization, training, management, and technical support of the peasant settler groups formed under the Agrarian Reform Law. By mid-1981, INA had settled about 48,000 families; about 36,000 remained organized in nearly 1,400 farmer groups, after initial desertion due to lack of adequate infrastructure. Beneficiaries were required to join such groups to qualify for credit from the National Development Bank. Since these groups did not always work together effectively, however, low agricultural production, splintered groups, and credit mismanagement often resulted. Seventy percent of the land settled has still not been properly titled, but carrying out the titling process is a priority of the Government, and external financial resources for this purpose are being provided by USAID. Government Strategy for Development of the Agricultural Sector 33. The public investment program in agriculture is designed to encourage export production, particularly forestry and palm oil from the areas of Olancho and the Aguan Valley, where the agricultural frontier can still be expanded. In addition to promoting effective land titling, the Government intends to strengthen the agricultural sector with the development of sound land use, watershed management practices, a new water law, implementation of a new seed law, training of agricultural staff in public agencies, and the improvement of management personnel policies.  - 10 - Interest Rates 34. In December 1982, following the trend in the international capital markets, BCH reduced the interest rate to 17 percent per annum on short-term loans for production credit which are financed with local resources; loans for basic grains production have a special incentive rate of 14 percent. There is no limit on interest rate spreads for loans financed with foreign funds. Interest rates are reviewed quarterly in light of both inflation and domestic and foreign financial market conditions, in order to ensure a positive real return to domestic savers and to maintain the competitiveness of domestic interest rates compared with rates on similar instruments in foreign markets. Domestic inflation is currently at an annual rate of 9 percent and is expected to drop to 7.5 percent in 1984 and to 7 percent in 1985. International inflation is expected to be the same as domestic for 1984 and 1985. The Banking System 35. The banking system in Honduras consists of BCH, 15 commercial banks, 3 development banks, of which one of the most important is the National Agricultural Development Bank (BANADESA), and 9 specialized credit institutions. BCH was established with the responsibility for formulating and implementing monetary policy and supervising the banking system, and it takes an active role in economic development through policy formulation, planning, and financing. Its functions as regulatory body for the banking system are carried out by the Office of the Superintendency of Banks, which also undertakes external audits of projects financed by international banks, including past and ongoing World Bank-financed agricultural credit projects. BCH is regarded, both inside and outside Honduras, as competently managed and adequately staffed. Financial Intermediaries 36. The commercial banks (11 of which participate in the ongoing Second Agricultural Credit Project) operate 222 branches throughout the country; BANADESA has 28 branches. The 3 largest banks--Banco Atlantida, Bancahsa and Banco El Ahorro Hondureno--accounted for 44 percent of the total assets of the commercial banking sector, 50 percent of all deposits mobilized, and 50 percent of the total time deposits and savings accounts of the sector as of October 31, 1982. At the end of 1981, commercial bank assets accounted for 79 percent of the total assets of the banking sector, and 95 percent of total deposits. 37. BANADESA. BANADESA was created in March 1980 from the National Development Bank, with its activities defined more narrowly than those of its predecessor to focus mainly on agricultural lending. Established as an autonomous Government institution with authorized capital of L 75.0 million, BANADESA's credit policies and annual budgets are decided by its Board of Directors, composed of the Ministers of MRN (Chairman), Economy, Finance and Public Credit; the Executive Secretaries of the Superior Council of Economic Planning (CONSUPLANE) and INA; the President of BCH; representatives of  - 11 - associations of farmers, cattlemen, and agrarian reform settlers; and BANADESA's Executive President. Major operational decisions are made by the Executive Committee, composed of selected Board members. 38. Lack of resources prevented the Government from adequately capitalizing BANADESA from the outset. Financing was needed not only for the authorized capital of L 75 million, but also to cover a deficit of L 27.8 million inherited from the defunct National Development Bank and portfolio losses amounting to L 12.1 million. In July 1982, the National Congress authorized a program to provide the necessary financing by stages, to be com- pleted in 1996. At the same time, the Congress authorized the Government to become the guarantor of a loan given by BCH to BANADESA under favorable terms to help reschedule loans which BANADESA owed to BCH itself. Despite financing from the Treasury and from BCH, BANADESA's record of high operating losses since its founding suggest that its difficulties will continue, unless an effort is made to correct its administrative inefficiencies and increase its rate of loan recovery. Some of BANADESA's inefficiencies result from overstaffing combined with a lack of experienced and trained staff. In late 1982, BANADESA's staff numbered nearly 1,000, 40 percent of whom were based in Tegucigalpa. Inefficiencies resulting from inexperienced or inadequately trained staff can be reduced through training staff and streamlining procedures to improve BANADESA's capacity to draft and supervise farm development plans, reduce subloan processing time, improve field supervision on the use of subloans, and intensify collection efforts. Some of the difficulties are associated with lending to small farmers, especially agrarian reform groups, to whom BANADESA is the most important institutional lender. Groups of beneficiaries organized for the purpose of reducing the cost of lending to them often had problems working together, and this, combined with the more diffuse responsibility for repayment of group loans, has contributed to delinquency problems (paragraph 32). 39. Elimination of these problems will not be accomplished overnight, but, considering BANADESA's pre-eminent role in channelling credit to small- scale farmers in Honduras, it is important to strengthen the institution. The Bank has begun a dialogue with BANADESA to establish the actions neces- sary to eliminate its fundamental weaknesses. A condition of loan effective- ness of the proposed project would be that BANADESA has formulated a plan of action to eliminate the arrearage problem in its Bank-financed portfolio (paragraph 59, below), and training would be provided to help to improve the performance of BANADESA staff (paragraph 51). Since improved institutional performance will depend also on sub-borrower awareness of the purpose of institutional credit and the obligations which it entails, the training component under the proposed project would include training for sub-borrowers which would aim at improving their accounting and credit management skills (paragraph 51). Financing for Agriculture 40. The agricultural sector is financed by both institutional and non- institutional sources, and, although no reliable information is available about the latter, estimates suggest that most small-scale farmers must depend on private moneylenders and often pay usurious rates of interest, since lack  - 12 - of collateral makes it difficult for small-scale farmers to obtain institu- tional credit. Both BANADESA and commercial banks rely heavily on BCH's rediscounting facility as a source of funds. 41. In 1980-81, Honduras experienced a shortage of liquid funds, which affected the amount of new credit granted; agriculture was particularly affected. Most of the decrease in value of new loans in 1980-81 is explained by the drop in coffee prices after the peak in 1977 which led to a progressive drop in demand for credit for investment in coffee production in 1978-81. By 1981, new credit for coffee was one fifth its 1977 level. Although lending for some non-coffee agricultural activities increased appre- ciably during the period (lending for basic grains more than doubled, for example), the aggregate increase was not sufficient to offset the decline in coffee financing. Bank/IDA Involvement in the Sector 42. To date, the World Bank Group has supported agricultural develop- ment in Honduras through four IDA credits, totalling US$ 28.2 million, and two Bank loans for US$ 30.5 million. Two of the IDA credits (179-HO, ap- proved in March 1970, and 434-HO, approved in October 1973) were for commer- cial livestock development, with the objective of strengthening the trade balance by increasing beef exports. The first credit (for the First Livestock Development Project) was evaluated in a Project Performance Audit Report (PPAR No. 1920) dated February 21, 1978. The PPAR concluded that, while the project did help to increase livestock production and beef exports, it did so in part through more extensive production rather than primarily through improved production techniques. The Second Livestock Development Project, approved in October 1973, continued and extended the actions of the first project. Under both projects, it was found that fewer loans for larger amounts were granted, compared with appraisal expectations. The Project Completion Report (dated May 3, 1982) points out that project implementation slowed down after the Agrarian Reform Law went into effect, owing to the increasing land tenure uncertainty for large landowners brought about by the Law, as well as coincident stagnation in the international demand for beef. 43. The Bank's lending objectives for agriculture in Honduras have changed since approval of the two livestock projects. Beginning with the First Agricultural Credit Project, for which a third IDA Credit (628-HO) for US$ 14 million was approved in May 1976, the Bank has been pursuing a double- faceted strategy: to support both agricultural credit aimed at all cate- gories of producers and multi-component investment projects aimed at reaching a greater proportion of small-scale farmers. The Credit became effective in December 1976, and by September 30, 1982, US$ 12.5 million had been disbursed and all the funds were committed. One of the principal objectives of this Project was the strengthening of the Agrarian Reform Program. It provided credit to Agrarian Reform settlements and commercial farmers for crop and mixed crop/livestock development, as well as technical assistance, equipment, and training. The project also included funds for technical assistance to strengthen MRN, INA, the Honduran Banana Corporation (COHBANA), and the Pan-American Agricultural School.  - 13 - 44, In April 1980, a US$ 20 million loan and US$ 5 million credit were approved for a Second Agricultural Credit Project (Loan 1833-HO and Credit 1005-HO). The objective of this ongoing project is to provide long-term credit for farm development (especially for small farms), purchase of agri- cultural machinery, and construction of municipal abattoirs. Funds were also provided under the project for flood control and drainage works along the Ulua River, implementation of a pilot forestry project, and various studies. Lending has taken place for the production of a wide array of crops, in- cluding tobacco, maize, sugarcane, cotton, citrus, and oil palm, and for bee- keeping, small livestock, and beef cattle. By March 31, 1983, US$ 13.2 million of the US$ 25.0 million was disbursed, about even with appraisal expectations. In August 1982, the Bank reallocated funds originally destined for flood control along the Ulua River to assist in the rehabilitation of agricultural lands in the southern part of Honduras which were devastated by tropical floods last May. 45. Increased focus on lending to small-scale farmers under the First and Second Agricultural Credit Projects has led to very different project execution experience than the smaller, more narrowly focused First and Second Livestock Projects. While fewer than 80 large-scale cattle ranchers - benefitted under the earlier projects, the Agricultural Credit Projects have now reached about 1800 sub-borrowers, many of whom are agrarian reform settlers. The number of participating financial intermediaries has grown from 7 to 12, permitting this expansion. At the same time, as a result of the shift in focus toward small-farmer lending, BANADESA has become the most important single participating financial intermediary, accounting for over half of the funds on-lent to small-scale farmers. In spite of the increased emphasis on lending to small-scale farmers and the rapid commitment of funds, project experience has highlighted the difficulties which often accompany efforts to accelerate institutional lending to small farmers. For example, of the 861 subloans made by December 31, 1982, about 45 percent went to small-scale farmers, but these accounted for only about 25 percent of the total investment funds on-lent. The special difficulties associated with lending to agrarian reform groups discussed in paragraphs 38 and 39 have been experienced by BANADESA under these Bank-financed projects. Based on this project experience, an important objective of the proposed project is to strengthen BANADESA. 46. The Guayape Regional Development Project represents the first Bank- financed effort to pursue the second facet of the Bank's current agricultural lending strategy for Honduras--support for a target-group focused, multi- IF component package of rural investments and services. Bank financing for the project is provided under Loan 1576-HO for US$ 10.5 million, approved in May 1978. The project includes on-farm investments, small irrigation schemes, machinery pool services, rural road improvements, agricultural research facilities, and extension services for some 1,200 small-scale farmers and 70 agrarian reform settlements (1,500 families) in the Guayape Valley. After some initial organizational problems, implementation is proceeding well.  - 14 - PART IV - THE PROJECT Project Origin 47. The Project was prepared during the second and third quarters of 1982 by BCH's Project Unit (PU) with assistance from the United Nations Development Program's Regional Unit for Technical Assistance (RUTA) based in Costa Rica. The Project was appraised in September 1982. A report entitled "Staff Appraisal Report - Honduras, Third Agricultural Credit Project," (Report No. 4298-HO), is being distributed separately. Negotiations were held in Washington, D.C. from April 4 to 11, 1983. The Government delegation was led by the Vice President of BCH and included the President of BANADESA, as well as representatives of the Ministry of Finance. Supplementary data are contained in Annex III. Objectives and Description 48. The proposed project would support investments on farms and in other rural enterprises with the objective of promoting: (a) diversifi- cation of agricultural exports to improve the country's balance of payments, (b) increased production and incomes in rural areas, and (c) rural employ- ment. A further equally important objective of the project would be to support the strengthening of the capacity of BANADESA and other financial intermediaries (FI) to appraise, supervise, and collect subloans, and the improvement of small-scale farmer beneficiaries' managerial and accounting capacity. The project would provide funds for: (a) a nationwide credit program to finance, through rediscounting facilities, investments in rural areas for both on- and off-farm activities; (b) the incremental short-term credit needed for working capital to complement long-term investments; (c) incremental PU administration costs; and (d) training for PU staff, the FIs' staff, including BANADESA, and farmers. 490 Credit Component. Ninety-six percent of baseline project costs, US$ 70.1 million, would be on-lent to final sub-borrowers. Most of the credit funds would be used to finance farm development, but funds could be used to finance any rural enterprise, such as cottage brick-making or milk- collection centers. Typical on-farm investments would include pasture devel- opment, fencing, water supply, construction of farm buildings, machinery, and breeding animals. Participating FIs would bear the credit risk and would provide part of the funds, in addition to the loan officers to appraise and supervise subloans. About 40 percent of the total credit funds are expected to be lent to small-scale farmers, most of whom would be settlers belonging to agrarian reform groups. Incremental short-term capital would be provided under the project during the first 18 months of development of each  - 15 - investment plan, and subsequently by BCH, to finance seasonal production costs complementary to investments, such as animal feed, seed, fertilizer, and labor. 50. Project Unit, The PU established by BCH in 1970 for the first agricultural credit operation (the First Livestock Development Project) would be maintained. Three percent of project base cost (US$ 2.2 million) would be used for incremental staffing and equipment needs for this unit. Three new staff positions would be required for the proposed project: a Project Deputy Director, an Extension Specialist, and a Training Coordinator. These posts would be filled by persons whose qualifications, experience, and terms and conditions of employment would be satisfactory to the Bank, as a condition of loan effectiveness (draft Loan Agreement, Section 6.01 (e)). Financing would be provided for the purchase of about ten vehicles, and for acquisition and installation of a computerized management information system. Funds have also been included for the services of consultants to be hired by the PU as the need arises during project implementation. Fields in which the need for ouitside expertise is anticipated include the design and maintenance of a computerized management information system, and assistance for implementing institutional improvements in BANADESA. 51. Training Component. Under the project, funds would be provided under the supervision of the PU's Training Coordinator, for training for PU staff, FIs' loan officers, BANADESA's staff, and small-scale farmers. US$ 1.0 million (1.4 percent of baseline cost) has been allocated for this purpose. PU and BCH staff who in the past have built up expertise in agricultural technology and project analysis would now be gradually trained in management, banking, finance, credit analysis, auditing, and crop and animal husbandry. Training for FIs' agricultural loan officers would consist of courses on project appraisal, credit analysis, and matters related to agricultural sub-projects. BANADESA's loan officers would be given the same courses separately (considering their large number), as well as a course on loan recuperation. BANADESA's branch managers would be given general banking courses. A major training program to strengthen the administrative, managerial, and accounting capacity of both first- and second-tier small-scale farmer cooperatives to promote the effective use of credit would also be undertaken. Consultant services would be employed in some of the training programs, particularly in training of PU staff in computer operation. It would be a condition of effectiveness that the PU had designed, and the Bank approved, the first year's training program (draft Loan Agreement, Section 6.01(g)). 