Summaries of discussions at meeting of the Executive Directors of the Bank and IDA, June 20, 1972

OONF.tpprn:AL (Excerpt trom the ReoP~d) Jullr 1) I 1972 Summaria of Diacuaiona at Meeting ot the Executive Director@ ot the B1Pk and II!, Jpna 20, 1272 IeM to Mexico tor nvxto ?9Jrs The lx•outive D1.reeton approYed a loan 0£ $l2S million to Oomision Feder-1 de Electricidad (CFE) and Nacional Finanoiera, S.A., tor the .f'ourth power sector progru. The ataf't eaid. that a eub•tantial part or .tederal r•venuea w.1 absorbed by tranafers to revenu-earning public agenciee in such £1eld8 aa petrole\1111, power and rail•&111• The Ooverment, realizing that tranefers on the present ecale were unjuet1£1able at a time when it lacked a<kquate reaources to finance education, water euppl.y and health servieee, w.s ~ steps to reduce that by increasing ef'.ticiency and charging more realistic prices. While incr-ing e.tticiene7 had enabled en to raise ite financial rate or return without anr inereue in power tari:t't• to compensate for rising prices, there had been a •harp deterioration in the J>&llt two rear• in . . . . ability to provide tor ite axpaneion nuda. Higher than upected oonatruction requiraent.s and co.ta had led te an iner.ue ot ehort and udium-tera debt at a time when interest ratea were htib, and in the current 7ear internal oaeh generation would barely cover debt service. '?he Government had therefore decided that eleotrie power oone'alll8l"a abould make a eipi!1cant contribution towards the f'1nancin1 of power .tacilities j and en had prepared a tariff' reTidion propoeal which VOllld increase 1ta rtrV911UG by about 22. S%. ~ Jluican autboriti.. had agrMd that the power sector should finance at least one-quarter ot the expansion program trom 1974 onward.e from internally- generated l"eaO\U"cea. The Bank wished to reduce its financing ot the Me:dcen power sector and to gift more attention to other eeetore 1 1uch u agriculture, 1.nduet.17 and educationf where it .f'elt it cotid make a uee.ful contribut.ion to Kexioo•a development. The amount ot the loan had been band on the expeotat.1on that on would be able to obtain substantial external financing throqh export eredita, 001111Htz"cial bank 'boft'owing and the placing ot bonds. Some epeakere elEJ)reeaed concern that the Bank was continuing to lend to the power aector whieb. 1 it was ngeeted, could obtain financing :trom other aouroea, while there •• ao meh to be don• in other septore, eapeciall.J &grioulture, and atreeaed the need to do mre tor the poorest 40'%.o:t.the population.. One ot theee apeakera said that thia should be the Bank•a lut y,ower loan to Mexico 1 he auggeated that an e.t'tort should be made to find a ltpackage" of projeeta to benefit the underemplo1'8d in the rural areae ot Mexico. :1 •. . ... 11:r l t: ~1 ,.., ii. t, ,i1. 1. · t '•'•'& p. pf 1' tt r ·;'·.···.·l ~' . r, , ,~ f ~I I 1 hh 51 rlillf.li 11 !i~ i:ii!. :1JJ~.-J . ~1·1-1'~t~li t: iflJJ~ ~ "-rvrr ! [Jd :.l 1 h·.... ..1-. ltll fff1r!::t .. r 1. . - ·e_ 'lft' ., . I.rt 1. •r • """·Qt 11 t+ ~If -~i I !~1 !lftl 1i 1 if ~:;Iii i;!J ~- -.· ·Ira (a. f ( 1•a -~R' a •.·~•.I r~ fiirr. ~I ~11 ~ r ~. i 1 & . Ii • t; ~a 8 ~ ~ i ~-~ - g r l i. ! "-. ~I ct-  - 3 .. on indutry to finance a program o:t building workers• houaea at a rate ot some 1001 000 a year, I'ti would be ditfioul.t, however, tor the OoTernment to make a sudden hrp shift in ite 1.n't'estment pattern in favor ot the neglected aectore without. endangering the stability o:t the econom,-. More• ever, the problem of rural development ,,... on• ot the creation of the neces&ar)"' organization and ineti~utione rather than ot finance. In reply to a epeaker who expressed concern lest Mexico might be trying to develop at a rat. faster than could be auatained, the Chairman said that this waa a matter which the Kenaan Ooverrnent weu.ld have to watch very eare• fully. A apeaker atreeaed the iDtpli)vtanc•, in countries like Mexico and BruU which were growing taat, of lona..tera town and oountl'J' planning in general, and particularlf u regards the nppl7 and diatri'bution of pow•r· - A speaker, noting that (Pruident•a Report, paraa. 13 and 1.4), while eivil worlca contracts • .,.,.. $1.6 llill1on wol.lld be awarded on the baeia of international competitive bidding, the total :to:reign exchange component ot the eivil works wu onl:r •1s ldll1on 1 epread over at leut a dozen projeota 1 uked how Jl&n7 contract. were lik•lJ to ueeed $1.6 :million. The eta.ft eaid. that, while aeveral contracts vu• 11.UJ.7 to exceed thi.1 tipn 1 toreign eontraetore uauall,y •bowed little interest in bidding tor civil worka contracts in Mexico. In repl.1 to the uu l!lpeaker 1 the ah.ft eaid that international eompeUtive bidding on the equipaent to be tinanoed mid.er th• loan would follow the 110td.delinee tor Procurement". Bank'• Secretary's Department IBRD, Washing\on July 13, 1912