Thailand - Fifth Highway Project

DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Not For Public Use Report No. P-1140 F ILE COPYIM REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE KINGDOM OF THAILAND FOR A FIFTH HIGHWAY PROJECT November 17, 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 It may not be published, quoted or cited without Bank Group authorization.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 EQUIVALENTS USED IN THIS REPORT Currency Unit - Baht (Bt) US $ 1 Bt. 20.8 Bt 1 = US $0.048 Bt 1 million = US $48,077 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE KINGDOM OF THAILAND FOR A FIFTH HIGHWAY PROJECT 1. I submit the following report and recommendation on a proposed loan to the Kingdom of Thailand for the equivalent of US $28.6 million to help finance a fifth highway project. The loan would have a term of 24 years including 4 years of grace, with interest at 7h per annum. PART I - THE ECONOMY .2. A basic economic report on Thailand's Third Five-Year Plan (1972-1976) was distributed to the Executive Directors in January 1972 (Report No. EAP-28). This is now being updated by an economic mission which visited Thailand in September 1972; the mission's preliminary findings and conclusions were contained in my report and recommendation on a proposed loan for a telecommunications.project (P-126) distributed to the Executive Directors under cover of a memorandum from the Secretary (R72-241 dated November 2, 1972). The section on the economy is reproduced in Annex II, and follows the Country Data. PART II - BANK GROUP OPERATICNS IN THAILAND 3. My report and recoumendation, referred to above also set out past Bank Group lending in Thailand and discussed the Bank Group's strategy for Thailand and the projects which are expected to come forward for your consideration in the next two years. The relevant section has been revised to reflect a few small changs which have occurred since then and is included in Annex I. PART III - THE TRANSPORTATION SECTOR 4. The growth of the transportation sector in Thailand to meet the needs of the rapidly developing Thai economy over the last ten years has been impressive. The pattern of expansion has been dictated by the dominant position of Bangkok, Thailand's principal port and business center and the need to link Bangkok to the outlying regions. To accommodate the flow of goods and people between Bangkok and the rest of the country, several systems have evolved with Bangkok at the center. There are about 10,400 km of national highways, 5,900 km of provincial (feeder) roads and about 35,000 km of local roads. The railways consist of about 3,770 km of meter gauge track. -2- The-waterways include about 1,600 km of canals and rivers navigable in the wet season and about 1,100 km in the dry season. Don Mang, Bangkok's airport, handled about 1.5 million internatinal and domestic passenger movements in 1970, of which about 1.2,.million were international traffic. Domestic aviation is not yet an important carrier of freight or passengers. The port at Bangkok handles about 80% of Thailand's international sea traffic and about 40% of its coastal traffic while several minor ports serve mainly the needs of the Southern region. 5. Road freight traffic increased by about 15% a year from over 1,000 million ton-km in 1960 to 3,900 million ton-km in 1970 (short hauls in 1970 are estimated at 3,000 million ton-km). Railroad carload freight has grown at an average of 5% a year rising from 1,200 million ton-km in 1960 to 2,200 million ton-km in 1970. During the period 1961-1970 the motor vehicle fleet grew at an average annual rate of 19% and about 738,000 vehicles were registered in the country in 1970. During this period the railways began a modernization progran and nearly 50% of the railways is now dieselized. 6. For the most part the system has,developed along rational lines and no significant misallocation of transport investments has so far occurred. However, in view of the very rapid growth of the transportation system it is not surprising that a number of transport problems have developed. In the first place the rapid growth of Bangkok and its central location,in the system has .created serious traffic congestion in the city and the movement of heavy trucks in Bangkok during daylight hours has been restricted. Solutions to this problem are being sought. A two-phase Urban Transport Study, financed with the assistance of the Federal Republic of Germany, began in 1971. The first phase which is nearly completed will seek short-term solutions to relieving traffic congestion while the second phase, due to be completed in 1974, will recommend a long-term program for providing adequate transport in the city including possibly a rapid transit system. Another aspect of this prdblem is the need to divert part of the traffic to a second and deep water port. A study, financed with the help of the Netherlands, was recently completed on the feasibility of developing a port at Laem Krabang, about 120 km from Bangkok. This study is being complemented by a study, financed with help from USAID and due to be completed early next year, on converting Sattahip, an existing military port about 50 km further south of Laem Krabang, for civilian traffic. A United Kingdom-financed study is also examining the possibilities for containerized cargoes. A second problem concerns road-rail coordination. With the development of the highways road transport has become the predominant mode for freight transport, replacing the railways However, it is probable that some uneconomic diversion of traffic has taken place, and -the railways are now in a better position to concentrate on increasing the efficiency of their long-haul operations and are taking steps to modernize their equipment, improve their scheduling and adjust tariffs to meet the challenge of road transport. Finally, it appears that the possibilities offered by the waterways network for low cost transport have been neglected. Attention needs to be given to the benefits which could be obtained from allocating more water and funds for improved navigation against competing claims of power production, agriculture and industry. 