Mexico - Lazaro Cardenas Industrial Port Project

Document of The World Bank FOR OFFICIAL USE ONLY LAJ' 5o-1)16 lepogt No. P-3837-M RE PDRT AND RECO IMENDTION OF THE PRESIDENT OF TEE IN7ERNATIONAL BANK FOR RECONST1gCTION AND DEVELOPMEIT TO 'TE EECUTIVE DIRBCTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALEqT TO US$76.3 MILLION TO BANCD NAC IONAL PESQlERO Y PORTUARIO, S . A. WITH THE GUARANrEE OF UNITED MEXICAN STATES F CR A LAZARO CARDENAS INDUSTRIAL PORTS PROJECT May 31, 1984 Thi doaseme has a rearictd distriuu_ md my be wed by reipients dly in the ped.nomae d teir ocind dutjes ghI caten may notd odmewse be dissd wditho Word Dank auih tim  Currency Unit - Peso (Nex $) On May 31, 1984, the exchange rate in the controlled marke- was UTS$1 M= ex$163.61; the freemarket exchange rate stood at US$1 = Mex$181.73. Both exchange rates are currently sliding at a rate of Nex$0.13 per day again.: the US dollar. Fiscal Year January 1 to December 31 ADbreviations BANPESCA - Banco Nacional Pesquero y Portuario, S.A. National Bank for Fisheries and Port Development CGPPI - Coordinacion General de Proyectos de Puertos Industriales General Coordinating Commission for Industrial Ports Projects CNCP - Comision Nacional Coordinadora de Puertos National Port Coordinating Commission DGCF - Direccion General de Caminos Federales Directorate General for Federal Roads DGGI - Direccion General de Grande Irrigacion Directorate General for Large-Scale Irrigation Works DGOM - Direccion General de Obras MaritXmas Directorate General for Marine 'Works DGOPD - Direccion General de Operaciones y Desarrollo Portuario Directorate General for Port Operations and Development DGP - Direccion General de Planeacion Directorate General for Planning DGVF - Direccion General de Vias Ferreas Directorate General for Railway Infrastructure EFF - Extended Fund Facility ESP - Empresa de Servicios Portuarios Port Service Company FERTEIEX - Fertilizantes Mexicanos, S.A. Mexican Fertilizer Plant FONDEPORT - Fondo Nacional para los Desarrollos Portuarios National Port Development Fund NDP - Plan Nacional de Desarrollo National Development Plan N de N - Nacionales de Mexico National Railways Company PTT - Productos Mexicanos de Tuberias, S.A. Tube Product Plant SAHOP - Secretaria de Asentamientos Humanos y Obras Publicas Secretariat for Humaa Settlements and Public Works SARH - Secretaria de Agricultura y Recursos Hidraulicos Secretariat for Agriculture and Hydraulic Resources SCT - Secretaria de Comunicaciones y Transportes Secretariat for Communications and Transport SEDUE - Secretaria de Desarrollo Urbano y Ecologia Secretariat for Urban Development and Environment CFE - Comision Federal de Electricidad Federal Electricity Commission SHCP - Secretaria de Hacienda y Credito Publico Secretariat of Finance SICARTSA - Siderurgica Lazaro Cardenas - Las Truchas Lazaro Cardenas-Las Truchas Steel Plant SPP - Secretaria de Programacion y Presupuesto Secretariat for Programming and Budgeting TUM - Terminal de Usos Multiples Multiple Use Terminal  )ifCO FOR OmCAL USE ONLY LAZARO CARDENAS INDUSTRIAL PORT PROJECT LOAN AND PROJECT SUMMARY Borrower: Banco Nacional Pesquero y Portuario, S.A. (BANPESCA). Project Executing Agency; Secretaria de Comunicaciones y Transportes (SCT) Guarantor: United Mexican States. Amount: US$76.3 million, including capitalized front-end fee. Terms: Fifteen years, including three years of grace at the standard variable interest rate. Project Description: The proposed project supports the Government's strategy for devel- opment of the Industrial Ports Program, to achieve a more balanced distribution of population and economic activity, a more organized expansion of the industrial plant, coordinated development of port infrastructure and services and the overall strengthening and mod- ernization of transport activities. Specifically, the proposed project would help: (i) ensure efficient operation of existing terminals in the industrial port of Lazaro Cardenas; (ii) streng- then the admfaistration and finances of the industrial port; (iii) improve access to, and increase the utilization of, industrial port installations; (iv) provide effective pollution and flood control in the port area; and (v) maintain a dialogue on remaining institutional and related policy issues affecting the performance of the port subsector. To achieve these objectives, the project Includes: (a) construction of roads, rail installations and provi- sion of maritime access to industries, facilities and services; (b) acquisition of general cargo handling equipment; (c) installa- tion of sewerage treatment systems for effluents; (d) provision of equipment and shops for solid waste management; (e) land prepara- tion and services for small and mediumr-sized industries; (f) provision of flood protection works; and (g) consulting services and training. * Risks: The proposed project faces three risks: (i) institutional, since it is the first project under the newly established Industrial Ports Program; its execution and operation will require coordina- tion among various sectoral Government agencies. The project has been designed to reduce these risks; (ii) prolongation of the economic recession could affect projected traffic levels and the pace of industrial investment at the port. Sensitivity analyses indicated that the economic return of the project would not be affected significantly by foreseeable variations in traffic volumes, or project costs; and (iii) delays in industrial invest- ment and production could affect the viability of the maritime access component of the project. This component has been tranched in order to minimize the risk. This docume hs a restricted distribution and may be used by recipients only in the performance or ter ofkicia duties Its contents may not otherwie be disclosed without World llank authorization.  Estimated Project Costs Local Foreign Total -(in US$ million)- Road, Rail and Maritime Access 11.4 23.7 35.0 Equipment 3.2 8.5 11.7 Environmental Protection 2.7 3.3 6.0 SmalU and Medium Scale Industrial 1.3 1.1 2.4 Park Flood Protection 8.1 18.9 27.0 Technical Assistance and Training 1.1 2.9 4.0 Total Base Cost 11 27.9 58.2 86.1 Physical Contingencies 3.1 5.9 9.0 Price Contingencies 5.4 12.0 17.4 Total Project Cost 1/ 36.4 2/ 76.1 112.5 Front-end fee 0.0 0.2 0.2 Total Cost 36.4 76.3 112.7 Filancing Scurces: Local Foreign Total (in US$ million) Proposed IBRD Loan - 76.3 76.3 roverment 3/ 36.4 - 36.4 ~4 - 76. i l.T Estimated Disbursements (in US$ million) Bank Fiscal Year 1985 1986 1987 1988 1989 1990 Annual 5.8 22.5 18.4 16.7 10.5 2.4 Cumulative 5.8 28.3 46.7 63.4 73.9 76.3 Rate of Return: The project has an overall economic rate of return of 23 percent. The maritime access works would be evaluated and approved in tranches, and would have a minimum economic rate of return of 12 percent. Staff Appraisal Report: Report No. 5025-ME, dated Mav 29, 1984. 1/ Totals may not add up due to rounding. 2/ Includes local taxes estimated at US$12,100,000. 3/ Includes ESP and FONDEPORT internally generated funds.  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO BANCO NACIONAL PESQUERO Y PORTUARIO WITH THE GUARANTEE OF UNITED MEXICAN STATES FOR A LAZARO CARDENAS INDUSTRIAL PORTS PROJECT 1. *I submit the following report and recommendation on a proposed loan to Banco Nacional Pesquero y Portuario, S. A., (BANPESCA) with the Guarantee of United Mexican States for the equivalent of US$76.3 million to help finance a Lazaro Cardenas Industrial Ports Project to be carried out under the lead responsibility of the Secretariat of Communications and Transport (SCT). The loan, which includes a capitalized front-end fee of 0.25 percent on the Bank loan, would be repaid over 15 years, including 3 years of grace, at the standard variable interest rate. Proceeds of the loan, required by ESP and BANPESCA, acting as trustee for FONDEPORT, for carrying out the Parts of the Project assigned to them, would be ow-lent to them under the same terms and conditions as those of the Bank loan. These entities will also bear the foreign exchange risk. PART I - THE ECONOM! 2. An economic report on Mexico (Mexico: Recent Economic Developments and Prospects, No. 4996-ME) was distributed to the Executive Directors on May 14, 1984. The report's main conclusions are summarized below. Background 3. After almost three decades of relatively stable and high economic growth, Mexico experienced a serious financial and economic crisis in 1976 and an even more serious one six years later, in 1982. When the Bank's previous economic report was prepared in 1980 and early 1981, an underlying trend towards structural economic imbalance was already evident, and the potential dangers were recognized. However, the issues were not addressed by the out- going Government with the vigor that was required as oil revenues and external loans had temporarily eliminated foreign exchange constraints to development. 4. Today, Mexico is struggling to emerge from a crisis worse than any other in its modern history, and faces a seve-e resource constraint. In this struggle, the Government cannot afford to delay implementation of corrective policies on a broad front. Moreover, the prospects for a resumption of econo- mic growth depend more than ever on favorable international conditions. The path leading to Mexico's economic recovery is a narrow one, with limited options and little room for maneuver in domestic policy. Developments During 1977-1982 5. The stabilization measures initiated in 1977 and the discovery and exploitation of large oil resources in the mid-1970s allowed the Lopez Portillo  - 2 - Administration (Jan. 1977 - Dec. 1982) to overcome the serious financial crisis of 1976 and to start working on structural, social and economic problems, including poverty, income and wealth inequality, unemployment, regional imbalances and relatively slow agricultural growth. In the early years of that Administration (1977-1980) GDP grovth was high (8.5 percent a year), 2.5 million jobs were created, domestic consumption recovered, and the share of investment and savings in GDP surpassed historical levels. 6. Rapidly rising public expenditures unmatched by revenues led to increasing public deficits and an overheated economy. Although inflationary pressures mounted, the exchange rate was not adjusted. By mid-1981, the economic situation began to mirror the scene prevailing before the 1976 financial crisis. The appreciation of the real exchange rate contributed to a current account deficit of 5.8 percent of GDP, while the deteriorating international oil market conditions caused large revenue shortfalls with respect to budget expectations. The public sector deficit rose to just under 15 percent of GDP. External borrowing was used to finance part of the domestic fiscal deficits and to defend the exchange rate. Mexico's foreign debt increased rapidly, at a time of high and rising international interest rates. A stabilization program initiated by the Government in mid-1981 was not sufficient to redress the growing fiscal imbalance, the high cost of foreign loans and the increasing private capital flight fueled by the public's anxiety over Mexico's financial troubles. 