Mexico - Integrated Rural Development (PIDER) Project

DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Not For Public Use Report No. P-1618-ME REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO NACIONAL FINANCIERA, S.A. WITH THE GUARANTEE OF UNITED MEXICAN STATES FOR AN INTEGRATED RURAL DEVELOPMENT II - PIDER April 28, 1975 This report was prepared for official use only by the Bank Group. It mav not be published, quoted or cited without Bank Group authorization. The Bank Group does not ascept responsibility for the accuracy or completeness of the report.  Currency Unit - Peso (Mex$) US$1.00 = Mex$12.50 Mex$1.00 = us$0.o8 Mex$l million = US$80,000 Fiscal Year - January 1 to December 31  INTERNATiONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO NACIONAL FINANCIERA, S.A. WITH THE GUARANTEE OF THE UNITED MEXICAN STATES FOR AN INTEGRATED RURAL DEVELOPMENT PROJECT iI 1. I submit the following report and recommendation on a propGsed loan to Nacional Financiera, S.A., with the guarantee of the United Mexican States, for the equivalent of US$110 million to help finance a project for integrated rural development. The loan would have a term of 25 years, including five years of grace, with interest at 8-1/2 percent per annum. PART I - THE ECONOMY 2. Some of the major structural features of the Mexican economy - past, present and future - were analyzed in "The Economy of Mexico: A Basic Report" (192-ME), distributed to the Executive Directors on June 26, 1973. Short-run trends in 1973-74 were covered in "Mexico: Current Economic Position and Prospects", distributed to the Executive Directors on September 27, 1974. Another updating report on the economy will be prepared by a mission which is scheduled to visit Mexico in July this year. Country data sheets are contained in Annex 1. 3. For the three most recent of the six decades since the Revolution of 1910, the Mexican economic system, measured in terms of GDP growth, has been outstandingly successful. Since 1940, the annual average growth rate has exceeded 6 percent. And from the mid-1950s to 1972 Mexico was among the few countries in the developing world to combine sustained and rapid growth with monetary and balance of payments stability. Inflation averaged less than 5 percent a year and the dollar value of the peso was maintained at the level fixed in 1954. 4. Rapid and sustained growth was the product of successful policies affecting the mobilization and use of both private and public sector resources. The role of government in promoting economic growth was expressed on the one hand in the development of strategic infrastructure and major utility industries and on the other in policies which featured price support, import control and agrarian reform measures in the agricultural sector and external protection and the provision of fiscal incentives in the industrial sector. 5. The relative emphasis of public and private investment was however reflected in changes in the structure of output and employment and the expansion of manufacturing industry. Agriculture nevertheless continued to be the chief source of employment and in 1970 accounted for 39 percent of the economically active population.  -2- 6. In spite of rapid and sustained economic growth over the last two decades, the combination of a high demographic growth rate - about 3.4 percent per year - and, until fairly recently, primarily import substituting industrial policies, have prevented an adequate absorption of the labor force in productive employment. Industrial growth has been quite substantial - about 8 percernt annually over the past two decades - but could have been even faster if industrial and trade policies had been primarily focused to exploiting Mexico's unique export opportunities originating in its contiguity to a large industrial market in which labor costs are a multiple of those in Mexico. It was only in the early 'seventies that some major steps were taken to develop manufacturing exports on a large scale - the system of drawbacks on domestic taxes paid on exports and the "border industries" regime were introduced at that time, and these have been so highly successful as to suggest that a lot more could still be done. As it is, 40 percent of the labor force is estimated in either marginal occupations - relatively unproductive and hence poorly paid - or openly unemployed. 7. The Mexican strategy for development has, in the past, relied on a combination of public action and private profit. The Government has played a highly important role in this process, both as a promoter of key sectors and as a setter of a regulatory and institutional framework within which private and social groups could compete and contend, but which was both firm enough and flexible enough to ensure overall continuity and stability. As a formula for growth, this system has served Mexico,well, but it has also led to a sharpening of contrasts in income and wealth between people and among regions. This was not an entirely incidental by-product of the process of growth; the share of the Government in the economy was kept down quite deliberately for many years, and evidently the scope of redistributive policies was limited as long as tax ratios as low as 8 - 10 percent - among the lowest in the world - were maintained. Ihe Government played a crucial role in the development of private commercial agriculture through its irrigation and credit policies and of industry through the provision of infrastructure, education, social legislation and financial policies, but it did not concern itself primarily with the problems of the poorest sections of the population. While the land reform of 1917 - widely spread in the 'thirties - was adhered to, the absence of abundant fiscal resources prevented major programs to improve the economic status of the beneficiaries of the land reform. The present Government, however, came to power on a program of combining past growth policies with much greater efforts in favor of the rural poor, and has launched a number of ambitious initiatives in this direction. Their continuity and viability will depend, inter alia on the Government's continued willingness to mobilize fiscal resources to support these programs. So far the record is impressive: the ratio of public revenues to GNP which in 1970 stood at 11.2 percent, for 1975 is estimated at 15.7 percent.  -3- 8. The attempts which have been made by the present administration (1970-76) to alleviate the poverty of the countryside and to redress some of the imbalances between rural and urban Mexico have several dimensions. They include a revised Agrarian Reform Law (1971) and a new Federal Water Law (1972), both of which are intended to promote a more equitable distri- bution of basic agricultural resources. These measures have been complemented by changes in the sectoral allocation of available agricultural credit in order to increase the share of low-income farmers and ejidatarios (members of ejidos, which are a form of collective land tenure based on usufruct) the introduction of higher support pi-ces for basic foodcrops and increased government outlays for agricultural research, training and extension services, with particular regard to the needs of peasant farmers. Perhaps the most significant innovation has been a new program for integrated rural development with which the World Bank has been associated from an early stage. 9. The social and economic needs of the rural sector have not, however, monor-lized government attention; those of urban-industrial development have also been stressed in the form of heavy public investment in basic industries - delayed during the 1960s - and an innovative low-income housing program which has been financed with a five percent payroll tax. Productive investment has thus been complemented, in the urban as well as the rural economy, by institutional changes and public expenditures designed to improve the living conditions of the poor. This parallel effort has, however, generated several problems of short7run economic management. 10. In 1971, after monetary and balance of payments pressures had emerged during the previous year, the (then new) Government took stringent action to control demand with the.effect that the GDP growth rate fell to 3.4 percent by comparison with a decade average of 7.1 percent in the 1960s. In 1972, renewed expansion was stimulated by public expenditure and the GDP growth rate rose to 7.4 percent. There was another year of rapid growth (7.6 percent) in 1973 - but this time associated with an increase of 21 percent in prices (GDP deflator). Inflation was not the only novelty; private savings, which in the recent past had helped finance sustained growth, increased by only 11 percent, compared with an average rate of 18 percent in 1965-71; the inflow of private capital was replaced by a net outflow, and private investment, particularly in the industrial sectors, slackened, reflecting some uncertainty on the part of the business community. In the public sector there was a record fiscal deficit - amounting to 5.6 percent of GDP by comparison with an average of 2.7 percent in 1965-71. A major share of the limited volume of real savings was pre-empted to finance part of this deficit while net external borrowing of US$1.2 billion (2.4 percent of GDP) was deployed to finance the rest. These trends were inevitably reflected in the balance of payments where the current account deficit rose to 3.0 percent of GDP (by comparison with an average of 2.0 percent in 1965-71). 11. Noting these trends, the authorities had, by mid-1973, put a restrictive monetary and credit policy into effect and complemented this with what was originally intended to be an austere public finance program  -4- for FY74. Taken together, these measures were expected to restrict demand and to reduce both inflation and the size of the current account deficit. The provisional results for 1974t indicate that whereas the former objective was achieved, the latter was not. Monetary and credit policies were, on the whole, carried out as planned. The rate of increase of prices thus decelerated from April onwards, and a positive differential between Mexican and foreign interest rates was re-established by the end of the year although credit was not allocated as originally intended because the public sector again pre-empted a large part of the available quantity. Higher than planned public expenditures and lower than expected revenues meant moreover that the fiscal deficit was larger than foreseen as were the growth rates of aggregate demand and real im-ports. The deficit in the balance of payments on current account thus amounted to 4.2 percent of GDP rather than the intended 2.8 percent. Net public borrowing rose to US$2.9 billion of which US$1.8 billion was required to finance the fiscal defirit, the remainder being needed for balance of payments purposes including coverage of large capital outflows. 