Announcement of World Bank Lends Three Hundred Ninety-Four Million US Dollars to Mexico to Help Reduce Pollution and Improve Labor Productivity on December 15, 1992

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. 93/34LAC Contact: Ciro Gamarra (202)473-8721 WORLD BANK LENDS $394 MILLION TO MEXICO TO HELP REDUCE POLLUTION AND IMPROVE LABOR PRODUCTIVITY WASHINGTON, D.C., December 15, 1992 -- The World Bank has approved two loans to Mexico today, totalling $394 million, to help reduce air pollution in Mexico City metropolitan area and to improve the productivity in about 35,000 micro, small and medium- sized enterprises employing one million workers. The first loan, of $220 million, will support a transport air quality management project for the Mexico City metropolitan area, which comprises the Federal District of Mexico City and 17 municipalities in the neighboring State of Mexico. The second loan, of $174 million, will help finance a labor market and productivity enhancement project which will assist the government in promoting private sector-led growth and in easing the costs of labor mobility and labor market adjustment. Program Against Air Pollution in Mexico City The population of metropolitan Mexico City has grown from less than one million at the beginning of the century to 15 million in 1990, and is projected to reach 20 million by 2010. Thirty thousand industrial establishments and about three million vehicles are based in the area. This concentration of population and economic activity, together with unfavorable topographic and weather conditions, are the main causes of one of the most severe air pollution problems in the Western Hemisphere. By far the largest source of air pollution is the transport sector. Causes of high emission include: the scale of transport activities; rapid growth in the vehicle fleet; lack of stringent vehicle emission standards and of reliable inspection procedures; a high proportion of old and poorly maintained vehicles; and traffic congestion. In the past few years air quality has deteriorated to the point that it has become not only an important health but also an important political issue; as a result air quality programs have been expanded rapidly and given much greater emphasis. An emergency air pollution control program was put into effect in 1989, and in September 1990, the government announced the integrated program against air pollution, which is one of the most comprehensive and ambitious ever attempted anywhere. NOTE: Money figures are expressed in U.S. dollar equivalents. 2 The project aims to reduce the growth of emissions of nitrogen oxides, volatile organic compounds, carbon monoxide, lead, and of particulate matter from transport sources; and to develop a policy framework to support both transport and air quality objectives. Other objectives will be to improve the scientific base underlying the air quality program development and management, and to strengthen institutional capabilities to effectively plan and implement air-quality programs over the long-term. The air quality management project will provide lines of credits to finance the replacement of old, high-use vehicles (taxis, trucks and minibuses) with new, emission- controlled vehicles, conversion of high-use vehicles to liquified petroleum gas or compressed natural gas, re-engining and retrofit of emission controls. The credit lines to be financed by the World Bank are aimed primarily at individual vehicle owners or small enterprises having limited access to credit. The project will also fund the installation of vapor recovery systems at service stations and an alternative fuel pilot program to speed the conversion of high-use vehicles to liquified petroleum gas or compressed natural gas. The project has an estimated total cost of $1,086.7 million and the balance will be provided by the government of Mexico (($44.6 million), the private sector ($722.5 million), and by subloan reflows ($99.6 million). The World Bank loan of $220 million will be disbursed over five years. Labor Market and Productivity Enhancement The labor market project will assist in increasing the productivity and competitiveness of micro, small and medium-size enterprises. It will also assist in reducing costs incurred by employers and employees of hiring and job search, providing education and training opportunities for displaced and unemployed workers, with special attention to women. The project will provide improved retraining programs for approximately 300,000 displaced and unemployed workers meeting stringent selection criteria and introducing, on a pilot basis, an education and training program for underqualified rural migrants who are ineligible for regular retraining. The Government's capacity to monitor labor market developments and formulate policy will be enhanced through the provision of equipment and training, and the financing of a program of labor market surveys and studies. The national employment service will be strengthened through the supply of equipment, training and staff incentives and the enhanced involvement of the private sector in these services. The total cost of the project is estimated at $355.9 million, with the balance to be provided by the government of Mexico ($114.9 million), the state governments ($18 million) and private enterprises ($49 million). The $174 million World Bank loan will be disbursed over six years. The World Bank loans were made to Nacional Financiera, S.N.C. (NAFIN) with the guarantee of the Mexican United States. The loans are to be repaid in 15 years, including 5 years of grace, with a variable interest rate, currently 7.6 percent, linked to the cost of the Bank's borrowings. They also carry an annual commitment charge of 0.25 percent on the undisbursed balances.