7. The crisis came to a head in 1982. In February, as capital flight intensified, the Bank of Mexico had to stop supporting the peso, which then experienced a 40 percent devaluation in dollar terms. A large wage adjustm.ent granted in March 1982, which tended to undo the effects of the devaluation, and continuing slack in the oil market kept the balance of payments under strain. Under the circumstances, the international banking community was unwilling to commit new funds to Mexico, in the amounts required. These factors led to a second devaluation of the peso in August 1982, while the acute shortage of foreign exchange forced the Government to suspend the amortization payments of most of Mexico's external public debt pending a broader agreement on its refinancing. Capital flight continued as private sector confidence was shaken by the nationalization of the banks in September 1982, and the mandatory conversion of US dollar deposits into pesos. Also put into effect were a generalized system of exchange controls and strict external trade restrictions. Recent Developments 8. The Administration of President de la Madrid, that began its term in December 1982, lost no time in taking steps to deal with Mexico's grave economic situation. The EFF agreement, approved by the IMF in December 1982, laid the basis for the re-negotiaticn of that part of Mexico's public external debt on which amortization payments had been discontinued in August 1982. Commercial banks agreed to restructure some US$19 billion of public sector debt and provide US$5 billion in net new loans for 1983. All obligations falling due between August 23, 1982 and December 31, 1984 were restructured over an eight year period, starting from January 1983, with a grace period of four years and at an interest rate of 1-7/8 percentage points over LIBOR (or 1-3/4 over the New York prime rate). The US$5 billion syndication had a 6-year maturity, with a 3-year grace period, at a spread of 2-1/4 over LIBOR (2-1/8 over prime). The restructuring exercise included an understanding that the  - 3 - international banks would maintain their exposure to the Mexican banks that had been nationalized. At the same time, it provided a mechanism that would eliminate 1982 private sector interest arrears and faciiitate payment of the rescheduled principal on such debt. 9. A new two-tier exchange rate system was introduced, with a controlled market for imports, most proceeds from merchandise exports (except those of in-bond industries) and debt related transactions, and a free market for all other transactions including those relating to tourism. The controlled rate was originally set at Mex$95 = US$1, a depreciation of some 35 percent in relation to the previously prevailing ordinary rate of Mex$70 per US dollar. * It has been depreciated at a rate of Mex$0.13 per day, and is currently about Mex$160 per dollar. The free market rate had remained at about Mex$150 per dollar until September 1983, when the authorities decided to let it slide at the same rate as the controlled rate, and is nov about Mex$175 per dollar. The differential between the two rates, which in December 1982 stood under 60 percent, is now down to 11 percent. Although inflation cont-nued to be high (about 80 percent in 1983), the real effective exchange rate in the controlled market remains competitive, and nonr-oil exports have risen considerably. 10. Under the IMF Agreement, the Administration committed itself to a drastic reduction of the public sector deficit, from 18.0 percent of GDP in 1982 to 8.5 percent in 1983, 5.5 percent in 1984 and 3.5 percent in 1985. Substantial progress was achieved during 1983 in meeting the program objec- tives. The public finances were strengthened considerably and the public sector deficit in 1983 remained at all times below the ceilings established under the program. The brunt of public expenditure cuts in 1983 was borne by public investment. The cuts were made virtually across the board, but the authorities gave priority to completing projects that were already far advanced and to those that were important for employment, equity, or foreign exchange earnings. Overall, public investment expenditures are estimated to have declined in 19B3 to about 7.4 percent of GDP, from 11.7 in 1982. The fiscal performance of 1983 was also aided by significant price increases for nearly all public goods and services, including petroleum products, electricity rates, food, etc. The Government has committed itself to a substantial reduction and eventual elimination of most subsidies, including those provided in the form of low interest rates. 11. The balance of payments experienced a major turnaround, the current account moving from a deficit of almost US$5 billion in 1982 to a surplus of US$5.5 billion in 1983. The strength of the current account and the availa- bility of external finance permitted Mexico to replenish its international reserves while paying a large part of the arrears that had accumulated in 1982. The net use of foreign financing by the public sector was US$4.2 billion for the year--below the ceiling of US$5 billion under the stabilization pro- gram. The errors and omissions account of the balance of payments dropped from US$11 billion in 1982 to an estimated US$0.4 billion in 1983, largely reflect- ing the decline in unrecorded capital outflows. The swing in the current account was mainly the result of a very sharp contraction of merchandise imports, to US$7.7 billion representing a decline of about US$7 billion from their 1982 level. The recession, the large devaluation of the peso and the quantitative restrictions all contributed to this. The performance of non-oil exports which had been poor in the earlier part of the year, improved consider- ably in the second half and showed an increase of 10.6 percent in dollar terms  - 4 - for the year as a whole. Growth in tourism and in-bond industry was particu- larly strong, and helped in alleviating unemployment. The Government's stabilization program, together with a moderate incomes policy helped bring down inflation; it averaged 70 percent (annualized rate) in the last quarter of 1983 compared to 125 percent in the first quarter. The flow of savings into the banking system was in line with the projections of the program, reflecting both the exchange rate and interest rate policies. The Impact of the severe and sudden adjustment of public expenditures and imports on econci.ic growth bag been serious; GDP is estimated to have declined by close to 5 percent in 1983. However, some signs of economic recovery have appeared in recent months: the demand for credit in the private sector has increased, and employment in the modern sector has risen somewhat. 12. The new Government took steps to regain the confidence of both domestic and foreign private investors. These included efforts to deal with the problems of private external debt, procedures to compensate owners of nationalized banks, and a more flexible application of the foreign investment law. Negotiations are now being completed with commercial banks and other private creditors for the refinancing of a total of US$11.6 billion of private sector obligations at stretched out maturities varying between 6 and 12 years, with 3- to 4-year grace periods. Moreover, the Government undertook the restructuring of Mexican private sector obligations guaranteed by official credit agencies abroad. The Government recently announced a program to transfer back to private sector ownership most of the 400 private firms that were controlled by the commercial banks prior to their nationalization. These measures and announcements have been beneficial, but much more remains to be done to restore full confidence of Mexican entrepreneurs and foreign investors. The Government fully realizes that this is an issue of the greatest importance as economic recovery beyond the current stabilization period will depend critically on the resumption of vigorous private investment. Short-term Economic Outlook 13. The Administration's stabilization policies will continue in 1984. The authorities expect a gradual resumption of economic growth and a further reduction in inflation, while maintaining a strong balance of payments. Real GDP in 1984 is projected to grow by about 1 percent, while inflation is expected officially to decline to about 40 percent, on a December-to-December basis, compared to 80 percent the year before although that may turn out to be somewhat optimistic. The increase in economic activity is to be based mainly on a revival of the private sector and a small increase in public investment. Total employment should continue to rise as the authorities proceed with the implementation of an emergency program to create and maintain between 700,000 and 800,000 additional jobs in 1983-84. Declining domestic inflation (combined with the steady slide of both the controlled and the so-called free market exchange rates - see para. 9) is expected to provide adequate incentives to export development and efficient import substitution. The Government expects merchandise imports to increase to US$14 billion in 1984, partly as a result of recent measures reducing the restrictiveness of the import licensing system, and merchandise exports to US$24 billion (from US$22 billion in 1983) with most of the increase coming from nonr-oil exports. The current account surplus for the year is expected to be about US$0.7 billion in 1984. For 1984, the growth in public sector debt outstanding and disbursed is to be limited to US$4 billion. An important source of external financing for the year will be o  US$3.8 billion syndicated loan from commercial banks. This loan will have a 10-year maturity, with a 5-3/4-year grace period, comparing favorably with the 1983 US$5 billion loan of 6-year maturity and 3-year grace. Further, the spreads on the new loan are 1-i percent over LIBOR (1-1/8 over prime), down from 2-1/4 over LIBOR (2-1/8 over prime) in 1983. Mediumr-term Prospects 14. The Government's strategy, as outlined in the National Development Plan(NDP) for 1983-1988, combines special efforts to recover from the present crisis with a longer-term perspective on regaining balanced and stable growth to overcome structural problems. The main structural problems facing Mexico in the years ahead include the very high rate of population growth (2.6 percent estimated for 1983) together with an even higher rate of labor force growth (a little under 4 percent), slow growth in agriculture, poverty, a highly skewed interpersonal and interregional income distribution, and an overly oil- dependent economy with a manufacturing sector that has been inward looking for too long. 15. The medium-term strategy presented in the NDP focuses on the need for structural changes in the economy including a greater export orientation of the industrial system, poverty alleviation through basic needs policies and improvement in l1bor absorption, decentralization of economic activity, revision of external trade policies and modernization of the commercial struc- ture. The basic elements of policies to address structural problems are mentioned in the NDP and it is expected that further details on specific pro- grams and schedules for policy adjustments will be provided in the sectoral plans which are now under preparation. 16. Miexico's medium-term prospects for recovery and stable economic growth are good, provided economic management continues to be prudent, private sector confidence is restored, and the international environment remains favor- able. Adequate domestic policies include inter alia continued efforts to reduce the fiscal deficit, liberalize trade and minimize price distortions. Restoration of private sector confidence is crucial since only a strong and dynamic private sector will be able to raise investment from the present depressed levels and to supply the increasing non-oil export surplus required for the resumption of growth. Success in this regard will depend critically on the quality and the effectiveness of Government's policies. As regards the external environment, the commercial banks are expected to maintain their exposure in Mexico in real terms, and foreign markets to be open to Mexico's nonr-oil exports. Mexico's prospects would benefit from a fall in interest rates in the world financial markets (a one percentage point drop would mean a savings of about US$800 million in overall interest payments) and rising petroleum prices (a one dollar change in the price of a barrel of oil would alter export receipts by $550 million for the year). 