52. The cost of consultant services is estimated to average US$ 10,000 per man-month; about 50 man-months of services are estimated to be required. The hiring of all consultants would be subject to Bank approval of their qualifications, experience, and terms-of-reference. Most consultants would be internationally recruited (draft Project Agreement, Section 2.02). Project Cost and Financing 53. Total project cost is estimated at US$ 73.3 million, of which about 33 percent represents foreign exchange. Costs are based on September 1982 prices; price contingency allowances have been calculated for the PU  - 16 - administration and training components. International inflation figures used were 8 percent in 1983, 7.5 percent in 1984, and 7 percent in 1985. The forecast for domestic inflation in 1983 is nine percent; forecasts for - subsequent years are the same as for international inflation. 54. The financing plan provides for a Bank loan of US$ 45.0 million, including the capitalized front-end fee of about US$ 0.20 million. The Bank loan would finance about 61 percent of total project costs, including all the estimated foreign exchange costs, the front-end fee, and about US$ 20.2 million of the local costs. Financing for some local costs has been included both because the foreign exchange component is relatively low, and because of the present and forseeable poverty of the country, as discussed in paragraph 15, above. Sub-borrowers would finance US$ 8.8 million (12 percent), FIs would finance US$ 7.7 million (10 percent) and BCH would finance US$ 12.6 million (17 percent) of total project costs. Tables showing project costs and the financing plan are contained in the Loan and Project Summary at the beginning of this report. Project Implementation 55. BCH would be the principal executing agency, operating through an Executive Committee (paragraph 56, below) and the PU. A Subsidiary Loan Agreement would be signed by BCH and the Government as a condition of loan effectiveness (paragraph 62, below) (draft Loan Agreement, Section 6.01(b)). BCH would rediscount long-term subloans for agricultural development and rural enterprises and short-term subloans for incremental working capital complementary to investments made by public and private financial intermediaries participating under the project. Each FI would sign a Project Administration Contract (PAC) with BCH specifying, inter alia, the relending arrangements for loan proceeds (paragraphs 63-66, below). it would be a condition of effectiveness that four PACs, one of which must be BANADESA's, have been signed by BCH and the relevant FI and approved by the Bank (draft Loan Agreement, Section 6.01(c)). 56. Project Executive Committee. An Executive Committee, to which the PU Director reports, has been established under the ongoing Second Agricultural Credit Project. Since the Committee as currently defined has proven too large, the Committee would be restructured under the proposed project. The new committee, to be established by December 31,1983, would comprise senior representatives of: BCH (Chairman), MRN, BANADESA, and the Honduran Association of Banking Institutions (draft Loan Agreement, Section 3.02(a)). The Committee would monitor the lending program and the PU's budget, and approve the annual evaluation and auditor's reports. 57. Project Unit. The PU would be responsible for overall project implementation. It would expand its activities in the Department of Olancho, which has become more accessible due to the upgrading of a major road from Talanga to Catacamas financed under the Bank's Seventh Highway Project. Specific responsibilities of the PU would include: review and approval of farm development plans; supervision of FI administration of subloans; coordination of training provided under the project (Training Coordinator); promotion and coordination of technical assistance for sub-borrowers, using  - 17 - the appropriate existing institutions (Extension Specialist); monitoring of a sample of beneficiaries and completion of interim and ex post evaluation reports on the impact of credit on beneficiaries' welfare (monitoring and evaluation unit); and completion and submission to the Project Executive Committee of quarterly progress reports and annual evaluation reports, in addition to the reports usually required for agricultural credit projects. To provide all FIs with standard guidelines for preparation, appraisal, and supervision of investment plans, and for monitoring and collection of subloans, the PU would draft a credit manual to detail such guidelines. The credit manual would specify, inter alia, that a minimum rate of return criterion would be met by all approved investment plans. It would be a condition of loan effectiveness that the credit manual has been submitted to and approved by the Bank (draft Loan Agreement, Section 6.01(d)). 58. Financial Intermediaries. FIs would be selected according to a number of criteria, including: satisfactory experience and good performance in agricultural lending; adequate financial condition and management; adequate managerial, administrative, and technical capabilities at national, regional, and branch levels; adequate technical staff to be assigned to the project in terms of number, experience, and qualifications; and an adequate network of branch offices. Once an FI's eligibility is determined, its (PAC) would be drawn up. It would be a condition of disbursement to an FI that its PAC has been signed by it and BCH (draft Loan Agreement, Schedule 1, paragraph 4(b)). FIs would be responsible for preparing and appraising investment plans, supervising the use of funds by sub-borrowers, and collection of subloans. 59. BANADESA. Because of its serious delinquency problem and its importance in agricultural lending, there would be three conditions of loan effectiveness related to BANADESA (draft Loan Agreement, Section 6.01(f)). First, BANADESA would prepare and furnish to the Bank a satisfactory Loan Recovery Plan for its Bank-financed portfolio (draft Loan Agreement, Section 3.03(a)). Such plan would include a timetable for reaching specified targets. Second, BANADESA would have to: (i) establish a Coordination Unit (CU) whose task would be to improve overall performance, especially loan collection; and (ii) appoint a manager for the CU whose qualifications and experience are satisfactory to the Bank (draft Loan Agreement, Section 3.03(c)). BANADESA has informed the Bank that this condition has already -41 been met with the assistance of two experienced staff from BCH's PU, who were seconded to BANADESA in October 1982. This condition of effectiverness would be fulfilled upon BCH's furnishing to the Bank satisfactory evidence that the If CU has been established and adequately staffed. Third, the terms of reference of loan officers would be redefined in a manner satisfactory to the Bank, to consolidate their duties in respect to lending operations (draft Loan Agreement, Section 3.03(d)). Until now, each loan officer has been responsible for only one phase of loan administration. Under the redefined terms of reference, each would be responsible for a specific portfolio of loans, from appraisal through disbursement and supervision, to loan collection. This third condition of effectiveness would be fulfilled when BANADESA has furnished to the Bank the loan officers' new terms of reference.  - 18 - 60. Special obligations which BANADESA would fulfill during project implemention would also be spelled out in its PAC. The contract would require, inter alia, that: quarterly reports on the status of subloan col- lection in its Bank-financed portfolio and semi-annual audited reports of its Bank-financed accounts would be sent to the Bank; BANADESA would achieve the collection targets specified in its Loan Recovery Plan for its Bank-financed portfolio (see also Section 3.03(b) of the Loan Agreement); and BANADESA would maintain the CU throughout project implementation (see also Section 3.03(c) of the Loan Agreement). 61. To begin to address BANADESA's overall institutional and portfolio problems, BANADESA's PAC would also require that BANADESA complete, by June 30, 1984, a major review of its organizational and financial position. Particular emphasis would be placed on financial programming, overall lending procedures, including the use of guarantees and the granting of credit for non-agricultural purposes, portfolio management, staffing, and training. Special attention would be paid to the overall loan portfolio, arrears, and collection targets. BANADESA would discuss the findings of the review report with the Bank and would implement the agreed recommendations, which would include a Loan Recovery Plan for its overall portfolio. Channelling of Funds and On-lending Terms 62. The Government would relend to BCH the full amount of the proposed loan under the same lending terms agreed upon with the Bank, in accordance with a Subsidiary Agreement to be signed by the Government and BCH. BCH would bear the foreign exchange risk. As implementing agency, BCH would agree to: (a) maintain the existing revolving funds created to speed dis- bursement for credit operations and for PU expenditures (draft Project Agreement, Section 2.09(f)); and (b) provide adequate counterpart funds (draft Project Agreement, Section 2.01). In addition, all funds repaid to BCH by FIs that are not needed for payments to the Government under the Subsidiary Agreement would be used for additional lending for purposes similar to those defined under the project (draft Project Agreement, Section 3.02). The Bank and BCH would, at the request of either and in joint agreement, review the lending terms and conditions during the execution of the project (draft Project Agreement, Schedule 2, Section III, para. 13), to assure that real interest rates remain positive as well as competitive with similar lending instruments, both in Honduras and in international markets. 