12. The Government's economic program for 1975 incorporates a major effort to mobilize additional public sector resources, the increase in revenues being estimated at more than 3.0 percent of GDP. Monetary and credit policies will continue to be restrictive although, given attractive interest rates, domestic savings are expected to rise. Public expenditures, both capital and current, are expected to increase significantly in real terms and the planned fiscal deficit amounts to 4.3 percent of GDP, three quarters of which will be externally financed. Planned internal public borrowing thus is modest, which means that the private sector will receive a major share of available credit and private investment is likely to increase. The resource gap is expected to decline from 2.1 percent to 1.3 percent of GDP - an improvement which reflects the growth of petroleum exports (projected at about US$450 million for 1975). The current account deficit is estimated at 3.5 percent of GDP. The 1975 program is thus designed to increase public and private investment and public consumption whilst reducing private consumption by means of t:axation and a voluntary increase in private savings. From an equity standpoint the recent tax measures are progressive. The 1975 program is thus consistent with the Government's overall economic objectives, and if successfully implemented, should increase the productive capacity of the economy whilst furthering the cause of distributive justice. 13e On December 31, 1973, Mexico's outstanding disbursed public debt of more than one year was US$5.2 billion. Net medium- and long-term public borrowing in 1974 of US$2.2 billion reflects heavy reliance on external as well as internal capital to finance the fiscal deficit and some borrowing - as in 1973 - to offset private capital movements. 14. Annex I, Page 4, shows that 41.3 percent of public external capital contracted in 1968-72 was borrowed from private banks and that international organizations accounted for the next largest share (22.2 percent). The World Bank accounted for 14.7 percent of all commitments. New debt contracted in 1974, however, was obtained at higher interest rates and on shorter maturities than in the recent past, in the light of a severe contraction in international capital markets.  5 15. During 1975, it is expf:ted that net public external borrowing of more than one year will be on the order of US$2.4 billion, which would amount to 3.1 percent of estimated GDP compared with 2.7 percent in 1974. This level of indebtedness is consistent with Mexico's projected future capacity to service the interest and amortization payments, taking account of the expected growth of real exports in the medium term. The behavior of petroleum production and exports is an important element in these projections. The size of Mexico's oil reserves has not yet been determined and published estimates differ widely from the official ones. However, taking account of (i) the proven reserves position as known to us, (ii) the likely availability of resources for investment, and (iii) the likely supply of investment goods, the outlook for production in 1975-80 appears to be good. After allowing for increases in domestic consumption, the rate of growth of crude output and the export surplus will continue to rise each year. On our present expecta- tions, by 1980, the net export balance of crude and petroleum products should be of the order of US$1,000 million. Mexico's debt service ratio was 24.5 percent in 1973. The estimate for 1974 is !8.0 percent. Assuming that the average terms of future debt improve slightly by comparison with those recently obtained, the debt service ratio is expected to be lower than 25 percent through 1980. The Bank's share in public debt outstanding and disbursed at the end of 1973 was approximately 15.3 percent, and its share in debt service payments was about 7.7 percent. These shares are not expected to change significantly in the remainder of the decade. 16. Mexico is thus creditworthy for borrowing on conventional terms provided the Government exercises due restraint in monetary, credit and fiscal policies; its recent actions in designing the 1975 economic program suggest it intends to do so. 17. In order to adequately meet its financing needs to assure continued growth with equity in the future, Mexico will have to both strengthen its fiscal effort and supplement that effort with substantial external borrowing. This is what the Government intends to do. Given that the country's diversified industrial structure is capable of supplying a good part of its capital goods requirements, some local cost financing by external agencies is necessary. Bank loans in sectors like power, transport and industry are traditionally tied to the foreign exchange cost of projects. I consider some local currency financing to be justified in other sectors with characteristically low foreign exchange requirements, especially for high priority and institutionally complex projects like those for integrated rural development which offer substantial economic and social benefits in hitherto deprived areas and which call for strong institutional support from the Bank.  -6- PART II - BANK GROUP OPERATIONS IN MEXICO 18. With the US$50 million loan for integrated rural development in the Papa'oapan Basin signed on November 15, 1974, the Bank Was made 38 loans to Mexico for a total of US$1,888 million, net of cancellations. At the end of March, 1975 the Bank held US$1,540 million including US$561 million not yet disbursed. Most ef these loans have been made for power, industry, transport, water supply, roads and agriculture. The execution of Bank-financed projects has, on the whole, been satisfactory. However, financial performance criteria have not been met under the Fourth Power Sector loan and the matter is being discussed with the Government; remedial actions are expected in the near future. 19. IFC has made 12 investment commitments in Mexico, amounting to US$54.3 million, of which as of March 31, 1975, US$36.3 million had been sold, terminated or cancelled. The balance US$18.0 million held by the Corporation consists of US$15.9 million in loans and US$2.1 million in equity. Annex II contains a summary statement of Bank loans and IFC commitments as of March 31, 1975 and notes on the execution of ongoing projects. 20. The main objectives of Bank lending in Mexico are: (i) to support policies and programs leading to 'J) wider distribution of the benefits of economic growth; (ii) strengthen policies and programs leading to continued economic growth, both by investing in projects that directly or indirectly make significant contributions to output and employment and by supporting changes that will make institutions function more effectively; (iii) help resolve critical adjustment problems that emerge from Mexico's continued growth, and (iv) transfer sufficient resources to complement Mexico's quite appreciable domestic savings and provide the necessary funds for economic and social investments in a framework of internal and external financial stability. 21. The composition of recent and prospective Bank lending to Mexico follows the evolution of the Government and the Bank's perception of Mexico's development needs both in terms of sectoral mix and in terms of policy emphasis. Thus, the Las Truchas steel mill, for which the Bank made a loan in FY74, is expected not only to further Mexico's industrial growth in an efficient manner, but also to support the Government's program of industrial decentralization. Similarly, the Airports Development Project (FY74) is designed to promote rapid and reliable domestic long-distance passenger transportation and to contribute to the Government's policy of regional integration. The earlier (FY73) Mexico City Water Supply Project also pursues multiple objectives. Responding to the need for expanding urban infrastructure, particularly in low-income areas, it has helped to create a specialized institution for efficient management of scarce water resources that cuts across existing functional and administrative boundaries. For the future, Bank involvement will also extend to new areas, including the social sectors and regional and urban development.  - 7- 22. In view of the difficult structural problems of Mexico's agriculture and the sector's crucial importance to the country's further development, the Bank is substantially expanding and diversifying its support for agriculture. Consistent with the overall framework of country and sector objectives, a .hree-tier approach is being followed. First, Bank support is aimed at expanding and strengthening irrigation and agricultural credit programs so as to more adeq.uately meet the demands of a rapidly growing population and to generate the foreign exchange for rising import requirements. Second, to assist the Government in its efforts to raise the incomes of the rural poor and improve their standard of living through a combination of directly productive, productive support and social infrastructure investment. Third, to strengthen Mexico's institutional capability to use scarce agri- cultural resources more efficiently. 23. Thus, the Bajo Rio Bravo-Bajo San Juan Project, being presented to you along with this project, is one of the most important undertakings of the present adninistration to bring agricultural production back in line with domestic and foreign demand. The present project, however, has a different primary focus and is an outstanding example oF the relatively new and complex endeavors to initiate sustained and equitable development in the rural sector. In contrast to the Papaloapan Project - approved earlier this fiscal year - which has similar objectives but is focused on a geographically defined area under the control of an autonomous commission, this project has a wider spread and is aimed at distinct micro-regions in different parts of the country involving nearly two dozen government agencies for its execution. In addition, we are exploring the possibilities of assisting the Government in its efforts to expand agricultural education and to develop Mexico's lagoon fisheries. Finally, the Bank is helping to strengthen Mexico's resource management, both through the National Water Stu..y which will provide the basis for a rational water development policy and through assistance in formulating and implementing a research and pilot program scheme for the tropical Gulf zones; an operation that, we hope, would lay the foundation for large-scale exploitation of tropical agriculture in the future. PART III - THE RURAL SECTOR 24. Mexico's rural sector is a composite of striking differences. On the one hand, it includes commercial farms under the management of efficient and sophisticated rural entrepreneurs who were decisive, Lintil the late 1960s, in Mexico's success in satisfying the demand of a rapidly growing population and in transforming the country from a net importer to a net exporter of agricultural products. On the other hdnd, it comprises a large number of peasants in subsistence agriculture with generally small plots in unfavorable ecological conditions. These farmers typically work by traditional methods, barely participate in the market economy, live in poor social conditions and subsist on a modicum of food production from their farms.  -8- 25. More than 20 million people live in Mexico's rural areas. Agriculture is by far their most important employment and income source. About 4 million families, representing close to 40 percent of Mexico's labor force, depend on agriculture for their livelihood. They comprise three distinct groups: 1.5 million ejidatarios, 1.2 million private farmers and about 1.3 million landless families. The number of landless agricultural workers is increasing rapidly, a consequence of limited farm land in relation to an annual rural population growth of 2 percent. It is estimated that 2 million rural families had incomes of less than US$135 per capita in 1970. The income spread, limited employment possibilities and the lack of infra- structure and social services has resulted in massive migration from rural to urban areas. 