Philippines - Second Education Project

'r 'CMRCULATlNG COPY TO BE RETURNED TO REPORTS DESK DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. P-1146 REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF THE PHILIPPINES FOR A SECOND EDUCATION PROJECT November 30, 1972 This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  Currency Unit - Peso (P) US$1 = P6.8 Pi = Us$. 148 i1,000 = US$148 i1,000,000 = US$148,000 Fiscal Year - July 1 to June 30  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE PHILIPPINES. FOR A SECOND EDUCATION PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Republic of the Philippines for the equivalent of $12.7 million on standard IDA terms to help finance a project for development of technical and vocational education and for improvement in curriculum development and teacher training. PART I - THE ECONOMY 2. A report entitled "Current Economic Position and Prospects of the Philippines" (EAP-30a dated May 10, 1972) was circulated to the Executive Directors on May 17, 1972. Since this report appeared, the Central Luzon area has suffered one of the worst floods of the century, and President Marcos has imposed martial law. 3. The Philippine Constitution gives the President the power to declare martial law if there is imminent danger of insurrection. The President has announced that he will undertake sweeping social and economic reforms in the country and at this stage there appears to be considerable public support for his action. However, this support may dwindle unless these reforms are implemented quickly. It is not clear how long martial law will last. The Constitutional Convention, which recently voted for a parliamentary system of government, has continued to meet and a referendum on a new Constitution could be held early next year. The President has begun to promulgate as decrees a number of bills which had been awaiting Congressional approval including the customs and tariff bill and the government reorganization bill. The Government expects the former to increase revenues substantially. The latter could improve the quality of public administration, including economic planning, and project execution. It should also reinforce the efforts of the able group of administrators that have been brought into the top levels of public service in the past two years. 4. The Philippine economy has grown at an average rate of about 6 percent during the past decade. The ratio of gross fixed capital formation to GNP rose from an average of about 13 percent during 1960-62 to about 20 percent during 1968-70 and the marginal saving rate was around 20 percent. However, despite the inpressive growth in total investment, public infrastructure and agricultural investments were relatively neglected. Public investment constitutes only 10 percent of total investment. Moreover, little headway was made in strengthening the  -2- balance of payments during the decade and large external borrowings were needed to finance current account deficits, especially in the latter half of the decade. Much of this borrowing took the form of suppliers' credits and short- and medium-term loans to the Central Bank. The Philippine economy thus faced a serious foreign exchange crisis at the end of 1969 which was aggravated by a large fiscal deficit. The stabilization program adopted in February 1970 consisted of measures aimed at reducing excessive liquidity in the economy and limiting the growth of short-term external debt. A floating rate of exchange for the peso was adopted and import restrictions liberalized. During the last two and a half years the Government has followed a fairly strict fiscal and monetary discipline. Although these measures slowed down output growth at first, econom#ic activity recovered somewhat in 1971 with GNP growth estimated at 6.5 percent in real terms. This occurred despite the inflation set off by the 1970 devaluation and sustained by a shortfall in rice production which resulted in a rice deficit for the first time since 1967. Management of the external accounts has also improved, especially by instituting comprehensive external debt controls. However, a sharp deterioration in the terms of trade since early 197n, combined with the rice deficit, has made it difficult to strengthen the balance of payments position. 5. The floods in July, which caused extensive damage, made the economic situation'in the Philippines more difficult. Public infrastructure, in particular, roads, flood control dikes, irrigation works and schools, have been damaged. A recent Bank reconnaissance mission estimated that rehabilitation of infrastructure together with flood control needs'would cost about $125 million. Because of the extensive damage to the rice crop, the Philippines' rice imports will double to 500,000 to 600,000 tons in FY 1972/73. This will further strain the balance of payments. Together with production losses and damage to private property, the total cost of the flood damage was estimated at about $200 million. 6. The administrative, fiscal and monetary reforms that the Marcos administration has begun to implement under martial law could lead to improved economic performance in the Philippines in the years ahead. Progress, however, will depend on how successfully the Government tackles the difficult and inter-related problems of (a) effective use 'of investment resources, (b) balance of payments management, and (c) employment creation and income distribution. 