63. BCH would rediscount subloans to FIs at 1.5 percent over the Bank's standard variable rate for the semester in which the rediscounted subloan contract was signed, rounded to the nearest half-point. The rediscount rate would be fixed for the period of amortization, which would be the same term as the corresponding subloan. In addition to the rediscount rate, BCH would charge a one-percent commitment fee on the amount of subloans approved but undisbursed by FIs as an incentive to the latter to speed loan processing. Loans rediscounted with BCH would be denominated in lempiras, and the FIs would assume the credit risk, although BCH would restore the liquidity of an  - 19 - FI adversely affected in the event that the land on which an investment plan was being carried out was expropriated under the Agrarian Reform Law. This would be done through a mechanism, satisfactory to the Bank, to be established by the Government by March 31, 1984 (draft Loan Agreement, Section 3.04, and draft Project Agreement, Section 2.10). The above terms and conditions of FI participation would be spelled out in the PAC of each FI. 64. Subloans would be made to any person or group with a sound invest- ment plan for farm development or for non-farm activities related to agri- culture in rural areas (defined as being outside the urban limits of Tegucigalpa and San Pedro Sula). Short-term subloans would be made only for incremental working capital needs complementary to long-term investments. Interest on the outstanding balance of a subloan would be fixed for the life of the subloan and paid by sub-borrowers at an effective rate of 5.5 points above the Bank's lending rate established for the semester in which the sub- loan conitract is signed (this is the same spread as permitted under the ongoing Second Agricultural Credit Project. Repayment terms would reflect the capacity of the investment to generate net revenues as indicated by the cash flow projections of the investment plan. Investment subloans would be made for a period of at least 18 months and for not more than 12 years including a maximum grace period of five years. Short-term credit subloans would be repaid in 18 months or less. FIs would be permitted to charge a penalty fee on arrears of interest and principal. 65. It is expected that 40 percent of the total value of subloans would go to small-scale farmers, defined as those who derive at least 75 percent of family income from farming activities and have net assets valued at no more than US$ 40,000 or are beneficiaries of the agrarian reform under Chapter I, Title IV of the Agrarian Reform Law. Subloans for small farmers would finance up to 90 percent of the cost of their investments; farmers could con- tribute their 10 percent share in cash, labor, or in kind. For large farmers, defined as those whose net assets exceed US$ 400,000 equivalent, subloans would finance up to 70 percent of their investment. For other farmers and sub-borrowers with non-farming enterprises, subloans would finance up to 80 percent of the investment. Short-term subloans made to any beneficiary would be 100 percent rediscounted, in keeping with existing rediscounting procedures used by BCH. 66. All investment plans would be prepared by FIs. Appraisal procedures would be simplified for subloans of US$ 35,000 equivalent or less. Subloans for more than US$ 35,000 would require a detailed appraisal, as currently used under ongoing Loan 1833-HO. In the case of lending to a farmers' group with shared credit responsibility, a detailed analysis of the group's managerial skills would be undertaken by the Fl staff, who would, in such cases, be guided by PU staff. The FIs would also be responsible for disbursing subloans to sub-borrowers and supervising their use of the funds. The first 10 subloans to agrarian reform (or other farmers') groups, all investment subloans of US$ 200,000 equivalent or above, and subloans which, combined with the value of subloans made under previous Bank Group loans or credits totalled US$ 200,000 equivalent or more, would be sent to the Bank for review prior to approval for financing. The cumulative ceiling for  - 20 - investment subloans under the terms applicable to small-scale farmers would be US$ 35,000; for groups of small-scale farmers, the maximum would be the equivalent of US$ 35,000 multiplied by the number of members of the group (draft Project Agreement, Schedule 2, Section II, paras. 9-10). Procurement 67. Both the investment and the seasonal inputs to be purchased through the credit component would be for a widely dispersed number of farmers to cover a variety of activities and therefore would not be suitable for procurement through bulk purchasing or international competitive bidding. Foreign firms are represented in Honduras, and all procurement undertaken by sub-borrowers would be done through normal commercial channels, which are adequate. Whenever practicable, but for all purchases of US$ 50,000 or more, the FIs would require that sub-borrowers obtain quotations from at least three suppliers. Vehicles and equipment for the PU, which are estimated to cost about US$ 270,000 equivalent, would be subject to ICB when grouped in packages of US$ 100,000 or more. For packages of less than US$ 100,000, local competitive bidding procedures would be followed. All draft contracts and terms of reference for consultants would be subject to prior review by the Bank; most consultants would be internationally recruited. Disbursement 68. The loan is expected to be fully disbursed in four years. Disbursements for the credit program would be made against Statements of Expenditures (SOB). The documentation supporting the SOE would be kept by the PU and made available to the Bank during project supervision and audit inspections. Disbursements requested for all other components would be supported by standard documentation. Disbursements from the Bank would be for 69 percent of amounts previously disbursed by FIs for all subloans; this global disbursement percentage was calculated as the weighted average of the Bank's share in the financing plan for the credit component. Disbursements for non-credit components would be made at 100 percent for foreign expenditures and 58 percent for local expenditures, except that disbursements for materials, services and salaries for the PU would be for 58 percent of local expenditures only. Project Benefits 69. Through the provision of long-term financing for investment in the rural areas, the project would help to diversify agricultural production for exports and thereby contribute to a reduction of Honduras' dependence on coffee and banana exports. Increased production of basic food crops would encourage better nutrition and provide increased raw material for the under- utilized food processing industry. It is estimated that some 6,000 sub- borrowers would be financed under the project, of whom about 90 percent would be small-scale farmers, including those organized in groups. It is expected that about 40 percent of the credit funds would be lent to such small-scale farmers. Direct benefits to sub-borrowers would be increased income resulting from investments. Including families of sub-borrowers, the number of direct beneficiaries is estimated at some 36,000 persons. Assuming that  - 21 - investments made under the proposed project would follow the same pattern as those under the ongoing project, it is estimated that 14,000 new jobs would be created. 70. The project's training component is expected to make a significant contribution to the upgrading of skills of FIs, particularly BANADESA. The special technical assistance provided to BANADESA by BCH is aimed at strengthening its organization and administration. Training to be provided to small-scale farmers would improve credit management by small farmers' groups and by second-tier cooperatives. Benefits would accrue to the Government of Honduras in the form of incremental fiscal revenues from increased export tax revenues, particularly from commodities such as beef, tobacco, and bananas, from reduction of financial support to BANADESA, and from increased internal sales tax revenues on domestic marketing of farm produce. Economic and Financial Analysis 71. Since farmers and entrepreneurs would be free to choose their investment plans in response to shifting relative prices of commodities, computation of an aggregate financial or economic rate of return is not appropriate. Analyses of four illustrative farm models, chosen as represen- tative on the basis of past experience, yielded financial rates of return ranging from 19 to 37 percent. Economic rates of return calculated for the same models ranged from 26 to 49 percent. Project Risk 72. The main risk of the project relates to the amount of and speed with which credit funds under the proposed loan can be channelled to small- scale farmers. Despite substantial assistance from international lending agencies, usually in the form of studies and financial aid, BANADESA is still inefficient and in serious financial difficulties. There is a risk that BANADESA's participation may be suspended as a result of failure to achieve its targets under its Loan Recovery Plan. In this case, the level of lending to small-scale farmers would be affected, since BANADESA is the main channel for such loans. To minimize this risk and improve BANADESA's operations, technical assistance and strengthening of BANADESA is provided under the proposed project. 