Mexico - Small-scale Agricultural Infrastructure Project

Document of The World Bank FILE Copy FOR OFFICIAL USE ONLY Report No. P-2423-ME REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO NACIONAL FINANCIERA, S.A. WITH THE GUARANTEE OF UNITED MEXICAN STATES FOR A SMALL-SCALE AGRICULTURAL INFRASTRUCTURE PROJECT December 7, 1978 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency Unit - Peso (Mex$) The fixed exchange rate of US$1 = Mex$ 12.50 which had prevailed since 1954 was abandoned on September 1, 1976 and the Mexican peso has been floating since then. In recent weeks the rate of exchange has fluctuated in the range of Mex$ 22-23 to the US dollar. On December 1, 1978, the peso traded at 22.76 per US dollar. Fiscal Year January 1 to December 31 Abbreviations Banrural - National Rural Credit Bank OHDR - General Directorate for Hydraulic Works and Agricultural Engineering for Rural Development PIDER - Investment Program for Rural Development PNDR - National Plan for Small-Scale Agricultural Infrastructure Development SARH - Secretariat of Agriculture and Water Resources SUDR - General Subdirectorate for the Supervision of Rural Development Units  FOR OFFICIAL USE ONLY MEXICO SMALL-SCALE AGRICULTURAL INFRASTRUCTURE PROJECT LOAN AND PROJECT SUMMARY Borrower: Nacional Financiera, S.A. Guarantor: United Mexican States. Project Executing 4 Agency: Secretariat of Agriculture and Water Resources (SARH). Amount: US$60 million equivalent. Terms: Repayable in 17 years, including 4 years of grace at an interest rate of 7.35 percent per annum. Project Description: The project would promote increased agricultural and livestock production through the execution of about 250 irrigation, drainage and livestock subprojects: Infrastructure Area benefited Sub-projects for (ha) Irrigation 56,000 Tubewells (36,000) Storage dams (12,000) Pumping from rivers ( 8,000) Drainage 36,000 Livestock raising 58,000 Some 30,000 low-income families would directly benefit from project works. Average annual family income for beneficiaries of irrigation and drainage projects is expected to increase from about US$500 before the project to about US$2,300 at full devel- opment four to five years later. Incomes of beneficiaries of the livestock development sub- projects are expected to increase from an estimated average level of about US$200 without the project to about US$1,400 at full development, eight to ten years later. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - Estimated Cost: The total estimated cost of the project is US$143.7 million of which US$60 million is in foreign exchange: -------- US$ millions --------- Component Local Foreign Total I. Civil and On-Farm Works 37.2 29.6 66.8 a. Irrigation 27.5 20.9 48.4 b. Drainage 2.7 6.6 9.3 c. Livestock 7.0 2.1 9.1 II. Equipment 10.3 14.2 24.5 a. Hydrogeological 0.1 1.4 1.5 b. Construction 0.9 8.0 8.9 c. Wells 8.0 2.7 10.7 d. Pumping Plants 0.9 1.4 2.3 e. Livestock Units 0.4 0.7 1.1 III. Engineering and Administration 20M4 0.6 21.0 IV. Total Base Line Cost 67.9 44.4 112.3 V. Physical Contingencies 5.6 4.4 10.0 VI. Price Contingencies 10.2 11.2 21.4 VII. TOTAL COST 83.7 60.0 143.7 Financing Plan: US$ millions % Government 70.2 49 Beneficiaries 13.5 9 Bank 60.0 42 TOTAL 143.7 100 Estimated Disbursements: Bank FY 1979 1980 1981 1982 1983 ------------- US$ millions ------------- Annual 0.3 21.1 13.2 14.2 11.2 Cumulative 0.3 21.4 34.6 48.8 60.0  - iii - Economic Rate of Return: 23 percent Staff Appraisal Report: Report No. 2180-ME, dated December 1, 1978.   INTERNATIONAL BAqK FOR RECONSTRUCTION AND DEVFLOPMENT 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 A SMALL-SCALE AGRICULTURAL INFRASTRUCTURE PROJECT 1. I submit the following report and recommendation on a proposed loan to Nacional Financiera, S.A. with the guarantee of United Mexican States for the equivalent of US$60 million to help finance small agricultural infrastructure works under a national plan being implemented by the Secretariat of Agriculture and Water Resources. The loan would be repaid over 17 years, including 4 years of grace, with interest at 7.35 percent per annum. PART I: THE ECONOMY 2. Some of the major features of the Mexican economy were analyzed in "An Updating Report on the Economy of Mexico" (1110-ME), distributed to the Executive Directors on March 23, 1976. A special economic mission visited Mexico in April-May 1977 and its report is now in the final stages of prepar- ation. The discussion which follows reflects the preliminary findings of the mission. Past Performance 3. For most of the three decades preceding the mid-seventies, Mexico was outstandingly successful in achieving rapid economic growth while main- taining stability in prices and the balance of payments. From 1940 to 1970, average GDP growth exceeded 6 percent per year in real terms, inflation averaged less than 5 perce!nt per year from the mid-1960s to 1972, and the dollar value of the peso, fixed in 1954, was maintained until the September 1976 devaluation. The Government's role in this achievement was to carry out direct investments in infrastructure and in key industries such as power, steel and petroleum, while creating a stable regulatory and institutional framework, as well as goocl profit prospects, to induce private sector growth. 4. This strategy produced rapid growth, but led to a sharpening of contrasts within the Mexican economy. While land redistribution under the reform of 1915 was continued, most of the peasants who received land could not improve their economic staitus in the absence of basic infrastructure, credit and technical assistance. Rapid population growth made social equity even more difficult to achieve. Population growth in Mexico accelerated steadily, primarily as a result of reduced death rates, and reached 3.5 percent per year by 1970. Despite economic growth, the high demographic growth rate made adequate absorption of the labor force in productive employment difficult. Some 40 percent of the labor force is either relatively unproductive and poorly paid, or openly unemployed.  - 2 - 5. During the 1970s, Mexico experienced increasing public sector deficits, inflation, large balance of payments deficits, capital flight and a marked slowdown in the real rate of growth of GDP, which dropped to 2 percent in 1976--the lowest annual growth rate experienced by Mexico since the mid-thirties. On September 1, 1976 the authorities abandoned the fixed exchange rate of 12.50 pesos per dollar that had remained unchanged since 1954 and let the peso float; in recent months it has remained rather stable at rates fluctuating between 22 and 23 pesos per dollar. Following the devaluation, Mexico obtained major support from the IMF. In the last quarter of 1976, Mexico was able to draw on the Fund for US$480 million. For 1977-79, an Extended Fund Facility accompanied by a comprehensive three- year stabilization program was negotiated. The new Government ratified the agreement with the IMF shortly after taking office on December 1, 1976, and to date has complied with the program agreed upon with the IMF. Current Economic Policy 6. The present Government inherited a difficult situation upon taking office on December 1, 1976. High inflation, large public sector deficits, in- creasing foreign indebtedness and lack of confidence in economic management indicated a need for economic stabilization. However, the situation also called for more expansionary policies; economic activity had slowed down, net private investment was virtually nil, and the gap between new job creation and growth of the labor force was increasing. High world prices for petroleum offered profitable investment opportunities in the petroleum sector; indeed, increased production for export of these products seemed by far the best way to meet a large part of Mexico's high debt service requirements in the coming years. 7. Faced with these conflicting needs and opportunities, the Mexican authorities adopted a mixed strategy aimed at reducing lower-priority public expenditures and increasing public revenues, while proceeding with petroleum and other high-priority investments. The objectives of the Government's program include control of inflation together with a return to high rates of economic growth. Better management of public sector expenditures, more rational pricing and cost control in public sector enterprises, promotion of private savings, limiting wage increases to justifiable levels, and more effective cooperation with the private sector are important parts of the Government's economic strategy. 8. The measures instituted by the new Administration have already produced good results. Inflation during the first semester of 1978 slowed to 18 percent on an annual basis as compared to 31 percent during the same period of 1977. The deficit in the current account of the balance of payments declined from US$3.5 billion in 1976 to US$2.2 billion in 1977, and total public sector financial requirements dropped from 10.3 percent of GDP in 1976 to 7.9 percent in 1977. Mobilization of savings by the banking system is increasing, and the economy is recovering at a strong pace. The GDP rate of growth may exceed 6 percent in 1978 as opposed to less than 3 percent in 1977.  - 3- Economic Issues and Prosoects 9. The Mexican authorities have adopted a comprehensive social program aimed at strengthening the political system, improving income dis- tribution and the living conditions of the poor, increasing public sector efficiency and accelerating growth. The program takes into account two overriding economic priorities--energy development and adequate supplies of foodstuffs--and takes the form of a three stage economic strategy. The first stage--the stabilization period--is being devoted to overcome the serious economic problems the new Government inherited. The second stage would be devoted to establishing the basis for attaining a high, equitable and stable rate of growth. During this stage--1979-80--efforts will be made to overcome supply bottlenecks, increase agricultural production, improve the marketing system, increase the efficiency and competitiveness of the country's industrial sector and create the conditions necessary for a more just distribution of the benefits of growth. Accelerated and equit- able growth would be the characteristics of the third stage. 10. Mexico has the human, institutional and natural resources necessary to attain these ambitious goals. The short-run disequilibria that have affected the country duriLng the mid-70s have been brought under control; the new petroleum riches and the country's ability to exploit them have greatly relaxed the financial constraints on growth. In his last State of the Union speech President Lopez Portillo announced that Mexico's present oil and gas reserves amounted to 20 billion barrels on July 31, 1979 and that probable and potential reserves amounted to 37 billion and 120 billion barrels, respec- tively. Exploitation of these reserves would allow Mexico to increase produc- tion of crude oil and natural gas liquids from 894,000 bbl/day in 1976 to about 2.8 million bbl/day in 1982 and to export the equivalent of about 1.6 million bbl/day of crude oil in 1982 (for approximately US$9.0 billion on the basis of conservative pr:Lce assumptions), not counting possible gas exports. 