7. Capital formation in the Philippines is quite high, and the problem will be to ensure that investment outlays are more effective in future. This would involve better use of industrial capacity than was achieved during the sixties and sharply accelerated public development outlays if bottlenecks in production are to be avoided and if the deterioration in social services is to be reversed. Tne floods have made it more urgent to accelerate public investment spending which has  been stagnating for nearly two years. Larger infrastructure spending is needed not only to rehabilitate damaged facilities but also to create job opportunities for rural families who have suffered a serious loss of income. If the minimum rehabilitation needs are to be met while maintain- ing spending levels already programmed for major projects in roads, ports, power and rural electrification, the infrastructure program would have to rise to 1,500 million during FY73, from an actual spending of p762 million in FY72. This will present a major challenge. 8. Substantial additional taxation will be needed to finance the proposed public investment program. Notwithstanding a much improved fiscal position in FY1970/71 public savings accounted for little over 1 percent of GNP and were only 5-6 percent of the fairly sizeable total domestic savings. A disappointing level of tax revenues is at the root of the problem. The need for a much greater public sector development effort becomes even clearer in the light of the need to regain momentum in foodgrain production and to distribute the benefits of development more widely. But even with greater emphasis on rural development, the present rate of open unemployment of 7.5 percent is unlikely to be reduced over the seventies. 9. The most urgent problem facing the Philippine economyn, however, is the management of a very difficult balance of payments position. The most important factor in the tight foreign exchange situation is the level of external debt repayments. While the total size of medium- and long-term debt at $1.8 billion does not exceed 15 months' foreign exchange earnings, nearly two thirds of this debt falls due within the next four years. Debt service payments, which amount to 28 percent of export earnings, presently absorb almost the entire gross capital inflow. The strengthening of the balance of payments will require sustained efforts over a wide front. Rapid growth of exports, considerable progress toward import substitution, and increased flows of official assistance, as well as continued restraint on suppliers' credits, will be needed if the present serious foreign exchange bottleneck is to be overcome, and the external debt burden somewhat reduced in the long run. The need for quick-disbursing assistance increased substantially as a result of the flood damage. 10. At the June meeting of the Consultative Group in Tokyo both Japan and the United States agreed to increase their sizeable assistance programs in the Philippines. The additional needs during FY1972/73 result- ing from the floods are likely to be met almost fully by increased US and Japanese aid. The other major sources of assistance are the ADB and the Bank Group. Given the poverty of the Philippines, the magnitude of the debt problem, and the general improvement in the management of the country's economy, it is appropriate that the Bank Group continue its policy begun last April of providing some IDA funds for the Philippines. The $12.7 million development credit for this project would be the second such credit for the Fhilippines.  11. Even with further improvements in raising public revenues, the Philippine development program will continue to require resources in excess of expected local savings and of the foreign capital which will. become available for financing the import component of development projects. One reason for this is that there are a number of projects of economic and social importance,but needing only limited amounts of foreign exchange. In such cases, which include this project, some local cost financing is justified. PART II - BANK GROUP OPERATIONS IN THE FHILIPPINES 12. The Philippines has received 17 Bank loans and one IDA credit totalling $278.3 million, net of cancellations. A little over half of the Bank Group's lending, about $140 million, has been for priority infrastructure projects in power, transportation, water supply and educa- tion. The remainder has been divided about equally between agriculture and industry: about $70 million for irrigation, livestock, rice process- ing and rural credit and about $65 million for industry in three loans to the Private Ievelopment Corporation of the Philippines. 13. Of total Bank Group lending for the Philippines of $278.3 million, two loans and one credit totalling $39.5 million were made in the last quarter of FY1972 and disbursements on these have only just begun. Of the remaining $238.8 million, the undisbursed balance on October 31, 1972 was about $55.5 million, almost all of which was accounted for by five loans made since the beginning of FY1969. Although there have been no serious problems on any of these five projects, disbursements on three of them are behind schedule due in part to the general economic slowdown in the Philippines following the February 1970 devaluation and the subsequent stabilization program. Disbursements on these loans have now begun to pick up, although postponements of the closing dates of two loans are likely. Annex II contains the status of Bank Group operations. 