73. Three financial instruments, in various stages of preparation, would help to encourage a larger participation in small-scale farmer lending by commercial banks. First, INA's land titling program, partially financed by USAID, would increase banks' security in lending to small farmers by re- solving land tenure uncertainty. Second, BCH has announced that it will create a pilot limited-guarantee fund for private banks that would partially guarantee subloans to small farmers whose collateral is insufficient to qualify them for bank credit. Third, the increased use of chattel mortgages could provide an effective mechanism to facilitate lending to small farmers. A study to be financed under the project would explore ways to increase legal protection for banks which employ such mortgages, thus making them practical and attractive instruments for the institutions to use.  - 22 - PART V - LEGAL INSTRUMENTS AND AUTHORITY 74. The draft Loan Agreement between the Republic of Honduras and the Bank, the draft Project Agreement between the Central Bank and the Bank, and the Report of the Committees provided for in Article III, Section 4(iii) of the Articles of Agreement of the Bank are being distributed to the Executive Directors separately. The draft agreements conform to the normal pattern of loans for agricultural credit projects, and their more important features and special conditions have been included in Part IV and summarized in Section III of Annex III to this report. There are six special conditions of effectiveness of the Loan Agreement: (i) that the new posts of Project Deputy Director, Extension Specialist, and Training Coordinator in the Project Unit have been filled; (ii) that the Government and BCH have signed a Subsidiary Loan Agreement; (iii) that BANADESA and at least three other FIs have signed Project Administration Contracts with BCH; (iv) that a credit manual has been drafted by the PU and approved by the Bank; (v) that BANADESA has established and staffed a Coordination Unit, redefined the terms of reference of its loan officers in a manner satisfactory to the Bank, and prepared and furnished to the Bank a satisfactory Loan Recovery Plan for its Bank-financed portfolio; and (vi) that the first year's training program has been designed by the PU and approved by the Bank. It would be a condition of disbursement for each participating FI that it has signed a Project Administration Contract with BCH. 75. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATIONS 76. I recommend that the Executive Directors approve the proposed loan. A. W. Clausen President Attachments May 2, 1983 Washington, D.C.  - 23 - ANNEX I page 1 Page 1 of 6 TABLE 3A HONDUkAS - SOCIAL INDICATORS DATA SHEET HONDURAS REFERENCE CROUS (WEIGITED AVEWES AREA (THOUSAND SQ. XX.) - MDST RECENT ESTIMATE)- TOTAL K112.1 / HOST RECENT MIDDLE INCOKE MIDDLE INCOME AGRICULTURAL 51.6 1960 /b 1970 lb ESTIMATE /b LATIN AMERICA & CARISBEAN EUROPE GNP PER CAPITA (U$)> 180.0 270.0 560.0 Lk 1902.0 2323.9 ENERGY CONSUMPTION PER CAPITA (KILOGRMS OF COAL EQUIVALENT) 146.6 244.4 238.1 1259.9 2107.4 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUSANDS) 1942.0 2640.0 3691.0 URBAN POPULATION (PERCENT OF TOTAL) 22.8 28.7 35.6 65.7 47.9 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 6.7 STATIONARY POPULATION (MILLIONS) 16.0 YEAR STATIONARY POPULATION IS REACHED 2090 POPULATION DENSITY PER SQ. KM. 17.3 23.6 31.8 35.2 83.3 PER SQ. KM. AGRICULTURAL LAND 38.7 53.5 69.1 92.5 155.4 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 45.6 47.4 47.8 39.7 31.1 15-64 YRS. 52.3 50.1 49.5 56.1 61.2 65 YRS. AND ABOVE 2.1 2.5 2.7 4.2 7.7 POPULATION GROWTH RATE (PERCENT) TOTAL 3.3 3.1 3.4 2.4 1.6 URBAN 5.8 5.4 5.5 3.8 3.5 CRUDE BIRTH RATE (PER THOUSAND) 51.1 49.3 45.2 31.4 23.6 CRUDE DEATH RATE (PER THOUSAND) 18.8 14.7 11.1 8.4 9.2 GROSS REPRODUCTION RATE 3.5 3.6 3.3 2.1 1.6 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 12.7 23.0/c USERS (PERCENT OF MARRIED WOMEN) .. .. 9.0/.. FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 83.0 97.0 82.0 110.0 116.0 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 95.7 94.6 93.3/e 108.4 125.1 PROTEINS (GRAMS PER DAY) 57.8 55.2 52.1/;i 66.0 92.7 OF WHICH ANIMAL AND PULSE 21.6 20.0 17.8/e 34.0 35.9 CHILD (AGES 1-4) MORTALITY RATE 30.0 19.1 9.8 5.6 9.2 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 46.5 52.5 58.3 64.2 67.6 INFANT MORTALITY RATE (PER THOUSAND) 144.7 117.4 88.5 64.2 65.1 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL 12.1 34.0 46.0/d 65.6 URBAN 42.9 .. 82.0/? 78.9 RURAL 2.7 .. 27.0/i 43.9 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL *- 24.0 26.0/f 59.3 URBAN .. 64.0 53.0/f 75.3 RURAL .. 9.0 13.0/? 30.0 * POPULATION PER PHYSICIAN 12610.4 3793.1/A 3293.9/e 1617.3 1105.4 POPULATION PER NURSING PERSON .. 1132.6 872.2/e 1063.5 634.4 POPULATION PER HOSPITAL BED TOTAL 622.8 581.0 712.9/e 477.4 286.8 URBAN .. .. .. 679.8 192.0 RURAL .. .. .. 1903.4 ADMISSIONS PER HOSPITAL BED .. 20.0 29.1/e 27.3 20.0 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.7 .. URBAN 5.5 .. RURAL 5.7 .. AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 2.4 .. URBAN 1.8 .. RURAL 2.7 .. ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 14.6 .. 25.0/h URBAN 56.7 .. 67.1/i. RURAL 1.9 .. 5.5/  - 24 - ANNEX I Page 2 of 6 TABLE 3A HONDURAS - SOCIAL INDICATORS DATA SHEET HONDURAS REFERENCE GROUPS (WEIGHTED AVERA2ES - MDST RECENT ESTIMATE) - MDST RECENT MIDDLE INOKE MIDDLE IME 1960 /b 1970 /b ESTIMATE /b LATIN AMERICA & CARIBBEAN EUROPE EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 67.0 87.0 89.0 104.3 102.4 MALE 68.0 87.0 92.0 106.4 107.1 FEMALE 67.0 89.0 85.0 103.3 99.0 SECONDARY: TOTAL 8.0 14.0 21.0 41.3 60.2 MALE 8.0 14.0 20.0 40.4 66.4 FEMALE 7.0 13.0 22.0 41.8 54.0 VOCATIONAL ENROL. (2 OF SECONDARY) 23.8 17.0 24.9/f 33.7 31.6 PUPIL-TEACHER RATIO PRIMARY 31.8 35.3 35.4/e 29.9 25.8 SECONDARY 9.7 .. 16.6/? 16.7 22.2 ADULT LITERACY RATE (PERCENT) 45.0 57.0/h 60.0/f 79.1 75.9 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 2.8 4.8 6.4/d 42.8 51.0 RADIO RECEIVERS PER THOUSAND POPULATION 64.4 55.7 49.4 270.5 157.2 TV RECEIVERS PER THOUSAND POPULATION 0.7 8.3 13.8 107.7 123.7 NEWSPAPER ("DAILY GENERAL INTEREST') CIRCULATION PER THOUSAND POPULATION 19.2/i .. 62.6 63.7 112.3 CINEMA ANNUAL ATTENDANCE PER CAPITA .. .. .. 2.7 4.0 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 616.9 793.3 1073.9 FEMALE (PERCENT) 12.3 12.7 13.8 24.4 36.6 AGRICULTURE (PERCENT) 70.2 66.5 62.6 31.3 38.7 INDUSTRY (PERCENT) 10.6 12.5 14.6 23.9 25.9 PARTICIPATION RATE (PERCENT) TOTAL 31.8 30.0 29.1 33.6 44.5 MALE 55.3 52.3 50.0 50.4 56.3 FEMALE 7.9 7.7 8.1 16.8 32.8 ECONOMIC DEPENDENCY RATIO 1.5 1.7 1.7 1.3 0.9 NCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS .. .. HIGHEST 20 PERCENT OF HOUSEHOLDS .. 67.8/ . LOWEST 20 PERCENT OF HOUSEHOLDS .. 2.3 .. LOWEST 40 PERCENT OF HOUSEHOLDS .. 7.37 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY lNCOME LEVEL (US$ PER CAPITA) URbAN .. .. 255.0 RURAL .. .. 180.0 184.1 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 251.0 518.0 RURAL .. .. 80.0 371.1 406.6 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 14.0 .. .. RURAL .. .. 54.9 Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. Jb Unless othervise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most RecentEstimate, between 1978 and 1980. /c 1973; /d 1976; /e 1977; /f 1975; /I Registered, not all practicing in the country; /h 1974; /i 1962; /I 1967. /k 1980 estimate; most recent estimate for 1981 is USS 600.0. /1 FAO overestimated agricultural land. Country data is 29.2 thousand sq.km. May 1982  - 25 - ANNEX I D"ITICUSOF SMIALMIC&TOWPage 3 of 6 Mete; Althoug the data arc dran from source generaly judged the soar utboltatl- sad reIa.ble, it should lso he -seZ thea they say aot he ilae- a -ioalyc -rble bet oue of the lack of atadoodloed defluifioo od couce.Pta used by differout coetls i colotig he dt.. Th data ar,noe chelsea. suful to desceihe orders of Iautd . lodlcat trends, aud oao tote .crtt aajo differenes -oeaoootri. Thrreernc groups are I1) the oao utry gooop of the auhi-t --uocy ai f2)acoo...ory grop with sosetat higher -ottge ioos. ho. hecucr group ofhthe sbjac ofyfoetfor " lgjocose ff1 up-cteru'S gop wee"iddle Iocos North Afficu ud Mfiddle Etact' to hoseo becaus ofstoger wdocfraafffflolae) . the cFefer- gropetr the aretgen ore popuIloga enghted -raont1 seauc for each odloe-tr .ud eh-e osly whe sajority of the c-utrlesinar ls u f-r that odicetoc 110- the c-eoge of -outrier aneu the ulctr depeuds -c the -ullailtlly of data adIn -e ruifora, cu-tto tot:eg eurlodl re --g orgts of one iodictnotoaeter hte aeraocaceouy useful to c lar he value of oue lodicotor ata tine amog the -uotoy and egcoc rus.W AlgA (thaucaud tq.ks.) Pu~2 Slti,c e Hoc .lof d - total -ehu, and trura - Pupuluthn toal Total Toto outfae occ -oeicilal laud area sed ileld wato; 1979 dato. urbt. atd rua) dielded hy their ceretiranmbro h.clebd dodoaua gemip of ogololcralare u -d eporally or p-rssocly availble epbli n roaegerI'odpollodhapt1~e o.r cropo, p -tccscet gad kitcheu gordru or to lie fallow; 1979 data. hbhlioenlooceulee. HoePitlsl are oetbhlfhaent p-raeuay staffed hy o1 Irot ot. Pbyslteia. Esttblisbhtnt pr-odlg pciltopalyp -ous Cla PS CAITA(Ci -ClyPec capita ecritmate at carest aerket pco. cc- dilcr r e nldd ua epIaPs he-cter Inlde health ouleted hy sr,a - ..rruo leihlbd tc Wurld Beolk All.a (1978-80 heels); 1960. aed sedicsl --ner out prseul teggd hr a pitystili (hut bya 19 70. oud 198t dot.