11. The challenge ahead is how to use these vast riches to help resolve Mexico's long-term development problems which include the following: (i) Population and Poverty. Many Mexican families have not partici- pated in the sustained economic growth of the last several decades. As of 1975, about 4 million Mexican families--45 percent of the total--receive incomes equal to less than one-half the national average. The members of most of these families work--more than half of them in agriculture--but they produce little and receive little. Mexico's labor force is now growing at about 3.2 percent per year, which implies an average annual increase by some 550,000 workers during 1975-80; during the 1960s the growth rate was 2.7 percent per year. The challenge of providing productive jobs for both new entrants and existing underproductive workers is awesome.  - 4- (ii) Stagnation in Agriculture. Crop and livestock production in Mexico, which had grown by 6 percent per year during 1945-55 and 4.2 percent per year during 1955-65, grew at only 2.1 percent per year during 1965-75, resulting in increased imports of corn and wheat. (iii) Regional Imbalances. The heavy concentration of people, production, and public services in the Mexico City area-- which has currently a population of about 12 million and is growing at over 5 percent each year--and the scarcity of productive employment and services for rural Mexicans are challenges to urban management, economic development, and social justice. They imply diversion of some of Mexico City's future growth to other regions, as well as the gradual concentration of scattered rural populations into small towns so that basic public services could be provided more economically and productive activities would have a better chance of developing; (iv) Mobilization of Domestic Savings. Past failures to mobilize enough domestic resources to pay for public sector spending have left Mexico with a large foreign debt and a large public sector deficit. The increase in export revenues that is expected from petroleum and related products should increase public sector savings, alleviate the foreign debt problem and greatly ease the foreign exchange constraint. But larger domestic savings would be required to reduce the still high public sector deficit and provide financing for additional government programs. 12. In the medium term the prospects for resumption of economic growth with relative price stability are good. Poverty will remain a problem but the Government is taking steps to address it. The alleviation of the external constraint on growth brought about by the expected petroleum earnings (para. 15), together with the Government's efforts to increase public sector savings and to stimulate private investment, could produce economic growth of 7 to 8 percent per year in the remaining four years of the present Administration. Resumption of economic growth combined with the intensification of the Government's family planning program (on October 28, 1.977 President Lopez Portillo announced the ambitious goal of reducing the population growth to 2.5 percent per year by 1982, then progressively to 1.8 percent by 1988, 1.3 percent by 1994, and 1 percent by the year 2000), the new emphasis on rainfed agriculture, and the implementation of specific programs aimed at increasing productive employment should help to address the structural problems mentioned above. 13. In agriculture, the current administration has undertaken a far- reaching administrative reform that will allow broader and more effective Government action in the sector. Emphasis is laid on productivity gains and yield increases in both irrigated and rainfed areas. The previous goal of self-sufficiency in agricultural goods is being rephrased in terms of  the sector's overall capacity to pay for its own imports. Irrigation is fostered through a nationwide program for small irrigation and drainage works and rehabilitation of existing irrigation districts to increase efficiency of water use. The new ernphasis on rainfed agriculture, relatively neglected in the past, should lead to an increase in the productive potential of vast areas currently under-exploited and to a reversal of the past t-ends towards larger income disparities between the modern and traditional agricultural subsectors. These initiatives, together with the more realistic exchange rate, promise a resumption of growth in production for both domestic and export markets and an improvement in the living conditions of the rural poor. 14. Industry has potential for considerable growth in many sectors, including import substituation in chemicals, petrochemicals and capital goods as well as exports of many different manufactured products. Increases in tourism export earnings are also expected. 15. Among the benefits of recent public sector investments are the new possibilities opened to the Mexican economy through the discoveries of rich petroleum fields. The Government has decided to use these large hydro- carbon resources to help manage Mexico's heavy debt service burden and to enhance the country's development prospects. The additional domestic demand likely to occur due to the large planned increase in Government expenditures associated with increased public investment and programs aimed at increasing employment and the productivity of the poor will have to be satisfied partially through increased imports. Net interest payments are likely to increase in the future given the rapid increase in foreign debt which occurred during the last sexennio and the borrowing expected to take place in the years to come. However, rapidly increasing petroleum exports and favorable prospects regarding tourism earnings, the recovery of agricultural exports and resump- tion of growth of manufactured exports have strengthened the balance of pay- ments outlook and will keep the current account deficit at reasonable levels. 16. Mexico's debt service ratio has been increasing over the recent past and reached 48 percent in 1977. This comparatively high debt service ratio is more a reflection of the low level of exports relative to GNP and the high proportion of Mexican borrowing from commercial banks than it is an indication of a high level of external debt relative to the size of the economy. When middle income developing countries are ranked by the ratio of external public debt to GNP, Mexico ranks as average. The debt service ratio is expected to peak at slightly over 50 percent in 1978 and, mainly as a result of the rapid expansion of petroleum exports, decline sharply to levels of around 30 percent in the early 1980's. Debt service on Bank loans amounts to about 4 percent of public debt service; this ratio is projected to decrease over the next two years and to increase to some extent afterwards. The Bank currently holds about 8 percent of Mexico's total medium- and long-term public debt, and this ratio is likely to increase somewhat over the next few years. Mexico remains creditworthy for borrowing on conventional terms considering the country's excellent medium- and long-term potential and the well conceived economic strategy which the Government has adopted to realize it.  - 6 - PART II - BANK GROUP OPERATIONS IN MEXICO Bank Operations 17. As of October 31, 1978, Mexico had received 56 loans from the Bank amounting to US$3,068.9 million net of cancellations and terminations; of these, 33 loans totalling US$1,486.4 million were fully disbursed. The Bank held US$2,553.8 million of which US$1,114.4 million had not yet been disbursed and of which US$494.5 million have been recently approved and are not yet effective. Some 39 percent of Bank lending has been for agriculture and rural development (18 loans for US$1,204.4 million), 23 percent for power (12 loans for US$704.8 million) and 18 percent for transportation projects (12 loans for US$546.7 million); the remaining 20 percent has been for industry (US$352.5 million), water supply (US$130 million), tourism (US$114 million), and urban development (US$16.5 million) projects. Mexico is carrying out a stabiliza- tion program, and because of scarcity of counterpart funds some projects fell behind schedule in 1976 and 1977. Following review with the Government, a steel loan was terminated (Sec M77-258 of April 5, 1977), the scope of an irrigation project was reduced and US$100 million from the original US$150 million loan were cancelled (R77-305 of December 13, 1977) and the scope of several other projects has been modified. Adequate budget support for the ongoing projects has now been secured. Annex II contains a summary statement of Bank loans as of October 31, 1978 and notes on the execution of ongoing projects. IFC Operations 18. As of October 31, 1978, IFC has made 17 investment commitments in Mexico, for a total of US$202.4 million, of which US$128.6 million had been sold, repaid or cancelled. The balance held by the Corporation, US$73.8 million, consists of US$64 million in loans and US$9.8 million in equity. A summary statement of IFC investments as of October 31, 1978 is presented in Annex II. Bank Strategy 19. The main objectives of Bank lending in Mexico have been to: (i) support policies and programs leading to a wider distribution of the benefits of economic growth; (ii) strengthen policies and programs leading to continued economic growth by helping to finance projects that are to make directly or indirectly significant contributions to output, exports, and employment; and (iii) help resolve critical adjustment problems that Mexico is currently facing. The Bank is preferentially supporting projects of high social priority that help the rural or urban poor, projects that promote higher levels of employment and production, and those that help to decentralize economic activity.  20. Because of the difficult structural problems of Mexico's agriculture and the sector's crucia]L importance to the country's further development, the Bank has made agriculture the leading sector for its lending. The Bank agricultural lending program for Mexico has four goals: first, to increase productivity of present]Ly-cultivated lands through selected programs of irri- gation rehabilitation and on-farm improvements; second, to improve the pro- ductivity of small farmers who receive the benefit of most Bank lending through programs for (a) rural development, (b) rainfed agricultural develop- ment (c) bringing new areas under cultivation, and (d) establishing irrigation and drainage units; third, to complement infrastructure investments with general support services including agricultural extension and marketing programs and provision of medium-term credit; and fourth, to promote off-farm employment opportunities in rural areas through programs of agro- and rural- industries. The Bank has made seven loans in FY's 72 through 77, totalling US$579 million, for irr:Lgation, rural development and agriculture and livestock credit programs. A US$56 mil]ion loan for an agricultural development project designed to intensify agricultural production in Mexico's humid tropics and a US$200 million loan for an agricultural credit project were approved by the Executive Directors in FY78. A US$25 million supplemental loan for the Rio Panuco Irrigation Project was recently approved. Besides the proposed small- scale infrastructure project, future Bank lending for agriculture includes projects for rehabilitatLion of irrigation districts, water control, rural development and support services. 