14. Future Bank Group lending will continue to concentrate on public infrastructure and agriculture which, as indicated in paragraphs 7 and 8, have high priority and have been relatively neglected by the Government in the past. The Bank Group will also continue to help industry and provide more assistance-for social sector projects. In the agricultural sector, assistance to general agriculture, including rice, would be continued through further loans for rural credit, and the Govern- ment would be helped to diversify production through a fisheries project which was appraised in November. The reconstruction of fishponds damaged by the recent floods is expected to be included in this project. A possible irrigation rehabilitation project is also being discussed with the Government. In addition, a recent agricultural sector mission has identified several irrigation and credit projects which would promote export crops, some of which may be prepared for Bank financing in the years ahead. Bank/IDA infrastructure lending will continue to emphasize transportation and power projects. The Bank is acting as exBcuting agency  - 5 - for UNDP-financed feasibility studies for four major ports and for roads and are financing detailed engineering of some further roads in Luzon under our first highway project. These studies are expected to lead to loans in the next twelve months, and a second highway project will include rehabilita- tion of roads damaged by the floods. The Bank's fifth power project, for which a loan and credit were signed last April, includes feasibility studies which could lead to further Bank lending for power in FT1974. The proposed education credit, together with a population project which we are helping to prepare,would increase our role in financing social investments. 15. I expect Bank Group lending to increase substantially above present levels provided the economy continues to be managed reasonably well and provided that the Philippines continues to improve its capacity to prepare and implement projects. 16. The Bank's next economic mission will as usual analyze balance of payments, external debt and fiscal problems. It will give particular attention to development planning and administration, the public infrastruc- ture program and industrial policy relating to exports and small-scale industry. Two sector missions are also scheduled for the coming year: a telecommunications mission and an industrial mission which, among other things, will look into the prospects for developing metal-using industries. 17. IFC has made commitments in the Philippines totalling $47.3 million for investments in eight companies in the field of development banking, power, telecommunications, ceramic tiles, paper, petroleum products and nickel mining and refining. Of these investments as of October 31, 1972, $9.3 million have been sold, $O.4 million cancelled and $0.9 nillion repaid, leaving a net portfolio of $36.7 million. On the same date, $18.0 million were undisbursed. A loan to the Private Development Corporation of the Philippines is being considered and preliminary proposals have been received for an aluminum smelter and other projects in the pulp and paper, dinnerware, metal alloys and shipbuilding fields. PART III - THE SECTOR 18. The quantitative achievements of the Philippine education system are impressive: the literacy rate (72 percent) is among the highest in Asia and virtually all children of the relevant age group now attend primary school. The enrollment ratios of 71 percent at the secondary level and 25 percent in higher education are among the highest in the world. Elementary schools are public but about 60 percent of secondary enroll- ments and over 90 percent of higher education enrollments are in private institutions. However, the uncontrolled expansion of the education system has led to low-quality instruction often unrelated to economic priorities and erployment opportunities.  19. Elementary education covers six years and English is the language of instruction after the first two years when t-he local vernacular normally is used. Elementary teachers are generally adequately qualified and the pupil-teacher ratio of 30:1 is acceptable. The quality of secondary education, where the drop-out rate is 25 percent, is the weakest link in the educational system. Most secondary school teachers are adequately qualified by local standards but mary teachers of vocational subjects lack practical experience. Classes are overcrowded and there is a shortage of equipment and books. Much of the higher education is also of poor quality. Training of faculty members is often inadequate. An open admission system allows any secondary school graduate to enter college. Moreover, the courses offered frequently produce graduates poorly prepared to enter employment related to their training. 20. Vocational and technical education is offered at public and private schools. There are wide differences in the quality of the instruction. The drop-out rate is high and liaison between schools and industry is inadequate. College degrees in engineering are offered at several public and over 40 private institutions. The number of engineers being trained far exceeds demand while there is a need for more skilled crafts- men and technicians. In 1968 a national manpower training program was started to promote training in skills required by expanding industries and in 1969 a National Manpower and Youth Council was set up to administer the program. The Government with UNDP and ILO assistance plans to develop regional manpower training centers to train skilled craftsmen needed by industry. 21. Agricultural education is provided at the secondary level by 85 public high schools and a number of private high schools. Many of these schools originally provided practical farming courses for rural youth but more recently emphasis has been placed on college preparation ani about 30 agriculture high schools have introduced post-secondary courses providing training of low quality. The University of the Philip- pines College of Agriculture has started a Pilot Barrio (Village) Development School in which pupils spend 50 percent of their time carry- ing out supervised farming programs on their own or their parents' farms. The Department of Education has also recently introduced a new experimental agricultural curriculum in some of its high schools. This increases practical training and emphasizes agricultural economics and farm manage- ment. At the post-secondary level there are many degree-granting agricultural colleges whose curricula tend to be too academic and not sufficiently oriented towards current problems of agriculture. Of the 54 degree-granting institutions, only two offer courses in agricultural business management and six in agricultural engineering. Irrigation is not taught as a major subject at any institution. Courses in forestry, one of the major industries in the [hilippines,are offered in only four institutions and only one of these has adequate training facilities. 