17. Under favorable external and domestic conditions, Mexico's economic growth could reach 6 percent a year-the historical average for Mexico -- towards the late 1980s. This growth would materialize through a sustained recovery of the commodity producing sectors. Contrary to the recent experience with public expenditure-led growth, Mexico's future economic performance will depend critically on the recovery of private sector investment.  - 6- External Debt and Creditworthiness 18. Mexico's external public debt increased by about US$4 billion during 1983 and is expected to rise by a similar amount this year. With an expected net new borrowing of some US$3 to US$4 billion a year, the ratio of external debt to GDP would decline steadily from 41 percent in 1984 to 33 percent by 1990. The debt service ratio (32 percent in 1984 after rescheduling) would peak at about 60 percent in 1987-as amortizations on new borrowing and the rescheduled debt fall due-and would decline thereafter to below 40 percent by the end of the decade. The ratio of public debt outstanding to exports of goods and non-factor services would fall from 2.5 in 1984 to 1.5 in 1990. 19. As its debt repayment schedule Implies large gross financing needs during the 1980s, Mexico will need to count on the continued cooperation of the international financial community in refinancing amortization payments and providing some additional net new borrowing. Such cooperation is already evident from the favorable terms of the US$3.8 billion jumbo loan from the com mercial banks for 1984 (see para. 13), reflecting the improvement in Mexico's external position. At the end of 1982, the last year for which a comprehensive external debt report is available at this time, the Bank's share in Mexico's debt was 5.3 percent. The Bank share in Mexico's total public external debt service payments during that year was 3.7 percent. In view of the good medium and long term potential of its economy and the prospect of continued pursuit of sound economic policies by the present Administration, Mexico is considered creditworthy for IBRD borrowing. PART II - BANK GROUP OPERATIONS IN MEXICOl/ Bank Operat'ons 20. As of March 31, 1984, Mexico had received 82 loans from the Bank amounting to US$6,486 million, net of cancellations and terminations; of these, 53 loans totalling US$2,887 million were fully disbursed. The Bank held US$5,335.9 million, of which US$2,327.4 million had not yet been disbursed. Some 42 percent of Bank lending has been for agriculture and rural development, 23 percent for industry, 11 percent for power, and 13 percent for transporta- tion; the remaining 11 percent has been for water supply, tourism, urban development, vocational training and pollution control projects. Annex II contains a summary statement of Bank loans as of March 31, 1984. 21. Of the US$6.48 billion total lending, about US$3.2 billion was for establishing or strengthening institutions for channelling credit to areas where credit supply was deficient or nonr-existent, and setting up in the comr- mercial banking system the ability to carry out project-related appraisal of investments in agriculture, industry and tourism. These credit programs have facilitated lending to low-income farmers and small- and medium-scale indus- trial and tourism enterprises based on productive investment plans, rather than credit granted on the basis of collateral. 1/ This section is substantially unchanged from the President's Report for the Second Highway Sector Project (Report No. P-3805-ME). Changes have been introduced in para. 27).  -7- 22. The Government arranged adequate budget financing in the years 1978 to 1981, which significantly improved project implementation. Government and Bank officials met periodically to review project implementation, and greater attention was focused in Mexico on project monitoring. As a result of these measures, most of the Bank-assisted projects were being implemented satisfacto- rily until mid-1982 and disbursements rose from US$91 million in FY78 to US$448 million in FY82. However, the present financial crisis is again causing delays in the provis'on of counterpart funds, consequently, disbursements in FY83 declined to 'S$389 million. A Special Action Program (SAP) was established in early 1983 to help the Government by alleviating the counterpart funding cons- traints on development projects, and 18 Bank financed projects are receiving support under the Program. Partly as a result of the SAP, disbursements during the first three months of 1984 improved significantly and, at US$195 million, almost equalled thrice the amount disbursed in the same period of 1983. IFC Operations 23. As of March 31, 1984, IFC had made investment commitments in 23 companies in Mexico, for a total of US$730.4 million, of which US$542.8 million had been sold, repaid or cancelled. A summary statement of IFC investments is presented in Annex II. IFC has been working together with the Bank in prepar- ing proposals to establish a facility for provision of foreign exchange financing to private sector companies for the importation of machinery, equip- ment and spare parts required for production of exportable products, for efficient import substitution and for improvements in the utilization of their existing productive capacity. IFC approved a US$100 million facility (includ- ing funds mobilized from foreign commercial banks) in 1983, which is providing finance for fixed investments of a larger size than those assisted under the Bank loan for an Export Development Project. Bank Strategy 24. The main objectives of Bank lending in Mexico in the past eight years have been to: (a) support policies and programs leading to a wider distribu- tion of the benefits of economic growth; (b) help finance projects that, di- rectly or indirectly, contribute significantly to output and employment; (c) help reduce Mexico's urban-regional imbalances; and (d) help free bottlenecks which prevent rapid growth. More recently, however, in response to Mexico's requirements following the 1982 economic crisis, the Bank, in close cooperation with the IMF, also supported the Government's stabilization program through as- sistance for export promotion and intensified and broadened economic and sector work. As for medium term prospects, the volume and composition of Bank lending to Mexico would be related to progress in the implementation of policy reforms needed for structural economic adjustments, through broad policy conditionality affecting the entire lending program or important parts of it. Specific policy reforms that would be pursued through a dialogue with the Government, to be conducted in parallel with the processing of lending operations, would cover priority macro-economic and cross-sectoral issues, such as interest rate policy, energy pricing, subsidy reduction and export development. 25. Because of the difficult structural problems of agriculture and the sector's crucial importance for the one-third of the nation's population living in the rural areas, the Bank has made agriculture the leading sector for its lending. The Bank's agricultural lending program in Mexico has four goals:  first, to help increase productivity of presently cultivated lands in general; second, to give emphasis to improving the productivity of small farmers; third, to complement infrastructure investments with support services, such as extenr- sion, marketing programs and credit; and fourth, to promote employment-generat- ing investments in rural areas. The Bank has made 13 loans in FYs78-83 total- ling US$1,829.4 million for irrigation, rural development and agricultural, agro-industrial and livestock credit programs. A US$175 million loan for a rural development project and a US$180 million loan for an irrigation rehabili- tation project were approved by the Executive Directors in FY82, and a US$138.4 million loan for San Fernando rainfed agricultural development was approved in early FY83. A US$1L5 million loan for marketing perishables was approved by the Executive Directors in April 1983. Projects for rainfed agriculture, regional development and rural credit are in preparation. 26. Bank lending for industry has aimed at: (a) reduction of the balance of payments deficit; (b) decentralizing industrial activities away from the major, increasingly congested, urban areas; and (c) promoting greater employ- ment. A steel project which the Bank helped structure and finance is now operating in a previously underdeveloped area on the west coast of Mexico, and the city in which it is located, Lazaro Cardenas, is developing into a new growth pole. The timing and location of the proposed project would also contribute to the further development of this region. Four loans for indus- trial projects to promote the development of small- and medium-scale industrial enterprises, to finance expansion of small- and medium-scale mining, and to support an industrial equipment fund (FONEI) were approved by the Executive Directors in FYs78-80. A loan for a vocational training project was approved by the Executive Directors in July 1981; it is assisting a program to increase the supply of skilled workers and technicians. A US$152.3 million loan for development of a capital goods industries project and a US$60 million loan for pollution control were approved by the Executive Directors in FY82. A modi- fication in the capital goods project was approved by the Executive Directors in early 1983 to set up a pilot export development fund to help satisfy the foreign exchange needs of Mexican exporters. A US$350 million loan for an Export Development Project and a US$175 million loan for a Third Small and Medium Scale Industry Development Project were approved by the Executive Directors in FY83. 27. Bank lending for physical infrastructure has been focused on regional development and strengthening of institutions and sector policies. Two highway sector projects (FY79 and FY84) and the fourth railway project (FY81) support these goals. The first and second medium-size cities water supply and sewerage projects (FYs 76 and 81) reinforce the planning, management and finance of spe- cialized water supply and sewerage institutions at the federal and municipal levels, and contribute to the establishment of tariffs more closely related to costs; a third project was approved by the Executive Directors on May 17, 1983. 28. The Government has adopted a National Urban Development Plan that spells out its regional development priorities in operational terms. A project to assist in the development of the Lazaro Cardenas urban area was approved by the Executive Directors in FY78, and a second urban project for oil-producing southeastern Mexico was approved by the Executive Directors in FYB1. A loan for the preparation of a deconcentration program for the Mexico City Region was approved by the Executive Directors in August 1982.  29. The Economic Development Institute (EDI) is assisting CECADE (Centro de Capacitacion de Desarrollo Economico under the Secretariat of Programming and Budgeting) in training Government staff in project preparation, Monitoring and evaluation_ EDI assistance is directed at courses on urban and regional development, agriculture, rural development and agro-industries. The Bank has also assisted the Mexican authorities in training personnel for managing water supply and industrial credit projects. 