26. Rural development in Mexico has a long and chequered history. The land reform of 1917 led to large scale redistribution of land comparable in size and impact to only a few countries in the western world. However, Mexico's land tenure pattern is still skewed because of excessive land fragmentation in some parts of the country. One percent of the farmers are estimated to control close to a fifth of total crop land, while 5 percent of the farmers in public irrigation districts hold nearly a third of the area. The rural production and income distribution follow the land tenure pattern. It is estimated that 4 percent of all farms command more than half of agricultural market sales, while 85 percent of the farms contribute only one-sixth. Similarly, the upper 10 percent of the rural population account for about half the total rural income, while half of the population has to accommodate to less than a fifth. 27. The land reform of 1917 was not supported by parallel programs to upgrade supplementary services and provide the inputs necessary to bring the land to full productive use. Except for the establishment of a public agricultural banking system under the Cardenas administration in the 1930s, little was done to help the small farmers develop their limited resources to their full potential. Low farming standards are not surprising, since, until recently, a mere 15 percent of the farmers received technical assistance of any kind. A recent Mexican study concludes that not more than 13 percent of the farmers use insecticides, 16 percent improved seeds and 22 percent fertilizers. The promotion of farmer organizations received equally limited support, insufficient by far to redress the structural weaknesses of community administration and to expand interaction with external groups. 28. While previous government policies did little to mitigate the problems of rural poverty,they have laid the foundation for an efficiently managed commercial agricultural sub-sector which has spearheaded Mexico's agricultural growth record of more than 5 percent over nearly three decades. Since the late 1960s, however, growth rates have fallen below the growth of domestic demand, resulting in large imports of basic foodstuffs and a stagnation in exports of the traditional crops. Although prolonged adverse climatic conditions played an important role, structural problems seem to be the main cause of recent sluggish agricultural production.  29. The growing dependence on yield increases and crop diversification - as against an expansion of the cultivated area - indicates that Mexico's past approach of extensive development, oriented primarily to the north and center, has largely run its course. Limited idle resources in the traditional agricultural areas will make future production growth primarily a function of progress in developing and implementing improved technology, to (i) utilize more efficiently resources already under exploitation in existing irrigation districts and the semi-arid and temperate rainfed areas; and (ii) developing the virtually unexploited areas of Mexico's tropical Gulf coast or a large scale. 30. The present Government has responded well to the task of increasing agricultural production and improving the situation of the rural poor. Notable among its comprehensive and generally well-designed strategy are (i) the promulgation of new legislation aiming at higher productivity and more equitable distribution of ensuing benefits; (ii) reform and strengthening of the agricultural support services - technical and organizational assistance, credit and marketing in particular; (iii) expansion of irrigation and irriga- tion rehabilitation investment programs; (iv) creation of the National Water Plan to formulate comprehensive water management policies; (v) implementation of an integrated rural development program; and (vi) institutionalization of coordinating mechanisms among government agencies. 31. The integrated rural development program (PIDER) is the core element in the Government's strategy to revive the rural sector. The program is indicative of the serious government concern to make structural changes in order to reduce disparities and ensure a wider distribution of the benefits of growth. It has to be seen against the background of a threefold increase in public outlays for agriculture since 1970 and a companion increase in the sector's share of total public expenditure from 11 percent (1970)to 16 percent (1974). Thus, the present Government is probably allocating more resources to the rural sector than any previous Government in Mexico. This strong commitment at the highest policy levels is probably the key to overcoming major constraints which limit progress of the rural sector, and holds the promise of a multiplier effect upon resources and public support of sufficient magnitude to generate self- sustaining growth in many of Mexico's rural areas. PART IV - THE PROJECT Background 32. The proposed project would be the second Bank operation for integrated rural development in Mexico. The project was appraised in June/July 1974, followed by updating and review missions in October andc December 1974, and March 1975. Negotiations took place from April 2 to 11, 1975. The Mexican negotiating tearm was led by Mr. Pedro Galicia, Manager, Inter- national Projects, Nacional Financiera, S.A. A report entitled "Appraisal of the Integrated Rural Development Project I I" (Report No. 660-ME, dated  - lo - April 16, 1975) is being circulated separately to the Executive Directors. The Bank has, in response to a request from the Mexican Government, assisted the Ministry of the Presidency (Presidencia) and major participating agencies in improving and strengthening the PIDER program since 1972. In the inter- vening period, the original concept of PIDER has undergone many changes. It has been given a new focus, with productive investment as the main element, and is now based on a more thorough analysis of individual project components. Concurrently, more sophisticated criteria for the selection of individual micro-regions and justification of individual project components have been developed. In the process, selected agency programs have been restructured and oriented more closely to the needs of the rural sector. Finally, and perhaps most importantly, aoi effective planning, coor'dination and supervision machinery has been set up. 33. The scope of PIDER posed many intricate problems. Their solution and the development of a sufficiently firm analytical and solid institutional basis has delayed the timing of Bank financial support. PIDER is an ongoing program in which the Government has already invested a total of US$133 million during 1973 and 1974. The experience gained in these two years has been instrumental in shaping the concept underlying this project; it has also demonstrated that Mexico has the political will, the managerial ability and the implementing capacity to carry out a large and complex rural development program. Under the project, the Bank would support substantially revised investment plans in 30 micro-regions in which development programs were started in 1973 and 1974. The Inter-American Development Bank has under study a request to provide financing for about another 15 micro-regions in parallel with the Bank. Project Objectives and Approach 34. The project has two principal objectives: to raise the income and employment levels of the rural poor and to improve their quality of life. The approach designed to achieve these objectives combines directly productive, productive support and social infrastructure components acting together to promote a balanced social and economic development of the target group. The expected advantage of such an integrated approach is the generation of mutually reinforcing effects from each of the complementary project components, so that total benefits may be greater than the sum of the benefits of these components taken separately. Thus, support infrastructure and technical and organizational assistance are designed to make the directly productive investment fully effective. Similarly, the provision of social infrastructure should help to transform the rising incomes resuilting from the project into improvements in the quality of life of the beneficiaries, an essential condition to keep the campesinos receptive to technological and social change and motivated to work the land to the best of their capabilities. At the same time, the project will increase the real purchasing power of the campesinos by strengthening their marketing position; it should thus provide them with additional inducements to invest part of the incremental income in productive ways.  35. ,he project comprises individual micro-regions of between 25,000 and 100,000 inhabitants. The micro-regions are selected on the basis of several criteria, including size, poverty, productive potential and need for intra- structure. The target group of the project is the population of these micro- regions living predominantly in villages of 300 to 3,000 inhabitants each. Villages above the benchmark size are, in general, already provided with relatively adequate social infrastructure and have an economic base with problems different from those of the very poor. Furthermore, the average per capita income in those villages is substantially higher than the income of the target group. On the other hand,villages with less than 300 inhabitants, while having virtually the same income levels and facing the same difficulties as the target group, have not been included in the project for reasons of economic efficiency. Their dispersed locations would entail prohibitively high costs, even for a modicum of social infrastructure and productive investment; this, the Government decided, would not be justified for the moment in view of more pressing demands on the country's financial and administrative resources. The operational concept is, therefore, to create economically viable organizational units in the target group which can sustain the required services and, hopefully, absorb some of the migrants from the smaller villages which otherwise would move to the large cities. 