21. Bank lending for industry has been aimed at assisting the Govern- ment's efforts to reduces the balance of payments deficit and decentralize industrial activities away from the major (and increasingly congested) urban areas. Thus, a major steel project has recently started operating in a previously underdeveloped area on the west coast of Mexico, and a fertilizer project promotes new poles of development in the resource-rich southeast region and the north central area. A project to promote the development of small- and medium-scale enterprises and a third industrial equipment fund project were approved by the Executive Directors in FY78. A fertilizer project is currently being processed for submission to the Executive Directors in the coming months, and a capital goods industry project is under study. 22. As regards infrastructure, the Bank's operations have been focused on investments in key areas of the country as well as on institutional reforms and sector policies aiming, inter alia, at suitable pricing mechanisms to help generate additional resources for investment financing. The airports development project (FY74) was designed to support the Government's policy of regional integration; the third railway project (FY76) supported improve- ments of institutional aspects and financial management of the sector. The Mexico City (FY73) and medium cities (FY76) water supply projects have been instrumental in the establishment of specialized institutions for efficient provision of drinking water and in the pricing of water at levels more closely related to costs. A highway sector loan which would help finance a high prior- ity modernization and expansion of the highway network is being processed for submission to the Executive Directors in the coming months, and a regional airports project is under study.  23. The Government and the Bank have long recognized the regional economic disparities prevailing in Mexico. In June 1976 the Government adopted the Law of Human Settlements to provide a new institutional framework to deal with the pressing problems of over concentration of economic activi- ties in the larger metropolitan areas, and several projects are now being prepared to meet the needs for basic urban services for poor families in selected priority cities. One such project, to assist in the development of the Lazaro Cardenas conurbation area, was recently approved by the Executive Directors, and another project for the southeast part of the country is under study. PART III - THE AGRICULTURAL SECTOR Background 24. During the period 1945-1965, agricultural output grew at a rate of more than 5 percent per annum. Since the mid-1960s, however, the growth in production of crops in general and of cereals in particular has fallen below the growth in domestic demand, while livestock production, accounting for about one-third of the sector's output, has been growing consistently around 5 percent per annum. 25. More than 22 million of Mexico's 62 million population live in rural areas. About 40 percent of the national labor force is engaged in agriculture, forestry or fishing; the sector accounts for over one-third of commodity exports. Although agriculture provides important inputs for industry, its share in gross domestic production has declined from 19 percent in the 1930s to below 10 percent in the late 1970s. The rural population comprises three distinct groups of nearly equal size: (i) landless workers, (ii) private landholders; and (iii) ejidatarios. 1/ The number of landless families is increasing rapidly because of limited availability of farm land, even though almost half of the new entrants to the labor force migrate to the city. 26. The Mexican agricultural sector is marked by wide disparities in resource endowment, technology, productivity, and income. While between 1915 and 1965 over half of Mexico's arable and pasture lands were distributed to landless families under a pioneering agrarian reform program, the land varies considerably in quality and productive potential from the arid north to the tropical isthmus. Mexico has been a leader in applied agricultural research, but the link with the farmer has been weak; as a result, most small farmers ! ve not fully benefitted from modern technology. Access to public services, credit and infrastructure has been uneven. Together, these factors have resulted in a sharp duality in Mexican agriculture. One third of Mexico's cultivated area produces two-thirds of Mexico's agricultural goods. Farmers 1/ Ejidatarios are members of an ejido, which is a form of group land tenure based on usufruct.  - 9 - in the irrigated zones and a selected number of rainfed agricultural zones have developed into procluctive rural entrepreneurs, but most of Mexico's small farmers work by traditional methods, subsist on a modicum of production from their farms, and barely participate in the market economy. In an effort to correct this imbalance, the Government is intensifying technical, promotional, and organizational assistance to farmers and is concentrating lublic investment in agriculture on programs benefitting the small farmer and ejidatario. Government's Policies and Program 27. The agricultural policy of the Mexican Government has in recent years focused on increasing production of basic food crops (maize, wheat and rice) so as to attain self-sufficiency and on raising incomes and living standards for the poorer sections of the rural population. 28. The Government:'s strategy for increasing agricultural production includes measures to increase the cropped area and to increase the productivity of lands currently being cropped. To increase the area devoted to basic food crops, the Government is bringing new lands into production and is stimulating changes in cropping patterns. Development of new rainfed lands is getting underway mainly in the humid tropical zone, where a largely underutilized area of about 8 million ha is estimated to have medium to high agricultural potential. In the short term, development of new lands under irrigation would take place mainly under the national program for small-scale infrastructure. In selected cases, medium and large projects are also being undertaken. To induce changes in cropping patterns that would help offset the decreased area devoted to wheat and maize during recent years, the Government has recently increased the guarantee prices of these two crops relative to sorghum and soybeans. 29. The present administration is placing significant emphasis on programs to increase farm productivity. A program to rehabilitate those irrigation districts where infrastructure is inadequate or where lands are in poor condi- tion has been expanded with important financial support from the Mexican banking community and the participating farmers. Increasing attention is being given to development of the potential of rainfed agriculture. The 110 recently established raiLnfed agricultural districts would promote the adoption of modern technology and would be the basis for strengthening the delivery of technical assistance and marketing services to farmers. Such programs are complemented by other public investments to improve the incomes and employment levels of the rural poor. The most important of these is the national Invest- ment Program for Rural Development (PIDER) which provides a balanced package of directly productive, support, and social infrastructure to residents of Mexico's poorest rural zones. 30. Thus the Government's agricultural development strategy is to provide access to modern farming techniques for a higher proportion of its rural popula- tion. The strategy calls for investments by the Government in education, applied research and extension as well as in physical infrastructure for access roads, land clearing, marketing and storage facilities, drainage and  - 10 - irrigation. At the same time, the Government would stimulate private invest- ment through the credit institutions. The Bank is supporting the Government's strategy in both these areas. The tropical agricultural development project, approved by the Executive Directors in FY78, finances part of the Government's program to open the humid tropical areas to intensive use. In addition, projects for irrigation, drainage and improvement of the agricultural extension and marketing systems are under study. The sixth agricultural credit project, approved by the Executive Directors in FY78, supports private investment in agriculture and agroindustries. The proposed project would continue Bank support of the Government strategy by providing infrastructure and technology necessary for small farmers to significantly increase their productivity. The Small-Scale Infrastructure Program 31. In order to bring the benefits of irrigation to small farmers in scattered regions of the nation at a reasonable cost, the Government in 1967 established a national plan for small-scale irrigation and created a specialized agency within the Secretariat of Water Resources to implement the plan. This agency, now known as the General Directorate for Hydraulic Works and Agricultural Engineering for Rural Development (OHDR), was successful in developing a technical and managerial plan for developing localized water resources for irrigation at reasonable costs. 32. The program was later diversified to include drainage infrastructure. Drainage works are concentrated in those zones where high levels of peak rain- fall make agriculture risky and cause farmers to use their lands for natural pastures at a low level of productivity. Small-scale drainage sub-projects typically include land clearing and improving the discharge capacity of a natural water course. The technical assistance provided under the program helps to ensure a productive response from sub-project investments. 33. OHDR's program was further enlarged in 1976 when it absorbed the Department of Rural Engineering of the former Secretariat of Agriculture and Livestock. The revised program is called The National Plan for Small Scale Agricultural Infrastructure Development (PNDR) and includes in addition to the irrigation and drainage works a program for livestock infrastructure works. This consists of improving natural pastures and establishing animal watering points, stables, corrals and fences. Livestock infrastructure sub-projects would be concentrated in those ejidos where most of the land is either unused or devoted to subsistence agriculture, where productivity of the land cannot be improved through irrigation or drainage, and where the land is suitable only for livestock development. This program provides a strategy to increase the income level of a large number of poor families presently at subsistence level. 