Announcement of a Loan to Mexico for Railroad Rehabilitation and Modernization Program on August 24, 1954

· FOR IMMEDIATE RELEASE INTERNATIONAL BANK FOR , • RECONSTmJCTION AND DEVELOPMENT /[ (WORLD BANK) __________ _______________________________ _,,._, // ., 1818 H STREET, N.W., WASHINGTON 25, O.C. TELEPHONE: EXECUTIVE 3-6360 PRE:SS RELEASE 1'10. 313 SUBJECT: Loan to Mexico August 24, 1954 The International. Bank for Reconstruction and Development today made a J,oan of $61 million to the Pacific Railroad of Mexieo for equipment needed for an extensive program to rehabilitate and modernize the railroad. Two commercial banks in the United States are particip~ting in the loan, without the International Bank's guarantee, to the extent of $2,420,000. The Bani~ of the Manhattan Company is purchasing $1.,000.,000 of the first maturity • falling due June 1, 19.59; and the Chemical Bank & Trust Company is purchasing $1,420,000 of the loan - the $210.,000 remaining of the first maturity, and all the second maturity of $1,210,000, falling due December 1., 1959. The Railroad (Ferroearril del Pacifico, s.A. de c. V r) serves the northwest 1, coast of Mexico. It runs acme 1,200 miles from Nogales on the Arizona-Mexican border to Guadalajara, Mexico's second largest city, andrthere joins the National Railway line to Mexico City. The Railroad traverses one of Mexico's most rapidly growing and important agricultt\ral areas, which depends heavily on the Railroad to carry its product1s to markets f,~ Mexico and the United States, and to bring in I manufactured goods. The annual tonnage of freight has more than doubled, rising from 860,000 to 1,800,000 tons between the years 19.36-40 and 19.51-.52. However, maintenance and replacement of track and rolling stock have failed to keep pace with ·~ greatly increased demands of the region, and extensive rehabilitation and • moderniza~on of the Railroad ,1·s now imperative.  • The r~habilitation of the Railroad is based on a and Colpitt·s, a New York firm of consulting engineers. Sur'\ref made by Coverdal~ The program incl.udes the re-laying of almost the ctira track, repairing bridges, replacing steam with diesel locomotive~, the purchase. and repair of freight cars, and the modernizat:ion of the communications system. 'I It is estimated that the entire program will cost )/ the equivalent of ab~dt $80 million and will take four years to complete. The Bank's lop,.n of $61 million will pay for the import of 33 di~sel locomotives for all-purpose use; 31 di~sel locomotives £or light service; 684 I' freight cars; four million railroad ties; 170,000 short tons of rail to re-lay about 1 1 000 miles of track; other track material., and communications am shop equipment. Local currency costs will be met from equity investment by the Mexican Government and by the reinvestment of earnings. In addition to the r~habilitation of its physieal f~cilities., important • changes are being ma.de in the administration of the Pacific Railroad. The composition of the Board of Directors has been altered to include mo~ representatives of agriculture, industry and banking from the area served. The seat of the Board has been moved from Mexico City to Guadalajara. A general overhaul of administrative and operating practices is being carri~d out. To assist in the execution of the rehabilitation program, the Railroad has r~ta:i.ned the firm of consult.ants on whose survey th@ program is based. The ija?1k's loan is for a tem of 15 years and bears interest of 4-5/8%, including the statutory 1% commission charged by the Bank. Amortization will begin in June· 1959. The loan is guaranteed by the Government of Mexico. The Railroad, built early in this century, was owned by the Southern Pacific a.ailroad Company of the United States until 1951, when it was sold to th~ .·•'- - 3- • Mexican Government. It provides the only rail service in the agriculturu states of Sonora, Sinaloa a1d Nayarit; it also serves the important west ooast ports of Ouaymas and Mazatlan. For over 600 miles, from Empalme to Roseta, the line crosses flat, fertile coastlaids containing approximately 8} million acres sui~able for agriculture. ~', About 1.75 million aeres are now irrigated, and '\. projects now being carried out or planned for the tut~re are expected to raise • u this figure to more than 4.5 million acros in the next ten years. Within the past few years, this region has become Mexico's "breadbasket" and an irr.portant source of winter vegetables for the United States. The principal crops of the area include cotton in Sonora, wheat in Sonora. and Sina.loa, corn, beans and other vegetables in Sinaloa and Nayarit. In Sonora, livestock production is also important. About 85% of Mexico's total fish catch is landed at ports on the Gulf of California which are serviced by the Railroad. Increaeed production" of wheat • and cotton in tne area is having a benefioeial effect on Mexico's balance of pay- ments: imports of wheat have been nearly eliminated, and cotton has become Mexic,o 's leading e~port.• Mexico's economic position is basically strong in view of its rich natural resources., diversified exports,,llhigh tourist earnings, Md near self-suffi~ieney '' in fogd, raw materials and\ many Y:fLanufactures. Neve?'.theless in 1952 and 1953 prices of raw materials fell ang earning~,from tourism declined, while imports remained high partly bee ause droughts ma.de it. necessary to import more food. The trade def'ieit incre,ased sharply in the early months, of 1954 and in April the Government decided that it was,necessary to devalue the peso from 8.65 to 12.50 per dollar. \; Heavy expenditures must still- be made to develop transportation, power, petroleum and other minerals., irrigatiot1, waterworks:, schools and hospitals if Mexico's rapidly growing population is to enjoy an adequate standard of living,  JI . Ir -4- • and periods of finaneial stress ma.y thus recur. The Mexican Government is intensifying its efforts to ensure that investment is e:ibanneled in the most ~ppropriate directions and financed by non-inflationary methods. Important steps in this direction have been the appointment of an Inves~ment Cormn.i ttee to exercise strict at\rutiny, coordination and control of Government investment, and improvement~} ~n: tax administration and collection. The rehabilitation of the Pacific Railroad, by stimulating out.put in a vitally important region, will substantJ1ally help to strengthen the economy. Today's loan is the fifth which the Bank has made in Mexico, and brings the total of Bar..k lending in that country to $141,300,000; The earlier loans were pr:incipally for the purpose of financing the expansion of electric power facilities by the Federal Electricity Commission and by the Mexican Light and • Power Company• After approval by the Bank's Executive Directors, the loan documents were signed today by Mr. Raul Martinez Ostos, Sub-Director General of Nacional Financiera, on behalf' of the Government o.f Mexico, by Mr. Benj&min Mendez, General .Manager, on behalf of the Pacific Railroad, and by Mr. Robert L. Gamer, Vice President., on beha.lf of the International Bank.