- medi.lc.acaIot.ore midif.a, etc.) lihb offer Lo-petieutaco - dstot _od pruoids a limIed. rouge of sedical facilities. Foe staic EgNscy CONStacIOng Pua CAPLITA - A-1u-l cu-uptu- of cu-c-iu1 a-ry (coal tica pu bote o h..peuotcle helede tHO.tuPicr/esrl sta. oud liguit., peto-1- etua gas sod hydro-, nucea sod geoterma alc-ad cora heapltaa, laca or corel heoplrala oud sediloa ssdaern * iricty) ft Ailgoas of cool eqosle-t par capita; 196,I7, tl. e 19791 te-e-a ipotilised be-ritols arc inodd oly ordert tota. data. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Admitcheos"Icr Hlesoita1 Bed - local natnt of esa orc dtacbarges foo hopitlsl dfoldod by the number of heda. POPULATION ANit VITAL iTATISTICS Tuilt ralsfn gdTec tounda) - he of JulY 1; 1960. 19701..od 1980 gOgSiga dat. Average Slaa of huc ld fpersn e h,,'hd - totl ura,ad cuta1- fries Touedo. elsrc.nf of caol) - 'eie of crhau to total -popueroI A houehed toeie of a troop io.duvodua1a et hro lana gu-rore difgfeo delfti-iu of urha oct5 ay affect c..pralillcyp of d-t cud theft main seals. A boardee o lodger may ormy out he .lnidtd in 0. asou~~~~~~~~g c..uutniaa; 1960, 1970. ead 1980 dota. the houshold furaaitclpu-p.se.. fPorulaio In iceor 210 Curceo .poplctlu projectiuua ore based or1990 hero pesnPetroir all uchot, os ualocped. conventIo total poplati- hr age oud aco aod thei mcslitoadtrifrae. desllioga. r-crecirly. os-llfuga cooids e-esuacrcue n Project in parnaertl for aurtaity cttst c_piasore e_laam- oaopied parts lug life uetuc at blhir ioeso ith cuoutoy'a per cpita brute Acoesa no ileottloicit eercourl of dsollogs -. total, ocher, end ral.-I dens), and fcsa.le ife supeot-y taiblioiog at 77.)oa. T'he Para- Cars-Cfo... dssllfg 510 ceio,t'rlody do Ifoa"g qartera a percercga frtes in fetil ity outs alco here three levels eanc-ig de-lior to of sotul, urhas, ad rural dec11ige5a-epctOrely. Oeltill'tyatosdin to f-oos lr-l and pea fondly clouiog parfon-t.. la-h cro-try In Ibht .ucfgoed ous of nheae soot -obtuottc of soc.ialy EDUCATIONt cud ferti lit y tret do fur projection purposec. AdJoute icls Rtgtfo btotio.car ourolatiao-ocuntoiouary pplto here is or gooch circa Primar shool - totol. male and femalt - CIrosa "tota,sloadca the ilhfrtletolas qoa1toh.edotihai-.au-dalnotbh.ageafrc--ac ool uola atshe prlsocylauaopcenat -peorttiv -sa- - -atu. Thia to -ebdeed ouy lufer fctiliOy c-co d-oldor topIay er-o P-' -ocatoc;orsly io-lode olldone. 6I the rerlaoasu feud of otft -o -ep-du-ticu rate. w ouch ges--t-o yucca has adjusted for differooc 1eugths of potor aoctin;fot ofveurplcnitault scotly. The sntlt orly po,ulati- ato so ucrisawt ooI-era- dctInetllsts asced i peccont -ci-otd .. tho banao ch po oca chrto tetc of the pooclotb- niu- -o popila are below or boo- the offIcial Ico ag. Iibysr 2000,. ad thc ools of delise of f...iflity -rotc n replac- be-uaocho ca,sle tod femole, - Computed aabove; secondary "oot I-tl tdcIfueo csatlat four peora of appr...ed poisory I...atroi; Tsratsnoay uultu is re-rha T1hu pe- hbec -tutirory p-iao rod.s geoa,cuttoa,o t-ea cc tra ..r IngIsrc ots for pupIls .i.. bhecoced, usaly of 12 t =7oar f .'go; orepueo orti are . gsrll1y Per so. km N id-yea poyc 1ltiat par sqar kfl-sett (100 hectates) ofVltoticua cnulat(pertet of csoondury) - Oortiofl Ia 0tiftotitou ltotlara 190 1970 Ic 179dae.olud Inchelca:l, utfl octeprfmawIch operatt iod.erd- Par a. km.oarlc ltta lu, Csputad as abi- fur agriculturl lord -Ily or O deoosut f coneyiftutt .7 oul; 96.1970 etd 1979 data.. rurl-t ohtrtio riay adid a-cod-y-lTuta1lutdotos..roiled Ic Poruluithoc'''~... blotuor fperc..t) - Chfldreo 1D-14 ytar), wutbiug-age Ill- prImay ord aecudor l-cladvid ed by nubers or toahera It uth hi pea-).asd retiredf65 yeeruaud -csr)as Or--stg- ofuid-yeor pcp- --rep-uding lctl.. leit;16, 91 god 19fdt,autltrc ue ecu)-Literat odelta fable to trod aud onto) I.....io I'toth Aut (cercot) -. tot-l - -iou gro-h rtote of total aId- usapretg ftotal dadut poycIlatlo gtd lb yeara .od -ur- yea pupuloti 00 fur 1951-h, 1960-701. cd 1970-f0. Pooato ioth hae (percor) - arhun - auncl gr-oh cutos of urban pope- CPONSfPTION ltioes fur 1950-hI, 1960-70. oud 1970-80.Pac..grCoro (Pot thousn uualr ouogrcr uats or Crude Birth Rate frprthocaod) Al-bcul lit. births pot ihoicud of id-yoor tan tt u ln ta egt p.ren;) ou oo .blutc sre n pplt"uu 190 970. lr 00dt- sf inoryroir. Crud sooh Acs for hoouodd -An.o-I dootha yet thousan~d fO id-ytar udic istloeirs fPre tboca-d olltc)-All typ.u of -nec-r for radio popolasOet; 1960. 1970. and 1990 dar.- hrca.dcttgeeapuIcprhocdofpplo ;cldro- Icesagertducton A ta-orroe oober ft duoghoero a oo ill hoar It .oua etnr ccui o u uoaaso rgilutaito; nl hoc coo1 rcprufcctfvs Period if she rcporit-tw prea..ut age-spacific ft- u'la ass to affet; data fo eot y-ur say oct he com.arable sioe tflllyra ..u.souly fv--y-ar -vtget ..di.& ft 19600, 1970, aed 1990 sou otrt boIhdIcrig ,,flPltI,g-ccst-r.Aoue(tbuaud -dnatueotcpec TV tRleiv-r fre theuaand opaloIIo)Ty rcover fcr broad-tnn ofbirt-tuutrol. de icenoder ayouo oiolfsa ltlg prcgu- goc.ral publIc Par chetuad PoPulaIo;crldaolieedTrolaa Faalyviaelo-tsfrrco ofaucrfcdtoseu) - rercoo- f lmried fuco -ttienad in yrac- whe -cegtrani-of T sets so Ii effe-t. Ioo of =hl-buin,g egg. (1-44 ye',.) who acbirth-c...r-1 druoa o se-ae Ctcultlin fre thousan o.uot )-.be t~. S he -terage d- al ocld souIt aa g aroup. eulatiut f"daigora iuteroct -ewepspo' detue anopridi-Il Puhitau devote-d primarily ic recrdiug get.ro scan It.1L laornidered PlWD AND7 NUoTRIION tohle `dau~l" if it aPIrper at leant foot tisosasocA. lsdo f fndProucfetmcCapta)199-W10) ldnu o per ro-caauuo Cifo A -c-i-l Atteodnsos Pre Crito Ire Teu,r-lued on the b cd el o prduction of oil food c-soditlsa Prod-otfo -icdan seed and feed aod tickets sold dollog the yer. ft-ldlugadsI.i...o to d,nut-f olnso is -ocaene ma Ye iu CoedIdes coer oMsoy gdfa- sagar.... an _soil units. buted f sga)- eih rc edible and rottorlnuf-. tffe sod teoaeeolds) gogl productio of teh o...ilry is base.d 00LABOR9 PORCE natibora rrge Prducor priceowighti;-1961-ho, 1970, oud lg9Ij data. Total Labor Porte fth..a..dn) - itocomlta-ly attIc ponu,tclediug pot ..,it. uol f-cloriou borotnof ruttet)- l~otpod f-ror a tedfrco and oseuplayed hot -tIldti. hoouasi-, -nd-nlo, et., etoetp equfo-la of net feud -pcr l:o a.allcbIaio ou-rry per -ayla c-neclg popu1laIon of allIgro- Deftit lots. In carl 000 catisa - Per day. Arol1ablo soyplac coep-rlo d_ocl prducl iwppolens Ic.t..ral 1960, 1970 end I08O data. Iuut,odcagaf uc,ck.1 iet -opplica eulude actul fta,d,,seeds. rFmalt lee--t) - rFmaLlbo forte an p.reotage of -tota labor fon-- qutIluud in Pfo rce u , ad isten In dilutfult oufo giitref ot)-lborforte In f-rnig, fort.try, h-ttaug and so ,t -ir eoleod by 40 baasd on rhysilolglc-I te.ds for norma acti- fih sprrgo of tocl. luhor fott; 1960. 1978 and gIdao tin aid ecaltI -inodertn olrootleoetuobdyogt,ao dstofoco) - LabOr forte Ic i-t9 ontuc lw so Iat:.i aud ..n dlotrlbotlo frpltc.od lto Ipr o for eafnatodeleioicltyq, sato aid go anr-rcotoe of t-tl lbrfre hoshl bou;16-l -17 dd17 data., 1960. 1970...wed..1990 data.- Par carfie uu-rl of prtlol factor pr day) -, i -r-ftott of p.c capIta Patcrto t1(ooo) oa,sl, and female - Partiofpatii or oat oply of food per day be oppy of foed Ido dffd a- abate R.o acvoreurtt oe .. ..ot, sale, cod female labor forea qureei= fr l ouoriiotoblinhed by USDA pr-ide for ilcso Pere"oSla of total acs sdf-la ypuPlutiuo of al agesouprtey aloucsof 61 r Ps fIo p1ii;r6dy0d2 tuso tia o i, 1970, oud 1990 dec, .ccre based orn'sprtirfotl rte polar potafo. f whic I rae- uhould hrCoim1 protoio. These -tad- ref leotiog uge-aeo -t--treofth pnuafo,ad loug lis tred. A aulsal pruteir 0 , aota Bellc the dodId,.proped by PA0 to the Obicd Itotuic Deoodo..cy Bello - Aulo. orppicicoder 15 evd i5 and oe v F.S~~~~~~Ora odOrvy 96-y 970 ud 1977 dta, to lbs total labor forte, V ~~~~~Par c-pioprteI. sP iyfco cfo nod yol-Proteio ..pply of toed do- rio-d fro nilmal Ird pules to -ros par da,1961-65. 1970 aud 1977 dutb. 19101f DISTRIBUTIONi Child )-ra 1-4), laut Auts feet thoosaud) o deeths yet tholuoud It Pe-r-o-na.gc of Pclu-e brute fbotb in coal atd kind> - Autoiced byrihs agrg-oupl- yors. lecbhldr- lonthisage group, fcrs_utd-rtloying coio--lcotn,rfchbet 20rrtp--oe 2t lpcrlten,a-d poruut 40 Ptrctot trios dolt dwrivcd frwe life tablos; 1960, 1070 and 8080 dato of households.. lIfeture Ep atco at tlrn )ynro Ar-page ousber of yeurt of life rcsoioint The fololgi esIaeienvr upruste saraof poutly le-I.o, at birth; 196., 197 ad190. data. ad wheuld he uterprlcd sorb' -oncderaile taucia blown llnlity Aut f~rettoad)-o.-Ia dewnia of i~fautsonder Y- pa Estlmated Ahulote P-nety Iccoso Level ff0 P'r capftaf -oronsd rotc - ofae t. houtod lIve blrtha; 1960. I1970 and I98O gate-' Absoto po-ety istoma lsoal Is that moose .ovef haloswihaiIa Acsto afs ae f Irco f ooooutioi) -tonl, orh-, aId rccl M- .ts-stritio...ly adaqout dIrt pJoseaoil sos-teed rqfsn.is ac beofppl(ttloro,adtrdwihr asael aoa asfaffordable. 001t su:pply .