30. The Inter-American Development Bank (IDB) is the secoad largest source of multilateral aid to Mexico. The IDB has made loans to Mexico total- ling US$3,039.3 million as of September 30, 1983. Over 50 percent of the total has gone to agricultural and rural development projects, and the balance to transportation, industry, water supply and sewerage, tourism infrastructure, education, municipal development, and pre-investment. The IDB and the Bank have coordinated their assistance on several projects. Each has made loans for the national integrated rural development peogram (PIDER), agricultural and livestock credit, small- and medium-scale industries development, and botel development projects. The International Fund for Agricultural Development (IFAD) has approved a loan of US$22 million for a rural development project in the state of Oaxaca which was appraised by the Bank's staff and for which the lank is acting as cooperating institution for administering the loan. 31. Bank-supported power, steel, fertilizer and tourism projects in Mexico have been co-financed by several bilateral export credit agencies end commercial banks. In January 1982, Mexico borrowed US$500 million from com- mercial banks to provide complementary financing for Bank-assisted projects where project specific co-financing would have been difficult. PART III - THE TRANSPORT SECTOR IN MEXICO A. GENERAL 32. Mexico's difficult topographic conditions as well as the dispersion of its population and economic activities have always made transport a crucial element of the country's development efforts. The initial emphasis was on railway infrastructure investments, which led to the laying out of 19,000 kms of rails by 1910. Transport infrastructure investments then slowed down substantially until the mid-193Cs, after which the emphasis shifted to highway construction to provide connections between Mexico City, the state capitals and the main border crossings and seaports. Requirements for port infrastructure and services increased dramatically in the late 1970s because of the growth of the coastal shipments of crude oil and of dry bulk foreign trade resulting from the rapid development of Mexico's petroleum industry lind of the Government's effort to stimulate and diversify exports. These factors contributed to the momentum of growth over that decade. 33. The accelerated development generated by the oil boom in the late 197Cs resulted in unprecedented growth in demand for transport services. Since transport had declined as a percentage of public sector investment from 21 percent in 1972 to around 9 percent by 1979, serious deficiencies occurred in transport operations and infrastructure affecting national and international trade between 1978 and 1982. The Government responded to the new demand by  - 10 - increasing real investments in railways by 173 percent, ports tenfold and high- ways by 86 percent between 1978 and 1981. The budgetary restrictions which accompanied the economic crisis in 1982 and 1983, however, resulted in reducing transport investment to 1979 levels, postponing major investments which were not near completion and shifting emphasis to maintenance and rehabilitation. The lull in transport demand caused by the recent recession has given the Government some leeway, in terms of timing, to reorder its transport priorities but critical investment decisions will have to be made within the next few years, in order to serve any economic recovery effectively. Ihe Bank lending strategy for the transport sector is designed to provide assistance in meeting the immediate financial needs of the sector, as well as to help in developing mediumr- and long-term sectoral investment programs and policies. Transport Network Capacity 34. Mexico has developed an extensive transport network comprising over 200,000 km of roads, of which 67,000 km are paved; about 20,000 km of railways; some 33 ports, of which 13 serve international traffic; about 50 airports capable of handling mediumr and large-size aircraft; and over 20,000 km of pipelines handling crude oil, refined products and gas. 35. Much of Nexico's nonr-petroleum-related foreign trade is with the US, for which overland routes are used predominantly. However, maritime transport increased as a percentage of international transport over the last decade, and this trend is expected to accelerate as Mexican foreign trade diversifies and new export markets are obtained. In 1982, 101 million tons of international traffic passed through the port system, of which 81 percent was petroleum related traffic. Domestic coastal shipping, mainly of petroleum, is also important. In 1982, some 50 million tons were transported by coastal shipping, of which 78 percent was petroleum-related. Containerized traffic has tripled since 1979, and it grew from 7 percent to 23 percent of all general cargo traffic between 1979 and 1982. 36. The system's capacity had been generally adequate until the late 1970s when general cargo and bulk traffic, particularly grain, increased at a fast pace. After 1976, traffic growth took off, with general cargo and dry bulk traffic increasing at annual rates of 17 percent and 12 percent respec- tively. These large increases led to capacity problems, and, by the late seventies, some two million tons of Mexican imports and exports were handled by US ports with extensive overland movements. In 1982, the port system, feeling the effects of the recession, experienced a 19 percent decline in non-petroleum traffic. Sector Investments 37. During the 1960s and 1976s, substantial amounts were invested in transport, particularly roads, railways and aviation. In the late 1970s, how- ever, transport sector investments declined, but it became evident that the transport network would be unable to cope with the accelerated growth in traf- fic. To improve capacity, in 1979 the Government launched an industrial ports development program and a major track improvement plan for the railways. High- way investment expenditures, however, were maintained at constant levels, so that its share of transport sector investments declined.  - 11 - 38. With the onset of severe budgetary restrictions, as a result of the recession in 1982, transport investment priorities had to be shifted again. Transport investment levels, not including urban transport, were reduced in 1983 in real terms to about US$1 billion (roughly equivalent to the 1979 levels), focusing on maintenance, reconstruction of existing infrastructure, completion of high priority ongoing construction works, and deferring the initiation of new investments. But the transport sector's cuts were less severe than those in public investments in general and, therefore, its share in the total rose from 9 percent in 1979 to 11 percent in 1983. 39. The current Government established a six-year plan for 1983-1988. As part of their stated strategy, the 1984 budget does not envisage major new investments. During the remainder of the six-year period, however, the Govern ment will have to face the need for additional major investments, in order to provide adequate transport services required by economic recovery. These investments may be in areas of rail infrastructure, including completion of the electrification of the Mexico City-Queretaro line and new li-es between Guadalajara and Monterrey. In the highway network, provision of dual carriage ways for toll roads may be required. In addition, substantial investments may be needed for the airport at Mexico City to expand its capacity. Institutional Framework and Planning 40. The current Administration introduced a far-reaching institutional reform soon after taking office in December 1982 by incorporating all transport agencies under SCT. Previously, highway and airport development were under the jurisdiction of the former Secretariat for Human Settlement and Public Works (SAHOP). The earlier dispersed institutional arrangement hampered coordination of planning and investment and limited the scope of the Bank's dialogue on sectoral issues. A new Subsecretariat for Infrastructure in SCT now handles infrastructure development for almost all transport, and a Sunsecretariat for Operations has responsibility for operational, regulatory and tariff matters. A Directorate General for Planning, which reports directly to the Secretary, is in charge of overall planning. 41. SCT is presently reorganizing the Directorate General for Planning and the other modal planning offices within the Subsecretariats for Infrastruc- ture and Operations. Once fully implemented, it is expected that planning units in the various modal directorates will be responsible for identifying and proposing capital investments and will provide the technical details required for the analysis of such investments. The Directorate General for Planning will have the responsibility for carrying out the economic feasibility analysis and providing a consistent multimodal framework for the preparation of the mediur- and long-term investment program. Sectoral planning within SCT is complemented by the Secretariat for Programing and Budgeting (SPP), consisting mainly of reviews and approvals of the proposed SCT investment and operating budgets. These arrangements have proven effective and are satisfactory. Based on a review of training requirements for planning in SCT, the Bank is already providing assistance to enhance SCT's planning capabilities under various ongoing transport loans: Highway (1671-ME), Railways (1924-ME) and Port Preparation (1964-HE) projects). To assure continuity, further assistance would be provided under the recently approved Highway Sector Project (2428-NE) and the proposed project.  - 12 - Fuel Pricing 42. In the late 1970s petroleum products were being priced at the pump well below world market prices in Mexico. As domestic inflation surged, this situation worsened since gasoline and diesel prices were not allowed to increase above USS0.42 and US$0.18 per gallon, respectively. Gradual price increases initiated in December 1981 by the previous Administration had taken greater momentum in December 1982 when the current Administration took office. By April 1984, the price per gallon of extra and regular gasoline was raised to US$1.30 and US$0.96 respectively, representing real term increases of 84 per- cent and 240 percent. Diesel prices rose to US$0.63 per gallon, which repre- sented a real term increase of 430 percent. Current gasoline prices are now slightly above the relevant-Caribbear-based--international price, while diesel prices stand at 78 percent. 43. The current Administration in Mexico has demonstrated a strong com- mitment to the gradual elimination of price subsidies. The upward price adjustments discussed above represent serious action taken to resolve the fuel pricing issue, including a reduction of the price differential between diesel and gasoline. With the present level of prices, no major distortions are apparent in the transport sector. Recent analyses by the Bank also show that the impact of relatively low diesel prices on the choice between labor or equipment-intensive construction techniques for rural roads is not signifi- cant. It is the stated policy of the Government to continue adjustments in fuel prices in 1984 and beyond, with a view to approaching opportunity cost levels and reducing subsidies. The Bank will continue to monitor progress on the fuel pricing issue and assist the Government in assessing the implications of its pricing policies and the need for further action consistent with the stated policy. B. THE PORTS SUBSECTOR Port Administration 44. Responsibility for administration of Mexico's commercial ports lay with the Navy Secretariat until 1977, when responsibility for industrial, commercial and fishing ports was transferred to the Ministry of Communications and Transport (SCT). The management of the ports subsector was divided among two Subsecretariats within SCT, dealing with port infrastructure and opera- tions, through (a) the Directorate General for Marine Works (DGOM), responsible for port construction and dredging and (b) the Directorate General for Port Operations and Development (DGOPD), which runs overall port operations. Within the SCT framework, the National Port Coordinating Commission (CNCP) is responr sible for coordinating port development planning and serves as a vehicle to consult port users on port development needs. Other institutions or entities performing specialized functions under the SCT jurisdiction include:(a) FONDEPORT, a trust fund placed under BANPESCA, with responsibility for the development, sale and/or lease of adjacent land to port areas; (b) ESPs, local service companies in charge of port operations; and (c) BANPESCA, a Govern- ment-owned Bank which finances port development and fisheries operations, and is the Borrower for the proposed project.  - 13 - 45. A recent attempt by some agencies of the Government to propose the introduction of local port authorities, did not progress. Instead, under the overall framework of SCT, the ports are operated by local port service compa- nies (ESPs), jointly owned by the Federal Government, port unions and port users. SCT has given the ESPs broader responsibilities, to include port equip- ment acquisition and maintenance, cargo storage, and collection of aln port tariffs and dues, complemented with strengthening their administration and operations vith highly qualified staff in administration, finance, statistics, maintenance, and operational supervision. These new concepts are being introduced first at Lazaro Cardenas' ESP, which will serve as a model for the strengthening of other ESPs. FONDEPORT owns the industrial park lands adjacent to the port areas and is responsible for their administration and commercial development. It has set up a special department to deal with its new respon- sibility in the development of the industrial ports program. The proposed project would serve as a vehicle for the Implementation of these key decisions. Port Pricing 46. Since the ESPs are operated on a commercial basis, the tariffs charged for their services are, in principle, cost-related and subject to frequent adjustment. They do, however, require approval by SCT's Directorate- General for Port Administration and the Directorate-General for Tariffs before they are officially published and become effective. As a result, there is often a considerable time lag between the application by an ESP for a tariff change and its eventual implementation. With the rapid inflation of the last two years, this has meant that cargo-handling tariffs have steadily been fal- ling behind the increasing costs, often eroding profits and reserves of the port operation companies. Ship dues, berthage and wharfage fees paid by ship operators go directly to SHCP. These are not related to the capital investment in port infrastructure. 47. The current Administration has stated their intention of rationaliz- ing port pricing with the general objective of eliminating subsidies and promoting a more efficient use of resources. Pursuant to this objective, the Government has set up a special Pricing Commission in SHCP to determine cost recovery principles for infrastructure and for Government-controlled enter- prises. In 1983, the Government raised port dues by levels which resulted in real increases in revenues of 115 percent between 1982 and 1983. Individual charges were raised between 24 percent and 2,000 percent in that year. In 1984, additional increases are planned for August, ranging between 30 and 40 percent, to adjust port dues to reflect price increases caused by inflation. For the Lazaro Cardenas ESP, frequent adjustments in port tariffs have been made in 1983 and 1984 to meet price increases. Other actions being taken by the Government include the revaluation of assets owned by the Government in all commercial and industrial ports. Under the proposed project, a countrywide study of the proper level of port dues, which will serve as a basis for preparation of an action plan to rationalize port pricing, will be carried out as a positive step in the resolution of this issue (para. 85). Upon completion of the ongoing revaluation of countrywide port assets and of the port dues study, a phased but fairly rapid adjustment of port dues is expected to be made in line with the stated Government policy.  - 14 - C. THE INDUSTRIAL PORTS PROGRAM Program Origin and Formulation 48. The historic population trend in Mexico has resulted in heavy demo- graphic and resource concentration in only a few regions in the country; 30 percent of the population now lives in three main cities: Mexico, Guadalajara and Monterrey. These areas also concentrate about 65 percent of industrial production on the national level. This has led to serious socio-economic distortions, especially poverty, income and wealth inequality, unemployment and regional imbalances. These deep-rooted structural problems have persisted through the high growth period of the mid-to-late 1970s, the economic crisis of 1982 and the subsequent recession. Mexican policy-makers in past and present administrations have been concerned that, if the trend toward concentration of population and economic activity in Mexico City and the central region were to continue at the same pace as in the past, the resulting regional distortions would exacerbate social imbalances, and that the already difficult urban pro- blems in the Mexico City Metropolitan zone, such as an acute water supply problem, pollution, traffic and the high cost of urban services, would evenr tually become unmanageable. 49. The Industrial Ports Program was formulated in 1978 by the Office of the Presidency as a key element towards achieving a more balanced distribution of population and economic activity, promotion of industrial growth and employ- ment generation. It supports a more organized expansion of the industrial plant, coordinated development of port infrastructure and services and the overall strengthening and modernization-of transport activities. The objec- tives of the Program fit into the general development strategy of the Govern- ment. This strategy focuses on selective investments in priority regions, activities and needs identified by the National, Urban and Industrial Develop- ment Plans, through coordinated planning of requirements for the ports, the industrial plant and related support services, complemented with ecological protection measures and human and urban requirements. From the administrative viewpoint, it is a complex multisectoral program which involves the concerted participation of many public sector agencies both in the planning and execution as well as in the management and operating stages of the activities associated with it. 50. The areas selected under the Program have physical features which justify the concentration of incentives and other Government supports to promote sustained industrial growth. Until the launching of this Program, little advantage had been taken from existing fa'orable physical conditions in the coastal zones, and ports operated in a commercial capacity, acting principally as linkages between maritime and land transport systems. The change from commercial to industrial centers is expected to generate its own increased transport needs. Investment Priorities 51. In the port sub-sector, the Government's strategy concentrates, in the early years of the six-year plan (para. 39), upon rehabilitation and reconstruction of its commercial ports and on the completion of and improvement to the industrial ports of Lazaro Cardenas and Altamira. New capacity is planned in the medium term at the commercial ports, particularly Manzanillo,  - 15 - Salina Cruz, Tampico and Vera Cruz. These investments will have to be studied carefully to determine the appropriate timiog for investment in increased capacity. To improve planning capabilities and to determine resource require- ments, port investment programs and criteria for economic analysis would be reviewed annually under the project as part of the monitoring process (para. 91). The decisions needed for these new investments will depend on the timing and structure of the economic recovery, projected levels of import substitution and its impact on grain imports and related transport requirements, the evolu- tion of non-traditional exports, and the prospects for industrial and urban deconcentration. 52. The Industrial Ports Program was given high priority in Mexico's public sector investment program. Four industrial ports sites were originally selected for inclusion: Lazaro Cardenas and Salina Cruz on the Pacific Coast and Altamira and Laguna de Ostion on the Gulf Coast. Between 1979 and 1983, a total of US$755 million was invested by the Government at these four sites, exclusive of investment in industrial plant. Most of these resources were directed at Lazaro Cardenas (37 percent of total) and Altamira (34 percent). Investments peaked in 1981 and then fell, in real terms, in line with the urgent need to reduce public sector investment after the 1982 financial crisis. Until the recession and the need to reassess the proper scope and timing of the Program, infrastructure at the four sites was constructed at an extremely rapid pace. Industrial development at the industrial ports has progressed at a much slower rate than expected when the Program was conceived, partly because of the recession, which has halted new investment throughout Mexico, but also due to overly optimistic projections of demand for industrial land at the port sites. Of the four sites, Lazaro Cardenas is the most advanced, requiring limited additional investments to make the port fully operational and to provide flood and environmental protection. The Lazaro Cardenas Industrial Port was developed in the 1970s to serve the steel plant Siderurgica Lazaro Cardenas - Las Truchas (SICARTSA), and subsequently developed to provide a wharf for FERTIMEX' fertilizer plant. It was to be expanded to accommodate a grain terminal, a foundry and a steel pipe plant, an oil refinery, chemical plants, and ship construction and repair facilities. Four new industrial plants (besides SICARTSA and FERTIMEX) or specialized terminals are currently under construction there and plans include investments by an oil drilling platform manufacturer and in a small and medium scale industrial park. 53. The public sector's role centered on the development of infrastruc- ture, including prepared industrial park land with waterfronts and multiple use port facilities, at several industrial ports, to allow industry to take advan- tage of direct access to maritime transport. Private sector initiatives at the industrial ports were supported by actions taken under the Industrial Develop- ment Plan of 1979. This Plan set out as basic objectives the promotion of industrial investment in accordance with regional priorities, creation of jobs to absorb a rapidly growing labor force, increasing real income, and the devel- opment of domestic technology. The public sector's participation under this Plan concentrated in strategic productive sectors and economic and social infrastructure. Under the Plan's industrial investment incentive scheme, industry locating at the industrial ports received tax rebates and special prices for energy inputs. Concurrently, it was also consistent with the main thrust of the Urban Development Plan (1978) to discourage migration towards already congested urban and industrial areas by promoting relocation of both population and economic activities and services towards the coastal areas which  - 16 - thus receive preferential provision of infrastructt;re and services. The new Administration has retained these basic objectives. 54. In its recently published National Development Plan (NDP) (May 1983), the new Administration has reaffirmed the priority of the Industrial Ports Program, not only as a means of promoting decentralization but also as an element in its efforts to expand exports. The investment strategy being pursued by the new Administration focuses on completion, at a minimum cost, of necessary works at Lazaro Cardenas, and on a full review of the proper pace and scale of other investments under the Program. In addition, more emphasis is being placed on the role of these ports within the overall national ports system, and on the establishment of effective administrative and financial frameworks. While well conceived investments in the Industrial Ports Program can contribute to overall and regional economic growth, these alone will not have a major impact on slowing Mexico City's growth. To achieve this, the Government must improve its pricing policies in the central region by, inter alia, eliminating water and energy subsidies, and enforcing existing environ- mental regulations. The Industrial Ports Program will serve as a positive vehicle for these difficult measures. Situation in the Lazaro Cardenas Region 55. The Lazaro Cardenas area concentrates abundant water, land, power and mineral resources coupled with an important agricultural potential and well developed transport network. The location of the port on the Pacific Coast is ideal for servicing the Mexico City area as well as the Northern region through coastal navigation. It is also an appropriate outlet for trade activities with the Pacific Basin countries. 