34. Users' Associations. A key feature of the program is organization of beneficiaries into a Users' Association which after completion of the feasibility study for the sub-project, and before project execution is under- taken by the Government, enters into a Participation Agreement establishing the users' responsibility for administration, operation and maintenance of the project. It also establishes the users' share in project financing which is equivalent to 30 percent of total project cost. The Subdirectorate for Supervision of Rural Development (SUDR) provides the Users' Associations advice and technical assistance in the operation and maintenance of the units.  - 11 - 35. The program has been successful in bringing significant increases in family income to pariticipating farmers. The program has largely been supported by the IDB, which has made 11 loans amounting to $225 million to assist in financing a total investment of $547 million in small-scale irriga- tion projects. The Bankc's two loans for PIDER aggregating $230 million also provide significant support to this program. 36. During the first decade of this program for small infrastructure works, over 360,000 ha owned by 156,000 families were brought under irri- gated cultivation. In ]L978, the program will develop irrigation works serving about 61,000 ha and benefitting 19,000 families. Currently, of the 5 million ha under irrigation in Mexico, 1.1 million ha are served by small irrigation works. By the year 2000, the Government proposes to double the irrigated area to 10 million ha; of the new 5 million ha to be brought under irrigation, 33 to 40 percent would be developed under the small-scale infrastructure program. For the period 1977-82, PNDR is expected to develop infra- structure serving 570,0()0 ha and benefitting about 200,000 families. The projected breakdown of the total area is: Type of Infrastructure Works Area (ha) Irrigation 350,000 Drainage 100,000 Livestock 120,000 PART IV - THE PROJECT 37. The project is a part of this program and would include about 250 irrigation, drainage, and livestock infrastructure sub-projects benefitting over 30,000 low-income farm families, most of whom would be ejidatarios. The project would develop intensive irrigated agriculture on about 56,000 ha through construction of about 170 sub-projects. A total of 36,000 ha would be served by pumping from deep wells, 12,000 ha would be served from small storage dams, and 8,000 ha would be served by pumping from rivers. About 40 drainage infrastructure subprojects serving an additional 36,000 ha would enable more intensive cultivation by reducing flooding and improving water- logged soils. Nearly 40 livestock infrastructure projects serving 58,000 ha would allow marginal lands to be used more effectively. The principal invest- ments in the livestock infrastructure program would be to improve pastures, animal watering facilities, stables, corrals, and fences. 38. A Staff Appraisal Report, entitled "Small-Scale Agricultural Infra- structure Project," No. 2180-ME, dated December 1, 1978 is being circulated separately to the Executive Directors. The project was prepared by SARH and was appraised by a Bank mission in April, 1978. Negotiations took place in Washington, D.C. on November 14-17, 1978. The Mexican negotiating team included Lic. A. Galan of Nacional Financiera, S.A. and Ing. H. Bautista of OHDR.  - 12 - Project Cost and Finance 39. As indicated in the Loan and Project Summary, the project is expected to have a total cost of US$143.7 million of which US$60 million would be in foreign exchange. The proposed Bank loan would be equivalent to the foreign exchange cost of the project (42 percent of total project cost). The remainder would be financed by the Government (49 percent) and project beneficiaries (9 percent). Beneficiaries would contribute an additional US$6.3 million in unskilled labor during construction; the value of this non-cash contribution is not included in the project cost estimates. Project Implementation 40. The project would be executed by SARH. Within SARH, OHDR has responsibility for planning, evaluating, executing, and supervising PNDR works and SUDR has responsibility for providing technical assistance to project beneficiaries and monitoring agricultural development. OHDR in cooperation with staff from other agencies would prepare a project report for each proposed sub-project. The project report would contain information on the social and technical aspects of the sub-project as well as an economic analysis of the proposed investments. Engineering of the sub-projects would follow practices and standards developed by OHDR; works would be simple in design, taking advantage of locally available materials, labor intensive construction, and lending themselves to easy maintenance by project benefi- ciaries. Execution of works would be done by contract or, in certain cases, by force-account. OHDR has a separate supervision division to inspect and monitor completion of works. 41. Beneficiary participation in the planning, execution and operation of project works would be significant. The Users' Association, managed by an elected committee of beneficiaries, is organized during the early stages of sub-project preparation. The Association represents the beneficiaries in negotiations with OHDR regarding sub-project preparation. At the completion of sub-project evaluation, beneficiaries through the Users' Association enter into a Participation Agreement with OHDR which establishes the users' share in project financing and their responsibility for administration, operation, and maintenance of project works. The Users' Association has proven an effective means of promoting cooperative action by project beneficiaries, not only for the management of their infrastructure, but frequently for the exploitation of their land and marketing as well. Cost Recovery 42. The Participation Agreement with each Users' Association would define the project and who the beneficiaries are, and provide for collection by the Association of the full operation and maintenance costs of the units to be constructed under the project. In addition, beneficiaries would pay a portion of project investment cost determined by the beneficiaries' capacity to pay and the need to encourage efficient use of the land and water (Section 3.08 of the draft Guarantee Agreement). OHDR's practice is for the benefi- ciaries to pay 30 percent of the investment cost of a sub-project, the maximum  - 13 - allowable under the Federal Agrarian Reform Law. For groundwater sub-projects, this is done through the purchase of pumping equipment (which typically represents about 30 percent of sub-project investment cost) financed under normal credit channels. For surface irrigation, drainage or livestock develop- ment sub-projects, this is done through contribution of unskilled labor and materials during construction period (up to a maximum of 10 perzent of the investment cost) and annual cash payments after completion of construction. Sub-Project Evaluation 43. OHDR would be responsible for the evaluation of sub-projects to be included in the project. OHDR performs the analysis using standard assump- tions agreed to by the Secretariat of Programming and Budgeting and the IDB. OHDR's cut-off point for sub-project approval is equivalent to an economic rate of return of about 12 percent. The Bank would review sub-projects prior to agreeing to finance them (Section 2.02 of the draft Loan Agreement). Sufficient information would be provided by OHDR to allow the Bank to check the analysis. In the case of irrigation and drainage sub-projects, the Bank would normally review a summary of the sub-project report, and only in excep- tional circumstances review the entire sub-project report. However, for the livestock sub-projects, the Bank would review the entire sub-project report (Section 3.07 of the draLft Guarantee Agreement) because of the greater sensi- tivity of livestock sub-projects to design criteria and because ORDR is less experienced in designing and executing livestock infrastructure sub-projects than irrigation or drairnage sub-projects. Only sub-projects with a rate of return of at least 12 percent would receive assistance under the project. Monitoring 44. ORDR would supervise and monitor physical execution of PNDR works. SUDR would be responsible for monitoring implementation of farm development plans and for providing technical assistance to Users' Associations. The developmental impact of the Bank-financed program would be monitored by SUDR based on a sample of sub-projects with reports submitted annually to the Bank (Section 3.11 of the draft Guarantee Agreement). 45. Agricultural credit would be provided to project beneficiaries through the established network of private and public banks. OHDR has entered into an operating agreement with the National Rural Credit Bank, Banrural, to provide for Banrural's participation the preparation of farm development plans and to ensure the provision of adequate credit for beneficiaries' development programs. Interest rates typically vary from 11 to 17 percent per annum depending on loan amount: and the beneficiary's income. Repayment terms are typically five to seven years but are longer where justified by the type of investment.  - 14 - Procurement 46. Because of the small size and dispersed location of works included in the project, it is expected that construction contracts would not attract international bidders. Moreover, Mexico has a well developed and competent construction industry capable of executing works at competitive costs. There- fore, civil works contracts would be let through the Guarantor's ordinary procedures which have been reviewed and are acceptable to the Bank. Equipment for engineering studies, costing US$1.5 million, as well as construction equip- ment costing US$8.6 million would be procured through international competitive bidding; domestic manufacturers would be allowed a preference up to 15 percent. Equipment for on-farm works, pumping plants and livestock development (US$3.7 million) would be purchased in small quantities under local procedures (Sched- ule 2 to the draft Guarantee Agreement). Disbursement 47. As indicated in the Loan and Project Summary, the loan is expected to be disbursed over the 4-year period mid-1979 through mid-1983. Completion of on-farm works in livestock development sub-projects would generally require longer periods of time than the expected disbursement period for the loan; thus, while execution of these sub-projects would be undertaken on about 58,000 ha, project cost estimates and financial arrangements are based on a "time-slice" approach covering investment costs incurred during the four-year project execution period. Livestock development sub-projects approved by the Bank for inclusion in the project, but not completed during the disbursement period, could be considered for supplementary financing under a subsequent Bank-assisted project or would be financed by the Government out of its own resources. Project Impact 48. The project is expected to increase substantially the incomes of 30,000 low-income farm families. Average annual family income for benefi- ciaries of irrigation and drainage projects is expected to increase from about US$500 before the project to about US$2,300 at full development four to five years later. Beneficiaries of the livestock infrastructure component would include some of the lowest-income land-holders in Mexico who lead a precarious existence on lands with minimal productive potential; their annual farm incomes are expected to increase from an estimated average level of about US$200 without the project to about US$1,400 at full development, eight to ten years later. To ensure that project benefits would accrue to low-income farmers and that the number of beneficiaries would be as large as possible, assurances were obtained during negotiations that: (a) project beneficiaries would have a pre-project annual income from farming activities not higher than US$2,500 per family (Section 1.02 of the draft Guarantee Agreement); and  - 15 - (b) for each sub-project, average investment per family would not exceed US$10,000 (Section 3.09 of the draft Guarantee Agreement). While beneficiaries' pre-project incomes are typically as described above, the cut-off point of US$2,500 is the same that has been applied under the PIDER program. Experience shows that this limit is rarely reached. 