Announcement of Mexico's Agricultural Credit Program Supported by World Bank on June 18, 1987

. FOR IMMEDIATE RELEASE World Bank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A.• Telephone: (202) 477-1234 BANK NEWS RELEASE NO. 87/86 Contact: Ciro Gamarra (202) 477-5320 MEXICO'S AGRICULTURAL CREDIT PROGRAM SUPPORTED BY WORLD BANK WASHINGTON, June 18 -- An agricultural credit project that will directly benefit about 550,000 people in Mexico will be assisted by the World Bank. A Bank loan of $400 million will support a credit program designed to increase agricultural productivity, exports, and real farm income. The agricultural credit project, the tenth assisted by the World Bank in Mexico, supports the government's medium-term structural policy reform program and is part of the 1986-87 external financing plan the Bank and other donors are supporting. The World Bank loan is made through Nacional Financiera (NAFIN) to the Agricultural Trust Funds in the Bank of Mexico (FIRA), mainly for on-lending by commercial banks, and the Trust Fund for Credit in Irrigated and Rainfed Areas (FICART), for on-lending by the National Rural Credit Bank (BANRURAL), Mexico's largest agricultural credit lender. Providing credit is a key element of the government's strategy to increase agricultural output and to raise living conditions in the countryside, where most of Mexico's poor live. Support to private farmers, ranchers and agroindustries has accounted for a major share of World Bank lending to Mexico. The project -- the first in which FICART/BANRURAL will participate directly -- will extend the World Bank's institutional development assistance to FICART/BANRURAL. Without the loan, FIRA and FICART would have to curtail their lending program. As provided in the 1984 General Interest Rate Agreement (GIRA) between the government and the World Bank, the project will also lead to further reductions of interest rate subsidies, thus contributing to the important policy objectives of reducing credit subsidies and allocating financial resources more efficiently. FIRA's and FICART's productive support programs to farmers will be strengthened. Finally, a rural financial subsector review will identify problem areas and improve the agricultural credit system, including further reductions in subsidies in credit and crop insurance, improved efficiencies in the rural financial system, and increased domestic resource mobilization. NOTE: Money figures are expressed in U.S. dollar equivalents. • - 2 - The project is expected to generate about 240,000 additional jobs. The Bank loan will be disbursed over four years. The loan proceeds will be allocated to FIRA ($300 million) and to FICART ($100 million). The total cost is estimated at $1 billion, and the balance will be provided by the beneficiaries ($141 million), the participating banks ($141 million), and by FIRA and FICART ($318 million). Release of the third tranche of the commercial bank package to Mexico is linked to effectiveness of the World Bank loan. The Bank loan will have the guarantee of the United Mexican States and will be repaid in 15 years, including three years of grace, with a variable interest rate, currently 7.92 percent linked to the cost of the Bank's borrowings. It also carries an annual commitment charge of 0.75 percent on the undisbursed balance. - 0 - I