22. The strong demand for education in the Philippines stems from deeply held social values and the lack of employment opportunities.  -7- This situation has had a pronounced fiscal impact as expenditures on education account for 26 percent of the national Government's budget. Assuming that the present enrollment and population trends would continue, the Government's education budget (in constant prices) would have to double over the next ten years if present standards are maintained. The Philippine Education Survey Conmission, appointed by the President in 1969, recommended that financial responsibility for primary education, which absorbs 85 percent of the Government's education budget, should be transferred to the local governments in order to release funds at the national level for secondary and higher education. It would be extremely difficult, however, to secure sufficient revenues at the local level to meet fully the costs of primary education. Whether financing comes from the central or local governments, measures to halt the rapid increase in expenditures for primary education are desirable. There is also a need to rationalize institutions and to control enrollment at the secondary and higher levels. 23. 1Masures are now being taken to tackle some of these problems. In the reorganization of the Executive Branch of Government, following the imposition of martial law, the Department of Education becomes the Department of Education and Culture, responsible for developing and implementing education programs based on the general education objectives and policies set by a Board of National Education. The divisions or units in the former Department of Education which dealt, almost independently of each other, with public, private and vocational schools, are abolished and the new Department will have bureaus for elementary, secondary and higher education. In addition, units for Planning Service, Finance and Management, Administration, and Information and Publication will be set up in the Department. The Office of Planning Service will undertake planning, research and project development and provide secretariat services for the Board of National Education. A Board of Higher Education will be created to assist and advise the National Board of Education in formulating objectives, policies and programs on post-secondary education. 24. Education policy will now aim at making the educational system more responsive to the needs of the country by providing a broad, general education and promoting the training of skilled manpower. High priority will be given to technical education and vocational training. Higher education will be strengthened through a coherent system of public universities and incentive schemes for inportant programs in private education. New colleges can be established only on the recommendation of the National Board of Education. All these reforms should improve educational policy-making and make it easier for the Government to manage the educational system. Accreditation of higher education institutions is in its infancy (28 institutions are members at present) and the new structure may enable the system to expand more rapidly. Nonetheless, Government control over the large number of private secondary and higher educational institutions has been very weak up to now and it remains to be seen how far these reforms can increase it.  -8- PART IV - THE PROJECT Background 25. In January/February 1971, a UNESCO mission visited the Philippines to identify a project suitable for Bank Group financing. It July 1971, the Government requested assistance for a project.which it had.prepared with the help of UNESCO. The project was appraised in November/December 1971 and negotiations were hel'd in Washington during July 24p-28,. 1972'. The leader of the Government's delegation,was thle Honorable Eduardo Z.. Romualdez, Philippine Ambassador to the United States. The appraisal report (No.. PE-50a, dated November 30, 1972) is being circulated separately to the. Executive Directors. 26. This would be the second' Bank Group operation fbr' eduication in the Philippines. The, first was a Bank loan (Loan 393P-PE.) of $6.0 million made in 1964 to assist the Government in financing the enwpansion of the. University of the Philippines College of Agriculture at Los Banos near Manila. Despite occasional delays in construction. resulting from short- ages in local funds the project will be completed satisfactorily by the end of this year. Description of the Project 27. The project would provide for' some of thee needs of'an e-ducation. development program required,for re-tormvof the education,system.. It would also help to meet manpower needs for economic development'. Specifically, the proposed' credit would help to. finance the following conponents: (i) & Curriculum Coord.inating Unit,, an Educatibn: Dbvelop- ment Center,. two Regional Science Teaching Cente'ts). and' additional equipment for two exi;sting' Centers-: (ii) equipment for 13 4didstirrg agricultural high- schools, expansion of two agricultural col'leges, and six new pilot village development schools; (iii) two new technical institutes) expansion of an extsst- ing technical institute, and 10 new Regional Manpower Training Centers; (iv) two social (extension) laboratories, a newr agriculture radio station, and additional equipment for an e-xAst- ing agriculture radio station;. and. (v) te:chnical assistance.  _9- 28. The items covered under (i) would help to develop improved curriculum and teaching standards. The Government would form a Curriculum Coordinating Unit in the new Office of Planning Service to be established in the Department of Educatioh. The Unit would coordinate curriculum research and material development and prepare a program to remedy textbook shortage. The proposed credit would finance equipment, books and materials for the Unit. The Government also intends to establish an Education Development Council to supervise a new Education Development Center combining the Science Education Center of the University of the Philippines and the Social Studies Education Center of the Department of Education. IDA would help finance physical facilities, including office accommodation and equip- ment for the Council and the Center. The project would also support the ongoing program of science teaching by establishing two additional Regional Science Training Centers and upgrading two others by providing books and equipment. 29. The 13 agricultural high schools included in the project would use the new, more practically oriented curricula recently developed by the Department of Education. The six new pilot village (barrio) develop- ment schools would provide a program of 50 percent practical classroom work and 50 percent supervised farming. The project would upgrade two agricultural universities, Central Mindanao University and Central Luzon State University, which should, as a result, become strong regional centers offering courses and providing training adapted to local needs. In order to bring overall agricultural education more in line with manpower needs, the Government plans to undertake a survey of agricultural manpower and will ensure that, in three years time, agricultural high schools included in the project offer courses only at the secondary level. The National Board of Education has recently adopted a resolution declaring that the establishment of additional degree-granting institutions will be considered only where there are clear manpower needs for development. 30. The three technical institutes included in the project would offer three-year post secondary courses and would provide about 800 technicians annually. Until a national polytechnic scheme is established, the three institutes would be administered by a Governing Council which would ensure that each institute applies the sare curricula and examination standards. The ten new Regional Manpower Centers wauld offer full time and evening courses for youth or adults. The combined output of the centers would be over 7,000 craftsmen per year. The Government would train sufficient instructors, teachers and supervisors for the technical institutes and regional manpower centers. The IDA credit would also assist the Central Mindanao University to establish and the University of the Philippines College of Agriculture to expand agriculture radio stations and would help Central Mindanao University and Central Luzon State University to set up "lsocial laboratories" designed to give on-the-job training to agricultural extension workers in the villages. 31. The technical assistance component would consist of 62 man-years of specialist services and 56 man-years of fellowships. The specialist  - 10 services are designed to strengthen education planning, management and curriculum development. They would also help the agricultural colleges and technical institutes and assist in implementing the project. Some of the specialists included in the project may be financed by UNDP, in which case a corresponding amount of the credit may be cancelled or made available for other uses related to the project. Furthermore, the Government intends to obtain additional technical assistance in the form of 31 man-years of specialist services needed to strengthen educational planning, curriculum development and manpower training as well as six man-years of overseas fellowships for curriculum development and teaching in the ten Regional Manpower Training Centers. The Government would also prepare studies on national and regional manpower needs in the agricultural sector and on ways and means to meet such needs, formulate plans for supervised farming projects at the agricultural high schools and pilot village development schools included in the project .and make arrangements with existing universities to improve agricultural education, training and extension. Cost and Financing of the Project 32. The total cost of the project is estimated at $17.7 million, of which the foreign exchange component amounts to about $12.4 million (for details, see Annex III, Credit and Project Summary). The credit would finance the direct foreign exchange cost and about $0.3 million for equipment, furniture and educational materials, for which contracts are likely to be awarded to local manufacturers. If qualified Filipinos are available to fill some of the positions under the technical assistance component, IDA would finance them. The remaining local cost of $5 million equivalent would be met by the Government. To ensure that local funds are available when needed, the Government has agreed to establish a Special Fund (as a condition for the Credit to become effective) and to replenish it at monthly intervals to a level equivalent to the estimated total amount of payments for goods and services required for the project during the next three months less the estimated amount of payments