7. Government investment in transport during the Third Five-Year Plan (1972-1976) is estimated at about Bt 21 billion, or about 20% of development expenditures. Roads are planned to absorb about Bt 16.6 billion, railways -3- Bt 2.5 billion with the balance about evenly divided between inland water- ways and ports and civil aviation. The largest increase in the Third Five-Year Plan is for investment in provincial (feeder) roads. The greater emphasis on provincial roads is well justified in view of Thailand's need to expand and diversify agricultural production for export, but the transport investment plan as a whole is being revised to reflect more closely economic priorities and a more reAlistic schedule for project preparation. However, if full benefits of constructing new provincial roads are to be achieved, a considerable effort will be required to improve inter-sectoral planning. Recent organizational changes in the Government hold out promise that improve- ments in planning may be possible. The main departments concerned with agricultural planning and project implementation have been brought under the Ministry of Agriculture and Cooperatives and the Department of Highways (DCH) has been moved into the Ministry of Communications, bringing all modes of transport except construction and maintenance of inland waterways under the Ministry's direction. The Ministry of Communications also intends to implement the principal recommendations on organization and planning of the Transportation Sector Review carried out last year by the Bank. A transport- ation policy and planning committee and a transport planning unit will-be set up. These changes should go far to improve sector plaiming and investment decisions as well as inter-modal coordination. PART IV - THE PROJECT 8. The project is part of Thailand's Third Five-Year Social and Economic Development Plan (1972-1976). It would be the fifth highway project to be financed with the help of a Bank loan in a series of Highway Projects beginning in 1963. It was identified in the course of the Bank's on-going assistance for the development of Thailand's transport system. 9. Appraisal of the project began in Thailand in OctoberAovember 1971, but could not be completed until September 1972 as the four provincial roads included in the project were redesigned, at the Bank's suggestion, to reduce their costs. The proposed loan was negotiated in Washington from October 25 to November 2, 1972. The Government delegation was led by H.E. Ambassador Anand Panyaranchun assisted by Dr. Sirilak Chandrangsu, Under Secretary of State, Ministry of Communications. Project Composition 10. The project comprises the following main items: (a) the construction and improvement of the following three national highway sections totalling about 285 km:- 1) Don Muang - Bang Pa In - Saraburi (about 83 km) 2) Siracha - Rayong (about 72 km) 3) Langsuan-Suratthani (about 130 km., including about 20 km of access roads) (b) the construction and improvement of the following four provincial (feeder) roads totalling about 387 km:- 1) San Sai-Phrao (about 81 km) 2) Chieng-mai-Doi Saket-Mai Suai (about 133 an) 3) Suphanburi-Chainat (about 99 an) 4) Khao Daeng - Ranot (about 74 Wm); (c) feasibility studies by consultants of about 1200 km of provincial roads of which about 800 km will be selected for detailed engineering, if justified; (d) a highway maintenance study by consultants including recommendations for the purchase of urgently-needed maintenance equipment to be financed out of the proposed loan: (e) technical assistance by consultants to the Department of Highways (DOH) in planning, executing and maintaining highway projects and training its professional staff; and (f) technical assistance to the Ministry of Communications in setting up a transport planning unit in the Ministry. 11. Details are in the report entitled "Appraisal of a Fifth Highway Project - Thailand" (No. PTR-126a) which is being distributed separately to the Executive Directors. A loan and project summary is provided in Annex III. 12. Feasibility studies of the first two national highway sections were carried out by consultants financed out of Loan 455-TH (Second High- way Project) and the third by consultants financed by USAID; the detailed engineering of all three highway sections was financed out of Loan 626-TH (Fourth Highway Project). The four provincial roads were selected from a feeder road study carried out by consultants financed out of Loan 341-TH (First Highway Project) and detailed engineering was carried out by consult- ants financed out of Loan 535-TH (Third Highway Project). 13. This is the first time that the Bank has financed the construction, as opposed to the engineering of provincial roads in Thailand. This develop- ment accords with the large increase in investment in such roads envisaged by the Government's Third Five-Year Plan (see paragraph 7 above). Project Execution 14. Except for the technical assistance to be provided to the Ministry of-Communications in setting up a transport planning unit, responsibility for -5 - the execution of the project rests with DOH. DOH, which has successfully carried out similar projects, will be assisted by consultants in the supervision of construction and improvements works and in carrying out the highway maintenance study and the feasibility studies and detailed engineer- ing of additional feeder roads. DOH will also be assisted by consultants in planning, executing and maintaining highway projects as well as in training its professional staff. In addition DOH will select, in consult- ation with the Bank, three members of its staff for overseas training in fields for which there are inadequate training facilities in Thailand. All construction and improvement works are expected to be completed by mid-1977, feasibility studies of feeder roads by late 1974 and detailed engineering by late 1975; orders for maintenance equipment are expected to be placed in mid-1974. 