36. Detailed investment plans are being laid out for each individual micro-regiorn, specifying location and sequence of individual project components. The main thrust of the plans is directed towards the develop- ment of the micro-regional resources. Support investment and directly productive investment are evaluated together as a package to test their economic justification. The scope and composition of the complementary social infrastructure are designed with flexibility to accord with the aspiration and cooperation of individual communities. However, upper investment limits have been specified for specific social infrastructure components, in terms of per capita ceilings and social infrastructure as a share of total investment, so as to ensure that individual components are balanced in relation to each other and to the economic base of the villages. The required contribution and service charges for social infra- structure fulfill a similar function. They provide, quite apart from their objective to recover part of the investment costs, a link between productive and social investment, thus acting as a simple screening device for public resource allocation. Project Description 37. The proposed project would support integrated development in 30 micro-regions located in different ecological zones throughout the country. The project description is based on 15 micro-region investment plans which have been appraised either during field visits or by a combination of desk analysis and field checks. The remaining 15 micro- regions would be determined in accordance with agreed selection criteria (para. 35),and the respective investment plans would be submitted to the  - 12 - Bank not later than June 30, 1975. While, as a general rule, the economic rate of return on directly productive and productive support investment must not be below 10 percent (micro-region plans with returns of between 10 and 15 percent would be subject to field appraisal) and the social infrastructure must not exceed 30 percent of total micro-region investment, disbursement would be made contingent upon prior Bank approval in each case (Section 3.01c Guarantee Agreement). 38. It has been assumed for project presentation and cost calculation that the average of the appraised 15 micro-region plans is similar, in view of their representative character, to the average of the 15 remaining plans. In the aggregate, directly productive investment would account for 66 percent, productive support for 22 percent and social infrastructure for 12 percent of total investment. The individual components of the proposed project would be: Directly Productive a. Construction and rehabilitation of small water facilities, including pump schemes, storage dams and distribution networks to irrigate about 30,000 ha and to provide for domestic and livestock use; b. Development of livestock through land clearing, pasture establishment, perimeter fencing, and construction of watering and handling facilities; c. Soil and water conservation, using labor intensive methods where appropriate, to build contour ridges, terraces, check- dams and other conservation works on about 90,000 ha; d. Establishment of orchards, including land clearing, ditch preparation and planting of a total of 9,500 ha; e. Other productive investment, including beekeeping, forestry and fisheries d-- elopment; f. Provision of seasonal production, and medium- and long-term development credit to use the productive infrastructure most effectively. Productive Support a. Construction of about 2,000 km of feeder roads, especially to service areas in which agricultural development is supported; b. Provision of mobile shops and construction of small market stores and warehouses;  - 13 - C. installation of electric power distribution systems to service about 160,000 persons; d. Organization, sensitization and training of farmers by specialized multidisciplinary teams; and e. Provision of intensive technical assistance packages, including field testing and demonstration, to promote adoption of modern farming methods. Social Infrastructure a. Installation of water supply systems to serve about 170,000 persons, half of which would receive the water at the house lot; b. Construction or renovation and equipping of 220 health posts and 70 rural health centers; c. Construction or renovation and equipping of 1,150 classrooms to accommodate about 60,000 students; d. Provision of materials for self-help activities in ejidos and villages, such as housing improvements, community centers and mini-irrigation schemes. Evaluation Support of a new Center for Research in Rural Development to carry out project-related evaluation and applied research and to train PIDER planning and administrative staff. 39. While, economically and operationally, seasonal credit forms part of the project, it will not be financed under this loan. A government under- taking has been obtained to ensure the timely and adequate availability of such credit as well as of fertilizers and improved seeds which are essential for the success of the project (Section 3.06a Guarantee Agreement). Similarly, the existing Center for Research in Rural Development (CIDER;also see para. 47), which has been given broad responsibility for the evaluation of PIDER, will not be financed under this loan. Evaluation is, however, part of the project (part 15 Schedule 2 Guarantee.Agreement). Bank staff will, consequently, cooperate closely with CIDER in the development and focus of evaluation methods. Bank staff will also be given full access to such information obtained and kept by the Guarantor, as shall be required to evaluate the results of the investments carried out under the project (Section 3.20 Guarantee Agreement).  - 14- Organization and Management 40. The Ministry of the Presidency (Presidencia) would have principal responsibility for execution of the project. Under its direction, the following public institutions would participate: Ministries of Agriculture, Public Works, Water Resources, Health, Agrarian Reform, the Federal Electricity Commission, National Marketing Board, Committee for Federal School Construction Program, National Indigenous Institute, National Arid Zones Commission, National Institute for Rural Community Development and Low Cost Housing, National Fruit Commission, the Fondo of the Bank of Mexico, the National Agricultural Banking System, the Coordinating Commission for the Isthmus of Tehuantepec and the National Ejido Promotion Fund. In total, these agencies have about 2,700 professionals working full-time on the execution of PIDER. 41. Presidencia, which together with tine Ministry of Finance, has final authority on the public investment budget, started coordinating the activities of a few public agencies in the rural sector on a pilot basis in 1970. However, the number of agencies so coordinated has since quadrupled, and all activities of the participating agencies which traditionally selected and operated individual projects independently within their overall budget have now been coordinated under PIDER. Many individual agency programs have been streamlined and focused more clearly on the needs of the peasants, following a comprehensive analysis of the institutional requirements to serve the rural sector effectively. Similarly, the organizational frame- work of PIDER itself underwent considerable changes until the present three- tier system, as discussed below, was consolidated. 42. The highest policy-making body of PIDER is a coordinating committee chaired by the Director of Public Investment of Presidencia and comprising senior officials of the participating agencies. The coordinating committee is supported by a permanent working group. of agency representatives at the technical level. This permanent working group develops planning methodology and concepts, screens the micro-region investment plans for consistency and handles operational issues of minor importance. The working group, in turn, is supported by a special staff of 45 technicians within Presidencia, responsible for the preparation of individual investment plans, for routine management operations and for investment monitoring. 43. Program execution in the micro-regions is coordinated by state committees consisting of the state delegates of participating agencies under the chairmanship of the respective Governors. Management responsibility is delegated to an executive secretary who serves simultaneously as state PiDER director. The secretary is assisted by a technical secretariat of Presidencia staff and delegated liaison officers from the executing agencies. The technical secretariat is primarily responsible for day-to-day coordination of operations within each micro-region and for maintaining close contact with local authorities.  - 15 - 44. Local participation in the planning and execution of PIDER has been achieved through a variety of procedures depending on the political, social and administrative characteristics of the micro-regions. As a rule, field personnel from the Ministry of Agrarian Reform take the lead to organize communities to ensure active participation in the program. In some cases, selected agency programs, e.g., feeder roads of the Ministry of Public Works and small irrigation works of the Ministry of Hydraulic Resources, have created village committees which serve as a basis for PIDER. Local authorities, such as municipal chiefs, ejido presidents and teachers, are also given responsibilities to help organize the campesinos and promote their active involvement. According to the specific local circumstances, these authorities are used as independent information links to the state level technical secretariat. 45. The central tier was established basically two years ago, whereas the formation of state and local tiers is of more recent origin. Experience gained so far indicates that the system works without undue friction, that responsibilities have been clearly delineated, and that the multiple functions under the project are performed effectively. While the final authority for selecting micro-regions and approving the rzspective invest- ment plans will remain at the central level, the responsibility for plan preparation and coordination of the different agencies is being taken over increasingly at the state level. The individual project works are executed by the appropriate public agency, as determined by the central coordinating committee and concurred in by the state committees. Operation and maintenance of project works will be, as a rule, the responsibility of the benefitting communities, but the relevant agencies will provide organizational and technical support. Project implementation will be supervised at all three levels. While locally based PIDER staff would monitor the progress of the project continuously, the state committees would be informed independently by appropriate local authorities. Federal level staff will, in addition, supervise progress in the individual micro-regions on a routine basis by field checks. 46. The organizational framework of the project breaks new ground in Mexico, which has traditionally been characterized by strong centralization. Many important planning and control functions have been delegated under PIDER and new procedures have been adopted for financing its activities. In contrast to the previous procedure of financing through central agency budgets, PIDER is funded directly by the Central Government on a state-by- state basis through selected regional public banks which, in turn, are reimbursed by the Ministry of Finance. The banks will disburse monthly against vouchers from the executing agencies on the basis of complete and detailed annual investment plans for the micro-regIons in their command area. Actual investment progress is monitored by local and headquarters PIDER staff as explained above.  - 16 - 47. At the end of 1974, an administratively and financially independent Center for Research in Rural Development (CIDER) was established within Presidencia to carry out evaluation of and to do applied research for PIDER programs as well as to guide the training of PIDER staff and to diffuse pertinent information. In view of its crucial function, CIDER has contracted among its staff and advisors some of the niost outstanding and internationally known Mexican experts in agriculture, sociology, anthropology, organization and communications. Furthermore, CIDER will be supervised by a board of selected senior representatives from different public agencies to safeguard its independence. CIDER's evaluation effort will focus on inter- agency coordination, agencies' efficiency, effectiveness of campesino organization, community attitude and responsiveness, the causes for dif- ferences in planned and realized construction and production targets and changes in the financial position of project beneficiaries. The results will form the basis for modification and redesign of PIDER programs where appropriate. Financing and Beneficiaries' Contribution 48. Total project costs are estimated at US$295 million equivalent (directly productive investment, US$138.8 million, of which US$45.5 million are for development and US$18 million for seasonal credit; productive support, US$47.6 million; social infrastructure, US$25.0 million; project evaluation, US$0.7 million; and contingencies, US$82.4 million). A breakdown of costs is shown in Annex III. The proposed loan would finance 40 percent of project costs, excluding seasonal credit and project-evaluation. It would cover the foreign exchange cost of US$47 million and US$63 million of local expenditures (17 percent and 23 percent, respectively of total project costs, excluding seasonal credit and evaluation). The balance would be provided by the Government (US$178 million) and the beneficiaries (US$7 million). 49. The success of the project depends on a close association of the beneficiaries with its execution. It is proposed that they pay for the operation and maintenance cost of project works, with the exception of feeder roads, schools and health centers. In addition to their contribution in labor and kind of about US$30 million equivalent (which has not been included in computing the project costs), the beneficiaries will also contribute toward financial recovery of investment costs in a significant way. Thus, the beneficiaries would pay charges for recovery of irrigation investment according to their payment capacity as prescribed by the Federal Water Law, and electricity investment in conformity with the policy of the Federal Electricity Commission which aims at recovery of investment in about 25 years. As to potable water, the beneficiaries would contribute in cash about 5 percent to the systems cost and pay for the house connections. Including the cash contributions of the project beneficiaries at the outset and the development credit, the Government is expected to recover US$150 million, or 50 percent of the financial outlays for the project.  Procurement ar,' Disbursement 50. Mexico has a well-developed and competent contracting industry, capable of doing all types of works at competitive prices, and only rarely is a bid submitted from a non--Mexican firm. Further, this project would include a diversity of relatively small construction jobs in many locations over a wide area and would involve numerous government agencies in the execution of the works. The following procurement procedures would be therefore applied for civil works and building construction, machinery, equipment, material and supplies: i. Contracts would be grouped, where feasible, into larger packages in order to obtain more competition in bidding. ii. All contracts and purchases exceeding US$25Q,,000 equivalent would be awarded under international competitive bidding in accordance with Bank Guidelines for Procurement. A preference for domestic suppliers of 15 percent would be permitted in the evaluation of bids for manufactured items. iii. All contracts of less than US$250,000 equivalent would be let under local competitive bidding, under negotiated contracts at unit prices approved by Presidencia, or executed by force account in accordance with standard government procedures, which are satisfactory to the Bank, provided that not more than US$60 million of the Bank loan would be used to finance such contracts and the force account work. 51. The Bank loan would be disbursed against 40 percent of investment expenditures for civil works, equipment, vehicles and technical services and 48 percent of incremental development credit (on terms between 3 and 12 years at 7.6 percent interest). Certificates of expenditure would be held available for inspection by the Bank. The loan wou7d be disbursed in four years, 1975-78. Project Risks 52. The complex and novel character of the project implies risks. However, special care was taken during the extended preparation of the project to ensure that conditions essential to its success would be met. First, the objectives of the project are compatible with the overall national development strategy and would not lead to concentration of a disproportionate resource and manpower share in a few relatively small regions of the country. The project has been carefully designed not to pre-empt other government efforts and thus constrain development outside the micro-regions. On the contrary, it is hoped that PIDER will actually generate external benefits for these areas. The concentrated and focused effort under PIDER is deepening in the Government the understanding of the rural sector and of the bottlenecks limiting its development. As a consequence, many traditional programs have been modified and made more effective. The benefits of these modifications are not confined to the micro-regions, but will be applied countrywide and independently of PIDER through selective programs of individual agencies.  - 18 - 53. Second, the design of the project is consistent with the management and executing capacity at federal, state and local levels and is based on the experience of an extended period of trial and error. However, while an effective organizational set-up is a necessary condition for the success of the project, it has to be matched by competent top management and qualified staff at all levels. Most of PIDER's management cadre was replaced during project preparation to meet its present high standard and, at the sa;ne time, the quality and commitment of field staff has been up- graded through in-house training programs and improved salary scales and promotion prospects. Rural development service has not only been given material reward but also status and social recognition. This has made it possible to attract dynamic and competent professionals who, in turn, will enable more effective use of lower level staff. The result of these measures has already been a sharply reduced turn-over, indicative of improved morale among the field staff. 54. Third, individual components of the project have been determined in close response to the perceived needs of the target population to ensure a high acceptance rate. Experience under various pilot projects and with PIDER itself has demonstrated that under favorable circumstances Mexico's campesinos are receptive to change. During preparation, a special effort was made to involve the local communities in the formulation of the micro- regional investment plans. Intensive programs of sensitization, field demonstration and technical and organizational assistance would be provided under the project to further enhance acceptance of the proposed production technology and willingness to use, as well as maintain, the planned social infrastructure effectively. 55. Fourth, the expected production increases under the project are derived from a comprehensive analysis of production statistics, available technology and ecological conditions. However, while the estimates in areas with over 700 mm annual rainfall are fairly accurate, yield response to new technical packages in the drier areas is less cerLaini. The project, therefore, aims at establishing a more dependable resource base through irrigation development, water conservation works and pasture improvement wherever feasible. At the same time, risk minimizing technologies would be introduced. Even so, there will remain an unavoidable and far from negligible degree of uncertainty with respect to crop yields and farm response. This is a risk which the Governnient of Mexico is willing to take and which, indeed, cannot be avoided if attempts are to be made to bring socio-economic change to Mexico's backward rural areas. Project Impact 56. The project would contribute significantly to accelerated and balanced development of communities in the target group. While it is difficult to determine precisely the total number of beneficiaries from social investment, it is estimated that about 750,000 persons would benefit  - 19 - directly f4rom at least one of the social infrastructure components. The project would further help to increase the income of about 650,000 people, provide about 84,000 man-years of employment during project implementation, and generate some 30,000 new permanent jobs, not including additional employment through multiplier effects. The extent of the proposed social infrastructure improvements can be seen from the Table at Annex IV. The variance among micro-regions is partly a reflection of differences in present infrastructure levels, investment costs and productive potential. On the average 7 percent more people would receive electricity, 9 percent more drinking water and 7 percent more of the school age children would attend school in the project area. 57. The fact that the benefits of the project would not be distributed evenly is inherent in a strategy of utilizing resources to their fullest potential in areas with widely different ecological conditions. Farmers who have access to the more productive resources will absorb relatively more of the investment and will also benefit more. Thus, while the average income of the beneficiaries from the project is expected to double, some would be able to raise their incomes only by 50 percent, whereas a few others would achieve more than five times their previous incomes. Farmers in the first category are typically dependent on dry farming in the semi- arid and dry tropical zones, farmers in the second category farm in irrigated agriculture. 58. The ejido budgets underlying the Table at Annex IV reveal the difficulties of generating adequate farm incomes from rainfed agriculture. While the increment is remarkable in most cases, only a few farmers would achieve incomes above the national 40th percentile benchmark. Although income levels under the project would be sufficient, in general, to meet the farm families' subsistence needs for foodstuffs, some campesinos would continue to work off the farm part-time to supplement their incomes. In those areas where ecological conditions and farm sizes do not allow full farm family ino.mcs, activities other than agriculture have to be developed. Thus, the establishment of small-scale industries, handicraft centers and workshops is promoted where feasible. At the same time, the peasants will be trained and motivated to be better prepared for employment in new activities, either within or outside the micro-regions. Economic Evaluation 59. The realization of an integrated approach to development will generate benefits in itselC; the focusing of individual agency operation and organization on a comprehensive and well-defined micro-region program of action will serve a catalytic function by enhancing the effects of selected activities. This impact, however, is not measurable with standard techniques, nor can the effects of individual social investment components be captured adequately in rate of return calculations. Thus, the benefits of this project are likely to exceed the quantifiable magnitudes. The project might well provide the basis for sustained development in many micro-regions, involving the campesinos in a meaningful and active way.  - 20 - 60. The average economic rate of return on the directly productive and productive support investment of the project is estimated at 16 percent. Calculations are based on typical ejido or village models for each micro- region and range from 11.4 percent to 23.0 percent in various micro-regions. In computing the rates of return, only the costs and benefits of directly productive and productive support components have been considered. The costs of social investment have not been charged against the project, nor. have the benefits from improved health and education, social awareness, community development and external interaction been credited. 61. After completion, the project will require government expenditures to operate and maintain the non-revenue earning components of approximately US$8 million per annum, or approximately US$10 per capita of direct beneficiaries. About 10 percent of the expenditures will be, however, compensated from incremental tax revenues. PART V - LEGAL INSTRUMENTS AND AUTHORITY 62. The draft Loan Agreement between the Bank and Nacional Financiera, S.A., the draft Guarantee Agreement between the United Mexican States and the Bank, the Report of the Committee provided for in Article III (Section 4, iii) of the Articles of Agreement, and a draft Resolution approving the pro- posed loan are being distributed to the Executive Directors separately. 63. 1 am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 64. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President by J. Burke Knapp Attachments April 28, 1975  Annex I Pap 1 of *p&use ODUN~TR DATA - H C ARELA POPULATIONi MNSITY 1, 972,504 km?l 514.15 million (md-1972) Pei, kaof arable land SOCIAL INDICATORS Reference Countries OeiorZil, Chile pan V1960 19701 197 0 1970 197 GNP PER CAPITA US$ (ATIAS BASIS) /. 1475 750ALs 530 /8 00 /. 1,210 / DEMOORAPRIC C-rude birth rate (per thousand) 146 145A/ 38 Ab.c 30 20 Crude death rate (per thousand) 11 9 tq 10 /b.cg 9 8 *Infant mortality rate (per thousand live. births) 76 /d.ac 61 /8 110 79 28 ife expectancy at birth (years) 58 1- 65A/ 61 /b.Sc 62 If 70 Gross reproduction, rt/23.2 3.1 Lb4 2.6 2.2/ 1.14 Populati.n growth trate 3.2 3.5 /82.9/ 2.3 ~ 1.1/ Population growth rate - urban 5/h S/& h 5/13 2/ Age amtutu-o (pan-c=ms) 0-14 141 146 alb 142 39 28 15-614 52 50/1 53/ 55 63 65 and over 14 14 / 5/ 6 9 Age dependency ratio /14 0.9 1.0 a 0.9 71 0.8 0.6 Ecnoic dependency min /14 1.7 2.0 1.5 /8 1.6 / 1.0 /8 Urban population as percent of total 51 /h 60 /h 56 /i 76 Z8 149 /c.k Family plannin,g: No. of acce ptors cuulative (thous.) . .250 No. of users (N of earred womn) . .1.6 Total lbor force (thousandn) 11,300 13,000 29,600o/ 3,000 /8 12,700 /P Percentage esployad in agricultur 54 140 141 19 /8 28 / Percentage unemployed .14 2 8 5 /8 2 INCOME DISTRIBUTION Percent of national income received by highest 5% 29 /r.. 36 A.L1 33 /8 30 /j Porcnt ofnational Income received by highest 20% 59 / 614 /t 62 a 57 m Porcent ofnational income rece.ivad by lowes,t 20% 14 14 t . 3 / 5 no Porcer't of national income receive.d by Invest 140% 10 /8s 11 ni 10 /8 13 ts,u DIISTRIBUTION OF LAND OWNER.SHIP % owned by top 10% of owners .. % owned by anallest 10% of owners .. HEALTH AND NUTRITION Population per-physician 1,80oo 1,4140 1,950/ 2,1 /8 750 POpulation per nursing person 2,65 /8 ,7 ,0 t14 5,3120 / 1,1430/ Population per hospital bed 590 /8 930 260 250 220 / Par caPita calorie supply as % of requiresenta /5 102 an 110 109 101 107 Per capita protein supply, total (grams per day7/8 65 / ~ 65 614 71 81 Of which, animal and pulse. 29 Zj 28 39 32 140 If Death rate 1-14 years /7 11u/ U . 3/1A 0.9 EDUCATION Adut /8 primsary school enrollment ratio 81 1014 /8d 130 /a.. 119 /c.ad 83 Adjusted Rh secondary school enro-llment ratio 9 23 27 =ad ae 29 149 Years of scoling provided, first and second level. 12 12 13 12 12 Voctional enrollment as % of sac, sc hool enrollment 214 214 it 17 33 20 Adult Literacy rate % 62 /8.f 814 68 /af 90 g4bar HOUSING Average No. of persons per room (urban) 2.6/81h 2.2 /.J 1.0 1.3 sIc P_rcn't of occ upied units without piped water 68 61 67 an 14 ca Accessa te el6.Lti-ity (As % of total popuation) .59 L. 147 Lss.5L1 Porcent of 'ural population connected to electricity .. .. t/ .n 30/8 CONSUMPTION Radio -receivers per 1000 population 95 301 /a61 / 1149 /a 210 /.- Passen.ger cars per 1000 population 114 28 7 ~ 29 7p 19 TP 95 A8 Electric po,mr consumption (cah p.c.) 338 h8 662 Th- 5414/a 890 /a 1,9146 /a Newsprint consumption p.c. kg per year 2.8 1.8 E. 2.3 77 5.7 /8 6.0 7 Notes: Figures refer either to the lateat periods or to account of environmental tempertre oy gte n th4e latest years. Latest periods refer in principle to distribution by age and se- of national populations. the years 1956-60 or 1966-70; the latest years in prim-. Z6 Prot.in standards (requirement-s) for all countries as esiab- cil e160ad17.lished by USDA Economic Research Service provide for a inimum /8. The Per Capita OAP estimate is at maket prices for alwneof 60 gram of total protein per, day, eni 20 gram of year other than 1960, calculated by the aan conversion animal and pulse protein, of which 10 grams should be animal techni'que an the 1972 Wor-ld Bank Atlas. protein. Thane standards ars somewhat lolwer than those of 75 L2 Average number of daughters per woma of reproductive gram of total protein and 23 grass of animal protein as an age, average for the world, proposed by, FAO in the Third World Food /8Population growth rates- are for the decades ending in Survey. 1960 and 1970. /7, Some studies have suggested that crude death rates of children /4, Ratio of.popula,tion under 15 and 65 and ove,r te p.pula- ages 1 thro-gh 4 say be used ae a first approxi.atiri index of tion of ages 15-614 for age dependency ratio and to labor malnutrition. force. of ages 15-614 for economic dependency ratio. A8Peroentage enrolled of corrsponding population of school age F8 AO rfenestandards represent physiological -.- as defined for each country. quiremani f or carna activ,ity and health, taking /8 1972; /b 1965-70; /c Estimate; /d 1959; /a 1959-411 If 1969-70; LB 1960-72; /h localities of 2,500 or mere; A Urban and suburban amass of adndnietrativa o.tars of municipalities end districts; /7, Populated centers which have Wbinite urban characteristics contributed by certain pablic and sunicipal services; /k localities of 10,000 or mere inhabitants; Ll Ratio of population under 15 and 60 and over to those in age group 15-59; /8 15-59 years; /n 60 years and over; /o Population. under 15 and 60 and over; /8 1971; /8 Based on 1.3 percent sample tabulation of census returns, excluding Indian Jungle population; /r 1963; Is Households; /t 1969; /u 1968; / 1961,/ Government only; /. Number on the register, not all working in the country; /8 Hospital persoanel; 1j962;/~ 1961-62; /ab 1973; /qc Registered onlyj /ad Gross enrollment which includes overage students; /8The net enrulicet ratios in 1971 ware 814% and 18% for basic end secondary education, respectively; Ifk Definition, unknown; j /R 15 year and over; /ah4 Data refer to living quarters; L.14 1960-62; /.,j Data refer to housing units; Ak Data refer to households; Al7, Estimate based on sample tabulation, of census retumns; data refer to dwellings; 8 Inside or outside; /an Including semi-pemsanent dwellings; /a., Inside only. *Spain has been selected as an objective coumtry because its per capita income is higher then Mexico, and becaum both countries have in ..acon the importance of tourism and the influence of nearby richer countries. 83 April 214, 1975  ANNEX T PaZa 2 of Ia MEXICO: Econenic Oeve-oes-t Data. Sheet Atual1 Prel Et. P-oletred 1960 196 5 1970 1975 1980 *00 lIS 1570 1913 1974 197' 1980 1990 1965 1970 1975 19S0 1999 1960g 1-.LI,. 3-erA-araxe atI97,6 9 Pr i'xs & F-ahaeH~c ta-sAooc " nua :ewhotsAs 7.a Grs uecc?oat 15683.9 22 312.2 30763.9 37187.6 39418. 9 41389.8 58051.4 124168.1 7.3 6.6 6.1 7.0 7.9 99. 0 13. 0 99.1 Cains ra Te-c. of Trade + 16.43 -4.I.7 4. 51.5 _306.6 527.8 1429.5 LI1. 5 10. 5 0.1 L . G-oss lees -cOca 15680.2 22269.3 307.1.6 37231. 9 39470.4 41696.4 5857 9 .2 125597.6 7.3 6. 7 6. 3 7.Q 1i-. TU'uo !17276 7. ,operts' (isa1. ";Fs) 1822.3 2125.9 3333.2 3767. 7 4612.7 4614. 5 6925. 9 1724S.8 3. 1 7.2 9.0 7. 1 9.6 11.6 g.8 1. E-art (ica--rran-ity) 9679. 3 -1979.0 -~2658. 2 34 1.7 3753.9 LO014. 0 6874.6 17396.1 3.3 6.-1 8.6 11.4 9.7 -07 - 9.6 1 esrCe Ga, 143.0 145.0 347.0 426.0 658.8 680.4 51.3 -147. 3 0.5 18.0 11.0 -36 . .9 L. .9 1csallr 2,31.6 17107.6 25032. 3 30360.5 32750.8 32498.9 45685.6 97139.7 6. 6 7.1 6.0 6.4 7. 8 82. 3 Si.4 78.0 Isetet2918.6 4611.6 6551. 3 7297.4 7578. 3 6797.9 12945.0 28310. 7 9.6 5.7 7 .7 8.0 8.1 IS.6 19.8 2 2. 1 Oc-etic S.'-iegs 2773,6 4464.7 5734.3 6871.4 6719. 5 8197.5 12893.7 28458.0 10. 0 .5.1 7.4 9.5 8.2 17. 7 16.6 232. 1 RainlS-ir.zs 2703.8 4281.8 5289.4 6190.8 504.3 7195.7 11556.3 26239.7 9.6 4.3 6.3 9.9 8.5 17.2 17.32 19. 7 Trade in Goods -ne IlFS An..ual Data at Current Prics AA Zof a:l Feud 17.6 25.4 91.8 149.1 376.1 258. 0 464.2 1962.8 7.6 29.3 23.0 12.5 13,5 1.1 I . 2. 7 PEoaaad Prodacts 31.0 23.9 42.6 264.7 362.0 75.0 261 46.9 6.8 12.4 10.3 . 17.9 6.0 2. Z. .1 Itner :." lo-ds 917.6 1236.0 2217.6 3424.5 5162.1 . 6002.0 13 535. 7 64937. 1 6. 1 12.4 22.4 17.3 17.0 59.5 673 7. lsaatr Srvcs572.3 792.3 944. 3 1269.4 1429.0 1449.9 3451.9 18011. 1 6.2 3.6 9.0 18.9 16.6 37. 1 26. 6 19.68 TrIa lora1541.7 2077.6 3296.5 5107.8 7320.2 7879.9 17477 .9 82957.9 6.2 9,7 19.0 17.3 06.8 100.0 143.0 101.4 a,,,ort s AgeedSrica1ta-a1 Gooda 324.5 4'a.3 338.6 437.5 596.6 630.4 1088.5 2916. 5 7.7 -5.2 13.2 11.5 10.3 22.4 12. 3 6. 3 .erlo:ad Pries23.6 40.1 33.4 30.0 123.0 500.0 1010.8 1743.0 14.2 -0.9 67. 1 15.1 5.6 1.5 1.4 5.11 S O.eutd Inras92.5 77.9 91.5 82.2 119. 1 114.5 196.8 666.3 -4.0 3.3 4.6 11.4 13.0 6.8 3.3 1.1 16saatrs101.5 228.8 355.4 838.0 1175.1 1279.3 3897.2 22718.6 15 -3 11.6 29.0 25.t5 17.3 7. 5 13.1 21. 5 8:ae Zods 178.3 398.0 570.8 757.7 94. 2. 331 10411.6 17.3 7.6 10.1 20.5 16.1 13.1 3C.8 135I Nee-Fac-ter Sericee 572.5 702.3 1397.7 2384.9 3009.1 3405.3 8812.8 45210.2 6.3 12.0 19.5 20.9 17.8 42.1 50.9 53.4 let.1 Exports 1358.9 1954.4 2745.3 4530.2 5952.3 6854.6 17348.4 83666.3 7.5 7.1 20.1 20.4 17.0 000.0 100.0 IIC.0 T-ade Indices Ave~ral 1967-69 - 100 EsetPieIdx83.10 92.77 105.55 137.39 160.90 1489 273.34 . 524.01 2.2 2.6 11.9 8.1 13.4 .o l Pie. Ine-07-9.0 152 13557 158.0 70.77 252.36 480.95 3.9 1.5 10.2 8.1 13.7 .. ,o-. of Tr-e ~ 102.96 94.96 100.25 101.34 101.39 108.27 108.32 108.93 -1.6 1.1 1.6 - 1xport Vol-: -69.80 86.90 109.81 139.52 156.65 156.82 268.54 675.57 4.5 9.8 7.4 11.4 20.3 aleAdde,d be Sectr. Annual Data at 1967-69 Prices and &ehnsRates PrinarY 2760.2 3417.6 4025.1 4241.2 . ... 4.4 3.4 .. 17.3 13.0 S.