56. The population of the Lazaro Cardenas region has grown along with the development of the port. The Municipalities of Lazaro Cardenas and Guacamayas, with estimated 1980 populations of 25,000 and 15,000 respectively, are the two largest towns in the area. The rest of the region is made up of several small communities and villages in both the States of Michoacan and Guerrero. In 1960, the total population of the region was estimated at 6,500 people. By 1970, the region's population had grown by 17,000 and reached 60,000 by 1980. This growth of industry and population has generated a number of problems, related to environmental pollution and to the strains on the road system caused by heavy road traffic generated by the port and the industries located in the area. The rapid growth has also been accompanied by urban management problems, including inadequate facilities and operations of the sewerage and water supply systems , and poor housing. The Industrial Ports Program contemplates some simultaneous basic measures and activities, in the educational, labor, health, housing and urban fields to minimize the consequences of rapid industrial and population growths. 57. Environmental degradation, already a problem at Lazaro Cardenas, is expected to worsen with further industrial development if proper steps are not taken. The problem of municipal and industrial solid and liquid wastes is being addressed under the proposed project. The Government agreed at negotia- tions to take all necessary measures to prevent contamination in the Project area (Section 4.11 of the Guarantee Agreement). Furthermore, environmental conditions at Lazaro Cardenas would be monitored by the Bank under the project during semi-annual meetings to review progress in achieving project objectives -nd enforcement of existing regulation.  - 17 - 58. Solutions for easing future congestion of the urban and regional road system are also needed. Prior to making any major road or bridge investments in the area, SCT will analyze alternative road traffic patterns and select the most economic solution to this traffic management problem. Past Bank Participation and Experience 59. The Bank has been involved in supporting the Government's regional decentralization and industrial development. It has been especially active in the development of the Lazaro Cardenas area through operations to support the SICARTSA steel plant (Loan 934-ME), the FERTIMEX Plant (Loan 1112-ME), urban development (Loan 1554-ME), the development of the Zihuatanejo-Ixtapa tourist resort (Loan 793-ME), and the Zihuatanejo International Airport (Loan 1022-NE). Additional projects which support the goals of regional decentral- ization include two medium-size cities water supply and sewerage project, an urban project for oil producing southeastern Mexico and a loan for the prepara- tion of a deconcentration program for Mexico City. 60. The Bank has provided broad support to the development of transport in Mexico. Nine highway loans have been made, the first in 1960 and the ninth in 1984. There have been four railway loans and an airport loan. A Bank loan for US$20 million (Loan 820-ME) was made in 1972 for a First Ports Project. The main objective of the Bank's participation in the ports project was to assist in the achievement of more efficient operations and in the introduction of a commercial approach to tariffs and services. While substantial operation- al improvements were reached at some ports over the last decade, little was accomplished with respect to the rationalization of port tariffs. 61. The Port Development Preparation Project (US$14 million, Loan 1964-ME) was approved in 1981 to assist in the preinvestment stages of the Industrial Port Program through provision of planning and management services in program formulation and design, and studies and detailed engineering for sector and individual project components in the ports program. Disbursements have been slower than expected because of the large budget reductions experi- enced after 1982, which greatly limited the ability of Government entities to utilize loan proceeds. Nevertheless, the studies and advisory services which have been completed, or are currently under way, have provided a firm basis for the preparation of the proposed project. Role of the Bank and Lending Strategy 62. As the first Bank loan in over 12 years for the physical development of Mexico's ports, the proposed project is intended as the start of a series of operations in the ports and maritime transport subsector. These operations are to be prepared in the context of Mexico's overall program of port development. 63. The Bank's participation in the Industrial Ports Program fits in well with the overall transport sector lending strategy by assisting the Government to focus upon difficult investment decisions and by defining, and assisting in, the satisfactory resolution of, issues related to the port subsector. At the same time, the Bank's role in the Program goes beyond the transport sector, with Bank participation serving as a vehicle for dialogue on the administrative and financial aspects of the Industrial Ports Program, and on the proper pace,  - 18 - scale and composition of Mexican decentralization schemes and related pricing and investment policies. as well as on the difficult issue of euvironmental control. PART IV - THE PROJECT 64. The Government of Mexico has requested a Bank Loan of US$76.3 million to help finance its program of investments at the Lazaro Cardenas Industrial Port. This project vas identified in 1982 and subsequently prepared by CNCP. A Bank mission appraised the project in October 1983 and a post appraisal mission was made in January 1984. Negotiations were held in Washington on May 21-25, 1984. The Mexican Delegation was headed by the Deputy Director of External Financing Operations of BANPESCA, Dr. Antonio Aspra Rodriguez. A Staff Appraisal Report entitled -Lazaro Cardenas Industrial Port Project," No.5025br-ME, dated May 29, 1984, is being circulated separately to the Executive Directors. Supplementary project data are included in Annex III. Project Objectives 65. The proposed project would support the Industrial Ports Development strategy. It would complement major investments made by the Government in Lazaro Cardenas to increase the efficiency of the port terminal, to strengthen the administration and finaices at the industrial port, to create transport economies for industries already existing or under construction, to reduce or eliminate environmental hazards associated with the industrial port develop- ment, and to provide protection against flood damage. The project objectives are as follows: (a) to improve transport facilities for industries through provision of access to international maritime commerce and coastal shipping for major industries; (b) to encourage economic growth in under-developed coastal regions of the country; (c) to increase the country's port capacity and thereby reduce its dependence on foreign ports as it diversifies its international trade patterns; (d) to improve port administration and finances and maintain a dialogue on these institutional issues; and, (e) to help establish a proper administrative, operational and financial framework for the industrial port of Lazaro Cardenas. 66. Key areas of intervention through the proposed Bank loan include introduction of cost-based tariffs, definition of financial objectives and targets, implementation of a training program to upgrade management skills of existing and new staff and of a comprehensive equipment maintenance program starting in 1985. In addition, Bank support to the ongoing port development program aims at the introduction of new approaches to investment analysis and project definition, and assistance to the institutional and sound financial development of port entities in general. Description 67. The proposed project would support the following six components in the Lazaro Cardenas port area:  - 19 - (a) Transport Infrastructure Land Access 68. Provision of land access to new port terminals and industrial facili- ties through (i) construction of about 7.5 km of highway to connect the multi- ple use terminal (TUK) and fertilizer plant (FERTINEX) with the existing road system, and (ii) installation of about 8.5 km of rail lines, connecting the grain terminal and steel pipe plant (PHT) with existing rail networks. Maritime Access (dredging) 69. Extension or deepening of the harbor basin for specific industries needing maritime access to connect existing navigation channels with special purpose docks to be built by the industrial users. (b) Port equipment 70. Provision of cargo handling equipment and a harbor tug to Improve the efficiency and capacity of existing container and general cargo berths at the TUM and to assist vess ls inside the harbor during maneuvering, berthing and unberthing operations. (c) Environmental Protection 71. Correction of environmental problems caused by industrial and munici- pal wastes through (i) provision of a wastewater collection and treatment system at FONDEPORT industrial park; and (ii) of a collection, processing and disposal system for municipal and industrial solid wastes. (d) Industrial Infrastructure 72. Provision of cite preparation, road construction and utilities for about 125 small to medium-sized installations in an area of about 40 ha. This area is part of a 120-ha site designated for such industries within the overall area under FONDEPORT's jurisdiction in Lazaro Cardenas. (e) Flood Control 73. Provision of flood protection works to protect the port and the adjacent industrial installations from flood damage against flood flows of up to 7,000 cubic meters per second (cms) through levees and channel rectification on the left branch of the Balsas river. (f) Technical Assistance 74. Provision of advisory services for studies, engineering, construc- tion, supervision, training and management of port development activities. Costs and Financing 75. The total cost of the project is estimated at US$112.7 million, of which US$76.3 million, the amount of the proposed Bank loan, is foreign exchange. These estimates include physical contingencies varying from 10  - 20 - percent to 15 percent for civil works and from 0 percent to 15 percent for equipment procurement, and price escalation in both foreign and local cost components (denominated in USs) at 3.5 percent for 1984; 8 percent for 1985; 9 percent for 1986, 1987 and 1988 and 7.5 percent for 1989. Project Execution and Administration 76. The proposed project is a multisectoral program, which involves the participation of several public sector agencies. In order to deal effectively with such a complex task, the Government submitted at negotiations a specific institutional framework created for this purpose. The Industrial Port Program Commission, which includes high-level representatives of SCT, SARH, SEDUE, FONDEPORT, CNCP and SPP, is the body charged with overall policy making and coordination for the Industrial Port Program under the lead responsibility of SCT. Project coordination will be entrusted to a monitoring and coordination group established within the Commission, which would include participants from each of the directorates within SCT, SARB and SEDUE involved in the project, as well as CNCP, SPP and BANPESCA. A Technical Secretariat within CNCP, which will report to this group, will be responsible for day to day project monitor- ing, including the preparation of reports regarding project execution and achievement of the project objectives. A project coordinator will be appointed in Lazaro Cardenas to oversee supervision of all project works. 