15. The Ministry of Communications intends to set up a transport policy and planning committee by December 31, 1973 on which the Ministries and Agencies primarily concerned with transport matters will be represented. The committee will be served by a transport planning unit in the office of the Under Secretary of Communications which will prepare transport policy papers and formulate sector investment programs for the Committee's consideration; the transport planning unit will also establish a transport information system to provide adequate data for decision making on transport matters. Consultants will assist the Ministry in organizing the transport planning unit and implementing the transport information system. Cost Estimates 16. The estimated cost (including import duties) of the project is $58.6 million equivalent including about $8.0 million for contingencies; the estimated foreign exchange component is $28.6 million. Detailed cost estimates are provided in Annex III. 17. The proposed loan of $28.60 million would finance the estimated foreign exchange costs of the project (49% of total project costs) and the balance of the funds required for the project would be made available by the Government. Procurement and Disbursement 18. To avoid delays in executing its highway improvement program, to spread the administrative burden of contract supervision and to- take advantage of as much of the 1971/1972 dry season as possible, the Governmentasought the Bank's agreement to award three contracts (two contracts on the Don Muang - Saraburi section and one contract on the Siracha-Rayong section) totalling $17 million and to include an amount in the proposed loan to cover the estimated foreign exchange costs of these contracts up to the date that the proposed loan was presented to the Rcecutive Directors. These contracts were awarded between November 1971adApril 1972, after international com- -6- petitive bidding. The total amount of retroactive financing required up to mid-December 1972 is $4 million and this amount is included in the proposed loan. 19. All remaining civil works contracts and all contracts for the purchase of maintenance equipment will be awarded after international cam- petitive bidding. A preference of up to 15% or the applicable customs duty, whichever is lower, will apply to bids from local manufacturers on maintenance equipment. Thailand has no agreements giving preferential tariffs to any foreign country. Disbursement out of the loan would be for 45% of the total costs of road construction and improvement works, the foreign exchange costs of consultants and overseas training, and either the CIF costs of imported maintenance equipment, or 65% of the price of such equipment if procured through local dealers. It is possible that local manufacturers might win some contracts for maintenance equipment. In that case, the loan would be disbursed against the ex-factory price and some small amount of local expenditure financing would be inv6lved. Justification 20. The project will support the Governmentis strategy of improving transportation.to and within regions distant from the congested area around Bangkok. It will stimulate the development of these regions by providing opportunities for more economic activities in these areas and ease the flow of farm and forestry products and minerals for export and the reverse flow of imported and locally manufactured products to the regions. Indirect economic benefits (uhich have not been included in the calculation of the economic rates of return for the various sections of road) can also be expected to flow from the easier access to remote areas which some of the project roads will offer to Government agencies. The main benefits will consist of savings in vehicle operating costs which are expected to' be passed on to producers and consumers in the form of lower transport costs. Military traffic (which is not expected to constitute more' thant a small part of total traffic on any road) was excluded from' the calculation of the rate of return of the project roads., The justification for the various parts of the project is summarized in the following paragraphs. 21. The Don Muang - Saraburi highway section is one of the most heavily trafficked sections of the important North-South axis. Trdffic on this section has been increasing at the rate of 14-24% a year. On the basis of savings in vehicle operating costs alone, the economic rate of return on this section is estimated at 22%. The Siracha-Rayong highway section in the South-East region will provide a more direct, link from Centr'al Thailand to the area of the coastal town of Rayong. It,bypasses the military port of Sattahip. Military traffic from Sattahip destined for the North - East travels by a separate direct route. Industry, tourism and agriculture in the area served by the highway will benefit by reducing travel distances and relieving congestion. The economic rate of return considering only vehicle operating costs is estimated at 18%., The Langsuan-Suratthani high- way section is part of a future direct highway route down thd eastern coast of the Kra Isthmus in the Southern region; the completed highway will shorten travel distances and link major population centers. Opening' this -7- highway section will relieve the State Railways of less-than-carload freight and local passenger traffic and enable it to close uneconomic stations and to handle the remaining traffic more efficiently. The savings in vehicle operating costs are expected to yield an economic rate of return of 14%. 22. The San Sai-Phrao and the Chiengmai-Mai Suai roads will help bring about new agricultural development in their influence areas by providing all weather roads to Chiengmai, the second largest city in Thailand, reducing distances and vehicle operating costs. These roads could facilitate the Government's efforts to win the loyalty of more hill people and to offer attractive economic alternatives to the cultivation of opium poppies. The economic ratesof return for these two roads are estimated at 12 and 13%, respectively. The Suphanburi-Chainat road will serve a highly developed area, with a population of 120,000, within the Northern Chao Phya irrigation area. The road will reduce travel distances and reduce vehicle operating costs. The economic rate of return based on savings to existing traffic only is estimated at 14%. The KhaosDaeng-Ranot road will provide an all weather road serving a population of about 100,000. The area is primarily agricultural serving Songkhla and Haadyai the principal cities in the southern region. On the basis of savings in vehicle operating costs the economic rate of return is estimated at 13%. 