Honduras - Third Industrial Credit Project

Dec_aent f The World Bank FOR OFFICIAL USE ONLY Report No. 6129b-HO STAFF APPRAISAL REPORT HONDURAS THIRD INDUSTRIAL CREDIT PROJECT May 6, 1986 Projects Department Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit m Lempira (L) US$1.0 L L2.0 L1.0 US$0.5 WEIGHTS AND MEASURES Metric System PRINCIPAL ABBREVIATIONS AND ACRONYMS USED BCP Central Bank of Honduras CAAFIID Central American Agreement on Fiscal Incentives to Industrial Development CACH Central American Common Market CDI Center for Industrial Development CEFEX Export Promotion Certificate CET Common External Tariff CONADI National Industrial Developmenit Corporation CONSUPLANE National Planning Council FIA Agricultural and Industrial Finance Corporation FONDEI National Industrial Development Fund IDB Inter-American Development Bank PFIs Participating Financial Intermediaries SMEs Small and Medium Scale Enterprises SSIs Small Scale Industries UNDP United Nations Development Program UNIDO United Nations Industrial Development Organization USAID United States Agency for International Development FISCAL YEAR January 1 to December 31  FOR omCAL USE ONLY STAFF APPRAISAL REPORT HONDURAS THIRD INDUSTRIAL CREDIT PROJECT TABLE OF CONTENTS Page No. 1. THE INDUSTRIAL AND FINANCIAL SECTORS ..... ............. 1 The Industrial Sector ............ .................... I Structure and Growth ......1#....... .............. I Existing Framework for Investment . ......2....... 2 Availability of Foreign Exchange .................. 2 Industrial Incentives ................. ........... 2 Export Incentives ......... ... .... O. .. 3 Government Objectives in the Sector............... 3 Financial Sector .............. . ................. ..... 4 Institutional Setting .................... ......... 4 Central Bank of Honduras (BCE) . ................. 4 Commercial Banking System ..... .................. 5 Deposit Rates and Resource Moblization .......... 6 Lending Rates and Spreads .......... ............... 6 Prospects for Lower Interest Rates .............. 7 Structure of Lending ... . ........ 4........... 7 Private Investment and Demand for Credit .... .......... 7 Bank Lending in the Sector .............. ,.......... 8 Bank Strategy ..*...........99......99................ 8 -I. THE PROJECT ........* ............................. 8 Objectives and Description ... ...... 9 Credit Component ...9........... * .........*... 9 Technical Assistance Component ....... 9 Participating Institutions .......... 10 FONDEI LO.. 9..........9. . 10 Center for Industrial Development (CDI) .... 11 Participating Financial Intermediaries (PFIs) .11 Implementation Arrangements . .. . 12 Final Beneficaries and Sub-Project Selection ..... 12 Cost and Financing ................. .... ..... 13 Relending Terms and Conditions. 13 On-lending Terms. ...... 999.. 9 14 Maturities and Repayments ..... .14 Procurement ...... . . . ........ 15 Disbursements .... ... 15 Accounting, Auditing and Reporting. . . 16 Benefits and Risks.... .. 16 III. RECOMMENDATIONS...... 999.9 17 This report was prepared by Mr. Owaise Saadat, Ms. Aida Velarde, LCPI2 and Mr. Fernan Ibanez, Consultant, following two missions to Honduras in September and November 1985. Mr. Rene Jarquin, Consultant, assisted with the preparation of the technical assistance component. This documant ha a raeticted distribution and may bc used by recipients only in the perfomance of their offlcil duties. Its contents may not otherwie be dihcsod without World Bank authorization.  LIST OF ANNEXES Annex 1. Technical Assistance Program Attachment I- Estimated Cost and Man years for Technical Assistance Program Annex 2. Fondo Nacional de Desarrollo Industrial (FONDRI) Annex 3. Experience under Past Lending Annex 4: Supporting Tables and Chart Organization T-1 FONDEI's Organization Chart Industrial Sector T-2 Manufacturing Sector Value Added 1975-1985 T-3 Manufactured Exports by Product Group (1975-84) T-4 Manufactured Imports by Product Group (1975-84) Financial Sector T-5 Consolidated Financial Statements Banking System T-6 1984 Balance Sheets - Commercial Banks T-7 1984 Balance Sheets Finance Companies and Public Banks T-8 Interest Rate Components 1975-1984 - Commercial Banks T-9 Banking Deposits - Maturities Classification T-10 Destination of Banking System Credit to the Private Sector T-11 Some Components of Commercial Banks Cost Structure