Announcement of Fifty Million Loan for Rural Development in Mexico on October 30, 1974

~· 1818 H STREET. N.W .. WASHINGTON D. C. 20433 TELEPHONE: EXECUTIVE 3-6360 Bank Press Release No. 74/84 Subject: $50 million loan for rural October 30, 1974 development in Mexico. Mr. Robert S. McNamara, President of the Worlc Bank Group, today announced the approval of a loan of $50 million for an integrated rural development project designed to improve the quality of life of more than 500,000 people in the Papaloapan Basin in Mexico. 11 We are very happy to be partners in this great development endeavor -- assist- ing the Government of Mexico in its nationwide program of rural development. This project effort involving a total investment of $1.2 billion over four years, is an important step toward eradicating rural poverty in Mexico," Mr. McNamara said. The project will help to expand food production, improve the distribution of in- come by raising the income level of poor families through provision of credit and technical services, create new permanent working opportunities, and generally improve the quality of life in poor villages by bringing the level of social services availab1e there closer to the national average. • Some 307,000 rural villagers will have new potable water systems; 42,000 will have new house-connected sewerage systems; 137,000 will have new electrical services to their homes; 324,000 will have acceps to medical centers; 59,000 school pupils will have new primary school classrooms or workshop facilities, and 106,000 villagers will have community centers built in their villages. Irrigation works, incremental work- ing capital and technical assistance will directly benefit about 152,000 people, pro- vide about 30,000 man-years of employment during project implementation, and generate some 13;000 new permanent jobs. The project will be executed within the confines of the Papaloapan Basin (46,517 square kilometers in size), located southeast of Mexico City, in the states of Puebla, Oaxaca and Veracruz. The total population of the Basin in 2,033,000, and of this total, 61% is rural. The project is part of an ambitious national program of rural development designed to benefit the rural poor. The project will help finance small irrigation works, technical services to rainfed agriculture, marketing facilities, experimental farms, feeder roads, potable water, sewerage, electricity, primary schools and workshops, medical centers and community centers in the Basin. It will also include technical services and credit for an incremental working capital needs for farmers, The loan is made to Nacional Financieraj S.A., with the guarantee of the United Mexican States, for the equivalent of $50.0 million. The primary executing agency of the project will be the Papaloapan Commission, created in 1947. The total cost of the project is estimated at $138.5 million. The Bank loan is for a term of 25 years, including 5 years of grace, with interest at 8% per annum • • With this loan, World Bank's development financing in Mexico totals $1,888 million (net of cancellation) in the agriculture, power, rural development, tourism, transport and water supply sectors. Note: Money figures are expressed in US dollar equivalents.  T E C H N I C A L D A T A PROJECT: COUNTRY: Integrated Rural Development, Project I (Papaloapan Basin) Mexico • TOTAL COST: $138. 5 million BANK FINANCING: $50.0 million, for a term of 25 years, including five years of grace, with interest at 8% per annum. IMPLEMENTING ORGANIZATION: Pa:i-:,aloapan Commissiu:q., Vallarta 21, 7o piso, Mexico 1, D.F. PROJECT DESCRIPTION: The project consists of the development of irrigated and rainfed agriculture, experimental ~arms, feeder roads, and marketing facilities to support trJ.e production effort, and social infra- structure (potable water, sewerage, electricity, medical centers, primary schools and workshops, and community centers) in the Papaloapan Basin. It will include technical services and credit for incremen- tal working capital needs of farmers (and for some on-farm fixed investments). The objectives are: To expand food production, improve the distribution of income by raising the income level of poor • families through provision of credit and technical services and generally improve the quality of life in poor villages by bringing the level of social services available there closer to the national average. PROCUREMENT: Procurement of all contracts exceeding US$80,000 will be by international competitive biddingo For contracts costing less than US$8o ,000, unit prices approved by the Secretaria de Recurses Hi- draulicos of Mexico will be acceptable. The Papa- loapa~ Commission will then select the private con- tractor best qualified or use force account, subject to the