23. Under the least favorable combination of circumstances, the economic rate of return is unlikely to fall below 10% for any of the highway sections or provincial roads included in the'project with the exception of the San Sai-Phrao road, the economic return of which, again on the basis of savings in vehicle operating costs, might fall from 12 to 9%. Nonetheless, this road is justified as it will provide the neighboring population with access to education, health and other social services. 24. The maintenance of national highways and provincial roads has in- proved in recent years, but inadequate attention has been given to longer term (periodic) maintenance needs and the preparation of a national maintenance program. The procurement of a limited amount of urgently-needed maintenance equipment and the inclusion of a road maintenance study in the project will assist the DOH improve its maintenance operations. 25. The benefits of the other items included in the project are not quantifiable but should lead to increased efficiency in the administration of highways and the transport sector. PART V - LEAL INSTRUMENTS AND AUTHORITY 26. The draft Loan Agreement between the Kingdom of Thailand and the Bank the report of the Committee provided for in Article III, Section 4 (iii of the Articles of Agreement and the text of the Resolution approving the proposed loan are being distributed to the Executive Directors separately. The draft loan agreement conforms to the normal pattern for loans for highway projects. 27. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. -8- PART VI - RECOMMENDATION 28. I reconmend that the Executive Directors approve the proposed loan. Robert S. McNamara President November 17, 1972 Annex I Page 1 A. STATEMENT OF BANK LOANS TO THAILAND (as at October 31, 1972) (US$ million) Loan Amount less No. Year Borrower Purpose Cancellations Undisbursed Sixteen loans fully disbursed: 217.6 - 0 - 71-TH 1966 Kingdom of Thailand Vocational Education 6.0 0.5 514-TH 1967 . Kingdam of Thailand Sirikit Dam Irrigation 26.0 1.0 535-TH 1968 Kingdom of Thailand National Highways 29.0 6.8 626-TH 1969 Kingdom of Thailand National Highways .23.0 9.8 655-TH 1970 E.G.A.T. Power 46.5 18.6 702-TH 1970 Port Authority of Thailand Ports 12.5 12.1 790-TH 1971 E.G.A.T. Power 27.0 26.3 822-TH 1972 Kingdom of Thailand Education 15.4 15.4 Total 403.0 of which has been repaid 87.2 Total now outstanding 315.8 Amount sold 61.8 a/ of which has been repaid 16.9 44.9 Total now held by Bank 270.9 Total undisbursed 90.5 a/ Of which $1 million sold to- the Bank of. Thailand. Annex I Page 2 B. STATEMENT OF IFC INVESTMENTS (as at October 31, 1972) ,Amount in US$ million Year Compaxy Type of Business Loux Equit Total 1959 Concrete Prodcts Concrete Products 0.30 0.30 and Aggregate Ltd. 1964 Industrial Finance Industrial Finance 0.19 0.19 Corporation of Thailand (IFCT) 1969 Sian Cement Group Cement and Construc- 18.00 4.08 22.08 tion Materials 1971 Industrial Finance Industrial Finance 0.19 0.19 Corporation of Thailand (IFCT) Total gross cominments 18.30 4.46 22.76 less cancellations, terminations, repayments ad sales 14.82 1.70 16.52 Total commitments, fully disbursed, 3.48 2.76 6.24 now held by IFC Annex I Page 3 C. PROJECTS IN EXECUTION Loan h71-TH, First Education Project (Vocational Education) As a result of incomplete bidding for tools and scientific equipment, the closing date of Loan h71-TH was postponed a second time to allow for re-bidding; the first postponement was necessary due to delays in appointing experts under bilateral assistance. It is expected that the project will be satisfactorily completed before the new closing date of August 31, 1973. Loan 514-TH, Sirikit Dam Project The work on the project has been practically completed. The closure of the dam was carried out on schedule in June 1971. The reser- voir is expected to be filled to full retention capacity this month. The total cost of the project is estimated at US $78 million, as against US $76 million at appraisal (+2.5%). Substantial increases in the principal civil works contract (+4%), which resulted from unforeseen adverse foundation conditions, have been compensated by savings on other items. Loan disburse- ments are expected to be completed about 6 months prior to the closing date of the Loan, June 30, 1973. Loan 535-TH, Third Highways Project The project has been largely completed. At the request of the Highways Department the closing date of the loan has been extended by a period of six months until March 31, 1973, to allow for the completion of work, the settlement of outstanding payments on construction contracts already carried out and the payment of consultants costs for completing the design of feeder roads to be constructed under the proposed 5th highways project. Government intends to request cancellation of $4.0 million of undisbursed amount of loan which is not required for the project. Loan 626-TH, 4th Highways Project Construction of the project is on schedule and within the cost estimates. Loan 655-TH, First MDAT Power Project Work on the project is on schedule. The Electricity Generating Authority of Thailand (MZAT) has placed orders for equipment but is not required to make substantial payments until it is shipped. Loan 702-TH, Third Bangkok Port Project As mentioned in paragraph 13 of the report, construction of this project began 18 months behind schedule. The delay was mainly caused by Annex I Page 4 the time taken by the Port Authority of Thailand and its consultants to pre-qualify bidders, amend tender documents and evaluate bids which were complicated by currency realignments. Loan 790-TH, South Bangkok Thermal Unit No. 4 Project The loan became effective on