(Includes trete. srfced tes-ofnisfe h nunottta.td mtaedbeaivePvetyluos or fIt prtopia)- tuSsoettu percutuges of the itereaiepapalatiuns. Iou-otbaoa-ecapubllc p.r--o iscuse of the -uunY. Urbee 1-n1 u5 dentied fos ohe rural foutsae o atids -lcted nu mar that 209 manors from a house say be le-r with ajutset fur hbrs coa of hu,,5 to orbauau rlidorsd asbring ilubin ouus- l aesso of that hwas Intotal1 cres.a.a.dPuuaia av pAslln oet cnhte rrec re.soseble .ounse. ..Id Impl then the ~ hassfe resb of tshaussbld an ud - Pers of populatlo (orbs. adrrl lo e aal do cot hate ao spod adlaprep-tsesaao Par ef the day do forchdug theP Acces sogcea 1aoa (torrent of po-eaIor-) - total. urbso. and rurl - N. Ita of People (total. orbac- orrl seve y ute diapse...as cb slieg. elddsoal st useirli..os tR`-a i. cf -s strata. an lat-ear I,:byyetr-eso tene or the use of cit lorinis nd sim- powala-ieu car Obtebpie - Pepalacio dlided by ... bar pf praeoaag pbyeL- Frose- and geoag a O- feeaoo alga qoulifitd fre a scdital etbool at_ otrsity in-e. cU-oml Aaslysis and Poeo DesOpatcat Petpla.tioa ftr lsi Paros- Pupaistie dinidad by ester of preatisheg May ilil ::I. end famal geaoas ssss -ei-ts-so- saso. en -te mrosad arafag aumlfarfe-  - 26 - AM=E I Page 4 of 6 HONDURAS - ECONOMIC INDICATORS Population: 3.8 (mid-1981, millions) GNP Per Capita: US$ 600 (1981) Country' s Problemt and Bank' s Contribution to their Solution Amount (million US$ Share of GDP at Market Prices(%) Average Annual Increane (X) Indicator at current prices) (at current prices) (a) (at constant prices) 1981 1960 1970 1980 1981 1982 1960-70 1970-75 1975-80 1980-85 NATIO2.AL ACCOUNTS Gross domestic product (a) 2632 103.0 100.0 100.0 100.0 100.0 4.7 2.3 7.3 1.4 Agricultare 657 33.8 29.4 24.4 24.7 24.4 4.6 -0.9 6.7 1.2 Industry 613 17.1 20.2 23.3 23.6 22.5 5.0 3.9 8.2 -0.7 Services 1070 39.5 40.8 38.9 39.7 40.0 4.7 3.8 6.5 2.6 Co-sumption 2290 87.7 85.7 81.9 87.0 86.6 5.1 2.7 7.4 -0.2 Gross Investment 538 13.9 20.9 26.2 20.4 15.4 8.5 0.8 12.5 -2.5 Exports of GNFS 868 21.4 27.3 37.4 33.0 26.9 8.9 -0.3 9.2 0.6 Imports of GNFS 1064 23.0 33.9 45.4 40.4 28.9 11.0 1.2 [1.7 -5.4 Gross national savings 429 14.8 11.5 14.3 8.1 7.7 0.4 -1.2 3.3 3.1 1975 1976 1977 1978 1979 1980 1981 1982 FRICES GDP deflator 100.0 108.0 125.7 134.9 145.9 156.8 165.1 177.8 Exchange rate 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Eiport price ilden 100.0 117.4 152.8 148.0 148.9 167.3 159.5 152.3 I.port pice index 100.0 107.9 119.4 128.9 150.4 176.5 173.0 179.4 Terom of trade index 100.0 108.8 128.0 114.7 99.0 94.8 92.2 84.9 CoWposition of Merchandise Trade (X) Average Annual Increase (%) (at current prices) (at constant prices) 1960 1970 1975 1980 1981 1982 1960-70 1970-75 1975-80 1980-85 Exports I1O.0 100.0 100.0 100.0 100.0 100.0 12.5 -(1.5 11.6 1.0 Prisary 94.6 71.1 72.7 72.3 73.7 79.3 8.6 -1.1 11.3 2.5 'anufactures and others 5.4 28.9 27.3 27.7 26.3 20.7 34.2 1.9 12.4 -3.9 Imports 100.0 100.0 100.0 100.0 100.0 100.0 16.2 -3.1 8.5 -5.5 Food 21.9 6.4 11.0 8.2 8.0 8.1 -9.0 8.5 6.9 -6.7 Fetrole,s 8.2 6.6 16.7 16.5 16.7 23.1 31.5 -11.4 -0.9 0.4 Capital Goods 19.6 30.0 27.0 25.2 22.4 17.7 19.2 0.6 10.5 -13.2 Others 50.3 57.0 45.3 50.1 52.9 51.2 16.5 -2.6 10.3 -3.3 An % of GDP 1960 1970 1975 1979 1980 1981 1982 PUBLIC FINANCES (b) Current revenues 10.9 13.1 13.7 14.6 15.2 14.0 13.5 Current expenditures 9.5 10.9 12.9 12.0 14.6 15.3 14.7 Surplus (+) or deficit (-) 1.4 2.2 0.7 2.4 0.6 -1.2 -1.2 Capital expenditures 2.5 4.5 6.1 6.2 5.7 3.6 4.5 Foreign financing (net) 1.1 0.9 3.9 3.3 5.0 4.8 5.2 1960-70 1970-75 1975-80 1980-85 1985-90 OTHER INDICATORS GNP growth rate (X) 4.7 3.1 5.9 1.4 5.3 GNP per capita growth rate (X) 1.5 -O.1 2.5 -2.0 2.1 Elecricity consurption growth rate (X) 14.9 13.8 11.7 11.8 9.5 ICOR 3.6 9.9 3.8 14.5 4.4 Import elasticity 2.3 1.6 1.4 -1.7 1.1 (a) At market prices; components are expressed at factor cost and will not add due to exclusion of net indirect taxes and subsidies (b) Central Government only. April 1983  - 27 - ANNEX I Page 5 of 6 HONDURAS - BALANCE OF PANNElUrS, EXTERNAL CAPITAL AND DE8T (elllions US$ at corrent prices) Popolation: 3.8 (rid-1981, millions) CNP Per Capita: US0 600 (1981) A-l Projected IndIcator 1970 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1486 BALANCE OF PAMElITS Emports of goods and services 199 351 463 594 706 859 967 903 784 823 916 1091 1194 Of which: Slerchandise f.o.b. 178 310 412 530 626 756 850 784 677 731 820 989 1087 Imports of goods and sarvices 269 481 581 737 881 1071 1306 1233 1033 1097 1224 1313 1426 Of which: Merchandise f.o.b. 203 372 432 550 654 783 954 899 681 740 808 875 963 Net transfers 7 17 13 14 17 20 22 28 30 28 30 32 34 Corrent account balance -64 -113 -105 -129 -157 -192 -317 -302 -219 -246 -278 -190 -198 Private direct investtnat 8 7 5 9 13 28 6 -4 -3 -5 - 15 18 MLT loans (net) 26 93 80 114 138 166 241 208 204 254 260 252 196 Official 27 88 57 71 109 106 131 175 163 178 207 232 216 Private -1 5 23 42 28 60 110 33 41 76 53 20 -20 Other capital 21 67 50 26 16 -19 16 26 -71 20 32 51 45 Change in reserves (- increases) 9 -54 -31 -20 -10 17 54 72 89 -23 -14 -128 -61 International reserves (net) 20 66 97 117 127 110 56 -16 -105 -82 -68 60 121 Reserves as months itports 2 1.6 2.0 1.9 1.7 1.2 0.5 -.2 -1.2 -0.9 -0.7 0.5 1.0 EXTERNAL CAPITAL AND DEBT Gross Disbur-aernts Official grants - 13 10 10 13 14 14 19 Concessional loans 17 17 21 34 67 58 62 70 DAC 7 12 10 10 17 15 18 30 OPEC - - 5 - - - - - IDA 2 2 2 3 8 6 18 13 Other 8 3 5 22 42 37 27 28 -on-conce..iosaI loans 12 82 72 100 99 166 200 184 Official e.ports credits - 22 13 16 21 20 12 40 IBRD 10 13 13 22 25 26 24 30 Other ollttlateral 2 39 19 14 13 9 53 - Private 0 8 27 48 39 112 111 87 Enternal Debt Dlebr vottanding and disb-rsed 90 264 344 458 595 759 981 1223 Official 86 244 301 372 481 577 705 854 Private 4 20 43 86 114 183 276 370 Undiniborned debt 54 185 246 352 375 501 729 708 Debt Service Total service paynents 6 17 29 42 60 108 98 115 Interest 3 10 15 22 31 46 59 77 Paynent. as I eaports 2.8 4.7 6.2 7.0 8.4 12.7 10.8 13 Average interest rate on new loans (2) 4.1 5.9 5.7 4.2 7.7 7.8 7.0 10.7 Average matority of nr; loans (years) 29.6 19.4 22.6 28.8 16.0 20.7 23.8 19.0 April 1983 ;.  -28 - ANNEX I Page 6 of 6 HONDURAS - OFFICIAL LENDING BY MAJOR LENDERS AND SECTORS' 1970-82 (in million of constant FY82 US dollars a/) IBRD/IDA IDB CABEI AID TOTAL Transport 172.3 84.4 193.7 9.9 460.3 Power 314.3 102.0 135.4 14.1 565.8 Education 18.0 55.5 - 29.2 102.7 Health - 9.7 5.2 6.9 21.8 Housing - 18.7 11.7 4.2 34.6 Agriculture 73.4 118.7 17.0 52.2 261.3 Manufacturing 52.0 152.7 17.4 5.5 227.6 Water and Sewerage - 75.5 8.6 12.4 96.5 Others 29.5 3.3 41.0 86.2 160.0 Total 659.5 620.5 430.0 220.6 1,930.6 a/ IBRD commitment deflator used for price adjustments. Source: World Bank Debt Tables, 1970-79 World Bank, IDB, USAID, and CABEI Tables, 1980  - 29 - ANNEX II Page 1 of 6 THE SEATUS OF BANK GROUP OPERATIONS IN HONDUR A. SLfM OENTF BANK laNS A0 IDA CREDITS 1, (Net of cancellations" (As of March 31, 1983) Loan or Credit Year Borroer Purpose Bank IDA Undisbursed No. (U$ millions) Fifteen loans and ten credits fully disbursed. 130.0 66.1 628 1976 Government Agricultural Credit - 14.0 1.0 1341/2 1976 Government Highways 35.0 - 4.1 1395/6 1977 Government/Empresa Ports 12.0 - 1.6 Nacional Pbrtuaria 777 1978 Government Education - 5.0 1.8 1576 1978 Government Regional 10.5 - 2.9 Development 1629 1978 FEp. Nacional de Pbwer 30.5 - 1l1 Energia Electrica 1659 1979 Goverrnent Industrial Credit 15.0 - 1.1 1673 1979 Government Tourism 19.5 - 11.8 1805 1980 Eb]p. Nacional de Power 105.0 - 76.2 Energia Electrica 1833 1980 Government Second Agricul- tural Credit 20.0 - 11.8 1861 1980 Government Petroleum 3.0 - 2.9 Exploration Promotion 1901 1980 Governmnt Eighth Highway 28.0 - 22.1 2075 1981 Government Second Industrial Credit 30,0 - 28.2 Total 438.5 85.1 of hiach has been repaid 46.5 2.2 Anrmnt sold 4.5 of which has been repaid 4.5 - - Total now beld by Bank and IDA1/ 392.0 82.9 Total undislbrsed 163.8 2.8 166.6 Total now outstanding 228.2 80.1 1/ Including exchange adjustmrent. * Fully disbirsed.  - 30 - ANNEX II Page 2 of 6 B. -STATEMENT OF IFC INVESTMENTS (As of March 31, 1983) Year Obligor Type of Business Loan Equity Total 1964/66 Emp. de Curtidos Centro- Tannery 0.21 0.08 0.29 americana S.A. (ECCASA) 1969/70 Cia. Pina Celulosa de Pulp and Paper - 0.08 0.08 Centroamerica (COPINO) 1978 Textiles Rio Lindo, S.A. Textiles & Fibers 3.00 1.00 4.00 de C.V. Total gross commitments 3.21 1.16 4.37 less cancellations, terminations, repayments, and sales 0.81 0.16 0.97 Total now held by IFC 2.40 1.00 3.40 Total undisbursed - C. STATUS OF PROJECTS IN EXECUTION (As of March 31, 1983) Loan/Credit No. Cr. 628 First Agricultural Credit Project: US$ 14.0 Million of July 2, 1976: Effective Date: December 11, 1976; Closing Date: June 30, 1983. The agricultural credit portion of this operation is virtually fully disbursed, and most contracts for technical assistance, the other major component of the project, have been signed. The Closing Date was extended to June 30, 1983 to permit disbursement against purchases for which bids were received in 1983. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects/investments in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  ANNEX II - 31 - Page 3 of 6 Ln 1341/1342 Seventh Highway Project: US$28.0 Million, US$ 7.0 Million of December 16, 1976: Effective Date: May 20, 1977; Closing Date: June 30, 1983. Work on Section IV of the Talanga-Juticalpa-Catacama& road and, on three access roads has resumed following the takeover of the contract by the insurance company which provided the performance bond. The lists of prequalified local contractors for both repair work for sections of the Tegucigalpa-Catacamas road and the access road to the Escuela Nacional de Agricultura were approved by the Bank in January; contract awards and the commencement of works resumed in the third quarter of 1982. The Government has requested and the Bank agreed that the remaining undisbursed balance which will not be utilized for civil works construction already underway be reallocated in its entirety for the purchase of maintenance equipment. Ln 1395/1396 Third Port Project: US$ 5.0 Million, US$ 7.0 Million, US$ 5.0 Cr 696 Million of April 22, 1977: Effective Date: December 22, 1977; Closing Date: June 30, 1984. Completion of a 150-meter wharf at Puerto Castilla is presently expected in early 1984. The Venezuelan Investment Fund (VIF) and a new OPEC Fund loan of US$ 7.25 million, for which a loan agreement was signed January 19, 1983, will provide adequate financing for completion of the project. The Board of Directors has approved the necessary modification in the project description. The Port authority has reached agreement with its former foreign contractor on a settlement of its arbitration claim. Cr 777 Second Education Project: US$ 5.0 Million of April 6, 1978: Effective Date: August 15, 1978; Closing Date: December 31, 1983. Project implementation has recently improved. IDA has approved a major modification of the Credit Agreement, resulting in the establishment of a special account in Honduras to facilitate IDA disbursements.  