-cnda ry 4353.2 6717.2 10415.5 12690.3 . ... 9.1 9.2 .. . . 27.6 33.5 T_rtiary it 8459.2 12118.0 16641.2 20253.1 . ... 7.0 6.0 .. .. . 5.9 3. To-a (GDP) 15772.6 22249.8 31501.8 37184.6 . . ... 7.2 7.0 6. 3 7.0 7. 10. 100.0 1403,0 PaNlic Sect-r Financ (Ca-nlidate,d PobIIc Sector) A., %of To-a Total Receipt .. 2882.0 4025.4 4388.2 5242.7 6539.6 11029.8 . .. 6.9 10.2 11.0 .. 100.0 100.0 105.0 CI.,rret E enirs.. 2397.5 3165.0 2975.0 3468.9 3973.4 5805.1 . .. 5.9 4.5 6.9 .. .. ,.2 32.6 .uar.4far Ic-et-zn . 49.4.5 841.4 780. 906.& 1103.9 4353.5 . . 11.7 1'.7 19! I '; , 39.5 icesnet . 1485.8 1766.1 2900.5 3153.5 3725.1 6098.4 . .. 3.5 16,1 00.4 .. . 51.6 5.53 eiit1001.3 824.7 2119.7 2207.5 1779.7 1741.5 . .. .1.6 14.0 -0.4 . . 34. 8 05.8 publOcinpnit (A . To:l P.f. ExP.) / 2 Ed.r:aio. . 13V 12)?- 32 . . Det.ils o Public Snecter.Ana.vost OIler SodIe Ser.- . 16 17) . .. At 1947-69 P ER A7. .t 7.a -1n AfrlcoltutO . 5 8 . . .. 1965-73 19741-52 1945-73 164,4-823 Ocbor EcV.nic Sor.- . 36 31 :0,O.. ... Industry 739 . 37.4 AAn-n, ad Other '30 32 19 . ... AZricolt-r 233 .. 12.7 T:I1063 I 00 100 . .. Transport a-ed C-.na. 495 .22.5 Social1 509 . 24.9 Iece dcaoaAdasicitcatino aid Defes 4.. 9 ..2.4 (atatdfros 3 vee avr~ d.dte) 1960 1965 1970 1975 Total. 232.7 100.0 2.96 197 1075 i_l 1920 Av-rage ICOR 2.59 3.16 3.04 2.88 I=Port tldslicity .59 1.09 1.48 1.21 Dorgna. anatic S-1.in, nte .28 .15 23 .27 1a8 Nat csi ..al Savings Rate .24 .12 .20 .20 Labor Fo-e 8-ad-/ Totalao F.-.ce Val.e Added por Iolse~r (167-.69 Price- ad F. itotesl Output par -euk- Is Millions A, 7. of Total 1960-1970 7. f AeorO,. i 1590-1970 1960 1970 1980 1970 Growth Osto 1960 1970 1940 1970 Gr-t'I, Rate Aonricalture 5.4 5.1 50.2 39.2 -0.6 511.2 729.2 24.7 33.0 44.4 L,.~2.1 3.0 19.6 23.1 3.5 2073.0 31471.8 140.6 145.2 5.3 3.2 4.9 .29.0 -37.7 4.2 2706.0 3396.2 183.5 142.0 2.3 otl .10.7 13.0 100.0 100.0 2.0 1474.1 2390.9 100.0 1O00.0 4.3 not aplicoie j/includes di-ceponcy not evoilel1s 2/ not con.sistent -itl Public iao Section - il or enligiblc 2 1900 Bsnlk -tst8.ot fron C.-ou fiRu-es 1970 Censu results j~/incldes u-llnuted Latin Anerits and C.ribb...a P-roG -s I  ANNEX I Page 3 of 4 Pages BALANCE OF PAYMENTS, EXTERNAL ASSTSTANCE AND DEBT (amotunts in millions of U.S. dollars at current prices) Actual Prelim`na_a - Estimate Proiected 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 SUMMARY BALANCE OF PAYMENTS Exports fincl. NFS) 2,745.3 2,995.4 3,609.4 4,524.8 5,954.3 6,854.6 8,702.7 13,376.7 12,330.6 14,639.8 17,348.4 lz2orts (incl. NFS) 3,296.5 3,263.0 3,852.9 5,089.7 7,320.2 7,879.9 9,347.8 10,981.9 12,864.7 15,023.3 17,477.9 Resource Balance (}l) -551.2 -267.6 -243.5 - 564.9 -1,362.9 -1,025.3 -645.2 -605.2 -534.1 -383.5 -129.5 Tnzerest {net) -215.4 -244.7 -264.4 -384,0 -703.0 - 880.0 -1,173.9 -1,269.5 -1,367.5 -1,512.5 -1,770.0 Direct -nvest enr Income -479.6 -493.7 -593.3 -750.0 -901.0 -1,071.6 - 1,222.8 -1,391.5 -1,375.2 -1,783.1 -2,018.5 Workers' remitta.aces * 122.7 111.5 126.7 140.0 140.4 162.5 183.6 204.2 228.7 256.1 286.9 Current Transfert (net) 55.5 57.4 64.3 71.1 - 75.0 78.3 84.1 90.2 101.0 113.1 126.7 Balance on Current Account -1,068.0 - 837.1 -910.2 -t,A87.8 -2,751.5 -7,736.1 -2.77L -2,971.8 -3,147.1 -3,309.9 -3,504.4 Private Direct Invesrment 323.0 307.0 301.0 372.8 421.0 536.6 611.4 , 696.7 788.7 892.8 1,010.6 Public K&LT Loans Disbursements 781.6 794.0 1,061.1 2,018.0 2,906.0 3,087.9 2,604.2 2,993.1 3,502.5 4,034.2 4,592.9 - Repayments -474.8 -496.0 -590.8 - 780.1 -555.2 -687.4 -1.061.5 -1,316.0 -1.629.7 -2,056.6 -2,489.2 Net Disbursements 306.8 298.0 470.3 ,ZS7.9 2,350.8 2,400.6 1,542.8 1,677.1 1,872.8 1,977.6 2,103.7 Capital Transactions n.e.i. 540.2 432.1 343.9 12.5 104.7 -200.1 800.0 800.0 800.0 800.0 800.0 Change in net reserves -102.0 -200.0 -205.0 -122.6 -125.0 -1.0 -180.0 -202.0 -180.0 -202.0 -314.4 C- indicates increase) Actual Preliminary Estimated GRANTS ANTD LOAN COMMITMENTS DEBT AND DEBT SERVtCE IJ71 197 lfj732197 Official Grants & Grant-like - - - - Public Debt Out. & Disbursed 3,516.6 4,010.2 5,277.6 7,598.9 Public X&LT Loans IBRD 146.8 75.0 277.0 270.0 Interest on Public De;. 227.3 258.6 361.3 563.8 IDA - - - - Repayments on Publir 7 ot 496.0 590.8 780.1 555.2 Other Multilateral 112.3 63.2 73.2 89.5 Total Public Debt S ice 723.3 849.4 1,141.4 1,119.0 Goveronments 80.3 54.4 65.5 451.5 Other Debt Service . ) 17.4 5.8 23.1 '39.6 Suppliers 69.7 77.3 75,2 50.0 Total Debt Service c) 740.7 855.2 1,164.5 1,258.6 Financial Instirutions 434.4 638.7 627.3 1,761.1 Bonds - 44.8 176.5 103.1 Burden on Export Earnings (%) Public Loans n.e.i. - - - - Public Debt Service 23.3 22.7 24.5 18.4 Total Public M9LT Loans 894 955.4 1,2848.7 2,7253. Total Debt Service (TDS) 23.8 22.9 25.0 . 20.7 TDS + Direct Invest. Tncome 39.7 38.8 41.0 35.4, Outstanding & Disbursed on Dec. 31, 1973 EXTERNAL DEBT Million $ Percent Average Terms of Public Debt - Public '.&LT Loans *nt. as % Prior Year DO&D 7.0 7.3 9.0 10,7 IBRD 808.5 15.3 Amort as % Prior Year DO&D 16.3 16.8 19.5 10.6 IDA Other 'multilateral 368.0 7.0 IBRD Debt Out. & Disbursed Governtments 466.5 8.8 as % Total Public DO&D 18.8 18.0 15.3 11.5 Suppliers 327.4 6.2 as % Public D"bt Service 8.3 8.5 7.7 8.5 Financial institutions 2,720.3 51.6 Bon-ds 580.8 11.0 'DA Debt Out. & Disbursed Public Dtbts n.e.i. 6.2 0.1 as % Total Public DO&D Total Public MILT Debt 5,277.7 100.0 as % Public Debt Service no, applicable - e staff estimate not available - nil or negligible ... not available separately -- less than half of the but included in total smallest unit shown.  a. .-. -a . a 'a - 'a 'a a -I 'a 0 0 II N .1 'a 'a -a .aa . . . . . 'a I.. C. 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"'a .aIa0 -aUUlalUO aI.I,lI-.I-.ma o.-a>:)-aaI-ao 'a -'-I'-' a a a a- a a ,a ml a ma  ANNEX I I Page 1 THE STATUS OF BANK GROUP OPERATIONS IN MEXICO A. STATEMENT OF BANK LOANS (as at March 31, 1975) a/ US$ Million Loan Amount Less Number Year Borrower Purpose Cancellations Undisbursed 23 Loans fully disbursed 1,004.9 - 527 1968 Nacional Financiera, S,A. Irrigation 25.0 4.6 695 1970 Nacional Financiera, S.A. Roads 21.8 5.6 793 1972 Nacional Financiera, S.A. Tourism 22.0 14.3 820 1972 Nacional Financiera, S.A. Ports 20.0 10.4 824 1972 Nacional Financiera, S.A. Industry 35.0 22.0 825 1972 Ferrocarriles Nacionales de Mexico and Nacional Financiera, S.A. Railways 75.0 30.3 834 1972 Comision Federal de Elec- tricidad and Nacional Financiera, S.A. Power 125.0 3.4 909 1973 Nacional Financiera, S.A. Water Supply 90.0 88.9 910 1973 Nacional Financiera, S.A. Agriculture 110.0 52.1 934 1973 Siderurgica Lazaro Carde- nas - Las Truchas, S.A. and Nacional Financlera, S A. Steel 70.0 44.2 968 1974 Nacional Financiera, S.A. Roads 90.0 Q0.0 969 1974 Nacional Financiera, S.A. Irrigation 77.0 73.6 970 1974 Nacional Financlera, S,A. Irrigation 47.0 46.5 1022 1974 Nacional Financlera, S.A. Airports 25.0 24.9 1053 1974 Nacional Financiera, S.A. Irrigation 50.0 50.0 TOTAL 1,887.7 560.8 Of which has been repaid 325.3 Total now outstanding -1,562.4 Amount Sold 72.2 Of which has been repaid 50.2 22.0 22.0 Total now held by Bank 1,540.4 Total Undisbursed 560.8 a/ No IDA Credits have been made to Mexico  ANNEX II Page 2 B. STATEMENT OF IFC INVESTMENTS (as at March 31, 1975) Amount in $ Million Year Obligor Type of Business Loan Equity Total 1958/59 Industrias Perfect Circle Industrial Equipment 0.8 - 0.8 S.A. 1/ 1958 Bristol de Mexico, S.A. 1/ A/C Engine Overhaul 0.5 - 0.5 1961 Acero Solar, S.A. 1/ Twist Drill-s 0.3 - 0.3 1962/65/ Compania Fundidora Fierro Steel 2.3 21.4 23.7 66/68 y Acero de Monterrey,S.A. 1963 Tubos de Acero de Mexico, Steel 0.9 0.1 1.0 S. A. 1/ 1963 Quimica del Rey, S.A. 1/ Sodium Sulphate 0.8 - 0.8 1964/66 Industria del Hierro,S.A. Construction Equipment - 2.0 2.0 1970 Minera del Norte,S.A. Iron Ore Mining 1.5 - 1.5 1971 Celanese Mexicana, S.A. Textiles 12.0 - 12.0 1972 Promotora de Papel Periodi- co S.A. de C.V. Pulp and Paper 2/ 2/ 2/ 1973 Cemento Veracruz Cement 10.5 - 10.5 1974 Cancun Aristos Hotel Tourism 1.0 0.2 1.2 Total Gross Commitments 30.6 23.7 54.3 Less cancellations, terminations, repayment and sales 14.7 21.6 36.3 Total commitments now held by IFC 15.9 2.1 18,0 Total Undisbursed 0,1 - 0.1 1/ Investments which have been fully cancelled, terminated, written off, sold redeemed or repaid, 2/ US$25,000.  ANNEX I I 1/ Page 3 C. PROJECTS IN EXECUTION Ln. No. 527 Fourth Irrigation Project: $25 Million Loan of January 26, 1968; Closing Date: June 30, 1976 Estimated project costs have risen by about 36 percent. Estimated project benefits will also be higher but probably not enough to fully offset cost increases. The economic rate of return from the project is, however, expected to remain acceptable. The Closing Date has been extended by one year to June 30, 1976 to enable completion of works. Ln. No. 695 Fourth Road Project: $21.8 Million Loan of June 26, 1970; Closing Date: June 30, 1975 Five roads included in the project have been completed and opened to traffic. The remaining six roads are expected to be completed at various dates up to mid-1976, about one-and-a-half years behind schedule consequent to initial delays in budgetary allocations. Four of the project roads had cost increases, mainly because of design revisions and sharp price increases in late 1973. The cost overruns will be fully met by the Government. Ln. No. 793 Zihuatanejo Tourism Project: $22 Million Loan of January 22, 1972; Closing Date: December 31, 1975 All related project construction in Ixtapa Tourism Zone is expected to be completed by mid-1975, which coincideswith the completion of the International Airport at Zihuatanejo and the first hotel in Ixtapa. A Trust Fund was recently organized for the provision of urban infrastructure in the town of Zihuatanejo and works have been undertaken since December 1974. It is now estimated that all works related to this project will be completed by end-1975, by which time 526 hotel rooms should also be available in the tourism area. Ln. No. 820 Ports Project: $20 Million Loan of May 17, 1972; Closing Date: June 30, 1976 Despite some initial delays in the preparation of tender documents and processing of disbursement applications, the execution of this project is on the whole proceeding satisfactorily. Studies for new port tariffs, have been completed and revised tariffs introduced on March 7. These revised tariffs, and other ancillary actions proposed, will substantially meet the loan requirements. 1/ These notes are designed to infor-m the Executive Directors regarding the progress of projects in execution and, in particular, to report any problems which are being encountered and the action being taken to remedy them. They should be-read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strength and weaknesses in project execution.  