77. SCT would be responsible for execution of the road, rail and maritime access components of the project and for the Lazaro Cardenas road system study. SARH would be responsible for the flood protection measures and SEDUE for the execution of studies and related civil works and equipment acquisition for the solid waste disposal system. FONDEPORT would be responsible for the sewerage component at the industrial park and the small- and mediumr-scale industrial park while ESP would be responsible for cargo handling equipment and tug procurement. 78. BANPESCA would be the Borrower for the proposed project aud would transfer project funds between the Bank and the executing agencies as a condition of loan effectiveness, and, to that effect, would enter into agree- ments, under terms and conditions satisfactory to the Bank, with ESP, and FONDEPORT, for onr-lending of project funds (Section 3.01 of the Loan Agree- ment). The agreements with these two entities would be on the same financial terms and conditions as those between the Bank and BANPESCA. The foreign exchange risk will be borne by the two entities, ESP and FONDEPORT. Financial Framework 79. The three principal participants in the project are the Federal Government, through its various sectoral agencies (SCT, SARH, SEDUE) and ESP and FONDEPORT, acting through its trustee, BANPESCA (paras.44-45) under SCT jurisdiction. Port Operations (ESP) 80. ESP has been handling cargo and ship traffic in the existing port facilities since about 1975, and is constituted as a commercial .enterprise.  - 21 - While it has consistently shown some sort of profit, its expenditures do not reflect the real costs of equipment used since its equipment is depreciated on a historic cost basis. Nor do ESP's expenses include any infrastructure costs at all, since the channels, navigation aids, quays and sheds are used for the port operation by ESP without a concessionary fee. Some of the costs for these items are, however, recovered directly by the Government from the port users through vessel and mooring dues and wharfage. 81. In accordance with the Government's stated decision to rationalize port pricing (para. 47), it is the Government's intention that ESP port tariffs countrywide be adjusted as appropriate to reflect costs, and that they be increased periodically as required to maintain these levels in real terms. A cost and tariff study will be undertaken for the Lazaro Cardenas ESP, under the project, in order to determine required adjustments (Section 2.07 of the ESP Project Agreement). Pending completion of this study in September 1985, in 1984 the Government has made frequent adjustments to maintain the tariff levels in real terms. Other actions being taken by the Government to strengthen the Lazaro Cardenas ESP are reflected in the ESP action plan confirmed at negotia- tions, which includes: (i) transfer to ESP of all Government-owned equipment being used for the operation of the public wharves in Lazaro Cardenas, as an equity contribution from the Government, by December 31, 1984 (Section 4.06 of the Guarantee Agreement); (ii) by June 30, 1985, the Guarantor will allow ESP to collect storage fees and to retain an amount sufficient to cover the costs of operating and maintaining storage facilities on the public wharves (Section 4.09 of the Guarantee Agreement); (iii) ESP would produce total revenues to at least cover its working costs for the fiscal years 1985 and 1986 and by 1987, generate revenues adequate to meet not less than the sum of its total operating expenses, and the amount by which debt service requirements exceed the provision for depreciation (Section 4.03 of the ESP Project Agreement); and, (iv) the Government will take appropriate measures to permit ESP to meet its financial targets (Section 4.06 of the Guarantee Agreement). Industrial Park Development (FONDEPORT) 82. FONDEPORT has commissioned studies on administration, commercializa- tion and promotion of its industrial parks which will provide, inter alia, the basis for decisions regarding the type of administrative structure which should be set up to operate the Lazaro Cardenas industrial park. These studies will also provide an analysis of market demand for the industrial park land which will serve for financial and investment planning purposes and for setting of rents and service charges. While FONDEPORT's financial targets for the Lazaro Cardenas industrial park cannot be set until the studies are completed, FONDEPORT has stated its financial objectives with regard to the Lazaro Cardenas industrial perk. The minimum financial objectives will be to set leases and service charges so that internally generated funds cover a reasonable proportion of the average annual capital expenditure incurred or expected to be incurred in Lazaro Cardenas over a five-year period. It is  - 22 - expected that FONDEFORT will generate sufficient funds for no less than a 20 percent average participation in its five-year investment plan. Although the lands for industrial development cost FONDEPORT nothing, it is intended through this project that, in the future, FONDEPORT will set its rents so as to achieve a reasonable financial return. The leases would reflect their market price, allowing for recovery of investments made in infrastructure, the special benefits to be derived from waterfront location or proximity to the port and the share of the flood control costs which can be attributed to the industrial park. 83. In keeping with these goals, agreement was reached at negotiations on the financial objectives of FONDEPORT as follows: (i) that the administration, commercialization and promotion studies already initiated by FONDEPORT, be completed as a condition of loan effectiveness (Section 6.01 of the Loan Agree- ment); (ii) that FONDEPORT present to the Bank, by December 15, 1984, an action plan for the implementation of the recommendations of such study and to carry out the agreed Action Plan (Section 2.01(c) of the FONDEPORT Project Agree- ment); and (iii) that the costs of dredging to provide maritime access to industrial waterfront to industries located in the FONDEPORT industrial park be recovered from the beneficiaries of such works (Section 3.05 of the Guarantee Agreement). Port Infrastructure - The Federal Government (SCT) 84. The Federal Government, principally through SCT, has invested some Mex$ 16.4 billion (at 1383 prices about US$131 million) in dredging works, construction of the public wharfs, buildings and infrastructure at Lazaro Cardenas. These investments are recovered, only in part, by port dues and mooring fees levied on vessels, wharfage levied on cargo (also through the ship operators), excess storage charges and concession fees from industries operat- ing their own wharfs. These dues and fees, which are collected through the Superintendencia (a field agent of DGOPD), and the Customs authorities in the case of storage, are uniform among all Mexican ports. Revenues go directly to the Ministry of Finance and are in no way related to funds for port invest- ments, which come from SCT's annual investment budget. 85. At negotiations, agreement was reached with the Government on a series of actions to improve the financial picture of the Lazaro Cardenas industrial port and implement adequate cost recovery arrangements. Thus, (i) a countrywide study of cost-related port dues would be carried out by September 15, 1985. Subsequently, based on the results of this study, the Government would present to the Bank, by January 15, 1986, an action plan for the progressive achievement of such port dues at Lazaro Cardenas, (Section 4.05 of the Guarantee Agreement); (ii) the Government will recover from FONDEPORT that part of the flood control component proportionate to the benefit received by FONDEPORT from the works (Section 3.02(c) of the Guarantee Agreement); and (iii) the Superintendencia will keep proforma accounts showing periodic results with regard to costs and revenues in Lazaro Cardenas (Section 4.02 of the Guarantee Agreement).  - 23 - Procurement 86. Civil works and equipment to be financed under the proposed project would be subject to ICB in accordance with Bank Guidelines with the exception of (a) the civil works for the FONDEPORT sewerage system, to be procured under local competitive bidding procedures similar to those used by SCT and which are acceptable to the Bank; (b) the propulsion and navigational components for the tug, which would be procured through limited international tender; and (c) training-related equipment which would be procured under local comparative shopping procedures. (Schedule 2 to the Guarantee Agreement). Prequalification of contractors would be required for all works. In evaluating bids for equip- ment procured through ICB, Mexican bidders would be allowed a margin of prefer- ence equivalent to 15 percent of the CIF cost of competing imports, or the relevant prevailing custom duty, whichever is lower. All contracts for civil works and procurement of goods with a value of more than US$200,000 would be subject to prior review and approval by the Bark. Contracts under US$200,000 would be reviewed after the award. In carrying out the project's technical cooperation components the Government would employ, when appropriate, consul- tants in accordance with Bank Guidelines, with qualifications, experience and terms and conditions in accordance with Bank Guidelines, satisfactory to the Bank (Section 3.03 of the Guarantee Agreement). 87. Procurement arrangements for items to be financed under the proposed loan are summarized below: -US:$ millions Procurement Method Project Element ICB LCB Other N.A. Total Cost Civil Works 86.4 3.8 - - 90.2 (57.0) (1.9) (58.9) Equipment and rails 13.8 1.9 2.2 - 17.9 (10.6) (2.2) (12.8) Consultant Services, Training and Studies - - - 4.4 4.4 (4.4) (4.4) Total 100.2 5.7 2.2 4.4 112.5 (67.6) (1.G ) (2.2) (4.4) (76.1) Note: Figures in parentheses are the respective amounts financed by the Bank loan, exclusive of the front end fee, and include price and physical contingencies. Disbursements 88. Bank funds are expected to be disbursed over a sir-year period. Disbursements of the loan would be made against: 66 percent of total expendi- tures of civil works contracts; 100 percent of cost, Insurance and freight for  - 24 - equipment and rails procured from foreign sources and 100 percent of ex-factory cost for equipment and rails procured from domestic sources; and 100 percent of the costs of professional services for technical assistance, and training other than recurrent operational training (Schedule 1 of the Loan Agreement). Retroactive Financing 89. In order to allow for disbursements against the FONDEPORT sewerage works which were initiated after appraisal, it was agreed at negotiations that retro- active financiag of up to US$1.5 million would be provided under the project (Schedule 1, 4(a) of the Loan Agreement). Accounts and Auditing 90. To help speed up loan disbursements, and as a condition of loan effectiveness, a Special Account would be set up in the Banco de Mexico, which would be operated in accordance with terms and conditions satisfactory to the Bank (Section 2.02 (b) and Schedule 3 of the Loan Agreement). Satisfactory auditing arrangements for the Special Account were agreed during negotiations, including an assurance that the Banco de Mexico would cooperate, as needed, to satisfy the auditing requirements of the Special Account (Section 4.02 of the Loan Agreement and Section 4.04 of the Guarantee Agreement). Appropriate arrangements for auditing were also agreed for the project accounts maintained by SCT (Section 4.03 of the Guarantee Agreement) as well as for the auditing by independent auditors of the accounts and financial statements of ESP and FONDEPORT (Sections 4.02 of the Loan Agreement and 4.02 of the ESP and FONDEPORT Project Agreements). Project monitoring and semi-annual consultations 91. The Government would prepare periodic reports providing information on progress in the execution of the project, listing the status of each cor- tract related to Bank-financed components of the project; the status of disbursement requests and the schedule of estimated withdrawals of the loan proceeds (Section 3.10 of the Guarantee Agreement). Furthermore, in order to monitor progress on the accomplishment of the objectives of the overall pro- ject, the Government and the Bank would hold semi-annual meetings (Section 3.07 of the Guarantee Agreement). In addition to the ESP, FONDEPORT and Government accounts, CNCP would maintain annual consolidated accounts for all entities operating in the industrial port. Project Justification 92. The project composition is designed to minimize transport costs (road, rail, cargo handling equipment, maritime access and tug); to protect against flooding; to address problems of environmental degradation, and to meet demand for industrial land for small and medium scale industries. In the assessment of each project component's economic justification, alternative project designs were analyzed in order to ensure that the selected project component was appropriate in terms of scope and timing. The overall economic rate of return for the project is 23 percent. 