49. The project is expected to create approximately 8,300 man-years of permanent agricultural employment. In addition about 11,700 man-years of employment during construction, much of which would utilize the unskilled labor of project beneficiaries, would be created. Economic Evaluation 50. The economic rate of return of the project is estimated to be 23 per- cent based on a weighted average of the rates of return of typical sub-projects. Rates of return for irrigation sub-projects are generally 30 percent for projects based on pumping from rivers, 24 percent for groundwater projects and 18 percent for storage dam projects. Drainage sub-projects averaged rates of return of 26 percent anid livestock sub-projects 16 percent. In calculating rates of return, labor was shadow priced at between 50 and 100 percent of the official minimum wage to account for regional variations in unemployment. Risks 51. OEDR has a proven record as a successful implementing agency for small-scale irrigation works. The risk of shortfalls in the attainment of project goals is thus highest in sub-projects for drainage and livestock development which constitute relatively new components of the program. How- ever, the risks are acceptable due to the technical and administrative capacity of OHDR and the low technical complexity of these types of sub-projects. PART V - LEGAL INSTRUMENTS AND AUTHORITY 52. The draft Loan Agreement between the Bank and Nacional Financ,era, S.A., the draft Guarantee Agreement between United Mexican States and the Bank, and the Report oE the Committee provided for in Article III, Section 4 (iii), of the Articles of Agreement are being distributed to the Executive Directors separately. 53. Special conditions of the project are listed in Section III of Annex III. 54. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.  - 16 - PART VI - RECOMMENDATION 54. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachment  ANNEX I Page 1 of 5 TABLE 3A MEXICO - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAGES MEXICO /a LAND AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE) TOTAL 1972.5 SAME SAME NEXT HIGHER AGRICULTURAL 950.0 MOST RECENT GEOGRAPHIC INCOME INCOME 1960 /b 1970 /b ESTIMATE /b REGION /c GROUP Id GROUTP /e GNP PER CAPITA (US$) 360.0 660.0 1110.0 1066.7 867.2 1796.4 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 770.0 1047.0 1221.0 911.1 578.3 1525.0 POPULATION AND VITAL STATISTICS TOTAI. POPULATION, MID-YEAR (MILLIONS) 36.0 50.4 64.2 URBAN POPULATION (PERCENT OF TOTAL) 50.7 58.7 63.3 57.9 46.2 52.2 POPULATION DENSITY PER SQ. gIM. 18.0 26.0 33.0 25.6 50.8 27.6 PER SQ. KM. AGRICULTURAL LAND 36.0 52.0 68.0 77.6 93.3 116.4 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 45.8 46.2 46.3 42.0 42.9 34.8 15-64 YRS. 50.9 50.1 50.3 52.2 53.5 56.0 65 YRS. AND ABOVE 3.3 3.7 3.4 3.7 3.5 5.7 POPULATION GROWTH RATE (PERCENT) TOTAL 3.1 3.4 3.5 2.7 2.5 1.6 URBAN 4.9 4.8 5.1 4.3 4.7 3.4 CRUDE BIRTH RATE (PER THOUSAND) 46.1 43.8 42.0 35.8 37.8 27.0 CRUDE DEATH RATE (PER THOUSAND) 14.0 10.2 8.6 9.1 10.8 9.9 GROSS REPRODUCTION RATE 3.2 3.1 3.0 2.6 2.5 1.9 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 25.1 608.0 USERS (PERCENT OF MARRIED WOMEN) .. .. 13.1 15.1 20.0 19.3 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1970=100) 87.5 100.0 99.1 102.1 107.3 103.8 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 107.0 105.0 117.0 103.9 105.3 110.4 PROTEINS (GRAMS PER DAY) 65.0 65.0 66.9 60.3 63.0 77.7 OF WHICH ANIMAL AND PULSE 29.0 28.0 /f 27.5 26.7 21.7 22.2 CHILD (AGES 1-4) MORTALITY RATE 12.7 9.8 8.4 8.7 8.0 1.9 HEALTH LIFE EXPECTANCY AT BIRTB (YEARS) 56.3 62.4 64.7 62.6 57.2 63.0 INFANT MORTALITY RATE (PER THOUSAND) 74.0 68.5 52.0 56.9 53.9 38.2 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 54.0 62.0 60.7 56.8 67.7 URBAN .. 71.0 70.0 78.0 79.0 83.5 RURAL - 29.0 49.0 34.9 31.8 41.5 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. .. .. 61.1 30.9 70.3 URBAN .. .. .. 80.3 45.4 90.7 RURAL .. 13.0 14.0 25.4 16.1 38.3 POPULATION PER PHYSICIAN 1800.0 1480.0 .. 1899.3 2706.8 1310.8 POPULATION PER NURSING PERSON 2830.0 /g 1620.0 /h .. 1220.1 1462.0 849.2 POPULATION PER HOSPITAL BED TOTAL 1900.0 960.0 830.0 422.3 493.9 275.4 URBAN .. 780.0 .. 258.2 229.6 129.9 RURAL .. 1310.0 /i .. 2281.6 2947.9 965.9 ADMISSIONS PER HOSPITAL BED .. .. .. 25.6 22.1 18.9 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.4 5.7 .. 5.2 5.2 3.9 URBAN 5.7 5.7 .. .. 5.0 RURAL 5.2 5.8 .. .. 5.4 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 2.9 2.5 .. 2.0 2.0 0.9 URBAN 2.6 2.2 .. 2.1 1.5 0.8 RURAL 3.4 3.2 .. 2.7 2.7 1.0 ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. 59.0 .. 51.2 64.1 59.2 URBAN .. 80.7 .. 77.3 67.8 78.0 RURAL *- 28.0 .. 12.8 34.1 12.5  ANNEX I Page 2 of 5 TABLE 3A MEXICO - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAGES MEXICO /a - MOST RECENT ESTIMATE) SAME SAME NEXT HIGHER MOST RECENT GEOGRAPHIC INCOME INCOME 1960 Lb 1970 Lb ESTIMATE Lb REGION /c GROUP /d GROUP Le EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 80.0 10740 112.0 103.5 99.8 97.6 FEMALE 77.0 102.0 109.0 102.9 93.3 87.4 SECONDARY: TOTAL 11.0 22.0 30.0 37.2 33.8 47.8 FEMALE 8.0 17.0 29.0 37.9 29.8 42.6 VOCATIONAL (PERCENT OF SECONDARY) 24.0 24.0 .. 14.7 12.8 22.7 PUPIL-TEACHER RATIO PRIMARY 44.0 46.0 46.0 32.8 34.9 25.4 SECONDARY 13.0 14.0 17.0 17.8 22.2 24.9 ADULT LITERACY RATE (PERCENT) 62.0 74.0 76.0 74.9 71.8 96.3 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 14.0 24.0 40.0 26.9 12.4 32.3 RADIO RECEIVERS PER THOUSAND POPULATION 95.D 276.0 301.0 173.5 104.5 201.9 TV RECEIVERS PER THOUSAND POPULATION 19.0 59.0 84.0 69.4 28.1 97.7 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 79 .0 .. .. 72.8 45.2 70.9 CINEMA ANNUAL ATTENDANCE PER CAPITA 10.0 5.0 4.1 4.3 4.6 4.4 EMPLOYMENT TOTAL LABOR FORCE (THOUSANDS) 11300.0 13000.0 16600.0 FEMALE (PERCENT) 15.2 17.4 18.5 21.4 25.7 17.4 AGRICULTURE (PERCENT) 54.0 45.0 41.0 37.8 46.2 38.4 INDUSTRY (PERCENT) 19.5 22.9 24.2 PARTICIPATION RATE (PERCENT) TOTAL 30.2 28.8 28.8 30.8 33.8 33.7 MALE 51.1 47.4 46.8 47.2 48.1 50.8 FEMALE 9.2 10.1 10.7 13.2 17.3 12.6 ECONOMIC DEPENDENCY RATIO 1.6 2.0 1.8 1.7 1.4 1.4 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 28.7 /h 27.9 .. 28.9 23.6 20.2 HIGHEST 20 PERCENT OF HOUSEHOLDS 58.8 /h 58.3 .. 57.7 52.3 47.9 LOWEST 20 PERCENT OF HOUSEHOLDS 3.5 /h 3.4 .. 3.2 4.3 3.2 LOWEST 40 PERCENT OF HOUSEHOLDS 10.3 /h 10.5 *- 10.7 13.1 13.7 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. 251.9 191.9 RURAL .. .. 350.0 200.6 193.1 157.9 ESTLIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 484.0 403.1 319.8 448.8 RURAL .. .. 345.0 258.0 197.7 313.1 ESTIMATED POPULATION BELOW POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 29.0 24.8 19.8 23.2 RURAL .. , 40.0 65.2 35.1 54.5 Not available Not applicable. NOTES /a The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and the most populated country in each group. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1973 and 1977. /c Latin America & Caribbean; /d Intermediate Middle Income ($551-1135 per capita, 1976); /e Upper Middle Income ($1136-2500 per capita, 1976); /f Av. 1964-66; La Including midwifery and nursing auxilliaries; /h 1963; ti Data refer to rural health centers only. September, 1978  ANNEX I Page 3 of 5 IFITiTrTOVS OF SOCIAL INJTrATnpS Notes: Although the data are drawn from sources generally judged the most authoritative and reliable. it should also be noted that they may not be inter- nationally comparable because of the lad of ztandardized definitions and concepts used by different countries in collecting the data. The data are, nonetheless, useful to describe orders of magnitude, indicate trends, and characterioe certain major differences between countries. The adiusted gcoop averages for each indicator are population-weighted geometric means, excluding the entree values of the indicator and the most populated country in eoch group. Coverage of countries among the indicators depends on availability of dots and is not uniform. Sue to lack of data., group averages for Capital Surpluz Oil iEporters and indicators of access to water and excreta disposal, housing, incoe distribution and poverty are simple population-weighted geometric means without the exclusion of extreme values. LAND AREA (thousand sq. k) Population per hospital bed - total, urban, and rural - Population (total, Total - Total surface area comprising land area and inland waters, urban, and rural) divided by their respective number of hospital beds Agricultural - Most recent estimate of agricultural area used temporarily available in public and private general and specialized hospital and re- or permanently for crops, pastures, market and kitchen gardens or to habilitation centers. Hospitals are establishments permanently staffed by liefallow. at least one physician. Establishments providing principally cus todial caret reant %included. Rural hospitals, however, include health snd medi- GNP PER CAPITA (US)) - GNP per capita estimates at current market prices, cal centers not permanently staffed by a physician (but by a medical as- calculated by sane conversion method as World Bank Atlas (1975-77 basis); siatant, nurse, midwife, etc.) which offer in-patient accommodation and 1960, 1970, and 1977 data. provide a limited range of medical facilities. Admi:ssin prhospital bed - Total number of admissions to or discharges ENERGY CONSUMPTION PER CAPITA - Annual consumption of commercial energy fr hosi pPitala divided by the number of beds. (coal and lignite, petroleum, natural gas and hydro-, nuclear and geo- thermal electricity) in kilograms of coal equivalent per capita. HOUSING Average ize of household (persons per