Announcement of Five Million Dollars Loan for Agriculture in the Philippines on November 3, 1965

INTERNATIONAL BANK FOR • RECONSTRUCTION AND DEVELOPMENT 1818 H STREET, N.W., WASHINGTON D. C. 20433 TELEPHONE: EXECUTIVE 3-6360 Bank Press Release No. 65/56 Subj~: $5 million !oan for agri- November 3, 1965 culture in the Philippines The World Bank has made a loan equivalent to $5 million to the Central Bar:: of the Philippines for a rural credit project. The loan will provide funds for medium and long-term loans to be made by rural banks to farmers for the purchase of farm machinery and the construction of small private irrigation works. Fourteen private institutional investors have agreed to participate in the loan, without the World Bank's guarantee, for a total amount of $950,000 repre- s~nting the fir.st four maturities and part of the fifth which fall due between ·December 1, 1968 and December 1, 1970. The participants will be • Chemical Bank New York Trust Company The American Express Company, Inc., New York Fidelity-Philadelphia Trust Company Meadow Brook National Bank The Philadelphia National Bank First National Bank of Memphis National Bank of Co1mnerce of Seattle Girard Trust Bank, Philadelphia Bank of Montreal, New York Agency New England Merchants National Bank, Boston The Northern Trust Company, Chicago The First Pennsylvania Banking and Trust Company, Philadelphia First Western Bank and Trust Company, Los Angeles Marine Midland Trust Company of Western New York, Buffalo In addition, six of these institutions Chemical Bank New York Trust Company, The American Express Company, Inc., Fidelity-Philadelphia Trust Company, Meadow Brook Na':ional Bank, Girard Trust Bank and New England Merchants National Bank 9 • are pur- chasing out of portfolio a total amount of $510,000 in maturities ranging from December 1, 1968 through June 1, 1970 from a loan of $34 million which was made to • the National Power Corporation of the Philippines in October 1961 •  - 2 About two-thirds of the Phili.ppines' population of 31 million are engaged in agricultural pursuits, and a like percentage of all exports originate in agricul- ~ ture. While the production of export crops, mainly coconut products, sugar, abaca and timber, is satisfactory, the yields of crops for domestic consumption are poor. The Philippines imports meat, dairy products, fish and cereals valued at the equi- valent of some $100 million annually, and per capita income in the rural areas is only a quarter of that in urban areas. Achievement of higher yields and incomes in domestic agriculture depends on large additional investments in irrigation facilities and infrastructure, as well as on the adoption of improved farming practices. Most of the food crops are grown on small farms -- 99% of all farms comprise less than 125 acres -- but primitive farming methods result in inade- quate land preparation and utilization. The Government's efforts to accelerate the development of domestic agricul- ture have been hampered by organizational difficulties and inadequate funds. of its most successful undertakings to provide credit suited to the requirements of small farmers has been the establishment of the rural banking system. In the One • last 12 years, about 300 private rural banks have been set up with the support and close supervision of the Government. They have succeeded in mobilizing a sizable volume of rural capital for agriculture. So far, however, most of their activities have been in the extension of short-term credit. The World Bank loan will provide them with funds for medium and long-term loans. These will be u8ed fo= the purchase of agricultural machinery and the development of small private irrigation systems, both essential elements for developing a modern agriculture. Irrigation will permit more intensive cropping and mechafi'. ~ation is needed to en- sure timely and better land preparation and development. The proceeds of the World Bank loan will be made available for medium and long .. term loans to fanners through selected. rural banks. Eligible borrowers from • rural banks will be farmers cultivating no more than 125 acres, a few farmers'  - 3 - cooperatives, and persons rende~ing direct agricultural praduction services to such • farmers and cooperatives. Loans for minor irrigation systems will be used mainly for the purchase of low-lift pumps, motors and. equipment for wells and the con- struction of irrigation canals. Those for farm machinery will finance both hand and wheel tractor attachments for land plowing, cultivating, harrowing, leveling and ditching. Funds will also be lent for farm implements for planting, mowing, harvesting, spraying and dusting and other purposes. It is estimated that there are some 400,000 farms ranging from 12-1/2 to 125 acres in size whose operators would be clients or potential clients of rural banks for loans for such purposes. While the size of the World Bank loan is much less than the estimated financing requirements for investments in farm machinery and private irrigation works, the experience gained in this new field of medium and long-term lending will provide the basis for a more extensive program. Another • reason for the relatively small-scale start is that many small farmers need tech- nical assistance in the utilization of farm machinery and the development of irri- gation agriculture on a sound basis. The Central Bank will be responsible for administering the World Bank loan and for the direction and supervision of all operations under the project~ Appli- cations for loans will be filed by the farmer with the participating rural bank nearest the project to be financed. After the rural bank is satisfied as to the soundness of the investment, the application will be submitted to the Central Bank for approval. If approved, the Central Bank will lend 60% of the amount of invest- ment to the sponsoring rural bank for relending to the applicant. The rural bank will normally finance 10% of the cost of the project from its own resources, and the farmer will finance the balance. Total investment under the project is ex- pected to be the equivalent of about $8 million. The Bank loan is foT a term of 12 years and bears interest at the rate of • 5\% per a.nnum. Amortization will commence December l, 1968. The loan is guaranteed by the Republic of the Philippines. The Central Bank will relend the proceeds of the World Bank. loan to rural banks for varying terms, depending on the type tJf project financed, with interest at not more than 6\%.