93. Generally, the direct effect of these transport-related investments would be to enable the port to handle at reduced cost the increased and diver- sified traffic volumes expected at the TUM and specialized terminals at the  - 25 - industrial park which will otherwise have to be transported at higher economic costs. The road access component has an economic rate of return of 20 percent and the rail access of 19 percent. The investments to provide maritime access (dredging) to industrial users would result in cost savings from avoidance of road transport and double handling and reduction of ship waiting times. The two evaluated subprojects have economic rates of return of 18 and 22 percent. 94. The general cargo and container handling equipment to serve forecast traffic at the TTJM would contribute to faster turnaround resulting in decreased ship waiting and service times. The rate of return for these components are 18 and 23 percent, respectively. The benefits from the tug include savings in ship moving and unmoving time due to increased tug traction capacity and increased levels of port safety. 95. The environmental components address problems of environmental degradation caused by municipal and industrial wastes. The FONDEPORT industrial sewer will serve the requirements of projected industrial demand in the short to medium term. It also represents the first phase of an overall master plan at the industrial park to provide for appropriate disposal of waste as the industrial park develops. The solid waste disposal system is under preparation through a study which will include feasibility analyses and designs, to be submitted to the Bank for review by December 15, 1984. It was agreed at negotiations that the Guarantor, through SEDUE, and the municipality of Lazaro Cardenas would enter into effective agreements for construction, operation and cost recovery for the solid waste component (Section 3.02(b) of the Guarantee Agreement). Submission of this agreement would be a condition of disbursement of this component (Schedule 1, para. 4(d) of the Loan Agreement). 96. Benefits from the flood protection component will result in avoidance of damage to industrial and port infrastructure and prevention of production losses. Agreement was reached at negotiations that the Government would regulate upstream reservoirs so as to limit the level of flow in the delta of the river (Section 3.13 of the Guarantee Agreement). Confirmation of the economic viability of this component through verification of the updated econo- mic analysis of the flood conditions would be a condition of disbursement for this component (Schedule 1, para. 4(c) of the Loan Agreement). The economic rate of return for this component is 40 percent. 97. The economic rate of return for the small and medium scale industrial park is 23 percent. 98. The timing of the proposed project is linked to the recent favorable evolution of institutional reorganization and consolidation of transport responsibilities under one single controlling authority, and the concrete actions already taken by the Government in transport sector pricing and related sectors, such as fuel pricing, during 1983 and 1984. The Bank's involvement in the Industrial Ports Program through the ongoing Port Preparation Loan (1964-ME) and this project has assisted the Government in defining investment priorities in the port subsector and improving the overall quality of the port development program. Finally, the implementation of the targets of the Action Plans (paras. 81, 83 and 85) would ensure the strengthening of finances at the industrial port. These developments would not only have an impact in Lazaro  - 26 - Cardenas but would serve as a model for all the industrial port operations under the Program. Project risks 99. Since it is the first project under the newly established Industrial ?orts Program, its execution and operation will require coordination among various different sectoral agencies. The decision to appoint SCT as lead agency and the special institutional organization created for this purpose should minimize this risk (para. 76). Nevertheless, a greater-thanr-average Bank supervision effort will be required over the life of the project. 100. The main risks which could be associated with this project would be shortfalls in the realization of forecast traffic and delays in completion of ongoing industrial plant construction or projected expansion. The project sub-components are not directly related to the expected expansions, such as that of the SICARTSA steel plant and the project viability would not be compromised if such expansion were delayed or cancelled. The components related primarily to port traffic growth levels (road and rail access and cargo handling equipment) are only moderately sensitive to changes in those levels but only major shortfalls in traffic growth will significantly affect these components' viabilities. Since the traffic forecasts are considered conserva- tive, the risk of such major shortfalls occurring is not great. Since part of Lazaro Cardenas' container traffic is expected to be diverted from Manzanillo (para. 51), a sensitivity test was made to determine the impact on the conr- tainer handling equipment component if this traffic did not materialize. If no traffic were diverted from Manzanillo, the equipment component would still be viable. These components are only moderately sentitive to increases in costs. 101. The dredging to create industrial waterfronts is dependent upon the successful completion and operation of each industry. Requirement for such waterfront is dependent upon the type and timing of industrial development at the port which is in turn linked to the Mexican economic recovery. The risks of premature investment in the dredging to create waterfronts is being further minimized by the requirement that each company directly pay for the costs of such dredging. Because of the uncertainties with regard to the demand for industrial waterfronts, the dredging work to be financed under this project would be executed in tranches over a five-year period. The economic analysis was made for all three stages but initially only stage one is included in the first tranche of works being financed by the Bank. Each subsequent stage of the work would be agreed between the Borrower and the Bank, on the basis of technical, economic and financial feasibility studies conducted in accordance with terms of reference which have been agreed with the Borrower and which were confirmed during negotiations. A condition of disbursement on each subproject of the dredging program would be satisfactory evidence of the technical, financial and economic feasibility of each subproject (Schedule 1, 4(b) of the Loan Agreement). Each subproject in the dredging program would have a minimum economic rate of return of 12 percent and be subject to satisfactory cost recovery arrangements (Section 3.05 of the Guarantee Agreement).  - 27 - PART V - LEGAL INSTRUMENTS AND AUTHORITY 102. The draft Loan Agreement between the Bank and BANPESCA, the draft Guarantee Agreement between United Mexican States and the Bank, the Project Agreements with ESP and BANPESCA, acting as trustee for FONDEPORT and the report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement are being distributed to the Executive Directors separately. Special conditions of effectiveness and other covenants of the project are listed in Section III of Annex III. 103. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATIONS 104. I recommend that the Executive Directors approve the proposed loan. A. W. Clausen President Attachments May 31, 1984  AMN I TABLE 34 Page 1 of 5 -SOCIAL I. .CATO DAT S -MD lREFERE GWIJS (lWlEhE AVERAS I mmS (MM ECENT ESTIATXE) fb EAT. ARMECAL & CARLLS ER A DR SQAND. ml) TOTAL 1972.s 1972.5 u972.s AGROLTURAL IWlJO 976.4 978.3 GM e cOm CM) 370.0 740.0 2250.0 2tl6.2 Z43.6 CKILOEAAS OF COAL E4IIALEIr) 786.0 1U45.0 1686.0 1407.FD 130.a PoIgATI 0 AM WITL SmtusP= pOPULATnIW.tD-TEAR CnImxSmUs) 37073.0 51176.0 71215.0 UBJ% PUPULATIO (Z OF TrAL) 50.8 59.0 67.3 65.9 47.8 POPULATIO PIWJEcrious POPULATION XS YEAR 2000 (HILL) 115.0 STATUIUSAR POPULATIR (MIXLL) 215.0 TEAR STATIOCART POP. REACaED 2105 POPULATION DEMSLTI PMR S94 *I. 18.8 25.9 35.2 35.6 82.0 rA Sq. E. AGRI. LARD 37.1 52.- 70.9 93.2 157.2 POPLlATIOS ME ST.iXMuE (CZ) 0-14 TIS 45.6 4o.5 44.7 40.1 31.9 153-04 I 51.0 50.0 51.6 553 00.9 65 A3tD ABOVE 3.4 3.5 3.4 4_1 7.2 POPULATIO CROM RATE (C) TOTLU 3.0 3.2 3.0 2.3 1.6 115M 4.8 4.7 4.Z 3.7 3.4 CROUE lars RATE t (PM TuKZ) 45.4 43.4 36.0 31.5 Z5.0 CUDE DEATi RATE (PEit THOS) 12.2 9.1 7.0 6.1 9.1 ocs REPRODlCrI.O RArE 3.3 3.2 2.4 2.0 1.7 FA:ILT PLAIMII A gSPTO . AUIAL (TOUS) .. 25.1 1145.0 USERS a OF MAED 1ES) * - * 38.0 FOOD AN MUERTE IM OF FOOD PROD. PER CAPITA (1969-71-1LOO 97.0 100.0 19.0 113.0 100.4 PER CAPrIT SUPPLY OF CALORIES (C OF UXJEfEMT5) 117.0 11l.9 l12.0 ll.3 129.6 PTU3S (GRAMS PER DAT) 69.0 65.0 74.0 67.9 92.3 OF Ica AML AM PULSE 29.0 27.0 27.01c 34.1 34.6 CR1. (ACES t-) DEAO_ RATE 10.1 6.5 3.5 5.3 10.4 LIFE PElT. AT BR (YEARS) S7.0 61.3 65.6 64.6 07.Z IXPAFl MORT. (E CPER TOUS) 91.1 73.6 54.4 62.6 71.4 ACCESS TO SAF MR IPOF) OTAL 23.5 49.01d 5S.Old 64.S uRam 65.51Id 61.4/d 77.S RURAL .. Z1.o7 51.i7dT 44.3 ACCESS TO EXCRErk DISPOSAL (2 OF POPULATION) TOTAL __ 37.01d 3S.Otd 54.6 11RM A. 60.01d 50.0d 69.8 .. RMRAL 4. .07;- 13.07;T 29.8 POPULATILON PM PSTSICZAI 1830.U 1S10.0 1260.01e 1776.0 1094.8 POP. PER XUlSISC PERSON 3650.0 1640.0 1420.0d 1012.2 762.5 PMP. PER ROSPITAL -E TOTAL 590.0 970.0 870.01e 477-0 334.0 URBAN 5,0.01f 1170.0 1080.07 667.5 216.0 RURAL _. 1370.0 1120.0oe IZ1.t. AISSIOiS P31 HOSPITAZ BED -. .. .. 27. 20.0 AVERAGE SIZE OF dOUSEMOLD TOTAL 5.4 5.7 UORB 5.7 5.7 RURAL 5.2 5.S &VEAGE aO. OF PERSOJS/ROOK TOTAL 2.9 2.5 URBAN 2.b 2.2 RURAL 3.4 3.2 ACCOSS T ELECT. (2 OF LELIM)S IOTAL .. 5a.9 URBAN .- 80.7 RURAL .. 27.8  - 29 - ANNEX I T a L E 34 Page 2 of 5 wEXInO - SOCIAL INDIATeRS DATA SNEET SEXICO REYERECE G2PS (WEISTD AVERAGES) /a -OST CeDSr RECtTfr ESTDRATE) fb Jb RECEST mUDDLE INCOME MMIE rECC! 1960ft b w97o-q ESTfIATEb LAY. AMRICA S CARD EURerE EDCAION ADOS TEl) ESTeOLLMET RATIOS PqAARY