to be made by the Association directly to suppliers, contractors and consultants. Management Arrangements 33. The Government has established a Project Unit in the Department of Edacation which would be responsible for implementing the project. After consulting the Association, the Government has selected senior staff members of the Project Unit. Procurement 34. Contracts for civil works would be awarded after international competitive bidding. Equipment, furniture and educational materials mould also be procured under international competitive bidding,. with the exception of contracts for small and diverse items not exceeding. $40,000, within a total of $250,000, which may be awarded after local  competitive bidding. As in the case of Loan 637-PH, approved on August 12, 1969, which was the last occasion on which the Bank financed directly the local procurement of equipment, materials and supplies under international competitive bidding for a project in the Philippines, bids offered by Filipino manufacturers for items of substantially Filipino origin would be given a preference of 15 percent in camparison with other bids. The draft Development Credit Agreement makes appropriate provision for this; the amount of local procurement eligible for preferential treatment is not expected to be more than about $300,000. Disbursement 35. The credit would be disbursed to meet 100 percent of the c.i.f. cost of imported, or ex-factory cost of locally produced, equipment, furniture and supplies, 38 percent of the cost of civil works (including professional services) and 100 percent of total expenditures for technical assistance for the project. The schools would be constructed and equipped in about three and a half years, but the technical assistance would be spread over six years. PART V - LEGAL INSTRUMENTS AND AUTXORITI 36. The draft Development Credit Agreement between the Association and the Republic of the Philippines, the Recommendation of the Committee provided for in Article V, Section 1 (d) of the Articles of Agreement of the Association and the text of a Resolution approving the proposed development credit are being distributed to the Executive Directors separately. 37. The draft Development Credit Agreement conforms to the normal pattern for credits for education projects and major features of the Agreement have already been described. 38. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECO4MENDATION 39. I recommend that the Executive Directors approve the proposed development credit. Robert S. McNamara President Attachments November 30, 1972   ANNEX I Page 1 of 2 COUNTRY DATA - PHILIPPINES AREA POPULATION DENSITY 297,000 km 39.4million (mid-1972.) 133 per k2 Rate of Growth: 3.0 (from 1960to 1970) n.a. per km2 of arable land POPULATION CHARACTERISTICS (1970) HEALTH (.1969) Crude Birth Rate (per 1,000) 44.7 Population per physician 2819 Crude Death Rate (per 1,000) 10.6 Population per hospital bed 657 Infant Mortality (per 1,000 live births) 65 INCOME DISTRIBUTION (1965) DISTRIBUTION OF LAND OWNERSHIP % of national income, lowest quintile 3.5% % owned by top 107. of owners n.a. highest quintile 55.4% % owned by smallest 10% of owners n.a. ACCESS TO PIPED WATER (1960) ACCESS TO ELECTRICITY % of population - urban) .% of population - urban n.a. - rural) - rural n.a. NUTRITION LAver. 1957-1960) EDUCATION Calorie intake as % of requirements 85% Adult literacy rate % 72% (1965) Per capita protein intake (grams 47 Primary school enrollment % 119 (1970) _/ per day) 1/ GNP PER CAPITA in 1970 : US $210 GROSS NATIONAL PRODUCT IN 1971 a/ ANNUAL RATE OF GROWTH (7. constant prices) US $ Mln. % 1960-65 1965-70 1971 GNP at Market Prices 7,658 100.0 5.0 7.1 6.5 Gross Domestic Investment 1,635 21.4 12.0 9.2 4.2 Gross National Saving3/ 1,369 17.9 12.1 18.8 22.6 Goods & Services Acct. Balance 266 b/ 3.5 Exports of Goods, NFS 1,387 18.1 9.6 2.2 11.7 Imports of Goods, NFS 1,408 18.4 17.1 5.0 -5.5 OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1971 Value Added Labor Force7 V. A. Per Worker US$ Mln. 7. Ml. 7 US $ % Agriculture 2,346.8 37.5 6,440 48.7 364 77.0 Industry 1,354 0 21.7 1,528 11.6 886 187.3 Services 2,549.9 40.8 4,616 34.9 552 116 .7 Unallocated . . 636 c/ .8 Totai/Average 6,250.7 100.0 13,220 100.0 473 lOO.O GOVERNMENT FINANCE General Government Central Government (Pesos Mln.) % of GDP (Pesos Mln.) /I of GDP 1970 1970 1965-70 1971 1971 1965-70 Current Receipts n.a. n.a. n.a. 4,298 8.5 8.2 Current Expenditure n.a. n.a. n.a. 3,758 7.4 8.3 Current Surplus n.a. n.a. n.a. 540 1.1 -0.1 Capital Expenditures n.a. n.a. n.a. 775 1.5 1.7 External Assistance (net) n.a. n.a. n.a. 8 - 0.3 -1/ The Per Capita GNP estimate is at 1970 market prices, calculated by the same conversion technique as the 1972 World Atlas. All other conversions to dollars in this table are at the average exchange rate prevailing during ete period covered. 2/ Total labor force; unemployed are allocated to sector of their normal occupation. "Unallocated" consists mainly of unemployed workers seeking their first job. 3/ Excluding transfers. . not available not applicable a/ Computed at exchange rate of 06.43 = US$1 b/ Equals Balance of Payments Goods and Services Deficit Plius Errors and Omissions c/ Equals number of unemployed d/ Includes overage students  ANNEX I Page 2 of 2 COUNTRY DATA - PHILIPPINES Mar. Mar. MONEY. CREDIT and PRICES 1965 1969 1970 1971 1971 1972 (Million pesos outstanding end period) Money and Quasi Money 5,136 8,959 10,140 11,720 10,436 11,532 Bank Credit to Public Sector 1,587 3,670 3,890 3,737 3,778 3,701 Bank Credit to Private Sector 4,085 7,456 8,764 10,358 9,034 10,809 (Percentages or Index Numbers) Money and Quasi Money as % of GDP 22.3 27.5 25.1 23.0 General Price Index (1963 = 100) 108.9 127.8 147.4 181.4 Annual percentage changes in: General Price Index - 4.1 15.3 23.1 Bank credit to Public Sector - 23.4 6.o -3.9 Bank credit to Private Sector - 12.3 17.4 18.2 BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1967-fl) 1969 1970 1971 US $ Mln YO (Millions US $) Exports of Goods, NFS e/ 1,116 1,331 1,393 Coconut Products 216 22.9 Imports of Goods, NFS e/ 1,427 1,349 1,397 Sugar and Products 173 18.4 Resource Gap (deficit = -) -311 IEg -4 Forest Products 266 28.1 Copper Concentrates 133 14.2 Interest Payments (net) -78 -130 -97 All other commodities 155 16.4 Workers' Remittances - - - Total 94 T lOQ.O Other Factor Payments (net) - - - Net Transfers +155 +119 +134 EXTERNAL DEBT. DECEMBER 31. 