household) - total, urban. and rural- POPULATION AND VITAL STATISTICS A household consists of a group of individuals who share living quarters Total population, mid-year (millions) - As of July 1; if not available, and their main meals. A boarder or lodger may or may not be included in average of two end-year estimates; 1960, 1970, and 1977 data, the household for statistical purposes. Statistical definitions of house- Urban population (percent of total) - Ratio of urban to total popula- hold vary. ion; different definitions of urban areas may affect comparability Average number of persona per roan - total, urban, and rural - Averaga um- of data among countries, bar of persons per room in all, urban, and rural occupied conventional Papulatlan density dwellings, respectively. Dwellings exclude non-permanent structures ad Per sq. km. - Mid-year population per square kilometer (100 hectares) unoccupied parts. of total area. Access to electricity (percent of dwellings) - total, urban. and rural - Per sq. khs agriculture land - Computed as above for agricultural land Conventional dwellings with electricity in living quarters as percentage only, of total, urban, and rural dwellings respectively. Population age structure (percent) - Children (0-14 years), working-age (15-64 years), and retired (65 years and over) as percentages of mid- EDUCATION year population. Adjusted enrollment ratios Population growth rate (percent) - totl"nd urban - Compound annual Primary school1 - to tal. and female - Total and female enrollment of all &qes growth rates of total and urban mid-year populations for 950-60, at the piry level as percntages of respectively primary school-age 1960-70, and 1970-75. populations; normally includes children aged 6-11 years but adjusted for Crude birth rate (per thousand) - Annual live births per thousand of different lengths of primary education; for countries with universal edu- mid-year population; ten-year arithmetic averages ending in 1960 and cation enrollment may exceed 100 percent since some pupils are below or 1970 and five-year average ending in 1975 for mast recent estimate, above the official school age. Crude death rate (per thousand) - Annual deaths per thousand of mid- Secondary school - total. and female - Computed as above; secondary educa- year population; ten-year arithmetic averages ending in 1960 and 1970 tiCn requires at least four years of approved primary instruction; pro- and five-year average ending in 1975 for most recent estimate. vides general vccational, or teacher training instructions for pupils lroas reproduction rate - Average number of daughters a woman will bear usually of 12 to 17 years of age; correspondence courses are generally in her normal reproductive period if she experiences present age- excluded. specific fertility rates; usually five-year averages ending in 1960, Vocational enrollment (percent of secondary) - Vocational institutions in- 1970, and 1975. clude technical, industrial, or other programs which operate independently FPmily planning - acceptors, annual (thousands) - Annual number of or as departments of secondary institutions acceptors of birth-control devices under auspices of national family Pupil-teacher ratio - primary, and secondary - Total students enrolled in planning program. primary and secondary levels divided by numbers of teachers in the corre- Poelly pln2ning-sr (percent of married wmn - ercentage of spondtig levl. arried women of child-bearing age (15_44 years) who us birth-control Adult literacy rate (percent) - Literate adults (able to read and write) as devices to all married women in same age group. a percentage of total adult population aged 15 years and over. FOOD AND NUTRITION CONSUMPTION Index of food production per capita (1970-100) - Index number of per Passenger cars (per thousand population) - Passenger cars comprise mator cars capita annual production of all food commodities, seating less than eight persons; excludes ambulances, hearses and military Per capita supply of calories (percent of requirements) - Computed from vehicles. energy equivalent of net food supplies available in country per capita Radio receivers (per thousand nopulation) - All types of receivers for radio per day. Available supplies comprise domestic production, imports 1ess broadcasts to general public per thousand of population; excludes unlicensed exports, and changes in stock. Net supplies exclude animal feed, seeds, receivers in countries and in years when registration of radio sets was in quantities used in food processing, and losses in distribution. Re- effect; data for recent years may not be comparable since mast countries quirenents were estimated by FAO based on physiological needs for nor- abolished licensing. mal activity and health considering enviroamental temperature, body TV receivers (per thousand population) - TV receivers for broadcast to generd. weights, age and see distributions of population, and allowing 10 per- public per thousand population; excludes unlicensed TV receivers in coun- cent for waste at household level, tries and in years when registration of TV sets was in effect. Per capit supply of protein (arena per day) - Protein content of per Newspaper circulation (per thousand population) - Shows the average circula- capita nec supply of food per day. Net supply of fond is defined as tion of "daily general interest newapaper", defined as a periodicel publi- above. Requirements for all countries established by USDA provide for cation devoted primarily to recording general news. It is considered to a minimum allowance of 60 grama of total protein per day and 20 grams be "daily" if it appears at least four times a week. of animal and pulse protein, of which 10 grams should be animal protein. Cinema annual attendance per capita per year - Based on the number of ticketr These standards are lower than those of 75 grams of total protein and sold during the year, including admissions to drive-in cinemas and mobile 23 grams of animal protein as an average for the world, proposed by units. FAO in the Third World FPod Survey. Per capita protein supply from animal and pulse - Protein supply of food EMPLOYMENT derived from animals and pulaes in grams per day. Total labor force (thousands) - Economically active persons, including armed Child (ages 1-4) mortality rate (per thousand) - Annual deaths per thous- forces and unemployed but excluding housewives, students, etc. Defini- and in age group 1-4 years, to children in this age group. tions in various countries are not cosparable. Pemale (percent) - Female labor force as percentage of total labor force. HEALTH Agriculture (percent) - Labor force in farming, forestry, hunting and fishing Life eapectanor at birth (years) - Average number of years of life as percentage of total labor farce. remaining at birth; usually five-year averages ending in 1960, 1970, Industry (percent) - Labor force in mining, construction, manufacturing and and 1975. electricity, water end gas as percentage of total labor force Infant mortality rate (per thousand) - Annual deaths of infants under Particlpation rate (percent) - total, male, and female - Total, male, and one year of age per thousand live birhts. female labor force as percentages of their respective populations. Access to safe water (percent of population) - total, urban, and rural - These are no's adjusted participation rater reflecting age-see Number of people (total, urban, and rural) with reasonable access to structnre of the population, snd long tine trend. safe water supply (includes treated surface waters or untreated but Economic dependency ratio - Ratio of populatios under 1S and 65 and over to urcontuminated water s-ch as that from protected boraholen, springs, the labor farce in age group of 15-64 years and sanitary walls) as percentages of their respective populations. So -n ur-an area a public fountain or standpost located not mare INCOME DISTRIBUTION tho- 200 meters from a house may be considered as being within rea- Percentage of private income (both in cash and kind) received by richest 5 novuble un ess of that house Is rucal areas reasonable access would percent, richest 20 percent, poorest 20 percent, and poorest 40 percent imply that the houseuife or members of the household do not have to of houneholds- upeoc a disproportio-nte part of the day in fetching the family's waCer mods. POVERTY "ARGET GROUPS Access t eocreta disposal (percent of population) - total., urban., an Estimated absolute poverty income level (uSS oar capita) - urban and rural - -'e - Nu-er of people (total, urban, and rural) served by excrets Absolute poverty income level is that income level below which a minimal dtspos.l as percentages of their respective populations Elcreta nutritionally sdequaot diet plus essential mon-food requirements is not dispusI say Include the collection and disposal, with or without affordable. tres-nnt, cc human eucreta and waste-water by water-borne systems Estimated relative poverty income 1evol (US$ per capita) - urban and rural - or o :e of pit privies and similar installations. Relative poverty income level in that income level less than one-third Popula - pa physician - Population divided by number of practicing per capita personal income of rho country phys sn qualified frum a medical schocl at university level. Estinated population beluw poverty income level (porcent) - urban and rural - 2onfltt . n per nursinc porson - Fpulattion divided by number of Percent of population (urban and rural) who ace euther "absolute poor" or pru'ltro uslr eand ferair g, duate nurnoa, practical nuca, and "relative poor" whichever is greater. Economic and Social Dota Division Economic Analysis and Projections Department  )XIC0 - lCONOHIC DIVELOPHINT DATA SH8aTa Actual P-eallin-ry Estimates ProlJctsd Growth Rates As . of GDY 1965 1970 1975 1976 1977 1978 1982 1966/70 1971/75 1976/82 1965 1975 1982 NATIONAL ACCOUNTS Constant 1972 Pnies., us$ Milli..e Gross Domestic Product 26,603.2 36,978.6 48,506.9 49,283.5 50,700.5 54,375.0 75,948.5 6.8 5.6 6.6 99.96 99.1 35.9 Caics fro e T-ens of Trade 8.0 88.1 680.5 504.4 456.3 734.8 3,223.6 61.6 50.5 24.9 0.04 0.9 4.1 Gross Domestic Income 26,611.2 37,066.7 49,187.4 49,787.9 51,156.8 55,110.0 79;1/2.1 6.9 5.8 0.0 100.00 100.0 100.0 Imports (itnloding NFS) 2,754.0 3,850.8 5,884.2 4,843.5 4,203.0 5,693.2 1 9,798.7 6.9 8.8 7.6 10.4 11.5 12.4 Enporct (Iaprt capao icy) 2,489.8 3,090.2 4,147.0 4,050.9 4,107.0 5,421.0 10,147.7 4.4 6.1 13.6 9.9 8.1 12.8 R.c..r.e Cap 264.2 760.6 1,737.2 792.6 96.0 272.2 _ 349.0 23.6 18.0 - 0.5 3.4 .0.4 Consu-ptioc 22,304.1 30,662.1 40,397.1 40,645.3 42,070.3 44,130.8 61 643.1 6.6 5.7 6.2 81.7 80.9 77.8 boss -ot 4,571.3 7,165.2 10,527.6 9,935.2 9,182.6 11,251.3 17,180.1 9.4 8.0 7.2 18.9 22.5 21.7 Cross Do-etic SuocgPa 4,872.0 6,404.6 8,790.3 9,142.6 9,086.5 10,979.2 17,529.1 5.6 6.5 10.4 18.3 19.1 22.1 Gross Natlocal Suolog. 