ANNEX II - 3 2 - Page 4 of 6 Ln 1576 Guayape Regional Development Project: US$10.5 Million of June 16, 1978: Effective Date: December 18, 1978; Closing Date: April 30, 1983. Organizational problems which plagued the project in its first years are resolved, and implementation is proceeding well, with particular improvements in the credit and marketing systems. A working group comprised of ministerial and Project Unit Staff has submitted recommendations for solution of a few remaining operational difficulties. The Bank has approved the establishment of a special account to facilitate completion of the project. The Bank is currently considering a Government request to extend the Closing Date in light of the recent progress in project implementation. Ln 1629 Nispero Power Project: US$30.5 Million of December 15, 1978: Effective Date: April 12, 1979; Closing Date: June 30, 1983. Initial delays in execution were caused by required redesign of the foundation for the diesel plant and, for the hydro works, poorer than expected geological conditions in the tunnel and delays in placing orders for the turbines and generators. These problems have been solved and both plants are now completed. The project was commissioned end of 1982 and is now operating commercially. Ln 1659 Industrial Credit Project: US$15.0 of March 8, 1979: Effective Date: July 5, 1979; Closing Date: December 31, 1983. Progress on this project has been good. The line of credit is fully committed and disbursements should be completed before the Closing Date of December 31, 1983. Ln 1673 Tourism Development Project: US$19.5 Million of June 25, 1979: Effective Date: November 8, 1979; Closing Date: December 31, 1984. Airport works at San Pedro Sula and the Copan tourism works are finished and the archeological surveys and Roatan airport works are well advanced. The Bank has extended the final date for commitment of the line of credit from June 30, 1982 to April 30, 1983.  3 3 ANNEX II Page 5 of 6 Ln 1805 El Cajon Power Project: US$105.0 Million, US$20.0 Million of Cr 989 March 27, 1980, April 10, 1980: Effective Date: September 25, 1980; Ciosing Date: Febutuary 28, 1987. This project is proceeding on schedule. However, ENEE is experiencing cash flow problems and will need to find additional sources of funding to complete its investment program. A proposal in this respect is expected to be provided by ENEE in the near future. The Government has been unable to obtain com- mercial bank loans as expected when the project was appraised. These banks apparently would be prepared to proceed with co-financing arrangement with the World Bank under the new co- financing instruments. About US$ 33 million are still needed for the next three years to finance interest during construction. The Government and ENEE are currently considering IDB financing for counterpart in the amount of about US$ 60-70 million. Ln 1833 Second Agricultural Credit Project: US$20.0 Million, US$ 5.0 Cr 1005 Million of April 18, 1980: Effective Date: September 11, 1980; Closing Date: June 30, 1985. The agricultural credit portion of this operation is moving well. Funds for the studies component have been committed and two of the three studies have actually begun. The pilot forestry component is now underway. In September 1982, the Bank agreed to the Government's request for reallocation of US$ 1.5 million from civil works for banana and plantain development to seasonal credit for an area devastated by tropical floods. Ln 1861 Petroleum Exploration Promotion Project: US$ 3.0 Million of June 23t, 1980: Effective Date: October 3, 1980; Closing Date: December 31, 1983. Although effective since October 1980, this project has suffered considerable delays, mainly due to frequent personnel changes, delays in selection of consultants, and cumbersome administrative procedures. However, consultants on exploration, law and accounting/auditing have finally begun work. CONSUPLANE has selected a consultant to carry out the study of alternative energy sources. In addition, the Ministry of Economy has decided to go ahead with the study on petroleum product pricing and taxation and is preparing tender documents and a short list of firms. A request from the Ministry of Finance to extend the deadlines for the completion of the studies on alternative energy sources, petroleum product pricing, petroleum sector legislation, and petroleum accounting and auditing procedures until June 30, 1983 was approved by the Bank.  ANNEX II Page 6 of 6 Ln 1901 Eighth Highway Project: US$28.0 Million of September 29, 1980: Effective Date: March 25, 1981; Closing Date: June 30, 1985. The road construction and improvement component of this project is about six to eight months behind appraisal schedule. Owing to uncertainties in expected road maintenance budgets, it will be necessary to review the maintenance component of the project later this year and to adjust it in accordance with budgetary realities. The Bank is reviewing information supporting a Government request to include an additional 40-km segment of highway, to be financed by cost sharing resulting from lower-than-expected price increases in labor and materials since appraisal. Ln 2075 Second Industrial Credit: US$30.0 Million of May 19, 1982: Effective Date: August 16, 1982; Closing Date: June 30, 1986. About 30 sub-projects are currently being financed, with about 38 sub-projects in the pipeline. Scarcity of foreign exchange and slack demand owing to the world recession have led to postponement in investment decisions by medium-sized firms, resulting in slower-than-expected demand for investment credit.  ANNEX III - 35 - Page 1 of 2 HONDURAS THIRD AGRICULTURAL CREDIT PROJECT SUPPLEMENTARY PROJECT DATA SHEET Section I: Timetable and Key Events (a) Project Preparation and Pre-Appraisal: (i) First Discussions with Government: July 1981 (ii) Bank Identification Mission: March 1982 (iii) Preparation by PU and UNDP/RUTA April-August 1982 (b) Appraisal Mission Departure: September 1982 (c) Negotiations Completed: April 11, 1983 (d) Loan Effectiveness Planned: August 1983 Section II: Special Bank Implementation Actions None Section III: Special Conditions (a) A Project Executive Committee would be formed in BCH, by December 31, 1983 under the chairmanship of BCH, the Project Director, and senior representatives of the Ministry of Natural Resources, BANADESA, and the Bankers' Association of Honduras. (paragraph 56); (b) BCH would maintain the existing revolving fund of L 10.0 million for credit operations and L 2.5 million for PU expenditures (paragraph 62); (c) All funds repaid to BCH by FIs that are not needed for payments to the Government under the Subsidiary Agreement would be used for additional lending for similar purposes (paragraph 62); (d) By March 31, 1984. the Government would establish a mechanism, satisfactory to the Bank, to allow BCH to restore the liquidity of an F1 adversely affected in the event that the land on which an investment plan was being carried out was expropriated under the Agrarian Reform Law, and BCH would use the mechanism as necessary (paragraph 63);  - 36 - ANNEX III Page 2 of 2 (e) The first 10 subloans to agrarian reform (or other farmers') groups, all investment subloans of US$ 200,000 equivalent or more, and all subloans which, when combined with the value of subloans made to the same sub-borrower under previous Bank Group loans or credits, totalled US$ 200,000 or more, would be sent to the Bank for review prior to approval for financing (paragraph 66); (f) As a condition of effectiveness, the new posts of Deputy Director, Extension Specialist, and Training Coordinator, all within the Project Unit, would have been filled by persons whose qualifications, experience, and terms and conditions of employment would be satisfactory to the Bank (paragraph 50); (g) As a condition of effectiveness, the PU would have designed, and the Bank approved, the first year's training program (paragraph 51); (h) As a condition of effectiveness, the Government and BCH would have signed a Subsidiary Loan Agreement stipulating that the full amount of the loan would be passed on to BCH under the same terms as obtained from the Bank (paragraphs 55 and 62); (i) As a condition of effectiveness, BANADESA and at least three other FIs would have signed Project Administration Contracts with BCH (paragraph 55); (j) As a condition of effectiveness, a credit manual specifying guidelines for subloan appraisal, monitoring, and collection would have been drafted by the PU and approved by the Bank (paragraph 57); (k) As a condition of effectiveness, BANADESA would have: prepared and furnished to the Bank a Loan Recovery Plan for its Bank-financed portfolio; established a coordination unit and appointed a manager for the unit whose qualifications and experience are satisfactory to the Bank; and redefined the responsibilities of loan officers in a manner satisfactory to the Bank; (paragraph 59); (1) As a condition of disbursement for each participating FI, a Project Administration Contract would have been signed by it and BCH (paragraph 58).  IBRD-16747R | .1 88 ; ,, , ; r r < . >_/ . / \ h ;) Rc l; 47 ; ' i&0 20TA storld777 5 istah pxduavv M F X I c 7 ,e1 .................. IAI,',) IAN...Y1933 B E L I Z E ! : * , .-t ,.s ii , : : Tw!Rnn7Gpw v 7se c