1971 Balance on Current Account - 234 -29 33 ( b US $ Mln Direct Foreign Investment 6 -29 -6 Net MLT Borrowing Public Debt, incl. guaranteed 777.5 Disbursements 375 539 437 Non-Guaranteed Private Debt 1,013.9 Amortization 2 264 302 Total outstanding & Disbursed Subtotal 243 275 13 1/ Capital Grants DEBT SERVICE RATIO for 1971- Other Capital (net) 67 77 89 % Other items n.i.e. -127 -207 -147 Increase in Reserves (+) -87 -:04 Public Debt, incl. guaranteed n.a. Non-Guaranteed Private Debt n.a. Gross Reserves (end year) 250 376 524 Total outstanding & Disbursed 27 Net Reserves (end year) -78 -46 -20 RATE OF EXCHANGE IBRDIIDA LENDING, (October 31 ) (Million US $): Through - 1971 1962-69 1970-71 IBRD IDA us $ 1.00 ' 3.92 b.43 1.00 = us $ .26 .16 Outstanding & Disbursed 142.5 Undisbursed 85.0 Since - 1971 Outstanding incl. Undisbursed us $ 1.00 6.78 1.00 = US $ .15 1/ Ratio of Debt Service to Exports of Goods and Non-Factor Services. not available not applicable e/ Excluding investment incoTne and payments only. TI Including commercial banks. November 30, 1972 EPD/PRD  ANNEX II Page 1 of 5 THE STATUS OF BANK GROUP OPER&TIONS A. Statement of Bank Loans and IDA Credits to the Philippines as of October 31, 1972 Loan or (US $ millions) Credit Amount Less Cancellations Number Year Borrower Purpose Bank IDA Undisbursed Eight loans fully disbursed 127.0 393-PH 1964 Republic of the Education (College Philippines of Agriculture) 6.0 0.2 491-PH 1967 National Power Corporation Power 12.0 1.3 607-PH 1969 Central Bank of the Philippines Agriculture Credit 12.5 8.7. 630-PH 1969 Philippine National Bank DFC 25.0 3.8 637-PH 1969 Republic of the Philippines Irrigation 34.0 21.1 720-PH 1971 Republic of the Rice Processing Philippines and Storage 14.3 14.1 731-PH 1971 Republic of the Philippines First Highway 8.0 6.3 809-PH 1972 National Power Corporation Power 22.0 22.0 * 296-PH 1972 Republic of the Philippines Power 10.0 10.0 823-PH 1972 Republic of the Philippines Livestock 7.5 7.5 Total 268.3 10.0 of which has been repaid 40.0 Total now outstanding 22.3 Amount sold 12.6 of which has been repaid 11.8 0.8 Total now held by Bank 227.5 10.0 Total undisbursed 85.0 10.0 95.0 Only about $40,000 disbursed.  ANNEX 3I Page 2 of 5 B. Statement of IFG Investments in the Philippines as of October 31, 1972 Fiscal Amount (US $ million) Year Company Loan Equity Total 1963 Private Development Corporation of the Philippines - 4.4 4.4 1967 Manila Electric Company 8.0 - 8.0 1967 Meralco S'ecurities Corp. - 4.0 4.0 1970 Philippine Long Distance Telephone 'Company 4 5 4 1970 & 1972 Mariwasa Manufacturing Inc. .8 .4 1.2 1970 Paper Industries Corp. of the Philippines - 2.2 2.2 1971 Philippine Petroleum'Corporation 6.2 1.,8 8.o 1972 Marinduque Mining aand Industrial Corporation 5 Total 34h'5 12.;8 3~~ 47 -3 Less sold, acquired by o'thers, repaid or cancelled '3.9 6.7 10.6 'Now held 30.6 6,.' ,36.7  ANNEX II Page 3 of 5 C. Projects in Execution Loan 386-PH - Manila Water Supply Disbursements for this project were completed by mid-1970. The project was delayed and local currency cost overruns high for a number of reasons. The performance. of contractors was poor, local suppliers filed complaints about the award of bids which resulted in court injunctions to stop work and the agency executing the project had weak management. Implementation of a rate increase has been long delayed and the executing agency is in serious financial difficulties. Lay-offs of excess personnel have been contested in court. Some improvement in top management has been made, but no substantial impact on operations can yet be observed. Loan 393-PH - Education This project for the expansion of the College of Agriculture of the University of the Philippines has been progressing satisfactorily on the whole, although it has encountered occasional delays due to shortage of peso finds. The project was basically completed by mid-1970, but the Bank has agreed to the University's request to use project savings to finance additional related site development and equipment items. The Closing Date has been postponed to December 31, 1972 and the project is expected to be satisfactorily completed by that time. Loan 491-PH - Power This project was to assist the National Power Corporation in financing the construction of a 75-MW thermal plant on the Bataan Peninsula and a 50-MW addition to the Maria Christina Hydroelectric Plant in Mindanao. Construction of the Maria Christina addition was completed in 1970 and that of the Bataan plant in March 1972. Delays have occurred initially because of slow government approval of contract awards and subsequently because of financial difficulties of the civil works contractor for Bataan, and strikes in suppliers' countries and some equipment failures. The undisbursed balance of $1.3 million of the Bank loan represents the retention requirements for equipment supplied under the project. The Closing Date has been further postponed by 18 months to December 31, 1973. Loan 607-PH - Second Rural Credit The slow progress of the Project at first was mainly due to the steep rise in prices of farm machinery after the peso was allowed to float in February 1970. The resulting increases in prices of farm produce, together with decentralization of loan sanctioning, strengthening of staff and promotional efforts, have helped improve the pace of disbursements but postponement of the Closing Date of March 31, 1973 by 15 months will probably be required.  