January 27, 1972. Similarly with Loan 65-TH, M3AT has placed orders for equipment for which payment is not yet due. Loan 822-TH, Second Education Project (Kasetsart University) The loan was declared effective on August 22, 1972. There has been some delay in appointing the campus planners but construction is expected to be completed and work begin in the inediate future. Annex I Page 5 Extract from President's Report and Recommendation on a Proposed Loan to the Telephone Organization of Thailand (R72-241). - D. BANK GROUP OPERATIONS IN THAILAND 1. Since 1950 Thailand has received 24 Bank loans amounting to $403.0 million net of cancellations. The greater part of Bank assistance has been for transportation ($154 million), irrigation ($69 million), power ($91 million) and for a multi-purpose power and irrigation project ($66 million). Two loans have been made for education and one for industry. The President's Report and Recommendation on a proposed loan of $37 million for a telecommunications project was distributed to the Executive Directors on November 2, 1972. In general Bank-financed projects have been carried out in accordance with expectations. Construction of the Third Bangkok Port Project, financed under Loan 702-TH, began 18 months behind schedule. The delay was mainly caused by the time taken by the Port Authority of Thailand and its consultants to pre-qualify bidders, amend tender documents and evaluate bids which were complicated by currency realignments. 2. The bulk of Bank and IDA lending for the immediate future and possibly for the next few years will be directed towards helping Thailand meet its infrastructure needs, and the Bank will address itself particularly to priority areas such as the expansion of domestic and export agriculture, education, social improvements including family planning, and regional pro- jects to achieve a wider distribution of development benefits. One of the main functions of the Resident Mission in Bangkok will be to assist the Government in developing projects in these fields. IDA financing, while softening the overall terms of our lending, will be employed to support Thailand's efforts to tackle the problems of its less favored regions. Some financing of local costs in appropriate cases will enable the Bank to participate more fully in basic developmental projects in agriculture, education and social improvement. A Consultative Group for Thailand, which is chaired by the Bank met last in February 1972 and t1B next meeting is tentatively scheduled for March 1973. 3. During the balance of the current fiscal year, I expect to present for your consideration loans and credits to assist the financing of six pro- jects in Thailand. Negotiations for the first IDA credit to Thailand, in an amount of about $15 million for a third education project, are expected to begin within the next two months. A $5 million credit for the Chao Phya (Central Plain) irrigation improvement project is under consideration. A loan of about $37 million to help finance the modernization program of the State Railways and a loan of about $40 million for the Bangkok water supply project are also being considered. The Asian Development Bank is also considering a loan for the Bangkok water supply project. A Northeast crop improvement project and the Pitsanuloke irrigation project are scheduled to be appraised shortly. Projects which are under consideration for FY 1974 include the multipurpose power and irrigation Quai Yai project, as well as seed multiplication, agricultural credit, industrial finance, industrial estates, port development and Northeast urban infrastructure. The Government of Japan, which in April 1972 signed a credit agreement with the Government of Thailand, has expressed an interest in participating in the financing of the telecommunications project, as well as the railways project, the Bangkok water supply project and the_Quai Yai project. Annex I Page 6 4. On December 31, 1971 Bank loans outstanding to Thailand amounted to $238.2 million representing 31% of the country's total external debt of $773 million. The level of Bank/IDA commitments is expected to increase substantially over the next five years but should not exceed 30% of the projected external debt. Japan, which provided $60 million to help finance the Second Plan (1967-1971), has, as noted above, agreed to provide about $210 million for the Third Plan. Other lenders to Thailand, notably the US and the Asian Development Bank, are planning to increase their commitments under the Third Plan. 5. Prospects for IFC operations in Thailand look reasonably good and an IFC mission is in Thailand to appraise a project for the expansion of a synthetic fiber plant. ANNEX TI Page 1 COUNTRY DATA - THAILAND AREA 2 POPULATION DENSITY 514,000 km 37.3 million (mid-1971) 73 per km2 Rate of Growth: 3.11% (from 1960 to 1970) 98 per km2 of arable land POPULATION CHARACTERISTICS HEALTH (1969) Crude Birth Rate (per 1,000): 41.8 (1967) Population per physician: 6,600 Crude Death Rate (per 1,000): 10.9 (1967) Population per hospital bed : 1,504 Infant Mortality (per 1,000 live births):O-90 (1970) INCOME DISTRIBUTION (1970) DISTRIBUTION OF LAND OWNERSHIP (1963) % of income,lowest quintile: 6.5 urban, 5.5 rural % owned by top 107. of owners: 32.5 highest quintile: 45.5 urban, 51.0 rural % owned by smallest 10% of owners: 1.0 ACCESS TO PIPED WATER (1970) ACCESS TO ELECTRICITY (1971) . of population - urban : 45 % of population - Bangkok Metropolitan-Area 63 - rural : 15 - Other 67 provinces: 13 NUTRITION (1971) EDUCATION (1971) Calorie intake as % of requirements: 100 Adult literacy rate %: 70 Per capita protein intake (grammes): ** Primary school enrollment %: 90 .1/ GNP PER CAPITA in 1971 : US $186 GROSS NATIONAL PRODUCT IN 1971 ANNUAL RATE OF GROWTH (7., constant prices) US $ M1n. % 1960-65 1965-70 1971 P GNP at Market Prices 6,951 100.0 7.2 8.5 6.1 Gross Domestic Investment 1,606 23.1 14.4 15.4 - 3.8 Gross National Saving 978 14.1 10.8 12.8 4.1 Current Account Balance 217 3.1 Exports of Goods, NFS 1,205 17.3 10.8 7.1 10.3 Imports of Goods, NFS 1,430 20.6 11.1 12.3 - 8.3 OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1971 Value Added Labor Force V. A. Per Worker US$Mln. M1n. %s $ %. Agriculture 1,985 28.6 13.076 76.9 152 37.2 Industry 1,776 25.5 0.958 5.6 1,854 453.3 Services 3,190 45.9 2.868 16.9 1,109 271.1 Unallocate,d 0.