Announcement of World Bank Lends Two Hundred Fifty Million US Dollars to Assist Mexico's Export Development on January 20, 1987

iWorldBank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A. BANK NEWS RELEASE NO. 87/as Contact: Ciro Gamarra (202) 477-5320 WORLD BANK LENDS $250 MILLION TO ASSIST MEXICO'S EXPORT DEVELOPMENT WASHINGTON, January 20 -- The World Bank has approved a $250 million loan to Mexico to help increase and diversify the country's non-oil exports by supporting policy reforms for export development, assisting institutional development, and providing finance for exporters. This loan complements a $500 million trade policy loan to Mexico, approved by the World Bank in July 1986. The trade policy loan is supporting Mexico's multi-year trade adjustment program for 1986-88, designed to rationalize the tariff system and reduce non-tariff barriers. The $250 million loan is the second made by the World Bank to support the development of Mexico's exports. In June 1983, the Bank approved a $350 million loan to help Mexico recover from the financial crisis of 1982 and overcome the chronic foreign exchange shortage. The World Bank's continued involvement in export development will contribute to the growth and diversification of non-oil exports as well as the structural base of these exports, by supporting Mexico's expanded exports development strategy. The objectives will be achieved by providing finance to exporters through comprehensive financial services by the Banco Nacional de Comercio Exterior (BNCE) and strengthening, streamlining, and expanding the non-financial incentive framework for exporters. About $175 million of the loan proceeds will be allocated to provide short-term pre-shipment finance for the imported input requirements of export enterprises, such as raw materials, components and spare parts. Any enterprise engaged in manufacturing, processing, agro-industry, tourism, and trade, or in the provision of services, but excluding petroleum extraction or any related production process, will be eligible for working capital financing. Indirect exporters and trading companies will have access to short-term financing under the World Bank loan for the first time, on the condition that arrangements for channeling funds to them efficiently, in a manner satisfactory to the Bank, are in place. Finance for pre-shipment working capital will be channeled by the BNCE and by FOMEX (Fund for Development of Manufacturing Exports) through commercial banks to eligible export enterprises. NOTE: Money figures are expressed in U.S. dollar equivalents.  - 2 - About $74.S million of the loan will be allocated to provide long-term finance to eligible exporters, indirect exporters, and trading companies as well as hotel enterprises generating foreign exchange revenues. It will cover the fixed investment requirements of establishing, expanding or modernizing the export capacity in manufacturing, processing, agroindustry, tourism and mining, but excluding petroleum extraction or any related production process. The BNCE will channel these funds to the Fonda de Equipamiento Industrial (FONEI) and to the Fonda Nacional de Fomento al Turismo (FONATUR), except for an estimated $30 million which BNCE will relend, without financial intermediaries, directly to enterprises for fixed investments in industry, agroindustry and mining. The loan will also support a technical assistance program, including specific studies to help carry out the government's export development strategy more effectively. The total cost of the various programs under the present project is estimated at $650 million. At the initiative of the Mexican government, discussions have been held with the Export-Import Bank of Japan with respect to a cofinancing package of about $240 million designed specifically to support investments under the project. The rest of the funds will be provided by the executing agencies, Mexican commercial banks, and investors. The project will be a significant step in assuring continued World Bank support for Mexico's export development strategy, which is complementary to broader government efforts at a comprehensive trade reform. The project will make a critical contribution to the growth of Mexico's non-oil exports over the next three years. Taking experience under the previous export development project, it is estimated that some 75-100 exporters and 120-200 indirect exporters will benefit from pre-shipment working capital financing using proceeds of the loan. In addition, some 50-75 export-oriented enterprises, including up to 15-20 hotels catering primarily to foreign tourists, will borrow under the project's fixed investment component. The provision of both types of financing is expected to improve the utilization of existing production capacity and to modernize and expand Mexico's export production facilities. It is estimated that growing non-oil exports will bring $1-1.S billion in additional revenues each year. Loan funds will be committed by September 1989 and fully disbursed by September 1990. The loan to the BNCE has the guarantee of the United Mexican States. The loan is for 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. They also carry an annual commitment charge of 0.75 percent on the undisbursed balances. - 0 -