4,520.0 6,100.4 8,005.8 8,205.9 8,181.9 9,827.2 16,530.9 6.2 5.6 10.9 17.0 16.9 20.9 TRADE IN GOODS AND NFS Current Prics, 185$ Million A. of Total IMPORTS,TOTAL 2,073.2 3,416.9 8,636.7 8,241.5 7,582.6 9,825.6 21,822.8 10.5 20.4 14.2 100.0 100.0 100.0 Food 5.9 7C$ 44.0 T270.5 337.8 502.8 66.1 42.8 1.8 $1 5.Z 2.3 Prtr-lcun cod Prodoctc 26.2 54.2 291.1 279.9 109.1 192.7 - 15.7 40.0 - 1.3 3.4 - Other Goode 1,527.5 2,223.4 5,879.7 5,643.3 5,138.7 6 899.0 16,708.9 7.8 21.5 16.1 75.7 68.1 56.6 Noc-Poccor Orrolca 513.6 1.064.7 2,022.9 2,170.2 2,064.3 2,396.1 4,611.1 15.7 13.7 10.5 24.9 23.4 21.1 EXPORTS, TOTAL 1 1, 964.6 2,745.5 6,081.7 6,770.3 7 9,366.5 22,613 6.9 17.2 20.6 100.0 150.0 100.0 Injected o8rlcultorcl Goode - 642.4 711.6 954.2 1,220.2 1,414.7 1,375.7 1,861.7 2.1 6.0 10.C 32.7 15.0 8.7 Patrole,o .od Prodo.te 40.1 38.4 460.1 557.0 915.8 1,791.8 9,230.3 -0.9 64.3 53.5 2.0 7.6 40.8 Selected Mlceruin 189.7 244.3 457.6 464.3 510.4 558.2 1,008.5 5.2 13.4 12.0 9.7 7.5 4.5 Macof.accorec 132.5 326.9 1,069.3 1,190.8 1,390.6 1,036.7 3,630.4 19.8 26.8 19.1 6.7 17.6 16.0 Ohtnr Coed 153.9 26.6 63.3 43.8 46.9 52.6 81.1 -29.6 19.9 3.6 7.8 1.0 0.4 Noo-FPoto- Srrl-ce- 806.0 1,397.7 3,077.2 3,294.2 3,175.9 3,951.0 6,802.3 11.6 17.1 12.0 41.0 50.6 30.0 TRADE IN0ICES A-er.es 72s100 Erpoet Prior Idcc 77.7 88.3 169.5 166.4 165.9 199.8 326.6 2.6 13.5 9.8 Import Pri- Ir-deo 74.6 85.9 149.8 152.9 160.6 172.7 222.9 2.9 11.8 5.8 Terre of Trade 154.2 102.8 113.2 108.8 103.3 115.7 146.6 _0.3 1.9 3.8 VALUE ADDED BY SECTOR Constant 1972 Prio-e, us$ Milliou, A. 7. of Total Prle,cry 7,644.6 4,139.0 4,483.2 4 347.1 4,467.2 4,805.1 5,514.0 2.6 1.6 3.0 19.2 12.7 7.3 Ircoodary ,8139.9 12,416.9 16,948.2 17,428.6 18 175.1 70,521.1 50 264.1 8.9 6.4 8.6 26.4 30.5 30.8 Terclary 14,818.7 25,422.7 27 075.5 27, 507.8 28,108.2 29,048.8 40,170.4 6.6 5.8 5.8 54.4 56.8 52.9 Total (GDP) 26,603.2 36,978.6 48,506.9 49,283.5 50,700.5 54,375.0 75,948.5 6.8 5.6 6.6 155.0 100.0 173.0 COCNSOLIDATED PUBLIC SECTOR PINANCES An 7 of CDY Correct Rccel7te 3,042.0 5,388.0 9,263.0 10,129.9 10,254.5 8,917.5 16,404.9 12.1 11.4 5.5 11.4 15.0 15.0 Correct topeodl cores 2,329.0 3,853.2 8,345.3 8,937.3 8,571.2 6,579.4 10.632.8 10.6 16.7 3.5 8.8 12.7 9.8 Fublic Sc-iogc 713.0 1, 534.8 917.7 1,292.6 1,683.3 2, 338.1 5,772.1 16.6 -9.8 33.3 2.7 2.3 5.2 tee oorner for Ioeert,nc- t 076.3 2,201.6 987.1 1,592.1 1,773.8 2,392.5 5,924.0 23.2 -14.8 25.2 2.9 2.4 7.3 loncetromt 1,741.5 2,279.5 5,234.5 5,103.8 4,375.1 5,220.0 8,202.4 5.5 18.1 6.6.& 6.6 9.1 11.7 Deflilt (net) 965.2 666.9 4,247.4 3,711.7 2,601.3 2,827.5 2,278.4 -7.1 44.8 -8.5 -3.6 -6.7 _4.- ALLOCATION OF Gd0SS PUBLIC SECTOR EPOENDIIUREs _ A. % of Total 1971 1977 18 EcergY . - 5,333.1 3,228.8 6,496.6 - _ - _ - 27.0 29.0 - Tr-anpo-cc otd CTooltocio-t - - 1,739.7 1,744.1 1,779.4 - - 8.8 7.9 Social Welfuec - - 4,194.3 4,628.5 4,597.8 - - - _ _ 21.3 20.5 lod otro _ _ 1,629.2 1,521.4 1,578.2 - - - - - 8.3 7.0 Agrico1toce - - 1,964.2 1,465.5 1,623.3 - . - . - 10.0 7.3 Cterol AdiPl-steatio- and Def--er - - 7,269.3 30 11.8 4,910.6 - - - - 16.6 '1.9 looaoeece - - 1,521.7 10 221.9 1,329.9 7.7 1.9 Toorism _ 62.8 64.7 73.7 - - - - - 1.3 0.3 Total 19,717.9 1998 22,388.5 o- - - - 10.0 100.0 ',ELE=13 INDICATORS 1966173 1971/7a 1976;82 IC0R 2.45 5.66 13.36 7.01 2.50 2.97 2.84 - _ _ 3.34 5.50 3.22 Impprt Elauticliy 0,75 1,29 0.07 -11.05 .4.60 4.89 1,44 _ _ _ 1.01 1.57 1.15 Maci-ol Satige Ratio -0.16 - 0.04 0.45 -0.02 0.44 0.19 _ _ _ 0.2 0.13 0.28 Value Added pee Wprker (1972 price-) I. Millione Au % of Toctl 1960-1970 o of Averuce LAb1 R FORCE AND OUTPUT PER WORER 1960 1970 1960 1970 Grovth Rate 1960 1970 1960 1970 Growth Rate Agricoultre 5.4 5.1 55.5 39.2 -0.6 608.8 939.0 34.7 33.0 4.4 Lndostry 2.1 3.0 19.6 23.1 3.6 2 468.9 4,134.9 140.6 145.3 5.3 Se.olci 3.2 4.9 29.9 37.7 4.4 3,222.8 4,044.8 183.6 142,0 2.3 Total 10.7 13,0 100.0 130.0 2.0 1,755.6 2,847.6 100.0 100.0 5.0 I.. -clodco ou13r, 2/ Tbso low rate of grooth io cooced by a pock In poblc IcVeeoocot to 1975, The projected cute for 1577.92 Ic uboot 13%.  ANNEX Page 5 of 5 BALANCE OF PAYlENTS. EXTERNAL ASSISTANCE AND DEBT (US$ million at current prices) Actual Preliminary Estimates Projections 1970 1975 1976 1977 1978 1980 1982 SUMMARY BALANCE OF PAYMENTS Exports (including NFS) 2,745.4 6,081.5 6,770.3 7,454.1 9,356.0 i7,499.0 22,599.8 Imports (including NFS) 3,416.9 8,636.6 8,241.5 7,582.7 9,825.6 15,008.0 21,822.8 Resource B.1an - 671.5 -2,555.1 -1,431.2 -128.6 -469.6 2,491.0 777.0 Interest, net -7 - 307.0 -1,266.5 -1,572.6 -1,794.8 -1,914.8 -1,979.0 -1,879.2 Direct Investment Income - 267.5 - 657.5 -715.5 -480.8 -823.5 -1,072.1 -1,383.9 Workers' Remittances 122.7 174.6 193.0 211.3 231.4 280.0 338.8 Current Transfers, net 55.3 123.4 153.0 173.2 190.5 230.5 279.0 Current Account Balance -1,068.0 -4,181.2 -3,413.3 -2,019.7 -2,758.0 -18.9 -1,834.3 Private Direct Investment 322.8 748.8 588.7 436.5 679.7 875.4 1,098.2 Public Med. and Long Term Debt, net 258.6 3,565.8 4,264.5 3,937.3 2,350.0 -580.4 1,404.8 (Disbursements) (821.3) (4,418.6) (5,417.9) (6,232.3) (5,985.9) (4,170.6) (5,944.7) (Repayments) (e562.7) (-852.8) (-1,153.4) (-2,295.0) (-3,635.9) (-4,758.5) (-4,539.9) Other Capital 588.7 31.7 - 1,1773 -1,883.4 100.0 200.0 -100.0 (Public Short Term) (139.6) (842.8) (839.8) (-950.0) (-200.0) (-200.0) (-200.0) (Other Capital, n.e.i.) (449.1) (-811.1) (-2,612.8) (-933.3) (300.0) (400.0) (-300.0) Change in Reserves (- = increase) -102.1 -165.1 333.1 -470.7 -371.6 -476.2 -568.7 GRANT AND LOAN COMMITMENTS 843.0 4.304.9 5.628.8 6,123.3 PUBLIC MED. AND L.T. LOANS IBRD 146.8 310.0 410.0 162.0 Other Yultilateral 112.3 121.8 171.2 280.0 - - - Governments 69.7 115.3 99.5 150.0 - - SBplies adFnnilIsiuin 435.4 3,300.3 4,512.2 3,889.8 - - Banks and Financial Institutions - 140.3 165.9 600.0 - - DEBT AND DEBT SERVICE EXTERNAL DEBT Public Debt Outstanding & Disbursed 3,227.8 11,256.9 15,554.0 19,883.0 Outstanding and Disbursed (end of period) on Dec. 31. 1977 Interest on Public Debt -227.3 -827.7 -1,075.4 -1,234.0 Repayment on Public Debt -496.0 -762.0 -1,217.4 -2,461.7 $ Millions Percent Other Debt Service (net) -79.7 -438.8 -497.2 -560.8 Total Debt Service (net) -803.0 -2,028.5 -2,790.0 -4,256.5 Public M & L.T. Burden on Export Earnings (X) - Loans a. Public Debt Service 25.2 25.4 32.9 48.2 b. Total Debt Service 28.0 32.4 40.1 55.5 IBRD 1,456.8 7.6 c. Total Debt Sergice and IDB 772.7 4.0 Direct Investment Income 37.3 42.9 50.3 61.8 Governments 853.5 4.5 Average Tenms of Public Debt Suppliers 335.1 1.7 a. Interest as 7. of prior Bonds 1,821.6 9.6 year's D.O. and D. 7.8 10.2 9.6 7.9 Other Financial b. Amortization as % of prior Institutions 13,852.6 72.6 year's D.O. and D. 17.0 9.4 10.8 15.8 Total 19,883.0 100.0 IBRD Exposure a. IBRD D.O. & D. as 7. of | Public D.O. and D. 18.0 10.0 7.9 7.7 b. IBRD Debt Service as % of Public Debt Service 7.4 9.7 4.5 4.2 IDA Exposure - Not applicable or available 1/ Includes interest on short-term private and public debt 2/ Includes worker remittances  ANNEX II Page 1 of 8 THE STATUS OF BANK GROUP OPERATIONS IN MEXICO A. Statement of Bank Loans (as of October 31, 1978) Loan Amount less Undis- No. Year Borrower Purpose Cancellations bursed 33 loans fully disbursed 1,486.4 793 1972 NAFINSA Tourism- 22.0 0.5 909 1973 NAFINSA Water Supply 90.0 42.4 968 1974 NAFINSA Roads 90.0 50.7 969 1974 NAFINSA Irrigation 77.0 7.7 970 1974 NAFINSA Irrigation 47.0 42.2 1022 1974 NAFINSA Airports 25.0 12.3 1053 1974 NAFINSA Integrated Rural Development 50.0 44.1 1110 1975 NAFINSA Integrated Rural Development 110.0 49.1 1111 1975 NAFINSA Irrigation 50.0 50.0 1112 1975 FERTIMEX and NAFINSA Industry 50.0 11.9 1186 1975 BANOBRAS Water Supply 40.0 36.1 1205 1976 NAFINSA Industry 50.0 20.1 1217 1976 NAFINSA Agricultural and Livestock Credit 125.0 22.3 1232 1976 Ferrocarriles Nacionales de Mexico and NAFINSA Railways 100.0 81.6 1420 1977 NAFINSA Tourism 42.0 41.7 1462 1977 NAFINSA Integrated Rural Development 120.0 107.2 1524 1/ 1978 NAFINSA Tourism 50.0 50.0 1552 1/ 1978 NAFINSA Industry 47.0 47.0 1553 1/ 1978 NAFINSA Agriculture 56.0 56.0 1554 1/ 1978 BANOBRAS Urban Development 16.5 16.5 1560 1/ 1978 NAFINSA Industry 100.0 100.0 1569 1/ 1978 NAFINSA Agricultural Credit 200.0 200.0 969-1 1/ 1978 NAFINSA Irrigation 25.0 25.0 TOTAL 3,068.9 1,114.4 Of which has been repaid to the Bank 498.0 Total now outstanding 2,570.9 Amount sold 92.3 of which has been repaid 75.2 17.1 Total now held by Bank 2/ 2,553.8 Total Undisbursed 1,114.4 1/ Not yet effective. 2/ Prior to exchange adjustments.  ANNEX II Page 2 of 8 B. STATEMENT OF IFC INVESTMENTS (as of October 31, 1978) Fiscal US$ Million Year Obligor Type of Business Loan Equity Total 1958/59 Industrias Perfect Circle, S.A. 1/ Industrial Equipment 0.8 -- 0.8 1958 Bristol de Mex:ico, S.A. 1/ A.C. Engine Overhaul 0.5 0.5 1961 Acero Solar, S.A. 1/ Twist Drills 0.3 -- 0.3 1962/65/ Compania Fundidora 66/68 Fierro y Acero de Monterrey, S.A. Steel 2.3 21.4 23.7 1963 Tubos de Acero de Mexico, S.A. 1/ Steel 0.9 0.1 1.0 1963 Quimica del Rey, S.A. 1/ Sodium Sulphate 0.7 -- 0.7 1964/66 Industrial 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 Periodico, 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 0.3 1.3 1975/78 Mexinox, S.A. Steel 12.0 3.2 15.2 1978 Papeles Pouderosa, S.A. Pulp and Paper 9.0 2.6 11.6 1978 Tereftalatos Mexicanos, S.A. Petrochemicals 19.0 - 19.0 1979 Empresas Tolteca de Mexico, S.A. 3/ Cement 100.0 - 100.0 1979 Hotel Camino Real Ixtapa, S.A. Tourism 2.3 2.3 Total Gross Commitments 170.5 31.9 202.4 Less Cancellations, Terminations, Repayment and Sales 106.5 22.1 128.6 Total Commitments Now Held by IFC 64.0 9.8 73.8 1/ Investments which have been fully cancelled, terminated, written off, sold redeemed or repaid. 2/ US$25,000. 3/ Loan of US$100 million, of which US$85 million has been sold to paticipants.  ANNEX II Page 3 of 8 PROJECTS IN EXECUTION: PROGRESS AND PROBLEMS 1/ Ln. No. 793 Zihuatanelo Tourism Project: $22 Million Loan of January 22, 1972; Effectiveness Date: March 30, 1973. Closing Date: June 30, 1979. All infrastructure works at Ixtapa and in the town of Zihuatanejo are complete. The international airport at Zihuatanejo is now being served by 35 flights a week from Mexico City. A new bilateral air agreement between Mexico and the US was signed in January 1978 that will allow Mexican and US air carriers to serve Zihuatanejo directly from 23 US cities. A comprehensive hotel staff training program has been approved by the Bank and is under implementation. Ln. No. 909 Mexico City Water Supply Project: $90 Million Loan of June 18, 1973; Effectiveness Date: April 30, 1974. Closing Date: December 31, 1978. Project works are well advanced except in the Texcoco Region. Overall, more than half of the project works as originally defined have been completed, and the works in progress are expected to be completed by the end of 1978. The Government has proposed that savings in carrying out some components of the projects be applied to finance new works which would serve the same objective of increasing bulk water supply to the Mexico City metropolitan area. The Government is carrying out a revision of the bulk water rate, on confirmation of which a recommendation on changes in the project description will be submitted to Executive Directors. Ln. No. 968 Seventh Highway Project: $90 Million Loan of March 1, 1974; Effectiveness Date: May 29, 1974. Closing Date: December 31, 1978. Substantial delays have been encountered in the initiation of project works because of the shortage of budgetary allocations. Substantial cost increases caused by price escalation were also encountered. Taking this into account, a change in the scope of the project was made in August 1977, from 16 roads (1,975 km) to ten roads and part of an eleventh road (1,216 km) which, because of cost increases, have the same total cost as the original project. The roads remaining in the project continue to be well justified as benefits have kept pace with costs. Completion is now expected for late 1980 or about two and a half years behind schedule. 