~. .1002~/ 0.6 Tota/Average 6,951 100.0 17.002 100.0 409 100.0 GOVERNMENT FINANCE2/ General Government Central Government (USj$_M1n.) % of GDP (US $ Mn.) % of GDP 1972 1972 1970-72 1972 1972 1970-7F Current Receipts 1,104 14.9 15.1 1,050 14.2 14.3 Current Expenditure 1 055 14.2 13.7 1LQ01 LLI LL2- Current Surplus 4 0.7 1.4 33 0.5 1.0 Capital Expenditures 433 5.8 6.0 426 5.7 5.9 External Assistance (net) 37 0.5 0.7 37 0.5 0.7 1/ All conversions to dollars in this table are at the average exchange rate prevailing during the period covered. 2/ Tentative estimate of unemployed; their normal occupations are not known. 3/ Fiscal years ending September 30 of calendar years shown. not available not applicable p Preliminary ANNEX II Page 2 COUNTRY DATA - THAILAND June June MONEY, CREDIT and PRICES 1965 1969 1970 1971 1971 1972 (Million US outstanding end period) Money and Quasi Money 1,098 1,965 2,220 2,581 2,314 2,780 Bank Credit to Central Government (Net) 53 341 553 872 615 952 Bank Credit to Private Sector 602 1,102 1,339 1;482 1,385 1,474 (Percentages or Index Numbers) Money and Quasi Money as % of GDP 27.1 31.7 33.9 37.3 33.3 37.5 General Price Index (1963 - 100) 107.7 116.4 115.3 115.5 115.5 118.0 Annual percentage changes in: General Price Index 1.6 - 0.9 - 0.2 2.2 Bank credit to Central Government (Net) 45.2 62.2 57.7 54.8 Bank credit to Private Sector 12.9 21.5 10.1 6.4 BALANCE OF PAYMENTS MERCNANDISE EXPORTS (AVERAGE 1970-72) 1970 1971P 1972e US$Mln % (Millions US $) Rice 138 16.6 Corn 100 12.1 Exports of Goods, NFS 1,092 1,205 1,361 Rubber 96 11.6 Imports of Goods, NFS 1,409 1,430 1,525 Tin (metal) 78 9.3 Resource Gar (deficit -) -17 -25 - 164 Tapioca products 66 7.9 Kenaf and jute. 46 5.6 Interest Payments (net) 44 28 8 All other comodities 307 36.9 Workers' Remittances * Total 831 10,0 Other Factor Payments (net) - 26 - 26 - 29 Net Transfers 3 6 6 EXTERNAL DEBT, DECEMBER 31. 1971 Balance on Current Account - 296 177 US $ Mn Direct Foreign Investment 42 38 57 Net MLT Borrowing Public Debt, incl. guaranteed 348 Disbursements 227 210 267 Non-Guaranteed Private Debt 425 Amortization 151 173 174 Total outstandinj & Disbursed 773 Subtotal 76 37 93 1/ Capital Grants 46 37 31 DEBT SERVICE RATIO for 1971- Other Capital (net) - 7 3 4 Other items n.e.i 11 _L..11 Z7 Increase in Reserves (+) 128 31 -84 Public Debt, incl. guaranteed 3.4 Non-Guaranteed Private Debt 14.1 Gross Reserves (end year) 906 866 - Total outstanding & Disbursed Net Reserves (end y#ar) 767 766 850 RATE OF EXCHANGE IBRD/IDA L.ENDING,SEPTEMBER 1972 (Million US $): Throh- 1971 2uP -VIBRD IDA US $ 1.00 I20.8 1.00 - US $0.048 Outstanding & Disbursed 180.6 US $ 1.00 - 20.8 1.00 - US $ 0.048 1/ Ratio of Debt Service to Exports of Goods and Non-Factor Services. 2/ Including SDR's. 3/ Excluding profits from exchange realignments. 4/ Excluding loans not yet effective. not available not applicable P preliminary e staff estimate October 27, 1972 Country Program I, Asia Annex II Page 3 Extract from President's Report and Recommendation on a Proposed Loan to the Telephone Organization of Thailand (R72-241). THE ECCOMY 1. - An economic mission visited Thailand for four weeks in September 1972 to update the basic report on Thailand's Third Five-Year Plan (1972-1976) that was distributed to the Executive Directors in January 1972 (EAP-28). The mission's preliminary findings and con- clusions are as follows. 2. GDP growth has been around 6 percent a year in real terms during 1970, 1971 and 1972, a significant slowdown compared with the average annual growth of 9 percent during the preceding four years. The most notable developments have been an absolute decline in private construction, which was partly offset by large increases in expenditures of the public sector (more than,10 percent in 1971 and again in 1972). 3. The chain of events underlying production performance appears to have been as follows. After growing slowly for several years, exports of goods and non-factor services showed unexpectedly large increases in 1971 (10 percent) and 1972 (13 percent) due to strong world demand for some of Thailand's main export commodities and revival of services to the US military. As noted above, expenditures of the public sector for consump- tion and investment also rose rapidly. However, the incremental incomes thus generated were initially saved -- there is a lag of about 6 months in the response of private consumption to changes in income and a lag of about 18 months in the response of private investment. Imports therefore stag- nated in 1971 and began to rise only in the first half of 1972, mostly for consumption purposes. In addition, import demand was dampened by price increases resulting from the Government decision in 1971 to peg the baht to the US dollar, thus in effect devaluing the baht with respect to the currencies of some of Thailand's main trading partners, Japan and Western European countries. Rapid export growth and slow import growth strength- ened the balance of payments. Theex6teii resource deficit declined from $317 million in 1970 to an estimated $165 million in 1972. An inflow of external capital, of which most was private and up to one third was short term (attracted by interest rate differentials between Thai and foreign money markets) raised foreign exchange reserves from $767 million at the end of 1970 to $920 million at the end of August 1972. On the domestic side, the marked slowdown in private investment and the simultaneous strong rise in private saving led to high liquidity in the economy, which was reflected in the position of commercial banks. Liquidity in the banking system was further increased by the lack of Slexibility in the interest rate policy and lending practices of commercial banks. 