restriction that the ~otal value of unit- price-based contracts and force account work will not exceed 30%, and, furthermore, that force account work will not exceed 10% of total procurement costs. ESTIMATED COMPLETION DATE: 1979 -o- • .,. October 30, 1974 MEXICO A Background note on the Papaloapan Basin Rural Integrated Development World Bank loan of $50.0 million, October 1974 This World Bank loan for integ:rated rural development in the Papaloapan Basin, in Mexico, underlines an important theme emphasized by both Mexico and the Bank -- improving the quality of life of the poor. Agriculture is still the main source of income of about 40% of the Mexican population. The rural society is still polarized into a smaJ.l ,highly efficient class of agricultural entrepreneurs, and a large claLs of traditional "campesi- nos". The agriculture sector contributes 11% of GDP, nearly all doraestic food requirements and 50% of cornmodi ty exports. Food production is growing at • about 4% per annum, while demand is growing at nearly 5%. Urban per capita in- come is about 2.7 times that of rural per capita income. Of the approximately 3.9 million rural families, it is estimated that about 65% are poor. There is a serious lack of employment opportunities in this sector, a factor which in- duces massive migration towards the cities~ a phenomenon which is common in most of Latin America. The Mexican Government has shown increasing concern in finding solutions to these problems. The integrated rural development project in the Papaloapan river Basin is indicative of the social and economic efforts of the Mexican Government and of the World Bank's readiness in cooperating in the implementation of these policies. Among several recent measures introduced by the Mexican Government in the last few years, are a revision of the Agrarian Reform Law and a new Federal Water law, and increased allocations of funds for agricultural • credit. in Fiscal Year The R.10 Sinaloa and Panuco projects, which received Bank financing 1974, were the first in a series of irrigation projects, based on the provisions of the new Federal Water Law. In addition to their increased /more  - 2 - .. •• production aim, the projects will also attempt to broaden the distribution of benefits t0 ~s many small farmers as possible. The integrated rural development progrB.m, of which the Papaloapan project is a part, is the most ambitious and far reaching Government; effort to overcome the stagnation of the rural sector. The program -a combination of productive and social investment with technictl and promotional assistance-will directly or indirectly mobilize resources and public support of sufficient magnitude to b"eak through some of the constraints affecting rural development. The President of the World Bank, ~rr. Robert S. McNamara, highlighted some of the main features of the Papaloapan Basin project in his address to the Board of Governors in Washington, D. C. , last September. Mr. McNamara stated that "perhaps the most comprehensive project we are working on j_~;; a.-. ef':f'or-s to assist the Government of Mexico in its nationwide program of rural ce-·1elopme11t. It is designed to reach the lowest income groups ••• The program grew out oi the Government's • rea:.ization that although the nation haB. acl·:1.eved, over the last three decades, the highest sustained growth in agricultural production in Latin America, rural poverty appeared to have worsened in many regions throughout the country, especial- ly in semi-arid zones. The economy has been unable to provide the growing rural population with productive employment". Mr. McNamara summarized the scope of the project by saying: "This is in fact the most complex program with whi.ch the Bank has ever been associated". /more •  3 COUNTRY DATA Area: 1.973.000 square kilometers Population: 52.422.000 (mid 1971) Rate of Growth in Population: (1965-1971) 3,5% Gross National Product (at market prices) $36 o 740 millions GNP per capita: $700 PROJECT DATA Project: Integrated Rural Development, Papaloapan Basin. Total cost: $138.5 million Bank financing: $50.0 million Benefits: Increased agricultural production, improved quality of life of rural population, income and employment levels of the rural poor. Beneficiaries: More than half a million persons will direct- ly benefit from at least one of the project 'S • social structure components. 150. 000 people will have better incomes; 13.000 persons will have new jobs. 307 .000 villagers will have new ?Otable water systems; 42.000 will have new house connected sewerage; 137.000 will have new electrical s~rvice; 324.ooo will have access to medical centers; 59.000 school pupils will have new primary schools' classrooms or workshop facilities, and 106.000 villagers will have new community centers • •