1/ These notes are designed to inform 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 that sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  ANNEX II Page 4 of 8 Ln. No. 969 Rio Panuco Irrigation Project; $77 Million Loan of March 1, L974; Effectiveness Date: May 29, 1974. Closing Date: December 31, 1980. Construction is over 60 percent completed and termination of all works is scheduled for 1980. About 67,000 ha were planted in the previous season; on full development the project will provide irrigation to 137,000 ha. The technical assistanc,e program and the land settlement program are pro- ceeding satisfactorily. However, inflation has been greater than estimated at the time of appraisal, and project costs have risen to about US$366 million equivalent from the original estimate of US$208 million. A US$25 million supplemental Bank loan was approved July 11, 1978 to help finance the increase in cost of this project. Ln. No. 970 Rio Sinaloa Irrigation Project: $47 Million Loan of March 1, 1974; Effectiveness Date: May 29, 1974. Closing Date: December 31, 1980. Construction of major project works remain substantially behind the original schedule; the pace is, however, accelerating as additional budgetary support is being provided. Project authorities are rephasing project construction and integrating parts of the project with the neighboring Rio Fuerte Irrigation District. Project costs have risen from US$146 million at appraisal to US$560 million because of higher inflation than projected at appraisal and delays in project execution. A substan- tial reduction in project scope may therefore be proposed with deferred works to be included in a later project. Ln. No. 1022 Airport Development Project: $25 Million Loan of May 28, 1974; Effectiveness Date: September 16, 1974. Closing Date: June 30, 1980. The project originally included the construction of seven regional airports and the expansion of an existing one at Campeche. Of these, the Guaymas airport works have been postponed by the Government because of interim improvements of the existing airport carried out by the local municipality with its own resources. At Campeche, the Government has decided to construct a new airport with its own funds instead of improving the existing airport. Loan proceeds allocated to Guaymas and Campeche were reallocated in August 1977 to complete construction of the six airports retained in the project. Works in all the six airports are proceeding satisfacitorily.  ANNEX II Page 5 of 8 Ln. No. 1053 Papaloapan Integrated Rural Development Project: $50 Million Loan of November 15, 1974; Effectiveness Date: January 27, 1975. Closing Date: June 30, 1980. Project implementation is accelerating after delays due to inadequate budget support. Budget levels have been inadequate but are under review and are likely to be raised in 1979. A reprogramming of the project is planned during early 1979 to adjust for these delays. Ln. No. 1110 Integrated Rural Development Project (PIDER I): $110 Million Loan of May 8, 1975; Effectiveness Date: October 29, 1975. Closing Date: December 31, 1982. Project investments are generally on schedule and management is taking actions to further strengthen project implementation. Special inter-agency agreements regarding the development credit, agricultural extension, and farmer organization compo- nents are being implemented. The new PIDER management is giving priority to ensuring the proper operation and mainte- nance of earlier PIDER investments. Emphasis is also being given to strengthening the efforts regarding cost recovery, investment analysis and programming, monitoring, and rural industries. Ln. No. 1111 Seventh Irrigation Project - Bajo Rio Bravo and Bajo Rio San Juan: $150 Million Loan of May 8, 1975; subsequently reduced to $50 Million; Effectiveness Date: July 30, 1975; Closing Date: December 31, 1982. The Government and the Bank have agreed that, in view of the size and complexity of the project, its high cost and the Government's current policy of restraining fiscal expendi- tures, it would be advisable to carry out the project in several phases over a longer period of time than the seven years originally visualized. As explained in Memorandum R77-305 of December 13, 1977, the loan amount has now been reduced from $150 million to $50 million to be applied to the first phase of the project which would be implemented over four years. A recent mission reviewed the Government's reprogramming of project investments and a memorandum to the Executive Directors is being prepared to notify them of the mission's findings. Ln. No. 1112 Fertilizer Project: $50 Million Loan of May 22, 1975; Effectiveness Date: July 30, 1975. Closing Date: December 31, 1978. Serious construction delays were encountered early in 1977 due to a shortage of resources following the peso devalua- tion, and the problem was aggravated by the dislocation  ANNEX II Page 6 of 8 caused by changes in the companies' management at about the same time. Progress of the work on the Salamanca projects, after recommencement of work in June was, however, extremely slow and culminated in termination of the main construction contract in March this year. Since the appointment of a new contractor in May and the strengthening of FERTIMEX construc- tion management organization, the speed of the work has improved and completion is now scheduled for June 1979. Construction of the 1,500 TPD urea plant at Coatzacoalcos is also behind schedule, but work in this project is now pro- ceeding satisfactorily and is expected to be completed by February 1980. Ln. No. 1186 Medium Cities Water Supply and Sewerage Project: $40 million Loan of January 13, 1976; Effectiveness Date: April 26, 1976. Closing Date: December 31,-1980. Subloan agreements have been signed with three cities where construction has begun. It is expected that agreements will be signed by the end of the year with local authorities for four additional subprojects which would fully commit the loan funds. Ln. No. 1205 Industrial Equipment Fund (FONEI) Project: $50 Million Loan of April 30, 1976; Effectiveness Date: August 30, 1976. Closing Date: December 31, 1979. Demand for financing for industrial projects has strengthened and FONEI has numerous applications on hand. As of September 30, 1978, 88 percent of the loan was committed to industrial subprojects. Ln. No. 1217 Fifth Agricultural and Livestock Credit Project: $125 Million Loan of March 11, 1976; Effectiveness Date: August 30, 1976. Closing Date: January 1, 1980. The med:Lum-income producers' category is fully disbursed and priority is being given to accelerating the project component benefitting low-income farmers. Ln. No. 1232 Third Riailway Project: $100 Million Loan of April 30, 1976; Effectiveness Date: June 16, 1976. Closing Date: June 30, 1979. Execution of the project has been generally satisfactory. Orders have been placed for rails, car components, track and workshop machinery. Following the devaluation in 1976, and the budgetary cuts in the stabilization period, and the slackening in the traffic growth, the railway has proposed substantial rephasing of its investment plan and procurement schedule, details of which are being worked out. The execution  ANNEX II Page 7 of 8 period of the project will require to be extended by about two years. Operational and technical improvements of the railway continue, though they have not yet been reflected in the financial performance of the railway on account of inadequate tariff increases. The Government and the Bank are jointly working out a revised list of goods. Ln. No. 1420 Baja California Tourism Project: $42 Million Loan of July 5, 1977; Effectiveness Date: June 28, 1978; Closing Date: June 30, 1981. Implementation is on schedule. Ln. No. 1462 Integrated Rural Development Project - PIDER II: $120 million Loan of July 5, 1977; Effectiveness Date: October 28, 1977; Closing Date: July 31, 1981. Implementation is on schedule. Ln. No. 1524 Tourism Development Project: $50 million Loan of March 21, 1978; Effectiveness Date: ; Closing Date: December 31, 1981. The loan is not yet effective. Ln. No. 1552 Small- and Medium-Scale Industrial Development Project; US$47 million Loan of May 4, 1978; Effectiveness Date: _ Closing Date: June 30, 1982. The loan is not yet effective. Ln. No. 1553 Tropical Agricultural Development Project: US$56 Million Loan of September 27, 1978; Effectiveness Date: Closing Date: December 31, 1983. The loan is not yet effective. Ln. No. 1554 Lazaro Cardenas Conurbation Development Project: US$16.5 Million Loan of September 27, 1978; Effectiveness Date: Closing Date: June 30, 1982. The loan is not yet effective. Ln. No. 1560 FONEI III: US$100 Million Loan of September 27, 1978; Effectiveness Date: Closing Date: June 30, 1982 The loan is not yet effective.  ANNEX II Page 8 of 8 Ln. No. 1569 Sixth Agricultural Credit: US$200 Million Loan of September 27, 1978; Effectiveness Date: Closing Date: June 30, 1982. The loan is not yet effective. Ln. No. 969-1 Rio Panuco Irrigation Proiect: US$25 Million Loan of September 27, 1978; Effectiveness Date: Closing Date: December 31, 1980. The loan is not yet effective.  ANNEX III MEXICO SMALL-SCALE AGRICULTURAL INFRASTRUCTURE PROJECT SUPPLEMENTARY PROJECT DATA SHEET I, Timetable of Key Events (a) Time taken to prepare project: About one year. (b) Agency that prepared the project: Secretariat of Agriculture and Water Resources (c) First presentation to the Bank: July, 1977 (d) First mission to review project: July, 1977 (e) Departure of appraisal mission: April, 1978 (f) Completion of negotiations: November, 1978 (g) Planned date of effectiveness: March, 1979 1I. Special Bank Implementation Actions None. III. Special Conditions (a) Individual sub-projects would be included in the project only after Bank approval (para 43). (b) Beneficiaries would pay: (i) the full operation and mainte- nance costs of project works, and (ii) as much of the investment costs as practicable in view of the ability of beneficiaries to pay (para 42). (c) Pre-project net family incomes of beneficiaries would not be higher than US$2,500 and, for each sub-project, average investment per family would not exceed US$10,000 (para 48). (d) Agricultural development of the project would be monitored, and annual reports on a sample of sub-projects would be submitted to the Bank (para 44).  IRRZD 13930 $ ) $X 1 g ffi7i~~~~~~~~~tOa 321Y4 n i'M uf:i .'ii, 2 k ik 'i-n.:Arrj;1: ;=SVr , -.3. 7 \{