4. With a strengthened balance of payments and private investment showing clear signs of improvement, the outlook earlier this year for econ- omic performance in 1973 was bright. However, a drought last summer is expected to affect adversely the production and export in 1973 of rice, kenaf and especially maize. Merchandise exports are expected to show only a very small increase and the same is expected of services to the US military. This will come at a time when private investment will respond strongly to previous increases in incame. Demand for imports is therefore Annex II Page 4 likely to rise sharply and to put pressure on the external position. A reserve loss of at least $50 million is forecast for 1973 despite a rising inflow of external private capital to finance private imports of equipment and durables. However, the high level of foreign exchange reserves can be safely reduced and this will help the economy ride out the setback in agriculture, which hopefully will not occur again next year. 5. The recent trend in budgetary savings is a cause for concern. Tax revenue increased rapidly in fiscal 1972 (9 percent) and measures were taken to raise additional revenue in fiscal 1973. However, Government spending on current account is rising even more rapidly mainly to meet the needs of security, education and debt service, as well as to provide for an increase in Government salaries in fiscal 1973. As a result the current budgetary surplus has been virtually eliminated, and capital ex- penditures have been curtailed in fiscal 1972 and 1973 to keep the budget deficit within limits compatible with price and external stability. It is urgent for the Government to review its current spending and eliminate those items which lead to excessive growth; some were identified in last year's basic report. However, the Government is not well prepared to undertake such a review, which would in any case be a lengthy process. In the meantime, additional tax revenue.: will be needed, and the Bt 2 billion target for this objective in the Third Plan (10 percent of 1973 tax revenue) is a strict minimum for the remainder of the Plan period. 6. Thailand began its Third Five-Year Plan on October 1, 1971 aiming at GDP growth of 7 percent a year. As noted, GDP growth was belowtarget in 1972 and may be so again in 1973. The expected stagnation of exports in 1973 may lead to another cycle of slow growth in domestic demand as happened in 1970-72. hether the target growth rate can be achieved or exceeded in late years of the Plan.,period will depend above all on the success of Government efforts to promote production, particularly for export. Hence the necessity for the Government to press on with the administrative reforms that would make its support of private production activities more effective. 7. This is particularly true in agriculture. Beyond any doubt supply is the bottleneck in the expansion of agricultural production and exports; world demand for most Thai camodities is strong and expanding. A number of crucial policy changes and development projects designed to relieve the production bottleneck were listed in last year's basic report and agreed upon with the Thai authorities. But the first year of the Plan has seen few steps towards implementation. In fact, it is reported that the promotion of agricultural export products and import substitutes (maize, soybean, silk, shrimp, livestock, coconut, tobacco and cotton) was held back by insufficient budgetary allocations. A major reorganization of services dealing with agriculture is about to be made. It is hoped that when the reorganization is implemented the Ministry of Agriculture will be in a posi- tion to increase the effectiveness of its assistance to farmers. 8. In manufacturing, the situation is moze promising. Fiscal incentives to exporters have been introduced and are being used. Authorization for the establishmeht of duty free zones for export is imminent. More importantly perhaps, several subsectors (for instance, textiles, cament, food processing Annex II Page 5 and wood working) are finding export markets profitable, and receive assistance from the Government in their efforts to penetrate external markets. The ambitious Plan targets for exports of manufactures are likely to be exceeded. Still, the collaboration between Government and industrialists could be improved further. For instance, maritime freight rates seem to be excessive and thus to reduce the price competitiveness of Thai manufactures abroad. There is a need for close coordination between the Government and Thai exporters to negotiate rate reductions with the Conference shipping lines serving the port of Bangkok. 9. In addition to difficulties in production, problems of financial management remain. The need for an increased tax effort has already been highlighted. There is also a need to develop domestic financial institu- tions which would mobilize long-term savings domestic&ly and abroad for the financing of private investment. This issue hinges essentially on changes in taxation and regulations that wou3d eliminate the existing dis- crimination against financial institutions other than commercial banks. In particular, institutions specializing in the financing of agriculture, small industries and residential construction should be encouraged as they could help raise the level of investment in these sectors by offering more suitable terms and services to borrowers. Similarly, there is a need to develop domestic institutions which would borrow on favorable terms from official sources of external capital for onlending to private investors to finance equipment imports. These institutions could in part replace foreign suppliers' credit and thus help reduce the growth of,Thailand's external debt service liabilities. 