ANNEX I I Page 4 Ln. No. 824 Industrial Equipment Fund (FONEI) Project: $35 Million Loan of June 2, 1972; Closing Date: December 31, 1975 The loan became effective on October 12, 1972. After a slow start due to organizational problems, FONEI's estimates to commit the Bank funds by the second quarter of 1975 and has recently been appraised for a possible second loan by the Bank. Ln. No. 825 Second Railway Project: $75 Million Loan of June 2, 1972; Closing Date: December 31, 1975 Due to increased costs and delays in implementing a recommended tariffs increase, the financial position of the railways did not meet the agreed targets established in the loan documents. New tariffs have been, however, put in force on January 1, 1975. Execution of this project is now proceeding satisfactorily. Ln. No. 834 Fourth Power Sector Program: $125 Million Loan of June 23, 1972; Closing Date: June 30, 1975 The construction program has been delayed by over a year except for frequency unification, which is ahead of schedule. Recently, the borrower has tried to improve its overall construction performance by strengthening its construction management and the results of the last six months have been encouraging. The sector's financial performance was unsatisfactory in 1974 and the Government is considering remedial measures to improve it. Ln. No. 909 Mexico City Water Supply Project: $90 Million Loan of June 18, 1973; Closing Date: December 31, 1977 Physical execution of the project is progressing satisfactorily. However, disbursements from the loan account have been delayed due to unresolved administrative arrangements between the Mexico Valley Water Commission (the executing agency) and the Federal Government. It is expected that disbursements from the Loan account will soon increase substantially reflecting the progress of the project. A sales contract between the Water Commission and the State of Mexico, which is a condition for disbursement of funds aggregating over $40 million, continues to be under negotiations. Meanwhile, interim arrangements have been worked out for the sale of water in a limited number of communities within the State of Mexico. Ln. No. 910 Fourth Livestock and Agriculture Project: $110 Million Loan of June 18, 1973; Closing Date: June 30, 1978 Commitments and disbursements of sub-loans are progressing satis- factorily and are ahead of schedule. The amount under the Low Income Producers Sub-Project is almost fully committed and under the General Sub-Project is expected to be fully committed by March 1975. Increased discount rates to the participating banks and higher onlending rates to borrowers under the General Sub-Project are being proposed to meet rising costs of loan administration.  ANNEX II Page 5 Ln. No. 934 Las Truchas Steel Project: $70 Million Loan of September 12, 1972; Closing Date: December 31, 1977 Execution of the project and procurement of the equipment financed by the loan are progressing as scheduled. Cost increases are, however, expected due to world-wide inflation. Ln. No. 968 Seventh Highway Project: $90 Million Loan of March 1, 1974; Closing Date: December 31, 1978 This loan became effective on May 29, 1974. The engineering for the six roads included in the project, for which detailed engineer- ing had not been completed at the time of Board presentation, has now been completed. The economic justification of the roads concerned has been confirmed on the basis of final cost estimates. Construction works on two road sectors have recently started. Ln. No. 969 Rio Panuco Irrigation Project: $77 Million Loan of March 1, 1974; Closing Date: December 31, 1980 The loan became effective on May 29, 1974. Execution of the project is progressing satisfactorily. Ln. No. 970 - Rio Sinaloa irrigation Project: -$$47 Ai i-ior--Loan-of-March-1-, T974l, Clos-ing Date: December 31, 1980 The loan became effective on May 29, 1974. Execution of the project is progressing satisfactorily. Ln. No. 1022 Airport Development Project: $25 Million Loan of May 28, 1974; Closing Date: June 30, 1978 The loan became effective on September 16, 1974. The first group of contracts for this project was awarded in November-December 1974, for amounts averaging 15 percent above appraisal estimates including contingencies. Discussions have been initiated with the Government to avoid deidys, which would add to further cost increases. Ln. No. 1053 Papaloapan Integrated Rural Development Project: $50 Million Loan of November 15, 1974; Closing Date: June 30, 1980 The loan became effective on January 27, 1975.  ANNEX IlIl Page I MEXICO LOAN AND PROJECT SUMMARY Borrower Nacional Financiera, S.A. Guarantor : The United Mexican States Amount US$110 million equivalent Terms : Payable in 25 years, including 5 years of grace, at an interest rate of 8-1/2 percent per annum. Project Description: The project consists of directly productive, productive support and social infrastructure components designed to raise the income and improve the standard of living of poor rural families in 30 selected micro-regions throughout Mexico. The individual project components are summarized below: Directly Productive Components a. Construction and rehabilitation of small water facilities including pump schemes, storage dams and distribution networks to irrigate about 30,000 ha and to provide for domestic and livestock use; b. Development of livestock through land clearing, pasture establishment, perimeter fencing, and construction of watering and handling facilities; c. Soil and water conservation, using labor-intensive methods, where a4ppropriate, to build contour ridges, terraces, checkdams and other conservation works on about 90,000 ha; d. Establishment of orchards, including land clearing, ditch preparation and planting of a total of 9,500 ha; e. Other productive investment, including beekeeping, forestry and fisheries development; f. Provision of seasonal production, and medium- and long-term development credit to use the productive infrastructure most effectively.  ANNEX III Page 2 Productive Support Components a. Construction of about 2,000 km of feeder roads, especially to service areas in which agricultural development is supported; b. Installation of electric power distribution systems to service about 160,000 persons; c. Provision of mobile shops, and construction of small market stores and warehouses for sale, purchase and storage of farm inputs, farm produce and rural consumption goods; d. Organization, sensitization and training of farmers by specialized multidisciplinary teams; and e. Provision of intensive technical assistance packages, including field testing and demonstra- tion, to promote adoption of modern farming methods. Social In.frastructure a. Installation of water supply systems to serve about 170,000 persons, half of which would receive the water at the house lot; b. Construction or renovation and equipping of 220 health posts and 70 rural health centers; c. Construction or renovation and equipping of 1,150 classrooms to accommodate about 60,000 students; d. Provision of materials for self-help activities in ejidos and villages, such as workshops and community centers. Monitoring and Evaluation Support of a new Center for Research in Rural Development to carry out project related evaluation and applied research and to train PIDER planning and administrative staff.  ANNEX III Page 3 Estimated Cost: US$ Million % Foreign CQmponents Local Foreign Total Exchange I. Directly Productive A. Infrastructure Livestock 16.8 4.2 21.0 20 Irrigation 36.4 8.8 35.2 25 Fruit Production 5.1 0.6 5.7 10 Soil and Water Conservation 9.0 1.4 10.4 14 Beekeeping 1.1 0.0 1.1 0 Forestry 1.6 0.2 1.8 10 Fishery 0.1 0.0 0.1 20 Sub-Total 60.1 15.2 75.3 B. Credit Development Credit 36.4 9.1 45.5 20 Seasonal Production Credit 15.8 2.2 18.0 12 Sub-Total 52.2 11.3 63.5 II. Productive Support Feeder Roads 12.0 0.9 12.9 7 Electrification 9.1 3.0 12.1 25 Extension and Field Demonstration 14.2 0.9 15.1 6 Farmer Organization 5.9 0.2 6.1 4 Marketing 1.3 0.1 1.4 5 Sub-Total T2.5 5.1 47. III. Social Infrastructure Health 2.8 0.5 3.3 15 Education 5.0 0.8 5.8 15 Drinking water 10.0 2.5 12.5 20 Self-Help Projects 3.2 0.2 3.4 5 Sub-Total 21.0 4T. 25.0 IV. Evaluation 0.6 0.1 0.7 10 V. Total Base Line Cost 176.4 35.7 212.1 (17) Physical Contingencies 12.7 2.5 15.2 Expected Price Increases 55.9 11.3 67.2 VI. Total Project Cost 245.0 49.5 294.5 (17)  ANNEX III Page 4 Percent Allocation of Bank Loan: Components US$ Million of Total Directly Productive 63.8 58 Productive Support 24.8 23 Social Infrastructure 13.4 12 Unallocated 8.0 7 Total Bank Loan 110.0 100 Estimated Disbursements: FY Year-by-Year Cumulative Amount (US$ million) 1975 7.5 7.5 1976 41.7 49.2 1977 40.7 89.9 1978 20.1 110.0 Procurement Arrangements: The following procurement procedures would be applied for civil works and building construction, machinery, equipment, materials and supplies: i. Contracts would be grouped, where feasible, into larger packages in order to obtain more competition in bidding. ii. All coiitracts and purchases exceeding US$250,000 equivalent would be awarded under international competitive bidding in accordance with Bank Guidelines for Procurement. A preference for domestic suppliers of 15 percent would be permitted in the evaluation of bids for manufactured items. iii. Contracts of less than US$250,000 equivalent would be let under local competitive bidding, or as negotiated contracts under normal government procedures which are satisfactory, or executed by force account, provided that not more than US$60 million of the Bank loan would be used to finance such contracts. Rate of Return Average economic rate of return in the 15 appraised micro-regions is 16 percent. Appraisal Report: Report No. 660-ME, dated April 16, 1975. Central Projects Staff, Agriculture and Rural Development Department.  PROJECT IMPACT BY MICRO-REGION Ecological Rural Infrastructure 2/ Family Income- Econ. Rate./ Micro-Region 1/ Zone Population Investment tiectricity Water Before After of Return -- (US$ p.c.) Mt _() ' (S$) -(S) Mr 1. Baja California Sur. Arid 36,712 113 2 4 615 1,435 12 2. Fresnillo-Calera Arid 68,980 171 - 13 420 950 11 3. Aguascalientes Semi-arid 72,311 118 - 2 3'O 1,000 13 4. Noreste Guanajuato Semi-arid 71,451 152 6 5 450 1,150 16 5. Sur Nuevo Leon Semi-arid 102,620 141 8 11 450 1,300 23 6. Cos~ala-Elote Transition 47,895 241 31 26 370 830 13 7. Francisco Villa Temperate 43,905 232 30 15 480 1,150 16 8. Oriente Morelos Temperate 44,995 206 - 17 380 680 14 9. Zacapoaxtla Temperate 60,790 177 23 16 350 680 17 10. Ixtlahuacan Dry Tropical 42,853 188 1 1 525 1,935 23 11. Ometepec Dry Tropical 51,781 211 11 8 575 1,090 13 12. Valles Centrales Dry Tropical 53,046 181 5 13 320 890 18 13. Valles San Luis Potosi Dry Tropical 29,857 190 - 4 480 1,430 20 14. Hecelchacan Wet Tropical 24,690 336 5 15 275 550 18 15. Sur Yucatan Wet Tropical 11,594 658 56 18 230 960 15 Average Micro-Region- 50,898 197 7 9 420 1,160 16 1/ See attached map for location. 2/ Number of beneficiaries expressed as a percentage of total population in project area. Figures only refer to beneficiaries of the Bank supported program and do not include infrastructure provided during the first and first two years, respectively, under PIDER. 3/ Data based on actual, but not necessarily representative villate/ejido budgets. T/ Unweighted average except for economic rate of return. m X  I I0 | IBRD 11418 UNIITED STATE W 5 T A T ES | s - *r 9 a/lyy tdprg//ell or ceelane h Oea MEXICO Mxc PC C C 30' U300AL 0 C o EL SALVADOR -X PAAM . L-Fih)'- ''. - 0 SO OR cor pic a,. n * :ilF NGO -8 Nt. 30' CAIORI SU i N 0| j!; jj@r-- -.t,SR DEA E900 Ie bounidaries slow on ti 'ap do pot imiply endorsement o cetneb h I Micro andorld Banik and its afaTE |'- CHIUULHUA A 0 / ('0 TRNIIN m ioAXACAt- -) 0!0BLZ | - -- -' - K. ona e MTPCa A SCNRLS, |30 5FRANCI CO VNULTO i - G ulf .. 7 PCC 'l CI 01 ofE0 BAJA SUIiI1:Il.1