ANNEX II Page 4 of 5 Loan 630-PH - Development Finance Company The third loan in an amount of $25 million to the Private Development Corporation of the Philippines,(PDCP) has been fully committed for sub- projects, but as of October 31, 1972, $3.8 million of the loan remained undisbursed, a rate of disbursement slower than expected. The main reason for this was the general deterioration in the business climate following the devaluation of the peso in February 1970. A postponement of the present Closing Date of March 31, 1973 by 12 months may be needed. Loan 637-PH - Irrigation This project is to help finance the construction of a dam on the Upper Pampanga River in Central Luzon and the construction and rehabilitation of irrigation facilities serving about 77,000 hectares. The project got off to a good start and is progressing satisfactorily. A,supervision mission visited Manila in September/October 1972 to review the progress of this project and is preparing its report. Loan 720-PH - Rice Processing and Storage This project was designed to provide long-term credit to the private sector for setting up modern integrated rice processing and storage units in the private sector. It would increase rice processing capacity by 480,000 tons of paddy rice per year or 320,000 tons of milled rice per year. The loan was made to the Government which would in turn onlend the proceeds to the Development Bank of the Philippines, responsible for administering the project. Disbursement has been very slow in part because of the deterioration in the investment climate following the peso devaluation. Another factor was the detrimental effect of poor weather, disease and reduced use of fertilizer due to credit restrictions, on the 1970/71 rice crops. The lower than anticipated demand for investment in new integrated storage units and administrative arrangements and procedures caused some delay in processing of sub-loans. The project was substantially revised in accordance with the memorandum of the President to the Executive Directors dated June 8, 1972 (R72-40) to allow for more emphasis on lending for rehabilitation and improvement of existing facilities, and to simplify administrative arrangements and procedures. These changes are expected to lead to an increase in the rate of disbursement. Loan 731-PH - Highway This project for the construction and improvement of the 'Cotabato- Digos road (160 km) in Mindanao is progressing'satisfactorily. The project also includes two components financed by UNDP; technical assistance to the Bureau of Public Highways (BPH) for operational improvements and feasibility studies for future highway projects. Work on the technical assistance component is progressing well and the feasibility studies'have been completed.  ANNEX II page 5 of 5 Loan 809-PH and Credit 296-PH - Fifth Power Invitation to bid for main equipment is in the process of being revised. Prequalification of bidders for civil works is under way. A supervision mission is scheduled for late November 1972. Loan 823-PH - Livestock This loan became effective on November 9. The project is progressing satisfactorily.   ANNEX III Page l of 2 PHILIPPINES - SECOND EDUCATION PROJECT CREDIT AND PROJECT SUMMARY Borrower: Republic of the Philippines Amount: $12.7 million Terms: Standard Project Description: The credit would finance a project consisting of following components: a new Curriculum Coordinating Unit, a new Education Development Center, two new and two existing Science Teaching Centers, equipment for 13 existing agricul- tural high schools, expansion of two agricultural colleges, six new pilot village schools, two new technical institutes, expansion of one technical institute, a new and an existing radio stations attached to agricultural colleges, ten new regional manpower training centers and 62 man-years of specialist services and 56 man-years of overseas fellowships. Estimated Cost: (US$ million or equivalent) Local Foreign Total Construction 2.70 1.80 4.50 Equipment,furniture & prof. services 0.97 6.56 7.53 Technical Assistance 0.47 2.10 2.57 Unallocated 1.14 1.94 3.08 5.28 12.40 17.68 Government IDA Total Financing: 4.98 12.70 17.68  ANNEX III Page 2 of 2 Estimated Disbursements: Calendar ($ million) 1973 0.1 74 0.5 75 5.0 76 6.o 77 0.8 78 0.3 12.7 Procurement Arrangements: Civil works contracts will be awarded after international competitive bidding. Contracts for furniture and equipment will also be subject to international competitive bidding, except that contracts under $40,000 up to a total of $250,000 will be awarded after local competitive bidding. The Association has agreed to a preference of 15% in evaluation of bids for equipment, materials and supplies substantially of Philippine origin offered by Philippine manufacturers or suppliers. Consultants: 62 man-years of specialist services for educational planning and management, curriculum reform, text- book development, agricultural and technical education, and project implementation. Appraisal Report: Report No. PE-50a, dated November 30, 1972, Projects Department, Asia Region.  >2 001',' 20' k2ol2' 1 PHILIPPINES 5 L'S XeelNE |SECOND EDUCATION PROJECT '3 802 LAC2322LCNO~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~2 I g~~~~~~~~~~~~~~~~~~~~~~~~~~~~C 2 2 0,3i 002a0@ c^L0P2C203 oooNT GIT8C COO. 82038000OIN SSUNE,~~~~~~~~~~~" PH (2 C22C0 lCUA 9DVLr:h :Tn tBVMSON o 22 22 20 32232 !z l Ue CITY F025 A ACF N Cf 0' 4