10. The proposed loan for the fifth highway project is part of the Government's program of external public borrowings during the Third Plan period. This program, which calls for commitments of official loans totalling about $900 million in 1972-1976, was accepted by the Consultative Group for Thailand in February 1972. After nearly one year, some slippage may be observed due to delays in project preparation, particularly in agriculture. Preparation of suitable projects will require a great deal of effort, and the Bank resident mission, which arrived in Bangkok on October 15, will be able to help. 11. Notwithstanding the recent improvement in the balance of payments the above borrowings and the private borrowings required to cover the prospective external resource deficit, while maintaining exchange reserves at a safe level, are expected to push external debt service obligations slightly above 20 percent of goods and non-factor services exports by 1976 compared to 17 percent in 1971. Longer-term prospects are for a further increase of the debt service burden. Nevertheless, Thailand has a considerable margin of creditworthiness for borrowing on conventional terms. The growth of debt service can be mitigated by softer terms on the official loans sought by the Government (for instance, IDA financing is proposed for a forthcoming education project), and especially by taking steps as explained in paragraph 10 to replace a part of suppliers' credit by more favorable official loans to finance private equipment imports in future.  Annex III Page 1 THAILAND - FIFTH HIGHWAY PROJECT LOAN AND PROJECT -SUMARY Borrower: Kingdom of Thailand. Amount: $28.6 million. Terms: 24 years including a hA yearperiod of grace at an interest rate of 7V. Project The construction and improvement of three Description: highway sections totalling about 285 km and four provincial (feeder) roads totalling about 387 km; purchase of urgently-needed maintenance equipment; consultant services for construction supervision, for feasibility studies of about 1200,km of provincial roads and detailed engineering of about 800 km if found economically justified; for a study of highway maintenance and maintenance equipment requirements; for highway planning and train- ing; and for improving planning in the transport sector. Estimated The estimated cost of the project is $58.6 Cost: million equivalent, including the foreign exchange component of $28.6 million. Details are given below. Annex III Page 2 Estimated Project Cost: . Foreign Exchange Length Local Foreign Total Component I. Construction and Improvement of: (a) National.(Primary) Roads (i) Don Muang-Bang Pa In - Saraburi 83 6.10 5.10 11.10 (ii) Siracha-Ban Lamung-Rayong 72 3.10 2.60 5.70 (iii) Langsuan- Suratthani 1 06.90 Sub-total (a) 2 13.00 10.7O 23.O05 (b) Provincial (Feeder) Roads (i) San Sai-Phrao 81 1.80 1.50 3.30 (ii) Chiengmai-Doi Saket-Mai Suai 133 4.10 3.40 7.50 (iii) Suphanburi-Chainat 99 1.90 1.50 3.40 (iv) Khao Daeng-Ranot 1.30 1.00 2. Sub-total (b) 37 9.10 70 II. Supervision of I 1 . 34 50 III. Feasibility Studies and Detailed Engineering 1.60 1.60 3.20 50 IV. Maintenance Study 0.20 0.30 0 60 V. Maintenance Equipment - 2.00 2.00 100 VI. Technical Assistance and Training (a) Department of Highways 0.25 0.40 0.65 (b) Ministry of Communications 0.2 0. O (.,5 Sub-total VI 0.O O.00 1.30 60 VII. Contingencies (a) On Item I 3.50 3.60 6.90 (b) On -Items II-VI 0.4o 0.7O 1.10 Sub-total VII 3.90 .10 '90 Total Project Cost 30.00 28.60 .0 49 Financing: Government 30.00 - 30.00 IBRD Loan - 28.60 28.60 30.00 28.60 .60 Annex III Page 3 Estimated Disbursements: Fiscal Year Cumulative Disbursements ($1000) 1972/73 5,000 1973/74 10,400 1974/75 18,300 1975/76 23,500 1976/77 27,500 1977/78 28,600 Procurement International competitive bidding for con- Arrangements: struction and maintenance equipment. In the comparison of bids for the supply of main- tenance equipment a margin of preference of 15% or the applicable customs duty, whichever is the lower, would be applied to bids from local manufacturers. Consultants: De Leuw Cather will supervise construction of the Don Muang - Bang Pa In - Saraburi and the Langsuan-Suratthani highways sections. Kampsax will supervise construction of the Siracha-Rayong highway section. Scott, Wilson and Kirkpatrick will supervise construction of the four provincial (feeder) roads. T. P. O'Sullivan will provide DOH with assist- ance in highway planning and execution, high- way maintenance and training. Consultants to carry out the feasibility studies of about 1200 km and detailed engi- neering of about 800 km of provincial (feeder) roads and the highway maintenance study to be selected. Rate of The estimated economic rates of return for the Return: individual roads range between 12% and 22%; for all roads the estimated economic rate of return is 16%. Appraisal Report: No. PTR-126a of November 17, 1972.  IBRD- 3775R t ~AUGUST 1972- -2°.,n ChriengraI. MEKONG Mae Hongson MO ,J NOR TH V IET NA M N O15 tom ,-L A 0 S Hod L.n1pa. . e P. Mag Lee Sihienmal Nongko, herUttrait oeUdorn Nakorn Panom D 0 nklo Sitkol Nokorn Sukhothni K - Tak Plisanuloke Mae ScdLo k Kpoengphet chumn P k, Kh nkoen Titpanhi, Wane mpMp - -16- KionglKkung -N T K ch apo m Amnathllroen Nokorn Sowan B.. Y., Ymsth.n Uthai Thont angkhf.bur, Chaonat '.Smsalket C~ ~ H bri L ra Kor Burirom Chong Mek N-Tpiburn S.r- ., r Dejudom K. Chokech.. Surin • Suphanri n aKWn.l.k %.\ -0 Ayuttby . Nokorn Nay .. PI . BANGKO logPrci 7, ."Oa. Pofi.ra Arainyiiprotlhet R.Ibur, C.taon hac oengso P~kha Samu. ngkh,.m Cholbl r-[ L ..Klbn Lmun KH MER RE PUBLIC Huahinn Chantab,ri Trad S MiRoad 12.- Projuob atr Gulf of Thaoi*la nd É SOUTH VIETNAM Chumiporn T HAILAND R~nn ,agun r NATIONAL HIGHWAY NETWORK Ch. Ban m W EXISTING NATIONAL HIGHWAY p - Primtory D ur haýnjj Siehon -- - Primory under construction or proposed "1>Se:condar,y U E r ifihomorot PROJECT HIGHWAYS FirSt r ect 341 TH Nga ,,•\Construction and improveOment ecn oject 455 TH •.lkpitnnoneg Thirdl project 535 TH Tha Nu Krabi , Ron Phi un ........... Study and engincering Fourth project 626 TH 8° -A °°National roads Construction ~ Huey Rna .« Provincial (feeder) roGds2j 15 improvement Fifth piroject rhkt t Tron , hlug P Railroads ··"Other provtinci(feeder)roods not shown Crn HWhiNgAPK. t7n Rivers 0 C Songkla > Airports BURMtä,1v ----- International boundaries NcKlong gVe (esemmeRegional boundarme kTHALA. Yola _p,.r Kon 10. an.. Naradhiwal 0 50 100 150 200 RKE Tokba, K.1ometers Com Se ayonma ,Å0 0 100 15.0 A Lin A. Y e 2*'"* The boundaries shown o this map do not Imnpy i N © NE 1~ endorsoeent or acceptonce by the World Bankwad,itsaffiliates